Streetwise Professor

December 17, 2009

Odd Sights, Rio Edition

Filed under: Uncategorized — The Professor @ 8:17 pm

Alternate title: Something to Do While Bored, Sitting out a Flight Delay in Rio.  This gives me some time to relate some odd sights from the last couple of days.

  1. On the  tram to Corcovado, a statue of Jesus.  (Not the big one at the top–a small statue in a shrine next to the tracks on the way up.)  Yeah, I’m sure you’re saying: big deal, a statue of Jesus in a Catholic country.  Who ever saw one of those before?  But with a hockey stick in its hand?  In Brazil?
  2. Sitting in the hotel lobby, waiting for a cab to the airport, drinking a  caipirinha (a discovery of this trip)–and watching a show on the History channel dubbed into Portuguese about Russian bodyguards practicing the martial art of  ÑÐ°Ð¼Ð±Ð¾.  It’s amazing how every scene in Russia, from the gyms, to the streets, to the apartments, just looked tired and worn and beat all to hell.  Also brought back memories of a trip to Moscow, and seeing all of the guys with bullet heads, 19″ necks, black turtlenecks, and sport coats (in 90 degree heat), lounging against expensive black automobiles in front of expensive and trendy clubs.
  3. A bus with an advertisement (in Portuguese) in the back window for Sidney Sheldon’s new book.  I mean, he’s like, you know, dead, so how new can it be?  And even when he was alive, he was Sidney Sheldon. I really wonder how that translates, not just linguistically, but culturally.  Maybe there is an appeal in a macho Latin culture, because Sheldon supposedly wrote about “determined women who persevere in a tough world run by hostile men.”  Or so says Wikipedia, because I can’t give you a first hand review.
  4. Guys putting bags of nuts on the side mirrors of cars stuck in traffic, presumably for sale, then running like hell to pick them up when the traffic starts to move.  In the rain.  Does anybody buy?  They must, as otherwise nobody would be doing that.  What is the mechanism for providing quality assurance?  Can reputation work?  What is the mechanism that prevents people from just driving off, or taking the bag, rolling up the window, and mocking the poor vendor from inside a locked car?  Maybe it’s better not to know.
  5. A guy in Ipanema dressed up as Pele juggling a soccer ball during red lights.
  6. Rio taxi drivers who are constantly stalling their manual transmission cars, even on level roads.  This happened repeatedly, and with literally every taxi I took.  I don’t drive a stick much, but after a little while to re-familiarize myself, I hardly ever kill it, even on hills.

The Ghost of Stephen Douglas

Filed under: Economics,Politics — The Professor @ 6:55 am

The health care “reform” bill now slouching through the Senate is the greatest legislative monstrosity in American history.  Which is saying something.  It is massive, complex, and utterly incoherent.  It will sharply curtail freedom and inject the state even more intrusively into the most intimate and important decisions that we all face.  It will be ruinously expensive.  It is incapable of achieving its putative objectives: indeed, it will almost certainly lead to outcomes diametrically opposed to its supposed goals.  Unless, of course, the true goal is to turn citizens into subjects.

If anything, procedurally it is even more monstrous than it is substantively.  It advances by a combination of bribery (e.g., the Louisiana Purchase) and thuggery (even at the expense of national security, e.g., the threat to the Offutt Air Force base in Nebraska).  It proceeds in the face of deep misgivings by broad swathes of the American public, and strident opposition by a very large number of Americans.  It is difficult to imagine how anyone could make the Clinton health care initiative and the associated political process look sober, considered, and dignified, but Harry Reid et al have succeeded in doing just that.

I struggle to find a historical parallel.  The closest thing that comes to mind is the Kansas-Nebraska Act of 1854.  Illinois Senator Stephen Douglas was fixated on the creation of a transcontinental railroad.  Southern senators blocked the advancement of Douglas’s dream, so he proposed a bill that, to gain Southern support, completely undermined the careful (and yes, imperfect) compromises over slavery and the territories that had been crafted in the previous two generations (extending back to the Missouri Compromise of 1820).  In so doing, he set in motion a train of events (no pun intended) that culminated in the Civil War.

