Streetwise Professor

January 2, 2016

Fools Rush in Where Angels Fear to Tread: Avoiding the Islamic Civil War Is Prudence, Not Isolationism

Filed under: History,Politics,Russia — The Professor @ 7:43 pm

The combination dumpster fire, shit show, and clusterfuck AKA the Middle East got even more disastrous today when the Saudis beheaded a prominent Shia cleric (along with 46 Sunni radicals). The reaction from Iran was immediate: the Saudi embassy was sacked by outraged Shia.

And the reaction from certain quarters in the US was almost as swift: the usual (neocon) suspects in the US (e.g., Max Boot) immediately swung into action, shrieking loudly about the Iranian violation of the sanctity of the Saudi embassy (I wonder what really goes on there, besides, you know, slavery and stuff) but saying nary a word about the morals or justice or reasonableness of going medieval on Nimr al Nimr.

It is beyond bizarre that certain quarters of the right are so obsessed with Iran that they are willing to go all in with the Saudis and the other oil ticks of the GCC. How can they be blind to the facts that (a) the most direct terrorist threats that we face are all Sunni, and specifically Wahhabi-influenced, (b) these threats receive material and ideological support from Saudi Arabia, and (c) the Saudis have spent billions propagating their hateful creed, including supporting the very mosques in the US and Europe where terrorists are radicalized and recruit?

I stipulate that Iran under the Mullahs is dangerous. I further stipulate that Assad is evil. I further stipulate that Putin is a malign force.

It does not follow, however, that their enemies–the Wahhabi Sunni extremists–are good guys, or that following the enemy-of-my-enemy strategy is even remotely wise.

This is particularly true in the case of Syria, which is a proxy war between the Saudis and the other oil ticks (and the Sunni Turks) and the Iranians. Opposing Assad means throwing in on the side of the very same types of jihadis that are trying to kill us in Paris, Brussels, and San Bernardino. Empowering them today is a recipe for disaster tomorrow.

Just how far the anti-Iran cabal is willing to go is illustrated by their deification of Zarhan Alloush, whose extreme Sunni-sectarian background (he openly advocated a genocide of the Alawites in Syria) has been whitewashed in order to transform him into some martyred potential interlocutor of peace.

Insane.

There is a civil war in Islam. Indeed, there are multiple civil wars. Sunni vs. Shia. But even within the Islamist Sunni “community” there are deep divisions and vicious, brutal fights.

Intervening in a civil war, especially one between extreme sectarians with mindsets completely alien to our own–and indeed, actively hostile to our own–is a recipe for disaster.

But those who counsel staying out–such as Ted Cruz–are pilloried as “isolationists.” Rushing in where angels fear to tread is not isolationism. It’s prudence.

Cruz in fact was-and is-an ardent foe of the Iran deal. So he’s not dew-eyed about the mullahs, or an isolationist. But he’s smart enough to realize that you have to pick your battles, and even if you don’t like Iran (which he doesn’t), that doesn’t mean you have to fight their proxy in Syria.

Indeed, one of the reasons that the Iran deal was a disaster was precisely that it stoked the conflict between Iran and the Saudis. This was predictable, and predicted: well over a year ago I argued that one of the reasons the deal was a bad idea is that it would intensify the conflict in the Gulf specifically, and the Muslim civil war generally, because the Saudis would feel the need to take matters into their own hands and fight Iran before Iran became too strong. We are seeing that happen right before our eyes.

What’s particularly maddening about the interventionist crowd is that they have no specific strategy. This is epitomized by this Garry Kasparov article. Kasparov waxes eloquent about American exceptionalism, and our need to do something:

But the Iraq War was a rebuke to bad planning and lousy implementation, not a refutation of the idea that America can be an essential force for good in the world. America must do better, not do nothing.

OK. I’ll stipulate that doing nothing is not good. But it’s a long way from saying “do something!” to specifying just what that something is, and showing that it will make things better, not worse. After all, in this very paragraph Kasparov admits that we are capable of “bad planning and lousy implementation”: what’s to say we won’t have a repeat? Vacuous generalities about spreading democracy and freedom are exactly what gets us into trouble.

It is particularly irritating that Kasparov invokes Reagan’s name (as many neocons do, though he didn’t care for them, and the feeling was quite mutual). Reagan indeed engaged in soaring rhetoric about freedom and democracy. But he had a concrete strategy that he developed over years and implemented methodically when in office. The new interventionists have the rhetoric. The strategy, not so much.

Further, the situation Reagan faced–a Cold War with a military peer and ideological rival–is completely different than the one we currently face in the Middle East. There are no one size fits all solutions, and anyone who claims to know how Reagan would respond to these completely different circumstances is just full of it. That’s unknown and unknowable.

