Posted 11:30 PM by Robert

Decline and Fall


According to an article in the current Wall Street Journal Online [link requires paid subscription] “the average value of urban commercial property [in Japan] has fallen 84% from its high and is still declining, worsening bad debt problems everywhere.”

That sounds like a big fall off in commercial real estate prices. Have such prices now become realistic? Consider that in the late 1980’s one read routinely in American papers that the grounds of the Japanese Imperial Palace (a little more than 200 acres) were "worth" – simply as raw land and without attributing any historical or artistic value to the palace buildings - more than all of the real estate in California. If the “value” of the land around the Imperial Palace real estate has fallen only 84%, then the current value of a parcel of less than 2000 acres in central Tokyo is still “worth” more than the all of the real estate in California was worth in the late 1980’s.

Really?

Sounds like those Japanese bad debt problems are going to get a whole lot worse.

Posted 11:27 AM by Robert

Pneumopathologies

As we all now involuntarilly know, inhalation anthrax is its most deadly form. Barry Cooper of the University of Calgary terms doctrines such as those undergirding al Qaeda and other terrorist movements "pneumopathologies" this way:

"Regarding the kind of free-floating pneumopathologies of Raël or McVeigh or Asahara there is probably not much to be done. Robert Musil, whose great novel, A Man Without Qualities, is a long meditation on pneumopathology, once observed that political realism was driven by needs not ideas."

Posted 11:27 PM by Robert

Al Qaeda’s Contempt for Islamic and Afghan Lives

General Tommy Franks, the commander of U.S. forces in Afghanistan, said over the weekend that the U.S. has discovered an abandoned biological-weapons lab near Kandahar. There's lots of evidence that al Qaeda was gathering the technology and expertise to weaponized anthrax on a large scale at that location. Al Qaeda abandoned the facility before construction was complete.

Naturally and correctly enough, General Franks and the American media are focusing on the potential threat to America this biological facility would have posed - and the possible links it suggests to the post-9-11 anthrax outbreaks in this country. But people throughout the world – especially those faithful to Islam who might at some level be drawn to al Qaeda - should take note of the almost inconceivable risk al Qaeda was creating for the lives of the residents of Kandahar. For if al Qaeda had completed its anthrax production facility, the residents of Kandahar would likely have been its first victims.

Kandahar can thank its American invaders that that city did not experience a fate at least as hideous as that of Sverdlovsk (now called Yekaterinburg), Russia, where dozens of tombstones mark the consequences of what happened on an April morning in 1979, when a small amount of anthrax dust was accidentally released through the ventilation system of a Soviet anthrax production facility located there. The invisible plume blew through a working class neighborhood and a ceramics factory. It is believed that almost 70 people died horribly in civilian hospitals, and that number doesn't include the many soldiers who also probably died.

It is very hard to believe that the conditions in the Yekaterinburg anthrax production facility were not vastly safer and more professional than whatever primitive set up al Qaeda would have been able to create in Kandahar. Can anyone doubt that the al Qaeda facility would soon likely have emitted its own anthrax plume over that Holy City if the facility had been completed? Nor would Afghanistan have had any ability whatsoever to treat such anthrax victims with antibiotics or otherwise.

The victims would have been Islamic Afghans. Al Qaeda didn't seem to care too much about that.

Other potential hosts of al Qaeda might want to keep in mind this example of how al Qaeda rewarded the hospitality it received from the Taliban, who had Kandahar as the very center of their movement.

Posted 10:20 AM by Robert

Update: The Criminal Law and Married Couples

The ongoing confused but agitated efforts to hold Russell Yates responsible for his wife's murderous acts are well exhibited in a recent Newsweek article. Showing its especially creepy side, Newsweek refers to Mr. Yates throughout the article by the faux-affectionate name "Rusty," even as the magazine implicitly lobbies for his arrest and indictment, suggests that he was responsible for the murder of his children, and generally favors the utter destruction of everything that is left of his life. Perhaps I missed it, but I don't detect the slightest hint of human warmth or understanding for a man whose wife murdered their children, a man who has nevertheless stood by her with near superhuman compassion. The article makes one wonder if it is now a prerequisite for employment by Newsweek that a reporter have spent substantial time as a child pulling the wings off flies and the like.

The Newsweek article recounts, for example, that Andrea’s brother, Brian Kennedy, says he often tried to convince "Rusty" that Andrea’s illness was severe: “He just never accepted it,” Newsweek quotes Kennedy as saying. Newsweek and Kennedy don't seem to understand or care that the significant issue is not whether Mr. Yates had a responsibility to save his wife from mental illness - the issue is whether Mr. Yates had sufficient knowledge that his children were in danger from his wife to have had an obligation to save them from her. Mr. Kennedy is not reported to have concluded that his sister might kill or harm her children. Even with the lush benefits of hindsight, Mr. Kennedy is not reported to have warned Mr. Yates that his children were in danger from Andrea. If Andrea's own brother didn't make the connection between his sister's illness and her threat to the children, why would anyone want to hold Mr. Yates to such expertise? And if Mr. Kennedy did actually make the connection of mental illness to physical threat that "Rusty" never saw, should the Texas authorities be considering criminal child endangerment charges against Mr. Kennedy for not doing anything to save the children? Are the lives of children hostage to a legalistic rule holding a father to have a special "obligation" to protect them that an uncle does not have? Why?

Lots of people are "seriously mentally ill" at some point or many points in their lives. Mere serious mental illness does not imply that the ill person is a "serious physical threat to herself or others" - which is generally the legal standard for involuntary civil commitment or treatment. One wonders if Newsweek and Mr. Kennedy have ever thought about why many streets are populated by large numbers of obviously seriously mentally ill "homeless people." That the Texas authorities have not moved against Mr. Yates suggests that at least they have some understanding of the relationship of mental illness to the modern legal world.

The same apparently cannot be said of forensic psychiatrist Park Dietz, a prosecution witness against Ms. Yates who graced Newsweek with his professional observation that several things Mr. Yates’ did, including "exposing [Andrea] to Michael Woroniecki’s cult teachings about Satan, were all major contributors to her mental illness." Dr. Dietz's suggestion that Mr. Yates should not have "exposed" his wife to religious teachings troubling to Dr. Dietz has an antique quaintness to it. What if women - at least the "mentally ill" variety - all over the country are tuning into dangerous televangelists or summoning up such demons on the web? Are the networks and web providers morally, criminally and civilly liable for "resulting" maternal child abuse? One wonders if Dr. Dietz will next be found apprising Newsweek that a husband "contributes seriously" to his wife’s mental illness unless he makes his own determination of whether his wife is "mentally ill" and, if the husband thinks so, he then has an obligation to prevent "exposure" of the female to the teachings of, say, Hillary Clinton or the National Organization of Women. Perhaps Hillary's often-expressed concern for children would lead her to agree that when their welfare is at stake one can't be too careful in considering what might "contribute" to setting off a wife considered by her husband to be "mentally ill."

Dr. Deitz also expressed to Newsweek that Mr. Yates additionally "seriously contributed" to his wife's mental illness by his "insistence that his wife home-school their children and that they live in a cramped bus for a while, and his limiting her contact with friends." Home schooling? Andrea and Russell Yates together decided that Andrea would home-school their children. Mr. Yates "insistence" would have meant nothing if Andrea had said she wouldn't do it. Dr. Dietz's characterization of Mr. Yates' unilateral "insistence" is wrong unless Andrea Yates is considered to have had no will or power. Further, the Yates’ preference that their children be home schooled was likely in the best interests of the children. Home schooled children test and perform far better, routinely and on average, than public school students do. Dr. Dietz and Newsweek seem to think that Mr. Yates had an obligation not to "insist" on the best education for his children if it burdened his wife. Further, the medium and long term burdens of home schooling on Andrea may have been expected to be less than those created by exposing the children to degraded public schools, since it is understood across the political spectrum that American public schools often fail to educate and instead foster behavior that lies at the root of much crime, poverty, personal despair and family disruption. Dr. Dietz's (and Newsweek’s') view on home schooling seems more political, meddling and generally ill informed and out of line than it seems professional. Newsweek says Dr. Dietz was a "star" prosecution witness. If so, Andrea’s lawyers should certainly be clipping this edition of Newsweek for evidence supporting the appeal of her conviction.

