Wednesday, November 26, 2008
According to Chicago Tribune reporting, the war in Somalia is:
a policy time bomb that will be inherited by the incoming Obama administration: a little-known front in the global war on terrorism that Washington appears to be losing, if it hasn't already been lost.
Kudos to the Chicago Tribune for reminding this navel-gazing country that its financial crisis did not cause the world to stand still - or cause Washington to review its own behavior.
I have previously referred to the logic that American foreign policy and the on-going financial crisis just might be connected. I would welcome evidence about how this is actually playing out.
Tuesday, November 25, 2008
Perhaps the easiest way to understand what most Afghans and many South Asians, Muslims, and others around the world felt after the invasion is to remember how Americans felt after the September 11 attacks. George W. Bush was a deeply unpopular president. The election that brought him to power had split the population, with shady dealings in Florida and an activist Supreme Court ultimately deciding the race in favor of Bush. Many of my liberal compatriots despised the president, who was already acquiring a reputation for spending his presidency on vacation.
But after the 9/11 attacks, those same liberals were rallying around Bush. The logic was simple: in a time of crisis, with your country under attack, you support those who are going to defend you. You may not like George W. Bush, but his policies his armed forces stand between you and whoever caused significant damage to New York and Washington, DC.
By the same logic, who stood between Afghan civilians and the NATO aerial bombardments that killed about 3,000 people? The Taliban. Every bomb that detonated on a wedding party led to tens, perhaps hundreds of young people — mostly young boys and many of them orphans — joining the resistance movement under the flag of the Taliban.
And it’s not just that the Afghan population believes that the Taliban resistance is legitimate; that resistance is legitimate under international law. No less important a document than the United Nations charter gives the Taliban and other Afghans the right to legitimate self-defense against U.S. aggression.
By our own hubris, we have empowered our enemies. As our power declines in the midst of a deepening economic crisis that is turning into another example of gross mismanagement, corruption, and upside-down values, it is not at all clear how long we can continue to afford such shortsightedness.
In truth, Citibank and AGI and GM and Lehman and Washington Mutual—just like the real dinosaurs—are too big to exist. There was of course nothing wrong with the magnificent Brontosaurus in its element, but when the conditions that enabled Brontosaurus to evolve changed, Brontosaurus had to give way to more adaptable species, leading eventually to the rise of man. Bailing out Brontosaurus as its rich jungle swamps dried and cooled would have neither made sense nor provided a long-term solution.
Similarly, there is no need to make the argument that the massive financial and industrial institutions of early-globalization capitalism were bad. The question is whether or not such institutions are best suited to meet social needs at the present stage of global political and economic development. Justifying what has already snowballed into some $7 trillion of U.S. government (i.e., citizen) commitments to the dinosaurs of our day with the mindless comment that they are “too big to fail” merely shows the superficial thinking of the speaker.
The analogy to dinosaurs admittedly has its limits. One can genuinely feel sorry for the Brontosaurus, which was literally hit by a bolt from the blue in the form of a massive meteor and finished off by (isn’t life ironic?) global cooling. One cannot feel much sorrow for Citibank or AGI or GM, however. We trusted them to gain the sophistication to merit their size and wealth, but they proved that greater size does not generate greater wisdom or even the determination to perform with responsibility and thus pay society back for the extraordinary privileges they received.
Unlike the innocent dinosaurs, our financial and automobile behemoths needlessly created the problems they are in through years and in some cases decades of socially irresponsible behavior. The financial giants knew they were gambling recklessly with other people’s money, as article after article in the daily media is now revealing. American automobile companies did not just thoughtlessly build the most socially irresponsible vehicles they could convince the public to buy, they spent huge amounts of money persuading people to buy their worst gas-guzzlers and spent more money opposing socially responsible government controls.
These institutions are not too big to fail; they are too big to exist. We simply can no longer afford corruption and mindless pursuit of profit regardless of risk conducted at that scale. There is no guarantee that smaller institutions will behave any better, but the collapse of smaller institutions will cause less harm. The degree of concentration of global society is becoming too dangerous, as the lightning global spread of the current financial crisis shows: a well-distributed global financial network would have resilience that the current concentrated network lacks. An institution that is too big to fail is an institution big enough to cause a chain reaction that will destroy the whole system. We cannot afford to allow institutions to become that big.
Of course, we do not want the services provided by these institutions to be lost. Neither do we want the employees all suddenly to be tossed into breadlines. But, contrary to the implication of most public comment, bailing out our Brontosauruses is not the only alternative.
The third choice is to restructure. In order to qualify for a bailout, a company should be required to sign up to a plan that would restructure it into a group of independent entities, each offering a subset of the services of the parent company. The government might choose to support a new green automobile research corporation – a domestic DARPA for public transportation. The government might also choose to support any car company willing to produce exclusively high mileage vehicles. The government might choose to support a bank that agreed to stay out of the mortgage business or a mortgage company that gave risky loans to poor, first-time buyers or a financial company that kept totally transparent books.
The details of how to restructure our industry and financial services to best serve society are limited only by our creativity. The point now is to accept the metaphor of our Constitutional wisdom embodied in the phrase “separation of powers.” American democracy does not rest on American “superiority;” it rests on an institutional structure explicitly designed to obstruct the centralization of power in the hands of any single authority. The Imperial Presidency, which has recently been pursued so hungrily, constitutes a centralization of power designed to undermine the Constitutional foundation of democracy. Those who fight to maintain the legal rights of the legislative and judicial branches against the executive should understand that an analogous struggle now needs to be waged in the industrial and financial sectors.
