Monthly Archives: July 2013

A Slap Fight

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Governor Tiny has the chattering classes talking about the brewing fight between “libertarians” and “conservatives” over the direction of the GOP.  Here’s a representative example of the coverage. The writer labels one side the establishment and the other insurgents, but calling the GOP conservative is serious error. That’s the official line, but that’s gratuitous nonsense. America’s ruling elites range from fanatically left-wing to mildly liberal. They agree on everything, except how fast to proceed. That’s the only dispute.

The Republicans are mostly a governor on the Democrats. The Democrats want to rush off and implement their latest fads right now, while the Republicans try to slow them down, but largely supporting them. These “cooler heads” used to be in the Democrat party, but they were chased off in the 1990’s. In every fight, the establishment types find some reason to give into the Left on most of what they want. Not everyone is happy with this arrangement.  As Michael Walsh noted on NRO, it is a good time to have the fight.

It makes for some good theater, but nothing changes until there is catastrophe. That’s why every epoch is book-ended by violent conflicts and great turmoil. The people in charge like the ways things are, so they will not fundamentally alter anything. It’s only when the system becomes unstable or untenable that change can happen. The old guard will not leave quietly, so that means a new guard will have to force them out. That’s the best case scenario, but that’s not the way to bet. What comes next is not going to be pleasant.

Complex Systems

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One of the things you learn quickly when working with complex software is that one tiny change in one area of the program can result in unexpected behavior in another, unrelated, part of the software. Even when you know the software in detail, you are often surprised by the results of small changes. The reason for this is complexity does not grow linearly. Every new condition added to the program, results in multiples of processes and outcomes. The possible results easily exceed your ability to keep track of in your head.

Anyway, the social planners never seem to get this or even recognize it exists. They are so confident in their power to model the new socialist man they blithely assume all sorts of things about the human condition. ObamaCare is a good example. They started with one goal in mind. They wanted to transfer the costs of giving middle-class health care to the poor from the government to private business. The obvious solution was to force employers to pay for their employees insurance, as part of their regular compensation.

Then they realized that the unemployed and seasonal would not get coverage so they came up with the individual mandate to solve that one problem. This sounded like a brilliant solution. If you did not have health insurance, then the IRA would chase after you and maybe some other agencies would harass you. Then some one noticed that the people in the underclass could not afford insurance and were no scared of the IRS. After all, the IRS only terrorizes taxpayers and no one in the ghetto pays taxes. What to do.

The solution was expanding Medicaid and subsidizing private insurance. This means passing new laws and regulation to force states to expand Medicare. On and on it went until the result was a 2,000 page bill requiring tens of thousands of regulators writing tens of thousands of pages of regulations. All of which would be layered on top of the existing tens of thousands of regulations. A massively complex system was going to bolted onto an already massively complex system the legislators did not understand.

Since becoming law, we have been treated to a series of unexpected results. Employers are afraid to hire, not knowing the consequences. Their lawyers quickly figured out a way out of the mandate by moving full time people to part time. Hundreds of thousands have lost benefits because they are now considered part time. Now, cities in financial trouble will follow suit by throwing their workers onto the government system to avoid paying health care bills. It turns out that more complexity was not the answer to the problem.

The result of all of this is pretty much the opposite of what the ObamaCare designers expected. Instead of decreasing the cost to government, costs will go up faster. Instead of more people with insurance, you will see fewer people with insurance. Doctors, seeing their earnings prospects decline are leaving the system and finding ways to carve out private systems for upper middle-class clients. On and on it goes. A myriad of unexpected outcomes accelerating the collapse of the health care system.

Wisdom is knowing what you don’t know. The opposite of that is being in Congress.

 

Stupid Party Update

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Looks like the Stupid Party is preparing to make Obama a hero this fall. The hilarious part of it is they will not just make Obama look like Lincoln they will end up giving the store away at the end. It is a familiar story. The Stupid Party looks around and sees that their base is wandering off in disgust. They think the way to get them back is to pick a pointless fight with the other guys over the budget. They will make a bunch of noises intended to get “their side” ready for battle. It’s all a big show intended to fool the people back home.

