Relevant History

On neocons

in the course of my reading (or browsing or opportunistic strip-mining) of the literature on behavioral economics, the psychology of the future, studies of certainty, and other things, I keep having the same thought: The whole point of this literature is to explain why people listen to the neocons.

There's no logical reason, after the last eight years, that anyone should ever take anything that William Kristol (to take one example) says seriously. But the neocons don't appeal to logic: they appeal to those parts of our brains that respond to blinding certainty, simple arguments, and self-confidence, not complexity, contingency, and modestly.

Once you realize that it all makes sense. If you want to be constantly rewarded for being consistently wrong, study their careers.

Of course, being well-connected doesn't hurt (amazing anecdote via Balloon Juice, via Denver Post):

I remember back in the late '90s when Ira Katznelson, an eminent political scientist at Columbia, came to deliver a guest lecture to an economic philosophy class I was taking. It was a great lecture, made more so by the fact that the class was only about ten or twelve students and we got got ask all kinds of questions and got a lot of great, provocative answers.

Anyhow, Prof. Katznelson described a lunch he had with Irving Kristol back either during the first Bush administration. The talk turned to William Kristol, then Dan Quayle's chief of staff, and how he got his start in politics. Irving recalled how he talked to his friend Harvey Mansfield at Harvard, who secured William a place there as both an undergrad and graduate student; how he talked to Pat Moynihan, then Nixon's domestic policy adviser, and got William an internship at The White House; how he talked to friends at the RNC and secured a job for William after he got his Harvard Ph.D.; and how he arranged with still more friends for William to teach at UPenn and the Kennedy School of Government.

With that, Prof. Katznelson recalled, he then asked Irving what he thought of affirmative action. "I oppose it", Irving replied. "It subverts meritocracy."

John Oliver on information technology

John Oliver, in the latest issue of The Bugle (the funniest thing in the world), talking about the use of information technology in Iranian protests:

John Oliver: The reinforcements of modern technology stepped to the front line: the twin soldiers of YouTube and Twitter answered their planet's calling. People in protests used their cellphones to shoot footage, and then put it on the Internet. All it took was a potential Iranian revolution to find a practical use for Internet video.

And so I would like to hereby issue a public apology to the piano-playing cat; to the teenage boy receiving a nut-shot from a whiffle bat; and to the fat lady falling off a table. All of your clumsy attempts at entertainment were in fact vital experiments in the development of this communications tool.

Andy Zaltzman: They were very much the John the Baptists to the Jesus of Iranian video.

More on the current state and future of economics

That article I just quote (Barry Eichengreen's "The Last Temptation of Risk," in The National Interest) just gets better and better:

[W]here the accelerating pace of change should have prompted more caution, the routinization of risk management encouraged precisely the opposite. The idea that risk management had been reduced to a mere engineering problem seduced business in general, and financial businesses in particular, into believing that it was safe to use more leverage and to invest in more volatile assets.

Of course, risk officers could have pointed out that the models had been fit to data for a period of unprecedented low volatility. They could have pointed out that models designed to predict losses on securities backed by residential mortgages were estimated on data only for years when housing prices were rising and foreclosures were essentially unknown. They could have emphasized the high degree of uncertainty surrounding their estimates. But they knew on which side their bread was buttered. Senior management strongly preferred to take on additional risk, since if the dice came up seven they stood to receive megabonuses, whereas if they rolled snake eyes the worst they could expect was a golden parachute. If an investment strategy that promised high returns today threatened to jeopardize the viability of the enterprise tomorrow, then this was someone else’s problem. For a junior risk officer to warn the members of the investment committee that they were taking undue risk would have dimmed his chances of promotion. And so on up the ladder.

On not blowing the whistle, and the loneliness of being right:

But what of doctoral programs in economics (like the one in which I teach)? The top PhD-granting departments only rarely send their graduates to positions in banking or business—most go on to other universities. But their faculties do not object to the occasional high-paying consulting gig. They don’t mind serving as the entertainment at beachside and ski-slope retreats hosted by investment banks for their important clients.

Generous speaker’s fees were thus available to those prepared to drink the Kool-Aid. Not everyone indulged. But there was nonetheless a subconscious tendency to embrace the arguments of one’s more “successful” colleagues in a discipline where money, in this case earned through speaking engagements and consultancies, is the common denominator of success.

Those who predicted the housing slump eventually became famous, of course. Princeton University Press now takes out space ads in general-interest publications prominently displaying the sober visage of Yale University economics professor Robert Shiller, the maven of the housing crash. Not every academic scribbler can expect this kind of attention from his publisher. But such fame comes only after the fact. The more housing prices rose and the longer predictions of their decline looked to be wrong, the lonelier the intellectual nonconformists became. Sociologists may be more familiar than economists with the psychic costs of nonconformity. But because there is a strong external demand for economists’ services, they may experience even-stronger economic incentives than their colleagues in other disciplines to conform to the industry-held view. They can thus incur even-greater costs—economic and also psychic—from falling out of step.