Perhaps as a chess player, Kasparov is used to there being  black pieces, and white pieces. But in the Middle East, there is no such clean divide. It is just different shades of anti-western and anti-modern sectarians looking to extirpate their enemies–who include us, by the way. Democracy and freedom are on no one’s agenda there, and we shouldn’t pretend otherwise. We made that mistake in Iraq: why repeat it again.

I am not a huge fan of Kissinger, James Baker, and Brent Scowcroft, but on these issues they have a more measured understanding of the realities. They recognize the importance of idealistic goals, but temper that with a recognition that realistic means are needed to achieve them.

Scowcroft:

Scowcroft does not believe that the promotion of American-style democracy abroad is a sufficiently good reason to use force. “I thought we ought to make it our duty to help make the world friendlier for the growth of liberal regimes,” he said. “You encourage democracy over time, with assistance, and aid, the traditional way. Not how the neocons do it.”

(The whole piece is worth reading.)

Kissinger and Baker:

Like most Americans, we believe that the United States should always support democracy and human rights politically, economically and diplomatically, just as we championed freedom for the captive peoples of the Soviet empire during the Cold War. Our values impel us to alleviate human suffering. But as a general principle, our country should do so militarily only when a national interest is also at stake. Such an approach could properly be labeled “pragmatic idealism.”

. . .

Sixth, and most important, the United States must develop a firm and differentiated understanding of its vital national interests. Not every upheaval in the region has the same origin or remedy. The Arab Spring has the potential to become a great opportunity for the people of the region and the world. Over time, fostering democracy may provide an alternative to Islamic extremism; it may also, in the short term, empower some of its supporters. We need to develop a realistic concept of what is achievable and in what time frame.

The last point is a jab at the End of History strain of neoconservatism, which is universalist and believes that everyone wants to be like us, and that the world is inevitably destined to be like us, as the result of some progressive, Hegelian process.

No and no.

Insofar as Syria in particular is concerned. Our national interest there is limited, and the cost of doing anything is prohibitive. Putin’s intervention there is not a bug, but a feature: if he is a fool who rushes in, we should take grim satisfaction, not engage in hysterical reactions like Kasparov (and Max Boot and Michael Weiss). (Relatedly, Boot slandered Cruz, tweeting that he has affection for Assad. This is scurrilous: not wanting to fight him does not imply affection, especially since those whom Assad is fighting are Islamic extremists.)

In sum, the isolationism charge is a canard when hurled at people who don’t want to get deeper into Syria, and who don’t want to take sides between medieval combatants in a sectarian civil war. Saying that the Iranians are bad is not sufficient to justify intervening on the side of their Wahhabi foes–who are just as bad, and are in fact more directly involved in attacking the US and the West than are the Iranians.

To paraphrase Kissinger again (specifically, his remarks about the Iran-Iraq War): we should hope that they both lose. In the meantime, we should look for ways of shielding ourself from the fallout. Jumping into the fray is not the way to do that.

 

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December 29, 2015

Helluva Way to Run a War: The Pentagon & Obama Go to the Mattresses

Filed under: History,Military,Politics — The Professor @ 1:24 pm

I have long hypothesized that an intense war between the White House and the Pentagon has been raging for years.

Exhibit 1 in support of this hypothesis is the simple fact that Obama is on his fourth defense secretary, whereas no other major department has had more than two. The most recently defenestrated SecDef, Chuck “Hapless” Hagel, recently blasted the administration, savaging it for micromanaging, and entrusting the micromanaging to certifiable idiots like Susan Rice, whose major qualification, of course, is her willingness to say anything–anything–in defense of the administration, no matter how ludicrous.

Hagel’s complaints about micromanagement merely echo those of his predecessors, Bob Gates and Leon Panetta. And of course, there are many other stories (some discussed here) that provide further support.

Hagel also claims that the White House tried to “destroy” him with a slanderous leak campaign. The White House no doubt did this pour encourager les autres: no independent thought will be tolerated! This apparently had the desired effect. One candidate,  Michele Flournoy, withdrew her name from consideration precisely because of her concerns about micromanagement by The Incompetent One.

All of this of course should make you look askance at anyone who would take the job.

Today brought another story of the Pentagon-White House War: Reuters reports that the Defense Department has been doing everything in its power, and pulling every bureaucratic trick imaginable, to impede Obama’s obsession with emptying Gitmo.

The most lurid war story came out some days ago, when Seymour Hersh wrote a long piece in the London Review of Books claiming that the Defense Department actively opposed administration policy in Syria. One must always take Hersh stories with a large grain of salt, but this one has a high degree of verisimilitude. The Pentagon was aghast at Obama’s support for jihadi groups fighting Assad, and for its deference to Turkey which was supporting every jihadist in sight–including ISIS.

