Friday, August 7, 2009

"The Precondition For Hope Is Understanding Reality"

"The Obama brand offers us an image that appears radically individualistic and new; it inoculates us from seeing that the old engines of corporate power and the vast military industrial complex continue to plunder the country. Brand Obama is about being happy consumers. We are entertained; we feel hopeful; we like our president; we believe he is like us. But like all branded products spun out from the manipulative world of corporate advertising, we are being duped into doing and supporting a lot of things that are not in our interest. What for all our faith and hope has the Obama brand given us? His administration has spent, lent, or guaranteed 12.8 trillion in taxpayer dollars to Wall Street and insolvent banks in a doomed attempt to re-inflate the bubble economy, a tactic that at best forestalls catastrophe and will leave us broke in a time of profound crisis. Brand Obama has allocated nearly $1 trillion in defense-related spending and the continuation of our doomed imperial project in Iraq, where military planners now estimate that 70,000 troops will remain for the next 15-20 years. Brand Obama has expanded the war in Afghanistan, including the use of drones sent on cross-border bombing runs into Pakistan that have left 700 civilians dead since Obama took office. Brand Obama has refused to ease the restrictions so workers can organize, and because of pressure from the for-profit health care industry refuses to consider single-payer, not-for-profit health care for all Americans, and Brand Obama will not prosecute the Bush administration for war crimes, including the use of torture, and has refused to dismantle Bush's secrecy laws or restore habeus corpus. ... Brand Obama does not threaten the core of the corporate state anymore than did Brand George W. Bush."

Now that is what I mean when I say Obama is more Bush than Bush. Those words come from Chris Hedges, of the left-wing It comes from a July 22nd speech at Town Hall Seattle. It's well worth a listen, especially for those who still see Obama as the bringer of change he pretended to be.

Friday, July 24, 2009

You Call That A Recovery

Economic activity can be broken into 2 categories: production and trade. In abstraction, both can be analyzed identically because production is actually a type of trade.

Trade, as we typically think of it, creates value by putting goods and services into the possession of the people who value them the most. Trade effectively funnels products to their highest-valued use.

Through production, we trade basic resources for finished products. The other side of the production coin is destruction. The inputs are sacrificed so that we may have the output.

There is no guarantee, however, that the output is of higher value than the inputs. We must be careful what we destroy.

If a business loses money in the long-run (that is, if total cost exceeds revenue), that business is destroying value. We know this because costs can only exceed revenue if the group of inputs has greater value in some other capacity. Unfortunately, value-destroying processes enter into GDP positively; they are really a negative. GDP is a very poor measure of the health of our economy.

It is commonly believed that any production process adds value because the finished product can be consumed whereas the raw resource would sit idle otherwise. But that ignores the possibility of using those resources for something else. There is also value in having the option to use a resource in the future.

There will always be some waste in the economy. We do not have perfect foresight, so we are unable to limit our production to only those that create value. Usually they are a very small portion of total production. Recently, destructive processes (example: General Motors) have been a relatively large share of the total. The result: recession.

The proper response to a recession is twofold: acceptance and recovery. Acceptance means stopping the destructive processes. Recovery means taking the resources that were involved in the destructive processes and finding better ways to employ them.

Acceptance can be quite painful. It involves things like bankruptcies, job losses, foreclosures, asset price declines. But, it is a necessary pre-condition for recovery.

The paths of acceptance and recovery vary in different sectors of the economy and for individual economic agents, and they can coincide to some degree. But acceptance can also be mistaken for recovery.

For example, when a business increases profit by cutting cost (i.e. contracting production) that is acceptance. They are lessening or eliminating the destruction of value. This is why we should let failures fail gracefully instead of bailing them out.

Thus profit can increase as GDP contracts and, importantly, we are better off, on average, as a society as a direct result of this contraction. This might be what people mean when they say 'jobless recovery.'

Make no mistake, though, there is no such thing as a jobless recovery. Labor is the most important input to production, and employment is the best indicator that we have as to the real level of our output. If there are more willing workers sitting idle today than at the beginning of the recession, then we haven't recovered. If net job losses continue to occur, we haven't started to recover - because we haven't fully accepted our recession.

Sunday, July 12, 2009

In Defense of Failure

All advances that the human race has ever made are the result of trial and error. It is not a blind process; we learn from mistakes and from successes. We pass on knowledge. Our ideas are informed by our own experience and the experience of those who went before. We are smart people, but we are only smart because people have tried things with little or no foreknowledge of the nature of the results. They allowed themselves to fail, and did. But along the way successes appeared, and multiplied and persisted. The failures were thrown out, resurfaced at times and were thrown out again. This is the essence of economic growth. It is the essence of all growth.

If we fear failure, we risk stagnation. We miss the opportunity to expand our knowledge base and improve the standard-of-living. But if we come to hate failure we risk much more. The aversion to failure might not cause us to avoid risk but to dress up failure as a success, to allow bad ideas to persist. This causes us to move backward as it amounts to the destruction of welfare. It locks resources into unproductive pursuits.

La Boca

For my first few weeks in Buenos Aires I enrolled in a Spanish class at a place called Expanish. The students were a mix of laid-off bankers from the U.S. and Europe and global-soul type travellers from North America, Europe, and Australia. My teacher, Diego, is a local guy, a writer and father of two. He chain-smoked, hated to be in nature, and is a very bright guy overall. Outside of living in Madrid for about a year, he's only been outside of Greater Buenos Aires once, for a bus trip taken with his high school senior class. He knows a lot about Argentina, though not from experience, but he is encyclopedic in his knowledge of the city. A great deal of time was spent in these classes discussing things to do in the city. We were not only students of Spanish, but also visitors to a rich city.

La Boca is one of the primary tourist draws of Buenos Aires. More specifically, the caminito in the barrio known as La Boca. The barrio is also home to the famous football team, Boca Juniors. The caminito photographs well; you have seen it if you have ever looked through a tour guide on Buenos Aires. But the surroundings of the caminito are the streets of Buenos Aires with the reputation of being the worst for crime. The people here are poor; tourists with money come through regularly. A low cost way to make money is to buy a gun or a knife and take some of that tourist money.

I hear first-and-second hand accounts of being mugged in La Boca regularly. A guy had a gun pulled on him, then was stabbed, supposedly in the touristy section. Most of the foreigners I know from the tango scene have not been to La Boca, even if they have lived here for months or years. Locals don't seem to be inclined to go either.

Diego says it's not dangerous if you act smartly. Busses can drop you off and pick you up at the caminito and if you stay off the backstreets, no one will bother you. Those who would rob others don't waste their time with Argentines. So Diego told us they'll say something like "Que hora es?" (What time is it?) when a stranger walks by. If he responds "no tengo reloj" (I don't have a watch) they leave him alone. If he says something like "I don't know Spanish," they rob him.

About six weeks after Diego told us this, I decided to spend an afternoon at the caminito. The 168 bus, which comes right by my house, goes to La Boca. My friend said she knows where to get off, so off we went. 45 minutes later, I learned that the 168 is not one of the many busses that drops people at the caminito. So we disembarked, walked across a park and then arrived at the backstreets of La Boca. Moreover, we did not know exactly how to get to the caminito.

I've walked down streets, at all hours of night, that would give my mother a heart attack if she saw them. But they could not inspire in me the dread I felt in the light of day here. Strange looking people lined the street, sitting on stoops, drinking and smoking, wearing hoods that hid their faces. I saw a taxi and almost got in it to travel about 2 blocks. We moved a meter or 2 into the street, and sure enough, I heard it, "Que hora es?" I didn't respond.

2 blocks away we made it to the football stadium. There were more people here and kids kicking a ball around. The atmosphere felt marginally better, but we still weren't sure of our direction. My friend had been trying to learn English and she spoke to me in English. "No quiero hablar ingles aca," I said to her in a low voice.

7 or 8 more blocks and we made it safely to the caminito. I like it. Sure it is touristy, but they present themselves well. We sat outside with a Belgian beer and listened to a bandoneonista, not watching the third-rate tango dancers. The music had more appeal for me. Down the road, dancers danced the chacarera and zamba, which are 100 times more entertaining for me to watch. Tango, the dance, for me, is an art form to be felt; I still do not enjoy watching it. Wax figures of Eva Peron, Carlos Gardel, and others I don't recognize look over the street from high balconies. There is some nice artwork as well.

The tango dancers very overtly asked us for money, which highly offended my friend, who is from Buenos Aires. At first, they seemed to think we were obligated. After we told them that we are tango dancers, they left us alone. I think they knew that we could tell they weren't so good. Most tourists, I guess, are happy to pay obscene amounts and the dancers get used to this. It is probably quite lucrative.

As for me, I was content to overpay for the beer.

Thursday, July 9, 2009

Learning Spanish and Tango

To gain knowledge, a person must allow himself to feel stupid; to gain skill, a person must allow himself to feel incompetent.

