Streetwise Professor

Just when I think politics could not get any more retarded, I’m proven wrong. The latest example being the meltdown freakout over Trump’s statement that he would listen to “dirt” on an opposing candidate passed on by a foreign source.

The mind boggles. Those melting down and freaking out are Democrats to the last he, she, and xe of them. (Mitt Romney et al are basically eunuchs who follow the lead of the Democrats who unmanned them, and whose approval they crave.) They are all die hard Hillary supporters.

This would be the Democratic Party that actively solicited compromising information on Trump and Trump campaign figures from the Ukrainian government. Last time I checked, Ukraine was not the 51st state. Or even the 58th.

This would be the Hillary Clinton whose campaign hired a foreigner to solicit foreigners–Russians, no less, rather than the benign Norwegians whom Trump referred to in his answer–to collect dirt on Trump.

And alleged information passed on by Alexander Downer (who speaks with a funny accent and so I’m pretty sure he’s a furriner) was apparently totally copacetic.

A consistent application of the standards implicit in the meltdown freakout would require those melting down and freaking out to demand the banning of the Democratic Party and Hillary’s incarceration.

Consistent application. Sometimes I crack myself up. If these people didn’t have double standards, they’d have no standards at all.

A few other observations. Does truth matter? That is, should the information provided be ignored and even criminalized merely because it is from a foreign source, even if it is true?

Hypothetical. A source within the FSB provides documentation showing that while honeymooning in the USSR a certain candidate for president agreed to become a source for the KGB, and had in fact regularly provided information to the KGB and then the FSB in the past 30+ years. Is that information to be suppressed, merely because of the source? Isn’t it meddling in an election to keep this information secret? (Any reasonable definition of the word “meddling” would involve an action that affects the outcome of an election, and keeping information secret can impact the outcome just as much as its revelation. Which is precisely why candidates want to suppress compromising information.)

Indeed, some information can only come from foreign sources. So it’s better to accept an increased risk of electing someone who canoodled with foreigners, than to accept information that would disclose such canoodling, because the information came from the foreigners that s/he canoodled with?

The controversy over the DNC emails suggests that truth is not a relevant consideration. The veracity of those emails, and the damaging information in them, were never disputed. Yet their release was supposedly scandalous, and sufficient in the minds of many to rule them out of bounds for discussion.

Moving on. Isn’t the obsession with the foreign-ness of the source of the dirt, oh, I dunno, kinda nationalist? Isn’t it passing strange that people who are willing to accept the illegal immigration of every last Guatemalan to the US (transportation courtesy of a Mexican drug cartel) believe that it is utterly unacceptable for a campaign to accept information provided by a Norwegian or whoever who may never set foot on the fruited plain nor see the amber waves of grain? So citizenship should be totally irrelevant for residency and employment and receiving government benefits, but it is determinative when it comes to who can provide information on political candidates to rival political candidates?

That makes sense how, exactly?

Isn’t it also implicit in the obsessive focus on the citizenship of the provider of information that it’s totally OK for Americans to meddle in elections by passing on damaging information to opposing campaigns?

I could go on, but contemplating the outpouring of sanctimonious hypocrisy for too long makes my head hurt. Suffice it to say, the louder the scream, the more execrable the screamer.

I have known CFTC Commissioner Dan Berkovitz for almost 20 years, when he was a senior staffer on the Senate Permanent Subcommittee on Investigations, and he reached out to me for guidance on market manipulation issues. I think it’s fair to say that we disagree on most important issues. He supports many regulations I strongly oppose, but despite that our relationship has been cordial and mutually respectful.

Dan’s recent speech at the FIA Commodities Symposium in Houston focuses on issues that we happen to disagree on, and needless to say, I am unpersuaded. Indeed, I think his remarks demonstrate quite clearly the fundamental intellectual failings with the regulatory measures he favors.

He focuses on two issues: competition in OTC derivatives, and speculative position limits. With respect to OTC derivatives, he says

There are now 105 swap dealers and 23 swap execution facilities registered with the Commission. Almost 89% of interest rate swaps and 96% of broad index credit default swaps are cleared through a central clearinghouse. Nearly 98% of all swap transactions involve at least one registered swap dealer. The CFTC’s swap trading rules have led to more competition, more electronic trading, better price transparency, and lower spreads for swaps traded on regulated platforms

But then he contradicts himself on competition:

Despite this progress, we have seen an increase in concentration in the trading and clearing of swaps among the bank swap dealers.  [Emphasis added.] Although we have more competition in the swaps market since the passage of Dodd-Frank, in the form of tighter bid-ask spreads and lower transaction costs, we have fewer competitors.  [Which makes me question whether the tighter spreads are the result of more competition, or other factors.] High levels of concentration present systemic risks and provide fewer choices for end-users.  [But wasn’t the point of DFA to reduce systemic risk by reducing concentration? GiGi sure said so.] One of the purposes of the Commodity Exchange Act (“Act” or “CEA”) is to promote fair competition.  The Commission therefore has an obligation to address this issue.

