Streetwise Professor

January 16, 2019

Don’t Bother Me With the Facts! I Have a Narrative I Need to Flog!

Filed under: History,Military,Politics,Russia — cpirrong @ 7:20 pm

US ambassador to Germany Richard Grenell recently tweeted that the Trump administration had been tougher on Russia than any of its predecessors. The reflexive anti-Trumpers wouldn’t stand for this. Not for a second.

NYT columnist Bret Stephens leaped into the lists to tilt at Ambassador Grenell:

And let’s play no word games about the difference between USSR and “Russia.” Putin’s Russia is the USSR reborn under the exact same management.

That’s what’s called “projection”, Bret, for you are playing word games by transmogrifying Putin’s Russia into the USSR.

Today’s Russia “is the USSR reborn” only in Putin’s wildest dreams. By any objective measure, Russia today pales in comparison to the USSR as a threat to the US (or the West generally). From 1945 through 1991, the Soviets had millions of men and thousands of tanks poised on the borders of western Europe. Today the men do not exist and the tanks are rusting away in storage–and all are hundreds of miles to the east of the Elbe. The Soviet Union had a very credible navy: Russia’s navy is back from the utter decrepitude of the 1990s and early 2000s, but is still a pale shadow of what it was under Admiral Gorshkov. Whereas the Soviet Union posed an extreme conventional threat to the US and the west, Russia poses no threat at all.

Oh, by the way Bret–where is Putin’s Warsaw Pact? Oh, that’s right–they are all Nato members.

The USSR was also a formidable ideological adversary, and its ideology was aggressive and expansionist. Especially prior to the 1980s, the Soviet ideology had substantial international appeal, especially in the Third World. The Cold War was as much intellectual and ideological, as it was military and economic.

Putin tries on new ideologies like a teenage girl tries on new clothes. But his ideological fashion choices are primarily for domestic political effect, and have no appeal outside Russia’s borders. Zero. Zip. This is in large part because most of Putin’s ideologies are nationalist and insular. His embrace of Russian Orthodoxy is a particularly telling in this regard. It only has very limited appeal even within Russia, and none whatsoever outside it.

Russia is not an ideological nation. It is a kleptocratic regime.

Yes, Putin laments the demise of the USSR. But his efforts to rebuild it are pathetic in the extreme. In his nearly 20 years in power, his efforts to reconstitute the USSR have succeeded in reclaiming–wait for it–Abkhazia and South Ossetia, and some rather decrepit bits of Ukraine. These are the offal of the USSR. He is now putting the squeeze on Belarus–but Lukashenko has no desire to go back to the Soviet Union.

And even these “accomplishments” have succeeded primarily in isolating Russia, with one of the consequences being economic stagnation that leaves Russia even further behind the US in the wellsprings of military power. After a brief splurge in defense spending, the realities of Russia’s parlous economic condition have forced Putin to cut back again, and announce new weapons with great fanfare–but not to produce them in meaningful numbers. Potemkin revisited.

In sum, Putin’s Russia is at best a pitiful simulacrum of the USSR. To equate the two, as Stephens does, is beyond farcical.

So after dispensing with Stephens’ sleight-of-hand turning 2019 Russia into 1979 USSR, let’s evaluate Ambassador Grenell’s statement on the merits, administration by administration post-USSR.

The Clinton administration was all in propping up Yeltsin. When Yeltsin shelled the Duma in 1993, Clinton said: “I guess we’ve just got to pull up our socks and back Ol’ Boris again.” When Yeltsin was in grave peril of losing the 1996 election, Clinton said: “I know that means we’ve got to stop short of giving a nominating speech for the guy. But we’ve got to go all the way in helping in every other respect.” (Can anyone say “interfering in an election”? I knew you could.) The Clinton administration also supported Russian policy in Chechnya.

Bush II famously gazed into Putin’s eyes, and his administration got on rather well with Russia. Even the 2008 invasion of Georgia did not trigger a vigorous response.

And Obama. Where to begin? Of course there’s the Reset, complete with Hillary grinning like a buffoon standing next to Lavrov, holding an idiotic button (mislabeled in Russian, no less). Then there was Obama paling around with Medvedev–they were burger buddies, remember? Oh–can’t forget the hot mike statement that Medvedev should tell Vladimir to be patient, as Obama would have more flexibility after the 2012 election. In the 2012 campaign, Obama mocked Romney saying that Russia was a threat.

Given this, it’s not surprising that Putin smelled weakness, and that his peak aggressive phase occurred during the Obama administration.

Obama’s response was 90 percent petulance and condescension about Putin not following the arc of historical progress, and 10 percent rather ineffectual measures.

It is against this standard–not that of Cold Warriors facing an existential threat–that the Trump administration should be measured. And as Grenell said, by this standard Trump has indeed been far more robust. He has provided Ukraine with weapons (which Obama steadfastly refused to do). He has embarked on rebuilding the US military. He has implemented more vigorous sanctions than the Obama administration. And the US military smoked 200+ Russians who tried to throw their weight around against US forces in Syria.

Further, look at other news involving Grenell. The Germans are in apoplexy over Grenell’s threat to sanction any company that cooperated with the Nordstream II pipeline that will bring Russian gas to Europe. Merkel’s party spokeswoman huffed: “The American ambassador operates in a, shall I say, somewhat unusual diplomatic manner. He’s shown that not only through this letter [on Nord Stream 2 sanctions] but also from when he took office.”

And this is not a new thing. Trump has been bashing Nordstream since he took office–and the Germans have been reacting with outrage every time.

Trump’s notorious criticism of Nato is also hardly pro-Russian. His main criticism is that Nato countries–especially Germany–don’t do enough to counter Russia, but expect the US to do it for them.

This is not a hard call. The Trump administration has objectively been far harder on Russia than its predecessors–including most notably its immediate predecessor, whom people like Bret Stephens now lavish praise on. It isn’t even close. To claim that US policy towards the USSR is the appropriate yardstick by with to measure US policy towards the decrepit, dissolute successor state of Russia requires breathtaking intellectual dishonesty. But Bret Stephens is obviously up to the task

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January 12, 2019

A Great Passes: Harold Demsetz

Filed under: Economics,Regulation — cpirrong @ 1:40 pm

Last week, the great economist Harold Demsetz passed away at age 88. Harold (whom I knew slightly) was truly a giant, who made seminal contributions to industrial organization, property rights economics, transactions cost economics (especially his early recognition of the bid-ask spread as a cost of transacting, well before it became a focus of research in finance), information economics, and the theory of the firm.

He also coined the memorable phrase “nirvana economics,” which skewered the then-prevalent (and alas, too often currently prevalent) tendency to compare imperfect market outcomes with perfect ones, soon followed by a prescription for regulation to correct the “market failure.” He noted–and this can not be emphasized enough–that the true “relevant choice is between alternative real institutional arrangements.” That is, there are government failures too, and it is necessary to evaluate those in order to make policy choices. Nirvana is not a choice.

