It started in Tunisia and caught everyone by surprise: pushed beyond endurance by corrupt and incompetent government, people took to the streets and ousted a long-entrenched dictator. The collapse of the Ben Ali regime in Tunisia seems to have given people in other countries ideas: protests erupted in Yemen, Jordan and now, momentously, Egypt. Revolution is in the air and there is talk of a 1989-style collapse of dictatorship and springtime of democracy. What are the prospects?
It’s too early to tell, but there’s hope for the type of genuine popular upheaval that leads to real change. Democracy emerging from domestic aspirations and efforts rather than foreign military invasion would be an enormous positive development for Arab societies long subject to authoritarian rule. It’s something the U.S. should welcome, despite the risks of less compliant regimes emerging in the short run. In the long run our interests lie with the extension of genuine popular rule.
Egypt is a much bigger story than Tunisia, a much bigger country and much more strategically important. Regime change in Egypt means hair-raising instability in the short run. The Mubarak regime presides over a cold peace with Israel that is unpopular with the Egyptian people, cooperating with Israel to manage Gaza. A genuinely popular regime in Egypt will complicate or most likely freeze what is left of the Israeli-Palestinian peace process (not that it’s exactly thriving now). The peace may get colder, but it doesn’t have to slide toward war. Early international engagement with a legitimate popular government will be crucial.
But a genuinely popular regime in Egypt is not a lock. The army will be the deciding factor, and I don't pretend to know how they are going to tip. There are probably many factions. A best case scenario is probably something like what's happening in Tunisia now, with continued street protests keeping pressure on the new government to get rid of all the holdovers from the old regime, liberalization of civic life and stumbling progress toward elections. A worst case scenario is civil war. We know how that goes from Iraq. The realist in me says Egypt will probably get some form of military dictatorship with some progressive elements and cosmetics insisted on by the West.
Could we see a hostile Islamist regime emerge? Anything is possible, but the protests in Iran after the fraudulent elections of 2009 show that people don’t like authoritarian Islamic regimes any more than they like authoritarian West-endorsed ones. There are no guarantees, but backing popular demands for civil and political freedoms can’t steer us too far wrong.
I don't think there's much the U.S. can do to influence things. Strong support for any faction will label it irredeemably as an American puppet. We need to issue lots of forceful but vague proclamations about supporting democracy and human rights while pulling what strings we can behind the scenes to prevent worst case outcomes. Baradei is probably not a bad horse to back in Egypt. But we can't do it too openly.
The U.S. takes a lot of criticism for backing evil regimes, but it's hard to say what a better policy would be. We turned on an evil regime in Iraq and precipitated a bloodbath. The Saudi regime is medieval and oppressive, less democratic than our declared enemy Iran. So what do we do? Turn on it? Cut off military aid, maybe, but then the Saudis are a firm ally against Iranian expansionism, which is a real threat with Iraq tipping to the Shiites. The Saudis are like the Mafia guys that keep the Italian neighborhoods safe: you know they're thugs but you like being able to go out at night. A revolution in Iran would help, but then there's not much we can do to promote that. Obama was criticized by the right for not supporting the protests in 2009 more forcefully, but then again, what was he supposed to do? Overt American support would taint any party accepting it, particularly in Iran. There's no magic bullet, no easy way to manage all this.
The country that scares me most is Pakistan, which has working, deliverable nukes and deep penetration of the security forces by jihadists, along with increasing intimidation of moderate voices like the governor who was assassinated by one of his own bodyguards this month for speaking out against the draconian and arbitrary blasphemy law. My three-AM cold sweat thought is that Pakistan is Somalia circa 1990, times fifty. In the cold light of day I hope that there’s still a chance of the Pakistani political center coalescing around a figure untainted by corruption and willing to face down the extremists.
The best thing to do is to try to pick out the most genuinely liberal (in the broadest, least political sense of the word) elements in each country and find ways to promote their survival and development. Survival first, of course. The worst case doesn't have to happen. There are enough people in all these countries who are opposed to extremism and just want a functioning state with a modicum of accountability that it should be possible to identify and support a critical mass that could serve as a basis for a workable, coherent polity with continuing liberalization and a shot at eventual democracy.
The external forms of electoral democracy on the western model are not what we should be prioritizing. Real democracy can exist only on the basis of a wide range of things that need to be nurtured first: basic security, the rule of law, a functioning free press, a judicial system with some integrity, etc. Those are the things we need to be promoting, however we can, while reserving the black arts for defensive purposes, i.e. keeping the worst elements out of power. Where the worst elements are already in power, that's where deterrence comes in. Qaddafi gave up his WMD after we went into Iraq. It's a tragedy that Iraqis had to pay the price, but draw your own conclusions. When the State Department fails, it's nice to have the Marines.
Perilous times, but we know whom to root for: the men and women out in the streets in Tunis and Cairo, facing down the riot police and telling the dictators it’s time to let Arab and Muslim populations enjoy the freedoms we take for granted in the West.
Sam Reaves
www.samreaves.com
Sunday, January 30, 2011
Tuesday, November 30, 2010
Nihilists and Provocateurs
A couple of thoughts in the wake of the morning paper:
Tricky Leaks
The U.S. Department of State is scrambling to contain the damage from the release by Julian Assange’s WikiLeaks website of thousands of intercepted government e-mails. Somebody found the key to the cupboard and turned everything over to Assange, the no-holds-barred whistleblower who has made it his mission in life to make public what the U.S. government wants to keep private. This has not made him popular in government circles but has raised him to hero status among critics of U.S. policy.
Assange’s activities raise a number of questions. I tend to be in sympathy with whistleblowers, who, ideally at least, courageously risk retaliation to reveal wrongdoing on the part of institutions with the power to suppress information about their activities. This can be a genuine public service as well as being genuinely heroic.
But the violation of secrecy ought to be in the service of some identifiable principle. If the U.S. military is covering up crimes committed by its personnel, we ought to know about it. But it’s hard to discern the principle behind Assange’s latest information spill. It appears to be a completely undiscriminating pillaging of routine diplomatic correspondence. And routine diplomatic correspondence is bound to contain a few things that the diplomats would rather not became public. Is this evidence of wrongdoing? Not necessarily.
