Yodelling Llama

Heard Michael Pollan on “All Things Considered” yesterday, attempting to explain (part of) the rise in health care expenditures by reference to changes in diet. His concern is that whether we stick with the current health care system or move to another system, if we don’t address the root causes, we’re going to continue down the path toward a bankrupt system in the long term. I agree: we need to address root causes. And I’ll take as read that changes in diet is a significant factor.

Pollan noted with disdain the agriculture subsidies that make, e.g., corn production plentiful, and thereby cause Type II diabetes, heart disease, and other diet-related medical conditions. But then he goes farther, championing policy changes that require e.g. food stamp monies to be spent partially at farmer’s markets, and requiring health insurance providers to pay for preventative care. Government knowns best sorts of solutions.

But what about ending agriculture subsidies? Even the most ardent liberty-lovers among us can support that sort of change, right? Why not start with that and see what it gets us? If people stop eating McDonalds hamburgers, Coca-Cola, Pop Tarts with such volume, and the overall expenditures on health care go down on a per capita basis to mirror, say, Europe, isn’t that enough?

Can anyone tell me what Hudson and I meant when we suggested we ought to advocate the “Netflix model of immigration” in the reform movement? And why we thought Obama would find it obvious?

For all the uproar over the AIG bonuses–the classism, the waste of tax dollars, the obliviousness of the banking industry, the contract law questions–what seems to be lurking around the edges is a very strong worry that financial experts don’t know squat. Observe: AIG executives are arguing not only are they contractually obligated to pay the bonuses, they’re arguing that retention bonuses have to be paid in order to fix AIG. Now, I haven’t seen the contracts, but I’m pretty sure no employer would sign anything that pays retention bonuses that doesn’t have a “for cause” firing exception. AIG can take the guys that signed off on the derivatives and whatnot, look at their work performance over the last year, and fire their asses. No bonuses.

Why don’t they? Because they’re under the impression that the folks that got AIG into this mess are the most qualified to get AIG out of this mess. I’ve heard this same sentiment echoed in other arenas–that we shouldn’t let a lot of investment banks fail because too many financially savvy individuals would be out of work and may leave the industry, or we ought to be hiring regulators from the financial industry because they’ll be in a better position to understand how it works.

But I’m not convinced. In fact, after reading (e.g. “Recipe for Disaster: The Formula That Killed Wall Street“) about how the financial industry works, I’m reasonably convinced these clowns have no fucking clue what they’re doing.

A qualifier: there are financial transactions–like mortgages and bonds–that most laypersons can, if they choose to, understand. Because they are, at their heart, loans. They’re “I’ll give you money today if you promise you give me more money tomorrow” transactions. They make sense. Yes, there are a lot of complications tacked on, mostly to ensure that your promise to pay more money tomorrow is not illusory, and that even if you renege, there’s some recourse. But at the core, these are loans.

But most securities–even things that have been around for centuries, like stocks–are a goddamned joke. There’s no expertise. There’s only a whisper of a relationship between the soundness of the company and the stock price. Indeed, our entire regulatory system is premised on the idea that stock prices are by their very nature accurate. That the company really is worth its market cap. Of course, the underlying assumption of that is that everyone knows everything. Which means we regulate trades where someone knows more than the rest of us.

What that means is securities trading consists of (a) transactions between people of equal relevant knowledge, i.e. gambling, and (b) transactions between those in the know and those not.

Many trades are between people in the know, the so-called financial experts. These people are gambling with other people’s money. This is what happens when your mutual fund company buys or sells a bunch of stock. It’s moving money around without a basis, and for that the mutual fund manager gets a cut.

Other trades are between people of disparate knowledge. That could mean insider trading, which is a big no no in the publicly traded arena, but is regularly practiced with private sales. The “I know about my business than you, and I’m going to conveniently leave out some bad facts to convince you to pay a higher price for a piece of my business than it’s worth” transaction. It could also be the outsider trading, the “I researched the situation heavily, and I don’t think you did, either because you don’t have the access I have, or you simply are too lazy to do your homework” transaction. [This second one is the one Jim Cramer champions.]

But here’s the thing: I’m pretty convinced the insiders and outsiders-with-research are inept at valuation. The insider or the outsider-with-research may think he’s pulling a fast one on the ignorant outsider buyer by inflating the share price…but what determines the share price? How much is the company worth? What sort of factors have to be considered to even begin to answer that question? Is there any good way of doing it? I submit the answer is no. There are too many unknowns. Too many variables.

It isn’t that you don’t get a somewhat predictable market reaction, or that securities are a bad investment. It’s just that they’re not based upon anything real. Or, more to the point, they’re not based upon anything predictable in the long term. And because they’re not based on anything predictable, all the extra knowledge an insider or an outsider-with-research may have doesn’t amount to anything substantive. It’s all still gambling.

So my point is: fire the assholes who fucked up the economy. Deny them their retention bonuses. Then hire some new guys without any experience on the cheap. It’ll work out the same either way. And at least the second way you’re not throwing so much good money after bad.

Listened to the not-the-State-of-the-Union this evening. Impressed that Obama seems to be ready to take on big agribusiness; less impressed with the couching. Pleased the budget cutting seems to be reaching the multi-trillion dollar mark; less pleased it only gets there when measured in decades. Interested to see a significant portion of the cutting appears to be hitting the military; interested also to see the absence of savings in the domestic defense (i.e. criminal justice system) arena. Seriously: when are we going to see recreational drugs legalized as a cost saving measure?

