Politics

The Man of High Quality Punditry points out Bill Clinton’s obvious conflict of interest in advising Demo presidential candidates.

Didn’t anyone teach them not to seek medical advice from funeral directors?

Jonathan sent me this good snippet from Bruce Bartlett, one of the better economics commentators. Bartlett states that:

It has long been apparent to observers like myself that this is the most centralized administration since Nixon’s. Cabinet secretaries and cabinet departments seem to have less influence on policy than at any time in recent memory. All key decisions appear to have been made in the White House and the only job of cabinet secretaries is to sell the policy, get votes in Congress, and raise money for the president’s reelection. It has long been apparent to observers like myself that this is the most centralized administration since Nixon’s. Cabinet secretaries and cabinet departments seem to have less influence on policy than at any time in recent memory. All key decisions appear to have been made in the White House and the only job of cabinet secretaries is to sell the policy, get votes in Congress, and raise money for the president’s reelection.

My response was more or less as follows:

Not surprising. Bush runs a tight ship. He learned a lot of lessons from his earlier experience with his Dad’s administration, which was crippled by his Dad’s overly collegial and genial and too-trusting style, and by in-fighting and leaking and political posturing. So, he is like a CEO who dictates policy and it is up to the division chiefs to execute it successfully or get new jobs. W may be going to[o] far the other way. But in W’s experience the alternative is not a healthy airing of views, and the dynamic generation of innovative policy initiatives, but a rudderless executive presiding over ill-disciplined subordinates, leading in turn to stasis and disaster. Also, W has guts. He is not afraid to give clear orders. He is not covering his ass. If something goes wrong he cannot blame a subordinate. He is in charge, and everybody knows it, and there is nowhere to hide. And he wants it that way. He is willing to bear the costs of command to obtain the benefits. And as to the comparison with Nixon, the salient comparison from Bush’s perspective is that Nixon was reelected in a landslide. Maybe Nixon’s management style had something to do with that.

So, this doesn’t bother me too much. Maybe I should think it is awful that Bush’s administration is highly “centralized.” But I don’t see why. I think he’s doing pretty darn good, myself.

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.

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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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:

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.