Category Archives: Politics

Obamanomics, Accelerating Change, Recession

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Economics, and specifically the economy, will be the dominant issue in the ’08 race. I believe that because I’m aware of the toxic waste keeping the economy afloat that nobody seems to want to talk about. I’m a long term optimist due to the effect of accelerating change on productivity but here is my list of facts that bode ill for ’08.

  • The housing correction is just getting started. Trillions of dollars of homeowner wealth will vanish.
  • The economy is 70% consumer spending. Home ownership is 70%.
  • Opacity of derivatives markets. Things are now so complicated that nobody really knows what sort of dysfunction lies beneath the surface.
  • Consumer indebtedness. People have been spending more than they earn for quite a while. That is not sustainable.
  • Monolines – Insurance companies that back bonds are starting to flail due to unprecedented foreclosures. If they go down ratings on munies fall and pension funds are forced to sell (bad for stocks)
  • Credit bubble which we’ve been blowing for 20+ years is about to pop and if you believe Hayek/Mises things are about to get ugly. This explains the housing bubble and current credit squeeze.
  • Government spending (state and local is 10% of the economy) is going to fall as tax revenues fall in a recession.
  • Commercial real estate is starting to fall. This was a bright spot until recently.
  • Even if the Fed can bail out financial markets it will do so using inflation (hence my preference for gold). Higher prices mean less discretionary spending which bodes ill for the economy.
  • Recessions are a natural part of the business cycle and we’re way overdue
  • Home equity lines of credit and loans are evaporating
  • Credit card delinquencies are rising.
  • I could go on but you get the picture

I’m going to predict an Obama victory for the sake of argument. Here is his problem: We’re probably going to be in an unusually nasty recession when he’s being inaugurated next year and presidential approval ratings are roughly equal to consumer sentiment. Of course the president doesn’t have much of an effect on business (credit?) cycles in a $14 Trillion economy but that is the way the cookie crumbles.

Obama is probably going to make the economy a huge part of his campaign as the economy slides which will give Americans hope that everything will be puppies and roses as soon as he takes the helm of this rusty ship. Assuming this isn’t a repeat of the ’70s (or, dare I say it, 30s) we should be well on the road to recovery which bodes well for a 2nd Obama term, all things equal.

Optimism:
I said that I’m an optimist due to the effect of accelerating change on productivity. Accelerating change is a branch of future studies that nobody is really looking at in terms of economics yet. Kurzweil has a good chapter on it but it deserves a entire book. My take is that accelerating change will start to seriously ramp up productivity. The problem is that we don’t have the ability to train workers fast enough to take advantage of what should be a wealth boom for more than just the privileged few. The growing wealth divide is currently blamed on tax cuts. That may be the case but I think it is also due to the accelerating economic changes we’re witnessing due to the internet and off shore outsourcing.

Gold:
Nearly every time we see a sell off in the markets (DOW is off 2% as I write this) Gold goes down with it. But gold seems to go down about half as much as equities, the assumption is that the smaller decline is due to the belief that the Fed is now cutting rates (using inflation) to prop up the stock market and maybe because it’s a destination in a flight to safety.

Asia Times has a good multi-part series on the inflation/deflation debate here. They’re in the hyperinflation camp. For the deflationary angle check out this post from Mish at Global Economic Analysis.


Image by Big-E-Mr-G.

Thoughts on Iowa

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Republicans:
Giuliani – This looks like a death sentence. Even Ron Paul beat him.
Huckabee – Massive support from evangelicals probably won’t work outside of Iowa. Skeletons congregating in his closet.
Romney – Considering the amount of money he spent he should have done much better. But his good hair could be the difference.
McCain – He’s going to have another meltdown, too unpredictable to make a good nominee.
Thompson – He could possibly win if his heart was in it. Feels like he’s doing this as a favor for a friend.
Paul – Beat Giuliani, 4% out of 3rd behind a weak 1 & 2. Could do better in New Hampshire, a libertarian friendly state.

Democrats:
Obama – Smart, personable, represents change. Would have good advisers. Untested.
Edwards – Anti-establishment populist, hair is a little too well groomed. Obama beats him unless he slips up.
Clinton – Change is the theme of ’08. Clinton represents anything but change. Smart but Obama tends to out debate her.


