Time for my once-monthly political screed. But first, see “Developmental and ethical considerations for biologically uplifting nonhuman animals,” by George Dvorsky... opining that we humans will soon attempt what I described 30 years ago, when I coined “uplift” in several novels that explored the concept from many angles. George's fascinating paper, might have benefitted from more on the sfnal history of the idea. Before me, HG Wells, Cordwainer Smith, and Pierre Boulle depicted humans endowing animals with powers of intelligence and speech - though always in a context of abuse and involuntary servitude. Indeed, those cautionary tales may have helped ensure that it will be done openly and accountably, hence qualifying the tales as "self-preventing prophecies." Allowing me to be the first to ponder "what if we tried to do uplift ethically and well?"
...and now, current events...
"So long as risk is effectively concealed from borrowers and lenders or actually shifted to others, risk-taking will be excessive. The initial phase of excessive risk-taking will manifest itself as an economic boom, but eventually, when actual losses begin to change the perceptions of borrowers and lenders and begin to impinge upon unsuspecting others, the boom will give way to a bust....[A] market system whose credit markets involve risks that are partially concealed from the lender and partially shifted to others will be biased in the direction of excessive risk-taking. And excessive risks are converted in time into excessive losses." --Roger Garrison
“Neither the U.S. government nor anybody else is capable of estimating the ultimate cost of bailing out such corporate giants as Citigroup, AIG, General Motors, Fannie Mae, and Freddie Mac (and the list goes on). There are two reasons for this. First, on a stand-alone basis, these companies are opaque and indecipherable entities. Financial innovation left transparency in the dust. Wall Street devoted much of its intellectual and political capital to concealing the risks it was creating. This concealment was deliberate; products needed to be priced inefficiently to produce profits.” - Michael Lewitt
Ironies abound. Though I consider myself something of an open market libertarian, I have long warned that we've been slipping into a putsch-coup by a conspiratorial oligarchy. There is, of course, no contradiction. The patron deity of capitalism, Adam Smith, declared that the very worst enemies of markets (far worse than socialism), are conniving aristocrats and top lords of finance.
Smith made clear (as I'll reiterate) that capitalism and top capitalists are often NOT the same thing. Indeed, the latter can often be lethal to the former.
I nevertheless have never favored the notion that the government should set CEO compensation rates. That populist response to justified public anger, simply answers one anti-market cheat with another, at a time when what we really need to do is restore markets to health.
Alas, I find myself hoping for a bit of a delay in the Big Obama Recover, if only because America needs a taste of radicalization, at this moment of history. Not enough to send tumbrels through the streets, or mobs waving red banners, or a tsunami of wretched, hypocritical Timothy McVeigh clones blowing up buildings. But enough to not let the reforms stay superficial -- simply a matter of the government buying out the godawful horrid mistakes of a clade of business morons who styled themselves as geniuses. We cannot continue to ignore the cheat that brought us to this mess and provoked public wrath. This cheat goes deeper than any problem of excessive-leverage, or negligent mismanagement, or failures of regulation. Much deeper, since it caused all of those.
WHAT WAS THE DEEP CHEAT?
It was the creation of an international <i>cartel in top-level management,</i> which acted monopolistically, in blatant restraint of trade, in order to corner the market in a single valuable commodity -- managerial positions atop major corporations -- especially international financial institutions.
Sure, these guys maintained a superficial appearance of competing... while appointing each other to each others' boards and desperately fostering the mythology of the indispensable, hyper-elite manager.
Along the way, the era of business leaders like Walter Wriston -- a bygone day when banks were led by bankers -- gave way to one of paper-magicians, engaged in smoke, mirrors, and incantations, siphoning commissions off of every churn as they created "wealth" based upon pure subjectivity and illusion. These fellows justified their cycle of reciprocal compensation boosting -- a clear case of a "circle jerk" -- by claiming to be mutant-level geniuses... like pro basketball players... who were so far at the end of the gaussian curve that normal market laws of supply and demand simply did not apply to them.
That is a point worth careful pondering. (Yet no one speaks of it.) For if basic economic laws were to apply, then high CEO salaries should have drawn in talent from other realms, from science, politics, law, the arts, until, by simple economics, the new, copious supply of managerial talent would bring pay levels down again.
In other words, the market forces that these fellows claimed to devoutly believe in should have brought CEO compensation rates back to sanity naturally, organically, through Amith's marvelous invisible hand!
In fact, many of these guys did come into management and finance earlier, for precisely that reason, drawn by hope of rich compensation, elbowing aside the Wriston-types who still thought (the old-fashioned fools) that banks should tend the mortgages they sold. Hence, the clade of super-manager golf buddies did once believe in supply and demand... back then.
