Posts Tagged ‘economics’

A pretty good statement of what I think

Monday, December 7th, 2009

My personal philosophy is pretty simple and I am not one to spend time ruminating about it. Today, I discovered a piece that sounds like something I would have written if I were to try to put down my philosophy. It also states pretty much my own opinion about politics in this country rght now. I just wish I were as optimistic as the writer.

Way back in the depths of time, Greek philosophers ended up with two basic and incompatible ways of looking at the universe. One way was materialism, which says that there is a material universe which behaves in a consistent way, and if you study it you can learn the way it works.

That’s the world view of engineers and scientists — and businessmen, for that matter. It’s the world view of people who understand and use mathematics, and statistics. It is a place where cause leads to effect. It’s the place that game theory studies. It isn’t necessarily inherently atheistic; a lot of religious people live in the materialist world.

But there are people who don’t. A different epistemological view is teleology, which says that the universe is an ideal place. More or less, it
exists so that we humans can live in it. And human thought is a fundamental force in the universe. Teleology says that if a mental model is esthetically pleasing then it must be true. Teleology implies that if you truly believe in something, it’ll happen.

This is pretty much it for me.

Another piece that I have previously referred to is appropriate to quote again here. This was a comparison of Gorbachev and Obama.

they do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.

Gorbachev seemed to assume, right up to the fall of the Berlin Wall and then beyond it, that his Communist Party would recover from any temporary setbacks, and that the long-term effects of his glasnost and perestroika could only be to make it bigger and stronger.

There is a corollary of this largely unspoken assumption: that no matter what you do to one part of a machine, the rest of the machine will continue to function normally.

A variant of this is the frequently expressed denial of the law of unintended consequences: the belief that, if the effect you intend is good, the actual effect must be similarly happy.

Very small children, the mad, and certain extinct primitive tribes, have shared in this belief system, but only the fully college-educated liberal has the vocabulary to make it sound plausible.

I think these two excerpts say much the same thing. Consequences derive from wishes. If we want something, it will happen. I even remember a movie with that theme. I will add a final quote that is also pertinent.

“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded—here and there, now and then—are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
This is known as ‘bad luck’.”

– Robert A. Heinlein

I think that says it.

Where do the tea parties go from here ?

Monday, December 7th, 2009

A Rasmussen poll suggests that the tea party movement is gaining strength. Right now, it outpolls Republicans among all but Republican self-identified voters, and isn’t far behind with them.

In a three-way Generic Ballot test, the latest Rasmussen Reports national telephone survey finds Democrats attracting 36% of the vote. The Tea Party candidate picks up 23%, and Republicans finish third at 18%. Another 22% are undecided.

Obviously, if you combine the tea party and Republican votes, you have a plurality.

Among voters not affiliated with either major party, the Tea Party comes out on top. Thirty-three percent (33%) prefer the Tea Party candidate, and 30% are undecided. Twenty-five percent (25%) would vote for a Democrat, and just 12% prefer the GOP.

These may be independents or they may simply be people who are uninterested in politics. What it does show is that the tea party brand is powerful, even among the least likely voters. They may also be those who do not read newspapers, a major source of Democrat propaganda.

The generic Congressional ballot shows the Republicans well ahead, suggesting that those supporting the tea party movement in principle are going to vote Republican.

Real Clear Politics tries to decipher the polls and concludes This is because “policy preference” questions or questions involving other political figures can ultimately skew the result of a later horse race question, by unintentionally leading readers to view the horse race in a certain frame. . The other polls tend to ask a list of questions about specific policies that may skew the party identification with some voters. Close to elections, this is often called “push polling” and it may help to win elections but it also make pollsters miss trends.

A second major factor is that Republicans don’t have much faith in party leaders and consider them out of touch. I would not be that charitable. I think they have entirely different goals from most voters. They want to get elected. We want them to govern responsibly. A weakness of democracy is the tension between those goals.

The tea party people I have met, and I have attended tea party events in two cities, are largely libertarian and have little patience with the pandering behavior of most politicians. The best solution, I believe, is for the tea party movement to take over as much of the Republican Party as possible before the next election. That means going to meetings and running for local offices, including the local party committees. This means a lot of boring work; I know because I’ve been there, but it is the key to reviving this party and, possibly, saving the country from decline and debt repudiation.

Yes, global warming is man-made

Friday, November 27th, 2009

UPDATE # 3: The IPCC chair says there is no problem. “Peer review” will save us. Full speed ahead to Copenhagen.

No surprise there.

UPDATE # 2: More chicanery. The raw data was dumped years ago and there is no way to check their work. This is not science.

UPDATE: Little Green Footballs blogger Charles Johnson, who became famous over the Bush TANG story (He was the first to demonstrate the fact that the alleged 1972 memo was written on a computer with Times New Roman font), has gone off the deep end on the climate data manipulation story and is attacking all the stories about data manipulation and falsification as “lies.” Charles is an expert by virtue of the fact that he is a musician. He seems to have gotten obsessed with creationism and this has led to his downfall on these other issues.