A handful of Congressmen, who really want to reign in the blob, will be front and center making their case. The press will play it cool for a while hoping for a shutdown. Then they will pile on the hapless Stupid Party like convicts on a new inmate. After a week of beatings, Boehner will cave and give the White House a blank check. Conservative Inc. will chatter on about about the need to get more Stupid Party members in Congress and win back the White House for the SP’s. Rinse. Repeat.

I’ve been reading a lot of European history of late. One thing that always strikes me is how the nobles were able to set themselves up in power and maintain that power. They were clearly better educated and certainly in the top tier of intelligence for their respective populations. There were some blockheads springing from the royal loins, but they self-policed. If the next in line was an idiot, he would often “fell ill” in his youth and never made it to adulthood. If that did not work, then death by misadventure was an option.

Democracies are supposed to work the same way, just without the inherited positions. and cool pageantry. Even the children of pols have to stand for election. That’s the self-policing. The retarded Kennedy can be placed in a safe Congressional seat, but he is not going to be running for president. The smart ones are groomed for bigger things. Plenty slip through the net and make it to the senate or a prominent position in the Executive, but the legislature tends to be the main collection point for those who rose too high.

What explains the Stupid Party?

I have not had time to think this through, but my sense is the parties have changed since the 1980’s. The “new” economy born out of the Louvre Accords allowed the ruling class of America to sever itself from the middle class entirely. From the 1930’s through the 1980’s, the Democrat party was the home of cultural elites and the working and middle class voters. The GOP was the home of the business and financial classes along with upper middle and some middle class voters.Both parties were dominated by whites.

Today, the Democrats are the authoritarian party. They are the aristocrats. They jealously guard the interests and prerogatives of the state and the elites. There’s a reason we have gone through three major financial crisis and no one has gone to jail. There’s a reason why Wall Street gives 2-to-1 to Democrats. As has always been true of authoritarians, they gain popular support by promising the lower classes free stuff from the middle class. It is the classic top plus the bottom against the middle approach to politcs.

On the other side, the GOP has become the home of the white middle classes. They still have plenty of upper class businessmen who run the Chamber of Commerce, but those are folks decidedly not in the elite. The body shop owner is now solidly Republican, but so are most of his employees. Government, Gays, Guns and God is what unites the working class whites with the middle class whites. The GOP is now the plebeians, except they lack anyone with the skill and courage of a Gaius Licinius.

The Stupid Party not only has an IQ deficit, they also have another problem. They don’t get it. They look at the fight as just one group of loyal Americans against another group of loyal Americans. They think they can have honest dealings with the other side. In reality, the other side wants them dead. We are in a cold civil war and the establishment elites are playing to win. They are not interested in compromise. The result is the Stupid Party shows up to every fight hoping to appeal to the other side’s sense of fair play.

Smart Fraction Theory

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John Derbyshire has a bit in his weekly transmission bout Smart Fraction Theory. The argument, one that John describes well in his broadcast, is that a society needs to have a certain percentage of the population with high IQ in order to maintain the institutions necessary for a functioning society. The author of the paper argues that there is a threshold number of “smart people” described as possessing an IQ above 108. About 30% of the American population falls into that category, as of the date of the paper.

A basket case like Equatorial Guinea probably has less than 1% that fall into this category as they have an average IQ at about 60. The few truly intelligent rule over the rest in the same way the one eyed man is the king of the blind. In fact, the result of this tiny smart fraction is that the powerful few are always on the hunt for smart people who could compete with them. The result is a brain drain, where the smart either flee or risk being killed. Then there is the issue of the smart breeding with the stupid, rather than the smart.

John raises the topic in relation to Detroit. No one says it publicly, but the general belief is that when Detroit went black it was never coming back. The crime, corruption and dysfunction were baked into the cake and would follow the predictable path. Coleman Young, the first black mayor, was so openly hostile to whites that he could fairly be described as the Robert Mugabe of American politics. Like post-colonial African leaders, he combined Marxism with a hatred of white people. The results were predictable.

