Titles

4-20-2002

The Journal Retires Its Dartboard
In 1988, the Wall Street Journal began an experiment.  It asked staffers to throw darts at a list of stocks, and then kept track of the results of the "portfolio" thus randomly created, over the following six month period.  It subsequently compared those results with the results obtained by a portfolio prepared by expert stock analysts.  Over the subsequent fourteen years, there have been lots of new dart portfolios selected, and lots of new expert panels, creating the respectable alternative.  The expert-versus-dartboard comparisons have been a monthly staple for readers of the Journal.

This week, the Wall Street Journal announced that it is retiring its dartboard, and it tabulated over-all results. The darts managed an average annual return of 7%.  The experts won, getting a return of 11.2%.   So there might be some value to stock-selection expertise after all. 

It was a fascinating experiment, suggested by a book that Dr. Burton Malkiel wrote in 1973, where he defended the efficient capital markets hypothesis.  Said Malkiel, "Taken to its logical extreme, this means that a blindfolded monkey throwing darts could select a portfolio that would do just as well as one carefully selected by the experts."  Probably for workplace-safety reasons, the WSJ never actually employed monkeys or blindfolds, but they did allow Malkiel himself to throw out the ceremonial first dart.

Does this mean the efficient capital markets hypothesis has been disproven?  Not really: the experiment would be more persuasive if it had been kept silent over the 14 year period.  Dr. Malkiel himself suggested this week that there might have been a "publicity effect."  The WSJ has all along publicized the two sets of portfolios, and the news may have persuaded some investors to get on board with the stocks selected by the experts, making the superiority of those portfolios a self-fulfilling prophecy.  Another important advocate of ECMH, John C. Bogle, is also unimpressed.  He told the Journal he won't change his own investing practices, because trading costs weren't reflected in the results.

What is the ECMH?  It is the view that liquid and transparent markets tend to price in all available information about the prospects of alternative investments very quickly.  In other words, if there is any bad news about General Motors available in the press today, the price of GM stock probably reflects that news before I have a chance to sell it.  If there is any good news, the price likewise reflects that before I have a chance to buy it.  In this sense, the market knows more than any participant can ever know, so it's futile for any player to try to outguess the whole.  From the point of view of any one player, then, the price moves must appear to be a "random walk."  That is the reasoning that led Malkiel to his famous thought experiment about blind monkeys.

Necessary caveats aside, we think the editors of the Wall Street Journal gave the theory a pretty fair test and proved something important.  The market is not quite as smart as the "logical extreme" of ECMH thinks.  The market, then, can be outsmarted.  In a sense, this is a polemical setback for anarcho-capitalists.  The ECMH fits our world view rather nicely, after all.  But we might best accommodate this setback by thinking of ECMH as a goal, rather than an existing reality.  We can congratulate the markets on the degree to which they are efficient.  (Bogle has proven this, over the years, with his passive-investing index funds.  He has shown that by allowing his clients to invest in the market as a whole, through Vanguard, they can do as well as can the clients of any more active analysts, because in real-world contexts, trading costs and tax inefficiencies eat up whatever out-smarting of the market actually takes place.)

We can congratulate the markets on the degree of efficiency they have achieved, congratulate Bogle on taking advantage of that efficiency, and constantly make the point that the market is a heck of a lot efficient in distributing risk capital, taking account both of opportunities and of risks in the process, than any central planners ever could be or ever have been.  Experiments have been run on that point too, and the rubble that is now eastern Europe proves as much.

4-13-2002

The Obscene Salaries of Corporate CEOs
One of the favorite themes of left-wing denunciations of capitalism these days is that the chief executive officers of major corporations make way too much money, rock star money, home run slugger money.  Yet the CEOs can't play the guitar or hit balls out of the park with any regularity, so their compensation (more so than that of those other examples, it appears) must prove that they're robbing from the folks on the factory floor, the people at the bottom of their organizational flow charts.

There is much that defenders of capitalism ought to, and do, say in response to such critiques.  Since this is The Pragmatist, we are uniquely qualified to discuss such an issue while getting past the usual clichès of point and counterpoint, and we propose to do so with the help of a topical hook.   This week a major consultancy firm, William M. Mercer Inc. released its annual survey of executive compensation.  CEOs of the top 350 corporations headquartered in the United States saw their combined compensation (salary combined with bonuses) shrink, for the first time in more than a decade.

Obviously, this doesn't meant that CEOs are now hard up for cab fare.  It means, though, that Charles Gifford, the chief executive of FleetBoston Financial, got the same salary in 2001 he received in 2000 ($992,200) and his bonus was cut in half ($4.5 million in 2000, $2.25 million in 2001).  It means that John Chambers, the CEO of Cisco Systems, who received a $1 million bonus in 2000, received no bonus in 2001, and that his salary was cut (from $323,000 to $268,000).  There are many other such examples, but those two will suffice.

Who cares?  We do.  The reductions illustrate a point.  The Giffords' and Chambers' of the world have received a cut in the return they can command in the marketplace for corporate managers, because supply and demand conditions have changed.  Supply and demand: here as everywhere.  Its an old point, but worth hammering home.  The salaries of executives aren't free balloons drifting ever upward as the interlocking directorates do each other favors.  These salaries are just equilibrium points on the charts where supply and demand curves intersect.  Gifford, for example, became less valuable, in the eyes of his board, because FleetBoston found itself holding a lot of Argentine bonds when that government defaulted.

This brings us to another, and extremely important, point.  What is it that the CEOs of major corporations today bring to the table?  What is the analog to home runs or the skilled use of a guitar?  For the most part, we believe that CEOs are compensated for their connections.  It is, literally, not what they know but who they know (in the public sector) that counts.  This is the age of crony capitalism regnant around the globe, and the most highly paid corporate officers are the ones who are tightest with the better placed government officials.  It is in precisely this respect that Gifford failed his board.

We can hear the directors grousing, (or we can produce a quite plausible though imaginary scenario) now.  "If he had been in tight with the International Monetary Fund, they would have produced another bail out package and we'd still be getting dough from Argentina.  Or if he had been in close touch with friends in that country's cabinet, he would've seen this coming and we would have sold those bonds in time to cut our losses."  We should let our anti-capitalist friends know that if they really want to reduce CEO compensation, their foe is not the reality of capitalism, but its parody, crony capitalism.   If nobody cared any more about home runs, then Barry Bonds' income level would sustain a substantial drop, would it not?  Likewise, in an anarcho-capitalistic world, nobody would care anymore who a prospective executive's friends are.  The board would care what he knew about the managerial duties he'd be about to assume.  They'd pay him for his skills, not for his friends, real or fancied.   The shape of the bell curves for incomes would be immediately affected.

The causes of liberty and of equality, rightly understood, are not at odds.  They are the same cause.  The common foe of both of those values is privilege, which only survives when it is supported by sovereignty, directly or indirectly.

4-06-2002 

Dressing Up Creationism as Science
There are many points of view whence libertarians may (and do) view ongoing controversies over the teaching of evolution, especially the question of equal time for creationism in public schools.  We generally begin by expressing our skepticism about public schools altogether. That said, though, we at The Pragmatist propose just this once to say a few words about the scientific substance beneath such controversies.

"Anyone who writes about 'Darwin's theory of evolution' in the singular, without segregating the theories of gradual evolution, common descent, speciation, and the mechanism of natural selection, will be quite unable to discuss the subject competently."

So said the great geneticist, Ernst Mayr.  Let us take his advice and distinquish Darwin's different, though interlocked, theories.  Darwin believed that all the different forms of life on earth most likely arose from a single form of life in the distant past ("common descent,")  and that this happened through "speciation," that is, two or more distinct gene lines within a subspecies drift apart in form until fruitful sexual relations between members of one line and that of the other become impossible.  At this point, the different gene lines were and are different species.  Thirdly, Darwin proposed that speciation is a gradual and linear process, so that any given million-year period within any constant geographical area would probably be as fruitful in speciation as the million years just before it or the million years just after it.

Finally, Darwin believed that the process of speciation takes place largely through natural selection.  This part of his conceptual structure he took over from the economist Thomas Malthus.  It is the notion that different individuals, families, tribes, etc. within a species tend to multiply more rapidly than does their food supply.  Some are faced with starvation, others secure food and survive.  This ability to secure food against population pressures can come about in a variety of different ways, so it is a plausible engine for the differentiations behind speciation.

Creationists, when they are being most honest, say bluntly that they want to junk this whole structure, that they think it is all wrong and all best forgotten.  When they are not being quite so frank, they say that they just want "equal time' in public schools for the presentation of a contrary view, the view that a variety of different life forms may have been deliberately designed by an intelligent, supernatural Being. One peculiar feature of the debate on evolution and/or creationism in the public schools is that the creationists keep invoking the words of Stephen Jay Gould, who (they like to think) has proven that Darwin was wrong.

Well, let us be clear about this, then: Darwin was a fallible human being, and no doubt was wrong in many respects, just as was, say, Isaac Newton.  Contemporary evolutionists working in the post-Darwinian tradition can and have modified Darwinism, just as Einstein and other more modern physicists have modified the structure of Newtonian though.  Nonetheless, Newton himself provided the broad shoulders upon which one has to stand in order to see beyond the Newtonian horizon.  Darwin, in the fields most closely associated with his work, did much the same.   

The statements of Gould's that creationists always quote, as their excuse for refusing to climb up to those shoulders, simply take issue with gradualism.  In collaboration with Niles Eldredge, Gould has developed a paleontological theory of "punctuated equilibrium."  According to this, evolution moves in fits and starts.  Consider the most familiar sense of the word "puntuation," the ordering of sentences.  A sentence ends with a period, and the next one begins with a capital letter.  What is there in between the period and the next capital?  Just a blank space. There are such spaces in the fossil record, between one evolutionary equilibrium and the next.  But to draw vast metaphysical consequences from that is absurd.  The punctuated nature of evolution is just what one would expect, anyway, on the basis of the genetics of "allopathic speciation," worked out by the aforementioned Ernst Mayr decades before the Eldredge/Gould papers.

There is, in brief, no real substance to the arguments of anti-evolutionists, which is why they have to resort to twisting the statements of genuine scientists out of context.  Their successes can only make a bad thing (public education) even worse.

3-30-2002 

Cynicism?  No, Just Keen Perception
The week before Easter came with a rush of obituaries for show business legends.  Dudley Moore died, as did Milton Berle, as did the great director, Billy Wilder. We'll focus on Wilder here,  because we've never understood Berle's appeal, and we've never been "stuck between the moon and New York City"!

It seems to us that the extent (and the libertarian character) of Wilder's achievement remains largely underappreciated.  Wilder directed Sunset Boulevard (1950), Ace In The Hole (1951), Stalag 17 (1953), Witness for the Prosecution (1957), and on and on.  Movies like this earned him a reputation as a cynic, as the contra-Capra.   William Holden said that he had a "mind full of razor blades."   Yet there is a common thread through most of his movies, and through all of those just named.  Holden portrayed the manifold ways in which deception, and self-deception, both serve and depend upon violence, official or informal.

In Sunset, an aging actress, once the great star of silent films, deceives herself into the belief that the studio wants her back, and wants her to play Joan of Arc in an atrocious script she's written.  She shots her collaborator/lover when he forces her to face the truth.

In Ace In The Hole, a jaded and down-on-his-luck reporter (Kirk Douglas) discovers that a man is stuck in a cave.  He immediately recalls Floyd Collins, whose similar plight became one of the great media obsessions of the 1920s, and Douglas' character decides that this is his scoop, the way to resurrect his career, and with the help of a corrupt sheriff and the unfortunate spelunker's trampish wife, he drags out what might have been a simple rescue, eventually causing the poor sap's death.

This movie, also known as The Big Carnival, bombed at the box office.  One reviewer wrote indignantly that Wilder was telling "a distorted story of corruption and mob psychology that, in the reviewer's opinion, is nothing more than a brazen, uncalled-for slap in the face of two respected and frequently effective American institutions ­ democratic government and the free press."   Babblings of that sort are a good sign that someone has hit a nerve.

