The relentless hereditary elasticity of privilege

The persistence of power and privilege with high status children inheriting their parents status with intergenerational elasticities of .7 to .9 across the entire world regardless of ideology or religion means that the 'egalitarian' that is urging you to vote for more redistribution in the name of fighting entrenched elitism is likely descended from some elitist toff and is seeking your support simply so he can retain or enhance the high status he already has*.  Because as Bill Clinton or Raul Castro could tell you if they weren't so busy being 'men of the people', for the motivated, power is readily translated into a fortune. Thus even egalitarianism turns out to be a wheeze thought up by one mob of elites as a means to wrest power from some other rich and powerful mob so that they, the 'egalitarians', can have the power, wealth and status for their families.

And you? You provide the excuse for why they need to get more wealth enhancing power. Either you're too poor or you're too rich or you're making the planet too hot or too cold or you're not living long enough or there are too many of you. You see, there is always some looming catastrophe or incipient disaster to justify why the high status need to take more of your power and money to get more status and wealth for themselves.  Understanding this makes all the neo Marxist blather about inequality intelligible. They don't actually believe the ravings of that exiled German nutter, they simply believe in themselves and their will to power, status and wealth.

It's the old Roman war between the Optimates and Julius and Augustus Caesar's Populares to see which side gets to control all the state's marbles. The only way to limit greedy, resourceful men's power is to limit the state's reach, keeping most of the battle for power, wealth and status in the private sector where 'ambition counters ambition' best. And it is because the Populares understand better than the oligarchic Optimates that state power with its guns, shackles and small steel boxes trumps private wealth that your up-to-date, 'modern' tyrannies tend to come from the left. 

And they can keep that power and status for a good long time if they can restrain the lusts and envies that they inflame to get and stay on top.  Because the thing that the Optimates understand much better than the Populares is that even if you have all the power and most of the money you can still burn the whole thing down around you.  Which is why your spectacular 'modern' economic collapses also tend to come from the left.

Sniff.  It that smoke I smell?


*The most relentlessly elite institution in the world is the Elite 'Ivy League' or equivalent university.  They obsessively comb the nation and the world for the 'best and brightest', bring them to a common location where they spend vast tax exempt sums per pupil on enhancing their knowledge, skills and connections, ensuring that most of them will marry each other and breed more elites. They then unleash them on a credential mad world where they possess the best brand.  All from institutions that are relentlessly, overwhelmingly 'progressive' and 'for the people'.  And despite the obvious and clearly cynical conflict between their words and deeds they get away with it.  Talk about having a lot of power.

Keep your Environmental religion off of my daughter

Steve Landsberg pens a letter to his daughter's school asking them to lay off the religious indictrination. He argues that environmentalism is not science but religion and teaching it in school as truth is akin to teaching the Virgin Mary or the Torah.

It's a particularly ignorant, coercive and bigoted religion at that.  Great letter at the link.

http://www.breitbart.com/Breitbart-London/2014/04/23/Why-my-daughter-doesn-t-recycle-an-economics-professor-s-letter-to-his-child-s-teacher

When the Germans mock the global warming 'prescription' on network TV you know AGW HAS jumped the shark

Beware Dems: if the the Germans who are the furry tree elves of global environmentalism are jumping off the AGW Wagon and mocking it's political promoters then your days of automatic moral superiority are numbered. Hallelujah!

Absolutely fascinating Daily Show knockoff from Germany mocking Germany's textbook AGW policy as the religious lunacy it is. Worth a gander at the link.

http://www.breitbart.com/Breitbart-London/2014/04/23/Germany-discovers-sense-of-humour-loses-faith-in-green-energy

Net neutrality denies consumers the benefit of market segmentation

Net neutrality is the Henry Ford of telecom policies: it says you can have any speed, quality and price of Internet so long as it's the same as that which everyone else gets. This lack of segmentation along the traditional dimensions of price, quality and responsiveness particularly harms the poor. This is because the rich may not get all the bells and whistles they want and can afford but They Still Get Service while the now mandatory 'average'
package must be tuned to the highest total net profit volume. And given one price, this will inevitably be too high for the poor.

Besides, the connectivity market is crawling with competitors bringing rapidly improving technologies to the market. Any average pricing mandate would be horribly anti competitive given new services tend to offer different mixes of price and value and then ride the scale curve down as they gain traction.

There are several great examples of how Faceboook, Google and Wikipedia created their own light versions and persuaded carriers to provide them free to feature phone users in Africa. Classic market and price segmentation in service to the poor. You can read about them at the link.

Hattip Marginalrevolution.com

http://theumlaut.com/2014/04/30/how-net-neutrality-hurts-the-poor/

Kareem Abdul Jabber is awesome

He was awesome at basketball.  He is pretty awesome in diagnosing what is wrong with the Donald Sterling morality pageant. Pretty much everyone involved is a cynical fraud who are trying to atone for their cynicism and indifference by wasting a doddering 80 year old cuckold.

http://time.com/79590/donald-sterling-kareem-abdul-jabbar-racism/

He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people, and eat out their substance

Most pages of new Regs ever at >26,000.  The Obami have four of the five highest annual regulatory page publishing totals in the nation's history.  The CEI estimates that regulations cost over $14,000 annually for every man, woman, child, legal or illegal in the United States. More than they spend on food, housing, transportation, medical care.  The only thing they spend more money on is....Taxes.

It is estimated that ten percent of the US economy is consumed by the one half of all the world's lawyers that practice here.  The law profession looks more and more like the bands of professional mercenaries and bandits that roamed Middle Age Europe.  No one liked the thugs but you either hired and paid your own thugs or some other thugs would come and loot you.  And like the middle ages, the little people were utterly defenseless unless they affiliated with a great Lord.  It was called Feudalism and it's come back to a courtroom near you.

I always ask my lefty friends:  how much is enough?  How much state control?  How much state spending?  How much truncating of our traditional liberties is enough for them.  They never give me an answer.  I guess because you can never be too holy when you're building heaven on earth.  But it is instructive that the two by far least free states*, both economically and socially are New York and California - deeply bankrupt polities that are #1 and #2 for domestic out migration.  Evidently people hate self righteous nannies.


*As per the Mercatus Center here.

Real racism -authoritarian government style

Nick Gillespie explains why Cliven Bundy and Donald Sterling really aren't the source of our racism problem. The Superstate is.  Although these random incidents allow the racial demagogues to wave the bloody shirt fanning the flames of racial fear and hatred. Which is in the super states interest so that it can divvy up the spoils. At the link.

http://reason.com/reasontv/2014/04/29/3-policies-that-are-more-racist-than-don

John Kerry: Beyond parody

He all but calls Israel an apartheid state at a closed session with the Trilateral Commission. Honest! A team of crack comedians working around the clock  couldn't make this stuff up. Trilateral commission? Nonexistent CIA missions in 'nam? He 'still has the hat'?

If he was Repub he'd have bean toasted, buttered and jammed down the pie hole of history long ago.

In the words of the immortal Bugs Bunny:What a maroon!

http://bostonherald.com/news_opinion/columnists/adriana_cohen/2014/04/cohen_john_f_kerry_s_israeli_gaffe_a_diplomatic

The "Chamley-Judd redistribution impossibility theorem"

The great source of inequality in today's America is capital gains - the rich, whether they be Wall Street, Corporate or Techno-Oligarch make the big bucks from capital appreciation.  And the redistributionist left insists that any solution to said inequality must include rather swingeing taxes on capital (the current toast of the beggar thy neighbor crowd - Prof. Piketty - recommends 80% overall) or the whole bloody thing is just a put up job to win votes.  And this is a big  problem.  To put it simply, if you tax capital you get less of it, which means you get less productivity which means you lower workers wages.  Garret Jones, an Econ Professor at George Mason University explains in a little more detail:

 It's obvious that higher taxes on capital deter long-run investment and long-run planning. Reasonable savers care about after-tax returns on their savings, which explains why tax-free municipal bonds are often able to offer lower interest rates than taxable U.S. government bonds. The Boston University economist Christophe Chamley and the Stanford economist Kenneth Judd came up independently with what we might call the Chamley-Judd Redistribution Impossibility Theorem: Any tax on capital is a bad idea in the long run, and that the overwhelming effect of a capital tax is to lower wages. A capital tax is such a bad idea that even if workers and capitalists really were two entirely separate groups of people—if workers could only eat their wages and capitalists just lived off of their interest like a bunch of trust-funders—it would still be impossible to permanently tax capitalists, hand the tax revenues to workers, and make the workers better off.