The conclusion many make is that since there are no majority black societies that are thriving, the cause of the problem must be IQ. Prior to the 60’s, Detroit had a majority white population who supplied the bulk of the “smart fraction” needed to carry the underclass. Once they left, the remaining black population lacked the number of smart people to carry the underclass. The result is what we see in sub-Saharan Africa. That tiny elite then began looting the city like termites. Collapse was the inevitable result.

I think that looking strictly at IQ misses a wide swath of observable facts that play a role as well. Lebanon is not exactly brimming with geniuses. If not for outside intervention by Israel and Syria, it would be a peaceful and prosperous land, by the standards of the Arab world. It would not be a rich country, but it would not be Detroit either. West Virginia is brimming with pinheads, yet manages to avoid the pathologies we see in Detroit and other black cities. Culture can and does provide a structure within which people make choices.

Much of what plagues sub-Saharan Africa is anti-colonialism. The ruling elite that replaced the Europeans rulers were motivated by what turned out to be an insane desire to scrub away the stain of colonialism. That led to doing the opposite of what made sense in many cases. Killing the white farmers in Mozambique resulted in the exodus of all whites, along with their wealth and expertise.  Robert Mugabe eventually went down the same path and Zimbabwe is now one of the poorest nations in the world. Negative identity is death.

Detroit went through a similar process. The same is true of many cities, particularly those in the north. Blacks had moved from the Old Confederacy to the north for factory and service jobs. Whites found a way to segregate without resorting to the same tactics of the South. Eventually, blacks figured out that the anti-racism of Northern whites was just a pose so they could pretend to be the moral superiors of Southern whites.The bitterness of blacks who came along in the 50’s, 60’s and 70’s is due in large part to the realization.

That’s the big question raised by the Detroit bankruptcy. We’ll probably never have a public debate on IQ. We can have a public debate on culture. The Left’s desire to nurse black hatred of whites cannot hold up if every majority black city in the nations is falling into bankruptcy. Even a few is enough to get the attention of the public. The fact that race relations appear to be getting worse, despite the election of Obama twice, says the gap between public debate and on-the-ground reality is getting big. That can’t last forever.

The Perils of Debt

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Detroit did not just happen. Over decades, politicians, unions heads, business leaders and state officials conspired to perpetrate a fraud on the public. When they sat down with the unions and promised pension benefits, they knew they could never hold up their end of the bargain. The union bosses knew it too. The same people also knew the GO bonds were never going to be repaid. That’s a fraud on the bond holders and the tax payers.

Detroit highlights another problem, one that is going to bring the nation to its knees. That’s the problem of public debt. For most of human history, government was subject to the same market forces as everyone else. When they borrowed, they did so at a rate set by lenders. They were also constrained by the types of debt available. The government could finance a bridge by pledging the tolls as collateral. They could borrow without pledging collateral, but those rates were higher as bond holders factored in risk.

Many states forbid high interest borrowing schemes by state and local government, for the obvious reason. Now, one way the government could get money without raising taxes was to inflate the currency and that only applied to national governments. With hard money, this was very difficult to do for obvious reasons, but not impossible. The Romans slowly debased their currency throughout the period of empire. The Habsburgs largely financed the Thirty Years War this way. This is just taxing people by deception.

Today, governments have many new ways to borrow money to buy votes. Pensions are a promise to pay tomorrow for services today. This allows the politicians to buy votes, the service today, and leave someone else with the bill. General Obligation Bonds are another way to get around the problem. They borrow to finance community programs and the associated patronage jobs. To make matters worse, the government only pays interest until maturity. When a bond matures, the bond holder gets their principal.

In all cases, the government issues new bonds to pay old bond holders, thus rolling over debt without ever paying it down. This disguises the problem further, which makes it grow bigger and faster. If the employees knew twenty years ago that their pensions were at risk, they would have made different decisions. That’s the point of promising to pay tomorrow for the hamburger today. The assumption is the other side of the deal is unable to assess the long term risk. They can’t know that the next politician will default.