In Stalag 17, a group of American GIs in a German prison camp learn that there is an informer in their midst.  The camp hustler/opportunist, played wonderfully by Holden, seems the best suspect.   Holder clears his name and unmasks the actual snitch, who receives a fitting punishment.  This movie does more than portray mechanisms of power and deceit in the starkest possible setting: it implies that a hustler/opportunist isn't a bad thing to be, and may be the most trustworthy figure in such a setting, whih is a stunningly libertarian moral.

In Witness for the Prosecution,"Charles Laughton shamelesssly hammed his way through this picture, as a defense attorney trying to discover whether his client is innocent or guilty.   His client is guilty, but is acquitted, due to the deception practiced upon Laughton and the court by the defendant's wife, played wonderfully by Marlene Dietrich.  There is a common lesson in all of these movies.  It is that power is the disease that it pretends to cure and that we delude ourselves when we believe otherwise. There is nothing particularly cynical about that, and if we must think of this notion in the same breath as a razor blade we might think especially of Ockham's razor.  Those who want to go on believing that there is such a thing as legitimate coercion, as justifiable structures of state power, live in an unnecessarily complicated thought world.  Those of us who have dropped that belief, who have risen above the myth of sovereignty, are free (perhaps with some help from artists such as Wilder) to see the world straight and clear, to see it simply as it is.

Yes, Billy Wilder used to be big.  Actually, he always will be big.  Alas, pictures have gotten small.

3-23-2002

A Victory for the Goo-goos
We are unhappy, but not particularly distraught, by the victory of the good-government crowd this week: specifically,  passage of a campaign finance reform bill that restricts "soft money" contributions to political parties and that imposes new transparency requirements upon independent advocacy groups that spend money to express opinions relevant to upcoming elections.

More than a century ago, someone began using the term "goo goo" as a term of derogation for good-government politics.  We aren't sure of the particulars of the phrase's origin, but it seems clear that "goo goo" was something more than just an abbreviation, that it was meant to suggest baby talk.  The standard charge that goes with the term is that the good-government crowd elevates procedures over substance.  A related point ­ it often seems to want politics without partisanship, as signified by the regular ritual of hand-wringing over "negativity" in politics.   Of course, goo-goos will always deny both charges.  They'll always say that they're concerned about the process of politics because getting that right will enable the body politic to get the substantive issues right, too.  They'll also tell you that they acknowledge the necessary tensions of political debate and its partisanship.

In neither case is their own self-image very well informed: first, it is all too easy to be buried in process and to take one's eye off the ball; second, they do tend to acknowledge honest partisan loyalties only in the same way that an opera-goer might acknowledge professional wrestling.  The goo goo package is not, to our minds, an attractive one. 

Still, they have a victory.  They had to make crucial compromises to get it. They had to drop an effort to cap the price of broadcast campaign ads, for example.  Perhaps even more important, they had to agree to increase the permitted individual contribution in "hard" money from $1,000 to $2,000.   Those who followed the debate closely heard over and over again that 2002 money is not worth as much as 1975 money, so this adjustment is overdue, etc.  Still, there is no automatic indexing in the bill.  Do they expect that the currency will retain the same value forever after?  No:  because inflation isn't really what this provision of Shays-Meehan is about.  It is about lessoning the role of political parties, and increasing the role of an individual politician and his own staff.  As the government tightens the rules that apply to the flow of money through parties, and loosens the rules that apply to a campaign's own fund raising, it makes the designation by party ever less meaningful.  Of course, some of us have long thought it pretty close to meaningless: campaigns to come may bring many more to that way of thinking.

In general, the new law seems an "inside baseball" sort of reform. It is very important to professional fund raisers and campaign managers, much less important to those of us on the outside of their game.  The parts that are most offensive, that do smack of censorship, will likely be stricken by the Supreme Court.

Okay, a goo-goo might say, so this is only a small step. "But it is a small step in the right direction, toward taking the distortive impact of private money out of politics, working toward publicly funded campaigns that will allow the true voice of the people to make itself heard."

That is what some earnest people would like to believe, and what a very small number actually do believe.  If we believed that the forces at work in American politics were pushing in that direction, we'd be quite ticked off by the prospect.  But we don't.  The forces in American politics that made this step so small, that whittled down what otherwise might have been a sweeping reform into the inside-baseball category, aren't going away.

The first federal campaign finance reform measure in U.S. history was enacted during the admninistration of Theodore Roosevelt, after all.  Not a lot that is fundamental has changed since, in the way campaigns are waged.   The underlying historical trends that are moving the U.S, and indeed the world, toward anarcho-capitalism will not be disturbed or re-routed by goo-goo trivia. 

3-16-2002

Michael Walzer's Soul Searching
Michael Walzer has a fascinating article in the spring issue of DISSENT, with the deliberately provocative title, Can There Be a Decent Left?  His answer to that question is "yes," as one would expect.  His own leftward credentials are impeccable.  But the news is that he felt compelled to ask himself such a question, and that his "yes" answer is qualified and tentative in important and surprising ways, worthy of our attention here.

Walzer compares much of the left in the US in the early twenty-first century to that in England a century ago, and in France a half-century ago.

"The Boer War is a good place to begin," he says, "because of the fierce opposition it aroused in England--which wasn't marked, despite the cruelty of the war, by the kind of self-hate that we have seen on the American left. Nor were the 'little Englanders' hostile to English politics and culture; they managed to take a stand against the empire without alienating themselves from its home country. Indeed, they were more likely to regard England as the home country of liberalism and parliamentary democracy."

This is precisely the test that much of the contemporary US left flunks.  It doesn't know how to ­ or it does not want to take a stand against U.S. imperialism by any means other than by alienating itself from its home country, in ways that Walzer finds, as his headline indicates, quite indecent.

The little-England left gives Walzer his positive role model, while France in the 1950s and 60s, the era of existentialist angst on the left bank of the Seine, gives him a negative model. The French left might have taken its stand from within French tradition and culture ­ the country of the Enlightenment par excellance, the country that first yoked equality with liberty and fraternity, etc.  But it didn't do so. The Algerian war, in particular, gave rise to a "familiar self-hatred, most clearly manifest in Jean-Paul Sartre's defense of FLN terrorism."

Sartre said that for an Algerian to shoot a European is to kill two birds with one stone.  Before the killing, there had been an oppresser and an oppressed.  Afterward, there is only a dead man and a free one.  As Walzer observes, Sartre should logically have presented himself in Algeria with a painted target on his forehead.  He preferred to stay in Paris and grow old.  "His was a generalized, not a personal, self-hatred."

Walzer sees a lot more of the French model than of the English model in the American left of the moment.  Part of what recommends this pose of alienation to his ideological colleagues is its sense of moral purity, even of humility.  But that is an illusion, he explains.  "In fact," though, the impulse to blame America for everything wrong in the world, to exonerate Saddam or Mugabe of any taint, is an impulse of arrogance, one by which the blamers try to lift themselves "above the blameworthy (other) Americans. The left sets itself apart," contributing thereby to its own discredit and political ineffectuality.

So how does Walzer think the left should reform itself?  He says it could begin by jettisoning the "ragtag Marxism" which turns world politics into a sort of soap opera.  It could adopt instead, an ideology with just three pillars, "secular enlightenment, human rights, and democratic government."

What do we at The Pragmatist think of this?  To begin, we are not licensed participants in intra-left squabbles.  But we certainly do have opinions about secular enlightenment (it is a good thing), about human rights (an ambiguous notion) and about democratic government (we're against it).  The real problem with the left is identical to the problem with the right.  They quarrel over who should be driving the car, when the real task of our age is to dismantle the vehicle.

3-09-2002 

Compulsory Fuel Economy 
In 1975, Congress passed the first "corporate average fuel economy" standards, as a response to the "oil shocks" of the Nixon/Ford years.  There was much brave talk about forcing those evil auto makers to manufacture more fuel efficient vehicles.

Most students of the automotive market would agree that CAFE played a big role in the development of the smaller, lighter, models of car to which we have since become accustomed ­ and that this in turn slowed the long-run trend toward more safe vehicles.  There was a trade-off to be made, and Congress decided to trade away lives in order to reduce oil imports.  Of course, you'll never get any of the people responsible to put it just that way.  Anyway, it isn't clear that any reduction in imports was in fact achieved by this bargain.  The lives lost may, in fact, have been lost in vain.   The US imported only 35% of its oil in 1975.  That figure is 52% now.

Now Congress is considering an increase in the CAFE standards.  This didn't work before, so more of it will certainly work.  This reminds us of a classic definition of a fanatic, "one who, having forgotten his goal, redoubles his efforts."  We're also reminded of a wonderful recent episode of the satire, "That's my Bush." The episode portrayed debates over opening up the Alaska Wildlife preserve to oil drilling,  parallel to a plot involving an extramarital affair for Bush aide Karl Rove.  There was some very amusing dialogue about how both sex and petroleum drilling are "necessary evils"  - its best to buy both from strangers, rather than doing such nasty stuff in one's own home!

Anyway, lets get to the wonkish details.  Existing standards require that new cars get at least 27.5 miles per gallon if they are passenger vehicles, and 20.7 miles per gallon if they are light trucks [the category that includes minivans and sports utility vehicles.]  Massachusetts Senator John Kerry wants to enforce a 35 mpg average for all vehicles manufactured in or after 2013.  Arizona's John McCain suggests 36 mpg, but not until 2016.  Both plans would cover all vehicles, eliminating the separate category of light truck.

Would either plan reduce US vulnerability to oil shocks?  Not really.  There is no such thing as a "domestic US" oil market, anyway.  Even if the US reduced its oil imports to zero, its oil would continue to be bought and sold on exchanges of global reach, like the International Petroleum Exchange in London or the New York Mercantile Exchange.  The oil gets from wellhead to your street corner pump through such intermediaries.  Any oil shock that disturbs world market will have an impact on the US.  That's a consequence of living on a small globe.  Interdependence of markets will get you, like it or not.

On March 1, the L.A. Times ran a fine essay on this subject by William Niskanen and Peter Van Doren, both of course honchos of the Cato Institute.  "First, the standards put a damper on new car sales by increasing vehicle price or reducing size, and they reduce the per-mile cost of using cars because the vehicles use less fuel per mile. The lower sales of new cars means longer retention of existing cars. These older cars pollute more and use more gasoline, undermining the purpose of the CAFE standards. The new cars would use less gasoline per mile, which leads people to drive more. The current best estimate is that every 10% increase in the mpg standard results in a 2% increase in vehicle miles traveled.

"A second inefficiency of the CAFE standards arises from the interests of the auto unions. The United Auto Workers does not want unionized U.S. auto makers to comply with CAFE by importing small cars that use less gasoline. Under CAFE rules, gas-frugal imports only offset the gasoline use of other imports. To offset the gasoline use of low-mpg U.S. cars, high-mpg cars must be made in the United States, presumably with higher-cost UAW labor that would increase the price to consumers."

The whole idea, in short, is that the U.S. should take one more step on the road to serfdom that Hayek mapped out and warned us off so many years ago.

3-02-2002

Campaign Finance Reform: Who's Negotiating with Whom?
As this week began, the mainstream press assured us that the tracks were greased, and that the train of campaign finance reform would at last reach the station.  Shays-Meehan passed the house just before the President's Day break, and nobody expected much of a fight in the Senate.  The only remaining questions, then, were whether the President would sign the bill when it got to his desk, and how much of it the Supreme Court will invalidate when it gets there.