The strongest piece of evidence in favor of the Hersh claims is the failed Pentagon program to arm allegedly moderate opposition groups. The Pentagon knows how to arm, equip, and train insurgent forces: indeed, this was the original purpose of Special Forces. The only possible reason that the Pentagon could have fucked it up as badly as it did in Syria is that it wanted to fuck it up.

Another piece of evidence in favor of Hersh is that he writes that ex-DIA head Michael Flynn was the most aggressive opponent of Obama’s Syria policy (with Dempsey playing a more devious Yes Minister role). Flynn has been very outspoken recently, including this recent interview.

So there you have it folks. The Defense Department and Obama and his thugs have gone to the mattresses. Helluva way to run a war. Or wars.

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December 26, 2015

Is Russia Like the One Hoss Shay?

Filed under: Economics,Politics,Russia — The Professor @ 7:59 pm

This piece in War on the Rocks challenges seven common beliefs about Russia. Two were of particular interest.

The first challenges the view the Russia is brittle. As someone who long ago advanced this hypothesis, I challenge the challenge. The basic problem is that I don’t think author Michael Kofman really understands the concept of brittleness. Here’s what he says:

With each new outbreak in what has become an almost routine series of political, economic, or foreign policy crises, a segment of the Russia-watcher community invariably begins to make predictions of Putin’s imminent demise. Unfortunately, the science of predicting regime change seems to lag significantly behind astrology. We should remember that few predicted the Soviet Union’s rapid demise, the start of the Arab Spring, or anticipated the rapid fall of Victor Yanukovich in Ukraine following the start of the Maidan.

There are two ongoing case studies on the merit of such predictions. The first is Pakistan, a country that by the same theory should have collapsed long ago under the weight of its many problems. The second is North Korea, which soldiers on despite decades of predictions and estimates of the regime’s imminent implosion. As former Secretary of Defense Robert Gates remarked on our ability to predict the nature and location of the next conflict, “our record has been perfect” given that “we’ve never once gotten it right.” The same should be said of our ability to judge regime brittleness. The point is not that neo-Kremlinology or assessments of political stability are a waste of time, but that this is a single layer of analysis that should be taken with a healthy dose of skepticism.

The point about brittleness is exactly that the process is not linear and that collapse occurs suddenly and unpredictably. Brittle systems survive most things, but when they fail, they fail completely and suddenly . . . like the USSR, Arab regimes, and Yanukovych.

Brittleness arises from coordination games in authoritarian regimes. Preference falsification is one mechanism. Coercive mechanisms and social pressures induce people to claim allegiance to an authoritarian regime, or remain silent, even when they don’t like it. This can be self-reinforcing, because people don’t receive contradictory information, and think that their own dissatisfaction is not widely held, and thereby remain silent (or feign support) which convinces others that their dissatisfaction is not widely held, and on and on. This system is stable, until some shock (a military adventure gone wrong, for instance, or an economic calamity, or an incompetent response to a natural disaster) induces enough people to express their opposition to convince the remainder that their dissatisfaction is indeed widely shared. The equilibrium then flips from uniform support or acquiescence to widespread opposition.

Preference falsification is a brittleness mechanism that works through the broad populace. Natural state mechanisms work through the elite. Elite support for the regime is predicated on the beliefs that it commands control over enough resources that can be distributed to the elite, and that this control will endure for some time. When an adverse economic shock reduces the stream of rents that is used to buy elite support, or if the durability of the regime comes into question (due, for instance, to a health crisis at the top of the regime), the elite can suddenly withdraw support or challenge the existing leadership, leading to regime collapse.

Both of these mechanisms are non-linear. Small shocks can lead to large changes. Since the shocks are unpredictable, the shattering of a brittle regime is unpredictable as well.

Highly personalized and institutionally impoverished systems tend to be more brittle, in large part because these systems are more dependent on the vagaries of individual health, personality, and sanity. In this respect, it is interesting to consider the case of Stalin. The Soviet system survived Stalin’s death in part because it did have developed institutions that facilitated succession. Putin, in contrast, has followed the more traditional authoritarian approach of becoming the indispensable person. Such as system is inherently more brittle.

The second point I’d like to challenge is related to the first, namely, whether Putin (and the Russian government generally) is obsessed with regime survival. Kofman argues that this is an empirically empty hypothesis.

This is incorrect. Putin is clearly obsessed with regime change. Look at his rhetoric on color revolutions and the Arab uprisings. He sees dark plots everywhere, most of them emanating from the US. His fears are matched by actions. Putin’s resumption of the presidency, and the relentless campaign to control civil society and eliminate independent media especially in the aftermath of the late-2011 protests are the clearest examples domestically, and the hysterical response to Ukraine, Syria and even backwaters like Montenegro are the foreign policy manifestations of this fear. The obsession with stability at home and abroad is also symptomatic of of concerns about regime survival.

