Honduras WTF?

I thought Obama's initial equivocation on the Iranian elections and their discontents was at least plausibly grounded in a sort of skeptical realpolitik. We Americans have a pathological tendency to think of the world as divided into "Americans" and "People Who Remind Us of Our Neighbors From Whereverstan Who Are Just Like Us, Really," and this is often reflected by a foreign policy that is one part naivete and one part we-are-so-rich-and-powerful-that-you-have-no-choice-but-to-overlook-our-stupidity. So while I tend to think that a more robust response to the mullahs might have worked out well, I sympathize with those who felt differently.

But I am completely baffled by his reponse to the Honduras crisis, which shares virtually none of the elements that make Iran such a minefield. We have a would-be president-for-life defying the very term limits erected to prevent such a thing, being removed by a military acting in obedience to the country's legislature and supreme court, both of which are at least as democratically legitimate as the Presidency. Not only does Obama not equivocate, he sides with the President who is making a mockery of the rule of law.

Between Iran, Iraq, the financial crisis, and the global warming tax and health care spending bills, I suspect Obama's position on Honduras is 1% Barack and 99% unnamed administration official. Our southern compadres are also justly-famed for military coups, so perhaps he is taking a default position with little regard for the confounding factors on the ground. So heads, he is supporting a Chavez acolyte out of hard-left solidarity, tails he's a blundering ignoramus. Which explanation would you prefer?

Burned by Bernie

With Bernard Madoff's sentencing we are again being treated to the gnashing of teeth and rending of garments of victims who lost everything to his scam. While Madoff richly deserves to die in prison, I wish the intrepid media would dare to dig a little deeper into what some of these people were thinking. I think it would be instructive--not to generate sympathy for an evil thief--but to remind people that it does not require a genius-level intellect to make sound financial choices.

To be fair, among the 8,000 estimated victims one will find elderly widows and the occasional guileless charity case, but the vast majority of Madoff's investors were sentient adults. "Diversify" is not exactly difficult investment advice, especially to the multi-millionaires who comprised the vast majority of his personal clients. While none of them deserved to lose everything, most were voluntary if unwitting accomplices to their ruin.

Why would a person with several millions of dollars, nearing or past the end of their earning years, not choose to sock away a sizable chunk of that in savings bonds, Treasuries, or other such maximum-safety assets? Greed, enabled by hubris, provides the answer. Greed causes a person to put everything they have in a bucket that pays 10-15% interest rather than splitting it into another bucket that pays 3% or so but truly has no risk. Hubris, to think that you had discovered the fountain of financial youth, allowed people to transform their greed into wisdom. Average schlubs had to invest in the markets where you could lose 30% at any time, but you "knew people" and so could safely rack up better returns year after year.

This is all true even if we elide a point that is only slightly more subtle and yet far more profound--that economic theory and history alike effectively disprove the existence of riskless assets that pay greater returns than T-bills. This is only a marginally more complex restatement of the old "if it sounds too good to be true" rule, but it was enough to convince many investors that Madoff was up to something fishy. Particularly in the cases of larger investors (such as my alma mater, which counts more than one billionaire among its alumni and lost $20 million), the willingness to overlook this seems almost pathological. Far from being "sold," more than a few of these institutional players paid fees to middlemen for the right to be robbed blind. Their share of any monies recovered deserves to be infinitesimal.

It is popular in some quarters to regard the financial markets as little more than a casino without the cocktail waitresses, so stories of shirt-losing play easily into the narrative. While it is true that outcomes will be unequal, they are almost never irrational. While I will refrain from ascribing deliberate intent, presenting the tale of Madoff's victims as blameless militates for the notion that true financial security can come only from the government, which reserves for the crown the right to operate the very type of scheme for which Bernard Madoff will spend the rest of his life in jail.

Localtarianism vs. Economic Vitality

What begins sensibly (eat less red meat and more leafy vegetables) invariably proceeds to dogma (vegetarianism) and completes the circle as farce (raw veganism). Likewise, what began as a way to get higher-quality seasonal produce (urban farmer's markets) have served as a gateway drug to a much broader buying-local-is-better religion rapidly gaining popularity for its perceived benefits for both the global environment and the local economy.

But is it really? Folk economics tells us that it's better to buy something in our town than to buy it from the next town, state, or country over. This feels right because when a Walgreens opens up 5 miles away and our little neighborhood pharmacist decides it's time to retire, we feel a certain loss of community and personal service. While there are countervailing benefits (such as 24-hour stores and reduced prescription drug costs), the negative effects can be concentrated in certain areas. If you happen to be the sort of person who believes main street business districts are essentially important, then you may finally arrive at the conclusion that anyone who chooses to buy something from Home Depot rather than the local Ace Hardware is a cretin.

But this sort of thinking scales up very badly. The money which leaves a community when a better drugstore opens up the next town over can return when one of your superior local businesses draws customers from that town. Perhaps the most dramatic illustration of the benefits of distant trade came over a thousand years ago when the Roman Empire went into terminal decline:

In the Dark Ages that followed, cities shrank, markets atrophied, merchants disappeared, literacy declined and--crudely speaking--once Goth, Hun and Vandal plundering had run its course, everybody had to go back to being self-sufficient again...The Dark Ages were a massive experiment in the back-to-the-land hippy lifestyle (without the trust fund): you ground your own corn, sheared your own sheep, cured your own leather, and cut your own wood.

This, mind you, is in a time when modern industrial scale and technology were not even dreamed of. A small Roman city, if cut off from the world, would probably contain within its borders the means of producing some sizable proportion of the food, clothing, and shelter needed to survive. The mobile phone in my pocket, by comparison, is the product of knowledge, labor, and raw materials drawn from every corner of the globe.