Finally, this bit that reveals what happens when you have large stores of legacy data, combined with a dramatic drop in the costs of analyzing it:

The last ten years have seen a quiet revolution in the practice of economics. For years theorists held the intellectual high ground. With their mastery of sophisticated mathematics, they were the high-prestige members of the profession. The methods of empirical economists seeking to analyze real data were rudimentary by comparison. As recently as the 1970s, doing a statistical analysis meant entering data on punch cards, submitting them at the university computing center, going out for dinner and returning some hours later to see if the program had successfully run. (I speak from experience.) The typical empirical analysis in economics utilized a few dozen, or at most a few hundred, observations transcribed by hand. It is not surprising that the theoretically inclined looked down, fondly if a bit condescendingly, on their more empirically oriented colleagues or that the theorists ruled the intellectual roost.

But the IT revolution has altered the lay of the intellectual land. Now every graduate student has a laptop computer with more memory than that decades-old university computing center. And she knows what to do with it. Just like the typical twelve-year-old knows more than her parents about how to download data from the internet, for graduate students in economics, unlike their instructors, importing data from cyberspace is second nature. They can grab data on grocery-store spending generated by the club cards issued by supermarket chains and combine it with information on temperature by zip code to see how the weather affects sales of beer. Their next step, of course, is to download securities prices from Bloomberg and see how blue skies and rain affect the behavior of financial markets. Finding that stock markets are more likely to rise on sunny days is not exactly reassuring for believers in the efficient-markets hypothesis.

Really, just go read the whole thing. And I gotta track down Eichengreen.

Risk and false certainty

This is why incomplete understanding, or mistaking the elegant model for messy reality, is so dangerous.

In the wake of the 1987 stock-market crash, Morgan’s chairman, Dennis Weatherstone, started calling for a daily “4:15 Report” summarizing how much his firm would lose if tomorrow turned out to be a bad day. His counterparts at other firms then adopted the practice. Soon after, business schools jumped to supply graduates to write those reports. Value at Risk, as that number and the process for calculating it came to be known, quickly gained a place in the business-school curriculum.

The desire for up-to-date information on the risks of doing business was admirable. Less admirable was the belief that those risks could be reduced to a single number which could then be estimated on the basis of a set of mathematical equations fitted to a few data points. Much as former–GM CEO Alfred Sloan once sought to transform automobile production from a craft to an engineering problem, Weatherstone and his colleagues encouraged the belief that risk and return could be reduced to a set of equations specified by an MBA and solved by a machine.

Getting the machine to spit out a headline number for Value at Risk was straightforward. But deciding what to put into the model was another matter. The art of gauging Value at Risk required imagining the severity of the shocks to which the portfolio might be subjected. It required knowing what new variables to add in response to financial innovation and unfolding events. Doing this right required a thoughtful and creative practitioner. Value at Risk, like dynamite, can be a powerful tool when in the right hands. Placed in the wrong hands—well, you know.

These simple models should have been regarded as no more than starting points for serious thinking. Instead, those responsible for making key decisions, institutional investors and their regulators alike, took them literally. This reflected the seductive appeal of elegant theory. Reducing risk to a single number encouraged the belief that it could be mastered. It also made it easier to leave early for that weekend in the Hamptons.

As George Box said, "all models are wrong, but some models are useful." Maybe one of the signal characteristics of today's world is that the amount of time you have discover that a model isn't useful, but wrong in a really dangerous way, is shrinking dramatically.

Has anyone looked at the circumstances under which decision-makers or managers come to rely to a dangerous degree on elegant, simple models? The examples of it happening are legion; but are there interesting things we can say about why and when it happens?

Making the rounds...

...rather like its subject:

First sighted here. Track the spread of the image on Twitter.

And as Luis Bettencourt, David Kaiser, et al showed, ideas do spread like infections. (Or more specifically, the diffusion of Feynman diagrams in the late 1940s and 1950s can be modeled using the same mathematical models used to understand epidemics.

How's that defense of traditional marriage thing working out?

Indecision Forever points out

Remember that not-at-all ironically named "2 Million for Marriage" (2M4M) protest march being organized by the National Organization for Marriage?... Well, they never really got around to buying the rights to www.2M4M.org.

Hmmm, I wonder if anyone else might have bought it?

Richard Posner in the Chronicle of Higher Education

Richard Posner writes in this week's Chronicle of Higher Education (maybe accessible if you don't have a subscription, but probably not) about the current financial crisis, and why experts didn't take early warnings about it seriously.

The financial crisis, when it finally struck the nation full-blown in September 2008, caught the government, the financial community, and the economics profession unawares.

We can get help in understanding the blindness of experts to warning signs from the literature on surprise attacks. Before the Japanese attack on Pearl Harbor, there were many warnings that Japan planned to attack Western possessions in Southeast Asia, and an attack on the U.S. fleet in Hawaii, known to be within range of Japan's large carrier fleet, was a logical measure, on Japan's part, for protecting the eastern flank of its attack on the Dutch East Indies, Burma, and Malaya. The warnings were disregarded because of preconceptions (including the belief that Japan would not attack the United States because it was too weak to have a reasonable chance of prevailing), the cost and difficulty of taking effective defensive measures against an uncertain danger, and the absence of a mechanism for aggregating, sifting, and analyzing warning information flowing in from many sources and for pushing it up to the decision-making level of government.

