Thursday, January 31, 2008


Deneen's response to my post via the comments on his blog, where I also posted it. I have to admit, however reluctantly, that he makes a good point that is worthy of posting in full here. Underlying his response is that it is irresponsible to lend to irresponsible people, which I cannot disagree with. Nevertheless, I disagree that American society is more irresponsible today than it was say 50 years ago or that communal norms and observable standards have declined vis-a-vis homeownership.

"FLG's comment is actually further proof of the phenomenon I'm describing. Given that local banks and lenders expected to hold the mortgage for the life of the loan, such lenders retained special responsibility to help ensure that the terms of these loans would be met. While certainly standards were more stringent, we have very good reason to understand why. With the rise of "bundling" and "securitizing" of these loans - making them abstractions, divorcing them from the communities from which they originated - the originators of these loans no longer bore any particular responsibility for the future of these loans. Standards for such loans inevitably fell as a result - ironically undermining the very theory that such securitization would result in an overall reduction of risk. So, the very example provided here further attests to the consequences of the decline of communal norms and observable standards."

French Communists are so funny

Article here. I will translate the good parts.

"la Ligue communiste révolutionnaire (LCR) ont commencé leurs travaux jeudi après-midi à la Plaine-Saint-Denis avec comme principal enjeu le lancement d'un nouveau "parti anticapitaliste" autour de la LCR"

The revolutionary communist league (LCR) began working Thursday afternoon in Plaine-Saint-Denis with the principal goal of launching a new anti-capitalist party around the LCR.

"Selon lui, le nouveau parti "se réfèrera à la lutte de classes, au changement révolutionnaire", et ne ne sera "dans aucune coalition gouvernementale et parlementaire" avec la social-démocratie."

According to [Olivier Besancenot], the new party 'will concern itself with class battles, and to revolutionary change,' and it will not be "within any government or parliamentary coalition' with the social democrats.

Bonne Chance Comrades! Maybe the organization of your party isn't the problem...just a thought.


Bloomberg piece today:
"Fed May Raise Rates Before Summer Ends"

Said that three weeks ago, and even before 75 and 50 basis point cuts in 10 days.

"My money is on the Fed fighting the inflation sometime in Jun-Sept of '08 by raising interest rates again."

Why do I say this? Because I am not a panicky, look only at tomorrow's stock market returns professional pundit/knownothing. I am a amateur knownothing, which frees me from two things. First, I am outside of the herd mentality of journalism that produces an echo chamber of common wisdom. Second, I don't lose sleep over the stock market returns during the next quarter.


Follow the instructions here.

Do it now!

Another Iraq Update

Bad news on the reconciliation front.

Great Quote

Greg Mankiw quotes from this NYTimes article about the morality of economists:

“The problem is not that economists are unreasonable people, it’s that they’re evil people.”


An article warning about what I have been saying since the 75 basis point Fed rate cut.

Interesting points:
"Stagflation, the worst-of-both-worlds scenario in which weak growth is accompanied by robust inflation, may be on the radar again"

"Meanwhile, the weak dollar, combined with higher energy, food, and commodity prices, is exerting upward pressure on overall inflation."

"It's striking how investors are snapping up assets that boomed during the inflationary '70s, pushing them to high levels—and even record prices. For instance, while the dollar is trading at low levels in the international currency markets, gold, a classic hedge against inflation, is near its record price, now at $919 an ounce. Prices for key commodities such as oil, food, and platinum, are at nosebleed levels. The stocks of companies in industries with a history of "pricing power" such as cereal makers and electric utilities are attracting investor interest. Indeed, almost all the traditional safe havens against the ravages of spiraling inflation are doing well. And the last time real estate values and stock market prices declined sharply together was 1974—a period of both recession and inflation."

BINGO! At least somebody is thinking more than 6 months in the future besides me.

Prosperity and a quote about the wrongheadedness of peak oil.

John Stossel writes:

"When the price of, say, oil goes up, entrepreneurs and inventors have a strong incentive to: 1) find more, 2) find alternatives, and 3) find ways to use oil more efficiently. You and I cannot foresee what they will invent, but that means nothing. Predictions about the end of progress have been issued countless times. There is no reason to think they will be right this time."

Preserving the Culture of Fear

An insightful Onion editorial here.

The Virtue of 20% Down

Deneen examines the increasing numbers of people simply walking away from their homes and mortgages here. He believes that it is representative of an increasing lack of responsibility within society and of moral decay more generally.

My take:
This is a result of the reduced or eliminated down payment requirements in recent years. A 10-20% down payment, which was common only a decade ago, served two purposes. First, it prevented irresponsible people from buying a house because, barring an unexpected financial windfall, potential home buyers had to manage their finances responsibly and save for many years. Second, it made the cost of simply walking away from the home very high because homeowners would lose their down payment.

Therefore, this phenomenon does not prove Deneen's larger point. In the past, homeowners were responsible people with a self-interest in keeping their homes. As the number of irresponsible people buying homes increased, the number of irresponsible home owners increased. Even if the number or percentage of irresponsible people in American stayed exactly the same.

Wednesday, January 30, 2008


Inflation graph over the last year courtesy of the Cleveland Fed: (Blue is with food and energy, Olive is without.) I am betting the blue line spikes again. I'll try to remember to post an updated one soon.

Global Economic Growth

The IMF is lowering its forecast for global growth in 2008 to 4.1%.

"U.S. growth is projected by the IMF to slow to 1.5 percent this year, down from 2.2 percent last year, but the update points out that this number for 2008 reflects the carryover from 2007. Projections on a quarterly basis (Q4-Q4) give a better sense of the slowing growth momentum. On this basis, growth is projected at 0.8 percent in the fourth quarter of 2008, compared with 2.6 percent during the same period of 2007."

But they disagree with me on the Fed rate cut:

"The IMF has said that the recent move by the U.S. Federal Reserve to cut the Federal funds rate by 75 basis points was "appropriate and helpful." "

On Courage and Honor

A recent discussion about Crito and Laches resulted in a debate about the nature of courage.

Here are the definitions, although problematic, that I have chosen to use:

Courage - When an individual willingly choses to take an action, which has negative consequences for the individual and positive consequences for another individual or individuals, despite the presence of alternative actions that have a lower probability or degree of negative consequences for the individual taking an action.

Honor - When an individual is compelled to take an action, and choses to undertake that action in a way that simultaneously maximizes the benefit to others if successful, and has a higher probability of negative consequences for the individual if unsuccessful.

Home Ownership

Krugman on the Bush's ownership society.

Gerson on Anti-Hillary

From Newsweek:
"there is, perhaps, one large American political figure who could cause depressed, fractious Republicans to bind their wounds, downplay their divisions, renew their purpose, and join hands in blissful unity at the Minneapolis-St. Paul Republican convention.

And that figure is Hillary Clinton"

Not only bind Republicans, but alienate moderate Dems too. Democrats if you actually care about winning the White House - Go with Obama. Like Luke Skywalker, he is your only hope. The Force is strong with him.

American Empire?

Article by Will Quinn here.

Iraq Update

David Ignatius reports on Iraq today.

"Progress here is undeniable, both in terms of security on the ground and in the political bargaining among Iraq's parties and ethnic groups. You see this on the streets, in the faces of people you meet in shops and teahouses. The Iraqis I met last weekend didn't complain about security, but about delivery of services. There are also hints of pragmatism among Iraqi politicians, who are finally passing legislation after three years of political deadlock."

"The question is whether this Iraqi renaissance can continue as the United States reduces its surge of combat troops. The Iraqi military is still far from ready to take over the country's security. The military's transport systems won't be finished until the summer of 2009, and it could be two years before Iraq's military can operate fully independent of U.S. forces."

See alternative plan for removing US troops from Iraq here. However, Alan may have to abandon his contention that the surge is not working.

More proof of the Anti-Hillary Factor

I'm telling you, she can't overcome this.

On Credit

I am getting upset about the calls for regulations on mortgage lenders, investment banks, and hedge funds that have been growing since the subprime fallout and credit crunch. Why? Hypocrisy. To politicians I say: Look in the mirror assholes.

The national debt is over $9 trillion. You have got no right to lecture anybody on responsible credit use. Wanna lower borrowing costs? Balance the budget. It's called the crowding out effect, google it.


A note on the differences between the word liberal in France and the US from Le Monde.