How concentrated are our derivative markets?  For swaps trading, five registered bank swap dealers are party to 70% of all swaps and 80% of the total notional amount traded. And for clearing services, the five largest FCMs—all affiliated with large banks—clear about 80% of cleared swaps.[  The eight largest firms clear 96% of cleared swaps.  I am concerned about what could happen if one of those providers fails.  I am also concerned about the impact on the price of derivatives for end users.

Even prior to Frankendodd, I predicted that the regulations would lead to greater concentration, precisely because regulatory burdens create fixed costs, which favor scale. The concentration among FCMs is particularly worrisome from a systemic risk perspective, and has been exacerbated by the way clearing regulations have been implemented. Not all of these are the CFTC’s fault: it has attempted to push back on the Fed’s implementation of the liquidity ratio, which creates unnecessary capital charges associated with segregated margins. Dan alludes to that issue thus: “We must find ways to increase bank capital standards without discouraging the availability of clearing and other risk-management tools available to end users.” But the basic conclusion remains: measures intended to reduce concentration in order to reduce systemic risk have not achieved that objective, and have in fact likely increased concentration.

The biggest weakness in Dan’s speech is his valiant, but tellingly and painfully strained, justification for position limits.

The CFTC has a long history with speculative position limits, and their benefits to the market are well established.  Section 3 of the Act identifies risk management and price discovery as fundamental purposes of U.S. derivatives markets. Meaningful position limits coupled with appropriate hedge exemptions are crucial to advancing those purposes.  Position limits help prevent corners, squeezes, and other forms of manipulation.  They prevent distortions in the prices of many major commodities in interstate commerce—ranging, for example, from wheat to gold to coffee to oil.  The Hunt brothers’ attempts to corner the silver market, the Ferruzzi squeeze of the soybean market, and the Amaranth hedge fund’s excessively large positions in the natural gas futures and swaps markets are clear examples of why position limits are needed to prevent the price distortions and real-world impacts that can result from excessive speculation.  Episodes such as these validate Congress’ and the CFTC’s long-held view that position limits are “necessary as a prophylactic measure” to deter sudden or unreasonable price fluctuations and preserve the integrity of price discovery and risk mitigation on U.S. derivatives markets.

Insofar as prevention of market power manipulations (squeezes and corners) are concerned, this can be achieved through spot month limits and does not require restrictions on the positions held prior to the delivery month, and across all months, as the Commission’s previous proposals would impose. Meaning that the proposed regulations are over-inclusive and an unduly restrictive means of achieving their stated objective.

Further, insofar as the examples are concerned, they provide no support for the types of expansive limits that have been proposed. None.

As I’ve said repeatedly about the Hunt episode (the CFTC’s favorite go-to example): when do we get to the Trojan War? That episode is ancient history, and is more the exception that proves the rule than a warning of a clear and present danger. I have said this repeatedly only because the CFTC brings up the example repeatedly. If they stop, I will!

Ferruzzi is interesting, because Ferruzzi cornered a market with position limits, from which the company had an exemption. Indeed, it was the CFTC’s and CBOT’s revocation of Ferruzzi’s hedge exemption during the spot month that broke the company’s corner (and launched my academic career in commodities!–thanks to all!) I can think of other examples in which long hedgers with exemptions executed market power manipulations, and indeed, long hedgers with exemptions are the most dangerous manipulators. Meaning that position limits on speculators are beside the point when it comes to addressing market power manipulation.

With regards to Amaranth, Dan states

The Amaranth episode provides another clear example of how large speculative positions can distort market prices.  At one point, Amaranth held 100,000 natural gas contracts, or approximately 5% of all natural gas used in the U.S. in a year. “Amaranth accumulated such large positions and traded such large volumes of natural gas futures that it distorted market prices, widened the spreads, and increased price volatility.”

The quotations are to a Senate Permanent Subcommittee report (which Dan was an author) . I can say definitively that the analysis underlying those conclusions is completely unpersuasive, and would fail to pass muster in any manipulation litigation. The analysis lacks statistical rigor, and demonstrates neither “artificial” prices or that Amaranth caused these artificial prices (intentionally or otherwise).

Indeed, the CFTC did not pursue Amaranth for distorting natural gas prices through its immense OTC derivatives positions (the 100,000 contracts Dan refers to) outside the delivery month. Instead, it (and FERC) went after the fund and its head trader Brian Hunter for three “bang the close” manipulations in 2006. (Full disclosure: I was an expert for plaintiffs on those manipulations in a private lawsuit.) Position limit regulations would not have prevented those manipulations.

Indeed, other manipulation cases the CFTC has pursued, including bang the settle type cases against Optiver and Parnon and Moore Capital (which I was also an expert in in related private litigation) also would not have been impacted by position limits. That is, limits would not have prevented them. In another recent CFTC case (just settled, and again, I am an expert in related private litigation), the party accused by the CFTC (Kraft) was a long hedger with a hedge exemption.

In brief, neither Dan nor anyone else has presented an example of a post-Trojan War alleged manipulation that position limits would have prevented.

So what’s the point? Can position limits reduce the risk of distortion arising from something non-manipulative?

