Monday, October 31, 2016

Why Comey Broke

"So, you're the little lady who started this great brouhaha."
--Director Denton Voyles (The Pelican Brief)

Several stories (e.g., here, here) support the theory that we previously highlighted as to why FBI Director James Comey was willing to reopen the case against Hillary Clinton at this point in time. Simply put, he was facing an internal rebellion from FBI agents who were disgusted with the way the original investigation was handled.

If Comey did not formally reopen the investigation, then he knew that rogue agents would likely leak the new information, thereby implicating Comey as obstructing justice--perhaps for the second time. It seems not outside of the realm of possibility that he could even be arrested after having testified several times under oath that all evidence pertinent to the investigation had been considered in the case.

Add to that the likelihood of an outright meltdown of the Bureau if he didn't act, and Comey's motives for acting seem straightforward. He did it to avoid even more blowback than he is currently absorbing.

Sunday, October 30, 2016

Improving Healthcare Markets

I'm looking for something I can't get
Broken hearts lie all around me
And I don't see an easy way
To get out of this
--Cutting Crew

Hans-Hermann Hoppe originally proposed these four steps to improve healthcare markets on the cusp of Obamacare approval. At that time, he noted that 'the US healthcare system is a mess.' Since then, it has predictably gotten messier, making his recommendations all the more contemporary.

1) Eliminate all licensing requirements for med schools, hospitals, and healthcare personnel. Licensing decreases healthcare supply and raises barriers to entry and entrepreneurial innovation. If buyers value licensing, then approaches will be developed voluntarily rather than forcibly. No mandatory licensing would also eliminate moral hazard among healthcare consumers and prod buyers to increase their search costs to make more discriminating healthcare choices.

2) Eliminate all government restrictions on production and sale of medicines and medical products. No more FDA. Costs and prices would fall, and more alternatives would enter the market. Sellers would be forced by consumers, rather than governments, to provide product information that buyers value.

3) Deregulate health insurance. Because many aspects of health are within an individual's control, they are uninsurable. Moreover, current laws force insurers to cover people who are poor insurance risks, which distorts the practice of risk pooling that makes insurance an economical endeavor. Deregulation means unrestricted freedom of contract--including capability of insurers to cross state lines for business--a practice that is currently forbidden by law.

4) Eliminate all government subsidies to the sick and unhealthy. ECON 101 tells us that subsidies create more of whatever behavior is being subsidized. Eliminating subsidies, including Medicare and Medicaid, would increase motivation to live healthy lives. It would also create markets for charitable giving and social entrepreneurship (e.g., friendly societies) that withered when voluntary cooperation was crowded out by government force.

Saturday, October 29, 2016


"People should not be afraid of their governments. Governments should be afraid of their people."
--V (V for Vendetta)

Yesterday afternoon news hit that the FBI will reopen its investigation into Hillary Clinton's email improprieties. Bureau Director James Comey sent letters to congressional leaders informing them that, based on new evidence that has surfaced in connection to an unrelated case (which appears to be the investigation of former congressman Anthony Weiner whose now estranged wife is a Clinton adviser), the FBI will take "appropriate investigative steps" to review the evidence and its pertinence to the case.

Theories as to why Comey is reopening the case, particularly with the presidential election less than two weeks away, range widely. One theory that personally resonates is that if Comey did not formally reopen the case, then disgruntled agents were going to leak the evidence, thereby forcing his hand.

There is even a theory that suggests Comey remains in the back pocket of the administration and is using this to temporarily distract public attention from the steady stream stream of Wikileaks documents that are increasingly weighing against the Clinton campaign.

It does seem apparent that potential for leaking information, whether is be from Wikileaks, the Bureau, or other sources, is driving bureaucrats to act in manners that are extremely out of the ordinary.

Stated differently, pushing closely held government information out into public view reduces State power and increases social power.

Friday, October 28, 2016

Supporting the Unsupportable

President Bennett: It's the old Potomac two-step, Jack.
Jack Ryan: Sorry, Mr President, I don't dance.
--Clear and Present Danger

Judge Nap follows up on yesterday's comments, observing that President Obama has lied directly to the American people, as evidenced in a March 2015 CBS interview, that he did not know about Hillary Clinton's use of a private server for classified government email exchange. Of course, he certainly never expected subsequent information leaks that would challenge his statements.