"..le mot a une signification à peu près opposée selon que l'on se trouve en France ou aux Etats-Unis. Ici, il désigne un partisan résolu de l'économie de marché. Là-bas, un défenseur d'une certaine intervention de la puissance publique pour protéger les plus pauvres."

Rough translation:
"The word [liberal] has a slightly opposite meaning according to where one finds themselves, in France or the United States. [In France], it means a person strongly in favor of market economics. [In the United States], a defender of some government intervention in order to protect the poor."

I think this explanation is biased, but there it is.

Joan Rivers of Capital Hill

Did anybody else think that Pelosi couldn't feel her face during the State of the Union?

Celebrity Wailing

An article in The Hoya reports on a visit to Georgetown by 18-year-old hottie Hayden Panettiere to discuss whaling. The author was not quite interested in whales.

I have no issue with Ms. Panettiere. She seems like a nice, well-meaning young lady. I have no issue with trying to stop whaling. Nevertheless, I have an issue with celebrities causes. First, they don't really promote awareness. Sure, they get people to come to see a video or hear a speech about whatever it is the celebrity cares about, but people are so star struck it never sinks in. "OMG! I can't believe I saw Brad Pitt!" is what they say after leaving an event about global poverty, not "I need to learn the pros and cons of development aid, microfinance, and trade theory." Second, celebrities are unqualified to expound on anything beyond acting, and most are unqualified there as well. Do you really think Angelina Jolie really understands the refugee crisis beyond, "It's bad, and it makes me sad"?

Whether it is Sean Penn and Tim Robbins on the left or Chuck Norris and Mel Gibson on the right, these guys have an opinion like everybody else. Yet, because they are famous they get to shout it from the rooftops no matter how ill-informed or how stupid they are. I guess it is a product of our culture that worships at the false altar of beauty and celebrity rather than wisdom.


An article about my current favorite commercials - the Dude Bud Light ads.

The PostModern Conservative must have loved GI JOE...

because he endorsed the plastic Presidential Superhero.

The 24 Scenario

Dahlia Lithwick rightly argues that the ticking clock terrorist scenario is a political tool used to bludgeon Democrats into submission on civil liberties issues. Too bad the Democrats are cowards who fear looking like weaklings rather than standing up for something. Actually, I think on national security issues, most Democrats either don't know, don't want to know, or are afraid. They want to deal with warm and fuzzy things, like child care, health care, and education. Mean, nasty balance of power issues and the killing of bad guys makes them queasy, which is why there are neoconservatives in the first place. They agree with Democrats on domestic policy, but the Democrats have been such wimps on foreign policy they defected. A lot of good that has done for conservatives...they probably shouldn't have let them come over to their side.

Harold Meyerson gets it wrong...again

From today's WaPo:
"..the conventional wisdom, reinforced by an unscientific sample of red-state Democrats, is that the chance to vote against Clinton will bring every Hillary-hater to the polls, making it harder for Democrats to pick up seats. That's probably true, but who can say that the chance to defeat Obama won't prompt a redneck reaction of its own?"

This is a perfect example of the Hillary non-Haters misunderstanding both of the depth and breadth of the anti-Hillary vote. Around 50% of people in this country will vote 'not Hillary.' While there are rednecks, and an even smaller portion of racist rednecks, in this country, they do not reach 50% of the population. There is an irrational loathing of Hillary and Bill Clinton among the electorate, which extends from the far-right to moderate Democrats.

First Annual Fear and Loathing in Georgetown Film Awards

Films released in the previous year, which Fear and Loathing has seen, are eligible for awards. Two exceptions to this rule are the Paul Newman Lifetime Achievement Award, named for the first recipient of the award, and Artemis Award, which honors the movie Fear and Loathing in Georgetown most regrets not seeing. Awards will be announced on or before January 31st each year. There will be no nominations. Only winners will be announced. Winners are selected upon receiving one vote from Fear and Loathing in Georgetown. Categories are subject to change without notice from year to year. Free stuff from studios will be accepted, and will affect selections. Winners shall be provided a paper certificate commemorating their honor upon receipt of an autographed photo of the winner and a self addressed stamped envelope. Fear and Loathing in Georgetown retains the right not to explain, discuss, or debate the selection process or the outcomes.

Paul Newman Lifetime Achievement Award: Paul Newman
Artemis Award: There Will Be Blood
Best Visual Effects: Transformers
Best Sound: Transformers
Best Adapted Screenplay: No Country for Old Men
Best Original Screenplay: Juno
Best Foreign Film: La Vie en Rose
Best Animated Feature: Ratatouille
Best Supporting Actress: Amy Ryan (Gone Baby Gone)
Best Supporting Actor: Javier Bardem (No Country for Old Men)
Best Actress: Ellen Page (Juno)
Best Actor: Johnny Depp (Sweeny Todd: The Demon Barber of Fleet Street)
Best Director: Joel and Ethan Cohen (No Country for Old Men)
Best Film: No Country for Old Men

Tuesday, January 29, 2008

In Defense of Liberal Education

University Diaries has begun a category entitled: In Defense of Liberal Education

It remains unpopulated, but I am eagerly awaiting posts. My defense is here.

Applebaum on Russian Women

I am not sure what to make of this piece. Applebaum is pondering the myriad hot Russian chicks now on the international scene, and wondering why all we thought of during the Cold War was borscht eating heffers?

Samuelson on the Fed

Robert Samuelson writes in the WaPo today:

"Some economists [and me] think that the Fed is already repeating its previous error, now prodded by "market pressures" and the specter of financial panic. If the market constantly demands to be stimulated by lower interest rates and easier credit, and threatens to go into an uncontrolled tailspin if it isn't, then the Fed is in a treacherous position. Trying to make matters better now may make them much worse in a few years if higher inflation emerges. This danger is easily overlooked."

Monday, January 28, 2008

More on Sovereign Wealth Funds

Robert M. Kimmitt, Deputy Treasury Secretary, on sovereign wealth funds.

Q: For the sovereign wealth funds themselves, your code of conduct basically is to invest commercially, not politically; to convey world-class institutional integrity; to compete fairly with the private sector; to promote international financial stability; and to respect host country rules...How, however, do you get confidence that these government-directed or operated enterprises in foreign countries will actually obey such a high-minded code of conduct?

KIMMITT: "...Again, those principles that we laid out should apply to any investor coming into the United States..., whether it be through a sovereign wealth fund, a state-owned enterprise or otherwise."

"What we have suggested is, this would be a good starting point for the discussion that is taking place under an IMF at World Bank lead right now, with the sovereign wealth funds, around organizing a set of principles, a voluntary set of best practices to which the sovereign wealth funds would subscribe, again, to emphasize that they are committed to these principles, particularly the commercial nature of their investments"

This gets into the international law problem, namely, no enforcement mechanism. Some transparency would be beneficial though.

Monetary Policy

More people who agree with my take on the Fed lowering rates:
"At a January 24 CFR meeting, Laurence Meyer, Bank of America’s chief economist and a former Fed governor, said if the Fed uses sharp interest rate cuts to mitigate short-term market risks, it must also be willing to raise them again quickly once the initial risks have been forestalled. If it doesn’t do this, the risks of inflation stand to heighten. “If the Fed cuts interest rates too much, it could get out of control,” Mallaby says. “You’d get a repeat of the 1970s where an attempt to keep on goosing the economy with stimulative policy just created inflation.”"

Deneen is positing

Deneen finally offered a description of his alternative economic reality.

"I propose that we tighten our belts quite a bit - that we impose on ourselves a hefty gas tax and stop driving so much and overheating our huge houses. We use this revenue to afford tax breaks for energy efficient heating, appliances, and automobiles. Further, we take some of these funds and indeed invest in our infrastructure - particularly light rail, public transportation and "in-fill" construction in our current suburban and commercial areas. This will require changes in our zoning laws to allow mixed use neighborhoods, combining residential, commercial, civic and religious buildings. This will have enormous pay-offs in job creation (in keeping with Governor Huckabee's proposal) and the long-term decline of energy consumption. It will also foster neighborhoods that might increase the possibility that more people will be encouraged to grow up and stop living the illusion that their decisions have no effects beyond how much money they spend for goods. This would be the best investment for the future of our nation, for our children and the prospects for constitutional democracy."

