China and its Slutty Currency Practices

Aaaaaand we're back!  There was, indeed, a long pause in this blog.  Life changing practices had to be carried out (moving, more moving, vacations, new semesters, job overloads).. but now that finally things are slowing down, there will be a slow and gradual return to the snake pit.

The following post is a very thoughtful piece on China's currency controversy, written by COBRA:

One though just occurred to me - everyone talks about the need to deflate the Renminbi.  The common argument is that China is engaging in unfair trade practices by keeping their currency "artificially" low, but I seriously question whether the concept of "artificially low" even makes sense here.  After all, the same politicians that cry foul to China for being "anti-competitive" or "anti-capitalist" are precisely the ones passing legislation to set, control, or otherwise influence market prices all over the place in their own countries.  So why is it that political leaders seem to be applying such a double standard to China's behavior?  As far as I can tell, its a bit like how women seem to call each other sluts so much - no one wants their competition to get an easy advantage, so if someone seems to be doing so in a way others are unwilling/unable to follow (either through big boobs a willingness to put out, or an "undervalued" currency and a large supply of cheap, unskilled labor), the rest of the group will apply social pressure to discourage the supposedly "unfair" tactic.

Of course, women are supposed to be respectable, and capitalist countries are supposed to be as well.  For whatever reason, ever since we went off the gold standard, it now almost seems taboo for a country to attempt to influence or control its currency value - the only ones the world seems comfortable allowing to set currency prices are Banks, Financial Institutions, and other Important Money Traders.  I guess in order to be a respectable capitalist economy, you have to respect this idea that you cannot explicitly control your currency's value - after all, trying to do so can *only* lead to throwing good money after bad to support the unrealistic valuation: witness Venezuela's hemorrhaging of money to support its completely unrealistically low exchange rate, or any of the countries (especially east Asian countries) that the IMF had to bail out back in the 90s when their fixed exchange rates began to finally catch up with them.  Clearly, an easy woman will only end in shame and ruin through her disrespectable behavior, and so to will any country attempting to "disrespectably" fix its currency.

However, I can't help but wonder - China has an extremely high rate of individual savings among its population: each citizen on average saves something like 10-20% of their annual earnings.  Compare this to the US where average savings rates have been negative for the past decades and perhaps you begin to see where a country like China could sustainably afford to finance its currency: the savings of its people.  By investing so heavily back into China instead of taking their earnings out, the Chinese people are giving their government the ability to keep their currency low; this in turn keeps exports high, and encourages further development of Chinese industry.  Obviously such a cycle cannot continue forever - nothing in the real world ever can.  However, I would claim that China is extremely well aware of this fact - witness how skillfully they've managed to avoid a real estate bubble, or any sort of bubble, over the past couple decades.  However, once the infrastructure and heavy equipment is in place (which the slightly increased demand due to an undervalued currency is organically encouraging right now), demand can slowly be reduced by *slowly* allowing the currency to appreciate to its "true" market value - although this may reduce demand and profits, this will be offset by lowered capital goods costs (they already bought all the machines and factories they need, and since the industry isn't growing anymore they needn't purchase more), and costs will be further reduced by the fact that the government is no longer needing to pay to keep its currency low.  Once this happens, the Chinese social mandate to aggressively save on the individual level will no longer be as necessary, and Chinese citizens will be able to tap into their now sizable personal savings: savings that will be even more valuable given the fact that the currency will be gaining in value (thus allowing them to buy more with the same number of yuan).  At that point, the seeds will be sown for China to begin transitioning over to a more consumer focused economy, thus finally earning them a place among the industrialized first world.

At least, that's how I would see it going.  And honestly, I don't think its bad monetary policy - in fact, I think if a white dude had thought it up and said that we (the western world) should try to apply it to other industrializing countries, we'd be all over this shit as the next wave of how to spread capitalism and make it work in non-industrialized countries.  After all, it seems easy to implement, easy to account for the costs and benefits of, and its entirely organic in how it incentives and encourages individuals: rather than trying to encourage specific, individual products through tax and tariff reduction, or trying to encourage domestic industry growth through the same mechanisms, it instead simply creates a situation where *any* economic good created in the country is encouraged to be exported.  Thus, individuals are free to pursue whatever economic courses of action seem most profitable; moreover, the Government needn't keep constantly changing its policy for fear of introducing inefficiencies into the system: by simply making *all* industries more exportable, capitalism can still use its invisible hand to choose the most efficient ones to invest resources into, divesting from unprofitable ones as better alternatives present; if this policy were implemented through simple taxes and tariffs, you'd run into economic inefficiencies like the US steel market back in the 70s where economic resources remain tied up in less profitable industries while the rest of the world makes large gains in more viable alternatives, like plastics).  Moreover, if the policy were implemented by trying to discourage *imports*, efficiency gains would also be lost - after all, why try to make something expensive yourself when you can buy it cheaper from your neighbor?  No, the only effective way to maintain the benefits of Adam Smith's invisible hand without inadvertently hamstringing yourself with economic inefficiencies is to encourage exports - not specific exports, but simply exports in general - and let the market determine *which* exports are the best ones to invest in.  The only way to do this in an economically universal way without preference for any specific product, industry, or trading partner is the simplest you can think of: artificially devaluing your currency on a global scale, which is precisely what China has been doing.