But nothing at all happened in the Senate this week.  Senator Daschle decided not to push the matter to the floor after all.  His press secretary, Ranit Schmelzer, said that Mr. Daschle is waiting on the outcome of talks between two Republicans ­ Senators John McCain and Mitch McConnell.   But what is there for them to talk about at this point?  Clearly McCain's views, and McConnell's, are still set in stone ­ neither hopes to convert the other on the merits.  Are they talking about rules for the debate?  -- even that would suggest that the tracks are not greased as thoroughly as we had been told.  And why is the Senate Majority Leader standing outside the room, literally or figuratively, while two members of the minority party discuss the rules for a debate?

Michael Crowley's article, in the March 4 issue of The New Republic, offers a clue. It seems that a lot of Democratic office holders have only recently read the bill, and are getting worried.

"One party staffer cancelled a luncheon interview with me last week," Crowley says, "becausehe had to spend the entire day explaining to House members that, contrary to their expectations, there were no easy end runs of the law already mapped out."  Since Shays-Meehan has already passed the house, it is a reasonable inference from that sentence that many House members voted in favor of the bill, and only thereafter made any inquiry of their party's staff what it would actually mean to them.  Apparently, they didn't like what they discovered.

"There is an absolute possibility that African American turnout drops by twenty percent or more by 2004," if this bill becomes law.  Who said so?  Jim Jordan, executive director of the Democratic Senatorial Campaign Committee ­ as quoted, again, in Crowley's useful piece.  Given the political demographics, African American turnout is good for Democrats, and it is often stimulated by voter mobilization campaigns that are stimulated by the sort of "soft money" this bill targets.  The Republican base, on the contrary, tends to have high turnout anyway.  It doesn't need to be mobilized through soft money.  None of this will matter for the 2002 campaigns, because the bill was written to take effect only thereafter.  But it could have a powerful and pro-GOP impact on the balance of power in both houses beginning in 2002.

Insofar as libertarians understand what we are about, we do not care.  We are, or should be, utterly indifferent to the balance of power as between Democrats and Republicans, because we are trying to dismantle the scales, not affect the way they tilt.  We insofar as we are also curious observers of the passing parade, we are allowed to form the following hypothesis: Daschle is not, in fact, hovering outside of a room waiting for McCain to talk some more with McConnell.  Daschle is, as is customary for him, in the thick of things.  He has heard what Jordan and others are saying, and he is trying to maneuver his way toward a better bill (better, of course, from the point of view of his constituencies.)

He doesn't want to send too many Naderites into the Green Party, so he can't openly scuttle this bill.  If he can arrange for amendments (mapping in those "easy end runs" mentioned by Crowley's acquaintance) then he can create differences between the two chamber's versions o the bill.  After creating the differences, he can secure passage of the new version and claim victory without actually having created any new law ­ because the two versions of the bill will then ave to go to conference, where they can both be quietly buried.  Nothing is certain, but that seems to us at this moment the most likely scenario.

2-23-2002

Cigarette Smugglers in the Service of Liberty
Tuesday this week a district court judge in NYC dismissed a lawsuit brought against tobacco company Philip Morris by several countries.  Most of the plaintiffs were members of the European Union, although they were joined by the nation of Columbia.  (Why?  Hold that thought!)

The European nations and Columbia claimed that Philip Morris deliberately supplied smugglers with cargo containers of its product, as a way of evading those nation's tariffs/taxes.  The courts of the US have long followed what they call the "revenue rule," i.e. in the absence of a very specific Congressional mandate, they will not interpret the laws of the US so as to help the governments of other sovereigns collect THEIR taxes. As recently as October 2001, the Second Circuit re-affirmed that rule in a case involved Canada, R.J. Reynolds, and a claim on all fours with the claim made here.  The 2d Cir. was mandatory authority for Judge Nicholas G. Garaufis, sitting in Brooklyn.

Lawyers for the EU understood that their case had this problem, and they did what they could to address it.  That's why they brought Columbia into the mix.  Columbia claims that the coke cartels in its territory launder some of the proceeds of their criminalized product by investing in cigarette smuggling, i.e. they use one drug to cleanse the money raised by the sale of another drug.  Very tricky, these entrepreneurs, um, drug lords.  Given this, the courts of the United States should help those nations enforce their tariff system, because in doing so they also fight the good fight in the war on (arbitrarily criminalized) drugs.

To his credit, we submit, Judge Garaufis rejected this pitch. He said this was "simply too slender a reed upon which to effect an abrogation of the revenue rule."    Not only legally but, we submit, morally this is a commendable decision.  Judge Garaufis joins the progressive march of human history.  Smuggling is a good thing.  It breaks down barriers, renders national borders irrelevant, and helps us all overcome the myth of sovereignty.

In William James' great essay, The Moral Philosopher and the Moral Life, one finds the following insight.  "That act must be the best actwhich makes for the best whole in the sense of awakening the least sum of dissatisfactions.  In the casuistic scale, therefore, those ideals must be written highest which prevail at the least cost, or by whose realization the least possible number of other ideals are destroyed."  This may sound to some like a certain sort of utilitarianism.  James acknowledges the similarity, but his pragmatic moral philosophy is distinct, in part because he brings in the course of human history as the mediator of conflicting demands.

"Since victory and defeat there must be, the victory to be philosophically prayed for is that of the more inclusive side, of the side which even in the hour of triumph will to some degree do justice to the ideals in which the vanquished party's interests lay.  The course of history is nothing but the story of men's struggles from generation to generation to find the more and more inclusive order."

The course of history shows that efforts at controlling the flow of goods and wealth at national boundaries impoverish the people on both sides of those boundaries, and often bring an end to the regimes that sought to enforce such rules with the greatest rigidity.  Blue jeans and rock muic from the west played a role in the destruction of the Soviet empire, after all.  If Philip Morris and its temerity in selling its product to willing buyers should prove to play a role in the immolation of all the bureaucratic machinery that has grown up around the "war on drugs," that will be all for the best.  It will constitute an achievement for the human spirit in a par with the dismantling of the Berlin Wall.  While waiting for such a wonderful day, we can at the least tip our caps to Judge Garaufis for taking out his one brick.

2-16-2002 

Real History, Phony History, Convenient History 
Henry Louis Gates, Jr. claims to have discovered the "first black woman novelist," a nineteenth-century fugitive slave.  He says he bought a manuscript at auction titled NARRATIVE OF A BONDSWOMAN, and he's bringing it out as a book this spring.

So we won't die of curiosity in the meantime, the considerate professor Gates has provided an excerpt for the latest issue of The New Yorker, accompanied by his commentary.  Yet there is something fishy about this "discovery."  Our own suspicion is that no nineteenth century black woman wrote it, just as Chief Seattle never gave anything like that ecological speech for which he is so often credited.  We are only speculating, but it appears Gates pieced something together himself.

After The New Yorker went to press with this excerpt, alert readers noticed that chunks of it appear to have been lifted from BLEAK HOUSE, by Charles Dickens.  Gates, Harvard University's director of the W.E.B. Du Bois Institute for Afro-American Research, no small figure in contemporary academic and intellectual life,  is to be congratulated indeed.  That Dickens was an American fugitive slave, and a woman at that, is an historical discovery of truly epic proportions!

How does Gates explain these passages?  Does he say, "so, I discovered a manuscript by a black woman who happened to be a plagiarist!"  Not quite.  Instead, "How audacious she must have been!" he says, "Imagine this ex-slave, reading Douglass and Stowe and Dickens and then trying to sketch out the conditions of her life by appropriating their rhetorical strategies, their language, and their metaphors. You could say that this kind of interplay between originality and tradition is the ultimate subject of literary scholarship: something borrowed, something new."  He seems to have a wedding-ceremonial cliché  confused with standards of scholarship here, but we won't press the matter.  We do not believe he has discovered a plagiarist.  We aren't buying into this.  After all, wouldn't an educated man such as himself have noticed the Dickens parallels befoe rushing the document into print, and pointed them out in the commentary published alongside the excerpt?  Why did he need to have them pointed out, after publication?  We suspect that he IS a plagiarist, and a fraud into the bargain.

But let us return to the matter of Chief Seattle, for the comparison is intriguing.  Seattle is a historical figure, clearly.  But a variety of high-flown "earth-is-our-mother" speeches are attributed to him, and none of THEM has any historical foundation whatsoever.  He is supposed to have written the following, for example, in a letter to President Franklin Pierce.

"The Great Chief in Washington sends word that he wishes to buy our land. . . . But we will consider your offer, for we know if we do not . . . the white man may come with guns and take our lands. . . . How can you buy or sell the sky-the warmth of the land?  The idea is strange to us.  Yet we do not own the freshness of the air or the sparkle of the water. . . Every part of this earth is sacred to my people. . . . When the buffaloes are all slaughtered, the wild horses all tamed, the secret corners of the forest heavy with the scent of many men, and the views of the ripe hills blotted by talking wires, where is the thicket?  Gone. Where is the eagle? Gone."

Where is that letter?  Gone.  The National Archives, the Smithsonian Institution, and the Library of Congress continuously receive requests for the original text.  They have none.  Nobody who has seriously searched for such a letter believes it ever existed.

The sentimentalization of the Amerinds that puts words into the mouth of Chief Seattle, so that contemporary (mostly white) American "greens" can feel they have a "usable past," has its counterpart, we submit, in Henry Louis Gates' "discovery" of a slave who wrote her own life using Dickens' words.  We are invited to learn from the past, but it is a phonied up, stereotypical, role-playing sort of past we are offered.  The most widely acclaimed historical scholarship of our time appears, on inspection, no better (no more interest in authenticity) than a Disney theme park.

2-09-2002

An "Apolitical Olympics" is an Oxymoron 
The Salt Lake City winter games have begun: with the opening ceremonies Friday night, then the first actual competitions this morning (Saturday).

The tattered U.S. flag found in the debris of the World Trade Center on September 11 was carried into the Olympic stadium during the opening ceremonies.  Earlier this week, IOC officials objected to that gesture, saying that the international games should not be too focused on the attacks on the US, because this would open the way to politicization of the opening ceremonies by every nation at every subsequent game, etc.  In the face of a good deal of outrage, the IOC backed down.

Wait!  We want to say, Hold it!  What terms do we use when discussing such matters, and what do we mean by them?  What is a nation's flag, what does it mean, and under what circumstances can its display fail to be a political act?   We'll start with the conceptual foundations (sovereign, government, flag) and work out.  A sovereign is the ultimate legal authority within a given territory.  A government is the institution that claims a monopoly on the legitimate use of force within that territory, and that invokes the sovereign in justification of that claim.  A flag is the banner of a sovereign.  By saluting a flag, one acknowledges (sometimes only in a pro forma sense, but sometimes of course in a very deeply felt and sincere manner) that invocations of that sovereign make sense:  that they are statements in a language one is one's self willing to speak.

What is politics?  This word is probably more ambiguous than any of those just defined. One speaks of "office politics," after all, even in the case of a private business.  One means by that phrase the competititon among individuals and cliques within a certain hierarchy for offices and perks.  But when unmodified by any adjective, the word "politics" seems most often to mean the competition among individuals, factions, and interests for the levers of government, generally fueled by mutually exclusive appeals to the same sovereign. The paradigmatic political claim is that, "What I mean when I salute the flag is different from what you mean when you salute the flag, and since it is the same flag one of us plainly must be wrong.  The one who is wrong  (which of course is you) clearly can't be trusted with the levers of government, the prerogative of coercion."

Now we're getting closer to understanding the Olympics.  Let's try another definition, though: what is diplomacy?  It is the art by means of which various governments recognize each other's sovereigns, legitimating one another in the process.  There is clearly no such creature as "apolitical diplomacy." At any given moment, only one (coalition of) factions of the politics of any given nation holds the levers of power.  That faction, or coalition, is the only one in a position to engage in diplomacy. It does so, inevitably, with an eye to its domestic political situation.  The goal of diplomacy is to see to it that the members of the club of "ins" support one another.