I question whether the mixed use, higher density living will actually work. Specifically, I think that people require a private space to permit a level of comfort that allows them to participate in the community. Apartment living, in my opinion, leads to a feeling of confinement that discourages a sense of community. Whereas, rural and suburban living allows for a private space into which one can retreat from the community. This ability to seclude yourself actually reinforces the communitarian instinct. However, this is debatable, and I am glad that Deenen is finally offering a positive explanation rather than a poorly reasoned negative evaluation of modern society.

Not fair, but funny

This isn't fair to Clinton, but it made me laugh.
From the Daily Dish:

Hitchens tees off on the Clintons

Article from Slate here.

This is what I am talking about when I say 50% of Americans hate the Clintons. Sure, Hitchens is a tad bit iconoclast, what with attacking Mother Teresa and all, but in this case he is representative of something larger. This level of loathing may be lunacy, but it is real.

SocGen update

Bloomberg has this video where all the big wigs in Davos are blaming the one rogue trader. Saying things like: "You can only catch fraud, not prevent it." "We need to focus on personal ethics."

I agree that you can only catch fraud, and not prevent it. Nevertheless, letting a trader rack up a multiple billion euro fraud is incompetence -- pure and simple. Of course these head honchos don't want to admit it because when their firms get burned they want to narrow the responsibility to the one trader. A few million euro fraud, okay, I understand. You didn't catch him until the end of the day. But 4.7 billion euros?

Post Modernconservatism is confusing

After weeks of reading the Postmodern conservative, I am still at a loss for the theoretical foundations of his political beliefs. I think Burke is in there somewhere, and also some sort of judgment about the psychological disposition of the electorate. He is either a genius or insane -- it's even money.

Double Eww!

On Reading

Warning: Gratuitously self involved post!

Miss Self Important's recent post about Art Garfunkel's voracious reading is timely, at least for me. I am reading Typee, which I like better than Moby Dick. I have read Moby Dick twice and, apart from interesting character names, it does not appeal to me. In fact, it is the worst book I have ever finished. (Anything by Faulkner is worse because I have never finished one of his books.) I just don't like Melville.

I hate "Catcher in the Rye" because Holden Caufield is annoying, but I have finished it.

The title of this blog comes from "Fear and Loathing in Las Vegas," so I obviously I like Hunter S Thompson. I've read every novel by Fitzgerald and Hemingway, and loved every minute of it. Dickens has grown on me over the last few years. Sydney Carton is his best character. I like "On the Road." I love both Huck Finn and Tom Saywer. "Grapes of Wrath" is good, but the ending is cheezy and Tom Joad's speech just before it falls flat. "To Kill a Mockingbird" is my second favorite book. Who doesn't love Atticus? Catch-22 remains my all-time favorite.

My taste extends to lesser works as well. I have read all of Anne Rice's Vampire Chronicles. I have even trudged my way through later and ancillary novels of the series, which read like they were phoned in. "Blood Canticle" is particularly bad.

I have read every Tom Clancy novel, and enjoy them. Especially "Without Remorse."

On the short story side, my favorite is "The Snows of Kilimanjaro", in keeping with the Hemingway addiction. "Araby" might replace it one day if I can ever figure out what he is saying. There is something deeper there that nobody has ever sufficiently explained.

The Continuing Saga of SocGen

From The Times:
"Jérôme Kerviel, the Société Générale trader at the centre of a €5billion fraud allegation, today claimed that the French bank had been alerted to his irregular trades as early as November last year — two months before the company took action to stop the deals."

I knew incompetence and poor system security design were involved. Granted this is from the mouth of the accused, but somebody had to know something was wrong. If they didn't, they should have.

Hedge Funds Good, Investment Banks Bad

Sebastian Mallaby has been writing in defense of hedge funds for a while now, and I find his argument that hedge funds increase market efficiency compelling. Here is today's edition.

Krugman on Partisanship

For the past few weeks, Paul Krugman has been arguing that policy differences produce partisanship. He continues this theme today.

I wrote about partisanship as product of the big assumption a few days ago, so I somewhat agree.

However, I believe the level of partisanship of a third Clinton term will be far greater than under an Obama presidency. 50% of America hates the Clintons. They could say the sky is blue, and 50% of people will object. There will be no honeymoon once they get in the White House. She will at most get 51% of the vote, and will be denied a mandate. Obama has the ability to draw together enough support to acquire a mandate. This is not to say that policy differences between the parties disappear, but if Obama sticks to his current tone it will not become "the politics of personal destruction."

NB on Krugman: I think his theme of partisanship deriving from policy difference is not a defense of Clintonian politics, but a rationalization of his reflexive anti-Bush stand of the last few years.

Who carries €500?

Who carries €500 notes? And how many people have to try to use one at your restaurant to necessitate a sign?

More on America's Decline

Rahm Emanuel writes in today's WaPo about America's decline. I respect Rahm Emanuel far more than most politicians for two reasons. First, he thinks about strategic policies, not just short-term political tactics to win the next election. Second, he is really smart. So, I pay attention when he talks.

"At the dawn of the 21st century, conventional wisdom was that America held unmatched cultural, economic and military power."..."Boy, have times changed.
As 2007 drew to a close, a Newsweek International cover featured the image of a bruised Uncle Sam slumped in a boxing ring, under the headline: "Can America Get Back on Top?" "

One Newsweek International cover does not make the case to me. Point one from my post yesterday: "Europeans resent American power, both economic and military, and hopefully await a multipolar world where their Supranational organization can have more say. Hoping does not make it a reality."

To readers of Newsweek International putting a bruised Uncle Sam on the cover is like putting 'Brittany Spears is pregnant' on the cover of People -- it sells magazines. Any stories about America's decline will sell. It does not mean it is true.

Emanuel continues:
"George W. Bush inherited a country with a $236 billion surplus. He engaged in seven years of deficit spending that will leave America with more than $3.5 trillion in new debt."

You are not going to get a defense of Bush's fiscal policies from me. He is right on this point. In fairness, a year or two of deficit spending after 9/11 might have made sense to keep the economy going after the shock of that horrible event, but seven years is irresponsible, and the debt is immoral.

"Bush inherited a middle class whose incomes increased more than $6,000 between 1993 and 2001. Median household incomes have dropped over $1,000 since he took office. During his presidency, health-care premiums have doubled, from about $6,000 to $12,000 per family. "

Talk about the middle class wages and income get a lot of play from the Democrats, but I have issue with it. If we consider that many workers are paid in income and benefits, then when health care costs go up it is like a raise. I realize it does not feel like a raise, but companies have to pay more for your employment. If health-care premiums have gone up from $6,000 to $12,000 then companies are paying more too. There is your pay raise. Unless we get health care under control, I don't see huge pay increases coming in the near-term.

He goes to the military next:
"Bush inherited a military that had all active-duty Army divisions rated at the highest readiness levels and that was capable of fighting a two-front war. He will leave behind a military facing the worst readiness crisis in a generation, with not a single active-duty or reserve brigade "fully combat ready."

Don't disagree here, but this is a result of Iraq and Afghanistan. If you believe that Iraq and Afghanistan are worth the fights, then this was a necessary consequence. As most people believe the fight in Afghanistan is justified, this really revolves around the Iraq question.

Next is international reputation:
"Bush inherited a nation that was respected on the international stage; he will leave behind one reviled by many around the world. A Pew poll of 10 nations found that in 2001, 58 percent of respondents viewed America favorably; today, that number is 39 percent."

Don't disagree here, but I believe this has a lot less to do with policies of the Bush Administration, and more to do with their incompetence. The world is most afraid of an incompetent superpower.

He transitions to his solutions:
"We must reform the way we educate the next generation of workers to ensure that our nation stays competitive. In an era in which you earn what you learn, America should do more to make college affordable and require all students to receive one year of training after high school -- be it at a community college, technical school or university. The GI Bill and universal high school education have proved that investing in human capital yields tremendous dividends."

I am against requiring a year after high school. I certainly believe the government should provide more assistance for tertiary education, but we have enough problems getting our students through high school. If we tack on one more year I wonder if that will cause more to drop out.

"Building on the successes of covering segments of the population through Medicare, Medicaid, the military's Tricare program and the State Children's Health Insurance Program, the next two populations on the road to universal health care should be our two most vulnerable groups: children and early retirees."

Politically I think he made a mistake here. Rightly or wrongly a lot of people recoil from "universal health care." Referring to it as some sort of policy teleology is bound to incite vicious reaction to the expansion of both of these programs. I guarantee you Rush Limbaugh starts bad mouthing this piece on the radio today.

