Streetwise Professor

June 22, 2016

Sometimes Hooligans are Just Hooligans

Filed under: Politics,Russia,Sports — The Professor @ 8:12 pm

The UEFA Euro 2016 has seen the usual hooliganism. What would soccer–football, excuse me–be without it? (Isn’t it interesting how the “beautiful game” routinely sparks violence while a game denigrated for violence–American football–seldom does?)

Nothing new about that. What makes Euro 2016 somewhat unique is the focus on Russian hooligans, and the attribution of malign political motives to them, and most importantly, direction from the very top.

The English mixed it up with the Russians in Marseille, and got the worst of it. The English press was whinging about the unfairness of it all. Apparently, as opposed to being fat, drunken louts like proper English hooligans, the Russians were hard, sober toughs. That’s not cricket!

Englishman Tim Newman–whom I’m honored comments periodically here–was having none of it:

You’ve got to love the British press:

England fan fighting for his life and dozens more injured as English fans and Russian thugs clash at Euro 2016 in Marseille

The English were fans.  The Russians were thugs.  Presumably no Englishman in Marseille last night displayed thuggish behaviour, and no Russian showed the slightest interest in football.

. . . .

But what I never heard, in all my time in Phuket or indeed ever in my life, was a story told to me by non-Brit complaining of getting into a fight with another non-Brit.  For whatever reason, Frenchmen don’t seem to end up fighting Spaniards in beach resorts and Germans somehow manage to rub along all right with Italians on holiday without kicking the shit out of one another.  The common element in all the fighting in beach resorts across the world, particularly the Mediterranean, is the presence of young Brits.  Little surprise then that the only trouble seen thus far at the Euro 2016 tournament features the same demographic.

There were battles involving other nationalities pretty much everywhere matches were played. It’s what those oh-so-civilized Euros do.

It may well be true that the Russians were fitter, better trained, and more organized, and kicked ass as a result. It may well also be true that members of the Russian security forces and veterans of the Donbas were among the Ultras. But to claim that this is part of “Putin’s special war” is beyond idiotic.

One of the main pieces of “evidence” that have been trotted out to suggest official complicity are the Tweets of Duma deputy speaker Igor Lebedev: “I don’t see anything bad in the fans fighting. On the contrary, well done guys. Keep it up!” and “I don’t understand those politicians and bureaucrats who are now denouncing our fans. We need to defend them, and they’ll come home and we’ll sort it out.”

Deputy Speaker of the Duma. Sounds pretty official and important, right? Except that (a) the Duma is merely a Potemkin legislature, and (b) people like Lebedev (who is a member of Zhirinovsky’s party) are in the Duma precisely to provide an outlet for the nationalist loons: better to have them inside the Duma where they can be watched and controlled and do no harm, than out on the streets making trouble.

It’s actually embarrassing to cite someone like Lebedev as a barometer of official Kremlin (i.e., Putin) policy. It’s a case of those who are talking don’t know, and those who know aren’t talking.

And really, you have to pick a narrative. Those pushing the story that  Russian soccer hooligans are conducting special warfare in Europe also  portray Putin as a mastermind playing chess, and dominating ineffectual and overmatched European and American leadership. But these claims are almost impossible to reconcile.

At the very time that Europe is vacillating about maintaining sanctions against Russia, and there are deep divisions within Europe about whether to confront Russia more forcefully (moves that German FM Steinmeier called “saber rattling”), the soccer hooligans are an irritant in the Russian-European relationship. No, Putin is not about be all warm and fuzzy, but he has no reason to engage in provocations that alienate the German and French governments, but which produce no tactical or strategic benefit.

In the realm of sport in particular, this couldn’t come at a worse time. Russia’s reputation is already at rock bottom due to the doping scandal which has resulted in the banning of Russian track and field athletes from the Olympics, and could conceivably result in the barring of Russian participation from Rio altogether. Hardly an opportune time to cast Russian sportsmanship in an even worse light.

It would be incredibly short sighted and unproductive for Putin stoke soccer violence. What could he gain? Nothing that I can see. However, it is easy to see what it costs him: it increases the likelihood that sanctions will endure, and provides an argument for those advocating a more muscular approach to Russia.

Yes. Maybe Putin is that short-sighted and capable of cutting his nose to spite his face. But if that’s the case, he’s the antithesis of a strategic genius. He would be nothing more than a mouth-breathing numb-nuts like Lebedev.

Conversely, if  you choose the “Putin is a chess master” narrative, the Russian soccer thuggery suggests that the vaunted power vertical is not all encompassing, and that Putin does not exercise the complete control that is often attributed to him–perhaps not even over the security services. (His reorganization of those services supports this interpretation: why reorganize something that is completely at his beck and call?)

My take on all of this is that there are indeed a lot of obnoxious, violent Russians–just like there are a lot of obnoxious, violent Euros from any nation you care to name. Soccer hooliganism has become a Euro tradition, and the Russians are joining in: chalk it up to their integration into Europe! But as for broader political implications, if Russian soccer hooligans have official sanction, Putin isn’t very clever: indeed, he would have all the strategic acumen of the criminals in Fargo. And if they don’t have official sanction, Putin isn’t as omnipotent within Russia as he is widely portrayed.

Sometimes hooligans are just hooligans. Putin no doubt finds that hooligans have their political uses, but stirring trouble in Europe at such a fraught time isn’t one of them.

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June 21, 2016

Mating Hemophiliacs Seldom Turns Out Well

Filed under: Climate Change,Economics,Energy — The Professor @ 9:00 pm

I’ve long been an Elon Musk/Tesla skeptic, to put it mildly. I’ve called him out as a crony capitalist who milks subsidies, and as a con man.

Most recently, I said that one Musk company’s (SpaceX) purchase of the debt of another Musk company–Solar City–should raise alarms. Well, today four alarms rang: Tesla bid to take over Solar City, and to pay for the acquisition in Tesla stock. Solar City (SCTY) stock soared on the news: Tesla plunged. The effect of the announcement was market cap negative: Tesla’s value declined more than SCTY’s rose.

Both Solar City and Tesla rely on government subsidies, and crucially, on very dodgy financing models and questionable accounting. Like many other solar firms, Solar City was teetering on the verge of bankruptcy. Such an event would have a direct financial consequence for Musk, and given Elon’s large (and leveraged) ownership stake in Tesla, this would impact Tesla adversely.

