Institutions Die from the Head Down

Here is a bit from an article by James Surowiecki in the New Yorker:

In July, 2008, on the eve of the biggest financial crisis in memory, the European Central Bank did something both predictable and stupid: it raised interest rates. The move was predictable because the E.C.B.’s president, Jean-Claude Trichet, was an inflation hawk; he worried about rising oil and food prices and saw a rate hike as a way of tamping them down. But the move was also remarkably ill timed. The crisis was already under way, European economic growth had slowed to a crawl, and within a couple of months the global economy had collapsed, inflation had disappeared, and the E.C.B. was forced to slash interest rates, in an attempt to avert economic disaster. That July rate hike was like kicking the economy when it was down.

One might have thought that the E.C.B. would learn from the experience. No such luck. This year, Europe has been wrestling with high unemployment, slow growth, and a continuing debt crisis, with the economies of Portugal, Ireland, Italy, Greece, and Spain (the so-called PIIGS) struggling to avoid default. Given the situation, Trichet could have decided to keep interest rates where they were, as both the Federal Reserve and the Bank of England have done. Instead, the E.C.B. raised interest rates in April and, once more, in July. Again, as if on cue, European economic growth stalled and the continent’s debt crisis deepened, which has created problems for markets around the world.

...

To be fair, the E.C.B. isn’t alone in its paranoia about inflation. That bias reflects the preferences of many voters, whose hatred of inflation tends to be disproportionate to its real costs. (Cue Rick Perry saying that looser monetary policy would be “almost treasonous.”) Most studies of moderate inflation find that its costs are quite small, but a study of elections in thirteen European countries from the nineteen-sixties to the nineties found that voters were far more likely to toss out politicians when inflation rose than when unemployment did. Inflation hits everyone, after all, even those who have jobs, and it’s easier to get angry about expensive gasoline than about that raise you might have got if the economy were stronger.

I think the Peter Principle is alive and well and explains the heads of all big institutions. How else could the IMF end up with a rapist as their chief?

I think Obama is a good example of the Peter Principle in action. He was diligent, polite, caution so he won the big prize. People simply expected that if he were running for president he realized that required leadership skills and probably had them. We are all shocked to discover that Obama hasn't a clue about what it takes to be a real leader. In his own mind he is doing great things, but if you look around, the US is in a mess and like a car stuck in the mud, the engine is being pumped and wheels are spinning and a great roaring noise arises from time to time, but that car is going nowhere.

Do What I Say, Not What I Do

The US government loves to lecture other people around the world, but seem constitutionally unable to apply the most basic concepts of "rule of law" to themselves. Here is a bit from a post by Glenn Greenwald in Salon magazine:

Less than three years ago, Dick Cheney was presiding over policies that left hundreds of thousands of innocent people dead from a war of aggression, constructed a worldwide torture regime, and spied on thousands of Americans without the warrants required by law, all of which resulted in his leaving office as one of the most reviled political figures in decades. But thanks to the decision to block all legal investigations into his chronic criminality, those matters have been relegated to mere pedestrian partisan disputes, and Cheney is thus now preparing to be feted -- and further enriched -- as a Wise and Serious Statesman with the release of his memoirs this week: one in which he proudly boasts (yet again) of the very crimes for which he was immunized. As he embarks on his massive publicity-generating media tour of interviews, Cheney faces no indictments or criminal juries, but rather reverent, rehabilitative tributes ...

That's what happens when the Government -- marching under the deceitful Orwellian banner of Look Forward, Not Backward -- demands that its citizens avert their eyes from the crimes of their leaders so that all can be forgotten: the crimes become non-crimes, legitimate acts of political choice, and the criminals become instantly rehabilitated by the message that nothing they did warrants punishment. That's the same reason people like John Yoo and Alberto Gonzales are defending their torture and illegal spying actions not in a courtroom but in a lush conference of elites in Aspen.

The U.S. Government loves to demand that other countries hold their political leaders accountable for serious crimes, dispensing lectures on the imperatives of the rule of law. Numerous states bar ordinary convicts from profiting from their crimes with books. David Hicks, an Australian citizen imprisoned without charges for six years at Cheney's Guantanamo, just had $10,000 seized by the Australian government in revenue from his book about his time in that prison camp on the ground that he is barred from profiting from his uncharged, unproven crimes.

By rather stark contrast, Dick Cheney will prance around the next several weeks in the nation's largest media venues, engaging in civil, Serious debates about whether he was right to invade other countries, torture, and illegally spy on Americans, and will profit greatly by doing so. There are many factors accounting for his good fortune, the most important of which are the protective shield of immunity bestowed upon him by the current administration and the more generalized American principle that criminal accountability is only for ordinary citizens and other nations' (unfriendly) rulers.

Go read the rest of the article at Salon.

Here's an interview with Glenn Greenwald. He comes in at 2:50 into the video:



I get the heebie-jeebies when I watch Dick Cheney. He now takes his place in the depressing line of never-punished US war criminals, e.g. Nixon, Kissinger, Oliver North, Reagan, etc.

It is truly amazing to watch the dysfunctional American political system and at the same time hear Americans pat themselves on the back for their "wonderful democracy" and boast about being a "city on the hill" for the rest of the world. Lordy, lordy... are they ever delusional!

Scientific Visualization

Here is a nice animation to let you take a roller coaster ride through just over a century of house price data gathered by Case Shiller:



As you arrive at the 2000s in this animation keep telling yourself "the Wall Street banks got the ratings agencies to stamp AAA on mortgage-backed securities because the risk modelers data showed that house prices only go up and never down".

Watch the video and then tell me there was no fraud, no crime, on Wall Street when it sold trillions in securitized paper based on these "financially engineered" instruments that blew up and went from AAA-rated to junk status in a matter of months in 2007-8.

I didn't expect George Bush to arrest any of his Wall Street buddies over this crime of the century. But I'm really, really outraged that Barack Obama has decided to shield the financial manipulators of Wall Street from the long arm of the law.

Where is the justice for the tens of millions of Americans whose savings have been cratered, who have lost their homes, and who are now unemployed and will stay unemployed for most of a decade? Where is the justice?

Academics Behaving Badly

It is pathetic when your profession claims "expertise" but when a catastrophe happens you either ignore it or have no consensus as to what caused it and how to fix it. Here's a bit from an article by Mark Thoma in Fiscal Times pointing out that economists don't know much about real economics:

What caused the financial crisis that is still reverberating through the global economy? Last week’s 4th Nobel Laureate Meeting in Lindau, Germany – a meeting that brings Nobel laureates in economics together with several hundred young economists from all over the world – illustrates how little agreement there is on the answer to this important question.

Surprisingly, the financial crisis did not receive much attention at the conference. Many of the sessions on macroeconomics and finance didn’t mention it at all, and when it was finally discussed, the reasons cited for the financial meltdown were all over the map.

It was the banks, the Fed, too much regulation, too little regulation, Fannie and Freddie, moral hazard from too-big-to-fail banks, bad and intentionally misleading accounting, irrational exuberance, faulty models, and the ratings agencies. In addition, factors I view as important contributors to the crisis, such as the conditions that allowed troublesome runs on the shadow banking system after regulators let Lehman fail, were hardly mentioned.

Macroeconomic models have not fared well in recent years – the models didn’t predict the financial crisis and gave little guidance to policymakers, and I was anxious to hear the laureates discuss what macroeconomists need to do to fix them. So I found the lack of consensus on what caused the crisis distressing. If the very best economists in the profession cannot come to anything close to agreement about why the crisis happened almost four years after the recession began, how can we possibly address the problems?

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When the recession began, I had high hopes that it would help us to sort between competing macroeconomic models. As noted above, it's difficult to choose one model over another because the models do equally well at explaining the past. But this recession is so unlike any event for which there is existing data that it pushes the models into new territory that tests their explanatory power (macroeconomic data does not exist prior to 1947 in most cases, so it does not include the Great Depression). But, disappointingly, even though I believe the data point clearly toward models that emphasize the demand side rather than the supply side as the source of our problems, the crisis has not propelled us toward a particular class of models as would be expected in a data-driven, scientific discipline. Instead, the two sides have dug in their heels and the differences – many of which have been aired in public – have become larger and more contentious than ever.