It had been a long time since I knew how a child felt. In fact I don't recall knowing how a child feels. Now I think I have a good idea. The difference between children and adults is that, while neither can effectively and consistently control their emotions, adults can use words to generate the appearance that we can control emotions. Children, lacking speech altogether or sufficient vocabulary to communicate in a given situation, resort to crying, screaming, and flailing about in frustration when they fail in communication.

Trying to speak Spanish with a limited understanding of the grammar and severely limited vocabulary, sometimes, makes me want to scream and flail about. Or at least say something in English, if only to myself.

Tango is a language as well, like any dance. In some ways, it is much more complicated than our verbal languages. There are so many aspects that either mean something or generate noise, aspects that give cues and clues to the partner one way or the other, that will be interpreted as the dancer intends them, or, more likely, in some other way.

In each of these areas, a small bit of knowledge can take a person a long way. You can certainly talk to people with a short list of the most common verbs, knowledge of their primary conjugations, and a good list of nouns gives you roughly equal competence in both adjectives and adverbs. Likewise, you can dance for weeks with a good walk, a solid embrace, and 4 or 5 simple, well-executed figures.

But you cannot say everything, and a partner is unlikely to know why it is that you're not saying certain things.

In language, dance, or any other form of communication, it is the uncertainty of meaning that makes interactions meaningful. This is the source of all laughter, for example. Even with a well-formed thought, much can be lost in the transmission. Our partner's state of mind is unknown. What was she just thinking about? Why does he say that now? Oh no, she is pulling away from me. No amount of words can account for all possible misunderstandings.

With the limited knowledge of the early stages, we are doubly disadvantaged because we don't even know what we don't know. One area of Spanish that intrigues me are the great many words that are essentially the same in english (for example, paciencia and patience, tranquilo and tranquil). I find it easy to understand others who use these words, but difficult to incorporate them into my own speech. Perhaps because I think they are easy and do not require as much work as less familiar words.

In tango, the superficial layers are relatively easy to teach and commonly learned. Perceived mastery of these figures or steps (like ochos, sacadas, boleos, etc.) can lead one to believe he knows how to dance. But knowledge of the existence of those interior layers can lead the same person to wonder why those teachers were wasting time teaching figures to beginners.

Learning in these areas, and possibly in all areas, is not linear; it is circular. We must continually come back around, retracing the same path, looking for the things we dropped along the way. And for the things we failed to notice on our early trips.

A few very early beginners have asked me what I recommend for solo practice. "Put on Carlos DiSarli and walk," I say. Each time, I have gotten a look as if I've deeply insulted them. They have done boleos in "intermediate" classes. But no one walks perfectly, and truly advanced dancers do exactly that.

Enrico, one of my current housemates, puts it this way: If you go to a beginner class for the flute, the teacher will start with how to make a sound with air and the lips; If you go to a highly advanced class for the flute, a good teacher will start with how to make a sound with air and the lips. Daniel Diaz says that after his parents bought him a bandoneon, it was six months before his teacher let him touch it.

Great dancers make boleos and ganchos look easy. The reason is that they are easy. It is all the stuff that they are built upon which is difficult: stepping with the music, balance, dissociation in the torso, hip alignment, timing the rebound, and more. The list is long. Most people don't think of these things until years have gone by, if ever. Some develop competency by chance, others come from intensive dance backgrounds and already developed them. Many compensate (sometimes quite effectively) for weakness in some areas with strength in others, but sometimes this takes its toll on the partner.

All of the layers of foundation can be quite daunting. The euphoria of quick progress in the beginning can be addictive. It provides its own motivation. Moving from not knowing any Spanish beyond "sombrero" to being able to make small-talk with people who know no English is real and measurable. As is the ability to stand apart from the completely arhythmic on a dance floor. But pessisimism is not far beyond. As we become conscious of our own incompetence, the strength of ego yields to self-doubt. Making progress, getting around that circle a few more times, becomes a matter of feeling like we are getting worse.

And sometimes we really do regress. Partly due to a bad choice of teachers, as well as the adjustment to a new place, I'm almost certain that I really got worse through my first 6 weeks in Buenos Aires. Who knows, though, maybe I picked up a few things. And my Spanish definitely did improve during that time. How could it not?

Recognizing the myriad areas that need improvement, however, isn't all bad. In fact, I find it quite liberating. I enjoy tango more with each week that goes by, and finding big and little things about myself that need attention gives me confidence that I will improve and enjoy it more, and bring greater enjoyment to my partners, in the future. Life would get boring if mastery came early.

Recognition of this phenomenon is what keeps people learning late into life. We are all good at certain things, and it feels good to do those things. We get positive feedback from others; we feel smart when the conversation shifts to our areas of expertise. But this can be a trap. To broaden the skill and knowledge bases, we need to expand our comfort zones. When we venture far from what feels natural, often times we get slapped around, and the easy thing to do is go back to what we know. Why else would our society be so averse to unemployment (even though polls show that most of us dislike our current jobs)? It is at this point when human nature must be overcome. The cost of learning is great in the beginning; the benefits are enormous but they are largely in the future. We know this instinctively; otherwise we would not plant gardens and wheatfields.

Finally, I think a lot of people find motivation in focusing on an end goal. Maybe to read a novel in a new language, or write one. Or to dance in a competition or an exhibition at a weekly practica. Or to have that one great and beautiful dancer say yes.

I am sure this works for some, but I take a different route. It is good to see what is possible once in a while but I find great value, when progressing toward a destination, in keeping my head down. That is, focusing on the present rather than the future, on myself rather than some idyllic model, on details rather than the big picture. Yes, I like to have some idea about the big picture I am painting, but I never want the final product to be to clear in my mind. If my image is cloudy it is easier for me to divert. I can still develop that picture, but I am not locked into an outcome. I am free to explore other possibilities.

The sun is there even on the darkest of cloudy days.

The Dance – A Novella (page one)

Most of what happens in a moment slips away, and most of that never makes its way back. While the focus often remains on what is lost, the beauty reveals itself in that which lingers. Or that which, having concealed itself long ago, emerges from memory at some unexpected, perhaps unwelcome and inconvenient, moment.

As experience slips into obscurity, human nature sends us after it, as if grasping to hold on, having failed, can be outdone by a chase in which the chased has an infinite reserve of energy. Never looking back to taunt its hunter, it simply flees into a speck, then gets washed away by the noise of all the other specks.

A moment that is beautiful in itself, short but profound, loses all splendor when its experiencer attempts to hold on. Attempts to make more of it, to develop it, to analyze it looking for that one path leading not to a dead end but off into heaven. But only luck will find that door; it is just one leaf on the forest floor and it looks no different than the rest, those that hide their dead ends amidst the belief, the illusion, that the special one is not so special, easily found and attainable to him that will seek it.

The woman from Chicago watched the dancers. She took in all the stimulus. She reflected on its relevance. What does the movement mean? And what is its connection to the feeling in the heart. She would later remark that the most obvious aspect of the dance is the movement, the variety of bodily contortions, the volume of movement packed into space and time really. But that this aspect of the art is the first to fall away from her experience of the moment.

“What does it leave behind?” he asked her. Not knowing she thought of her own experience, how dancing with, and being with, this man has robbed her of certain pleasures. Their connection, while glorious, has deadened her desire to connect with others. Not that she would wish as grand a connection as is felt when with him, but there is room for simple satisfactions too. Short love affairs never spoken of but experienced 3, 5, or 10 minutes at a time. A smile she offers to a man jogging by, knowing that it gives him a euphoric moment of pleasure, and feeling that with him, enjoying it as it washes itself away, never to return in that exact form. The intimacy of a tango, no commitment, no expectation, no responsibility to make pleasure for the other. Simply enjoyment of what is.

He had thought of this before meeting that night, this idea that love is the absence of expectations. He caught himself remembering a previous rendezvous. When they met that evening his doubts had been shattered easily by a sensuous kiss. A surprise that easily and gracefully eliminated the need for lips to say anything. Now, with an even greater feeling of doubt, he wanted that again. Knowing the setting would be as it was before, he hoped with fervor that the kiss would say the same thing. Then, as if shocked to life by the reality of the cold ocean, he loathed himself, and punished his emotions for this perfidious breach of the beauty of love.

The dance evoked sadness. In her, and in him because he felt what she did. He found his own sadness comforting, a message to himself that the connection is real. He embraced it, feeling a sense of chivalry. She found this hard to take; it added to her own despair. Responsible now for the sadness of two, she lamented the connection, feeling selfish and lethargic. It was a cycle that peaked only 4 days earlier. They spent most of that day together. On an empty beach, in an empty café, the only people in the world. She felt comfort then, happy for his existence, his friendship, his love. Now, all she wanted was to be away from him.