Moreover, there’s a serious possibility that a SCTY bankruptcy would reveal a byzantine web of financial connections among Musk’s various ventures. Given the boundary-pushing accounting and tenuous financial condition of all of his companies, there is no doubt a lot hidden that Elon desperately wants to keep hidden.

But perhaps most importantly, a SCTY bankruptcy would undermine Musk’s image as a visionary genius and business colossus. This image is vital to keeping Musk, Inc. going. It is vital because this image is a key element of every con, and if Musk isn’t a con man, he sure does a great impression of one.

One key tell of that is that whenever people start expressing doubts about Tesla, Musk has some grandiose announcement about the next new big thing, even though he hasn’t delivered on the last new big thing, or even the new big thing before that. That’s a classic con man trick.

This is also a vital part of the Tesla funding model. In addition to subsidies, Tesla relies heavily on customer deposits for funding. In order to get those deposits, Tesla has to make promises on production that it has not been able to keep. But enough people are dazzled by Elon’s pitch that they fork over the cash that he needs to keep the endeavor aloft.

I read an investment report that referred to such types as “loss tolerant investors.” That’s a polite way of saying “suckers.”

A major Elon fail would put the con model at risk. So despite the fact that the initial reaction to the deal has been incredulity and outrage, and despite the fact that that reaction was utterly predictable, Musk has plunged ahead. That should give you some idea of his desperation.

In the announcement of the bid, Tesla served up a load of argle-bargle that should make any PR person blanch:

Tesla’s mission has always been tied to sustainability. We seek to accelerate the world’s transition to sustainable transportation by offering increasingly affordable electric vehicles. And in March 2015, we launched Tesla Energy, which through the Powerwall and Powerpack allow homeowners, business owners and utilities to benefit from renewable energy storage.

It’s now time to complete the picture. Tesla customers can drive clean cars and they can use our battery packs to help consume energy more efficiently, but they still need access to the most sustainable energy source that’s available: the sun.

The SolarCity team has built its company into the clear solar industry leader in the residential, commercial and industrial markets, with significant scale and growing customer penetration. They have made it easy for customers to switch to clean energy while still providing the best customer experience. We’ve seen this all firsthand through our partnership with SolarCity on a variety of use cases, including those where SolarCity uses Tesla battery packs as part of its solar projects.

So, we’re excited to announce that Tesla today has made an offer to acquire SolarCity. A copy of Tesla’s offer is provided below.

If completed, we believe that a combination of Tesla and SolarCity would provide significant benefits to our shareholders, customers and employees:

  • We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimizing your dependence on fossil fuels and the grid.
  • We would be able to expand our addressable market further than either company could do separately. Because of the shared ideals of the companies and our customers, those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well. When brought together by the high foot traffic that is drawn to Tesla’s stores, everyone should benefit.
  • We would be able to maximize and build on the core competencies of each company. Tesla’s experience in design, engineering, and manufacturing should help continue to advance solar panel technology, including by making solar panels add to the look of your home. Similarly, SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing products would significantly benefit Tesla and its customers.
  • We would be able to provide the best possible installation service for all of our clean energy products. SolarCity is the best at installing solar panel systems, and that expertise translates seamlessly to the installation of Powerwalls and charging systems for Tesla vehicles.
  • Culturally, this is a great fit. Both companies are driven by a mission of sustainability, innovation, and overcoming any challenges that stand in the way of progress.

Note the appeal to enviro-vanity. “Shared ideals.” “Culture.” Vague synergies: “including by making solar panels add to the look of your home.” Are they serious? Is that the best he can come up with? “Customer-friendly financing products.” Another joke: the unviability of the Solar City financing model is exactly what put the company into its current straits. So extending this unviable financing model to autos is somehow going to do wonders for Tesla? The release mentions charging systems. A few years ago Elon promised thousands. There are currently 616 worldwide, and Elon has faded his original promise to provide free charging: Model S customers will have to pay.

Further, there’s no explanation of how marrying one cash bleeder to another cash bleeder is going to address either company’s fundamental problem . . . which is that they are cash bleeders. Buying Solar City exacerbates the Tesla cash bleeding problem, rather than ameliorating it: the mating of hemophiliacs is unlikely to turn out well.

Indeed, Tesla bleeds cash like a Game of Thrones battle scene. Hence the need to rush out the Model S (and collect deposits) while huge questions about production remain. Hence the repeated returns to the equity markets to issue new stock.

Which will now be harder, because paying for Solar City in stock–and hence diluting existing shareholders substantially–mere weeks after a big equity offering will make investors to whom Musk will have to sell stock in the future to meet his voracious needs for money think twice: will he take their money then dilute them again a few weeks or months later?

This move looks very short sighted, and it almost certainly is. But Musk is doing it because he needs to address very pressing immediate concerns, and he’ll worry about the future ramifications when the future comes.

Musk has made a living off of suckers. Suckers in government (including most notably the federal government, and the states of Nevada and California) who have lavished huge subsidies based the dubious environmental benefits of electric vehicles. Suckers enamored with the technology and performance of Tesla vehicles–despite the questions surrounding Tesla’s ability to produce those vehicles.

To keep the suckers coming, Musk has to perpetuate his image as the Great and Powerful Oz. A major fail–like the bankruptcy of Solar City–threatens to pull back the curtain and demolish that image. Musk needs to prevent that from happening. He needs to buy time, and to buy time, he is having Tesla buy Solar City.

Desperate times call for desperate measures. The proposed purchase of Solar City reeks of desperation, because it facially makes no business sense, and is explicable only as a way to keep a con alive.

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June 15, 2016

Where’s the CFTC’s Head AT?: Fools Rush in Where Angels Fear to Tread

Filed under: Commodities,Derivatives,Economics,Exchanges,Financial crisis,HFT,Regulation — The Professor @ 1:07 pm

The CFTC is currently considering Regulation AT (for Automated Trading). It is the Commission’s attempt to get a handle on HFT and algorithmic trading.

By far the most controversial aspect of the proposed regulation is the CFTC’s demand that algo traders provide the Commission with their source code. Given the sensitivity of this information, algo/HFT firms are understandably freaking out over this demand.

Those concerns are certainly legitimate. But what I want to ask is: what’s the point? What can the Commission actually accomplish?