We have arrived, finally, at the point.  The very act of holding an Olympics is a diplomatic and so a political act of the highest order.  The opening ceremonies are quintessentially political when every delegation brings in its own national flag in some newly-minted and spotless form.  There is no coherent sense in which the use of a flag in somewhat tattered condition can make the proceedings more  political than it would be otherwise.  Differently political, one might well say, but not more so!

We'll do our best to enjoy what we have before us. Let the overtly political games begin!  And good luck to every athlete, from everywhere!

2-02-2002

Remember When Japan Was a Colossus?
It was not long ago that the popular wisdom held the following about Japan: that the country's economy was very strong, and would remain so, posing a threat to other industrialized nations; that its strength was a result of close industry-government co-operation ("Japan, Inc." as everybody called it); that this co-operation and its success proved the fallacious character of laissez-faire economic reasoning.  (Or, in one variant of this third theme, we were informed condescendingly that laissez-faire arguments were sound enough for the "Anglo-American" culture in which they arose, but run contrary to "Asian values.")

Many books were written on these themes in the 1970s and '80s.  Some of them were tinged with admiration for all things Japanese, from the Ministry of International Trade and Industry (MITI) to Noh theatre and kimonos.  Others of these books were more xenophobic in tone.  Some of them were actually packaged as novels.  All of them should have been.

The '90s were a miserable time for Japan, and the features of government-industry co-operation that had been so heavily praised during the good times were precisely the catalysts of this misery.   When the mighty fall, their intellectual flunkies fall with them.

This week the release of official 2001 economic statistics from Japan reminded us of these issues.  Last year, the Japanese yen lost 16% of its value against the U.S. dollar.  The stocks of many major corporations are now trading at or near 10year lows.  One statistic in particular, and its misuse, strike us as symptomatic of the continuing grip of statism on the land of the rising sun.  The government of Japan ceaselessly reminds the world that Japanese households possess 1,400 trillion yen in financial assets (i.e. about $10.42 trillion dollars).

The reason the government stresses this figure is in hope of suggesting that some or all of that huge sum is available as risk capital for entrepreneurship, so Japan may at any time resume its colossal importance on the state of world finance.

The problem, though, is that one-half of the household financial assets of Japan are now in accounts earning returns of less than 0.02%!  (That's the nominal return.  Given deflationary trends, that represents a "real return" of close to 1%, still astonishingly low.)  The Japanese don't approve of entrepreneurship ­ they won't seek higher returns than that by launching out into the open ocean of productive enterprise, because they much prefer to hug the safety of the shore in such dinghy accounts.

Not just the households, but the corporations themselves, suffer from an excess of caution, arguably induced in them by all those years of government-run paternalism.  In the good old days, MITI and the rest of the government bureaus looked after the big corporations, the big corporations looked after their workers, the unions acted like tame house-bred creatures, and everybody basked in the adulation of superficial observers around the globe.  Now that this balloon has landed, though, somebody is going to have to show the drive and the risk that such a system not only does nothing to create, but in important ways discourages.  That is Japan's problem now.

Alexandra Investment Management looks for opportunities around the globe, according to one of its managers, Andrew Pernambaco. "Right now we have over 50% in the US," he told a reporter recently: some in Europe, including Russia, and some in Asia, especially Asian emerging markets.

"No Japanese exposure for us," he also said.  Why not? Because Alexandra, like other investment concerns,  looks for opportunities where it has access to management, where there is "transparency," and he finds the Japanese corporate marketplace very opaque, "unless you have someone on the ground."

Laissez-faire arguments have been vindicated once again, in the only way in which they possibly can be, by the falsification of a competing conjecture.

1-26-2002

Nozick Leaves Ambivalent Legacy

Robert Nozick died this week.  Nozick, a Harvard professor of philosophy, learned of his stomach cancer in 1994.  To his credit, he had not gone quietly into the night, but had gone on working at the fundamental philosophical problems that intrigued him.  His last book came out in October 2001.  It was a defense of the possibility of objective knowledge of the world outside our skulls, perhaps the central problem in philosophy since the time of Descartes.  Furthermore, he continued teaching in his final years, concluding a fall-semester course in the Russian revolution just weeks before his death.

But Nozick's claim to lasting fame is his first book, ANARCHY, STATE, AND UTOPIA (1974).  This book's appearance coincided with the formative days of the Libertarian Party and, indeed, of self-conscious libertarianism as a political movement broader than that party.  Frankly, it seems to have had little effect on that movement at the level of doorbell-ringing activists.  One can probably count on one hand the number of committed libertarians who will say that they became such because they read Nozick's book: or who will say that he states their own theoretical commitments more precisely than Rand, Rothbard, or the elder Friedman.  In a movement that was top-heavy with theoreticians from the start, one might be excused for suspecting that Nozick was just one more.

Yet he wasn't.  Nozick was important because he took the fight to an enemy camp.  He was an ivy-league university professor, training in the Anglo-American tradition of analytical philosophy, committed to thinking about philosophical questions with the instruments provided by that tradition.  He was not a Russian novelist, or an economist of either the Austrian or the Chicagoan traditions.  He was in the unique position of making libertarian arguments in the same theoretical language from which came many of the most powerful statist arguments of the mid and late twentieth century.

As a result, there were people who would never have let themselves read any of the other three authors just named, who encountered for the first time in Nozick's pages a serious, indeed a rigorous, argument in a form that commanded their respect, to the effect that taxation is theft.  Nozick pressed the analogy between the income tax in particular, and forced labor: taking a proportion of my earnings is quite similar to making me spend that portion of my work day for another person's purposes.  The challenge to defenders of taxation, then, was EITHER justify forced labor (not for criminals, but quite generally applied to the productive portion of a population), OR explain the distinction between the two sides of the analogy.  Many of those who were not converted by this argument were nonetheless placed on the defensive, and found their statist assumptions undermined.

We are happy to acknowledge these positive effects of Nozick's work.  On the other hand, we consider it unfortunate that Nozick founded his political arguments upon a deontological ethics.  He referred to rights as "side constraints," i.e. as things that one person may not do to another regardless of the consequences.  He wrote, "The question of whether these side constraints are absolute, or whether they may be violated in order to avoid catastrophic moral horror, and if the latter, what the resulting structure might look like, is one I hope largely to avoid."

The problem with neglecting one's foundations in the manner indicated by that sentence, is that the foundationless house may drift away with the first hard rain.  Nozick's own drifting began almost immediately.  There were signs of it as early as PHILOSOPHICAL EXPLANATIONS (1981).  Over time, his repudiation of libertarianism became first unmistakable, and then explicit.

Still, people are born, grow, live and die and if they are lucky they leave behind them one achievement that will be remembered long after their corpse is cold.  The one achievement that will always be linked to Nozick's memory is his first book, and its emphatic assault upon the morality of the more-than-minimal state.  He is entitled to his corner of fame.

1-19-2002

The Fall of an Economics Pundit
Paul Krugman is in trouble, and this fact gives us a certain quantum of joy.  Krugman is an economics professor at the Massachusetts Institute of Technology, a regular columnist for the New York Times, the author of several books that attempt to present his own brand of economics to a general audience, and in general a ubiquitous presence in the world of economic/financial punditry.  We think his influence is pernicious, and hope that the ongoing flap over his ties to Enron helps bring it to an end.

This week, Andrew Sullivan has proved himself quite industrious in digging up Krugman's Enron ties.  Sullivan has found what even seems to have been a crude quid pro quo.  On the one hand, Krugman served on Enron's advisory board and received $50,000 for his services.  On the other hand, in 1999 Krugman wrote an article for FORTUNE (another of many regular outlets for his bloviations) in which he filled the whole visible heaven and earth with praise for Enron's brilliant new-economy breakthroughs, almost as if he was trying to sell his readers shares of its stock!

We don't believe that this was a crude quid pro quo, exactly.  We suspect that if Krugman sold out his convictions, the asking price would be higher than $50,000.  Something more curious is at work.  On his side, we suspect that the enthusiastic praise for Enron in FORTUNE represents the sort of crush that the articulate but uninfluential often feel for the inarticulate but powerful. "Kenneth Lay and Krugman sitting in a tree, K I S S I N G, first comes love."  On Kenneth Lay's side, something more cold-hearted was at work.  But let us go to exhibit A.

"The retreat of business bureaucracy in the face of the market" wrote Krugman in 1999, "was brought home to me recently when I joined the advisory board at Enron--a company formed in the '80s by the merger of two pipeline operators. In the old days energy companies tried to be as vertically integrated as possible: to own the hydrocarbons in the ground, the gas pump, and everything in between. And Enron does own gas fields, pipelines, and utilities. But it is not, and does not try to be, vertically integrated: It buys and sells gas both at the wellhead and the destination, leases pipeline (and electrical-transmission) capacity both to and from other companies, buys and sells electricity, and in general acts more like a broker and market maker than a traditional corporation. It's sort of like the difference between your father's bank, which took money from its regular depositors and lent it out to its regular customers, and Goldman Sachs. Sure enough, the company's pride and joy is a room filled with hundreds of casually dressed men and women staring at computer screens and barking into telephones, where cubic feet and megawatts are traded and packaged as if they were financial derivatives.The whole scene looks as if it had been constructed to illustrate the end of the corporation as we knew it."  You can almost hear the beating of an infatuated heart.

From a journalistic-ethical point of view, Krugman can point out that he did disclose his position on Enron's advisory board before praising the company.  On the other hand, he didn't mention his fee.  A naïve reader could have gotten the impression from the above that "advisory committee" was an honorary position, or a formality that had to be extended so Krugman could get a tour of the trading room. But what to say about Enron's side of this relationship?  We suspect it was simply hedging its political/academic bets.  If Al Gore were now in the White House, Paul Krugman would very likely have a key economic-policy post, and Enron would have a friend on the Gore team.  (Kenneth Lay, Enron' CEO, notoriously has a lot of friends on the Bush team, including Bush himself.  But he's a flirtatious sort, always casting eyes over to the Democratic side as well, in typical crony-capitalist fashion.)

Virginia Postrel, herself a columnist with the TIMES, thinks that this will end Krugman's career there. The grey lady "tends to take a simple 'follow the money' approach to identifying corruption," she writes, "and it worries a lot about the appearance of impropriety and its good name."  It may be a bad rap, but it couldn't happen to a more deserving guy, and we hope we'll have far fewer chances to read Krugman's statist/regulatory apologetics in the years to come.

1-12-2002

Plagiarism for Politicians and for Historians
In 1988, during the primary phase of the presidential campaign, Senator Joe Biden delivered a stirring speech much of which happened to have been ripped off, without attribution, from the UK labour party leader, Neil Kinnock.  The press soon discovered the similarities.  A resulting furor, and subsidiary revelations, eventually forced Biden out of the race.  But we wonder whether it should have.  Who was harmed in that situation?  Kinnock made no claim to possess property rights to those words.  Furthermore, since Kinnock and Biden aren't competing in any of the same markets, political or otherwise, its hard to see how he COULD claim to have been injured. No, the offence here was against informal norms that say that a politician will rely on his own speech writers, not someone else's.   We have often suspected that there is less to many "plagiarism" allegations than meets the eye.  Anyway, the issue of plagiarism came to our minds again this week tied to the name of a very prominent historian, Steven Ambrose.  Here we think there is something important at stake.

Ambrose is the author of UNDAUNTED COURAGE (1997), about the Lewis & Clark expedition, NOTHING LIKE IT IN THE WORLD (2000), about the Transcontinental Railroad, and several books on the Second World War that focus chiefly on the experience of rank-and-file Joes in the European theatre ­ D-DAY, BAND OF BROTHERS, THE WILD BLUE, etc. Facts that have come to light over the past week show that he has clearly transgressed the norms of either academic or trade publishing.  He is, indeed, as prolific as he is because he is running a literary "chop shop," repackaging the words of other and more interesting historians as his own.  Here is just one of the many samples now widely available (we got it from the on-line magazine SLATE).

