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Saturday, August 31, 2013

Nut Up Or Shut Up

This article encapsulates the reason why it is necessary for the United States to intervene in the Syrian civil war. Simply put, America's street cred is on the line and if The Most Powerful Man In The World (aka, the President of the United States) draws a red line and fails to act decisively, that completely destroys the credibility of the United States in the realm of foreign policy.

Credibility is what keeps the world turning. Credibility in money allows it to be used as a store of exchange. Credibility in the law (and the consequences of breaking it) is what prevents people from behaving like animals. If you say you're going to kill the king, you better kill the king.

A lot of countries have staked their security on the implicit and explicit promises made by the United States government. The only thing preventing nuclear armaments from popping up in Japan and Korea is the American nuclear umbrella. Saudi Arabia, the most powerful Arab state, follows our lead because they trust us to do the dirty work in the region. Germany has resisted real rearmament because of NATO.

The United States has created a global framework in which the US has a military that is second to none, whose military expenditures engulf the rest of the world's, despite the fact that the US only accounts for 20% of the world's economic output. Everybody else has grown accustomed to this fact. And they are content to let us lead world affairs so long as we remain both powerful and credible.

That latter trait has become increasingly suspect in other capitals. US support and reassurance has prevented Israel from unilaterally acting against Iran and its nuclear weapons program. It has also kept a lid on the situation in the Korean peninsula and in Taiwan. It has deterred Russia from rearmament and reclaiming its "near abroad" as a formal sphere of influence. This has reduced the global share of military expenditures to extreme lows, which has then been reinvested in the global economy. So long as people are content with the US having the guns, they will churn out more and more butter.

That system that we've created is being pressured by the likes of Syria. If Syria can use chemical weapons and the US doesn't act on a clear transgression of international law, Saudi Arabia and Israel can't rely on us when it comes to stemming Iran's nuclear ambitions. South Korea can't trust us to act when it comes to North Korea's constant provocations. Japan and the Philippines can't trust us to contain growing Chinese ambition in the Pacific. US inaction in Syria will be a catalyst in creating a new arms race. And that ultimately endangers national security.

President Obama is stuck between a rock and a hard place. Failure to act means a very substantial loss of face both in domestic politics and internationally. Any military action will be controversial and likely unpopular. Actions from the White House and Foggy Bottom suggest that the Administration wants to offload as much responsibility as it can to Congress and our allies. But there is no decisive action without US involvement.

Simply put, the President needs to nut up against Assad. Erode his military assets via cruise missiles and keep it up until his chemical weapons infrastructure is completely destroyed. Then turn the fleet back to Italy and call it a day. It appears that a limited engagement appears to be all that the Administration is gunning for. But stalling won't make it any more palatable of a choice.

Tuesday, August 27, 2013

The Newsroom: Counterpoints and Retrospective (8/25/13)

We got a pretty strong episode tonight. The singular focus on the overarching plot really tightened the narrative and we had some strong performances from a lot of the actors as well. There weren't any in-your-face arguments but there were enough throwaway lines that should be addressed.

1. On the bravery and brutality of soldiers

I'm glad that they didn't forget Jim Harper's background as an journalist embedded with an infantry unit in an active combat zone. The story didn't pass Harper's smell test and a big reason why was called out by Jerry Dantana: he didn't want to think that those in the military ("they were the best people I ever met") would be capable of gassing a civilian population. Dantana counters by saying that the same people in the US military would take grotesque big game bounty poses among the corpses of enemies killed in combat and then urinate on their corpses.

I need to bust out a familiar trope. Not all troops are like that. Soldiers (or airmen, or sailors, or Marines) are people just like the rest of us. And that runs the gamut from "the best people I ever met" to pond scum, with most stuck somewhere in the middle. All of them are focused on keeping their comrades alive and well and getting the job done, day in and day out. Sometimes that involves acts of utmost bravery and nobility. Sometimes that involves posing next to corpses of the slain and then urinating on them afterward.

The military (mostly) keeps a lid on this by not giving active duty combat troops decisions above their pay grade. Infantry getting shellacked by enemy artillery in a fox hole are not going to be trusted with the nuclear football. And a pilot of a Sikorsky UH-60 is not going to have Sarin at his disposal. With the recent rumors of chemical attacks in Syria, it's raised alarms in every Western capital. This is not something that can happen if Western armies would dare to use Sarin in an extraction mission.

2. Lies in service to a greater truth

The first source they got to come forward hid his traumatic brain injury from the journalists because he wanted to be taken seriously as a source on something important. The use of Sarin gas is undoubtedly something that the public needs to know. The head of ACN News, Charlie Skinner, likens it to boys lying about their age in order to enlist in the army so they could fight the Nazis.

Dantana gets caught doing the same thing. But his greater truth also happens to benefit him tremendously as the producer behind the segment. This is seen as vastly less noble than the Marine who became their first source on Genoa. Although the show burns both people for not playing by the rules, we have to realize that those who make the rules do so to preserve their own power.

Nobody ever became great by playing by the rules. You become great by subverting the rules. By changing them. By doing things that advantage you, even if it is in violation of something else. Great countries became great by engulfing formerly great countries. And the winners get to write history. The show portrays both characters who lied to be doing something anathema to "doing the news right", but if the story had been real, then it would have never mattered.

People take risks and sometimes they get burned. That is the takeaway I got from the last episode, although I'm pretty sure the show wanted to teach the audience a lesson on integrity.

3. Challenging the Great Man Theory

McAvoy gives the lawyers, and the audience, a story about Claudette Colvin, the progenitor of Rosa Parks in the Civil Rights Era. He argues that had Claudette Colvin had the same traits that made Rosa Parks a sympathetic figure in the fight for black equality, Rosa Parks never would have become Rosa Parks and Martin Luther King Jr. might have never become famous for his activism.

Sorkin is making the argument that timing is everything. And because of that, there is no such thing as a great man. The great men that we idolize in history were simply vehicles of convenience during times of great change and turbulence. And this, I think, is closer to the nature of history than the myths that we're fed from movies. The greatest figures in history have always stood on the shoulders of giant things. Whether those things are general discontent among the peasantry and middle class in pre-Revolutionary France or the financial backing of Ferdinand and Isabella of Spain, no man is an island and no man can accomplish anything great by himself.