Detroit finally reached a point where it could no longer pay interest on the debt and operate basic services. Most of the states in this country are on the same path. If interest rates revert to historic norms, states like Illinois will be bankrupt. The Federal government would add another $400 billion a year in debt payments. If you believe government will reform and avoid this catastrophe you have not been paying attention. If you think interest rates will remain near zero forever, you should seek professional help.

The math of public debt is stark. Most pension funds are seriously underfunded and many states have actually borrowed against their pension assets. At some point, the inevitable will happen and we will see a public debt crisis. Given that public debt is now the basis of world currencies, a public debt crisis threatens the world as we know it. Maybe it works itself out in time, but that is not the way to bet. Decades from now, people will look back at this age and curse the people who decided to let the debt pile up.

 

The Drawbridge Effect

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The drawbridge effect is a phenomenon often noted by bad thinkers. That’s where a group of over-class types gentrify a formerly beaten down area. Once it gets going, they begin to raise the drawbridge to keep out the hoi polloi. That usually means jacking up property taxes, layering on building regulations and limiting development. The city of Cambridge Massachusetts is a good example. Try building a house or building an apartment building in that city and you will be met with waves of regulators and community activists.

That’s why the population of Cambridge Mass is lower than it was in 1950.

We may be seeing something similar in the world of college sports. This story shows how it works. In this case, the big five conferences have hoovered up all of the good properties. They have left the undesirable properties in what they call the mid-major conferences. All of the conference commissioners have indicated two things. One is they are no longer interested in adding teams. The other thing is they now want special rules for themselves. They are, after all, the elite and being elite means not abiding by the rules

In America these days, there is one set of laws for the prols and another set for the people in charge. As we see in college sports, the people at the top lock in place a set of rules that give them the bulk of social benefits. Those same rules will spread the costs onto everyone else and make it impossible for the prols to compete. The drawbridge is the set of rules and regulations promulgated by the people in charge. Throughout America, the sound you hear is the raising of the drawbridge. What matters is which side you’re on.

Roid Rage

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Baseball is getting around to penalizing players in the last round of PED troubles. The Biogenesis scandal promises to take down 20 players using old lab records. Baseball seems determined to use this case to make an example of some guys. Banning players for 90 games is a big penalty and puts the player at risk of a permanent ban. Braun is a confirmed liar and now he has two strikes against him. Another pinch and he is gone for good. That’s the theory anyway. We’ll see if it actually happens.

The great error baseball made was agreeing to a bunch of rules and procedures that invite the lawyers into the room. They want this stuff out of the game for a some very good reasons. The press may claim fans don’t care, but the press is full of idiots. The home run blitz we saw in the last decade was getting ridiculous and would have undermined the game. Plus, someone was going to have a stroke or get seriously injured. Former players would be in TV boo-hooing about how they wrecked their bodies for those evil owners.

The way to do it was not an overly complicated process negotiated with the union. The first step was to ban all of the names in the Mitchell Report for life. Following the example of gambling 100 years ago, would most likely make cases like the one we see today unnecessary. Banning the players they knew cheated and were named in the report would have sent the same message Kenesaw Mountain Landis sent to baseball when he banned the Black Sox players for life. That would put an end to this for even the dumbest players.

What’s Wrong With The Right

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When I was a lad in the 1980’s, the Reagan Revolution was just starting and being a right-winger was the hip cool thing. Those dreary lefties with their shaggy hair and linen colors were sad reminders of what went wrong with America in the 70’s. Low taxes, reducing regulations, free trade, getting government out of the way and making money were suddenly cool. Twenty years of liberalism will do that do a nation. The disastrous results on the 60’s and 70’s meant the first step was to roll back those errors. The fact that the state was not rolled back was hidden by the economic boom of the 80’s 90’s.

Ever since, the American Right has been locked in the 1980’s. No matter the circumstance, they offer up the same solutions. It is always cut taxes, cut government and boost business. Thirty years have passed since Reagan, yet the Right has not changed their message. A good example is James Pethokoukis in this National Review piece. He blames liberalism for Detroit’s problems. He suggetsts tax cuts as the solution., believing people will risk their lives to live and work in Detroit if you give them a tax break.