And look at them - 8-9% annualized growth rate for the past two decades without showing any sign of stopping.  Perhaps we should start to rethink the international taboo that is currency fixing?  After all, in China's case it hardly seems like an anti-competitive practice at all - instead, it seems an integral part of building their economy towards an industrialized, consumer oriented, first world economy in a way that actually appears somewhat stable.  Can the rest of the developed world claim such success?  Hardly - so it seems unfair to attack China for using an economic policy that is clearly beneficial for them, especially given their unique position as a rapidly industrializing third world country.  How can we expect policies that work for countries with an established tradition of capitalism to ever apply to a country that's still building the infrastructure necessary to support such an economy?

Of course, just like slut hate in women, currency-fixing hate on the international level is a purely selfish argument made by countries in an attempt not to help other countries adopt sounder fiscal policy as they might claim, but rather to actively discourage them from actions and behavior that would give them any sort of advantage.  Never mind the fact that international economies are *not* zero sum games like dating is - if China hooks up with India economically, this doesn't mean that there's fewer countries for the US to hook up with - if anything, it means there will be *more* economic opportunities as the world economy grows.  But no, despite what we might say about anticompetitive practices and unfair trade policies, what matters here most is the simple fact that the current international economic power structure must not be challenged - and anyone who does so must be socially punished by that power structure.

Still, older women really can't stop the younger ones from challenging the sexual power structure no matter how many words for "slut" they come up with.  Inevitably, younger, disrespectful, supposedly sluttier women always manage to seize the power from those in power, generation after generation after generation.  Of course, once in power, those same "sluts" often forget the tactics they used to get into power, and soon enough they're the ones attempting to keep the younger generation down with precisely the same types of tactics.  Is this Hegelian dialectic the same one we're seeing play out with the Western world versus China?  I suspect yes - and if I'm right, we should expect China to keep acting economically slutty as long as it benefits them.  Moreover, we should expect the rest of the world to keep hurling insults and otherwise being utterly terrified of them - after all, there's little else in the world that's as scary to people as an intelligent, capable slut.

Disgraceful Media: The Shirley Sherrod Spectacle

Boy, does Fox News love to put on a show!

For a long time now, I have banned Fox News from my TV programming.  It is not because I am some liberal who can't take views other than my own, nor because I have some left wing agenda.  It is because this channel is a disgrace - seriously.  Fox News is irresponsible, blatantly biased, yellow journalism of the 21st century.   It baffles me that America would allow such a politicized news outlet to even be called a news outlet.  There are no "news" being presented by Fox, because behind the news what they present is a clear motivation to persuade the viewer into one direction (theirs!).  It's just.. so awful! it reminds me of Venezolana de Television, which at least doesn't pretend to be unbiased as it is run by the government (if you speak Spanish, you will notice that only glancing at the headlines it is obvious who they favor).  That there may be a portion of this country who only get their news from this news-outlet-farce is not only worrisome, but downright scary.

Proof of my assertion is this week's Shirley Sherrod circus.  The whole story can be sumarized in the following events: idiot blogger posts a doctored video of Sherrod talking about how she allegedly didn't want to help out some white farmers.  Fox News and other media outlets get a hold of this and run it.  The stupid Department of Agriculture fires Sherrod.  Finally somebody thinks of checking the source and listening to the whole tape.  It is revealed that no, she was not being racist, in fact she did help the white farmers.  The administration apologizes and she is offered her job back.  The media outlets go back on their accusations and start running the story of the how "badly" the administration handled the case (not how badly they handled the new, duh).

Upon this dizzying whirlwind of events, we realize that this is a story of flat-out yellow journalism that was able to affect somebody's job.  What?! There could be something scarier than Americans being glued to Fox News; the government listening to Fox News!  The real story here is that of Shirley Sherrod.  A woman whose dad was killed by white men who were never convicted, who was able to overcome her injustice-driven anger to lend a hand to a white couple and save their farm.  It is ironic and tragic that such a story, which should serve as an example to overcoming racial problems in America, ends up being twisted into a story of racism in America by some idiot blogger.  That Fox News would deliberately take this twist and place it as front-page-style news is simply irresponsible.

This whole fiasco reminded me of a recent piece I read in the New York Times, by Paul Krugman.  The piece is called The Pundit Delusion and it deals with the ways in which politics is driven by stupid media pundits.  I agree! not a lot of Political Science makes it to the media and we end up having these ridiculous theories crafted by these "analysts" on these networks.  Who are these people?! what do they know?!  Ah you may ask the same about me, "who are you Black Mamba!?", "what do you know!?".  I will proudly say I am a Political Scientist and I'll tell you what I'm not: perfect.  And I'll tell you what I try to do, despite lacking perfection, I try to think critically - I actually like to explore both sides of an issue.  I may not always succeed, but I surely try, very hard.  And sadly, the same cannot be said about the current state of affairs of Journalism in America.  It has gotten so partisan, that the only alternative to partisan news is reuters news blips. Sad!

**Although I will make note that there is one news show out there that is very much worth people's attention: Fareed Zakharia GPS.  Great interviews, great pieces, really thoughtful... just great journalism.  I don't ever feel like I'm being persuaded, I feel like I'm being stimulated.

A long time ago, when I was in the seventh grade I used to aspire to be a journalist.  I had this admiration for journalists and the difficulty of their job.  There I was thinking "wow presenting a news without putting your own interpretation of it, that is so admirable!".  What do you know, it was really when I moved to America that this dream quickly died.  I have been disillusioned ever since and I can't get my head around the fact that "news outlets" such as Fox News have the high viewership they do.  It makes me a little sad for America, actually.