"Support for the development of new energy-efficient technologies could help make energy less expensive for consumers and businesses, help protect the environment, create millions of jobs, and make our nation energy independent. These new energy technologies have the potential to do what the information technology boom has done for our economy during the past 20 years."

No problem here, but I find that the policies designed to encourage these things are often laden with pork and don't encourage anything. In principle, I agree entirely.

"Universal savings accounts would give workers more control over their economic future and their retirement. Like 401(k) plans, these accounts would supplement, not supplant, Social Security. Employers and employees would contribute 1 percent of paychecks on a tax-deductible basis, and workers could make additional contributions if they chose."

100% with him here, but like his universal health care teleology, I would make the replacement of social security with private accounts mine.

"Overseas, we must begin a responsible redeployment of troops from Iraq and demonstrate to the world that Iraqis must take responsibility for their own country. The redeployment of troops would help end our readiness crisis and would allow our military to rebuild and refocus its efforts in Afghanistan, where al-Qaeda and the Taliban are reconstituting."

We can't just redeploy willy-nilly. We are responsible for leaving some security behind. There is no mention of how to do that here.

"Our foreign policy should include a diplomatic offensive to win back the international goodwill that has been squandered over the past seven years. And America should take a more aggressive role at the United Nations in the fight against global warming."

Again, this is an incompetence issue. If we start getting our act together under the next president things will turn around. As to global warming, we should take serious, responsible, and thoughtful steps to address the issue, but to please the world community? I don't think so.

Sunday, January 27, 2008

Fear and Loathing in Georgetown's favorite street name

Lower Wacker Drive

Recent references:
"His date stood him up, so he took Lower Wacker Drive back home."
"His girlfriend stopped short, and he was stuck on Lower Wacker Drive."
"Her battery died on Lower Wacker Drive."
"Her mom called while she was on Lower Wacker Drive."
"He was going too fast, and scraped the pole on Lower Wacker Drive."
"She came by way of Lower Wacker Drive."

Why Clinton loses...

She can't compete with this:

And if Billary's dirty tactics succeed they will alienate enough people to suppress the democratic vote. I think the African-American vote will drop dramatically in a general election if the Clintons derail the Obama train. Whereas, even if evangelicals don't like McCain, their fear of another Clinton presidency will drive them to the polls.

Diplomatic History

The Library of Congress is collecting an oral history of American diplomats. When I have free time for reading, which is infrequently, I find it interesting.

SocGen revisited

MSNBC reporting more information about the rogue trader today:
"Societe Generale said Kerviel misappropriated other people's computer access codes, falsified documents and employed other methods to cover his tracks — helped by his previous experience working in offices that monitor traders.

"He had a very good understanding of all of Societe Generale's processing and control procedures," the statement said."

This may be more complicated than I previously thought. First, people are lax with their passwords at most companies, and financial institutions are no exception. Nonetheless, I still think that there were problems with the bank's procedures.

From le Monde:
Rough translation:
"The trader introduced fictitious trades in account B, so that his trades in account A appeared profitable, although he hadn't made any of them. The fictitious trades registered in Société Générale's computer systems did not correspond in any way to economic reality."

This simply should not happen in a well designed system.

End of Pax Americana?

The Phildelphia Inquier is reporting that Davos attendees are hinting the end of American hegemony. With the financial crises, massive debt, and the rise of India and China, American looks more like a beleaguer third world nation than a superpower.

There are a few reasons I find this unconvincing.

First, Europeans resent American power, both economic and military, and hopefully await a multipolar world where their Supranational organization can have more say. Hoping does not make it a reality.

Second, China and India, although rising fast, will not be in a position to test the strength of American power until the end of this century at the earliest. Inevitable hiccups will derail the growth of these nations, and you cannot project linearly from their current trajectories.

Third, all of our debt and the vast majority of the world's finance is based in US Dollars. If you think this will change in the short-term, then I would argue that changing from Windows to Mac as the dominant computing platform is only slightly less likely. The dominance of the US Dollar gives the United States as much power in economics as Microsoft has in the operating system market. When we owe somebody dollars, ie to China, we can always adopt policies that undermine the value of our debt. That is clearly mercantilist, and generally not nice, but the US retains that power.

Sovereign Wealth Funds Revisited

I posted my concerns with sovereign wealth funds a few days ago.

Larry Summers shares my concerns, and brings up another one at Davos that I hadn't touched on:

3. General politicization. He provided two examples. "First, suppose that a country ran an active trading operation, and say it was a very inspired one, and found itself in an investment much like George Soros' short position in the pound. Would we be comfortable with the concept that the nation of X had decided that nation of Y's currency was overvalued and launched an attack? There should be some kind of understanding that that won't happen. Also, the SWF of country A makes an investment in a major bank in country B. The bank gets in big trouble. Is there any control in the world that can assert, that with billions of dollars on the line, their head of state and foreign minister are not going to get involved in the negotiations?"

Hillary is a liability for Dems

Frank Rich expounds upon the same point I have been making:
"Amazingly, neither party seems to fully recognize the contours of the road map." ... "Absent from this debate is any sober recognition that a Hillary Clinton nomination, if it happens, will send the Democrats into the general election with a new and huge peril"..."Not all Republicans are smart enough, however, to recognize the value of John McCain should Mrs. Clinton emerge as the nominee. He’s a bazooka aimed at most every rationale she’s offered for her candidacy."..."Any Democrat who seriously thinks that Bill will fade away if Hillary wins the nomination — let alone that the Clintons will escape being fully vetted — is a Democrat who, as the man said, believes in fairy tales."

Mark my words...Hillary loses a general election to McCain. If McCain wins Florida, Dems have to go with Obama. It looks like they are coming to their senses.

Economic Stimulus

George Will hits the nail on the head:
"The supposed crisis that is causing this meeting of political minds is that the market is correcting some mistakes made about something central to capitalism, not to mention progress—risk taking. There has been too much risky lending to unqualified ("subprime") borrowers, who were living riskily."

"Corrections are necessary: When too much housing has been built, the market must clear the inventory. Corrections can be painful: Housing prices have declined. Lower housing costs are not an unmixed curse: Partly because of something dating from 1913 (the mortgage-interest deduction) and partly because of recent low interest rates, too much American wealth is tied up in housing. But houses are most Americans' largest assets, so homeowners, feeling less wealthy, are curtailing their spending, which causes lenders to curtail their lending, which further inhibits spending."

This excessive risk taking extends to borrowers who took out no money down mortgages with adjustable interest rates, mortgage lenders, and investment banks.

While Jim Cramer is wrong:
"The fact is, we can attack the root of the crisis, mortgage-related problems, for far less money and resurrect the economy much faster with a couple of simple ideas. First, let's take a hard look at the real cause of the problem: We have too many defaulting mortgages and home-equity loans from people who bought homes-some on speculation, some because they actually wanted to live in them-and could not afford the purchase price. Encouraged by former Federal Reserve chairman Alan Greenspan and current chairman Ben Bernanke, home buyers used exotic mortgages that required them to put little money down to purchase homes that were quickly appreciating in value. Millions of home buyers then took home-equity loans on top of their mortgages to capitalize on that appreciation. Now that home values are declining nationwide and mortgage rates are being reset higher, the buyers can't afford to pay either their first mortgage or the home-equity loan and are facing defaults and foreclosures that threaten to leave them destitute."

"But there's another strategy that's by far the cheapest and most immediate way to deal with the problem: The Federal Reserve needs to cut the federal-funds rate, the short-term rate that it lowered last week to 3.5 percent, in half, to 1.75 percent, and it needs to do it now."

This should be idiotic to even somebody who has no idea about the economy. Why? Because he is blaming low interest rates for the problem, so we need to solve it with...low interest rates. Sure, some people who may refinance to lower rates. And some people may take advantage of the new lower rates to buy homes they can't afford again thus prolonging the problem.

This is an issue I have with Jim Cramer all the time. He is so focused on the stock market that anything positive for the stock market has to happen now, and in a big way. He discounts future economic growth too highly, and focuses on short-term fluctuations in the market.

Saturday, January 26, 2008

Time Travel

If I was ever in posession of Dr. Emmett Brown's Delorean I would use it to find out why Alexander burned Persepolis. It just doesn't make sense to me for a strategic perspective.

Was it because they were a bunch of drunken frat boys spurred on by a courtesan?

Regardless, getting drunk with Alexander would be pretty cool, unless of course you are Cleitus the Black.


Krugman posted percentage of rebates by income quintiles. This ain't gonna stimulate anything.

