Sunday, September 21, 2008

Debbie's Home!

Doing my happy dance!

I finally finished Nixonland. Whew. It was tough sledding at 750 pages of small type and lots of names to keep track of. But very much worth the effort. If you have a week or two of spare time, I would recommend both Before the Storm and Nixonland. Any respect you have for presidential politics will be gone long before you are done, but better informed and cynical than ignorant and a patsy. IMO, of course.

Speaking of politics and sausages, Fred Reed has a new essay up about the presidential election. This is what universal sufferage gets you; lowest-common-denominator politicians. If you want smart politicians, you have to limit the franchise to smart voters. How that's been done has historically been rife with abuses, but better a good system with abuses than a bad system with abuses (because there will always be abuse).

(This is going to be one of those posts, so you may want to settle in. I have been so focused on off-line reading that I have a lot of pent-up blogging.)

The Palin e-mail hack does appear to have a political angle, but so far it looks more like college pranking. But the question remains why state business was being discussed using a Yahoo e-mail account that can be "hacked" by providing answers that can be found on Google. Which of course leads to the question of how someone that stupid gets to be VP. See above.

This week will be studied in history classes in the next generation. What has happened is significant in ways very few realize. The politicians respond predictably; that is to say as the moral defectives they all are. Every action that has been taken to "fix" this crises will only make it worse. Sure the markets got a nice little bounce that erased the two days of losses, but it's all smoke and mirrors. You simply cannot shrug off the disappearance of $4 Trillion in wealth. If you can really call the house of cards known as the US economy "wealth" without doing violence to the English language:
An enormous hoax has been perpetrated on global financial markets during the past 10 years. An American economy based on opening containers from China and selling the contents at Wal-Mart, or trading houses back and forth, provides scant profitability. Where the underlying profitability of the American economy was poor, financial engineering managed to transform thin profits into apparently fat ones through the magic of leverage.

The income of American consumers might have stagnated, but the price of their houses doubled during 1998-2007 thanks to the application of leverage to mortgage finance. The profitability of American corporations might have slowed, but the application of leverage in the form of mergers and acquisitions financed with junk bonds multiplied the thin band of profitability.

"Leverage" is just a fancy Wall Street word for debt. Massive debt. More debt than can ever be repaid in one's life-time. More:
As I wrote on May 20, the proximate cause of the Great Crash is the enhancement of poor returns to capital through leverage. The decline of returns to capital, though, stemmed from a global imbalance of supply and demand for capital in response to the rapid aging of the world population. The aging pensioners of Europe and Asia must find young people to pay interest into their pensions, and they do not have enough young people at home. Germans aged 15 to 24, on the threshold of family formation, comprise only 12% of the country's population today and will fall to only 8% by 2030. But one-fifth of Germans now are on the threshold of retirement and half will be there by mid-century.

Systemic problems literally being papered over. And over, and over, and over.

And of course, government intervention in capitalist markets is what has caused every bit of this, so guess what the solution is, according to left-wing French "intellectuals." Yep. I'm not sure how to translate "tree-hugging granola-eaters" into French. (Babblefish says "arbre-étreindre le granola-mangeur" but, even though my last French class was 25 years ago, I don't think that's even close.) The British have several... um... "colorful metaphors" for the French in general, but even I won't put them in a general blog post.

If you want to know how it can all go so wrong when our best and brightest are supposed to be running the show, the answer is The Black Swan. I haven't read that book yet, but it's moved to the top of my to-be-read list after last week. I have some catching up around here that will take me a few days, but I will be at the library looking for it by mid-week. In the meantime, here is an essay by the author on the relation between the misuse of statistics and the current financial melt-down:
Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the "logic of science"; it is the instrument of risk-taking; it is the applied tools of epistemology; you can't be a modern intellectual and not think probabilistically—but... let's not be suckers. The problem is much more complicated than it seems to the casual, mechanistic user who picked it up in graduate school. Statistics can fool you. In fact it is fooling your government right now. It can even bankrupt the system (let's face it: use of probabilistic methods for the estimation of risks did just blow up the banking system).

Good stuff. It's long, but worth the slog for gems like this:
If you are leveraged, errors blow you up; if you are not, you can enjoy life.

And we remember what leverage is, right? Debt is slavery with lipstick, to paraphrase one potential world leader.

And just to wrap things up with a little more reading material, here is a review of Charles Murray's new book, Real Education. Charles Murray was co-author of Bell Curve, a book so hated by liberal academics that many didn't even have to read it to know they hated every word of it.

OK. I have carpel tunnel now, so I'll stop.

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