From his link, a comment explains it all:

Thanks, Gareth – NZC”S”C revealed yet again to be idealogues and propagandists with little knowledge of either climate or science; mere shills for the fossil fuel industry who fund them through the Heartland Institute.

And we know who funds the alarmists.

There is another comment that makes a much more sensible point:

Sorry CJ, this time your avoiding some troubling facts. If you haven’t go look at the code (I know your skilled in this area and you will see how bad this PhD quality code is to real SW that can endanger people). For those of us who stood by you on Rathergate, while your credibility was attacked by folks who don’t know why you made sense, you should realize there are some of us just as insightful and trained to detect bad assumptions, questionable massaging, unfounded theories on global climate.

The fact is the raw data across the globe (even the CRU raw temps) don’t show runaway global warming. It’s not just the emails (which you have been cherry picking, avoiding the hard ones where people tell others to illegally destroy data). It’s the code with hard coded overwrites. It is the deletion of data that tells a contradictory story, of cutting off the picture when it looks bad.

Honestly, I thought much higher of you than this.

BTW, to disagree with global warming does not make you a Palinista or Right winger. They can be right for the wrong reasons. Just like loving you family doesn’t make you an evil right winger – something else they have in common with all of us.

Whatever your issues forget them and look at the code and the data objectively. And realize Jones, Mann et al were persecuting people with differing theories and opinions. They were the ones acting like right wing purists – not us independents who just happen to be able to detect hundreds of problems with the current theories and the methods they use to hide the full picture.

Look at the entire picture, no matter how uncomfortable

This is an example of the fact that, unlike most left wing blogs, Johnson is still posting critical comments. We’ll see how he responds.

Unfortunately, he responds like a left wing blog:

re: #35 AJStrata

And I thought much more highly of you too, before learning that you’re a hardcore climate change denier who’s not above distorting and misrepresenting facts.

Oh well. He was right about the Bush story. I don’t know where this stuff came from.

It is now becoming clear that global warming is man-made. The cause is not CO2 but something simpler and more easy to explain. It was caused by the manipulation of data for the purpose of creating a fraud. When bankers and stock brokers do it, they go to jail.

Kiwigraph1

This is what the official New Zealand National Institute of Water and Atmospheric Research has posted as the unmistakable trend of temperature since 1853 in New Zealand.

Kiwigraph2

This is a graphic created from unaltered raw data, which is fortunately still available from their files. The raw data at the East Anglia CRU has been destroyed, making such a comparison impossible.

Straight away you can see there’s no slope—either up or down. The temperatures are remarkably constant way back to the 1850s. Of course, the temperature still varies from year to year, but the trend stays level—statistically insignificant at 0.06°C per century since 1850.
Putting these two graphs side by side, you can see huge differences. What is going on?
Why does NIWA’s graph show strong warming, but graphing their own raw data looks completely different? Their graph shows warming, but the actual temperature readings show none whatsoever!
Have the readings in the official NIWA graph been adjusted?
It is relatively easy to find out. We compared raw data for each station (from NIWA’s web site) with the adjusted official data, which we obtained from one of Dr Salinger’s colleagues.
Requests for this information from Dr Salinger himself over the years, by different scientists, have long gone unanswered, but now we might discover the truth.

At least the data was not destroyed as it has been at East Anglia.

What did we find? First, the station histories are unremarkable. There are no reasons for any large corrections. But we were astonished to find that strong adjustments have indeed been made.

About half the adjustments actually created a warming trend where none existed; the other half greatly exaggerated existing warming. All the adjustments increased or even created a warming trend, with only one (Dunedin) going the other way and slightly reducing the original trend.
The shocking truth is that the oldest readings have been cranked way down and later readings artificially lifted to give a false impression of warming, as documented below. There is nothing in the station histories to warrant these adjustments and to date Dr Salinger and NIWA have not revealed why they did this.

These people who committed this fraud (I agree that hoax is not the proper term as it is too benign) should be prosecuted. They were paid government funds to do research and they falsified it. Why ? That is still to be determined but there are several possibilities. They could have convinced themselves that the natural slight warming trend after the end of the Little Ice Age was more serious. They could be ideologically opposed to modern life and especially capitalism. Maybe they just thought that more funds for research would be forthcoming if a crisis was created.

Climate change is in hot water now.

Friday, November 20th, 2009

UPDATE # 6: An elegant analysis from Rand Simberg who is an engineer.