To this man, the cycle is well known. Not understood but known. Intuition leads him to try to draw her out of the cycle, to cheer her, comfort her, offer his aid. But intuition leads man astray as often as the wind carries a seed to fallow ground. The situation calls not for tenderness but brutality. Do not draw her out, but plunge her down. The path is inevitable; the best way to cover these steps is quickly. Ride with her, at least be willing, but do not pretend it can be avoided.

What It Means To Be Sick

Okay, so the swine flu gods got me. I don't get sick very often, but this makes two significant knockouts in about seven weeks. So with my 6-8 waking hours each of the past 3 days, I have pondered the great question of the infirmed: Why me?

Now this is no great tragedy - a week's worth of strep throat followed 6 weeks later by what really amounts to a moderate dose of fatigue. No great after-school specials started this way.

But that's the point, I think. We all spend our lives doing things, some of us are more physical, some more cerebral, but we get into a certain routine and things hum along. Getting sick, be it major or minor, knocks us off the track.

I live in a place where I can effectively pursue two goals: improve my tango and learn Spanish. Outside of that, I find little reason to be here. So with 3 days lost I found myself wanting to go home. After all, it is 80 degrees in Seattle and the fresh mountain summer air would do me good.

But no matter where I am, I get a bit of this whenever I am sick. I call it depression. To me, the physical symptoms are not nearly as relevant as the emotional ones. And those stem from uncertainty. Doubt takes over the mind when pathogens take over the body. What is wrong with me? It is a perfectly reasonable question. But there need not be anything wrong. Maybe this is just the natural consequence of sharing the earth with microorganisms. Or maybe some other god is just telling me to slow down.

Logical explanations aside, the mind still wonders. After all I live in a house with 7 other people. About 12 boy- and girlfriends come and go regularly. We all make our life in the same dirty city, but only one of those 20 has gotten sick at this time - me. They even appear immuned to my disease-carrying forays into the kitchen.

For me, sickness brings about loneliness. Don't get me wrong, I like to be alone at times; sometimes I need to be alone. What I don't like is to feel lonely.

People are nice. One person I talked to immediately started with the advice: go to a doctor, take your temperature, take lots of fluids, and on and on. All worth appreciating, but all entirely predictable. What I really wanted (but didn't have the strength to interrupt) is to say that I don't feel so good in my heart and then to hear the entirely unpredictable response.

About a year-and-a-half ago, I had a nasty fever and was on the phone with a long-distance girlfriend. I told her what I was honestly feeling at the time: "I feel like I am dying." Her immediate reaction was to laugh at me (worst girlfriend ever). I don't know what exactly I wanted - a bit of sympathy, to be told that I'm not going to die, or something else - but what I got was pure pain, pure misunderstanding, pure rejection. After all, I wasn't going to die; the suffering caused by my illness was secondary, but it magnified the heartache - the feeling that nobody cared.

We don't know much about what goes right and wrong inside our bodies. I happen to believe that better understanding in this area could really mitigate the emotional pain of physical suffering. After all, each of us has, at least once, felt worse than she has ever before felt in her life. Some reason to believe that the chances are good we'll make it through more or less unharmed could really hit the spot at a time like that. If we could find some sense in suffering; maybe we could deal with it more easily.

It was this idea that, years ago, formed my primary motivation to pursue medical school. The interviewers at the University of Washington appear not to have agreed with me. Maybe they were right; maybe there is no sense to be found.

Sunday, July 5, 2009

Swine Flu Grips Buenos Aires Tango

La Gripe Porcine, the swine flu, has made its way into the minds of tango dancers. The winter flu season has arrived, and with it, an increase in the number of infections and deaths in Buenos Aires caused by swine flu, or whatever you want to call it.

Every day I see more people on the subway with masks "protecting" them from swine flu. Others hold a scarf or sweater over their mouths and noses. Last Thursday the Puntocero milonga, downtown, was cancelled on short notice. There is a nice free milonga 3 blocks from my house on the first saturday of the month, but that was cancelled as well. And now, the once-proud Practica X has shut its doors for the entire month of July.

School vacations have been extended by about 3 weeks, and I have heard rumors that the government will mandate cancellation of all cultural events.

At the risk of angering the swine flu god, and apart from the air of sadness that comes with observing a terrorized society, I've found some positives. Last night, I had the most enjoyable milonga experience since arriving in BsAs. I discovered Club Fulgor de Villa Crespo, which has a good dance floor (rare) and a light atmosphere (more rare). But also, while many lamented the light turnout, I found it perfect. There were enough seats for everybody, enough space to dance, and enough people to make it fun. I stayed late and slept well afterward.

One of my teachers, who has resigned herself to staying away from public gatherings, told me that, after every dance I should wash my hands and... gargle with salt water.

That's a bit excessive for me. I must admit I wash my hands more often these days but beyond that, I'll rely on my immune system and regular sleep to carry me through.

I have to wonder what it is about swine flu. I guess public health officials worry about the infection rate going parabolic, but what does the average Joe worry about? Far more people die from "regular flu," not to mentions the hundreds of other prominent dangers that surely outkill swine flu by a long shot. No one appears to be to concerned with, for example, malaria or automobile accidents.

I think that our minds are drawn to things that are new. We've lived through regular flu, and malaria. And we understand that cars in the street are dangerous, but we have outsmarted them this long. Each of us has proven that we can live in a world with all the diseases that exist in the world; but we don't yet know how this whole swine flu thing will play out. It is the uncertainty that fills our mind with dread more than the presence of certain danger.

My guess is that in a few months or a year, swine flu will be as big a problem or greater than it is today. But, except for a small number of unlucky individuals, no one will care.

Wednesday, July 1, 2009

Price Increase

The price of facturas (more or less, breakfast pastries), at the panaderia around the corner, went up today from 90 centavos to 1 peso.

No me gusta.

Tuesday, June 30, 2009

Jobs In Buenos Aires

My friend and dance partner recently told me about her father's job. He drives a taxi. He works 12 hours per day, six days a week. He takes a 3-day vacation every December to visit his mother in Uruguay. This has gone on for thirty years. She thinks he typically takes home about 50-60 pesos (about 17 dollars) in a day. Honestly, I think she is understating his earnings but the ballpark is certainly correct. He rents a small apartment and manages to feed himself and his wife.

His daughter, my friend, works for her aunt making women's clothes. She wants to be a fashion designer, but needs to save money for tuition. She lost her last job because the place, along with her computer, identification papers, and some books, went up in flames. She quit a quality control job before that because they wanted her to lie to clients. She is a bright woman.

Last Friday, she had an interview scheduled for a job as a secretary at a company that makes pipes. The job is 6 hours a day, 6 times a week. To get there, she would need to take 2 busses for more than two hours each way, but it pays about 1600 pesos per month which is more than she currently earns. She holds the equivalent of a bachelor's degree in management from a well-regarded engineering school.

So she left her house almost 3 hours before the interview. At the 2nd bus stop, a driver told her she should take the semi-express, so she waited. After an hour she gave up and re-scheduled the interview.

Over the weekend, she figured it just wasn't worth it. Considering bus fare and the huge waste of time (not to mention that spending that much time on a Buenos Aires bus is a sure way to damage the soul), it would better to keep looking for something closer.

This is part of life in Buenos Aires. There are thousand of restaurants. They have good atmosphere, good food, good coffee at low prices. But they sit in a near-vacant state. The waiters are bored. Most of the local population cannot afford to go out for a simple coffee and croissant. But it is part of the culture, and cultural rigidity is strong here. So they have their "merienda" at home.

The local tango dancers cannot afford to take private lessons - some good ones cost as little as 20 dollars* - because foreigners drive up the prices. On the other hand tango might not even exist here - certainly it would not be as robust - if it weren't for tango tourism.

The state of the restaurant industry is a portent. I believe this place is in transition. The recent economic troubles of the world have made the current economy, depressed as it is, unsustainable. Half or more of these restaurants will be closed 2 years out. What will these people do? I don't know, but I hope something.

I have heard some bad stories about people's experience with taxi drivers, but my experience has been universally positive. I take the bus more often now because I've finally figured out how to use the bus system to my advantage. But for my first 50 or so days here I took taxis often. They are super cheap. Energy is heavily subsidized here, and the drivers don't make much money. So, for example, to take a taxi to and from a milonga (a tango dance) and pay the admission typically costs about 7 or 8 dollars.

The drivers don't get tipped here. Some locals even berate tourists for rounding up a fare payment. But I have found that taxi drivers often tip me. Why? They don't want to, or can't, give coins as change. So if I owe 10.20 I'll give the guy 12 and he'll give me back the 2-peso note rather than make change. Sometimes restaurants tip me as well, and on one occasion I was tipped at the supermarket.

Every taxi driver I've met has been very nice. They know the city, and they give me an excellent opportunity to work on my Spanish. One guy, after hearing that I was learning Spanish, gave me a 10-minute lesson on what seemed like 100 or so vulgar words.

