Would China Destroy its Economy if the Pandemic Wasn’t Real? YES.

This morning, we’re hearing about how there’s a new outbreak of COVID 19 in Beijing, and that flights are being canceled. The already tottering Chinese economy will take another massive hit; what, if anything, is left of Chinese credibility will be completely gone.

Is this not proof the pandemic is real? Note: the question is not: is COVID 19 a real disease? Of course it is. The question, put more pointedly, is: does this not prove that lockdowns, masks, social distancing and the ongoing panic is justified?

No, it does not. Let me explain. Way back in the 90s, my thesis adviser, a Chinese (probably Taiwanese, I didn’t ask) economics professor and I used to shoot the breeze talking about how little Americans really understood the Chinese Communist government. At the time, America was well into a China policy of economic engagement, under the express theory espoused especially by the Bush clan that if China were to move into a Western style economic model, they would necessarily also move toward a Western style liberal democracy. (That the Bush clan is alleged to have made many millions from facilitating Chinese trade deals was not part of the public discussion at the time.) That was under Bush the Elder; Shrub tried the same theory in the Islamic world a decade later, this time with guns.

I specifically remember discussing two scenarios with my thesis advisor: if the Chinese Communist would kill 100,000,000 of their own subjects if that’s what it took to retain power – answer: without a moment’s hesitation – and whether, if it had to choose between power and the vast wealth created by their snow-job, parasitic faux capitalist economy, if they would destroy that economy – answer: yes, although they might hesitate for a moment. Hey, wealth is fun.

This was 30 years ago. A few things to note:

A. 1958-1962: Mao, on what looks in retrospect almost like a whim, launched the Great Leap Forward, resulting it the deaths of an estimated 65 million of his own people. He did succeed in destroying to a large extent traditional social structures and village life, and instilled a fear that anybody could turn you in at the drop of a hat. The killing was generally carried out by young, ignorant thugs (Solzenitzen describes a similar use of the young and stupid under Stalin). There’s not the slightest evidence Mao or his fellow dons felt the least hesitation or regret. Just business, Communist style.

B. 1989: At Tiananmen Square, about 10,000 unarmed student protesters were ground into gore by Communist tanks; bulldozers were used to scrap up the mess. About a thousand who escaped getting crushed were offered safe passage if they would leave; they were machine-gunned on their way out. Again, business as usual.

C. Under Bush the Elder, we chose to make these people, the leaders of Communist China, preferred trading partners. At first, the cost in stolen IP and out and out espionage seemed minor, especially since it was generally private companies paying it. And the elites weren’t losing their jobs to Chinese slave- and near-slave labor, only those hicks in flyover country. And oh, those cheap goods! Wow!

Eventually, the IP theft, espionage losses and currency manipulation to ensure Chinese goods remained insanely cheap got more serious. By then, an interesting dynamic was in place: Nobody in the world market wants Chinese currency – no one outside of China does, and even there, they wouldn’t if there were an option. Trade banks demand Chinese deals be secured with $US, because they’re not idiots. Therefore, in order to do all those billions of dollars in trade, China needed to hold billions of dollars in US dollar-denominated securities: US Treasuries. The US government needed to issue treasuries to fund various bailout – and look! The Chinese Communists needed to buy those treasuries in order to secure trade financing (which all international trade requires).

So a huge chunk of the US dollars going to China to buy Chinese goods (and support all the theft, espionage, slavery and tyranny that involves) ended up coming back to the US, which issued treasuries to the Chinese so that they could keep doing what they were doing.

Trump, to his credit, knows this. He has a long history of denouncing US reliance on trade with China.

D. Hong Kong, with their British-founded banking system and history as a trading hub, is a pinch-point for all this trade: trading banks around the world have histories with Hong Kong banks – banking does come down to trust in the end – and so, while NOT trusting the Communist Chinese, they could and did do business through the Hong Kong banks, who provided a buffer. It was the Hong Kong banks that told the Chinese Communists what they would need to do and how they would need to behave in order to get this trade gravy train rolling.

And so, the Chinese Communists kept their hands more or less off Hong Kong for several decades. That has come to an end. Funny how COVID 19 drove the Hong Kong protest right off the news. Anybody know if protesters are getting machine gunned down or driven over with tanks? Yet, I mean?

The Bush clan was right, to some extent. At least in Hong Kong, a taste of freedom lit a bit of a fire. People there, all of whom have relatives and connections in mainland China, don’t want to be absorbed into the hive. The Chinese Communists must have figured they had established enough of a relationship with the trading banks to keep this train running without the mediation of the Hong Kong banks. I doubt it – the reality would be something like: Trade bank makes tons of money off Chinese trade mediated through Hong Kong banks; Hong Kong banks are crushed/brought to heel by the Party; having seen this movie before, trade banks look at how they can extricate themselves with as little damage as possible. Takes time. I bet it’s well under way.

E. Put this all together: The Chinese economy was going down ALREADY. (I didn’t even mention the costs of the one-child policy in terms of shrinking cheap labor force & social unrest. That’s a real economic crisis in itself!) Under Trump, America was clamping down on IP theft, currency manipulation, and espionage. Trump was piushing for onshoring of all critical pipeline items, and repatriation of manufacturing jobs. As the recovery boomed, the end of an endless supply of US treasuries loomed. The world’s trading and banking professionals are all over this: while the Bush clan was wrong about free trade pushing the Chinese toward democracy internally, the rest of the world has had enough.

The Chinese Communists hate Trump as much as any other deranged leftists. While, objectively, the gravy train’s days were numbered anyway, it’s not clear the Chinese Communist leadership acknowledged it, and Trump’s trade crackdown and a booming US economy certainly didn’t help. Would they pitch in, as it were, jump-starting Son of the Panic by overeating to a few COVID 19 cases in Beijing? Note: the reports are – ready? – 86 cases have turned up, 7 of them asymptomatic. So they lock down hard and cancel a thousand flights.

Beijing has a population of over 21 million.

I say, and I think history bears this out: yes. The Chinese Communists have their backs against the wall. Having read Sun Tzu, they know to try to appear strong when they are weak. But they are in much worse shape than the outside world is being lead to believe.

We may have already had our one unexpected miracle: the largely peaceful collapse of the Soviet Union. Should not count on getting another one. This time, we have a wounded animal cornered. No telling what they will do, but it’s prudent to remember that nothing, and I mean nothing, is off the table.

How Rich People Think

I’ve written about this before, but given how much ‘the rich’ are in the political news, perhaps a review is in order.

Disclaimer: for about a decade, I was in the 2%. That was also the decade I put 4 kids through private school and Catholic colleges, so, net, I’m not exactly ready to retire in style. Prior, I made below or near average household income for our area; I’ve been jobless for almost the last 2 years. So I have fairly broad personal experience here.

One thing we have to get through our heads: income does not equal wealth. Let’s repeat that:

Income does not equal wealth.

Say I make half a million dollars a year, well into ‘the 1%’ range. Am I rich? Maybe. Am I an older person who owns my home and have been banking/investing a good piece of my income for a couple decades? If so, most people would call me rich, and for good reason: if I never worked another day in my life, I’d be almost assuredly set anyway. If I were prudent, I’d have an investment portfolio I’d never have to draw down – I could live in style on the investment income alone.

Having plenty of money, never having to work again – that’s a pretty good functional definition of ‘rich’.

But what if I’m a 7th round draft pick in my second season as an NFL running back? If I last a typical 3 seasons, I make a bit over a million dollars by the time I’m 25 – less my agent’s fees, and before taxes. After year 3, banged up and having lost my job to a younger, cheaper guy, I might have a couple hundred grand invested, if I were extraordinarily prudent, or I might be broke. Owner of a Maybach, maybe, but broke. So: I made a ton of money – had a very high income – but I am not wealthy. I am not rich.

It gets more complicated: we all hear those stories, I presume, where some guy with a mundane job as a postman or a janitor dies and leaves a million bucks to a hospital or library or something. They were never ‘rich’ in the sense of making tons of money. Instead, they merely lived within their means and socked away a little something every paycheck for decades. Rich? They never bought the Maybach, never had a big house or fancy clothes – but then again, they never wanted those things. Yet, they were somewhat secure – maybe not enough to retire early, but a nice personal safety net if things went bad.

Meanwhile – and I’ve known these folks – you have your high-end sales types pulling down seven figures – and spending it all, and then some. They have all the trappings of ‘rich’ without any wealth. They live enormous paycheck to enormous paycheck, and, if they lost that job, they’d be broke. (And they often know this, and like it that way: they see themselves as supermen, and always think they can get more – and they’re usually right. High-end sales skills are very, very valuable.)