The domestic reactions are classical authoritarian responses to anxieties about brittleness. Controlling information enforces the preference falsification equilibrium. The confident don’t fear open expression of discontent. Those who know that stability depends the shared belief that the regime has near universal support, do.

Obsession with regime survival is an acknowledgement of brittleness: that’s why these concepts are related (though Kofman does not connect them, which is revealing). Michael Kofman may not believe that Russia is brittle, but Putin’s behavior strongly suggests that he does.

Again, the whole point about brittle regimes is that the timing of their demise is almost impossible to predict, as that brittleness is a non-linear process that involves the risk of a large and sudden change in equilibria in response to a modest shock. Non-brittle systems muddle along. Brittle regimes don’t: they sometimes fall to pieces all at once, like the one hoss shay.

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December 25, 2015

Four Corners Offense: The Social History of Commodity Corners

I’ve been spending something of a busman’s holiday, reading this and that about commodity market corners in days long past. I started out looking into some of the big cotton corners at the beginning of the last century, namely the Brown-Hayne corner of 1903 and the Patten corner of 1910. These are the subject of a new book, The Cotton Kings: Capitalism and Corruption in Turn-of-the-Century New York and New Orleans. The book is entertaining history, but could use some more economics. It is journalistic in style, rather than analytical.

Reading about Patten’s cotton corner led me to read about his wheat corner of 1909, his corn corner of 1908, and his oats corner of 1902. Mr. Patten was a busy man.

And a reviled one. He was known as “The Wheat King,” whom the The Literary Review accused of  “The Crime of Making Bread Dear.” He was the model for the villain in the very influential D. W. Griffith short film, “A Corner in Wheat.”

This early short was one of the first films, if not the first, to address a serious social subject. Its theme would be very familiar today: the two Americas, rich and poorSergei Eisenstein admired Griffith, and employed his “parallel editing” technique (which he referred to as Griffith’s “montage of collision”): some film historians consider Griffith’s technique more subtle and less heavy-handed than Eisenstein’s.

(Unbeknownst to me when I was growing up in Evanston, Illinois, Patten was a longtime resident of the city, and its former mayor. He built a mansion there, and funded the Patten Gymnasium, where I swam in the summers.)

Patten was a nationally known figure. The Justice Department indicted him under the Sherman Act for his cotton corner, and the case attracted front page attention in national newspapers, including the New York Times, when it went to the Supreme Court. (Patten was fined $4000, or less than .1 percent of what he allegedly made in his corner. Not much deterrence effect there, eh?)

Patten was not alone in being a figure of national renown–and infamy. Commodity speculators were the banksters of their day. The Matt Taibbi of the 1880s, Henry Demarest Lloyd, wrote about cornerers at the Chicago Board of Trade in a famous essay. Frank Norris wrote a famous roman à clef, The Pit, based on the Leiter wheat corner of 1898.

In sum, in the last third of the 19th century and the first quarter of the 20th, commodity markets generally, and commodity market corners in particular, were the subject of intense interest. In some respects, it is not surprising that commodity corners were the subject of close journalistic coverage, serious fiction, social critical literature, and film during this era. Agricultural commodities were much more central to Americans as both consumers and producers. In 1900, 41 percent of the American workforce was employed in agriculture: now it is under 2 percent, and agriculture represents less than .7 of GDP. Half of American consumption spending went to food and textiles in 1900: a century later, that figure was down to 20 percent. Relatively speaking, the commodity derivatives markets (the Chicago Board of Trade, the Minneapolis Chamber of Commerce, Kansas City Board of Trade, the New York and New Orleans cotton exchanges, etc.) were more important and more developed that the capital markets, including the New York Stock Exchange, than is the case today: by the 1990s, when I was researching commodity exchanges and doing work with some, the commodity traders lamented that the explosion of financial futures had led the managements of exchanges to lose touch with the realities of commodities.

That said, one can see many echoes of the distant debates about and social criticism of commodity trading and corners in current controversies over financial markets. Just as outrage over the alleged excesses of the 2000s gave birth to the spate of post-Crisis financial regulation, fury over the Leiters and Pattens and Browns led to the first major regulations of financial markets in the United States: the Cotton Futures Act of 1914, and the Grain Futures Act of 1922 (which morphed into the Commodity Exchange Act, which is still with us, and which was amended by Frankendodd). Both Acts followed major government studies, the Commissioner of Corporations’ Report on Cotton Exchanges, and the Federal Trade Commission’s Report on the Grain Trade. Both of these are very well done, and provide very detailed descriptions of both the cash and futures markets. They are priceless resources. In some respects, because of them, we know more about the operation of commodity markets in the first decades of the 20th century than we do of their operation in the first decades of the 21st.