Perhaps you consider the parallel hyperbolic.  And no, I am not forecasting civil war.  But if this bill, or anything close to it, passes, the results will convulse the country.  The fault lines will not be sectional, as they were in the 1850s, but generational and socio-economic.  And perhaps the most important fault line will be between citizen and state as it will completely revolutionize the relationship between the government and the governed.

And the convulsions will be, first and foremost, political.  The Kansas-Nebraska Act catalyzed a fundamental political realignment in America, splitting the Democrat party and giving birth to the Republican.  Passage of major health care legislation will have seismic political consequences as well.  I do not know exactly what they will be, but they will be historic and enduring.

The execrable Harry Reid is of course the most visible villain here.  But he is only Igor to Obama’s Dr. Frankenstein.  The former Illinois senator, heir to the seat of Stephen Douglas, who achieved the presidential ambition that slipped through Douglas’s fingers as the very consequence of Kansas-Nebraska, is ultimately responsible.  He has made it clear that he is willing to accept anything–anything–that will effectively give government control over the health care system.  Douglas was fixated on a transcontinental railroad and was willing to do anything to get it.  Obama is fixated on a root-and-branch restructuring of health care, and is willing to do anything to get it.  Douglas’s fixation tore the country apart.  Obama’s threatens to do the same.

Is it too late to stop it?  I pray not, and I am not usually a praying man.

Douglas’s Tomb is a mere couple of miles from Obama’s Chicago home.  The 96 foot tall Tomb with Douglas’s statute is visible from Lake Shore Drive.  I wonder how many times Obama passed it.  I wonder if he ever even thought about Douglas, or the lessons of his brilliant but ultimately tragic and destructive political career.

December 16, 2009

A Parasitical Perspective

Filed under: Economics,Politics,Russia — The Professor @ 7:40 pm

This article from the Moscow Times makes the point, by now familiar to SWP readers, that Russia’s inability to precommit not to expropriate and exploit foreign investors will hamstring its efforts to modernize:

But whatever hopes that Russia’s leaders might hold, the lines between commerce, state bureaucracy and law enforcement continues to be blurred. This makes it impossible to give investors any reliable guarantees. Even when Western corporations believe that they can still make a profit despite the lack of legal guarantees, injustices such as the death of corporate lawyer Sergei  Magnitsky will cause many Western investors to think twice before they increase their Russian exposure.

But it makes a more interesting point, more indirectly than directly.  Namely, that Russia’s economic mindset, and even Medvedev’s modernization strategy, is fundamentally parasitical.  It is based on taking what others develop.  The concept of reciprocity is utterly absent:

One passage of his state-of-the-nation address hearkens back to an earlier speech and also sheds some light on Medvedev’s understanding of pragmatism. He said: “Our relations with other countries should also be focused on the task of modernizing Russia. … We are interested in capital inflows, new technologies and innovative ideas.” Further, the president said the results of diplomacy should be reflected “not only in the form of specific assistance to Russia’s companies abroad and efforts to promote national commercial brands … but it should also be designed to increase the volume of foreign investments we attract and, most important, the influx of new technologies.”

. . . .

Medvedev has referred to the West several times as a rich source of investment and technology — a “reservoir” from which Russia can tap the “intellectual resources of post-industrial societies.” It is clear that the task of making Russia an integral part of that reservoir cannot be compromised based on political factors. The political focus on values, which until recently was the basis of relations with the West, has clearly ended.

. . . .

The third reason is historical. It is noteworthy that Medvedev referred to the modernization programs adopted by Peter the Great and Josef Stalin, both of which were based on using the West as a reservoir. This approach rationalizes relations with the West, lessens the ideological and emotional components and reduces them to a purely commercial basis. In his “Go, Russia!” article, Medvedev stated, “The issue of harmonizing our relations with Western democracies is not a question of taste, personal preferences or the prerogatives of given political groups.”

. . . .