It will apparently also come as a surprise to the good doctor that the vast majority of the billions of people in the world today live in very cramped conditions - and do not become murderously insane. Dr. Dietz might try a visit to some of the tiny Mexican homes - often housing very large and decidedly sane, warm and wonderful Mexican families - starting just a few feet from the California border. Or perhaps he should spend some time lingering in the museums in Ireland, which accurately preserve the tiny 19th century, children-teeming huts that once covered that island. Moreover, the Yates family simply did not "live in a cramped bus" at the time of the killings - so how strong does Dr. Dietz take this factor to be?

Mr. Yates did not keep Andrea in irons and she had no obligation to abide by any effort on her husband's part "limiting her contact with friends." Nor have there been any reports that he threatened her with violence or otherwise if she spent time with her friends, in person or otherwise. Mr. Yates can only be viewed as controlling Andrea's access to friends if she is first reduced to a mere shadow for the purposes of the analysis. Not so long ago, many people did view wives in this way. Some traditionalists and feminists still do - albeit on differing grounds.

Despite all this, the generally desperately unfortunate Russell Yates is fortunate in at least one respect. If this murder trial had occurred in 1952 instead of 2002, thoughts like those underlying the comments of Dr. Dietz, Newsweek and Andrea Yates' family would have been vastly stronger and more pervasive. A husband was then simply and almost irrefutably presumed to control his wife - the confused ruminations of Dr. Dietz, Brian Kennedy and Newsweek are mostly lingering modern afterglow of that once dominant mindset - opportunistically commingled with the "victimology" branch of modern feminism. Through such processes, an earlier criminal justice system would likely have found a way to identify Russell as the main responsible party in the murder of his children, while reducing his wife to some form of accomplice bereft of will and substance - rather like the image of her conjured in Dr. Dietz's rant. Yes, it is likely that arguments as tenuous as those offered by Dr. Dietz, Mr. Kennedy and Newsweek would have been more than enough at one time to doom Russell Yates. For good or ill, even a few years ago such arguments would have carried much more power than they do now. Russell Yates shares this benefit of modern justice with Mr. Noel - who was recently spared a murder conviction similar to the one just conferred on his wife for a killing which the foreman of the jury declared each spouse had fully equal responsibility.

Posted 12:07 AM by Robert

The Criminal Law and Married Couples

Today brought word of the convictions of a San Francisco married couple, Robert Noel and Marjorie Knoller, for the killing of Diane Whipple, their neighbor, by the couple’s vicious dogs. But what is perhaps most striking about this case is the conviction of the wife – but not her husband - of second degree murder. Her husband was found guilty only of involuntary manslaughter. Both were also convicted of having a mischievous dog that killed someone.

These convictions follow almost immediately the conviction of Andrea Yates of the murder of her five children despite obvious signs of mental illness, but not mental illness so severe as to deprive Ms. Yates of the ability to know she was doing a great wrong. Her husband, Russell, has not been charged with any crime.

What these dissimilar cases have in common is their indication that the criminal justice system is rapidly moving away from any traditionalist assumption – indeed from any assumption – that a husband has significant responsibility for his wife’s criminal acts. Traditional society vested the husband with fairly broad responsibility for acts of his wife. Indeed, cases of physical abuse of husbands by wives were traditionally rarely taken seriously on the theory that the husband was in some way responsible for what was happening to him, and the problem persists even today. Some modern feminists have also maintained a stance of broad male responsibility by arguing that women, when victims of a male “dominance” which is often easily inferred, have diminished responsibility for their acts. Thus, abused wives injuring or killing their mates are sometimes defended on such feminist grounds (which are certainly not accepted by all feminists), even where the wife’s attack does not constitute immediate self defense.

But the Whipple and Yates cases indicate that society – or at least the criminal justice system – is rejecting both the traditionalist and this particular feminist model.

The conviction of Knoller of murder in these circumstances was highly unusual, for either a man or a woman. It is especially striking that a woman was convicted on such untried grounds.

The prosecution did not argue that Knoller had express malice against Whipple. Instead, Knoller was convicted on the basis of having “implied” malice. The prosecutors successfully argued that Knoller's conduct on the day of the killing showed such reckless disregard for human life that it should be regarded as “malicious”. They based that on the dangerousness of the breed, the history of the dogs, the couple’s shared knowledge that she could not control the dogs, and the generally malicious attitude of the couple towards other people.

Noel was not present at the time and place of the killing, and it is Knoller’s actual handling of the dogs on the day of the killing that constituted the basis for her murder charge. But Knoller’s physical custody of the dogs at the moment they erupted is important only if Noel had no strong responsibility for his wife’s acts even where he generally aided them and knew the danger they created. There was ample evidence that both the husband and wife knew equally well that their dogs were vicious to the point of being, in the prosecution’s terms, “time bombs.” The vicious animals were harbored in the couple’s shared apartment. More than 30 witnesses said they had been terrorized by the dogs – so both the husband and wife had lots of opportunity to understand that the problem was very real. Noel agreed to her having physical custody of the dogs and helped it to happen. Surely Noel assisted, aided and abetted Knoller in every act that constituted or supported her “implied malice” supporting her murder conviction.

The husband’s letters to the couple's adopted son were read to the jury. Two weeks before the attack, Noel wrote about an incident in which the dogs frightened Whipple as she entered the building's elevator. In the letter, Noel callously referred to Whipple as a "timorous little mousy blond." After the murder, he wrote another letter bemoaning the death of one of the dogs and vowing to fight for the life of the other. "Neighbors be damned," he wrote. "If they don't like living in the building with her, they can move."

Further, Knoller tried to save Whipple. Police photos of Knoller, taken shortly after the attack, show her covered with blood, one hand cut from trying to push the dog's mouth away from Whipple, Knoller said, one eye blackened from being struck by a Whipple. Knoller also said that she had been bitten on the shoulder and upper chest. An expert witness testified that Knoller’s wounds prove that she was trying to fight off one of the attacking dogs.

Don Newton, 64, foreman of the seven-man, five-woman jury, said "The question of implied malice was a difficult question to decide, but we did decide there was implied malice in her actions." He also said Noel, who was not present during the attack, nevertheless "was equally responsible."

Yet the wife, Knoller, was convicted of murder and Noel, her husband, of only involuntary manslaughter.

Noel was not even charged with murder, so the jury did not have the option to convict him of this more serious crime, and so far we have no knowledge of whether they would have been inclined to do so if they had been given the chance. But the prosecution’s decision to charge Knoller with the more serious crime despite the couple’s similar level of involvement does not seem consistent with the traditional concept of family roles or with a propensity to view women as blameless victims of male dominance which can be a theme of some feminists.

In the Yates matter, Texas authorities are still considering bringing child endangerment charges against Mr. Yates, but reportedly do not believe the evidence supporting such charges exists at this time. But Mr. Yates has been the target of a torrent of abuse from some quarters for failing to satisfy the obligation posited by his critics to make sure his wife was adequately treated for her mental illness. The contrast between the prosecutors’ tentative decision not to bring charges and what appears to be a widespread conviction that Mr. Yates was in some sense criminally responsible for his wife’s murder of their children suggests that the society is in transition.

Neither the Whipple nor the Yates case has come definitively to rest. There appear to be serious grounds for appeal of the Whipple convictions, and the Texas authorities may yet act against Mr. Yates. But at this time, both of these cases suggest that something serious is happening to the law’s treatment of married couples.

Posted 10:00 AM by Robert

Little Pearls of the Disingenuous

A Monday New York Times article by Jim Rutenberg and Seth Schiesel discussing the viability of the network television news divisions casually drops this comment about why CBS chooses to forego greater profitability by maintaining its essentially unprofitable newsdivision:

“The news division also helps keep regulators off of Viacom's back and gives the network political clout, but [Leslie Moonves, the CBS Television president],
denies those are factors.”

It is so obvious to the Times that the CBS news division confers “political clout” that this fact is introduced without any support whatsoever and notwithstanding the denial by Mr Moonves that it is “a factor” - presumably a “factor” in the CBS decision to retain the nearly profitless division. We are apparently to believe, at least by Mr. Moonves and without serious questioning by Messrs. Rutenberg and Schiesel, that the value of this “clout” does not color Mr. Moonves considerations, apparently either because he denies the existence of the very “clout” the Times finds so obvious, or because he is wilfully disregarding this valuable asset in his decision (the Times doesn't bother to tell us which it is). Inconsistenly with Mr. Moonves denials, he did not get to be the CBS Television president by either being oblivious to the existence of obvious valuable assets under his control or by disregarding them in important decisions. But the Times reporters do not dwell on any of this.