Pathetic. It is like a meeting of aeronautical engineers that can't decide what might possibly make "heavier than air" machines fly. Could it be the wings? The propeller? The colour of the paint? The direction you pointed the nose of the craft in? The height of the cliff from from which you pushed your invention? Gee... that aerodynamics is a tough field. But the good news is that we have this simulation called Angry Birds which lets our top scientists simulate flight and uncover Mother Nature's darkest secrets.

I can understand squabbling for 80 years after the Great Depression. There wasn't a lot of data back then and "economics" was still a primitive field. But to fail to understand the current situation, to identify what caused it, and to give sound consistent specific advice to policy makers to get the world out of this rut? That isn't a science. That is a bunch of fumblers at an acrobatic school pretending they have the secret of the "dark arts" of balance and control but when asked just can put on even a minimal performance to demonstrate expertise.

I think universities should disband their economics departments and offer up the space to some useful sciences.

Simplifying America's Republican Politics

Matt Taibbi has written an article in Rolling Stone that gives the absolute minimum that is required to be known to understand the Republican party and its "program" for the American people:

Ron Paul and Michele Bachmann have just summed up the entire Republican storyline with perfect precision, through their respective responses to Hurricane Irene. There’s really not much left for any pundit to add, after this weekend’s quips.

Michele Bachmann says Hurricane Irene is God’s way of telling Washington that it is spending too much.

For his part, Ron Paul says hurricane relief isn’t the responsibility of the state and we should stop using tax dollars to rescue people. Apparently we should go back to our year-1900 disaster policies, which included watching 6,000 people die in a hurricane that hit Galveston, Texas.

If you like mucking around with the dreck of Republican party "principles", read this article.

Matt Taibbi points out the one weakness of the "scare 'em" approach to politics favoured by the Republicans:

As we’ve seen with the career of Glenn Beck, there’s a built-in problem with building a following upon fear of imminent catastrophe. In order to succeed and keep people interested, you need to constantly up the ante, with warnings that are more and more desperate and future nightmare scenarios that are more and more graphic. Even the most brilliantly nutty rhetoricians, and Beck is one of the best ever, ultimately run out of ways to keep twisting the nightmare plot forward while keeping at least a little toe of credibility in the real world.

This slate of Republican candidates is very passionate when it comes to warnings and predictions of doom and yearning for the days before antibiotics and universal suffrage, but not nearly as eloquent when it comes to expressing ideas like hope, reassurance, enthusiasm and forward-thinking, which is ultimately what the majority of voters tend to go for. I'm as worried about the future as anyone, but if your message for the next generation is buy gold, stock up on canned food, and duck, I don't see how you can win a general election. But stranger things have happened in this country...

US Politicians: Fumbling in the Dark

Here are some bits from a good article by Mark Thoma in The New Republic:

As the Great Recession drags on and on, it’s natural to wonder if we will ever get back to normal. Why is the recovery from this recession taking so long? Why was the recovery from other severe recessions, for example the 1982 recession where unemployment reached 10.8 percent, so much faster? Part of the answer is that we are experiencing a “balance sheet recession,” and this type of downturn is much harder to recover from than the other types we have had in recent decades. But poor policy is also to blame. Unfocused stimulus packages don’t get to the root of the problem, and short-term spending cuts are counter-productive. Instead, we need policies that do a better job of targeting the specific problems associated with balance sheet recessions. There are several things policymakers could do to address this, and each would help to improve the economic outlook.

...

Historically, the recessions that are the hardest to recover from are those caused by collapsing stock and housing bubbles. When a fall in stock and housing prices wipes out retirement, education, equity, and other savings, the balance sheet losses can’t be recouped overnight. It can take years to recover what is lost. Examples of balance sheet recessions such as Japan’s “lost decade” in the 1990s and the Great Depression of the 1930s show how hard it can be to recover from this type of recession. More generally, recent work by economists Carmen Reinhart and Kenneth Rogoff shows that balance sheet recessions are “followed by a lengthy period of retrenchment that most often … lasts almost as long as the credit surge.”

But these examples also show something else: how costly poor policy can be. A slow, “lost decade” recovery like we are currently on our way to experiencing is not inevitable. The speed of the recovery from a recession depends critically upon how monetary and fiscal policymakers react, and a policy tailored toward the specific type of recession hitting the economy can shorten the recovery time considerably. One of the main reasons the outlook for our economy is so poor is that policymakers have done a poor job of matching the policies they put into place to the type of recession we are experiencing.

Go read the whole article to find out what remedies Mark Thoma proposes.

I'm utterly shocked by how Obama has shown himself indifferent to solving the economic mess. He was quick to pick up and extend the Bush bailouts for banks. But he has done nothing for main street and home owners. Last time I looked he was elected under the Democratic ticket, but he sure behave's like a Republican. He acts like a banker's best friend. If you've watched the film It's a Wonderful Life, Obama acts like Henry Potter is his best friend and role model. He should be acting like George Bailey (James Stewart) trying to save the community, but instead Obama's only concern seems to be to save the big banks and to heck with everything else.

America, Land of the Free

Your friendly police understand your role as a citizen. It is to "go away". You have no rights to observe police in action no matter where you stand. The police want do be able to "do their thing" in the dark without the public having any oversight. This is of course for "your protection" because everybody knows that corruption only happens in the bright sunlight with an active press. So this policeman is a shining example of modern American police at work:



Sadly, the post 9/11 world is one that the framers of the American Constitution, and especially of the Bill of Rights, simply wouldn't recognize. And this noble achievement was done to make Americans "safe". Safe from knowledge of everything. Now you can only "trust" that public officials are doing the right thing and keeping the public good uppermost in their mind. You no longer have the right to observe or question authority. Your job is simply to ask "how high" when they say "jump!".

From the annotation attached to this YouTube video:

This was the end of a police chase and the Sgt. doesn't want video coverage from a credentialed member of the press. The photog asks how far to move back but the sgt. says no you can't shoot it at all. Notice the road is open to traffic, there are people without a camera that are standing there and even some kids walk straight through the scene. The photog moves a block away and shoots from the next street over and that's when he's arrested and charged with Obstruction of Governmental Administration....how can you obstruct from a block away.

Update 2011aug31: And here is a fellow who faces 75 years in jail for using a camera to observe the public servants, the police, in action...



Clearly, the only reason for such draconian punishment is because the police want the cloak of "security" to hide their crimes.

Update 2011sep09: Here is technology to enable police recording while disguising the fact that you are recording and hiding your identity when you upload. It is part of a citizen-based initiative, OpenWatch, to enable transparency in government:



For a discussion of your rights to record the police, go read this article in the Washington Examiner written by Glenn Harlan Reynolds, Beauchamp Brogan Distinguished Professor of Law at the University of Tennessee, and is best known for his weblog, Instapundit, one of the most widely read American political weblogs.

Global Warming Doomsday Scenarios

I've always taken a jaundiced view of the doomsday prophets claiming that we will all die in a runaway global warming. I've seen too many of these various hysterias sweep over people and be carried to extremes.

Sure there is a kernel of truth in global warming scenarios. CO2 is a greenhouse gas and fossil fuel use has climbed inexorably over the last century and a half. But doomsday scnearios are generally a straight line extrapolation of old trends. In reality the world is more complicated and surprising new developments occur, e.g. world cities did not drown in meters of horse pucky in the early 20th century. Why not? The horses disappeared and internal combustion engines took over.

Here's a bit from a report in Bloomberg News that says that fossil fuel is going the way of horse-drawn transportation:

Solar generators may produce the majority of the world’s power within 50 years, slashing the emissions of greenhouse gases that harm the environment, according to a projection by the International Energy Agency.

Photovoltaic and solar-thermal plants may meet most of the world’s demand for electricity by 2060 -- and half of all energy needs -- with wind, hydropower and biomass plants supplying much of the remaining generation, Cedric Philibert, senior analyst in the renewable energy division at the Paris-based agency, said in an Aug. 26 phone interview.

“Photovoltaic and concentrated solar power together can become the major source of electricity,” Philibert said. “You’ll have a lot more electricity than today but most of it will be produced by solar-electric technologies.”

The solar findings, set to be published in a report later this year, go beyond the IEA’s previous forecast, which envisaged the two technologies meeting about 21 percent of the world’s power needs in 2050. The scenario suggests investors able to pick the industry’s winners may reap significant returns as the global economy shifts away from fossil fuels.

I see a couple of trends that are going to result in the hysteria over "global warming" being misplaced:

• The story of "greenhouse gases" is too simplistic. Weather and climate are much more complex than the story told by the doomsayers.