This is the principle behind President Obama's exhortation that change comes from the people. And that's why politicians watch polls. Political capital exists at the margins around the twin pillars of public opinion and general inertia.

4. Without the New Deal, we would have never gotten out of the recession

I have always been sympathetic to arguments that FDR's policies actually lengthened the Great Depression. But at the same time, all people need to do on the other side is point to this chart:

http://upload.wikimedia.org/wikipedia/commons/d/de/US_GDP_10-60.jpg

And say "and all that recovery occurred under FDR" and then you can convince a ton of people that FDR did, in fact, save the American economy.

In my opinion, FDR was the first modern President of the United States. Although expansions of Federal power happened in fits and starts before him (Jackson, Lincoln, Theodore Roosevelt, Woodrow Wilson), what we know as the modern Federal government really began under FDR's administration. Naturally, his policies have become a flashpoint among economic historians and the politically inclined.

But what that chart shows is that real GDP actually recovered to above the pre-Depression peak in 1929 during 1937 (before the mini-recession from 37-38 dragged it briefly down again). And there's no "preparations for WWII got us there" argument to be had. Lend Lease, the decisive break against neutrality against the Axis Powers, occurred in 1941 and preparations for it began in earnest in 1938, 1 year after we gained back all the economic ground we lost between '29-'32.

But economies are resilient. Declines in output snap back regardless of what the government does. The main reason why is because a country's wealth base isn't eroded during an economic contraction. The factories, roads, technologies, and people that enabled a country to produce X amount of goods are still there during a recession. The only thing that is lacking is confidence and optimism. Time restores it, not new government policy. Because people tend to overreact to extraordinary circumstances, economies have experienced large boom and bust cycles. If you average it out, the trend is upward because of increases in productivity. Productivity increases are generally driven by phenomenon occurring within the private sector.

From a purely intuitive sense, I can't stand New Deal worship. It paints the President and the Federal government as the saviors of the economy. In relative terms, the Federal government under Hoover made up 12% of GDP compared to FDR's 15%. But output collapsed by a full third from its peak. Even under Keynesian models, it would be foolish to attribute the recovery from the Great Depression to actions taken by the Federal government.

Thursday, August 22, 2013

Just Sayin'

If you think this article's headline is ridiculous, it's the same kind of attention grabbing cocksure proclamation that most articles on Slate and The Atlantic are guilty of having.

Wednesday, August 21, 2013

The Lessons of Capital Flight

India has recently made a splash in the financial papers as the rupee has experienced a dramatic and precipitous decline in recent weeks.

Market observers and analysts are attributing much of the decline to investors anticipating the Federal Reserve's tapering of its quantitative easing program later this year. Recent economic data suggests that the economy has recovered to a point where the Fed is finally comfortable with taking its foot off the monetary throttle.

Long term Treasury yields have increased dramatically in the past month. At the time of this writing, the 10 year Treasury note is currently yielding 2.81%. That's up from a yield of 1.65% in the beginning of May, a 70% increase in the span of 4 months.

Assuming no change in the Federal funds rate until December at the earliest, we will have experienced at least 5 years of near zero interest rate. That unsustainable rate has been the cause of innumerable headaches among fixed income investors. In their search for yield, they plunged into riskier and riskier asset classes.

Once people realized the world wasn't going to end, corporate bond markets rallied. First it was the investment grade bonds. Then came the massive (and arguably still ongoing) rally in domestic junk bonds. Desperate for more yield, investors also poured into both sovereign and corporate emerging market debt. India was a huge recipient of Western capital outflows and its domestic stock and bond markets saw huge increases since 2009.

Those outflows have turned into inflows as American investors are withdrawing overseas capital and reinvesting it into domestic markets. As the cost of imports becomes more expensive, India is currently experiencing a surge in inflation, which the central bank is fighting by increasing interest rates. There are a few lessons to take away from this, if you happen to be a central planner for an emerging market country.

1. Seigniorage, seigniorage, seigniorage: It's a weird word. But its definition is very important for a country's capital account. When your currency is at a high point, the best thing to do is to buy as much stuff from other countries as you can. Since you're exchanging real goods and services for pieces of paper that actually lose their value over time, you're coming out way ahead.

Developed economies have sufficiently deep financial markets that do a very effective job of smoothing out the volatility of floating exchange rates via futures contracts for commodities and currencies. But for developing economies that don't quite have the same luxury, it's important for them to take full advantage of a spike in currency valuation. Buy as much capital equipment as you can from the fine folks at Caterpillar, GE, Monsanto, and Dow Chemical.

2. Yield chasers always lose...eventually: The foreign investors currently beating a path to the exit are also taking huge losses even as they're indirectly inflicting inflation on Indian (completely unintentional alliteration, by the way) consumers. Chilean and Brazilian central bankers are less sanguine about their ability to fully exploit lesson 1 and have frequently resorted to capital controls to slow the inflows and outflows of Western capital in their respective countries.

Stability is an asset in and of itself. And as appealing as lesson #1 may seem, it can be extremely hard to follow through in reality. Latin American banks tried to get a handle on it all throughout the 70s, 80s, and 90s and results have been less than spectacular. It's hard to say exactly what a central bank should do when the country is experiencing huge inflows of hot money from foreign investors, but it does seem that many of them do feel like capital controls are part of the equation.

3. It sure is nice to have deep capital markets: Countries like the US don't have to put up with this kinda crap because our economy is large and we also, not coincidentally, have the deepest capital markets in the world. Price stability makes it much easier for the private sector to invest. And price stability is usually the result of careful, measured, and above all else, principled monetary policy that isn't subject to the whims and tempers of populist leaders and leftist central bankers.

Pick a system and stick with it. Any major changes have to be made with as much forewarning as possible so as to not surprise both the sophisticated investor and the man on the street. One thing is for sure, succumbing to political pressure is not good economics.