The Token Post on the Financial Reform Bill

Everybody's talking about it, so why not us!?  Obama's signing of the financial reform bill has to be the biggest news in America this week; aside from Lindsay Lohan going to jail (lame).  Ok, so maybe it wasn't the biggest news, after all, everybody knew it was going to pass.  But it is very significant because it marks the second big reform that Obama has achieved in his presidential term.  How big of a reform is it? if you ask me, not that big.  The biggest points that the bill addresses are the following: emergency lending from the Fed, bank equity (trying to separate deposit banks from wall street banks), and the consumer protection agency.  These are basically three major ideas: (1) no more bailouts (2) reduce bank greed (3) protect main street from evil wall street.  How effective will these proposals really be?  In my own investigations, I have found that point number 2 is probably the most watered down of them all.  The Volcker rule was supposed to really crank down on bank activity, but as it made it to Senate (where progress goes to die, haha) it was loosened.  The protection agency is another, interesting story.  It feels a little out of place in the Fed and a lot of its provisions feel to me like they are just assurance by the government that the consumer "is not alone".  The biggest test will be, are these regulatory powers of the bureau significant? and if they are, will they really have a big impact?  Overall, most importantly, is this bill really going to prevent another financial crisis??

Personally, I feel like this bill is the equivalent of reducing the speed limits to stop accidents.  Sure, many accidents are deterred by the speed limit, but still accidents will happen.  It's kind of naive to think that we have the power to prevent bad economic times.  It's almost as if saying that we will prevent bad things from happening in life.  Sure, one cannot stretch this analogy, we do have the power to alter the severity of bad times.  We do have the power to prevent really bad economic times as opposed to just bad times.  Thus, it is comforting to know that this recession wasn't a depression (which it could have been), thanks to the changes we made after the depression.  In that case, that was like placing seat belts in cars to avoid deaths in accidents - a major step indeed.  I find that the general doom and gloom during this recession is a little misplaced.  Personally, I have not found a job since I graduated, duh, things are bad.  But the truth is I can find a paying job - as I did.  It's like in that post from Cobra The American Dream Apparently Still Requires Work, the kid in that article found a job, it just wasn't the job he liked.  What else is to be expected from bad economic times?!  The important thing is that there are at least some jobs to be found.  What is our unemployment rate? It's less than 20% by a lot! Sure we have doubled our unemployment rate and that sounds pretty bad, but again, what do we expect?

Either way, back to our Financial Reform Bill.  The private equity folk are not going to be happy with this legislation, but they should take a chill pill.  Just because bank activity is no longer going to be free of rules does not mean that America's economic future is dim.  Seriously, let's face it, this bill is not threatening to Wall Street and they know it! this is exactly why the bill was not great news and why it's passing was not able to send stocks tumbling (something that, allegedly, Bernanke was able to do single handedly on thursday, by just saying "economic recovery will be hard").  To be honest, that this bill is not so restrictive is good, because even though our instincts make us want to choke Wall Street, it really isn't the right way to apply punishment.  We do want a successful financial system and we don't want to cripple it with regulation so that we lag behind economically when we do recover - that would not be progressive!  As Bernanke said, economic recover will be hard, but we have to believe in it.  Many questions remain unanswered in the reform package: what happened to regulating Fannie and Freddie? what about non-bank institutions?  Like the Healthcare legislation, all we know right now is that "we'll see".

Much like the Healthcare bill, we are left with a better understanding of what Obama's progressive reign will be like.  The two bills have been watered down versions of what they promised to be.  I'm sure many people on the left will cast judgement on Obama: either failed progressive promises or "he was a centrist after all".  But this is change we can believe in.  Let's face it, Obama didn't pass either bill, congress did!  That these bills are watered down is a reflection of how conservative America really is.  I mean, what are these "centrist" democrats? they are just borderline democrats! they might as well be "moderate republicans".  This is who people voted for and the majority are conservative.  That Obama needs to be pulling republican strings and "convincing" these non-democrat democrats to be voting for bills, in a supposed democratic congress, paints a sad picture for progressive policy.  As financial reform passed, the energy bill died, what are we to expect after November when the congress is no longer controlled by democrats?  Let's face it, America doesn't like reform.  And the reason for that is our lack of education reform.  Conservatism thrives where education lacks.  Now that we're done helping people get insurance and getting back at Wall Street, it would be a good thing for progressives to try to solve their conundrum and do something about our kids: let's now, finally, please focus on education! This issue is just as important as the economy - if not more.