Why? Because the tax on capital would shrink the supply of machines, which workers use to become more productive and earn more. In the (too) simple world of economic models, the Chamley-Judd result shows that, for instance, a capital tax that raised revenue equal to 1 percent of gross domestic product (GDP) would cut wages by more than 1 percent of GDP. It's impossible to "redistribute" income to workers in a way to raises the average worker's total income. What you gain from the government check is more than lost in your weekly paycheck.

And tragically for our left wing looters, the models and math that lead to that conclusion are rather non-controversial and mainstream as economic tools go - I suspect even Paul Krugman believes in them.  If I were Al Gore I'd say that the 'science' is settled on the question of whether taxing the bejesus out of capital will lead to less of it being deployed.  I suppose you could deepen the Neo Marxist bender that Democrats seem to be on right now and pretend that you can 'force' capitalists with accounts that can shift countries in a millisecond to invest in negative return projects because...."Hope and Change" or some other such nonsense but I think we know that that course of action has about as much chance of success as a North Korean has of living to retirement age just because Kim Jong "The Crazy" Un tells him to.

So at the end of the day Msr. Piketty's 'Big Idea' turns out to be that the we should cut off our growth nose to spite our envious face.  Indeed, one has to only look at the wonder that France has become (can you say 'flaming banliue police no go zone'?  I knew you could) to get excited by that brilliant brainwave. The French are so clever.

That being said, never, never, ever underestimate the tribal, blinkered parochialism of our bien pensants.  After all, there is a huge hidden benefit to massive redistribution for those that hold political power:  they get to pass out the loot.  The one indisputable outcome of a vigorous program of 'get the rich' redistribution is a redistribution of power from you and I to the fixers and favor runners in Washington.  Which is why Le Piketty is the hottest thing since sliced brioche among our leftist intelligentsia.

Power, baby, it's always about the power.*

*That's not to say that there aren't intelligent ways to reduce the scale of plutocracy and Scott Sumner makes a pretty good case for them - particulary high marginal taxation of 'sumptuary' consumption here.  To his list I would add: eliminate "to big to fail" subsidies of the banks (via John Cochrane here) and legalizing recreational drugs - or more accurately:  leveling the playing field between the poor's 'illegal' recreational drugs and the rich's "prescription based, so called ethical" recreational drugs.  The elite always get what they want.  After all, they have all the lawyers and money.  It's respect for other human's sovereignty that they lack.

Justice Steven Breyer: Authoritarian Enabler?

Supreme Court justice Stephen Breyer is a "government power liberal" - he argues that the courts should defer to the other branches of government in the interest of the need to 'get things done'.  Sort of like the old Mussolini trope that "he made the trains run on time" or perhaps the Marxist 'you've got to break eggs to make and omelette' routine gussied up with legalese.

It's been a long, long time since there's been a real 'liberal' on the High Court that stood resolutely for liberty.

More laments for a dead species at the link.

Driverless cars can successfully navigate city streets now: Google.

There are important people in the Auto industry talking about 2020 for production of the first autonomous cars.  That's only 6 years away for a technology that will have massive economic and social effects.  Creative destruction to the max.  More here.

Toyota shifting US HQ to Texas from Southern California, 4,000 non McJobs to Dallas suburb Plano

This is on the heels of Occidental Petroleum decamping from LA to Houston.  And Apple's announcement that they were building another million square feet of offices and adding 3500 staff in Austin.  Paul Krugman insists that Texas is all McJobs despite having three of the ten highest per capita median income cities (adjusting for cost of living) in the nation.  Toyota and Occidental moved from the 44th out of 50 richest large city to the 6th and 1st richest respectively while cutting its costs and tax bill to boot.

Oh, Honda and Nissan also used to be in Cali, they left a while ago.

It's getting harder and harder to pretend, Pauley K.

It continues to be evident that having the Federal government replace a complex national insurance distribution system in one fell swoop was stupid

Markets exist for a reason.  Private insurance 'exchanges' like eSurance developed over many years incrementally and had a modest share of the market.  Why?  Because many people needed truly professional help in choosing and buying health insurance.  Why?  Because it's complex and confusing.  The Obami swept all of that expertise and infrastructure aside, arrogantly assuming (like Maximum Leaders and Presidents for Life always do) that the 'middleman' was non value added so 'we'll get rid of him' only to find that the guy actually performed a valuable function.  So now we're seven or so months past the launch date and the Federal and about half the state exchanges are junk and I suspect the other state exchanges are only functioning because they don't try to do the hard stuff on line.

Why anyone could imagine that the Feds could successfully replace a functioning market with a bloody website is beyond me. What is it about lawyer cum politicians that makes them such arrogant fools?  More here.

Childcare: one more way the middle class gets screwed by our 'elites'

Middle and working class kids go to 'licensed' day care centers whose costs have exploded as 'progressive' regulation has.  The more affluent moms who no doubt were demanding such regulations take advantage of the fact that certain laws that are inconvenient for the ruling elite aren't really enforced:

A fascinating report by American University Associate Professor of Law Janie Chuang reveals how "the legal categorization of au pairs as ‘cultural exchange participants’ is strategically used to sustain—and disguise—a government-created domestic worker program to provide flexible, in-home childcare for upper-middle-class families at below-market prices."

And that’s just for families who skirt the law. Many more just flout it. More than a third of all domestic workers in the U.S. are non-citizens, and a substantial percentage of them are undocumented. Well-to-do families solve childcare problems by hiring and housing undocumented workers, working them more hours than is legal, and paying them under the table.

Yet another place where 'liberal' policies really mean an environment where the affluent get to do what they want, legal or not while regular folk get screwed. It's all so progressive.  But to be fair some kids are just more important to the nation's future than others.  If the little lightbringers don't get their special snowflake development then who will fight for child care for everyone when they're grown up?

More here.

More evidence that bien pensant elites don't really get out much

What is it about our 'elites' that make them so ill informed and parochial?  Perhaps it's that all of them live in a handful of cities, indeed in a handlful of neighborhoods in a handful of cities.  They don't seem to get out much.  Wendell Cox debunks the latest load of elite bunk.  Incidentally, where did this "white picket fence" meme come from.  Almost nobody does white picket.  Chain link, wood privacy, yes, white picket...not so much,  yet it's always on these cats' lists of things that are 'on the way out'.  Perhaps is some sort of racist code that only urban hipsters grok. Like grok, for example.

Time Magazine's Sam Frizell imagines that the American Dream has changed, in an article entitled "The New American Dream is Living in a City, Not Owning a House in the Suburbs." Frizell further imagines that "Americans are abandoning their white-picket fences, two-car garages, and neighborhood cookouts in favor of a penthouse view downtown and shorter walk to work." The available population data shows no such trend.  read more »

Gallupping governments! How much trust voters have in their state Governments.

Gallup surveyed voters in all fifty states to assess how much trust they had in their local state government.  The results were illuminating but not surprising.  First of all, many of the most homogeneous states with small populations like North Dakota, Wyoming, Utah, South Dakota and Nebraska had high levels of trust in their governments while many of the largest, most diverse states like California, Illinois, New York and Florida, had below average levels of trust.  The big outlier was Texas, which at 72% had the sixth highest trust level of any state, despite being perhaps the most diverse and rapidly changing polity in the nation.  And some small, homogeneous places did very badly, states like Maine, Rhode Island and Connecticut. Not surprisingly, governments that are good at paying their bills tend to be trusted more while states with poor credit ratings aren't.



One other correlate of trust is ideology.  With the exception of Purple Iowa and New Hampshire, all of the high trust states are reliably red.  And with the exception of Appalachian Kentucky and West Virginia and historically corrupt Louisiana, all of the low trust states are blue or purple. There are no diverse, high trust blue or purple states. The most striking result is between the five highly diverse mega states:  California, New York, Florida and Illinois voters all express a low level of trust while Texas voters express a very high level of trust in their government. This is a nice confirmation of part of Public Choice theory which proposes that activist governments in very diverse and rapidly changing polities will have significant trust and legitimacy issues as the various factions war against each other for the spoils that hyperactive governance throws off.  Someone is always getting something at someone else's expense.  By contrast lassiez faire Texas has a much more modest state government that doesn't pit different racial and ethnic groups against each other nearly so much.  A result that our leaders in Washington would be wise to note if they care for the Federal government's long term legitimacy.....and viability.