Dan has an answer, and the answer is “no!” (though he says “record before us demonstrates that the answer is ‘yes.'”)

What speculative position limits are intended to do is to prevent a single market participant from moving markets away from fundamentals of supply and demand through the accumulation of large speculative positions.  [Emphasis added.] In this regard, it’s important to note that speculative position limits focus on the positions held by a single trader or trading entity, not on the overall level of speculation in a market.  The Commission’s task in setting speculative position limits is not to determine how the collective level of speculation in a market might affect prices.  [Emphasis added.] Nor is it to try to determine the “correct” level of speculation that should be permitted in a market.  Instead, the Commission must focus on the single speculator and the impact of large speculative positions on the market.

But this demolishes the argument for limits that was made with increasing intensity around 2006, and peaking (along with oil prices) in mid-2008. Those advocating position limits then could point to no single large trader that was distorting prices. Instead, they blamed (to use Dan’s phrase) “the collective level of speculation” to justify limits–which is exactly what Dan (rightly) says the limits won’t and can’t constrain. Meaning that the CFTC’s proposed limits represent a bait-and-switch: by a limit supporting CFTC commissioner’s own admission, the proposed limits won’t address the supposed ill that led Congress to legislate them in the first place.

To summarize: Position limits outside the spot month are unnecessary to prevent market power manipulations (and other deterrent measures can enhance spot month limits); position limits won’t prevent other kinds of manipulation (e.g., bang the settlement); there are no examples in decades of distortions that position limits of the type proposed might have mitigated; the examples that have been proposed are wrong; the most likely market power manipulators (long hedgers) would be exempted from limits; limits would not have prevented the specific manipulations the CFTC has alleged in recent years; and the limits the CFTC has proposed would not touch the kinds of allegedly multi-trader “collective” excess speculation that caused Congress to mandate position limits in the first place.

Other than that, the case for position limits is rock solid!

Dan Berkovitz manfully attempts justify limits but achieves just the opposite. The arguments and evidence he brings to bear demonstrate how bankrupt the case for limits truly is.

Given that limits will involve substantial compliance costs, and bring no benefits, the song remains the same: position limits are all pain, no gain.

Virtual Power Purchasing Agreements (VPPAs) have been around for a while, and play a particularly important role in securing financing for renewable energy projects, as this article from Reuters regarding VPPAs in Europe indicates. They are essentially long term swaps whereby one party (e.g., a wind or solar operation) receives a fixed price for power, and pays a floating price, usually based (in the US) on the spot price in an RTO/ISO market (e.g., PJM, or MISO).

These contracts present interesting pricing issues because of the unique nature of electricity as a commodity, and the unique nature of renewable generation in particular. Electricity is not an asset per se, and electricity price risk is not hedgeable, even theoretically, through a dynamic trading strategy in the way that the price risk in a stock option is. This means that electricity markets are “incomplete,” and that Black-Scholes-Merton-like formulas that derive prices that do not depend on risk premia do not exist for power derivatives.

The risk premia embedded in power prices can be large, though they have been falling over the years. I wrote extensively about this subject for about 10 years (late-90s to late-00s), including this article. That paper provides a way of extracting risk premia from the prices of traded claims (e.g., monthly power forward contracts). One virtue of that approach is that the primary state variable in the model is not price, but load (which is translated into price via the supply curve). Thus, the relevant price of risk is the price of load risk, which can be used in the valuation of load-dependent claims. Such claims could be full requirements deals, for example.

One challenge to the approach is that the realistic horizon of the market price of risk function estimate is that of the visible forward curve, which is typically far less than the maturity of long term electricity deals. The prices in such contracts effectively reflect a market price of risk negotiated between the two parties, in the absence of corresponding forward curve data.

Renewables VPPAs face an even bigger challenge: the variability of the output of a renewables asset. There is not only price risk (or market load risk) associated with a given region: there is the output risk of the facility, which may be material given the vicissitudes of wind and sun. Thus, the dimensionality of the pricing problem is higher, which is a problem given that the methods I employed in my 2008 paper (co-authored by Martin Jermakyan) are subject to “the curse of dimensionality.”

Furthermore, given the joint dependency on market price (or load) and project output, these are correlation-dependent claims. That is, what is the dependence between market price and wind output? This could be a particularly big issue given that high wind output is often associated with negative prices. Guaranteeing a fixed price therefore involves something of a wrong way risk.

The long tenor of VPPAs makes these issues even more devilish, given that pricing involves forecasting the relevant dynamics and parameters (including those associated with dependence among the state variables) over long horizons–horizons over which entry can occur and technology can change, making historical data of little relevance in estimation. Indeed, there is an element of endogeneity: the prices in VPPAs can affect the economics of entry, which can affect future price behavior, which is (theoretically, anyways) an input into the “right” VPPA fixed price.

All in all, a very interesting and challenging pricing problem, that like the simpler problems Martin and I tackled some years ago, require the use of advanced pricing techniques, numerical methods, and econometrics even to conceptualize, let alone solve. Sounds like an interesting problem–or problems–for aspiring scholars in energy pricing.