The Commission argues that by reviewing source code, it can identify possible coding errors that could lead to “disruptive events” like the 2013 Knight Capital fiasco. Color me skeptical, for at least two reasons.

First, I seriously doubt that the CFTC can attract people with the coding skill necessary to track down errors in trading algorithms, or can devote the time necessary. Reviewing the code of others is a difficult task, usually harder than writing the code in the first place; the code involved here is very complex and changes frequently; and the CFTC is unlikely to be able devote the resources necessary for a truly effective review. Further, who has the stronger incentive? A firm that can be destroyed by a coding error, or some GS-something? (The prospect of numerous individuals perusing code creates the potential for a misappropriation of intellectual property which is what really has the industry exercised.) Not to mention that if you really have the chops to code trading algos, you’ll work for a prop shop or Citadel or Goldman or whomever and make much more than a government salary.

Second, and more substantively, reviewing individual trading algorithms in isolation is of limited value in determining their potentially disruptive effects. These individual algorithms are part of a complex system, in the technical/scientific meaning of the term. These individual pieces interact with one another, and create feedback mechanisms. Algo A takes inputs from market data that is produced in part by Algos B, C, D, E, etc. Based on these inputs, Algo A takes actions (e.g., enters or cancels orders), and Algos B, C, D, E, etc., react. Algo A reacts to those reactions, and on and on.

These feedbacks can be non-linear. Furthermore, the dimensionality of this problem is immense. Basically, an algo says if the state of the market is X, do Y. Evaluating algos in toto, the state of the market can include the current and past order books of every product, as well as the past order books (both explicitly as a condition in some algorithms, or implicitly through the empirical analysis that the developers use to find profitable trading rules based on historical market information), as well as market news. This state changes continuously.

Given this dimensionality and feedback-driven complexity, evaluating trading algorithms in isolation is a fools errand. Stability depends on how the algorithms interact. You cannot determine the stability of an emergent order, or its vulnerability to disruption, by looking at the individual components.

And since humans are still part of the trading ecosystem, how software interacts with meatware matters too. Fat finger problems are one example, but just normal human reactions to market developments can be destabilizing. This is true when all of the actors are human: it’s also true when some are human and some are algorithmic.

Look at the Flash Crash. Even in retrospect it has proven impossible to establish definitively the chain of events that precipitated it and caused it to unfold the way that it did. How is it possible to evaluate prospectively the stability of a system under a vastly larger set of possible states than those that existed on the day of the Flash Crash?

These considerations mean that  the CFTC–or any regulator–has little ability to improve system stability even if given access to the complete details of important parts of that system. But it’s potentially worse than that. Ill-advised changes to pieces of the system can make it less stable.

This is because in complex systems, attempts to improve the safety of individual components of the system can actually increase the probability of system failure.

In sum, markets are complex systems/emergent orders. The effects of changes to parts of these systems are highly unpredictable. Furthermore, it is difficult, and arguably impossible, to predict how changes to individual pieces of the system will affect the behavior of the system as a whole under all possible contingencies, especially given the vastness of the set of contingencies.

Based on this reality, we should be very chary about letting any regulator attempt to micromanage pieces of this complex system. Indeed, any regulator should be reluctant to undertake this task. But regulators frequently overestimate their competence, and financial regulators have proven time and again that they really don’t understand that they are dealing with a complex system/emergent order that does not respond to their interventions in the way that they intend. But fools rush in where angels fear to tread, and if the Commission persists in its efforts to become the Commissar of Code, it will be playing the fool–and it will not just be algo traders that pay the price.

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June 14, 2016

The American Bourbon Talks Terrorism

Filed under: History,Military,Politics — The Professor @ 6:49 pm

I have often described Obama as an American Bourbon (as in Louis XVIII, not Old Granddad): he has learned nothing, and forgotten nothing. No single thing exemplifies this more than his stubborn refusal to blame radical Islam for the latest outrage, this one in Orlando.

Obama claims that his rationale is that he does not want to allow ISIS to claim that the US is at war with Islam. Well, that’s the whole point of adding “radical” as a modifier. It is to demonstrate that we do not have an indiscriminate hatred or fear or even dislike of all Muslims. Obama’s refusal to make this distinction suggests that he thinks that Muslims are too stupid to recognize that. Or perhaps he thinks so little of Americans that he doesn’t believe that we are truly capable of making discriminating judgments, and that he really believes were are all closeted–or not so closeted–Islamophobes. He’s insulting either Muslims, or Americans, or more likely both.

Regardless, would that there were a latter-day Talleyrand who would lean over to Obama and say: “But sire, they are most decidedly at war with us.”

Keynes once said  “When the facts change, I change my mind. What do you do, sir?” If Obama was his interlocutor, the reply would be: “Nothing. I am never wrong, and no new facts can contradict my original conclusion.” That’s exactly what leads to the Bourbon forget nothing-learn nothing syndrome.

Here’s why Obama’s mulishness is intensely unsettling to most Americans. They believe that his refusal to acknowledge a plain-as-the-nose-on-your-face fact has led to a conscious policy of ignoring threats for fear of offending Muslims. Orlando just provides more grist for that mill.

The shooter, Omar Mateen, flew more red flags than a Soviet May Day parade. The FBI investigated Mateen twice, and interviewed him three times. He had interacted with an American who went to Syria to become a martyr for ISIS. He was involved with Marcus Robertson*, a well-known jihadist and radical cleric who had been a bodyguard for the “Blind Sheikh.” He had attended an extremist mosque. He was well-known at his work for making extremist remarks.

But the FBI said “move along, nothing to see here!”, and the investigations were dropped. In the aftermath of Fort Hood (“workplace violence”), the dismissal of the investigation of the Tsarnaevs, and other episodes of denial and avoidance, people have a clear sense that Obama has made it plain to everyone below him in the chain of command that even the perception of Islamophobia is a far graver sin than letting a potential mass-murderer walk free–and it’s a career killer to boot.

It’s not just the refusal to utter the words “radical Islam” that conveys this message. “We can absorb attacks.” “ISIS is not an existential threat.” “You are more at risk of dying from a fall in your bathtub.” All of these send a message: Obama believes that Americans have an inordinate fear of terrorism.

Easy for a guy who drives around in an armored limousine called “the Beast” to say, isn’t it? Guy in an Orlando night club–not so much.