Maybe someday I’ll write a book about all of this, one that integrates the economics, history, and political economy. It’s of great personal interest, but not highly valued in the economics or finance professions today. I was amused when I came upon the link to an AER article about the Cotton Futures Act: it is beyond imagining that something similar would appear there today. But as I hope the foregoing shows, plus ça change, plus c’est la même chose. Issues of the relationship between financial markets and the real economy, the political economy of financial markets, and the influence of financial titans on political and judicial institutions, are still with us. In 1909, a film like A Corner in Wheat grappled with the social impact of finance in a very provocative and arguably simplistic way: in 2009-2015 movies like Too Big to Fail, Margin Call, and The Big Short do the same.

Don’t hold your breath, but maybe someday you’ll read about this in depth in print, rather than superficially in pixels.

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December 23, 2015

The WaPo Caters a Pity Party

Filed under: Politics — The Professor @ 11:41 am

This story in the WaPo is utterly infuriating, on many levels.

In a nutshell: A British “Asian” Muslim family was denied entry into the United States by DHS.

Rather than even acknowledging the possibility that DHS had a legitimate security interest in doing so, in an alleged news story the WaPo leapt into action, blaming Trump:

Ever since Donald Trump called for a “total and complete” ban on Muslims entering the United States, many people have decried the idea of excluding people from the country just because of their religion. Would such a policy, some wondered, be constitutional? Would it be American? Would it be decent?

Now, a British Muslim family headed to Disneyland has been prevented from traveling to the United States by the Department of Homeland Security. The Guardian reported that a family of 11, headed to the California resort from Britain’s Gatwick Airport, was unable “to board the plane even though they had been granted travel authorization online ahead of their planned 15 December flight.”

Trump had zero to do with this. FFS, it was the Obama administration’s DHS that barred them from the flight, and we have had plenty of evidence that the administration, and the DHS in particular, is consumed by political correctness that leads it to avoid anything that can be even remotely called profiling of Muslims. And it’s not as if the Obama administration genuflects to Trump: Obama has in fact sharply criticized Trump’s ban-all-Muslims gambit. If this DHS has issues with you, that’s saying something.

The WaPo raises the issue of whether the family was all UK citizens. As if that should matter.  let’s not forget that the UK has a huge homegrown radical Islam problem, rooted deeply in the Asian community. The UK government acknowledges this.

Another huge red flag is the fact that the family immediately went into full-blown victim mode:

“We were devastated,” Mahmood told the British TV station ITV. “We’d planned this trip for two months — the kids were excited — and all of a sudden some person just comes and says ‘you’re not allowed to board the plane,’ with no explanation.”

“We were alienated,” he added, “the way we were just taken out the room.”

Mahmood said the children were “devastated” and had “tears in their eyes.”

In an interview with the BBC, Mahmood said he was taken aside by a British border control official just before his family was due to board the flight — and that the children knew almost instantly what was happening.

“We were the only family that were Asian, Muslim appearance. It was embarrassing that we were the only family that were taken out,” he said. “When they saw me shaking my head, the younger ones started crying. They knew straight away.”

No American officials told them why they weren’t being allowed to enter the United States, Mahmood told the Guardian, but he said the reason was “obvious.”

“It’s because of the attacks on America — they think every Muslim poses a threat,” he told the newspaper.

All of this is hyperbolic and manipulative, but the last sentence is particularly egregious. Um, Mahmoud’s experience made the news because it is clearly the exception, not the rule. “Every Muslim” is not denied entry: very few are. Mahmood & family were denied entry.

There is another exception reported in the story, a certain Mansoor who was denied entry to the US, and who also played the victim for all it’s worth.

But rather than take a skeptical or merely even-handed approach to Mahmood and Mansoor, the WaPo catered the pity party.

And that does bring Trump into the story: this clueless political correctness in the political class and its media enablers is exactly what drives Trumpism.

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December 21, 2015

Adam Smith Goes to Syria: How Bad Government Policies Turned Drought Into Famine

Filed under: Climate Change,Commodities,Economics,Energy,History,Politics,Regulation — The Professor @ 7:39 pm

The myth that global warming caused a drought which caused the civil war in Syria has been flogged repeatedly by the left, especially in the lead-up to the Paris farce: another example of the “elites” letting no good crisis go to (political) waste. As I discussed in March, there was indeed a drought in Syria, but no credible scientific evidence links the drought to climate change.

Droughts happen. What turned the drought into catastrophe in Syria was the depletion of groundwater by previous government-driven efforts to spur production:

Syria was such a successful producer that it became a net exporter of wheat for the better part of two decades — almost unheard-of in a region where most governments imported cheap wheat from abroad. According to ICARDA Director General Mahmoud Solh, the increased productivity netted the Syrian government more than $350 million a year . The country also kept a strategic reserve of wheat — usually about 3 million metric tons, enough to get it through a lean year or a price spike. In this most stable of dictatorships, nobody dreamed of a war.