Like many great economists of his era (e.g., Coase), Demsetz’s work was literary rather than formal, but that definitely does not mean it lacked rigor. Demsetz wrote well, and could present tightly reasoned and impeccably logical theoretical arguments without resorting to a single equation. His article on entry barriers is a great example of this. There was a great deal more economic logic and insight in a typical Demsetz paper than in the typical modern densely mathematical work.

Demsetz’s biggest contribution to my economic education was his work that confronted, and largely demolished, the prevailing structure-conduct-performance paradigm in industrial organization, and the related empirical work on the relationship between industrial concentration and profits, which concluded that a positive correlation was the result of market power. End of story.

Demsetz demonstrated (as Sam Peltzman formalized shortly afterwards) that cost-concentration correlations could give rise to profit-concentration correlations even in the absence of market power. A simple story that illustrates the point is that a firm that experiences a favorable cost shock when its competitors do not will expand at their expense, and earn a profit commensurate with its greater efficiency. This tends to increase industry profitability and concentration.

Demsetz also showed in a famous paper (“Why Regulate Utilities?” that structural monopoly (e.g., a “natural monopoly” due to extensive scale economies) does not necessarily convey market power. Further, in
“Industry Structure, Market Rivalry, and Public Policy” he argued that competition for the market could be quite intense, and even thought it might result in a firm obtaining a large market share, (a) the firm’s ability to exercise market power might be limited, and (b) competition for the market could be an engine for progress, including notably product and process innovation.

In this work, and that of his contemporaries primarily at Chicago and UCLA, Demsetz undermined the prevailing paradigm in industrial organization, with its simplistic equation of market structure and market power. This resulted in a revolution in economic science, but also public policy, and in particular antitrust policy.

Alas, there is a counter-revolution afoot, and quite depressingly Chicago is one of the leaders in this. In particular, Luigi Zingales and the Stigler Center (!), and the Center’s Promarket blog, are among the leaders in resuscitating the notion that concentration is per se objectionable, and creates market power. In my perusal of this literature, and the voluminous writings about public policy it has spawned, I find no real intellectual advance, and indeed, perceive severe retrogression. In particular I find little effort to confront the Demsetz critiques (and the critiques of others that followed).

It is very sad that Harold Demsetz passed, although after a long and very productive life. It is sadder still that many of his most perceptive insights predeceased him.

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January 8, 2019

Psychologists Should Be Humble: They Have a Lot to Be Humble About

Filed under: Uncategorized — cpirrong @ 7:49 pm

The American Psychological Association has determined that masculinity is indeed toxic:

Thirteen years in the making, [the APA’s new Guidelines for Psychological Practice With Boys and Men] draw on more than 40 years of research showing that traditional masculinity is psychologically harmful and that socializing boys to suppress their emotions causes damage that echoes both inwardly and outwardly.

. . . .

The main thrust of the subsequent research is that traditional masculinity—marked by stoicism, competitiveness, dominance and aggression—is, on the whole, harmful. Men socialized in this way are less likely to engage in healthy behaviors. For example, a 2011 study led by Kristen Springer, PhD, of Rutgers University, found that men with the strongest beliefs about masculinity were only half as likely as men with more moderate masculine beliefs to get preventive health care (Journal of Health and Social Behavior, Vol. 52, No. 2). And in 2007, researchers led by James Mahalik, PhD, of Boston College, found that the more men conformed to masculine norms, the more likely they were to consider as normal risky health behaviors such as heavy drinking, using tobacco and avoiding vegetables, and to engage in these risky behaviors themselves (Social Science and Medicine, Vol. 64, No. 11).

When evaluating documents like this, I find it useful to refer to Thomas Sowell’s Conflict of Visions. He argues that a particular dichotomy, between what he calls the constrained and unconstrained visions, can explain a large amount of the variation in opinions on seemingly disparate and unrelated subjects. Sowell does not oversell the idea, but to paraphrase George Box’s statement about theories, all dichotomies are wrong, but some are useful. Sowell’s is definitely useful.

The APA’s new Guidelines are firmly in the unconstrained vision. They consider most human behavior to be the product of social constructs, which are somewhat arbitrary and malleable. They can be deconstructed, and then reconstructed, by a gnostic elite–in this case, psychology researchers and therapists. The enlightened reconstruction results in better social outcomes.

In contrast, the constrained vision views most human traits as stubborn facts that are resistant to change, and believes that attempts to change them are likely disastrous. These traits are at root the result of millions of years of biological evolution, augmented in the more recent past by social and cultural developments that accommodate the evolved species to social life, including social life in modern “extended orders” (to use Hayek’s term, in contrast to more limited, tribal groupings). In the case of masculinity, biological imperatives relating to reproduction predispose men (and the males of many other species) physically and mentally towards competition and sometimes strife. Cultural and social conventions and norms constrain these impulses, and channel them into more social and socially productive directions.

Including, I might add, competition for status and prestige that results in extraordinary accomplishment. Men are high variance, with a greater frequency of outcomes at extremes than women, in almost any variable that you want to measure.

These phenomena are complex, and interact in deep and poorly understood ways. The constrained vision always keeps Chesterton’s Fence in mind. Men socialized into “stoicism, competitiveness, dominance and aggression” are “unhealthy”? Well, why did socialization take such a perverse turn? And why did it take such a perverse turn virtually universally, across cultures and across time? Could it be that perhaps these traits perform some deeper function, related to biologically selected male traits, and that undoing these cultural norms may lead to horrible outcomes?

In other words: how do you reconstruct testosterone? And, since you can’t, how can you be sure that the allegedly toxic traits that you presume that you can manipulate via therapy are not the very things that keep the testosterone in check? How do you know that you are not playing Sorcerer’s Apprentice when you meddle with these things?

The hubris in the unconstrained vision is particularly stunning in this case, as the APA itself criticizes heavily the previous “androcentric bias” of the psychology profession. So in other words, previous psychologists were deeply flawed. But you can totally rely on the current generation. Because research.

Well, the previous (now apparently discredited) psychologists based their claims on research too. But even more telling: the reproducibility crisis in psychological research is more acute than in any other subject (with over 50 percent of psychological studies being non-replicable). (If you Google “reproducibility crisis” top Google suggested fill-in is “reproducibility crisis psychology.”)

What’s more, many of the unreplicable studies involve relatively simple experiments, rather than those that purport to identify causal relationships in complicated social and behavioral phenomena.

In other words, perhaps the worst way to convince me of the correctness of a claim about psychology is to cite modern research.

Some blind spots are evident in some of the research cited in the link. It spends some time discussing the interactions between masculinity and race:

These dynamics play out in the prison system as well. As of 2014, black men made up 37 percent of the male state and federal prison population and were more than 10 times as likely to be incarcerated in state or federal prison as white men. Hispanic men were also overrepresented, making up 22 percent of the prison population despite making up only about 8 percent of the general U.S. population (U.S. Department of Justice, 2015).