One other observation:  The Gallup analysis studiously avoided noticing he striking difference between Texas and the other mega states via the trick of pretending that Texas wasn't a red or Republican state or indeed existed at all.

You can hide your head in the sand but all you end up with is your ass in the perfect position to be kicked.

The question is why the Congressman felt he needed to ask them at all. Since screwing with Republicans is apparently part of the IRS' mission.

FREE SPEECH IN AMERICA: Iowa Democratic Congressman Bruce Braley Urged IRS to Investigate Right-leaning Nonprofits.

Hattip, Instapundit.com

So why are deer so very right wing?

25 years on Red Deer still observe cold war border between Germany and Czech Republic. Bloody hun herbivores.

http://marginalrevolution.com/marginalrevolution/2014/04/deer-nationalism-and-status-quo-bias.html

Arabs and Muslims increasingly targeting Jews but so are lefty Jews

The intimidation of Jews by Palestinian activists and fundamentalist Muslims has come to America.  Pro Palestinian activists issued 'eviction notices' to Jewish students at NYU.  

But a bug chunk of American Jews seem to be on the Jew haters side.  How else can one explain Brandeis' decision to withdraw the bestowing of an honorary degree on ex-Muslim and women's rights activist Ayaan Hirsi Ali when the (Jew hating) arab activists began to protest.

Jews have always been left wing but usually they haven't been irrational.  But so much of the modern American University is objectively insane that it's hard to know what to think.  But if Jews won't stand for Jews then why would they expect anyone else to?

Very odd behavior for small and persecuted people.

The Obami are getting a lot of flak in flyover country...

...so they just fly over it.  First Michelle in Topeka and now Eric Holder in OKC.

But they're uniters bringing hope 'n change dontchaknow.

http://pjmedia.com/instapundit/187405/

DOJ: But it's so HARD to follow the law

...and making us get warrants to search/wiretap people's phones is so mean to us. We're going to cry, beat our widdle fists on the ground and pout if you apply the constitution to us because our mummy says we are special snowflakes who don't have to follow the law like those icky criminals do.

More childish whining at the link.

http://www.techdirt.com/articles/20140423/15081827008/government-argues-that-warrant-requirement-cell-phone-searches-does-nothing-keep-cops-catching-bad-guys.shtml

All animals are equal but pro abortion animals are more equal than others. It's tough to use Kick starter if your project has the wrong reproductive politics.

Kick starter did follow up and say "sorry" for rejecting two pro life projects.  But only after they went elsewhere. As an investor I'd be concerned that these cats are more interested in ideology than profitability.

"Bigoted and rejecting paying work is no way to be successful, Kickstarter". More at link.

http://thefederalist.com/2014/04/23/kickstarter-blocks-a-second-pro-life-film-project/

Shelly can you spare a dime or a job?

Daughter whose father has been out of work for three years gives Michelle Obama his resume.

Maybe the light bringer can help.

http://pjmedia.com/instapundit/187384/

Obami war on women logic "doesn't apply" to the Obami, the Obami argue

I suppose because they're "progressives and they "care" or they're the "cool kids" and everyone  knows that the rules don't apply to them.

Pathetic bleating at the link.

http://reason.com/blog/2014/04/08/white-house-wage-gender-gap-statistics

Obami give special grads who work for Democrat organizations get an extra hundred thousand in debt forgiveness

College debt forgiveness after ten years if you work for the lefty government or not for profits. 20 years for private wealth producing jobs. And the funny thing is that 'all in' the government jobs pay more.

Who says Dems don't reward their friends?

http://pjmedia.com/instapundit/187346/

Why it's hard to reform crack whores or Harvard trained economists - the case for epistemological modesty

"The problem isn't what people know, it's what they know that ain't so."

Will Rogers

Okay I'll admit that writing a piece on epistemological modesty demonstrates a certain lack of.....epistemological modesty. But Emodesty (oh please God, don't make me write epistemological again) is an essential ingredient in any constitutional republic or indeed any well functioning society. 

So what is Emodesty you ask?  It's the recognition that we fallible human beings know rather less than we think we do.  There is a natural tendency to explain things that happen in causal "just so" terms:  that glass full of vodka smashed on the floor because you were smashed on your feet.  You see: cause and effect.  Yet that example is flawed:  the glass didn't smash just because of your BAC level was north of .3, it smashed because of a whole expanding tree of causality:  the glass was glass, the temperature was south of 1500C so the glass was brittle rather than molten, the glass was held in your hand at a height sufficient to gain breakage velocity, the floor was tile rather than rubber, your hands were slippery from the soap you failed to rinse off and so when your smashed mind caused your normally modest gesticulation to explode into a grandiose gesture the friction between your fingers, the soap on your fingers and the condensation on the glass and the glass fell below some critical level that some scientist could explain but I can't, leading the glass to first go up and then because of the Earth's gravity come flying back down above critical smashage velocity whereupon you were sent home in a cab to sleep it off. See what I mean? It was the damned floor, not six vodka tonics that caused your girlfriend to break up with you.

And I haven't even gotten to the most important reason we need Emodesty:  human agency.  When you throw humans into a causal tree - when they're part of the sordid "just so" story, so to speak - their dynamic responses to changes in their environment make prediction vastly more difficult.

This is why we have gotten pretty good at predicting tomorrow's weather but can't predict whether the stock market will go up in the next minute, hour or day much less what your date is going to do if  you 'accidentally' touch her boob.  Natural systems lack any sentient control or feedback loop (well, except when God wants to smite someone) and therefore in theory with enough information and processing power the causal, deterministic tree can be mapped forward from a known state with some level of statistical accuracy.  Not so with us humans:  we respond to changes in the environment which cause other humans to respond which causes us to respond to their response and so on and so forth.  Thus, human mediated processes are far more dynamic and far less predictable or manageable than natural or synthetic systems.

There are several critical drivers of this 'random walk' result:

The information problem -  Fred Hayek, a Nobel Laureate from Chicago (my fair school) won his Swedish Gong for explaining why central planners couldn't plan their way out of a wet paper bag.  It turns out that there is an immense amount of information that each of us process to make economic and social choices every day.  This information is distributed and particular to us and as such, is unavailable to any central authority that seeks to 'optimize' a process to achieve a 'desired' outcome 'for' us.  For example, the simple task of figuring out how many T Shirts of which colors, styles, sizes and assortments will be demanded in which locations at what price at what time of the year is beyond any central planner's ability to compute.  However, a market composed of many distribution, manufacturing and selling points interacting with millions of customers every day figures it out, even if there's always some ridiculous end of year blowout sale to move the chartreuse XXXL women's half tees with the bare midriff that buyers were sure was going to take the big 'n hefty market by storm last winter.

The just so fairy tale problem - when we seek to manipulate others, we put ourselves in their shoes without being them. So a Harvard trained economist (God help us all) pretends that he's a crack whore on the mean streets of Scarsdale...wait, Hell's Kitchen and then explains how his pet theory or project or more likely manipulation will cause this crack whore cum Ivy League honors graduate living in Scars...Hell's Kitchen to choose the sunny uplands of purity, chastity and rare single malt scotches rather than the crack pipe, Antoine and his list of nice 'friends' who "just want to spend a little time with you". Which works just about as well as a crack whore modelling Biff and Muffy's marital reconciliation which isn't going well because Biff's a real whiffenpoof and Muffy's preference for small batch Gin turns her into a martini whore.  We all like fairy tales, particularly ones where we manipulate others to do what we think they ought to do.  And like all good fairy tales, we (the prince, or princess or frog who becomes one) always end up getting what we want the way we want it, even though it's not us doing any of it, even the wanting.