These remarkable little pearls of the disingenuous from Mr. Moonves and the Times may be worth remembering as Congress moves on what it calls a “campaign finance reform bill” so urged on the Republic by both CBS and the Times. After all, that campaign finance reform bill does not even attempt to “get the corrupting effects of big media political clout out of the electoral process.”

Posted 6:24 PM by Robert

Did J. P. Morgan Chase Know What Its National Advisory Board Knew?

The New York Times today runs an article headlined Chase's Early Dalliances With Global Crossing by Geraldine Fabrikant with Simon Romero which describes the relationship of Gary Winnick, the founder of now-bankrupt Global Crossing, and Chase Manhattan Bank (now J. P. Morgan Chase).

Separately, Mr. Winnick appears to have been something called the “Neil H. Jacoby Award Dinner 2001 Honoree” from the Dashew International Center for Students and Scholars. A brief statement describing Mr. Winnick that was posted in connection with his award of that honor states: “Gary Winnick serves on the National Advisory Board to Chase Manhattan Bank.”

The New York Times article makes no mention of Mr. Winnick’s position on any such “National Advisory Board.” The capsule Dashew International Center statement does not otherwise describe the function of that “National Advisory Board.”

One might ask whether J. P. Morgan Chase knew more than others regarding Global Crossing prior to that company’s bankruptcy, since Mr. Winnick seems to have held a position whose name specifically suggests that he was to advise the bank. And, if the bank had no special knowledge, one might ask what obligation Mr. Winnick had as a result of his position on its “National Advisory Board” to have provided pertinent information. Either way, it appears Mr. Winnick and J. P. Morgan Chase have more questions to answer about their relationship than occurred to Geraldine Fabrikant with Simon Romero to investigate. Did the bank pay Mr. Winnick to be on this advisory board? Service on Enron's advisory boards seems to have resulted in quite a few questions being asked of those serving.

Posted 9:03 PM by Robert

Just What Was All That Dot Com Shouting About? II

As noted below, Max Power has posted excellent comments on my discussion of the effects of suppression of Blue Sky commission powers on the dot com stock run up. He has now supplemented that with a second post, which is also well worth reading. This post addresses some of the issues he raises and includes some additional material. The discussion doesn't purport to answer Max point-for-point. But many of the issues addressed below are derived from his arguments.

Federal Reserve's monetary policies. Explaining the dot com run-up means explaining why this sector was favored by investors over other sectors. The Fed’s monetary policy does not particularly target sectors of the economy, certainly not in a way that directly favors the businesses of hi-tech, start-up companies. So Fed policy cannot explain why investors chose to bid up the tech sector (largely reflected in the NASDAQ/NMS) far beyond other sectors of the economy.However, the Fed’s policy certainly could have been a factor in getting liquidity into investor’s hands to give them the opportunity to choose among sector investments.

The dot com run up was better for the economy than investment in blue-chips and real estate. This is possibly correct, but doesn’t help explain why investors chose to bid up the tech sector.

Value investors cleaned up. This is certainly not true in the short run during the run up. In the long run through the present it is true in a sense, but also doesn’t help explain why investors chose to bid up the tech sector. Quite the contrary it raises the question of why so many investors were so wrong.

Simply put, people wanted to invest in the Internet in 1998-2000. Well, OK. But why? This isn’t so much an explanation of the internet run up as a restatement of the fact that it occurred.

The Blue Sky commissions would have made no difference. This is the real heart of the matter. I think this question unpacks into a series of questions addressed below.

The Blue Sky commissions never had the power to make a difference. As a matter of sheer regulatory power, it seems the Blue Sky commissions could have had a big effect on a sector of stock if they so chose – absent the effects of the reforms culminating in the 1996 passage of NSMIA. Merit review laws spring from the Uniform Securities Act of 1956, which almost forty states have adopted. Of these states, Arizona, Arkansas, California, Iowa, Massachusetts, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, Tennessee, Texas, and Wisconsin apply the “merit” standards most strictly. If the Blue Sky commissions of these even these “strict” merit states – or even one or more of the larger of them – had adopted and advertised policies widely disapproving stock offerings with the characteristics of internet offerings, it seems likely that the viability of such offerings would have been seriously impaired. Moreover, the states have made efforts to coordinate their Blue Sky review processes.

Blue Sky commissions did not stop the biotech “bubble.” The biotech “bubble” of the 1980s was arguably a reasonably close analogue to the dot com run up - except for its pervasiveness. But if the biotech “bubble” was otherwise similar to internet “bubble,” then the fact that the Blue Sky commissions had more power during the biotech “bubble” than during internet “bubble” is consistent with the Blue Sky commissions having a significant role in containing the pervasiveness of the biotech “bubble.” Blue Sky commissions were very active in disapproving of what they deemed to be “speculative” technology stock issues of all stripes – including biotech issues. It is exactly that intrusive activity of the Blue Sky commissions that led to the chorus that they were a big burden on the ability of technology companies to raise capital that led to the decade of reform ending in 1996. Critics of the Blue Sky commissions can’t have it both ways. Either they had a big effect on the ability of companies to raise capital or they didn’t. For years the critics persuasively – and, I believe, correctly – argued that the Commissions were a much bigger obstacle than just creating the need to hire and pay local counsel.

What is a “bubble?” References to the biotech “bubble” throw into high relief the question “What is a “bubble?” A “bubble” is by nature irrational, at least in the sense of what are sometimes called “fundamentals.” In general, a “bubble” includes a heavy dose of “greater fool” investing.

There is nothing necessarily “irrational” about investing in a stock on the belief that a “greater fool” will buy it later – but such investing is “irrational” on the fundamentals. In that sense, completely rational players but irrational fundamentals investors can drive “bubbles”. “Greater fool” players are not counting on the company in which the investment is made paying off, although they are counting on the investment paying off.

I do not believe that the “biotech bubble” is a good example of a true “bubble.” The biotech stock run up was based on the discovery in the late 1970’s of a series of techniques which even very smart scientists and businessmen working very close to the underlying research thought would have astoundingly beneficial (and astoundingly profitable) medical consequences.

Consider Biogen, solely as a representative example. Walter Gilbert, a Harvard professor and Nobel Prize laureate, withdrew from academics to found Biogen for the purpose of exploiting (particularly in the areas of interferon and hepatitis vaccine) what he and his ultra-sophisticated pharmaceutical company investment partners thought would be a fairly straightforward application of his prior research techniques. They also believed that with the cash flow from the original products Biogen would be able to fund the creation of a whole series of similar products. All of this was highly rational, both from a scientific and from an economic standpoint. But much of it turned out to be wrong. Indeed, Biogen almost collapsed, Prof. Gilbert was essentially forced out, and Biogen’s most important product by far resulted from the unexpected discovery that interferon is the best treatment for multiple sclerosis, a discovery which was not anticipated by Professor Gilbert or others at the time Biogen was founded. Indeed, it is still not even understood how interferon works in this treatment.

More generally, the biotech boom did not involve extended “greater fool” trading because that boom never reached the scale required. Economically rational bets that turn out to be wrong are not “bubbles.” Such bets are exactly the stuff of advanced capitalism and they are very good things – although the people who lose their money may not feel that at the time. Moreover, the biotech industry in general is thriving – and promises to eventually become at least as profitable as was hoped by its boosters in the 1980’s – albeit on a greatly extended period of return.

In a later post, I will argue that the significance (for good or ill) of securities regulators like the Blue Sky commissions probably arises where “greater fool” investing plays a larger role in moving the securities market involved. For now, I think it is worth noting that the biotech and internet run ups do not appear to be similar in this respect. That may undermine the significance of my observation that their similarity supports the importance of whatever differing factors one can locate (such as the intervening collapse of Blue Sky authority). So be it.

Lots of people were warning that dot-com stocks formed a "bubble" in 1999. It is undeniably true that the dot com run up had lots of critics while it was in progress. But the Blue Sky commissioners had the power to stop securities sales which, say, Paul Krugman does not – thank God for small favors. Many people seem to agree that Judge Pennfield-Jackson’s actions in the Microsoft case had a serious effect on the hi-tech stock markets. I agree. But it wasn’t because the Judge is a brilliant economist or jurist, quite the contrary. He was and is a no-name. Indeed, he appears to be no-neck. But his impact is widely acepted.

I believe that the Judge’s influence is connected with the second factor that interests me in the internet stock run up: a curious “hidden” political/economic expectation that the internet represented a means of avoid the costs of the regulatory state. The second factor will be the subject of a later post.