The Supreme Court made something of a splash recently in its Apple v. Pepper antitrust decision, which some have interpreted as undermining the limitation in the Illinois Brick case that only direct purchasers can sue for antitrust damages. The majority decision claims that it is adhering to the “bright line” of Illinois Brick. Apple demonstrates, however, that any blanket limitation on who has antitrust standing can lead to perverse outcomes.

The facts in Apple are that Apple’s App Store is allegedly a monopoly that it can exploit to raise the price of apps sold through the store. Apple collected its fee (in the form of a commission) from app sellers, and collected no fee from buyers using the store. Apple claimed that app buyers have no standing to sue because they bought the apps from the app sellers, not Apple, meaning that they were indirect purchasers, and hence no standing to sue under Illinois Brick. A 5-4 majority decided otherwise.

The economics of this are straightforward. It is basically a version of tax incidence analysis, which says that the distribution of the burden of a tax is the same, regardless of whether the government collects the tax from sellers, or from buyers. In the present instance, the burden of Apple’s supercompetitive charge would be the same regardless of whether Apple charges app suppliers or consumers for access to the App Store.

That fact alone should raise alarms about the efficiency (and fairness) of a blanket denial of antitrust standing, depending on who is the “first purchaser” or who the putative monopolist charges the supercompetitive price.

A simple supply-demand diagram illustrates the point.

The blue line is the demand for apps. The red line is the supply of apps. The demand for the App Store is a derived demand: it is derived from the supply and demand for apps, and equals the vertical distance between the supply and demand curves. In the diagram, App Store Demand is the gray line. It is downward sloping, indicating that the App Store has market power. It chooses a quantity such that its marginal revenue (the yellow line) equals marginal cost (assumed to be zero).

Given the supply and demand for apps, the profit maximizing quantity is 25, which is half the competitive quantity of 50 (given by the intersection of the supply and demand curves). Apple collects 50 per app sold.

The only prices that clear the market involve consumers paying 75 per app, and sellers receiving 25 for app. This outcome can be obtained in several ways. Apple could charge suppliers a commission of 50, which they would pass on, collecting 75 from consumers and netting 25. Or, apple could charge buyers a fee of 50, which would mean that they would only pay developers 25 per unit for the 25 units they buy.

So who pays what and who gets what depends not a whit on whom Apple charges.

This means that prohibiting one or the other users of the App Store for suing for damages means that they will be uncompensated: the party that can sue can be either overcompensated, or perhaps undercompensated too.

In the example, the competitive price is 50, meaning that the buyers overpay by 25. If they can’t sue, they are SOL and suffer a loss greater than the overcharge (25) times the number of units (25). Their loss is greater because of the deadweight loss: there are 25 units that consumers would have bought absent the monopoly, but don’t purchase when it exists. This deadweight loss (the “welfare triangle”) is one-half times the units not consumed (25) times the markup paid by consumers (25).

If only the sellers have antitrust standing, because they pay Apple the 50/unit, they are overcompensated if they are awarded their unit sales (25) times the full Apple overcharge of 50. The 1250 in compensation exceeds their loss in surplus which is their share of the overcharge (25) times the units sold (25) plus the deadweight loss (25*25/2) (for a total of 937.5). If the sellers are awarded only their share of the overcharge (25) on the units they sell (25) they would be undercompensated like the buyers.

Therefore, since the losses due to monopoly power are shared between the App Store sellers and buyers, restricting compensation to only one of them results in undercompensation to the party that can’t sue for damages, and (depending on how the damages to the party with standing are calculated) can overcompensate or undercompensate the party with standing. This mismatch between harm and compensation potentially undermines the deterrent effect of private antitrust actions, and also means that the antitrust law has largely arbitrary distributive effects, especially since there is no necessary connection between who suffers the most harm and who has standing to sue: who suffers the most harm depends on supply and demand elasticities, and if unlike the simple analysis above demand is much less elastic than supply, consumers are harmed more.

This is likely an important consideration in Apple. It is basic econ (it drops out of the Slutsky equation) that demand tends to be inelastic for goods that represent a small fraction of a consumer’s expenditures: that’s likely the case for apps, which typically cost just a few bucks. Furthermore, given low entry barriers on the app developer side, I would surmise that the supply of apps is highly elastic. Inelastic demand and elastic supply means that consumers bear most of the overcharge. In this case, the misalignment between economic harm and standing to sue based on who pays the fee to Apple is likely acute.

The rationale for Illinois Brick is that parsing out harm when both buyers and sellers are damaged is just too damn hard, and costly. In the context of the simple example, knowing perfectly the distribution of losses from market power requires knowing the supply and demand curves. So fuggedaboutit, and just give everything to the one who writes the check to the monopolist, even though who writes the check has jack all to do with who actually pays the price.

Litigation costs are a legitimate consideration, but not the only consideration. Undermining the efficiency and distributive purposes of the antitrust laws is costly too.