The judge also notes that information continues to leak from Bureau agents who are furious that Clinton was not prosecuted. "The evidence for indictment and for [Clinton's] prosecution was, remains, and continues to be overwhelming."

That so many individuals appear willing to vote for a person attached to such an evidence trail, not to mention continue their support for the current head of a lawless administration, is a telling reflection of our current state of affairs.

Thursday, October 27, 2016

FBI Sideways

There will be no isolation
In our secret separation
--The Fixx

Judge Nap recounts the backstory as we currently know it about the FBI investigation into Hillary Clinton. Some of the important dates on the timeline:

Spring 2015. FBI begins investigation into Clinton's use of private email server while serving as Secretary of State and her failure to preserve emails on State Dept servers contrary to federal law.

Summer 2015. After three months of evidence collection and initial interviews, FBI agents and senior managers meet and decide that there is enough evidence to suggest a prima-facie case for espionage, theft of government property, and obstruction of justice. A formal criminal investigation was therefore initiated.

January 2016. The senior FBI agent in charge of the investigation, John Giacalone, resigns from the case and retires from the FBI because he felt the case was going 'sideways'--Bureau-speak for 'going nowhere by design.' His motivation likely included the fact that DOJ and FBI management had decided that the investigation would not employ a federal grand jury. In criminal cases, federal grand juries are the only entities authorized to issue subpoenas for testimony and tangible things. Without a grand jury, Giacalone knew the investigation was toothless.

Spring 2016. It becomes evident to Giacalone's successors that the goal of the FBI was to exonerate Clinton--not to determine that there was enough evidence to indict her.

July 2. Clinton is interviewed following weeks of interviews with others in her inner circle. The interview lasts only four hours and, according to some FBI agents, lacked the aggression, passion, and determination by those conducting the interview that typically accompanies investigations at this level. At this point, several agents conclude similarly to their former boss John Giacolone: the case was going sideways.

July 4. A few frustrated agents contacted the NSA to obtain Hillary Clinton's medial records to verify the gravity of a head injury Clinton claimed limited her ability to recall things during her testimony. After preparing to necessary paperwork to access those records, the agents' request was denied by FBI Director James Comey himself.

July 5. One day after his denial, and in an apparent effort to head off further behind the scenes efforts by frustrated agents, Comey conducts his now famous press conference to announce that Clinton would not be indicted.

October 2016. Wikileaks documents indicate that President Barack Obama regularly communicated with Clinton via her private email server using a pseudonym. Many of these matters were classified. This means that Obama lied when he previously told CBS that he learned about Clinton's servers when the general public did.

This past week. More leaked documents indicate that Andrew McCabe, Giacalone's successor in the investigation and currently No. 3 man at the FBI, is married to a woman who received $675,000 in campaign funds from Clinton sources for a failed 2015 run for the Virginia Senate. James Comey apparently saw no conflict of interest or appearance of impropriety in having a person in charge of the Clinton investigation with that historical relationship.

While more information will hopefully come to light, the picture is already getting pretty clear.

Wednesday, October 26, 2016

Disrespect for the Past

Nathan Algren: What does it say?
Katsumoto: I belong to the warrior in whom the old ways have joined the new.
--The Last Samurai

Some people discount lessons learned in the past as old and out of date. Rather than being an extrapolation of past knowledge and innovation, progress, to these people, begins here and now.

One problem with this position is that it ignores that man has been mining for truth for thousands of years. People from previous generations have unearthed important nuggets that we can learn from. If we do not learn from them, then we must, as it is appropriately said, reinvent the wheel. Why should 'progress' involve having to relearn truths that our ancestors toiled to reveal?

In fact, productivity and the very progress that many of these people seek is bound to suffer as we waste time and other resources REgressing backward to previously trodden paths on the road to truth.

While it is certainly possible to get needlessly hung up in past actions and events, failing to apply truths discovered by our predecessors is wasteful. Considering the capacity of humans to learn by observing others, disrespect for the past amounts to consummate ignorance.

Tuesday, October 25, 2016

Politics and War

"War is a continuation of politics by other means--von Clausewitz."
--Captain Frank Ramsey (Crimson Tide)

Nineteenth century military theorist Carl von Clausewitz famously posited that "war is not merely an act of policy but a true political instrument, a continuation of political intercourse carried on with other means." (1976)

Jeff Tucker suggests that rearranging the general's thoughts results in another true proposition: politics is the continuation of warfare by other means.