"The bombadier, navigator, and nose-turret gunner were forced to squat down, almost on hands and knees,
and sidle up to their stations through the nose wheel well of the ship. Once inside, the three men, fully dressed
in their bulky flying gear, would be squeezed into a cramped compartment. ... The remaining members of the
crew entered the plane by crawling up through the open bomb-bay doors, no more than three feet off the ground.

Once in the bomb bay they would stand upright, step up onto the narrow catwalk. ... Jerry Barrett, the
engineer, stood between the pilot and copilot at takeoff, helping to monitor the engine and fuel gauges, but
once in the air he slipped to his position behind the pilot and just across from the radioman. ... It was the most
physically uncomfortable, isolated, and terrifying position on the ship. The gunner climbed into the ball, pulled
the hatch closed, and was then lowered into position."
Thomas Childers, WINGS OF MORNING, pp. 21-23 (1995).

"The bombadier, navigator, and nose turret gunner were forced to squat down, almost on hands and knees,
and sidle up to their stations through the nosewheel well of the ship. Inside, the three men had to squeeze
themselves into a cramped compartment. ... The other crew members entered the plane by crawling up through
the open bomb bay doors, about three feet off the ground. Once inside they would stand upright, step onto the
narrow catwalk. ... The engineer stood between the pilot and co-pilot at takeoff, helping to monitor the engine
and fuel gauges. In the air he took his position behind the pilot and just across from the radioman. ... The ball
turret was, as McGovern said, the most physically uncomfortable, isolated, and terrifying position on the plane.
The gunner climbed into the ball, pulled the hatch closed, and was then lowered into position." 
Steven Ambro se, THE WILD BLUE, pp. 95-96 (2001).

We think there is a lesson here.  In this case, the question, "who is hurt?" has a more persuasive answer than it does in the case of Biden's stale Kinnockian speech.  The public is hurt, in this case, because even that minority of citizens who do make a diligent effort to learn something about America's past, and so inform themselves as voters, are all being herded into the same group-think corral.  Ambrose doesn't have to do any original writing because he hasn't done any original thinking, and he doesn't have to do any of that because instead of a genuine debate about the significance of the aspects of American history he chronicles, all "we the people" ever get is a right-thinking chorus!

1-05-2002

A Tale of One City, and Two Mayors
Consider two (hypothetical) mayors who might have presided over the city of Amsterdam in the seventeenth century.  The first, Herr Gud Timen, sat in the mayoral chair (or frolicked with Rubensesque interns) during a period of boom in the city.  Early on in his term, a woman named Dot introduced a few tulip bulbs.  People became ecstatic over these flowers, and over their bulbs, declared their centrality to economic success the "new paradigm" in horticulture, and they started denouncing the few old fogies who didn't seem to "get it."

This excitement (known after that first importer as the Dot-tulip boom) was in turn responsible for the fact that people in later years remembered Gud Timen's term with such nostalgic satisfaction.  You could buy a tulip bulb one week for 100 kroners and sell it the next week for 200.  Then someone might sell it back to you for 400 and you'd find another buyer for 800.  Of course, nobody ever bothered putting these tulips in the ground, if it was so much more valuable to package and sell them as bulbs.

Excitement ran so high that Gud Timen's deputy mayor claimed to have created the first tulips.  Eventually, though, the dot-tulip bubble burst.  They went in value from 10,000 kroners to 20, seemingly overnight.  A few months later, the city's Nine Elders designated a new mayor, whom we'll call Shrub.  Some of the people in Amsterdam have formed a rather negative impression of Shrub, because it seems to them that the good times disappeared on his watch.  The wiser heads will observe that the recession that (as a statistical matter) did begin soon after the new guy took office, had its roots (no pun intended) in the dot-tulip bubble and its burst, which of course both happened on Gud Timen's guard.  Even wiser heads will look for the causes behind the perenniel phenomenon of boom and bubble, bubble and burst, and will try to assign responsibility for the whole cycle, not just for its particular phases.

To bright readers such as yourself, it will by now be obvious where we are going with this. We believe that George W. Bush has, in some quarters, taken quite the bum rap for the present recession.  History has assigned him to walk at the back of the 1990s' parade and scoop up what the animals have dropped.  We would not blame this president for those droppings.  Nor, for that matter, would we blame President Clinton.  He did not create the unsustainable dotcom boom, he simply rode the wave.  The fact that the wave peaked was no more his fault than the fact that it rose in the first place.  What would Yogi Berra have said about such events, had he been an economist?  "That which can't go on forever, tends to end."

We're interested, as always, in getting to the bottom of things.  We suggest that there are two causes at work in boom-bust cycles generally.  There is a psychological factor at play.  The tulip-mania of one year becomes the tulip-phobia of the next.  The parties on Gatsby's lawn on Long Island can't last forever.  But second, and more important on the whole, there is the malign influence of central bankers.  The bankers periodically decide to generate a boom by lowering the price of credit.  But such booms are always artificial contrivances.  The artificially stimulated loans go to marginal projects ­ to highly speculative ventures that could not have achieved funding otherwise.  Unfortunately, jobs come to depend upon these highly speculative ventures, and the bankers must make sure they don't fail (or don't fail all at once) by continuing to lower interest rates. As in riding a bicycle, it becomes necessary to keep moving forward in order to stay upright at all.

Eventually, though, the continued provision of cheap credit becomes impossible, because the practice is too inimical of the interests of savers, and somebody must save capital or there will be nothing to invest!

So the central bank eventually has to stop providing cheap credit, i.e. it pushes the rates back up.  This produces the bursting of the speculative bubbles that had ben depending on cheap credit, people lose their jobs, they cut back on their consumer purchases, and the whole network of symptoms known as "depression" or "recession" results. Eventually, the central bank feels political pressure to lower rates again, and the cycle resumes.  It is the cycle as a whole that we must oppose.

12-29-2001

The Keys to Gracie Mansion Change Hands
This week, Rudolph Giuliani finally shuffles off into the sunset, clutching his Time Man of the Year cover as personal validation from the media elite, and his designated successor, Michael Bloomberg, assumes the office of Mayor of New York City.

We hope this will be our last chance to take pot shots at the departing mayor, because we would like to think that he will never again darken the public stage with his presence.  That seems, alas!, unlikely, but we will fire away.  Giuliani first came to the attention of many of us as the camera-hogging prosecutor who brought a series of high-publicity "insider trading" cases in the 1980s.  That string led in time to what Tom Wolfe called "the Great White Defendant":  to Michael Milken, a villain straight from central casting, and that led into the mayor's office.  Republicans love the "tough cop" image, and Democrats love to see the toughness directed at the rich white guys, so everybody not themselves being railroaded was happy.

A funny thing happened, though, on his way to his successor's inaugural ball. Rudy decided to give the world one final demonstration of his megalomania.  This week, he announced a new stadium deal with both the New York Yankees and the New York Mets, displaying models of the proposed new stadiums, featuring very chi-chi retractable roofs. (The House that Ruth Built, arguably the most legend-choked piece of real estate on the planet, is hopelessly out of date.)  The $1.6 billion combined cost of the two stadiums  is to be divided evenly between the two teams and the city. That means that the city is on the hook for $800 million.  Giuliani claimed that this can be done without any new taxes.  Wellnone he has to worry about anyway, because he's on his way out the door.  Let Bloomberg worry about these tiny details.

But let us look, also, to the other half of this transition.  The good-government types have expressed their usual brow-furrowed "concern" about Bloomberg.  The man just spent too much of his own money getting himself elected, and that annoys the goo-goos no end.  Can't something be done about it???

Well, yes.  What could be "done" about it is the dismantling of government as an institution altogether.  Then no money will ever have to be spent on campaigns for mayor, because there won't be such an office.  In lieu of such a change, though, we are very happy that Bloomberg spent his $69 million that way. In general, any reduction in campaign spending heklps incumbents at the expense of challengers, and so further entrenches the governing class.  In this case, of course, Bloomberg wasn't running against an incumbent (although for a moment it looked as if he might have to ­ when the avalanche of favorable post-9/11 publicity led Giuliani to look for a way around term limits.)  In the end, he was runing against Mark Green.  Still, Green was well known to New York's voters, and Bloomberg was a novice in the political arena.  He was the one who suffered from the sort of disadvantages that generally plague a challenger against an incumbent.

Indeed, this election is the first time a Republican candidate has ever succeeded a Republican incumbent in the history of New York City, a fact that indicates how entrenched the Democrats.  Are the goo-goos saying that increased political competititon is a bad thing, because they want the Democrats in heavily Democratic cities to feel safe and entrenched?  We fear that this is what they are saying.

As for Bloomberg's stand on the baseball stadiums.so far it is an equivocal one. "The issue is really, 'Can we afford them?"' Bloomberg told reporters. "I will have to take a look down the road as the economy develops. Nobody knows today how deep or how protracted the current economic downturn is."

Sorry, Mr. Mayor, but that is not "the" issue at all.  The issue, rather, is whether George Steinbrenner should be required to buy his own toys, without coercively-obtained help from the taxpayers of your city.

12-22-2001

Globaloney! The Latest Efforts of the One Worlders
We haven't criticized the advocates of a world government in these columns for months ­ in fact, the last time we did so was  September 1.  Now, though,  we must return to that charge, because the advocates of what Claire Booth Luce used to call "globaloney" have taken a new tack.

On November 26, Anne Krueger, first deputy managing director of the International Monetary Fund, addressing the American Enterprise Institute in Washington, proposed what she called the "missing element we must provide" in the global financial system ­ a routinized procedure, to be administered through the IMF, whereby indebted governments could seek legal protection from their private sector creditors.  In other words, she proposed a one-world bankruptcy court.

In part, Ms Krueger's comments were inspired by the ongoing crisis in Argentina.  But in another and perhaps larger part, as she said herself, the idea is in reaction to the controversy that arose in 1999-2000, when hedge fund Elliott Associates LP forced Peru to pay it $65 million by threatening to seize money that Peru had transferred to U.S. banks to pay other creditors.  The company had purchased Peru's bonds at a deep discount.

Let us start with basics.  We oppose the whole idea of sovereignty.  We believe human beings should get over the idea that there are such entities as "Peru" or "the United States" or "Argentina." In this sense, then, we may be said to be one-worlders ourselves.  It is sovereignty which creates borders, and we would erase them.  But the problem with globaloney is that its partisans propose not to abolish sovereignty, but to extend it, making "the People of the planet Earth" our sovereign, and creating a super government to rule on behalf of that fictive entity.  This won't improve on the status quo.  Indeed, it would intensify all that is wrong with the status quo.  The simple question that always runs through our minds when we hear such plans is: where will the exiles go?   The best reason to oppose Ms Krueger's brainstorm, then, is that: it would strengthen quasi-governmental global structures, bringing a true one-world government that much closer to horrendous reality.

Yet this reform has other problems.  For example, the international court is professedly a way to cheat the private sector at the expense of the public sector.  The court would have no power to protect private companies from public creditors ­ it couldn't erase tax liens, for example!  Its only authority will work in the other direction.  The logical implication, it seems to us, is that governments collectively own everything in the world, and only let private individuals, and their associations (corporate or otherwise) keep some of it on suffrage now and then.  Only from that premise can it possibly follow that debts from public to private are more easily forgivable than debts that run in the opposite direction!  And that premise is precisely what we ­ rational freedom-loving people everywhere ­ must be willing to die rather than grant.

Almost as important, one wishes Ms Krueger would rethink her attitude toward such vulture funds as Elliott Associates.  Did their actions hurt the people of Peru?  She seems to be under the impression that Elliott profited in some sort of rogue-ish way, so extraordinary measures are necessary to keep anybody else from doing likewise.  Yet what was so horrible?   Elliott bought bonds at a discount because Peru's credit was of little value on the secondary markets.  They took on a big risk, profited from it, and in so doing helped create a market for those bonds.  Would Peruvians be better off today if nobody anywhere wanted to touch their government's bonds?