Back to politics. So: which ones of these ‘rich’ are we going to soak? In practice, we soak the young running back for three years and the prudent dude with the investment portfolio over his lifetime. Today, the postman can give his million to the hospital without too much soaking; he paid comparatively little in taxes on his comparatively low income, and bequeaths don’t get hammered too hard – yet.

The salesman gets soaked the most. He’s at the top of the income scale, and pays all the consumption (sales) taxes on the money he fritters away. Over his working life, he will pay the most in taxes of any of these examples, and, if he has his way, die broke. His estate will consist of cars and airplanes and houses – and debt. His ex-wives will fight over anything left. Uncle Sam ain’t getting any windfalls here.

The difference here has as much to do with how we think about money as with how much money we make. Books have of course been written – the Millionaire Next Door is a representative one. To sum up: rich people think primarily in terms of assets, not in terms of income. You use income to build assets, up until the assets yield enough so that you don’t need any other income. Then, outside income is just a nice to have, but is not the source of your wealth.

Let’s take an extreme example: Bill Gates is worth roughly $100B. Even if all he did was plop that money in savings accounts yielding 2% (he’d get the *good* rates) that’s $2B *a year*. In *income*. For letting his money rot in a bank.

Suffice it to say, he doesn’t need a job, nor does he need to dip into his savings. Gates doesn’t need to think about income, nor drawing down his vast fortune for anything other than some gigantic gesture or huge self-indulgence. His day-to-day needs are funded by the equivalent of loose change from under the couch cushions.

One common strategy for the very wealthy is to stick a few tens of millions into tax exempt bonds, just for spending cash. A AAA-rate muni will historically get you maybe 2%. Throw $50M at that, get a million a year tax-free. Then let the other hundred million or billions ride, not worrying about income but about asset growth. But such moves are the Trivia. They leave spending cash strategies to their financial managers. They worry about the assets – the companies and physical and intellectual properties they own.

Now scale all this way down. Say I live comfortably on $50K/yr. If I’m willing to accept a little risk, a basket of assets including stocks and cash in a money market account worth about a million dollars could yield me $50k/yr. To be safe, I’d need that million and a buffer of, say, $100K, so that I can ride out the down years and take care of smaller emergencies. If I need $100k/yr to live, I’ll need a $2M portfolio and a $200K emergency account. And so on.

This is how people who aspire to be rich think. The actual numbers will differ, inflation needs to be considered, needs will change, but this is the general idea. What we think of as the very rich got to this minimal point fairly early – or had income that dwarfed their needs fairly early – and started worrying about legacy or just seeing how far they could take it. Think about it: you get lucky or work a particularly profitable angle, and bank that $2M or $4M or whatever – now what? You might shoot for $8M, just to feel more secure, or you might decide you have a taste for charity (or trophy wives) and so just keep pushing to see how far you can go.

This mindset is distinct from seeing how much income you can make, which is the mindset of the super salesman described above.

This, by the way, is why incomes are taxed, but assets are usually not. It isn’t just because rich people tend to take more interest in (and a more active part in writing) tax laws. It’s because asset ownership fuels economic growth. Gates, to return to the example above, is very interested in growing his company. Growing the company means (in almost every case) hiring more people, building more office space, investing in plant and equipment – and paying more salaries and, both directly and indirectly, paying more taxes. So we don’t tax the assets until they are sold (if then), but in most cases, the assets’ owners are very interested in growing them, and thus in generating more revenue for their employees and venders, and incidentally paying more tax.

So: “Soaking the rich” means…? Looking at history, the rich have generally been defined as ‘those with anything more than I have’. You and I are unlikely to know any billionaires, but we certainly know some people doing better than we are financially. People with assets spring to mind.

Going after people’s assets, figuring only the ‘rich’ have assets in the first place, is trickier than it might sound. What happens to stock prices if, all the sudden, it is understood that the government will require people with large stock holdings to sell a significant portion of those stocks to pay taxes? Classic economics, and thus sadly out of reach to many: the supply of stocks for sale rises, the price goes down. This will be especially true if the ‘soaking’ is intended to raise significant money. If you intend this soaking to fund huge social programs, you’d need to close ‘loopholes’ to make sure the tax on assets penetrates any number of layers of mutual funds and holding companies and the like.

And it doesn’t stop there: dropping stock prices over any length of time tend to cause a series of cascading effects. When its stock price falls, a company will have a harder time getting financing and will pay a higher rate to borrow money. Since more of their income is devoted to paying for debt (that’s what higher rates mean), the company won’t be able to do as much business as it would like – e.g., they will be able to afford to pursue fewer new project, open fewer new store or plants or offices. Ultimately, they will not hire as many people or pay as good wages.

On an individual level, when people’s IRAs and 401(k)s take a hit, even if it’s not affecting their individual income at the moment, they tend to rein in their spending. Consumer spending is 2/3 of the economy.

And this isn’t even defining ‘rich’ down very far. History seems to show that, once you’ve soaked the more obvious and convenient rich, and find that not only does this not solve any problems but rather makes things worse, the temptation is to keep defining ‘rich’ down and down. When the Soviets had reduced most people to poverty, the relatively prosperous Kulaks started looking like the rich people, what with their having a cow and maybe hiring help for the harvest. So they had to be soaked. And murdered. That seems to generally come next.

Back when I was making good money, I didn’t mind paying taxes. Once the rules are known and – critical – the situation looks stable, people tend to cope and get on with it. Thus, for most any survivable level of taxation, a stable level will reached in which life goes on. And, maybe, there is some good way to raise taxes on the most wealthy with the net result being relatively more revenue. People are stubborn; entrepreneurial types are generally very optimistic, so if there’s a way to succeed around new tax burdens, people are likely to find it.

Unfortunately, there is no evidence the people pushing for socialism, even socialism by a thousand cuts, understand any of this.

Polanyi’s Great Transformation, pt 1

(Note: I’m reading this work in preparation for reading Patrick Deenen’s Why Liberalism Failed simply because, over dinner, a friend casually mentioned that it figures into Deenan’s argument somehow. Let’s see how this goes. Kinda busy writing these days, (huzzah!) so may be a while before I get to read and report on the rest.)

A third of the way through Karl Polanyi”s the Great Transformation (That’s a .pdf. If you want other formats, here.)

The unambiguously good part: Polanyi makes near constant references to events, developments, tribes, people and so on about which I know next to nothing: 19th century English history, enclosure, the Trobriand Islanders, kula, various politicians and thinkers and on and on. I’ve spent nearly as much time on the web reading up on these topics as I’ve spent reading the book itself. As usual, I’m left shaking my head at the holes in what I know more each time I learn something new. But it’s still a good thing, and I plan to continue this practice as I go on.

Polanyi sets out to show that free markets and the thinking behind them are myths and frauds. There is no such thing as a natural and near-universal practice of truck & barter among primitive and not so primitive peoples. Such trading as did occur was generally ritualized and often symbolic. Free markets as we now understand them were a creation of the late 18th and 19th centuries, complete with a counterfactual mythology about how markets arose naturally and dated back to the earliest times when tribes traded with tribes or among themselves.

The next step – and here, I’m mixing in what the authors of the prefaces say about Polanyi with what he says himself, on the assumption that he’ll get around to it later – is to show how any economy prior to our current free markets was embedded in and a function of society in general, and then show how central management of economic activity was and remains the true ‘natural’ development, one we’ve discarded at great cost and continued peril.

Before we get into details, two asides. Can’t find the source at the moment, but Polanyi is described as having a ‘complicated’ relationship to Marxism. In my experience, that generally means he is a Marxist who picks a few nits with Marx and would like to distance himself from the atrocities of Lenin, Stalin, et al. And, sure enough, his intellectual companions are, with few exceptions, Marxists. He was ‘attracted’ to Fabianism, whatever ‘attracted’ might mean. I’m thinking, based on what the Fabian Society says about itself and its goals, that he was a Communist and a liar. But I’m harsh that way, taking what people say their motives and practices are at face value.

Be that as it may, one thing clearly evident in this book so far is what I would call a Marxist approach to history: regardless of what has happened, there are only a few acceptable explanations available, each having as its chief characteristic the dismissal of individual human actions in favor of gigantic faceless Forces. He’s gone light on Oppression so far, but big on Progress and Capitalism. I assume he’ll catch up later.