Prediction for New Hampshire:
Romney, Huckabee, McCain, Paul, Thompson
Obama, Edwards, Clinton

Photo by pete etchells on Flickr

Chomsky’s Bias – Capitalism, Media, and Democracy

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I can sum up the point of this whole post in one sentence. If real democracy cannot exist without a free press then real capitalism cannot exist without the Internet.

A few years ago I paid $10 for access to an online discussion board frequented by Noam Chomsky and I asked him a question. “How has the Internet affected your understanding of the media?” His response was “I’m an innocent as far as the internet is concerned. I don’t even know what blogger.com is. Better raise the question with others.”

I haven’t tried to understand his work in linguistics but I think his analysis of the media is brilliant. He is a mesmerizing speaker but I was always disturbed by his notion that capitalism is fundamentally flawed. In “Manufacturing Consent” he talks about a requirement of rational central planning as an alternative to the evils of capitalism.

Here’s what I think was going through his head. He buried himself in the study of media and realized the disastrous consequences of communication monopolies when applied to democracy. Those media monopolies were allowed by capitalism which may explain his fear and loathing. And he was absolutely right at that time. His mistake was failing to predict how fast the Internet would break down the system as it existed when he wrote “Manufacturing Consent”. You get the sense that he assumes alternative media will always be crushed due to the inefficiencies and corruption associated with capitalism. Howard Dean and Ron Paul are living proof that the Internet is starting to allow the spread of previously taboo political beliefs.

Chomsky gets communication. He doesn’t get technology (as evidenced by his reply to my question) and based on his insistence upon “rational central planning” as a way forward it looks like he also doesn’t really understand economics or at least the power of emergent order, which is a bit strange considering his love of democracy. My plan is to bump into him some day so I can ask these questions.

The Happy Bear

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Optimists underestimate the strength of the economy outside housing, according to Richard Berner, chief U.S. economist at Morgan Stanley in New York, the world’s second- largest securities firm by market value behind Goldman Sachs Group Inc.

I was reading my old blog and it looks like I’ve been worried about housing since 2004. The magnitude of the problem surrounding crazy loans, hedge funds, CDOs, etc. had me convinced of some imminent disaster. That the economy is hanging on even as we spend billions of dollars a month on war while mortgage equity withdrawl has dried up didn’t make a lot of sense to me.

The unemployment numbers are near record lows even as 70% of the country thinks we’re headed in the wrong direction. My brain was stuck with this unhappy conundrum until I assembled the following theory:

PCs saw a 10 year lag before people figured out to do with them and squeezed out productivity in the 90s. Now that we’ve figured out PCs we’re smack in the middle of another, probably bigger, revolution as people figure out what to do with their PCs on the Internet. Farmers probably weren’t happy about losing their jobs to the steam engine but they moved to cities and eventually their quality of life improved. Realtors and those displaced by automation are probably looking at the same fate. As soon as they lose their jobs they find plenty more waiting to be occupied.

So people fear change but change is ultimately good for the economy and therefore people. The only question is whether more productivity leads to a growing wealth divide which could tragically lead to Lou Dobbs micro-managing the economy from Washington.

Or maybe I’m just impatient and that’s leaking economic engine oil the bear is looking at.

Photo is called Sweets for the Sweet

Ron Paul Thoughts, New Job

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My new job doesn’t have defined hours. When I’m not working I feel guilty so time has been short lately. Lots to write about though. Ron Paul is kicking some butt in terms of fund raising and online support. The CNN Political Ticker wrote briefly about the Ron Paul Phenomenon. The story prompted 1,349 comments from Ron Paul supporters concerned about mainstream/mass media bias. I’ve never seen anything like it.

I’ve been following Ron Paul for over a year and generally agree with his points, certainly more than any other candidate, but he seems to lack a bigger picture view the world. EDIT: I was wrong. A reader pointed out her take on this subject in the comments. For example, were the gold standard to be adopted today the economy would probably collapse in a deflationary spiral. Austrian economics looks to be spot on but the global economy isn’t a blank slate. I’d like to hear how he’d manage a transition to a gold standard without causing economic mayhem.

About my new job. Artificial Intelligence Fellowship. No doubt the weirdest job title I’ll ever have, should prompt some guffaws if I put it on my resume. When I’m not writing code I try to stay up to date on the changes taking place in the media and journalism arenas. Two great articles here and here. The newspaper is dying and my project is the blue toothed vulture hovering overhead. You can learn a lot about a country from that vantage point.