Monday, August 19, 2013

The Newsroom: Counterpoints and Retrospective (8/18/13)

This is The Newsroom I remember from season 1. Time goes by. Events are covered. Some briefly, some in depth, and some in covert manner. Characters progress in their development, and the show moves into the final stretch. We just passed the 2/3 mark of the season. That being said, let's get down to tonight's episode.

1. Atropine

They finally addressed how the extracted targets were able to survive the Sarin attack. But color me skeptical. Death from Sarin happens through asphyxiation, which can happen in just minutes. If they already had custody of the extraction targets, this would be more plausible. But at the same time, we're giving the Pakistanis too much credit.

In Iraq, the area where US troops saw the most combat, the vast majority of fighters in Iraq were poorly trained to an exceptional degree. They would describe the panicky soldiers' immediate unloading of their weapon (most often the 30 round magazine of a fully automatic AK47) upon any provocation in any direction as the "Iraqi death blossom".

I imagine the average Pakistani fighter is just as poorly trained. Any symmetrical combat with two elite MARSOC units would be a grossly unfair fight. Combine that with the fact that the 2 UH-60s could provide a decent amount of non-chemical anti-personnel fire support and the fact that you could have Reaper (a maximum armament of 14 Hellfire missiles) and Predator drones loiter over the area, the case for chemical weapons is just too weak to make.

At the same time, I'm glad they covered their bases. Most of the characters seemed skeptical and it's been revealed that the segment producer, Jerry Dantana, had an axe to grind against the Administration and that affected his judgment and his ethics. So all in all, I guess the story itself can pass the threshold for plausibility.

2. Fallout

They also touched on the potential fallout that this kind of news could create. I imagine it's quite difficult to wrestle with the implications that breaking news could have, especially when it comes to extremely politically sensitive topics.

I'm not in a position where I can make a material impact on such matters. But my own view (from the peanut gallery) is that you shouldn't worry about it. The news itself doesn't matter. It's the environment in which the news is broken that is the real problem. Many failed states in the Arab world love to redirect domestic anger to an external target. Given the fact that the US is the biggest player on the world stage, it's only natural that any negative story that can be attributed to us would be incendiary to the point of riots and terrorist attacks to certain peoples.

When Abu Ghraib (Don's reference to 2005) broke and the Arab world rioted, I was surprised at the reaction. Although the extracurricular activities of the night shift prison guards (I stole that from Niall Ferguson, I think) were disgraceful and highly unprofessional, the prisoners weren't actually hurt. Degraded, sure. But it isn't riot worthy.

If it wasn't Abu Ghraib, it would have been something else. The environment is caustic and every now and then, the Arab street has to riot over something. The what isn't really the issue. When you have a bunch of disenfranchised, poor people in one place, you're bound to have a highly combustible situation. Any provocation would have set it off. And the response is always going to be ridiculously disproportionate. The Dutch Mohammed cartoon set off the same kind of furor. And Rushdie's The Satanic Verses kicked off another similar reaction and that was before 9/11 and the War on Terror.

It's not the story. It's the environment.

3. Don't just do something! Sit there!

McAvoy criticizes Congress for not passing enough laws. But how many laws does this country need? The United States Code spans 51 Titles, over 200,000 pages long. The Federal Register contains half again that amount. This is the primary reason why the executive branch has so much power, because the amount of laws already on the books is enough to cover just about anything.

Federal departments and agencies have so much discretionary power and prosecutorial heft that they can cow just about single organization into compliance by the mere threat of a civil suit. The non-political parts of the Federal government, which is the part of the Federal government that actually regulates the affairs of the country, is largely self running.

That is the primary reason why hard-charging idealists quickly become jaded when they finally achieve elected office. Because there is a gargantuan amount of inertia and even the most hardline and fanatical of lawmakers and Presidents will run up against the wall of a huge bureaucracy that is entirely unaccustomed to rapid and fundamental change.

Even with everything that's happened in the past 5 years, this is still one hell of a country to live in. And the laws and regulations that govern the country are more or less the same laws and regulations that governed the country 20 years ago. Sometimes those laws need to be updated, but Congress should not be held to some arbitrary metric of number of laws passed.

4. A Nobel Prize in Economics


That isn't a qualification for being a Fed Governor. And it shouldn't be treated as such. The awarding of Nobel Prizes for economics, literature, and peace have always been highly political and largely symbolic. President Obama won it shortly after his inauguration and the Nobel committee didn't even try to pretend that he did something.

Frankly, I don't trust the professoriate. Somebody who lives their entire professional lives in a completely sanitary and artificial environment doesn't deserve much respect when it comes to decisions that actually affect people outside the world of academia. There's a reason why Class A and B directors of the New York Fed are comprised solely of high finance CEOs rather than professors of finance.

On the flip side, I don't think a Fed Governor's job is that hard. Obviously it's much more important when you're on the FOMC, but frankly it's just an important position. The decision making process is arduous and is comprised of an incredible amount of hand wringing, but the decision itself is relatively straightforward. What should the target rate be? Should we expand the money supply? And by how much? Those are the 3 questions that the Fed has to answer with every FOMC meeting. You could probably take a poll of the S&P 500's CEOs and come to a similar conclusion.

5. Ron Paul 2012, WOOHOO!!!

One of my roommates back in college was a Ron Paul supporter. The guy was certifiably nuts. He wanted a return to the gold standard. Didn't trust paper currency at all. And stored his wealth primarily in silver, guns, and ammo. He talked about forming a militia and predicted the demise of the US government within a generation.

And yet, he was an excellent student and had a degree in hand as a software developer before he graduated in the spring of 2009, the absolute trough of the recession. Despite all his crazy beliefs, he still turned out to be part of the upper end of the socioeconomic ladder. This is the thing that I think drives liberals crazy. A lot of people who support the kooky candidates are relatively well educated and financially well off. But in Sorkin's world, politics is the only thing that counts, so they discredit these kinds of people based on their fringe political ideologies, as if they are the only people who have fringe beliefs.

The Paul supporters are a bit of an odd lot, but it's nothing too weird. And many of them lead high functioning lives, just like the rest of us.