UPDATE # 5: Another excellent analysis of the whole data dump and what it means. I especially like this summary:

The emails are in fact uncharacteristic of typical scientific email correspondence because they include:
(1) requests to delete data to avoid Freedom of Information Act requests;
(2) requests to delete all copy of emails for secrecy;
(3) colluding with other supposedly anonymous reviewers in order to reject particular scientific papers;
(4) attempting to ban critics from any peer-reviewed journals by, for example, successfully getting them fired from editorial positions;
(5) participation and publication of patently absurd graphs and theories, e.g. using selected tree rings as some kind global temperature proxy and using that to justify restructuring the global economy; or publishing theories and demanding action based on data that they would not release; and finally
(6) collusion in the public animosity and hysteria directed against individuals and institutions who felt there was insufficient evidence of global warming and its causes to justify remedial action (e.g., calling skeptics “deniers” or “akin to war criminals” or comparing them to flat-earth advocates).
All these taken together are clear evidence that the actions of the scientists involved are well outside the mainstream of scientific behavior.

UPDATE # 5: More analysis of e-mails here. This is not good for Al Gore.

UPDATE #4: Some analysis of the data so far from Powerline.
As far as I can tell from the email archive, Briffa never did respond to the plant scientist. Jones’s email warning Briffa to be “very wary about responding to this person now having seen what McIntyre has put up” was written just three weeks ago. It, along with the rest of the email archive, makes an utter mockery of the alarmists’ claim that the science of global warming is settled in their favor.

On the contrary, the conclusion an observer is likely to draw from the CRU archive is that the climate alarmists are making up the science as they go along and are fitting facts to reach a predetermined conclusion rather than objectively seeking after truth. What they are doing is politics, not science. When I was in law school, this story was told about accountants: A CEO is going to hire a new accountant and summons a series of candidates. He asks each applicant, “What is two plus two?” The first two candidates answer, “Four.” They don’t get the job. The third responds, “What do you want it to be?” He gets hired. The climate alarmists’ attitude toward data appears to me much the same as that fictional accountant’s attitude toward arithmetic.

This is far from over.

UPDATE #3: more and more on the fraud which will be hard for failed divinity student Gore to refute. This is really going to be a fiasco.

UPDATE #2: Even the NY Times is covering the story which means the story is really big ! Some are even talking about a hoax!

If you own any shares in alternative energy companies I should start dumping them NOW. The conspiracy behind the Anthropogenic Global Warming myth (aka AGW; aka ManBearPig) has been suddenly, brutally and quite deliciously exposed after a hacker broke into the computers at the University of East Anglia’s Climate Research Unit (aka Hadley CRU) and released 61 megabites of confidential files onto the internet. (Hat tip: Watts Up With That)
When you read some of those files – including 1079 emails and 72 documents – you realise just why the boffins at Hadley CRU might have preferred to keep them confidential. As Andrew Bolt puts it, this scandal could well be “the greatest in modern science”. These alleged emails – supposedly exchanged by some of the most prominent scientists pushing AGW theory – suggest:
Conspiracy, collusion in exaggerating warming data, possibly illegal destruction of embarrassing information, organised resistance to disclosure, manipulation of data, private admissions of flaws in their public claims and much more.

Wow !

UPDATE: The BBC is after the hacker, intent on stamping out this sort of crime, no doubt.

A hacker seems to have gotten into the UK climate research unit database, including e-mails, and spread the files all over the internet. This will create a sensation in climate circles and some of the blogs have volume too high to keep up with. The news is already all over the world, at least the world of climate interest.

The director of Britain’s leading Climate Research Unit, Phil Jones, has told Investigate magazine’s TGIF Edition tonight …”It was a hacker. We were aware of this about three or four days ago that someone had hacked into our system and taken and copied loads of data files and emails.”…

TGIF asked Jones about the controversial email discussing “hiding the decline”, and Jones explained what he was trying to say….

The full e-mail is now posted:

From: Phil Jones
To: ray bradley ,mann@XXXX, mhughes@XXXX
Subject: Diagram for WMO Statement
Date: Tue, 16 Nov 1999 13:31:15 +0000
Cc: k.briffa@XXX.osborn@XXXX

Dear Ray, Mike and Malcolm,

Once Tim’s got a diagram here we’ll send that either later today or first thing tomorrow.

I’ve just completed Mike’s Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) amd from 1961 for Keith’s to hide the decline. Mike’s series got the annual land and marine values while the other two got April-Sept for NH land N of 20N. The latter two are real for 1999, while the estimate for 1999 for NH combined is +0.44C wrt 61-90. The Global estimate for 1999 with data through Oct is +0.35C cf. 0.57 for 1998.

Thanks for the comments, Ray.

Cheers
Phil

Prof. Phil Jones
Climatic Research Unit Telephone XXXX
School of Environmental Sciences Fax XXXX
University of East Anglia
Norwich

Whoooops !!!

It may be an innocent explanation is coming but this is the most aggressive source for global warming agitation. In fact, a jury has acquitted Greenpeace activists in Britain for damaging a power plant in the interest of reducing CO2 emissions. I expect the hacker, if he is caught, might not be treated as generously.