Confidentiality is a perfectly reasonable expectation for any organization in conducting even routine business. Frank discussion of problems and conflicts is not possible if every remark has to be vetted in consideration of its being overheard. Is Assange attacking the very concept of confidentiality? If so, by what principle? You have to wonder if he considers his own dealings confidential. It would be interesting to hear him explain his criteria for exposure.
In the short run Assange is doing a lot of damage by complicating any number of diplomatic relationships. In the long run, he’s only going to assure that diplomacy and other government activities become more devious and impervious to scrutiny. If he were casting light on a genuine scandal instead of routine diplomatic frankness, that might be justifiable. But there’s a whiff of nihilism to Julian Assange’s latest grandstand play. I think at this point he’s doing it just because he can.
FBI Heroics
The FBI’s announcement that they had foiled a plot by a Somali-American youth to detonate a bomb in the midst of a holiday crowd in Portland would be more impressive if they had not helped set up the attack themselves. This comes on the heels of a similar plot in Chicago, in which agents identified a Lebanese man with jihadist sympathies and helped him plan an attack on revelers in bars near Wrigley Field before arresting him as he was about to strike. In both cases, it’s reasonable to ask whether the crimes would ever have been committed without help from FBI agents.
FBI agents seem to be good at this; the so-called Miami Seven jihadist cell busted in 2006 was also extensively jollied along by a federal informant. In all these cases, people with dubious sympathies were identified and then actively encouraged and materially aided to progress toward real violence by federal agents, who then busted them and held press conferences to celebrate a victory in the War on Terror.
I’m not a lawyer, so I’m not sure whether this constitutes entrapment. But I’m fairly sure it means these guys are low-hanging fruit. Now, if a kid is willing to press a button to blow up a crowd of holiday makers, then that kid should probably be off the street. But if it’s not clear whether he would ever have gotten that far without active encouragement from the FBI, then I think it’s time to take a hard look at the FBI approach.
I’d feel a lot better about the FBI if they were going a bit higher up the tree. There is always going to be a pool of disaffected losers who are manipulable and ripe for exploitation. Wouldn’t it make more sense to watch for real attempts to manipulate them than to provide the manipulation yourself so you can score an easy arrest and hold a press conference?
Sam Reaves
www.samreaves.com
Tricky Leaks
The U.S. Department of State is scrambling to contain the damage from the release by Julian Assange’s WikiLeaks website of thousands of intercepted government e-mails. Somebody found the key to the cupboard and turned everything over to Assange, the no-holds-barred whistleblower who has made it his mission in life to make public what the U.S. government wants to keep private. This has not made him popular in government circles but has raised him to hero status among critics of U.S. policy.
Assange’s activities raise a number of questions. I tend to be in sympathy with whistleblowers, who, ideally at least, courageously risk retaliation to reveal wrongdoing on the part of institutions with the power to suppress information about their activities. This can be a genuine public service as well as being genuinely heroic.
But the violation of secrecy ought to be in the service of some identifiable principle. If the U.S. military is covering up crimes committed by its personnel, we ought to know about it. But it’s hard to discern the principle behind Assange’s latest information spill. It appears to be a completely undiscriminating pillaging of routine diplomatic correspondence. And routine diplomatic correspondence is bound to contain a few things that the diplomats would rather not became public. Is this evidence of wrongdoing? Not necessarily.
Confidentiality is a perfectly reasonable expectation for any organization in conducting even routine business. Frank discussion of problems and conflicts is not possible if every remark has to be vetted in consideration of its being overheard. Is Assange attacking the very concept of confidentiality? If so, by what principle? You have to wonder if he considers his own dealings confidential. It would be interesting to hear him explain his criteria for exposure.
In the short run Assange is doing a lot of damage by complicating any number of diplomatic relationships. In the long run, he’s only going to assure that diplomacy and other government activities become more devious and impervious to scrutiny. If he were casting light on a genuine scandal instead of routine diplomatic frankness, that might be justifiable. But there’s a whiff of nihilism to Julian Assange’s latest grandstand play. I think at this point he’s doing it just because he can.
FBI Heroics
The FBI’s announcement that they had foiled a plot by a Somali-American youth to detonate a bomb in the midst of a holiday crowd in Portland would be more impressive if they had not helped set up the attack themselves. This comes on the heels of a similar plot in Chicago, in which agents identified a Lebanese man with jihadist sympathies and helped him plan an attack on revelers in bars near Wrigley Field before arresting him as he was about to strike. In both cases, it’s reasonable to ask whether the crimes would ever have been committed without help from FBI agents.
FBI agents seem to be good at this; the so-called Miami Seven jihadist cell busted in 2006 was also extensively jollied along by a federal informant. In all these cases, people with dubious sympathies were identified and then actively encouraged and materially aided to progress toward real violence by federal agents, who then busted them and held press conferences to celebrate a victory in the War on Terror.
I’m not a lawyer, so I’m not sure whether this constitutes entrapment. But I’m fairly sure it means these guys are low-hanging fruit. Now, if a kid is willing to press a button to blow up a crowd of holiday makers, then that kid should probably be off the street. But if it’s not clear whether he would ever have gotten that far without active encouragement from the FBI, then I think it’s time to take a hard look at the FBI approach.
I’d feel a lot better about the FBI if they were going a bit higher up the tree. There is always going to be a pool of disaffected losers who are manipulable and ripe for exploitation. Wouldn’t it make more sense to watch for real attempts to manipulate them than to provide the manipulation yourself so you can score an easy arrest and hold a press conference?
Sam Reaves
www.samreaves.com
Sunday, October 31, 2010
Orphans
It’s election time again, and once again people like me are looking at the choices and heaving great sighs.
Who do I mean by people like me? I’ll try to explain without flattering myself too much. One one hand I mean people who are repelled by the stunning levels of invective, distortion and pandering to ignorance that characterize our political campaigns. Attack ads dominate the airwaves, and they are not designed to make viewers pause in thoughtful reflection on the issues. The Democratic approach is to insist that Republicans are all heartless corporate shills that want only to increase their takings while reducing the lower classes to penury; meanwhile the Republicans are feverishly trying to convince the electorate that a Bolshevik coup is just around the corner, masterminded by the secret Muslim in the White House.
Campaign managers will tell you that of course they realize things are more complicated than that, but that they have to go for the lowest common denominator because that’s how elections are won and lost: most people are too unsophisticated or too lazy to give the issues the consideration they deserve.