Russia’s “reservoir philosophy” is aimed at using the resources of the West to boost technological and economic modernization. The problem is that it does not set social modernization as its goal. Russia needs social modernization most of all — without which all attempts of achieving technological modernization are bound to fail.

This parasitism is of a piece with the lack of any compunction against expropriation.  It is predicated on a fundamental misunderstanding of the true source of enduring, successfully, mutually beneficial commercial and social interaction: reciprocity based on an exchange of value for value.

The historical analogies mentioned in the article (Peter I and Stalin) also reveal that this is something that has been tried before; resulted in a burst of development (on some, rather limited, dimensions); but which failed miserably to create the conditions for enduring, self-sustaining and self-generating modernization and progress.  Thus, by casting back to models of the past that have already proved to be limiting and inadequate, even the most (at least superficially) progressive individual among Russia’s leadership betrays a limited imagination, and an even more limited understanding of the true sources of organic economic progress.

The absence of property rights and the rule of law, and the inability of the state to commit to letting people enjoy the fruits of their labors, creativity, and investment does not just stifle foreign investment.  It also stunts the economic progress and initiative of Russia’s own citizens.

If Medvedev wants modernization, he needs to escape the narrow minded materialism that clearly dominates his thinking.  He needs to escape the delusion that foreign capital or ideas will transform Russia.  He needs to recognize that a revolution in institutions is necessary.

And there’s the rub.  The article notes that Medvedev’s initiative is intended to depoliticize commercial relations with the West.  But the transformation that Russia needs, both internally and in its relations with the rest of the world, is fundamentally political.  It must rest on a complete revolution in the relation between the citizen and the state that gives individuals (and the businesses that individuals form) the confidence that their efforts and property will be protected.  Only then will Russia be able to modernize on its own–and contribute to modernity outside its borders.  A dysfunctional combination of predatory and parasitical relations with its citizens and the world will only doom Russia to continued second- or third-rate status economically, socially, and politically.

What Russia needs to “borrow” or “adopt” is not machinery (done that–to no lasting effect), or technology (done that-ditto), but a mindset and a set of institutions.  But that will never happen, at least under the current regime, for these ideas and institutions are inimical to the predatory, parasitic system that regime has constructed.

A clarification (17 December, 2009).  Not that I am optimistic that a healthy revolution or even evolution in the relation between citizen and state is likely.  The development of the necessary institutions is historically the exception, rather than the rule.  That’s why these metaphors (and variations on the theme) keep reappearing in what I write about Russia: purgatory, Sisyphus, and the hamster wheel from hell.  Suffice it to say that Medvedev’s parasitical model of modernization, with its (ultimately failed) historical precedents, will almost certainly fail to achieve anything lasting.  Doing the same thing repeatedly, and expecting to get different results, is nuts.

The Sisyphus Update

Filed under: Commodities,Derivatives,Economics,Military,Politics,Russia — The Professor @ 7:33 am

Sorry about the lack of posts.  I’m in Rio de Janeiro for a conference jointly sponsored by Columbia Law School, a Brazilian think tank FGV, and the Brazilian securities regulator that ended yesterday. (I was going to say “blame it on Rio” but that would be lame:)  Good conference, though tiring as all the Brazilians gave their talks/comments/questions in Portuguese, with simultaneous translation, which takes concentration to follow–although I can only imagine how how it is to do.  (Interesting socio-political question as to why the conference was, unlike most, bilingual.)

Anyways, several things have caught my eye in my glances at the news.  The Russian items resonate with a theme often expressed/discussed on SWP–the repetitive, Sisyphus-like nature of Russian life.  Fighting the same battles, again and again.

1. Yegor Gaidar passed away.  The controversial architect of many of the Yeltsin reforms, he was ultimately disillusioned by Russia’s path under Putin.  I reviewed his book here.  Here’s the opening line of the review, which can serve as an epitaph:

Cassandra was the Trojan woman whom Apollo gave the gift of prophesy-and the curse of never being believed. Yegor Gaidar sees that Russia’s future depends crucially on coming to grips with its past, but present events make it clear that his prophesies, like Cassandra’s, fall on deaf ears.