From: Kevin Trenberth
To: Michael Mann
Subject: Re: BBC U-turn on climate
Date: Mon, 12 Oct 2009 08:57:37 -0600
Cc: Stephen H Schneider , Myles Allen , peter stott , “Philip D. Jones” , Benjamin Santer , Tom Wigley , Thomas R Karl , Gavin Schmidt , James Hansen , Michael Oppenheimer

Hi all

Well I have my own article on where the heck is global warming ? We are asking that here in Boulder where we have broken records the past two days for the coldest days on record. We had 4 inches of snow. The high the last 2 days was below 30F and the normal is 69F, and it smashed the previous records for these days by 10F. The low was about 18F and also a record low, well below the previous record low.

This is January weather (see the Rockies baseball playoff game was canceled on saturday and then played last night in below freezing weather).
Trenberth, K. E., 2009: An imperative for climate change planning: tracking Earth’s global energy. Current Opinion in Environmental Sustainability, 1, 19-27, doi:10.1016/j.cosust.2009.06.001. [1][PDF] (A PDF of the published version can be obtained from the author.)
***

The fact is that we can’t account for the lack of warming at the moment and it is a travesty that we can’t. The CERES data published in the August BAMS 09 supplement on 2008 shows there should be even more warming: but the data are surely wrong. Our observing system is inadequate.***

Is it a conspiracy ? Some people think so. Well, this should get the pot boiling.

The Tea Parties and The Great Awakening

Monday, November 16th, 2009

There is an interesting post today on Powerline from a professor at Hillsdale College. I have attended a couple of Tea Party rallies and am convinced this is a major movement in the country. They were not organized by the Republican Party or Fox News and they are largely libertarian in philosophy. I can’t even recall seeing an anti-abortion sign at one of them. That’s not to say that the attendees are not social conservatives. I just think that financial and tax issues trump all that right now. Here are some of the statements from that piece that particularly struck me.

However, the Guardian, a left wing newspaper in Britain, is alarmed at this phenomenon.

Indeed, to examine the impact of both Palin and Bachmann is to see an America split firmly into two different worlds. The first is a liberal one where such politicians make outlandish comments that become the butt of jokes on the Daily Show or Saturday Night Live. The other is one where Palin and Bachmann are the victims of a liberal media that hates its own country. “For their supporters, attacking Palin and Bachmann actually gives them the proof that they are the victims that they already believe themselves to be,” said Bowler. To the conservative mind-set, these women are truth-tellers who are viciously attacked precisely because of the validity of the message that they are carrying.

Yes, it is alarming. Unfortunately, there is no similar movement in Britain. Instead, Labour voters seem to be joining a real fascist party.

Back in early September, I attended the annual meeting of the American Political Science Convention, which was held — for the first time — outside the United States in Toronto, Ontario, Canada.

One of the panels I attended had as its focus the first eight months of the Obama administration and that administration’s prospects. Those on this particular panel were for the most part on the right, and in an utterly sober fashion they discussed the stimulus bill, the likelihood that the Democrats would pass a health care bill, and the prospects of the two parties in the 2010 midterm elections.

I was struck by one thing. No one even mentioned the tea-party movement and the explosions that had taken place at town meetings throughout the country in August.

So I asked why no one had mentioned it, and one political scientist — an exceedingly distinguished and astute student of presidential elections — responded that the tea-party phenomenon was, indeed, strange. It had, he noted, no institutional support. Nothing more was said. That was the beginning and the end of the panel’s discussion of this phenomenon.

Here is a political science meeting by the national association of scholars in this field. There is no mention of the Tea Party movement. Is there a better example of the failure of academic institutions to understand the country ?

He then links to an earlier post on a previous example of a spontaneous mass movement in American history.

In the early 1830s, when Alexis de Tocqueville visited Jacksonian America, he was taken aback by much of what he encountered. Nothing impressed him more, however, than the demonstrated capacity of the Americans to form private associations for public purposes.

This phenomenon – illegal in Tocqueville’s France and rare on the continent of Europe, even today – amazed him. He was particularly struck by the political consequences of the Americans’ confident practice of what he called “the art of association.” For, as he discovered, opposition had sprung up to the so-called Tariff of Abominations outside the existing political parties.

This opposition was especially emphatic in the South. But, in a fashion that seemed spontaneous, organizations had been independently formed in every district of the country, and then they had joined together in a great network to bring pressure upon Congress.

Tocqueville did not express an opinion regarding the justice or wisdom of this movement. What interested and excited him was simply its existence. For it proved that, in a great commercial democracy established in an extended territory, civic agency was a genuine possibility. It proved that the residents of the United States of America were citizens, not subjects, and it demonstrated that the condition that he called “soft despotism” was not the only possibility afforded by liberal democracy.