Apple v. Pepper has the virtue of looking past the economically irrelevant issue of privity to the substantive economic effects of the alleged antitrust violation that is before the bar. The Apple majority claims that it is faithfully implementing Illinois Brick, but by looking at the economic substance the decision will prove, in my opinion, the camel’s nose under the tent that will substantially broaden the categories of market participant eligible for antitrust standing.

Leading the squealing parade (I’ll bet you’ll be SO surprised to learn) is the NYT, which includes this gem in its article on the Trump declassification gambit (and “gambit” is the perfect word):

President Trump’s order allowing Attorney General William P. Barr to declassify any intelligence that led to the Russia investigation sets up a potential confrontation with the C.I.A. It effectively strips the agency of its most critical power: choosing which secrets it shares and which ones remain hidden.

The NYT writers (Barnes and Sanger) obviously think this is a bug, a defect, a horrible thing. But it is in fact the strongest feature of Trump’s gambit.

Information is power. Why should the CIA have this power? Who elected them? What is the Constitutional source of this power?

In fact, the US Constitution does not establish the CIA, or grant it independent powers. It is part of a co-equal branch of government that is established by the Constitution: the Executive. It is subordinate to the Chief Executive. It is a creature of the Chief Executive. It may disagree with the Chief Executive’s decision. Oh well. Tough shit. If the order is a legal one–and no one can dispute that the law establishes the POTUS as the ultimate classifying authority in the US government–it must obey or it is violating the law–including the highest law of the land.

Even liberals knew this, once upon a time. Indeed, back in the 1970s, a rogue CIA flouting presidential authority was a stock trope in movies, TV, and fiction (all dominated by liberals). The Pike and Church committees that went after the CIA post-Watergate–Democrat dominated.

But now, they are basically shills for the CIA, and willing to shred the Constitution when doing their shilling.

What the NYT is currently freaking out about–an attempt to make an overly powerful CIA accountable and subordinate to legal authority–is long past due. Hopefully this is the beginning of a concerted campaign to cut the CIA down to size, and the most important tool for doing that is to take back the control of information that it has arrogated to itself–and which its handmaidens in the media and the Democratic Party (again I repeat myself!) currently think is a great thing.

A related thought. Another argument the governing class is raising against the Trump/Barr declassification campaign is that Barr will declassify selectively, and the selective declassifications will present a misleading picture.

That’s easily fixed–declassify it all!

But I’m guessing that the governing class really doesn’t want that.

But here’s another point: the CIA is notorious for its long history of very, very selective leaks intended to advance its institutional interests and the agendas of its leadership. So cry me a fucking river if they get hoist on their own petard. Serves the bastards right.

That loud squealing you hear coming from points east is not the sound of 1000s of hogs being scalded: it is the collective scream of the governing class panicked at the Barr investigation, and in particular, at Trump’s instruction to the intelligence agencies that they declassify large amounts of material relating to the origins of the Russia investigation. Not surprisingly, among those protesting most strenuously, like the slimy, sanctimonious James Comey and the Neanderthal-browed (hell, Neanderthal period) John Brennan, are those in the gravest legal jeopardy.

In other words, the Deep State is in Deep Shit, and lashing out in response.

One of the attacks leveled at Trump and Barr is that this investigation will reveal the identity of a super-secret CIA source close to Putin.

Is that the best you all can do? Really?

First, color me skeptical that any such source exists.

Second, even assuming that he did exist . . . he has long since been compromised. Obviously.

Christopher Steele spread around the dossier in mid-2016 like a crack whore spreads around the clap (apologies to crack whores, and to the clap). Russian intelligence therefore would have known about it long before it made it onto Buzzfeed–or into the set-up “briefing” Comey gave Trump in January, 2017. Generously assuming the whole thing was (a) not a Russian disinformation operation in the first place, and (b) not a figment of Steele’s imagination, the dossier’s disclosure that an individual or individuals present at or better yet a participant in conversations with Putin and other high-level Russians (e.g., Sechin) was blabbing to western spooks (ex- or active) would have unleashed the leak investigation from hell, without the legal niceties that protect leakers in the US.

Any source would have been identified, and dealt with. Not necessarily with extreme prejudice: indeed that is an unlikely outcome. It would have been far more useful to turn said source to get information on the CIA and to spread disinformation.

Indeed, the CIA (were it even marginally competent) would have realized that the dossier had burned the source and made him not just useless, but dangerous to the CIA.

So spare me the wailing laments about outing a CIA mole in the Kremlin. If (and that’s a big if) the mole existed, he is no longer a useful intelligence asset to the US, nor can he be any more endangered than was 3 years ago.

Further, the whole “we’d love to tell you but then we have to kill you” pose is rather convenient, no? After all, if there was a super secret CIA squirrel in the Kremlin who could prove that Trump conspired with the Russians, wouldn’t The Resistance just be dying for that information to come out, and to be validated? After all, it would seal their case against their arch-enemy.

How stupid do they think we are, that we would believe that the identity of an already-burned source is so sacrosanct that they would sacrifice their vendetta against Trump (whom they claim is a mortal danger to national security) rather than reveal it?

Please. The strident protests actually undermine the veracity of collusion claims.