Politics can be seen as the process of gaining control of the strong arm of government for personal purposes. Politically charged environments therefore crowd out peaceful cooperation in favor of violent force.

Its forcible, decivilizing nature cloaks politics in its warlike character.


Clausewitz, C.V. (1976). On war. Princeton, NJ: Princeton University Press.

Monday, October 24, 2016

Tick Top, Tick Top

Dr Alexander Denny: You know you don't have to do this.
Doug Carlin: What if I already have?
--Deja Vu

ZeroHedge wonders what these page wondered yesterday.

Does the AT&T/Time Warner merger top tick the market as did AOL/TW did two bubbles back?

no positions

Sunday, October 23, 2016

Ma Bell to Marry Pa Cable

Come up off your color chart
I know where you're coming from

It appears that AT&T is buying Time Warner Inc for about $85 billion in cash and stock. The deal would symbolize a long era of consolidation that began not long after AT&T was 'deregulated' and busted up in the 1980s.

Why all of the mergers? For one, cheap credit provides the ultimate consolidation currency. Moreover, there is market power to be had for incumbents seeking to protect their franchises from entrepreneurial entry in this heavily regulated (despite the 'deregulation' claim) sector.

I remember when AOL bought Time Warner for a hefty $182 billion in 2000. Does that mean that AT&T is getting a deal at 50% off? Hardly.

I do wonder whether this deal signifies a coming trend reversal in, for example telecom combos or cheap credit driven buyouts, as did AOL when it top ticked the dot com bubble by paying thru the nose for Time Warner.

Saturday, October 22, 2016

Duverger's Law

"Son, this is a Washington DC kind of lie. It's when the other person knows you're lying, and also knows you know he knows. You follow?"
--Robert Leffingwell (Advise and Consent)

A previous post speculated that there must be research in political science suggesting that in democratic election systems grounded in majority rule (a.k.a. "first past the post") two political parties dominate the ballot. The theoretical principle, it turns out, is called 'Duverger's Law.'

Maurice Duverger was a French sociologist who wrote about the effect in several works in the 1950s (e.g., Duverger, 1954). A quick scan of academic reference databases that I have access to finds dozens if not hundreds of papers evaluating his theory.

After 60+ years of academic testing, Duverger's Law as a general predictor of two party dominance in majority rule election processes still stands.


Duverger, M. (1954). Political parties: Their organization and activity in the modern state. New York: Wiley.

Friday, October 21, 2016


The deception, with tact
Just what are you trying to say?
You've got a blank face, which irritates
Communicate, pull out your party piece
--The Fixx

Accusations from Trump and now from WikiLeaks that the US presidential election has been rigged.
Cries of blasphemy emanate from the people accused of...doing the rigging, naturally. Such rhetoric is 'dangerous,' they shout. It threatens the American institution of democracy, they drone.

Many of the same people have, of course, had no problem challenging the legitimacy of past elections. No issues with seeking to destroy other American 'institutions.'

Perhaps the most delicious irony is that the Clinton campaign, after disparaging Trump for suggesting that the US election is rigged, turns around and suggests that Trump & Co are working with the Russians to...rig the election.

The theatre involved suggests that the lady et al doth protest too much, methinks.

Thursday, October 20, 2016

Debt, Entitlements, and Economic Decline

I'm travelin' down the road and I'm flirtin' with disaster
I've got the pedal to the floor, my life is running faster
I'm out of money, out of hope, it looks like self-destruction
Well, how much more can we take with all of this corruption
--Molly Hatchet

It took until near the end of the third presidential debate before a moderator questioned the candidates about their positions on the federal debt and the entitlement programs that are its primary drivers. That the question took so long to be asked reflects the sorry state of the State.

As expected, neither candidate proposed or debated fresh ideas on debt or entitlement program reduction. In fact, both candidates, by either direct reply to the debate question or by indirect implication from previously stated platform policies, intend to champion entitlement program expansion should they occupy the big chair.

Our Thelma and Louise moment draws ever closer.

Wednesday, October 19, 2016

Targeting Assange

"People should not be afraid of their governments. Governments should be afraid of their people."
--V (V for Vendetta)

Few people have done more to expose the crimes, corruption, hypocrisy. lies et al of governments worldwide than Julian Assange, founder of Wikileaks. Similar to Edward Snowden, Assange has become a true enemy of the State.