• The straight line extrapolations will fail because they don't recognize technological revolutions and I expect solar power to be one of those revolutions.


• The trend in power consumption among developed countries changed late in the 20th century. Earlier there was a tight coupling between GDP growth and power use, but this declined as economies moved from manufacturing to post-industrial development


• All hysteria is an overshoot. In order to motivate and drive a generally apathetic audience to the political motivation desired by the fanatics, they have to oversell their ideas. This becomes systemic and feeds on itself until their doomsday scenarios become simply incredible for those with a sophisticated understanding of how the world works. But these over-simplified scare stories are very effective in getting the naive caught up in the hysteria

Call me a cynic, but the "global warming" craze is over. When the fanatics stopped calling it "global warming" and went to "climate change" that was a clue. The climate is always changing so their cause can be validated whether temperatures go up or down. The real issue was always and still is "anthropogenic global warming", i.e. how much is human activity adding on top of any natural cycle of climate warming. The answer is "some" but not nearly as much as the fanatics would convince you it does.

If and when technology changes how human activity affects global warming, say by reducing greenhouse gas emissions, then the hysteria can die down.

Instead of trying to de-industrialize, the global warming fanatics should always have gone for the two winning strategies: energy efficiency and technology change. Instead they went for political solutions that would cap development and tax consumers in a crude attempt to manipulate human activity. It was, and is, a bad strategy. They would have been better off focusing on re-directing human change not stopping it.

A Worrisome Fact about the Financial State of US Companies

Brett Arends is a financial journalist with good credentials. He is raising a hue and cry against the common belief that US companies are is sound financial shape. This comes as a surprise to me but Arends is a credible source.

Here are some bits from an article in Yahoo! News:

American companies are not in robust financial shape. Federal Reserve data show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression.

You'd think someone might have noticed something amiss. After all, we were simultaneously being told that companies (a) had more money than they know what to do with; (b) had even more money coming in due to a surge in profits; yet (c) they have been out in the bond market borrowing as fast as they can.

Does that sound a little odd to you?

A look at the facts shows that companies only have "record amounts of cash" in the way that Subprime Suzy was flush with cash after that big refi back in 2005. So long as you don't look at the liabilities, the picture looks great. Hey, why not buy a Jacuzzi?

According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s.

...

Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP. That's a postwar record. In 1945, it was just 20%. Even at the credit-bubble peaks in the late 1980s and 2005-06, it was only around 45%.

The Fed data "underline the poor state of the U.S. private sector's balance sheets," reports financial analyst Andrew Smithers, who's also the author of "Wall Street Revalued: Imperfect Markets and Inept Central Bankers," and chairman of Smithers & Co. in London.

"While this is generally recognized for households," he said, "it is often denied with regard to corporations. These denials are without merit and depend on looking at cash assets and ignoring liabilities. Cash assets have risen recently, in response to the fall in inventories, but nonfinancials' corporate debt, whether measured gross or after netting off bank deposits and other interest-bearing assets, is at peak levels."

...

But why is this line being spun about healthy balance sheets? For the same reason we're told other lies, myths and half-truths: Too many people have a vested interest in spinning, and too few have an interest in the actual picture.

Journalists, for example, seek safety in numbers; there's a herd mentality. Once a line starts to get repeated, others just assume it's correct and join in.

Wall Street? It's a hustle. This healthy balance-sheet myth helps sell stocks and bonds. How many bonuses do you think get paid for telling customers the stark facts, and how many get paid for making the sale?

You can also blame our partisan age too. Right now, people on the right have a vested interest in claiming businesses are in healthy shape. That makes the saintly private sector look good, and demonizes President Barack Obama and Big Government for scaring away investment. Vote Republican! Meanwhile, people on the left have an interest in making businesses sound really healthy too: If greedy companies are hoarding cash instead of hiring people, they can cry "Shame on them! Vote Democratic!"

As ever, the truth is someone else's problem and no one's responsibility.

I sure hope the above article is wrong, but I fear Brett Arends is the one journalist out shaking the bushes for the real story while the rest of the media is standing around repeating the "good news" stories put out by press releases and political spin doctors.

A Solution to the US's Economic Doldrum

Robert Shiller is a smart economist. He spotted the "irrational exuberance" of the late 1990s before others. He spotted the housing bubble before others. And he now comes forward with a plan to do stimulus without deficits. He should be the man of the hour. Washington should be singing his praises and falling over each other to enact his suggestion. But it won't because Washington is a fool's reserve. A place where blowhearts can pontificate and never bother getting any facts or use sound theories to establish policy. It is a graveyard of good intentions killed by mean-spirited partisanship.

For what it is worth, here is the heart of Shiller's suggestion from an article in The New Republic:

We first have to come to grips with the fact that we need stimulus because we’re facing a problem of inadequate aggregate demand, a concept that we owe to the work of John Maynard Keynes. Keynes pointed out that a national economy can get stuck in a bad equilibrium—as it had in the Great Depression in 1930—where unemployed people really wish to supply their labor to some employer, but employers won’t hire them because they don’t think that the extra product they would make could be sold. Why not? Because of all the unemployed people trying unsuccessfully to supply their labor who can’t afford to buy anything. And why aren’t they working? Because no one will hire them.

That sounds circular, but that was exactly Keynes’ point. The whole depression situation is just an absurd circularity that we get stuck in from time to time, and can stay stuck in for a very long time. The core idea of Keynes’ theory is that there’s no fundamental reason to be in such a weak economy except the fact that we’re in it.

The problem is essentially one of communication: Somehow the unemployed have to communicate—not just in words but in the marketplace—their desire both to supply their labor and also to buy the excess of goods they would produce with the income from that labor. Part of Keynes’ idea, not always explained in the subsequent discussions of the theory, is that what has to be communicated is not any objective facts or information, but an intuition—a sense of confidence, a sense that the worst is over, a sense that the people’s animal spirits are back. If we think confidence is returning, then confidence will return.

The medium through which that communication largely needs to occur is collective action. We need to assert as a nation our will to get out of the bad equilibrium and get moving. And the way to do that is through government stimulus: We need to increase government expenditure for as long as it takes to break out of our rut. And there’s no use denying that those government expenditures will need to increase substantially in order to reduce the unemployment rate measurably.

That brings us to a critical fallacy that has crept into our thinking: We have become habituated to the idea that Keynesian fiscal stimulus has to take the form of deficit spending. After a credit downgrade by S&P, there’s a strong argument to make that the U.S. government is in no position to make a massive further increase in the national debt—but that's not an argument against stimulus as such. The fallacy is to think that stimulus necessarily needs to run up the national debt.

In reality, stimulus can easily take a balanced budget form: The government can simply raise taxes and raise expenditures by the same amount. The idea that balanced budget increases could save an economy stuck in a bad equilibrium goes back to the work of economists Walter Salant and Paul Samuelson in the 1940s, and it’s been taught in introductory economics courses ever since, though somehow it has been absent from public discussion of the current economic situation. Salant and Samuelson argued that in a very weak economy the balanced budget expenditure increases would translate into a one-for-one increase in national income.

In fact, the returns on a balanced budget stimulus are likely to be even greater than that. If the government raises taxes to hire the unemployed, then the unemployed who now get jobs will likely quickly spend all the money they earn on new consumption, since they have been strapped and now have jobs. The currently employed, who will see their taxes go up, will likely not cut their expenditures as much because they are habituated to their current level of consumption. And it is unlikely that a balanced budget stimulus would “crowd out” private expenditures on goods and services by pushing up interest rates. The Fed has already committed itself to keeping interest rates at zero until 2013.

The big problem with balanced budget stimulus is political, namely that there is a huge opposition to tax increases right now, primarily among Republicans.

A generation from now the American public will look back over the period from 1980 to 2020 as a disaster in public policy, a scorched earth fought over by (mostly Republican) fanatics without regard for the public interest. A battlefield of fanatical ideas by partisans deaf, dumb, and blind to reason and compromise.

