Tiananmen OSINT

“Either write something worth reading or do something worth writing.” — Benjamin Franklin

[Readers are directed to the end of this post for an explanation of my timing and motivation.

UPDATE 6/5, 11 AM CDT: videos embedded!]

I. Anniversary Reconnoiter

At around nine in the morning local time on the thirtieth anniversary of the “June Fourth Incident,” I began a reconnoiter of Tiananmen Square in central Beijing to observe security measures and, if possible, witness any attempt at commemorating the massacre. I accompanied Dr. Andrew R. Cline, professor of media, journalism, and film at Missouri State University in Springfield. We were part of group of eleven people—four students, two faculty, and five others including me—comprising a “Study Away” program from MSU which had spent the previous twelve days in China, flying into Beijing and taking high-speed trains to Xi’an and Xining, then on via the Qinghai–Tibet railway to Lhasa before flying back to Beijing. Of all days, Tuesday 4 June 2019 was designated a free day for the group: no itinerary—and no guide. The remaining nine group members, as it turned out, had other ideas about what to do that day.

Andy’s motivation was broadly journalistic, garnished with a specific interest in whether any actual Marxists would show up. I went along out of a feeling that I had something of a reputation to uphold, and quickly decided during our approach that I would evaluate the security measures and write up a more quantitative report, although I will also pass along some thoughts about the organizational behaviors involved.

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“Believing Untrue Things”

AVI:

Believing Untrue Things

More Motives on Untrue Things

Summary: People believe in the truth of ideas that don’t withstand even casual empirical scrutiny, e.g., that American police kill more black people than white people every year. Why do so many of us believe in and even defend vehemently the validity of bogus ideas when contrary evidence is easily found?

You can find many examples of this kind of thing in Amazon reviews of controversial books such as Democracy in Chains by Nancy MacLean:

5-Star Reviews

1-Star Reviews

The respective authors of the five-star and one-star reviews appear to inhabit separate factual universes. In one universe James Buchanan was a distinguished laissez-faire economist and originator of public-choice theory. In the other universe Buchanan, the Koch brothers and other prominent libertarians were members of a racist conspiracy. How can people on one side of a controversy remain ignorant about the other side’s arguments and even basic facts?

AVI suggests possible explanations that are worth reading, as always. I think the main problem is the poor quality of our primary and secondary educational systems, particularly in the teaching of history, math and basic statistics. Another big problem is the ignorance of journalists who were educated in our lousy schools, and modern journalism’s clickbait business model that incentivizes the promotion of controversy and conflict even more than was the case back in Front Page days.

Discuss.

Reopening — II (Theory)

That’s all very well in practice, but how does it work in theory?

— old University of Chicago joke

I expect this blog’s readership to demand the theoretical considerations, so here’s a (non-exhaustive) compilation, beginning with a setup anecdote:

In December of 2007 I was briefly—very briefly, as the work was interrupted by a blizzard—involved in rebuilding in Greensburg, Kansas, which had been practically erased from the map seven months earlier by an immense tornado. I had driven through a couple of months after the event and stumbled into a photo-op for Sen. Pat Roberts, who was doing a ribbon-cutting of sorts in a brand new convenience store. The devastation was more impressive than his speech; indeed, people who worked both New Orleans after Katrina and Greensburg after the tornado typically remarked that, allowing for scale, Greensburg was worse.

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SARS-CoV2/COVID-19 Update, Easter 2020 edition

There are lots of hopeful reports — despite the USA COVID-19 infections being over 1/2 million and the total deaths of over 20,000 people — that the pandemic will soon be “Over.”

This is fantasy thinking at best.  SARS-CoV2/COVID-19 won’t be over, until it is over, for YEARS.

“Over” being defined as world wide mass vaccinations to the tune of 70% of humanity or human herd immunity.  Assuming such a thing is possible, which it may not be, given this recent report from the UK Daily Mail on post SARS-CoV2/COVID-19 infection immunity —

Blow to Britain’s hopes for coronavirus antibody testing as study finds a THIRD of recovered patients have barely-detectable evidence they have had the virus already

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– Nearly third of patients have very low levels of antibodies, Chinese study found
– Antibodies not detected at all in 10 people, raising fears they could be reinfected
– Explains why UK Government repeatedly delayed rolling them out to the public

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https://www.dailymail.co.uk/news/article-8203725/Antibodies-prove-difficult-detect-Chinese-coronavirus-survivors.html

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Related studies:
Wu F et al. Neutralizing antibody responses to SARS-CoV-2 in a COVID-19 recovered patient cohort and their implications. medRxiv 2020.03.30.20047365; doi: https://doi.org/10.1101/2020.03.30.20047365

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and

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Zhao J et al. Antibody responses to SARS-CoV-2 in patients of novel coronavirus disease 2019, Clinical Infectious Diseases, , ciaa344, https://doi.org/10.1093/cid/ciaa344
total by July 1st 51,197

Or this South Korean story on coronavirus “reactivation” —

South Korea reports recovered coronavirus patients testing positive again
APRIL 10, 2020
Josh Smith, Sangmi Cha

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https://www.reuters.com/article/us-health-coronavirus-southkorea-idUSKCN21S15X?utm_campaign=trueAnthem%3A+Trending+Content&utm_medium=trueAnthem&utm_source=facebook

The issue with most COVID-19 tests, like the ones mentioned in South Korea, is they detect SARS-CoV2 RNA. They do not detect whether the viral particles are active or not. The issue here is whether these people are shedding active viral particles that can re-infect people.  We don’t know if that is the case here from the story text.  Given how infectious it is.  This coronavirus will tell us in due course.

There are some viral diseases like Herpes that hide inside your body and reactivate to make you infectious. We do not know enough about the SARs-CoV2 virus to say whether that is the case here.

If the SARS-CoV2 virus is like Herpes in that once contracted, it never goes away and flares infectious several times a year.

And there is no herd immunity for some people no matter how often they are infected.

Then we will need multiple, cheap,  out-patient style “cure-treatments” as well as multiple vaccines, based on co-morbidities, and possibly to account for racial differences like sickle cell blood mutations, as SARS-CoV2 may well be more a blood disease than a respiratory infection in terms of it’s killing mechanism.

See:

COVID-19: Attacks the 1-Beta Chain of Hemoglobin and Captures the Porphyrin to Inhibit Human Heme Metabolism

https://chemrxiv.org/articles/COVID-19_Disease_ORF8_and_Surface_Glycoprotein_Inhibit_Heme_Metabolism_by_Binding_to_Porphyrin/11938173

There is not enough reliable data, d*mn it!

Until we get to “Over,” our old economic world of Just-In-Time, Sole Source anywhere, but especially in China, is dead without replacement.