Rather than “separation of powers,” let us call it “separation of functions.” For one example, banks should be conservative financial institutions above all required to protect account holders’ money. Banks, mortgage companies, Wall Street financial firms, insurance companies, and venture capital entities should be legally distinct institutions with firewalls protecting one type from potential disasters of another type. Perhaps we need to create similar separation of functions for automobile companies. We need, for example, a company that actually wants to build green cars. Perhaps we can no longer afford to have a huge company that produces a full line of vehicles.
Power corrupts. Power makes one blind to the needs of others, blind to the effect of one’s behavior on one’s own future, self-satisfied, insensitive, and vulnerable to suicidal tunnel vision. Massive companies like Citigroup or GM inhibit competition and thus warp capitalism. They are the robber barons of the 21st century, and America needs a 21st century anti-trust law to cut them down to size. A company too big to fail is a company with the power to blackmail society. And we are seeing that the executives of these companies have no hesitancy about doing just that.
Friday, November 21, 2008
- We might finance not old, tradition-bound, anti-environmentalist Detroit but new car companies that could transform the way America drives.
- We might finance the development of world-leading green industries.
- We might decide that being a good neighbor trumps global imperialism, not to mention being way cheaper.
- We might decide that just a little redistribution is better than the widening social gap, that the emphasis of domestic policy should be on setting minimum standards of living, housing, and health care rather than maximizing GDP, no matter how grossly unfair its distribution.
- We might decide that the mind-numbing debate between the two major, hide-bound, uncreative, self-centered parties about "regulation" vs. "no regulation" should be supplanted by an effort to determine what should be regulated (e.g., the use of others' money) vs. what should not (e.g., venture capital).
- We might decide that a rational combination of some wealth plus some security would better be achieved not by a blind push for endless globalization but by some thoughtful combination of some global businesses plus some local (e.g., make special rules to encourage the success of local banks protected from the high winds of global finance and with very conservative investment strategies).
- We might decide that wealthy and powerful corporations have a responsibility for the impact of their actions (e.g., before banks can foreclose, they should take action to ensure that the families put out on the street get some help in finding and paying for a modest apartment, perhaps with the bank sharing the rental cost; e.g., the principals of Wall Street firms that are found to have concealed their investment strategies from government regulators in order to get away with risky behavior should be required to pay back all personal benefits received on the job and then fired).
We might decide there is a better way to run a country.
But there is actually no justification for blindly assuming even that Gaussian distributions are "normal," (though that is what they are called) and even if they were typical across all arenas of existence, that would still in no way prove that such distributions characterized any particular class of endeavor, say, war.
The distribution of outcomes of social phenomena cannot be assumed to follow any particular pattern; it depends. Therefore, the level of uncertainty also depends: the likelihood of winning cannot be assumed.
The distribution of outcomes for any given social phenomenon might be fractal or, following Taleb (The Black Swan, p. 272), a gray swan - i.e., a surprise that you certainly do not expect but do realize might occur. We never see stock market crashes or the bursting of a housing bubble coming, but we all know that they do come; it's the timing, not the existence in principle of such a class of events that surprises us. And since fractal distributions are scale-invariant (more or less, within some uncertain but probably quite large range), all bets are off about the size of the next event. Nevertheless, realizing that the class exists and big ones can occur in what certainly appears to be a random sequence tells you something about risk in that particular field of endeavor. Participate in that class of events with your eyes open, if at all.
Then, there are the Black Swans - the inconceivable ones. Statistically, there does not seem to be much useful to say about a one-time event you haven't even thought of. A global affairs example might be Aum Shinrikyu's poison gas attack on the Tokyo subway.
The existence of wars is obviously predictable; indeed, we start them intentionally. The problem is in thinking that their outcomes are Gaussian. Maybe the side with more weapons in fact did typically win (historically); that does not prove such will continue to be the case in a rapidly evolving world. But the problem is worse. The historical distribution of wars, particularly given the difficulties of comparing wars now with wars in very distinct historical eras, is pretty small to use as the basis for judging distribution in the first place, but clearly some huge ones do occur, and the size and outcome of wars tend to be poorly predicted. War outcomes seem a lot closer to fractal than Gaussian - and thus bad bets.
The problem with getting the desired outcome through war is even worse than this, however. Put aside theoretical, mathematical considerations, and think about the social context, the endless interrelationships in which wars occur. War is the perfect catalyst for Black Swans. War is the perfect context for the generation of some new, unthought-of form of behavior. In the era of rapidly rising global social complexity and new technical capabilities for waging asymmetric warfare, those who want security will be wise to avoid chaotic situations, such as war, that maximize the likelihood of surprise. Chaos favors those who have the least to lose.
Thursday, November 20, 2008
In a neighboring region, Swat, Pakistani jets bombed various locations.
The first report underscores the rising confusion along the Pakistani-Afghan border, while both reports add evidence of the decline in government control. The ability to bomb oneself is not the mark of government power but of the government's lack of power. Power is force used constructively; when a country uses force to destroy part of itself, the shock and awe serve to expose its weakness, not its strength.
Meanwhile, "the first US attack in NWFP area" with missiles was reported in a Pakistani press story claiming that "officials say that civilians are killed in most of the attacks." What might be the socio-political dynamics of a situation in which the central government may quietly be agreeing to U.S. missile attacks while local officials make statements such as this?