US officials, including Secretary of State Hillary Clinton, have had conversations about eliminating Assange:

Now, it appears that the statists are working in concert to shut him down. Whether they are successful remains to be seen.

Regardless, Assange has opened eyes. If those eyes remain open, then Assange will have created a tremendous legacy.

Tuesday, October 18, 2016

Incentivizing Supply

"The almanac says it's time to start plantin'."
--Myra Fleener (Hoosiers)

A few years back I was bullish on commodities, including the 'ags'-- i.e., agricultural commodities such as corn, wheat, beef, etc.). The basic thesis was this. Developing countries are going to need much more food as they continue to grow and there is not enough supply to feed the world's growing appetite.

While ag prices certainly had their time in the sun, the last couple of years have brought steadily declining prices. Steady price declines have certainly not been limited to agricultural commodities. See, for example, crude oil.

My mistake was ignoring one of the most fundamental theorems of economics: higher prices incentivize supply. In this article, the axiom is stated in dairy industry terms as "money makes milk."

As commodity prices lifted a few years back, unused capacity that was not economical at lower prices was brought out of dormancy. Moreover, new capacity projects become easier to justify and fund. Substitutes are also sought as buyers, for example, substitute higher priced steak with lower priced ground beef.

The kicker has been uber cheap rates which further motivate borrowing to build more potential supply.

It is possible that the other part of the bullish commodity thesis, high rate of money printing, will at some point overpower natural economic forces and jam prices of everything higher regardless of supply conditions.

Should that occur, however, ags would not be the best place to be. Gold and silver, given their innate characteristics, have proven to be the best plays on monetary debasement throughout history.

positions in gold and silver

Monday, October 17, 2016

Hillarygate's Spreading Stench

"Now, if you're brief is right and it ever reaches the light of day, the president loses any chance of re-election. The men around the president won't let that happen."
--Gray Grantham (The Pelican Brief)

The stench of Hillarygate continues to spread. Newly released FBI documents indicate that a State Dept official sought to pressure FBI agents to change the classification on documents found on Hillary Clinton's private email server in exchange for desirable overseas assignments for the agents.

As Judge Nap observes, this could be viewed as obstruction of justice, tampering with evidence, or straight bribery.

Meanwhile, more fissures are forming among disgruntled agents over the Bureau's handling of the Clinton case. This piece lays out several of the violations of FBI protocol associated with the case and quotes former agents who verify that, had they committed acts similar to Clinton w.r.t. classified info, they would be in prison.

One suggested that Congress should subpoena the ~25 agents involved in the investigation to testify about the direction they received from Director Comey and other higher ups.

While this case may not bust wide open prior to the election, it seems increasingly difficult to see how the Hillarygate cover up will be maintained.

Sunday, October 16, 2016

Empty Rhetoric

All my instincts, they return
And the grand facade, so soon will burn
Without a noise, without my pride
I reach out from the inside
--Peter Gabriel

Thomas Sowell discusses selecting candidates based on what they say and what they do when making voting decisions. He has picked a good topic.

There seems to be an entire category of people who prefer to associate with those who talk or write well. It matters not a wit what those talkers or writers actually do as long as they wax poetic in their rhetoric. These people seem easily lured by the pied pipers of politics.

Moreover, this same group seems to readily make enemies of people who speak or write words deemed 'offensive'--as if words themselves were vehicles of injury. Except in rare cases, words do no harm unless individuals choose admit the rhetoric and take it personally.

To these people, it seems, words speak louder than action.

Saturday, October 15, 2016

Rogue to Ruin

"Gentlemen, whenever you have a group of individuals who are beyond any investigation, who can manipulate the press, judges, members of our Congress, you are always going to have in our government those who are above the law."
--Nico Toscani (Above the Law)

Chatter getting louder that many inside the FBI are outraged over the how the Hillarygate scandal was dismissed by top bureau management.

As we have noted previously, things will get interesting if conscientious agents decide to go rogue and go public.