Yes, the probability of dying from terrorism is small. But people are rationally averse to low probability, extremely adverse events. And the question is whether these events can be prevented or deterred at reasonable cost, and whether it is the government’s responsibility to do so. Most Americans think yes. Obama evidently thinks no, or that the cost of perceived Islamophobia outweighs the benefit of preventing a mass murder or two.

It’s hard to believe, but the refusal to say “radical Islam” was among the least offensive things that Obama said today. He had the temerity to claim that attacks like Orlando are proof that ISIS is losing on the battlefield. As if there what happened in Orlando (or San Bernardino) involved the redeployment of any ISIS resource in Syria or Iraq, or that ISIS has no independent reason to attack the US. (I remind you that in his “ISIS is the jayvee” period, Obama asserted that ISIS had no intention of attacking the West as a reason for his insouciance. Wrong again, Carnac.) Further, he touted the 13,000 air strikes. Bean counting bullshit. How many strikes have been aborted? How many times has LBJ II vetoed a target? What is the operational impact of these airstrikes? Why was the air campaign so desultory for so long? Why has ISIS been given years of breathing room?

Obama has theories about Islam and terrorism. He has long held those theories, and he adamantly refuses even to modify them even in the face of a torrent of evidence. And pace Jefferson Davis, Americans have strong grounds to believe that many of their fellow citizens have died of that theory, including 50 people in a night club in Orlando.

* Robertson was interviewed this evening by Greta van Sustern. Considering it was an interview with a sick bastard who wants us infidels dead, it did have its amusing moments. Among other things, Mr. Robertson gave his weighty opinions on the presidential race. Among his pearls of wisdom was that Hillary would be dangerous as a president because as a woman she might get angry during her menses, and push the button.

Perhaps Mr. Robertson is a little bit shaky on the realities of the female reproductive system (which seems to be the case with most fundamentalist Muslim clerics), but I am pretty sure that Hillary is well past the age when menses, or even menopause, can have the slightest effect on her behavior.

Who wants to break the news to him? It could change his vote!

 

 

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June 12, 2016

Squeezing Dr. Copper

Filed under: Commodities,Derivatives,Economics,Exchanges,Regulation — The Professor @ 2:21 pm

Andy Home has an interesting piece in Reuters. He provides information that strongly suggests that the LME copper contract has been squeezed. All of the tell-tale signs are there:

What the exchange terms a dominant long position emerged on the copper market last week.

This player controlled 50-80 percent of all LME open stocks, excluding metal earmarked for physical load-out, and had bulked this up with cash positions to the point that its overall position represented in excess of 90 percent of all available stocks.

That position was being rolled forward daily, forcing shorts to pay the backwardation price as they too rolled their positions.

The cash premium over three-month metal, the backwardation, had flexed out as wide as $27.75 per ton the previous week as the long tightened its grip on the London market’s nearby date structure.

Someone, it seems, was not prepared to pay the roll price and decided to deliver physical metal against their position. [LME stocks rose almost 40 percent in a few days.]

And they did so in a way to generate the maximum bang for their buck.

It seems to have worked.

That cash premium has evaporated. As of Thursday’s close, the cash-to-three-months spread was valued at $15 per ton contango.

The ripple effects have spread down the curve, LME broker Marex Spectron noting that the July-December spread eased $10 to $35 per ton contango over the course of Thursday.

The latest positioning reports, denoting the state of play as of Wednesday’s close, show the dominant long still holding 50-80 percent of stocks <0#LME-WHL> but with no equivalent cash position <0#LME-WHC>.

All the signs are there: a large long position, here both in physical metal and prompt LME contracts; a spike in the backwardation; a movement of metal into deliverable position; followed by a collapse in the backwardation. Also, the large long apparently liquidated the bulk of his position in LME contracts, as is necessary to profit. Right out of the book.

These episodes are chronic in the commodity markets, and on the LME in particular. They impose real deadweight losses (the costly movement of copper into LME warehouses being an example), and undermine the effectiveness of derivatives contracts as a hedging mechanism. Would that regulators pursued this conduct more vigorously, rather than obsessing over spoofing games, or chasing the “excessive speculation” will-o-the-wisp.

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More Media Idiocy and Dishonesty on Venezuela (and Climate Change)

Filed under: Climate Change,Economics,History,Politics — The Professor @ 12:12 pm

Venezuela’s economic and social collapse brings out the most idiotic “reporting” and commentary from the mainstream media. They are desperate to explain away the catastrophic failure of an avowedly socialist polity. They are also eager to recruit the country’s crisis to advance other progressive agendas, most notably climate change.

I thought I had read peak Venezuela stupid earlier this week in an Bloomberg article. (More on that below.) But I now know that I have seen peak stupid, because nothing can be more idiotic than this from a New York Times reporter:

And there’s no way that the Venezuelan government could print that much money to keep up with inflation. So what happens – they don’t. And there’s not enough money. There’s a shortage of money, just like there’s a shortage of electricity and water. It means, you know, paying for things and doing everything in your day-to-day life has become very, very challenging.

Hilarious! Who knew that hyperinflation occurs because the there’s “a shortage of money”?

This is New York Times economics “thinking” in a nutshell: that is, 180 degrees from reality.

News for Mr. Casey, courtesy of Milton Friedman: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

The corollary is that hyperinflation can be produced only by an extremely more rapid increase in the quantity of money.

Boy, I guess money was really short in Zimbabwe a few years ago (inflation rate 79.6 billion percent in 2008–Venezuela has some catching up to do!)

The rest of the interview with Mr. Casey proves that he is not short of economic comedy gold. John Hinderaker at Powerline has deconstructed it thoroughly, so I don’t have to. The implication is blindingly obvious: anyone who relies on the NYT for economic insight can find it only if they follow one rule: conclude the opposite of everything the Timesman (or -woman) says.

One would hope for better from Bloomberg (its Twitter handle is @business, after all), but one would be disappointed. For while the NYT tells you that hyperinflation in Venezuela is due to the lack of printing press capacity, Bloomberg tells you that the crisis is due to the “wilting away of the state.” (Wait–Marx told me that was a feature, not a bug! WTF?)

Yes, the Venezuelan state is collapsing. But it is collapsing not because of climate change or other factors beyond its control. It is collapsing because its previous hyperactivity wrecked the economy and destroyed civil society. Perhaps the adverse consequences of the drought was the death knell, but that was only possible because Chavism had already undermined society’s capacity to absorb another shock. It’s like blaming pneumonia for the death of an AIDS victim. Yeah, it’s what killed him, but it wouldn’t have killed him if his immune system hadn’t already been ravaged.