Similar factors made it difficult to heed the warning signs of the 2008 financial crisis. Preconceptions played an especially large role. It is tempting, indeed irresistible under conditions of uncertainty, to base policy to a degree on theoretical preconceptions, on a worldview, an ideology. But shaped as they are by past experiences, preconceptions can impede reactions to novel challenges. Most economists, and the kind of officials who tend to be appointed by Republican presidents, are heavily invested in the ideology of free markets, which teaches that competitive markets are, on the whole, self-correcting. Those officials and the economists to whom they turn for advice don't like to think of the economy as a kind of epileptic, subject to unpredictable, strange seizures.

Boing Boing love

I've got a thank-you on Boing Boing, in a post about protest art made with real but worthless Zimbabwean currency. I blogged this a couple days ago.

Another casualty of academic budget cuts: casual sports

Amid the serious stuff that the Chronicle of Higher Education reports about hiring freezes, mandatory pay cuts, and other reductions affecting universities these days, is this:

Michael K. McBeath, an associate professor of psychology at Arizona State University, likes to burn some energy in the middle of the day.

So do his colleagues. For years, roughly two dozen faculty and staff members hit the gym for a game of basketball around noon, three times a week.

Now their roster has been cut in half — by anxiety.

As budget cuts have prompted the university to announce that it will shutter more than 40 academic programs, cut 200 faculty-associate positions, and force both faculty and staff members to take unpaid furloughs, far fewer people show up at the gym these days.

Mr. McBeath said many are just too worried about job security to risk an hour of lost work or a supervisor's raised eyebrow over a game of basketball.

This may not sound like a thing, but the decline of informal institutions like these-- weekly departmental get-togethers, faculty-student softball games, and the like-- are troubling.

Brilliant protest sign

This is great: a protest sign made of worthless currency.

And we think the economy here is bad because it's hard to get financing for the spare 56" plasma screen TV. Zimbabwe has been dealing with inflation so bad, even its $100 trillion dollar note is worthless (and at one point it ran out of money to pay for the license to... print more money. It also then ran out of paper. Comedy gold!).

That's some serious inflation. Suck on it, Weimar Germany! You bunch of wimps. (Interestingly, the same firm that supplied currency-quality paper stock to Zimbabwe until mid-2008 also supplied the Weimar government.)

[via Britannica Blog]

Why Michael Lewis is one of my favorite writers

From his Vanity Fair piece on Iceland after the (financial) meltdown:

[W]e arrive at the 101 Hotel, owned by the wife of one of Iceland’s most famous failed bankers. It’s cryptically named (101 is the city’s richest postal code), but instantly recognizable: hip Manhattan hotel. Staff dressed in black, incomprehensible art on the walls, unread books about fashion on unused coffee tables—everything to heighten the social anxiety of a rube from the sticks but the latest edition of The New York Observer. It’s the sort of place bankers stay because they think it’s where the artists stay.

Extraordinary what can happen when people realize they can still be Vikings, only now with banks instead of ships.

There's also this smart observation:

One of the hidden causes of the current global financial crisis is that the people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem.

The whole piece is well worth reading.

More proof of Dahlia Lithwick's brilliance

Her identification of the condundrum in Caperton v. A.T. Massey:

No judge in the world believes herself to be biased. But no judge in the world wants a Justice Brent Benjamin sitting anywhere near her case, either. Ultimately, the high court is going to have to decide whether Caperton is about us or them. Or, more precisely, whether they want to continue to believe in their own irrefutable divinity or create some structures to shore up our belief in their divinity.

For those who didn't hear Nina Totenberg talk about the case this morning, Lithwick provides a crisp summary (below the fold).

Sunday morning workplace

Finishing an essay for Vodafone on tinkering while Heather and the kids are in Golden Gate Park and the California Academy of Sciences. Thought a different place might be usefully stimulating.

A sign of how bad things are getting

This is the second article I've seen recently on pawnshops of the rich and famous:

She is the world's most famous celebrity photographer, whose portfolio contains some of the most iconic images of the past 30 years, not least the glamorous pictures of Michelle Obama on the latest cover of Vanity Fair. As such Annie Leibovitz is hardly the kind of person you would normally associate with going to a pawn-broker.

But it seems that in these unusual times even the likes of Leibovitz need to find cash in unusual places.

The photographer has turned to a company called Art Capital that specialises in lending money with fine art as the collateral. The New York Times disclosed yesterday that Leibovitz has borrowed about $15m (£10m) from the firm in two tranches.

Records show she secured the loan partly against property, but also by putting up as collateral the copyright, negatives and contract rights to every photograph she has ever taken or will take in future until the loans are paid off.

Leibovitz is part of a wider trend that Art Capital and other specialist lending institutions like it say has intensified since the start of the global economic crisis last autumn. Wealthy individuals and institutions have increasingly turned to the firm for help – numbers have risen by 30% to 40% since before the crash.

David Gross on dumb money

From David Gross' latest:

The Dumb Money creed rested on four pillars: perpetually low interest rates, perpetually rising asset prices (especially for housing), borrowers of all types remaining perpetually current, and perpetually strong markets for debt. The high priests of this cult were the nation's central bankers. In the Era of Cheap Money (the fall of 2001 through June 2004), Fed Chairman Alan Greenspan convinced us that we could have low interest rates despite inflationary pressures and global growth. His successor, Ben Bernanke, in 2002 began trying to convince us that we might have as much to fear from deflation as from inflation.