"Soy tu professor," He was very proud.

Another, at 2AM was sure I was going home to get some action. I didn't have the heart to point out that there was no woman next to me in his cab.

I've heard about relatives in New Jersey, the good and bad parts of town, the origins of the songs on the radio, and more than one solution for the swine flu.

The people of Buenos Aires, from what I know, are overwhelmingly nice Sometimes I feel sad about the economic conditions here, but then I feel bad about feeling sad. All the people I know here have lived through markedly better times**, yet they are either happy or they make it their business not to let on otherwise.

So I spend a few minutes now and then, feeling sad or bad, then I go back to my simple life and feel, well, pretty damn good.

*Some bad ones cost $100 or more.
**Some of the tango teachers are definitely making out pretty well, but the physical state of the city they live in is distant from that of their childhood.

Monday, June 29, 2009

Keep Your Health Care, Just Give Me The Money

President Obama and his friends may want to tax employee-provided health care benefits as part of their "overhaul" of the health care system. First I reacted, then I got to thinking.

The reaction is fairly simple. What has come to be called health care simply is not worth what they say it is, and I don't want that "value" taxed as if it is income that I can use to buy whatever I choose. I'm a reasonably healthy man with a background in insurance and statistics, so I'd much rather have the money as pure salary and fend for myself on health care.

Now, of course, employers may not be willing to give me more money instead. I'll come back to this later, but for now: In most tax brackets, I would still prefer nothing to the alternative of health insurance plus tax.

Though eight years of Bush & Company, combined with a few months of Bushama, has made me long for the smallest possible government possible, I still believe that government can play a positive, necessarily limited, role in a society.

And get this, health care is one area in which this seems to be true. The two primary arguments against government provided health care are that it is socialism (implying, of course, that socialism is bad) and that a government system would be inferior to anything the free market would offer. The primary argument for government-provided health care is that health care is a basic human right. Let me address these three issues in turn.

First, health insurance, like all insurance, is socialism. Whether it is provided by the private or public sector, it is socialism by definition. Insurance is designed to pool the risk of a large group of people among which realized outcomes will be asymmetric (for example, some will get leukemia while others will not suffer from more than a hangnail), and divide the financial costs evenly among them.

So for me the "oh no, it's socialism." argument is empty even for those who are afraid of socialism.* After all does anybody really believe that if government takes over health care, that socialism will creep into the coffee-making and music industries. Besides, government control of the banking system is a much quicker path to soviet-style communism than health care could ever be.

There is a difference, indiscernable if you listen to political debate, between health care and health insurance. Insurance companies do not provide health care; they provide risk-pooling. Doctors, nurses, hospitals etc. provide health care. What the talking heads always call "health care" is really health insurance.

Second, exclusive of transaction costs, it is certainly true that a free market in health insurance would provide a better insurance product for consumers than the government. I hold this to be self-evident. However, there are huge transaction costs associated with health insurance that cannot be excluded in any honest policy debate.**

Third, I think the idea that health care should be available to everyone is noble and the sentiment is praiseworthy. It is, however, impossible. Health care is a lot of things, but it aint free. There are real costs associated with providing ANY medical service, and we cannot simply decree that our government, or anyone else, give it to us at no cost.

Anytime that anyone says that health care should be free, you should ignore everything else that that person says. She is talking about a different universe, with a different set of fundamental laws.

Continuing with the theme of the third point, present-day USA is an extremely wealthy society, and I believe that we can, at a relatively small cost, provide a limited set of health-care benefits to every human being physically present inside our borders. And I believe that we can do it through government in a way that minimizes transaction costs, making it less costly than the same service provided by the private sector.

And so, Life At The Margin's national health care proposal is this. The federal government would provide a set (Obviously there would be much disagreement about the composition of the set, but that is what political debate is supposed to be for. I never said that my solution is perfect.) of preventative and diagnostic services and treatment for a very small set of very common ailments. It would be provided to anyone who comes to one of the facilities without any type of administrative, bureaucratic red tape. And I don't mean private facilities with government paying the bills. I mean government provides the service, exactly the way the military medical system works, except with a much more limited set of services.

Keeping the set of services limited is absolutely critical. Private insurance and private providers would handle everything else with out government interference. So for example, I think things like yearly physicals, treatment for broken arms and strep throat, and initial diagnosis of any symptom should be provided in a government facility. Things like cancer treatment, pregnancy, type-II diabetes treatment and other catastrophic ailments, as well as rare disease treatment, would be excluded.

While I believe the above framework is the best path for national health care, I have observed enough to know that it is politically unrealistic. The voters want their all-inclusive single-payer system and they want it now; those who helped pay for the elections (i.e. insurance companies) want a return on their investment and they want it for years to come. The compromise is likely to leave most of us wondering what hit us.

This leads me full-circle to mild support of the tax on employee-provided health care.

Here is my reason: Employee-provided health-care is basically stupid***, and a tax on it will discourage it. As a nation we backed into this system because companies were legally restricted from offering employees more money and so had to find other ways to compete for their services; we've stuck with it to our detriment.

Efficient compensation plans are simple compensation plans: All cash across the board. Employees are often forced to join risk pools that include people with much more (or much less) risky lifestyles. Companies should use the money they spend on health insurance to increase salaries and let employees shop for their own health plans.

*Building bridges is also socialism, as is providing national defense.
**I believe that almost everybody intuitively knows this, even if you haven't thought of it as transaction costs before.
***It does make sense for some businesses to have some medical services for employees so that time missed due to illness is minimized.

Sunday, June 28, 2009

Back In Capricornia

Have you ever been in an unfamiliar city of 20 million people, in a taxi with a cabdriver who is guessing? This is where I found myself last weekend in Sao Paulo, Brazil. It took us an hour to go 20 kilometers through traffic, but another 2 hours to find my destination. After a while my driver got out to ask another cabbie where to go, but that guy drove away on him. When I finally had enough, I told him to drop me at a corner, but he successfully made contact with another cabbie, and I listened to them, which gave me confidence. That was a mistake. A half hour later, after talking to a third driver, he finally got me to my friend's apartment.

I felt a little bad for the guy. He seemed like a nice enough fellow, and his lack of competence appeared to eat at him. He offered to charge me zero for the trip so I gave him a little more than half and got on with my life.

The rest of the trip was super-smooth. A friend had told me to allow at least 3 hours at the BsAs airport as there would be long lines to wait in. As it turned out, check-in, security, and immigration took a total of 20 minutes. So I sat in peace in the coffee shop for 2 hours and ran through ideas of what I could do back in the USA. From Sao Paulo back to Buenos Aires, the airport process took 8 minutes in total.

I went to Brazil to see a good friend and meet his fiancee. I found a whole group of wonderfully warm and friendly people. We spent most of our time with good food and wine, chatting in English, Portuguese, and Spanish; pondering such questions as "Why don't more people use helicopters?"

Brazil seems to me a world away from Buenos Aires. Sao Paulo is much more like Chicago or San Francisco than its South American cousin. And the city and its outskirts could easily fool a person into believing he is in southern California.

On the other hand the taxi fiasco would never happen in Buenos Aires. The taxistas here will get from A to B as fast as that machine can possibly do so.

Thursday, June 25, 2009

Obama Said What?

Barack Obama said that he is "appalled and outraged" about the situation in Iran.

Here is the statement from him that got my attention:

"And we deplore the violence against innocent civilians anywhere that it takes place."

Who is he kidding? As commander-in-chief of U.S. armed forces, Mr. Obama is the most prolific purveyor of violence against innocent civilians in the world. As he stands in front of his weak-kneed press corps, American drones drop bombs on Pakistan, killing hundreds of innocents every week. Baghdad and Mogadishu are the two most dangerous cities in the world, primarily due intervention of military forces under Obama's command. And the piles of dead Afghanis grow larger and larger.

How does Obama get away with this? How can he make such a ridiculous statement without someone challenging him? Is he dumb or does he see us all as dumb? I'm starting to wonder. Why do the people who voted for change continue to support this Bush-clone?

Referring to a now-famous recent event in Iraq, he said, "I think that when a young woman gets shot on the street when she gets out of her car, that's a problem."

Mr. President, I have news for you: that kind of thing happens in the United States of America.

Never willing to show themselves as reasonable alternatives to the democrats, prominent members of the republican political party were jumping over themselves to condemn the Iranians more strongly, and to condemn Obama for his lack of belligerence toward Iran.

South Carolina Senator Lindsey Graham said this: "A president of the United States is supposed to lead the free world, not follow it."

Nothing could be further from the truth.

This is important folks; it is the essence of our government's failure to serve its people. It is the source of failure of our people to hold elected politicians accountable. The U.S. president, as well as our legislators, should never lead; they are elected to follow. Kings lead. Dictators lead. We are, in name, a representative democracy. Barack Obama should follow the will of the people. He would if we forced him to.