It is worth noting that all of these incidents occurred on just one day in Pakistan.
Stepping back from the above details, the following broader perspective from an editorial in today's Pakistan Frontier Post says something about Moslem perceptions:
The basic cause of the war against terror was the debacle of 9/11,
in which approximately 3000 individuals suffered death but as a revenge or by design [sic] Bush administration pushed the world into the war which has taken the lives of millions of Iraqis, Afghans and Pakistanis. The Muslims and NATO countries are now mentally convinced that war against terror have been waged against them by [sic] Bush administration.
The editorial is not "anti-American." On the contrary, its point, spelled out in considerable detail, is to deplore what it sees as dangerous radicalization of Pakistani society as any number of enemies take advantage of the violence to train new waves of terrorists. In sum, it sees the "war against terror" as generating precisely that which it claims to be combatting.
Evidence to the Contrary:
For an eye-witness report that things are really not as bad as the above media reports suggest, see this essay. My thanks to Hassan Abbas (Watandost) for calling attention to it.
Wednesday, November 19, 2008
- delivery of supplies to NATO forces in Afghanistan is being delayed significantly;
- radicals are shifting tactics to focus on NATO supply lines rather than domestic social issues;
- radical pressure against Pakistani goverment forces in both Bajaur and the Peshawar area is intensifying.
Predictions in the social sciences may be challenging, but viewing these trends in the context of the evident financial confusion in Washington suggests that the following prediction is fairly safe:
Prediction: the U.S. position in Central Asia will significantly worsen over the next 1-2 years.
Mullen's recent public expression of gratitude to the Pakistani government for its harsh anti-radical military campaign in Bajaur since August seems, in view of the above, discordent.
In defense of the above prediction, consider:
- To the degree that the radicals focus their attacks on NATO supply lines rather than Pakistani political opponents or innocent locals who happen to disagree with the radicals' social agenda, the radicals are likely to gain popularity. I am guessing that even many Pakistanis who look favorably on Western society and democracy will find unsettling the image of Western forces or their military supplies transiting their country.
- In the midst of a deepening financial crisis in the industrialized world (but not among the Taliban!), the radicals really don't have to defeat U.S. troops or even kill U.S. troops. They may achieve their goals simply by raising the financial cost. And they will of course be aware that this tactic of ambushing convoys in mountain passes worked brilliantly against the Soviets.
- Whatever the truth of the competing propaganda claims about which side is "winning" the battle of Bajaur militarily, it cannot be denied that when a government has to transform 400,000 of its own citizens into internal refugees in order to "save them" from the enemy, it has suffered a grievous sociological defeat.
Most Americans, now focusing on deepening personal financial problems, are probably under the impression that they just voted for world peace. When they wake up, perhaps around Christmas or in the middle of the winter or at the latest as the anticipated Taliban spring offensive starts next March, to the coming of another major war before Washington has even managed to extricate its troops from Iraq, they may not view the prospect with much patience.
Tuesday, November 18, 2008
I have made the point repeatedly that the Bush Administration
took advantage of al Qua'ida's 9/11 attack to pursue militarist foreign policy
goals they already had but did not know how to persuade the American people to
support. Are we now seeing a repeat with the financial crisis?
According to investigative reporter Naomi Klein on Democracy Now:
If we think about the way the Bush administration handled the occupation of Iraq, the working assumption was that everything that could be privatized, everything that could be outsourced, would be outsourced. And it has been very much a corporate war, as you well know. But at the same time, the handing out of the contracts in the early days was done very, very quickly, because, of course, there was this manufactured emergency that we all know was based on lies, in retrospect. But that was used, that state of emergency was used to justify no-bid contracts, to justify the fact that there was very little oversight of the contractors.
She claims that the Bush Administration's behavior in response to the financial crisis represents a huge theft of taxpayer funds to reward the rich and borders on or actually is criminal deserves very careful analysis. Her key points:
First of all, the equity deals that were negotiated with the largest banks and also some smaller banks, representing $250 billion worth of the bailout money, this is the deal to inject equity into the banks in—to inject capital into the banks in exchange for equity. The idea was to address the so-called credit crunch to get banks lending again. The legislation that enabled this was quite explicit that it had to encourage lending. Barney Frank, who was one of the architects of that legislation, has said that it violates the act if the money is not going to that purpose and is instead going to bonuses, is instead going to dividends, going to salaries, going to mergers. He said that violates the acts, i.e. it’s illegal. But what we know is that it’s going precisely to those purposes. It is going to bonuses. It is going to shareholders. And it is not going to lending. The banks have been quite explicit about this. Citibank has talked about using the money to buy other banks.
Then there’s other aspects of this that are borderline illegal. We found out that in the midst of the crisis, the Bush—the Treasury Department pushed through a tax windfall for the banks, a piece of legislation that allows the banks to save a huge amount of money when they merge with each other. And the estimate is that this represents a loss of $140 billion worth of tax revenue for the US government. Many tax attorneys who were interviewed by the Washington Post said that they felt that the way in which the Treasury Department went about this by unilaterally changing the tax code was illegal, that this had to be—this had to include Congress. Congress only found out about it after the fact.
There’s another piece of this puzzle that is also borderline illegal, which is that in addition to the $700 billion that we are discussing, the $700 billion bailout, there’s another $2 trillion that’s been handed out by the Federal Reserve in emergency loans to financial institutions, to banks, that actually we don’t really know who they’re handing the money out to, because, apparently, it’s a secret. They could be handing it out to a range of other corporations—I think they are—but they’re saying that they won’t disclose who has received these taxpayer loans, because it could cause a run on the banks, it could cause the market to lose confidence in the institutions that have taken these loans. Once again, that represents an additional $2 trillion.