Somalia and The Failed States Threat

The end of the cold war was a real tragedy to some countries, such as Afghanistan.  To be sure, it is ironic that we’re still dealing with the Cold War – even if indirectly.  But it makes sense, now that the world is not fighting over communism and the “free world”, what are we going to fight about?  Disgraced Political Scientist Samuel Huntington made his sensational, and surprisingly heralded, claim that the new world order would be based on the fighting amongst “civilizations” as opposed to ideology.  This was a subtle way of saying that the west would be battling the east.  (see Wikipedia article for a condensed version, as well as a lovely little map of the civs: http://en.wikipedia.org/wiki/The_Clash_of_Civilizations).  I don’t buy it.  I respectfully disagree with Mr. Huntington and will give him the benefit of the doubt, perhaps this is how the world looked in 1992.  Eighteen years later, it is evident to me that the clash is not between civilizations but between nations and non-nations.  In my view, the post cold war era has been marked by the rising power of the poor, disadvantaged, angry, unstable countries – the ones that were kept stable by the old world order of the Cold War.  Terrorism is nothing but the war instrument of the poor and it thrives in the most unstable and fractured nations.  It is no coincidence that Osama bin Laden launched his attack on the U.S from the wretched land that is Afghanistan.  Nowadays we don’t even fight countries anymore.  The world has changed a lot since Huntington’s piece and the greatest change has been communication.  Borders have been broken by that single change in our lifetime and now identity can be formed away from the state.  The fact that people can live in a state but in their minds live in another world (aided by enhanced communication), is exactly the consequence of our great technological discovery.  This is how our Times Square would-be bomber camouflaged himself as just-another-immigrant, but really was giving his allegiance to an organization that was more like a social club than a country.  But here he gets arrested and put in jail for the rest of his life… in Yemen, where he got trained, he runs free.    In the failed states is where we risk the most. 

Somalia is a security threat that nobody talks about (except probably Obama’s security team, of course).  Topping the charts as the number 1 failed state three years in a row is quite a sad accomplishment.  That poor country has seen itself unfold in a way no other country in the world has.  It even beats Zimbabwe and Myanmar if only for the fact that they have some semblance of order.  Somalia has lost it all and descended into pure chaos.  Mogadishu is real hell on earth.  But there are a lot of hells, why does this one matter?  A clue lies in last week’s events in Uganda.  A group of people were watching the glorious game in which Spain won the world cup for the first time and bam; a couple suicide bombers disrupted the festivities.  This event seems random, although it is reminiscent of the embassy bombings in Kenya.  But one thing is different, the target was not the west, it was Uganda.  Who would want to suicide-bomb Uganda?  Apparently, it was Somalia’s insurgency group Al-Shabab.   This may seem random too, but the truth is that much like in Afghanistan when the Taliban took over, the warfare in Somalia has brought a bunch of angry extremist men to rule in Mogadishu.  These angry extremist men were, much like in Afghanistan, flooded with weapons during the Cold War.  As is custom, the angry extremist men have committed atrocities across the city in their quest to take over the country; infamously executing people for watching the world cup (so lame).  A lawless land such as that is perfect breeding ground for extremist, clearly, but can also become the new home of al-Qaida and other terrorist organizations that may get tired of being harassed in Afghanistan and Pakistan.  The truth is that there are plenty of failed states where these people can go and that is precisely why failed states will become the security threat of the near future.  They technically already are, look at Yemen, Christmas pants-bomber and Times Square bomber were both trained there.  Yemen is not nearly as chaotic as Somalia, but it has proved nearly impossible for its government to control its territory or its citizens’ terrorist activities.  The same can be said about Pakistan, although the government there has a little bit more control and, well, America has a mandate to drone-bomb it.  That America is able to drone-bomb Pakistan is such a crucial step in the war on non-state actors (aka: war on terror).   Al-Qaida will never admit it, duh, but their operations have been severely weakened by America’s aggressive tactics in that lawless border. 

It’s funny how things change.  Surely Mr Huntington would be thinking that his theory is being proven given the fact that all the extremists in failed states happen to be Islamic, but I still don’t buy it.  Correlation does not mean causation Mr Huntington.  It is not a problem of Islam, it is a problem of weak states!  There just happen to be a lot of poor states that have Islam in it because, guess what! It’s a religion that happens to have a lot of people in it!  Somalia is not a failed state because of Islam, neither is Afghanistan.  The causal link here is far more complex than religion; it has to do with the particular state history, or more, a history of state weakness.  The issue here is not that Somalia is plagued by an evil group of extremists, but the fact that since Somalia failed at being a state, one of the consequences of such failure is the growth of extremists.  In short, extremists don’t cause the failure, the failure causes the extremists.

The case of Somalia is truly a tragedy.  Most of Africa is plagued with tragedy and it’s hard to even tell whose worse than who, but Somalia definitely tops the chart as one of the worst places on earth.  Foreign Policy ran a very short account describing what it's like to visit Mogadishu in this article with a very witty title: Mogadishu was a Blast.  Definitely worth reading.  Additionally, they also ran a story about how the administration is handling the matter, see article: Obama's Failed State Policy.  Sometimes, as a personal totally biased opinion, I feel like I wish America could just take over Somalia on the basis of terrorist activity and just rebuild it.  It seems like the best thing that could happen to it at this point!! but sadly, I cannot help to be reminded of Afghanistan.  We thought our invasion of it was the best that could happen to it... but has it been? many years later, Afghanistan is still pretty failed.

Independence Day Blues

This past sunday was the celebration of America's Declaration of Independence.  The mood in the nation's capital was one of contentment.  Despite rough economic times, it's still good to be an American.  Americans have a lot to celebrate, indeed.  In 234 years they have managed to go from a broke, New World ex-colony, to the world's super power - or at least, to the world's top dog.  Coincidentally, the next day (July 5th), Venezuela celebrated its own Declaration of Independence.  For most Venezuelans, it is safe to say that the contentment does not exist and the pride is lukewarm.  The glorious revolutions of two men - Simon Bolivar and Jose de San Martin - never did carry out what they promised.