The world is in the same position as Germany was from August 1944 – April 1945 or  Japan from August 1944 until August 1945 versus the Allied strategic bombing campaign.  We have entered the world of  End Run Production as world wide supply chains grind to a halt from various fiddly bits of intermediate parts running out without replacement.  The on-and-off hotspots world wide of COVID-19 at different times and places in the world economy is no different than WW2 strategic bombing in terms of causing random damage to the economic life support.

See also  “End Run Production” here from this one volume WW2 history book The Great Crusade:

https://books.google.com/books?id=5L-bwPZK7PQC&pg=PA420&lpg=PA420&dq=%22End+Run+Production%22&source=bl&ots=kc30FQflCj&sig=ACfU3U2kmF-kTPo0Tgr2A9_ESPKpEQAEOg&hl=en&sa=X&ved=2ahUKEwjfpurOnOPoAhUKA6wKHemwBMcQ6AEwAHoECC4QKQ#v=onepage&q=%22End%20Run%20Production%22&f=false

Be it automobiles, self propelled construction equipment, jets, power plants or the latest electronic gadget, anything that has thousands of parts sourced world wide with lots of Chinese cheap/disposable sub-component content anywhere in the supply chain simply won’t be produced for the next 18 months to three years.

This “random damage to the economic life support” effect is amplified by the unwillingness of Western private industry to invest in building the capitol equipment to produced those intermediate parts.  Because of the threat of China coming back with predatory pricing — using bought politicians to cover for them — means those parts won’t be built without massive cost plus contract government buy out of the investment risk like happened in the USA in the 1942 WW2 mobilization.

The story of  one American n95 mask manufacturer’s experience with the Obama Administration in 2009 with the Swine flu is a case in point.  The n95 mask is a 50 cent item where China pays 2 cents a mask for labor versus 10 cents a mask for American labor.  When the American manufacturer geared up to replace Chinese mask production.  China came back on-line and the Obama Administration refused to keep buying the American mask producer’s 8 cents more expensive mask when the Chinese masks were available.

Unlike almost 80 years ago, current Western and particularly American politicians are too corrupt to go too massive cost plus contract government buy out this private investment risk.  Mainly because these political elites  can’t be bothered to figure out their 10% cut.  Instead we are getting more “fiscal stimulus” AKA boondoggles that the elites will saddle the rest of us with high interest payments on huge public debts.

It will take local small to mid-sized business to get the American economy going during the COVID-19 pandemic via making products and services that don’t use the intermediate products China threatens with when the pandemic ends.

My read on what comes next economically is local/distributed production with limited capitol investment that is multi-product capable.  The name for that is additive manufacturing, AKA 3D Printing. Here are a couple of examples:

  1. The idea of 3D Printed Sand Casting Molds For Automobile Production

voxeljet enters alliance to industrialize core tooling production using 3D printing

2. And the replacement of physical inventory with 3D printers, print media and electronic drawings:
Such “Make or buy” decisions have always been the key decision of any business.  The issue here is that middle men wholesalers and in-house warehousing holding cheap Chinese-sourced  intermediate parts are both set to go the way of the Doe-Doe Bird in a 3D/AM manufacturing dominated world.
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Distributed production in multiple localities with 3D/AM vendors for limited runs of existing intermediate products to keep production lines going.  Or the re-engineering intermediate products so one 3D/AM print replaces multiple intermediate products for the same reason, will be the stuff of future Masters of Business Administration (MBA) papers describing this imminent change over.

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But, like developing SARS-CoV2/COVID-19 vaccines, this new locally distributed manufacturing economy will take time.  The possible opening of the American economy in May 2020 will not bring the old economy of December 2019 back.

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That economy is dead.  It cannot, will not, come back.

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We will have to dance with both the sickness from SARS-CoV2/COVID-19 and the widening End Run Production product shortages that the death of the globalist  just-in-time, sole source in China economic model causes for years.

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And this is a hard reality, not a fantasy, we must all face.

In Medias Res

What I’ve got so far:

  1. Everything’s on the table. The likelihood that your preexisting ideology or priorities are an entirely adequate match to what this situation truly requires of us is close to nil. “In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists.” ― Eric Hoffer
  2. That said, your life experience will give you insights. Privilege your experience over your ideology and nominal priorities.
  3. All disasters are local. Concentrate on your meaningfully immediate environment, which in this case will be the local market for medical resources. For most of the US, that will be our MSA. For those outside an MSA (metropolitan or micropolitan) that will be their county; and for some it will be the group of counties that feed into the one hospital in the region.
  4. Deprioritize pandemic news from outside your local area. There are people in the massive NY/NJ/MA outbreak that I worry about, but what happens there will only modestly resemble what happens in the KC MSA, not least because of the difference in population density, which can approach 20x.
  5. Mitigate or avoid your own risk (including the risk you pose to others) by both following the hygiene advice we’ve all heard and minimizing your physical interaction with anyone outside your immediate household. Internalize R₀ = b × k × d, where R₀ is the reproduction number of the virus, b is the probability of infection given contact with an infectious person, k is the contact rate, and d is the infectious duration. While the nominal R₀ of COVID-19 is ~3, your personal R₀ can be driven to < 1 by your own behavior.
  6. The general form of the challenge confronting us is abrupt wide variation in formerly relatively constant phenomena. In Talebian terms, we have migrated from “mediocristan” to “extremistan.” The multiplicative nature of a novel viral pandemic, especially by comparison to the relatively predictable seasonality of influenza viruses, has a thick-tailed (power law) probability structure and complex payoffs (notoriously ranging from large numbers of nearly asymptomatic cases to abruptly life-threatening “cytokine storm” reactions). For detail, see The Fourth Quadrant: A Map of the Limits of Statistics.
  7. So we find ourselves at serious risk of running out of ventilators, ICU beds, and even hospital beds generally, to say nothing of supplies (but see “all disasters are local,” above), raising the prospect of significant second-order mortality among those unable to obtain adequate care for entirely unrelated illnesses and injuries.
  8. In this connection, many prior customs, techniques, tools, and materials are being revealed as highly dysfunctional and, if all goes sufficiently well, will be swept into the dustbin of history. The bad news for me is that my earlier fears about easily-bottlenecked processes have been realized. But we may look forward to significant adaptation, including deregulation of medical services.
  9. Similarly, a large number of purported fixes and remedies will fail. Folk remedies, in particular, seem likely to be disastrous, and this blog’s audience needs no persuasion that attempts at central planning will fail thanks to the Hayekian local knowledge problem. In that connection, and to quote something I wrote a few years back: “John Gilmore famously said that ‘the Net interprets censorship as damage and routes around it.’ The future adaptation of representative democracies will depend on our capability, as individuals, to interpret endemic institutional dysfunctionality as damage and route around it.”
  10. The relatively vulnerable are closer to the center of the network: affluent, living in high-density major cities, well-traveled, extroverted, socially active, with large numbers of regular contacts (even if mostly in a “bubble” as per Murray’s notorious quiz). But some are the alienated and defiant who reject risk avoidance or even risk mitigation tactics (or attempt folk remedies instead), ordinarily associated with …
  11. The relatively invulnerable, who are at or near the edge of the network: impoverished, living in rural or low-density metro areas, untraveled, introverted, socially isolated, rarely in face-to-face contact with others. Many of these people have mental health issues and associated substance abuse problems. But the relatively invulnerable are also the intelligent and conscientious who promptly adopt appropriate risk management strategies.
  12. The post-pandemic preferences of the relatively invulnerable will have massive economic and cultural effects. I expect a reasonably quick partial recovery from the economic shutdown, but full recovery may take several years. Many of the “third places” which have done well over the last few decades will not regain their patronage, and as of early April 2020, we can only guess which ones. Fond hopes of some of my co-religionists aside for a sudden revival, I believe church attendance and involvement will be well down in the aftermath, and will not significantly grow until the next “Awakening,” which per Strauss and Howe should occur at mid-century. Until then, believers will be culturally marginalized and congregations will be smaller—but comprised of relatively fervent, active members.
  13. Geopolitical risks are heightened, especially US-China tensions, and if Xenakis’ “58-year hypothesis” holds, this very year will see an echo of the Cuban Missile Crisis.
  14. The most important output of this process—and it is a process, with inputs, providers, outputs, recipients, etc—will be a collective lessons-learned database, comprised of both tacit and explicit knowledge, and somehow transmitted to future generations.