The dynamic response problem.  Even if we could get all of the information that the crack whore had at a given point in time and even if we were a crack whore who understood crack whores and knows all about Antoine and his so called 'friends' we would still struggle to predict how crack whore #1 would respond to interventions by (Harvard trained) crack whore #2.  This is because in human relations every action has a reaction that is driven by so many unknowable factors that it's as if in our smashed glass example the floor kept flipping from tile to cotton wool while gravity fluxed from none to Jupiter's and we cycled between the alcohol consumption of Mormons, backsliding Baptists and Welsh poets. 

This is why people who try to use the state and it's immense power to take, hurt and humiliate others into being 'good' or at least 'better' shouldn't.  Because inevitably they end up doing things that lead to outcomes that were not predicted in places that they didn't expect that have consequences that weren't in the spreadsheet that Biff typed up to hide his list of glee club 'friends' from his drunk whore of a wife.  Frederic Bastiat - the last good French economist (yeah, I'm lookin' at to you, Piketty) called this 'Things seen and things unseen' - the tendency of of interventions into human interactions (which is all an economy or glee club or S&M bar is, really) to generate unpredictable outcomes elsewhere that swamp the so called benefits of the intervention and make the intervener look stupid to the people he is trying to manipulate even if he gets pelted with praise from the other Harvard trained economists (God help us all).

And tragically, our fair Government in the Imperial Capital of Washington DC is just one big fricking manipulation.  Indeed a better name for the place would be 'Manipulations R Us' because toying with us is what they specialize in.  And sadly, most people, drowning in their own 'just so' logic and towering self righteousness lack the epistemological modesty - hell, they can't even spell it or know what it is, much less have it - to restrain the pack of thugs, pugs, mugs, looters, shooters and Senators that infest the capital like tapeworms.

Their motto, indeed our glorious Federal government's motto is "make them pay".  Or maybe it's "gimme, gimme, gimme" - either way it's bad.

In future installments I shall give those willing to undertake the arduous process of recovering their EModesty some rather juicy examples.  Recovering one's EModesty is sort of like going to AA to recover your sobriety:  it's a lot of sitting around and saying "Hi, I'm Bill and I'm a self righteous, blinkered, manipulative bastard" and then the crowd goes "Hi, Bill". Sadly, there are virtually no EM groups active in Washington DC or Cambridge MA at the present time. God help us all.

Scientists: We don't know what's happening or why

But we think you should still blow trillions on our say so. What a bunch of self serving maroons.

More silly AGW blather at the link.

http://m.timesofindia.com/Home/Environment/Global-Warming/Climate-change-likely-to-make-climbing-Everest-riskier-less-predictable/articleshow/34163718.cms

Why are teachers increasingly self pitying whiners?

After all, class sizes have fallen in half in the past 30 years and compensation per hour worked averages the same as professional engineers. But unionized, Federalized, tops down bureaucracies are experts in infantilizing adults - turning confident leaders into whiny children.

Is there nothing that our Federal Stupor State can't do? Details at the link.

http://thefederalist.com/2014/04/22/why-do-teachers-complain-so-much/

Woman chased down, tackled, arrested for declining to talk to a cop while walking down the road.

The bebadged thug claims she was walking on the "wrong" side of the road.  Too many cops are cops because they are trying to enhance their wounded self esteem. They believe a gun and a badge will make people respect them. Speaking for myself, I have never respected law enforcement less and warn my kids to avoid them.

Because they're paid to hurt you.

http://www.techdirt.com/articles/20140415/10291426923/police-chief-not-wanting-to-talk-to-police-officers-is-odd.shtml

From the if you're a left wing hammer, everything looks like a nail department - Median Income Competition Edition

The New York Times as is it's wont triumphantly announced that "The American Middle Class Is No Longer the World’s Richest".  Ignoring the fact that the places where the middle class is suffering most are almost all blue paradises, they focus on three left friendly explanations:

1. Slower gains in educational levels than similar countries like Australia and Canada
2. Higher differentials between bosses and workers compensation
3. Less income redistribution from the top downward

I'm not surprised that they focus on 'governmental' reasons - 'inequality', 'education', 'greed'.  Because their answer is of course 'redistribution' and spend more money on sectors that NYT readers disproportionately work in like education.  All of these reasons fit perfectly with the newly regnant Neo Marxist theology that 'inequality' is the key, indeed if you listen to the left, the only issue (funny, it used to be healthcare but I guess that one has been 'solved').

So to get some perspective that isn't so gosh darn theological, I submit the following real reasons for why the US median income growth lags that of the countries most like us:  Canada and Australia.  Reihan Salam gave me some of the ideas for this:

Different stages of the Business Cycle.  First and foremost Canada and Australia are at almost the peak of their business cycle.  Both are just coming off of an at least 15 year long resource boom with economies that are much more reliant on oil and gas extraction, mining and agriculture.  In the US these sectors account for 2.6% of GDP, 12.6% in Canada and 12.22% in Australia .   Australia and Canada have benefited - both from the gain to GDP and the wealth of high paying semi-skilled jobs that extractive industries generate.

This is reflected in their housing markets.  Canada and Australia are at the peak of a multi-decade housing boom.  The US' boom crashed in 2008.  As was the case in the US, the boom resulted in much more consumer spending on new houses and other durable goods, higher unskilled and semi-skilled employment and overall GDP growth.  As the resources boom busts their housing booms will too and these countries will look a lot poorer relative to the US.


Immigration mix - Take a look at a map.  The nearest third world immigration border to Canada is 1500 miles south through the US.  Australia is surrounded by high seas.  Canada and Australia get the immigration that they want which is disproportionately South and East Asian and educated.  The US, facing a porous southern border that one of the two main parties wants kept open to boost their electoral chances, imports proportionately far fewer educated immigrants.   A Canadian or Australian style 'skim the cream from poor countries' strategy would yield much better results for us.  For the countries we skim:  not so much.  While I don't have the data handy, I hypothesize that the difference in mix of immigrants and immigrant's children constitute the whole of the 'education gap'.  After all we've tripled real lower education and quadrupled real higher education spending per pupil so it's hardly a case of the US not trying hard enough.

Finally, economic freedom - The US has been going backwards on economic freedom.  When compared to Canada and Australia we have fallen further and further behind .  Freedom matters - the security of property, the impartiality of the courts, the level of corruption, the simplicity of regulation and level and complexity of taxes all contribute to economic growth, investment and employment levels.  On the Heritage Foundation freedom rankings, the US has fallen out of the ranks of the 'free' economies and now battles it out with second tier economies with second tier income levels.  Our standard of living suffers accordingly. On the Heritage Index, the US scored a 78 in 2009 and a 75.5 in 2014  this was 4.6 points and 2.4 points behind Australia and Canada respectively in '09 and their lead had grown to 6.5 and 4.7 points respectively as of 2014.  It's hard to generate more wealth when you are discouraging the economic behavior necessary to do so.

If the NYT had its druthers, they would see 'soak the rich' and environmental policies implemented that would drive us even further away from economic freedom and wonder why oh why the economy ended up in the toilet. But we'd feel better because we'd all be more equally poor.

The moral of the story:  when all you have is a hammer you want to hit someone really hard.  Let's just hope the newly styled revolutionary class warriors don't hit our children any more than they already have.  Because it's obvious that they really don't care what the question is so long as the answer is pass more money to the state and it's favored New York Times reading minions.

Income inequality concentrated in heavily blue, democrat districts. Red districts? Much more equal.

No wonder Dems are outraged by inequality.  It's all within their own party.  Most of the congressional districtd with the least income inequality elect Republicans.  These findings duplicate those found by state and large metro area:  the bluer the place, the more unequal.  Yet if income inequality were best fought by government programs and high marginal taxes wouldn't blue places be much more equal and red places much less equal?

Of course the real driver of inequality is diversity.  The most unequal - Jerry Nadler's Manhattan district - is half rich Jew, half Puerto Rican.  By contrast, the least unequal:  Michele Bachman's Minnesota district is no doubt all white, almost all northern European and exurban/rural/small town.

The other thing is that blue and unequal is much more hostile to employment and opportunity than red and equal.  Perhaps better managing immigration and freeing up businesses and people to invest and live where they want would help reduce inequality.  You know, the republican platform in a nutshell.

Salmon pasture restoration: how we could quadruple the output of our 'fished out' fisheries

The largest salmon runs in the pacific northwest's history due to fertilization of the sea with 120 tons of iron oxide.  Hundreds of millions of more fish than ever before.  This done in selected locations could restore species and massively increase the protein supply for poor people.

