Economic Policy Contradictions

Watching the markets this morning. Third-quarter GDP report comes out stronger than expected. Stock indices and the dollar take off, bonds dump. Good times seemingly ahead.

Then Treasury Secretary Snow opens his mouth, asserting disingenuously that the U.S. still has a strong-dollar policy, and carping about how China and Japan run monetary policies that actually benefit their domestic economies. The second Bloomberg article linked above puts it well:

Even as he called on China and Japan to adopt policies that might weaken the U.S. currency, Snow insisted “a strong dollar is in the U.S. national interest” because “no country can devalue its way to prosperity.”

The contradictions in Bush’s politically-driven monetary policy are difficult to avoid and are having negative consequences for the securities markets. A usually mild-mannered trader friend of mine, with whom I was having an IM exchange during the Treasury secretary’s testimony, said that the way in which Snow lies about our weak-dollar policy is disgusting. I don’t think that my friend is the only one who thinks this. Stocks and the dollar sold off during Snow’s remarks.

As of 1:00 PM EST stocks have recovered some of their losses. But the losses were unnecessary. Stock market recovery is being held back by bad policy. (Bonds stayed down during all of this. That tells you something. Either there’s going to be continued economic recovery and bonds are going to get killed, or there’s going to be a weaker recovery combined with inflation and a weak dollar and bonds are going to get killed.)

I hope that the Bush people get their act together. Snow reminds me of G. William Miller, about whom an ex-boss of mine once quipped that the T-Bill market moved 50 points whenever he opened his mouth. That was back in the days when markets were opaque enough for insiders to profit consistently from politically induced price swings. Nowadays things are much more open, bid/ask spreads are tight, and unexpected volatility of the Miller/Snow variety is at least as likely to lead to trading losses as to gains. It would be in everyone’s interest for the Bush Administration to shut up, get out of the way, and let the economy follow the path of least resistance.

Another Assault on Property Rights

A group of NIMBY enviro lawyers in Florida is trying to generate support to amend the state constitution. They want to subject major zoning reclassifications to approval by local referendum.

While I’m generally opposed to zoning, for property-rights and practical reasons (zoning tends to ossify the civic status quo), I was initially sympathetic to these guys because I thought their scheme might introduce more openness, consistency and accountability into the politicized zoning process. Let citizens have only themselves to blame for major zoning decisions.

But then I looked at the group’s web site and realized that my initial impression was naive. I had thought that the idea here was to make the system more accountable. However, the referendum advocates appear to be most interested in making the zoning reclassification process so burdensome as to halt development. They want to limit development to only those projects which are approved by socialist master-plans drawn up by unaccountable local-government planning agencies. They believe that a referendum requirement for major zoning changes would make it extremely difficult to change those master plans, and that this rigidity would be a good thing.

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Politicians vs. Information

Martin Devon comments thoughtfully about an innovative approach to evaluating geopolitical risk. He also quotes a couple of idiot pols who are agin’ it.

If you can create a real-money market in risk evaluation, it’s usually a good idea to do so, if only for price-discovery (in this case, risk discovery) purposes. People in the aggregate, voting with their own money, generally make better bets than do individuals who are merely writing position papers. And creating a market in risk assessment facilitates the pooling and hedging of risk. Of course these are the same principles that underlie insurance markets, which may be why some pols don’t like them. Imagine: individuals and businesses dealing with risk on their own, without needing politicians to “help” them. Too bad there’s no organized market for hedging away Congressional risk.

UPDATE: From Instapundit’s post on this topic and the comments here, there seem to be several objections to this idea. I paraphrase some objections (italics), below, and then respond. (Feel free to leave additional comments if I left anything out.)

Moral hazard: terrorists or other bad guys might cash in by betting in advance of their own terror attacks, or by committing terror attacks solely to make money. There is also incentive for govt officials, journalists, et al to manipulate the market by hyping nonexistent risk and then taking the other side of trades made by people who are betting on an attack.

There may be reason for concern, but it’s already possible to bet on terrorism: all you have to do is buy a large quantity of stock-index puts. And trades of this type, especially in a market dedicated to terrorism risk, would serve a valuable function by telling the world that something was up (in much the same way as an out-of-nowhere jump in the price of a stock may suggest that a takeover bid is imminent). The more narrowly tailored the market was — e.g., an assassination market for a particular leader — the more useful the information so transmitted would be. I think the benefit would probably outweigh the moral hazard, though I may be wrong.