Another characteristic of the Marxist approach is to torture facts to meet the needs of theory. We’ll get to that in a minute. Suffice it to say that reading Polanyi so far reminds me of my youth when I read a couple Erich von Däniken books claiming that space aliens were responsible for much of human progress. (Hey, I was a kid, they were lying around) He had a recurring and annoying habit of employing the rhetorical flourish of concluding arguments with variations of ‘what other explanation could there be?’ Even in my youth, I’d start in with ‘I dunno, how about X, Y, and Z?’ Polanyi’s accounts of ‘primitive’ peoples are more sophisticated, but amount to the same claim: that the facts only support his conclusions. I dunno, how about X, Y and Z?

Second, and this may be that I’m just ignorant, I do not recognize what exact argument in favor of global, self-regulating markets Polanyi is refuting. Unlike the Scholastics, he does not provide a description of his opponents views that they would accept as accurate, but simply assumes his audience knows what he’s talking about. Now, I’m only lightly read in economics – dismal science, indeed – but I’ve never heard an argument that states that free markets should be the be all and end all of all economic activity under all circumstances. In fact, what I like about the idea of free markets is that they exist among free people – and that freedom of the people is logically and practically prior to the freedom of the market. Therefore, if and when markets might act in such a way as to impinge upon the freedom of the people, for example, in creating monopolies or in the selling of uranium reserves to an at least potentially hostile party, political action could be taken to block such a sale for the common good. More fundamentally, in a free society, individual action could be taken. Don’t spend money on people who hate you, for example.

Polanyi argues instead that the logic of the free market demands that not only the market be free in some absolute sense, but that society be made to conform to the needs of the market. This is among several conclusions he leaps to so far that basically come out of left field. Then again, Marx, following Hegel, believes that truth doesn’t have to make sense. You either get it or you don’t. Law of non-contradiction be damned.

A ‘believer’ in free markets could hold many things, say God, family, country, to be more primary and important than free markets. Heck, they could even believe that free markets, in the sense of letting people keep what they work for and sell and buy what they want – subject, of course, to God, family and country, to stick with the example – falls out of the same basic understanding of human nature and reality that lead them to elevate God, family and country in the first place.

But Marxists believe that lived experience falls out from whatever huge forces History has unleashed on us at the moment. It’s the system, man. Instead of families forming communities that form governments that reflect more or less imperfectly the interests of the people in those families, History dictates Oppression of one sort or another in the form of Capitalism or Feudalism or whatever. But salvation is at hand! A Mighty Fortress is Our Socialism! For reasons neither Marx nor his sycophants have ever explained,  this time History will inflict happiness on us all by means of Socialism, if only we are sincere enough and keep watch in the pumpkin patch or something. Having learned from Hegel, they write fat books, coin lots of neologisms and throw down the big words and use other words in ways no one else ever does to cover up the fact that their ideas, when stated plainly in words everybody understands, are infantile.

By the end of the first third of the book, Polanyi makes his strongest and most important point, the one upon which he hangs the idea that free markets of necessity destroy people and nature: that the logic of free markets demands that all the components of economic activities be treated as commodities. Free markets demand that anything that can be bought and sold on the market is free to be bought and sold on the market, and that such a market be free from outside (governmental) interference. In modern free markets, this includes money, land and people. Free markets inescapably demand that labor is just another commodity, to be regulated by the dead hand, and so people having their livelihoods and lives destroyed is a logical and even desirable outcome if that’s what the markets determine should happen. Similarly, the planet will be raped, since whoever can get the most out of it with the least investment wins. He assumes that this means simple, direct and immediate destruction of the planet as a result of consuming resources.

Money, land and people do not exist to be traded on an open market. Yet they are treated as commodities. Polanyi calls them fictitious commodities.

A quibble, yet one that calls into question Polanyi’s fundamental grasp of economics: he’s wrong about money. He asserts that, just as land and people are fictitious commodities, since they were not created to be traded, money was not created to be traded. But that’s exactly what money is created for, even and especially in the sense of money markets. As discussed here, most money in free market systems is created not by government fiat, but by private lending. Because of the fractional reserve system, banks create money by lending far more of it out than they hold in reserves. Yet, the money lent is as real and valuable as money created by government fiat, and is the vast bulk of the money that’s traded on money markets.

Perhaps a distinction could be made between modern money creation via lending under a fractional reserve system and money such as wampum or gold coins or big carved rocks. Polanyi does not do this, for a very good reason from his point of view: the bulk of his examples so far would fall apart if one were allowed to question what, for example, Trobriand Islanders kula trade has to do with any analysis of modern markets (spoiler: nothing whatsoever), or how come Europeans as a whole are much better off  now even after the disaster and injustice of the Enclosure program, if the safeguards that fought and delayed enclosure were banished from the earth by free markets? In other words, making distinctions that logic and simple honesty require is not in the cards, so long as those distinctions do not support the desired conclusions. As I said, Marxist.

The first chapters concern themselves with Enclosure and the so-called Tragedy of the Commons. Here Polanyi follows the well-worn track of every Marxist I’ve ever read: start by describing a tragedy caused by Capitalism or greed, in order to position yourself as the defender of the oppressed and all opponents as heartless reactionaries. Those of us who are not proponents of a flat moral universe might point out that, yes, people can be greedy, heartless and petty, and that such lamentable characteristic exist prior to any economic or political system. We might even point out that not only does Socialism in the real world fail to mitigate these behaviors, their grandest flowerings have taken place under socialist regimes.  Those who take other people’s stuff are thieves, after all – unless they are socialists, in which case they are merely the instruments of History’s inexorable march of Progress. The more equal need their dachas to keep their revolutionary edge, I suppose.

Next, we hear about the Trobriand Islanders and their kula trade. Here Polanyi insists that the ritualized exchange of ritual gifts used to reinforce social relationships among  8,000 isolated islanders with nothing else to trade must be accepted as an example of – what, exactly? Had fun reading up these folks, how pretty much the only resources they have are yams, fish and palm fronds. Anybody can clear a little jungle and grow yams with minimal effort. They developed a system by which the village chief causes a yam house to be built and the villagers hand over their yams to be handed out as the chief decides.  Also, if a man wants sex and/or marriage, he need to show the object of his desire some nice yams, to demonstrate that he’s the kind of guy who can really grow them yams! (The Margaret Mead flavored claim that the islanders don’t think sex and babies are necessarily connected is more easily and believably explained as people pulling gullible Europeans’ legs with a cabbage-patch story. But we’d reveal ourselves as rubes were we to laugh at the people in lab coats.)

In other words, these are subsistence farmers who do a little fishing. They have nothing to trade in the economic sense, and nothing to gain from putting in extra hours working. Instead, their biggest problem – hope you’re sitting down – is acting out the occasional urge to kill each other. War, in other words. The Europeans forbade war, leading to the development of a unique and highly ritualized from of cricket, where they islanders can act out their aggression without (usually) killing each other.

The kula trade is how the islanders confirm their kinship and peaceful relationships with the nearby villages. Ritual objects are given is such a way that, in a decade or so, each object makes its way around the loop of the islands back to the original village.

This, Polanyi assures us, is an example of trade, of a market. We are to learn from this example that markets aren’t free, but are embedded in the culture in which the trading takes place. This lesson will come in very handy next time I’m required to give a ritual object to my neighbors to reinforce our mutual agreement that we won’t kill each other.

The next section is about commodities fictitious or otherwise discussed above.

The writers of the introduction and preface try mightily to show how recent history has proven Polanyi prophetic. Despite a precipitous drop in poverty along with a more than tripling of the world’s population, we are to believe the capital markets are so evil that we need to go back to swapping trinkets and growing yams, to save the planet and ourselves. Seriously, Polanyi and his followers points and arguments dissolve like so much flushable kitty litter when exposed to the least bit of analysis. Once you’re convinced that you’re on the Right Side of History, the only explanations left in your toolbox are systemic oppression of some sort. Just as we’ll get those new soviet men, free from greed and violence, from whom the endless supply of virtuous bureaucrats needed to run all our lives will come, if we only will close and wish real hard, we’ll get the new reality we need, one that, instead of putting all our pet theories to the lie, confirm them!

Very busy these days. Will try to finish this up soon.