Retrotech — With a Future?

Before there were electronic digital computers, there were mechanical analog computers. Although now obsolete for practical computation, these devices might actually have an useful future ahead of them–in education.

Mechanical analog computation (analog means that calculation is done by measuring rather than by counting) goes back to the Greek Antikythera mechanism (65 BC), which was used to predict the positions of heavenly bodies. The modern era of analog computing began with the work done by James Thompson and his brother William (Lord Kelvin) in the 1870s. First, James Thompson created a mechanical device that performs the calculus function of integration.

Lord Kelvin applied this device…along with other mechanisms for addition and trigonometric functions…to create a mechanical tide-prediction system. These tide predictors had a pretty good run: the invention was announced in 1876, and some of these systems were still in use in the early 1970s!

For those who haven’t studied calculus, integration can be thought of as a kind of continuous addition.  Imagine a hose with a fluctuating flow rate filling a pool: by integrating the rate of flow, you can calculate the volume of water added to the pool.

The basic concept of a mechanical integrator is shown below.

mechanical-integrator-modified

If the vertical shaft is turned at a constant rate, and the small wheel is moved in and out according to the changing value of some some variable Y, then the rotation of the horizontal shaft Z will represent the integral of Y with respect to time.  If Y is the rate of flow of the a hose, Z will be the total volume  added to the pool. If Y represents the acceleration of a vehicle, then the output shaft will give that vehicle’s speed at any moment.  Connect the output to the input of another integrator, and you will get the distance traveled.

Vannevar Bush, who would become Roosevelt’s science adviser during WWII, combined the integrator and other computing mechanisms to create a highly general mechanical computer, called a differential analyzer. Completed in 1931, it was not restricted to a single application, but could be programmed–with a wrench and screwdriver to alter the connections–for a wide range of problems. Complex chains of calculation were possible, including the ability for a result at one stage to be fed back as input at an earlier stage–for example, the speed of a simulated vehicle affects its air resistance, which in turn influences its acceleration…which integrates back to its speed.

Other differential analyzers were built in the U.S.,  Norway, and Britain, and were used for applications including heat-flow analysis, electrical network stability analysis, soil-erosion studies, artillery firing table preparation, and studies of the loading and deflection of beams. It is rumored that a British analyzer was used in the planning for the bouncing-bomb attack on German hydroelectric dams during WWII. Differential analyzers appeared in several movies, including the 1951 film When Worlds Collide  (video clip). The ultimate in mechanical analog computation was the Rockefeller Differential Analyzer, a rather baroque (and very expensive) machine built in 1942. It was decommissioned in 1954, on the belief that the future of calculation would belong to the electronic computer, and especially the electronic digital computer.   Following the decommissioning, the mathematician Warren Weaver wrote:

It seems rather a pity not to have around such a place as MIT a really impressive Analogue computer; for there is vividness and directness of meaning of the electrical and mechanical processes involved… which can hardly fail, I would think, to have a very considerable educational value. A Digital Electronic computer is bound to be a somewhat abstract affair, in which the actual computational processes are fairly deeply submerged.

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Book Review: Red Plenty, by Francis Spufford

Red Plenty by Francis Spufford

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The idea of centralized economic planning is a very seductive one.  It just seems to make sense that such planning would lead to more efficiency…less waste…and certainly less unnecessary human suffering than an environment in which millions of decision-makers, many of them in competition with one another, are making their own separate and uncoordinated decisions, resulting in pointless product redundancy, economic cycles driving unemployment, and lots of other bad things.

Red Plenty…part novel, part nonfiction…is about the Soviet Union’s economic planning efforts as seen from the inside.  The characters include factory managers, economic planners, mathematicians, computer scientists, and “fixers.”  Published in 2010, Red Plenty is now quite timely in view of the current vogue for socialism in American political discussion.

Marx drew a nightmare picture of capitalism, when everything was produced only to be exchanged; when true qualities and uses dropped away, and the human power of making and doing itself became only an object to be traded.  The alternative? A dance to the music of use, where every step fulfilled some real need, did some tangible good, and no matter how fast the dancers spun, they moved easily, because they moved to a human measure, intelligible to all, chosen by all.

How might this actually be accomplished? Stalin mocked the idea that planning an economy required much in the way of intellectual depth or effort.  Get the chain of command right, Stalin seemed to be saying, build it on the right ideological principles, and all that was left was a few technical details, a little bit of drudgery to be carried out by the comrades at Gosplan with the adding machines.  But it turned out to be a little more complicated than that.

Maksim Maksimovich Mokhov is one of the lords of the Gosplan file room, in which there are hundreds of folders, each tracking the balances and plans for a particular commodity. A good man, who takes his job seriously, Maksim has risen as high as you could go at Gosplan before the posts become purely political appointments..his was the level at which competence was known to reach its ceiling…Not just a mechanical planner, he realizes that the file folders  cast only the loosest and most imperfect net over the prodigious output of the economy as the whole, and has worked to understand the stress points, the secret path dependencies of the plan.  His specific responsibility is the chemical and rubber sector, and he is particularly concerned, at the time when he enters the story, about problems in the viscose subsector.