Michael Pettis has just written a fascinating book about international finance called THE VOLATILITY MACHINE.  He is no libertarian, much less an anarcho-capitalist, but he has a sharp mind and we heartily recommend the book, to our readers and to Ms Krueger. "As distasteful as it may seem," he writes, "risk-loving 'vulture' investors, or short-term speculators, have a very important role in the recovery process because, by buying cheap, risky assets during the most chaotic part of the collpse, they often act as the initial stabilizers.  This means that these types of investors need to be encouraged to jump into the market quickly."   It doesn't seem distasteful to us.

12-15-2001

Drawing Lessons from the Collapse of Enron, Part II
Lesson One.  Continue with Deregulation. Unsurprisingly, some politicians have already rushed to assert that the collapse of Enron proves that the electricity and natural-gas industries have been hastily deregulated, so the old regulatory schemes (which seem to them, through the hazy glow of nostalgia, to have worked impeccably well) should be re-imposed.

This is completely wrong, all around.  The financial troubles (and the accounting chicanery) that destroyed Enron aren't unique to the energy industry and aren't the result of hasty deregulation.  Indeed, they're the result of insufficient haste. Much more successful efforts to deregulate such industries have taken place recently in Britain and Scandanavia.  Those countries have followed a "Big Bang" pattern, not an incremental approach.  American incrementalism has made the somewhat-deregulated markets a patchwork affair, full of state, municipal and federal turf battles. We end up combining the inefficiencies of state-supported monopolies with the volatility of free-market competititon. The only way to do better is to move forward.

Lesson Two.  Stop pushing worker ownership!   As we noted last week, deep thinkers have long argued that free-market employee ownership is the wave of the future, that it will gradually render irrelevant the long dispute between capitalism and socialism, etc.  But employee ownership at Enron proved a disaster.  Of course, any employee who wishes to invest in the company for which he works should be free to do so.  Our problem is with encouraging that sort of thing as a matter of public policy.  After all, there is a body of old folk wisdom about "putting all of one's eggs in one basket."  If your labor is going into one "basket," your place of employment, then your savings should go elsewhere.  If you have opportunities to invest, you should use them to diversify, by putting my money where we work, or He works, or SHE works, etc. ­ not back where you work!

Lesson Three. Corporate bankruptcy is a racket!  The traditional conception of a "bankrupcy" is a situation in which some insolvent person receives protection from his creditors and a chance for a fresh start in life.  This is a market rational idea, and we expect that in an anarcho-capitalist world, some similar structures will evolve within the free-market courts.  But corporate bankruptcies, especially chapter 11 reorganizations, don't seem to us even remotely market rational.  They are impositions upon the world of free bargaining and contract, in which state action arbitrarily selects winners and losers.

One fairly small example of how this works will serve to make the broader point.  Several of the towns around Hartford, Connecticut have formed a common waste collection system called the Metropolitan District Commission.  The MDC has a contract with a quasi-public organization, the Connecticut Resources Recovery Authority, which turns trash into electric power.  The CRRA gets paid at both nds of its operations: itgets $51 per ton from the towns of the MDC for making the pick-ups.  It also has contracts with other energy firms to whom it sells the power.

Specifically, CRRA has been getting $26.4 million a year from Enron.  This year's payment is late, and it is likely that, given the bankruptcy, that check will never arrive.  In today's (Saturday's) issue of the Hartford Courant, the chief operating officer for the MDC is quoted saying that he expects the CRRA will increaese its charges to the towns to make up for the loss of revenue from the power sale.  Specifically, he thinks CRRA is going to start charging MDC a whopping $82 per ton. That is the sort of wealth redistribution brought about by the corporate bankruptcy system.  Its at the expense, in this case, of ordinary working stiffs and tax payers in central Connecticut who just want their trash picked up at their curb each week.

Fourth, securities regulation is another racket!  Enron's chicanery's were uncovered not by the public officials whose statutory mandates would seem to make that their job, but by Wall Street analysts and  reporters covering the finance "beat."  It was a triumph of the private sector's ability to watchdog itself, and proof that the public sector watchdogs are at sleep even on their good days.  (On their bad days, they are rabid, but that's another story.) 

12-08-2001 

Drawing Lessons from the Collapse of Enron, Part I
This week, we will present the bare facts of the rise and fall of Enron, perhaps the most dramatic story of financial failure to hit the business pages of your favorite newspaper since the collapse of Long-Term Capital Management in 1998. Next week, we will build on this factual base, discussing what lessons should (and should NOT) be drawn from this drama.

Enron was once a rather humdrum sort of company, back when its chief assets were natural gas pipelines.  Then came the internet, and Enron fell into the hands of visionaries, who turned it into a dotcom B2B.  This succeeded marvellously well ­ for a time.  Its EnronOnline energy-derivatives trading system provided the same sort of hedging and speculative possibilities for energy products (natural gas and electricity in particular) that the great Chicago exchanges have been providing for agricultural commodities since the middle of the 19th century.  Enron at its peak reached the Fortune Ten.

Earlier this year, though, the business press, specially the Wall Street Journal, began to run unflattering pieces about Enron's creative accounting.  Its stock tanked.  That was a matter of grave concern to employees, for Enron had pursued what in many quarters is considered the enlightened and progressive policy of encouraging employee ownership.  (Indeed, deep thinkers have long supposed that free-market employee ownership will gradually render irrelevant the long dispute between capitalism and socialism.)  In this case, the employees saw that they were taking a bath ­ even before they began to worry about losing their jobs.  This stock was worth $84 a share in December 2000.  By late November 2001, it was trading at penny-stock levels, $0.26 a share.  By then, the hope that it would be taken over by another Houston-based oil-patch concern, Dynergy, was the last life raft around.

On November 28, Dynergy pulled out of merger talks and, with that raft punctured, Enron's credit rating instantly plunged to the depths.  Standard & Poor' and Moody's both immediately downgraded Enron's bonds to "junk" status.

The following weekend saw Enron's filing for protection from its creditors in a New York court.  The combined list of creditors (for the parent company and for the thirteen major subsidiaries) attached to this bankruptcy petition went on for fifty-four pages.  Enron owes Citigroup more than $3 billion, J.P. Morgan almost $2 billion, the Bank of New York at least $2 billion.  And so on, down those 55 pages. Enron claimed assets of $24.76 billion for the parent corporation -- $50 billion if the assets of the subsidiaries are included.  But of course many of those assets are illiquid.

If you follow the "botom feeder" theory of investing, you might want to get in on this ­ get a secured interest in Enron, in the hope that you will end up with an equity interest in the reorganized company, when it emerges from its judicial cocoon for another flight. Now would be the time to lay bets on that future butterfly. In the week since its bankruptcy filing, Enron has received $1.5 billion in what is known as debtor-in-possession financing from creditor banks. The Wall Street Journal reported Thursday that Enron is in talks with at least three financial institutions to create a joint venture aimed at restoring up the credit worthiness of its on-line trading unit.

Meanwhile, though, critical attention in some quarters has turned to Andersen (the new sleeked-down name for the famous accounting firm that most people still know by its traditional moniker, "Arthur Andersen.")

Andersen's Houston unit repeatedly audited Enron's books, and repeatedly signed on to them ­ in effect, assuring the public that Enron's accounting was in accord with the best practices of the day.  This appears not to have been the case.  It is possible that some of those employees who relied for their pensions upon their participation in the company's stock-ownership plan, and whose nest eggs have been so rudely scrambled, knew of Andersen's reputation as a Big Five accounting firm, and relied upon those see-no-evil audits in their own financial planning, to their detriment.  It appears likely that some of this countries' best plaintiffs' lawyers are eager to make that case.  Andersen represents the nearest deepest pocket around.

These are the facts.  For the lessonswait out the week.

12-01-2001

The Justice Department Headquarters Gets a Name
There stands a large building in Washington DC that will hereafter be known as the Robert F. Kennedy Department of Justice Building.  This is not a particularly surprising bit of news.  Kennedy was Attorney General, after all, and he was subsequently the victim of an assassination, and we keep hearing that President Bush wants to promote a bipartisan spirit of consensus, which presumably means making nice with a powerful Massachusetts Senator.  The name change would have been, then, utterly unremarkable news but for the way in which the former Attorney General's daughter choose to make of it an opportunity for partisan confrontation, and the historical reflections to which that choice naturally lead.

Hours before the building's new name was to take effect, Kerry Kennedy Cuomo, at a human rights awards ceremony, alluded to this building and then directed the following remark to her six year old daughter: "If anyone tries to tell you that this is the type of justice your grandpa would embrace, don't believe it."

Actually, the Bush administration's worst moves in the area of civil liberties seem to us to be precisely the sort of thing that little Cara's grandfather DID embrace, repeatedly.  We have long maintained that most differences between Democrats and Republicans are for the sake of show, and this seems to be a wonderful illustration of that general point.

Yes, George W. Bush has authorized military tribunals to hold trials behind closed doors of foreigners accused of terrorism.  Yes, it is responsible for new rules allowing prosecutors to monitor phone calls between criminal defendants and their lawyers. Are these the injustices that Cara's grandpa would not embrace? We don't have a Tarot deck handy, but there is a historic record.  Robert Kennedy, after all,  worked for Senator McCarthy at the height of that tail-gunner's prominence.  Kerry Kennedy Cuomo's comments remind us of that, and of RFK's authorization, when he became A-G, of blatantly illegal wiretaps of Martin Luther King, Jr.

Kerry Kennedy Cuomo's comments remind us also of the Kennedy family's war on organized crime (in those days it was not yet anathema to call it "the mafia").  Indeed, one of the subtler motives behind the renaming of the Justice Department building may be to associate the domestic, law-enforcement aspects of the Bush administration's "war on terrorism" with that earlier law-enforcement "war."

There was an Inspector-Javert-like quality to RFK's pursuit of any figure, one he had decided that fellow was a tool of the mafia. Consider his shaky case against Jimmy Hoffa, and the bull-dog-like tenacity with which the Kennedy Justice Department made it stick.  In 1952, Beck became union president, and Hoffa his vice president.  Then a Senate committee investigating improper labor practices publicized evidence that the Beck/Hoffa crowd had diverted union funds to their own pockets, and that Hoffa in particular had accepted payoffs from trucking companies.  Beck was convicted on embezzlement and tax fraud charges and sent to prison.  The AFL-CIO, in order to disassociate itself from the corruption uncovered by the McClellan Committee, expelled the Teamsters. But the evidence against Hoffa in particular was unimpressive, a jury acquitted him, and he became union president in Beck's place in 1957.

The chief counsel of the McClellan Committee was one Robert Kennedy. Under him, the Justice Department charged Hoffa with accepting an illegal payment from an employer.  Again Hoffa walked.  But the Inspector Javert's of this world have their ways, and they soon went after Hoffa again, for jury tampering.  This time they were successful, and Hoffa was sentenced in 1964 to eight years in prison.

"Yes, Cara, your grandfather was a ruthless seeker of power, and our greatest hope for you is that in your life you live down that legacy and work to dismantle the structures of power. The building has a perfectly appropriate new name ­ except for the word 'Justice'".

11-24-2001

The Constants of Human Nature
Are we formed by our genes or by our environment?  The only possible answer to this question, of course, is "both," yet differences of degree may be crucial.  Let us look at the matter differently:  how should we understand this notion of a formative "environment"?  Are children gradually reared into an adult-dominated culture, educated and assimilated until they can join it, because they have been molded properly into its image?  Or is that backwards?  Are adults only living out, compulsively and predictably, the traumas of their earliest years, so that education is really only sublimation?

Let us look at the matter from yet another direction: the school of thought known as cultural relativism says, in effect, that there are a number of distinct (deeply and fundamentally distinct) societies or "cultures" that share this planet.  No one who has grown up in any one of them can properly make judgments about what goes on in another, because judgment requires more commonality than exists across cultural boundaries.  It is evil, it is imperialism, it is "orientalism," for anybody in the western world to say that any practice undertaken in, say, Afghanistan is wrong.