Crossing the Rubicon

Hackers have declared war on Scientology:

Herbert on the Clintons

Bob Herbert says today:
"Still, it’s legitimate to ask, given the destructive developments of the last few weeks, whether the Clintons are capable of being anything but divisive. The electorate seems more polarized now than it was just a few weeks ago, and the Clintons have seemed positively gleeful in that atmosphere."

This is the cold calculus and down right dirty tricks I was talking about a few days ago. Obviously, it does not matter who she is running against, other dems or republicans, she has to resort to this type of stuff because half the country doesn't like her. Therefore, she has to make more people not like whomever she is running against.

Friday, January 25, 2008

SocGen continued

Businessweek says:
"After a rogue trader cost the French bank $7.1 billion, many are left to wonder about the lucrative but risky equity-derivatives business."

"In derivatives trading, there's not as strong a separation between trading and back office as in other parts of the bank." Letting employees move from the back office to the trading floor is uncommon but generally not prohibited by banking regulations or banks' own rules, Pierron and other banking specialists say."

"Banks increasingly are moving away from traditional banking into riskier trading activities, he says. SocGen's problem was "a rogue business model, it's not a rogue trader.""

This is missing the point. True, trading in derivatives is risky. However, a bank can still create controls to prevent a rogue trader. Just because it is risky doesn't mean you don't minimize all of your risks, especially maverick traders driven to maximize their profit from trades to get bigger bonuses. Because they let people move between the back office and trading floor does not mean that derivatives are somehow suspect.

NYTimes rips into Guliani

From the editorial:
"The real Mr. Giuliani, whom many New Yorkers came to know and mistrust, is a narrow, obsessively secretive, vindictive man who saw no need to limit police power. Racial polarization was as much a legacy of his tenure as the rebirth of Times Square.

Mr. Giuliani’s arrogance and bad judgment are breathtaking. When he claims fiscal prudence, we remember how he ran through surpluses without a thought to the inevitable downturn and bequeathed huge deficits to his successor. He fired Police Commissioner William Bratton, the architect of the drop in crime, because he couldn’t share the limelight. He later gave the job to Bernard Kerik, who has now been indicted on fraud and corruption charges.

The Rudolph Giuliani of 2008 first shamelessly turned the horror of 9/11 into a lucrative business, with a secret client list, then exploited his city’s and the country’s nightmare to promote his presidential campaign."

OUCH! I simply called him an asshole.

Société générale continued

A video interview from the FT about the Société générale trader.

Apparently, the guy had back office experience, so he knew how to cheat the system. I still don't think that is an adequate explanation. As I was a computer security expert in a former life, my professional judgment points me to one of two things:

1) Incompetence in designing the system in a way that minimized this risk.
2) A choice made somewhere in management to "streamline" the approval process for trades, which they knew would result in increased risk of this sort of thing.

My guess: A little of both. Someone made a decision to streamline a process without knowing the increased risk that would result.

Continuing saga of The World Is Flat

I am making my way through "The World is Flat" at a tortoise-like pace. I think his focus on engineering and science is a bit misguided. Friedman quotes Bill Gates as saying that all the leaders in China are scientist and engineers. Presumably, this is better than our lawyered-up government. While I agree that science and engineering are important, I think the emphasis on them as innovators is a tiny bit overstated.

First, why this focus is correct. Scientist discover new things about our physical universe that engineers can use. For instance, understanding how light works was required to create lasers. This type of innovation is fundamental to human progress. However, we do not need every kid in American to get a PhD in astrophysics or quantum mechanics. Leave that to the geniuses who find that stuff interesting.

Engineers are a bigger problem because they look at everything as a problem to be solved. There is an input and an output. You generate some specifications, design a solution, and implement it. This is important, but does not guarantee inovation. Engineers focus on "elegant" solutions to problems. This usually means efficiency between input and output. This sounds great, and is part of innovation. Yet, this focus is also the problem engineers have.

The iPod and iPhone are arguably the most successful technological innovations, from a consumer perspective, in the last couple years. There were mp3 players before the iPod, and they all sucked. Why? They were made by engineers who, not coincidentally, think like engineers. Engineers unintentionality create products for other engineers. It takes a guy like Steve Jobs, who understands the technology but does not worship it, to invent a useful device. So, the iPod got a cool screen and a touch-wheel interface. He also created iTunes, so that consumers could easily purchase songs and get them on the iPod. This innovation was not engineering per se, but a non-engineer telling engineers how not to be tech geeks. The iPhone got a cool touch screen, and a internet browser that is actually useful. I guarantee you that Jobs had to tell the engineers not to be dorks when designing that one. Jobs said in a speech at Stanford that most of his insight into designing a user interface came from a calligraphy class.

So, what we need is people who understand technology and how people interact with it. Microsoft hires psychologists to improve the godforsaken Windows interface that its engineers create, but they usually just steal what Jobs and Apple do.

More engineers are not necessarily the problem. We need more non-engineers who understand technology. We can always use more scientists and engineers, and we probably should encourage people to go into these fields, but it is not a panacea. We need more Steve Jobses. Not more pointy headed D&D players who are in love with new technology, but don't understand normal people.

This brings me back to the China thing. Sure, they have engineers running the country instead of lawyers. Yet, I think that will be a problem in the future. Political issues are not like engineering problems. There is not a straight-forward solution. As China is still industrializing, the benefits of an elite with engineering training are probably better than lawyers, but the gray areas of a post-industrialized political-economy require more lawyerly like skills than cold engineers.


This video is insane, and a cameo by the current village idiot of captial hill is an added bonus.:

In case you are wondering, I saw this originally on the Postmodern Conservative.

The fundamental problem with this conspiracy theory, or any conspiracy theory for that matter, is incompetence. Our government can't find the SuperDome during Katrina, and these guys think there is a 60 year plan to take over the world? Right...

In fact, this stuff is really just subtle anti-semitism. Banking and Media are code words. That's right -- Jews!

The PM says what everybody knows

Gordon Brown writing the in FT today:

"First, we need to respond to the significant underpricing of risk. We are now seeing a necessary repricing of that risk, but some markets are not functioning and availability of credit has been restricted." I don't disagree here. Billions in losses by banks tend to focus their minds.

"Second, as financial markets become increasingly interlinked, countries must ensure they have robust and effective cross-border crisis management arrangements." Make sense to me as long as we don't create some overarching international institution to do it.

"Third, we need to ensure that fiscal policy can play its rightful role supporting monetary policy, keeping the economies on track while maintaining sound public finances." This one sounds good on the surface, but involves problems, especially within the EU. There are deficit spending restriction, etc required by EU membership.

"Fourth and foremost, the downturn will be compounded if we lurch back into protectionism as more people see globalisation as a threat, not an opportunity." Dead on.

Gates wants 'kinder captialism'

Here is the full story from the WSJ.

Great. I wonder if building a monopoly and engaging in anti-competitive tactics is part of this new kinder capitalism? Cheap shot, but it had to be done.

From the article:
In particular, he said, he's troubled that advances in technology, health care and education tend to help the rich and bypass the poor. "The rate of improvement for the third that is better off is pretty rapid," he said. "The part that's unsatisfactory is for the bottom third -- two billion of six billion."

It is hard to argue with the statement, but there are myriad reasons why this occurs. There is corruption, lack of basic infrastructure, war, and disease. It is pretty hard to get an education when you have dysentery.

Corruption is a political problem that the capitalist system cannot resolve.

Lack of basic infrastructure can be overcome. You can buy a coca-cola almost anywhere on this planet, so it can be done even if there aren't very good roads, or even no roads.

War is another political problem that capitalism cannot ameliorate.

Disease is a large field. Producing cheaper versions of existing drugs and distributing them can be done by companies. Developing drugs for new diseases is expensive, and if the disease is primarily in developing countries the profit motive is not there.

There are obviously far more problems effecting the developing world then just these. Some can be solved by private industry. Some will require government and political change. NGOs are somewhere in between these two.

An example of what I am taking about:
Let's say that a particular country has an outbreak of disease which we can treat relatively simply. First, the government needs to recognize the outbreak, so the need some sort of monitoring. They contact an NGO who works with pharmaceutical company to get the drugs produced cheap. They then contact a distributer in the country, ie a coca-cola distributer, to have the drugs distributed. It won't be perfect, and it won't work everywhere, always, but it has to be an improvement over a lot of what is going on now. Then again, I know absolutely nothing about this stuff, and I am talking out my.... But it sounds good in theory.