I went to Cal Tech and interviewed a handful of potential interns. Their career center gave us free hand-cranked flash lights and were incredibly helpful. A quote from one of the interviewee’s resumes under publications: “Decomposition-based Optimization Algorithm for Parallel Machine Scheduling Problem”. Needless to say I stuck to the less technical interview questions.

The image is called “Road To Heaven” by FD on Flickr

Mike Gravel(D) and Ron Paul(R) for President and VP

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Mike Gravel, a Democratic Senator from Alaska, is getting a lot of press for his blasphemous comments at the Democratic debate:

Ron Paul, Republican congressman from Texas, has eerily similar views. From Realtime with Bill Maher:

It would seem that these two would make a good combination in a run for the White House. If you’re a long-shot candidate ignored by a media trained on amplifying and exploiting political differences then maybe something crazy just might resonate with the despondent American media consumer. As Jon Stewart said “Why do we have to fight?”

The photo is called Bella the Cat by NiteLynx on Flickr

Emergence, Economics, Psychology

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I’m not sure if it’s a character flaw, looking for big but simple ideas and hoping emergence will arrange them and spit out present or future reality. Maybe I have a thing for Occam’s Razor

“The principle states that the explanation of any phenomenon should make as few assumptions as possible, eliminating, or “shaving off”, those that make no difference in the observable predictions of the explanatory hypothesis or theory.”

It’s one of those things I’ve noticed working back from my love of technology, people, and economics. Economics lead me to Hayek who said about governing

“…it is the individualist who recognizes the limitations of the powers of individual reason and consequently advocates freedom as a means for the fullest development of the powers of the interindividual process.“

Or Tolstoy on intuition

“Reasoning led him into doubt and kept him from seeing what he should and should not do. Yet when he did not think, but lived, he constantly felt in his soul the presence of an infallible judge who decided which of two possible actions was better and which was worse; and whenever he did not act as he should, he felt it at once.”

Or Po Brosnon on child rearing:

“When we praise children for their intelligence,” Dweck wrote in her study summary, “we tell them that this is the name of the game: Look smart, don’t risk making mistakes.” And that’s what the fifth-graders had done: They’d chosen to look smart and avoid the risk of being embarrassed.”

Or Edsger Wybe Dijkstra on Software

“The competent programmer is fully aware of the limited size of his own skull. He therefore approaches his task with full humility, and avoids clever tricks like the plague.”

What’s more complicated – the brain, or a few hundred million of them operating in a democracy? Is it a matter of scale? Let’s assume communism fails but psychoanalysis works. So emergence only works on a societal level meaning our brains aren’t the result of emergent order. I have a hard time buying that. Which is probably why I’m not a big believer in therapy unless you’ve run out of people to talk to.

Photo Uploaded on April 16, 2006 by lukecanvin

The Rise of the Benevolent Dictators, Davos, and the Federal Reserve

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Davos is the annual meeting of the most powerful people in the world. It’s sort of a post-polytheistic Mount Olympus. From Wikipedia:

“According to its supporters, the World Economic Forum is an ideal place for dialogue and debate regarding the major social and economic problems of the planet, since representatives of both the most powerful economic organisations and the most powerful political organisations are present, since intellectuals also participate, and since there is a generally informal atmosphere encouraging wide-ranging debate.”

Interestingly, but probably not surprisingly, the economic consensus seems fairly optimistic.

“Executive Director Stephen Lussier told Reuters in Davos that demand for diamond jewelry around the world was strong over the critical Christmas period and that growth in the United States, where the economy is supposed to be slowing, was around five percent.”

Because the best way to judge the strength of the middle and lower class is diamond sales.

And from the Detroit Free Press:

“Home foreclosure filings surged to record levels across metro Detroit in 2006. In Macomb County, the number of foreclosure filings nearly tripled, from 2,755 in 2005 to 8,192 last year, translating to one home for every 39 in the county.”

“In Oakland County, Michigan’s wealthiest county, the number jumped from 3,754 in 2005 to 7,282, meaning one of every 68 homes. In Wayne County, the number of filings more than doubled, from 18,176 to 40,220, translating to one of every 21 homes.”

“Oakland County’s number translates into an average of more than 100 homes per week going to auction, the largest number county officials ever have seen and more than twice the number in 2004.”

Who are you going to believe? Blood diamond sales representative or the foreclosure numbers?