But what really caught my ear was the education chatter. The “no more high school drop outs” mantra seems a little done before, and especially ineffectual given the Feds role in high school education. [Aside: why do we still allow dropping out as a viable option? Why is that okay? Why isn't a seventeen year old who decides not to attend high school punished in some manner, same as a fifteen year old?] [Aside aside: why do we punish children and parents for truancy so harshly and stupidly? Why not simply remove the privilege of legal recreational drugs from non-high school graduates?] But the “everyone should get at least an extra year of post-high school school” was pretty cool. And the suggestion that a dumptruck full of money is about to create all sorts of graduate students is exactly what I think may cure the ailing economy, long term.

I expect graduate students–what with their well-edumacated minds, their willingness to work for peanuts, and their tendency to chip away at longstanding science-related problems–to absolutely reinvigorate the economy, especially over time. The degree bearers will do wonderful things in the workforce in the coming decades. The research products will help enhance or develop existing industries and create new ones too. And in the short term, we have a number of individuals working on the relative cheap, but not free. Pumping money quickly into the economy, right? It’s really not that different than construction. Relatively cheap job creation today, with lasting benefits tomorrow. Double duty. Much better than a stimulus check.

Rah, rah Obama!

Feels pretty good to write that. So good, I might mosey on down to The Vault and raise a glass.

With all the talk recently about bailouts and major government spending packages, I’m reminded of a scene in Primary Colors where Jack Stanton is confronted during a debate for seeming to support everyone’s proposals with a “What, if anything, are you against?” attack. Candidate Stanton’s response is to say he’s against “doing nothing” when someone is suffering.

Although I can appreciate the desire to help, I cannot understand how seemingly intelligent politicians routinely fail to take into account collateral effects when deciding policy. For example, President-elect Obama has suggested a tax credit of some sort would be offered to businesses who make new hires. Aside from all the practical concerns (e.g. how do we ensure those jobs continue to exist for a lengthy enough period of time? how do we prevent companies already planning to hire from soaking up the bulk of the subsidy?), there’s a more fundamental problem with this sort of policy decision: we don’t really have any idea what sort of net effect this path will have on the economy overall. If the plan works exactly as intended, do the new jobs offset the reduction in tax revenue, including the tax revenue attributed to earnings made by individuals paid by the salary of those workers hired under the plan? Do the new jobs take otherwise skilled employees out of the job hunting set, resulting in lower productivity down the line because they’re tied up in a less-than-ideal position? Does the cost of the subsidy, because it will be paid with debt, really look reasonable against the benefits within a reasonable timeframe?

Can you imagine a politician, in response to a particular crisis, responding to a “what do you plan to do about it?” question with “I’ve examined the various courses of action recommended to me by the experts, and have decided the likely benefit of each course of action is outweighed by the likely cost of each course of action, and therefore I’m planning to do nothing” about the crisis? The media would eat him alive, with a “I’m planning to do nothing” pull quote.

What I would love to see is a serious exploration of the “nothing” option for every major decision. Wouldn’t you?

I’m pretty sure the Tamil Tigers, a group of millitant separatists in the island nation of Sri Lanka, have less support in the English-speaking world because their name sounds hokey and harmless. You’d think combining a dangerous predator with the name of the language and culture that defines the separatists would work out to evoke seriousness and fear. But instead, it sort of reminds me of a minor league baseball mascot. Rather than capture something like “Palestinian Scorpions” or “Basque Hawks,” “Tamil Tigers” seems reminiscent of Rhubarb the Reindeer. Perhaps it’s the alliteration. Perhaps it’s that for all their strength and carnivorous power, tigers are a little too cuddly, pretty, and endangered to take seriously. Not really sure why. But the Tamil Tigers may want to think of a different mascot. A mongoose perhaps?

Apparently, when elected officials take this civics test provided by the Intercollegiate Studies Institute, they score slightly worse than ordinary citizens. Should I be more appalled that ordinary citizens get 49% right, or that elected officials get 44%, or that I wasn’t able to get a perfect score? [I got three out of thirty-three wrong, for a 90.91% score--I forgot what subject the Lincoln-Douglass debates concerned, what a "public good" is, and, stupidly, the final question tripped me up with its phrasing.] I’m going with the elected officials number. How about you? What’s your score, and what number do you find of most concern?

There is a policy with the Mason County Sheriff’s Office that is, so far as I’ve been told, rather common: if you want to carry a Taser, you have to get tased first. The thought behind the policy is that if you’ve been tased before, you’re more likely to tase others only when necessary. Seems a sensible policy from that standpoint, no?

There are a number of contentious “interrogation techniques” used by government officials. Certain stress positions. Very loud ABBA on a loop. Naked human pyramids. Savage beatings. Water boarding. In addition to legitimate arguments about whether each interrogation technique is rightly considered torture, my thought is this: subject each interrogator to the technique before he’s permitted to employ it on others. If a CIA agent wants to simulate drowning on an individual suspected of having information about impending terrorist attack, he first has to be certified in using simulated drowning. And as part of that certification, in addition to training on how to employ it without causing permanent injury, that CIA agent would have to be subjected to simulated drowning himself. Perhaps we could even say a given agent is certified to use the technique no more than three times a day for no more than two minutes at a clip, because that’s what he’s had done to him.

Thoughts?