Only, later, these supposed defenders of market capitalism (in theory) declared that supply and demand had no meaning at their stratospheric level of talent!
Talent that proved -- and let's emphasize PROVED -- to be utterly delusional, at all levels and in all ways. Almost any sensible person would have done a better job with Citibank. I would have. So would you.
THE MIND BOGGLING GALL
What boggles me is that nobody seems at all interested in putting any of this into the context of human history, revealing the pattern for what it is. Part of a tedious cycle that is - actually - quite typical. Nearly all human eras saw markets spoilt and ruined by their real foe -- one that (let me repeat) Adam Smith himself decried as far worse than socialism (though socialism also sucks). That enemy is collusional oligarchic cheating by cronies of the king.
Recall how Louis XIV said “l’etat c’est moi”? (I am the state.) In a similar manner, members of the financier cartel proclaim that any attack upon them is an attack on capitalism itself. But that is the proclamation of all parasites. And it just ain't true. Capitalism is not the same thing at all as fat, lazy, conniving and uselessly stupid capitalists. Indeed, the purpose of actual competition is to Darwinnow out the fools and keep the others nervous! No wonder they prefer a cartel!
In order to save free enterprise from a monopolizing cartel, the answer is simple. Do not bother trying to set prices or limit CEO salaries. That is simply acting like a cartel again!
No, the thing is to break up the cartel! There are already laws against interlocking directorates and conspiratorial restraint of trade. Enforce them. See to it that boards represent a wide variety of stockholder and creditor viewpoints, including dissenters and skeptics. Ensure that the CEO supervised by one board member does not sit on the board wherever that fellow is CEO! Insist upon radical levels of transparency. Seek objective metrics of managerial success that actually correspond to practical decisions. But above all, break up a conspiratorial cabal of ripoff artistes that threatens our security far worse than OPEC ever did.
BRIN’S “SUGGESTIONS” REDUX
One proposal that maybe I should not have included in my list of 100 unusual suggestions for the Obama Administration was that we consider a change from 20 years of failure in Somalia and try something else -- possibly supporting the orderly, organized and lawful northern tribes of Somaliland. (In a recent development, it appears that the Obama administration is doing something very similar to what I recommended, only instead quasi-adopting the neighboring Somali region known as Puntland. Recently, US naval forces delivered several captured pirates ashore at Puntland, for trial, an implicit recognition of sovereignty... even though some pirate ships have always operated out of Puntland but never (apparently) out of Somaliland.)
Now I have something similar -- to not so much to suggest as to tickle the imagination. First, consider the awful situation that the Obama Administration faces, in Afghanistan and Pakistan. One is a failed state where “empires go, to die.” Since Alexander, no imperial pax has ever intervened there without screaming in pain and leaving in ignominious defeat. We’ve actually done very well, by comparison, but the prospects aren’t good.
Nor are they bright for Pakistan, a nuclear power, portions of whose population are smart and educated and modern oriented... but thrown into national instability by a northwestern region that is radical, violent and rife with lawless chaos. See an article that describes how both Waziristan and Swat Province have been effectively handed over to a Taliban franchise, by a Pakistani government that has given up enforcing its own laws.
Deals that the Pakistani government makes with the Taliban are a comprehensive strategic victory for the Taliban and Al Qaeda. One, they ensure that the over hundred thousand Pakistani troops in the region are no more a threat to them or to their goals. By securing their eastern front through peace deals with Pakistan, the Taliban and Al Qaeda are free to focus their entire firepower on U.S. and NATO forces. Two, the deals give the Taliban and Al Qaeda safe havens where they can train, recruit, and fund raise. These provinces give them a strategic depth against western forces. Now they have safe homes in Pakistan to retreat to and resuscitate in, so they can return to fight another day in Afghanistan. Three, the frenetic burning of girls’ schools, destruction of non-Islamic texts or other books, and demolition of museums and libraries will guarantee this region remains both backward and a hotbed of anti-western activity.
But the most dangerous consequence is the loss of land. Taliban now control vast territories in the South East of Afghanistan and North and West of Pakistan. They are steadily carving out a Talibanistan — a state perpetually at war — that will nestle between Afghanistan and Pakistan and prey on both of them for territory, fighters and resources.
It is a disturbing and worrisome diagnosis. If imagination is to be applied - with the aim of offering solutions - then first we must start with a simple question.
Who is causing all the trouble in both Afghanistan and Pakistan? If you answer “radical Islamists,” then you have drunk the same koolaid that has been poisoning clear thinking since long before 9/11. The same thing happens when you shrug and call the region “Talibanistan.” By blaming all of Islam, you simply drive more good Muslims into thinking that we hate them all.
