Wednesday, November 25, 2009

Imaginary blinders

Add these to yesterday's reflections, and just package the whole thing together under the same heading.

First, Tim Duy takes a deserved swipe at the idiocy of "reigning in the deficits" in the middle of a tepid recovery (check out his charts too, which, one might point out, bear more than a passing resemblance to this model, with the picture of Karl Marx on the cover one might point out)

And where are policymakers as we slog through the final month of 2009? The Administration is poised to do virtually nothing:

The White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit, administration officials said.

There is as yet no agreement within the White House or in Congress on how to try to curb the U.S. jobless rate. But the differences in opinion suggest that rifts could emerge among Democrats as they wrestle with how to beat back the highest unemployment rate in a generation.

...Hamstrung by the nation's $1.4 trillion deficit and his pledge not to raise taxes on middle-class Americans, Mr. Obama is keen to avoid any measures suggestive of a second, big-ticket stimulus.

Indeed, the failure of the Administration to take bold moves early in the year now cripples it in any attempt to take bold action now. Apparently, the best we can expect now is a "Cash for Caulkers" program that will dribble money into the economy, ensuring that we do little if any better than limp along.

This is why I've already had enough of the man with the deep tan we elected last year.  There's all sorts of ways to defend what's he's done in the face of a difficult situation.  Twelve dimensional chess and all.  But the truth is that we spend all our time defending the long-term implications of the way he takes a bow, and we never get to him actually doing anything NOW.  Saying that Obama is not "bold" has got to be the understatement of the century, and it doesn't help to defend this as something that will play out over the years. There's a midterm election in one year that is I fear is going to spring out of the box like a coiled political snake, and, after Carter, we need to remember that they don't give you a second term for your long-term planning, but for what you do in the first 4 years of strutting and fretting.  Pretty soon I'm not going to have any more sympathy for the "deck was stacked against him" argument -- a real player would have flipped the table over and started fresh.

Fundamentally what's happening here is the lack of imagination we see everywhere playing out in a political context.  Nobody can imagine anything changing.  So it doesn't.

Second, we have the inertia of the same clueless policymakers who helped us get to this sorry state of economic affairs.  Duy already mentions this, but there is even dissension deep within the ranks, as David Altig's latest macroblog salvo illustrates.

If you ask me, it's time to get "real," pun intended—that is to ask questions about the fundamental sources of persistent low inflation and risk-adjusted interest rates (a phrase for which you may as well substitute U.S. Treasury yields). To be sure, the causes behind low Treasury rates are complex, and no responsible monetary policymaker would avoid examining the role of central bank rate decisions. But the road is going to eventually wind around to the point where we are confronted with the very basic issue that remains unresolved: Why is the global demand for real physical investment apparently out of line with patterns of global saving?

The charts he provides are perfect.  Everyone is panicked about the government debt and the rise in yields and all the new ... bank ... lending ... and wait a second, all of those things are just phantoms of a bankrupt (pun intended) past.  There's no lending and rates are staying very very low.  No one can seem to imagine that the economy wasn't in equilibrium before, and so it's not going to just go back to the same massive disequilibrium of 2003-2008 (or longer).  There's no lending because the banks are fried, and because nobody in the US wants to borrow any more.  So the only place you have to worry about inflation is in China, where they're actually still building shit.

It's the same phenomenon as we see politically.  Despite the fact that we ran the country in the ground, we keep using the same tools and applying them in the same way, expecting, like lunatics, to achieve a different result.  Once again, the biggest obstacle to change is simply the inability to imagine a different world.  I respectfully suggest that if we are unable to do this, we let Google do it for us.  The rest of the cosmos certainly isn't going to put up with tired bullshit for long.

Tuesday, November 24, 2009

A Failure of Imagination

Robert Nozick said somewhere that, "Lack of invention is the mother of necessity". As a philosopher, he was talking about the existence of necessary metaphysical truths, but I love this quote and I think it applies perfectly to our current economic and political situation as well. Despite all the things that have happened to our country over the last decade to highlight the problems with our system, we seem completely incapable of imagining any other way of doing things. We are nothing but a tired and fading empire too set in its ways to make substantive change or adapt to the rise of the new forces we ourselves have unleashed. At best we can hope for the dignified senescence of Europe or Japan. At worst we can expect the cycles of repeated collapse common to the rest of the colonial world. In either case, we should admit that we have marched West as far as we can, till we piled up huge castles made of sand on the coast of California and watched its bloated dream topple into the ocean.