But all that productivity came at a price. To produce these remarkable gains, Syria’s agricultural sector “mined” groundwater to irrigate farms. Experts predicted that this would lead to severe water Shortages. When a four-year drought struck in 2006, devastating 60 percent of Syria’s agricultural lands, the country’s groundwater was already depleted.

(This sounds a lot like Soviet agricultural malpractice.)

This brings to mind Adam Smith’s argument that bad government policy turns “dearths” caused by nature into famines:

The seasons most unfavourable to the crop are those of excessive drought or excessive rain. But as corn grows equally upon high and low lands, upon grounds that are disposed to be too wet, and upon those that are disposed to be too dry, either the drought or the rain which is hurtful to one part of the country is favourable to another; and though both in the wet and in the dry season the crop is a good deal less than in one more properly tempered, yet in both what is lost in one part of the country is in some measure compensated by what is gained in the other. In rice countries, where the crop not only requires a very moist soil, but where in a certain period of its growing it must be laid under water, the effects of a drought are much more dismal. Even in such countries, however, the drought is, perhaps, scarce ever so universal as necessarily to occasion a famine, if the government would allow a free trade.

It as not just the  Syrian government that contributed to spiraling food prices which created popular unrest in the Middle East that culminated in 2010-2011 (which the Muslim Brotherhood exploited in Egypt and Syria in particularly): US government policy contributed to the problem. In particular, US biofuels mandates that stimulated the production of ethanol drove up the price of corn by an estimated 30 percent, and as Brian Wright has shown, drove up all other grain prices as well (because corn is a substitute for other grains in both consumption and production). (I strongly recommend reading at least the introduction of the Wright paper: I’d quote in detail, but the online versions embed some devious feature that makes it impossible to copy-and-paste.)

It is sickly ironic that policies intended to reduce global warming pushed by the same crowd that falsely blame the Syrian drought and subsequent civil war on global warming (a) do nothing to reduce global warming, and (b) have done far more to exacerbate poverty and create social unrest  in the Middle East than global warming ever has or ever will.  Ethanol is an unmitigated disaster environmentally, economically, and socially. Yet the people Thomas Sowell trenchantly calls “the anointed” colluded with agricultural lobbies in the United States (encompassing both growers and processors) to inflict this monstrosity on the world.

How dare they–how fucking dare they–presume to lecture anyone on their obligations to “save the planet” and help the poor? Through biofuels policies alone they have inflicted huge misery and privation, and yet they have the audacity to try to exploit one of the consequences of these policies in order to ram more of their brilliant ideas down our throats.

Haven’t they done enough? Can they please now just go away?

Alas, we won’t be so lucky. These are our elites, after all, and we are stuck with them, like a case of malaria. And they are actually proud of stupid policies like biofuel mandates. There is no stupid that can equal the stupid of not just not learning from mistakes, but reveling in them.

Do you still wonder why the Trump phenomenon exists? The global reaction against the elites, of which Trump is just the most prominent example, is yet another baleful consequence of the failure of these so called elites. The reaction may be as bad as the disease, but let the blame fall where it should: squarely on the shoulders of those condescending fools whose allegedly good intentions have paved a superhighway to hell.

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December 20, 2015

Russia v. Ukraine: Will the Concept of Odious Debt Have Its Day in Court?

Filed under: Economics,History,Politics,Russia — The Professor @ 4:39 pm

Ukraine has announced that it will default on the $3 billion debt to Russia incurred in the waning days of the Yanukovych government–or is it regime? For that distinction could prove to be important.

It is somewhat surprising to me that as of yet Ukraine has not formally invoked the concept of “odious debt,” even though it seems apposite. Although there were earlier legal precedents (notably, US repudiation of Cuban debts incurred by the Spanish government prior to 1898), the concept was formalized in the 1920s by (ironically) a Russian emigre, Alexander Nahum Sack. Sack wrote:

When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime. The reason why these odious debts cannot attach to the territory of the state is that they do not fulfil one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the State. Odious debts, contracted and utilised for purposes which, to the lenders’ knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation which has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.

The key criteria established by Sack fit in the Ukraine-Russia case quite well. Yanukovych’s regime quite clearly utilized the debt to “strengthen itself” and “to suppress a popular insurrection.” If anything, the debt was used contrary to the interests of the nation. Putin provided the debt in order to make it financially feasible for Yanukovych to reject an EU association agreement, even though this agreement was widely popular in Ukraine. Furthermore, it is quite clear that the lender–Russia/Putin–were knowledgeable of the purposes for which the debts were “contracted and utilised.” Indeed, Putin offered the loan precisely in order to achieve these purposes, which suited Russia.

Russia, of course, argues that Yanukovych’s government was legitimate, and the current government is an illegitimate regime. Given the history, the facts seem to be on Ukraine’s side.