This attempt to blame Venezuela’s crisis (and Syria’s–the article is a twofer!) on climate change is beyond annoying because it fails to identify honestly the source of the state’s “lack of adaptive capacity”:

“Powerful groups, especially in corrupt states, use their power to capture resources,” says Homer-Dixon. “You get a polarization of wealth, a weakening of state capacity, and urban stress.” Although these kinds of changes are indirect effects of a drought, they are often the tipping point for social conflict. “We are seeing these things around the world now,” Homer-Dixon says. “As environmental stresses get worse, [their effects] become more common.”

Global water shortages are predicted to decrease global gross domestic product by as much as 14 percent by 2050, according to a recent report by the World Bank, which predicts that this “severe hit” will spur conflict and migration across the Middle East, Central Asia, and Africa. Even resource-rich countries previously considered to have stable economies, such as Brazil and Russia, have become more susceptible to environmental disequilibrium. Last year production of coffee, one of Brazil’s most important commodities, fell 15 percent as a result of drought. A lack of rain in Russia this fall damaged a quarter of its cereal crops. The last time the country’s harvest failed, rising global prices contributed to the Arab Spring in countries dependent on imported grain. [What? Um, there have been droughts for like forever. And steep declines in agricultural output are a historical norm. Further, Russian grain output is likely up this year. FFS. Agricultural output variability has been the norm since humans first scratched the ground with a stick. Before that, even: variability in the amount of stuff to gather predates the agricultural revolution.] Even Islamic State’s political power may soon be affected by drought. As water levels in Lake Assad in Syria plummet, Raqqa, the group’s stronghold, is facing severe shortages. Last year, Islamic State’s press officer, Abu Mosa, told Vice News that it would consider attacking Turkey to gain access to additional water resources.

Climate science has an explanation for why environmental forces can have this kind of destabilizing effect. Angel Muñoz, a postdoctoral research associate at Princeton, says, “Risk is just a multiplication of hazard by vulnerability.” Muñoz, who grew up in Venezuela and moved to the U.S. to study climate risk management, explains that a drought is a hazard, but what actually created this year’s mess was Venezuela’s lack of what he calls “adaptive capacity.” The drought was predicted months before it began—neighboring Colombia started water rationing in September 2015. Although Venezuela has far more natural resources than its neighbor, Colombia is not in such dire straits. “A society’s vulnerability is at least as important as the hazard,” Muñoz says.

As a result, when weak states [!] face environmental catastrophes like drought, “you might see the collapse of authoritarian regimes, as you did during the Arab Spring,” Homer-Dixon says. “But they’re probably going to be replaced with something just as bad, because a deeply divided society is still dealing with a materially stressed situation.”

The point is that authoritarian regimes–which invariably use their authority to control the economy and undermine private contract and markets–are brittle. That’s why they have less adaptive capacity. Some shock is the proximate cause (in the USSR, it was the decline of oil prices in 1986), but statist systems are brittle because in their mania for control they destroy the resilience of emergent orders.

Brittleness is different than weakness. The “weak state” formulation suggests a polity like Somalia or Afghanistan where the government’s writ does not extend beyond the capital, if it extends even that far. Or medieval Europe. The problem with Venezuela and Syria is that the state’s writ runs everywhere.

Regardless of the science regarding climate change, and in particular the science of attributing to climate change a particular type of event that has occurred on earth since far before recorded history, it is beyond dishonest and manipulative to ignore the real anthropogenic factor at work here: the destruction of a society’s adaptive capacity by a hyperactive state. If Venezuela is on the brink of anarchy, it is because the state was too strong, not because it was too weak.

What is particularly perverse is that climate change is being used to justify intense statist intervention on a global scale. This despite the fact that as the case of Venezuela (and other socialist paradises) demonstrates, humanity (and nature) have much to fear from a hyperactive state. The Bloomberg article is particularly dishonest because it insinuates the exact opposite.

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June 11, 2016

Washington Republicans: Subjectively Pro-Capitalism, Objectively Anti-Capitalism

Filed under: Economics,Financial crisis,Politics,Regulation — The Professor @ 8:11 pm

@libertylynx suggested to me that the GOP is primarily responsible for the current unpopularity of capitalism in the US. I agree that this is largely the case. Here’s my first stab at an explanation.

At root it is due to a yawning gap between rhetoric and action. The GOP poses as the party of small government and free markets, but it is not, really. The disconnect was somewhat present during the Reagan administration, but it became progressively (pun alert!) more pronounced starting with Bush I, and particularly during the George W. Bush administration.

Bush II in particular was a big spender. Some of it was war-driven, but he was also profligate domestically. Perhaps most importantly, given the salience of housing to the 2008-2009 financial crisis which inflicted the most grievous blow to belief in the efficacy and efficiency of markets since the Great Depression, was that the Bush administration perpetuated the bias towards investment in housing exemplified by Fannie and Freddie. A truly market-oriented administration would have terminated Fannie and Freddie with extreme prejudice, but it grew apace during the Bush II administration. When combined with an expansive Fed and a flawed banking regulatory framework, the groundwork for a disaster was in place.

In many respects, this is similar to what happened during and after the Great Depression. That event was widely viewed as a failure of capitalism and the market system, when it was actually the result of a combination of bad Fed policy and a dysfunctional banking system that was the result of a political bargain that resulted in the proliferation of small unit banks that could not withstand a broad shock: see Friedman and Schwartz for an analysis of the former, and Calomiris and Haber for an examination of the latter.  The banking system that collapsed in the 1930s was a political artifact, and would have not developed the way that it did in the absence of a regulatory framework that was tailored to benefit very specific political constituencies.

The strong bias towards housing investment in the United States in the 1990s-2000s was also the result of a political bargain: alas, the same is true today, even despite the crisis. This political bargain was based on a coalition of politically connected firms (Fannie, Freddie, major banks, and construction) and populists. This bargain created incentives that led market participants to invest excessively in housing. When this came a cropper, the blame attached to those market participants who responded to incentives, rather than the political agents and political process that created those incentives.