Bernanke also provided intellectual fortification for the argument that one of our greatest vices—a tendency to debt-financed consumption—was actually something of a virtue. He helped popularize the concept of a savings glut, arguing that America's twin budget and trade deficits could be traced not to a dearth of American savings but to a glut of foreign savings.... Economists claimed that the government measures of income used to calculate savings—which includes wages and salaries, interest on bonds, and stock dividends but which excluded capital gains on stocks, profits from selling a house, or withdrawals from 401(k) plans—were hopelessly behind the times. "The structure of the household portfolio has changed over time," said David Malpass, chief economist at Bear Stearns, one of the leading exponents of what might be dubbed the theory of Magical Market Savings. In 2004, Malpass found that, thanks to the booming stock and housing markets, the net worth of U.S. households—their assets minus their liabilities—stood at a record $48.54 trillion, up 9.6 percent from 2003 despite sluggish income growth. Why put money aside for a rainy day when your house and the market were doing it for you?

Breakaway above San Gregorio

San Gregorio State Beach

Next stop for the Tour de California!

More peleton at Tunitas Creek Road

Kids photographing the race

They were done drawing with the yellow Lance Armstrong chalk.

The peleton turns on Tunitas Creek

At the Tour de California

The war on irony

John Cole:

Of all the wars the Republicans have launched, the War on Irony is the only one they have a clear shot at winning.

The next trend in outsourcing: Relocating U.S. workers overseas?

From Information Week:

The climate is warm, there's no shortage of exotic food, and the cost of living is rock bottom. That's IBM (NYSE: IBM)'s pitch to the laid-off American workers it's offering to place in India. The catch: Wages in the country are pennies-on-the-dollar compared to U.S. salaries.

Under a program called Project Match, IBM will help workers laid off from domestic sites obtain travel and visa assistance for countries in which Big Blue has openings. Mostly that's developing markets like India, China, and Brazil.... [and] a number of other developing markets, including Mexico, the Czech Republic, Russia, South Africa, Nigeria, and the United Arab Emirates.

Some of those places are pretty interesting, and working abroad can be a broadening experience. Yet my first thought is, eeeww.

[Via Marginal Revolution]

Is this real?

Via Socializing Finance. I can't tell if it's real, or an elaborate parody:

Dear Wall Street,

Life may be tough, and your industry might be crumbling, but what you need to realize is that the implications of this crisis for the rest of New York society are even more intense. You Bankers are the core of our ecosystem, the top of the food chain. And when there are less lions hunting, the natural balance is destroyed and next thing you know advertising guys are picking up tens at 1Oak buying drinks from the bar. Pathetic. Without you, there's chaos, and hot women don't know where to turn. In the next year there will be too many hot girls that were supposed to marry bankers making the life-long decision to settle with consultants, accountants, and lawyers? Its unnatural and unfair.

OMFG OMFG OMFG.

Well, so long as Silicon Valley venture capitalists are okay, all will be well.

And we're on to 44

Watching the inauguration at Peninsula

Korean finance blogger arrested for being right

A Korean blogger who predicted the fall of Lehman Brothers has been arrested by the government.

Among governments struggling to contain the global financial crisis, South Korea set a rare and controversial example over the weekend by arresting a popular blogger who was accused of undermining the financial markets but worshipped by many Koreans as an online guru.

But when some of his predictions on the markets proved right, he gained a huge following among South Koreans fretting over an uncertain economic future....

For months, both the media and the authorities have scrambled to identify Minerva, who has uploaded more than 100 anonymous postings in Daum, the country's second-largest Web portal. He achieved a prophet's status after he predicted the collapse of the U.S. investment bank Lehman Brothers, the crash of the Korean currency and the effects of the toxic U.S. mortgage crisis eventually engulfing South Korea.

Newspapers reported his predictions. The government scrambled to dispute his claims. Governing party lawmakers called for his arrest while financial market analysts admitted to avidly following his coverage. His commentaries typically attracted 100,000 viewers per posting....

Park Dae Sung's arrest on Saturday on charges of spreading false online information with a harmful intent - a crime punishable by up to five years in prison - came as the South Korean government was escalating its efforts to fight the fallout of the global financial turmoil.

As Robin Hanson comments, "Does anyone think Park would have been jailed for a mistaken optimistic claim, or that government officials will be jailed for making false claims?"

[via Overcoming Bias]

Limosine One

I don't know if presidential limo is called Limo One, but it seems logical. However, the new one seems to look like something from the Road Warrior. According to one source, "the limo can withstand a 'direct hit from an asteroid.' " More or less.

One really interesting part of the piece is an quote from "Joe Funk, a retired Secret Service agent who was President Bill Clinton's driver during part of his career."

"I think he will be surprised about how when he's in the limo, it's a cocoon," Funk said. "The everyday noises will be gone, and he will be totally isolated in this protective envelope."