Arkhipov, Kosoy, and Mitrenko run one of the most important plants in the viscose supply chain, and they are three worried men.  The plan goals aren’t being met, and they know that the path to career death is separated by only a few percentage points of plan fulfillment from the other one, the upward path, the road to glory and local fame. (A couple of decades earlier, it wouldn’t have been just career death on the table.) This plant makes two viscose-derived products, yarn and tire cord.  The yarn line works fine, the tire cord line, not so much…but no problems with the machine can be found.  There is no prospect of getting a replacement machine in any relevant timeframe.

Arkhipov and his associates come up with a plan to solve their problem…read the book to see what it is and how it turns out.

Nikita Khrushchev, in September 1959, told a crowd that “the dreams cherished for ages, dreams expressed in fairytales which seemed sheer fantasy, are being translated into reality by man’s own hands.”  Modern technology, combined with the benefits of a planned economy would make it possible.

Because the whole system of production and distribution in the USSR was owned by the state, because all Russia was (in Lenin’s words) ‘one office, one factory’, it could be directed, as capitalism could not, to the fastest, most lavish fulfillment, of human needs.  

The American exhibition in Moscow in mid-1959 (site of the “kitchen debate” between Khrushchev and Nixon) was attended by 3 million Soviets (including some of the characters in this book), and although many of them thought that the American claims of broad-based prosperity were exaggerated or worse, the experience surely helped feed the longing for a better life for the Soviet Union’s ordinary people.

Leonid Vitalevich Kantorovich pioneered the application of mathematics to the optimization of economic activities…these methods surfaced as a possible toolkit for the planning organizations circa 1960. Could these methods help achieve Khrushchev’s stated goal of broad-based prosperity?

For example, consider several factories, producing a common set of products but with different efficiency characteristics.  Which products should be made by which factories in order to optimize overall efficiency? A set of equations can be constructed representing the constraints that must be observed–labor, machine utlization, etc–and the relative weighting of the variables to be optimized.  Although these techniques have been used to a considerable degree in capitalist countries, they would seem tailor-made for a starring role in a planned economy.  Selling the new methods in the Soviet Union, though, could be tricky:  the linear-programming term “shadow prices”, for example, sounded like something that might have politically-dangerous overtones of capitalism!

One of the first applications involved potatoes, the distribution of same. The BESM (computer) is using Leonid Vitalevich’s shadow prices to do what a market in potatoes would do in a capitalist country–only better. When a market is matching supply with demand, it is the actual movement of the potatoes themselves from place to place, the actual sale of the potatoes at ever-shifting prices, which negotiates a solution, by trial and error.  In the computer, the effect of a possible solution can be assessed without the wasteful real-world to-ing and fro-ing, and because the computer works at the speed of flying electrons rather than the speed of a trundling vegetable truck, it can explore the whole of the mathematical space of possible solutions, and be sure to find the very best solution there is, instead of settling for the good-enough sollution that would be all there was time for, in a working day with potatoes to deliver.

And even in the planned Soviet economy, there is still a market in potatoes, right here in Moscow, the leftover scrap of capitalism represented by the capital’s collective-farm bazaars, where individual kolkhozniks sell the product from their private plots…The market’s clock speed is laughable.  It computes a the rate of a babushka in a headscare, laboriously breaking a two-rouble note for change and muttering the numbers under her breath…No wonder that Oscar Lange over in Warsaw gleefully calls the marketplace “a primitive pre-electronic calculator.”

So put the BESM to work minimizing distance that the potatoes have to travel..a proxy for efficiency and freshness:  price is not a consideration, since the state selling price of potatoes has been fixed for many years.  But BESM can only work with abstract potatoes: Not, of course, potatoes as they are in themselves, the actual tubers, so often frost-damaged or green with age or warty with sprouting tublices–but potatoes abstracted, potatoes considered as information, travelling into Moscow from 348 delivering units to 215 consuming organizations…The economists recognize the difficulty of getting a computer model to mirror the world truly.  They distinguish between working at zadachi, ‘from the problem’, and of fotografii, ‘from the photograph’…This calculation, alas, is from the photograph.  It deals with potato delivery as it has been reported to Leonid Vitalevich and his colleagues.  There has been no time to visit the cold-stores, interview the managers, ride on the delivery trucks. But the program should still work.

The author notes that “the idea that the computer had conclusively resolved the socialist calculation debate in socialism’s favour was very much a commonplace of the early sixties.”

But despite all the planning paperwork, despite the attempts at computerization, people like Chekuskin remain essential to keep the Soviet economy functioning at all.  He is a fixer, he works the system to ensure that his customers–factories, for the most part–can get the parts and materials they need in order to keep operating.  Before the revolution, he was a salesman: now, the economic problem is not selling, but buying.  Chekuskin explains what a real salesman was, back in the day:

You’re thinking of some fellow who works in a sales administration, sits by his phone all day long like a little king, licks his finger when he feels like it, and says, “You can have a litttle bit”…That’s not a salesman.  You see, the world used to be the other way up, and it used to be the buyers who sat around examining their fingernails, hard enough as that is to imagine.  A salesman was a poor hungry bastard with a suitcase, trying to shift something that people probably didn’t want, ’cause back in those days, people didn’t just get out the money and buy anything they could get their hands on.  They had to be talked into it.”

But with Communism, the things changed.  Back then, people didn’t want to buy.  Now, they don’t want to sell.  There’s always that resistance to get past.  But the trick of it stays the same:  make a connection, build a relationship.

Volodya, is a young propagandist recently assigned to the huge locomotive plant in Novocherkassk, a dismal town that also features a university.  Unfortunately, it was classified by the planners as a “college town”, in need of the calorific intake required to lift pencils and wipe blackboards, but there were forty thousand people living and working in the industrial zone out by the tracks now, and between the students and the loco workers, a locust would have been hard put to it to find a spare crumb. White bread was a distant memory, milk was dispensed only at the head of enormous queues.  Sausages were as rare a comets.  Pea soup and porridge powered the place, usually served on half-washed plates.

Eventually, people can’t stand it anymore–and decisions by two separate planning organizations have the result that on the very same day, food prices are increased and so are the production quotas at the locomotive factory.   There is a raucous mass protest, featuring signs like MEAT, BUTTER, AND PAY and CUT UP KHRUSHCHEV FOR SAUSAGES.  The loco plant manager, Korochkin, does not handle the situation well, and the rage grows.