In DC, Republicans talked a pro-market, small-government game, but did not govern that way. Republicans in Congress liked living a comfortable life in DC. They did not have a stomach for fighting the battle that a true pro-market, small government policy would have caused. They liked the sinecures of power too much to risk them, knowing in particular that pursuing such policies would unleash a storm of media criticism and make them unpopular with the bureaucrats and lobbyists who infest the place. So they made a few symbolic gestures, and spouted pro-free market, small government rhetoric, but really did nothing. The continued existence, let alone the growth, of Fannie and Freddie is testament to that.

When the storm hit in 2008, this came back to haunt them. More importantly, it came back to haunt the cause of free markets and smaller government. Since those giving lip service to those ideals were in charge when the storm hit, it was easy to blame the ideals, even though those spouting the rhetoric had done virtually nothing to advance them. Indeed, they had perpetuated, and in fact exacerbated, the market distortion that was the ultimate cause of the crisis. This presented a perfect opportunity for those in politics (the Democratic Party) and the media (an appendage of the Democratic Party) to attack the ideals that they despised.  It would have been better had the Republicans not pretended to be pro-market, as at least that would have limited some of the damage to popular beliefs and opinions about markets.

There are at least a couple of reasons for the Republican reluctance actually to fight the statist DC consensus, despite their rhetorical embrace of that fight.

One is the scars left by the struggles over the government shutdown in 1995-1996, and the impeachment battle that followed. Both fights were a distraction, and what’s worse, the Republicans handled both badly. They took a horrible beating in the media and elections–rightly so, in retrospect–and it got their minds right. The 1994 insurgents were supplanted by time servers and apparatchiks. Hasterts and Boehners and McConnells, and other assorted boneless wonders you’ve never even heard of. They were masters at the Kabuki performance of pretending to be pro-market and pro-smaller government, but really doing nothing to stem the tide.

The second reason is more fundamental, but in a way can explain the first. Politicians respond to incentives too. A good model for them is a pigeon in a Skinner Box. They soon learn to push the lever that results in the magical appearance of a food pellet, and not to push the lever that doesn’t.

Organized constituencies provide the food pellets in DC. There is no organized constituency for freer markets or substantially smaller government. There are constituencies for particular businesses and industries, and for government largesse. The benefits of free markets and smaller government are large, but diffuse. As Olson and Stigler and Becker and others showed long ago, diffuse and unorganized beneficiaries have little incentive or ability to influence policy. In contrast, particular businesses and industries do. Thus, careerist politicians intent on re-election and a comfortable life have little incentive to pursue market-oriented policies, but instead pursue policies that favor particular constituencies, including business constituencies.

Which means that even though many Republicans talk/talked about being pro-market, they are/were at most really pro-business. And there is a difference. A huge difference, as Adam Smith pointed out centuries ago, and Friedman repeated often decades ago. But that difference is not well-understood, which means that failures that occur when Republicans are in power tend to get blamed on the market system, or capitalism.

The S&L crisis of almost 30 years ago provides a good example. The S&L industry was the creation of law and regulation resulting from a political bargain: again see Calomiris and Haber. Inflation devastated the industry, and in response it called for elimination of restrictions on how S&Ls could invest. This was done in the name of deregulation and freeing markets, but the most important government interventions were left in place. In particular, deposit insurance remained, and government regulators refused to shut down insolvent thrifts. The mixture of freeing up the asset side of the balance sheet when (a) liabilities were insured, and (b) S&Ls had no equity, was toxic in the extreme. With insured liabilities and no equity, S&Ls had a tremendous incentive to add risk, and the deregulation of the asset side of the balance sheet gave them the ability to do so. They took on said risk, it ended badly, and taxpayers were on the hook for $200 billion or so as a result. Real money back then!

Was this a failure of deregulation, and a damning verdict on markets? I would say no: the fraught condition of the S&Ls was the product of previous government regulation and policy, and the perverse incentive to take on risk was inherent in another policy—deposit insurance. An organized political constituency (S&L operators) influenced Congress to loosen some regulations that made the perverse effects of the other regulations and policies even more acute.

In other words: they wanted to deregulate in the worst way, and they did. They did so because the deregulation was designed to benefit particular businesses, not to create a free market in banking. Pace the theory of the second best, elimination of something (restrictions on S&L investment) that would be an imperfection in the absence of other imperfections made things far worse when other imperfections (deposit insurance, forbearing regulators) remained in place.

But the narrative that came out of the S&L debacle was one of market failure, not government failure. Deregulation and markets took the blame, when what had really happened is that politicians responding to incentives (the importuning of an organized constituency) changed the laws in ways that created perverse incentives for business, and ultimately all this perversity begot something wretched indeed. The crisis was played out on Main Street, but its origins lay squarely on Pennsylvania Avenue.

The takeaway from all this is rather depressing. It means there is an inherent political bias against pro-market policies because markets, and the beneficiaries of markets, do not form an organized political force. The difficulty of voters to distinguish pro-business policies from pro-market rhetoric often used to advance them means that economic crises (the Great Depression, the S&L collapse, the 2008 Crisis) that are strongly rooted in government failure are blamed on markets instead, which perversely results in even more government intervention.

So this is why Republicans damage the cause of free markets and small government. They spout pro-market and small government rhetoric, but for reasons of political economy, really do little that actually advances free markets or reduce the size of government. But when some government policy creates incentives that lead to a bad market outcome, their rhetoric boomerangs on markets, not government.

The post-crisis years have been a period of slow growth and economic sclerosis. This is largely attributable to the explosion of regulation that has taken place since 2009. The narrative that helped spark this explosion is that markets failed. Alas, Republicans did much to advance that narrative, albeit inadvertently. But advance it they did, and the malign effects will be felt for decades to come.

In brief, Republican politicians may be subjectively pro-market and pro-capitalism, but objectively they have done grievous harm to markets and capitalism.

 

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June 8, 2016

The CFTC Puts a Little Less Rat In It

Filed under: Commodities,Derivatives,Economics,Energy,Exchanges,Politics,Regulation — The Professor @ 7:10 pm

A couple of weeks ago the CFTC voted to revise its position limits regulation. My verdict: it makes the regulation less bad. Sort of like a strawberry tart, without so much rat in it.

The most important part of the revision is to permit exchanges and SEFs to recognize certain non-enumerated hedges as bona fide hedges that don’t count towards the position limit. In the original proposal, only eight hedges were enumerated, and only enumerated hedges were treated as bona fide hedges.