What does it tell us about our society that political campaigns are pitched to the most ignorant members of the electorate? To me it suggests that among the many failings of our school systems is a complete failure to teach elementary logical analysis and economic literacy.
That’s an issue for another rant on another day. The other aspect of my dismay at our political circus is the fact that the poles around which our two major parties have coalesced leave me without a good choice.
I’ve been voting Libertarian for years. Yes, I’m aware of all the baggage—the creepy lunatic fringe, the easily caricatured minimalism, as captured in the New Yorker cartoon depicting a homeowner cheerfully waving away the fire department as his home burns behind him, saying “No thanks, I’m a Libertarian.”
Believe me, I’d love to vote for a nice mainstream party. The problem is that each of our major parties has put half of its money on the wrong horse. The Democrats embody some honorable strains in our political epic, like the struggle for civil rights and principled opposition to dubious wars. (And they hold themselves in correspondingly high regard.) However, the Democrats let FDR lead them down the path toward statism, producing outcomes that are a little less high-minded, like punitive taxation, clumsy interventions in the market economy and metastasizing bureaucracies. The Democrats are the party of the nanny state, the regulatory nightmare and the rush to legislate, heedless of unintended consequences. In addition, their civil rights heritage has calcified into an unreflective, adversarial approach to the complex problems of African-American disadvantage.
The Republicans, meanwhile, claim to be the party of small government and yet somehow under the second Bush managed to vaporize the budget surplus and create huge new entitlements and onerous federal mandates like No Child Left Behind. If failure to live up to their principles was their only problem, they might be redeemable, but unfortunately not all of their apparent principles inspire confidence. The Republicans are too often prone to a belligerent patriotism, a tendency to try to trump a reasonable argument by waving the flag. Patriotism is a fine thing (and properly a non-partisan one), but not when used as a substitute for thought. The Republicans are more likely to see a military solution for complex geo-strategic problems and, of course, they are obdurate boosters of the futile and corrupting Drug War.
So each of the major parties has it half right; the Democrats know that we all have to live together and that warfare is a tool best used as a last resort; the Republicans know that the free market is the best provider of material goods and that individual responsibility is the only basis for a healthy society. Unfortunately, they also each have it half wrong. The Democrats think a few keen policy wonks, if we just give them enough power, can legislate our problems away, while the Republicans think that a few strong men, if we just give them enough power, can lock up all our problems or leave them a smoking ruin.
So I vote Libertarian. People tell me that’s a cop-out, that I’m wasting my vote and abdicating my responsibility to choose the better of the only two realistic alternatives. I don’t agree; I think you always vote your principles. It sends a message even if you know your guy has no chance to win. Another option often suggested is for people of my views to pick a party and jump in and try and change it; move the major party of your choice closer to your principles.
That would mean getting the Democrats to find a clue about market economics or getting the Republicans to jettison xenophobia and gunboat diplomacy; don’t hold your breath. I think the best hope is to keep trying to persuade Americans that there’s a political party that is already mostly there where they want to be. I think most Americans are natural libertarians; we want the government to protect us against force and fraud but we don’t think it owes us a living; we are personally tolerant and appreciate our live-and-let-live culture; we respect our military but want it used carefully, and we know there’s no future in trying to seal the borders.
And neither of the two big parties represents us; we’re orphans. So take a look at the Libertarian option next Tuesday; the more votes the Libertarians get the more mainstream they will become, shedding the lunatic fringe, raising standards and assuming responsibilities. And maybe some day there will be a major party that is in tune with our natural, small-L libertarian instincts.
Sam Reaves
www.samreaves.com
Who do I mean by people like me? I’ll try to explain without flattering myself too much. One one hand I mean people who are repelled by the stunning levels of invective, distortion and pandering to ignorance that characterize our political campaigns. Attack ads dominate the airwaves, and they are not designed to make viewers pause in thoughtful reflection on the issues. The Democratic approach is to insist that Republicans are all heartless corporate shills that want only to increase their takings while reducing the lower classes to penury; meanwhile the Republicans are feverishly trying to convince the electorate that a Bolshevik coup is just around the corner, masterminded by the secret Muslim in the White House.
Campaign managers will tell you that of course they realize things are more complicated than that, but that they have to go for the lowest common denominator because that’s how elections are won and lost: most people are too unsophisticated or too lazy to give the issues the consideration they deserve.
What does it tell us about our society that political campaigns are pitched to the most ignorant members of the electorate? To me it suggests that among the many failings of our school systems is a complete failure to teach elementary logical analysis and economic literacy.
That’s an issue for another rant on another day. The other aspect of my dismay at our political circus is the fact that the poles around which our two major parties have coalesced leave me without a good choice.
I’ve been voting Libertarian for years. Yes, I’m aware of all the baggage—the creepy lunatic fringe, the easily caricatured minimalism, as captured in the New Yorker cartoon depicting a homeowner cheerfully waving away the fire department as his home burns behind him, saying “No thanks, I’m a Libertarian.”
Believe me, I’d love to vote for a nice mainstream party. The problem is that each of our major parties has put half of its money on the wrong horse. The Democrats embody some honorable strains in our political epic, like the struggle for civil rights and principled opposition to dubious wars. (And they hold themselves in correspondingly high regard.) However, the Democrats let FDR lead them down the path toward statism, producing outcomes that are a little less high-minded, like punitive taxation, clumsy interventions in the market economy and metastasizing bureaucracies. The Democrats are the party of the nanny state, the regulatory nightmare and the rush to legislate, heedless of unintended consequences. In addition, their civil rights heritage has calcified into an unreflective, adversarial approach to the complex problems of African-American disadvantage.
The Republicans, meanwhile, claim to be the party of small government and yet somehow under the second Bush managed to vaporize the budget surplus and create huge new entitlements and onerous federal mandates like No Child Left Behind. If failure to live up to their principles was their only problem, they might be redeemable, but unfortunately not all of their apparent principles inspire confidence. The Republicans are too often prone to a belligerent patriotism, a tendency to try to trump a reasonable argument by waving the flag. Patriotism is a fine thing (and properly a non-partisan one), but not when used as a substitute for thought. The Republicans are more likely to see a military solution for complex geo-strategic problems and, of course, they are obdurate boosters of the futile and corrupting Drug War.