America Running Scared and Paying Through the Nose

Here is a bit from an article by Glenn Greenwald in Salon magazine that holds up America's waste of money on "security":

The Los Angeles Times examines the staggering sums of money expended on patently absurd domestic "homeland security" projects: $75 billion per year for things such as a Zodiac boat with side-scan sonar to respond to a potential attack on a lake in tiny Keith County, Nebraska, and hundreds of "9-ton BearCat armored vehicles, complete with turret" to guard against things like an attack on DreamWorks in Los Angeles. All of that -- which is independent of the exponentially greater sums spent on foreign wars, occupations, bombings, and the vast array of weaponry and private contractors to support it all -- is in response to this mammoth, existential, the-single-greatest-challenge-of-our-generation threat:

"The number of people worldwide who are killed by Muslim-type terrorists, Al Qaeda wannabes, is maybe a few hundred outside of war zones. It's basically the same number of people who die drowning in the bathtub each year," said John Mueller, an Ohio State University professor who has written extensively about the balance between threat and expenditures in fighting terrorism.

Last year, McClatchy characterized this threat in similar terms: "undoubtedly more American citizens died overseas from traffic accidents or intestinal illnesses than from terrorism."

...

Despite these increasing economic insecurities -- actually, precisely because of them -- the sprawling domestic Security State continues unabated. The industry journal National Defense Magazine today trumpets: "Homeland Security Market ‘Vibrant’ Despite Budget Concerns."

...

Meanwhile, much of the anti-Terrorism weaponry in the U.S. ends up being deployed for purposes of purely domestic policing. As the LA Times notes: those aforementioned BearCats are "are now deployed by police across the country; the arrests of methamphetamine dealers and bank robbers these days often look much like a tactical assault on insurgents in Baghdad." Drones are used both in the Drug War and to patrol the border. Surveillance measures originally justified as necessary to fight foreign Terrorists are routinely turned far more often inward, and the NSA -- created with a taboo against domestic spying -- now does that regularly.

Exaggerating, manipulating and exploiting the Terrorist threat for profit and power has been the biggest scam of the decade; only Wall Street's ability to make the Government prop it up and profit from the crisis it created at the expense of everyone else can compete for that title. Nothing has altered the mindset of the American citizenry more than a decade's worth of fear-mongering So compelling is fear-based propaganda, so beholden are our government institutions to these private Security State factions, and so unaccountable is the power bestowed by these programs, that even a full decade after the only Terrorist attacks on U.S. soil, its growth continues more or less unabated.

What is truly tragic is that the billions spent of "security" is happening while teachers, police, and firemen are being laid off, libraries closed, parks and recreation facilities closed, and people hunker down in a new Dark Ages secure in the knowledge that billions are being spent to "protect" them from the big bad bogeyman Al Qaeda while their bargain with the Devil has turned America's future into ashes.

Money Fall Upwards

Dean Baker has a new book The End of Loser Liberalism: Making Markets Progressive. It is available from his web site at the Center for Economic and Policy Research:

Money does not fall up. Yet the United States has experienced a massive upward redistribution of income over the last three decades, leaving the bulk of the workforce with little to show from the economic growth since 1980. This upward redistribution was not the result of the natural workings of the market. Rather, it was the result of deliberate policy, most of which had the support of the leadership of both the Republican and Democratic parties.

Unfortunately, the public and even experienced progressive political figures are not well informed about the key policies responsible for this upward redistribution, even though they are not exactly secrets.

The book will give you insights, it will make you more intelligent, it will make your teeth shine bright white, it will make you more handsome/pretty, it will add 4 inches to your height. You really should read this book.

Here is his indictment of the current political "debate" about the economy:

For the most part, progressives accept the right‟s framing of economic debates. They accept the notions that the right is devoted to the unfettered workings of the market and, by contrast, that liberals and progressives are the ones who want the government to intervene to protect the interests of the poor and disadvantaged.

But this view is utterly wrong as a description of the economy and competing policy approaches. And it makes for horrible politics. It creates a scenario in which progressives are portrayed as wanting to tax the winners in society in order to reward the losers. The right gets to be portrayed as the champions of hard work and innovation, while progressives are seen as the champions of the slothful and incompetent. It should not be surprising who has been winning this game.
In reality, the vast majority of the right does not give a damn about free markets; it just wants to redistribute income upward. Progressives have been useful to the right in helping it to conceal this agenda. Progressives help to ratify the actions of conservatives by accusing them of allegiance to a free-market ideology instead of attacking them for pushing the agenda of the rich.

For the last three decades the right has been busily restructuring the economy in ways that ensure that income flows upward. The rules governing markets, written by the rich and powerful, ensure that this gravity-defying outcome prevails. The right then presents the imposition of rules that it likes as the natural result of unfettered market forces.

Dean Baker is calling for the gloves to come off and for progressives to bring the debate down to the real issue: class warfare. Enough "trickle down" economics. There needs to be an economy where those who do the real work get paid real wages and get to share properly in the fruits of production and especially in increases in productivity.

Rather than speculate or philosophize about economics, Dean Baker quickly gets down to specific examples:

While the bank bailouts were big news, there is no shortage of less-visible instances in which conservatives have long been eager for the government step in to support the interests of the wealthy. We'll quickly discuss seven examples here: continued support for too-big-to-fail banks, patent and copyright protection, restrictions on organized labor, corporate liability limitations, Federal Reserve monetary controls, trade and dollar policy, and housing policy.

Let me repeat:

You really should read this book.

Barking Up the Wrong Tree

That big political food fight last month in the US Congress is a sensational bit of theatre, but it misses the real problem with the US economy.

From the Washington's Blog:

Harvard’s Linda Bilmes co-authored a paper with Nobel Prize winner Joseph Stiglitz estimating the long-term costs of current US wars at now $3 to $5 trillion ... with total debt increase since 2001 of over $10 trillion.

If the US wants to cut the deficit & debt, it needs to stop fighting wasteful, useless wars.

Instead of focusing on where their belly has been slit and the intestines are falling out, the US lawmakers made a huge racket over a paper cut on a finger. They bawled, they wailed. They shrieked enough to scare the world into a month-long plunge in the financial markets. But they were fighting over small potatoes. If the politicians were serious, they would look at the US military budget and at the insane amount of money they have spent doing "wars of choice" and "nation building" and other fruitless, stupid activities.

And while they had this shouting match over deficits and debts, the lawmakers have done nothing serious about the corruption and crime on Wall Street:

He concludes fraud is the heart of Wall Street. Under the poignant title, Goldman Sachs: Too Big to Obey the Law: “The behavior and de facto immunity of the biggest banks is out of control.” He cites the financial crisis was engineered by the largest banks to consolidate power: in 1995 the leading six banks had assets of 17% of US GDP; today they have 63%.

Wow! Who says crime doesn't pay? The Wall Street bankers sure know how to make crime pay and pay and pay. They have literally bilked the taxpayer out of billions and left the economy in a $10 trillion recession and yet nobody has been arrested and nobody is even under investigation!

Sizing Up this Current Economic Catastrophe

From a post on Barry Ritholtz's The Big Picture blog, we get a reminder of just how severe the current economic "woes" have been:

... the recession does not truly end until economic activity makes a new peak. For the moment, that has not happened. One could argue that August 2011 is the 44th month since the Great Recession began (December 2007). Only the Great Depression (which lasted 43 months from August 1929 to March 1933) and the Panic of 1873 (65 months from October 1873 to March 1879) took longer to make a new peak in economic activity.

Sadly, the wealthy are on their way to healing but the bottom 90% are still struggling.

Here's Barry Ritholtz giving a talk in Vancouver. At 3:00 into the video he talks about his book "Bailout Nation" and the housing bubble in the US and the kind of corruption in the financial industry that allowed this to happen:



At 8:00 he is into a rant about the corruption of the rating agencies and then at 8:20 he calls American's Congress even more corrupt because they have been bought off by the financial industry.

At 11:15 he makes the point I like to make. Don't be pessimistic and listen to the doomsayers because "the world has always been going to hell in a handbasket".

Lifestyles of the Rich and Infamous

For me the 1980s were a nightmare. America fell in love with the TV show Lifestyles of the Rich and Famous. I found it wretched to think that people "adored" the rich because of their wealth. But the era from 1980 to now has been marked by this deference to the rich and powerful

People need to wake up from their illusions. This story from CNN should help. Here is yet another story of "lifestyles of the rich and famous" where the curtain is peeled back and you can see the corruption and meanness and the evil that lurks behind the glitter:

As we were about to leave, one of the staff told us there was a nanny who worked for Hannibal Gadhafi who might speak to us. He said she'd been burnt by Hannibal's wife, Aline.

I thought he meant perhaps a cigarette stubbed out on her arm. Nothing prepared me for the moment I walked into the room to see Shweyga Mullah.