Nobody cared about what Alan Greenspan said, so some no-name commissioners wouldn’t have added much. It is true that Alan Greenspan at one point criticized the "irrational exuberance" of the securities markets. But he later relented, and actually became a proponent of the belief that the economy was becoming more efficient and could sustain those "irrationally exuberant" stock prices if this “asset inflation” didn’t inflate the rest of the economy through some ill understood “wealth effect”. In any event, Mr. Greenspan focused what criticisms he had on the aggregate stock market – not on any irrationality of the internet stocks. And he didn’t try to talk the tech markets And he didn't have the power to stop stock sales.

Multiple regulatory schemes were a drag on the economy. This is probably true, although it is oddly contested in the academic literature. Assuming it is true, then elimination of the drag should have encouraged more investment in areas freed from the drag. This factor therefore suggests that elimination of the Blue Sky drag did help boost stock prices (rationally). Moreover, the drag was likely greatest in areas of the economy in which the Blue Sky commissions were most disapproving – that is, “meritless” stocks. To the extent this factor is material, it supports both the proposition that eliminating Blue Sky review boosted stock prices generally and the proposition that such elimination disproportionately boosted dot com stock prices compared to the market generally. In fact, a good deal of academic research indicates that, from their beginnings , “The blue sky statutes … [o]n average … put the most stringent restrictions on high-risk (and potentially high return) securities.”

Posted 11:45 AM by Robert

Doubletimed Gobbledegook

Almost inevitably, Mr. Clinton’s entry into Robert Reich’s campaign for governor of Massachusetts has resulted in a dispute reminiscent of the controversy that earlier rocked the Miss France competition.

Specifically, it appears that Mr. Reich told the Boston Herald that Bill Clinton had encouraged him to get into the Massachusetts governor's race.

A couple of days ago, Mr. Clinton said this about Mr. Reich’s claim: ”I like [Reich] fine, but I didn't like the implication that somehow I encouraged him into the race when you already had one guy in the race that had supported my policies, and at critical points [Reich] didn't. I wouldn't have done that.”

Did Mr. Clinton encourage Reich? Josh Marshall says that in the comment above “Clinton said pretty clearly that this wasn't true.”

Dissection undeniably has its icky side in both politics and biology. But sometimes even the best hi-tech simulation just leaves out the most salient part of the experience and only the real thing will do. William Jefferson Clinton seems to present more than his share of such examples, perhaps because some of his readers and listeners are so oddly and persistently determined to find “clear meaning” in sentences constructed in a style deliberately adapted to avoid exactly that. When Robert Reich is added to the mix, the result is a virtual perpetual motion machine of hilarious intellectual burlesque. Let’s go to the tape.

Mr. Clinton said “I wouldn't have done that.”

Mr. Clinton must know whether he did or did not encourage Mr. Reich. But Mr. Clinton’s sentence is unnecessarily complex – as if it has other intended meanings. Mr. Clinton could have said “I didn’t encourage Mr. Reich’s run for governor” or even, with somewhat less clarity, “I didn’t do that.” Mr. Clinton chose not to use clear or direct phrasing.

One normally says, “I wouldn't have done” a particular act in exactly the case where one actually did do that act, but wouldn’t have done it under normal circumstances. For example, if a husband buys something expensive without consulting his wife, he might explain to her by saying “I wouldn’t have done that, except that I got a low price and someone else would have bought it if I’d taken the time to call you.”

And what is the pronoun “that” supposed to refer to in Mr. Clinton’s sentence? According to the standard rules of English grammar, this pronoun has no referent in Mr. Clinton's sentence. Just that aspect of Mr. Clinton’s sentence is enough to make any meaning given to it far less than “pretty clear” – but Mr. Marshall is undeterred.

It gets worse. In Mr. Clinton’s sentence, is “that” supposed to be short for “encourage Mr. Reich to run for this office”? Well, if so, why does that phrase or one like it not appear anywhere in what he says? The closest thing he does say is, “I didn't like the implication that somehow I encouraged [Reich] into the race when you already had one guy in the race that had supported my policies.” Even setting aside the fact that Reich’s name has to be inserted into the sentence in brackets because Mr. Clinton apparently used another pronoun here (maybe “him”?), this statement isn’t the same as saying that he didn’t encourage Reich. In fact, Mr. Clinton’s doesn’t even clearly say that Mr. Reich’s opponent (the referenced “one guy”) supported Mr. Clinton’s policies. Mr. Clinton’s phrase just says that he doesn’t like the “implication” that he encouraged Mr. Reich (or “him”) to run “when you already had one guy in the race that had supported my policies.” So, even if the “one guy” actually hadn’t supported Mr. Clinton’s policies, but whoever it was who was drawing the referenced “implication” thought that the “one guy” had supported Mr. Clinton’s policies, then Mr. Clinton apparently would still not have liked the “implication.” And who could blame him?

Mr. Clinton is hyper-articulate and a Yale Law School graduate. He constructed his comments with full notice. There is a reason Clinton refers to his own past actions in the subjunctive – almost as a hypothetical. He uses this kind of grammar and language exactly because he does not want to leave a clear meaning. His history proves beyond reasonable doubt that when he uses vague or multi-valenced language he usually means to be evasive – and he is not employing such language to capture a complex or nuanced meaning or for the sake of brevity (God knows, he is seldom brief). That is his choice and his right. But what is less understandable is why anyone bothers to listen to him, why any intelligent person such as Mr. Marshall ever thinks Mr. Clinton’s sentences have a “pretty clear” meaning, and – a mere corollary of the preceding – why anyone thinks they agree with him or has his endorsement.

Posted 1:59 PM by Robert

Update: Just What Was All That Dot Com Shouting About?

Max Power posts a thoughtful and complete disagreement with the post immediately below, and his comments are well worth reading. I actually don't think Max’s position is as far from mine as he seems to believe, and I plan to respond to his observations. But I certainly enjoy his brand of criticism.

Posted 1:25 PM by Robert

Just What Was All That Dot Com Shouting About?

KausFiles tweaks InstaPundit for tweaking Congress for passing a stimulus bill “second-guessing corporate executives on their business judgment” (in the words of InstaPundit), and hard a heels the Fed’s announcing that the recovery is now well underway. KausFiles argues, “Wasn't this the first downturn in a long time to be produced, not by some sort of policy mistake or external shock but by a colossal failure of business judgment on the part of the executives, corporate and non-, who wasted billions on idiotic dot.com projects? They could have used some second-guessing!” InstaPundit responds by quoting a reader, Will Allen, in part that “The virtue of a free market is not that it ever achieves perfection, but that the transactions are the by-product of, well, freedom.”

I’m not sure these arguments meet. Isn’t KausFiles asking whether a marginal increase in government second-guessing of the market is justified if it produces a more-than-compensating but still marginal increase in wealth? Whatever the intrinsic “value” of economic freedom may be, it surely must be balanced against wealth enhancement effects. Otherwise, advocating economic freedom comes to resemble a religious tenet, a kind of secular transubstantiation but lacking the words of a divine prophet to back up its claim to being an essential benefit we should care about more than, say, eating or having a few extra dollars to pay for the kid’s piano lessons. The immorality of communism, for example, is well demonstrated by the huge numbers of people who have been impoverished or died, through starvation and otherwise, from the actions of those advancing that particular secular religion. One would have to be a very serious libertarian of a particular stripe to argue that economic freedom is entitled to respect regardless of whether it results in the creation of wealth.

The above exchange is interesting in part because it is another of the recurring indications that the legal and political systems continue to fail to address the “new economy” with even as much coherence as they address the rest of the economy. Was there a rational basis for the dot com mania? Should the government have done more to second guess the “irrational exuberance” of that market bubble – if, indeed, it was a “bubble?” It’s not just that there is disagreement on policy (that is with us always), but rather that one often has the feeling that the disputants are not quite sure where to start or where they are where the "new economy" is involved.

I want to suggest that there were two substantial but largely overlooked factors that contributed considerably to the recently expired dot com “mania”: elimination of “merit” review of securities by the states during the decade ending in 1996 and a curious “hidden” political/economic expectation that the internet represented a means of avoid the costs of the regulatory state. The second factor will be the subject of a later post. Here, I want to consider possible effects of the first factor.

Until reforms passed during the decade ending in 1996 there were two important levels of public securities regulation. Federal regulation mostly came under the Securities Act of 1933 and the Securities Exchange Act of 1934. But regulation by individual states – commonly called “Blue Sky” regulations – was the second level of regulation. The two tiers of regulation had different foundations. Federal regulation of securities is based on disclosure principles. Federal regulations do not generally concern themselves with whether a particular security has merit as an investment – the focus is on whether the risks of the investment are adequately disclosed. However, the situation was quite different under the Blue-Sky laws of many states. The so-called “Blue Sky Commission” of many states had the power to evaluate whether a particular security had sufficient merit as an investment. The Blue Sky Commissioner then decided whether the securities could be traded in that state and, in particular, whether the securities could be sold to residents of that state.