So each of the major parties has it half right; the Democrats know that we all have to live together and that warfare is a tool best used as a last resort; the Republicans know that the free market is the best provider of material goods and that individual responsibility is the only basis for a healthy society. Unfortunately, they also each have it half wrong. The Democrats think a few keen policy wonks, if we just give them enough power, can legislate our problems away, while the Republicans think that a few strong men, if we just give them enough power, can lock up all our problems or leave them a smoking ruin.
So I vote Libertarian. People tell me that’s a cop-out, that I’m wasting my vote and abdicating my responsibility to choose the better of the only two realistic alternatives. I don’t agree; I think you always vote your principles. It sends a message even if you know your guy has no chance to win. Another option often suggested is for people of my views to pick a party and jump in and try and change it; move the major party of your choice closer to your principles.
That would mean getting the Democrats to find a clue about market economics or getting the Republicans to jettison xenophobia and gunboat diplomacy; don’t hold your breath. I think the best hope is to keep trying to persuade Americans that there’s a political party that is already mostly there where they want to be. I think most Americans are natural libertarians; we want the government to protect us against force and fraud but we don’t think it owes us a living; we are personally tolerant and appreciate our live-and-let-live culture; we respect our military but want it used carefully, and we know there’s no future in trying to seal the borders.
And neither of the two big parties represents us; we’re orphans. So take a look at the Libertarian option next Tuesday; the more votes the Libertarians get the more mainstream they will become, shedding the lunatic fringe, raising standards and assuming responsibilities. And maybe some day there will be a major party that is in tune with our natural, small-L libertarian instincts.
Sam Reaves
www.samreaves.com
Wednesday, September 29, 2010
The Ecology of Money
I’ve just finished reading Niall Ferguson’s The Ascent of Money, accurately subtitled A Financial History of the World. The book was completed just as the financial crisis was heating up in 2007, and the author has added an Afterword to the paperback edition to bring things up to date through early 2009 or so.
Ferguson is a British historian with impeccable academic credentials who is also an accomplished popularizer who can make sense out of complex topics for the layman, usually with a slightly new angle. (His The War of the World interpreted the twentieth century with its wars as essentially the losing struggle of the West to maintain its long-term primacy.)
In this book he takes on the history of money and how it has shaped civilization, or perhaps even provided the foundation for civilization. His pithy definition of money (“the crystallized relationship between debtor and creditor”) makes as much sense as any I’ve heard, and he provides two insights that for me are the core of the book.
The first is that financial markets are inseparable from human progress. Not just money, i.e. gold or wampum or any other medium of exchange, but further, markets for buying and selling debt in all its forms and derivatives, are what have made possible economic progress-- meaning the material goods and services that make our lives more comfortable than the cavemen’s. We couldn’t have done it without the bankers.
Bankers are not very popular now, for obvious reasons, so it’s refreshing to be reminded that we need them. Attempts to punish or abolish financial markets generally end in tears. Finance is the “brain of the economy”, in the words of one of Ferguson’s sources, “...a coordinating mechanism that allocates capital... to its most productive uses.” There is an obvious need for a certain amount of regulation, but beyond the enforcement of contracts and punishment of fraud and so forth, we monkey with financial markets at our peril.
Which is not to say that finance always gets it right, witness the current crisis. In his excellent Afterword, which is worth the price of the book all by itself, Ferguson discusses the reasons why financial systems are prone to regular crises. (Capsule summary: people aren’t as rational as classical economic theory assumes. Surprised?) But this brings us to Ferguson’s second key point, the evolutionary nature of economic activity.
An analogy has often been made between an economy and an ecology. Both are highly complex systems with billions of actors producing imperfectly predictable aggregate outcomes, full of feedback loops and selection pressures, prone to unintended consequences when tampered with.
Sadly, a great many people refuse to accept this analogy; the political left swarms with people who are able to acknowledge the above with perfect clear-sightedness as regards an ecology, while stubbornly insisting than an economy requires only a sufficiently competent and ruthless bureaucracy to be shaped to their preferences. A Mugabe or a Chavez can wreck an economy in a hurry, just as unwise farming practices created the Dust Bowl.
Ferguson is smarter than that, and he extends the analogy to discuss the evolutionary nature of an economy. While acknowledging that the analogy is not perfect, not least because because mutations are the result of human decisions (entrepreneurial innovation and regulators’ attempts to provide ‘intelligent design’), he points out that “Financial history is essentially the result of institutional mutation and natural selection.” Firms arise and go extinct; the ones that survive pass on their “genes” (effective business practices), speciation occurs, producing new financial institutions, and so forth.
Just as the natural world has had its epoch-ending asteroid strikes, Ferguson points out previous “major discontinuities” which brought on “mass extinctions”, like the Great Depression. He suggests that the current crisis may be another one, and that the financial landscape that will emerge will be unpredictably different.
This is not an argument for radical laissez-faire: the book is full of accounts of the folly of financiers and the regulatory failures that enabled them. But the fabulous complexity and unpredictability of an economy, like that of an ecology, mean that regulation is always reactive. We’re always playing catch-up, and we need to approach the task with caution: attempts to bully and harass markets into being docile servants of the state are more likely to wound or even kill them than to tame them.
It is the messiness of human life that makes financial markets messy. As Ferguson says, “financial markets are like the mirror of mankind,” and “it is not the fault of the mirror if it reflects our blemishes as clearly as our beauty.”
Sam Reaves
www.samreaves.com
Ferguson is a British historian with impeccable academic credentials who is also an accomplished popularizer who can make sense out of complex topics for the layman, usually with a slightly new angle. (His The War of the World interpreted the twentieth century with its wars as essentially the losing struggle of the West to maintain its long-term primacy.)
In this book he takes on the history of money and how it has shaped civilization, or perhaps even provided the foundation for civilization. His pithy definition of money (“the crystallized relationship between debtor and creditor”) makes as much sense as any I’ve heard, and he provides two insights that for me are the core of the book.
The first is that financial markets are inseparable from human progress. Not just money, i.e. gold or wampum or any other medium of exchange, but further, markets for buying and selling debt in all its forms and derivatives, are what have made possible economic progress-- meaning the material goods and services that make our lives more comfortable than the cavemen’s. We couldn’t have done it without the bankers.