At first I thought she was wearing a hat and something over her face. Then the awful realization dawned that her entire scalp and face were covered in red wounds and scabs, a mosaic of injuries that rendered her face into a grotesque patchwork.

Even though the burns were inflicted three months ago, she was clearly still in considerable pain. But she told us her story calmly.

She'd been the nanny to Hannibal's little son and daughter.

The 30-year-old came to Libya from her native Ethiopia a year ago. At first things seemed OK, but then six months into her employment she said she was burned by Aline.

Three months later the same thing happened again, this time much more seriously.

In soft tones, she explained how Aline lost her temper when her daughter wouldn't stop crying and Mullah refused to beat the child.

"She took me to a bathroom. She tied my hands behind my back, and tied my feet. She taped my mouth, and she started pouring the boiling water on my head like this," she said, imitating the vessel of scalding hot water being poured over her head.

She peeled back the garment draped carefully over her body. Her chest, torso and legs are all mottled with scars -- some old, some still red, raw and weeping. As she spoke, clear liquid oozed from one nasty open wound on her head.

After one attack, "There were maggots coming out of my head, because she had hidden me, and no one had seen me," Mullah said.

Eventually, a guard found her and took her to a hospital, where she received some treatment.

But when Aline Gadhafi found out about the kind actions of her co-worker, he was threatened with imprisonment, if he dared to help her again.

"When she did all this to me, for three days, she wouldn't let me sleep," Mullah said. "I stood outside in the cold, with no food. She would say to staff, 'If anyone gives her food, I'll do the same to you.' I had no water -- nothing."

Her colleague, a man from Bangladesh who didn't want to give his name, says he was also regularly beaten and slashed with knives. He corroborated Mullah's account and says the family's dogs were treated considerably better than the staff.

Mullah was forced to watch as the dogs ate and she was left to go hungry, he said.

It seems to sum up how the workers at the beachside complex were viewed by the Gadhafi family.

This is definitely beyond the Queen of Mean, Leona Helmsley, who was a darling of Robin Leach and his unctuous program Lifestyles of the Rich and Famous.

The problem with a society where a few are fabulously weathy and many are dirt poor is that the rich become unhinged. They develop delusions of grandeur and think they deserve what they have and turn ugly and mean toward those who are not so "blessed" with the goodies of life. This is a sickness.

Sadly, America has fallen to this illness and is still running a fever. I hoped that with the election of Barack Obama the fever would break, but it hasn't. I know it must and will some day. I wish it were sooner rather than later. But for now, the disease is still running wild in the soul of America.

Grousing about the Elites

Here is Dean Baker on his Beat the Press blog feeling down in the dumps and a bit angry at how the same nitwits who set us up for the calamity of worldwide depression are now acting as cheerleaders for a double-dip recession:

Have the Double-Dippers Been Dipping Too Much?

The Commerce Department just released data showing that real consumption spending rose by 0.5 percent in July. This makes it highly unlikely that growth will turn negative in the current quarter. Consumption is 70 percent of GDP and this figure implies a 6.0 percent annual growth rate.

Of course consumption is not really growing that fast, more likely it is increasing at near a 2.0 percent annual rate, but maybe this number will shut up the arithmetic challenged economists who keep talking about a double-dip recession.

The economy's problem is pathetically slow growth. We should be seeing growth of 5-7 percent as the economy rebounds from the worst downturn of the post-war period. Instead, we will be lucky if growth just keep pace with the growth of the labor force, preventing unemployment rate from rising further.

The implication is that tens of millions of people will remain unemployed or underemployed because of the Wall Street sleazes and the incompetent economists who could not see an $8 trillion housing bubble and still don't know a damn thing about the economy. It's a crime that they still have their jobs.

I like Dean Baker. He is clever and really quite good at seeing the internal contradictions of those big shots who get all the limelight and hold the seat at the high table which divvies up the world and allots us the crumbs.

The above reminds me of my school days. The same "golden people" ruled the roost and took all the glory. They weren't particularly smart. They weren't always the most beautiful. But they were definitely the ones born with a silver spoon in their mouth. They were born to rule and rule they did. I found it funny how many people paid such close attention to these "trend setters". Lemmings over the cliff.

The nice thing about Dean Baker is that he does his own thinking. He even does the basic calculations and uses the tools of economics to evaluate the claims of the talking heads, the media, and the pundits of power.

Simon Johnson & James Kwak's "13 Bankers: The Wall Street Takeover and the Next Financial Meltdown"

This is an excellent readable review of the Wall Street bank panic of 2008. It carefully reviews what led up to it and provides a summary overview and explanation of the meltdown without getting bogged down in personalities and specific banks. It then reviews the sad lack of performance of Obama in seizing this opportunity to re-regulate the banks like FDR did. They explain why the reform impulse died, smothered under the ideology of deregulation, bank lobbying, and the fact that Obama relied on the same cast of characters who created the financial meltdown to manage his regulation "reform". This book will make you fully conversant with the disaster and the sad fact that we are set up for a future meltdown.

Here is a sample of the writing style and level of detail:

In the October 13 meeting at Treasury that opened this chapter, $125 billion of TARP money was committed to nine major banks. In addition to investments in smaller banks, another $40 billion was invested in Citigroup and Bank of America, two of the original nine banks, in later rescue operations; more TARP money was used to finance Federal Reserve guarantees of toxic assets held by those two banks; and $70 billion was invested in AIG to allow it to pay down its credit line from the Fed. In addition, the FDIC promised to insure up to $1.5 trillion of new bank debt, and the Federal Reserve committed trillions of dollars to an ever-expanding list of liquidity programs intended to provide cheap money to the financial system: the Term Auction Facility, the Term Asset-Backed Securities Loan Facility, the Money Market Investor Funding Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, and so on.

Never before has so much taxpayer money been dedicated to save an industry from the consequences of its own mistakes. In the ultimate irony, it went to an industry that had insisted for decades that it had no use for the government and would be better off regulating itself -- and it was overseen by group of policymakers who agreed that government should play little role in the financial sector.

...

Over the course of the financial crisis, the principal economic policymakers -- first Paulson, Bernanke, and Geithner, then Geithner (as treasury secretary), Bernanke, and Summers (as director of the National Economic Council) -- devised an impressive range of schemes to shore up the banking system. Their hard work and creativity cannot be doubted. But the common feature of these schemes was that they attempted to fill the gaping hole in bank balance sheets with government subsidies, more or less crudely obscured.

...

The total cost of all those blank checks is virtually incalculable, spread across the more or less direct subsidy programs (preferred stock purchases, asset guarantees, and so on) and the emergency liquidity and insurance programs to unfreeze the markets for commercial paper, asset-backed securities, or bank debt. It is incalculable because the different types of support -- lending commitments, asset guarantees, preferred stock purchases, and such -- cannot simply be added up. At the upper end of the relevant ballpark, the special inspector general for TARP estimated a total potential support package of $23.7 trillion, or over 150 percent of the U.S. GDP. This represents the theoretical potential liabilities of the government; the net cost will be far lower, since not all lending commitments will be used up, most loans will be paid back, most preferred shares will be bought back, most of the assets the government has guaranteed will not become worthless, and so on.

The book tells an incredible tale. If you had told me in 2007 or even in August 2008 that this catastrophe would happen, I would not have believed you.

For me, the most troubling aspect of this whole mess is the fact that Obama has not used this catastrophe to re-regulate the big banks. Instead he has papered things over with incredible sums of taxpayer money and allowed the "to big to fail" banks to get even bigger. The worries of Johnson and Kwak about the "next financial meltdown" have me truly worried. This book is very unsettling.

Update 2011aug29: Here is an interview of Johnson and Kwak by PBS's Bill Moyers.

BILL MOYERS: Let me get to the blunt conclusion you reach in your book. You say that two years after the devastating financial crisis of '08 our country is still at the mercy of an oligarchy that is bigger, more profitable, and more resistant to regulation than ever. Correct?

SIMON JOHNSON: Absolutely correct, Bill. The big banks became stronger as a result of the bailout. That may seem extraordinary, but it's really true. They're turning that increased economic clout into more political power. And they're using that political power to go out and take the same sort of risks that got us into disaster in September 2008.

BILL MOYERS: And your definition of oligarchy is?

SIMON JOHNSON: Oligarchy is just- it's a very simple, straightforward idea from Aristotle. It's political power based on economic power. And it's the rise of the banks in economic terms, which we document at length, that it'd turn into political power. And they then feed that back into more deregulation, more opportunities to go out and take reckless risks and-- and capture huge amounts of money.