This drew substantial criticism from industry, particularly from end users, because the list of enumerated hedges was quite limited, and failed to incorporate many commonly utilized risk management strategies. Thus, more participants were at risk of being constrained by position limits, even though their purpose for trading was primarily to manage risk.

The CFTC’s fix was to permit market participants to apply annually to an exchange (“designated contract market”) or SEF for a non-enumerated bona fide hedge. The participant submits information about the hedging strategy to the exchange or SEF, which reviews it and determines whether it meets the criteria for bona fide hedges and grants an exemption for positions entered pursuant to this strategy.

This does help hedgers escape limits intended to constrain speculators. But the review process isn’t free. Moreover, the process of application and approval will take some time, which limits the flexibility of market participants. They have to foresee the kinds of strategies they would like to employ well in advance of actually implementing them.

At most this mitigates a harm, and at a cost. The speculative position limit provides no discernible benefit in terms of market stability or manipulation prevention (for which there are superior substitutes), but imposes a heavy compliance burden on all market users, even those who would almost certainly never be constrained by the limit. Moreover, the rule constrains risk transfer, thereby undermining one of the primary purposes of futures and swap markets. The bona fide hedging rule as originally proposed would have constrained risk transfer further, so basically expanding the universe of bona fide hedges removes a piece of rat or two from the tart. But it’s still appalling.

The revision also clarifies the definition of bona fide hedge, eliminating the “incidental test” and the “orderly trading requirement.” As currently proposed, to be a bona fide hedge, a position must reduce price risk. (I deliberately chose that particular link for reasons that I might be at liberty to share sometime.) That is, it cannot be used to manage other risks such as logistics or default risks. This is what the statute says, and was the way that the old regulation 1.3(z)(1) was written and interpreted.

Perhaps the most important result of this process is that it stands as a rebuke to Elizabeth Warren for the calumnies and slanders she heaped upon the Energy and Environmental Markets Advisor Committee, and me personally. One of the main complaints of participants in the EEMAC meetings was that the bona fide hedging rule as originally proposed was unduly restrictive. I dutifully recorded those complaints in the report that I wrote, which caused Senator Warren to lose it. (I cleaned that up. Reluctantly.) (The report is circulating in samizdat form. I will find a link and post.)

Well, apparently all of the Commissioners, including two strong supporters of the position limit rule, Massad and Bowen, found the criticisms persuasive and, to their credit, responded constructively to them. So, Liz, if supporting a broadening of bona fide position limits makes one an industry whore, that epithet applies to the Democratic appointees on the Commission. I presume you will take it up with them in your tempered, reasoned way.

But I note that Ms. Warren has been notably silent on the Commission’s action. Go figure.

It is now likely that the position limit rule will finally slouch its way into the rulebook. This is unfortunate. All that can be said is that due to this action it isn’t as bad as it could have been, and as bad as it is, it is nothing compared to the monstrosity that is being created in Europe.

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June 2, 2016

The Smelly Little Orthodoxy of Warmism, Hating Free Intelligence and Free Debate

Filed under: Climate Change,Economics,Energy,Politics,Regulation — The Professor @ 7:01 pm

One of the most disreputable tactics of those who sound alarms about anthropogenic climate change is to conscript any weather-related disaster to advance their cause. Case in point: the recent wildfires in and around Fort MacMurray, Alberta, Canada:

Experts say climate change is contributing to the wildfires raging across Canada, and the increasing frequency of such fires may overwhelm one of Earth’s most important ecosystems, the boreal forest.

In just over a week, an out of control blaze has charred more than 2,290 square kilometers (884 square miles) of land and forced the evacuation of 100,000 people from Fort McMurray in Alberta, Canada.

Dominated by conifers like pine and spruce, the boreal forest sweeps across Canada, Russia, Alaska and Scandinavia making up about 30 percent of the world’s forest cover, and absorbing a big chunk of carbon from the atmosphere.

As crucial as the boreal forest is at reducing the impact of human-driven fossil fuel emissions, it is also increasingly fragile, and expected to become hotter, drier, and more prone to fires in the future.

“Western Canada, including in particular the region in Alberta containing Fort McMurray, has warmed quite a bit more than the global average,” said scientist Michael Mann, author of “Dire Predictions: Understanding Climate Change.”

With the Arctic region warming twice as fast as the rest of the planet, climate model projections place central and western Canada in the “bullseye of enhanced warming,” he told AFP.

Michael Mann. Of course.

The past months have seen a strong El Nino which has caused anomalous weather throughout the world, and in the western hemisphere in particular. It has brought heavier than normal rains to some areas, and drought to others. My immediate suspicion was that El Nino contributed to the warm dry conditions, low snow pack, etc., that set the stage for the Alberta fires. And indeed, that’s the case.

It’s also necessary to put this in perspective. Even in normal years, there are fires in the boreal forests of Canada. Indeed, about 29,000 square kilometers burn in Canada each year. When I looked at the height of the fires, the Fort MacMurray fire had consumed about 2900 square kilometers, or about 10 percent of the annual average in Canada. This also represents about .015 percent of Canadian boreal forest area.

The fire got attention not so much because of its size, but because it occurred in a populated area (something of a rarity in that area), and one that happens to be a major oil producing center.

But the cause is too important to let facts interfere with the narrative. The fires were dramatic, and to the credulous it is plausible that global warming is to blame. So Mann et al could not let this opportunity pass.

Exploiting weather to raise alarms about climate is not the only disreputable tactic these people employ. Another is to attempt to intimidate through the legal process those who dare challenge their orthodoxy. This tactic has reached a new level in California, where a bill with the Orwellian title “California Climate Science Truth and Accountability Act of 2016” has cleared committees in the state Senate:

“This bill explicitly authorizes district attorneys and the Attorney General to pursue UCL [Unfair Competition Law] claims alleging that a business or organization has directly or indirectly engaged in unfair competition with respect to scientific evidence regarding the existence, extent, or current or future impacts of anthropogenic induced climate change,” says the state Senate Rules Committee’s floor analysis.

What does “engage in unfair competition with respect to scientific evidence” even mean? As an industrial organization economist by training, and practice, I know that the concept of “unfair competition” is slippery at best even in a straightforward economic context, and (speaking of Orwellian) that unfair competition laws have been used primarily to stifle competition rather than promote it. How unfair competition concepts would even apply to scientific debate is beyond me.