Bankers are not very popular now, for obvious reasons, so it’s refreshing to be reminded that we need them. Attempts to punish or abolish financial markets generally end in tears. Finance is the “brain of the economy”, in the words of one of Ferguson’s sources, “...a coordinating mechanism that allocates capital... to its most productive uses.” There is an obvious need for a certain amount of regulation, but beyond the enforcement of contracts and punishment of fraud and so forth, we monkey with financial markets at our peril.
Which is not to say that finance always gets it right, witness the current crisis. In his excellent Afterword, which is worth the price of the book all by itself, Ferguson discusses the reasons why financial systems are prone to regular crises. (Capsule summary: people aren’t as rational as classical economic theory assumes. Surprised?) But this brings us to Ferguson’s second key point, the evolutionary nature of economic activity.
An analogy has often been made between an economy and an ecology. Both are highly complex systems with billions of actors producing imperfectly predictable aggregate outcomes, full of feedback loops and selection pressures, prone to unintended consequences when tampered with.
Sadly, a great many people refuse to accept this analogy; the political left swarms with people who are able to acknowledge the above with perfect clear-sightedness as regards an ecology, while stubbornly insisting than an economy requires only a sufficiently competent and ruthless bureaucracy to be shaped to their preferences. A Mugabe or a Chavez can wreck an economy in a hurry, just as unwise farming practices created the Dust Bowl.
Ferguson is smarter than that, and he extends the analogy to discuss the evolutionary nature of an economy. While acknowledging that the analogy is not perfect, not least because because mutations are the result of human decisions (entrepreneurial innovation and regulators’ attempts to provide ‘intelligent design’), he points out that “Financial history is essentially the result of institutional mutation and natural selection.” Firms arise and go extinct; the ones that survive pass on their “genes” (effective business practices), speciation occurs, producing new financial institutions, and so forth.
Just as the natural world has had its epoch-ending asteroid strikes, Ferguson points out previous “major discontinuities” which brought on “mass extinctions”, like the Great Depression. He suggests that the current crisis may be another one, and that the financial landscape that will emerge will be unpredictably different.
This is not an argument for radical laissez-faire: the book is full of accounts of the folly of financiers and the regulatory failures that enabled them. But the fabulous complexity and unpredictability of an economy, like that of an ecology, mean that regulation is always reactive. We’re always playing catch-up, and we need to approach the task with caution: attempts to bully and harass markets into being docile servants of the state are more likely to wound or even kill them than to tame them.
It is the messiness of human life that makes financial markets messy. As Ferguson says, “financial markets are like the mirror of mankind,” and “it is not the fault of the mirror if it reflects our blemishes as clearly as our beauty.”
Sam Reaves
www.samreaves.com
Sunday, August 8, 2010
The Softball Test
Here’s a little test to clarify your political thinking. Where you stand on this trivial question is likely to reflect the assumptions that shape your views on politics and social policy.
I play in a long-running pickup softball game every week. Every Saturday afternoon, anything from one to two dozen guys show up at the park, toss and swat the ball around a little to warm up, and then choose sides for a couple of games of easy-going slow-pitch softball. Everyone who shows up plays; nobody is turned away.
Sometimes we come up a little short on players and can only muster two teams of six or seven each. Then we either close off a field or have the batting team supply the catcher or first baseman; there’s always a way to get a game going. But when we have a good turnout we have the opposite problem: each team might have more players than can fit on the field at one time when we’re on defense. So we apply the following rule: if you make an out in your time at bat, you might have to catch (pretty much a do-nothing position in slow-pitch) or sit out the next inning on defense. If there’s only one extra player, the third out catches; if there are two, second out catches and third out sits, and so on.
We’ve been doing it this way for years, without complaints. It puts a lot of pressure on you if you come to bat with two outs, believe me. Nobody wants to sit out the next inning. But it’s a simple and effective rule, and nobody’s ever questioned its fairness.
Until recently. Then one day when we had a lot of players and consequently three guys sitting out every inning on defense, somebody came up with the notion that it would be fairer to sit out in rotation, that is, keep track of who sat out last inning and have three different guys sit out next time. People shrugged and said sure, and we tried it.
Well, of course then somebody had to find a piece of paper and a pencil and write down the lineup and consult the list every time we went out to the field to figure out who had to sit that inning. There was a certain amount of confusion and a little grumbling. Our age-old rule was simpler, if harsher when you’re having a bad day with the bat. (There have been days when I barely had to pick up a glove.)
We haven’t tried the rotation system again. Without any explicit discussion, after that one experiment we just went back to doing it the time-tested way. Is it fair? Most of us seem to think so. It’s a meritocracy. You hit, you earn the chance to go out to the field. You fail, you sit. And it’s a lot simpler: there’s no paperwork involved.
Extend this to society at large. There are two competing notions of fairness in political thought: some people think fairness is insuring that everyone plays by the same rules and letting the chips fall where they may, and some people think fairness is insuring the same outcome for everybody. The debate over the “disparate impact” of policies on different groups is a long-running one.
Life is a lot more complicated than a softball game, of course, but our little experiment illuminates two different attitudes. People who favor equal outcomes mistrust meritocracy and support the establishment of bureaucracies to make sure everything comes out the same for everyone. Other people think that if everyone is playing by the same rules, and cheaters are punished, there’s no reason to see unequal outcomes as injustice.
Where do you stand? Do you go with the simple time-tested rule, and sit out the inning without complaint when your screaming liner goes right into the shortstop’s glove? Or do you insist that that’s not fair and that you sat out the last inning, and it’s your turn to go to the field?
And does this carry over to your political stance? For me it does; I favor the simple, effective rule even when it keeps me nailed to the bench, and in politics I favor meritocratic arrangements and mistrust complicated bureaucratic fixes. A book I recommend to everyone is Richard Epstein’s Simple Rules for a Complex World. In it Epstein discusses how six simple, time-tested legal principles (autonomy, first possession, voluntary exchange, protection from aggression, limited privilege in cases of need and taking with compensation for public benefit) do a better job of governing society than a lot of complicated ad hoc legislation administered by clumsy bureaucracies.
But you don’t have to read Epstein’s book: just ask yourself which approach keeps the softball game moving smoothly, as well as providing the best incentives for concentrating during your at-bats. And see if that doesn’t tell you something about the way we are governed.