The other thing that the Fed won’t disclose is what they have accepted as collateral in exchange for these loans. This is a really key point, because, of course, at the heart of the financial crisis is—are these so- called distressed assets. The value of these assets is enormously controversial. They may be worth very little. So if the Fed has accepted distressed assets as collateral in exchange for these loans, there’s a very good chance the taxpayers aren’t going to be getting this money back. So Bloomberg News has launched a lawsuit in federal court to find out who has received the loans and what has been accepted as collateral, because they believe that this lack of transparency is illegal. So that’s why we’re calling this the “trillion-dollar crime scene” or the “multi-trillion-dollar crime scene.” And they’re really challenging lawmakers to call them out, the Treasury is.
And I think, you know, Amy, the last time I was on Democracy Now!, we were talking about Henry Paulson’s original three-page proposal, the $700 trillion stickup, where he basically said, “Give me $700 trillion. Don’t ask any questions. I can never be challenged by any arm of government or any court of law.” Now, that aspect of the bailout was supposedly dealt with, and we were all reassured that there was going to be transparency, accountability, legality. But now we’re finding out that, in fact, Henry Paulson has achieved his original goal by stealth, because there is no accountability, and lawmakers are very hesitant to challenge this, because they’re afraid of causing a run on the banks, of causing more market instability. So, essentially, what the Bush administration has done is said, you know, “We dare you to challenge us and be responsible for the great depression.” And the Democrats, not known for their firm spines, have so far failed to challenge them in anything other than rhetoric.
Are Klein's concerns overstated or is the lame duck gilding the feathers of its friends?
Congressional leaders from both parties have expressed written concern about misuse of bailout funds to line the pockets of top executives of financial firms.
Barney Frank, Chairman of the House Financial Service Committee, said, “I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the president’s request to respond to the credit crisis by making funds available for increased lending." He continued by asserting clearly that “Any use of these funds for any purpose other than lending — for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. — is a violation of the terms of the act.”
It is also noteworthy that the huge original $85 billion bailout of AIG (the company whose executives were exposed by Congress as partying with bailout funds) has already proven such a disastrous failure that it has now been expanded to $150 billion. Now the U.S. auto makers are asking for handouts - even though as recently as September they received a $25 billion loan to retool.
How much of what is going on is legally criminal, as opposed to "just" morally criminal is open for debate, but it certainly seems clear that, despite the outflooding of funds, decision makers know very little about what they are buying or what may be the impact of the purchases on either the millionaire welfare recepients themselves or the country as a whole.
Monday, November 17, 2008
As far as the financial crisis is concerned, we do not really know what is going on.
An easily overlooked part of understanding is to consider things that did not, but might have, taken place. The “dark side of the moon”—i.e., the unseen event or the alternative that did not occur--can only be seen by shining light on it; this is hard to do and expensive. (Taleb, Black Swan, 132.) Therefore, we focus on the known and presume to explain why it had to occur. The resulting narrative is understandable and satisfying…but probably a fairytale.
We need to force ourselves to consider the “dark side of the moon.” This mental exploration is necessary for understanding; possibly, it will also warn us about surprises yet to come. My assumptions here are:
- when something happens, it is in truth a near thing; but for the precise correlation of precursor events that actually occurred, any one of a multitude of other things might have happened;
- while some of those potential outcomes are now no longer possible, others may remain lurking in the shadows of potentiality, waiting for a chance to emerge as the new reality; the fact that A occurred may not preclude B from subsequently happening anyway.
Is Assumption #2 correct? Can we evaluate it for a specific set of circumstances so as to inform our understanding of the future?
Which other outcomes might have occurred this fall instead of the financial crisis that in fact did occur? Of those, which remain possible?
I know an intelligent, sober person who withdrew all her savings from an unstable bank the day of the initial market crash because she could not afford to take the chance of not being able to access her funds without delay. How close did we come to having the whole U.S. public lose faith in the banking system to that degree, generating an Argentina-style run on the banks? Surely, it is at least plausible that such an eventuality could still occur. Suppose Washington spends every billion it can get its hands on bailing out the rich, and then something provokes such a loss of faith in the system. What would be the result? General chaos followed by emergence of a dictatorship, to the relief of the masses? Rejection of capitalism in favor of socialism? Revolution? Decline of the U.S. into third world status?
This thought experiment sensitizes us to the possibility that we have, so far, been very lucky, despite the hardship already caused by the financial crisis...and that our luck may not hold much longer. The experiment suggests that thinking along these lines may help us to figure out ways to minimize the likelihood of feared outcomes, rather than blundering into them. Do we blunder into bad outcomes that could have been avoided? Given the fact that Washington chose to reduce oversight over the financial system while simultaneously choosing to conduct a highly expensive, expansionist foreign policy, one could be forgiven for thinking so.
If the financial crisis on Wall Street was unleashed by Washington’s decision to weaken regulatory controls, it seems to follow that we could have avoided the crisis simply by following standard procedures already in place. However, that conclusion overlooks several long-term negative “features” of the broader environment:
- Continuation of the expensive foreign policy, including wars in Iraq and Afghanistan;
- Collapse of the housing bubble and rise in foreclosures;
- Worsening strains on the health care system;
- Degradation of America's infrastructure;
- Continuing rise in the U.S. national debt;
- Continuing degradation of the economic position of the average American.