Capping a ten year trend towards reduced state intervention, in 1996 Congress stopped the states from evaluating the “merits” of many securities, including those listing on NASDAQ’s national market system (“NASDAQ/NMS”), the preferred high tech trading venue. That trend had received a big push from the Revised Uniform Securities Act of 1985 (“RUSA”), a proposed uniform state law that included an exemption from Blue Sky securities registration for securities listing on NASDAQ/NMS. (The American and New York Stock Exchange stocks already enjoyed exemptions.) Most states enacted RUSA’s proposed NASDAQ exemption by 1990. Congress passed the National Securities Markets Improvement Act of 1996 (“NSMIA”, also known as the Capital Markets Efficiency Act of 1996), which prohibited all “merit review” by state securities commissions of NASDAQ/NMS stocks. The states were also prohibited from imposing significant registration or filing requirements for such securities, or any conditions on the prospectus or offering document prepared – including on any "advertising or sales literature used in connection with such offerings." Although NSMIA itself represented a marginal additional restriction on state “merit review,” the cumulative effect of the reforms during the ten-year period was substantial. Sales to the general public – normally critical in dot com public offerings – almost always required some form of Blue-Sky Commission approval prior to the reform decade ending with the 1996 legislation. As one commentator describes an example of the pre-1985 process:

“[T]aking an ‘Apple Computer’ and getting it approved in Texas, banned in Massachusetts and, faced with certain denial, avoiding such states as Illinois, Michigan, Missouri, and Wisconsin altogether. The challenge was to review the offering documents before filing, catalog the potential problems, and then bet on which states would approve and which states would deny. More than a few investors became irate when they could not participate in the Apple Computer offering because their state regulator had already made the investment decision.”

Also, although the above discussion is directed at public offerings, one astute and knowledgeable reader has pointed out that, “Where NSMIA did have an impact was in private offerings, ie financing to venture capitalists. Prior to 1996, state blue-sky laws (and Federal Regulation D) required issuers to jump through a bunch of hoops to do a private offering.”

The effects of pre-reform Blue-Sky regulation were erratic, inconsistent and unpredictable – and it is not my purpose to defend it. But – as the Apple example indicates – prior to the “reform decade” culminating in NSMIA, stock issued by a company with a business plan as problematic and non-traditional as those of most dot com companies would have attracted considerable attention, criticism and disapproval from the more intrusive Blue Sky commissions, especially if the stock were issued in an initial public offering at a high price. A whole series of such offerings by companies with such business plans, such as the offerings that formed the basis for the dot com boom, would almost certainly have provoked strong, public, and, ultimately, coordinated action by many Blue Sky Commissions.

Soon after NSMIA was enacted, NASDAQ/NMS began to fly. In retrospect, it seems likely that suppression of state Blue-Sky "merit" review resulting from federal and state reform discussed above did significantly exaggerate the run up in the dot com securities market. First, there is the suggestive timing, as noted above. The big NASDAQ run up began at the close of the reform decade culminating in the federal legislation. Of course, suggestion is not proof. But it is also worth noting that to the extent “merit review” went beyond mere disclosure requirements, the dot com companies obviously lacked “merit.” The dot coms could almost have been used as test cases in training Blue Sky analysts in what they were supposed to look for and object to. In evaluating “merit” before 1996, Blue Sky Commissions often looked for things like a history of profitability, the existence of contracts with established companies, favorable comparisons with already successful competitors, and seasoned management. In short, many of the most important things Blue Sky Commissions looked for to determine “merit” were just the things that the dot coms lacked – even more than a company like Apple Computers. In many respects, the approach of many Blue Sky Commissions resembled that of what are known as “value investor funds.” Blue Sky Commissions often had investment criteria and agendas which caused them to function something like “value” fund managers of an unsophisticated stripe, but with the added power to prohibit throughout their state general purchases of securities the Commissions found lacking in “merit.” “Value” funds suffered severely during the dot com boom in comparison to “growth’ and “momentum” funds that were the principal purchasers among funds of dot com stocks – which suggests that Blue Sky Commissions would have done what they could to restrain sales of such stocks.

The presence of a chorus of such state officials disapproving a particular kind of securities – such as dot com stock – should have exerted downward pressure on the price of such securities in the same way the chorus of optimistic dot com stock analysts exerted upward pressure on such prices during the boom. Moreover, one concern raised by the Enron fiasco is that stock analysts employed by the large securities houses may be reluctant to “talk down” a stock (or a type of stock) in which the analyst’s employer has an interest. The Blue Sky Commissions were affected by a skew roughly the opposite of what may affects such institutional analysts: as state regulators, they felt their most intense heat when an approved investment failed, but were largely taken for granted or considered irrelevant when approved investments prospered. So removing “merit” evaluation power from the Blue Sky commissions may have removed from the market a set of powerful and highly (perhaps, overly) conservative investment analysts. Of course, the conservatism of Blue Sky commissions was to some extent moderated by the heat they could (and sometimes did) experience from state residents who were frustrated by from purchasing a disapproved investment that later soared. But “lost profits” are generally inherently more speculative than actual lost investments, and that meant that the Blue-Sky commissions tended to rather conservative approach.

Even if the Commissions had retained their pre-reform authority and propensities, is it reasonable to suppose that they could have influenced the dot com price run up? That is, setting aside whether their authority was good or bad for the market, did they have significant influence? While I see no way of definitively settling the matter, there are indications that the Commissions’ decisions did have serious influence. For example, various studies in the 1970’s attempted to trace the effects of the Commissions’ efforts. While there is a great deal of dispute over whether those effects were positive or negative, there seems to be agreement that the effects were often substantial. The rising chorus of protests against the Commissions which led to reform also suggests that the Commissions were often serious obstacles to the agenda of many companies – and that these obstacles went far beyond the annoying need to hire and pay local counsel to deal with local Blue Sky laws. Further, as government regulators, the Commissions had the power to question and investigate individual securities issues with an authority beyond what any private analyst could achieve. Blue Sky commissions could insist that additional disclosure be included in the offering documents, before this power was also ended by the 1996 legislation – and some of them were not shy about using that power. While it is not likely that the Blue Sky commissions would have used this power in every case, or even most cases, it seems likely that the sheer volume of “meritless” dot com issues would have resulted in some fairly violent denunciations of this entire class of companies by at least some Blue Sky commission – and that would likely have served to counterbalance what they would almost certainly have construed to be increasingly irrational market enthusiasm.

Disapproval of a particular security by Blue Sky Commissions could dampen the enthusiasms of a would-be fiduciary purchaser (that is, a purchaser who owed a legal duty of “trust” to another person with respect to the purchase), of which there are a great many. Such dampening would likely occur even if the fiduciary were technically not bound by such disapproval. For example, a corporate trustee (such as Morgan Guaranty, for example) managing a fund for a minor or incompetent, might have reservations about purchasing a security that came burdened with the disapprovals of several state Blue Sky Commissions – even if the trustee was not located in any of those states – simply because the disapprovals could be evidence that such a purchase was not appropriate for the trust.

As noted, Blue-Sky commissions tended to take a rather conservative (if often unsophisticated) approach to evaluating “merit”, which often led them to rather bearish evaluations of non-traditional and speculative companies. Although the Blue-Sky commission had their own agendas and sets of priorities that could skew their evaluations, those agendas and priorities were set by political – not financial – considerations. In that sense, especially given their governmental investigatory authority, the commissions often provided a distinct and bearish set of voices – especially with respect to investments like the dot com companies. Overall, it seems likely that suppression of the power of state Blue Sky laws and commissions by the 1996 Congressional legislation and by state reform in the preceding decade probably also suppressed a set of potentially powerful “bearish” voices which might otherwise have acted to dampen the run up dot com in stock prices.

What does that mean for the future? Are the markets more volatile and likely to “bubble” in the absence of government “merit” evaluations? Should some version of “merit” evaluation be reintroduced?