The tariff is explained at the link but it does not mention the Great Awakening, which is often described as religious in nature. The first Great Awakening occurred in colonial times and is thought to have contributed to the Revolution. The Second Great Awakening is still considered to have been religious but it led to the abolition movement and, eventually, to the Civil War. To de Tocqueville, however, the crisis of the tariff was at least a part of the movement. Henry Clay, in an attempt to defeat a protective tariff sponsored by New England manufacturers, added provisions that harmed them as well as the South, which he represented. The resulting Tariff of Abominations was passed and signed by President John Quincy Adams in spite of reservations by all the parties. It led to Adams’ defeat by Jackson in 1828 and to the Nullification Crisis of 1832. There is an interesting parallel between the 1828 tariff, which was signed by Adams in spite of the fact that it hated by almost everyone, punishing both northern manufacturers and southern agriculture, and the present health care bill. The Cap and Trade bill is also widely hated although it has not yet gotten much attention.

What remains remarkable, however, is the fact pointed out by the political scientist mentioned above. The Tea-Party movement lacks institutional support. Back in the early 1990s, when Hillary Clinton announced her proposal for a federal takeover of healthcare, the insurance companies mounted a campaign against it.

This time, the Democrats have squared everything with the special interests. The National Association of Manufacturers quickly climbed on board, eager to free its members from having to provide health care insurance for their members’ employees. The pharmaceutical companies did a deal with Obama aimed at protecting their short-term interests, as did the American Medical Association. The American Association of Retired Persons — which purports to represent the interests of the elderly, but which has business interests of its own — was bought outright, and the same thing can be said with regard to the health insurance companies. The industrial labor unions are similarly on board.

Indeed, everyone appears to have been taken care of . . . except, of course, for the ordinary citizens who will be subject to the new regime. There is no one to stand up for them. The Republican Party lacks the requisite votes, and everyone else has been bought.

This is what makes the comparison so apt. No one is standing up for the people except themselves.

In the circumstances, it is heartening that Americans still know how to stand up for themselves. With continued cooperation from Nancy Pelosi, Harry Reid, and Barack Obama, the Tea-Party movement may find itself blazing the trail for a partisan realignment that no one in the Republican Party yet has the wit to imagine.

What the leaders of the latter need to be taught is something akin to the rhetoric articulated by Franklin Delano Roosevelt in 1936 — for it nicely summarizes the argument made before almost every major party realignment in our history.

Whether the Republicans will manage to clamber aboard this train before it leaves the station is a question still to be answered.

What’s with China

Tuesday, November 10th, 2009

There are growing suspicions that China may be heading for a collapse. The first inkling of this was in Stratfor.com’s chief George Friedman’s book, The Next 100 Years . My review of the book is here. Here is an excerpt:

His analysis of Russia and China seem very astute and correlate with other reliable sources such as the columnist “Spengler” with the Asia Times. I hadn’t thought about the population distribution of China until I looked at the map on page 90. He does not mention the very recent unrest in China although he predicts it. There have been 70,000 factories close in China in the past year with 20 million suddenly unemployed . I don’t believe this sort of insight is available at this price anywhere else.

Now we havethis warning .

“Purchases of U.S. consumers cannot be as dominant a driver of growth as they have been in the past,” Treasury Secretary Timothy Geithner said during a trip to Beijing this spring. “In China, … growth that is sustainable will require a very substantial shift from external to domestic demand, from an investment and export-intensive growth to growth led by consumption.”

That’s one vision of the future.

But there’s a growing group of market professionals who see a different picture altogether. These self-styled China bears take the less popular view: that the much-vaunted Chinese economic miracle is nothing but a paper dragon. In fact, they argue that the Chinese have dangerously overheated their economy, building malls, luxury stores and infrastructure for which there is almost no demand, and that the entire system is teetering toward collapse.

A Chinese collapse, of course, would have profound effects on the United States, limiting China’s ability to buy U.S. debt and provoking unknown political changes inside the Chinese regime.

The China bears could be dismissed as a bunch of cranks and grumps except for one member of the group: hedge fund investor Jim Chanos.

Chanos, a billionaire, is the founder of the investment firm Kynikos Associates and a famous short seller — an investor who scrutinizes companies looking for hidden flaws and then bets against those firms in the market.

His most famous call came in 2001, when Chanos was one of the first to figure out that the accounting numbers presented to the public by Enron were pure fiction. Chanos began contacting Wall Street investment houses that were touting Enron’s stock. “We were struck by how many of them conceded that there was no way to analyze Enron but that investing in Enron was, instead, a ‘trust me’ story,” Chanos told a congressional committee in 2002.

Chanos has some disturbing data.

First, they point to the enormous Chinese economic stimulus effort — with the government spending $900 billion to prop up a $4.3 trillion economy. “Yet China’s economy, for all the stimulus it has received in 11 months, is underperforming,” Gordon Chang, author of “The Coming Collapse of China,” wrote in Forbes at the end of October. “More important, it is unlikely that [third-quarter] expansion was anywhere near the claimed 8.9 percent.”

Chang argues that inconsistencies in Chinese official statistics — like the surging numbers for car sales but flat statistics for gasoline consumption — indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.

Another data point cited by the bears: overcapacity. For example, the Chinese already consume more cement than the rest of the world combined, at 1.4 billion tons per year. But they have dramatically ramped up their ability to produce even more in recent years, leading to an estimated spare capacity of about 340 million tons, which, according to a report prepared earlier this year by Pivot Capital Management, is more than the consumption in the U.S., India and Japan combined.