Friday, October 14, 2016

Explaining Our Deplorable State

"But again, truth be told, if you're looking for the guilty, you need only look into a mirror."
--V (V for Vendetta)

From Herbert's essay discussed in yesterday's post, here's a passage that well captures today's political environment:

"In presence of unlimited power lodged in the hands of those who govern, in the absence of any universal acknowledgment of individual rights, the stakes for which men played would be so terribly great that they would shrink from no means to keep power out of the hands of their opponents. Not only would the scrupulous man become unscrupulous, and the pitiful man cruel, but the parties into which society divided itself would begin to perceive that to destroy or be destroyed was the one choice lying in front of them."

All the more interesting when one considers that this was penned in 1885.

Those scratching their heads and wondering how our political affairs have evolved into such a deplorable state need only look in the mirror. As we have relaxed limits on the constitutional powers delegated to central government, then there is more power to grab. Factions will become increasingly motivated to capture and retain that power using whatever means possible.

The other implication is that until or unless restraints are re-applied to central government, then expect the deplorable state of politics to worsen.

Thursday, October 13, 2016

The Right and Wrong of Compulsion by the State

In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears

Wonderful essay written in 1885 by Englishman Auberon Herbert. Like contemporaries such as Bastiat, Spencer, and Sumner, Herbert focused on the issue that is still central today: the extent to which the state, defined primarily as a democratic majority of people, can legitimately exercise power over human action.

In fact, he suggests that this issue, one captured by the following question:

"Have twenty men--just because they are twenty--a moral title to dispose of the minds and bodies and possession of ten other men, just because they are ten?"

is perhaps the most important question that an inquiring mind in pursuit of truth can consider.

I happen to agree.

Wednesday, October 12, 2016

Slant Walk

Christy Wills: There is no right and wrong. There is only opinion.
Brantley Foster: You know, in some states you can get arrested for saying that.
--The Secret of My Success

The blatant media bias related to this presidential election cycle continues to shake heads and raise eyebrows.

Continue to hope that the overt slant wakes ever more consumers of information up to viable alternatives.

Tuesday, October 11, 2016

Protectionism as Bogus Contracts

Do you want to know how it feels?
Do you want to know that it doesn't hurt me?
Do you want to hear about the deal that I'm making?
--Kate Bush

Interesting article arguing that protectionism amounts to various bogus contracts that buyers (consumers) never agreed to with sellers (protected producers). No law prohibits producers from demanding that customers patronize their business for long periods of time. Of course, buyers are free to say no.

In order to make such a contract remotely interesting to buyers, sellers would have to offer exceptionally favorable terms--such as very low prices. This is because buyers would not bind themselves into such a long term deal for nothing.

We see very few contracts of this nature. The explanations are that a) sellers are unwilling to lower prices to the point where buyers are willing to lock themselves in for long periods of time, and/or b) sellers see the long term costs of locking themselves in as outweighing the long term benefits.

This is why workers have no valid ethical or economic complaint about losing jobs to other workers foreign or domestic, or to machines for that matter. They may have contractually locked in employment guarantees over long periods of time with employers if they were willing to make concessions such as working for significantly lower wages. Instead, they choose higher wages with the associated risk of job loss if working environments change.

Yet, when buyers shift some of their patronage to foreign sellers, domestic producers (both owners and workers) insist that government intervenes to force consumers to continue to purchase domestic output despite no corresponding reduction in prices or wages charged by the sellers. In fact, in many cases the opposite occurs--prices and wages increase under protectionist cover.

There is nothing remotely legitimate about this insistence. Domestic producers favoring protectionist policies are merely seeking to use the strong armed government agents to enforce bogus contracts that consumers have not signed.

Monday, October 10, 2016

Ecologists or Economizers?

"I think this fool is probably lost."
--Wind In His Hair (Dances With Wolves)

Review of institutions that guided American Indian societies challenges claims that our Native American predecessors were guided by a unique environmental ethic that allowed them to operate as the 'pioneer ecologists of this country.' Instead, they, like all people, established economic institutions that governed resource use in response to abundance or scarcity.

Property rights, clear cutting forests, and production incentives exemplify societal institutions that governed economic activity. Truly communal property was scant. 'Tragedy of the commons' situations arose when economic institutions did not govern behavior (as they did for subsequent colonists).

Quoting the work of historian Louis S, Warren, the article notes:

"To claim that the Indians lived without affecting nature is akin to saying that they lived without touching anything, that they were a people without history. Indians often manipulated their local environments, and while they usually had far less impact on their environments than European colonists would, the idea of 'preserving' land in some kind of wilderness state would have struck them as impractical and absurd. More often than not, Indians profoundly shaped the ecosystems around them."