The broad economic environment seems to have been getting more and more unbalanced and bimodal (most getting poorer while the lucky and corrupt got richer), suggesting that even maintenance of normal regulatory procedures might not have sufficed to prevent the financial crisis.
That, in turn, suggests that, while a return to responsible regulation may well be a necessary first step and while bailouts may possibly be a useful short-term “finger in the dike,” we are not even close to putting the economic fundamentals back in order: the housing crisis, the economic well-being of the average citizen, and the cost of a militant foreign policy must all be taken into consideration. It follows that we should anticipate further shocks until steps have been taken to address those systemic weaknesses.
This analysis may be sufficiently sobering already, but it is even more sobering to reflect that the above remarks are all truly rather obvious, which raises the question:
What else is there that we do not know?
Famed Nobel Prize-winning economist Freidrich Hayek provided some background insights about "things we do not know" in his 1974 Nobel address:
It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences - an attempt which in our field may lead to outright error. It is an approach which has come to be described as the "scientistic" attitude - an attitude which, as I defined it some thirty years ago, "is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."1 I want today to begin by explaining how some of the gravest errors of recent economic policy are a direct consequence of this scientistic error....
Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones. While in the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly observable and measurable, in the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process, for reasons which I shall explain later, will hardly ever be fully known or measurable. And while in the physical sciences the investigator will be able to measure what, on the basis of a prima facie theory, he thinks important, in the social sciences often that is treated as important which happens to be accessible to measurement. This is sometimes carried to the point where it is demanded that our theories must be formulated in such terms that they refer only to measurable magnitudes.
It can hardly be denied that such a demand quite arbitrarily limits the facts which are to be admitted as possible causes of the events which occur in the real world....
...the confidence in the unlimited power of science is only too often based on a false belief that the scientific method consists in the application of a ready-made technique, or in imitating the form rather than the substance of scientific procedure, as if one needed only to follow some cooking recipes to solve all social problems. It sometimes almost seems as if the techniques of science were more easily learnt than the thinking that shows us what the problems are and how to approach them....
The chief point we must remember is that the great and rapid advance of the physical sciences took place in fields where it proved that explanation and prediction could be based on laws which accounted for the observed phenomena as functions of comparatively few variables - either particular facts or relative frequencies of events....
A theory of essentially complex phenomena must refer to a large number of particular facts; and to derive a prediction from it, or to test it, we have to ascertain all these particular facts. Once we succeeded in this there should be no particular difficulty about deriving testable predictions - with the help of modern computers it should be easy enough to insert these data into the appropriate blanks of the theoretical formulae and to derive a prediction. The real difficulty, to the solution of which science has little to contribute, and which is sometimes indeed insoluble, consists in the ascertainment of the particular facts....
Often all that we shall be able to predict will be some abstract characteristic of the pattern that will appear - relations between kinds of elements about which individually we know very little. Yet, as I am anxious to repeat, we will still achieve predictions which can be falsified and which therefore are of empirical significance....
If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants. There is danger in the exuberant feeling of ever growing power which the advance of the physical sciences has engendered and which tempts man to try, "dizzy with success", to use a characteristic phrase of early communism, to subject not only our natural but also our human environment to the control of a human will. The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men's fatal striving to control society - a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.
Sunday, November 16, 2008
A totally unrelated black swan (landing of Martians or the "Big One" sending Los Angeles to the bottom of the Pacific) could occur, but I wish to address black swans about which some productive predictive assessment might be made, i.e., Black Swans provoked by current human behavior. The general theoretical assumption is: to the degree that we, by our actions, choose to push society closer to the edge of chaos, we set ourselves up for a surprise with which we will not be able to cope. More precisely, we do things that 1) raise the likelihood of a surprise and 2) decrease our ability to cope with it.
What actions might increase the likelihood of a black swan?
- Antagonizing opponents might provoke them to do something highly risky out of anger or desperation.
- Greed carried to the extreme of, say, leveraging investments way past a reasonable level of risk, or corruption that, say, hides the fact that required collateral is not being maintained might transform a minor glitch into a real black swan event, e.g., transform the normal diurnal variations in the market into a cascade of failure.
What actions might decrease our ability to cope with a surprise?
- Exhausting all readily available resources supporting a failing system (e.g., bailouts to corrupt or irresponsible financial institutions or to outmoded corporations or other narrowly-defined special interests) might both fail to resolve the financial crisis by evading fundamentals and leave us with a lowered ability to combat a new challenge.
- Committing all military forces to current operations on the assumption that no new enemy will emerge could find us dangerously overcommitted.
- Encouraging people to continue living the lifestyle that got us in trouble in the first place, on the assumption that traditional crisis-management techniques will enable us to get out of the problem we are in, might prove to be dangerously shortsighted.
These are examples of living at the edge of chaos (i.e., maximizing effectiveness of current performance by choosing to perform to the max, spending nothing on redundancy, keeping nothing in reserve). We should not expect our current predicament to be immune to the impact of our previous behavior. To phrase it differently, chickens coming home to roost may attract black swans.
It may be worth noting that the above discussion implicitly treated black swans as negative. That of course need not be the case. Something wonderful might fall in our laps: say, the sudden discovery of a cheap, clean way of generating solar power or the arrival of Martians bearing gifts. I would just make two points: first, no need to try to forecast such a miracle. If it occurs, fine; problem solved. Second, don't bet your mortgage on it, because we are queering the system by the mistakes in crisis management that we are making, lessening the already small probability of a free lunch.