Hugo Chavez has a habit of glorifying the revolution of Simon Bolivar and the meaning it had.  But it is not just Chavez, in Venezuelan culture Bolivar is like a God.  Imagine if in America George Washington were revered as the "liberator", the "the father and savior of this country".  Imagine if Washington had liberated Canada and Mexico too and tried to rule all three countries at the same time, haha.  Imagine if every single city in America had a Washington Square with a big statue of Washington, imagine if Washington's portraits hung in every single public office, and lastly, imagine if the glory and praise of the founding fathers combined into one man; general Washington. One would never notice, as many in Venezuela never do notice, just how harmful this glorification of Bolivar has been to Venezuelan political development, because we see it as just culture, just part of our history and folklore.  But the truth is that Bolivar was not all that we praise him to be and the cult of Bolivar is the root of a dangerous political habit that slows our development today: the longing for the messiah.

The idea of strong personalistic presidencies - strongmen - that has been at the heart of Latin American politics started with Simon Bolivar.  Though obviously it also takes its roots on the colonization style of Spain, which was far more centralized in its authority than England was to America - hence why America was much more prepared to govern itself than the Latin countries upon independence.  Bolivar singlehandedly liberated five countries and vocally expressed his desire to rule over all of South America as one country.  I mean, wow, that is an entire continent, what was he thinking?? Regardless, he may not have ruled an entire continent, but he surely felt like he was entitled to do so.  In fact, it turns out - contrary to what Chavez may profess - Bolivar was the son of Spanish immigrants and in the pyramidal societal structure, he was second to the top (Spanish born "peninsulares" were in the number one spot, duh).  The struggle for who was to be in charge of the colonial territory rested in the two groups - the Spanish born daddies and the New World born sons.  Sadly, for all the flowery talk of freedom at the basis of Latin American independent movements, the changes of decolonization were very small.  What happened was that the sons kicked out their daddies and ended up ruling just like their daddies.  The social hierarchy which placed whites at the top (socially and economically) and everyone else at the bottom, remained, despite the abolition of slavery.  That is because the one thing that did not get abolished was the ways and means of ruling: there was no abolition of the hacienda.  Upon Bolivar's exile and death (as he literally got kicked out for his dictatorial ways), the Gran Colombia split into three countries: Venezuela, Colombia, and Ecuador.  These countries then entered the period of Caudillism which was pretty much rotating leadership between hacienda owners, whoever could kill the other off.  The hacienda system is appalling mostly in that it was feudalism in the 1800s.  Thus, while America was establishing it's system of government, there was chaos and survival of the fittest in South America.

Despite the fact that this past was, in the case of Venezuela, 199 years ago - which seems like a long time - it is still present in our political culture.  Latin Americans still look for messiahs in white horses that will come to liberate them and fix their situation, change it, take over the country, fire every one, throw a coup de eta, etc.  Over two hundred years ago it was the messianic Simon Bolivar, after independence it was the Caudillos, in the 1900s it was the Perons and the Pinochets, and in modern times it is the Chavez and Correas.

The problem lies with the basic concept of rule by one versus rule by a group.  In America, the notion of the founding fathers - a group, not a single man! - reinforces the idea of consensus building, federal government, you have the "united" states of america, the idea that many parts make the whole.  In South America, because of the fact that our independence movements were about two people - one that owned the south and another that owned the north - our political histories have been molded to glorify the messiah, not the group.  This explains why so many of our democracies are strongly presidential, where the popular support lies with the president and not the congress.  Yes, in America congress has low approval ratings, but in general congress is strong because the people make it so and the system is designed so that the group can be represented just as the single man (the president) is, as equally as possible.  In Latin America, the president is always more powerful than the congress (the group), with few exceptions.

Laying that much power in one individual is the greatest danger to a system as fragile as a democracy.  Yet, our obsession with messianic presidents is not something people realize and it is a sad reality.  Once Latin Americans realize that the problem is not their leaders but their own notions of what their leaders should do, perhaps then they will be able to build better governments.  But until then, we will continue to fall victim to the dangers of placing too much power on one man.

When Simon Bolivar and Jose de San Martin met at Guayaquil to "discuss the future of South America", Bolivar made a toast to the revolution in which he described himself and San Martin as "The Greatest Men in South America".  To this day, South Americans believe Bolivar's description of himself, without asking of themselves what, aside from beating the Spanish in battle, did he do that was so great in establishing functional governments?  Let's face it, if we are going to hold Bolivar accountable for everything beyond just the battlefield, we need to really question his political legacy.

These are the questions that need to be asked.  No one likes to revise history or question their deeply rooted notions, but how can a country change if it can't seriously reflect on its own past?

As to the past and Latin American history, I too held these deeply rooted notions dear.  But I came across a  book that made me question the past that I had been taught and gave me a new perspective.  You can say that book is the reason for this post and the reason for my evolution of thought on Latin American history.

Below is the book in question. Anyone interested in this subject should pick it up!! it's a must read and not horribly dense.  It offers a window, an overview to the patterns and recurring themes in Latin American history.

The American Dream - apparently it still requires work!!!