Well, if you want to examine a society dominated by females and notably lacking in traditional male figures, just look at the minority inner city communities that supply the prison population discussed in this quote. These dots are, of course, not connected by the APA.

Relatedly, variations in things emphasized by the APA, such as murder and suicide, across countries, races, ethnicities, and time are huge, which suggests that many other factors are at work, and that a reductionist focus on the presence or absence of a Y chromosome is woefully inadequate.

The presumptuousness of this endeavor is breathtaking, and is therefore a particularly pronounced example of the unconstrained vision in action. As someone firmly rooted in the constrained vision, I say: don’t mess with what you don’t understand, and don’t pretend to understand when recent experience–which you recognize–demonstrates the fallibility of your discipline. Psychologists should be humble: they have a lot to be humble about.

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January 7, 2019

Lost in Space? Some Musings on the Economics of an Independent Space Force

Filed under: Economics,History,Military,Politics — cpirrong @ 8:30 pm

One of the Trump administration’s (and really, Trump is the one pushing it) more interesting ideas is the creation of an independent military “space force” as a separate service branch, co-equal with the Army, Air Force, Marines, and Navy. Given that this proposal gores many, many political oxen inside the military and without, it’s hard to get an objective viewpoint. Everyone’s opinion is colored by their vested interest.

I have no answer as to whether it’s a good idea or not. But I do have some thoughts on the appropriate framework that could contribute to a more objective evaluation. Specifically, transactions cost economics and property rights economics (and organizational economics, which has some overlap with these) address issues of how formal organizational structure, and the ownership and control of assets, can affect the allocation of resources, for better or worse. And that is the issue here: can a reorganization involving the creation of a new entity that has control rights over assets heretofore controlled by other entities improve the allocation of defense resources?

I mused on this topic long ago, but have never really pursued it in a serious way. But I’ll muse some more given the newfound topicality.

It’s useful to divide the analysis into two parts. First, how does organizational structure, and in particular the assignment of rights of control over existing assets (e.g., artillery pieces, aircraft), affect military effectiveness and combat power? Second, how does organizational structure affect the choices regarding which assets to invest in?

With respect to the first issue, over the centuries militaries have devoted considerable effort and thought to organizational charts, and the allocation of control rights over military hardware and military units. Some simple examples: should each division have its own artillery, with all guns being under division control, or should some guns be assigned to battalions subject to control at a higher level (e.g., corps, army)?; should all tanks be concentrated in armored divisions, or should infantry divisions also have organic tank units?; should submarines be employed in support of fleets, or operate independently?

As with all resource allocation decisions, there are trade-offs, and militaries have struggled with these. There has been experimentation. There has been success and failure. Changes in technology have necessitated changes in organization, because the nature of specific weapons systems may affect the trade-offs. These are arguments that never end, as the incessant reorganizations of militaries (e.g., the U.S. Army’s recent shift to a brigade-based structure) demonstrate.

A couple of transactions cost economics insights. First, most decisions regarding the use of military assets are made subject to severe temporal specificity. If I am under attack, I need fire support NOW. Moreover, it may be the case that even in a large military only a few resources are available to provide that support. Temporal specificity creates transactions costs that can impede the allocation of resources to their highest value use.

Second, trade is unlikely to be a viable option, especially given temporal specificity. “Hey. I need some artillery support on my position right now. Can you give me an offer on what that will cost me?” Yeah–that works. The prospects for spot exchange are almost non-existent, and intertemporal exchange is unlikely because (a) timelines are short (for a variety of reasons), making end game problems acute, and (b) potential parties to an exchange are unlikely to be interacting repeatedly over time with reciprocal needs.

Since voluntary exchange is out (except in very unusual circumstances) resources need to be allocated by authority. Which makes issues of organization and the allocation of authority (control rights) paramount.

With respect to space assets, the case for a space force relates to the fact that many space assets (a) offer value to air, naval, and ground forces, and (b) there are economies of scale and scope. Having each service invest in its own space assets likely sacrifices scale and scope economies, but eliminates the need for inter-service bargaining over access to these assets, and reallocation of these assets in response to shifting military needs.

Allocating space assets to one existing branch (e.g., the Air Force) would facilitate exploitation of scale and scope economies, but would require inter-service bargaining to permit the non-controlling service to get access. A specialized space force permits exploitation of scale and scope economies, but also necessitates inter-service bargaining. The key question here is whether a specialized force would have better incentives than an operational force. For example, the Air Force might favor itself over other services when deciding how to utilize space assets, whereas a separate space force would not be as parochial.

With respect to the second issue–which assets are procured–the impact of organization on the Congressional procurement process is paramount.

The services are highly politicized organizations, and certain specializations within a service may exercise disproportionate influence. For example, the “fighter mafia” in the Air Force is legendary. As another example, in the pre-WWII U.S. Navy, battleship admirals held sway. These factions within a service may warp and stifle the development of new technologies, new doctrines, or investment decisions: the stultifying effect of the dominant infantry branch within the pre-WWII U.S. Army on the development of armored forces (both hardware and doctrine) is an example.

Creation of a separate force that invests in assets provided by the other branches would tend to undermine the power that any faction in a particular branch could exercise. The branches would have to form coalitions to influence Congressional funding decisions. But the creation of a new entity with its own vested service interest and its own ability to influence Congress could prove problematic as well.

For example, in the immediate aftermath of the formation of the Air Force, beliefs that nuclear weapons made most conventional forces–including conventional air arms–obsolete, led the Air Force to try to persuade Congress to slash spending on conventional forces in order to focus on strategic forces, especially bombers. This led to the “Revolt of the Admirals.” It also led the Navy and even the Army to invest in nuclear capabilities in order to claim strategic relevance and maintain their share of the budget. These investments were almost certainly wasteful, and would not have been made but for the independent Air Force’s influence.

Perhaps the most important historical example that could shed some light on the desirability of an independent space force is the creation of a separate Air Force in 1947, and the Johnson-McConnell agreement of 1966, in which the Army ceded to the Air Force control over all fixed wing aircraft.

The effects of this reorganization were probably beneficial overall, but there certainly were problematic effects. In particular, it almost certainly attenuated the Air Force’s incentives to provide ground support, and resulted in the Army investing excessively in rotary wing aircraft (i.e., attack helicopters) to provide it.

Perhaps a better idea would have been to create a separate strategic air wing (first including strategic bombers, then strategic bombers and ICBMs, as well as air superiority fighters), and permit the Army to operate tactical aircraft for ground support. This was essentially what was done in in the immediate aftermath of WWII, with the creation within the Army Air Force of a Strategic Air Command, a Tactical Air Command, and an Air Defense Command.

