Terrorism: As Dangerous As A Tornado?

Posted on January 11, 2010 | 2 comments

The Wall Street Journal this weekend ran a very interesting article about terrorism, and how incredibly unlikely it is for an American to die in a terrorist attack, and how Americans should maybe toughen up and look at the numbers instead of spending billions of dollars and millions of hours taking off their shoes at airports to prevent something that is statistically rare. The main article is here, and the sidebar that runs the numbers in detail (by Nate Silver!) is here.

The chance of an American dying in a terrorist attack is 1 in 3,000,000, or about the same as being killed by a tornado. Every day, 50 Americans are murdered, but we certainly aren’t spending the time and money to prevent those deaths that we are spending on the much less deadly terrorism. Obviously, this is a complicated issue that can’t be decided purely on statistics, but the point that we are maybe not focusing on the right things, and that we are maybe giving the terrorists a bigger psychic role than they deserve, is a good one.

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Posted in Politics, Pop culture, Trends

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Politicians Should Start Their Careers Outside Politics

Posted on January 11, 2010 | 3 comments

I was reading recently about Senator Byron Dorgan’s retirement, and the article claimed that he had been in politics for 40 years. I looked up his biography on his official site and on Wikipedia, and both confirmed the 40 year figure. Dorgan worked in business for 2-3 years, and then became State Tax Commissioner at age 26, and has been an elected official ever since.

Then this weekend’s NY Times magazine had a long piece on the GOP’s moderate vs. Tea Party battle, as personified by the race in Florida between Charlie Crist and Marco Rubio. It turns out that Rubio has never done anything but hold elective office, serving as a West Miami city commissioner right out of law school.

Dorgan and Rubio might be great legislators — I don’t know enough about either of them to judge — but doesn’t it seem like we should want our politicians to have lived in the real world? Think of all the things we regular folks have to do: hunt for jobs, worry about insurance, cooperate with coworkers we hate, shop for cars, get things done at work, etc. Career politicians don’t have to do any of that stuff. They never need to execute and accomplish, and they get rewarded for being obstinate. They stop worrying about money, since they get to pay their family as “consultants” out of campaign funds. And they have staff to take care of life’s little details.

I’m not expecting our politicians to follow the lead of Cincinnatus, who left his farm to run Rome, and then returned to his farm. But maybe some experience in the real world, not the political world, would get our legislators to work — WORK — on policy, instead of spending all their time posturing and campaigning.

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Blame Copenhagen Failure on China?

Posted on December 23, 2009 | Leave a comment

Hell, I don’t know; I wasn’t there. But this author was there, and he places blame squarely at China’s feet, with some help from India.

Check it out in the Guardian.

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Financial Regulation Does Not Hinder Growth

Posted on December 17, 2009 | 1 comment

David Wessel of the Wall Street Journal wrote a column today in which he proposes that the US has to choose between economic stability and economic growth. I am usually on board with Wessel, who does not follow the Journal’s usual slash and burn libertarianism, but in this case I think he’s wrong. His dichotomy is false.

The regulation that Wessel is discussing is financial regulation to curb the boom and bust cycle that we have just lived through. He asks whether “wise government rule to prevent market excesses” would also prevent the dynamic innovation that fuels economic growth. I answer emphatically NO.

As I noted yesterday, financial innovation is unrelated to business innovation. In yesterday’s post, I pointed out that the companies driving recent growth – the Googles of the world – have not depending on the innovations coming out of Wall Street. But today I will go even further. Between World War II and the S&L crisis, we had a long period of mostly financial stability, without the crises we’ve seen since then, and with a regulatory regime that had general consensus on Wall Street and in Washington. That long period of stability didn’t hinder economic growth; in fact, as the graph below shows it was one of the greatest growth periods in our nation.  Notice how much higher the growth is (the red lines) before the S&L crisis in the mid-1980’s.

Growth in GDP

Growth in GDP after WWII

I would argue that not only did financial stability and economic growth coexist during this period, but that the stability was actually helping the growth. After all, it’s a lot easier for companies to plan and budget if the financial markets are not booming and busting. And potential entrepreneurs are more likely to take the leap and start a new business if they aren’t worried about their retirement savings disappearing in a Wall Street flame-out.

So let’s not worry about financial regulation slowing down growth. Let’s focus on smart regulation that will spur growth.

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Posted in Business, Politics

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Paul Volcker on Financial Regulation

Posted on December 16, 2009 | Leave a comment

Speaking of reasonable voices when it comes to financial regulation (see my post below), Paul Volcker is coming out strong for a much more rigorous set of regulations. Volcker ran the Federal Reserve before Alan Greenspan, and was considered a guru while Greenspan was still ladling Ayn Rand’s soup on Saturday nights.

Here is a link to an interview Volcker gave to the WSJ, and here is a link to a New Republic article by Simon Johnson about that interview.

The money quote from Volcker: “I have found very little evidence that vast amounts of innovation in financial markets in recent years have had a visible effect on the productivity of the economy.”