[Warning - *mild* rant ahead]

The NYTimes has this habit of publishing lame, hyper focused feature pieces about the various incredibly lame problems that affluent white people from the North East have to deal with.  This week is no different: a lovely 4-page article focusing on the inability of this one son of a relatively well off Boston family to find a job after graduating from a good school in 2008.  Heavens to Betsy, what a calamity!  What is the economy coming to?  Of course, maybe this is just one of those dumb but somehow moderately wealthy families who thought they had made it big in America and could afford to send their son off to college to pursue some useless degree.  I mean, the article sure makes it seem as though he were educated and perhaps even groomed to be getting an awesome job out of college - and to be honest, its not that hard: learn how to do something useful that not many other people know, like programming, or electronics. That's how our parents and grandparents made their humble fortunes, and quite honestly I would find it horribly distressing if America had sunk so far that someone with obviously useful trade skills were unable to find a job after over two years of searching.

Its amazingly telling of the bias and misdirection inherent in this article that such a crucial fact to determining the kid's ability to get a jobs, namely what he majored in, would be omitted until the third fucking page.  Way to go NYTimes - stroke the elite white liberal's limp, deflated ego-penis.  Maybe if you lie and tell them how big it is anyway the whole problem with the economy will go away?  Seriously - why else would you waste print space in what I consider an otherwise upstanding publication with a story Political Science major can't find a cushy corporate job?!?  Oh, apparently he also has a minor in history - big fucking deal!  Why didn't he stay in academia where his fucking training was?  I simply don't see how he, his parents, his grandparents, the journalist, or anyone reading the article could seriously run with this piece from start to finish and not see the horribly warped expectations.  Its honestly embarrassing - to the point where I'm tempted to go on a personal vendetta to bring as much public ridicule and shame to the Nicholson family for their utter failure to be good Americans.  These people are why America is weak and failing!  This is why China is pulling ahead of us!  Of course, I highly doubt the elite ruling class of the Boston-New York-DC suburban mega-sprawl will ever actually realize this fact - after all, China is still far behind us in terms of number of Political Science majors per-capita, and to families like the Nicholsons who manage to clear $175,000+ a year in income, said metric is obviously the only one that matters in determining a country's economic strength.

Seriously, its almost like the baby boomers are a bunch of completely unrealistic, impotent idiots.  How the fuck are they the ones with all the money and social power?

And NYTimes, if you have to go ahead and run a piece like this because somebody's daddy knows someone, don't title it "A New Generation, an Elusive American Dream".  Title it "some dumb schmuck of a kid who is apparently surprised that spending 4 years learning 'political science' didn't automatically get him a golden ticket to 75k+ out of college".  Of course, that's probably too long, so how about this: "The American Dream - apparently it still requires work".  Normally I don't get so worked up about this sort of thing, but sometimes living on the East Coast can drive me absolutely batty.  I had no idea until I came out here that rich white people could be so privileged, so entitled, so idiotic, and yet still be so glorified by community and culture of the area.  Its so shockingly insidious that after half a decade here I'm still surprised by what I see sometimes, and this article is absolutely no exception.

PS: If this offends any poli-sci students out there, go take a long hard look at yourselves and what you're doing that's useful with your lives, and then if you still feel offended go fuck yourselves.  The only respectable poli-sci, history, English, or otherwise "humanities" majors I've ever met were the ones who knew their degrees weren't going to be good for much more than wrapping around a brick and throwing at someone through a window.  And to be honest, those were coincidentally also the ones who managed to find shit to do after college.  I'm going to attribute it to their inherent goal-oriented, brick-throwing natures.

A game theoretic approach to solving Afghanistan

All the recent Afghanistan-centric talk has gotten me thinking: why haven't we won this war yet?  Seriously - the fact that its been nearly a decade and we still haven't managed to install a credible, self supporting government is almost as embarrassing a loss for America as Team USA's underwhelming performance against Ghana in their first and only game in the knockout round.  Like all tragedies, this one in the middle east begs the question: why?  What can we do to fix it?  

The current insurgency need only do the same thing every other insurgency facing a first world enemy fighting in the traditional post modern manner - hold out, and try to debase public opinion of the current government.  As long as the Taliban can remain a bigger force in the minds of the Afghani people when compared to any other alternative - like the puppet government the US is propping up - they will have won.  To put it in perspective, imagine that war is a business - insurgencies are like startups, while the US Military is a like much much bigger, fatter, slower, more bloated company - I'm thinking something like Ford or BP here.  Moreover, the scrappy guys aren't just competing for a chance at some IPO payday money shot - they're literally fighting for their continued political survival, and this amplifies the incentives to stay alive by orders of magnitudes.  Basically, our enemies want the W more than we do right now, and they're going to be working damn hard and doing some very innovative things to get it. 

Now, the crux of the problem seems to be the lack of credibility of the puppet government the US is installing.  Its not even about a complete inability of Karzai to gain credibility - its more about the greatly lopsided difficulties that Karzai experiences as compared to the Taliban in terms of gaining credibility.  From a dynamic systems perspective, it's as though the system currently has only one fixed point or outcome, namely the US withdrawing and essentially conceding defeat to the Taliban.  From a human perspective, this only makes sense: as previously argued, the Taliban's incentive to win is their very survival, while for the US "winning" means spending disproportionate lives, money, and time on a hot, sandy, opium and terrorist filled quagmire with little hope of ever recouping the investment in the form of political capital with the rest of the Middle East.  Especially given the Summer Recessioganza, its clear the US wants to start cutting costs, so how soon until we cut the obvious trillion dollar cost that's really (supposedly) sapping our economy?  Any Afghani citizen can see the complete lack of American salience here when compared with the Taliban, and as any game theorist will tell you, salience is a dominant variable when determining the outcome of such political negotiations.  Given the massive inequality in salience for the two competing sides, it's clear who won't win this game in Afghanistan: the US. 