The Marine Corps, and to some degree the Navy, provide a model. Each operate their own fixed wing air services, specialized to provide the kinds of air power each needs. Marine air is relentlessly focused on providing close air support. The Marine operational commander has control over these assets, and does not have to haggle with another service to get them. Moreover, the Marines’ acquisition decisions (notably the division between fixed and rotary wing aircraft) are oriented towards getting the optimal mix for the specific mission.

I have only touched upon some of the relevant considerations–there are no doubt others I have missed. Moreover, I have given only superficial attention even to the issues I raise. But this should be sufficient to show just how complicated this issue is. Organizational decisions, such as the creation of a separate space force, will have profound implications for how military resources are allocated, and what resources will be invested in in the first place. Crucially, the assets in question cannot be allocated by markets or the price system, so it is not a question of organization v. market, but the form of the organization(s). Further, military assets are complex, long-lived (and becoming more so–note that B-52s may be operational for more than a century), and can be extraordinarily specialized and hence specific (in the TCE meaning of that term). Technology is incredibly dynamic, and needs shift dramatically over time as new threats emerge. This all means that organization and the allocation of control rights matter. A lot.

And perhaps most importantly, organizational choices will be made in a politicized environment, and will affect political bargaining in the future. This will inevitably distort current choices (e.g., whether a space force will be created in the first place, what assets it will control) and future choices as well. It also makes it very difficult to sort through the debate on the topic, because everybody involved is a political player with its own political interests.

That makes it all the more important to establish a relatively objective and rigorous intellectual framework in which to analyze these questions. I think that transactions costs economics and property rights economics hold out great promise as the basis for such a framework.

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January 5, 2019

Vox Populi v. Vox Domini Super Eos Electos

Filed under: Economics,History,Politics — cpirrong @ 7:27 pm

For weeks France has been wracked by the “gilets jaunes” protests directed at President Emmanuel Macron. The protests had slackened recently, but today they flared up again, perhaps due to the arrest of a gilets janues leader. (Was this just stupidity, or does Macron want to stoke the protest? Dunno.)

The French protests represent yet another battle in the global war between the hoi polloi and the elite. The catalyst for the French protests was a quintessentially elitist policy initiative: a tax on motor fuel, with the stated purpose of combating climate change.

Even on its own terms the tax is stupid. Even assuming a very high temperature sensitivity to CO2, the reduction in emissions resulting from the tax would have a vanishingly small effect on global temperature. Furthermore, like most of Europe, French gas taxes are extremely high, and almost certainly far above the level that would efficiently address externalities arising from motor fuel consumption.

The protestors may understand that the tax does not make sense as a way of addressing climate change. But their interests are far more down-to-earth. This is another tax imposed on the most heavily taxed country in the OECD. Further, it falls most heavily on the rural population, and the working population, and has little impact on the metropolitan elites. It is, in a sense, the straw that broke the camel’s back.

With consummate tone-deafness, Macron galvanized the protestors with remarks that would make the fictional Marie Antoinette (“let them eat cake”) blush. Hey, if driving costs too much, just carpool! Or take the bus! Yeah. He actually said that (unlike Marie and the bit about the cake).

After the initial shock, Macron caved, and shelved the tax. But the protests continued, with varying degrees of violence around the country (e.g., torching toll booths). This is because the tax’s significance was more symbolic, relating to the excessive taxation in France, and the sneering indifference of the elite to the fate of non-elite France, which Macron has personified all too well. So, as is often the case in coordination games, once people became aware of each others’ dissatisfaction, the protests took on a life of their own even after the initial catalyst was removed.

Today the protestors gathered in front of the Paris Bourse, demanding Macron’s resignation. Surely, he won’t, but his evident unpopularity will hamstring his ability to govern for the remainder of his term.

The government response has been somewhat amusing. One tack was that police resources were inadequate to deal with both the protests and terrorism. “France Doesn’t Have Enough Cops.” That is, the government of the most heavily taxed advanced economy in the world cannot perform the primary duty of the state: to secure the safety and property of its citizens. So don’t protest, because that make it impossible to combat terrorists.

But of course they should be given more money and power.

In the United States, there is also an outcry against the president, but it is the inversion of the one in France. Whereas in France it is the ordinary people taking to the streets in opposition to the governing elite, in the US the governing elite is taking to the media and the bowels of the state to oppose Trump.

There are no widespread protests on the streets of the US (Antifa freaking out in Portland doesn’t count), and especially lacking are protests by ordinary citizens against Trump. And why should there be? For most Americans, the last two years have been pretty good insofar as bread-and-butter issues are concerned (as epitomized by yesterday’s job report, both on the number of jobs and wage growth). No, the frenzy in the US has focused on issues that ordinary Americans don’t give a rat’s ass about, but which drive the governing class into paroxysms of fury–e.g., alleged (but completely unproven) allegations of “collusion” between Trump and Putin/the Russians.

These allegations are merely useful cudgels with which to beat Trump. The fury of the governing class really stems from his running roughshod over their presumptions and privileges. He’s just not one of them. He insults them. He tramples their amour-propre. He does not worship their idols. Indeed, he trashes them. Icky people like him.

So whereas the ordinary French have taken to the streets, the governing class has taken to pulling the levers of its power–the FBI (even before the election), the American star chamber (aka the Mueller Investigation), incessant and hopelessly biased media coverage, and now, threats of impeaching “the motherfucker.” (To which I say–be my guest. Look at how well that worked out in 1998-99.) There are even those who have advocated a coup.

I daresay that the governing class in the US sees what is going on in Paris and other places in France, and shudders. It shows how deeply loathed the governing class is, and how a seemingly small spark can ignite a political firestorm against them. They have certainly questioned the protests’ legitimacy, at times in their desperation succumbing to the last refuge of the idiot–blaming it on the Russians. Case in point, the pathetically hilarious Max Boot (hey, Max, can you do a pushup?) who at one time pined for an American Macron, only to be subjected to ruthless–but completely warranted–ridicule when the French protests erupted. In a nauseating attempt to rationalize the complete popular repudiation of his man crush on Macron, Max insinuated that although the Russkies may not have caused the protests, they fanned the flames through their diabolically clever exploitation of social media.

The condescension here is palpable, and reflects a pattern that I’ve pointed out going back to 2015. Rather than acknowledging that widespread popular dissatisfaction with the elites–as epitomized by Brexit, the Trump election, various European elections, and now the protests in France–were due to repeated elite failure unsullied by any success, they add insult to injury by accusing their opponents of being stupid, unwitting pawns of their current bête noire.

It is indeed amazing to see that an incessant barrage of attacks from the governing classes have not moved the needle on Trump in the slightest. If anything, they have bound him and his supporters more tightly, because the latter recognize that an attack on Trump is just as much an attack on them.

The most common divide in polities around the developed world right now is between the governing and the governed. The self-conceived and self-congratulatory elite vs. the ordinary. France is just the most recent battleground. It wasn’t the first, and it won’t be the last. The battle is becoming more intense because the objects of popular disdain refuse to acknowledge any responsibility for creating the conditions that have spurred popular discontent.