In his new book,  Collapse of an Empire, Gaidar has a pressing purpose: to alert Russians-and the world-to the dangers denying the real reasons behind the collapse of the USSR. Gaidar has a strong historical sense (which is often absent among economists, alas), and from his understanding of history (most notably, of Weimar Germany and post-Hapsburg Austria-Hungary), he knows that imperial collapse can be disorienting and dispiriting to the empire’s subjects, even if the empire brutally repressed them. He also knows that demagogues and revanchists can exploit this disorientation and depression to achieve power. Those suffering from post-empire depression are very susceptible to demagogic myths that imperial glory was destroyed by “stabs in the back” from enemies foreign and domestic, and that restoration of this glory requires the people to unite behind an authoritarian leader who will ruthlessly pursue traitors at home and take revenge on foreign foes.

But he foresees that this is ultimately the road to disaster.

2. Medvedev is aiming to reduce Russia’s “colossal” drinking problem by cutting alcohol consumption by 72 percent.  All I can say is: Good. Luck. With. That.  Here are the grim statistics:

Medvedev in June told Health Minister  Tatyana Golikova that Russia’s alcohol consumption is “colossal” and asked the government by today to find ways to fight excessive drinking and bootlegged vodka production. Illegal spirits make up about half of total alcohol consumption in Russia, lawmaker  Viktor Zvagelskiy said yesterday in an interview in Moscow.

“More than 23,000 people are dying from random [actually sounds kind of systematic] alcohol poisoning currently in Russia,” the market regulation service said in the plan. “More than 75,000 people are dying from illnesses caused by excessive drinking.”

Gorbachev attempted an aggressive anti-liquor campaign that succeeded in reducing substantially alcohol related problems–but which also wreaked havoc on the Soviet budget, given the importance of alcohol taxes as a source of revenue.  (Thus, it is ironic that this news came out on the same day as that of Gaidar’s death, for he wrote about that episode in his book.)  Gorbachev’s campaign also spurred dramatically the production and consumption of illicit alcohol.  (I remember reading that it was common for Russian military pilots to claim that they were experiencing icing and had to de-ice even when this wasn’t true, so they could siphon off the de-icing fluid to drink.  I’m sure that did wonders for military preparedness.  No surprise, then, that Matthias Rust was able to fly a small plane unmolested to land in Red Square).

The Bloomberg article suggests that Medvedev/the government recognize this, and are going to try a simultaneous battle against licit and illicit alcohol by (a) enforcing minimum prices on vodka sales, (b) raising beer taxes, and (c) cracking down on moonshine.  This is very ambitious, and almost certainly doomed to failure.

This presents another wonderful corruption opportunity for those responsible for enforcing the new restrictions.  It is very difficult to see how any enforcement efforts can succeed in a country so riddled with corruption.  The cynic would say that the announcement of such efforts is just a way to increase the take of the “enforcement” bodies and their employees.

3. Apropos the recent “It Blew Up Real Good” post of last week, Russia has announced that it is delaying construction of the fourth Borei class SSBN.  Although the article suggests that this delay is connected with the problems with the Bulava missile, if true that would suggest that the Russian navy is very, very pessimistic on the missile’s prospects.  There are 2 Boreis under construction.  The fourth would not be ready for some years even if it were laid down immediately. If the navy thought that the Bulava problems are fixable, given the lead time on sub construction it would not make sense to delay due to the recent spate of test failures.  However, if the Bulava program is in serious jeopardy, it would make sense to delay construction, perhaps to re-design the Borei to carry a different missile.  Thus, if there is any connection between this announcement on the delay of the sub construction and the Bulava problems, the inference would be that the Bulava is unsalvageable.

The delay could just indicate budgetary issues, however, so one cannot be too sure about this inference.