The general problem is that choosing to live at the edge of chaos (running full speed along the edge of a cliff where the view is great, on the assumption that you will not stumble) is dangerous because if you stumble, the consequences are dire. The specific black swan problem is that even if you do not stumble, something might take you by surprise, and on the edge of the cliff running at top speed, responding effectively will be tricky. The whole problem of how crisis management might be impacted by a surprise that hits us "out of the blue" is a big and neglected issue. These are just a few thoughts to provoke contemplation.
Might we perform crisis management in a way that would reduce the likelihood of a black swan?
Might we perform crisis management in a way that would enhance our ability to deal with one?
Thursday, November 13, 2008
We use the phrase, without definition, as justification for all sorts of behavior: undermining other people's governments is OK, as long as they are "rogue regimes," for example.
But does anyone know what the phrase means?
For just one example, would a regime that prevents the U.N. from delivering food to the population be considered a "rogue regime?"
That approach is understandable. First, the high-consumption society is what supports the power structure from which the rich and powerful benefit. Second, if politicians laid it out honestly to the American people, the American people would be very shocked and very upset. They might even question why those politicians should be kept in office!
But while the politicians’ calls on Americans to “have another stiff one” and get on with a party that no longer seems to be much fun are understandable, they are not logical.
- As Pentagon officials keep reminding us, we don’t have enough troops for all our foreign adventures, much less for a new one in the mountains of Pakistan or the vastness of Iran.
- The $800 billion dollar Wall Street bailout might be chickenfeed in comparison to the real cost of America’s war machine (estimated at $1.5 trillion for 2009 including debts on past wars and defense costs hidden in non-Pentagon budgets such as the Departments of Homeland Security and Energy), but it is still a huge amount of money for an increasingly impoverished citizenry to give to the rich—especially seeing that it is just the down payment on a far larger bailout.
- The health care crisis – limitless care, regardless of cost, for the lucky and no health insurance at all for the rest – is both failing to provide adequate care and bankrupting the Federal budget.
The simple truth is that we have drunk too much and danced too long. The national hangover is going to be long and hard…and drinking more will only make it hurt that much more.
So, what can we do? Downsize with a bias toward justice.
If we have bitten off a bit more than we can chew overseas, then a good first step would be to talk to everyone: we may be able to persuade so-called enemies and so-called friends that compromise is to their benefit. Offering to negotiate with Iran a slow, careful pullout of American offensive forces from the region might buy us a lot of Iranian cooperation. Trying a bit of evenhanded discussions with Hamas and Tel Aviv with the immediate purpose of providing Gaza with effective government and freeing it from Israeli control with balanced controls to prevent military provocations from either side could not only cure one of the real cancers of international affairs but also fundamentally change the tone of Western-Islamic relations, undercutting at a stroke both Sunni and Shi’ite radicalism.
If we have been living a bit too high on the hog at home, then a good first step would be to admit it. Follow-up steps would be small and numerous:
- Any aid to car companies should be in return for complete cessation of the production of gas-guzzlers and real corporate support for stiff minimum mileage rules. America does not need GM – it needs a responsible transportation industry producing high-efficiency personal and mass-transit vehicles. We have bailed out Detroit before. It failed to lead to the production of the type of vehicles society needs – indeed, the plague of SUVs came after the bailout of Chrysler. We already know handing cash to Detroit does not work; let’s try something else…say, a competition to construct a new automobile factory.
- Taxes should be restructured to encourage the construction of modest suburban housing rather than McMansions as well as to reward those who live in small houses close to where they work, commute by mass transit, and cut energy costs.
- Instead of bailing out greedy corporations, the focus of government should be the generation of new jobs in better industries (urban renewal, small town renewal, infrastructure renewal, and the creation of a world-leading green industry). Just imagine how cheap energy would be today if the Federally-funded research that lies underneath the U.S. aviation and computer industries had been devoted to solar power!
- Taxes should be restructured to help the poor and encourage making a living from working rather than from playing the market with leveraged money.
- If funds for health care are limited, then focus first on providing minimal coverage for all rather than unlimited coverage for the fortunate.
Perhaps most importantly, instead of encouraging consumers to spend more and go into debt more while politicians put the nation further into debt by borrowing from China to fund foreign adventures, our “leaders” should lead – by presenting to the public a vision of a less spendthrift but cleaner, more stable, more just, and—perhaps—happier society.
Is all this to say that Americans must learn to be satisfied with less? Certainly for a while, but not necessarily forever. The U.S. does have many sound fundamentals. Americans are quite well educated in technical terms. They are also familiar with democratic norms, if far too complacent about the durability of their freedoms. The population remains, despite the political discord of recent years, unified. Natural resources, despite decades of waste that remarkably continues apace in the face of the economic crisis, remain abundant. Americans’ understanding of the world may be abysmal, but at least they are mostly literate, have easy access to the Internet so they can escape from the mind-numbing superficiality and bias of the media, and could choose to educate themselves about the needs and goals and perceptions of other cultures. The land remains expansive in comparison to population. And by the standards of Europe before WWII or China facing an expansionist Japan in the 1930s, or the Cold War, America faces little foreign threat except that which it is by its own misbehavior provoking.
There is thus good reason to hope that one measured step back to create a more just society, restore America’s good name internationally, teach society to live more responsibly, and rebuild both industry and infrastructure could lay the groundwork for two steps forward in the near future.