"At the same time, I think he will be surprised at the communication capabilities, how the phones, the satellites, the Internet -- everything is at his fingertips," he said. "So at one end, you are totally removed from society. The other side of the coin is that he can have any communications worldwide at a moment's touch."

And to think I was feeling nostalgic about Berkeley...

In the wake of the shooting of an unarmed man by Oakland transit police, a protest last night turned ugly, and pointless:

The core group of the mob appeared to be about 40 people, several of whom were with Revolution Books, a Berkeley bookstore. A man distributed the "Revolution" newspaper - whose tagline is "voice of the Revolutionary Communist Party, U.S.A." - as he shouted "This whole damn system is guilty!"...

Wednesday night's vandalism victims had nothing to do with the shooting death by a BART police officer of Oscar Grant on New Year's Day - but that did little to sway the mob.

Long live the revolution....

Just read this

Michael Lewis and David Einhorn have a wickedly well-written two-part essay on the collapse of the financial system.

On structural problems:

The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. “Greed” doesn’t cut it as a satisfying explanation for the current financial crisis.

On credit rating agencies:

These oligopolies, which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it.

On the S.E.C.:

Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors.... The commission’s most recent director of enforcement is the general counsel at JPMorgan Chase; the enforcement chief before him became general counsel at Deutsche Bank; and one of his predecessors became a managing director for Credit Suisse before moving on to Morgan Stanley. A casual observer could be forgiven for thinking that the whole point of landing the job as the S.E.C.’s director of enforcement is to position oneself for the better paying one on Wall Street.

On the government's response:

Say what you will about our government’s approach to the financial crisis, you cannot accuse it of wasting its energy being consistent or trying to win over the masses. In the past year there have been at least seven different bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers. ...

[H]ere’s the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change... [the] bad incentives that led us here in the first place....

Rather than tackle the source of the problem, the people running the bailout desperately want to reinflate the credit bubble, prop up the stock market and head off a recession. Their efforts are clearly failing: 2008 was a historically bad year for the stock market, and we’ll be in recession for some time to come. Our leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.”

And perhaps my favorite one-liner:

When you shout at people “be confident,” you shouldn’t expect them to be anything but terrified.

Design and the downturn

Michael Cannell's piece "Design Loves a Depression" has some interesting suggestions about the future of design: that the flourishing of expensive, celebrity designers will come to an end, allowing the field to get serious about solving real problems and being more constructive by having to work within constraints.

[D]uring the Great Depression... an early wave of modernism flourished in the United States, partly because it efficiently addressed the middle-class need for a pared-down life without servants and other Victorian trappings.

“American designers took the Depression as a call to arms,” said Kristina Wilson, author of “Livable Modernism: Interior Decorating and Design During the Great Depression” and an assistant professor of art history at Clark University. “It was a chance to make good on the Modernist promise to make affordable, intelligent design for a broad audience.”...

Design tends to thrive in hard times. In the scarcity of the 1940s, Charles and Ray Eames produced furniture and other products of enduring appeal from cheap materials like plastic, resin and plywood, and Italian design flowered in the aftermath of World War II....

There is a reason she and others are optimistic: however dark the economic picture, it will most likely cause designers to shift their attention from consumer products to the more pressing needs of infrastructure, housing, city planning, transit and energy. Designers are good at coming up with new ways of looking at complex problems, and if President-elect Barack Obama delivers anything like a W.P.A, we could be “standing on the brink of one of the most productive periods of design ever,” said Reed Kroloff, director of Cranbrook Academy of Art....

One way or another, design will focus less on styling consumer objects with laser-cut patterns and colored resin and more on the intelligent reworking of current conditions. Expect to hear a lot more about open-source design, and cradle-to-cradle, a concept developed by William McDonough and Michael Braungart that calls for cars, packaging and other everyday objects to be designed specifically for recycling so that their parts and materials are used and reused without waste.

This reminds me somewhat of the argument made by Brian Arthur and others (most notably Arthur, I think) that tech bubbles don't create what's really valuable: they create a lot of potentially valuable wreckage and infrastructure that the next round of innovators use to do really serious stuff.

Quote of the day

From Slate legal writer Dahlia Lithwick, on Dick Cheney's recent foray from the secret location to conduct exit interviews in which he "takes the position that the thorniest legal questions are the easy ones and the settled ones are still open:"

[Waterboarding's] illegality is neither an open question nor a close one. Yet again, the handful of people—including Dick Cheney—who maintain that torture is completely legal corresponds almost perfectly to the number of people who could be prosecuted for war crimes because it is not.

NSA, futures, and predicting for the last conflict

Bruce Schneier points to an excellent interview with James Bamford, the journalist who's written three books on the NSA (National Security Agency)-- 1982's The Puzzle Palace, 2001's Body of Secrets, and now The Shadow Factory.