The men and women who ruled over Detroit for five decades did not come from another planet. They are the product of the Detroit culture. They were elected by the people of Detroit. They promised to do what the people of Detroit wanted from their government. Further, Detroit is no more liberal than San Francisco or Portland or Boston or Cambridge. Vermont is a whole state full of liberal gay guys. None of these places suffer from anything like we see in Detroit. Heck, everyone knows why Oakland is not San Francisco.

The problem is this. White people like and support civil society. They will do what it takes to make it work, even while conducting experiments against reality. Black people like chaos and mayhem. That may seem harsh, but chaos and mayhem are the rule every black people rule, so you have to assume they like it. This is the iron rule of life. Societies are result of the people. Black people make black societies and whites make white societies. This is true in all times and all places. Economics is a result, not a cause.

Unless and until the Right figures this out, they will be chasing the sunset.

 

Tick Tock

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One of the more irritating aspects of living in a land run by a religious cult is that reality is forced into the official narrative. That which cannot fit is not just ignored, it is rejected and often ferociously. Prior to the 2012 election, as an example, the media refused to cover the erosion of the American middle class. If anyone mentioned anything about the stagnant economy they were greeted by a press wielding pitchforks and torches chanting “burn the witch!” The fact that it persists after the hero has been re-elected is more troubling.

It suggests these nuts really believe their own bullshit.

Here’s an example. China’s economy is slowing and very well may be in recession. The official number for there are always inflated or plain wrong so assuming the worst case is wise. Nitwits like Thomas Friedman will have to explain why their preferred brand of authoritarianism is suddenly not working. More important, the world will have to find a new champion to save this Potemkin world economy. Most important, we will now have to start wondering what happens to the ChiComs when their Ponzi scheme unravels. A billion pissed off Chinamen can make a helluva mess.

Then we have the on-going saga of Europe. Portugal is in trouble. We’ve seen this film and know how it ends. The main political parties suddenly join together to force through unpopular polices. They put on a show for a while, but in the end, they are simply the faces of the ruling elite. They will close ranks to defend their privileges. They force through the cuts and taxes to get the bailout. The policy fails and the people suffer. Eventually, the fringe parties start looking less fringe and the economic crisis moves to a political crisis.

In Greece, they are afraid to hold another election for fear of the communists. In Italy they fear the populists. Reality is that thing that does not go away when you stop believing in it and the reality looming over everything right now is the inherent defects of credit money and the economy built on it. Our leaders have built this amazing house of cards out of credit money. It is just a matter of time before it begins to collapse.

Death of Cable

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One of the things I think will be very interesting to watch over the next decade is the breakup of the cable monopolies. By that I mean the end of forced subsidies through the cable bill. I doubt we ever see multiple cable outfits servicing the same area. What we wil see in most areas is at least one satellite operator, a cable provider, a fiber company and a wireless company offering combinations of voice and data. TV will be offered as a part of the data package as just another internet service. Consumers will shop the providers based on their needs. Metered service will become common.

As is always the case, some areas will have several choices, while others have one or two options. A big city like New York will not have DirecTV, but Boise Idaho will not have fiber or cellular. More important, the content  will be unbundled from the pipe. Instead of paying Comcast $120 a month for TV and Internet, you will pay Comcast $50 a month and buy the content you  want from a broker or the originator.

The content providers are fighting this hammer and tong. The reason is they are currently making hundreds of billions from people who don’t want their product. Take a look at ESPN. They make $9 billion a year in revenue. Two thirds of that is from subscriber fees. Most estimates say that roughly 20% of households watch ESPN. Yet, 100% pay $8/mo to ESPN as it is part of the basic cable package. As soon as those folks get the chance to cut their bill by $70 a year, they will take it.  This Atlantic story goes into the details.

Of course, those billions coming out of cable bills into the channel operators like ESPN, Yes, NESN and FoxSportsNet will force them to change their business models. They will recoup some through other means like higher fees, but most of it will come through downsizing. Part of it means lower fees content suppliers, like sports leagues and syndication companies. It also means smaller players will have great access to customer and thus create alternative media. Live streaming will be the next big thing.