Sam Reaves
www.samreaves.com
I play in a long-running pickup softball game every week. Every Saturday afternoon, anything from one to two dozen guys show up at the park, toss and swat the ball around a little to warm up, and then choose sides for a couple of games of easy-going slow-pitch softball. Everyone who shows up plays; nobody is turned away.
Sometimes we come up a little short on players and can only muster two teams of six or seven each. Then we either close off a field or have the batting team supply the catcher or first baseman; there’s always a way to get a game going. But when we have a good turnout we have the opposite problem: each team might have more players than can fit on the field at one time when we’re on defense. So we apply the following rule: if you make an out in your time at bat, you might have to catch (pretty much a do-nothing position in slow-pitch) or sit out the next inning on defense. If there’s only one extra player, the third out catches; if there are two, second out catches and third out sits, and so on.
We’ve been doing it this way for years, without complaints. It puts a lot of pressure on you if you come to bat with two outs, believe me. Nobody wants to sit out the next inning. But it’s a simple and effective rule, and nobody’s ever questioned its fairness.
Until recently. Then one day when we had a lot of players and consequently three guys sitting out every inning on defense, somebody came up with the notion that it would be fairer to sit out in rotation, that is, keep track of who sat out last inning and have three different guys sit out next time. People shrugged and said sure, and we tried it.
Well, of course then somebody had to find a piece of paper and a pencil and write down the lineup and consult the list every time we went out to the field to figure out who had to sit that inning. There was a certain amount of confusion and a little grumbling. Our age-old rule was simpler, if harsher when you’re having a bad day with the bat. (There have been days when I barely had to pick up a glove.)
We haven’t tried the rotation system again. Without any explicit discussion, after that one experiment we just went back to doing it the time-tested way. Is it fair? Most of us seem to think so. It’s a meritocracy. You hit, you earn the chance to go out to the field. You fail, you sit. And it’s a lot simpler: there’s no paperwork involved.
Extend this to society at large. There are two competing notions of fairness in political thought: some people think fairness is insuring that everyone plays by the same rules and letting the chips fall where they may, and some people think fairness is insuring the same outcome for everybody. The debate over the “disparate impact” of policies on different groups is a long-running one.
Life is a lot more complicated than a softball game, of course, but our little experiment illuminates two different attitudes. People who favor equal outcomes mistrust meritocracy and support the establishment of bureaucracies to make sure everything comes out the same for everyone. Other people think that if everyone is playing by the same rules, and cheaters are punished, there’s no reason to see unequal outcomes as injustice.
Where do you stand? Do you go with the simple time-tested rule, and sit out the inning without complaint when your screaming liner goes right into the shortstop’s glove? Or do you insist that that’s not fair and that you sat out the last inning, and it’s your turn to go to the field?
And does this carry over to your political stance? For me it does; I favor the simple, effective rule even when it keeps me nailed to the bench, and in politics I favor meritocratic arrangements and mistrust complicated bureaucratic fixes. A book I recommend to everyone is Richard Epstein’s Simple Rules for a Complex World. In it Epstein discusses how six simple, time-tested legal principles (autonomy, first possession, voluntary exchange, protection from aggression, limited privilege in cases of need and taking with compensation for public benefit) do a better job of governing society than a lot of complicated ad hoc legislation administered by clumsy bureaucracies.
But you don’t have to read Epstein’s book: just ask yourself which approach keeps the softball game moving smoothly, as well as providing the best incentives for concentrating during your at-bats. And see if that doesn’t tell you something about the way we are governed.
Sam Reaves
www.samreaves.com
Saturday, July 24, 2010
Two Questions
The minimum wage is one of those issues that some people can’t talk about without a flare of righteous indignation. Try announcing at a dinner party that you are opposed to the government’s mandating a minimum wage and watch how jaws drop and a freeze settles over the room. “You’re not one of those people, are you?” a friend said to me the last time the topic came up, a look of appalled disdain settling on her face as if I’d just told her I favored pedophilia or eating puppies.
This is an issue that separates people who believe in economics from people who don’t. Or maybe just people who are patient enough to work through economic arguments from people who aren’t. Most people, it seems, aren’t, to judge from the treatment you get if you try to make the case against the minimum wage.
The case is, of course, that imposing a minimum wage costs jobs at the low end of the scale. To an employer, some jobs are only worth doing if they can be done cheaply; the workers you pay the least tend to be doing the jobs that are least vital. If you suddenly have to pay them more, you’re likely to decide that you don’t really need that outbuilding painted; it can wait till next year or maybe forever. Or you’ll hire one or two fewer migrants to get the crop in and go back to having your wife and kids pitch in. In either case, the guys you let go are probably not high-demand workers; the people who lose jobs due to the minimum wage are among the most vulnerable people in the work force.
There’s plenty of evidence for this. A study from Ball State University (available for download here) concludes that minimum wage increases in 2008 and 2009 cost 550,000 part time jobs and points out that "teenage workers, especially minority teenagers, bear the bulk of minimum wage job losses."
In other words, the minimum wage is most likely to hurt black teenagers. This, of course, is not what you want to hear if you're a Democratic politician who's made a career out of promising to help minorities. Maybe that's why Democrats work so hard to demonize opponents of the minimum wage: they know it doesn't stand up to scrutiny. It is a rare politician that attempts to defend the minimum wage on its merits.
Now, you can argue that the trade-offs involved are worth it, that it's better to increase the rewards of work and maintain more people on the dole. You can even come right out and say that no job at all is better than a poorly paid job. I don't buy that, but at least it's an argument and not an ad hominem attack.
But you can’t simply deny that people lose jobs when the minimum wage rises above the market rate for low-skilled labor. The economic logic and the real world evidence say they do.
There are two questions to ask anyone who favors the minimum wage. The first is, why does every minimum wage law include a lengthy list of exceptions? You can see a list of those exempt from the federal minimum wage here. The list includes, among others, "employees of certain seasonal amusement or recreational establishments" and "casual babysitters and persons employed as companions to the elderly or infirm". The loopholes, of course are an acknowledgment on lawmakers’ part that the minimum wage kills jobs at the low end of the scale. The legislators know that some jobs will simply disappear if employers are forced to pay workers more than they’re worth. They can't admit that, but they know it. So they carve out exceptions, and they never talk about them much above an embarrassed mumble.