The great American experiment is over.

From such an introduction you might expect that I have something profound and new to say about our culture. In truth, though, it's the same story as ever; we have simply run out of steam, and the apparatus has been captured by those seeking to enforce the status quo. This capture goes very deep, and has many faces, ranging from the mechanism by which we elect our politicians, to the ideology of our conception of governments and markets, to the way in which we desperately cling to our bankrupt financial system. But today it's this last bit of capture that serves to best illustrate all these aspects at once.

Morgan Stanley has spoken, and Simon Johnson has talked back. They argued that higher capital requirements for our banks would serve to limit economic growth. And he points out that this is a huge load of shit for three very good reasons.

The essential premise of the Morgan Stanley reasoning (heard much more widely on Wall Street) is that the size of our biggest banks cannot be constrained – because it would raise the cost of equity for these smaller units. This misses three points:
  1. If you are sufficiently small, you can take more risk without jeopardizing the system. So the expected risk/return combination can attract investors and be fine for society. Most successful venture capital funds, hedge funds, and private equity funds are in the right size range from this perspectives and don't have trouble attracting capital – except when the big banks blow up. As long as you are small enough to fail, go for it.
  2. Morgan Stanley's pricing of risk model implicitly assumes that big banks still exist as a comparison point and an alternative for investors. But if you put a size cap on the largest banks (e.g., assets cannot exceed 1% of GDP), this defines the asset class available – so investors don't choose small vs. medium vs. large; they choose small vs. medium. Yes, this removes a choice for investors, but we routinely constrain investors ability to put money into activities that are potentially dangerous for society (e.g., try proposing a "new" high risk/high return approach to nuclear power).
  3. There will always be financial shocks, but these do not always need to have such devastating effects. Our financial system worked fine in the post-World War II period, with a great deal of risk-taking and much nonfinancial innovation – our biggest banks were much smaller, in absolute terms and relative to the economy. The notion of "let us take any risks we want and, if it all goes bad, bail us out so we can make it up to you later" is simply preposterous and completely at odds with the historical record of US economic development.
But look what's going on in this argument. It's easy (and obvious) to observe that this is just Morgan Stanley talking its book. It goes way beyond that however. For one, them talking their book is going to become a Republican talking point almost instantaneously, illustrating the capture of our political system. For another, the idea that we need a modern banking system for economic growth is theoretically questionable, and practically, just plain proven wrong by the breakneck growth of China, who doesn't have one. And finally, even if you gave up those first two points, you can see how the whole things revolves around the premise that Morgan Stanley has to be one of the profitable necessary banks underwriting our economic growth.

In fact, we could need a banking system that has the potential for high returns, that finances high growth, and yet that, in aggregate and over time, can't turn a profit. In other words, even if we need a banking system as big as the one we have, there's nothing indispensable about the individual banks, and indeed, the best system is probably one so competitive, so commoditized, that they never turn a profit as a group. Consider the airlines. Plenty of flights. No net industry profit over time. Some are good, some are bad. New firms come and old ones go, and ... well .. that's what we call a market. So now you have finally reached total ideological capture, where the idea of market has become synonymous with a government guaranteed return for a chosen set of 'necessary' firms.

Like I said, the great American experiment is over.

Saturday, November 21, 2009

Capitalism and Infinity

Your humble blogger's devoted readers are, no doubt, already aware of your host's thoughts regarding the end of humanity.  To wit: it never really got started to begin with -- we have never been human.  At least, we have never been a certain rather naively conceived version of human that remits, at base, to a sort of ghost in the machine, a little man inside our little man, a quasi mystical conception of the rational agent, sprung, fully formed, from the head of the gods, and now buried deep within our brains.  I know it's down there somewhere, let me just take another look.

In fact, truth be told, we are surrounded by chimps.  We might even say we're possessed by them.  Namely, ourselves. 

But I won't bore you with another tirade about how we are merely a bridge between ape and superman and how the ghost in Google's machine is likely to replace us at the cutting edge of the spectral.  At best we may hope to be the sex organs of this new technology, the pliant antennae of a new consciousness.  I won't bore you because that's still so far away, really, and so ill assured when you realize that Google, too, has competition.  You needn't go futuristic to see how a large system built out of purportedly intelligent parts can take on a life of its own and, without the parts ever realizing it, orchestrate events so as to fight for its survival, expansion, and reproduction.