To that I might add that perhaps production technology was the primary distinguishing feature.

Like all people, our Native American predecessors were economizers.

Sunday, October 9, 2016

Pinksourcing's Ignorance

Casey Ryback: I support women's lib, don't you?
Jordan Tate: When it works in my favor.
--Under Seige

Surely the producers of this video thought that they were displaying an edgy intelligence about the pay differences between men and women. In reality, they reveal their ignorance.

As suggested here, if women truly were getting paid less than their productivity reflects, then there would be huge opportunities for the Pinksourcing firm in the video, or for any entrepreneurial enterprise for that matter. Simply hire all those underpaid women currently making 77 cents/hr at their current employers, pay them more, and reap huge productivity gains, profit windfalls, and competitive advantage.

Holding one's breath in anticipation of this is not advised.

Saturday, October 8, 2016

Academic Iron Curtain

"You are a slave, Neo. Like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind."
--Morpheus (The Matrix)

Thomas Sowell compares the lack of idea diversity on college campuses today to the Iron Curtain era. During the Cold War, communists sought to restrict the flow of outside ideas to their citizens, lest the natives might discover better ways to live.

Sowell suggests that the modern academy seeks to restrict the flow of ideas as well thru practices such as hiring faculty whose ideologies align with the political left.

During the Cold War, the Iron Curtain was circumvented by outside sources such as Voice of America that broadcast to the people of the Soviet bloc so that they were not completely isolated. By helping people see that better opportunities were available to them, these outside providers of information helped bring down the Berlin Wall.

While acknowledging the array of electronic resources that could serve to bring down the Academic Iron Curtain for college students, Sowell seems to think that it will take an organized effort, a modern day Voice of America, to point learners toward those resources.

Not sure the effort has to be that organized, Dr Sowell. All it really takes is a few inquiring minds coupled with today's social networking technology.

Seems to me that everything we need is right in front of us.

Friday, October 7, 2016

Conditions for Open Borders

Always sweep with, with thrashing oar
Our only goal will be the western shore
--Led Zeppelin

As noted by Doug Casey, two conditions must be present in order for completely open border policy to advance prosperity. There can be no welfare services made available to immigrants, lest a free rider problem develops in the country accepting immigrants. Those who are forced to pay for this free ride suffer.

The other condition, which can be seen as a general condition of the first, is that property must be privately owned. Otherwise, squatter camps are likely in 'public' areas.

Standard of living increases when labor is mobile. Prosperity increases from immigration are restrained, however, when property rights are not fully respected.

Thursday, October 6, 2016

Target's Small Box Format

The sun goes down
The night rolls in
You can feel it starting all over again
The moon comes up
And the music calls
You're getting tired of staring at the same four walls
--Glenn Frey

Big box retailer Target (TGT) is experimenting with smaller box stores that cater to urban markets. Graphic shows difference between typical store square footage and the smaller 'flexible format' footprint. 

One strategic concern is that TGT is moving away from the large scale format that makes it dominant in discount retailing. Smaller stores require different resources for merchandising and different supply chain competencies. For example, the article notes that deliveries to the smaller stores must be more frequent. Stocking choices and facility layout are also likely to vary from location to location. 

Such variation conflicts with the factor often associated with success in discount retail: standardization and efficiency.

A fundamental law of operations management is that volume (efficiency) and variety (catering to individual customer needs) are difficult to do together.

no positions

Wednesday, October 5, 2016

Pretense of Data Dependence

Drawn into the stream 
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

The Fed often claims that it is 'data dependent,' meaning that it grounds its decisions in economic data. Onlookers know that this is pretense, given, for example, the chasm between largely benign reported macro data that the Fed purports to follow and the extreme nature of monetary policy.

Instead, the Fed's behavior reflects selective reasoning. It hangs its hat on data that fit the institution's view of the world while discarding contradictory data.

Stated differently, whether the Fed is data dependent depends on the data.

Tuesday, October 4, 2016

Martingale Strategies and Central Banks

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run
--Kenny Rogers

Bill Gross discusses Martingale gambling strategies in the context of modern central banking policy. Gamblers who use Martingale strategy increase the size of their bets as they lose more. The intuition is that if you, say, double the size of your subsequent bet after each loss then at some point you are bound to recover your previous losses and then some when the cards, dice, etc. finally do turn in your favor.