One of the things Bamford is interested in explaining is why the NSA hasn't worked very well in the last few years, and his analysis is striking:

NSA was never designed for what it’s doing. It was designed after World War II to prevent another surprise attack from another nation-state, particularly the Soviet Union. And from 1945 or ’46 until 1990 or ’91, that’s what its mission was. That’s what every piece of equipment, that’s what every person recruited to the agency, was supposed to do, practically — find out when and where and if the Russians were about to launch a nuclear attack. That’s what it spent 50 years being built for. And then all of a sudden the Soviet Union is not around anymore, and NSA’s got a new mission, and part of that is going after terrorists. And it’s just not a good fit. They missed the first World Trade Center bombing, they missed the attack on the U.S.S. Cole, they missed the attack on the U.S. embassies in Africa, they missed 9/11. There’s this string of failures because this agency was not really designed to do this. In the movies, they’d be catching terrorists all the time. But this isn’t the movies, this is reality.

The big difference here is that when they were focused on the Soviet Union, the Soviets communicated over dedicated lines. The army communicated over army channels, the navy communicated over navy channels, the diplomats communicated over foreign-office channels. These were all particular channels, particular frequencies, you knew where they were; the main problem was breaking encrypted communications. [The NSA] had listening posts ringing the Soviet Union, they had Russian linguists that were being pumped out from all these schools around the U.S.

Then the Cold War ends and everything changes. Now instead of a huge country that communicated all the time, you have individuals who hop from Kuala Lampur to Nairobi or whatever, from continent to continent, from day to day. They don’t communicate [electronically] all the time — they communicate by meetings. [The NSA was] tapping Bin Laden’s phone for three years and never picked up on any of these terrorist incidents. And the [electronic] communications you do have are not on dedicated channels, they’re mixed in with the world communication network. First you’ve got to find out how to extract that from it, then you’ve got to find people who can understand the language, and then you’ve got to figure out the word code. You can’t use a Cray supercomputer to figure out if somebody’s saying they’re going to have a wedding next week whether it’s really going to be a wedding or a bombing.

It seems to me that futurists may be in a similar state. The NSA needed to look hours or days into the future, using an incredibly specific set of signals, while futurists look years into the future and use a very broad set of signals-- indeed, it seems that almost anything can be a "weak signal," which can either be a sign of healthy curiosity or poor discipline-- but the underlying issues are the same.

Over the past few years I've had some working contact with people from... various institutions in the greater Washington, DC area... and my sense is that 1) they're all really smart and dedicated, and 2) know that they're trained for a different challenge than the one they're now facing. It's a familiar position. The more I've thought about it, the more it strikes me that futurists' practices have evolved in the last forty years to serve a world that is less and less important. This was a world in which small elites-- strategists, CEOs, politicians, people with their hands on nuclear triggers or levers of power-- ran the world (or everyone assumed they did). It was a world in which the future could be considered at particular times-- during strategic reviews or five-year plans. It was a world that we affected through texts, presentations, brainstorming exercises and scenarios.

i have the bad feeling that the world has changed enough to make these old assumptions and practices obsolete. Okay, not completely obsolete: corporate strategy is going to be around for a while, if only because no one has yet come up with anything better. The question is, what's next for the future?

The deceptions of predictability

I've been reading a fair amount about the Bernard Madoff thing-- it's hard not to-- and one of the things that I keep seeing is the argument that the very predictability of Madoff's returns both reassured investors on a psychological level, and should have given them the jitters. From the Guardian:

Michael Markov works for a global technology firm that has developed software that analyses the performance of investment funds. In 2006, on behalf of a client, he put Madoff's figures through the programme and was surprised to find no correlation between his returns and the movement of the market. On a whim, he input the statistics from the Bayou group, a Connecticut hedge fund that had been found to be operating a $450m-pyramid scheme three years ago, and the numbers did partially match.

A mathematician by training, he is baffled. Logic dictates that the better the returns given by a fund manager, the smoother the profits they achieve, the more you should press them to ensure they are what they seem. Due diligence should increase as the stakes do.

"Unfortunately, it's often the reverse. The smoother the numbers, the more people trust."

Fundamentally, humans like predictability. It's reassuring. It's also not the way the world works. (Nassim Taleb would have a field day with this.)

On a completely different note, I also recommend Ron Rosenbaum's piece lamenting the decline of the Jewish gangster, and his replacement with figures like Madoff. Overdrawn, but still entertaining:

[T]he more I read about Bernie Madoff, the more disgusted I am, not just with him but with the whole crowd of country-club suckers he allegedly conned, the phony "gentility" (in every respect) they represent.... What went wrong? If you ask me, the Bernie Madoff scandal was a tragedy of misguided upward mobility—not about Jews and money but about Jews and a sadly imitative notion of status....

What an inversion, a perversion of true Jewish respectability to imitate the most dull-witted of their WASP brethren. I thought Jews were supposed to respect brains, not golf bags. Shows you how wrong stereotypes can be. Or maybe the wisdom of Abbie Hoffman's aphorism: that Jews have to decide "whether to go for the money or to go for broke."

Give me a Jewish gangster any day. They go for both.

Take Meyer Lansky, or rather "Hyman Roth," Lee Strasberg's version of Lansky in The Godfather 2. What is it we like about him? The TV dinner tray! He runs the world's underground financial system, an illicit stock exchange and banking system combined, but what he likes most is the simple life at home in front of the tube with his wife. Sure, he'll enjoy an evening from time to time at one of his luxe Cuban casinos, but country clubs? Please.

On the other hand, this article lays out why the whole affair is pretty unfunny, and how many people and charities have lost vast sums of money.