BILL MOYERS: And you say that these this oligarchy consists of six megabanks. What are the six banks?

JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.

BILL MOYERS: And you write that they control 60 percent of our gross national product?

JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.

BILL MOYERS: And what's the threat from an oligarchy of this size and scale?

SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it's not your problem. When it blows up, it's the taxpayer and it's the government that has to sort it out.

BILL MOYERS: So, you're not kidding when you say it's an oligarchy?

JAMES KWAK: Exactly. I think that in particular, we can see how the oligarchy has actually become more powerful in the last since the financial crisis. If we look at the way they've behaved in Washington. For example, they've been spending more than $1 million per day lobbying Congress and fighting financial reform. I think that's for some time, the financial sector got its way in Washington through the power of ideology, through the power of persuasion. And in the last year and a half, we've seen the gloves come off. They are fighting as hard as they can to stop reform.

SIMON JOHNSON: I know people react a little negatively when you use this term for the United States. But it means political power derived from economic power. That's what we're looking at here. It's disproportionate, it's unfair, it is very unproductive, by the way. Undermines business in this society. And it's an oligarchy like we see in other countries.

BILL MOYERS: And you say they continue to hold the global economy hostage?

JAMES KWAK: Exactly. Because what's happened- what we learned in 2008 were certain institutions are so big and so interconnected that if they were to fail, they would cause systemic shocks throughout the economy. That's essentially what happened in September 2008 when Lehman Brothers collapsed. And what's remarkable, and I think what essentially proves the point of our book is that almost two years later, nothing has changed.

Or the only thing that has changed is that these banks have gotten larger, more powerful, both economically and politically. And they've been flexing their muscles in Washington for the last year and a half. So Neal Wolin, the Deputy Treasury Secretary gave a blistering speech to the U.S. Chamber of Commerce in which he said, look, the financial sector has been spending more than one million dollars per day lobbying against the reforms we need to fix the financial system. Now, Simon and I think those reforms that the Administration has proposed do not go far enough. But we think they're certainly better than nothing. What Wall Street wants is they want nothing. They want to stop this in its tracks and go back to where we were five years ago.

SIMON JOHNSON: It's amazing, Bill. But this is this is politics and this is money. And you know, there's a ground game, which is campaign contributions, which are surging in. I'm sure on both sides of the aisle. And there's also the ideological space. It's amazing. The Chamber of Commerce that claims to represent the broad cross section of American business is siding with six big banks, who favor policies that are directly contrary to the interests of most of the membership of the Chamber of Commerce. And that's just not just me saying that. That's Neal Wolin. That's Treasury. That's the White House saying that now. Calling fortunately, they've come to the point where they're willing to call the Chamber of Commerce on that. But I don't know if that message is getting through to people.

JAMES KWAK: You see what the bankers have done is they have taken a basic principle which is more or less true. Which is that free financial markets do enable money to go to the places where people need it. But on top of that, they've erected a system that is indescribably complex. And gives many opportunities to make money at the expense of their customers, at the expense of their counterparties. Even at the expense of their own employers. So, one of the things that has happened has been that Wall Street finance has become so complex and the internal systems of Wall Street banks has become so complex that if you are a smart banker, who is out to maximize your own income, you can find the loopholes in the system and you can exploit them, even if it means taking money from your own-- from your own company

And this:

BILL MOYERS: You mean the collapse of 2008? All of this? What- was-

JAMES KWAK: Exactly.

BILL MOYERS: An accident?

JAMES KWAK: Yes, an accident in the sense that-

BILL MOYERS: Natural disaster?

JAMES KWAK: As we heard Chuck Prince say and Robert Rubin say, we couldn't see it coming. These were, there were risks that build up in the system, and our models didn't account for it. We're sorry that it happened. Not even, we're sorry that we did it. We're sorry that it happened.

And I think that this is, I mean, it's unfortunate if they really believe this. Because again, if we just take a very small example, one of the things that clearly went wrong is these banks were not able to manage their own risk. They did not know what positions they had. They did not know what market forces they were exposed to. You would think that should be the first job of a bank. And I don't think this was an innocent mistake. And I say that for this reason. It was in the bank's short term financial interest to underestimate their risk. Because if they had estimated their risk accurately, they should have had to set more capital aside, they would have been less profitable.

So, yes, it's possible that the CEOs of these banks honestly did not understand their risk positions. But that mistake-- there was an incentive behind that mistake. You know, banks never overestimate their risk. These mistakes always only go in one direction. Because that's the direction they have an incentive to make the mistake in.

BILL MOYERS: What do you mean they have an incentive to make a mistake?

JAMES KWAK: So, in the short term, a bank's profitability is going to depend on how much capital it has to set aside. So, in banking, if I have a certain position, I have to set aside a certain amount of capital to protect myself from that position going bad. If I think the position is less risky than it actually is, I'm going to set aside less capital to cover that position, and that's going to give me a higher profit margin.

If I'm the head of this bank, that means that in the short term, I'm going to have higher profits, higher stock price, more money for me, but I'm underestimating the risk of something blowing up several years down the line. But we know that the, essentially, the incentive systems within these banks favor short term profits over long term solvency.

SIMON JOHNSON: The most profound thing, observation, on this structure, inadvertent, I would say, observation, was by Chuck Prince, the former head of Citigroup. In July 2007, right before the whole structure began to crumble. He said, "As long as the music is playing, you've got to get up and dance." And that's a statement about the incentive structure. Saying, well, everybody's doing it. That's how we all make money. We've got to do it, too. I'm just a bank doing what all the other banks are doing. That's absolutely the heart of the problem. I would also say and tell you, and emphasize, these people will not come out and debate with us. The heads of these companies or their representatives, they will not come out. They're afraid. They don't have the substance. They don't have the arguments. We have the evidence. They have the lobbyists. And that's all they have.

BILL MOYERS: They've got the power, the muscle, the money.

SIMON JOHNSON: They have money.

BILL MOYERS: You just have the arguments. You just have the facts. On your side.

SIMON JOHNSON: Absolutely. That's exactly what it comes down to.

Paul Krugman on Global Warming

I like Paul Krugman. I read most of what he writes and find him to be very bright and I generally agree with him. But I part company with him when he puts his "climatologist" cap on and pontificates as he has in his latest NY Times op-ed column:

The second part of Mr. Perry’s statement is, as it happens, just false: the scientific consensus about man-made global warming — which includes 97 percent to 98 percent of researchers in the field, according to the National Academy of Sciences — is getting stronger, not weaker, as the evidence for climate change just keeps mounting.

In fact, if you follow climate science at all you know that the main development over the past few years has been growing concern that projections of future climate are underestimating the likely amount of warming. Warnings that we may face civilization-threatening temperature change by the end of the century, once considered outlandish, are now coming out of mainstream research groups.

But never mind that, Mr. Perry suggests; those scientists are just in it for the money, “manipulating data” to create a fake threat. In his book “Fed Up,” he dismissed climate science as a “contrived phony mess that is falling apart.”

Krugman and I agree on holding Rick Perry in low esteem for his anti-science views. But I disagree with Krugman over global warming.

Take a look at this 130 year record of temperature anomaly data from NASA (note: "anomaly" means deviation from the average over the 130 year baseline):

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I don't see any "trend" and certainly no "runaway global warming" in the above graph.

OK... I cheated a bit. That is the continental US data. I trust that more than the global datasets because the network of stations in the US is thicker and is more likely to be monitored and calibrated better than measurements around the world. Also, the "world" is 3/4 ocean and there really are no stations gathering data there (sure some buoys and radiosondes that are occasionally dropped) like the coverage of the US. Here is the NASA global anomaly data:

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I prefer the following satellite temperature observations which uses the same sensor over the whole face of the earth. The only problem with satellites is calibrating the sensor and degradation of the sensor over time. But I trust the satellite more than I trust all the stations in the above "world" datasets (especially the “missing” stations covering 3/4 of the face of the earth, i.e. the oceans which aren't measured but "extrapolated" and sometimes for hundreds and even a thousand miles)

Click to Enlarge
To my eye, the above shows no discernible temperature "trend". Sure you can fit a line through the data and get a slight rise over time, but the signal is lost in the noise. I wouldn't trust that "trend".