Wednesday, November 12, 2008
I have previously suggested that the U.S. military budget is the obvious source for funds to address America's domestic problems. The chart below, from the War Resisters League, estimates the real size of the U.S. military budget. The actual economic cost to the country of its foreign adventures is of course even higher, since that includes such costs as the loss of productivity of the tens of thousands of Iraq war vets who are disabled and the loss of real national wealth resulting from the production of war materiel that just gets destroyed in the Iraqi desert or Afghan mountains rather than contributing to domestic welfare. Nevertheless, to understand that half the Federal budget is devoted to military purposes is sobering enough.
The details on the War Resisters League website are well worth reading. Then consider the enormity of the total U.S. military budget figure for 2009: One Trillion, Four Hundred Forty Nine Billion. That amount of money would guarantee a lot of mortgages, rebuild a lot of bridges, save a lot of companies, employ a lot of citizens, and fund a lot of health care.
But if there is still someone out there who really thinks that having two naval battle groups steaming in circles around the Persian Gulf and a string of city-sized army bases with swimming pools and bowling alleys and soldiers' dependents scattered across the Iraqi desert actually enhances U.S. national security, I'd be more than happy to publish your thoughts.
Friday, November 7, 2008
The neo-cons believe that the transcendental challenge of the times is to defeat Islamic radicalism (or, not to put too fine a point on it, to ensure Israeli military domination over the Mideast). Preferably, this should be done very publicly on the open battlefield with maximum shock and awe as a lesson to anyone else (Latin American populists, Russian neo-cons looking for a bit of their own old-style imperialism [minus the heavy-handed scientific socialism], and—obviously—any uppity Islamic reformers who think they too should have the right to live in a democracy, i.e., a society in which the people have a right to follow their own path, rather than the one Washington assigns them).
This American-Israeli neo-con myth is perhaps the most tragic falsehood of this ever so hypocritical and self-serving era. Certain extremist and very much minority elements within the 20% of humanity that calls itself Moslem are indeed very hostile and very dangerous. Myths are powerful precisely because they have a way of taking root in a bit of reality. And all is a moving target. Neither Islamic radicalism nor the American elite is the same as it was before 9/11. If the U.S. makes enough mistakes, pours enough gasoline on the fire, aggravates tensions enough, angers enough of the rest of the world, it may yet transform Islamic radicalism into an enemy worthy of the world’s last remaining superpower.
How will the incoming Obama Administration handle the issue of American imperialism? Will it truly attempt change? Will it be able to foresee the key decision-points?
What to Watch For
- The First Crisis. Obama ran a calm electoral campaign. The global situation appears set for any number of crises. When the first one happens, will Obama be able to respond cautiously and thoughtfully without waving the bloody flag of fear?
- Foreign Policy Without Principles. The American neo-con imperial thrust has not been rejected; Obama’s words have hinted at a lessening of American pressure on Iran and Iraq even as they hinted at an intensifying of pressure on Pakistan. Will he continue evading the fundamental issue of the propriety of the underlying imperial thrust or will he confront it and put his own stamp on foreign policy?
- Imbalance in American Power. America’s enormous power has become dangerously one-sided: not coincidentally, its moral and economic power have been undermined just as its reliance on military force has increased. The effectiveness of that military power to destroy steadily grows; in contrast, its effectiveness in achieving goals seems to be declining significantly. When this imbalance puts a critical obstacle in the path of the Obama administration’s foreign policy goals, how will Obama respond?
- War Before Inauguration. Obama will be surrounded by actors on the global stage who might see a new outbreak of violence as profitable to themselves. Will some such group succeed in provoking a new conflict before Inauguration Day?
It remains in late 2008 the case that it would be closer to the truth to say that the transcendental challenge of the times is to defeat American imperialism. Just to make the previous sentence perfectly clear to those American politicians who babble about “pro-American” and “anti-American” portions of America, I did not say “to defeat the U.S.” I said, “to defeat American imperialism.” The best way to do this would be for the American people to elect a set of officials committed to what might be called “restoring America,” namely:
- Renouncing the policy of force as the method of choice for achieving foreign policy goals, which would include wars of choice;
- Canceling the 2009 “defense” budget, which is roughly equivalent to all defense budgets of every other country on earth, and therefore obviously in fact an offense budget; appointing a commission to spend the period between Election Day and Inauguration Day conducting a zero-based analysis of U.S. requirements for a reasonable defense; and making that the new 2009 defense budget;
- Taking the $300-400 billion dollars thus saved and investing in small-town and urban renewal.
Perhaps unfortunately for a lot of us, however, there are many other ways to defeat American imperialism:
- Five years ago the U.S. walked into a trap in Iraq that remains snapped tight on America’s ankle; the Pakistani trap that certain Islamic radicals are trying to snap onto America’s other ankle would hurt a lot more. The disastrous situation in far away Bajaur, where some 400,000 refugees have fled the carnage of the August Pakistani “bomb ‘em into the Stone Age” offensive against the Taliban, is just a small taste of what bringing “the American (or should I say Israeli?) way of war” to Pakistan will entail.
- Then there are those who continue to lust after a U.S. war of choice on Iran, the last country in the Mideast with the guts to insist that it has a right to its own policy, a policy that could indeed turn out to be very nasty (anything “could” happen, with any country) but which so far seems to amount to striding the world stage on the cheap (which is the price of talk).