Naturally the fascist environmental left hates it.  It helps people and they want people dead.

A good example of how human ingenuity can make the planet cleaner, more productive and support more life.

Top of income distribution has huge variation

12% of adults (25-60) will spend at least one year in top 1%. Fully 73 percent will spend at least one year in the top quintile and over half will spend at least one adult year (25 - 60) below the poverty line. Only 0.6% (.0006) will spend ten consecutive years in the top 1%. More at the link. 

This tendency of most people to cycle through upper and lower income brackets some time in their adult lives might explain "What's the Matter With Kansas" - people at the 43rd income percentile don't think like someone who is always going to be there but bounce around from 22 to 65 to 58 to 91 and so on.  It really screws with the modern Neo Marxist envy model when many of the 'downtrodden' are also at some point 'oppressors'.

I'll bet you Berkeley grads didn't hear these truths in class

Unless they took Professor Sargent.  Great wisdom in perhaps the shortest commencement speech ever to Cal grads. And judging by the shambles that California is seven years later, utterly ignored. The speech repeated in its entirety:

I remember how happy I felt when I graduated from Berkeley many years ago. But I thought the graduation speeches were long. I will economize on words.

Economics is organized common sense. Here is a short list of valuable lessons that our beautiful subject teaches.

1. Many things that are desirable are not feasible.

2. Individuals and communities face trade-offs.

3. Other people have more information about their abilities, their efforts, and their preferences than you do.

4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended.

5. There are tradeoffs between equality and efficiency.

6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well-meaning outsiders to change things for better or worse.

7. In the future, you too will respond to incentives. That is why there are some promises that you’d like to make but can’t. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation.

8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.

9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore).

10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation.

11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).

12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.

To learn more about Sargent, check out this NYT profile »

Hattip: businessinsider.com

On the meaning of Easter after you've fallen

When you no longer consider yourself to automatically be on 'Team God' - to just assume naturally as a matter of course you will be 'saved' - then Easter takes on a wholly different cast.  All of the triumphalism of "He Lives" and "Eternal Life" don't seem so triumphant if the big "He" uses his regained life to torment you forever or if being given eternal life means eternal agony.  For the damned, Easter is an eternal sentence of ultimate cruelty, isn't it?  And that cruelty is conceived, designed, deployed and delivered by our 'Savior' isn't it?  An eternity of agony promised to us by Him in His words coming from His very own lips.

And of course for the presumably 'saved', it is the sentence of a terrorist.  Because who witnessing the depredations of the Triune God against Saul on behalf of David or against Jericho on behalf of the Israelites or against Israel on behalf of Assyria or, and, or, and so on and so forth can be comfortable that God's act in their favor giving them bliss is eternal?  In the span of a couple thousand years our God changed the 'deal' a number of times, always smearing and damning those who didn't get the 'memo' so to speak.  And anyone witnessing God proudly exercising his salvatory randomness 'so no man may boast' cannot feel secure in God's eternal favor.  And to paraphrase Jonathan Edwards, if you live eternally suspended by a proudly random and very angry God over His fiery pit how can you in all honesty say you are in heaven?  Never mind the need to forget all of God's victims that you once knew. And loved.

No, Easter for this God Fearer is a horror.  A promise that the randomness, cruelty and terror that God unleashed when He made this world shall live on even after it ends, probably forever.  Which is why I mourn His rising as much as Christians cheer it.  I would take certain death over His perpetual Holy Terror any day.

Arresting gun owners passing through New Jersey is Chris Christie's policy. This means that in his eyes the majority of Republican primary voters are criminals. Which is why he will be crushed if he runs.

CHARLES COOKE: Gun owners flying through N.Y and N.J. shouldn’t be arrested when they check their guns. No, they shouldn’t be.

Hattip:  Instapundit.com

And a heavily Christian nation becomes a very powerful one....China to become the most Christian nation in the world

Unlike Islam or Hinduism or even hereditary Orthodoxy or Roman Catholicism, evangelical Christianity, focusing on a personal relationship with Jesus Christ and personal rectitude and piety has been a positive change agent throughout history.  The various 'great awakenings' in the US were essential to both political and economic innovation.  A heavily Christianized China will likely be a freer, more creative and much richer China.

CHANGE: China on course to become ‘world’s most Christian nation’ within 15 years. “By 2030, China’s total Christian population, including Catholics, would exceed 247 million, placing it above Mexico, Brazil and the United States as the largest Christian congregation in the world, he predicted.”

Which is a good thing. A good thing that will piss off bien pensant opinion here in the previous world record holder for most Christian country, a record that they have been busily trying to live down.  Thank you Jesus! For transforming China and pissing off the bien pensants.

Hattip, instapundit.com

Now on to the Orphans....

O'Care results in widows being thrown off their dead husband's group insurance.

Widder Jones:  "But I can't pay the premium"

Black Barack:  "But you must pay the premium"

Widder Jones:  "But I can't pay the premium"

Black Barack:  "But you must pay the premium or go to the poorhouse with the Medicaid people"

Widder Jones:  "No, anything but that! There are no doctors there"

Black Barack:  "You don't deserve doctors! They are only for people who can pay.  Or are part of an identifiable and leverageable swing voting group!"

Dudly Do-Republican:  "I'll pay the premium!"

Widder Jones:  "Get away from me you homophobic, racist, hater man you! I'm going to Black Barack's poor house!  He loves me because he's progressive"

Black Barack: (twirling his mustache) Bwooohahahahahahahaaaa!

Widows and orphans. My God this is getting ugly. Details at the link.

A revised and improved version of the "We are all doomed" financial perspective

This is a revised and updated version of the "we are all doomed" financial system perspective that eliminates a rather glaring omission that I made - see the part at the bottom referring to Scylla and Charybdis. I have a second post that is now technically prior to this one entitled "How to avoid a 'we are all doomed' financial collapse. You can see it here.

I am not sure whether the economic and monetary situation we face is just lousy due to garden variety social democracy and rampant rent seeking or catastrophic with with wild financial recklessness added to the aforesaid corruption. But in truth, I've never really crystallized in my own mind why the financial system could be in so much trouble that it would result in catastrophe. I think I now get it (I know, I'm slow, so what's your point?) and in the hopes that my simpleton explanation may have value for others I am penning this missive. If you think I've got something wrong and you're smarter than me (no great trick, admittedly) then by all means let me know.

Banks and regulators evaluate the adequacy of capital requirements, the value of incentive compensation and the acceptable level of risk taking using "Value at risk" models. VAR models take each 'position' held by a bank, estimate how much risk that position faces and how much capital is needed to back it and how that risk relates to the bank's overall portfolio of risks. Risks come in two flavors: Interest rate - if interest rates rise ceteris paribus the value of an asset will fall and Default - an asset which is composed of the present value of a stream of future cash flows loses some (but not necessarily all) of its value if the issuer of the asset defaults on his obligation. Each asset class has its own risk levels determined by historical regressions of variations relative to interest rates and credit rating. Critically, VAR can be substantially reduced by 'hedging' an exposed asset. You 'hedge' the risk of a default or interest rate change by paying some other entity to incur that risk on your behalf. AIG famously went bankrupt because it sold so many Credit Default swaps to banks to hedge the default risk of their Mortgage Backed Securities portfolios. Essentially what AIG did was 'rent' it's AAA credit rating to banks so that they could take BBB assets and call them AAA. By doing so, they could reduce the amount of capital that they held in reserve to protect against the possibility that these assets would default. Interest rate swaps achieve the same result for interest rate risk.

Now, there are two questionable assumptions that underly VAR: first, the key relationships between various interest rates, asset classes and credit ratings will not change, either on a secular basis or at different times in the business cycle. This is critical for if something is to be 'hedged' the relationship between the entities and the assets composing both sides of the hedge have to be understood and be roughly constant. If the relationships change, for example, if it turned out that because of heretofore unacknowledged losses, AIG was BBB rather than AAA then hundreds of billions of dollars of CDSs written by AIG would instantly become valueless and the VAR models at the banks would suddenly show a massive capital gap.