In fact, the Taliban and its allies in Pakistan are driven, at least to a large extent, by the quirks of a particularly passionate and intensely determined tribe called the Pashtuns. Long before it was called Talibanistan, the region on both sides of the border was known as Pashtunistan.
The Pashtuns are an unusual people by many measures. Realization of this fact goes back to when scholars cited remarkable linguistic and cultural features, suggesting that Pashtuns are direct descendants of the “Ten Lost Tribes of Israel.” If true, it would be profoundly ironic. Today, their passion seems directed toward destabilizing both Afghanistan and Pakistan, with radical Islam as the superficial meme. But if you look at how they treat their fellow Muslims, it is clear that fierce tribalism is a stronger undercurrent.
Of course, the obvious (if cynical) solution is also blatantly impossible -- though it still merits a passing thought -- or some due diligent appraisal at the highest levels, before it’s dismissed. That solution is separation -- allowing both Pakistan and Afghanistan to cleave off, legally, territories that they have already lost, de facto. Fashion Pashtunistan into its own entity and encourage those radical Pashtuns who reject modernity to choose life there. This might allow the remainders of both Afghanistan and Pakistan to go about their business in peace... a result that could be precious beyond pearls.
Might this then leave us with a hostile and radical Pashtunistan that is wholly and directly controlled by the Taliban? A national entity, eager to promote terrorism, the way Afghanistan was, till 9/11??
Well, here is one of the beauties of statehood. It forces some degree of realism - not always, but often. For one thing, once you have a formal government, a capital, a treasury, currency etc, you now have something tangible to lose. If such a state began acting in hostile ways, the Pakistanis -- and the Tajiks and Uzbeks and Haziri etc of Afghanistan -- would be far better placed to retaliate against a state than against a murky guerilla force. So would the US and NATO. International retribution would be far more feared by a Pashtun state than it is by tribes that have nothing to lose and can just scatter into the hills!
All right, back in 2001, the Taliban who ruled Afghanistan were in a similar situation, and they proved undeterred in their support of Al Qaeda, even knowing that America would have to come, after the 9/11 attacks. Still, most observers say that Taliban were rudely shocked by the ease with which their nation was brought down. It is doubtful that another radical (and non-petroleum producing) Islamist state will be quite so cavalier or careless.
Well, it’s a thought. Even though it certainly won’t happen.
AND THE WORLD’S ECONOMY TURNS
Microsoft’s Steve Balmer recently: “For the past 25 years, the world has certainly enjoyed incredible, incredible global growth. Average incomes around the world grew at unprecedented rates, millions of people moved from out of poverty into the middle class for the very first time.
“I think that expansion was built on three things: innovation, globalization, and debt, increasing debt. American technology was certainly at the heart of the innovation that played the central role in the process. The PC, the Internet, fiber optics: Those things were things that continue to keep America at the forefront of technology, and really at the lead of a growing global economy. But over time, over the last period of time, the balance has really shifted. Instead of innovation and productivity driving growth, it’s really been unsustainable levels, particularly of private debt, that have been a key driver of economic growth.
“In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent. Last year, private sector debt as a percentage of the GDP: 300 percent; far more leverage. And you can see it’s been a steady increase basically since almost the end of World War II. In my view, what we now have will be a fundamental economic reset. The economy is going to have to reestablish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate.
“In our opinion, in order to reach the reset point, three things need to happen. First, the economy must be deleveraged. Private debt as a percentage of GDP has to be reduced. Restoring health to the nation’s financial system is a fundamental part of this. Second, confidence must be restored. The stimulus package, in my opinion, is vital. It will provide a cushion as we reach the reset point and it will help restart our economic engine. Third, America really has to return to growth that’s built on innovation and productivity, rather than leverage and private debt.
“This is a once-in-a-lifetime economic crisis. There is a lot of history around that, and frankly if you stop and think about it, 1837, ‘73, ‘29, 2008, it’s almost exactly a whole lifetime between each of the major economic difficulties that we face. But I think it’s also a once-in-a-lifetime opportunity to think about our priorities again and make the investments that put us on the right foot.”
In fact, Balmer should have included 1819, the nation’s first major depression. In which case one notices that the gaps between each collapse and the next one are getting longer at a steady rate. 19, then 36, then 57, then 79 years. Of course this selectively excludes smaller recessions and “panics” so one can be dubious.
Anybody who has contacts with companies either in DC or Phoenix (e.g. Motorola), I’ll be in those two cities and open to suggested folks who might want an inspirational and stimulating speech or consultation about “the future.”
This is perhaps the last installment of the Bush era in comedy. In fact, about half of them were unfair gotchas. But I'm in no mood to cut him any slack.