With respect to people falsely hyping nonexistent terror attacks, markets are effective at discriminating this kind of false alarm. The first time it happened the market would probably move significantly, but after one episode of crying wolf the same tactic might not work again. It might also be possible to create legal penalties for false alarms. Such penalties wouldn’t deter everyone, but would at least impose a high expected cost on anyone who had something to lose, e.g., government officials and journalists, who are also the kinds of people most likely to be able to move the market by hyping terrorism concerns.

Innocent people might avoid participating in the market because there is a hypothetical risk that they would be arrested for knowing too much if they profited from terrorism predictions.

I don’t know. Whether this is an issue probably depends on how many people use this market and how much sense the government has. And it’s only a problem if they arrest innocent people. If they arrest guilty people it’s a benefit.

Information about pending terrorism is by nature private, and therefore public markets such as the envisioned terrorism-futures market would not be useful to predict attacks. As Glenn Reynolds put it:

An InstaPundit reader who is too smart to be in Congress emails with a more meaningful criticism: the futures market won’t identify “unknown unknowns,” since the betting — as with ordinary futures markets — must take place within the context of standard “products.”

It’s true that a public market would not discount private information, a.k.a. “unknown unknowns.” That’s generally true of markets. However, markets have a good record of making predictions based on publicly available information. The mistake is to compare a futures market to a crystal ball. The real comparison should be between the futures market and “expert” analysts who have no accountability for their biases. Markets look good by this standard, and the government could still do its own private research, much as financial firms do proprietary research in stock and futures markets, to supplement what it learned from public terrorism-risk markets.

Also, private information may become public if there’s money to be made. That’s a big advantage of markets in this case, as publicizing incipient terror attacks brings better countermeasures or the possibility that the terrorists will call off their attack.

It’s wrong to bet on misfortune and people’s deaths.

If this assertion is true, insurance is immoral, as are futures markets in agricultural commodities (betting on crop failures!) and stock indices (betting on, um, misfortune and people’s deaths). These markets are insurance by another name and are just as useful.

The reinsurance industry already does what terrorism futures are supposed to do.

This is partly true, though the reinsurance market operates largely out of the public eye and therefore may not transmit information as well as a futures market would. But if it’s really true that a futures market is unnecessary, then a futures market won’t succeed. It’s impossible to know for sure without trying.

If we’re lucky, someone overseas, like Tradesports, will start offering systematic opportunities to bet on terror-attack odds. Unfortunately, DARPA’s idea has unleashed so much demagoguery by American pols that it may be some time before anyone will be willing to set up such a futures market, even outside of the U.S. Pity.

Virginia Postrel has additional relevant links here.

Sullivan Weighs in Against Coulter

Andrew Sullivan weighed in against Ann Coulter today. How cute: “CoulterKampf”. By using a German sounding word, Sullivan gets to call Ann Coulter a Nazi, without actually saying it. He gets to throw a sucker punch at a woman while maintaining deniability. Maybe he’s afraid she’ll take off one of her stilleto heels and slap him around with it. And this is just the insinuating and underhanded start to a piece where Sullivan tries hard to suck up to the kind of people who routinely call anyone who disagrees with them a Nazi. (The fact that Ann Coulter is not a fan of Sullivan’s pet causes like “gay marriage” may have something to do with it, too.)

Sullivan’s great fear seems to be the taunting of liberals: “…when liberals taunt conservatives with being McCarthyites, conservatives now have to concede that some of their allies, namely Coulter, obviously are McCarthyites – and proud of it.” Trust me, liberals don’t care if they are taunted by Conservatives. They expect nothing less from fascists. That outrage is feigned. It is a tactic. And they counter-attack. Sullivan takes Coulter to task for “making huge and sweeping generalizations about all liberals.” Liberals do this all the time. Conservative? You’re a racist, a fascist, you want women to be barred from the workplace, to be illiterate, you want to poison the Earth. Please. This crap is so common it is taken for granted. It is the air we breathe. It is taken for normal. It’s like the Matrix, an all-pervasive cocoon of lies. If you are in favor of abortion, for example, you are a moderate, but if you are opposed you are a right-wing religious extremist. Coulter’s return fire leaves everyone appalled. But not me. I find it very refreshing to have at least one conservative who slaps them around in the fashion they so casually dish out. Turnabout is fair play.

And I am happy to join Coulter as being, at minimum, an anti-anti-McCarthyite.

