Markets and Trading

How To Think About Catastrophe

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Many thanks to the commenters on my review. I won’t be agreeing with all of you, but I value your input for increasing my understanding of what others think. I have some related ideas on how to think about the issues raised specifically by Lightning Fall and generally by “preppers” and, indeed, anyone anticipating a societally disruptive crisis in the near future.

NB: this is an essay in the original sense of “attempt.” It is unlikely to fully represent my thinking on these issues even a few years hence; and whether you agree with me or not, I encourage you to think these things through based on your own abilities and experience, and then act as your specific situation appears to require. Hayekian distributed local knowledge may save us. Central planning, as I hardly need admonish this audience, will not, and therefore any attempt by me to impose a uniform mental framework should (and undoubtedly will) be firmly rejected.

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Warren Buffett/America 3.0

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Somewhere, sometime, I read a bit of great investing advice. A guy listed ten things to do and not do over your investing life, and number one on the list of things to do was to read Warren Buffet’s shareholder letters. I finally found some time to read this years version, which recaps 2013. You can find them all here.

The letters are always entertaining to me, and I just love the way he uses “plain” English to describe his successes, operations, and failures.

One part really stuck out this year from page 6:

Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.

In the title of America 3.0, it says:

America 3.0: Rebooting American Prosperity in the 21st Century-Why America’s Greatest Days Are Yet to Come

Yes, we will have some short term pain, but I have fully come around to thinking that indeed, we are eventually going to move forward at a rapid and profitable pace. And I won’t be betting against Warren Buffett and Charlie Munger any time soon.

Disclosure: I own Berkshire Hathaway B shares.

Dick Bove: DC Wants the Dow to Fall 1000 Points

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Watching CNBC. Bove says that because the stock market isn’t in a major sell-off the pols can’t get away with the kind of bad deal (my interpretation) that they want. He warns investors: “The only good strategy at the moment is to get out of the way. The politicians will get the panic they seek.”

CNBC spins this as: lawmakers need a reason to act to avoid gridlock. What Bove is actually saying is that there is a conflict of interest between the pols, particularly the Democrats, who want to bust the sequester and force the full implementation of Obamacare as scheduled, and American taxpayers. This is why Obama says, “this time I think Wall Street should be concerned”. Nice stock market you’ve got here, pity if something were to happen to it.

It appears that Obama is trying to do with the markets the same thing that he did with the national parks: make the government shutdown costly for ordinary Americans, whom he hopes will then find new cause to support him. The media will keep trying to reframe this crass partisan shakedown as Obama working to prevent disaster, but what he’s really doing is transparent to anyone who pays attention.

David Ronfeldt’s In-Depth Review of America 3.0

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Cross-posted from zenpundit.com

 

 David Ronfeldt, RAND strategist and theorist has done a deep two-part  review of America 3.0 over at his Visions from Two Theories blog. Ronfeldt has been spending the last few years developing his TIMN analytic framework (Tribes, Institutions [hierarchical], Markets and Networks) which you can get a taste from here  and here or a full reading with  this RAND paper.

David regards the familial structure thesis put forward by James Bennett and Michael Lotus in America 3.0 as “captivating”  and “compelling” for  “illuminating the importance of the nuclear family for America’s evolution in ways that, in my view, help validate and reinforce TIMN”. Both reviews are detailed and should be read in their entirety, but I will have some excerpts below:

America 3.0 illuminates significance of nuclear families — in line with TIMN (Part 1 of 2)  

….Bennett and Lotus show at length (Chapter 2, pp. 29-45) that the nuclear family explains a lot about our distinctive culture and society:

“It has caused Americans to have a uniquely strong concept of each person as an individual self, with an identity that is not bound by family or tribal or social ties. … Our distinctive type [of] American nuclear family has made us what we are.” (p. 29)And “what we are” as a result is individualistic, liberty-loving, nonegalitarian (without being inegalitarian), competitive, enterprising, mobile, and voluntaristic. In addition, Americans tend to have middle-class values, an instrumental view of government, and a preference for suburban lifestyles.  

As the authors carefully note, these are generally positive traits, but they have both bright and dark sides, noticeable for example in the ways they make America a “high-risk, high-return culture” (p. 38) — much to the bane of some individuals. The traits also interact in interesting ways, such that Americans tend to be loners as individuals and families, but also joiners “who form an incomprehensibly dense network of voluntary associations” — much to the benefit of civil society (p. 39).  

In sum, the American-style nuclear family is the major cause of “American exceptionalism” — the basis of our freedom and prosperity, our “amazing powers of assimilation” (p. 53), and our unique institutions:

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Institutions, Instruments, and the Innovator’s Dilemma

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I have written several posts that use Carroll Quigley’s “institutional imperative” as a lens for understanding contemporary events. [1] Mr. Quigley suggests that all human organizations fit into one of two types: instruments and institutions. Instruments are those organizations whose role is limited to the function they were designed to perform. (Think NASA in the 1960s, defined by its mission to put a man on the moon, or the NAACP during the same timeframe, instrumental to the civil rights movement.) Institutions, in contrast, are organizations that exist for their own state; their prime function is their own survival.

Most institutions start out as instruments, but as with NASA after the end of the Cold War or the NAACP after the victories of the civil rights movement, their instrumental uses are eventually eclipsed. They are then left adrift, in search of a mission that will give new direction to their efforts, or as happens more often, these organizations begin to shift their purpose away from what they do and towards what they are. Organizations often betray their nature when called to defend themselves from outside scrutiny: ‘instruments’ tend to emphasize what their employees or volunteers aim to accomplish; ‘institutions’ tend to emphasize the importance of the heritage they embody or even the number of employees they have.

Mr. Quigley’s institutional imperative has profound implications for any democratic society especially a society host to so many publicly funded organizations as ours. Jonathan Rauch’s essay, “Demosclerosis” is the best introduction to the unsettling consequences that come when public organizations transform from instruments into institutions. [2] While Mr. Rauch does not use the terminology of the Institutional Imperative, his conclusions mesh neatly with it. Describing the history and growth of America’s bureaucratic class, Mr. Rauch suggests its greatest failing: a bureaucracy, once created, is hard to get rid of. To accomplish whatever mission it was originally tasked with a bureaucracy must hire people. It must have friends in high places. The number of people who have a professional or economic stake in the organization’s survival grows. No matter what else it may do, it inevitably becomes a publicly sponsored interest group. Any attempt to reduce its influence, power, or budget will be fought against with ferocity by the multitude of interests who now depend on it. Even when it becomes clear that this institution is no longer an instrument, the political capital needed to dismantle it is just too high to make the attempt worth a politician’s time or effort. So the size and scope of bureaucracies grow, encumbering the country with an increasing number of regulations it cannot change, employees it does not need, and organizations that it cannot get rid of.

I used to think that the naked self-interest described by Mr. Rauch was the driving force behind the Institutional Imperative. It undoubtedly plays a large role (particularly when public funds are involved), but there are other factors at play. One of the most important of these is what business strategists call Marginal Thinking.

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