The Atlantic on financial bubbles

The latest Atlantic is devoted to The Crash. The most outstanding piece, in my view, is a Virginia Postrel essay on experimental economics and the nature of financial bubbles.

[L]ab results should give pause not only to people who believe in efficient markets, but also to those who think we can banish bubbles simply by curbing corruption and imposing more regulation. Asset markets, it seems, suffer from irrepressible effervescence. Bubbles happen, even in the most controlled conditions.

Experimental bubbles are particularly surprising because in laboratory markets that mimic the production of goods and services, prices rise and fall as economic theory predicts, reaching a neat equilibrium where supply meets demand. But like real-world purchasers of haircuts or refrigerators, buyers in those markets need to know only how much they themselves value the good. If the price is less than the value to you, you buy. If not, you don’t, and vice versa for sellers....

For those of us who invest our money outside the lab, this research carries two implications.

First, beware of markets with too much cash chasing too few good deals. When the Federal Reserve cuts interest rates, it effectively frees up more cash to buy financial instruments. When lenders lower down-payment requirements, they do the same for the housing market. All that cash encourages investment mistakes.

Second, big changes can turn even experienced traders into ignorant novices. Those changes could be the rise of new industries like the dot-coms of the 1990s or new derivative securities created by slicing up and repackaging mortgages.

This last bit helps explain this line Henry Blodgett's article in the same issue: "In the words of the great investor Jeremy Grantham, who saw this collapse coming and has seen just about everything else in his four-decade career: 'We will learn an enormous amount in a very short time, quite a bit in the medium term, and absolutely nothing in the long term.' "

National farmland leasing

Really interesting trend: countries looking for long-term leases of agricultural land to increase their food security. The latest data-point comes from Afrik:

Daewoo Logistics of South Korea has secured farmland in Madagascar to grow food crops for Seoul, in a deal that diplomats and consultants said was the largest of its kind.

The company said it had leased 1.3m hectares of farmland – about half the size of Belgium – from Madagascar’s government for 99 years. It plans to ship the maize and palm oil harvests back to South Korea.... Daewoo’s farm in Madagascar represents about half the African country’s arable land, according to estimates by the US government....

The pursuit of foreign farm investments is a clear sign of how countries are seeking food security following this year’s crisis – which saw record prices for commodities such as wheat and rice and food riots in countries from Egypt to Haiti.

However, not everyone considers this to be neocolonial exploitation:

Meles Zenawi, prime minister of Ethiopia, said this year its government was “very eager” to provide hundreds of thousands of hectares of agricultural land to Middle Eastern countries for investment.

Economics explained

Via Socializing Finance, this brilliant Icelandic explanation of the financial crisis:

But you must understanding England peoples. They think they rich because house expensive. I explain problem to my father that England people are like farmers who think they rich because someone say cows worth million pound even if not real. I say problems in England because now they wake up and know cows not worth million pound and all vey panicky on moneys. He ask me Iceland issue and I say it simple: Gordon Brown and England peoples have million pound cows but Iceland is like next door farmer who have billion pound chicken and they make deal to give money to have eggs regular . But cows all sick and not worth million pound anyway and same time Iceland billion pound chicken go missing and Iceland people say all egg go to Iceland people until they find chicken again. But, Gordon Brown say fox eat chicken so no chance and then he grab all egg he can. With this information my father has explain all global liquidity crisis to village at home.

Icelandic folk wisdom + global economic crisis = hilarious.

economics

Quote of the day

From The Guardian:

The President, First Lady Laura Bush and Obama and his wife Michelle will meet this week for an introduction to the White House. Bush sounded gracious in extending the offer. 'Laura and I wish the Obama family as much joy and happiness as our family has found in this wonderful house,' he said in his speech yesterday.

But given that Bush leaves office with an economy in crisis, two foreign wars, a vast budget deficit and some of the lowest popularity ratings in history, a cynical observer might find it hard to tell if that was a blessing or a curse.

politics

Pretty amusing

Hockey Mama for Obama

[via Christy]

humor, politics, video

"I used to think Michael Palin was the funniest Palin on Earth"

John Cleese on Sarah Palin:

humor, politics

Is this kind of odd?

From my homeland.

Notice the golden light shining behind her head, and McCain doing an impersonation of Corcovado.

It all seems strangely familiar. It's almost like they're tapping into some kind of deeper symbolism here... but I can't quite put my finger on it.

politics

Buckley + Obama

Christopher Buckley has endorsed Barack Obama, and as always he's thoughtful and funny about it:

Let me be the latest conservative/libertarian/whatever to leap onto the Barack Obama bandwagon. It’s a good thing my dear old mum and pup are no longer alive. They’d cut off my allowance.

Or would they? But let’s get that part out of the way. The only reason my vote would be of any interest to anyone is that my last name happens to be Buckley—a name I inherited. So in the event anyone notices or cares, the headline will be: “William F. Buckley’s Son Says He Is Pro-Obama.” I know, I know: It lacks the throw-weight of “Ron Reagan Jr. to Address Democratic Convention,” but it’ll have to do.

politics

Words to live by, from the Central Bank of Jamaica

Particularly these days.