 

United, We Fall On Our Faces

By now, there is hardly a larval emanation or tentacled youngling in the multiverse that hasn’t heard of United’s horrible treatment of a passenger on an overbooked flight and its subsequent epic and ongoing self-immolation. Case studies and business school texts are being drafted even now to include this story as the cautionary tale, above the caption: Don’t Ever Do This! (Or, at the better business schools: Fire Any Cretin Who Does This. One needs to be specific with alums of such business schools, as normal human behavior has long since been bred out of them.) Even I, who am unnaturally predisposed to ignoring anything that’s got the webs all a-twitter, have heard of it.

Ignoring the best response (rolling over and going back to sleep after pledging to never again take United at least until they have a really good deal to Cancun), there are two general ways one can react to this.   One can marvel at the efficacy of the Dead Hand, which, even now, is pounding United into a bloody pulp. Under the somewhat free market system airlines labor under – this is a tricky part for some – nobody has to fly United. You can pick any number of airlines to be the apex of your airport dehumanization process, or even take a train, drive or stay home. You can park your retirement funds someplace else. And millions, now, are dealing with that exact decision, and whacking big bad United where it presumably hurts the most – in the wallet. 

Or one can go all Cosmic Metaphor. You are not mad at United. You are mad at America! It’s the system getting you down, man. Rather than doing something simple, direct and effective – not flying the Friendly Skies – let’s instead throw a pouty party, and dust off everything that sociology professor with the cool beard told us about Capitalism back in the 80s while sitting on the front of his desk, and enlighten the masses.

Oldie but goodie.

No.

Airlines try to make money in order to a) stay in business and b) provide a profit to their investors. Or as Dr. Coolbeard would say: they’re greedy. Same exact thing. Because, under the magic flying unicorn system, airlines can stay in business and fly me, a nobody with no connections, most anywhere in the world for a under a week’s salary, without worrying about dirty, dirty money. They can finance (1), fly and maintain vast fleets of insanely complex and expensive machinery at locations all around the world, and sell me and anybody with a few hundred bucks a ticket to a regularly scheduled flight, and pay pilots, attendants, mechanics, baggage handlers and, evidently, graduates of the Nicolae Ceausescu School of Crowd Control – by applying good will and right thinking alone!

Not this guy! His tie proves he’s sold out to Da Man.  Nice beard, though.

I think not.

Running an airline is what is sometimes called a ‘sporty game’ by exactly those graduates of elite business schools from whom all human feeling has been surgically removed. What they mean: You have to be a little crazy to own an airline.

Boring yet important business type stuff follows.

Airline revenues are highly cyclical, while fixed costs are very high.  What highly cyclical means: when times get a little tough, one of the first things people cut back on is travel. This holds for businesses as well as individuals. If you sell travel, as airlines do, then, as the saying goes, if the economy gets a cold, you get pneumonia: a slight reduction in overall economic activity produces as relatively large dip in airline revenues. On the other hand, when times get better, people just love to go places!

Yet costs – financing and maintaining all those planes, leasing gates and counters and baggage facilities at all those airports and paying all those people – won’t just go away because you’ve decided to put off seeing grandma until next year and your company switches to a teleconference instead of an in-face meeting.  Nope – whether they’re booking every seat and adding routes or flying half-empty planes, a huge chunk of airline expenses are just there. (2)

In practice, what this means is that airlines have to make big money in good times in order to ride out bad times – they are highly motivated to get every penny they can out of every flight. Yet they are also in a highly competitive market, both in direct terms – you can almost always pick between several airlines between any half-way popular destinations – and indirect – you can often drive or stay home or teleconference.

The last straw: your customers aren’t stupid. They know they can go online and compare fares from sometimes dozens of airlines and pick the one they like – usually, the cheapest one that does what they want.

So, here you are, trying to run an airline and pay the salaries of thousands of hardworking people and avoid having to lay them off, so you’re trying to figure out both how much to charge for tickets and what policies will tend toward getting the most revenue out of each flight.

Some genius MBA comes up with the idea of overbooking: since some percentage of people are all but guaranteed to not show up or cancel at the last minute, if you sell only exactly how many seats the plane has, you’ll be flying a less than full airplane and leaving money on the table. What if you sell a few more tickets than you actually have seats for, so that you can fill in the empty seats created by those no-shows and late cancels, and fly a full plane, and make a little extra dough?

The cool part: you, the airline, have all the data needed to make this work – you’ve got years of history of no-shows and cancels by flight! You can hire some smart statisticians to crunch the numbers, and they can tell you within an acceptable level of confidence exactly how many extra seats to sell per flight so that a) your chances of a full flight (and resultant maximum revenue) are high (for whatever value of high you like) while your chances of really, really pissing off your customers is acceptably low (for whatever value of low you can live with).

Two catches: the obvious one, the one painfully clear from United’s late unpleasantness, is that, once in a while, you are going to royally infuriate some customers. The less obvious one: once any airline starts overbooking, all of its competitors on the same routes are all but forced to start overbooking as well. Why? Because failure to get that extra couple grand per flight generated by overbooking means your flight is that much more expensive, on net, than your competitors – in the not so long run, that will put you out of business, unless you can find some other way to make it up. Since you’re already charging for extra bags and food and every other thing the evil, evil airlines have come to charge for over the years, the only real option is to raise prices.

Aaaaaand – you’ll go out of business. Even if it’s only, say, $20 a ticket, you know and I know we’re picking the cheaper ticket – every. darn. time. So is almost everybody else. (This is where our more enlightened comrades will tell us that $20 doesn’t matter, it’s a small price to pay for JVSTICE! and so on. Of course, they always say this about somebody else’s $20. Try walking up to them and asking for that $20 that doesn’t matter – see what happens.)

Conclusion: The free market has provided the opportunity for anyone with a few hundred dollars to travel almost anywhere in the world – at +/- 600 miles/hr.  That we take this for granted is nearly as amazing as the brute reality itself. The prices are kept very low (3) because many airlines fly the same popular routes, and most people almost reflexively price shop for tickets. Even a few dollars in price difference will make or break the sale much of the time.

Because airlines are in a sporty game in a highly competitive market, they must – as in, they will go out of business within a few short years or less if they don’t – try to squeeze every penny out of every flight. Overbooking helps them do that, so they are all but forced to do it – by us, the ticket-buying public. Usually, this works great – passengers aren’t even aware it’s going on.  Sometimes, it doesn’t. Sometimes, an airline will handle it so badly that they are in the news in the worst way for days on end, their market value drops into 10 figures almost overnight, and people start choosing any other airline.

This fiasco is what we business people call ‘negative reinforcement’. If United had to do it over again, they’d be offering 5 free flights and $10K in cash, and a ride around the airport in a sedan chair carried by United executives dressed as Vestal virgins, and OK, a pony! to free up the seats they needed, and be thrilled to do it. Hindsight is funny that way. Chances are pretty good that, in the future,  United will have to find some other way to make total asses of themselves, insult and demean their customers and pull millions and millions out of their investor’s pockets – because they will, for a while at least, make sure they don’t do THAT again.

But they screwed up.  And are paying a steep price. And that’s not because America is screwed up – it’s actually a rare case in which things are working pretty well.

1. My job has entailed learning a bit about financing aircraft, enough that I could go on for several pages at least on the financial ends and outs of getting and maintaining the aircraft an airline needs to stay in business. It’s scary stuff, financially speaking. If you’d like the inside scoop, just ask in the comments, and I’ll do a post! I don’t recommend it, really, but if you’re into that sort of thing…
2. Overtime and especially fuel are two readily controllable expenses, and they certainly are significant. But they’re not enough for a downturn of any length. Airlines regularly declare bankruptcy – just google any of the big carriers who have been around for a while – United, American, Delta – and you’ll see bankruptcies in their histories.  Jetblue and Southwest are exceptions, I think, built on very tightly controlled business models.
3. Check inflation-adjusted airfares from a few decades ago if you don’t believe me.

Publishing & the College Bookstore

The college bookstore is not like Barnes & Noble.  The economics are different.

Publishers and book sellers often operate under some peculiar economics. Sarah Hoyt got me to thinking some more about this, after first going there after reading comments on John C Wright’s blog. The following is some informed speculation on the economics of Tor and Barnes and Noble, and the book publishing and selling business in general, based on a few minute’s of web research. I have no background in this in particular, but a lot in business in general.

Not…really. 