Which leads to the second dodgy assumption which is that there won't be a mad scramble for the exits that results in a liquidity crisis which would distort the VAR's conclusions. In our scenario, the massive capital gap would lead the banks to dump mortgage backed securities to retrieve their position which would lead to a collapse in the value of that class of assets as the bankers pile on top of each other at the exit. Which is sort of what happened.

According to the Bank for International Settlement we have a notional volume of derivative contracts in place of $693 Trillion, others estimate it at almost twice that. Now these contracts cancel out - that's their point so that the real net value of derivatives is much smaller. For example, in 2011 it was estimated that a record over 90% of notional exposure for major US banks was 'netted' against other contracts held.



Which is good news so long as nothing untoward - what Nassim Taleb calls a "black swan" - happens to muck up that netting logic. Because a rather small shift in the 'netted' percentage could mean disaster for banks. And crucially, the VAR models assume no net change. And remember, compensation is derived from the VAR models. Which makes sense because you want to pay your bankers on the risk adjusted returns that they generate with the capital they have at their disposal.

But if the VAR systematically underestimate the risk in all of this hedging/derivative activity by ignoring the unpredictable panics and if that risk only shows up periodically during massive market meltdowns and if the big banks are bailed out by the Central Bank then bank profitability is systematically overstated which means banker compensation is too high - they are taking far greater risks than admitted and being compensated as if they were earning returns on lower risks. If the models were truly accurate, they would be taking fewer risks and earning less money all the way across the industry. Now if the biggest banks were simply allowed to collapse and their investors and employees were wiped out then this imbalance of risk would not persist - it would just be tough tacos for those who believed in the flawed models. The surviving banks would then adjust their models to be much more conservative and sales of S class Mercedes would fall.

But as with much else in our society, the baleful influence of the Federal Stupor State ensures that bankers are getting filthy rich at the expense of the rest of us. A situation that is compounded by the Fed's persistence in keeping interest rates extremely low which has been an enormous boon to banks and the individuals who control them. But it isn't surprising given that the Fed is largely controlled by...bankers. Indeed it's a brave President who goes against Wall Street. And with the accession of 'plucked dove' Janet Yellin to the Greenback Throne, President Obama demonstrates that he's not that kind of President.

Incidentally, negative real interest rates also mean that high tech millionaires rapidly become billionaires because the lower the risk free rate of money, the higher the valuation of their various tech businesses and projections. It's of course not surprising that the current President has massive support from both Wall Street and the Tech Oligarchs. They don't call him President Goldman Sachs for nothing.

So how does all this result in catastrophe? Simple but not easy: First, to bail us out of the last few financial crises, the FED has used its powers to radically increase the money supply - both to keep interest rates low and to prop the value of hundreds of billions of dollars of distressed Mortgage Backed Securities by buying them. At some point all of this liquidity injection has to go into reverse to avoid massive inflation. When Bernanke hinted that it would, emerging markets tanked which is why super dove Yellin is clinging to the conn of the USS Quantitative Easing now. So we are stuck between the Scylla of a collapse due to the withdrawal of the excess liquidity and the Charybdis of uncontrolled inflation if we continue to print so much electronic money. And since economic collapse and deflation both frightens politicians and makes their debts seem bigger while uncontrolled inflation reduces government debt as a share of the economy, the politicos are not going to allow Yellin to take away the QE punchbowl.

This means that like it or not, the decision to remove the dollar from world reserve currency status has already been made. It was made in steps - starting with Greenspan and now likely to be completed by a Yellin who - forced by frightened politicos - can't reverse Bernanke's Quantitative Easing to avoid inflation. As a result, the US Dollar's reign as a world reserve currency, a reign that has had great positive economic benefits for the world and particularly for the US is over. Done. Kaalas. Finis. Killed by the bankers and politicians who wanted the gravy train to continue as long as possible, enabled by a FED that is controlled by the selfsame self seeking bankers and politicians.

The result at a minimum will be a financial crisis similar in scale to those that happened in 1914, 1939 and 1971. But back then bankers were not a big part of the economy and the idea of quadrillions of dollars of derivatives had not been conceived. And of course our derivatives exposure are even more concentrated among the eight to big to fail banks today than it was in 2009. And I sincerely doubt that their VAR models or incentives have changed much if at all. And they certainly haven't comprehended the hyperinflation that their regression models have never had the data to analyze. And aside from writing 20,000 pages of regs and flowcharts with up to 300 steps, our 'crack' regulators are no nearer to getting control of the situation than they were before. Mostly because they are trying to manage undefined market risk on an a priori basis using negative regulatory rules which is an approach that makes GOSPLAN's record in the old Soviet Union look good.

Because of this, today the potential crash is an order of magnitude greater than the past as trillions of presumed real value evaporate in a derivative supernova. And the extermination of the dollar as the world reserve currency will not result in a replacement but in a period of confusion and chaos where Yuan, SDR, SFR, Euro, GBP, USD, Yen and most saliently, Gold enter a risk blender that will produce a concoction very unlikely to please the financial palate.

So that's the pessimistic view. And I must admit, I'm becoming more pessimistic by the day. God help us every one

The many ways that Obamacare hurts, the Young, Poor, and Disadvantaged Minorities

"Progressives" believe that they and only they care for the poor, minorities and young and that Republicans and conservatives are malign forces that pursue policies that harm the "other" probably because they "hate" them or at least are "objectively racist". So it's fun for this objectively racist hater to catalog the many ways that this administration's signature social welfare program harms the poor, young and minorities. That being said it is tragic that I'm able to mock the left because of something they are doing that hurts so many weak, vulnerable and most importantly, gullible "believers". But you you can't build a progressive paradise by screwing the rich and powerful now can you?  Eggs and omelets dontchaknow?

How the Patient Protection and Affordable Care Act neither protects nor provides affordable care to the young:

1. Forces them to buy expensive comprehensive prepaid healthcare insurance policies when on a total, all in basis it is much cheaper for them to buy catastrophic policies.
2. Mom 'n Dad (50-65) spend 5x on healthcare vs. their kids in their 20s.  By limiting price differentials to 3x, the young are paying roughly twice as much as before. (well except in New York which prior to O'care was the most expensive, most broken individual health insurance market in the country - so much so that no one bought individual insurance - it was too expensive.  Oddly enough, O'care replicates the most lunatic features of the New York market).
3. Forces single men to buy female care insurance that they cannot possibly use.  Even if they had a sex change. But the guys probably deserve it, the sexist, rapist bastards. 
4. And this much more expensive insurance does not provide access to the best doctors or facilities.  You get to compete with Medicaid patients for the C level care.
5. Crushes the young with many trillions of additional unfunded future government liabilities and debts.
6. All so mom 'n dad who are much wealthier and have much higher incomes (and much more political clout) can get their health care for far, far less than it costs.  Who says fortune doesn't favor the powerful?  "But we promise that when you get old and the country's bankrupt, you'll get to screw your kids and grandkids just like we diddled you. We swear, honest injun, would we lie to you?  After all, we're you're parents, we love you.'"

How the Patient Protection and Affordable Care Act neither protects nor provides affordable care to the poor:

1. The poor were all on Medicaid before being 'saved', now Medicaid has been 'expanded' to many millions of the 'near poor'.  With expanded meaning "we printed up a shitload of new Medicaid cards with people's names on 'em".
2. The number of providers accepting Medicaid remains constant.  Constant at a level that was insufficient to provide timely access to the poor, much less the near poor.
3. To keep the O'care private plans looking at least marginally affordable despite all of the massive cost shifting, mandated benefit expansions and comunity rating and shall issue regs, the Obami encouraged extremely narrow networks that excluded all of the high cost, high quality providers.  All of the providers that participated are likely major Medicaid providers.  Meaning that the poor will now compete with the non-poor middle aged chronic healthcare needs patient for access to the pool of providers that was insufficient when it was just for the poor.  They will lose that battle.  Badly.

How the Patient Protection and Affordable Care Act neither protects nor provides affordable care to 'disadvantaged' minorities:

1. Blacks, hispanics and native Americans are much younger than the population at large, so they suffer all of the disabilities that the young do.
2. They are much poorer than average so they will suffer the cruelties that this law imposes on the poor.
3. They are much more likely to die of violent causes and less likely to die of chronic causes, the result is that even more of the spending will shift to middle aged white and asian recipients and away from them.
4. They have never  had equal access to the top of the healthcare pyramid.  With the advent of O'care even this limited access will be truncated.