And if he did follow the people, it is quite possible that our government could serve as an example to others. And if the people of other countries wish to follow our lead, so be it; if not, that is okay as well.

But that is the real issue here. Obama, like all recent U.S. presidents, believes that there is one set of rules for the U.S. and another set for everyone else. But as our economy collapses and our military weakens, that attitude will soon become unenforceable. It is time for the U.S. government to leave the rest of the world alone. Let the people of Iran deal with their problems themselves, and do the same for every other country.

If Barack Obama wants to help the Iranian people, he'll stop the phony rhetoric, stop threatening them. And most importantly and most simply, he will stop the economic siege that the U.S. and our allies have crushed these people with since 1979.

Iran is actually a natural ally of the U.S. and we're hurting ourselves with our belligerence, but we hurt them more. The strategy of the U.S government since 1979 has been to punish the Iranian people because of a childish feud between elite Americans and elite Iranians. And all that this accomplishes is to tighten the grip of tyranny.

I would love it if my government could stand up and make an honest statement in support of the freedom of all people. But it cannot. It is pure hypocrisy, and Obama embarrasses every American when he delivers this drivel. Until we stop killing people, we should shut the hell up.

Tuesday, May 26, 2009

Sick in Buenos Aires

I sit in my bedroom, suffering mildly with strep throat, waiting for the amoxicillin, my immune system, or some sort of magic that emanates from the southern sky to heal me. On Saturday I started to feel sick. Sunday night I took a bus across the city to a milonga where I danced but 2 tandas before realizing I had no energy, only to find that I didn't have enough cash to pay for a pizza I had ordered. Monday night, I finally decided to walk through the downpour to the Italian Hospital.

And it was the easiest, most comfortable experience that I have ever had at a medical facility. And I don't speak their language - well.

First, on a national holiday the regular clinic was open at 7:30 PM. They asked me 3 questions: What is your name? Have you been here before? And what seems to be the trouble? Then the woman took great care to inform me that because I have no insurance and because this is a private hospital, I would have to pay 82 pesos (about 23 USD). I would have kissed her except she would then acquire my strep.

There were no forms to fill out, they did not care where I live, or who I work for, or who my primary and secondary provider are. They did not want to know if my great-grandfather had diabetes. They did not waste time by putting me on a scale.

I went to a hospital in the U.S. 2 days before leaving for BsAs. I was there for an immunization shot; the appointment was pre-arranged and specific. They measured my height and weight, my blood pressure, and my temperature. Meanwhile, people sat in the waiting room.

After paying 80 pesos (They don't make change well in Argentina, so paying 100 pesos for an 82 peso bill often yields 20 in change.), I waited about 12 minutes, saw the doctor and left. Down the street to the pharmacy, and soon I was back in bed.

I contrast this with an experience I had a few years back in Seattle. I was dating a wonderful woman who happened to be sick with strep throat. She didn't have insurance or a lot of money. So I called around to find a doctor. No one would give me any reasonable detail about how much a visit would cost. Finally I spoke with a woman at Harborview and, after I explained the basic situation to her she said, "Look, if you come here you may have to wait awhile but it is essentially free healthcare." Once there, my friend had to fill out a pile of forms, including what appeared to be a sworn affidavit about every detail of her personal finances. And yes we waited many hours for her to be seen.

She came out of the consultation in a chipper mood. "Yep, strep throat, he gave me penicillin and a pain killer. The doctor was so nice," she said, "He said he didn't really need a throat culture, but he did it anyway."

I stopped in my tracks. "You know they are going to charge you for that." I said. That didn't bother her at the time. A few weeks later the bill came - and it measured in the hundreds of dollars, including a charge for a superfluous throat culture.

That health care wasn't so "essentially free" after all.

Tuesday, May 12, 2009

This... is War

President Barack Obama says he's "shocked and deeply saddened" by news that a U.S. soldier opened fire at a counseling center in Iraq, killing five fellow soldiers.

I hope Mr. Obama is saddened; I have serious doubts that he gives a damn.

As for shock, a man who is shocked at such an event has no business being Commander-in-Chief of U.S. forces.

War is accumulated evil. It contains within itself every form of evil that exists in the world. When we vote for it, we get it all. It is impossible to separate the rape, murder of innocents, suicides, depression, plundering of villages, torture, etc. from the killing of so-called bad guys.

Is Barack shocked and saddened that his near-daily bombings of Pakistan, a war as yet only tacitly approved by the American populace, have killed hundreds of schoolchildren and other non-combatants. Is he saddened by the deaths of thousands of Afghanis; is he shocked by the complete lack of any strategic victory in EIGHT YEARS of war? Does he frown when he thinks about the hundreds of thousands of dead Iraqis or the millions whose lives have been destroyed as a direct result of the U.S. military adventure.

Had Obama followed through on his primary campaign promise - “There is no military solution in Iraq and there never was. I will begin to remove our troops from Iraq immediately.” - this event that shocked him probably would not have happened.

Monday, May 11, 2009

Wells Fargo and Morgan Stanley Capital Raises are Failure

Last week, Wells Fargo sold $8.6 billion in common stock; Morgan Stanley sold $8 billion in stock and senior notes.

I don't mean that those two banks failed in this case. Far from it. But this is a failure for our society. A failure to do something that a free market can do effectively without even trying.

The point here is that these investors are not turning their money over to the banks because they believe in their business model; they are doing it because they believe the taxpayer will bear some, most, or all of the risk.

By propping up these broken institutions, the government is directing scarce resources away from productive endeavors.

With Bush and Obama leading the charge, the Wall St./government cabal has somehow convinced us that we need these banks for capitalism to work.

Obama and others say the banking system is "the lifeblood of our economy."

It just aint so, and we should all be thanking our maker for that fact.

The truth is that the banking system lies pretty low on the list of essential components of free-market capitalism. Certainly creativity, human productivity, entrepreneurship, and good-old trial-and-error rank high above it.

A banking system is necessary. Its function is simple: take excess resources from savers* and distribute it to competent investors*. Our system has failed to do that effectively and its natural fate is to collapse and die. Once that happens a new banking system will rise up to replace it. Until then, we stifle the attributes of our economy that make it work.

The bailout, prop-up path is doomed to fail. There is no other possible conclusion.

Furthermore, all those bankers who have been fired or are about to be may well be fantastic architects, musicians, store managers, and vacuum cleaner repairmen; they are not good bankers.

*Savers are people who do not consume all of their production. Investment is addition to the stock of real capital.

Wednesday, April 29, 2009

Mi Poema, En Castellano

Esa mujer tiene que tener un corazon de oro;
Ella tiene que mirarme con ojos de fuego.
Cada noche tenemos que ahogarnos en un mar de besos;
Cada manana tenemos que salir a flote en un mar de pasion.
Cuando habla tengo que oir amor;
Cuando le veo tengo que ver vida.
Tiene que bailar cuanda camina;
Tiene que jugar cuando trabaja.
Se derretiria en mi abrazo;
Se quedaria siempre en mi mente.
Si no ama todo el tiempo
Otro hombre la puede tener.

Tuesday, April 21, 2009

Mankiw's Error or Why Are Harvard Graduate Students So Dumb?

First, let me point out that when I teach Principles of Microeconomics to freshmen, I use Greg Mankiw's book. It is a great educational tool.

On Saturday, Professor Mankiw wrote this in the New York Times:

"At one of my recent Harvard seminars, a graduate student proposed a clever scheme to [make holding money less attractive]... Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent."

For now I'll ignore the bigger picture of Mankiw's grand scheme. Almost always, it is in the details where importance finds its home.

Money exists because its existence reduces transaction costs. Thus ends the list of fundamental functions of money.

Now, I am not trying to pretend that money does not serve other purposes. It is used, for example, as a store of wealth and as a unit for accounting. But, every society that has ever decided to invent or adopt money (every successful society has) has done so for one reason: It is less expensive* to trade with money as a medium of exchange than not to. Other functions of money, including those listed above, are ancillary.

Let us say that you work at a pasta making company. Any job - accountant, buyer, farmer, laborer, secretary, CEO - it doesn't matter. Without money, you would have to paid in the firm's output - pasta. So if you want to consume something other than pasta - say, a house - you must trade pasta for that house. Or if the builder doesn't want pasta, you trade pasta for, say, a piece of land in Nevada. Then give the Nevada land to the builder in exchange for the house.

We can all see how quickly this barter system could get very complicated. It would suck away from all of us our greatest resource - time. A great many trades that would benefit both buyer and seller would not happen under this system because the time cost of finding trading partners would exceed the potential benefits.

Enter money. Money alleviates the need to find trading partners that match perfectly with me. If I produce pasta and I want a cup of coffee, I give Starbucks 2 dollars for a cup of coffee. I need not worry if the owners of Starbucks want my pasta. Because money is universally accepted, it can always serve on one side of every transaction. Not to overstate things, this massively reduces transaction costs.