It is too early to tell. The Blue-Sky commissions imposed serious costs and burdens on the market while they were active. It is difficult to imagine that having the states employ squadrons of unsophisticated, generally bearish, risk-adverse operatives to pass on the “merit” of public securities is the best solution. One would normally expect a large, complex, private market such as the securities markets to take some period of time to adjust to legislation of the scale of the 1996 act – which also included other provisions at least as profound as the one stripping the Blue Sky commissions of their powers. The dot com run up was the first major strain on the securities markets following the reform decade ending in 1996. The stock markets seem to have seriously begun adjusting in early 2000 after what may have been a period of diminished capacity in 1997 through 1999. Further, the apparent increase in attention to the role played by private “buy-side” analysts – also related to the Enron fiasco, but going much further - is consistent with a market struggling to find the right balance in the aftermath of the removal of some set of bearish voices, perhaps voices belonging to the Commissions.

Posted 5:32 PM by Robert

The Most Absurd Generation?

The Los Angeles times today carries a front page article by Ricardo Alonso-Zaldivar which leads with a priceless example of what the Times characterizes as “seemingly nonsensical decisions” that have air travelers “fuming,” an example illustrating that “aviation security is in danger of running amok and turning on ordinary citizens” and of “problems stem[ming] from overzealousness or bureaucratic ineptitude.”

My God, that sounds awful!

The example? The Horrigan family, which was traveling from Disney World to Pittsburgh, had their three-year-old girl searched at the Orlando airport.

That’s it. That’s the “outrage.”

According to the Times’ article, “Frank Horrigan said random searches of 3-year-olds like his daughter Caroline divert resources from real security risks. ‘There was no acknowledgment that this was a silly exercise,’ Horrigan said of the Feb. 11 incident in Orlando."

Fortunately for the airport authorities, the Horrigans are generous sorts. “Courtney Horrigan said she did not feel the incident merited filing a complaint. But a certain chill creeps into her voice when she tells the story. ‘I feel it is a symbol of what things are now going to be like in airports, and for our children growing up,’ she said. ‘My daughter is learning at an early age about what life will be like in a new world.’"

So it appears to be the opinion of the Los Angeles Times and the Horrigans that three-year-old girls should not be searched.

If the Times and the Horrigans had their way, any adult wanting to smuggle a knife onto a commercial aircraft would only need to board with a child and hide the knife on the child’s body. No need to worry about random (or any) security checks – the Times and the Horrigans would have taken care of that. Once the adult is on the aircraft with the child, just take out the weapon and kill as many thousands of people as you can.

OF COURSE THREE YEAR OLD CHILDREN HAVE TO BE SUBJECT TO SEARCH – SO DO ONE MONTH OLD BABIES, SO DO BRIEF CASES AND HANDBAGS.

How could the Los Angeles Times run such an article? What were they thinking of?

The Times article does include examples of real problems - such as male inspectors allegedly groping female passengers - but those examples are hopelessly confused with silly stuff like the Horrigsans' "horror story." Perhaps this kind of problem (the Los Angeles Times’ witlessness, that is, not the Orlando airports’ correct search policy) could be solved by a public education program including commercials explaining that everyone – yes, everyone – has to be subject to search, and that the reasons for the particular search may not be disclosed because whatever “profile” program the airports use can’t be revealed.

And it might do unspeakably obtuse people like the Horrigan family and Mr. Alonso-Zaldivar good to spend the night thinking these things through in an airport lock-up instead of resting in a Disney Hotel. Maybe some way can be found to help that happen.

Posted 1:27 PM by Robert

Those Fluctuations In The Skin-to-Credibility Equation

What does ABC’s move to replace Ted Koppel with David Letterman say about fluctuations in the skin-to-credibility equation used to structure network news? Put another way, it should be intuitively obvious to even the most casual observer that there is not enough quality skin revealed on network news – and Koppel and his ilk are definitely a big part of the problem.

A fine understanding on the parts of those reporting the story that their, personal, lives and positions could be directly affected by the matters they are reporting probably has a lot to do with the size of the kerfluffle arising from the whole affair.

But the reporting also obscures that basic question of why people as physically unattractive as Koppel, Jennings, Rather and other old fogies still have such a literally visible presence in the survival-of-the-cutest jungle of modern television journalism.

At first it seems odd that a “head” has anything substantive to do with selecting the content of news he or she presents. Does a typesetter (if there still are such people) have anything substantive to say about what goes into a newspaper? Why aren’t the “heads” just a specialized kind of actor or actress, skilled at the authoritative and slightly hysterical tone characteristic of American newscasters, but presenting material prepared off screen by other, more articulate, uglier people. Basic principles of specialization of labor suggest such divided roles.

But that has never been the case. It appears that television news audiences have valued – or at least have been thought to have valued – having the person reading the news actually determine what is read, and not just how it is read. Many ancient polls verified that Walter Cronkite was the “most trusted man in America”, and, to a news division, a trusting audience is money in the bank. Mr. Cronkite’s reputation was largely based on his truly impressive ability to pronounce of the word “billions,” when that was still real money, an ability he wielded gloriously until it was eclipsed by Carl Sagan’s inflationary “billions and billions,” a development which may have influenced Mr. Cronkite’s decision to largely withdraw from public view.

The networks have labored mightily to create the impression that the structure of their news divisions has continued essentially unchanged, an apparent constancy designed to rival the austere permanence of the pyramids of Giza. Younger, often blonder, women, such Mses. Sawyer and Couric, were ratcheted onto the original chassis with full and obligatory – if never believable - denials that their appearance and sex had anything to do with the matter. But the unstated message that the lead “head” determines the agenda has been weakening. In the case of Ms. Couric and some others, it is scarcely there at all – notwithstanding her gigantic compensation. In general, the increasing dominance of women newscasters seems to be correlated to a gradual reversion to the division of labor suggested by basic economic principles discussed above. It may be that the networks have been themselves sexist here, but more likely they are merely exploiting the ambient sexism of the society. They would likely prefer to eliminate expensive dinosaurs such as Koppel and Rather entirely.

But the pace of change is accelerating, and the change itself is becoming more visible. Greta Van Susteran seems to have been required to undergo a serious facelift to accommodate here recent move to FoxNews. Then there was the whole Paula Zahn dust-up, with CNN first asserting and then denying the relevance of Ms. Zahn’s being “just a little bit sexy.” But anyone who has seen Ms. Zahn conduct an interview with her marvelously shapely and well-preserved gams pinioned under her unnecessarily front-less desk knows that they are a big part of her appeal. Walter Cronkite never did that – indeed, it’s a kind of apocalyptic image just to imagine him trying. Of course, when Mr. Cronkite was in his prime it made sense for newscasters to wear clothes on television – almost everybody on television did all the time. That is no longer the case. In another carefully managed CNN effort, word is out that recent CNN hire, Andrea Thompson, has posed nude.

The Promised Land to CNN - if the Andrea Thompson drill is any indication - is Naked News, which has emerged out of Russia. Naked News features attractive, stripping, eventually naked, newscasters (it seems inappropriate to refer to them as “talking heads”). The phenomenon has spread to Europe and now Canada.

But the whole approach seems misguided. It is just too hard to include a large amount of actual nudity into popular mass media. Besides, revealing flesh is pointless if the quality of the flesh revealed is not exceptionally high. And the fact is that it will be very difficult to get the best looking people to bare all in front of a network news audience.

Which is why I suggest "Bikini News."

Why not frankly admit that the news presenter has nothing to do with selecting or writing the news presented. The presenters will be bikini-clad with top-flight bodies – but never nude? This should allow the networks to hire the most physically attractive people - who would be deterred by the need to perform nude. For example, compare the respectable but hardly awe-inspiring women on the Canadian Naked News with the famously top-drawer quality featured in the Sports Illustrated Swimsuit Issue! Or, those with other preferences may want to check out what the current captain of the Harvard water polo team is up to these days.

Avoiding actual nudity would also allow for the relatively easy hiring of young, reasonably intelligent people – thereby avoiding the annoying impression that the news presenter does not understand the copy being read, but also allowing their replacement if they put on a few pounds, age or sag. Ugly, troll-like, more articulate people can work diligently behind the scenes to create the copy and the agenda. Economic rationality might be restored.

The network news divisions seem to be having a good deal of difficulty mastering the new model. For example, in a confused gesture, CNN has apparently indicated that it will be willing to assimilate Ted Koppel should the opportunity arise – thereby significantly setting back the progress CNN has made with the Zahn/Thompson hires. This is evidence that the news divisions resemble the telecom companies that emerged form the breakup of the old AT&T monopoly. It just takes a while and a different kind of approach to deal with new market realities. But nobody learning that the young, pretty and almost transhumanly intelligent and articulate Peggy Noonan was relegated to writing copy for the constipatory Dan Rather, could help but question whether the networks have been doing the cost/benefit arithmetic right for a very long time.