The second question to ask is: Why does anyone make more than the minimum wage? If we need a law to force employers to pay us a certain minimum amount, why does anyone make even a penny more than this amount? Most of us, in fact, make more than the minimum wage. How is this theoretically possible, if stingy employers have to be forced by government action to pay their employees what they're worth?
The answer, of course, is that they don't. Employers always try to pay workers what they’re worth. Sometimes their calculations are wrong, as when they pay over-the-hill sluggers millions to bat .220, but they always try. The uncomfortable truth is that some workers are worth a whole lot, and some aren’t. If you want higher wages, the best thing to do is to make yourself more valuable to your employer, by increasing your skill level (get that degree!), upping your productivity (spend less time on Facebook!) or marrying the boss’s daughter (sadly, an option available only to a few).
Unfortunately, another thing you can do is pressure your legislators to force your employer to pay you more. That will raise wages for some people, but you’d better be careful about what you ask for: if you’re near the bottom of the scale, you might find that your employer now deems you not worth the new higher wage.
Now, until you have considered the above two questions, do me a favor and save the attitude. We can have a civil discussion about trade-offs and the best way to provide jobs for marginal workers and so forth and so on, but you can’t hit me with that look of appalled disdain. You can’t write me off as a heartless right-wing ideologue. You have to acknowledge that in the real world, economic policy has economic consequences, and you can’t choose simply to ignore consequences that you don’t like.
We have minimum wage laws because most people are unwilling to think through the economic consequences, and politicians like easy legislative fixes, even if they're illusory. Politics trumps good economic policy every time, and the prevalence of minimum wage laws is exhibit number one. This is an issue that should be argued dispassionately on its merits, but human nature is such that people will gasp in horror and label you a capitalist pig instead of confronting the evidence and the arguments. Don’t let them get away with it.
Sam Reaves
www.samreaves.com
This is an issue that separates people who believe in economics from people who don’t. Or maybe just people who are patient enough to work through economic arguments from people who aren’t. Most people, it seems, aren’t, to judge from the treatment you get if you try to make the case against the minimum wage.
The case is, of course, that imposing a minimum wage costs jobs at the low end of the scale. To an employer, some jobs are only worth doing if they can be done cheaply; the workers you pay the least tend to be doing the jobs that are least vital. If you suddenly have to pay them more, you’re likely to decide that you don’t really need that outbuilding painted; it can wait till next year or maybe forever. Or you’ll hire one or two fewer migrants to get the crop in and go back to having your wife and kids pitch in. In either case, the guys you let go are probably not high-demand workers; the people who lose jobs due to the minimum wage are among the most vulnerable people in the work force.
There’s plenty of evidence for this. A study from Ball State University (available for download here) concludes that minimum wage increases in 2008 and 2009 cost 550,000 part time jobs and points out that "teenage workers, especially minority teenagers, bear the bulk of minimum wage job losses."
In other words, the minimum wage is most likely to hurt black teenagers. This, of course, is not what you want to hear if you're a Democratic politician who's made a career out of promising to help minorities. Maybe that's why Democrats work so hard to demonize opponents of the minimum wage: they know it doesn't stand up to scrutiny. It is a rare politician that attempts to defend the minimum wage on its merits.
Now, you can argue that the trade-offs involved are worth it, that it's better to increase the rewards of work and maintain more people on the dole. You can even come right out and say that no job at all is better than a poorly paid job. I don't buy that, but at least it's an argument and not an ad hominem attack.
But you can’t simply deny that people lose jobs when the minimum wage rises above the market rate for low-skilled labor. The economic logic and the real world evidence say they do.
There are two questions to ask anyone who favors the minimum wage. The first is, why does every minimum wage law include a lengthy list of exceptions? You can see a list of those exempt from the federal minimum wage here. The list includes, among others, "employees of certain seasonal amusement or recreational establishments" and "casual babysitters and persons employed as companions to the elderly or infirm". The loopholes, of course are an acknowledgment on lawmakers’ part that the minimum wage kills jobs at the low end of the scale. The legislators know that some jobs will simply disappear if employers are forced to pay workers more than they’re worth. They can't admit that, but they know it. So they carve out exceptions, and they never talk about them much above an embarrassed mumble.
The second question to ask is: Why does anyone make more than the minimum wage? If we need a law to force employers to pay us a certain minimum amount, why does anyone make even a penny more than this amount? Most of us, in fact, make more than the minimum wage. How is this theoretically possible, if stingy employers have to be forced by government action to pay their employees what they're worth?
The answer, of course, is that they don't. Employers always try to pay workers what they’re worth. Sometimes their calculations are wrong, as when they pay over-the-hill sluggers millions to bat .220, but they always try. The uncomfortable truth is that some workers are worth a whole lot, and some aren’t. If you want higher wages, the best thing to do is to make yourself more valuable to your employer, by increasing your skill level (get that degree!), upping your productivity (spend less time on Facebook!) or marrying the boss’s daughter (sadly, an option available only to a few).
Unfortunately, another thing you can do is pressure your legislators to force your employer to pay you more. That will raise wages for some people, but you’d better be careful about what you ask for: if you’re near the bottom of the scale, you might find that your employer now deems you not worth the new higher wage.
Now, until you have considered the above two questions, do me a favor and save the attitude. We can have a civil discussion about trade-offs and the best way to provide jobs for marginal workers and so forth and so on, but you can’t hit me with that look of appalled disdain. You can’t write me off as a heartless right-wing ideologue. You have to acknowledge that in the real world, economic policy has economic consequences, and you can’t choose simply to ignore consequences that you don’t like.
We have minimum wage laws because most people are unwilling to think through the economic consequences, and politicians like easy legislative fixes, even if they're illusory. Politics trumps good economic policy every time, and the prevalence of minimum wage laws is exhibit number one. This is an issue that should be argued dispassionately on its merits, but human nature is such that people will gasp in horror and label you a capitalist pig instead of confronting the evidence and the arguments. Don’t let them get away with it.
Sam Reaves
www.samreaves.com
Friday, May 21, 2010
It’s Over
The argument is over. The movement to prohibit private ownership of firearms has officially conceded defeat. The concession was made on Thursday by Chicago mayor Richard Daley, who responded to a press conference question about the effectiveness of Chicago’s gun ban by threatening to shove a rifle up the reporter’s fundament.