This, Chanos and others argue, is happening in sector after sector in the Chinese economy. And that means the Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell.

This is not the time for us to double the US national debt.

The pay czar

Thursday, October 22nd, 2009

UPDATE: I told you so.

‘‘I can see a situation, subject to funding constraints, of senior bankers moving en masse as a team or possibly setting up a boutique themselves,’’ Nick Hellen, a partner at Executive Access, an executive search firm based in Hong Kong, told Reuters.

The financial crisis wiped out many hedge funds around the world, and the industry is expected to shrink this year to 2005 levels, but those making money have plenty of pulling power.

Most hedge funds function on a 2-and-20 model, meaning employees earn 2 percent of assets they manage, regardless of the firm’s success or failure. They also get to keep 20 percent of profits if the fund is making money and is above a minimum level of investment returns known as the high-water mark.

For example, Artradis’s two main funds have combined assets under management of about $3.5 billion and returned 27 percent and 35 percent, respectively, last year, according to the company. That means a potential return of more than $200 million for the two funds in a firm of fewer than a dozen fund managers.

So while President Obama wants to set up a $500,000 cap on top executive pay at companies receiving taxpayer money, executives working for successful hedge funds can still earn several million dollars a year.

Obama has announced that the income of executives from bailed-out companies will be cut as much as 90%.

Responding to the furor over executive pay at companies bailed out with taxpayer money, the Obama administration will order the firms that received the most aid to slash compensation to their highest-paid employees, an official involved in the decision said on Wednesday.

The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent. The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the financing arms of the two automakers.

Some executives, like the top traders at A.I.G., will face tight limits on their pay. In addition, the top-paid employees at all the affected companies will face new limits on their perks.

The plan will also change the form of the pay to align the personal interests of the executives with the longer-term financial health of the companies. For instance, the cash portion of the executives’ salaries will be slashed on average by 90 percent, and the rest will be replaced by stock that cannot be sold for years.

I expect that this action will lead to an exodus of talented executives from these companies.

it would have no direct impact on firms that did not receive government bailouts or that have already repaid loans they received from Washington. Therefore, it is unclear how much effect, if any, the plan will have on the broader issues relating to executive compensation, income inequality and the populist animosity toward Wall Street and corporate America.

One thing it may do is to teach businessmen that getting in bed with government leaves a hangover. The threat of such an action goes back to last year and led to an early exit for many young traders who left for greener pastures. This part is hilarious:

the White House, which has come under attack from conservatives for giving the government what they consider too large and intrusive a role in the economy, has also made clear that it has no intention of seeking to impose any broad-based caps on executive pay.

Oh, OK. So they aren’t going to micromanage these firms, eh ?

The White House has proposed, for instance, giving shareholders a nonbinding vote on the pay of top executives.

It has also proposed that compensation committees of boards, as well as compensation consultants, be more independent.

And it will propose that the companies under review divide the function of chairman and chief executive between two executives. Many of these proposals have been introduced in legislation by Senator Charles E. Schumer, Democrat of New York.

Well, that certainly clears it up. Well, what could go wrong ? How about an exodus of the best talent?

Boutique investment firms and top hedge funds are slowly lapping up the cream of global banking talent as the financial crisis forces banks to cut staff and limit the pay of their top risk-takers, Reuters says.

From Singapore to New York, leading traders and sales chiefs are making the switch as government pressure piles on Wall Street and European banks to cut multimillion-dollar bonuses.

‘‘The firms that still have a lot of assets under management, the hedge funds that have not been hit by redemptions, they are still picking up some of the money-makers from the big banks,’’ Pernille Storm at Hudson, an executive search firm in Singapore, told Reuters.

Singapore’s largest hedge fund, Artradis, said this month that it had hired a high-profile risk trader from Royal Bank of Scotland Group and a Credit Suisse executive based in New York, while Fox-Pitt, Kelton, an investment advisory firm, recently picked up five people from banks including Merrill Lynch and HSBC to focus on Asia.

In London, UBS lost two senior European investment bankers last month to the boutique Close Brothers, another to Lazard and at least three energy bankers to Lexicon Partners.

In the United States, where the credit crisis led to the failure of Lehman Brothers, the fire sale of Bear Stearns and the takeover of Merrill Lynch, the trend is even more visible.

Earlier this month, Moelis, an investment banking boutique, said it had hired Chris Ryan, former global head of credit fixed-income at UBS, as a managing director in New York, its second high-profile hire in a month.

UBS, the world’s biggest wealth manager, has cut thousands of jobs globally but ‘‘continues to hire selectively,’’ a spokesman in Hong Kong told Reuters.

Boutiques have also been expanding their clout globally, highlighted this week in Asia when Evercore Partners, an American mergers-and-acquisitions boutique, announced a strategic partnership with Citic Securities of China.

