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.