Many people, with great justification and on the side of the angels, would like nothing more than to boycott Tor books into bankruptcy and oblivion. I wrote in a comment on John C Wright’s blog on why that’s unlikely to happen:

Think of it this way: Your purchases of Wright and Wolfe are not going to keep Tor afloat. There’s even a (theoretical) possibility of humiliations galore. In a free market, when the forced liquidation of Tor takes place, and the bankruptcy valuation people are pouring over the books, they’ll determine positive value – meaning, they think real people would pay real money – to the Wright, Wolfe, and Flynn rights, while counting all the money Tor spent on rights to almost all other current SFF authors as unrecoverable sunk costs to be written off. Tehe!

At least, in the real world, something like this is what would happen. In the phoney world of publishing – and here I speak only of the business model, not of any other fantasies that may be clung to by the people in the industry – Tor is owned by MacMillan, which makes a good chunk of its money by selling wildly overpriced textbooks into a completely rigged market. Tor is a pimple on the hindquarters of the beast. The ‘buyers’ are ‘educators’ immune to market forces (market forces = normal people behaving normally). Educators have open contempt for classics or even merely competent literature, and hold math and science to be social constructs of the Patriarchy. No, really. The publisher works hand in hand with the educators to produce ‘good’ books into a gamed market that forces purchases on the ultimate customers.

Further – and here it gets even murkier – MacMillan is owned by a privately-held German company, so I’m not sure how available or reliable overall revenue numbers would even be. I’m guessing that it’s far, far more profitable to sell $175 psychology books that will be outdated and need replacing in three years by the thousands to colleges that then force their students to buy them than to sell one novel at a time at $20 to people who can spent their money as they please. At the very least, it’s easy to see why a textbook publisher would try the same approach to bookstores: we’ll produce ‘good’ books full of right-think, and you make the students/customers buy them.

Just as a poser such as myself can support my writing Jones with my day gig, the owners of companies can support their publishing hobby – publishing books that make them feel good, but don’t make money – with other activities that do pay. A certain sort of billionaire will buy sports teams to be cool; literary imprints can be owned to stoke the egos of a different sort of rich person. That a particular publisher within the holdings doesn’t make money may just not enter into it, especially if it is a tiny part of the whole enterprise.

Further, as mentioned above, if I can sell expensive textbooks to college bookstores by the dozens or hundreds at a pop, and have the purchase decision made by one or few people who then push down the ultimate purchase to a captive audience – students – I’ll do that. For one thing, sales are almost perfectly predictable. Then, once I’ve got that model up and running, I’d try to see if I could expand it to other markets. Thus, big chain bookstores were treated largely like college bookstores, where numbers of books were ordered and shipped based on the assumption that the middlemen could then force them upon a captive audience. This approach could kinda sorta work – until an Amazon comes along. Once that happens, you need to sell single copies of relatively inexpensive books to one person at a time. That’s a different mindset altogether.

With this in mind, let’s take a look at the current Big Five from a business point of view. (source)  (and another source)

Hachette Book Group (or Lagardère Publishing)

Hachette Book Group (HBG) is a division of the second largest trade and educational book publisher in the world, Hachette Livre. Hachette Livre is based in France and is a subsidiary of the French media company, Lagardère.

Financial: 2015 sales: 2.21 billion EUR; #4 in the US. Wholly owned by Lagardere, with had 2015 sales of  7.19 billion EUR.  So: its entire publishing arm accounts for less than a third of annual revenue. Less than 13% of revenue comes from the US – didn’t see how much of that is books, I would assume much less than all.  Arnaud Lagardere, current family member leading the group, has a net worth of about $2.4 Billion

Education sales accounted for 16% of total sales, illustrated books comprised 17%, Partworks represented 11%, and other sales were 16%. This only adds up to 60% – the other 40% isn’t publishing? Couldn’t tell from the available info.

Conclusion: financially, selling non-educational books in the US is not a significant enterprise for Lagardere, which is a media conglomerate. The subset that is SFF is a line item on the scale of office supplies, only smaller.

HarperCollins

HarperCollins Publishers is a subsidiary of News Corp, the global media company led by Rupert Murdoch.

Financial: News Corp, Murdock’s holding company, had 2015 revenues of $8.633 billion; Harper Collins piece was $1.67 billion, about 20%. Murdock’s net worth is estimated at $13.1 billion.

Conclusion: SFF is, again, some tiny fraction of the activity of News Corp. Murdoch probably spends more each year on yard care.

Macmillan Publishers

Macmillan is a global trade publishing company, which is owned by the German Company Verlagsgruppe Georg von Holtzbrinck, with imprints in the United States, Germany, the United Kingdom, Australia, South Africa, and around the world. Macmillan publishes textbooks, journals, monographs, professional and reference works in print and online. Oh, yea, and some other books, too

Financials: As a privately-held company, Holtzbrinck doesn’t have to tell you much, and so doesn’t. 2014 revenues were 1.73 billion EUR; surprisingly, of that 1.64 billion EUR came from publishing, with 39% from North America.

Conclusion: Again, while books make up a bigger piece of the pie for Holtzbrinck than for others, it’s still unlikely SFF rises to anywhere near the top of their concerns – they’ve got that locked-in textbook/technical journals market to think of first.

Penguin Random House

Penguin Random House is owned by Bertelsmann, a private company, controlled by Germany’s Mohn family. It publicly discloses some financial data. It is one of the world’s largest mass media companies and also active in the service sector and education, worth about $30B by my rough estimate.

Financials: Didn’t come up with any hard numbers after a couple minutes of googling around, but it’s safe to say that SFF is not a major source of revenue for this gigantic company.

Conclusion: Elisabeth Mohn is worth $4.4B, and sits on the board of the Bertelsmann Foundation, which controls about $20B more. She ain’t sweating SFF sales.

Simon and Schuster

Simon and Schuster is currently the publishing arm of the media company CBS Corporation, and does adult publishing, children’s publishing, audiobooks and digital books. CBS has interests in commercial broadcasting, publishing, and television production, with most of its operations in the United States. (Aside: this curiosity: “The stories swirling around Sumner Redstone these days make Rupert Murdoch look like a boy scout.” Nope, not gonna bite. Nope.)

Financials: CBS had $13.88 billion in revenue in 2015. Google was not being very cooperative in digging  up Simon & Schuster info in the limited time I had to search, but it appears they have annual revenues in the $750M-$800M range across all their businesses – not bad. I would imagine a comparatively tiny portion of that is SFF.

Conclusion: Sumner Redstone, the major owner, is worth $5.5B. He’s not sweating SFF sales.

A logical cool-headed business person would be thinking of dumping traditional publishing investments, as the long-term prospects of even the education/technical side are grim. Selling may not be possible for any reasonable price – it’s a buyer’s market, which is another way of saying that there are not very many potential buyers, and those who do exist are looking for a bargain. Crunching the numbers might suggest – and I suspect it does – that simply running the current publishers into the ground and writing off the wreckage is the least bad solution, financially.

Meanwhile, a prudent business person will be asking: What’s next? Can we get in on it early? Problem is it seems Amazon is what’s next, and they own every desirable piece of real estate they’ve noticed, and are well equipped to buy any they spot in the future. But hope springs eternal – you don’t get into business unless you are an optimist.

Mostly put this together so that I’m not completely ignorant of the topic, as it is a big deal in one way or another among several authors and commentators of some blogs I follow. The only thing left to say: eventually, in an open market (however imperfect) what cannot go on will stop. Hemorrhaging cash is not a viable long term strategy, although it can go on for a long, long time if it is a) small enough, and b) important enough to the owners. I will say with little fear of rebuttal that millions have been and are being spent by business types in order to figure out how to work this new state of affairs.  So far, the evidence suggest they have not got a clue: Amazon is eating their lunch, indie writers and small presses are doing well, and the last of the big chain bookstores is watching the pretty trail in the sky left by that asteroid heading for the Yucatan.

The Mystery of Workforce Participation

I’m willing to bet that workforce participation in hunter-gatherer societies is darn near 100% for the key demographic of men aged 24 – 54. Ya know? So, if all we want is high workforce participation, all we’d have to do is return to a hunter-gatherer economy.

Men aged 25-54, fully employed

Despite the great progress toward a return to just such an impoverished, backward economy made here in recent years(1), I’m thinking there’s more to it, for example, how many of us are willing to tolerate living in a less than total employment economy for benefits such as cell phones, indoor plumbing and hospitals.

Yet, invariably, any report of a decrease in the percentage of the adult working age population in the workforce is greeted as bad news. This one, for example. And, I hasten to add, it may be. But it might not be.