The ensuing catastrophe is vividly described as it is observed by the horrified Volodya.  Troops open fire on the protestors:  26 people are killed an 87 wounded.  Death sentences and long prison terms are handed down.

This was a real event:  it happened in 1962.  News about the events did not appear in the state-controlled press for thirty years.

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Ayiti Pa Nimewo Yo

I. Departure

Our transportation to Aéroport International Toussaint Louverture was a decrepit Honda Civic with no working inside door handles, no exhaust system, and a barely functional starter. The guesthouse driver poured a liter of water into the radiator immediately before starting the engine so that it would not overheat, even though the drive was only 3 kilometers. Our luggage proved too big for the trunk, so most of the team’s belongings were wedged in beneath the open trunk lid, which was not secured by so much as a single bungee cord. Threading through the remnants of at least a dozen barricades on Avenue Gerard Téodart half an hour before sunrise, we high-centered on some rubble and dragged a sizable rock for several hundred meters before the driver backed the car up to dislodge it. After we made the turn onto Boulevard Toussaint Louverture, there were no more barricades, thanks to the proximity of a MINUSTAH logistics base and a Police Nationale d’Haïti station. There were pedestrians, of course—Port-au-Prince is very much a city that never sleeps—but not many, and few vehicles thanks to severely interrupted fuel deliveries, which had nearly stranded us altogether. One of the team members riding in the back seat later told me that the gas gauge was on “E.”

What is happening when a Third World country loses a key component of its energy supply, and what might be the lessons to learn for those apprehensive over a significant breakdown of logistics in the US?

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The Internet Rewards Crazy (Rerun)

(This is a reposting of posts from two and seven years ago. Unhappily, this post’s themes are more relevant than ever. The Internet seems to be changing human social relations, business, politics and civil society in significant ways not all of which are clear. Perhaps the nature of what is happening will be better understood with time.)

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Crazy, overconfident; the opposite of the judicious, scientific, skeptical temperament.

Extreme opinions.

Stubborn.

Bombastic.

The opposite of thoughtful.

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Seth Barrett Tillman: Trump’s 7% Panel

In the Fourth Circuit, 3 judges have D/R or R/D appointments (i.e., CJ Gregory, Traxler & Floyd). 8 of the 18 have R or R-only appointments. 7 of the 18 have D or D-only appointments. The chances of drawing a strictly R-only panel of judges are 8/18*7/17*6/16 = 7%.
Not that it matters.
7%
Did I tell you?: only 7%.

Seth runs the numbers. His post is worth reading in full, as usual.

Quote of the Day

Rush Limbaugh on Dec. 7:

Donald Trump arrived, the way I hear this Tillerson sound bite, Trump arrives knowing what he wants to do. He doesn’t arrive unsure and he’s not gonna admit that who doesn’t know what to do because he’s not from this world. He’s there, and he has a specific agenda that everybody that elected him knows what it is: Make America Great Again.
 
Sadly, he hasn’t done a lot on that agenda. He hasn’t built the wall yet. We haven’t repealed and replaced Obamacare. There’s a lot of things in the Trump agenda that have not happened yet. But that’s not what Tillerson’s talking about. Tillerson’s talking about some guy comes in and says, “This is what I want to happen.” And your typical Washington bureaucrat or CEO bureaucrat will say, “Well, where’s the memo? Where’s the plan? Where’s the blueprint?”
 
Trump said, “There’s no blueprint. Just do it! This is what I want to happen. This is what I want.”
 
“Well, uh, you know, you shouldn’t do it that way.”
 
“I don’t care what you — just make it happen.” Trump is one of these, this is how he’s worked, “make it happen.” If he’s talking to Jared, if he’s talking to Trump Jr. or Eric or Ivanka, “This is what I want, make it happen.” That’s not how Washington works. Washington works on things not happening. The whole point of bureaucracy is to not do such that it looks like you’re getting things done. There might not be any need for you after you finish. So everything’s never done. Of course Trump’s gonna have compatibility problems with that.

[emphasis added]

Quote of the Day (Follow Up)

Conrad Black:

Mr. Trump isn’t the problem, but among the symptoms of the problem are that the director and deputy director of the FBI have been fired for cause as the Bureau virtually became the dirty-tricks arm of the Democratic National Committee, and that, as the Center for Media Studies and Pew Research have both recorded, 90% of national-press comment on Mr. Trump is hostile. Mr. Trump may have aggravated some of the current nastiness, but his chief offense has been breaking ranks with the bipartisan coalition that produced the only period of absolute and relative decline in American history.

I think Black is too harsh on George W. Bush but this column is otherwise excellent.

Quote of the Day

Conrad Black:

Here are two current examples of [the failings of the legal system and of journalism]: Canadians don’t like Donald Trump, largely because his confident and sometimes boorish manner is un-Canadian. He is in some respects a caricature of the ugly American. But he has been relentlessly exposing the U.S. federal police (FBI) as having been politicized and virtually transformed into the dirty tricks division of the Democratic National Committee. Few now doubt that the former FBI director, James Comey, was fired for cause, and the current director, backed by the impartial inspector general and Office of Professional Responsibility, asserts that Comey’s deputy director, Andrew McCabe, was also fired for cause. There are shocking revelations of the Justice Department’s illegal use of the spurious Steele dossier, paid for by the Clinton campaign, and of dishonest conduct in the Clinton email investigation, the propagation of the nonsense that Trump had colluded with Russia, and of criminal indiscretions and lies in sworn testimony by Justice officials. It is an epochal shambles without the slightest precedent in American history (certainly not the Watergate piffle), yet our media slavishly cling to a faded story of possible impeachable offences by the president.
 
The American refusal to adhere to the Paris climate accord is routinely portrayed as anti-scientific heresy and possibly capitulation to corrupt oil interests. The world’s greatest polluters, China and India, did not promise to do anything in that accord; Europe uttered platitudes of unlimited elasticity, and Barack Obama, for reasons that may not be entirely creditable, attempted to commit the United States to reducing its carbon footprint by 26 per cent, at immense cost in jobs and money, when there is no proof that carbon has anything to do with climate and the United States under nine presidents of both parties has done more for the ecology of the world than any other country. Journalistic failure on this scale, and across most of what is newsworthy, added to an education system that is more of a Luddite day-care network, produces a steadily less informed public, who, while increasingly tyrannized by lawyers, elect less capable public office-holders.
 
Lenin famously wrote: “What is to be done?” We must ask ourselves the same question but come up with a better answer than he did.