The same thing happened in France, 230 years ago. The nobility in the ancien regime stubbornly and righteously clung to their privileges, and their conviction in their own superiority. Worked out swell for them, right? But some people never learn.

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December 29, 2018

Is the Withdrawal From Syria a Bitter Pill for Jacksonians to Swallow? I Think Not

Filed under: History,Military,Politics — cpirrong @ 8:02 pm

I admire the work of Walter Russell Mead a great deal. I especially admire his identification of Jacksonians as a uniquely American political community, and his respectful and understanding treatment thereof, which is in stark contrast to the treatment given them by the sneering classes. I was therefore surprised by his recent column, which in my view completely misreads how Jacksonian America will respond to Trump’s decision to leave Syria and (perhaps–there are conflicting accounts) draw down forces in Afghanistan.

It’s fair to say that I was among the first (along with Mead) to identify Jacksonians as Trump’s core constituency, so I think I have some insight as to how they will react to his decision. And I think that Mead is off-base here:

That harmony may soon sour. Mr. Trump’s decisions on Syria and Afghanistan risk a rift between the president and his Jacksonian supporters and provide a way for some in the GOP to break with the president without losing their own populist credentials. The betrayal of the Kurds, the benefits to Iran of American withdrawal, the tilt toward an Islamist and anti-Israel Turkey, and the purrs of satisfaction emanating from the Kremlin are all bitter pills for Jacksonians to swallow.

Of the two wings of the GOP populist movement, the Jacksonians are the stronger and, from a political standpoint, the more essential. The GOP base is more hawkish than isolationist, and from jihadist terrorism to Russian and Chinese revisionism, today’s world is full of threats that alarm Jacksonian populists and lead them to support a strong military and a forward-leaning foreign policy.

Neoconservatives tried and failed to rally GOP foreign-policy hawks against Donald Trump. Should Jacksonians turn against him, they are likely to pose a much more formidable threat.

Where does Mead go wrong? Well, in part by forgetting some of the key attributes of Jacksonians that he identified about 25 years ago. One is the Jacksonian way of war. He noted that Jacksonians are reluctant to engage in foreign wars, but when they do they favor the massive application of brutal force to achieve rapid and total victory. Kill a lot of people, destroy a lot of stuff, and go home.

The wars in Syria and Afghanistan are the antithesis of this. Jacksonians were on board for the initial action in Afghanistan, oh so long ago. The US went in hard, employed all elements of its national power (except nuclear), and achieved what appeared to be a decisive and rapid victory. Then came 17 years of grinding, inconclusive combat. There is no prospect of a decisive outcome there. Similarly in Syria, the Jacksonian objective–destroying ISIS–has been largely achieved, and it is decidedly un-Jacksonian to get involved in a protracted Game of Thrones where there are no obvious good guys, and indeed, pretty much everybody is a bad guy by Jacksonian lights.

Insofar as allies are concerned, there is absolutely no cultural affinity between American allies in Syria or Afghanistan and Jacksonians, and as Mead noted, Jacksonianism is a peculiarly cultural, as opposed to intellectual, mindset. Further, as Mead also noted, Jacksonians despise corruption, and it is hard to imagine more corrupt societies and polities than Afghanistan and the Middle East. The tendency of our allies in both regions to turn their guns on American soldiers in “green on blue” attacks only confirms deep misgivings that our ostensible allies are not honorable people–and honor is a preeminent value among Jacksonians.

Jacksonians support wars that smite American enemies, and redeem American honor. Wars to build up nations with profoundly alien cultures that appear incapable of becoming stable polities, let alone ones that are grateful for American sacrifice on their behalf–not so much.

The Kurds may be something of an exception, but Jacksonian America has never shown much interest in them, despite the US’s long involvement with the Kurds in Iraq in particular. It is sad, but nonetheless true, that the US has sacrificed Kurdish interests on many occasions in the last 30 years. All without eliciting a peep from Jacksonian America. Why should now be any different?

Further, if they learn more about the Kurds, Jacksonians will realize that it is hardly a black-and-white picture. Yes, the Kurds have fought against ISIS, and fought well (as is their wont), but this is a matter of survival. But the long-running Kurdish fight with Turkey, led as it is by hard-core communists and socialists, and using as it does terrorist methods, will not garner sympathy from Jacksonians. They are not likely to be enamored with Erdogan’s Turkey either, but given the lack of a clear good guy that appeals to Jacksonian sympathies and sentiments, the likely response is to be to hell with them all, that’s not our fight.

Insofar as Iran is concerned, Trump has been sufficiently aggressive in going after the mullahs to counter any concern that he is soft on those who shout “death to America.” There are hardly purrs of satisfaction emanating from Tehran.

Similarly, Trump has been far more aggressive with respect to China, and even Russia, than his predecessors. Russian crowing about Syria stands in sharp contrast with their incessant bitching about everything else Trump has done, so despite the media’s and the Democrat’s and the anti-Trumpers’ insane claims that Trump is Putin’s pawn Jacksonians will not be fooled.

If anything, Jacksonians will conclude that Trump is focusing on the big adversaries where it matters, rather than frittering away American lives and treasure where it doesn’t. That is, they realize that Trump is hawkish where it counts, is not isolationist, and is working to rebuild the military. Against these big things, Syria is a trifling matter.

So, pace Dr. Mead, I don’t think that Trump need to have any concern that his most important constituency will find his recent decisions on Syria and (perhaps) Afghanistan a “bitter pill to swallow.” They are more likely to conclude that he has his priorities right. Furthermore, they are sure to notice that the people who are screaming the loudest about Trump’s decision are people they despise and who despise them in return. The louder that the Bill Kristols and Max Boots squeal, the more Jacksonians will conclude that Trump is doing the right thing.

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December 27, 2018

The Market Is Down! Round Up the Usual Suspects!

Filed under: Economics,Exchanges,HFT — cpirrong @ 7:38 pm

Every time there is a major market selloff–like now–there is a Casablanca-like rush to round up the usual suspects. Treasury Secretary Steven Mnuchin blamed the Volcker Rule and HFT. This WSJ article blames algos (including HFT), but throws the kitchen sink in for good measure.

Truth be told, virtually every major market drop is unexplained at the time, and even well after, which only spurs the search for villains and scapegoats. There was no obvious spark for the Crash of ’87, and in the years since, many suspects have been named but none have been convicted. The same is true of the Crash of ’29. Perhaps the best effort–interesting, but not definitive–is George Bittlingmayer’s attribution of Black Tuesday to an unexpected shift in antitrust policy under the Hoover administration. But that came 65 years after the event!

The most recent selloff is no exception. The WSJ article lists a variety of bearish developments, but any such exercise smacks of post hoc, ergo propter hoc “reasoning.” Further, the article quotes various people who claim that the price decline is difficult to square with fundamental economic data–welcome to the club! The same is true for 1987, 1929, and other major declines. Recall Paul Samuelson’s aphorism: the stock market predicted 10 out of the last 5 recessions.