I have always been deeply ambivalent about the CIA. I recognize the need for an intelligence apparatus. I further recognize the need for secrecy for it to operate effectively. But I also recognize that this secrecy provides a cover for it to engage in nefarious actions intended to implement its own agendas, which are often malign. Secrecy also makes it almost impossible to hold it accountable for its litany of failures.

There is a colorable case that the Neanderthal and his minions engaged in numerous nefarious acts in 2016 and 2017. Getting to the bottom of that, and holding those responsible for any such acts accountable is far more important to the health of the Republic than protecting some putative source in Putin’s inner circle (who, if he existed, was hopelessly compromised years ago).

Let the investigation continue, the documents be declassified, and the chips fall where they may. The prospect of which is exactly why the hogs are squealing.

I promised I would write a post on the Australian power market when a suitable article came along, and that time has come.

Check out the logic. Australia closes its coal plants (highly efficient, reliable, and with a cheap source of fuel given Australia is a dominant coal producer), and replaces them with wind. Wind, being highly erratic, requires (given the closure of the coal plants) gas-fueled plants to offset the variability of wind output, and as a result gas is on the margin most hours in Australia. And Australian power prices are sky-high because . . . LNG exports reduce gas supplies in Australia, keeping the price of gas high.

Riiiggghhhttt.

You cannot make up this stuff.

No. It’s not the first two links in the process that are blamed–the ones that those who are whinging deliberately chose. Instead, it’s the last link, which was an inevitable result of the first two choices.

This is blame shifting on crack.

I should also note that those gas resources that supply exports would not have been developed absent the export market. They would not have been developed to supply the domestic market alone. So LNG exports are a scapegoat for a problem created by conscious decisions by the green left (i.e., the watermelons) to jam renewables down people’s throats.

It is particularly ironic that this article came out shortly before the Australian election, the results of which have caused a complete mental breakdown on the left. The Liberal Party (which is to the right, relatively speaking, Down Under) staged a surprising upset of the Labor Party, resulting in an unhinging comparable to that in the UK after Brexit or the US after Trump. I can’t tell you the number of tweets I read where people–adults, allegedly–confessed to crying uncontrollably.

I frolic in their salty tears.

The irony comes from the fact that the Labor Party is hard core in its support for yet more attempts to decarbonize Australia’s economy. Perhaps they should consider the possibility that a major reason for their rejection at the polls is the anger of many Australians at the consequences of previous climate-driven policies (including sky high electricity prices), and their wanting no more of such nonsense.

The shock on the left at the outcome shows that three years after Brexit and two-and-a-half years after Trump the leftist elites have learned nothing, and forgotten nothing. It is no doubt another example of their perpetual bullshit loop in action. Leftist-friendly views dominate the media. Anyone expressing contrary views is attacked, which leads to self-censorship and preference falsification. So leftist opinions and sentiment dominate public discourse, convincing leftists that everybody agrees with them, except for a lunatic fringe. But in the privacy of the polling booth, people can express their true views, and perhaps do so with a relish, as this is an opportunity to stick it to those who shout them down. The result is shock and dismay on the left.

But they are as ever incapable of learning, instead just writing off their conquerors as cranks and extremists. As annoying as they are, I hope they don’t change. Because as long as they don’t change, they will continue to lose.

Ironically, the left’s climate change obsession is one of the things that doomed them:

Australian conservative Prime Minister Scott Morrison’s surprise come-from-behind win in national elections was fueled by a campaign that focused on fears that economic and climate policies pledged by center-left opponents would end the world’s longest growth streak.

. . . .

Climate change re-emerged as an election issue following a summer of wildfires, drought, floods and extreme temperatures. Voter support for policies aimed at addressing climate change was at the highest level since 2007. But, as in the U.S., divisions grew more stark as the issue gathered steam.
Labor pledged to reduce emissions by 45% from 2005 levels by 2030, after Australia under the conservatives became the first developed nation to abolish a price on carbon in 2014. The party also promised a push on renewable energy and electric vehicles, offering detailed and transparent policies that opened its agenda to months of concerted attack from Mr. Morrison.

Given the track record (e.g., the high electricity prices that motivated this post), this was a target rich environment for Mr. Morrison and the Liberals. And it is evident that they put much steel on the target.

Also ironic is that the Labor Party was defeated in part by the impact of its climate policies on what was once upon a time the bedrock of labor movements and parties around the world: coal miners, and those dependent on coal production. This demonstrates yet again that left parties have basically abandoned their historical constituencies, and are now dominated by effete metropolitans who are not only completely unfamiliar with muscular labor, but actually despise the muscular laborer.

Excuse me while I engage in a little long distance schadenfreude, and scroll through Twitter to witness yet another meltdown by the Bourbon left.

Anyone who says that “the science is settled” is a fool or a charlatan. Case in point: Darwinism and its more rigorous heir Neo-Darwinism. These have been “settled science” (in the case of the former) since no later than the Scopes Trial in 1925. But as this fascinating review article by the estimable David Gelertner demonstrates, these theories cannot do what they purport to do: explain “macro-evolution,” or to quote the title of Darwin’s famous work, explain the “origins of the species.”