Posted 12:31 AM by Robert

A Canticle of The Sun

In The Facts in the Case of M. Valdemar, one of the lesser-known stories of Edgar Allan Poe, a mesmerist (hypnotist) places the eponymous patient in a mesmeric trance just before he is about to die, thereby locking for weeks the patient’s soul within a body no longer capable of sustaining life. The story recalled itself to me yesterday morning, when one of my favorite relatives collapsed from a heart attack across her breakfast table, the prelude to a now common scenario in which the extent of the damage to the brain is vast, but the answer to whether true death has occurred appears trapped in a kind of linguistic crystal. Can a beautiful person come to this kind of end? Her soul’s escape denied by iterated total internal reflection within a prism of medical terminology?

As she lies dying, and a room for her on which we lavished such care and expectations stands empty, there is plenty of time to think. Is it as stupid to plan for the arrival of a seventy-seven year old woman as it is for a seven-month fetus? But old people are supposed to die – it can’t hurt this much. As the Marschallin of Der Rosenkavalier says it “When we are living our lives away, time is absolutely nothing. And then, suddenly, there is absolutely nothing else.”

There are two poems that have also presented themselves. Neither was written originally in English, and neither has what I consider a completely satisfactory translation. So, with all that unleashed time, I have prepared a version of each, working from existing translations. One poem was written by a Christian saint, the other by a Roman emperor who was anything but saintly.

Animula, blandula, vagula
[Hadrian]

Little, gentle, wandering soul,
My body’s guest and friend,
To what far places are you borne?
Naked, cold and pale.
As the warmth and joy of life,
You loved so slips away.

The Canticle of The Sun
[Saint Francis]

Thank you, God, for brother sun, whose radiance gives us the day and a glimpse of your own face.
Thank you, God, for sister moon, and for the shining stars of heaven. you formed them clear and precious and beautiful.
Thank you, God, for brother wind, for fair and stormy seasons and every kind of weather, which nourish all that you have made.
Thank you, God, for sister rain, so useful and humble, precious and pure.
Thank you, God, for brother fire, who lights our night, beautiful and playful, robust and strong.
Thank you, God, for mother earth, who sustains us with fruits and herbs, and flowers of many colors.
Thank you, God, for those who forgive their fellows for love of you, and patiently bear their sickness and other trials.
Thank you, God, for sister death, who comes to us all, but only once to those who live in your power and love.

Posted 6:04 PM by Robert

Make the World Safe For Democracy, And Reconsider Whether to Vote

It is election time, and many people are again urging us all to vote. On the op-ed pages of newspapers and from the management of local and national broadcast outlets, apparently disinterested “good government” advocates urge all eligible voters to exercise their franchise rights. Politicians emulate at least the form of such “good government” advocacy; generally making “get out the vote” efforts that are in fact intended to get out only the vote of sympathetic constituencies. What the politicians are up to is neither straightforward nor sinister, but at least it’s easy to understand the interests behind the advocacy. What’s more curious is the agenda of the “good government” advocates. Is it better if everyone who can vote does vote – at least if the voter makes some effort to learn about the candidates and issues? The answer is likely “NO.” That appears to be especially likely for a voter who attempts to evaluate the candidates and issues on an individualized basis.

By way of example, in November 2000, Hillary Clinton wrote a simulated “good government” column addressed to young voters urging them to vote, a column fairly representative of the genre. The point here is not to embarrass Ms. Clinton, or to focus on her not entirely transparent agenda. Ms. Clinton’s column is instead chosen as an example because it is compact, well crafted and reasonably representative of both versions of the genre (that is, efforts by “good government” advocates and politicians simulating such efforts), containing only a few non-distracting points which are characteristic of her approach.

Ms. Clinton caps her column with the standard request that voters not “throw this precious privilege away.” But why not? In a related area, the First Amendment right of free expression is also precious, but we don’t normally say our fellow citizens “throw this precious privilege away” when they remain silent about matters of their choice (of course, in an extreme situation we might think otherwise). We are normally grateful to their discretion and judgment. We often say that they are being “responsible.” The extension of the right of free expression to more people doesn’t terminate the validity of the various considerations that counsel us to keep quiet about things with which others are more familiar – at least if there is no indication that such “others” have substantially opposed interests.

Ms. Clinton observed: “Why, then, are Americans turning their back on this privilege -- the cornerstone of our democracy? In 1960, 63 percent of the electorate voted. By 1996, that number had dropped to under 40 percent, leaving us to ask: What will it take to remind the American public that voting is not just a precious right, but in Lyndon Johnson's words, ‘the first duty of democracy?’” That much of the fall-off in voter participation between 1963 and 1996 was attributable to the lowering of the voting age, not “Americans turning their back on this privilege,” is typical of Ms. Clinton’s style of rhetorical slight-of-hand, but even without her implicit misrepresentation, the percentages she cites appear correct. They also appear low in comparision to some other countries, in which voter turn out can exceed eighty percent.

The first indication that Ms. Clinton is in serious intellectual trouble is her reference to Lyndon Johnson. When a writer as sophisticated as Ms. Clinton believes that she must find her support for a “duty” to vote in the words of Lyndon Johnson – who was not regarded as a man who spoke frankly (although he was often rude) or as a deep thinker (although he was often wily), one has to ask whether she could have done better. Surely there are quotes from Jefferson and other great American political thinkers supporting the existence of such a duty? In fact, none of the great early American political thinkers appears to have strongly expressed the sentiment that voting is normally a duty of every individual – moral or otherwise. Some of their writings do show conviction that every voter “is a trustee as well for others as himself and that every measure he supports has an important bearing on the interests of others as well as on his own,” as Daniel Webster put it. Similarly, Samuel Adams also thought that one should not just vote one’s own interest, because a voter “is executing one of the most solemn trusts in human society for which he is accountable to God and his country.” Such references to the “trust” which a voter is executing suggest belief in a voter’s obligation to others, an obligation perhaps extending to an obligation to vote in the first place. But this seems to stretch the meaning of the “obligation” here: what Adams and Webster seem to be saying is that the obligation of “public trust” arises if the vote is cast, not that there is a moral duty to cast a vote in the first place.

So Ms. Clinton’s did seem to need to rely on later, less august authority. But, Lyndon Johnson? A man generally regarded as a highly divisive figure? And this in what was supposed to be her “non-partisan” column?

According to Ms. Clinton, the major factors discouraging at least young voters are that such voters “feel ignored by politicians; they feel their vote doesn't really count; and they say that they don't get the kind of information they need to make an informed decision.” She does not answer any of these concerns. There is not even a pretense at addressing the first concern, that voters “feel ignored by politicians.” The second concern is addressed simply:

“If you are skeptical about whether your vote can make a difference, think about this: If indeed you care about education and jobs; if you care about the Supreme Court and individual rights; if you care about hate crimes, the military and foreign policy; if you care about health care and welfare reform, or paying down the national debt; if you care about global warming and protecting the environment, you owe it to yourself and your country to vote.”

But if a “vote doesn’t really count,” then a vote won’t mean anything in the resolution of any of these issues – so there is nothing here to answer the second concern. Similarly, her response to voters’ concern “that they don't get the kind of information they need to make an informed decision” is to suggest: “If you'd like to use the Internet to learn more about the candidates and issues, you can start here: www.stateofthevote.org; www.vote-smart.org; www.bettercampaigns.org; www.voter.com; www.speakout.com.” Ms. Clinton does not say that using the Internet will address this third concern – she just suggests a few web sites to start with IF you want to use the Internet. But these suggested web sites just provide general information which looks like it came from wire services, and can be obtained from any number of previously and publicly available sources. That is to say, these web sites just provide more information which voters do not think is “the kind of information they need to make an informed decision.”

Yes, Ms. Clinton does not meaningfully address a single one of the three factors her own column selects as the most important suppressors of voting. This is typical of such speeches and editorials. Why?