Again, that is a voice of reason. We all agree that capital markets are important to the economy, and that some financial innovation is a good thing. For example, developing ways for big companies to hedge their raw materials risks can help the economy. But developing ever more complicated derivatives and securities which are backed by securities which are backed by securities which are backed by assets?  How do those innovations help the economy?

This last point is the one that puts the lie to free market ideologues. They say that financial innovation is key to fueling the American economy. But financial innovation has nothing to do with the economy outside of Wall Street. Think about the great engines of American growth that these ideologues love to mention: Wal-Mart, Apple, Home Depot, Google or Tommy Hilfiger. They all grew large and hired thousands of people without building their business on credit default swaps or mortgage backed securities. None of them care about the hundredth of a penny reduction in spread that dark pool trading creates. Real innovation in the American economy is disassociated with Wall Street. The only thing that Wall Street innovation drives is Wall Street pay packages.

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Reason & Financial Regulation

Posted on December 15, 2009 | 2 comments

National Affairs recently ran an article on financial markets and regulation that was the most clear-headed, non-ideological commentary I have seen. The author, Nicole Gelinas, makes five main points:

  1. Capital markets are important because they allocate a key resource (money!) among various projects and sources
  2. A free market of buyers and sellers, or lenders and borrowers, is the most efficient form of capital market
  3. Some regulation is essential to the smooth working of a free market
  4. This includes regulation of leverage, speculation and complicated instruments
  5. Explicit or implicit government guarantees (eg. too big to fail) distort the free market

But read the article yourself. It’s not long, and it’s awesome.

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Posted in Business, Politics

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Anger at Wall Street Grows

Posted on December 9, 2009 | 1 comment

Just a few links to articles showing how fed up folks are getting with Wall Street.

  • The NY Times with a column from a former corporate lawyer calling for a windfall profits tax on Goldman Sachs
  • Salon telling Wall Street to “just shut up” and advocating limits to lobbying by financial firms
  • A new regulatory manifesto by a fed up investment banker
  • And just for fun, an attack on private equity’s quest for capital gains tax treatment

It’s starting to look like enough people are fed up that something might happen. Of course, the financial industry has already spent $350 million this year on lobbying, setting a record, and we know that politicians listen to money more than they listen to voters.

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Vote The Bums Out

Posted on December 7, 2009 | 2 comments

The NY Times published an article yesterday about how congressmen are still taking fancy trips paid for by corporations, despite ethics rules passed in 2007 to prevent such trips. These congressmen aren’t breaking the rules, but rather exploiting loopholes to get around the rules. James Sensenbrenner, for example, the jowly representative from Wisconsin’s 5th District, took a $15,000 trip to the Alps this year, with his wife, paid for by a “non-profit” funded by Deutsche Bank, Lufthansa and other European corporations.

I would like to think that Congress might tighten up the rules to close the loopholes, but expecting Congress to police itself is like expecting Thierry Henry to report his own soccer violations. So we, the voters, have to do the police work. Regular readers of Thoughtbasket know that I regularly exhort citizens to stay informed and vote accordingly. So members of Wisconsin’s 5th District, living in the lovely Northwestern suburbs of Milwaukee, likely Brewers fans and bratwurst lovers, if you would prefer your congressman to pay attention to your needs, instead of to the needs of large German companies, then vote out James Sensenbrenner. Find a Republican who cares more about grain elevators than about Teutonic castles, who would rather tour a dairy farm than a prince’s castle.  If your congressman does not truly represent you, find one who will.

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A Quick Thought on the Afghan Decision

Posted on December 2, 2009 | 3 comments

One of the criticisms of Obama’s Afghan plan is that he announced a target withdrawal date. To his critics, that commitment to withdrawal (although it seems like a loose commitment) gives the Taliban strength by telling them they only need to wait it out for a couple of years. John McCain said “The way you win wars is to break the will of the enemy, not announce when you are leaving.” I don’t want to completely reject this view, because the tribes in Afghanistan have historically taken the long view, and 2 years is not long. But on the other hand, it’s not as if staying longer will necessarily help.

McCain views this as a traditional war, which it’s not. Al Qaeda and the extreme Taliban are religious nutjobs; we will never break their will, no matter what we do. But we can turn the moderate Taliban, and we can give the Taliban limited room to operate, by getting the average Afghan (Gul the Plumber?) on our side. And the best way to get them on our side? Give them security and then get the hell out of their country. Get their government to step up and provide services. A surge with a limit is a good way to do those things. It provides some security, it tells the Afghan government that it needs to get its act together, and it tells a people who hate occupiers that we don’t plan to occupy them. The marginalization of the Taliban that should come from all this will, I think, outweigh any psychic benefit that the hard core Taliban will get from an announced withdrawal.

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Short Links Getting Safer

Posted on November 30, 2009 | 1 comment

I am always hesitant to click on those shortened links that Bit.ly and TinyURL produce, because who knows what sort of Russian porn-gambling site they might lead you to? As if I need the NSA crawling over me any more than they already are.

But today TechCrunch reports that Bit.ly at least is teaming up with three anti-spam services to help make their short links safer. TinyURL will likely have to pursue similar efforts or they will quickly lose market share. So link away, my Twittering friends.

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Posted in Business, Technology

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