Before Google, we had multinationals, and before those, the state (if these last two are indeed separable -- let's lump them together for right now under the heading of Capitalism -- if I still have to explain this thought, and the way capitalism is the opposite of a market economy, you readers aren't as devoted as I thought.).  We have been building larger units since we invented language, and the history of our humanity, of our consciousness as humans, has been modified each step along the way.  The parts compose a whole, which in turn remakes the parts.  An interesting aside here would be to understand why these older composite organizations convinced us we were "human" to begin with.

A lot of the time it seems that this perspective is left out of the science fiction debates about thinking machines, network intelligence, and the singularity.  Google may be the newest trans-human (meta-human?) organism, but it is not the first, nor is its success, or even survival, assured.  In fact, this new intelligence remains in fierce competition with those lumbering dinosaurs whose operating systems are still encoded on parchment and parliament.  Most fundamentally I think these creatures compete to remake the raw material of their cells.  Or, if you prefer a strictly modern metaphor, they compete for the clock cycles and computational architecture of the human brain.  And while you may isolate regimes in this ongoing competition, or eras where the landscape changes shape, it's not as if the old organisms just give up and die -- not even the humans, who may yet inherit the earth.  These strata come mixed together in the most messy way, and aren't even limited to those I've mentioned -- the roaches and computer viruses and weather systems happily join the fray as well.

My point here dude is that Capitalism already represents a new organism, and a changed species (or perhaps the species are the institutions of state and corporation, and their symbiotic coevolution is a sort of ecosystem or landscape -- but then, what's the difference between those? isn't the ecosystem an animal too?).  Capitalism is an animal behavior pattern and a entity unto itself -- which perhaps sounds less bizarre if you realize that everything that is a thing is a pattern of behavior.  What we call things are just patterns of behavior, processes, that don't change rapidly relative to our human patterns.  I think this question of time scales is a big part of why we find it easier to imagine talking to Google than talking to Capitalism or Ford or the federal government -- it moves so fast we recognize it as one of our own.  "Is Capitalism lonely?"

But recognizing that we have been building artificial intelligence all along was actually not quite where I was headed.  I was actually trying to make sense of an related idea I've had for a number of years.  Completely lost my train of thought.

Capitalism is a game.  It's like the initial play of a child.  It's the awkward stretching and testing of a newborn trying to assess its powers and limits.  All intelligent species play.  If you want, you can almost call that the definition of intelligence.  If we talk about a new intelligence emerging on this planet, what makes us think it would be any different?  Sure, this game has real consequences for us humans, but then, really, we are just pawns in it.  Or maybe some of us are worthy fucking adversaries, but my point here is that the game has a logic of its own that doesn't necessarily care about mere human happiness.   The game will probably function more smoothly if it can find a way to engineer our satisfaction into itself -- the quirks of the East African Plains Ape are part of why the rules are laid down exactly as they are, even if it's not the apes that really designed the game.  So Capitalism would like to make us happy, if it can.  But if it can't ... well, so long as the material doesn't rebel it's internal state doesn't really matter.  In fact, if things get hairy, it might be bets to empty it of internal state entirely. 

The reason to prefer Google to Capitalism (from our little human perspective) is not that one is inherently better or more inevitable in some cosmic evolutionary sense, but simply that one is likely to be much more pleasant for us.  One may give us a chance to play too.  Google is likely to allow the consciousness of our tribe of apes to expand much further and realize itself much more fully.  And this, ultimately, is the only way to 'judge' an organism; this is how the cosmos pronounces judgment: "how far can you go?  how big can you get?  how infinite are you?" -- it's a question of being unlimited, unshackled by the Capitalist Axiomatic that would corral your proposition and convert your algorithm from generative to normative.  None of that is assured, of course, but it seems like our best new weapon in the struggle for infinity.

Dear Sweet Baby Fucking Jesus

I am normally a big supporter of the EFF, but they really need to take their fucking head out of their ass and look at the bigger picture on this Google book settlement question.