And it's not just fancy electronics, either. The 100-Mile Suit project was a fascinating exercise in which a bunch of artist/crafter/Williamsburg hipster types decided to make a men's suit entirely out of materials and labor sourced within 100 miles of Philadelphia. The end result is fascinating as a commentary on the modern global supply chain, but I wouldn't want to wear the end result. In the end, farmer's markets succeed primarily because the tomatoes taste better than the ones in the Piggly Wiggly, at least during those months of the year when such things grow in New Engand.

Apres Nous, le Deluge

I suspect many will say that the Times's engagement of Goldman to shop the Globe is just a stalking horse--far worse ideas have been hatched*--but many will also be thinking wishfully.

No one at present seriously believes the Times will go out of business, but the real ball in this game is whether the Sulzberger family stays in control. Their preferred share structure guaranteed them control of the Board, but the Board is fading along with the Times's cash. Instead, the key question is whether they can raise enough cash to keep the ball rolling until things improve. To do so they will have no choice but to submit their good intentions to the judgment of bankers with less interest in the social standing of the Sulzberger family.

If they fail, a cash crisis in the next 12-18 months is not merely conceivable, but very possible.

I am sure that the Sulzberger family does not relish the thought of being the Globe's executioner, or the ones who sold the horse to the glue factory. But let's look at history here--when Neville Chamberlain traded Czechoslovakia to Hitler, Churchill called him a coward, but not many years later he traded it all to a bastard nearly as bad not to save the whole British Empire, but to secure the English Isles. Besides, if the Globe were to fade into little more than a glorified version of the Metro, which paper would their loyal readers switch their allegiance to?

* Imprimis, the Times's rejection of Jack Welch & co.'s circa-$500m bid to buy the paper in 2006, which, had they done it, would now be

How 'Bout That Boston Globe?

Last week my head of marketing told me that her husband was passing through the Detroit airport as GM announced its filing for bankruptcy, and he told her it was reminiscent of 9/11 and the Challenger disaster: people glued to televisions, quiet sobbing, general feelings of shock and disbelief, etc. But how? To those of us less emotionally-invested in this long-flailing behemoth, its death came as about as much of a surprise as, say, the arrival of Thanksgiving in late November.

The same can be said with increasing intensity about the newspaper business, a fact which seems to have eluded roughly 277 of the Guild members who voted against the cost-cutting concessions proposed by the Times company. We live in what are fortean times across much of the board (save for government, which toddles on like an obese vacationer at an Orlando buffet), and few corners of business are more apocalyptic than newspapers. They will not soon improve.

Those who sit at their desks off of Morrissey Boulevard and cannot imagine the Times company making the decision to close or otherwise divest themselves of the Globe should consider LSD, or other imagination-enhancing substances. Should they decide to sell it off, in this market the top bids will likely come from search-engine optimization firms and spam-blog advertising companies eager to leach off the traffic of a century of content.

My advice, to those who still wish to make a career in this business, is to go get a job with a publication owned by Rupert Murdoch. If you ask him what the fundamental purpose of the News corporation is, I would bet a Benjamin that he'd say "to make money." That is the sort of general you want to follow into battle.

Ceci n'est pas une plan

President Obama says,

We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.

...

So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don't reduce long-term health care inflation substantially, we can't get control of the deficit.

So in other words, Medicare is broken and will bankrupt us, therefore we must expand Medicare-type programs to cover a lot more people. This reminds me of the old joke about the basketball player who asks his coach, "Why is the basketball round?" The coach answers, "You have actually asked two questions. The first is, 'Why?' The great philosophers of the world have been unable to answer this question, so I can't help you. The second question you've asked is, 'Is the basketball round?' The answer to this is 'Yes.'"

I am going to go out on a limb here and venture a prediction that serious healthcare reform will not happen before the 2010 elections. There is simply no politically-acceptable way to pay for it, and after trillions of dollars shoveled into "stimulus" and bailouts, the public's appetite for deficit spending is going to bottom out.

Liar Liar Pants On Fire

Fast food restaurants know that government regulations relating to obesity will probably hurt them all, but given sufficient time to think, Taco Bell and Subway would eventually conclude that a ban on hamburgers was in the national interest. Likewise it should come as no surprise that Jeff Immelt, the CEO of GE, likes the idea of Cap-and-Trade:

"I think the science, as a CEO I’m not an environmentalist – just purely as a CEO that has to make a payroll – things like that," Immelt continued. "The science is compelling, so it’s a question of when and not if there’s going to be something done on carbon. Give us some certainty and let’s go."

What is compelling to Immelt is that the number one effect of CO2 regulation will be to force the shutdown of billions of dollars of coal and oil-fired power plants and the construction of billions of dollars of new facilities. Large industrial power consumers will also likely be forced to undertake new "green" investments to remain viable. Whatever the Democrats' anti-wealth agenda takes away from Immelt & co. personally will be paid back a dozen times over when the force of law creates large new markets for GE's products.

Picking up the thread from my previous post, there is a great misconception that Big Business is somehow uniquely aligned with the GOP. If the Republican Party is at all the party of business, it is the party of small businesses, on whose shoulders the weight of government bears hardest.

This is a prime example of what economist Arnold Kling calls "progressive corporatism," which is a taut way of saying that big business quickly finds accomodation with big government. The way I think of it, they are like two teenagers who fight over which one gets the car on Friday night, while both agreeing that paying for gas is the least their parents could do.