But that’s not the point, is it? The point of this law is to utilize another law that has proved very convenient at squelching competitors in the name of competition in order to squelch debate about climate change and climate policy. This is antithetical to science yet is done in the name of science: it is also a perfect example of the thuggery that the warmists routinely resort to when they cannot prevail in an open discussion.

When writing about Dickens, Orwell said something that relates to this issue as well:

It is the face of a man who is always fighting against something, but who fights in the open and is not frightened, the face of a man who is generously angry — in other words, of a nineteenth-century liberal, a free intelligence, a type hated with equal hatred by all the smelly little orthodoxies which are now contending for our souls.

The smelly little orthodoxy epitomized by Michael Mann and Kemala Harris (the AG of CA, and soon to be Senator, who is a leader of the movement to prosecute climate change dissenters) indeed hates free intelligence, and free debate. And nineteenth century liberals, for that matter.

Have the progressives (particularly in California) who shriek about Peter Theil using the legal system to go after Gawker uttered a peep of protest against the employment of the far heavier hand of the state to silence debate about climate change? Not that I’ve heard. Free speech for me, but not for thee, is their motto.

Those who claim that science is undeniably on their side should have no fear of debate, and should not feel compelled to use coercion to stifle that debate. That they do means that they lack confidence in the truth of their message and their ability to persuade. It also means that they have a hearty disrespect for the ability of the American people to listen to and evaluate that debate with intelligence and fairness. In other words, what we are seeing in California is another example of a self-anointed elite that heartily disdains the hoi polloi, believing that it is their right and obligation to use any means necessary to impose their beliefs.

This is a recipe for social strife, especially since the climate change debate is by no means the only place where this attitude is regnant. This is precisely why battle is now raging between elitism and populism. Sad to say, that battle is likely to become even more intense in the coming months and years.

 

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May 29, 2016

To the NYT It Would Be News That Socialism Causes Economic Catastrophe

Filed under: Climate Change,Commodities,Economics,Energy,Politics,Regulation — The Professor @ 2:05 pm

Venezuela is on the verge of economic collapse and social disintegration. Here’s the NYT’s diagnosis:

The growing economic crisis — fueled by low prices for oil, the country’s main export; a drought that has crippled Venezuela’s ability to generate hydroelectric power; and a long decline in manufacturing and agricultural production — has turned into an intensely political one for President Nicolás Maduro. This month, he declared a state of emergency, his second this year, and ordered military exercises, citing foreign threats.

Do you see what’s missing? Not a single mention of socialism, Chavism, Bolivarian socialism, etc.

Other countries have suffered similar shocks without descending into dystopian chaos like Venezuela. Many countries in South America, for instance (notably Columbia and Brazil), have suffered from the decline in commodity prices and the drought, and are doing poorly economically, but are not plagued by empty store shelves, myriad shuttered factories and stores, and the imminent threat of social violence. Brazil has suffered from a lack of hydropower due to the drought, but has imported LNG to keep the lights on. Venezuela can’t afford to.

Further, Venezuela’s descent into catastrophe started long ago, and serious problems were clearly manifest in 2014 and before when the price of oil was over $100/bbl and the drought had not reduced hydropower output.

Venezuela’s current crisis had its roots with Chavez’s triumph in the 2002-2003 general strike, and the subsequent firing of 18,000 PDVSA employees. In the years that followed, foreign investors were expropriated, as were domestic businesses, all in the name of socialism. The government has imposed price controls on an every widening array of goods. As shortages increased and inflation spiked, the government increased the scope of price controls and enforced them in a draconian way, including through the dispatching of red shirted goons to seize offending businesses.

The results of all this should have been eminently predictable: shortages and a collapse of economic activity. It is those policies that caused the “long decline in manufacturing and agricultural production.”

If the NYT read it’s own freaking archives, it might have realized that this problem was looming well before the oil price decline and the drought:

Venezuela is one of the world’s top oil producers at a time of soaring energy prices [hahaha], yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

Some residents arrange their calendars around the once-a-week deliveries made to government-subsidized stores like this one, lining up before dawn to buy a single frozen chicken before the stock runs out. Or a couple of bags of flour. Or a bottle of cooking oil. (Emphasis added.)

Mind well the date of the article: April 21, 2012. Four years ago. When the Brent price was about $118/bbl.

This title of the NYT piece is hilarious: “With Venezuelan Food Shortages, Some Blame Price Controls.”

Hey, NYT: by “some” do you mean people with an economics IQ of above 80? (A category which would exclude the editorial staff and most of the news room.)

What is happening in Venezuela is a perfect illustration of something that Adam Smith recognized 240 years ago. It takes perverse government policy to turn an adverse supply or demand shock into shortages and economic catastrophe:

Whoever examines with attention the history of the dearths and famines which have afflicted any part of Europe, during either the course of the present or that of the two preceding centuries, of several of which we have pretty exact accounts, will find, I believe, that a dearth never has arisen from any combination among the inland dealers in corn, nor from any other cause but a real scarcity, occasioned sometimes perhaps, and in some particular places, by the waste of war, but in by far the greatest number of cases by the fault of the seasons; and that a famine has never arisen from any other cause but the violence of government attempting, by improper means, to remedy the inconveniences of a dearth. (Emphasis added.)

That is a perfect description of what is happening in Venezuela.

But various economic morons on the left (but I repeat myself) like Bernie Sanders, Jeremy Corbyn, Sean Penn, and Danny Glover (to name just a few) have been cheering Chavism and Bolivarian socialism for attacking the inequalities spawned by capitalism red in tooth and claw. In a perverse way, it has indeed succeeded in reducing inequality–by making everyone largely equal in their abject misery.

Perhaps there is a silver lining to the food shortages. They reduce the need for toilet paper, which ran out long ago (due to price controls, naturally).

The New York Times prides itself on carrying all the news that’s fit to print. Apparently the news about the impact of price controls hasn’t reached it yet, even though observant folks picked up on it about the time of Diolcetian’s Edict on Prices, a mere 1715 years ago.

This economic cluelessness by the NYT is precisely why its criticism of me doesn’t bother me. Such boundless economic ignorance (which is shared by a vast swathe of its readers, including notably Elizabeth Warren) renders its criticism meaningless. Anyone so stupid, or so ideologically blinded, that they fail to recognize that Venezuela’s problems have everything to do with perverse government policy has nothing to say about economics that is worth paying the slightest heed.

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