At the heart of the proposed settlement is a bargain that lets Google (and only Google) leapfrog the problem of "unclaimed works"—books whose copyright owners cannot be found or whose owners can't be bothered to fill out paperwork for a small payment disbursed by the Registry (consider how many "class action" notices you've tossed in the trash unread). Thanks to the magic of the class action process, the settlement solves this problem by resolving the copyright claims of these otherwise unreachable copyright owners and designating all of their works by default as available for "Display Uses" by Google. In other words, so long as no one steps forward to claim these books, Google (and only Google) has a license to make them available in all the ways the settlement allows.

Nobody likes this "only-for-Google" aspect of the settlement—in fact, Google has said that it would support orphan works legislation that would empower the Registry to make the same deal (or even a better deal) with others who want to use these unclaimed works. (Where the claimed books are concerned, in contrast, the Registry will likely ask the rightsholders to appoint it to license companies other than Google. But that still leaves all the unclaimed books out.) The settlement agreement even has a provision that makes it clear that the UWF can license others "to the extent permitted by applicable law"—what amounts to an "insert orphan works legislation here" invitation.

But absent some legislative supplement to the revised Settlement 2.0, it still seems that any other company would have to scan these books, get sued, and hope for a class action settlement. That, of course, is the kind of barrier to entry that any monopolist would envy. 

So, let me get this straight.  The evil monopoly inserts a clause into the settlement granting it this monopoly that expressly aims at letting Congress get its act together and actually take the monopoly away in the near future.  Wow, that's some powerful evil all right.  These guys have really out-maneuvered everyone.

To their credit, the EFF doesn't really even believe what they're saying, as they go on to point out:

This raises a worthy question: if legislation is necessary to fix the competition problem posed by the settlement, then why do we need a class action settlement in the first place? Why not solve what seems like a quintessentially legislative problem with legislation, instead? (As Amazon points out, that's exactly what was done when music publishers brought a class action against the first digital audio tape (DAT) recorders).

Here's where realpolitik enters the equation. Google correctly points out that Congress has been working on orphan works legislation for years, to no avail. And none of the legislative proposals came close to the comprehensive solution embodied in the proposed settlement. So the question boils down to a political one: do you believe that approval of Settlement 2.0 will make orphan works legislation more likely, or less likely? Without a crystal ball, it's hard to know.

If there were intelligent legislation, we wouldn't have needed this whole lawsuit to being with.  But of course, that was the whole point, to force our kleptocratic government, drunk with the campaign contributions they received in exchange for renewing the rights on Mickey Mouse and Sony Bono till 3451, to wake up and do something.  The bigger picture here is that the only thing capable of breaking through the big monopoly in the sky (aka the US government) is the emergence of another sort of monopoly -- the only way to challenge the power of incumbent lobbying is a new economic power that springs from the ground up.  Remember Good Monopoly, Bad Monopoly already a blogosphere classic? If we don't reward this sort of bravado, if we don't, in fact, subsidize it, we won't get any more of it.  You can see how all the more established players in this space banded together not to be able to get a piece of the pie, but the prevent there from being any pie to begin with because it would be a challenge to their incumbent business.  It's classic Gridlock Economy stuff where too many owners end up preventing a resource from ever being used.  No one was missing those orphaned works, even though all those ideas have been trapped in an ever-distending legal limbo for half a century now.  You can't see under-utilization till after the fact. 

So the choice in this case isn't between having access to these books through one company versus having multiple ways to access these works -- it's between having access to those books and not having them at all, or better yet, between having access to this question versus not having it at all.  Ultimately that is why I think it's better that Google not give away everything directly in the settlement, and instead force the issue into the open via requiring potential competition to push for legislation if they want a piece of the (now extant) pie.

Someday Google will mature and will itself be an impediment to innovation.  But not today.  Today they are the only people willing to go out on a limb and challenge the monopolies that already exist.  In fact, maybe Google should join the Pirate Party, or vice versa. 

Wednesday, November 18, 2009

Random sentence from a BIS report called "Banking on the State"

"The taking of imaginative forms of collateral has a history which predates central banking: in the 12th century, King Baldwin II of Jerusalem secured a loan using his beard as collateral"

Tuesday, November 17, 2009

Move over Madoff

Here's one I never heard before -- this Gregor MacGregor guy actually invented a whole country, with its own currency and bonds and everything.

Strangely, the Republic of Poyais later defaulted on its debt, though not before Venezuela, Peru, Colombia, Chile, and Buenos Aires, did the same. 

Let no one claim that the English don't know how to run a smashing good armchair banana republic.