I suppose I should say just whom I refer to when I use “liberals” as a noun in the foregoing since I am being so mean to them. Do I refer to my neighbors in the socialist village of Oak Park? No. My colleagues who are Democrats? No, not really. People who work in the real world, especially in commercial businesses with customers and clients are exposed to too much ordinary human variety every day to become prisoners of a truth-defying ideology. What I mean by “liberals” in this context is people who have a professional and public stake in liberal and leftist causes, the types of people who are drawn to that type of work, and the type of mindset that flourishes in that milieu. Specifically, people who work at think tanks and public interest groups, at activist liberal law firms, university departments especially in the humanities and social sciences, people who work in the senior ranks of government bureaucracies, most Democratic politicians and their professional staffs and consultants who work for them, people who work in entertainment media and publishing, and most especially at the major media operations like television and newspapers. People in these settings rarely meet anyone who serioiusly disagrees with them. They are free to demonize an imaginary “other”. They think Archie Bunker is social realism. They think George Bush is an idiot. They think people who go to church are pathetic, deluded simpletons. They think there is such a thing as “the global justice movement “. And such people have an enormous amount of control over what is and is not discussed or taken seriously since they hold the “commanding heights” of the media, the academy and the entertainment industry. This loose commuity is more or less whom Coulter is referring to, too, when she says “liberal”. Sullivan works in this world, and he has to maintain some liberal street cred as a matter of professional prudence. Attacking the religious right no doubt makes him some useful friends, as does being forthrightly gay, probably. Attacking Ann Coulter will also help him professionally. One does what one must, doesn’t one? If this seems too tough on Sullivan, note that his piece presumes that Coulter is motivated by money. A base charge indeed.

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Rabinowitz, Have you no shame?

Dorothy Rabinowitz was responsible for a dishonest and misleading attack on Ann Coulter’s book “Treason”, which appeared in today’s Wall St. Journal. I just finished reading the Coulter book the other day. Ann is pretty busy throwing punches in that book. She is really mean to a lot of people. But so what? She is mean to the people who need being mean to. The main thing here is that Rabinowitz fails entirely to respond to the core of Coulter’s book, which can be summed up in one sentence: The decrypted Venona messages prove that there were hundreds of Soviet agents in the United States government, that McCarthy was absolutely right to demand that they be exposed and investigated, and that liberals opposed him not because they were innocent, but because they were complicit, and guilty, so they “fought like animals.”

Rabinowitz talks about peoples lives being ruined. OK. What about Soviet spies working in the U. S. Government? There were plenty of them. More than most people ever were willing to admit. They were helping Stalin. Stalin destroyed a lot more lives than McCarthy. And no lives would have been destroyed if the commie bastards had confessed what they knew. No, they fought like animals, and maybe some people got hurt who probably shouldn’t have. Well, purging Soviet spies from the U.S. Government was necessary at the height of the Cold War, and collateral damage is how the cookie crumbles. Anyway, Rabinowitz talks only in vague generalities about people who suffered these supposedly horrible atrocities due to McCarthy. Why no names, why no pathos-filled details of innocent victims? Because there aren’t any.

Daniel Patrick Moynihan discussed this in his book Secrecy, which Coulter refers to. Moynihan says, yeah, there were a Hell of a lot of Soviet spies, making essentially the same case as Coulter. Coulter however, puts two and two together — these people were spies for Stalin’s Russia, the worst tyranny ever (top 3, anyway), their liberal friends knew it, and lied for them and protected them. Not treason? OK, what then?

Rabinowitz refers to the Annie Lee Moss episode, in which a purportedly poor and ignorant woman claimed to be mystified at the suggestion that she was a Soviet agent. This vaudeville act appealed to liberals who think that black people are wise and good, yet somehow also stupid and needing their help. My mother saw that hearing and thought Moss was lying. Coulter’s discussion of the matter is much stronger than the dishonest version Rabinowitz presents, and much more convincing.

Rabinowitz fails completely to come to grips with Coulter’s case, for reasons which make no sense to me. Maybe she is put off by the sheer bloody-minded hatred which exudes from every page, the gobs of spit and flailing fists. Why? People who betrayed their country to Stalin, or who lied to protect spies for Stalin, and continued to lie about it for decades, and who have now been smoked out and continue to lie, don’t merit hatred? Why? If not, who does?

Rabinowitz’s title is also wrong. Coulter is not the Maureen Dowd of the Conservatives. She is our Johnny Rotten. She doesn’t care what anybody thinks is appropriate behavior, or which topics are just not talked about, or about the liberal pieties, she snarls right back. And if she is over the top, she is at worst doing what one of her villains Dean Acheson admitted to be doing — speaking more plainly than the truth in order that the truth will be heard. And evil should be called evil, in season and out of season.

I was not an Ann Coulter fan until I read this book. Now I am. I hadn’t paid much attention to Rabinowitz until today. I now know she is dishonest and can’t be trusted. I’ll never read another word she writes after this.

(I await with very great eagerness the forthcoming book Ann Coulter mentions by M. Stanton Evans about McCarthy. That will be a scholarly tome which will help to set the record straight on these major events.)