The eminent statistician George Box once quipped, “all models are wrong, but some are useful.” Darwinism and Neo-Darwinism have proved incredibly useful. They have provided the models that have resulted in the incredible strides in understanding, and manipulating, genetics and the genome. That is, they have proved enormously useful at a micro level–that is, within a species

But that’s not what Darwin set out to do, nor what neo-Darwinists claim to be able to do–explain how life forms evolved from one celled organisms to incredibly complex ones like humans. And Gelertner (or more exactly the author of the book Gelertner reviews, Stephen Meyer) explains why. It’s a matter of probability. Ironically, the discoveries in genetics derived from working in the Darwinian model/paradigm undermine its macro claims.

Evolution in the Neo-Darwinian framework is driven by mutation: “pure chance and lots of time” as Gelertner phrases it. But the odds against a useful mutation are so immense, that there is never enough time. Genes make proteins, and proteins are chains of 150+ amino acids:

The total count of possible 150-link chains, where each link is chosen separately from 20 amino acids, is 20¹⁵⁰. In other words, many. 20¹⁵⁰ roughly equals 10¹⁹⁵, and there are only 10⁸⁰ atoms in the universe.

What proportion of these many polypeptides are useful proteins? Douglas Axe did a series of experiments to estimate how many 150-long chains are capable of stable folds—of reaching the final step in the protein-creation process (the folding) and of holding their shapes long enough to be useful. (Axe is a distinguished biologist with five-star breeding: he was a graduate student at Caltech, then joined the Centre for Protein Engineering at Cambridge. The biologists whose work Meyer discusses are mainly first-rate Establishment scientists.) He estimated that, of all 150-link amino acid sequences, 1 in 10⁷⁴ will be capable of folding into a stable protein. To say that your chances are 1 in 10⁷⁴ is no different, in practice, from saying that they are zero. It’s not surprising that your chances of hitting a stable protein that performs some useful function, and might therefore play a part in evolution, are even smaller. Axe puts them at 1 in 10⁷⁷.

In other words: immense is so big, and tiny is so small, that neo-Darwinian evolution is—so far—a dead loss. Try to mutate your way from 150 links of gibberish to a working, useful protein and you are guaranteed to fail. Try it with ten mutations, a thousand, a million—you fail. The odds bury you. It can’t be done.

There is also the problem of creating whole new life forms:

To help create a brand new form of organism, a mutation must affect a gene that does its job early and controls the expression of other genes that come into play later on as the organism grows. But mutations to these early-acting “strategic” genes, which create the big body-plan changes required by macro-evolution, seem to be invariably fatal. They kill off the organism long before it can reproduce. This is common sense. Severely deformed creatures don’t ever seem fated to lead the way to glorious new forms of life. Instead, they die young.

Evidently there are a total of no examples in the literature of mutations that affect early development and the body plan as a whole and are not fatal. The German geneticists Christiane Nüsslein-Volhard and Eric Wieschaus won the Nobel Prize in 1995 for the “Heidelberg screen,” an exhaustive investigation of every observable or inducible mutation of Drosophila melanogaster (the same patient, long-suffering fruit fly I meddled with relentlessly in an undergraduate genetics lab in the 1970s). “[W]e think we’ve hit all the genes required to specify the body plan of Drosophila,” said Wieschaus in answering a question after a talk. Not one, he continued, is “promising as raw materials for macroevolution”—because mutations in them all killed off the fly long before it could mate. If an exhaustive search rules out every last plausible gene as a candidate for large-scale Drosophila evolution, where does that leave Darwin? Wieschaus continues: “What are—or what would be—the right mutations for major evolutionary change? And we don’t know the answer to that.”

. . . .

Darwin would easily have understood that minor mutations are common but can’t create significant evolutionary change; major mutations are rare and fatal.

So where does that leave us? With very unsettled science. And this in the area in which scientists are justly proud of the enormous progress they have made working within the established paradigm. Progress that has changed lives in almost unfathomably ways, and which will continue to do so for the foreseeable future.

But that is what Kuhn called “normal science”: incremental progress within an established paradigm. This is fertile ground for a Kuhnian paradigm shift. An accepted paradigm cannot explain vital facts–macroevolution, in this instance. Indeed, here it cannot explain the very phenomenon it purports to be able to explain and was in fact developed to explain. That failure will trigger the hunt for a new paradigm. And likely sometime someone will develop it.

Keep this in mind whenever you hear that the science is settled, especially in fields–like climate science–where the underlying problem (the behavior of a dynamic, non-linear system) is as complicated or perhaps more complicated than biological evolution, and where the normal science in the existing paradigm has been far less successful than Darwinism/Neo-Darwinism.

Russia roiled European oil markets by shipping millions of tons (perhaps upward of 5 million, or about 35 million barrels) of crude oil contaminated with organic chlorine over the Druzhba (“Friendship”) pipeline. The contaminants have the nasty habit of turning into hydrochloric acid in refineries–not good!