A war against Iran or Pakistan would not at all be on the scale of war against miniscule Lebanon, tiny Somalia, 19th century and flat-on-its back Afghanistan, or an already long-since (i.e., since 1991) defeated Iraq. And post-War-on-Terror, post-financial crisis America is not the America that fought (Iraq, Afghanistan) or sponsored (Lebanon, 2006; Somalia, 2007-8) those other wars.
Nevertheless, the world will not easily move beyond the military contest between al Qua’ida and the neo-cons because these two groups are in orbit around each other, the one trapped in the gravitational pull of the other. Each wants power but can have it only by persuading its constituency (the Moslem public and American public, respectively) to accept grievous sacrifices. Each requires the existence of its “opponent” to justify those sacrifices and requires that the opponent appear overwhelmingly threatening. Hence, the curious Bush policy of pushing all potential Islamic opponents into each other’s arms, pretending that Sunni al Qua’ida fundamentalists trying to restore the caliphate destroyed in the 13th century by the Mongols, and secular Saddam, and Shi’ite Iranian nationalists, the effectively disenfranchised poor of Lebanon, the starving people of Somalia whose only real government in 15 years was a coalition of Islamic courts, and the marginalized tribal people of Pakistan are all six of one and half a dozen of the other.
Yes, we have a problem. Yes, the situation is dangerous. But eliminating Islamic radicalism is not the solution. Those elements in the U.S. determined to make the 21st century the century of American imperialism would just have to find another enemy.
Thursday, November 6, 2008
A profound historical novel, Taylor Caldwell’s A Pillar of Iron (Doubleday & Company, Garden City, NY, 1965, pp.437-8), contains the following conversation, taken from actual letters between the two:
“Alexander [said Crassus] had a dream of a united world. I, too, have that dream. One government, one people, one law, under God. Shall it be realized in my lifetime? I do not know. But we should, as men, work ceaselessly toward that goal.”
“Why?” said Marcus [Cicero]. “We should then destroy the infinite variety of humanity. We should destroy the gods of other peoples. We should destroy their way of life, which they have decreed for themselves. Who has the insolence to say our way is better than others?”
“The differences you remark upon, Cicero, are superficial. Are we not all men, with the same needs?”
“We are all men,” said Marcus, “but we do not all have the same needs. We Romans have no authority, human or divine, to impose our wills upon others, no matter how noble we pretend they are.”
“Pretend?” said Crassus, arching his brows.
“Pretend,” Marcus repeated.
Crassus thought, Catilina is right. He should be assassinated. He looked at Julius [Caesar] who was following the conversation with a broad smile.
“We can impose our government,” said Marcus, “only with the sword and with war and with the violation of the rights of other men. Let us refrain.”
“You do not understand, Cicero. Under one authority, one law, all land would be cultivated completely for the benefit of the people. All treasure would be utilized, and in fairness.”….
“I believe in law, and the orderly process of law,” said Marcus, trying to hide his revulsion. “I do not believe in force—or lies—in order to make all men live as we might desire them to live. If our way is truly good, then all men will eventually recognize it. If it is evil”—and here Marcus paused—“we can enforce it only by murder.”
Monday, November 3, 2008
Yet there is a deeper explanation for our malaise, for our increasing difficulty in managing the great systems we have created to control national security, our economy, our environment, health care, and our democracy. Many Americans involved in making these systems function are intelligent, educated, dedicated, and patriotic or…even better…self-defined world citizens looking out for the interests of us all (the only long-term solution in this increasingly crowded world). I don’t need citations to back up this assertion. I have known and worked with such individuals. I could readily point to specific individuals I am proud to have worked with in government, industry, and academia from Maine, Massachusetts, Vermont, New Mexico, Virginia, Alaska…(yes, lower forty-eighters, all in Alaska are not like Palin). So, why is it that these good and competent people cannot make things work right?
During the Cold War, the threat was real enough so that any failure could plausibly be excused as something “we just have to put off until we beat the Soviet Union.” Before that, Hilter offered us the same excuse. But no such threat, 9/11 notwithstanding, currently exists. Our way of life today is primarily threatened not by some outside force that demands our whole attention but by the negative impact of our own decisions, voluntarily made. The war of choice against Iraq, the support for Israeli aggression against Lebanon, the support for Ethiopian intervention into Somalia, the verbal support for Georgia’s attack on South Ossetia, the decision to deregulate Wall Street, the decision to back mortgage loans to unqualified home buyers, the national unwillingness to face up to the desperation of millions of Americans who have no health insurance, the decision not to punish telecommunications companies who cooperated with “extra-judicial” Bush Administration spying on Americans, the decision to turn our backs on international law and torture enemies, the assertion of unconstitutional executive powers by the White House, and the post-9/11 collapse of the “loyal opposition” concerning the fundamental strategic response to al Qua’ida are all choices we voluntarily made, not choices we were forced to make. Some of these chickens have already come home to roost; the beating wings of the rest can be heard in the sky.
In this blog, I have taken a few shots at an answer and will not reiterate my suggestions at the moment. But the question of why we are having such difficulty governing ourselves effectively needs to become a national focus. Yes, American culture is great at building, and we have erected marvelous national systems. And, yes, we certainly have massive destructive power. But we seem to be losing the ability to manage the great systems we have built so that they will generate the quality of life they were supposed to provide for us. The superficial nature of this presidential election, which really could have been a historic election if this question had been placed clearly on the national agenda, is likely to cause this country great harm in coming years because we simply no longer can afford to evade the fundamental issue of how bad national governance has become.