‘‘It’s possible for boutiques to actually hire top talent, which was almost impossible for them while the market was going ballistic from 2005 to the middle of last year,’’ Thomas Hester, head of equity at Fox-Pitt, Kelton, told Reuters.

Yes, Obama sure knows how to be a capitalist, doesn’t he ? Well, maybe that isn’t his talent. I’ll grant you that top GM executives may have a problem finding new jobs but that is another problem altogether. That was years in the making and the unions killed those companies. The financial services industry will just kill off New York City and Schumer will never understand what he helped do.

Are you being stimulated ?

Saturday, October 3rd, 2009

The left is convinced that the stimulus is all that is between us and disaster.

In February, when the debate over the economic stimulus package was at its height, a handful of “centrist” Senate Republicans said they’d block a vote on recovery efforts unless the majority agreed to slash over $100 billion from the bill.

The group, which didn’t have any specific policy goals in mind and simply liked the idea of a small bill, specifically targeted $40 billion in proposed aid to states. Helping rescue states, Sen. Collins & Co. said, does not stimulate the economy, and as such doesn’t belong in the legislation. Democratic leaders reluctantly went along — they weren’t given a choice since Republicans refused to give the bill an up-or-down vote — and the $40 billion in state aid was eliminated.

At the time, it seemed like a very bad idea. That’s because it was a very bad idea.

In the past, government hiring had managed to somewhat offset losses in the private sector, but government jobs declined by 53,000, with the biggest number of cuts on the local and state levels. Even the Postal Service, which is included in the public-sector job statistics, dropped 5,300 jobs.

“The major surprise came from the public sector, where every level of government cut back,” Naroff said. “The budget crises at the state and local levels have caused an awful lot of belt-tightening.”

As Atrios reminded the Senate this morning, “Thanks for compromising.”

This, of course, is leftist dogma. Replace private jobs with public jobs. Well, the only trouble is that the money to pay for those public jobs has to be taken from what is left of the private sector. This begins a vicious cycle until the private sector economy collapses, leaving the public to be funded by printing money.

In fact, employment is worse than the statistics suggest.

nonfarm

Note that the last time non-farm payrolls dropped was in 1982. People are retiring or claiming disability and giving up on finding work. The left simply does not understand what makes an economy work. There is no college president to raise the money to pay their salaries.

Reich went on to say that the stimulus is saving or creating 200,000 to 250,000 jobs. He did not explain this. I am guessing that this is based on a formula where if the government spends X you get Y jobs.

That formula does not apply. What matters is investments from the private (or at least non-federal government) sector. That’s down. Way down. Demonizing insurance companies, which earn their money mainly through investments and not premiums, undermines confidence as well.

They just don’t understand, and don’t want to hear from anyone who disagrees.

do

This is what Obama has accomplished. And it is far from over. In February, here is what Obama said.

“In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis — the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive.

“I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We’ve seen the tragic consequences when our bridges crumble and our levees fail.

“Every day, our economy gets sicker — and the time for a remedy that puts Americans back to work, jump-starts our economy and invests in lasting growth is now.”

The stimulus has failed and has probably made things worse.

Those of us who said do nothing were right. Instead of allowing this recession to play itself out, Obama has pushed to drag it out.

We are in real trouble and they are still pushing the remedies that make it worse. The sooner we get these people away from the levers of power, the better chance we have to recover. Fundamentally, the left still thinks, deep down, that Marxism works. They have never run a business, even a small one. They have never met a payroll. I’m still reading Steven Hayward’s Age of Reagan and it is interesting to see that the attitude toward Goldwater in 1964 was the same as the attitude toward Reagan in 1984 (amiable dunce) and is still the attitude. They think they are smarter. Remember Buckley’s comment that he would rather be ruled by the first 100 names in the Cambridge telephone book than by the Harvard faculty. Well, that is who is in charge now.

Top 10 cities for political activity.

Monday, September 28th, 2009

US News and World Report has Mission Viejo as one of the top 10 cities for political activity in the nation. The article also notes that it is the safest city in America. Coincidence ?

Other important factors that play into political participation are the quality of education in a community and the level of incomes. Cities on this list tend to be more educated and well off than nearby cities or the country as a whole. They also tend to be residential suburbs of cities with service-based economies. Those characteristics lead to greater political interest not only because wealthier people with children tend to care more about public affairs. Such interest also stems from the fact that prosperous, tight-knit communities are natural breeding grounds for political activity.

One other factor, mentioned by one of the community activists of Mission Viejo, is to have a “dysfunctional city council.” Yes, that does help. The comments on this local blog expand a bit on the city council’s role in stimulating political activism. I got interested in 2000 when I became aware of some very nasty campaign stunts funded by city vendors who were in cahoots with the then council majority. We had seen some questionable spending decisions, such as a very expensive city hall and a city library that was a showplace. The city council seemed to be under the impression that this was Beverly Hills. A couple of years later, they were outside, looking in.