6. Mitt Romney's character assassination 

They had to use a former Romney spokesperson to make the case but I feel like the case should have been made by McAvoy, who isn't really interested in making Romney look good. Odd considering that they're both old school Republicans. But anyway.

Mitt Romney's character assassination by the media was shameful. And it was so obvious. He is many things. And he sure is a caricature of a WASPish mainline, old money Republican politician despite the fact that he's Mormon and relatively new money, given the fact that he made his fortune (instead of inheriting it) in the go-go 80s during the Reagan Administration.

The media played up the stiff, corporate shill caricature as much as they could because they rightly feared that he was the most electable Republican in the field. The one thing that I felt was fair coverage was that disastrous 47% video. I remember when then-candidate Obama had a similarly leaked video about white people clinging to guns and religion, and although what he said was rote liberal's liberal orthodoxy, he couched it in terms that made it slightly more palatable going down.

Romney made no such effort, and the media wasn't in the tank for him as they were with Obama, so he took the full brunt of the unforced error. And he paid a big price for it, although I don't think that decisively tipped it for Obama. In the modern era, it is exceptionally difficult to unseat the incumbent President and you need a lot of lucky breaks to happen one after the other in order to make it happen.

I'm pretty angry about Romney's media treatment because I genuinely liked the guy. And I'm not really predisposed to liking him. But learning more about him I saw a person who was disciplined, hard working, honorable, deeply religious (in a good, caring, and helpful way) and who lived a model life. And he was successful at everything he did. Management consulting to finance CEO to public organization administrator (SLC Olympics) to governor, he was simply good at everything and just a good guy. He just struck me as more like the politician who got involved because it was the right thing to do rather than the career politician who has an unquenchable thirst for self aggrandizement. I really liked Mitt Romney.

And he would have been very good for my portfolio. Although Bernanke's extremely aggressive monetary policy has been the biggest contributor to keeping my stocks in the black.

7. The dent

Did anybody else notice that there was a dent in McAvoy's second refrigerator in his luxury Manhattan condo? That distracted me in that scene. Pretty weird, huh? That we expect pristine sets on TV?

Tuesday, August 13, 2013

The Newsroom: Counterpoints (8/11/13)

Tonight's episode was something of a bottle episode in the sense that everything took place during a two hour broadcast of News Night With Will McAvoy. No real agenda was being pushed, but there were a few talking points that need to be addressed. And some hypocrisies to be pointed out as well. So let's lead with that.

1. Trayvon Martin is a big deal, and we're going to do our damndest to cover this thing.

Again, no real agenda being pushed. But in the absence of the agenda, we should simply analyze what we watched. Jim and Maggie waited for an interminably long time to download a ~270 second sound file of the 911 call that George Zimmerman made. Given the fact that the show didn't make the story seem insignificant, I guess we're supposed to accept that the killing of Trayvon Martin was a big deal.

Back in season 1, Will McAvoy made a huge fuss about how the Casey Anthony trial was utterly insignificant and non-newsworthy. Young, white single mom allegedly kills her baby and the entire country goes apeshit over something that is, in the grand scheme of things, entirely insignificant. I fail to see how the Trayvon Martin killing is any different. In both instances, somebody is accused of murder. The only significant differences are relationship and skin color.

Nowhere in the episode did anybody in the show remark about how this shouldn't be newsworthy. If there is a racial component, why do we have to make such a big deal out of it? Because people care about race. Mothers have killed their own children before. Why did we make a big deal out of Casey Anthony? Because she was a young, attractive white female. Race and attractive white females are apparently things that move the needle in this country.

There is a certain hypocrisy to this. Both instances involve an event that does not have any material impact to people outside of the parties' immediate families. But it still garners national coverage. If we're supposed to judge News Night as a show whose stated aim is to educate voters on political issues, both issues fail on that merit.

2.  Staff Sergeant Robert Bales

I remember when this story first broke and I was saddened by what happened. Stories like these give face to the immense pressure that we're putting on our men and women in uniform. It is so hard to fight a war. And it's even harder to fight it when you're stationed in a foreign place where much of the indigenous population actively hates and fears you.

The wars we have fought in Iraq and Afghanistan have had no clear aims beyond the initial objective (destroy al Qaeda and remove Saddam Hussein from power) and we stuck around to keep whatever peace we could. It was much more successful in post-war Europe because the American soldiers were treated as liberators and heroes, not unholy enemies.

Every day, we ask our infantrymen to put their lives and the lives of their comrades on the line for vague reasons that have very little strategic value. Counterinsurgency is exhaustive work, and when you've seen the people closest to you (and there are no people closer than those who have fought and died together) die for no discernible objective, I imagine it takes a toll on even the most hardened of combat veterans. Sometimes people snap, and that is something that the country must consider when it sends its bravest into battle.

3. Sandra Fluke shouldn't matter and the prudes of this country make everybody worse off.

Can we all agree that Rush Limbaugh is a mean spirited shock jock who we should all ignore?

4. The President doesn't have influence over the price of oil. It's set on international markets.

To begin, as a technical matter, Chevron, as McAvoy explicitly mentioned, cannot actually sell all the oil it wants to Australia. By law, any oil that is extracted within the US and its territorial waters cannot be exported. It's outdated, especially given the new supplies and production capacity we've acquired with hydraulic fracturing. But it's still on the books and actively enforced.

While it is, from an economic standpoint, stupid to blame President Obama for gas prices that doubled since he took office, it must be said that sitting Presidents do have the power to affect the price of oil on the margin. The executive branch has large regulatory power over the prospecting and drilling of oil within the country. Given the fact that hydraulic fracturing took off around 2009, had the President instructed Interior, and the EPA to be more lax on drilling permits and land leases, it would have a real impact on oil prices and supply.

Just look at North Dakota:

http://www.eia.gov/dnav/pet/hist_chart/MCRFPND1M.jpg
Source: EIA








In less than five years, North Dakota rocketed all the way to 2nd largest oil producer within the US, with only Texas beating it in production. 1 out of 10 barrels produced in the US is now produced within North Dakota. That's all thanks to hydraulic fracturing. By 2020, the US is projected to overtake Saudi Arabia in oil production due to this incredible technology. If the Obama Administration hadn't put the brakes on exploration and leasing on Federal lands, it might have been sooner.