Part of the difficulty is that stock prices depend on expected cash flows, and expected returns, both of which can vary due to factors that are difficult to observe in public data. Asset pricing economists have a lot of theories of time varying expected returns–hinging on theories of time varying risk premia–none of which have strong empirical support. Modest changes in risk premia/expected returns can cause big valuation changes. Recent conditions (political/geopolitical risk, monetary policy changes) plausibly have affected risk premia, but our ability to map these relationships is virtually nonexistent, so at best we can formulate largely untestable hypotheses.

And untestable hypotheses are effectively speculations and opinions, and like certain body parts, everybody has one.

Given these realities, most major asset price movements are difficult to explain.

I vividly remember in the aftermath of the 1987 Crash, when I was a PhD student at Chicago. Gene Fama distributed a Mandelbrot article to all PhD students. The article presented a simple model in which long periods of price increases are followed by crashes. As I recall, the essence of the model was that if good news was received today, it was likely that there would be good news tomorrow, but if good news was not received today, the likelihood of receiving good news tomorrow was lower. In essence, it is a regime switching model, and a switch in from a good news regime to a bad news regime leads to a big valuation change, due to the transition probabilities.

Fama’s point in distributing the article was to emphasize that discontinuous changes in prices are not inconsistent with a “rational” market. Seemingly small fundamental shifts can lead to big price changes.

Again, a hypothesis–and a virtually untestable one.

What about blaming algos, a la Mnuchin and the WSJ? Well, blaming HFT–directly, anyways–makes no sense. Yes, HFT is programmed to respond to market signals, but it is negative feedback by nature. It tends to be stabilizing, not de-stabilizing.

There may be an indirect connection: HFT liquidity supply can dry up when order flow becomes toxic, and the decline in liquidity makes prices more sensitive to order flow, leading to larger price movements. The Flash Crash is a classic example of this. But that’s not unique to HFT. It is inherent to market making, and HFT basically puts what is in a market maker’s (e.g., old-time floor trader’s) synapses into code. Market makers pulling back–or shutting down altogether–occurred long before markets went electronic, and before anybody even dreamed of HFT.

If liquidity has declined–and the WSJ points to some limited evidence on this point–it is likely a response to market conditions, rather than a cause thereof. It’s something that occurs in almost every period of elevated volatility. It’s more of an effect of some common cause than an independent exogenous cause.

Further, by virtually every measure, the increasing automation in markets has led to greater liquidity. Much of the bitching–including in some quotes in the WSJ article–emanates from traditional liquidity suppliers who have lost out to more efficient competitors. Believe me, if order flow had become more toxic, these guys would have pulled back too, and probably more severely than HFT has done.

What can exacerbate market movements is positive feedback trading strategies. Portfolio insurance during the 1987 Crash is a classic example. The WSJ article points at algorithmic momentum trading strategies, and indeed these are positive feedback in nature. But they are not unique to algos: meatware implemented momentum/trend following strategies long before they were embedded in software. Momentum trading is something else that long predates the rise of the machines.

Several quotes in the WSJ article made me laugh. One was: “’Human beings tend not to react this fast and violently.’” Really? Heard of Black Monday? Black Tuesday? Silver Thursday? Black Friday? I’m sure there’s a Color Wednesday to fill in the week, but none comes to mind. Regardless, the point remains: human beings reacted rapidly and violently long before trading machines were even dreamt of.

Here’s another: “Today, when the computers start buying, everyone buys; when they sell, everyone sells.”

This is called “not an equilibrium.”

The bottom line is that the stock market sometimes decline substantially, without any obvious cause. Indeed, the cause(s) of some of the biggest, fastest drops remain elusive decades after they occurred. This is true across virtually every institutional and technological trading environment, making it less likely that any particular selloff is uniquely attributable to a change in technology. Furthermore, large market moves in the absence of any decisive event or piece of news is not inconsistent with market “rationality”, or due to some behavioral anomaly (which is inherently human, by the way).

But humans crave explanations for phenomena like big movements in the stock market, and this demand calls forth supply. That the explanations are for the most part untestable and hence not scientific only means that there is little check on this supply. Anybody can offer an explanation, which likely cannot be proven wrong. So why not? But if you understand that mechanism, you should also understand that you shouldn’t pay much attention.

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December 22, 2018

Given the Realm at Stake, Why Play This Game of Thrones?

Filed under: China,History,Military,Politics,Russia — cpirrong @ 2:57 pm

The most recent shrieking emanating from DC and its various satrapies is the result of Trump’s decision to exit Syria and draw down forces in Afghanistan, with the clear implication that the US will leave there too in due course. The conventional wisdom is almost universally against him, and as usual, the conventional wisdom is flat wrong.

In evaluating any policy or operation, the first question to answer is: what is the objective? In Syria, is it a limited one–the defeat of the rump of ISIS? Or is it a more grandiose, geopolitical one–to control the outcome of the Syrian civil war and determine who rules there?

Trump has made it clear that his objective is limited and tactical. He has apparently decided that although ISIS has not been extirpated in Syria, it has been so attrited that its remaining enemies can contain it, or finish it off. And there is a Machiavellian aspect to that: why not let American adversaries, Russia and Iran, spend their blood and treasure dealing with the dead enders that remain? You wanted Syria, Vlad–have at it!

The conventional wisdom embraces the more grandiose objective. Perhaps this is purely self-aggrandizement, and lets them resume their college dorm games of Risk for real. Issues of motive aside, it is beyond cavil that those who want the US to remain in Syria, and indeed, to become more heavily involved there want to commit the country to being a player in a Game of Thrones that puts the fictional version to shame.

And that is why the conventional wisdom is wrong. For what does the survivor who sits on the throne rule over? A country that was a largely irrelevant shithole even before seven years of internecine warfare that utterly wrecked and largely depopulated a nation that was already pitifully poor and weak before the war began.

Congratulations Bashar! Congratulations Vladimir! Congratulations Ali! Behold the spoils of your victory! And indeed, spoiled is the right word for it.

And again, from a Machiavellian perspective, tell me why it isn’t smart for the US to let Russia and Iran plow resources into rebuilding a devastated nation? If they do so, these are resources they can’t use against the US elsewhere. Furthermore, even if Russia gains a presence in the country over the longer term, it is an isolated and completely unsupportable outpost that (a) could not provide a base for power projection in the event of a real great power struggle, and (b) could be cut off and destroyed in a trice by the US. Let the Russians put their very limited resources into a strategic dead end.

As for the Iranians, yes, their presence in Syria poses a challenge to Israel. But (a) I am highly confident that the Israelis can handle it, and (b) it’s far cheaper for the US to support their efforts to do so with material support for the Israeli military. And just as is the case for Russia, for Iran Syria would be utterly unsupportable in the event of a real confrontation between Iran and Israel.