Perhaps sweeping “good government” screeds do not persuasively argue that every eligible voter should vote because this is clearly not true. The most obvious cases are those in which the voter is ignorant. If a candidate is just a name on the ballot to a particular voter, the voter probably should not vote in that race. This is equally true where the voter knows nothing about a direct initiative that appears for approval on the ballot. Especially as government has grown more complex, it has become more difficult for any voter to obtain and analyze relevant information. For example, recall the extent to which Ms. Clinton went to conceal her agenda and methods when she convened her "national health care task force" in the early days of her husband's first term. It is sometimes said elected bodies (such as the European Parliament) can develop a legitimacy problem due to low voter awareness and turnout, as Kirsty Hughes asserts in her article Is This Europe's Philadelphia? Wall Street Journal, February 28, 2002. But all government must be democratic, and where it reaches a size and complexity that outstrips the inability of the electorate to follow what’s going on, there SHOULD be a legitimacy problem, simply because democratic oversight IS lacking. Pretending that the problem doesn’t exist by asking voters to participate “in the dark” just makes a sham of the process.

Nor will it do to assert that individuals have the obligation to educate themselves sufficiently. The “ignorant voter” problem goes much further than voters who have not bothered to read the papers. It is just not the case that everyone is capable of acquiring and assimilating politically relevant information, even where government is simple and small – but especially where it is large and complex. Indeed, once a voter’s ability to acquire and assimilate such information drops below a certain point with respect to professional political operatives, any participation by the voter is more likely to result in votes that are determined by manipulations of such professionals and against the voter’s interests. Voting simply does not make sense if the net likelihood of voting is against one’s own interests (or the interests of the voter and whatever other group of people the voter owes a “trust”). It is obviously not possible for every eligible voter to absorb and understand enough information to effectively police elected politicians once government assumes remote, complex form.

The whole “good government” approach that advocates that everyone should vote needs to deal with another model: Why isn’t it better for many or most people NOT to vote in many or most cases, and to leave the decisions to other people who care more and are better at evaluating and acting on politically relevant information? To some extent, the truth of such a model is unavoidable. Children, for example, are not eligible to vote in large measure exactly because they are thought not to be capable of assimilating and applying political information. Children have many other rights - Constitutional rights of criminal procedure, for example. How can their exclusion from the franchise be justified, especially in the not-infrequent cases where the children are taxpayers. Wasn't the Revolution fought over the principle of "No taxation without representation?" Other groups are also excluded from the franchise.

The concept of “virtual representation” – under which one group (for example, children) are seen to be "represented" on the ground that they share the same interests as others (in the case of children, the adults around them) who do have the right to vote – is essential in filling the democratic gap. The concept of “virtual representation” is sometimes discussed in this country as if it had been discredited by the Revolution. But that is clearly wrong, as the above example indicates. It is true that the colonies' thought it was impossible to consider themselves represented in Parliament unless they actually elected members to the House of Commons, an approach in conflict with the principle of "virtual representation," which in this case was taken to mean that the rest of the community was "represented" on the ground that all inhabitants shared the same interests as the property owners who elected members of Parliament.

Post-Revolutionary America retained many restrictions on the franchise on the basis of the “virtual representation” theory, including exclusion of non-property owners and women who were property owners (of course, slaves were also excluded, but on different grounds). Assurances of virtual representation failed to assuage the anger of nineteenth century women just as it had the colonials. Exclusion of male property owners sometimes led to violence, including a full scale revolution in Rhode Island in the 1840's.

But expansion of the franchise does not end the validity of “virtual representation” considerations, any more than the expansion of the right to free expression ended the validity of considerations which lead many people not to engage in political speech. The expansion of the franchise just recognizes that the evaluation of when to apply such “virtual representation” considerations are for the eligible individual to determine with respect to his or her own vote. In short, if there is any moral obligation or civic duty to vote, then there must sometimes also be a moral obligation and civic duty not to vote.

Posted 1:47 PM by Robert

Interesting Enron Link

Kausfiles links to an interesting article by Matt Miller, with whom I had not previously been familiar. Miller is careful to avoid a broad defense of Enron's Skilling, but is not shy about pointing out some of the excesses and inconsistencies of the man's (and Enron's) wilder critics. This article seems further evidence of a growing skepticism regarding the Enronian vast conspiracy. The article also suggests that there may be a wider, deeper understanding developing that what went wrong at Enron is potentially a lot more interesting and profound than playing the matter as if it were a lost episode of "The Untouchables," as much of the media has been doing - led by the excitable New York Times. But the matter is far from settled - and actual, even criminal, fraud is still a possibility.

Posted 1:30 PM by Robert

... and Keynes Wittily Replied, "In The Long run, We'll All Be Heavily Discounted!"

In the 1970’s and 1980’s one heard much about the deepest secret of the then-enviable Japanese economic success: long term planning. American companies were dismissed as obsessed with what was sometimes described as their even puerile attention to short term profitability. Americans just would never understand that the secret was market share – not profitability. Infinitely wise septuagenarian and octogenarian corporate and government bureaucrats meditated from Tokyo that profitability was for the long term. First, the wise business had to plan for the long term and acquire market share. The septuagenarians and octogenarians probably never actually addressed the pathetic and awestruck American journalists before them as “grasshopper,” but it was implied.


American business? Doomed. Doomed. All doomed. The most that could be hoped for was that the Japanese industries could be pressured into locating some assembly plants among the bean fields.

It was all cultural, you see. “Asian values.” “Long term planning” seemed to follow naturally, perhaps from traditional Asian veneration of the aged. America could never compete.

And to make matters worse, there was that phrase: “long term planning.” Where had we heard that before? Yes! It was the Stalinists – the Communists – in the 1930’s! Western private capitalism is incapable of long term planning, they said! The Commies had been right, after all. They just hadn’t gotten down every nuance – but now the Japanese had figured that out, too. They figured it out in the same infernal way they managed to get all the knobs to stay on indefinitely in their cars – not like Ford or GM, where the knobs fell off right away if the car was made on a Monday or a Friday.

Despite all that, as Emperor Hirohito once said, recent developments have not necessarily been to Japan’s advantage. What happened? There is obviously no one thing that has happened, but I would like to focus on one very powerful and strangely overlooked parameter: interest rates. In particular, I would like to focus on the fact that interest rates paid by the export sector of the post-war Japanese economy were generally very low compared to what a market economy would have set. That is, the rates of interest paid by such export sector companies were rigged by the Japanese government to be low. In fact, for substantial periods – once the effects of other financing devices, such as stock warrants, are included - such interest rates were slightly negative.

So what?

Well, applying basic economic principles to irreducible “culturally determined” phenomena can sometimes produce a giddiness like what one feels seeing aqua regia applied to gold. Works of Gary Becker, which allow for such things as accounting for tastes and examination of the economic substructure of family values, can feel uncomfortably like swimming in a pool of universal solvent.

Interest rates determine what a Dollar (or Yen) today is worth compared to a Dollar (or Yen) tomorrow. Does a company pay annual interest of 5%? Then the company would just as well take $.95 now or $1.00 a year from now. So as the interest rate payable by a company gets very low, the company will be satisfied with taking more and more of its profits in the future – not today. And when real interest rates payable become negative, then the company will want to take all of its profit in the future. Management can become very wise and philosophical because it is no longer necessary to make money.

Of course, it can't last. Real interest rates in Japan were never generally as low as the export sector (and other favored sectors, such as construction) paid. Those favored sector rates were being subsidized. By whom? By long suffering Japanese families, who had very few places to put their savings, all of which paid preposterously low returns. But as the favored sectors grew inexorably, it all eventually had to end. And it is likely that a good many of those infinitely wise septuagenarian and octogenarian bureaucrats knew that it had to end.

Long term planning is much beloved by septuagenarian and octogenarian bureaucrats, because the turnover in that demographic is, shall we say, rather brisk. When the consequences of those long-ago investment decisions mature, the people who made them will no longer be around to be held to account.

And how about those Commies? Well, it’s probably not a coincidence that interest rates in the 1930’s were very low all over the world. And just the way a rising stock market makes every investor look a genius, very low interest rates make “long term planners” shine – at least for a while.

But the reason market interest rates would have been higher than the ones the government chose is that interest rates correspond to risk. If rates are too low, then there eventually will be a banking crisis, because the banks aren't charging enough for their loans for the risks involved. Further, when the cost of capital is inefficiently low, investments in capital-intensive projects such as factories seem to make a lot more sense than they should, so a lot more capital spending tends to go on than is economically efficient - which diverts capital from more efficient but less favored uses. And, sure enough, Japan went through a huge capital spending boom and now has a huge banking crisis, and fewer business philosophers. And it has been there for more than ten long years.

And the Commies? Well, what's to be said?

I believe it was Benjamin Franklin who observed that a real interest rate of twelve percent would draw money from the moon. Ben was right. But an interest rate of .0012% has done something even more amazing. It has drawn philosophy from Japanese and Stalinist bureaucrats. You get what you pay for.