Question: are the countries more desireable to live in as one moves left to right on this chart? If not, why would one care about workforce participation? Should I prefer to live in Mexico or the Slovak Republic because a higher percentage of males work? Or does pay and opportunity figure into it? 

The implied judgement: Higher and increasing workforce participation = good; lower and falling workforce participation = bad. Is this true? Or only sort of true within a certain range and for certain people?

Wouldn’t it be nice if the percentage of working aged people who no longer worked because they didn’t have to were routinely reported?  Sure, one imagines that many of the people not in the workforce would like to have a good paying job. One also imagines that most of the working age people in or out of the workforce would love to be in a position that they didn’t have to work unless they wanted to. That’s me, for sure – I’d retire in a heartbeat if I could, if, somehow, a few million bucks fell in my lap. Why not? I have plenty to keep me busy and entertained and useful every waking hour. Imagine all the essential blogging I’d do! Or not.

Starting 0ver 20 years ago, it became quite possible, even common, for some mid-level guy or gal in the tech field to get some stock options or make a few astute stock purchases and then, a few years later, find themselves sitting on millions in assets. A lot of those folks looked in the mirror one morning, and thought: I don’t actually have to go to work anymore. And some of those soon didn’t. And more still do every day.

Rather than being some sort of problem, this is in fact the outcome of a free market most to be desired from an individual’s perspective. If I had a few million in the bank-equivelent, think of all the good I could do! Think of all the time I’d have!

Now think of a nation with a growing number of such people, people who are attached in some sense to their money because they did, in some sense, earn it. What a wonderful place that would be! (That’s also the nightmare of statists everywhere, but that’s another story.)  If you were married or the adult child of such an one, you, too, might be able to not work if you didn’t want to – how cool is that? Soon, we’d have a growing pool of people with resources and time. Sure, I suppose, some waste it. But many would not – I fervently believe I would not. The possibilities of local action to make life better are endless!

So, while I’d readily believe that such people make up a small percentage of the decrease in workforce participation, should we not at least break them out of the total? Should we not celebrate them at least as much as we lament those who’d like a job but can’t get one?

On a more serious level, this equating work with prosperity and, ultimately, with personal goodness itself (the hoary Protestant Work Ethic) is merely an example of how economic reporting, reflecting economic teaching, makes things much simpler and black-and-white than they really are (2). Is growing manufacturing output a good or bad thing? How about a falling average workweek? Growing GDP? Falling consumer debt? Are these things, in and of themselves, good or bad? How can you tell? There are situations were they might be good or bad or indifferent. They might be good for some people, bad for others, and indifferent to others or on the whole. And there are plenty of  other cases like this as well. At the very least, the standard disclaimer should say something like: Within a certain range, all other things being equal. Note: all other things are never equal.

Right?

1. Just think of the low carbon footprint! I quiver!
2. And that’s even before you reach the Marxist/Bernie level of willful stupid. Nope, here I’m talking about economics as understood by people at least trying to make sense.

Election News, Gell-Mann, and Why I Don’t Watch TV

Stuck in the local Dodge dealer’s service department waiting room while highly trained technicians figure out why they can’t successfully screw some small but essential engine component into place so that the oil stays *in* the engine where it belongs, in under three tries. I’m imagining a seminar being called, with guys in oily blue uniforms sitting at a long oak table, calling each other by their last names: “Mr. Jones, that is a fascinating approach, but, as Mr. Rodriguez here just pointed out, the direct and disintermediated strategy of, and I quote, ‘just gettin’ down there and looking at the darn thing’ runs contrary to the Dodge corporate zeitgeist …”

Something like that. 2 hours later, on our third trip taking the car in over the last 5 days, it seems they might have fixed it. Tricksy, tricksy oil filter seals!

So I got two relaxing hours during which I could check the time every 90 seconds or so and email work that I’d be in late. But even beyond such highlights, which would certainly headline most days, I got to watch about 15 minutes of broadcast news. That I did not promptly kill myself is a testament to my dread of the loss of the joys of heaven and of the pains of hell. After that more than sufficient dose of state-of-the-art intelligence-lowering treatment, I took a walk.

First up, the talking heads went on about the outrage over the killing of that gorilla who made the fatal mistake of having a small child fall into its enclosure. People who have seen way too many movies featuring dramatic rescues are aghast that the zoo, whose primary obligation is to the safety of the *people* visiting, ended up having to shoot and kill the majestic animal.

And it is sad. Not nearly as sad as a small child being ripped or bitten in half, or having his head torn off – things a mature gorilla is entirely capable of doing. So the zoo did the right thing, not having the Mission: Impossible squad or Scotty on the transporter handy to effect a rescue less fatal to the animal.

What made my brain hurt: the entire broadcast team and the experts they called in were obsessing over the *legal* obligations of the zoo. Not once in this 5 minute or so segment did anyone say: too bad we had to kill that gorilla, but, obviously, we had to save the boy, because, you know, the boy is a person and the gorilla is not.

The ongoing efforts to make law the sole arbiter of right and wrong proceeds apace. Rather than recognizing, as everyone before Oliver Wendell Holmes Jr. recognized, that the law is merely a better or worse reflection of a higher order of reality, we instead try to make law, whatever the judges may say it is, to *be* that highest standard.

• Your personal rights are whatever the judges say the law says they are.(1)
• The family is not the fundamental unit upon which all societies are built, but just another legal entity – the family is whatever the judges say the law says it is.
• Human life is whatever the judges say the law says it is, and has whatever value the judges assign to it.

And so on. But we were just getting warmed up. Next came election coverage. I tend to avoid all election coverage because I don’t want to test the limits of my dread of the loss of the joys of heaven, so it has been a while.

In the first segment, the reporter interviewed some Democratic party operative. It was hard to tell which was which, not that it mattered. The first problem: Bernie will not go away and let Hillary be president, even though it her turn! One of the people on screen made sure to let us know that, of course Hillary supports Bernie’s right to keep running just as long as he’d like, provided only that he face reality eventually and support Hillary. Because the big thing,  now that a new standard has been set for rule by presidential fiat, is that we don’t let Trump be president. They didn’t actually say that penultimate part, probably because it’s not in the plans for anybody not on the right team to use all those new presidential powers Obama kept finding under his pillow, left there by the presidential powers fairy. And we don’t want to alienate potential voters.

The second problem is that this whole State Department email thing just won’t go away. They both – the reporter and the operative – really, really just want it to go away, but, darn it all, stuff keeps coming up if they leave any air- or mind-space for it, so they have to say something. What they said was that Colin Powell and Condoleezza Rice also sent email from their personal accounts, and that rules are really unclear, and that, sure, mistakes were made, but everything is cool now, so JUST SHUT UP. (That bold faced stuff was just implied by the context.)

If one of the people on the screen could be said to be in some sense a reporter, it is interesting to note that she raised no objections or even any questions at all about these claims. They were let stand as if beyond question. I bet she got ‘A’s in journalism school. No discussion of what it was, exactly, that Powell and Rice did, and, more important, if they should then have cells adjoining Hillary’s. There are no sunlit lands above, Puddleglum.

This, for me, is step one in fighting off the eternal Gell-Mann amnesia effect (2), where you hear something you know by personal experience is simply untrue, yet reported as if it’s just plain fact. Like anyone who works with high-tech or financial institutions, I’ve run into security requirements. Dodd-Frank, which Hillary supports and thinks doesn’t go far enough(3), imposes massive new information-gathering and reporting requirements on financial institutions, while at the same time broadening the definition of what kind of institutions fall under its purview.

In the modern world, anyone with a job where they touch either intellectual property or confidential personal or corporate data has it beaten into them that they must do that work on a secure corporate machine, using the corporate network behind a firewall. It’s not like the bank or software house wants you to spend a second asking yourself if what you’re working on is important or not – if it’s work, it’s on the corporate servers and behind the corporate firewalls. And don’t imagine we don’t have multiple back-up copies for everything you’ve ever done – we do, stored both locally and off-site, because we want the records if we ever get sued.

Period. No nuance.So easy to understand that millions of gesers like me and Gen-Xers get it. The government rules are the same – official communications are government records, to be communicated and stored via approved government processes and channels.

The very idea that a senior official in government, a lawyer to boot, is to be presumed to not get this is beyond stupid. Just casually start doing business through my own private network outside the firewall? No back-ups? This is even before the interesting phenomenon that getting a Hillary email is the most destructive virus ever devised – why, your system will just DIE and all your data be lost!! Wierd.