[via The Big Picture]

economics

Bad savings rate good

As a futurist, I know that I really should have a lot more for retirement than I should. But suddenly my bad habit of not putting enough money in my 401K seems like a brilliant strategy. From the Washington Post:

Retirement Savings Lose $2 Trillion in 15 Months

The stock market's prolonged tumble has wiped out about $2 trillion in Americans' retirement savings in the past 15 months, a blow that could force workers to stay on the job longer than planned, rein in spending and possibly further stall an economy reliant on consumer dollars, Congress's top budget analyst said yesterday....

For many Americans, pensions and 401(k) plans are their only form of savings. The dwindling of these assets -- about a 20 percent decline overall -- is another setback just as many people are grappling with higher gas and food prices, more credit card debt, declining home values and less access to loans....

Defined-benefit plans are company-sponsored programs that provide retirement payouts based on an employee's salary and tenure. The company shoulders the bulk of the investment decisions and risk. Defined-contribution plans, such as 401(k)s, turn those tasks over to the worker and are subject to the whims of the stock market.

Increasingly, employers have switched workers into defined-contribution plans. The federal government has also pushed 401(k) plans heavily, approving a law late last year that makes it easier for employers to automatically enroll their employees in them and other similar retirement plans.

[via wparker]

business

Quote of the day

The banking system, betting against Black Swans, has lost over 1 Trillion dollars (so far), more than was ever made in the history of banking. (Nassim Taleb, "The Fourth Quadrant")

Black Swan

Quote of the day

David Swerdlick on "The Audacity of Taupe:"

As a biracial American, for the first time in my adult life I'm really proud of my country. Even though the "national conversation on race" is turning out to be like trying to use an iPhone to call someone on a CB radio, my people are coming to light in the public consciousness in a way that we never have before.

I love John Hagee

I'm no theologian, but basically, John Hagee is saying that Hitler was like Moses... an insane, genocidal, anti-semitic, megalomaniacal Moses, but Moses nonetheless.

But doesn't McCain's returning Hagee's endorsement cause its own problems? Because you could say that all Hagee is saying is that nothing happens-- a sparrow doesn't drop from the sky, a breeze doesn't blow, an ultimately suicidal racist doesn't take over half of Europe-- without the knowledge of the Almighty. So isn't McCain really saying that He is not, in fact, omniscient and omnipotent? I suppose this might be a brilliant ploy by McCain to lock down that bloc of voters whose theological views harken back to the church before, say, the Arian Heresy, but if so, he's playing a really subtle game.

politics, religion

My 6 year-old political commentator

My son saw this picture on Wonkette, and asked, "Is that someone at the Maker Faire?"

"Why do you think that person was at Maker Faire?" I asked.

"Because of those things in his ears," he said. "Those headphones."

Technorati Tags: children, politics

Important new report

This is funny.

Officials from the Institute for Somehow Managing to Hold It All Together warned that, despite their best efforts, everything appears to be falling completely apart and "getting way out of hand," according to a strongly worded report characterized by panic, frustration, and numerous typographical errors that was released to the American public Monday.

I especially like the debate between the Institute for Somehow Managing to Hold It All Together, the California Center for Not Worrying About Stuff So Much, the Sitting Around and Expecting Others to Take Care of Everything Foundation, and the National Blame Allocation Council.

Technorati Tags: humor

My new favorite writer

Tony Zirkle is a lawyer running for Congress in Indiana. He's got a rhetorical style that-- well, it's hard to describe. Imagine Hunter Thompson on meth, trying to simultaneously channel Buckminster Fuller, Huey Long, and Jerry Falwell, with a little Unity Mitford-level Nazi-loving crazy thrown in for good measure:

What goes around, sometimes comes around, and sometimes a Zulu massacre comes right back in a dot com a few generations later to taunt a people in a new, more efficient destroying form of the same song, different dance hate speech. If addiction prone blanches can’t get their act together, then all of us who have a shred of justice in our spine may one day have to debate the idea of giving them what their ancestors gave to the natives, the author or whom is still honored with placement on the $20 bill…

If history can not produce one mono-syllabic tax cut king to stick his fluking harpoon between the porn Tiamat's oeilles, then perhaps history will one day send a homeless vet to attempt a confoundation of those incognoscenti who think they're wise. I'm starting to feel very strongly that a lot of very bad events are going to happen to me in the very near future for writing this.

The man in running for Congress. Give that a minute to sink in.

Could he even see the keyboard when he wrote that? I wish I could write with that kind of zest.

He also recently gave a speech to the American National Socialist Workers Party. According to the AP, he said "he did not know much about the group [emphasis added] and that 'I'll speak before any group that invites me.'"

Perhaps the fact that it was Hitler's birthday, and that the stage was decorated with a Nazi flag, large portrait of Adolf Hitler, and sparkly cardboard "Happy Birthday" draped across the podium could have provided the smallest of clues? Unless it was also Zirkle's birthday, in which case the confusion is understandable.

Man, I hope he gets elected.

[via Sadly, No]

[To the tune of Led Zeppelin, "The Battle of Evermore," from the album "Led Zeppelin (Disc 2)".]

Technorati Tags: writing