Back to Mankiw's graduate student. This proposal takes the clear benefit of money and REDUCES it. And that is only the beginning. Under this proposal, the sellers of goods would have to examine closely every bill that is paid to them. Any bill that contains the 'selected digit' would be worthless. There are other problems.

First, under this policy, the expected value of every piece of U.S. currency would be 90% of face value. Or would it?

Actually the expected value would be much lower. Once the Fed adopts this policy people would expect a similar thing to happen again. Perhaps once a year. There are many digits in the serial number of a 20-dollar bill.

If the expected value (that is, the future value at some specific time - in this case, the date of the FED policy enactment) of money declines, what happens to the present value of money? It declines as well. If the value of money declines, sellers must receive more of it, so prices will rise.

This is Mankiw's error. We at Life At The Margin, though educated at lesser institutions than Harvard, are shocked that Dr. Mankiw fails to recognize that the MOST important attribute of money is its present value. Money can serve its function as a medium of exchange only if sellers are confident that they can exchange that money for something of tangible value.

The chain of events gets uglier from there. Not all money is currency, so not all money is affected by this policy. People would rush to get rid of cash. They might buy some gold. They might buy goods and services. They might just put it into the bank. The banks would rush to turn cash in to the Fed in exchange for electronic money and the vaults would empty. Ultimately, all cash would go out of circulation. Hardly the intended result.

The policy is also unconstitutional since it expropriates wealth without due process.

Greg Mankiw is a professor of Economics at the top Economics department in the world. It is not his job to take a graduate student's ridiculous idea and put it in The Times; it is his job to encourage the student's creativity, then point out the massive flaws in his thinking.

But, to my dismay, Mankiw's misunderstanding of Economics runs deeper than this. Let's return to the big picture. He likes this policy because it enables another - making nominal interest rates negative. Mankiw believes that negative interest rates will discourage saving - about that, he is right. He also thinks that reduced saving will bring us out of recession. Oh what a tangled web.

Mankiw writes, "recessions result from an insufficient demand for goods and services."

But there is no such thing as an insufficient demand for goods and services. Recessions happen when the aggregate cost of producing goods and services exceeds people's willingness to pay for them. That is our current condition. It can only persist if demand is artificially preserved.

Ask yourself this question: Do I consume because it gives me a reason to work or do I work because it gives me the means to consume?

The answer is no different for the macroeconomy. Production enables consumption. There is no other way. Mankiw wants interest rates to be low because that effectively means "free money." He wants people to consume even if they do not produce.

Because foreigners are willing to lend to us in the short run, we have "learned" that consuming more than we produce is possible. But the defining characteristic of the short run is that it ends, and in the long run supply must equal demand. Mankiw's clever tricks cannot change that.

Let's allow interest rates to adjust to their natural place. For now, that means much higher. Only then will we go through, and thus get through, the proper recession.

*Less expensive means "requires fewer resources"

Saturday, April 11, 2009

Why I Dance the Tango

I think the role of chance in our lives is overwhelmingly underrated by almost all people. I would prefer to live in a world where it is universally understood that random events drive reality.

I have been asked the question, "How did you get into tango?" over and over again, and I have never thought seriously about the answer. I feel that people who ask this are often looking for a clean definitive answer. Something like "My wife dragged me out to a lesson" or "I wanted to find a girlfriend and wasn't working for me." Quite a few people seem to 'know' already that the answer involves a TV show called Dancing With The Stars.

The truly honest short answer is really "I don't know." The honest long answer is convoluted and riddled with uncertainty.

A proper answer could not be given without recognition of the role of chance. I do believe there is a connection between dancing salsa and starting tango, but I don't remember why I started salsa. That is probably related to the fact that I like to move methodically and that the club scene in Seattle is wholly unsatisfying.

One might say that it makes sense that Dancer X dances tango because she is a professional dancer. The connection seems clear. Yet it is uncommon for professional dancers to be involved in tango, and a randomly selected dancer at a practica or milonga is unlikely to have any professional background or aspiration.

The inherent randomness of life, dominant though it is, would be uninteresting to someone trying to learn something about the person of whom he is asking the question. As well, the importance of the non-random aspects (choices) is significant.

I once heard a religious right fanatic explain that it is ridiculous to ascribe to chance the existence of humans as a result of a process that began with single-celled organisms. But this is a complete misstatement of evolution. There is nothing random about natural selection; this should be evident from the word 'selection' but some people ignore that. It is the creation of the group of organisms that are to be selected from that is random. Evolution has two fundamental processes: the random mutation of existing genes and a competition that naturally determines which of those mutations is best suited to the complex
world around them.

Everything about us can ultimately be ascribed to chance, but decisions made along the way serve to shape the set of possibilities that chance offers us.

Outside of conversation value, I don't think the story of how I came to tango is very interesting to me. A far more interesting question to me would be: Why do I continue to dance the tango?

Perhaps that book will someday be written.

Wednesday, April 8, 2009

What the...?

Rasmussen Reports did a telephone poll of Americans and they found that 57% of us want to take military action against North Korea as a response to their test launch of a rocket.

Are we nuts?

Have 57 out of every 100 Americans completely lost their minds?

North Korea poses absolutely no threat to American land or people. They are barely capable of threatening Japan or South Korea.

Is it not enough that we have destroyed the lives of most Iraqis and most Afghanis, and put ourselves on the edge of bankruptcy in the process?

Why is our gut reaction to any attempt of any 3rd world country to provide some defense for itself to punish them with bombs?

The poll also found that 73% of Americans are somewhat worried that North Korea will use nuclear weapons against the U.S.

Has anyone thought this out? Kim Jong Il may be a strange, crazy, egomaniac but he is not an idiot. Nor will be any of his successors. In 50 years the North Koreans have never had the guts to attack the U.S. or its South Korean client. They have no motive. They do not have the means, with or without a nuclear arsenal, to emerge victorious. They do not have any desire to get involved in any type of hot confrontation.

If you are going to worry about North Korea sending a nuclear bomb this way, you might as well fear an invasion of Topeka, Kansas by Iceland.

If we invade North Korea, we'll suffer huge losses. If we bomb them, we'll kill thousands of people who struggle to EAT FOOD every day.

This is not an issue of war and peace. It is about recognizing the humanity in ourselves and in people who, though their lives may be incomprehensible to most of us, nonetheless constitute lives.

Sunday, April 5, 2009

Life At The Margin Heads for Buenos Aires

A couple short flights from Seattle and now I live in Buenos Aires. In a few months here I hope to learn the language, improve my tango, and simplify.

In a few days here I have learned the following:

1) Though I thought I would buy a cheap bicycle to get around the city, I realize that I am not yet emotionally qualified to bike in Buenos Aires. I can barely make it through some of the cab rides.

2) In Spanish, the word 'pare' means 'stop;' however, when written in big white letters and put on a red octagon on top of a pole, it apparently means something else.

3) A short blast of a car horn means something like "yes, of course it is okay to cut in front of me. You must be in a hurry. I know in my heart that you would let me pass if I were in a hurry."

4) A long blast of a car horn means "Oh, you are stopping to let out your passenger. That makes perfect sense."

5) Porteña must be the Argentine word for German woman. My goodness there are a lot of Germans here.

6) Practica X is the real deal.

Penn State are NIT Champions

The PSU men's basketball team won the post-season National Invitational Tournament, a monstrous achievement at a school where the b-ball players are valued somewhere below the most recently born dairy cow*.

It is likely that their late-season loss to Iowa pushed them out of the big-deal NCAA tournament and into the lesser NIT, which makes me wonder which is the better accomplishment: to make the NCAA field or to win the NIT.

Here at Life At The Margin we believe the NCAA tournament is an over-rated goal. Now, I am not trying to say that it is better to not make the tournament, rather that being invited is not, in itself, an accomplishment.

The best examples of this are the champions of the minor conferences. To illustrate my point, I arbitrarily selected the America East conference. The champion of the America East conference tournament, this year, was Binghamton. But you are not likely to hear or see this event reported as such; instead, the media announces something like "Binghamton Earns NCAA berth" or "Binghamton Headed for the Big Dance."

For Binghamton, though, the berth in the tournament is ceremonial; winning the America East, on the other hand, is a real accomplishment that required real work. The invitation to the NCAA tournament is merely a trophy.

Some would say that Binghamton was given an opportunity to win the national championship. Hogwash. 65 teams were invited. Realistically, maybe 15 or 20 had non-trivial chances of winning. Even Purdue, the 2nd best team in the Big Ten, probably had to experience strange planetary alignments to win. Binghamton was sacrificed to Duke in round 1.