4. One non-Russian item.  Mark Roe of Harvard Law School has written an interesting piece on the privileged status of derivatives under bankruptcy law.  (I was quoted on this subject in The Economist last month.)  Mark’s argument is a very interesting one: namely, this contributes to systemic risk by reducing derivatives traders’ monitoring of the creditworthiness of their counterparties.  He argues that since they don’t have to worry about fraudulent conveyance claims, derivatives traders can enter into deals in the confidence that they can get what failing counterparties owe them, and let the devil take the hindmost.  The fact that they are first in line reduces the incentive of derivatives counterparties to pay close attention to the financial condition of those they trade with.

This argument has some attractions, but I’m not sure I buy it completely; even if derivatives traders have lower incentive to monitor, other creditors’ incentives increase, so it’s uncertain whether the total amount of monitoring, or the pricing of credit risk at the margin, is affected by this particular choice of priority rules.

I’ll give it some thought.  On the beach 🙂  More later . . .  amanhã . . .    maybe.

December 12, 2009

Guest Post on FT Alphaville

Filed under: Commodities,Derivatives,Economics,Exchanges,Financial crisis,Politics — The Professor @ 8:12 am

FT Alphaville–an (excellent) Financial Times blog–graciously invited me to write a guest post on the financial “reform” legislation that is moving through the House of Representatives (and just passed yesterday).  (Thanks, Stacy-Marie.)  Here it is:

Guest post: Prof Craig Pirrong on moves to overhaul to the derivatives market

Lawmakers in DC are due to resume debate on major financial reform legislation currently working its way through the US House of Representatives. One closely-watched aspect of that debate is sweepingoverhaul of over-the-counter derivatives markets. Lawmakers are pushing to mandate that most derivatives be centrally cleared and traded either on exchanges or swap execution facilities. Professor Craig Pirrong of the University of Houston discusses some of the proposals.

In attempting to impose standardization on the ways that derivatives are traded, and derivatives counterparty risks are managed and shared, the legislation reflects a one-size-fits-all mentality (not to say fetish) that is sadly typical of most legislative attempts to construct markets.   These standardization directives fail to recognize that market participants are diverse, with diverse needs and preferences, and that as a consequence, it is desirable to have diverse trading mechanisms to accommodate them.

Standardized exchange products with central clearing are well-suited for some products and some users, but more customized arrangements (including customized, bilateral agreements relating to counterparty risk) are preferable for others.   And one should be extremely skeptical about claims that to enhance their profits, greedy bank-dealers force derivatives end users into trading on opaque, concentrated markets instead of transparent exchanges; end users have had the opportunity to choose, and exchanges have competed aggressively to try to attract them, but many end users nonetheless have decided to trade in markets that are allegedly stacked against them.   Is it really wise to predicate a radical restructuring of markets on the view that end users are suffering from the financial analog to battered spouse syndrome?

Ironically, one of the controversies that has come up in the debate over amendments to the proposed legislation involves supposed backsliding from the old time standardization religion.   An  amendment changes language defining “swaps execution facility” to allow trading of swaps through voice brokers to meet the bill’s requirement that swaps be traded on such a facility or an exchange.   Moreover, other language in the amendment allegedly allows banks to continue business as usual.   That is, whereas reform advocates envisioned that under the new law swaps would be traded almost exclusively on exchanges or transparent, exchange-like venues, they claim that the new language would perpetuate the existing ways of trading swaps in scary “dark” markets.

This is not a bad thing at all – contrary to what some have  argued.   A variety of execution mechanisms developed to satisfy the disparate needs of market users with respect to pre-trade and post-trade transparency, credit and collateral arrangements, and product design.   To the extent that the amendments recognize this reality, and give market participants some flexibility in selecting the mechanisms best for them, the authors are to be commended.   To the extent that the bill still imposes unnecessary mandates, they are to be criticized.

One final note: proposals to force derivatives trading onto exchanges have been tried before – back when grandma wore high button shoes.   As financial markets developed, these restrictions proved unworkable and unwise.   The advocates of one-size-fits-all reform would have us repeat the same errors.   Back to the future is not progress.