This is so preposterously stupid and manifestly dishonest that it should inoculate me against Gell-Mann Amnesia for the rest of my life.

Finally, they got around to beating up reporting on Trump. They can’t spare a few seconds of airtime to question the laughably stupid claims about Hillary’s emails that, in more enlightened times, would be intended to keep her from facing a firing squad. But they got plenty of time to investigate where Trump donated money. Because, I suppose, traitorously criminal behavior by a high-ranking government official who now wants to be president doesn’t sell airtime.

Right after we eliminate compulsory public schools and federally-funded colleges and universities, establishing a free press would be nice.

1. A hundred years ago, Woodrow Wilson, that titan of progressive enlightenment, found the time in his busy schedule (what with segregating blacks out of the federal government, supporting eugenics, and getting us into a world war he’d promised repeatedly to keep us out of) to opine that the constitution was obsolete. Now highbrow organs like the New Yorker promote this line of thinking, careful to assure us that it’s really just a tune-up. Right.
2. From the late Michael Crichton’s 2002 essay “Why Speculate?”Media carries with it a credibility that is totally undeserved. You have all experienced this, in what I call the Murray Gell-Mann Amnesia effect. (I call it by this name because I once discussed it with Murray Gell-Mann, and by dropping a famous name I imply greater importance to myself, and to the effect, than it would otherwise have.) Briefly stated, the Gell-Mann Amnesia effect works as follows. You open the newspaper to an article on some subject you know well. In Murray’s case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward-reversing cause and effect. I call these the “wet streets cause rain” stories. Paper’s full of them. In any case, you read with exasperation or amusement the multiple errors in a story-and then turn the page to national or international affairs, and read with renewed interest as if the rest of the newspaper was somehow more accurate about far-off Palestine than it was about the story you just read. You turn the page, and forget what you know. That is the Gell-Mann Amnesia effect. I’d point out it does not operate in other arenas of life. In ordinary life, if somebody consistently exaggerates or lies to you, you soon discount everything they say. In court, there is the legal doctrine of falsus in uno, falsus in omnibus, which means untruthful in one part, untruthful in all. But when it comes to the media, we believe against evidence that it is probably worth our time to read other parts of the paper. When, in fact, it almost certainly isn’t. The only possible explanation for our behavior is amnesia.
3. Like progress, one would also like to know, not merely that movement is taking place, but in what direction said movement is going. It’s not that Dodd-Frank doesn’t go far enough, it’s that it doesn’t go at all in the right direction. Smaller specialty finance companies and banks, who played no part in the meltdown, are now having to gather more customer information, which must then be kept confidential, and report on it, which requires investment in systems and people to do the reporting. These are non-trivial expenses, to be borne by those who had nothing to do with the collapse and stand no chance of causing another one. Meanwhile, Goldman Sachs, which actually did play a part in the financial collapse and is as perfectly positioned to profit from the next meltdown as they did from the last, gets to do whatever they want, at least insofar as new regulation is concerned. They supply all the upper management at the US Treasury – out of the patriotic goodness of their hearts, no doubt.

School and Bank Buildings as Marketing

Was struck this morning by how similar old school and bank buildings tend to be. The builders, like all popular artists of the day, wanted to communicate something. Here we look at what that something is.

Here is a not atypical high school building built in California the 1920s and still in use:

“Santa Rosa High School, July 08” by Wulfnoth of English Wikipedia – self-taken photo by the author. Licensed under Public Domain via Commons – http://tinyurl.com/qggwdbv

This is a fairly lovely building (it’s got gargoyles! Too small to see here) built in what was at the time a very rural area about a couple hours north of San Francisco. The marketing messages are: permanence, importance, and wealth. You don’t throw on all the frills and extras unless you’ve got money to spare. Less obvious messages, perhaps, are Tradition – the building reminds one of many noble civic and commercial buildings – and Beauty/Civic Pride – it’s a nice building, especially for a town full of farmers.

These are very important messages to everyone concerned: Parents get the message that they are doing a noble and good thing to hand their kids over to be educated here; teachers are made to feel a part of a noble (and well-funded) effort to make things better, and students should be just a little cowed to go to school in a building much nicer than their homes in almost every case. Perhaps the hope is that they will therefore behave better? 

Student Debt: A Nihilist Speaks

This was making the rounds: Why I Defaulted on My Student Loans. In it, a writer with a master’s degree from Columbia absolves himself from having to repay his student loans.

Here’s a little something I wrote about student loans and other bank subsidies. One might think I’d be more sympathetic with Mr. Siegel, since I agree with him that student loans are a racket. But self-identified nihilists have voted themselves out of the pool – by their own standards, my sympathy would mean nothing. Therefore, I look only at the destructive nature of his attitude – not the default itself, a relatively minor thing, but his petulant sense of entitlement and superiority. What, I wonder, would this man not do to feed his delicate yet zeppelin-like ego? He forgives himself for lying to the banks he borrowed money from, and advises credit card fraud as a viable economic strategy, with little more than a condescending wave of the hand. He follows that up with a smug dismissal of any concerns that universal adoption of his recommended behaviors would cause economic and social chaos. And, unsurprising, he was caught sock-puppetting (is that a word?) his own blog at The New Republic and suspended, but, of course, he’s a fully accredited member of the intelligentsia with a master’s from Columbia he paid for with stolen money, so he gets a pass. Such concerns are beneath the parasitic yet special snowflake we have before us.

See, the moral nicety here is this: that student loans and college tuition are a mutually supporting racket does not provide a presumptive excuse for behaving dishonorably, if, in fact, honor has anything to do with it. Which, for a nihilist, would be a stupid claim to make. But if you did care about honor, you’d have to make a better argument as to why it was OK to steal the Ferrari than you really wanted a Ferrari and deserved it more than the guy who had it (how does one deserve anything besides death and eternal obscurity in a nihilistic universe, anyway? There I go again, expecting a little logical consistency). State U was just so plebeian, and besides, you won’t make the kind of contacts you need at State U to get a job at the New Republic and a pass on lying to and abusing your readers – you know, your employer’s customers.

The most interesting thing about all this to me is the combination of nihilism and narcissism. I suppose in a universe devoid of meaning, you’d just as well be a narcissist as anything else. But at first blush it does seem odd that his narcissism would lead him to write an essay bound to provoke a backlash from, oh, tax-payers, people who pay their debts, people who went to State U, people who didn’t get to go to even State U, baby-popping primitives who don’t even care about the difference between Columbia and State U – you know, all the people it’s perfectly say to insult nowadays. But then again,.what good is being a special snowflake if you can’t laugh at the yokels?

Enough. This man’s name is Legion, and, except for the threat to sanity that his views contain, would be so tedious and yawn-worthy as to make TV look good. Instead, I wondered: is there any relationship in the real world between getting a degree from Columbia and being a good writer? Fortunately, it seems somebody from Columbia is working Wikipedia, which contains long lists of Important People who took classes there.

I was frankly surprised at the number of authors on the list I recognized. Isaac Azimov, Joseph Heller, Upton Sinclair, Hunter Thompson, James Blish, Paul Gallico (Poseidon Adventure – recognized the book, not the author), Langston Hughes, Jack Kerouac, Ursula K. Le Guin, Kate Millett, J. D. Salinger, Robert Silverberg, Mark Van Doren (Great Books guy!), Eudora Welty, Herman Wouk, and Roger Zelazny. And a couple sportswriters, too, although I don’t know how proudly a writing graduate school would embrace them.

Some observations about this list: First, I’m unlikely to know many authors from the last 50 years or so – I don’t keep up with modern literature at all – got better things to read. I’m well aware that means I’ve probably missed so really good stuff, but the needle in a haystack nature of the search coupled with not reading something else makes that a decision I’ll live with. Second, speculative fiction is especially well-represented. Third, despite his high and lonely calling to writer-hood, Siegel isn’t on the list. I’m sure he’ll make the proper authorities aware of this tragic omission.

Started to take a look at the connections these writers had to Columbia, and it was interesting. These observations are not scientific or exhaustive by any means – I got bored. But of the ones I did check or knew about: Most of them did not get a degree in English or writing. Some, like Azimov, took degrees in other fields; others, like Upton Sinclair, dropped out; Hunter Thompson audited a couple courses. Of the ones who did get degrees in English or writing, Communists and other idiots are well-represented. Then there’s Kate Millet, for crying out loud.