 

Po nan Jwèt la: Asymétri Kache nan Lavi Chak Jou

Taleb, Nassim N., Skin in the Game: Hidden Asymmetries in Daily Life. New York City: Random House, 2018.

NB: precisely because I regard Taleb as a national treasure and have considerable respect for his work, I am not going to pull punches here. I get to do this because I have … skin in the game, and not only in Haiti[1] (where I wrote this post over the past ten days, thus the Kreyòl Ayisyen title), but in a couple-three moderately hair-raising situations back in KC, which I will relate when appropriate. Which might be never; see Matthew 6:1-4 (cited by Taleb on page 186).

Getting this out of the way—buy this book, read it, and recommend it to others. I say this very much irrespective of what might be called the Manifold-Taleb delta, which is not altogether trivial, as I will explain in some detail—again, as a sign of respect—below. Immediately below, in fact.

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I Am a Barbarian

Scott, James C. Against the Grain: A Deep History of the Earliest States. New Haven: Yale University Press, 2017.

Scott has hit another metaphorical grand slam with this one, a worthily disconcerting follow-on to his earlier work. I have previously read (in order of publication, rather than the order in which I encountered them) The Moral Economy of the Peasant, Seeing Like a State, and Two Cheers for Anarchism, and found them congenial. Scott is particularly good at encouraging a non-elite viewpoint deeply skeptical of State power, and in Against the Grain he applies this to the earliest civilizations. Turns out they loom large in our imagination due to the a posteriori distribution of monumental ruins and written records—structures that were often built by slaves and records created almost entirely to facilitate heavy taxation and conscription. Outside of “civilization” were the “barbarians,” who turn out to have simply been those who evaded control by the North Koreas and Venezuelas of their time, rather than the untutored and truculent caricatures of the “civilized” histories.

By these criteria, the United States of America is predominately a barbarian nation. In the order given above:

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Dangerous Math Teachers

The proposition that logic is a universal, is unitary, used to be something of a consensus position. The idea of universal logic was (and remains) very useful. It meant that one could, without any other shared beliefs, have some sort of conversation with anybody and, if constructed correctly, the conversation would progress and lead somewhere.

Communism does not believe in the universality of logic. This is why communism keeps coming back. Logical refutations have no effect because they are constructed with bourgeois logic, something that a priori is rejected by communists as an improper lens for examining communism.

If you don’t care about truth per se and want an indestructible ideology, this weeble like characteristic of not accepting logical refutation is very attractive. This is why ideologies that have no particular opinion on economic class or the proper way to distribute goods and services fall into the communist orbit. Their defects need to be papered over and the communists provide the only available cure for pesky objective, logical examination and refutation.

In a communist country, teaching logic is both a dangerous act and a necessary act. Without any logic at all society collapses. With a well taught, well formed mind schooled in logic, communism is rejected, which means a trip to reeducation or worse.

Yet throughout the communist period, math teachers went and taught their lessons including the concepts of logic and how to apply it to students. Philosophically, they were behind enemy lines and entirely within the power of their enemies while they openly taught a major building intellectual concept that doomed the State.

This is bravery, and almost entirely unrecognized.

What’s going on with the DNC and the Pakistanis ?

The arrest of Imran Awan sets off a potential firestorm.

Who is this guy ?

For years, Imran Awan had access to the secret data and correspondence of many House committees, including foreign affairs. What did he do with it? As I said, that’s the worst case scenario (I guess).

He refers to a possible link to the Pakistani ISI. The ISI has a very controversial history. Some of it concerns the Afghanistan Taliban.

In documents leaked in April 2011 on the Wikileaks website, US authorities described the ISI as a “terrorist” organisation on a par with al-Qaeda and the Taliban.
In the same month the US military’s top officer, Adm Mike Mullen, also accused the ISI of having links with the Taliban.
He said it had a “long-standing relationship” with a militant group run by Afghan insurgent Jalaluddin Haqqani, which targets US troops in Afghanistan.

What is the relationship between Awan and the Democrats in Congress ? Why did Debbie Wasserman Schultz keep paying his salary until he was arrested trying to flee the country ?

Imran Awan was arrested at Dulles Airport on a bank fraud charge, and was found to have smashed hard drives in his possession.

“It’s about everything that the Democrats and the media spent months… trying to prove [with] the Russia investigation,” he said.

Steyn said Awan’s story involved a powerful political figure trying to interfere in a federal investigation.

“We have actual criminal elements,” he said. “Everything they’ve been looking for is… staring them in the face with this mysterious guy.”

Why did Schultz threaten the capitol police chief with “consequences” if her hard drive possessed by Awan was not returned to her ?

DWS: It’s a simple yes or no answer. If a member loses equipment and it is found by your staff and identified as that member’s equipment and the member is not associated with any case, it is supposed to be returned. Yes or no.

Chief Verderosa: It depends on the circumstances.

DWS: I don’t understand how that is possible. Members’ equipment is members’ equipment. My understanding is the the Capitol Police is not able to confiscate members’ equipment when the member is not under investigation. It is their equipment and it is supposed to be returned.

Chief Verderosa: I think there are extenuating circumstances in this case, and working through my counsel and the necessary personnel, if that in fact is the case, and with the permission of through the investigation, then we’ll return the equipment. But until that happens we can’t return the equipment.

DWS: I think you’re violating the rules when you conduct your business that way and you should expect that there will be consequences.

What “consequences?”

Here are some thoughts about this:

1. Why did Debbie Wasserman Schultz keep this man in her employ right up until he was arrested Tuesday night when he has been under suspicion for months. Does he have something on her or other people?

2. Why did Nancy Pelosi lie when she said she never heard of Awan? Email revealed by Wikileaks says Awan had access to Pelosi’s iPad. (Wiklileaks has never been shown to be inaccurate.)

3. What is on the smashed hard drives Awan is trying to retrieve from the FBI? (Oh, those Democrats and their hard drives.)

4. Why is Awan suddenly being legally represented at the highest level by Clinton ultra-loyalist Chris Gowan — a fact-checker for Bill Clinton’s memoir of all things? (They are already using the same right-wing conspiracy baloney they used in the Lewinski case.) Does this make sense if Awan’s just a low-life fraudster? Why not let him dangle?

5. Just what is the relationship, if any, between the Awan case and the unsolved Seth Rich murder? Is it entirely an accident that Debbie Wasserman Schultz’s brother Steven is accused of blocking the investigation? Denials from Debbie aren’t worth much anymore.

6. Where did the Wikileaks come from anyway? Was it really Russia?

And more questions.

Key among the findings of the independent forensic investigations is the conclusion that the DNC data was copied onto a storage device at a speed that far exceeds an Internet capability for a remote hack. Of equal importance, the forensics show that the copying and doctoring were performed on the East coast of the U.S. Thus far, mainstream media have ignored the findings of these independent studies [see here and here].