5. Philosophy degrees are worthless.

Can't argue with Sorkin on this one.

Monday, August 12, 2013

Rain Check

Unfortunately, I was unable to watch the first premiering of the newest episode of The Newsroom and HBOGO was being uncooperative. I just finished it now and a recap/counterpoints post will have to wait until tomorrow. Stay tuned.

Friday, August 9, 2013

Unemployment in the Time of Plenty

The cold, hard truth is that we could have a 30% unemployment rate and still keep our same standard of living.

This is not a popular truth. And it's something that no policymaker will ever admit to publicly. But it's built in our economic models. It's been observed empirically, both in historical times and today. And it reflects the extraordinary technological progress we've made in making the economy more specialized and streamlined than it has ever been.

99.9% of humanity's existence has been spent living an extraordinarily penurious lifestyle. Whether that lifestyle was sustained through gathering, hunting, or subsistence farming, it was a very hard life. And everybody was "employed". Kids joined the workforce as soon as they were able to stand on their own two legs. Hobbes put it best. Back then, before the advent of civilization, when humans still banded together in very small tribes, the average life was solitary, poor, nasty, brutish, and short.

Progress came very slowly, at first. The first great leap into modernity was the formation of sedentary societies. Agriculture enabled tribes to expand to something bigger. A more predictable food source that didn't require large amounts of traveling to obtain made it possible for tribes to turn into societies. And the most successful societies grew to the point where it was impossible for any one person within the society to be fully cognizant of every other person within the society. That's when societies turned into civilizations.

Civilizations demanded something beyond basic human instincts. It required a great deal more cooperation. Roles became much more specialized. The vast majority of people would still be food producers (farmers, hunters, and gatherers). But others needed to have more technical skills. Blacksmiths created tools which drastically increased the productivity of any given farmer. Soldiers would protect the civilization from the incursions of other civilizations, which would allow farmers to work in peace. Princelings and chiefs would serve as arbiters and resolve disputes between people within the civilization.

But it wasn't enough. Civilizations could easily fail if the harvest failed or if a rival civilization came and conquered them. Because life was still so precarious, any agricultural surplus gained by the civilization would be immediately "spent" by procreation. A civilizations' strength was directly proportional to the number of people within the civilization. Most people would spend their lives as farmers. And the men would occasionally serve as warriors when the need arose. There were no other options, because any civilization that indulged (expending scarce resources) in things like art or entertainment would be taken over by a civilization who spent more of its resources on warfare and population growth.

For the vast majority of human history, it was a triumph of Sparta over Athens.

And then something changed. Technology had progressed to the point where it became possible to have both guns and butter. Productivity enhancements such as steam power, factory/assembly line work, looms, mills, and cotton gins made it possible for unskilled workers to become just as productive as an artisan who spent his entire life learning and perfecting his craft. This enabled society to become vastly more prosperous than it previously was.

Fast forward to today. We live in a society where it takes just 3 American adults out of 100 to feed the entire country. 200 years ago, it took 90 out of 100. And the employment rate of the US? The most recent data has it at 58.7%. And that excludes the 27% of the population that is deemed either too young or too old to work. The "real" employment rate is 43%. It takes 43% of the entire US population to create the goods and services that 100% of the US needs and wants. All the food, cars, houses, TVs, phones, toys, clothes, all of that. It just takes 4 out of 10 people to make all of that.

Think about how significant that is. We have so many kids who, by societal fiat, are economically unproductive. We've eliminated child labor because we don't need it. But every kid past the age of 5 worked full time, 60 hours+ per week, on their family's farm back in the days before the internal combustion engine. And we have a bunch of old people, long retired, who are past any point of being economically productive, living off of the collective effort of those still working. Back then, if you were old and you couldn't pull your weight, you were the first one gone when the next famine arrived. But famines don't exist in post-industrial economies.

43% supplies all the needs and wants of the 100%. And we have so many wants. Wants that have long since exceeded our needs. People who are poor are fat, instead of famished and near death. We've reached a point where living past the age of 50 is considered a fundamental human right, regardless of station. Our society deems that telephone (Obamaphones, anyone?) and TV (digital converter box coupons) service for individuals is important enough to warrant direct government subsidy.

During the worst depths of the "Great Recession", considered the worst period of economic performance since the Great Depression itself, unemployment peaked at 10%. It was considered calamitous. Our intelligentsia fretted endlessly over lost skills, experience, and the trauma of being chronically unemployed. And yet, a country like Spain, with an official unemployment rate of over 26%, is treading water as a large underclass of young adults and the elderly are being kept afloat by their parents and the generous welfare programs provided by their government.

During the panicky times of late 2008 and early 2009, employers shed millions of jobs. GDP dipped for 3 quarters and then came back in the summer of 2009, even as the country continued to hemorrhage jobs. At the very trough of employment, we had shed a total of 5 million jobs, and yet real GDP increased during that time. We cut 5 million people from the workforce and suffered no lasting damage from it. In fact, overall productivity actually increased. It implies that they were dead weight, and that a combination of technology and increased productivity from those remaining in the workforce was enough to make up for the loss of 5 million jobs.

The Pareto heuristic suggests that in many systems, 80% of the results are generated by 20% of the causes. If it holds true to the economy, it suggests that 20% of the workers produce 80% of the goods and services. And I can easily believe that it is very close to that. There are some extremely lazy people out there. And some extremely crappy jobs that add very little value to the overall economy.

What all this means is that, if push came to shove, our society could easily tolerate drastically higher unemployment levels than what we currently have. That is not a comforting thought. Especially when we're past the historical median point between recessions.

The US fought the last recession by doubling its publicly held national debt and by injecting 3 trillion dollars of money into the financial system, created out of thin air. It will be impossible to fight the next recession in the same way. That will result in drastically higher official unemployment as an underclass of Americans scrape by with menial labor that doesn't get counted in the official statistics.