Compare this list with a list of great writers who did little if any college, let alone high prestige schools that cost hundreds of thousands of dollars to attend.  Elite colleges are all about making connections. Why the education of a George W Bush is dismissed because he went to elite colleges to make connections, while a Siegel is expecting his misbehavior in pursuing such connections to be brushed away as necessary is a subject for further contemplation.

A Little Math Game: Income Inequality

Some of us routinely, habitually, compulsively do a little math when economic proposals are made. It seems most people, however, are uninterested or incapable of such activities, proving, if we needed proof, that our schools are performing exactly as designed.*

Here we address just the math & economics side of ‘income inequality’.The real issue is philosophic and moral, but that deserves a longer exposition and will have to wait until another day. For now, I note that there are some slippery concepts behind ‘income inequality’, going under the terms ‘fair’ and ‘justice’, that refuse to be defined, or, often, refuse to stick to one definition and play the logic out to the end. Of course, people of good will want everybody to be happy; of course it necessary to have some level of stuff to be happy for all but the most ascetic saints. But it’s a much different argument to say that my not having something somebody else does have – more income, for example – is, in and of itself, a cause of unhappiness, or ‘unfair’ or ‘injustice’. If it were, then my being shorter or less good at math or less physically attractive or female or black or old or just about anything could be seen as unfair or unjust – and we can see where that road leads.

No, while it is certainly the case that those who have much *may* be guilty of greed and pride, it is certainly the case that those who are unhappy merely because somebody has more than they do are guilty of envy. If one has enough food, a safe place to sleep, decent clothes, and enough security to enjoy the fellowship of family and friends, one has enough to be as happy as life in this world allows. The greatest unhappiness I’ve personally come across in my life is sometimes accompanied by poverty, which, in the country, mostly means insecurity – financial, physical – not lack of stuff, but is always accompanied by broken relationships. Maybe we need to love each other first, get to know each other, be there for each other, rather than worrying about who drives a Mercedes and who takes the bus?

Enough. Let’s take a brief look at the economics:

Any money that is used to address income inequality comes from someplace. The most popular idea is to take it from ‘the rich’, which, in practical terms, is defined as ‘anybody who has more money than I do’. ** For this exercise, however, we’ll look at corporate profits – a pretty good stand in, since most of the wealth of the truly wealthy comes from owning businesses.

So, for fun – what if we had a billion dollars with which to address ‘income inequality’? If we focused on the U.S., that would come to a little over $3 per person: $1,000,000,000 / 318,000,000 = $3.15. But, clearly, the people at the top don’t need the extra 3 buck. If we aimed to lift up only the bottom half of the country, we could give a whole $6.30 to each man, woman and child in economic bottom half (however that is defined).

But wait – that’s not what we mean! We want to give everybody in the lower half some real help here, not the price of a short latte and cookie. What about all those corporate profits?

in 2013, corporate profits in the US came to $1.68 trillion. If we gave all of those profits to each person in the bottom half of the US in terms of income, we’d give them each $10,584.

Not bad. A family of 4 in the lower half of income would be up $42K – at least until the wage earners got laid off.

Let’s say you have a retirement fund or 401(k) – even some people in the lower half of income have those. Well, the managers of those retirement and 401(k) funds will all pull their money out of the US economy as fast as they possibly can – and you, the fund beneficiary, would fire them if they didn’t – because the value of their US company holdings would promptly crater, and the value of your retirement fund and 401(k) would promptly approach zero insofar as they are made up of stocks and bonds in companies that don’t make money. Nobody wants to own a company with no profits and no prospects of profits in the future.

OK, too extreme. Let’s say instead, that we seize only another 10% of corporate profits (the government currently takes about 22% in taxes; raising the corporate tax rate to about 30% achieves this). Now we’re able to redirect $168 billion to the bottom 50% – $1,058 per man, woman and child. Not bad, but not earth-shakingly good, either – you can burn a grand so easily now days, it’s unlikely to change your life except briefly and marginally. But, hey – wealth inequality has been reduced.

Tax burden expressed symbolically

Two consequences of this move. First, investment dollars (your 401(k), for example) will move away from the more highly taxed, and therefore less profitable, companies toward instruments (fancy word for things you can invest in) that look to have better returns. One thing this means is that it will become more expensive for those companies to raise money for ongoing operations and new projects (that might employ more people). So – and this part seem really hard for people to grasp for some reasons – economic activity, part of which is paying workers, will tend strongly to decrease.

Think of it as hiking up a hill: everything that weighs anything that I have to carry up the hill slows me down and tends to take the fun out of it and discourages me from even trying. If I like hiking, I might do it anyway even if I have to carry a brick with me; if I have to carry a couple cinder blocks, I might reduce the number or length of the trips, or give up entirely. And carrying anything heavy will slow me down regardless of how I feel about it.

So, say we really want a DMV office on the top of that hill, and believe businesses should carry the bricks and cinder blocks up for us, since they are going that way anyway.  And the businesses might agree, even. But, eventually, it gets old – especially if the people making the demands don’t even know what it’s like to carry blocks up a hill.

Analogy strained beyond its carrying capacity.

Second, and here’s another thing where the common understanding is curiously baffling, businesses will look for ways of doing business that generate fewer taxable dollars.  This gets called ‘tax evasion’ even when it is a perfectly reasonable and legal response to a disincentive. Just like you or me, if we’re deciding between two options and one is cheaper to us than the other, businesses will give a hard look at seeing if they can get by doing stuff that costs them less. For example, at $1 a gallon for gas, I might like the Prius but not get it; but a $4 a gallon (and thousands of dollars in tax breaks and incentives) it looks a lot better. If I choose a Prius under those conditions, am I guilty of tax evasion, since I’m paying much less gas tax than if I bought the Land Rover?

Thus, the people I work for invest in creating leasing companies, because the tax laws favor owning equipment over other types of investments. Is it good that a company whose bread and butter is insurance or tech hardware would want to get into finance instead of investing in what they are already good at? I don’t know, but I do know that taxes are a major driver in this decision.**

The net result of all this is that taxable corporate profits will be less than they would have been had the tax rate not been raised, just like taxable corporate profits are reduced when you buy a Prius (you didn’t know that’s how it works? Somebody somewhere is paying for those subsidies – and trying to figure out a way to reduce their bill.). Profits may still be good; they may still even go up – but they will be less, as companies continue their endless battles to control costs. Taxes are a cost

OK, so our hypothetical family of 4 gets an additional $4,200 per year, based on taking 10% of 2013 total corporate profits and redistributing it to the bottom half of people, however determined. Corporations will give even more attention to seeing how they could reduce expenses.

It just so happens that one of the top expense for most corporations is people. So, by reducing profits through taxation, we would reduce, among other things, the ability of corporations to hire and pay people. Now, we can pout about this, or even convince ourselves that it’s WRONG for corporations to, for example, lay people off when faced with reduced profits – we may even try to enact laws to make it hard to lay people off (we already have – Europe has gone much farther, which is why they have much higher and more permanent unemployment that we do).

But the real price, the one almost universally ignored, is the drag on people who might otherwise want to start or expand their businesses – little companies and big. If you make it harder to pay people or to fire them, you discourage hiring by the guys tinkering in the garage, the dudes mowing lawns and cleaning office buildings, the plumber and car repair people, as well as the Walmarts and the GEs.

They don’t behave like this because they’re evil – business people are no more or less evil than anybody else, in my experience – but because they do the math.

* The only mystery: how did any of us sneak through without hating math? No doubt efforts are underway to fix that systemic flaw – any new educational proposals out there that would dull our minds and crush initiative? That’s what I’m talking about.

** One of the ideas I’ve tried to beat to death here on this blog is the notions that the rich are people with high incomes. Nope – if you are relying on income for your daily needs, you’re a piker. If you need an example, look at your typical professional athlete or lottery winner – huge amounts of income, often, but more often than not, they are broke again within a few years. Meanwhile, how many generations of Rockefellers and Carnegies are still living in big houses at the ends of long drives, more than a century after their forebears assembled their original fortunes? Nope, wealth is owning stuff that produces money. It takes a lot of income and steely resolve to reach that point for us working stiffs. It can be done – it just isn’t, for the most part.

*** This is what is meant by market distortion: instead of people doing business based on what other people want to pay for, they do business in such a way as to best avoid or take advantage of government policies. This could be good, or it could be bad – but it is inevitable once pressure (taxes, regulations, whatever) are applied to buying, selling and making stuff.  What I’m primarily against is pretending it doesn’t happen – or that we understand in advance exactly how it will shake out.  Unintended consequences and all that.