So, counter insurgence is borked just from a basic incentive perspective - it stands absolutely no hope of succeeding.  But now, before we get all doom and gloom here by giving up on Afghanistan completely (and thus dooming to the country and its people to an even more fucked up future than we found it), let's think for a second.  How can we change the incentive structures here so that a pro-American Afghani government gains sustainable authority over the country?  Essentially, we're trying to engineer a plan that will produce an incentive scheme that ensures our desired outcome is the only fixed point; or, if that's not possible, ensures that it's at least the most likely fixed point.  Fortunately, we're playing the role of the US government, which allows us to simplify a lot of the complicated engineering maths - essentially, we the US can do whatever the fuck we want in Afghanistan except force the people to support us.  This gives us quite a bit of leeway in our politictioneering, aka the art of engineering political incentive structures to produce desired social and political effects. 

As a slight interjection, I'd like to point out that we Americans have a wonderful history of incredible politictioneering, namely the US Constitution.  I find it utterly amazing how one single document managed to create, from nearly nothing, a set of political rules and incentive structures (aka a government) that would be able to grow seamlessly along with its nation all the way from backwater third world country to world geo-political and economic leader over the course of nearly three centuries.  Whereas most young democracies fuck up their constitutions or their implementations and leave themselves susceptible to overthrow by various petty dictators within a few decades, America actually managed to produce a system of checks and balances that kept the country alive and dictator free for over 200 years.  Go US. 

So what to do in Afghanistan?  My answer is simple: let the Afghani people fight the Taliban itself.  Don't coddle the Afghani police or military forces, either - offer them good wages, train them with the best the US Military can provide, equip them with the most modern counter-insurgency hardware like UAVs.  Do similar things for the political side of the sphere - make the best political consultants available to the Afghani parties so they can learn how to operate in the context of a modern democracy, but let the Afghanis elect the consultants: all the US has to do is foot the bill.  The US can offer the equipment, training, consulting as part of a lend-lease program - perhaps one where the amount lent is (at first) proportional to the reduction in insurgent activity and other measurements of desirable progress in Afghanistan.  By holding the purse strings, the US can maintain its dominant negotiating position and continue to call the shots and determine the overarching goals; however, by allowing the Afghani people to decide how the funds, equipment, and training get allocated to achieve those goals, all sorts of good things happen psychologically that would incentivize realistic, achievement-oriented parties to emerge from the political chaos that is Afghanistan.  But from a purely incentive based perspective, by offering the power to control the distribution of funds and other war and country building materiel to the Afghani elite in exchange for goal achievement, we incentivize them to start swinging their sizeable political clout around the country in our favor - a vital component of any successful rebuilding of Afghanistan. 

However, without even checking, I have a feeling that what I described above sounds an awful lot like McChrystal's counter insurgency surge whatever - help build the country and victory will follow, or some bullshit.  I want to point out though that there's a key difference in my plan that's necessary to make it work: its presentation and delivery.  Essentially, the Afghani people can't see the US funding as a control mechanism used to achieve US ends.  Instead, we must offer these as a gift to the Afghani people.  It is our forgiveness gift, or perhaps more appropriately our fine, for invading, royally fucking up their country and then having the gall to insult them with a weak puppet government.  However we spin it, we must get the Afghani people to see the incentive-based reality of it: that ultimately its cheaper for us to trust the Afghani people to know best how to rebuild their own country, and moreover we're so sure of it we're willing to provide them the resources to do it.

McChrystal Clear

I have taken a long break from the Snake Pit due to the World Cup and its consuming power.  However, I also think I was taking a break from the political world because I am, by now, simply bored of the only thing that is on the news: the oil spill armageddon.  I will post something about that, as I have many comments, but God, no, I need to think about something else that isn't BP, nor oil, nor the gulf, nor the unfortunate state of Louisiana.  Today, instead, I will discuss something far more entertaining: White House gossip. 

warning: I will not post about the World Cup, but you will have to bear with me because sadly I am seeing everything in football terms these days and analogies or parallels may slip into my writing.

Last week, after suffering an embarrassing loss to what seemed as an inferior Mexican team, France seemed to plunge itself into a little football soap opera when coach Domenech sent top player Anelka back home after the latter had a moment of insubordination.  Much like Anelka, General McChrystal was caught in a moment of grandeur (as perhaps being in charge of Afghanistan might lead one to do?) and decided he would be superior to his superiors.  Ah, but coach Obama is no angry Frenchman, and while I believe he should be firing the General right about now, I agree with his current response of "let's hear him out".  At this moment, CNN is confirming that the General is traveling to the White House tomorrow with his resignation in hand.  That is perhaps his best move thus far!  In the case of the French football team, the quarrel between team leader and coach went beyond themselves, it was an example of serious problems in the French team.  Sadly, I can't say this isn't the case for team Obama's war in Afghanistan.  Let's face it, team Obama is not playing a good game.