Wednesday, August 7, 2013

In Search of Dragons to Slay

My dad came down to Atlanta for a weekend in order to do some housework and inspections before his new tenants moved into a home my parents own. During that time, he also made time to visit me. Half of that time was spent talking about investing principles and the movement of stock prices. The other half was him and my mom (via Skype) badgering me about getting a girlfriend so I can marry her and then have her pop out some grandchildren. Let it be known that this is not an unusual way for Chinese parents to spend time with their kids.

This is a familiar routine in my life. My parents had a pretty laissez faire attitude towards parenting (in comparison to other Chinese families). Moderate to long periods of relative autonomy would be punctured by brief, but pointed, bouts of hectoring about something or other. The thing they were nagging about always changed as soon as I had achieved it. High GPA and SAT score? Get into a good college. Got into a good college? Get a good job. Got a good job? Get a good (preferably Chinese) girlfriend. Got a girlfriend? Why haven't you married her? Married her? Where are the grandkids? Grandkids are here? Now you have to be rich so you can provide for them.

Don't get me wrong. I didn't mind it that much and I don't think it's unreasonable nor unhealthy for parents to have expectations of their children. In hindsight, I can say that they steered me in the right direction to make the right choices that you need to make throughout your life in order to be a relative success in society. Looking back on it, I appreciate the fact that they pushed me in a direct and transparent way as opposed to the passive aggressive covert battles that upper middle class white parents fight with their kids or the hopeful-but-clueless manner in the way that working class families raise their kids.

But sometimes it gets exhausting. No matter how many rungs you've climbed, there are always more to climb. And the methods for climbing them change because the rungs themselves have different shapes and sizes. This is roughly analogous to the progression of the average human lifestyle.

In the 18th century, the vast majority (95%+) of people lived on farms. They worked long hours during the spring, summer, and fall so that they could harvest the food that would see them and their families into the next year. From the perspective of the modern American, life was pretty dull, exhausting, and fraught with uncertainty, most of which revolved around failed harvests and contracting diseases.

In the 19th and early 20th century, as people began moving into the cities, many of them worked in menial service jobs like porters, salesmen, food service, general labor. Or they worked in a factory. They could buy food for themselves and could afford a few luxuries now and then. This was also the time when organized entertainment became much more prevalent, as miraculous things such as the train, radios and telegraphs made it possible to dedicate more time to leisure. Even then, nobody from today would want to live the lifestyle that those Americans lived.

In the immediate postwar period, which saw the greatest period of families moving out of the drudgery of the Great Depression and into prosperity. Families formed at a rapid clip. People moved out of the cities and into the suburbs and lived in single family homes. And in those homes were a radio, refrigerator, dishwasher, television, and a car or two, depending on how far dad was in his career.

Modern medicine improved greatly during this time, with the widespread use of vaccines and antibiotics eliminating the diseases that had once been the scourge of mankind. It was during this time period where diseases of affluence (heart disease, various cancers, and obesity) started their ascent to the top of the mortality charts, displacing longstanding heavyweights such as starvation, exposure, communicable diseases, and warfare.

The era we live in now is unprecedented. The vast majority of a person's time used to be spent keeping themselves properly fed, clothed, and sheltered. Now, we take all of that for granted. And because we've become so efficient at feeding, clothing, and sheltering ourselves, it's created a whole new set of problems that we have to deal with. Health care, which is a relatively new concept in the course of history, is now regarded as something close to an inalienable right in the developed world.

During these past three centuries, humans have improved their lot tremendously. And it seems like we are never satisfied with what we have, even when what we have now could have only been found in the wildest dreams of those who lived just 50 years ago. As soon as we've conquered one problem, it's onto the next. We'll stop only when we're dead.

Monday, August 5, 2013

The Newsroom: Retrospective (8/4/13)

There isn't much in the way of countering arguments during this episode. But a few things were brought up that need addressing. So let's get right to it.

1. Occupy Wall Street

When McAvoy told the Occupy Wall Street girl that she wasn't qualified to talk about things like predatory lending, financial crimes, corruption, and political donations on the show, he was absolutely correct. The problem with Occupy Wall Street's representation on the show is that it's not about pointing out the problem. People already know about the problems. It's about offering solutions, which OWS did not have.

Being portrayed like a leaderless, aimless rabble isn't flattering at all, but that's essentially what the movement was when it began in New York. It was just an amalgamation of students, the unemployed, and the underemployed raging against their own perceived injustices. The issues that Occupy Wall Street brings up, wealth distribution, the amorality of Wall Street, regulatory capture, these are all things that have been discussed and litigated since the 1800s.

OWS is/was a populist movement. And the populists first got their start in the 1800s. They wanted to reduce the influence of banks and corporations and increase the power of the working class and farmers. But unlike OWS, the original populists had their own political party. They won a smattering of local, state, and national offices but their biggest push happened when the populists were co-opted by the Democratic Party and William Jennings Bryant during the 1896 Democratic National Convention.

Even then, the Democrats/populists lost that election. But about twenty years later, they achieved all of their original objectives except the free minting of silver, which ceased being an issue after increased gold production after the Panic of 1896. OWS isn't like that. If you aren't seeking political office, you're a nobody. Because people in the know already know about the issues that OWS is railing about.

In a way, this is very indicative of youth in general. They want solutions to problems that they care about. But they don't want to be the solution. Their idea of helping is to talk loudly about an issue and hope that somebody else fixes it for them. That kind of thought process is no way to get things done. And if you can't get things done, you aren't taken seriously. And that's why Sorkin wanted to send up Occupy Wall Street. Important liberals get things done. Stupid, young, naive liberals just make important liberals (like Sorkin) look bad.

2. Africa

Watching those kids in the classroom scream and duck under their desks because they thought the camera one that one of the ACN employees (Gary Cooper, really?) was a gun was a really heart sick moment for me. Me, in my air conditioned living room watching a premium cable TV show on my 47 inch flat screen, watching these kids who did a pretty good job acting scared. It's uncomfortable being reminded that some of the most basic things that you take for granted are luxuries in other parts of the world.

The Newsroom really didn't try and push any agenda on Africa. I think at this point in the game, it's just something that needs to be noted. I actually remember reading a few articles in the Wall Street Journal and CNN.com that President Obama was sending 100 military advisers to Africa to hunt down Joseph Kony. At the time, it didn't make a huge splash. It really took off a few months later in 2012 when that Kony 2012 video went viral.