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The Internet Rewards Crazy (Rerun)

(This is a reposting of a post from five years ago. I think it holds up pretty well. The Internet seems to be changing human society in significant ways which are not yet entirely clear. Perhaps the nature of what is happening will become a topic of systematic research.)

—-

Crazy, overconfident; the opposite of the judicious, scientific, skeptical temperament.

Extreme opinions.

Stubborn.

Bombastic.

The opposite of thoughtful.

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Dodd-Frank, Obamacare grew out of same faulty reasoning

The current partisan war over the Dodd-Frank Act is just one dispute in a broader ideological divide about the government’s role in industry. This dispute, which has deep historical roots, includes a similar battle over Obamacare. The common disagreement at issue with both laws — now in the cross hairs of a GOP-controlled Washington — is the extent to which politicians should subsidize their constituents indirectly through regulation of private companies.

The Affordable Care Act governing health insurers was about 1,000 pages, and Dodd-Frank governing most other financial institutions was more than twice that. Both stopped short of nationalizing their respective industry, instead generating more than 10 pages of regulation for every one page of legislation, although many view nationalization as an eventual but inevitable consequence, particularly for health care.

The distinction between public control and public ownership is the primary distinction between the competing mid-20th-century ideologies of fascism and communism. In contemporary terminology, this distinction is between crony capitalism and nationalization, neither of which can be reconciled with competition and freedom of choice.

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Seth Barrett Tillman: Some Thoughts on the 2016 Presidential Election

Seth re-games the election. The conclusion:

A 269 to 269 tie would have come about in those circumstances because of the 2 electoral vote bonus awarded to each state. Trump carried 30 states (each bringing a bump of 2 electoral votes), but Clinton only carried 20 states and the District of Columbia. It appears that Republicans go into presidential elections with about a 10 state or 20 electoral vote bonus.

Worth reading in full.

The Boom/Bust Cycle Isn’t about Emotion

My first experience with manias was in the 1950’s. As a pre-schooler, I was dragged along to the Filene’s Basement annual designer dress sale. Thousands of women of all types and sizes pressed against the glass doors opening into the subway station. Within minutes of the doors opening, these “maniacs” cleared all the racks and, holding armfuls of dresses, began stripping to their slips. That’s when I panicked.

Looking back, those women acted rationally. There was a limited supply of deeply discounted dresses available on a first come basis. They traded among themselves to get the right size and their most desired dress. Buyer’s remorse was cushioned by Filene’s liberal return policy.

The premise of U.S. financial regulation is that actors within private markets are irrational, but the evidence shows that it’s not maniacal, illogical behavior that sends markets into freefall.

Great Depression and Recession

Now in its seventh edition, Manias, Panics and Crashes: A History of Financial Crises, Charles Kindleberger’s seminal work provides the narrative that underlies virtually all public financial protection and regulation: First, the irrational exuberance of individuals transforms into “mob psychology” and fuels an asset bubble. Then, when the exuberance of a few turns to fear, the mob panics and overreacts, causing a crash that brings down both solvent and insolvent financial institutions.

In his memoir, the former Federal Reserve Bank President and Treasury Secretary Timothy Geithner, who was at the epicenter of the last crisis, concluded, “It began with a mania — the widespread belief that devastating financial crises were a thing of the past, that future recessions would be mild, that gravity-defying home prices would never crash to earth.”  

Most U.S. federal financial regulation originates from the Great Depression and the subsequent introduction of federal deposit insurance provided by the Federal Deposit Insurance Corporation (FDIC), which was established in 1933 to protect “small” savers. All prior state attempts to provide insurance failed. Because there were no effective, non-politicized regulations that could prevent the moral hazard of insured banks and savings institutions taking on excessive risks, an extensive regulatory infrastructure was put in place.

Rational Actors

Now, the U.S. has about 100 financial regulators, including those in the U.S. Treasury and the Securities and Exchange Commission (SEC), the FDIC, and the Fed. With near-universal deposit insurance, bank runs have become a rarity, but systemic crises have occurred more frequently. It is incontestable that big bubbles eventually burst, asset prices crash, and financial crises ensue. What causes the bubbles to inflate to systemic proportions, and to ultimately burst, is more contentious.

At the time of Kindleberger’s analysis, individuals were assumed to be rational. The latest edition of his book, written after the 2008 financial crisis, postulates numerous theories about mob psychology (mania) that could lead rational individuals to produce irrational markets, but these ideas are all rather lame.

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Seth Barrett Tillman: National Conference Of State Legislatures: Number Of State Legislative Seats Held By Each Party

The shift to the Rs represents just over 1/2 of 1% of all state legislative seats (i.e., (44) / (7,297)). Interesting, 12 House state legislative chambers and 2 Senate state legislative chambers are controlled by 5 or fewer seats. Small changes in seat distribution can have highly significant effects.

Read the details.

A Really Big Short Still Awaits

When testifying in 2010 before the Financial Crisis Inquiry Commission into the financial crash, then Federal Reserve Board Chairman Ben Bernanke recommended only one reference, Lords of Finance: The Bankers Who Broke the World (2009), presumably for the narrative that insufficient money printing in the aftermath of the Great War lead to the next one. Right idea, wrong narrative!

The US homeownership rate peaked at a rate well above the current level almost a half century ago mostly funded by a system of private mutual savings banks and savings and loans. The historical justification for federal “secondary market” agencies was political expediency – exemption from now obsolete federal, state and local laws and regulations inhibiting a national banking and mortgage market. Now government-run enterprises account for about 90% of all mortgages, with the Fed their primary funding mechanism, what the Economist recently labeled a de facto nationalization.

The Historical Evolution

How did the private US housing finance system repeatedly go bankrupt? To quote Hemingway: Gradually, then suddenly. The two competing political narratives of the cause of financial market crises remain at the extremes – either a private market or public political failure – with diametrically opposite policy prescriptions. The politician-exonerating market failure narrative has not surprisingly dominated policy, with past compromises contributing to the systemic financial system failure, the global recession of 2008 and subsequent nationalization.

The Great Depression stressed the S&L system, but the industry’s vigorous opposition to both federal deposit insurance and the Fannie Mae secondary market proved prescient as the federally chartered savings and loan industry eventually succumbed by 1980 to the federal deposit insurer’s perverse politically imposed mandate of funding fixed rate mortgages with short term deposits and competition from the government sponsored enterprises.