Michael Gerson on Hillary

I almost never agree with Gerson, but today his article is talking about the anti-Hillary potential to unify conservatives against her.

"But even amid this ideological discord, there are three words that cause nearly every Republican to forget their differences and join hands in common purpose: President Hillary Clinton."

I believe this anti-Hillary strain runs through some left-of-center moderates as well.

Thursday, January 24, 2008

Société générale

Some guy lost $4.7 billion euros, and nobody knew?

From the article (rough translation by me):
"The internal controls which normally constitute the heart of bank business have revealed themselves to be dramatically insufficient. "

Thanks Capt. Obvious.

On Homonyms

I don't like them. Not just there, their, and they're, but also right and write. I have been known to screw these up on more than one occasion when writing quickly.

Don't get me started on read (pronounced "reed") and read ("red"), or lead and lead, not be confused with led. There has got to be a name for words spelled the same, but pronounced differently. I don't know it.

Though not a homonym or whatever the others are, I don't like the word data. I prefer it singular. Some use plural.
The data is the clear. - Me
The data are the clear. - Wierdos

Nukes and Trains

I whole-heartedly agree with this piece in the NYTimes and IHT today about French nuclear power. If you want to lower carbon emissions in the short-term, you gotta go nuclear. Greenpeace is smoking something if it wants to lower co2 and not have nukes. You only can build so many windmills.

I recommend another technology import from France. Scrap the stupid Acela for a TGV. I don't know why Amtrak paid to develop a new train, when the TGV has a proven track record. I bet it was national pride or something. I can picture myself being wisked from Union Station to Penn Station in the quiet comfort of the train à grande vitesse. I can dream I guess.

On the stimulus

For once, Deneen and I agree on something related to economics -- the stimulus is stupid and dangerous -- but for different reasons.

My take:

First, most people will either pay down debt or save the money. In one sense you can view this as the government nationalizing private debt. As to increasing aggregate supply, ie "priming the pump": the lower you get on the income scale, ceteris paribus, the more money the individual will spend. This is called the marginal propensity to consume. However, the best way to think about this is the probability that someone will spend an unexpected windfall. The poorer a person is, the more likely they are to spend it. So giving the money to poor people would probably be the most effective. However, the poor have access to credit via payday loans, etc and may just payback those payday loans instead of spending it. Which is why some are arguing that food stamps should be uped, so that they have to spend it. But they could sell it in the parking lot too, so I am not sure this whole thing is a really a good idea.

Second, the national debt is so irresponsibly large that it is bordering on immoral. The burden of debt being passed down, not just to younger people like myself, but in all likelihood my unborn children and grandchildren is enormous.

Lastly, it won't work, but that isn't the point. This is a political move not an economic one. In an election year, both parties want to look like they are doing something.

Wednesday, January 23, 2008

I've been pwned

Granpa Simpson: I used to be with it, but then they changed what "it" was. Now, what I'm with isn't it, and what's "it" seems weird and scary to me.

Miss Self Important, in a recent post, referred to Facebook as "Teh Evil." At first I thought this was a typo. I googled it only to discover that it is a typo, but that it has become a new word. The age of fast, abbreviated typing has created an entirely new syntax and vocabulary.

I have quietly been surpassed by a new aspect of life that is completely foreign to me. I have a facebook page, but I don't cyberstalk on it. I have a cell phone, but I rarely talk on it -- let alone text with it. I certainly don't hook up using it.

I understand all this technology, but I haven't integrated it into my life with the same thoroughness that people only a few years my junior have. In fact, I find the constant availability made possible by phones, IM, email, etc a tad bit oppressive. I like being off the grid. It's not technophobia, but a lifestyle choice.

Rate cut reaction

Yesterday I expressed my disagreement with the rate cut. I am not alone.

Bloomberg today:
"This extraordinary action was excessive and smells of fear,'' said economist Willem Buiter, a professor at the London School of Economics and Political Science and a former member of the Bank of England's Monetary Policy Committee.

Again, we are in panic mode, not monetary economic model mode. Bad ju-ju.

To reiterate my thinking for the last few weeks: We are trading short-term smoothing of the stock market and credit markets for longer-term problems, which will become apparent by Jun-Sept.

Tim Gunn

I am a big fan of Tim Gunn. I wish I had some of his suits. For DC-philes, he was educated at the Corcoran

This video that I saw on The Daily Dish is hilarious. I never realized that he is so pedantic.

The Republicans

Since I already discussed Clinton and Obama, I guess should discuss the Republicans.

McCain - I think he is a little crazy, but in a way I like. I like his stand on the environment, and immigration reform. Not so crazy about his campaign finance stuff. His age does concern me a little bit. He can generate enough support among moderates to win against Clinton, but probably not Obama. Odds of winning: 70% versus Clinton, and about 40-50% versus Obama.

Guliani - I think he is an asshole, but on the upside I know he can get shit done. He is wearing out the 9/11 thing. He will get a lot of support from law-and-order and national security type voters. Odds of winning: 50-50 versus Clinton. 40% versus Obama.

Romney - He is like a presidential action figure. He has plastic hair, poseable arms, and if you press the button on the back he will tell you exactly what you want to hear. Odds of winning: 50-50 v. Clinton (sheer anti-Clinton vote, nobody is really gung-ho about Romney.) 30% versus Obama.

Huckabee - Seems like a nice guy, but he is an idiot. Why? He doesn't believe in evolution. Does that make someone an idiot? According to me it does. I won't vote for someone who thinks the Sun revolves around the Earth or that the Earth is flat either. Nobody except the hardcore evangelicals are going to vote for this guy. He won't even get the anti-Clinton vote. Odds of winning: 0% versus either Clinton or Obama.

Fear and Loathing in Georgetown's current dream job

Although subject to change before I finish this post, my current dream job is anything at the Organization for Economic Co-operation and Development (OECD). What is the OECD?

From their website:
The OECD brings together the governments of
countries committed to democracy and the
market economy from around the world to:

• Support sustainable economic growth
• Boost employment
• Raise living standards
• Maintain financial stability
• Assist other countries' economic development
• Contribute to growth in world trade

Why do I want to work there? First, I am interested in the goals of the organization. Though I have issues with their harmful tax competition stuff, which I will not dwell on during this post.
Second, it is based in le Château de la Muette in Paris (picured below). Lastly, I believe that the employees are exempt from income taxes. Living in Paris without taxes. Mon Dieu.

On Feminism

I agree entirely with the fundamental point of feminism -- women and men should be treated equally. Women should be able to pursue any profession, and they should not be subject to discrimination within their chosen occupation. Moreover, I agree that gender, and more precisely gender roles, are, at least in part, socially constructed. However, I do object to some of the metrics used to determine whether discrimination exists and the suggested policies to ameliorate discrimination.

Some of the social constructions regarding gender are harmless in my opinion.
For example, the use of blue and pink to differentiate boys and girls. Some people disagree and clothe their baby in yellow or green, but I think that just complicates matters. I can never tell from looking at a baby if it is a boy or girl, and it is uncomfortable to ask.

Likewise, boys playing with trucks and girls playing with dolls is not a big deal to me. Some may argue that playing with trucks leads to higher paying careers in construction or engineering, while dolls encourage domesticity. I am not sure I buy that argument. I played with trucks and dolls, and I don't think it has really effected me either way.

Next, we get to the differences between the sexes. Anybody who has been in a long-term relationship with a member of the opposite sex knows that men and women place different values on different aspects of the relationship. While it is an oversimplification, and there are of course exceptions, men tend to focus on the physical aspects and women more on the emotional aspects. Likewise, I believe that men and women may value different things in their careers. This will lead to different choices of career path, and is not necessarily proof of discrimination. Nonetheless, any woman who would like to pursue a male-dominated career obviously has every right to do so, but a field that has less than 50% women may be a simple self-selection issue. Alternatively, it could still be discrimination.

Are these differences socially constructed? Maybe in part, but I have read stories from enough cultures and centuries to conclude that the focus on the physical by men and the emotional by women appears universal. This universality leads me to believe that the root of this difference is biological. Biological differences make people uncomfortable because they have been used to justify some terrible things in the past, but to say that men and women are biologically the same is preposterous. Moreover, to say that there may be differences, but they are irrelevant is only slightly less preposterous. So, these differences in relationship focus could be more generalized to different focuses in life, which leads to different career decisions.