Somebody on Facebook shared the Kony 2012 video and I saw it in my newsfeed. And eventually this backlash occurred because despite it being one of the most viewed videos on Youtube for the year, nothing really happened. In a way, this was another youthful flash in the pan in the same vein as Occupy Wall Street. A lot of noise is made for a short while about some issue or other and then...it fizzles. Nothing happens. Here in August, 2013, nobody ever talks about internecine warfare in sub-Saharan Africa.

There was a scene in Game of Thrones in the last episode of Season 3 where one of the characters says "Careful with that. Start trying to work out who deserves what, and you'll spend the rest of your days weeping for each and every person in the world". Obviously nobody would be able to function if they cared about every person in the same way they care about their dog, but it's uncomfortable.

People who find themselves in great privilege are almost always very modest about it. Because deep down inside, we all know that we don't "deserve" what we have. Everything we have we owe to luck, circumstance, and the labor of other people, many of them long since dead.

I don't really have any point to this, but it's still worth noting that, despite all its faults, the United States is a really wonderful place to live.

P.S: Nice touch with the Toyota truck. It is the brand of choice in Africa. Although if they wanted more realism, he would have been driving an old Hilux instead of a Land Cruiser.

3. Nigger

I'll let Louis CK handle this one:


But on a related note, can people of Chinese descent say "nigger"? In polite company, the answer is obviously no. But it absolutely vexes me that nigger is a word that has taken on another life for black people. Quite frankly, it bothers me that there are many black people out there who will casually refer to other people by that word. I'm not offended when they get offended when white people use the word in a disparaging manner, I understand that completely.

It's one way to "own" a word by using it in a harmless context. I remember reading an article about how Jeremy Lin used the internet handle "ChinkBalla88" and understanding why he would refer to himself in such a manner. But at the same time, it's ridiculous. Both chink and nigger are derogatory racial epithets. Owning the term to trivialize doesn't make a lot of sense to me. The best way to handle these kinds of situations is to stop using the word and then disassociate from and discredit the people who continue to use it.

Owning a word is really a sign of insecurity. And sometimes to get past insecurity you simply have to stop being insecure. If somebody does something you don't like, you shouldn't do the same thing in a different context to "gain power" over it. Trying to gain power over something is just another way to project insecurity. Inform them that what they're doing is wrong and that they should stop it, and if they don't, just think less of them and don't bother with them anymore.

There's also the issue of overzealous policing of behavior. We have to burnish our social etiquette credentials to other people by calling out others on their breaches of etiquette. It's a good thing that we do enforce social norms, but at the same time, it seems like the reaction can be too severe precisely because everybody wants to prove to everybody else that they're decent human beings.

This racial prejudice stuff is just too complicated. It makes my head hurt. And that's all I have to say about that.

4. Vassar

Kaboom. 

Saturday, August 3, 2013

Real Time With Bill Maher: Counterpoints (8/12/13)

Oh boy. The last Real Time for 6 weeks or so. And one panel guest really made the show unwatchable. But the counterpoints must still be made. So let's get to it.

Barney Frank 1 (lisp translation): I respect Chris Christie, but he can't represent the moderate wing of the Republican Party if he single handedly stopped gay marriage from being legal in New Jersey.

This is a cheap shot at Governor Christie, who at the time stated that he felt like an issue of such social importance should be decided by voter referendum rather than the votes of elected officials. And it's not a dodge for the governor because New Jersey is a very liberal state. They will most likely vote to affirm gay marriage and it's better for local politics if it's done by referendum. It's much harder to look your neighbor in the eye and tell him he's wrong. It's much easier to attack an elected representative.

Alexis Goldstein 1: If Governor Christie wanted to honor the 9/11 victims, he should push for medical treatment for first responders.

First responders don't get medical treatment? Public employees who work for the city of New York and the Port Authority of New York and New Jersey actually get very good health benefits. I guess it's fitting to counter cheap rhetoric with even cheaper rhetoric but let's not pretend that government employees don't get good benefits.

Alexis Goldstein 2: Bradley Manning didn't do an indiscriminate leak of classified documents. He uncovered a bunch of things that the public should know about.

Barney Frank 2 (lisp translation): What Manning did was very harmful to US foreign policy and his indiscriminate leak of classified documents dramatically hampered our diplomatic capability.

This illustrates the classic conflict between liberals without power and responsibility and liberals who do have power and responsibility. What Barney Frank knows is that you can't have some enlisted Army intelligence specialist dump gigabytes worth of classified documents onto the internet to an avowed adversary of the US government (Wikileaks) and get away with that. Any attempt to justify his treasonous actions is weak and extremely lame.

Manning is lucky he gets to escape the ordeal with his life. I would have preferred death by hanging. To treat your security clearance so cavalierly and with such blatant disregard to the appropriate channels of authority while taking an oath to defend the US against her enemies is simply unconscionable. Military personnel should and are held to a higher standard than civilians. Manning is fortunate in the fact that his execution would have generated an unneeded political controversy.

Alexis Goldstein 3: We buy up distressed student loan debt and retire the debt because it's the right thing to do.

I am not inherently against populism. And I do think that college prices are vastly inflated and too expensive for the value a college degree confers (which is...not much). Retiring student debt represents a bailout for a very small number of college students, and to be frank, it's an idiotic gesture. The student loan market is worth over a trillion dollars. This can't put a dent into any of it. Futile gestures made by those who have very little power doesn't do a favor to anybody. There are only immediate beneficiaries who don't deserve special treatment.

Bill Maher 2: Ross Perot and Ralph Nader were laughed out of the elections but they had a point. Government is beholden to special interests and it's absolutely insane that the very companies that the government is supposed to regulate have such a large role in writing the regulations.

Everybody has a right to petition the government. And that includes the people who work for corporations. But I'm not going to hide solely behind the constitutional argument. The reality we live in is that the modern economy is extraordinarily complex. And most people in government understand that there are very few people in government who truly understand the industries and market sectors they're responsible for regulating.