I’m not making this up. Daley held a press conference to discuss the city’s options should the Supreme Court overturn the ban on private gun ownership that has been in place in Chicago since 1982. In response to the irksome question Daley picked up a confiscated rifle from a display table and said, “It’s been very effective. If I put this up your butt, you’ll find out how effective it is. I’ll put a round up your, you know...” The Chicago Tribune’s John Kass discusses the whole sorry episode in his column today.
There are many interesting things about this performance by a famously irascible mayor. But the really striking thing is the absence of any attempt to defend the gun ban by the least semblance of argument. Perhaps that’s because all but the most fossilized opponents of gun rights are realizing that prohibition really is a bad idea.
The argument is simple, and to simple minds like Mayor Daley’s, irrefutable: if the overwhelming majority of murders are committed with firearms, then all we have to do is prohibit firearms and the murder rate will plummet.
Except that banned objects remain stubbornly physical: they do not simply vanish into thin air. The criminals certainly aren’t going to turn in their guns; they don’t pay any attention to laws anyway. And there are millions of guns out there in the hands of non-criminals. If you really want to take them out of circulation, you are going to have to implement police measures so intrusive that even the ACLU might be made slightly uncomfortable, despite their notable vacillation on the Second Amendment, the only one they won’t go to the wall for.
Let’s say we get every bit as serious about taking guns out of circulation as we are about, say, drugs. We’ve had more than thirty years of the Drug War, complete with raided homes, asset confiscation and periodic police corruption scandals, and you can still get heroin, cocaine and meth in every city and county in the U.S. Can anyone possibly still believe we could get all the guns off the street? If we get as serious about guns as we are about drugs, the only thing that will happen is that the gun dealers will get richer and gun gangs will kill each other over turf the way drug gangs do now. (And meanwhile the woman whose gun gets confiscated won’t be able to shoot her psychotic ex-boyfriend when he comes after her with a butcher knife.)
You can’t eliminate something that people think they need and that can be easily concealed without draconian police state measures. You just can’t. If you’re honest, you’ll admit that. Ask Americans if they want to live in a police state, and they will tell you no. But in the same breath, too many of them will call for the government to get rid of things they don’t like, like guns or drugs or illegal immigrants. They don’t think through the consequences. And they only get outraged about the police state measures that affect people they like. How many of the people now sanctimoniously canceling their Arizona vacations have called for the government to confiscate their neighbors’ guns?
But now that Mayor Daley has tacitly admitted that there are no coherent arguments for banning private gun ownership, maybe we can start discussing measures that might really reduce gun violence. At the press conference Daley said that if the ban falls the city will consider implementing registration and training for firearms owners. Now that’s more like it. This is the conversation we should have been having all along. You stand a much better chance of reducing the social harm caused by dangerous objects and behaviors if they are legal, so that you can require training and impose reasonable registration requirements.
But the NRA Neanderthals oppose registration, you say? Of course they do. If Mayor Daley wanted to confiscate your car, you’d be reluctant to tell the city where your car was parked. Political resistance to registration will fade when people are certain that the Daleys of the world have given up trying to take their guns.
And that should happen soon, because anybody listening to Mayor Daley on Thursday saw that the argument is over. The gun nuts have won.
Sam Reaves
www.samreaves.com
I’m not making this up. Daley held a press conference to discuss the city’s options should the Supreme Court overturn the ban on private gun ownership that has been in place in Chicago since 1982. In response to the irksome question Daley picked up a confiscated rifle from a display table and said, “It’s been very effective. If I put this up your butt, you’ll find out how effective it is. I’ll put a round up your, you know...” The Chicago Tribune’s John Kass discusses the whole sorry episode in his column today.
There are many interesting things about this performance by a famously irascible mayor. But the really striking thing is the absence of any attempt to defend the gun ban by the least semblance of argument. Perhaps that’s because all but the most fossilized opponents of gun rights are realizing that prohibition really is a bad idea.
The argument is simple, and to simple minds like Mayor Daley’s, irrefutable: if the overwhelming majority of murders are committed with firearms, then all we have to do is prohibit firearms and the murder rate will plummet.
Except that banned objects remain stubbornly physical: they do not simply vanish into thin air. The criminals certainly aren’t going to turn in their guns; they don’t pay any attention to laws anyway. And there are millions of guns out there in the hands of non-criminals. If you really want to take them out of circulation, you are going to have to implement police measures so intrusive that even the ACLU might be made slightly uncomfortable, despite their notable vacillation on the Second Amendment, the only one they won’t go to the wall for.
Let’s say we get every bit as serious about taking guns out of circulation as we are about, say, drugs. We’ve had more than thirty years of the Drug War, complete with raided homes, asset confiscation and periodic police corruption scandals, and you can still get heroin, cocaine and meth in every city and county in the U.S. Can anyone possibly still believe we could get all the guns off the street? If we get as serious about guns as we are about drugs, the only thing that will happen is that the gun dealers will get richer and gun gangs will kill each other over turf the way drug gangs do now. (And meanwhile the woman whose gun gets confiscated won’t be able to shoot her psychotic ex-boyfriend when he comes after her with a butcher knife.)
You can’t eliminate something that people think they need and that can be easily concealed without draconian police state measures. You just can’t. If you’re honest, you’ll admit that. Ask Americans if they want to live in a police state, and they will tell you no. But in the same breath, too many of them will call for the government to get rid of things they don’t like, like guns or drugs or illegal immigrants. They don’t think through the consequences. And they only get outraged about the police state measures that affect people they like. How many of the people now sanctimoniously canceling their Arizona vacations have called for the government to confiscate their neighbors’ guns?
But now that Mayor Daley has tacitly admitted that there are no coherent arguments for banning private gun ownership, maybe we can start discussing measures that might really reduce gun violence. At the press conference Daley said that if the ban falls the city will consider implementing registration and training for firearms owners. Now that’s more like it. This is the conversation we should have been having all along. You stand a much better chance of reducing the social harm caused by dangerous objects and behaviors if they are legal, so that you can require training and impose reasonable registration requirements.
But the NRA Neanderthals oppose registration, you say? Of course they do. If Mayor Daley wanted to confiscate your car, you’d be reluctant to tell the city where your car was parked. Political resistance to registration will fade when people are certain that the Daleys of the world have given up trying to take their guns.
And that should happen soon, because anybody listening to Mayor Daley on Thursday saw that the argument is over. The gun nuts have won.
Sam Reaves
www.samreaves.com
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