So, while I agree with the goal of equality, one cannot forget that there are differences. This means that equality of opportunity for women should be vigorously defended, but that metrics such as percentage of women in an industry does not prove discrimination. Moreover, the recent attempts to argue that equal pay for equal work applies across industries is problematic for me.

Nurses are more highly educated than long-haul truck drivers on average, therefore nurse should make more money is one of the recent arguments. However, this ignores the non-monetary benefits of each profession. Nurses get to sleep in their own bed, presuming they are not on-call. Truck drivers live a lonely life on the road. To encourage people to drive across the country by themselves, they require a higher pay. Under sea welders would be another example of this.

Oil rigs need to be repaired. It is cold, dark, dangerous work. There is a training requirement, but their pay far exceeds the average returns to education because very few people want to do it. It is a risky profession. This is another difference between the sexes - women are more risk averse than men. Yes, there are exceptions. For example, female X-game competitors are less risk averse than me. But exceptions cannot be used to disprove a rule when we are talking about public policy. Since risk is compensated in wages, this means that men will have higher salaries than women on average. If both a man and a woman have equal years of experience in deep sea oil rig repair, then by all means they should be equally compensated. But a female dive instructor at a resort in Florida should not compensated as much as someone doing deep sea repairs. This cross industry stuff is for the birds.

This brings me to a big biological difference which explains, but does not justify, the reason for the double standard of sexuality between men and women in the United States, and almost everywhere else. If you have ever wondered why women are called sluts, but men are not, I think I have the explanation here.

When women have a child, they are sure that their baby is theirs. They were pregnant and gave birth to it. Men, on the other hand, can never be 100% certain. (Before DNA tests.) This led to a social construction whereby the promiscuity of women was a thing to be suppressed. No man can be certain that a baby born from a promiscuous woman is his. Therefore, society created this double standard. Is it right, as in just? No. Does this make sense? I believe so.

Why did women buy into this? I am not sure, but my guess is that the increase in the certainty of paternity increased the chances that the man would remain with the woman to raise the child. The probability of increased resources outweighed the cost of sexual repression.

That's who we got where we are, in my humble opinion.

Tuesday, January 22, 2008

Fed surprise

The Fed cut interest rates by 75 basis points today. That's huge!

Ben Bernanke is way smarter about economics, and probably everything else, than I am. He did a BA at Harvard, PhD at MIT, and was Chairman of the Economics Dept. at a school in New Jersey. As far as I can tell, he knows probably as much about monetary economics as anybody on the planet.

However, this is out of the theoretical area of economics and into the soothing panic area. That is mass psychology, not economics. I don't think this cut was a good idea at all, but then again he is way smarter than me. I still stick with my statement that Jun-Sept the Fed will have to raise interest rates because inflation is going to start spiking.

A primer: How the subprime mortgage mess became a credit crunch

This explanation glosses over some of the details, but offers a somewhat simple explanation of what happened.

The Smith family takes out a $100,000 loan from FatCat Mortgage Company. Let's say it is a 30 year fixed at 5% interest. That means their loan payment is $536.82 a month. Now, imagine that FatCat sold 1,000 of these loans. They now have $536,820 coming in every month for the next 30 years.

FatCat goes to MoneyBags Investment Bank and says we have a stream of payments coming in every month for the next 30 years. MoneyBags says, Great! We'll sell it for you. MoneyBags takes the stream of payments and breaks it up into 4 securities, we will call A, B, C, and D.

Security A gets the right to accept the first 10% of the money that comes in every month.
Security B gets the right to accept the next 15%, after A gets paid.
Security C gets the right to accept the next 30%, after A and B get paid.
Security D gets the right to accept the last 45%, after A, B, and C get paid.

A has the least risk, and least reward. D has the most risk and the most reward. If someone doesn't pay, D gets screwed.

So, the bond rating agencies, Moody's and Standard and Poors, rated these according to the historical rates of default on mortgages. Given this, A gets a primo credit rating, like IBM or GE. D gets the crappiest.

Well, if enough people stop paying, then D really tanks. People start to look at A, B, and C and say -- Whoa! Maybe this whole thing is going to fall apart. The values and ratings of all of these start to fall too.

People who had options and other derivatives based upon these securities start to freak out because their options are worth less. People don't know who has what. People start questioning the other banks because they are not sure what they are buying and selling. Banks hoard cash to cover potential losses from these securities. They stop lending to each other. You have a credit crunch.

Stock Market fall = Political issues for Beijing?

The rapid growth of the Chinese stock market over the past year or so has drawn millions of retail investors into the equities game. Here is an article from the IHT from a year ago.

"College students, yuppies, retirees and others are buying individual shares or investing in China's swelling mutual funds. Day trading is common since most investors use home computers."

It appeared like a can't lose proposition.

Here is a story from today about the Chinese market falling. "Chinese shares sank 4 percent on Tuesday morning, with losing issues heavily outnumbering gainers, as they followed world markets lower amid fears of a U.S. recession."

My question is: what will be the political repercussions for the Chinese government when millions are losing money? I wonder. It could be nothing, but when your government is using nationalism and technocratic acumen as the two justifications for their authority does a precipitous fall in your national stock market bring both into question? Maybe. Or maybe it will do nothing.

Monday, January 21, 2008

Obama v Clinton

Bill has been getting pretty dirty on the campaign trail. I think it is because he realizes that Hillary is in real trouble if the Democrats wake up from their identity politics in-fighting to decide which candidate has a better chance of being president. From where I am sitting, Obama wins hands down.

First, their policies are largely the same. At least close enough for most non-wonkish types to see no difference. So, this is a tie.

Second, on likability Obama wins hands down. Nobody wants to sit down with Hillary and eat lunch. One gets the feeling she would lecture you on the transfat in your french fries, and how she has a eighteen point plan to eliminate them. Whereas, one can see themselves sharing a bag of chips on the coach watching Sportcenter with Obama. Does this mean he would make better choices as president? Absolutely not. It does mean he would not be as grating to the American public for four years.

People either hate or love Hillary. There is really no middle ground on this one. Unfortunately for her the country is split about 50-50 on this question. Obama is liked by about 70% of the country. Granted she has been in the limelight longer, and been smeared longer. Even so, Hillary is going to have to resort to some really cold calculus and down right dirty tricks to overcome those negatives. Obama just might sweep everybody up on a wave of hope like a Care Bear. Again, does that mean he would be a better president? Nope. However, he has a much better chance of not ripping the country farther apart during an election. Nevertheless, he could be smeared into oblivion about his drug use, but I doubt it will matter. He has been totally honest about it.

Americans love honesty. Some might ask why Americans love Bill Clinton so much? It's simple. He told us he was lying to us as he was lying to us. On this score Hillary loses. Everybody thinks she is calculating and lying, but she lies about lying. Obama on the other hand says, yep I did some blow. I was young. What's the big deal? Don't worry the White House won't look like the end of Scarface when I am there.

This brings me to the Bill factor. Presidents usually go into retirement, pen a memoir, and do some speaking. Mostly they keep quite. The more they talk the less people like them. Jimmy Carter went from worst president ever to Democratic sage. Yet, he ruins it each time he starts talking. George Sr. is viewed as an elder statesman now. Bill could have been, and may still be even though he has gotten nasty on the campaign. However, who thinks he is going to keep his trap shut when he gets back to 1600 Penn Ave? Not me. And I think he will irrevocably damage his reputation while there.

My guess:
If Hillary is the nominee she has about a 50-50 chance of winning against anyone except McCain. If she is running against him, her chances fall to about 30%.
Obama has about a 60% chance against anyone, including McCain.

My Republican analysis will follow later. It is too wide open at the moment to narrow it down.

It's still true

If the US gets a cold, the world gets the flu.
European stock markets are falling. (In French)
World markets are falling. (In English)

I don't know what to say...

other than these are the most self-important 847 words I have ever read.

My problem with Deneen

I figure, given that I have posted about the insanity of Deneen's Peak Oil Theory numerous times, I need to explain the fundamental issue I have with it. It is quite simple actually, and it is his sophistry. His issue with the current American way-of-life is moral, not economic.

The moral case against the current economic system is, in my view, a loser. The huge benefits to life expectancy, etc are well worth the problems of the system.

Yet, he does not make that case. He argues that our system is running on oil, something that is running out, and therefore we must change our way-of-life drastically. Presumably, to some locally based communitarian nonsense that will be morally superior to the oil based economy. This is both doubtful, and unlikely to manifest itself. The use of faulty economic reasoning to make a moral case is what I object to.