The question is whether the powerful are also optimistic about the prospects for the poor. I assume yes because if you can’t keep the poor happy then Democracy doesn’t work. So you have two options.

A:> Dictatorship. This would piss off the poor to no end.
B:> Benevolent Dictatorship disguised as a Democracy.

Option A is a non-starter. B on the other hand would be set up to prevent the populace from car-jacking democracy in an attempt to reduce the liberties of others due to religious beliefs or greed. With a growing wealth divide resulting from the exponential growth of technology (job killing ATMs) the problem is going to get worse. Try explaining Austrian Economic theory to the average Joe who just wants a car as nice as his neighbor. It doesn’t work. But 30 year+ mortgages and increasing, job killing productivity growth are mutually exclusive.

So what does the Federal Reserve do then? Money printing sure. But if you know how the timing of inflation works then it appears to be a wealth transfer from the poor to the rich. Regressive taxation to offset our progressive tax bracketry. The rich give a lot more money to the poor than the middle class so if the middle class dies off quicker they don’t mind. The rich are going to do a better job taking care of the poor than the needy middle class or the incompetent government, and that should make everybody happy.

Rifkin’s The end of Work is probably correct, he’s just not taking into account the fact that technology is going to make boredom obsolete.

The Next Goldwater? A Reason to Vote?

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The lone Libertarian in congress is considering a run for president in ’08. Ron Paul, a Perot-esque man with two first names, is one of a handful in congress who actually knows how the Federal Reserve works. From the NYTimes

Paul is well-known on Capitol Hill for his frequent lone “no” votes on many spending bills and other legislation, much of which wins overwhelming support among both Republicans and Democrats alike.

This a voting pattern that has earned the obstetrician-turned-politician the nickname of “Dr. No.” Paul explains that he votes only for measures he views as specifically authorized by the Constitution.

In 2006, Paul voted against the Bush administration’s stated position 64 percent of the time, more than any House Republican. His highest-profile departure from President Bush is on the Iraq war, which the congressman vigorously opposes.

In 2002, Paul was among just six House Republicans who voted against giving Bush authority to wage war in Iraq. Paul opposed the resolution for numerous reasons — including his position that it was an unconstitutional transfer, from Congress to the executive branch, of the power to declare war.

That’s right, Dr. No is an OB-GYN. And just for a sense of contrast here is Bush’s only quote I could find about OB-GYNs.

“Too many OB-GYNs aren’t able to practice their love with women all across this country”

You can read more about Ron Paul at his Wikipedia article.

The Bigger Picture

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Psychology, media, technology, economics. It occured to me that everything I write about revolves around those four ideas. And that the world basically lives in two camps. Those that think we’re collectively smart enough to manage ourselves through a democracy, and those who think power needs to be wrestled from the hands of short-sited voters who will destroy the environment and economy if left to their own devices.

You also have the more defined idea of emergence: From Wikipedia:

Emergence is the process of complex pattern formation from more basic constituent parts or behaviors, and manifests itself as an emergent property of the relationships between those elements.

Some examples are free market pricing, evolution, and in the case of Democracies, Law. Evolution requires DNA, pricing requires educated consumers, and democracies require informed voters. When consumers aren’t informed about what they’re buying you get scams and economic crises. Option adjustable rate mortgages are an example of consumers doing themselves harm due to a lack of knowledge about money. When voters don’t know what they’re voting for they get politicians acting recklessly in an attempt to stay in power.

Without DNA, knowledge of economics or knowledge of products you will not get emergent order in the form of life, liberty or the pursuit of happiness(property). I guess I should define knowledge as understanding combined with selflessness. You had a problem with slave owners who knew that what they were doing was wrong but continued because they were comfortable with the status quo.

Joeseph Schumpeter commented on the problem with a lack of knowledge when applied to democracies:

“There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism will collapse from within as democratic majorities will vote themselves the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure.”

As did Bastiat in “The Law”

“According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it. Woe to the nation when this latter purpose prevails among the mass victims of plunder when they, in turn, seize the power to make laws!”

Bastiat says we’re screwed if we choose Socialism and Schumpeter argues that Socialism is inevitable in a Democracy.

Brain is giving out. Still haven’t covered accelerating change, emergent price and leadership, globalization, tech-deflation + fiat currency, asset bubbles, or why those supposedly in control would let Iraq happen. To be continued…