The people who are engineers, and bankers, and lawyers, and doctors, they're all people who would rather work in the private sector. That leaves a bunch of non-engineers and non-bankers and non-lawyers and non-doctors in the government responsible for overseeing a bunch of highly complex and extremely specialized vocations. Can they even trust their own judgment?

There's a paradox at work here, because either the government has to rely on the very companies they're supposed to regulate or they lure employees from the companies to work for the government by promising lavish compensation (the executive pay schedule as opposed to the general schedule and excellent health benefits and work hours). But what you get is a revolving door between the government and the corporations.

It is impossible for the government to function properly and not also look like they're in bed with corporations and special interest groups.

Barney Frank, Jay-Z, Alexis Goldstein argue about police and public housing.

I thought Barney Frank did a terrible job arguing his case, especially when Jay-Z challenged him on a lot of things. His lisp really makes it even worse. What he should have said is that the government needs to do a better job of delivering public services (such as policing) to the people who need it the most and then also agree with Jay-Z that public housing is a disgrace and that the public should be engaged on trying to find ways for people to escape the poverty, violence, drugs, and despair that's so often found within Section 8 housing complexes.

On the issue of the police turning into special forces wannabes, the Wall Street Journal actually had a good essay on it a week ago. It is important to remember that, even with bloated budgets and unnecessary equipment (like armored personnel carriers), having cops on the beat does decrease crime rates. They just don't need military-equivalent setups.

The one applause line that Barney Frank had on Republicans defunding police departments was bogus. Municipalities are drowning in red ink and shedding public employees because they're so expensive. They've been promised exorbitant pensions and health benefits and it's politically unpalatable to raise taxes. So they cut public payrolls, and this has happened in bipartisan fashion, in both Democratic and Republican municipalities and state governments.

Observations:

1. Barney Frank is a nightmare. His lisp is too strong. He tries to dominate every conversation he's in. He's rude. A bully. I'm frankly shocked that such a person could have won reelection 10 times. Or that he won in the first place. He's a thoroughly unlikable person.

2. Alexis Goldstein is seriously naive. But she hailed from the Occupy Wall Street movement so I guess that's par for the course.

3. That other panelist essentially had 5 lines in the entire show. I felt sorry for him. Most of the show was just Barney Frank arguing with Goldstein and Jay-Z and Maher trying to moderate it without success.

4. Jay-Z should not have worn those gold chains. I get the fact that artists have to push boundaries and defy convention, but the fact is he is one of the most influential figures in black America. It's not enough to chide other rappers about drug use in your songs. And that kind of message gets muddled when you dress like a stereotypical rapper by wearing two huge, ostentatious gold chains. Wear a suit by Tom Ford, especially when you're going on that kind of show.

5. Jay-Z has the nerdiest laugh ever. I totally get his quote about him feeling like he's gotten away with murder. How could a guy that looks like he does, who sounds like he does (that laugh is seriously aggravating and effeminate) be such an incredibly successful rapper and businessman?

Thursday, August 1, 2013

Stupid College Kids

There were two shows on TV about the Iraq war, Over There and Generation Kill. In both of the shows, they had scenes where American soldiers looked among the bodies of dead Iraqi fighters and find out that they're university students from Syria. Some of the soldiers are surprised that young college kids with their entire lives ahead of them would want to come to Iraq to fight against the Americans.

In 2010, one of my friends came back from an extended trip to Africa and the Middle East. He brought back a bunch of stories about all the things he did, and some of his stories could have gone disastrously if events unfolded slightly differently than they did. My friend loves reminiscing about his experiences in foreign countries and he'll always retell those stories to anyone who will listen. At the time, he was a 4th year college student about to graduate.

After rewatching Generation Kill again, I suddenly realized that there was little difference between my friend and those Syrian university students-turned-jihadists. When people are young and adventurous, they'll look for visceral experiences. And many are especially attracted to dangerous ones. Anybody with an ounce of knowledge and experience could have told you that an untrained college kid trying to take on the might of the American military was essentially signing his own death warrant.

But that kid isn't thinking about his exceptionally low odds of survival. He's subconsciously thinking that he'll be the exception. Because in modern society, young adults have been raised to believe that they are the center of the universe. Their parents dote on them and shelter them from the harsh realities of the real world and once they go to college, they finally reach a point in their lives where they can sense that there is a world full of possibilities but not experienced enough to realize that many of those possibilities can result in untimely death and dismemberment.

For a Syrian university student, his entire life had been previously dominated by his family. His parents expected him to go to school and do well. His friends expected him to follow soccer and chase girls. When he gets to college, a completely new environment away from his family, and hears about the Iraq war, that is literally the biggest and most exciting thing that has ever happened in his life. And he's at the age where he finally has a decent amount of independence. How could he not go to Iraq and fight the infidel?

There is actually a precedent for this even in Western culture. When the United States finally decided to enter WWI, Congress instated a draft to raise soldiers for the war effort. One of the reasons why is because they didn't want the country's young elite (university students on the East Coast) rushing off en masse to die in the trenches. They wanted to spread the war effort out among the general populace.

The death of a young adult who was raised to be a farmer would be a much smaller loss for the country than the death of an upper middle class Harvard student, who is being groomed for a high station in society. That basic principle, protecting the nation's elite young adults, underlined future draft law. College enrollment would exempt you from military service, and it featured very prominently in draft dodging during the Vietnam war.

This phenomenon of privileged young adults itching to do stupid things in the name of declaring their independence is troubling. It suggests that we don't do a good job of raising kids to become well adjusted adults. There is always a critical period of a few years when a young adult's independence outstrips their judgment, and that's when they are most prone to making boneheaded decisions. Whether it's trying to visit the most dangerous places in the world or going up against the most dangerous military in the world, it represents the phenomenal stupidity of a privileged young adult.

Society should do a better job of raising our nation's elite. It would be better to inculcate small, measured doses of independence and authority to kids in an attempt to minimize that critical period of stupidity. This needs to begin in middle school, increase in high school, and then reach its fullest effect in college. It does the country no good to hover over our children from K-12 and then ship them off to fend for themselves once they go to college.