A few years back, the University of Washington won the PAC-10 tournament. A big deal. A real accomplishment. It received significant media attention in Seattle. Nowhere near, however, the attention the team got when they were "awarded" a number 1 seed (one of the top 4 positions) in the NCAA field. So why do I put awarded in quotation marks? Well, anyone paying close enough attention saw that the award meant the Huskies would play Louisville in the 3rd round.

A #1 seed should be a reward for a well-played season. It should mean a relatively easy road to at least the 4th round. Playing Louisville so early meant the Huskies got screwed. Louisville and UW were probably the 5th and 6th best teams in the country that year. Neither should have had to play a team as good as the other until at least the 4th round, but they met in the 3rd round and one had to lose. Washington would have been much better off with a #2 seed, but the Seattle sports media were fawning over the "accomplishment" of a #1 seed. Many called it "historic." Strange word, historic.

Back to Penn State. Had they won that game against Iowa, they would have likely been invited to the NCAA tournament as a 12-seed. They could have realistically set 2 wins as a goal; they almost certainly would have lost in round 1. Instead they won a real tournament, emerged on top of 31 real basketball teams, and knocked off Florida and Notre Dame along the way.

I haven't answered the question that served as premise for this writing, nor will I. I will write this, however: The difference between selection to the NCAA and being relegated to the NIT, for Penn State had a lot to do with a bunch of out-of-shape guys in suits sitting around flipping various coins; the difference between winning a tournament and not winning that tournament... is obvious.

*Various dairy cows were emotionally scarred in the making of this piece of writing.

Friday, March 27, 2009

Other People's Words And My Reaction: Part 1 of Many

Failure’s hard but success is far more dangerous. If you’re successful at the wrong thing, the mix of praise and money and opportunity can lock you in forever. – Po Bronson

Success and failure are judgments of results. I don't think it is possible to encourage or discourage either. Process can be encouraged or discouraged. Different people have different interpretations of results though, and there are varying degrees of measurement costs associated with those interpretations.

I viewed this quote in the context of my recent thoughts about external versus internal feedback. So if someone pays me $1 million to do a job that's a piece of feedback that says I'm a success. Or if someone I care about is proud of me
because I have "a good job" that is clear feedback. But those are arbitrary measurements of success and I might be miserable inside.

Things like salary, job title, employed vs. unemployed, married vs. single, academic degrees, awards won, etc. are all very easy to measure. That does not mean they are valuable or accurate measurements, however.

An individual can get caught up in these easy measurements and ignore more important ones, and the problem comes when easy measures of success are followed and the more meaningful ones get ignored.

It is also difficult to place more weight on one's own judgement than other people's, even though one's own judgement is almost certainly more meaningful. This is because a person is fully aware of his own doubts but others appear certain when they give opinions. For example, if I ask you if I should take a CEO position at AIG or the store manager job at a local coffee shop, you'll give me some answer and sound sure of the answer, but in reality you probably put almost no thought into it and in any case its a judgement based on your values and your perception of what is best for me. I'll feel uncertain of the right decision but to you it was a no-brainer so I take the AIG job and before you know it I'm getting yelled at by idiot Congressmen.

Thoughts on Warren Buffet's Op-Ed

Buffett is an interesting character. There is a lot to learn from him; beyond that it would be folly to emulate him. I lost a lot of respect for him in late 2008 for two reasons: First, I think that op-ed was irresponsible. No one else on earth lives in his world. His advice is perfect for him, probably, but he can afford to lose a few billion. In fact, this man's marginal utility of money is zero.

For a typical American his advice was horrible, even without today's hindsight. (I submitted a piece to the P-I in response; they, of course, declined to publish it). Though he didn't explicitly tell people to buy U.S. stocks, the fact that he is publishing his own actions in the Times makes it a recommendation. There are people, like my Dad, who see him as an icon, and assume he must be right. Most of that audience is unaware of the work that goes into separating value from refuse. They still believe that the stock market only goes up. His piece reinforces the (unfortunately) widely held belief that the market must go back up to its recent highs.

Furthermore, if one wants to evaluate Buffett as a model, one must understand his position. I don't. Why does this guy invest? He doesn't consume anywhere close to his earnings. He doesn't give it to family and friends. He doesn't control his charitable projects. If wealth is accumulated saving and saving is future consumption, this man should have no incentive to increase wealth. That is not the case for those who read the article.

Buffett's most famous quotation is repeated here: Be fearful when others are greedy, and be greedy when others are fearful. This is bad advice, and I don't believe he follows it. Fear and greed are pathogens. They do not balance each other; each reinforces the ills of the other. The key is to keep one's head when fear and greed surround, see value where other's don't - if it is there.

It is certainly true that there is value to be found in the U.S. stock market. Finding it is another matter. If one buys an index as a proxy, he will buy into many failing enterprises. Last March I predict that 20% of the DJIA would be gone by the end of 2010. I don't mean a 20% decline in valuation; I mean 6 of the 30 companies will cease to exist. AIG is now dead, we are just waiting for the funeral. GM, Citigroup, and Bank of America have no chance for survival. Their names might live on, but neither their business model nor their equity will.

There will be great opportunity to pick through battered stocks; I don't believe that opportunity has come. The battering will continue. Right now, buyers are only guessing. Some of those guesses will be large winners, others will lose everything.

In 20 years we will read an article in Fortune explaining that if you bought XYZ Enterprises in 2011 you'd have made a return of 100,000 percent. But for every XYZ there are 249 Pets.coms out there and most people have no clue how to tell one from the others.

For people like you and I to find it worthwhile to devote scarce resources to investing we have to beat the averages. That means taking chances. I believe that, more often than not, taking a chance should mean holding back on buying something of value because it might be cheaper later. If we believe in our own abilities, then future opportunities will offset missed opportunity.

More egregious though, in my opinion, was Buffett's rent-seeking behavior. He bought his stake in Goldman Sachs not because he saw a good business but because he saw an opportunity to take advantage of government action. He made that
clear to his investors. Then he lobbied the government on his own behalf. I think he may have been an Obama campaign advisor.

Like my dad, the American people and their elected officials do not understand Buffett's position. They see his success as an indvidual investor as cause to grant him authority on how to manage the macroeconomy. So his "suggestions" hold weight and they influence policy.

There was one great paragraph in his op-ed, but most people would not even read that far let alone remember it. Here it is:

"Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash

The 1999 article, by contrast, is fantastic, with some great insights that few understand. I've gone on long enough though so I won't comment on that.

Why Is The Response So Bad?

I think it is possible that some people just are so conditioned to think a
certain way. They may not actually be trying to screw people for their own

Bernanke, for example, is stuck inside the world of his economic models. He may
just be unable to think about more complex, or simply different problems.

It could be true of Paulson as well, though I place a relatively high
probability on Paulson being pure evil. He has been an investment banker for so
long, he may be unable to see the bigger picture.

It really comes down to a lack of creativity. They see the system as it was and
they believe that the essential components of that system need to be preserved.
But a better system may have different essential components.

Our nation's collective consciousness is concentrating all of its energy on the
non-existent past and the imagined future (which are both completely
irrelevant), and ignoring the reality of the current situation, which is nowhere
near as bad as advertised.

This is why the banking system needs a right-brained economist like me.

As Homer Simpson said when his ARM reset, "When you gave me that money you said
I wouldn’t have to repay it ‘til the future. This isn’t the future; it’s the
lousy stinking now."

Recessions Aint So Complicated

The best, simple explanation for the current recession is that interest rates have been, and are, excessively low. The best single policy to get out of it isto RAISE them.

This comes as a response to an interesting statement made by David Rosenberg of Merrill Lynch, brought to my attention by a friend:

"We do not aim to be critical, and we do not claim to be public policy experts by any stretch, but the reality is that the economy is in dire need of a major positive exogenous shock. Whether that means the Fed starting to buy Treasuries to pull down market rates even lower, the public sector establishing land banks to establish a floor under residential real estate prices, or the White House instructing Congress to dole out a $1 trillion zero percent long-term loan to the beleaguered state and local governments who are being forced to cut back services and raise taxes at the worst possible time, or all of the above, we will leave open for debate. What is not open for debate is the state of the economy, and we can no longer just label this a recession after the latest
string of shockingly negative employment reports. The government has to declare war right now ... against this modern-day depression."

Wednesday, February 18, 2009

Obama Just Does Not Get It

“It will give millions of families resigned to financial ruin a chance to rebuild, By bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

So said Barack Obama. He was referring to a $275 billion giveaway.

Not a giveaway to homeowners.

Not a giveaway to the unemployed.

Not a giveaway to the soldiers fighting his stupid wars.

A giveaway to the banks.

A giveaway to the shareholders and highly paid employees of JP Morgan Chase, Citigroup, Bank of America, and so on down the line of incompetence.

A giveaway from you, me, and all the other suckers.

A giveaway from those who voted for him to those who paid for his television commercials.