The first point to be made about cultural relativism is that it is self-refuting.  (Who is to say that imperialism is wrong?  By what standards?) But that is an obvious point.  A slightly more subtle point is that relativism implies certain definite views about nature and nurture.  It implies that human nature is almost nothing, aside from the obvious physical characteristics of the species, and that nurture is everything: or everything else.  This is wildly implausible.

We have just summarized some very old debates.  Why?  because they became fresher for some of us this week, when television brought us images of the women of Kabul taking off their veils and feeling sunlight on their cheeks for the first time in years.  Was it ever wrong, was it ever imperialistic, to doubt that these women wanted to live like that?  The pleasant feeling of the sun on one's face is a simple thing, an immediate human good.  Depriving people of that good, by decree under threat of death, is bad.  We will stake our all on that transcultural judgment, because the constant human nature that exits beneath and pervades any possible culture demands is of us.

Men and women alike are performing and listening to music again in Kabul.  Children are flying kites.  Is there a child anywhere in the world who will not take pleasure in a kite?   He takes pleasure in it, not because his parents or guardians tell him to, but because moving the flimsy colorful material flutters so appealingly in the wind, and his own hand on the string gives him a feeling of control, of mastery.  Something very mammalian in the human brain find this experience enjoyable.  A rational religion (if that is not an oxymoron) will channel the constant energies of our species, rather than denying them and prohibiting their expression.

All this brings us to the matter of religion.  At The Pragmatist, we do not consider that Islam is as a whole either better or worse than the other two world religions that share with it the same "jealous God." Each has its more-or-less reasonable, more-or-less secularized wing, and each has its fanatical atavism.  Our sympathies lie in each case with the former and against the latter.  The ongoing war reminds us that the atavists know that they are losing, they know that the course of history is against them, and they are becoming increasingly desperate about this fact.  Acts such as flying airplanes into skyscrapers are the acts of unhinged people who both know and insistently deny that time is against them.  So they call a halt to time.  They throw themselves on the tracks of progress to demand that the trains all stop.

Our duty is to keep the trains moving.  Let the sunlight flood in to places now coercively kept in the dark, let it warm faces now veiled.  Let the music play. Let the consciousness grow that there is only one society, only one culture, on this planet, because in the long run there is only room for one.

11-17-2001

Yes, This is a Real Stock-Market Rally
Rob Walker, writing in the on-line magazine SLATE this week, wondered aloud whether we have a "real" stock market rally on our hands, or whether it might be another bubble.  His question is important ­ it goes to the heart of how financial capitalism works (even in its present hobbeld state) and beyond that, it speaks to the issue of how well anarcho-capitalism will work, when we create it.

As Walker quite accurately notes, the market (as measuerd especially by the Dow Jones Industrial index) hit a low on September 21, ten days after the hijackings that shall live in infamy.  It has since moved upward at a pace that has caught most observers by surprise.  At the close of trading on November 15, the Dow was up more than 18% from that low.  (Alternative indexes, such as Nasdaq, show an even stronger rally).

"I thought" Walker confides,  "some of the more extreme predictions of economic calamity immediately after Sept. 11 were overdone. But are prospects for corporate profits really 20 percent better now than they were seven weeks ago? Maybe Mr. Market really does know things that we don't. Or maybe he only thinks he does."  It is our view that the market accurately appraised the situation on September 21, and again accurately appraises them in mid November.  In other words, "Yes, Virginia, prospects for corporate profits did improve by 20 percent!"

Why are prospects better? At least three good reasons come to mind. First, prospects improved because doomsday predictions about oil prices turned out to be unfounded.  Military action in the mideast usually causes an upward spiral in prices, which cuts into profits in petroleum-dependent industries, which in turn hurts the stock prices of firms in those industries.  This time, though, oil prices declined at the start of the current crisis and have remained low since. Russia has thrown in its weight with the US, which assures that oil will continue to flow. Military action in the middle east or southcentral Asia has usually produced precisely the opposite effect on oil markets, so this is good news that could not have been part of those earlier bearish calculations.

Second, developments in Argentina seem positive. Bond holders will take a hit on the rescheduling going on there, but it won't be an outright default, and it won't cause the sort of chaos in the bond markets that a default would have. This has only an indirect impact on stock markets, of course, but it does remove a certain load from "Mr. Market's mind", if we may adopt Walker's anthropomorphism.

Finally, the feds have settled with Microsoft, and half of the states have signed on. Mr. Market is happy about this, and doesn't believe that the other half of the states have the juice to mess this up for MS, which fact has ramifying effects throughout the high-tech portions of the economy.

Are we saying that investors (or their intermediaries, broker/dealers) are a bloomin' bunch of geniuses, who figure such things out before the yokels in Omaha could?  That is a cartoonish re-write of the rational-expectations view of the stock market one often encounters, but it is not implied in any of the above. The point, rather, is that the financial system as a whole knows more than any of its parts.  Every neuron is stupid but the complete functioning brain is intelligent.  No broker/dealer is necessarily a brighter "neuron" than the fellow driver a tractor in Nebraska might be.  But the broker/dealer is at the heart of a system that, in its totality, due to the crucial characteristics of liquidity and transparency, conveys accurate information about corporate profit prospects.

This illustrates the Austrian concept of "spontaneous order."  The only lasting sort of social order is that which arises through the unplanned higgle-haggle of buyers, sellers, renters, investors, etc., each seeking his/her own profit, none seeking or professing to seek the good of the whole.  That higgle-haggle will produce, precisely, the good of the whole.  Anarcho-capitalism: catch the fever!

11-10-2001

Meet Mike Bloomberg, the Latest Entreplut
This Tuesday, Michael Bloomberg won a narrow victory over Mark Green, becoming the new mayor of New York City.  The margin of victory in the city of 8 million was about 30,000 votes.  Bloomberg, an immensely wealthy man, (made so by the profit margin on all those "Bloomberg boxes" ­ specially adapted personal computers designed to provide every possible permutation of financial data in real time and on the click of a mouse) spent more than $50 million of his fortune on this campaign.

None of that spending was wasted.  Bloomberg was the Republican nominee, after all, and the Democrats have a 5-to-1 registration advantage over the GOP in the big apple.

Bloomberg's victory was part of a trend: that of the billionaire candidate, escaping the effects of campaign-contribution limits by the use of his own wealth.  The most interesting of these candidates have an entrepreneurial youth, and turn to politics (or "public service" as they typically prefer to call it) in late middle age.  Jon Corzine, who was once the chief executive officer of Goldman Sachs, and is now the junior Senator from New Jersey, is another example, as is two-time presidential candidate Ross Perot.  Once is a fluke, two is a coincidence, three times is a trend.  Each of these three men (Perot, Corzine, Bloomberg) has some claim to the title of self-made multi-billionaire, although of course none were born in log cabins. Bloomberg's father, William, was a bookkeeper who never earned more than $13,500 a year.

Each of these entrepluts makes a striking contrast with either of our last two Presidents.  Bill Clinton never had any career in the private sector to speak of.  He has spent his entire adult life as a public official or a candidate to become one, and now he will likely spend the rest of it as a professional ex-President.  George W. Bush was born into a wealthy family, and drifted through life on that piece of luck until well into middle age, when he entered politics perhaps as just another form of drifting when baseball team ownership got boring.  The professional politician and the silver-spoon baby are familiar types.

Bloomberg and the others represent a less familiar type.  Let us call them the entrepreneurial plutocrats, (or just the entrepluts?)  Why are they such a prominent part of our national life just now?  There are two answers to that, the "demand side" answer and the "supply side."  What kind of candidate is the voting public demanding these days?  And, what kind of candidate is the political system (not just the financing rules, but the party structure and even the political culture of the day) prepared to supply?

On the demand side, it is notable, and in a sense humorous, that the non-billionaire opponents of such candidates have been unsuccessful at using the entrepluts' deep pockets against them, by making  that wealth a target of public resentment.

Campaign consultants for the non-billionaires are often understandably dismayed by this!  They form their focus groups and they probe potential voters, asking and re-asking and re-phrasing the same question: "Aren't you ticked off that Corzine or Bloomberg is spending so much of his money to try to buy this office?"  But they never hear what they want to hear.  They get a range of responses that starts with a neutral shrug of the shoulders and works its way up to positive enthusiasm, "It's a relief to vote for somebody who knows how to run a business, who built one himself, who is putting his money to such a public-spirited use" etc.

But enough of such detached analysis!  What should lovers of liberty think about the entrepluts?  Our thoughts must begin with this: they often come to feel guilty about their own wealth, and end up supporting a lot of left-liberal restrictions on the ability of unfortunate latecomers to do what they did.  That, so far, has been the central motif of Corzine's Senatorial career, and of course on behalf of those latecomers, and on  behalf of everyone who may yet benefit from the wealth they ought to be allowed to create, we have to resist the entrepluts.  The best that can be said of them as a group is that they are far from being the worst adversaries of liberty ­ at home or abroad.

11-03-2001

October was a Good Month for Gun Owners, and Merchants
We stand at the start of November and look back upon a fascinating October.

Three developments last month must cheer those of us who believe in an armed and vigilant populace: one took place as the month began, a second smack in its middle, and the third as it ended, and trick-or-treaters hit the streets.  On the first of October, then, the Connecticut Supreme Court upheld a trial court, which had dismissed a lawsuit brought by the biggest city in that state, Bridgeport, against the major gun manufacturers.  This was the first time any state's highest court had ruled on the civil-liability question that Bridgeport was raising, although it will not be the last. 

Around the country, the mayors of and counsels for a variety of cities have decided to do for the gun industry what the state attorneys general of a few years back did for the tobacco industry.  Fortunately, the mayors are having a tough time of it, and with this decision it can only get tougher.

Bridgeport claimed standing to sue due to the effects of gun-related crimes upon the costs of municipal services, a reduced tax base, loss of investments and development, and injury to the quality of life in Bridgeport's neighborhood as well as the costs of detecting, investigating, and prosecuting the perpetrators of gun-related crimes. David J. Elliot, the attorney who successfully defended Sturm Ruger, described the position of the defendants this way, "The harm asserted by the city was too remote and too indirect to give the city standing to raise the claims it raised."

Of course, Mr. Elliot is right, and we congratulate him on his victory.  The city's claim went far beyond any common law conceptions of breach of duty or proximate cause of harm.  There are two reasons why Bridgeport's Mayor, Joe Ganim, (a lawyer himself, and knowledgeable enough to understand Elliot's point) brought this claim.  The two reasons are the old ones: money and power.  Sturm Ruger, Smith & Wesson, Colt, and other defendants are deep-pocketed corporations and tort lawsuits have long served as the weapons in such shakedowns.  Beyond that, politicians who haven't been able to get the gun regulations they want legislatively, seek the same from the courts, often occupied (as in the federal system and in Connecticut) by unelected and unresponsive, lifetime appointees.

This brings us to the middle of the month.  On the 16th , the fifth circuit court of appeals ruled explicitly that the second amendment protects not just some "collective right" to bear arms within one's state's National Guard, but the personal right to keep and bear arms.  It hedged on this right somewhat, but it acknowledged that there is such a creature.

The fifth circuit case, known as Emerson, arose out of a Texan domestic dispute. A wife, divorcing her husband, obtained a restraining order limiting her husband's conduct in certain specified ways. The order did not forbid him from owning a gun, but a federal statute prohibits ownership of a gun by anyone who is subject to such a state-law-based court order.  Emerson contended that the federal statute, as applied to him, violated the U.S. constitution for a variety of reasons, the second amendment among them.   The federal district court agreed with him, specifically on the second amendment grounds.  Mrs. Emerson appealed, and the case quickly became a cause celebre.  The fifth circuit has now said that yes, Emerson does have a constitutional right to bear arms, but he can be deprived of the exercise right if the deprivation follows due process of law.  It is unclear whether the two Emersons will accept remand to the trial court to litigate the matter further on these instructions, or whether one or both parties will appeal to the Supreme Court.