Deenen is talkin' silly again

Patrick Deneen has offered what I view as the most concise explanation of his crazy theory thus far. I am thoroughly impressed with the use of physics as metaphor. It implies the inherent natural truth of his theory, but alas he is wrong again.

Here is the first part of the argument:
"The massive energy infusion of our domestic oil reserves effectively allowed us to ignore any concomitant and at times steep costs of that economic system given the increasing levels of oil production from 1865 until 1971. Costs like the creation of an enormous interstate highway system, the build-out of America's suburbs and the resulting massive alteration of our patterns of living, the built-from-nothing cities in deserts and swamps with their massive air-conditioning costs and irrigation demands, the expansion of a continental system of commerce with its energy intensive forms of production and transportation - all these and more were easily borne during a period of increasing domestic energy supplies. It was the oil reserves in Pennsylvania, Texas, California and Alaska that provided us the illusion that it was our ingenuity and Protestant work ethic, and not this one-time geologic blow-out, that made possible such achievements that would have been inconceivable to previous ages."

Okay, so what he is describing here are the consequences of our migration from animate forms of energy to inanimate forms of energy, ie The Industrial Revolution. As far as I can tell from this, the Industrial Revolution is bad and we should return to local, agricultural based economies.

Next, "In 1971 the nation no longer had the domestic supplies to allow us to sustain what we had already built, much less continue our now economically- and politically-essential growth. In spite of experiencing the dependency upon Arab tyrants that our oil addiction necessitated, we refused to heed the obvious loss of self-governance that continuation on our course now entailed. Rather than living within our means, we began selling the surplus value we had not created, but exploited, in our century-long fossil fuel burn-up. First we began selling our debt, the promise of any future growth of our national economy increasingly to foreign owners of our treasuries. Then we began selling our jobs, the outsourcing of work that allowed us to avoid paying the actual cost of products by exploiting human labor abroad. We began selling our military to regimes that proved cooperative or necessary, most recently a sweetheart weaponry deal for the Saudis (bought largely with petrodollars that we had been giving them in fistloads over the decades)."

Here we have the political-economic consequences of our use of oil. First, I would argue that our debt problem is related to poor fiscal choices by our politicians, not some inherent problem with the Industrial Age economic system. Why? Let's think of a long-haul trucker, something anathema to Deneen. The value created by his shipment goes to many people. First, the trucker gets paid. (Return to labor.) Second, the owner of the truck gets paid, ie trucking company. (Return to capital.) Third, a mechanic gets paid to service the truck. (Depreciation.) Fourth, diesel must be purchased. (We will call this return to land. All natural resources are referred to as Land in economics terms.) If the value of the shipment was less than the cost, then the trucking company would lose money. Therefore, even though money is spent on diesel and goes into the Middle East, the trucker, trucking company, and mechanic in the US all are better off from this transaction. Moreover, the person who ordered the shipment is better off, or they would not have paid for it to be deliver. So, we have at least four people better off in the US from this truck shipment, and we paid something to the Middle East. I would argue that the economic value created greatly exceeds the cost of diesel, and therefore we are creating more here than we are sending out in petrodollars. So, we are creating more value here, and the reason we are in debt to MidEast dictators is because of deficit spending by US politicians. Another reasonable explanation is that the trucking company borrows money from the middle east to buy more trucks, ie purchase more capital, and hence they can deliver more shipments. This employs more truckers and mechanics, and creates additional revenue for the trucking company, as well as consuming more diesel, so all benefit from the loan. Except maybe the environment, which is an entirely different issue.

Next, "All along it was clear where the collapse would begin: the money economy, built upon the "miracle" of compound interest, would one day become decoupled from the matter-energy economy which allowed for no actual miracles."

This idea traces its roots back to Aristotle's Politics, when he called money something "nonsensical," and that "money born of money" (interest) is "contrary to nature." My rebuttal to this comes later.

Deneen continues, "Our money system was able to function for the past century not because of our investing acumen, but because of our ability to utilize our potent but ultimately limited oil reservoirs. Growth would cease as a result of geological limits, but our money economy would continue to attempt to find ways to increase the growth of money in the form of loans. Eventually it would seek to make loans even to borrowers patently unable to repay those loans except under the assumption that the laws of physics could be suspended."

This continues the Aristotelian view.

Here is the interesting part of the arugment:
"In many respects, our nation is currently experiencing massive amounts of entropy - the loss of energy that naturally occurs in the conversion of fuel from one form to another. The effort to keep at bay the chaos of induced by constantly dissipating energy requires work, i.e., energy. As long as there are sufficient quantities of energy available, it is possible to maintain a high energy way of life without noting the growing levels of entropy. At the point at which energy becomes more constrained - that is, it begins to be difficult to avoid noticing and "paying" for the energy lost in the conversion from one form to another - our ability to control the resulting chaos will decrease and the consequences of entropy will become ever more evident. We have built an awesome society, but precisely because of our intensive energy lives we are approaching a reckoning in which all around us is the evidence of increasing levels of entropy."

This is good stuff here. He is using a physical law about energy to explain his economic reasoning about energy. I love the style, but disagree with his conclusions.

The transition from animate to inanimate forms of energy, ie The Industrial Revolution also necessitated entropy. Transitioning from a Conestoga wagon to a steam train required energy to build the train and railroad tracks. However, the benefits from the transition outweighed the costs because a train can move more stuff, over longer distances, faster, and cheaper than a prairie schooner. Capitalists realized this, and CHOSE to build steam engines and railroads.

Likewise, the transition from oil based motion to hybrid or other forms of energy will be made by the same choices. When oil becomes expensive enough to justify the cost of gas-electric hybrid vehicles, people will choose to buy hybrid vehicles. Moreover, as costs for oil increase, the returns to a hydrogen vehicle will spur R&D into hydrogen power. The benefits of the change must be greater than the entropy of the change.

I will also use the entropy analogy to explain the problem with Aristotle's view. People naturally search for efficiency. The loss resulting changing from one form of energy to another, entropy, is an inefficiency. Likewise, the difficulty of changing from one form of good to another is inefficiency. Think of it as economic entropy. Economists also use a term from physics to describe this issue -- friction. Money allows people to trade what they produce for other goods efficiently, and therefore reduces entropy.

Lending and interest reduce friction, or entropy, as well. When somebody has a need for money now, and someone else has a surplus of money, the loan allows the borrower to use it for an economically beneficial purpose in return for paying back the original amount and some of this benefit to the lender. This reduces intertermporal friction. That is to say, that someone has money right now from which someone else could benefit right now. The lender lends the money to benefit in the future, ie the loan is repayed, the borrower uses the money now for immediate or shorter-term benefit.

If the borrower could not create a greater benefit from the loan than the interest they would not borrow it. Likewise, if the lender could find a better benefit from their money now they would not lend it. Therefore, both benefit, but at different points in time. However both benefit in the long run.

Entropy, or friction, is an inherent problem in economies. However, people chose to address them when the benefits of changing to a new form of energy, or even from one good to another, exceed the cost of switching. The idea that entropy is immutable and constant in nature sounds as if it is constantly slowing everything down. However, drastic changes, such as the one Deneen is calling for, only occur when people choose to change energy sources. This may be because a newly discovered form of energy is cheaper and more efficient, or because the current form of energy raises in price so much that alternative forms become cheaper and more efficient in relative terms. Deneen's argument that we need to lower our energy usage because we are running out of oil only makes sense if there are not other forms of energy, which there clearly are. They may be too expensive right now vis-a-vis oil, but if oil costs increase they will no longer be relatively expensive.

Common objection: Oil is something that everybody uses everyday. How can we transition? Well, I will not say there won't be some difficulties, but the end of civilization as we know it is ridiculous.

We use things referred to as tinfoil and tin cans everyday, but they are made from aluminum, not tin. Why? Because we were running low on tin in the early 20th century.

I bet they were asking the same questions Deneen is asking today. How can we support our urban lifestyle without the use of tin cans to transport food to urban centers? Well, you don't. You use aluminum cans.

Aristotle's argument, and by extension Deneen's, are prima facie correct. Yet, they do not take into account the full benefits and costs of the situation. I can forgive Aristotle because he was trying to develop economics on his own for the first time. Deneen's arguments, on the other hand, are dilettantish.
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