Unfortunately, we all learned that Lord Acton knew what he was talking about when he said “Power Corrupts.” The new council members we had worked so hard to elect became almost as corrupt as the old group. Community activism took a nosedive for a while. The Tea Parties seem to be bringing it back to life.

Is this our future ?

Saturday, September 26th, 2009

Theodore Dalrymple, the non de plume of physician Anthony Daniels, has another piece today on the decline of Britain. I have previously commented on the British teenagers’ loss of history and the loss in the entire society, which has a much longer history to remember. He places much of the blame on the educational system.

Although we spend four times as much on education per head as in 1950, the illiteracy rate has not gone down. I used to try to plumb the depths (or shallows) of youthful British ignorance by asking my patients a few simple questions. Fifty percent responded to the question “What is arithmetic?” by answering “What is arithmetic?” It is not that they were good at doing something that they could not name: When I asked one young man, not mentally deficient, to multiply three by four, he replied “We didn’t get that far.”

That’s not very far. We are not much better.

The political system isn’t doing very well, either.

It is doubtful whether any major country has had a more incompetent leader than Gordon Brown for many years. The product of a pleasure-hating Scottish Presbyterian tradition, he behaves as if taxation were a moral good in itself, regardless of the uses to which it is put; he is widely believed to have taken lessons in how to smile, though he has not been an apt pupil, for he now makes disconcertingly odd grimaces at inappropriate moments. He is the only leader known to me who combines dourness with frivolity.

Early in his disastrous career in government he sold the country’s gold reserves at a derisory price, against all advice, driving the price lower by the manner in which he arranged the sale. A convenience-store owner couldn’t, and almost certainly wouldn’t, have done worse.

This sounds familiar. Barack Obama is weak in economics although he has a high opinion of himself in almost every sphere.

For example, he was famously asked by Charles Gibson in one of the debates his policy on capital gains taxes.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.

So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.

And again:


GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.

OBAMA: Well, that might happen, or it might not.

Yes, stuff happens and there is little reason to expect that Obama knows why.

Then we come to foreign policy. Today the Telegraph, in Britain, published this column on its web site.

Never in the history of the United States has a president worked so actively against the interests of his own people – not even Jimmy Carter.

Obama’s problem is that he does not know who the enemy is. To him, the enemy does not squat in caves in Waziristan, clutching automatic weapons and reciting the more militant verses from the Koran: instead, it sits around at tea parties in Kentucky quoting from the US Constitution. Obama is not at war with terrorists, but with his Republican fellow citizens. He has never abandoned the campaign trail.

I have to agree. His performance at the UN was depressing. I have previously expressed my concerns about this administration and its policy toward Israel.

I would suggest that Obama consider the consequences of convincing Israel that they are alone, or worse, that we sympathize with their enemies. For the consequences, you might read this report by Anthony Cordesman of the Center for Strategic and International Studies.

He expects, writes Martin Walker of United Press International,

some 16 million to 28 million Iranians dead within 21 days, and between 200,000 and 800,000 Israelis dead within the same time frame. The total of deaths beyond 21 days could rise very much higher, depending on civil defense and public health facilities, where Israel has a major advantage.

It is theoretically possible that the Israeli state, economy and organized society might just survive such an almost-mortal blow. Iran would not survive as an organized society. “Iranian recovery is not possible in the normal sense of the term,” Cordesman notes. The difference in the death tolls is largely because Israel is believed to have more nuclear weapons of very much higher yield (some of 1 megaton), and Israel is deploying the Arrow advanced anti-missile system in addition to its Patriot batteries. Fewer Iranian weapons would get through.

The report also points out that Israel, backed into a corner, would most likely strike at its other potential enemies, including hostile Arab states. The fallout would probably mean the end of the Age of Petroleum, since the oil fields in the Middle East would be unusable for decades.

I don’t think Obama is equipped to make these judgements. He is starting down a very dangerous road with no evidence that he understands the risks. Neither did Chamberlain.

In 1939, the appeasers had the excuse that World War I was widely believed to have arisen from hasty mobilization and misunderstanding that more time and patient negotiation might have avoided. We now have the experience of that failure of appeasement, especially when dealing with an opponent who lacks historical balance or who has been mislead to believe that he runs no risk of opposition. The president of Iran has shown lack of historical balance and he represents a regime that has as a spiritual tenet that martyrdom is to be desired. Militant Islam has an unreasoning hatred of Jews dating, I believe, back to a rejection of Mohammed as he was founding Islam as a derivation of Judaism. This has now reached a psychotic stage in which a nation state of 66 million is governed by a small clique who believe that a millennium will come about by civil disaster, such as nuclear war. We have never seen as dangerous a delusion in the minds of leaders so close to the possibility of such weapons.

We see western governments that are so inept that they cannot educate the populace and they cannot understand the basic facts of economics or foreign policy.

UPDATE: This discussion of the coming financial meltdown shows just how difficult this problem is. Do not expect to see any logical discussion of this from the left.