The S&Ls were largely replaced by the commercial banks. To make banks competitive with Fannie and Freddie, politicians and regulators allowed virtually the same extreme leverage, in return for a comparable low-income lending mandate – CRA requirements leading to a market dominating $4 trillion in commitments to community groups to whom the Clinton Administration had granted virtual veto power over new branch and merger authority.

The Financial Crisis of 2008 and the aftermath

The Big Short by Michael Lewis and more recent movie portrayed not just banker greed but the extreme frustration of those shorting the US mortgage market stymied by a housing price bubble many times greater than any in recorded US history that refused to burst. The reasons: 1. the Fed kept rates low and money plentiful, and 2. whereas banks would have run out of funding capacity, the ability of Fannie and Freddie to continuously borrow at the Treasury’s cost of funds regardless of risk and their HUD Mission Regulator requirement to maintain a 50% market share kept the bubble inflating to systemic proportions.

The Obama Administration fully embraced the alternative private market failure narrative in Fed policy, regulation and legislation:

  • To partially ameliorate the effects on the real economy of disruption to the global payments mechanism the Fed had to bail out the banking system. QE1/2/3/4 and ZIRP (zero rates), now NIRP, did this by re-inflating the house diazepamhome price bubble, postponing defaults while allowing banks risk-free profits. The Fed – and taxpayers – would lose more than the entire S&L industry did should rates rise by a comparable amount if it marked its balance sheet to market.
  • Regulators had to appear to punish the banks. In response to paying hundreds of billions of dollars in what the Economist labeled “extortion” – some of which ironically went to populist political action groups – and the subsequent oppressive regulatory regime, U.S. commercial banks are exiting the US mortgage market in spite of ongoing profits enabled by extreme leverage.
  • One legislative centerpiece, the Dodd Frank Act passed in July 2010 in direct response to the financial crisis, doubled down on political control of financial markets without addressing the future of Fannie and Freddie. The other, Obamacare, enacted four months earlier, was similarly premised on regulating private health insurers to make health insurance simultaneously cheaper and more widely available.

The Long Term Consequences

Bernanke’s focus on choosing the narrative was useful, but the political choice of the market failure narrative appears to reflect convenience rather than conviction. The direct taxpayer costs of implicit or explicit public insurance and guarantees come with both a whimper – tax savings amounting to tens of billions annually due to the deductibility of interest costs – and a bang – future taxpayer bailouts generally delivered off-budget.

Fannie and Freddie conservatorship deftly avoided debt consolidation while dividends reduced reported federal deficits. The student loan market has also been de facto nationalized, with potential unbudgeted losses totaling hundreds of billions. Obamacare was similarly premised on regulating private health insurers to make health insurance simultaneously cheaper and more widely available, but under-budgeted health insurance subsidies predictable caused massive losses and health insurers are now withdrawing from the market.

Monetary policies caused household savings to stagnate as returns to retirement savings evaporated. Defined obligation public pension funds were all rendered technically insolvent when funding is valued at current market returns rather than the assumed rate as much as ten times that. The failure of the economy to grow per capita was explained as the “new normal”. But politicians made no attempt to reflect the implied technically insolvency of public pensions or Social Security and Medicare.

Private firms fail, but private markets rarely do. Public protection and regulation makes firms “too big to fail” until markets fail systemically. The current and projected future public debt bubble is unsustainable, and financial markets will eventually ignore the accounting deceptions and pop it. The relative weakness of other sovereign debt is delaying the inevitably, making The Really Big Short a good title for a Michael Lewis’s sequel. Politicians and central bankers will again say “nobody saw this coming”. What then?

====
Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates. He has held senior government positions, been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath. This article was originally published at FFE.org

Despite Drop in Home Ownership, an Increase in Renters*

Millennials cause homeownership rate to drop to lowest level since 1965:

The drop in homeownership is largely due to a delay in homebuying by the millennials, who have the lowest ownership rate of their age group in history. Millennials are not only burdened by student loan debt, but they have also delayed life choices like marriage and parenthood, which are the primary drivers of homeownership.

Why have today’s young people, as compared to young people in the recent past, delayed buying property, marrying and having children?

“While the millennial homeownership rate continues to decline, it’s important to note that the decrease could be just as likely due to new renter household formation as it is their ability to buy homes,” wrote Ralph McLaughlin, chief economist at Trulia. “Certainly low inventory and affordability isn’t helping their efforts to own, but moving out of their parents’ basement and into a rental unit is also a good sign for the housing market.”

Why are many of today’s young families choosing to rent rather than buy their homes?

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Lest We Forget: “Reasons Why Dodd-Frank Was a Horrible Law”

Jeff Carter:

One thing I have noticed over the years is when there is a crisis, it’s a really bad time to pass sweeping legislation. The momentum and justification for legislation comes from fear. “We don’t want that to happen again”, supporters say. For example, 9/11 happens and we get the Department of Homeland Security which is mostly a waste of money and allows the government to pry into all kinds of places it shouldn’t.
 
Dodd-Frank is a result of the financial crisis. There are so many bad actors in this crisis that it’s hard to list them all, but the root cause was the implicit backing government gave Fannie Mae and Freddie Mac-along with legislation and regulation that encouraged bad behavior. Sure, the ratings agencies were paid by the big banks and slanted the playing field. The big banks knew exactly what they were doing with the mortgages. But, without the implicit backing of government, the game never gets played.

and

Here are some data points:
 

  • Before Dodd-Frank 75% of banks offered free checking
  •  

  • After Dodd-Frank 25% of banks offered free checking
  •  

  • Small business costs are up 15% to comply with new regulation
  •  

  • 15% less credit card accounts, and a 200 basis points more in cost
  •  
    Remember, many small businesses get started by using credit cards. You might think they are stupid. But why should you import your financial/moral compass on them. Maybe they see the annual percentage rate credit card companies charge as cheap compared to the opportunity that lies ahead of them.
     
    In the state of Missouri, there were 44 banks with less than $50M in assets. Prior to Dodd-Frank they were profitable. Post Dodd-Frank, 26/44 are losing money and will either go out of business or be consolidated. Your local community bank which is often the lifeblood of local capital is dead. How many other states are like Missouri? It’s no wonder small town rural America is having a tough go in the Obama epoch.
     
    Dodd-Frank tried to make central party clearing mandatory for all transactions in the OTC market. Professor Craig Pirrong has blogged brilliantly about this and other aspects of Dodd-Frank. It works for a few, but not for all. This makes it more expensive to hedge risks. Businesses pass along the cost to consumers. In many cases, clearinghouses have to become the actual counterparty to the hedge. This stops commerce and more importantly has created more too big to fail institutions. Those too big to fail clearinghouses are now backed by the full faith and credit of the American taxpayer, you.

    These are great points and Jeff’s post is worth reading in full.