The principle of economy of force–something that the policy “elite” in DC appears never to have heard of–applies here. One implication of the principle is that you should concentrate your resources in decisive sectors, and not fritter them away in peripheral ones. For the US, Syria is on the periphery of the periphery. In any geopolitical contest with Russia and Iran, our resources are far better deployed elsewhere.

What’s more, despite the obsession of the foreign policy elite with Russia and Iran, they are secondary challengers to the US. China is far more important, and poses a far more serious challenge. Throwing military resources into Syria is to waste them in a peripheral theater of a secondary conflict.

When I first read of Trump’s decision, I turned to a friend and said: “I wonder what this means for Afghanistan.” And indeed, hard on the heels of the Syria announcement the administration stated that it would draw down forces in Afghanistan, with the clear implication that US involvement there would wind down fairly quickly.

All of the considerations that make Syria a strategic backwater for the US apply with greater force in Afghanistan. The country has spent over 17 years, the lives and bodies of thousands of soldiers, sailors, and Marines, and trillions of dollars on a country that is the poster child for shitholes. Yes, it was the refuge of a particular terrorist threat 17+ years ago. And yes, if we leave it will likely continue to be the cockpit of vicious civil war. Just like it has for the past two plus millennia. It was barely tractable for Alexander, and the British and Russia found it utterly intractable in their 19th and 20th century wars there. We’ve arguably done better, but not much. And again: what’s “winning,” and since the demise of the Silk Road, what in Afghanistan has been worth winning?

The war in Afghanistan has proved a sisyphean task. Sisyphus didn’t have a choice: the gods condemned him to roll the rock up the hill, only to watch it roll down again. The US has been engaged in that futile task by choice, and Trump has evidently decided that he doesn’t want to be Sisyphus anymore. (My skepticism about US involvement in Afghanistan also dates to years ago–as indicated by this post from almost exactly 9 years ago.)

One of the administration’s most important, and largely ignored, decisions has been to reorient US efforts away from conflicts against terrorism in isolated, poor, and peripheral places towards recapitalizing the military for peer conflict against China and Russia. This is the right choice, and long, long overdue. (I wrote a post in 2007 that expressed concerns about prioritizing anti-terror over conventional warfare capability.)

Alas, God will not restore the years the locusts have eaten in the Hindu Kush or on the Euphrates. But sunk costs are sunk. Looking to the future, the right strategic choice is to continue the pivot away from peripheral conflicts to focus on central ones.

And these costs are not purely monetary. Last night, due to a travel nightmare, I ended up returning to Houston on a flight that landed at 0230. On the plane were a half dozen young Marines heading home for the holidays. There were also two men, in their late-20s or early-30s, with prosthetic legs. They almost certainly lost them to IEDs in some godforsaken corner of the Middle East or Central Asia. With Trump’s decision in mind, I thought: what is the point of turning more young men like the fit and hearty 19 or 20 year old Marines into mutilated 30 year olds in places like Afghanistan and Syria? I certainly can’t see one.

I’m not a peacenick or a pacifist, by any means. But I understand the horrible cost of war, and fervently believe that it should only be spend on good causes that advance American interests. I cannot say with any conviction that this is the case in Syria, or in Afghanistan, 17 years after 911. Indeed, I can say the opposite with very strong conviction.

At the risk of stooping to ad hominem argument, I would make one more point. Look at the “elite” who is damning Trump’s decision in Syria. What great accomplishment–let alone accomplishments plural–can they take responsibility for? The last 27 years–at least–of American foreign policy has been an unbroken litany of bipartisan failure. The people who scream the loudest now were the architects of these failures. Not only have they not been held accountable, they do not even have the grace or maturity to admit their failures. Instead, they choose to damn someone who refuses to double down on them.

The biggest downside of Trump’s decision is that it apparently caused Secretary of Defense Mattis to resign. I hold General Mattis in the highest esteem, and believe that if he could no longer serve the president in good conscience, he did the right thing by resigning. But if he decided that Syria and Afghanistan were (metaphorically) the hills to die on, for the reasons outlined above I respectfully but strongly disagree.

My major regret at Mattis’ departure is again completely different than the conventional wisdom spouting elite’s. They lament the loss of an opposition voice within the administration. I cringe for reasons closely related to my reason for supporting a major pivot in US policy: I think that Mattis was the best person to oversee the reorientation of the Pentagon from counterinsurgency to main force conflict. We desperately need to improve the procurement process. We desperately need to focus on improving the quality and number of high end systems, and raising the availability of those systems we have: the operational availability of aircraft and combat units is shockingly low, and Mattis has prioritized increasing them. He has made progress, and I fear that a change at the Pentagon will put this progress, and the prospect for further progress, at risk.

Listening with dismay at the cacophony of criticism from the same old, failed, and tired “elite” reminds me of Einstein’s (alleged) definition of insanity: doing the same thing over and over, and expecting different results. The “elite” is invested in the same thing, and changing the same thing is a not so implicit rebuke for their failures. Until they can explain–which I know they cannot–why doing the same thing has led to such wonderful outcomes in the past quarter century, they should STFU and let somebody else try something different.


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December 5, 2018

Judge Sullivan Channels SWP, and Vindicates Don Wilson and DRW

Filed under: Derivatives,Economics,Exchanges,Regulation — cpirrong @ 10:52 am
After two years of waiting after a trial, and five years since the filing of a complaint accusing them of manipulation, Don Wilson and his firm DRW have been smashingly vindicated by the decision of Judge Richard J. Sullivan (now on the 2nd Circuit Court of Appeals).

Since it’s been so long, and you have probably forgotten, the CFTC accused DRW and Wilson of manipulating IDEX swap futures by entering large numbers (well over 1000) of orders to buy the contract during the 15 minute window used to determine the daily settlement price.  These bids were an input into the settlement price determination, and the CFTC claimed that they were manipulative, and intended to “bang the close.”  The bids were above the contemporaneous prices in the OTC swap market.

The Defendants claimed that the bids were completely legitimate, and that they hoped that they would be executed because the contract was mispriced because of a fundamental difference between a cleared, marked-to-market, daily-margined futures contract and an uncleared swap.  The former has a “convexity bias” and the latter doesn’t.  DRW did some IDEX deals with MF Global and Jefferies at rates close to the OTC swap rate, which it thought were an arbitrage opportunity, and they wanted to do more.  And, of course, they  received margin inflows to the extent that the contract settlement price reflected the convexity effect: thus, to the extent that the bids moved the settlement price in that direction, they expedited the realization of the arbitrage profit.

Here was my take in September, 2013:

Basically, there’s an advantage to being short the futures compared to being short the swap.  If interest rates go up, the short futures position profits, and the short can invest the resulting variation margin inflow at the higher interest rate.  If interest rates go down, the short futures position loses, but the short can borrow to cover the margin call at a low interest rate.  The  swap short can’t play this game because the OTC swap is not marked-to-market.  This advantage of being short the future should lead to a difference between the futures yield and the swap yield.