If the case proceeds, I anticipate that Ukraine will eventually invoke this doctrine. At the very least, it would strengthen its negotiating position.

Putin evidently has given up on a wholesale invasion of Ukraine, or even the eastern Ukrainian regions that he once (but no longer) referred to as Novorossiya. Militarily it was likely to be too difficult, and it would likely lead to further western measures that crush the already weakened Russian economy.

Instead, Putin is resorting to measures to prevent the consolidation of the Ukrainian state. The conflict in Donbas is kept on simmer. There is evidence of Russian active measures in the parts of Ukraine under government control. To these military and paramilitary means, Putin is adding economic conflict. Last week he announced that Russia was suspending a free trade agreement with Ukraine. Russia’s rigid negotiating stance on the $3 billion loan is another way of weakening Ukraine, and also creating strains between the Ukrainian government and the west (in the form of the IMF). Rather than striking a death blow, Putin is inflicting multiple ulcers on its recalcitrant neighbor.

Unfortunately, Ukraine is adding self-inflicted wounds to those dealt them by Putin. In particular, it has failed signally in its attempts to get corruption under control. Oligarchs still control the country. Struggles between oligarchic factions are reflected in bitter conflict in the Rada, culminating in the farcical events of last week, when a legislator lifted up Prime Minister Arseniy Yatsenyuk (grabbing him in a very delicate place in the process) while Yatsenyuk was addressing the parliament. Ukraine keeps copious quantities of inflammables piled up, making Vlad the Arsonist’s job very easy. Old Sovok habits die hard, and Putin is exploiting that.

Realpolitik, geopolitics, and western exhaustion and frustration with Ukrainian dysfunction are leaving Ukraine increasingly isolated. This is why Putin is pushing on many fronts, including on the matter of the $3 billion of debt. Ukraine’s best legal option is to declare the debt odious, and fight it out in court. It will at least buy time, and it has a reasonable chance of success given the, well, rather odious history of this loan.

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The Crude Export Ban Is Gone, But Don’t Get Your Hopes Up

Filed under: Commodities,Energy,Politics,Regulation — The Professor @ 2:50 pm

Well, ding dong the wicked export ban is dead. The repeal was included in the wretched omnibus deal passed in the dead of the night last week.

As a matter of economic principle, banning the ban is a good thing. Trade restrictions are almost always inefficient, and the oil export ban was no exception to that rule. In the near term, however, the practical impact of the sunsetting of the ban will be limited. At present, Louisiana Light Sweet is trading about par with Brent on a spot basis, and at only a few cents discount on a forward basis. Even given the quality premium for LLS, the differential is too narrow to make it economical to transport oil to Europe. This situation differs dramatically from the conditions that sparked the move to eliminate the ban, namely, a double digit discount of US oil prices from Brent.

The narrowing of the spread was due to many factors, but probably the most important of these was the fact that although oil exports were banned, exports of refined products were not. The low domestic oil prices made refining, including refining for export, to be very profitable. This encouraged investment in refining capacity that increased the demand for US crude, which narrowed the spread.

The repeal of the ban essentially creates an option, and this option is valuable. Although exporting crude is not economic now, it will be in response to some economic shocks. For instance, a disruption of European supplies, a spike in US production, or a big refinery outage in the US would all tend to depress the US price relative to the price in Europe, and if the shock is big enough, this could open the arb.

As for those who think that the lifting of the ban will help US producers in their hour of need, get ready for disappointment. The price difference between the export and no-export worlds is capped by the no-export-world spread: if absent the ban the price difference is greater than transportation costs, lifting the ban raises the domestic price and lowers the foreign price until the spread equals the cost of transport. When the arb channel is closed (as is currently the case), lifting the ban has no effect. Any price effect from lifting in the ban will occur in the future, and will be contingent on future supply and demand conditions. My guess is that the elimination of the ban will periodically give a couple of bucks boost to the US oil price. Not a huge deal.

The lifting of the ban will help traders, to the extent that arbs periodically come into play. It will also periodically benefit infrastructure owners (e.g., pipelines, terminals, and ports) that hand exports. Refiners  will lose when the arbitrage opens: this is why the compromise included a modest tax break for refiners, to secure their support.

Perhaps the biggest losers are those who bet on the continuation of the ban by building condensate splitters: minimally processed crude and condensate could be exported, so the splitters were a way to circumvent the ban. They are now white elephants, as the crude can be exported directly.

All in all, the lifting of the ban is not a big deal. Perhaps the main effect of this development, at least in the short term, is to show that 239 years after the publication of the Wealth of Nations, bad arguments about trade survive and even thrive. But even this didactic effect is overshadowed by circumstances, because the continued success of Trump shows the same thing, and much more forcefully.