All in all, these three groups have gotten quite a return on their slavish loyalty to the Obami and Dems, haven't they?  Well, we don't call 'em rubes for nothing.

God I love progressives don't you? Their continuing success is an affront to those of us who think that we are good at the racist hating game.  We're pikers compared to the Obami.

Evidently another aspect of academic rigor is gone

I wonder if dashikis, dreadlocks and talking about "niggaz" will become a critical skill in courtrooms or in debating the validity of medical therapies or determining the safety standards for cars.  Higher education is giving its enemies so much rope.

Pathetic joke "higher education" at the link.

http://www.powerlineblog.com/archives/2014/04/the-war-on-standards-comes-to-college-debate.php

Annals of police thuggery: it is now a felony on Illinois to.parody a politician

Though how would you parody an Illinois politician?  By pretending they're honest? Tale at the link.

They arrested five people on this heinous twittercaper.  And remember in today's America to be arrested is to be totally humiliated and is more than sufficient to make you hate and fear our bebadged "saviors " for the rest of your life.

Studs be makin" more friends every day!

http://arstechnica.com/tech-policy/2014/04/twitter-parody-account-holder-sought-in-police-raid/

Antarctic sea ice extent has never been higher in history

Those gosh darn AGW deniers. By delaying the reduction in greenhouse gasses they have increased the earth's temperature which has resulted in the fastest expansion in Antarctic sea ice in recorded history.

Wait.  That can't be right. The uncomfortable truth at the link.

http://iceagenow.info/2014/04/antarctic-sea-ice-demolishing-records/

Hotel Prosecutor: Witnesses can check in but you cannot leave

NY prosecutor admits to illegally detaining (imprisoning) witnesses.

Every time I think I've seen it all in terms of law enforcement's malign behavior I am blind sided by a new abuse. At the link.

http://m.nydailynews.com/1.1760513

Obama 'spikes' football

In banking and insurance the definition of success is getting the right number of the right kind of customers. Exceeding your goals can be good. Or bad. It is an indicator that you may have underpriced your product relative to the risk you are incurring. And since the US govt. is reinsuring all of this business it is John Q Taxpayer that is at risk.

For political reporters to understand this requires that they ask the right questions. And for them to do that they must genuinely want to know the answer. Which in our DC monoculture is the real problem.

Which is why you get football spiking analogies. Because as any drunk cheerleader at a wild party can attest: it's easy to get people to line up to screw you.

Ignorantly inappropriate celebration at the link.

http://www.politico.com/story/2014/04/barack-obama-health-care-takeaways-105806.html?hp=t1

How to avoid a future of 'we are all doomed' financial collapses

In a previous post I laid out the proposition that we are all already doomed to a financial collapse.  So let's say the pessimists are wrong and we're not all doomed, yet.  So how do we best avoid future financial collapses?

The problem at its core is that from time to time there are runs on critical 'too big to fail' financial institutions.  These runs happen because the market suddenly resets its opinion of the safety and soundness of an institution and holders of short term 'demand' liabilities all demand their money back at the same time.  And if one institution goes down, it frightens investors at other institutions and like dominoes they all fall.  This is why governments have instituted failsafe systems, like deposit insurance or central bank lending of last resort - to bolster banks made wobbly by adversity and stop the panic that leads to runs.  But the problem as we found out so painfully in 2008, is that the prospect of a bailout leads bankers to take more risk and investors less care than they would absent the government's security blanket. And that transfers risk from bankers to taxpayers which allows bankers to make unjustifiably large returns.  And because they're still borrowing short and lending long, all we end up with is richer and richer bankers taking more and more risks leading to bigger and bigger panics. As U Chicago economist John Cochrane observes:

"In the end, if you have a big firehouse, then people start to store gas in the basement and don't keep their fire extinguishers ready. This moral hazard is well known, but it is perhaps not so well appreciated just how much more fragile markets are as a result of a century of crisis management."

In a new paper, Professor Cochrane persuasively argues that if the central problem is the uncontrolled run. And the run is caused by the heavy reliance on short term demand liabilities like deposit accounts that are backed by unmatched long maturity assets. Then why don't we simply get rid of short term demand liabilities unless they are fully covered by liquid risk free assets like government securities? The imbalance between short and redeemable on demand and long and locked in is what makes a run possible.  An institution that was funded by short term demand accounts but held liquid, risk free government securities as assets could not be run on.

Cochrane suggests that if this were done the primary driver of systemic financial system collapse:  the bank run, would cease to be a threat and the great majority of financial regulation that has been built to prevent bank runs and then to prevent banks from taking too much risk because they are protected would no longer be necessary.  Core financial institutions that were funded by much more equity or very long term debt for which payment couldn't be demanded would not be at risk.  He suggests both limits on non-government non-risk free short term liabilities as well as taxes on the same.

One of the salient reasons we can do away with the high risk 'fractional reserve' banking model is advances in technology, including instant trading and position transparency that enable us to pay for our latte by directly debuting our money market account.  The Cochrane proposal is somewhat similar to a proposal that Lowell Bryan, McKinsey's banking head made back around 1990:  make 'cash on demand' institutions fully invest in risk free government securities.

Cochrane makes a compelling case and also provides a nice overview of the current bank regulation and governance environment.  It's rather long but if you're interested in the space it is well worth your while.  Here.

Even in chock full of compassion Austin the cops behave like thugs

I can attest to the fact that you only need to be arrested and humiliated (the two go together) once for a trivial offense to accumulate a lifelong hatred of the police.  I tell my kids that where we live they are far more likely to be hurt and have their futures wrecked by our badged 'saviors' than any criminal. I'm conservative as are most of my friends. We're just not so called 'law and order' conservatives anymore. Because the law is increasingly lawless.

They're not on your side, they're on their side.

The latest thuggish outrage at the link.

http://www.dailytexanonline.com/news/2014/02/20/woman-arrested-on-24th-street-after-crossing-intersection

The 'we are all doomed' financial perspective explained

This post has been superseded by a revised version here.  Can't say it's better but it's at least more accurate.

I am not sure whether the economic and monetary situation we face is just lousy due to garden variety social democracy and rampant rent seeking or catastrophic with with wild financial recklessness added to the aforesaid corruption.  But in truth, I've never really crystallized in my own mind why the financial system could be in so much trouble that it would result in catastrophe.  I think I now get it (I know, I'm slow, so what's your point?) and in the hopes that my simpleton explanation may have value for others I am penning this missive.  If you think I've got something wrong and you're smarter than me (no great trick, admittedly) then by all means let me know.

Banks and regulators evaluate the adequacy of capital requirements, the value of incentive compensation and the acceptable level of risk taking using "Value at risk" models.  VAR models take each 'position' held by a bank, estimate how much risk that position faces and how much capital is needed to back it and how that risk relates to the bank's overall portfolio of risks.  Risks come in two flavors:  Interest rate - if interest rates rise ceteris paribus the value of an asset will fall and Default - an asset which is composed of the present value of a stream of future cash flows loses some (but not necessarily all) of its value if the issuer of the asset defaults on his obligation. Each asset class has its own risk levels determined by historical regressions of variations relative to interest rates and credit rating.  Critically, VAR can be substantially reduced by 'hedging' an exposed asset. You 'hedge' the risk of a default or interest rate change by paying some other entity to incur that risk on your behalf.  AIG famously went bankrupt because it sold so many Credit Default swaps to banks to hedge the default risk of their Mortgage Backed Securities portfolios.  Essentially what AIG did was 'rent' it's AAA credit rating to banks so that they could take BBB assets and call them AAA.  By doing so, they could reduce the amount of capital that they held in reserve to protect against the possibility that these assets would default.  Interest rate swaps achieve the same result for interest rate risk.

Now, there are two questionable assumptions that underly VAR: first, the key relationships between various interest rates, asset classes and credit ratings will not change, either on a secular basis or at different times in the business cycle. This is critical for if something is to be 'hedged' the relationship between the entities and the assets composing both sides of the hedge have to be understood and be roughly constant.  If the relationships change, for example, if it turned out that because of heretofore unacknowledged losses, AIG was BBB rather than AAA then hundreds of billions of dollars of CDSs written by AIG would instantly become valueless and the VAR models at the banks would suddenly show a massive capital gap.