The satellite is the most reliable, objective, global measure of "warming" and it doesn't support the purple prose of Paul Krugman:

we may face civilization-threatening temperature change by the end of the century

Neither Krugman nor I are climatologists. When Krugman cites 97% of "researchers in the field" believe in "global warming", I say so what? If you had canvased physicists in 1905 for a "belief" in warped space and time dilation you would have found 99.9% rejected the theory as preposterous. But Einstein's theory is true and is used every day in GPS systems and in the appropriate physics calculations. Science isn't a democracy where you vote on your favourite theory to establish its truth. It is consensus. But not a voting consensus. It is a hard fought consensus arrived at over time by experiment and working with the theory. Global warming isn't anywhere near that kind of "established" science right now.

I believe Paul Krugman is wrong and time will prove it. In the interim, I continue to admire him and agree with most things he says. I simply ignore his pontificating on "climate change". We both agree 100% that climate is changing and has always been changing. Where we disagree is over "anthropocentric global warming". I will admit that CO2 and other green house gases are increasing temperatures but I think he has the basic science corrupted by a reliance on computer modeling. I think the models are misleading. I think the science is incomplete:

• I believe that studies of cloud formation such as Svensmark's theory of sun-cosmic ray-cloud interaction will change "received" opinion


• I believe that Roy Spencer's cloud feedback mechanism will change "received" opinion


• I believe that Richard Lindzen's critique of climate models will change "received" opinion

I'm not a climatologist. I may be completely wrong. But I do read and I don't see the "consensus" that Al Gore, the IPCC, and Paul Krugman claim has "settled the science". I do see ambiguous data. I do see ideas struggling for a hearing. And I'm aware of how the funding agencies are creating a "false consensus" by putting money out there for "global warming" research. For years I've watched senior scientists who are beyond the tyranny of the funding agencies struggle with theories outside the "mainstream" of global warming. They struggle for a hearing. Since science isn't a beauty contest, I believe that eventually these voices will be heard and the simple "greenhouse gas" story will end up extensively revised by a much more sophisticated understanding of climatology.

Oh... and I heartily agree with Krugman's complaint about the anti-intellectualism and anti-science of the Republican party:

Now, we don’t know who will win next year’s presidential election. But the odds are that one of these years the world’s greatest nation will find itself ruled by a party that is aggressively anti-science, indeed anti-knowledge. And, in a time of severe challenges — environmental, economic, and more — that’s a terrifying prospect.

Sex and Ancient Humans

It was only a few years ago that the idea that Homo sapiens sapiens interbred with Neanderthals became thinkable. Now genetics no only demonstrates it but claims it delivered benefits.

Here is a bit from a Yahoo! News report:

Sexual encounters with archaic humans like the Neanderthals produced children who inherited key genes that have helped modern humans fight illness and disease, said a US study published Thursday.

"The cross-breeding wasn't just a random event that happened, it gave something useful to the gene pool of the modern human," said Stanford University's Peter Parham, senior author of the study in the journal Science.

Equipped with knowledge of the genome of the Neanderthals and the Denisovans, of whom a tooth and a finger bone were discovered in a Russian cave last year, researchers scoured the data for hints of what genes crossed over.

Scientists already knew that about four percent of Neanderthal DNA and up to six percent of Denisovan DNA are present in some modern humans.

This study took a close look at a group called HLA class I genes which help the immune system adapt to fight off new pathogens that could cause various infections, viruses and diseases.

Researchers traced the origin of one type, HLA-B*73, to the Denisovans, who likely mated with humans arriving in West Asia on their way out of Africa. The variant is rare in modern African populations but is common in people in west Asia.

"We think this had a lot to do with the pathogenic environment in different parts of the world," said Laurent Abi-Rached, a French researcher and lead author of the study.

"When modern humans came out of Africa, they were going into a new environment. This gave them an advantage. It was a rapid way of acquiring defense," he told AFP.

These ancient HLA genes have multiplied among modern populations and are seen in more than half of Eurasians today, said the study.

I love the way science slowly advances human knowledge. The world is a very interesting place and facts, for me, are far more fascinating than fiction.

I don't get excited about hyped "science" like the Ivanov experiments. But I enjoy sound science which breaks new ground such as the new genetics which allows hybridization with Neanderthals to come out of the murky world of speculation into the world of hard facts.

The Next Round of Bank Panics in the US

The sudden loss of 50% of its value by the Bank of America is kicking off round #2 of the 2008 banking panic. Here's a bit from a column by Barry Ritholtz in the Washington Post which gives a good overview of the situation:

For anyone who thought the U.S. banking sector was healthy, Warren Buffett’s $5 billion investment in Bank of America should be a wake-up call.

Many investors assumed the Wall Street bailouts of Bank of America and the other big banks more or less healed the sector. All it took was few trillion dollars in liquidity and a few $100 billion in recapitalization. Voila!

In fact, the banking system was not saved. The massive injections of liquidity temporarily salved the day-to-day operations of banks, but they did not repair the more profound troubles. Indeed, pouring billions into nearly identical management teams that mismanaged risk, overleveraged exposure and drove banks off the cliff in the first place was an invitation for another crisis.

In past weeks, Bank of America has been under increasing pressure from investors. Its already damaged stock was cut in half, and commentators including myself argued that the bank was headed back toward the rocky shoals of insolvency.

The world doesn't need another bank panic and ensuing recession. The US hasn't recovered from the 2007-2009 recession/depression.

Why is this happening? Because Obama is in the pocket of Wall Street and refused to fix the banks. When he came into office he had a chance to work with a blank slate and introduce dramatic banking reform much as FDR did in 1933. But unlike FDR, Obama is a bought-and-paid-for-politician. In his presidential run he promised to do many things for Americans. He just didn't mention that the only Americans he would really listen to had big office on Wall Street and made billions for their "services". Obama has allowed corruption, fraud, and crime to continue on Wall Street. As long as this lasts, the US will be stuck in a swamp of gooey muck that keeps pulling it under. You can only get recovery when you break the addiction. US politicians are addicted to lobbyist money and the sweetest honeypot is Wall Street money.

From the US, a "Strategic" Picture of Canada

Here are some bits from a publication in the US talking about the strategic position of the US, its neighbors, and the world. Here I'll pick out the Canadian references. This is all very well understood in Canada but most Americans really don't know:

Canada’s maritime transport zones are far superior to those of Mexico but pale in comparison to those of the United States. Its first, the Great Lakes, not only requires engineering but is shared with the United States. The second, the St. Lawrence Seaway, is a solid option (again with sufficient engineering), but it services a region too cold to develop many dense population centers. None of Canada boasts naturally navigable rivers, often making it more attractive for Canada’s provinces — in particular the prairie provinces and British Columbia — to integrate with the United States, where transport is cheaper, the climate supports a larger population and markets are more readily accessible. Additionally, the Canadian Shield greatly limits development opportunities. This vast region — which covers more than half of Canada’s landmass and starkly separates Quebec City, Montreal, Toronto and the prairie provinces — consists of a rocky, broken landscape perfect for canoeing and backpacking but unsuitable for agriculture or habitation.

...

In the north, the Great Lakes are obviously an ideal break point in the middle of the border region, but the specific location of the line along the rest of the border is largely irrelevant. East of the lakes, low mountains and thick forests dominate the landscape — not the sort of terrain to generate a power that could challenge the U.S. East Coast. The border here could theoretically lie anywhere between the St. Lawrence Seaway and Massachusetts without compromising the American population centers on the East Coast (although, of course, the farther north the line is the more secure the East Coast will be). West of the lakes is flat prairie that can be easily crossed, but the land is too cold and often too dry, and, like the east, it cannot support a large population. So long as the border lies north of the bulk of the Missouri River’s expansive watershed, the border’s specific location is somewhat academic, and it becomes even more so when one reaches the Rockies.

On the far western end of the U.S.-Canada border is the only location where there could be some border friction. The entrance to Puget Sound — one of the world’s best natural harbors — is commanded by Vancouver Island. Most of the former is United States territory, but the latter is Canadian — in fact, the capital of British Columbia, Victoria, sits on the southern tip of that strategic island for precisely that reason. However, the fact that British Columbia is more than 3,000 kilometers from the Toronto region and that there is a 12:1 population imbalance between British Columbia and the American West Coast largely eliminates the possibility of Canadian territorial aggression.

...