DRW recognized this difference between the swap and the futures.  Hence, it did not enter quotes into the futures market that were equal to swap yields.  It entered quotes at a differential to the swap rate, to reflect the convexity adjustment.  IDC used these bids to determine the settlement price, and hence daily variation margin payments.  Thus, the settlement prices reflected the convexity adjustment.  Not 100 percent, because DRW was trying to make money arbing the market.  But the settlement prices were closer to fair value as a result of DRW’s quotes than they would have been otherwise.

CFTC apparently believes that the swap futures and the swaps are equivalent, and hence DRW should have been entering quotes equal to swap yields.  By entering quotes that differed from swap rates, DRW was distorting the settlement price, in the CFTC’s mind anyways.

Put prosaically, in a way that Gary Gensler (the lover of apple analogies) can understand, CFTC is alleging that apples and oranges are the same, and that if you bid or offer apples at a price different than the market price for oranges, you are manipulating.


The reality, of course, is that apples and oranges are different, and that it would be stupid, and perhaps manipulative, to quote apples at the market price for oranges.

Here’s Judge Sullivan’s analysis:

[t]here can be no dispute that a cleared interest rate swap contract is economically distinguishable from, and therefore not equivalent to, an uncleared interest rate swap, even when the two contracts otherwise have the same price point, duration, and notional amount.  Put another way, because there is some additional value to the long party . . . in a cleared swap that does not exist in an uncleared swap, the economic value of the two contracts are distinct.

Pretty much the same, but without the snark.

But Judge Sullivan’s ruling was not snark-free!  To the contrary:

It is not illegal to be smarter than your counterparties in a swap transaction, nor is it improper to understand a financial product better than the people who invented that product.

I also wrote:

In other words, DRW contributed to convergence of the settlement price to fair value relative to swaps.  Manipulative acts cause a divergence between the settlement price and fair value.

. . . .

In a sane world-or at least, in a world with a sane CFTC (an alternative universe, I know)-what DRW did would be called “arbitrage” and “contributing to price discovery and price efficiency.”

Judge Sullivan agreed: “Put simply, Defendants’ explanation of their bidding practices as contributing to price discovery in an illiquid market makes sense.”

Judge Sullivan also excoriated the CFTC and lambasted its case.  He blasted it for trying to read the artificial price element out of manipulation law (“artificial price” being one of four elements established in several cases, including inter alia Cargill v. Hardin, and more recently in the 2nd Circuit, in Amaranth–a case that was an expert in).  Relatedly, he slammed it for conflating intent and artificiality.  All of these criticisms were justified.

It is something of a mystery as to why the CFTC chose this case to make its stand on manipulation.  As I noted even before it was formally filed (my post was in response to DRW’s motion to enjoin the CFTC from filing a complaint) the case was fundamentally flawed–and that’s putting it kindly.  It was doomed to fail, but the CFTC pursued it with Ahab-like zeal, and pretty much suffered the same ignominious fate.

What will be the follow-on effects of this?  Well, for one thing, I wonder whether this will get the CFTC to re-think its taking manipulation cases to Federal court, rather than adjudicating them internally in front of agency ALJs.  For another, I wonder if this will make the CFTC more gun-shy at bringing major manipulation actions–even solid ones.  Losing a bad case should not be a deterrent in bringing good ones, but the spanking that Judge Sullivan delivered is likely to lead CFTC Enforcement–and the Commission–quite chary of running the risk of another one any time soon.  And since enforcement officials are strongly incentivized to, well, enforce, they will direct their energies elsewhere.  I would therefore not be surprised to see yet a further uptick in spoofing actions, an area where the Commission has been more successful.

In sum, the wheels of justice indeed ground slowly in this case, but in the end justice was done.  Don Wilson and DRW did nothing wrong, and the person who matters–Judge Sullivan–saw that and his decision demonstrates it clearly.

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December 3, 2018

Robert Mueller Deals More Collusion Crack to the Desperate Media Addicts

Filed under: Politics,Russia — cpirrong @ 7:35 pm
Last Friday, the Russia collusion crack addicts took another hit, supplied by their main source, Robert Mueller.  The Special Counsel announced a plea deal with Michael Cohen, in which the disgraced Trump fixer admitted that he had lied to Congress about his contacts with Russia regarding a potential Trump business deal.  According to the plea, Cohen was reaching out to the Russians well into 2016, after the time when Trump’s nomination appeared likely.


Dudes, put down the pipe and check into rehab. Though to be honest, there’s nothing that can fix your addiction.  You don’t have a monkey on your backs: you have Bushman.

As is almost always the case with these pipe dreams, the media hot take is 180 degrees from reality.  Rather than showing Trump’s deep connections with Russia, and his obligation to Putin, it shows the exact opposite. Namely, it demonstrates that even as late as 2016 Trump had absolutely NOTHING going on in Russia, but was still begging for the opportunity to talk about business opportunities. (Or at least, his flunkies were.)

Indeed, to indicate just how  how much nothing he had going on, Cohen sent an email with an offer to Putin’s PR flack, Dmitri Peskov.  But wait! It gets better!  Cohen didn’t even have Peskov’s private email address, so he sent it to the address used for general press inquiries.  And to add insult to injury Peskov didn’t respond.  In fact, nobody responded, not even an intern saying “Thank you for your inquiry.”

In other words, Cohen rated the same response as Peskov probably gave to Nigerian princes offering the opportunity to make a vast fortune, in exchange for a little help.  That being no response at all.  He might have even given offers from Nigerian princes more thought.

Just as the Trump Tower meeting demonstrate beyond cavil that Trump had no deep connections in Russia, this farce demonstrates that Trump was not even remotely a player.  To use a Rumsfeld category, this represents evidence of absence.  Overwhelming evidence. If Trump was in deep with Putin prior to January, 2016, one of his flunkies wouldn’t have been sending plaintive pleas to a public email address.  And if Putin was hot to collude, there would have been an answer.

It’s not that complicated.  But then again, I’m not on crack.

Further, to the extent that Trump encouraged the outreach: (a) it’s kind of embarrassing, and (b) it’s hardly the actions of a man who thought he had the remotest chance of becoming president.  In fact, it screams the opposite.

If Cohen and the other person involved in attempting to gin up Trump business in Russia were acting on their own hooks, it would suggest they didn’t rate The Boss’ prospects too highly either.

The worst thing about this entire affair is that Trump relied on low-lifes like Cohen and Sater.  This hardly speaks highly of him.

So yet again, Mueller has delivered the collusion junkies a short term high in the form of a guilty plea to a process crime that does not get him any closer to proving that Trump colluded with Putin (or anyone else in Russia), let alone proving that he committed a crime (collusion per se not being illegal).  Indeed, this latest  “bombshell” merely proves yet again that when it comes to Donald Trump and Russia, there’s no there there.

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