Which leads to the second dodgy assumption which is that there won't  be a mad scramble for the exits that results in a liquidity crisis which would distort the VAR's conclusions.  In our scenario, the massive capital gap would lead the banks to dump mortgage backed securities to retrieve their position which would lead to a collapse in the value of that class of assets as the bankers pile on top of each other at the exit.  Which is sort of what happened.

According to the Bank for International Settlement we have a notional volume of derivative contracts in place of $693 Trillion, others estimate it at almost twice that.  Now these contracts cancel out - that's their point so that the real net value of derivatives is much smaller.  For example, in 2011 it was estimated that a record over 90% of notional exposure for major US banks was 'netted' against other contracts held.



Which is good news so long as nothing untoward - what Nassim Taleb calls a "black swan" - happens to muck up that netting logic.  Because a rather small shift in the 'netted' percentage could mean disaster for banks.  And crucially, the VAR models assume no net change.  And remember, compensation is derived from the VAR models.  Which makes sense because you want to pay your bankers on the risk adjusted returns that they generate with the capital they have at their disposal.

But if the VAR systematically underestimate the risk in all of this hedging/derivative activity by ignoring the unpredictable panics and if that risk only shows up periodically during massive market meltdowns and if the big banks are bailed out by the Central Bank then bank profitability is systematically overstated which means banker compensation is too high  - they are taking far greater risks than admitted and being compensated as if they were earning returns on lower risks.  If the models were truly accurate, they would be taking fewer risks and earning less money all the way across the industry.  Now if the biggest banks were simply allowed to collapse and their investors and employees were wiped out then this imbalance of risk would not persist - it would just be tough tacos for those who believed in the flawed models.  The surviving banks would then adjust their models to be much more conservative and sales of S class Mercedes would fall.

But as with much else in our society, the baleful influence of the Federal Stupor State ensures that bankers are getting filthy rich at the expense of the rest of us.  A situation that is compounded by the Fed's persistence in keeping interest rates extremely low which has been an enormous boon to banks and the individuals who control them.  But it isn't surprising given that the Fed is largely controlled by...bankers.  Indeed it's a brave President who goes against Wall Street.  And with the accession of 'plucked dove' Janet Yellin to the Greenback Throne, President Obama demonstrates that he's not that kind of President.

Incidentally, negative real interest rates also mean that high tech millionaires rapidly become billionaires because the lower the risk free rate of money, the higher the valuation of their various tech businesses and projections.  It's of course not surprising that the current President has massive support from both Wall Street and the Tech Oligarchs.  They don't call him President Goldman Sachs for nothing.

So how does all this result in catastrophe?  Simple but not easy:  First, to bail us out of the last few financial crises, the FED has used its powers to radically increase the money supply - both to keep interest rates low and to prop the value of hundreds of billions of dollars of distressed Mortgage Backed Securities by buying them.  At some point all of this liquidity injection has to go into reverse to avoid massive inflation.  When Bernanke hinted that it would, emerging markets tanked which is why super dove Yellin is clinging to the conn of the USS Quantitative Easing now.  So we are stuck between the Scylla of a collapse due to the withdrawal of the excess liquidity and the Charybdis of uncontrolled inflation if we continue to print so much electronic money.  And since economic collapse and deflation both frightens politicians and makes their debts seem bigger while uncontrolled inflation reduces government debt as a share of the economy, the politicos are not going to allow Yellin to take away the QE punchbowl.

This means that like it or not, the decision to remove the dollar from world reserve currency status has already been made.  It was made in steps - starting with Greenspan and now likely to be completed by a Yellin who - forced by frightened politicos - can't reverse Bernanke's Quantitative Easing to avoid inflation.  As a result, the US Dollar's reign as a world reserve currency, a reign that has had great positive economic benefits for the world and particularly for the US is over. Done. Kaalas. Finis.  Killed by the bankers and politicians who wanted the gravy train to continue as long as possible, enabled by a FED that is controlled by the selfsame self seeking bankers and politicians.

The result at a minimum will be a financial crisis similar in scale to those that  happened in 1914, 1939 and 1971.  But back then bankers were not a big part of the economy and the idea of quadrillions of dollars of derivatives had not been conceived.  And of course our derivatives exposure are even more concentrated among the eight to big to fail banks today than it was in 2009.  And I sincerely doubt that their VAR models or incentives have changed much if at all.  And they certainly haven't comprehended the hyperinflation that their regression models have never had the data to analyze.  And aside from writing 20,000 pages of regs and flowcharts with up to 300 steps, our 'crack' regulators are no nearer to getting control of the situation than they were before.  Mostly because they are trying to manage undefined market risk on an a priori basis using negative regulatory rules which is an approach that makes GOSPLAN's record in the old Soviet Union look good.

Because of this, today the potential crash is an order of magnitude greater than the past as trillions of presumed real value evaporate in a derivative supernova.  And the extermination of the dollar as the world reserve currency will not result in a replacement but in a period of confusion and chaos where Yuan, SDR, SFR, Euro, GBP, USD, Yen and most saliently, Gold enter a risk blender that will produce a concoction very unlikely to please the financial palate.

So that's the pessimistic view.  And I must admit, I'm becoming more pessimistic by the day. God help us every one.

With O'care the "Concierge" arbitrage is going vertical

If you read my post about the 'changes' in insured measurement below, you might conclude that the Obami have 'won' - after all, rigging measurement to ensure that the program will 'achieve' the goal of fewer uninsured seems to guarantee it.  Unfortunately for all of us, the flaws of the system aren't primarily in the 'sign up phase'.  The real disaster comes after the so called 'success'.  Indeed, the more 'success' the Obami have in the launch the greater the smash up will be.  Here's one example of what has come to pass:

It costs more in effort, time and resources to practice medicine in a system administered by third parties.  This is because there are administrative costs as well as 'agency' and 'moral hazard' costs.  People don't watch their pennies when a third party is picking up the tab and the agent or doctor has an incentive to over treat because someone else pays.  But the explosion of third party payment and the inevitable ruinous inflation that it drives has led just as inevitably to more and more draconian interventions in the market to limit the consequences of previous manipulations.  For example, Medicaid and Medicare - utterly unable to stop outright fraud the way private insurers routinely do - has turned to Congress to criminalize more and more physician administrative errors.  Obamacare  adds to this coercive trend by adding a thicket of new taxes and administrative requirements to receive reimbursement such as useless but expensive medical record systems, premium taxes and so on.

So the third party 'deal' is getting worse and worse with no prospect of reversing the trend.  So the primary care physicians that serve the affluent find that they can step away from the third parties, gross fewer dollars but net more and sleep better at night.  They call this concierge medicine and it's booming.

This, of course adds more agony to the medical access catastrophe that the poor and working classes already face:  fewer docs, higher demand, more paperwork and punishment and the coerced corporatization of physicians practices all mean fewer doctor hours to meet and treat patients in a rapidly rising 'third party, moral hazard, agency problem' filled market.

Stay tuned for more brutal Federal flailing as the gorgon gets itself more and more enmeshed in the nets of its own making.  Its roars of rage will be deafening.

"I have no idea if my tax return is accurate" means 'I have no idea whether you can accuse me of a crime and destroy me"

Donald Rumsfeld's note to the IRS here.

It must be noted that since it is a crime to evade taxes that the opacity of our tax code is one of the best ways for motivated Federal Prosecutors to 'get' someone they want.  In a world where no one knows whether or not they are breaking the law, the prosecutor is King.  Because only the very rich can stand against the awesome power and wealth of the Federal Super State.  We are betting on the discretion of a bunch of ambitious, politically motivated lawyers who don't make much money to maintain the integrity of our Republic in the face of countless opportunities to get ahead.  It's a bad bet.

Stalin had a what he called a Troika to try 'anti state elements' during the Great Terror and the Great Famine.  It included the Secret Policeman, the Party Boss and the Prosecutor.  With the IRS, the policeman is almost inevitably a Dem and during Dem administrations the Prosecutor serves as both Party Boss and Prosecutor.  The only thing we have standing between us and show trials is a rapidly eroding judiciary.