A year ago, the president performed two contradictory tasks: announcing a withdrawal date for Afghanistan and hiring McChrystal.  Back in college, two years ago, in a class called History of Terrorism my professor gave us his little speech about how he was an advisor to the Obama campaign.  This announcement mattered because he wanted to make a point about Afghanistan.  In class, he taught us the differences between the new school of counter insurgency and the then positional warfare strategy that Bush was employing. The counter insurgency method was one that involved not just bombing enemies, but also reconstructing the country.  The theory is that insurgencies live as they have popular support, so according to this method: to kill the insurgency, you have to kill the popular support.  In other words, you win by winning the hearts and minds of the people by providing good governance, goods, services, and most of all: security.  This meant that the military would have to take tasks that they wouldn't ordinarily do: building a government, building schools, or just pretty much rebuilding the country.  This is not something that can be achieved in six months, one year, or two.  This is quite a long term effort.  So when Obama announced that he would be withdrawing troops in 2011, I was perplexed!  This is not in congruence with the assumed new strategy.  So, one would think that Obama was resuming the war in Afghanistan, but then, he hires McChrystal, who according to the damming Rolling Stone article is himself a convert of counter insurgence.  What? this makes no sense! What makes perfect sense is why McChrystal would talk some smack about Joe Biden, because Biden is part of the liberal faction that wants us out of Afghanistan ASAP.

What seems obvious is that the objectives and goals of the Obama team in Afghanistan are not clear.  This is pretty bad.  I suspect part of what is causing the friction between the administration and McChrystal is precisely this perceived indecision on what direction Afghanistan should go.  Such indecision does not rest only with Obama, this is a problem of Democrats - one that started at they transitioned to power.  The question of what to do with Afghanistan divided the party.  The more moderate side wanted to stay committed to try this new counter insurgency plan, while the more liberal side wanted to get out and turn isolationist (the usual Democratic doctrine).  What I don't like about the administration is that it did not make a choice.  Instead, they have tried to maneuver themselves somewhere in the middle, setting a date of withdrawal to pacify one side and committing to the counter insurgency to pacify another.

Unfortunately, this is not the environment for the administration to be placing itself in the middle because this is a war and at the end of the day they will get no results.  Having people like McChrystal in charge is only going to delay the withdrawal that the liberal fringe wants and withdrawing sooner is only going to kill the counter insurgency efforts that the moderate side wants.  Meanwhile, nothing changes in Afghanistan.  Either you leave the country or you stay and try to fix it, but playing both games is only wasting American lives and squandering taxpayer dollars.

After the French coach sent Anelka home, the team revolted and boycotted practice.  The coach punished them by removing their team captain from today's game against South Africa - a game they went on to loose embarrassingly.  The standoff between player and coach opened a can of worms and France got themselves eliminated, after they had finished second in the last World Cup four years ago.  One can hope that Obama's team does not fall apart too, but a lot will depend on the solidity of their game plan.  Can Obama appoint someone that he can trust? can they get more clarity in their policy?

more importantly and plainly: will they get their act together?

BP Spill: an update

The only thing more fun for me than making predictions is going back and actually checking how I did with them.  Today, I want to go back to a post I wrote a week ago about BP's potential liability from all this hullabaloo and look at how the predictions I made back then have stood up to the developments of the past 7 days.

In my post, I assumed that 60,000* barrels of oil a day were spilling when the official figures were less than a third of that - since then, the current government numbers have twice been revised upwards to their current levels of 45-60,000 barrels a day, exactly my estimate a week ago.

In my post, I predicted a final net liability that was most likely to be somewhere in the range of $10-25 billion.  Since then, after meeting personally with Obama, BP has agreed to put $20 billion into escrow to fund the recovery.  Although this isn't necessarily a final number in either direction, it does indicate that the two biggest players in this negotiation - BP and the U.S. Government - are acting as though my prediction is the most likely reality. 

Further, by virtue of the fact that its an escrow account, it is in fact quite likely that the $20B figure is an upper bound to the likely costs of the relief effort.  Consider it this way - if the government expected the recovery to take at least $20B, they would have likely demanded something more like $30-40B in escrow just to make sure the funds are there.  The amount put in escrow is most likely a standard deviation or two above the expected cost of the relief effort, just from the perspective of prudent budgeting.  However, note that this is also consistent with my predictions that the recovery would likely cost between $10-25 billion - I used a log normal distribution which has a mean of about $16 billion here, and a $20 billion escrow account seems to be a healthy amount above that number such that I'd say its probably also BP and the Government's expected amount.  Going forward, although I'll certainly keep my $66B worst-worst case estimate in mind, I'm going to start assuming a $16B price tag for BP as the most likely course of events.

* In my post I assumed 1.8 million gallons, which is 60,000 barrels in barrel-speak

Vast majority of Goldman clients staying with firm

As a followup to my previous post analyzing the fraud allegations against Goldman Sachs, I want to share a Times article that highlights a most curious phenomena: the vast majority of Goldman's clients are staying put.  Considering that these are precisely the people who are most at risk of being exploited and defrauded by the predatory lending practices of GS, its interesting that they aren't leaving.  Its almost as though the people who are most familiar with the financial services sector understand that Goldman really didn't do anything wrong, let alone criminal, and are in fact willing to put their money where their mouths are (quite literally!) and remain with the firm.  As General Electric chief executive Jeffrey Immelt said about Goldman, "We trust them... People need to tone down the rhetoric around financial services and stop the populism and be adults.”  I couldn't have said it better myself.