In sum, I’m glad to see the ban go, but am underwhelmed by the near-term effects of its demise.

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December 16, 2015

Barack “The Bourbon” Obama: Learning Nothing, Forgetting Nothing

Filed under: History,Military,Politics — The Professor @ 9:53 am

The linchpin of Obama’s recalibration of his anti-ISIS campaign (for it is little more than that) is the deployment of US special operations forces in direct actions targeted on ISIS leadership. This represents further proof of Obama’s intellectual rigidity, and his utter inability to learn from experience–or to admit error.

For this is exactly what Obama did in Afghanistan starting in 2009:

Each year during the Afghan “surge” that President Barack Obama initiated in 2009, one declassified document shows, the manhunting task force ran many more missions than the year before–about two per night countrywide in August 2009; six per night a year later, when the Norgrove mission went south; and eleven per night a year after that, at the time of the “Extortion 17” tragedy. By 2011, the JSOC task force numbered more than 3,800 personnel — huge in special operations terms, but still just 2.4 percent of the overall U.S.-led force in Afghanistan, as one briefing slide notes.

Accompanying the overall surge was a “Ranger surge” that put more and more platoons of the elite light infantry regiment into the field alongside the SEALs, allowing more targets to be struck. Operators from the Army’s Delta Force were present as well, some of them providing what a JSOC staff officer calls a “very special capability”: the ability to track a moving convoy of cars or trucks by helicopter and raid it on the go, as depicted in the movie “Black Hawk Down” and numerous YouTube videos. The documents describe one joint Delta-Ranger team specializing in this task as an “expeditionary targeting force”—the same term defense secretary Carter used this week to describe the new JSOC raid force deploying to Iraq.

 

And this has accomplished what, exactly? The Afghanistan hamster wheel spins and spins and spins, regardless of how many SEAL and Ranger raids are mounted, and how many “high value targets” are killed. The main result of these operations–if “successful”–is to provide promotion opportunities for aspiring guerrillas and terrorists. It certainly has not changed things on the ground.

Actually, the operations have accomplished something: getting highly trained and difficult to replace special operators killed and maimed and just worn out. The details of the operations were only discovered because they were included in FOIA’d reports about two raids that went horribly wrong.

But faced with another difficult situation, this time in Syria and Iraq, rather than contemplating soberly the all pain, no gain lessons of the “Expeditionary Targeting Force” model in Afghanistan, Obama goes to it again.

What Talleyrand said of the Bourbons applies with even greater force to Obama: He has learned nothing, and forgotten nothing.

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Russia’s Shambolic Logistics in Syria

Filed under: Military,Politics,Russia — The Professor @ 9:39 am

In responding to Micheal Weiss’s idiotic hyperventilating (but I repeat myself) about Russian intervention in Syria, I quoted the old adage: Amateurs talk tactics, professionals talk logistics.  I noted that logistics severely constrained Russia’s military capacity in Russia. Look no further than this for evidence of how shambolic Russia’s logistics are:

Earlier this year, an old refrigerator ship called the Georgiy Agafonov, built to transport fruit and vegetables for the Soviet Union, was quietly gathering rust in the Ukrainian port of Izmail where the Danube flows into the Black Sea.

Its owners, a Ukrainian state company, assumed it would never sail again. When a Turkish company offered to buy it for $300,000, they watched as the hulk was towed away, presumably for scrap.

Nine months later the ship is back at sea, renamed Kazan-60, reflagged as part of Russia’s naval auxiliary fleet, and repurposed as an unlikely part of Moscow’s biggest military operation outside the old Soviet boundaries since the Cold War.

. . . .

The need for the extra cargo ships arose because Russia’s warships did not by themselves have enough capacity to supply the mission, said Vasily Kashin, senior research fellow at the Moscow-based Centre for Analysis of Strategies and Technologies.

“Before we had to use amphibious landing ships to carry supplies to Syria. But now they are not sufficient and we are creating a new class of military transports which are part of the navy but in fact are pure cargo ships,” he said.

An icebreaker called the Yauza was also sent to the Mediterranean from the Arctic to beef up Moscow’s logistics. According to publicly available shipping data, it made two trips to Syria in October and November.

Buying old cargo ships gives Moscow more control than contracting out its transport to commercial carriers, said Gerry Northwood, chief operations officer with British maritime security firm MAST.

 

Russia has utilized some flashy weaponry–such as surface and submarine launched cruise missiles–in its Syria campaign. But this is military Potemkinism, a dazzling facade that distracts from the shabby and creaking structure beneath. Especially now, with rumblings about Turkey closing the Bosporus to Russia, those freaking out about Russia’s involvement in Syria need to look beneath the facade, and understand how the realities of logistics, which have doomed far more campaigns than anything that has transpired on battlefields, fundamentally limit what Russia can even hope to achieve.

 

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