So you see already that it was a good month for gun freedom.  But what was the cherry on this sundae?  What happened on the day of trick-or-treats?  Federal authorities announced the indictment of Joe Ganim on a variety of corruption charges.  You knowJoe GanimMayor of Bridgeport?  See the first item above.

10-27-2001

Some Hope Arises from the Rubble
We don't know what people will say about the twenty-first cenury when it nears its end.  But we are reasonably certain they will consider it a lot different than was the twentieth, and we hope they will consider the newer century a vast improvement over its precursor.

How might the attack on New York City yet be turned to the cause of a better world, (by which we at The Pragmatist mean mostly a less governed world?)  We offer one hypothesis ­ this attack spells the end of the "central city" in a characteristically 20th century sense, and in that ending there is hope. The city as the center of a broader region, as romanticized for example in the books of Jane Jacobs ­ the city as the place that radiates vitality toward the outlying areas, finding markets there and creating ever-new uses for their resources ­ the city as the indispensable gathering place.  This may be finished.  Early in the 20th century, the growth of these central cities meant that there were too many people fitting into too confined a space, at least during working hours.  Instead of building out, then, architects and engineers found a way to build up.  They created the skyscraper. 

By the 1930s, various fancy architectural theorists had a polysyllabic phrase for this, "vertical aggregation."  Le Corbusier was especially enthusiastic.  The high-rise was not, he thought, just the inevitable place where office workers could spend their daylight hours, it was also the best possible environment for those who wished to make a home within city limits.  The sociologist Sudhir Venkatesh recently put it this way, "Le Corbusier reduced the city to composites of steel and glass high-rises, vast isolated tracts of unused public spaces, and expressways that moved through the expanse to connect the physical structures with one another."   Every major American city now has big ugly rectangles, known in the vernacular as "the projects," and they derive their look as much from Le Corbusier's elegant and misguided theorizing as from any other source.

But when people are brought together into central locations, whether for living or for working, they become that much easier to control and command.  With the central city, came the central state and its hierarchical, bureaucratic way of doing business.  No wonder the defenders of statist power, the Al Gores of the world, denounce "sururban sprawl"!  People who are spread out are that much more difficult to regiment.  Reason enough, we think for libertarians, and especially for anarcho-capitalists, to develop some enthusiasm about such sprawl.

Also, with the "central city" comes the necessity of the long commute and the traffic jam.  If people in the suburbs could live nearer where they worked, because of a general decentralizing of economic activity, then we as a nation would not be as addicted as we are to the import of oil from distant regions, an addiction that was also part if the chain of causes and effects leading to the attack on September 11.

But whether we are enthusiastic about it or not, the sprawl is here and it will continue.  Indeed, it will accelerate, now that the vulnerability of those conspicuous gleaming urban towers has been made so painfully, pathetically, obvious.  The vogue for "projects" development in Le Corbusier' style has long since past.  The vertical aggregation of offices, though, continues.  Or it did until September 11.

One of the marvellous accomplishments of recent technology is that there is no physical need anymore for people involved in the same meeting, the same business deal, actually to gather in the same building.  Likewise, there is no commercial need for a multinational corporation, or a brokerage firm, to have a single Mega-Headquarters.  It can have a lot of little heaquarters, each in a single-story building, if it wants.  Those little headquarters will themselves constitute some more of that suburban sprawl, and will create new difficulties for the control freaks of the world.  Bring it on!

10-20-2001

A Judgment About Post-Modern Art?
One evening earlier this week, Damien Hirst,  prominent London artist, set up his latest brainstorm in a room in the Eyestorm gallery in that city.  Hirst, by the way, is best known for his so-called "spin paintings," which are created by throwing paint at a canvas which is rolled up into a cylinder and revolving.  These sell for 40,000 pounds sterling (and a pound is worth about $1.43 ­ we'll leave further arithmetic to you), proving again that there's no fool like a wealthy fool.  

Anyway, this week Hirst tried something different.  He set up a representation of a messy artist's studio ­ including empty booze bottles, cigarette boxes, full ashtrays, and candy wrappers. The next morning,  a janitor named Emmanuel Asare, walked into that room and, in the normal performance of his duties, cleaned up the "mess," putting it all in a trashbin.

Museum officials managed to retrieve the stuff before it was carted off to a landfill somewhere.  It was put back together using photographs of its original condition.  A spokeswoman has also assured the British press that Mr. Asare has not lost his job.  I would bloody well hope NOT!  One suspects, from the evidence at hand, that he is a much more productive and useful subject of her majesty the Queen than is Mr. Hirst.

David Lee, editor of the art newspaper Jackdaw (and so not someone who can lightly be written off as a philistine on these matters) made an appropriate comment.  "If it doesn't look like a work of art, you can't blame people for getting rid of it.  It is actually not difficult to replace it.  Anything of seriously lasting value would be irreplaceable."  Mr. Hirsch's defenders cite as a precedent the surrealist Marcel Duchamp ­ who once exhibited a urinal under the title "Fountain."  It was art (runs the surreealist theory) simply because it was presented as art, in a museum.  But by the same logic, Mr. Asare's judgment, too, was impeccable.  As soon as he put the "art" in a trash bag it became, by such locational definitions, trash.

This is an amusing story which can take our minds for a minute off depressing war news, and we're all entitled to a laugh.  But is there a broader point to be made here, about aesthetics, and about the divergence between elite and mass culture?  Well, yes.  We might try to formulate a non-circular definition of art (in other words, something better than, "the stuff that gets exhibited in art museums.") The nearest dictionary that comes to hand first defines "art" in a broad sense and then defines the "fine arts" as a subcategory.  In the broadest sense (say the lexicographers) "art" includes "any specific skill or its applications."  But in the narrower sense, the fine arts "a making or doing of things that have form and beauty."

That sounds about right.  Good janitorial work is a skill, and no lexicographer would object were Mr.Asare to write a book titled The Art of Cleaning Buildings. Likewise, nobody objected too strenuously at the title of Donald Trump's memoirs, which he called, The Art of the Deal.  In THAT sense, Mr. Hirsch may indeed be said to be an artist.  He has the skill of persuading museum directors to let him do his thing on their premises, and persuading wealthy art patrons to buy what they see.  The specific applications of that skill may be said to be an art. We like to think, though, that that particular skill will get more difficult over time, as the expectation of potential buyers rise.  The wait may yet be a long one.

But the fine arts? ­ no, it does not seem to us that Mr. Hirsch has any claim to be practicing any of them.  We believe that an unsatisfied market demand for the fine arts does exist, and that here and there entrepreneurs are attending to it.  But the "mainstream" cultural establishment nowadays stigmatizes even the desire for fine arts, for the real thing, as philistinism.  We think that an exercise of their prerogative, of course, as free men and women.  Nonetheless, it is a shame.  It is also odd ­ the mass culture longs for "fine art," whereas the elite culture is satisfied simply with "art," as in the art of the deal.

10-13-2001

The Debate About Corporate "Poison Pills"
Shareholder activist Herbert Denton has just announced that the revocation of poison pills is his new cause.  Some large investors have rallied behind Denton. Mario Gabelli and William Miller are among them.  Should libertarians (many of whom also, of course, are investors with shares of common stock in various companies) lend our numbers and our proxies to such a crusade?  We won't offer a definitive answer here but will take the first three steps.

The first step is to get our definitions in order. A poison pill is a corporate by-law that attaches to certain classes of stock expensive redemption provisions that will be triggered by any hostile takeover attempt.  In effect, then, a poison pill frightens away bidders, and so deprives shareholders of the opportunity to receive the "control premium" that takeover bids typically involve.  It also has the general effect of entrenching incompetent managements from the threat posed by more competent bidders!

Naturally, these provisions, often adopted by boards of directors without any explicit shareholder assent,  are controversial and are frequently the subjects of litigation.  They seem to have been invented in the early 1980s, by a New York attorney named Martin Lipton. That was a golden age of corporate takeovers, when managements were desperately casting about for good ways to entrench themselves into their prerogatives.  "The rationale was to level the playing field between the raiders and target companies," Mr. Lipton told a reporter for Reuters this week.

Many shareholders think that such plans are a cheat.  "I might be perfectly happy to sell by stock to a corporate raider.  Management's concerns are not mine.  And if I want to make that deal, and the would-be raider wants to make that deal, then we should be free to make it, third party interference be damned!"  So runs the argument. Unfortunately,  in a landmark decision in 1985, Moran v. Household International,  the Delaware Supreme Court upheld poison pills. Yet that was not the last word.  In a 1998 decision the Delaware Court of Chancery said that some poison pill plans go too far, and it struck down the one in the case before it as a violation of Delaware statutes.  The court described the issue in such cases as a tension between "the directors' acknowledged authority to manage the affairs of the corporation, and the shareholders' independent right and authority to choose the corporation's ultimate destiny."

The second step, then, is to grasp that "corporate law" is by definition the creation of the state.  In the US it is a complicated intertwining of the state law of Delaware on the one hand, and federal securities regulation on the other.  What would happen in a free society?  We expect that many voluntary associations would arise that would pool the assets of investors in something very similar to the corporate form, simply because it is a very efficient way of raising risk capital and doing business.  Furthermore, in many of these cases there would be a "secondary market" in stock, or in whatever documentation established voting rights within these neo-corporations ­ and there would be the possibility of takeover attempts.  The "law" that pertained to such takeover attempts would arise through explicit contract and through custom, not through the declaration of a sovereign's legislators or judges.  This law of contract-and-custom might have to be interpreted by free-market courts ­ mediators or arbitrators chosen and paid for by the parties. If they got into the habit of having their decisions printed up, and then of reading each other's rulings, something like the old "common law" might re-emerge through spontaneous order.

The task for libertarians, then, is to establish as best our circumstances allow, whether and when "poison pills" would come about and would maintain themselves over time within a free system of that description.  Then we should work, through our own proxies and, if necessary, as litigants, to make this system approximate that one.

The third step in our analysis is to offer a working hypothesis.  So we propose this one: no directors should impose a restrictions on the resale of stock, regardless of real or imagined takeover threat, unless a special meeting of shareholders called for the purpose specifically approves of it, and approves by a supermajority establishing a genuine consensus.

10-06-2001

The Meaning of the Rubble in Southern Manhattan
Last week we discussed the "machinery of collective delusion" as it has been working (on overdrive!) since the terrorist attack of 9/11. This week we propose to take a more positive tack. What is the undeluded (and undiluted!) truth of the matter?

We believe that September 11 marks the end of a long-standing constitutional regime in the United States,  a regime that lasted for sixty-four years, since the Supreme Court abandoned its opposition to the New Deal in 1937.  This year, then, marks the beginning of a time of turmoil.  In the nature of things, the turmoil of the next few years will constitute a transition ­ some new stable equilibrium will arise somehow.  But what that order will be like, whether it be nearer or farther from our ideals than the one now passing away, we cannot say except as an expression of hope.

Yet let us say what we know. The first stable political system within the territory now known as the United States was the monarchy of Jolly ole England, in the rival plantations of Virginia and New England.  The rivalry was real ­ cavaliers to the south, and lowchurchmen, pilgrims and puritans and the like, to the north.  Yet despite the tumults between those factions in the mother country (up to and through a civil war) the colonists held together fairly well, perhaps because they had too much else on their minds in their unfamiliar surroundings to fall upon one another. So let us call the period 1607- 1675 the First Monarchy of the (future) United States.

In 1675, though,  King Philip's War broke out in New England, followed shortly by Bacon's rebellion to the south. In the late 1680s, the colonies stuck in this period of transitional turmoil started getting confusing, even contradictory, orders from the mother country, itself in the midst of the transition that, in hindsight, the Brits call their "Glorious Revolution."  After the dust settled, once William and Mar