The Martingale approach is bound to appeal to many people because it legitimizes the idea of taking more risk when you are behind. Aversion to loss is a core tenet of decision-making under risk as elaborated by Prospect Theory.

Bill Gross suggests that Martingale strategy appeals to central bankers, as it seems like they increasingly turn to more extreme and riskier monetary policy solutions after each preceding bet does not jump start the economy as hoped. Witness for example the NIRP strategies being implemented in Europe and Japan.

One obvious problem with Martingale strategy is that gamblers may run out of capital before their 'double down' bets hit. But wait, don't central banks run the printing press, permitting them to print an endless supply of money from which they can fund their next round of bets?

Not exactly, as Gross observes. One problem that central bankers face is the prospects of Big Inflation stemming from their money printing. If the size of their losses get big enough and those printing dollars make their way to markets for goods and services in sufficient quantities, then prices explode higher. The printing press, i.e, the funding source of central bank Martingale bets, shuts down when that happens.

Because they center on distorting interest rates lower, central bank Martingale strategies also threaten the lifeblood of capitalism--i.e., savings that serve to fund productivity improvement projects that advance prosperity. When capital is consumed, then the goose that lays the golden eggs of prosperity is dead, and there is no standard of living to wager on.

At that point, all bets, as they say, are off.

Monday, October 3, 2016

Prohibition Escalates Violence

"You wanna know how to get Capone? They pull a knife; you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue."
--Sgt Jim Malone (The Untouchables)

Nice chart that demonstrates how prohibition escalates violence in society. An influential group in society views X (e.g., drugs, alcohol, guns) as threatening. This group influences government officials to pass a law banning X.

Because there is no longer a way to legally obtain X, its value grows (ECON 101--supply goes down in face of constant demand, thereby raising price).

Black markets naturally arise with the increase in price, as buyers and sellers see benefits that outweigh the cost of trading illegally. Crime, i.e., illegal trading of X, becomes more organized over time, and the frequency of violent crime in the market increases.

In response, law enforcement develops harsher tactics for combating the crime. Criminals become more violent in response.

And around she goes...

Sunday, October 2, 2016

Faculty Voter Registration

All in all you're just 
Another brick in the wall
--Pink Floyd

Another study indicating the lack of political diversity in higher ed. Voter registrations records of over 7000 full time (tenured, emeritus, tenure track) faculty in five disciplines at 40 leading US universities found that 3623 were registered as Democrats and 314 were registered Republicans for an overall ratio of nearly 12:1.

Across the five disciplines examined, economics was the least biased at 'only' 4.5:1 while history 33.5:1 and journalism 20.0:1 were the most biased.

Institutionally, the only three universities under 4:1 are Ohio State, Case Western, and Pepperdine.

While such findings merely reinforce what is already known, those who believe that ideological diversity and tolerance should be the centerpiece of university environments should find the political bias in higher ed disturbing.

Saturday, October 1, 2016

Dominant Coalitions

"There is only one reality in the world today. Look to the west, Judah. Don't be a fool. Look to Rome!"
--Messala (Ben-Hur)

In social settings, there is tendency for dominant coalitions to emerge. A dominant coalition is a group of people that exerts outsized influence on others. Dominant coalitions may be large in number, such as a democratic majority, or small in number, such as a senior management team in an organization.

The primary driving force behind the formation of dominant coalitions is that there is strength in numbers. Things often get done more thoroughly and quicker thru groups rather than thru individuals.

Dominant coalitions also have a social identity element to them. People often affiliate with groups in order to enhance their self-esteem. Particularly as its influence grows, a dominant coalition attracts individuals who want to increase self-esteem thru association.

Dominant coalitions might operate peacefully, exerting their influence thru non-violent persuasion. However, they can also operate forcefully, exerting their influence thru aggression.

The larger the dominant coalition and the longer it exists, the more it becomes institutionalized. Institutional entities, by definition, seek to remain powerful and maintain the status quo. Working against the status quo, however, are naturally changing environments with opposing forces that challenge influential coalitions and work to render them less dominant.

As such, it is likely that dominant coalitions will resort to violence over time in attempts to maintain their dominant position when peaceful influence no longer works.