And oh by the way, "shoring up housing prices" is bad for almost everyone. It would definitely be bad for the overall state of the economy. Growth will not return until home prices reach levels that can be sustained by the incomes of those who buy them. To do that, they must go down, down, down.

Tuesday, February 17, 2009

If Corporations are Legally People, Then GM is a Drunk, Homeless Guy on the Street Corner

We live in a cartoon world. General Motors told us all today that they want $30 billion MORE dollars. They want it so they can, get this... cut production to match a weaker sales outlook.

A country that lends scarce resources to a business so that it can CUT production deserves a recession.

GM also plans to take advantage of gullible citizens of Sweden, the UK, Germany, and Canada. They are headed toward becoming the first multinationalized corporation. What happens when the chancellor of Germany and the Hopemeister disagree over engine specifications?

Did anyone happen to notice that all those workers whose jobs were supposed to be saved by the last bailout are getting fired anyway?

Our priorities are convoluted. GM is dead; Chrysler is dead; Ford is almost dead. They are zombies, walking the streets in clear daylight, sucking the vitality from the rest of us. If we keep this up, there will soon be nothing left. Someone should tell the federal government, that is, the democratic party, that if Americans wanted what GM is making, we would buy it.

Thursday, February 5, 2009

Presidential Destruction of Words: Exceptional

Barack Obama has ordered that top executives at banks who receive exceptional assistance from the U.S. Treasury be limited to half a million bucks per year in compensation.

We the people are meant to be comforted by this. Our country's resources have been funneled down the sinks of failed businesses, but fear not. Those who manage the absolute worst of the worst will have salary caps.

At present, this edict would apply to 15 people at three institutions: AIG, Bank of America, and Citigroup.

It's been almost a year now since the Federal Reserve signed us all up to lend $29 billion to JP Morgan Chase against the worst collateral in the history of lending. That ominous beginning to the government takeover of the financial industry has mushroomed into a debacle that gets worse every day.

And we are to believe that the Fed's actions last March were not "exceptional."

Nor have bailouts of failed automakers been exceptional.

Nor have uncollateralized loans of 10 and 25 billion dollars been exceptional.

This most recent action is mostly meaningless. On Monday Obama will trot his treasury chief out to tell us that more must be done. Still greater resources must be thrown at failed banks. There is no other choice. We must suck it up.

When we complain and express disgust that they are taking from the relatively poor masses to give to the rich, not just any rich but those particular rich who have put their incompetence on display for all to see, they'll tell us it's okay because Ken Lewis is only getting $500,000.

This act is just the latest in a long series of reactions by people who have no clue what they are doing. They offer poison for food, then give poison as the antidote.

When Monday's "comprehensive" plan meets inevitable failure, they'll react again. Perhaps the next bailout will be called The Exceptional Bailout.

You get what you vote for.

Sunday, January 18, 2009

A Real Stimulus Package for the President

In the spirit of hope and change, Life At The Margin offers the following stimulus package for consideration by the new president and his people:

1) Withdraw the U.S. military from the world. Primarily this means closing bases and bringing soldiers home from Japan, Korea, Germany, Iraq, Afghanistan, and Kuwait. But U.S military personnel are stationed almost everywhere, and should not be. We should end all wars immediately as none of them have any use in the defense of the United States and its people. The process will be difficult and may take long. Some countries have gotten used to our presence and may prefer us to stay in the short run. But in no case is it in the long run interest of either the local populations or the people of America for these sustained imperial outposts to continue. Each government of a land that hosts the U.S. military should immediately be told that we are leaving and negotiations should commence as to how to accomplish this with the least negative impact on the local people.

The end result should be this: The U.S. Army should never (except in time of declared war) go outside the borders of the U.S., the Navy should never go farther than 150 miles from our coasts, and the Air Force should never go more than 500 miles from our coasts. U.S. soldiers should train to prepare for the unlikely event that a foreign army attempts to invade our country. They should spend their nights with their families in their homes.

2) Abolish the Department of Homeland Security. As described above the homeland should be made secure by the Department of Defense.

3) End the trade embargo on Cuba. This misguided policy, designed to ensure the political support of a very small, misguided group of citizens, only does harm to the people of Cuba and those of the U.S. Due to geographic proximity our relationship with Cuba is of great importance. Economic cooperation will enhance prosperity for both nations and loosen the grip of tyranny inside Cuba.

4) Pull out of all multilateral trade agreements (WTO, NAFTA, etc.). Adopt a policy of unilateral free trade with all nations and peoples of the world. It is unambiguously good for U.S. consumers to allow unrestricted imports to the U.S. Those products that can be made cheaply in other countries should not be made domestically. This will free up American resources to innovate and produce goods and services that we have comparative advantages in. Other countries may not reciprocate immediately but that should not weaken our resolve. The standard of living in the U.S. will increase and other nations will eventually see this and follow.

5) Change the federal tax code to read, "All income of any type is taxed at x%." Here, x would equal whatever number would equate revenue under the old and new systems. As spending decreases, and only as spending decreases, the tax rate would decline. The ultimate tax rate could probably be as low as 5%.

This tax overhaul would have massive direct and indirect economic benefits, both immediate and long-lasting. A tremendous amount of resources are wasted in support of the tax code. Accountants would be free to produce something of value and resources devoted to lobbying for tax incentives could be diverted to productive enterprise. In addition, no one would be confused about the tax policy.

As nice as it is to offer tax relief to the poor, the zero tax rate on low-income people has greater cost than benefits. A huge percentage of our population is indifferent to the profligate ways of government because they perceive it as having no impact on them. In reality they are still subject to the stealth tax of inflation. A balanced budget with reduced spending will significantly reduce the threat of inflation, and a low tax rate for all would be a small burden for all, including the poor.

6) Raise the starting age for social security benefits to equal life expectancy and cut the social security tax in half. Social security was never meant to be a retirement program. It is insurance, and only really old people and disabled persons should rely on it in any way.

7) Increase the tax on use of fossil fuels and eliminate all subsidies for "alternative" fuels. This would solve myriad problems, including the global warming issue. The increase in the tax could be 2 or 3 dollars per gallon of gas or equivalent. All energy sources should compete in a free market based on costs and benefits alone. Fossil fuel use causes a negative externality (a cost not borne by its users) which can be internalized by this simple tax. Revenue from this tax should be used to pay down the federal debt. Once the debt is reduced to zero, the income tax can be reduced.

8) Eliminate all federal aid for college tuition. This includes loan subsidies, grants, etc. These programs are sustained on rhetoric of affordability, and the intentions of lawmakers may well have been to that end. But they serve to make higher education less affordable as they feed the increases in tuition rates. Banks and universities are the beneficiaries, not students.

9) Eliminate tax incentives for retirement plans. This is part of number 5, but deserves specific mention. IRAs, 401(K), and similar plans should be eliminated. We are a debtor nation; retirement is for savers. Far from encouraging the nation to save and invest, these programs have encouraged perverse behavior, such as earning a modest return in an IRA while borrowing on credit cards to consume. They have also created a false sense of security for many citizens. The values of these accounts is not guaranteed and retirement is not an entitlement. In addition, many of these plans have restrictions that prevent people from optimally employing their savings.

All assets held in these accounts should be made immediately available for withdrawal without tax penalty. Any contributions already made, or gains accrued to date should be taxed, or be free from tax, according to current law. Future gains should be taxed at the regular rate and no new contributions should occur.

10) End all bailouts. No single business is so important that it should be propped up by taxpayers. The "too big to fail" idea is a hoax perpetrated by those who stand to benefit from the bailouts. Bailouts are theft from American workers and an assault on economic freedom. They are also a disincentive for innovation and productive work.

If a particular service is important to the functioning of our economy, people will compete to offer that service. The bailout policy only causes poor businesses to survive at the expense of strong ones. Once the country gets a clear indication that the bailouts are over, we will set our sights to creating value for people. Only then will the economy truly recover.

Some of these changes will cause short-term pain for a lot of people as the economy adjusts. Most notably, many will lose their current jobs, but new jobs will be created for those people to fill. On average the new jobs will be better than the old ones as greater value is created. In the meantime, we still have unemployment insurance to ease the transition for those who need to find jobs. There is no way out of the pain. Current policies only push the pain into the future. But by doing so, they make the ultimate level of pain much greater. We have to go through this to get through this.

Monday, January 12, 2009

Bush Disappointed That Saddam Was Not Armed To Destroy

"There have been disappointments. Abu Ghraib obviously was a huge disappointment during the presidency. Not having weapons of mass destruction was a significant disappointment. I don't know if you want to call those mistakes or not, but they were -- things didn't go according to plan, let's put it that way."

That's a direct quote from Mr. George W. Bush. Pay particular attention to the sentence, "Not having weapons of mass destruction was a significant disappointment."

I don't believe anything else needs to be said about the character of the man that the people of this country elected to its government's highest office...twice.