The first land threat to the young United States was in essence the second phase of the Revolutionary War — a rematch between the British Empire and the young United States in the War of 1812. That the British navy could outmatch anything the Americans could float was obvious, and the naval blockade was crushing to an economy dependent upon coastal traffic. Geopolitically, the most critical part of the war was the participation of semi-independent British Canada. It wasn’t so much Canadian participation in any specific battle of the war (although Canadian troops did play a leading role in the sacking of Washington in August 1814) as it was that Canadian forces, unlike the British, did not have a supply line that stretched across the Atlantic. They were already in North America and, as such, constituted a direct physical threat to the existence of the United States.

Canada lacked many of the United States’ natural advantages even before the Americans were able to acquire the Louisiana Territory. First and most obvious, Canada is far enough north that its climate is far harsher than that of the United States, with all of the negative complications one would expect for population, agriculture and infrastructure. What few rivers Canada has neither interconnect nor remain usable year round. While the Great Lakes do not typically freeze, some of the river connections between them do. Most of these river connections also have rapids and falls, greatly limiting their utility as a transport network. Canada has made them more usable via grand canal projects, but the country’s low population and difficult climate greatly constrain its ability to generate capital locally. Every infrastructure project comes at a great opportunity cost, such a high cost that the St. Lawrence Seaway — a series of locks that link the St. Lawrence River to the Great Lakes and allow full ocean access — was not completed until 1959.

Canada is also greatly challenged by geography. The maritime provinces — particularly Newfoundland and Prince Edward Island — are disconnected from the Canadian landmass and unable to capitalize on what geographic blessings the rest of the country enjoys. They lack even the option of integrating south with the Americans and so are perennially poor and lightly populated compared to the rest of the country. Even in the modern day, what population centers Canada does have are geographically sequestered from one another by the Canadian Shield and the Rocky Mountains.

As time advanced, none of Canada’s geographic weaknesses worked themselves out. Even the western provinces — British Columbia, Alberta, Saskatchewan and Manitoba — are linked to Canada’s core by only a single transport corridor that snakes 1,500 kilometers through the emptiness of western and central Ontario north of Lake Superior. All four provinces have been forced by geography and necessity to be more economically integrated with their southern neighbors than with their fellow Canadian provinces.

Such challenges to unity and development went from being inconvenient and expensive to downright dangerous when the British ended their involvement in the War of 1812 in February 1815. The British were exhausted from the Napoleonic Wars in Europe and, with the French Empire having essentially imploded, were more interested in reshaping the European balance of power than re-engaging the Americans in distant North America. For their part, the Americans were mobilized, angry and — remembering vividly the Canadian/British sacking of Washington — mulling revenge. This left a geographically and culturally fractured Canada dreading a long-term, solitary confrontation with a hostile and strengthening local power. During the following decades, the Canadians had little choice but to downgrade their ties to the increasingly disinterested British Empire, adopt political neutrality vis-a-vis Washington, and begin formal economic integration with the United States. Any other choice would have put the Canadians on the path to another war with the Americans (this time likely without the British), and that war could have had only one outcome.

With its northern border secured, the Americans set about excising as much other extra-hemispheric influence from North America as possible.

...

Just as the American plan for dealing with Canada was shaped by Canada’s geographic weakness, Washington’s efforts to first shield against and ultimately take over parts of Mexico were shaped by Mexico’s geographic shortcomings.

The author doesn't dwell on it, but US-Canada relations have been one-sided. The US demands and Canada/Britain compromises, as for example, by giving the US most of what it wanted with the Oregon compromise:

• Originally this territory was part of the vast HBC (Hudson Bay Company) empire of fur trapping. From Wikipedia:
  

  Throughout the 1820s and 1830s, the HBC controlled nearly all trading operations in the Pacific Northwest, based out of the company headquarters at Fort Vancouver on the Columbia River. Although authority over the region was nominally shared by the United States and Britain through the Anglo-American Convention of 1818, company policy, enforced via Chief Factor John McLoughlin of the company's Columbia District, was to discourage U.S. settlement of the territory. The company's effective monopoly on trade virtually forbade any settlement in the region. It established Fort Boise in 1834 (in present-day southwestern Idaho) to compete with the American Fort Hall, 483 km (300 miles) to the east. In 1837, it purchased Fort Hall, also along the route of the Oregon Trail, where the outpost director displayed the abandoned wagons of discouraged settlers to those seeking to move west along the trail.
  
  ...
  
  During the 1820s and 1830s, HBC trappers were deeply involved in the early exploration and development of Northern California. Company trapping brigades were sent south from Fort Vancouver, along what became known as the Siskiyou Trail, into Northern California as far south as the San Francisco Bay Area. These trapping brigades in Northern California faced serious risks, and were often the first to explore relatively uncharted territory.
  



• This early foothold was simply ignored when the 1846 Oregon "compromise" was settled. Initially the US wanted to take everything up to the parallel 54°40′ north, but was bargained into "only" taking the Oregon and Washington state territories.

Most Americans are treated to a triumphalist history, the infamous Manifest Destiny, which had God giving this land to the deserving Americans. The above "strategic" discussion of America is a healthy antidote to that nonsense. The US was hewn out of its neighbors by a designing, grasping, and ambitious political class in Washington DC. Read the whole document to see how the US treated Canada, Mexico, Spain, Hawaii, and the rest of the world.

But even this isn't the whole story. It ignores the outrages of suppressing democracy in the Philipines, the gunboat diplomacy in China, the outrageous "United Fruit" diplomacy in Central and Latin America, and the budding "new Rome" where the US, as the sole Colossus standing after WWII, built a vast empire of military bases around the world and brought war to many, many countries all cynically in the name of "democracy" or of "helping an ally". Think of US policies in South America, and a good example is how the US killed the legally elected president of Chile, Salvator Allende. Such a friendly gesture!

Canada's Leader of the Opposition

Sadly Jack Layton, head of the NDP (New Democratic Party), died shortly after leading the party to its first election victory winning official standing as the opposition party. This victory un Layton is a bit like Moses leading the Israelites out of Egypt to the shore of the river Jordan but not being able to lead the Israelites over. Instead, he was felled by cancer just months after his party's victory.

At the state funeral, here is the bit that I found to be the most moving:



Oddly, I think this Leonard Cohen song is very appropriate. It is a strangely politically appropriate song for a funeral for Canada's most successful democratic socialist politician. Layton won't replace Tommy Douglas in the hearts of Canadians. Douglas fought and won the battle for Canada's health care system. But Layton died as a great leader and will be beloved.

Leonard Cohen's oddly religious, sexual, poetic, and triumphant lyrics for Hallelujah seem appropriate for a normally a-religious socialist political funeral burying a leader who fell before he reached the mountain top of politics. It is a nicely "inclusive" Canadian compromise choice for a eulogistic musical tribute. Triumphant, but not bombastic. Hopeful, and decent. Reflective, but inspiring.

I do hope the NDP survives the loss of its leader. But even more, I want to see Canada continue with its three party politics. That puts the centre party in a position to cushion wild divergences to right or left, unlike the crazy politics of the US. I want to see Canada continue its history of compromise, pragmatism, and decency.

Sadly our political right party lost its "progressive" label (it was called the Progressive Conservative party, i.e. centre-right on social issues and hard right on economics and foreign policy). I fear that Canada is slowly drifting toward the US model of a two party system. That isn't good.

Update 2011aug29: And here is a bit from an opinion piece by Linda McQuaig in the Toronto Sun that highlighted the very un-Canadian moment when Stephen Lewis stuck it to the Prime Minister:

Allowing Layton a state funeral was probably Stephen Harper’s most generous prime ministerial act. But it led to a nationally televised scene that will likely haunt him and surely inspire progressives for years to come: Stephen Lewis, the iconic elder statesman of Canada’s social democratic movement, standing in front of Canada’s most right-wing prime minister ever, speaking truth to power.

Determined that the event be more than just a tribute to the goodness of one man, Lewis used the heft of the occasion, as Layton would have wanted, to drive home Layton’s social democratic vision for the country.

With the Conservatives’ new hammerlock on power — accomplished with a mere 40 per cent of the national vote — here at least was one joyous moment in which we could watch the country’s most powerful orator confront a prime minister who had no choice but to stand every time the rest of the room rose in rapturous pleasure at Lewis’s inspiring call for a more equal and generous Canada.

That message is exactly what those on the right have been trying to deny — that there is an alternative to the grim, slash-and-burn policies of austerity they want to foist on us, making this an ever more unequal society.