About 2 weeks after the first news of the contamination, the Russians claimed they had cracked the case. They arrested four executives of an obscure oil company in Samara, and sought two more, claiming that the company had pumped the oil to conceal a million ruble fraud. One million rubles, as in about $15 grand.

Now, I can see how some Fargo-esque Russian crooks could wreak such havoc to cover up a petty crime, but I’m also very skeptical of the official story.

To start with, amazing, ain’t it, that crack Russian investigators who let many major crimes go unsolved for, like forever can solve this one in mere days? The fact that some of the alleged perps have Chechen names also suggests that this was a “round up the usual suspects” bust that would make Claude Rains/Captain Renault proud.

Also, the quantities don’t make sense. The contamination is serious, and even 10 million rubles of oil would represent only a couple of thousand barrels: could that create the kind of contamination that has forced the shutdown of a pipeline that can carry 1.2-1.4 million barrels per day?

No, pinning this on some obscure suspects seems just too pat, and calculated to let major players (such as the pipeline monopoly Transneft, and major producers, such as Rosneft) off the hook.

Even if crooks in Samara succeeded in introducing into Druzhba contaminated oil in quantities sufficient to make millions of tons unusable, this just raises other questions. Like, who was monitoring what was going into the pipeline? How were the crooks able to get this much bad oil into Druzhba? How is Transneft’s failure to detect this not negligent–or perhaps itself criminal (e.g., involving bribing Transneft employees to overlook the introduction of the tainted oil into the pipeline).

However you look at it, this validates many stereotypes about Russia. Rife criminality, or corruption, or incompetence–or all of the above!

Update. Some back-of-the-envelope calculations. The contaminated oil had 150-330 ppm of the organic chlorides. The acceptable level is 10 ppm. Assume that prior to the contamination, the oil had the maximum allowable amount, 10 ppm. If the contaminated oil had 100 times the allowable amount (1000 ppm) over 14 percent of the oil in the pipe had to be contaminated to that level just to get it to 150 ppm. To get it to 330 ppm, almost a third would have to be contaminated. At 1mm bpd of throughput, that’s 140k-330k bpd. That’s a lot of oil, and certainly more than the piddly companies blamed for this contamination can produce. Even if you increase the contamination by an order of magnitude, you are still talking 1 to 3 percent of the oil in the pipeline.

But if you crank up the contamination rate to cut down the volumes, that just raises the question: WTF was Transneft doing to allow oil with 100 to 1000 times the allowable limit getting into the pipeline.

Pick your poison, Transneft.

So every election night, all the broadcast and cable news networks project the winners. Most nights, it’s about a 50-50 split between Republicans and Democrats, give or take. But when it comes to the winners of projection, the Democrats have it in a landslide.

Here are examples, just from the last week.

Hillary Clinton said if it were anybody other than Trump, they would be in jail. This from the woman who if she was anybody other than Hillary Clinton would have been jailed in the 80s, the 90s, and the 10s. I guess she rested up in the noughties.

Next item: the latest ongoing freakout is about Giuliani talking about going to Kyiv to encourage the Ukrainians to investigate then-VP Joe Biden’s pressuring the government there to get rid of a prosecutor that was investigating, among other things, a business that his son Hunter was involved with. How dare he (and Trump) attempt to get a foreign government to dig dirt on a political opponent!

Er. . . the DNC/Clinton campaign actively worked with the Ukrainian government to dig dirt on Trump in 2016. Some woman whose name comes right off the Taco Bell menu–Andrea Chalupa–was the liaison between the DNC and the Ukrainians.

We are now learning that the enterprising Hunter profited from private equity deals in China (with no previous experience in either private equity or China, let alone in both) weeks after accompanying his father to the country aboard Air Force Two. I’m sure his success in markets as difficult for foreigners and as different as Ukraine and China are a testament to Hunter’s awesome business skillz, rather than any family connections, right?

Compare this with the hyperventilating over Trumps failed attempts to do business in Russia. Beyond putting on a Miss Universe pageant in Moscow, I mean. But those attempts supposed mean that Putin OWNS Trump. Owns him, I say! But there is no quid pro quo involved when Joe makes the rain for his boy, right?

The Mueller report has done little to stem the hysteria in the most feverish quarters of The Swamp about Trump’s alleged collusion with the Russians to, among other things, dig dirt on Hillary. For instance, the egregious James Comey (more about him a future post!), for example, said last week that he still believes that “it’s possible Russia has leverage over Trump.”

Er . . . WTF was the Steele dossier, but an American presidential campaign hiring a foreigner (through two cutouts, no less) who colluded with foreigners (Russians, no less) to spread dirt on Trump?

Then there’s this, from the appalling Susan Hennessey at Lawfare:

Does anyone really doubt that Trump would love to have the FBI investigating his opponent during the campaign? Does anyone doubt that he would abuse his office in attempting to initiate or direct such an investigation?

Uhm . . . this is EXACTLY what her heroes–she is basically a polyp in Comey’s colon–did in 2016.

I could go on. And on. And on. But the basic point is that I don’t have to project the winner of projection. The results are already in. You can pretty much bank on this: whatever the Democrats say about Trump is true about them. In spades.