[The background here is that the first regulation of futures trading in the US, the Grain Futures Act passed in 1922 required all “contracts for future delivery” to be traded on “a designated contract market” (i.e., an exchange).   The Commodity Exchange Act (passed in 1936) extended this to non-agricultural commodities.   This created huge issues starting in the 1980s particularly when new products that had futures-like features started to be traded OTC, and banks starting offering products to retail customers that had interest rates tied to the S&P or gold.   The question became: what was a future?   One-size-fits-all became clearly unworkable.]

December 10, 2009

It Blew Up Real Good. Again.

Filed under: Military,Russia — The Professor @ 4:41 pm

The other day people in Norway freaked out.  Not because of the impending arrival of The One to collect his Nobel Prize for Not Being Bush.  Or because Obama basically blew off his hosts.  But because of a weird, spiral apparition in the dark northern skies.  (Scroll down the link for some video.)  Due to the proximity of the event to the Russian White Sea missile testing range, some folks suspected that it had something to do with a failed missile test.

At first the Russians grudgingly conceded that yes, the new SSBN Dmitri Donskoi had launched a missile on that day, but declined to say where, and didn’t say that anything went wrong.  Later, the Russian navy admitted in a press release that it had experienced another failure of the Bulava sub-launched ballistic missile (SLBM).  The first two stages worked fine (a previous launch failing at the first stage), but the third stage malfunctioned and the missile spun out of control, producing the Norwegian pyrotechnics.  Depending on who’s counting and how “success” is defined, that’s either the ninth failure out of 13, or the 13th out of 13.

Speaking of ballistic, no doubt that’s what Putin, Medvedev, and the Russian military are going right now.  They are nervous as cats about the declining state of Russia’s nuclear deterrent, and are exceedingly reliant on this deterrent due to the erosion of Russia’s conventional military capability.  They are counting on the Bulava to help arrest that decline.  Supposedly, the Bulava program has eaten up fully half of the Russian military procurement budget, and the Donskoi class SSBNs have devoured a big chunk of what’s left.  The Russians have a functional liquid fueled SLBM, the Sineva (the Bulava being solid fueled), but the Sineva is almost two feet three meterslonger than the Bulava, and would not fit the missile tubes on the Donskois.  It would cost billions, and a lot of time, to rejigger the Donskois to carry the Sinevas.

In other words, they are so screwed.  They have missiles that work that won’t fit the subs, and the missiles that fit the subs don’t work.  More than half the procurement budget down the tubes as a result.

This latest failure came after the sacking of the head of the Bulava program and a shift of the manufacture of the missile to a different factory in the aftermath of the last failure, purportedly the result of quality control issues the old facility.

It will be interesting to see how this affects the negotiations over a new START treaty.  The old one expired, and despite repeated assurances by both sides that a new treaty would be in place by the time of that expiration, that hasn’t happened.  With the prospect of a revitalized sub-launched deterrent fading into the distant horizon, Russia has an incentive to bargain harder to reduce US launch vehicles and get more flexibility for its land based systems.

H/T to R for giving me the heads up on the story.

December 8, 2009

In Which SWP actually Defends the FSB

Filed under: Climate Change,Commodities,Economics,Energy,Politics,Russia — The Professor @ 8:08 pm

The French Vice Chairman of the UN’s Inter-governmental Panel on Climate Change (IPCC) has accused the FSB of causing Climategate by hacking into UEA CRU’s computers.  This presents ol’ SWP with something of a dilemma, with many of the targets of my ire–the French, the UN, the IPCC, and the FSB–arrayed against one another.  What a target rich environment.  On the one hand, I can’t miss.  On the other, it does make choice of target something of a challenge.  LOL.

And I’d be sitting down, ladies and gentlemen, because on this one I have to side with the FSB, at least on the basis of what we know so far.

Here’s what IPCC VC said:

“It’s very common for hackers in Russia to be paid for their services,” Professor Jean-Pascal van Ypersele, the vice chairman of the Inter-governmental Panel on Climate Change, said in Copenhagen at the weekend. “It’s a carefully made selection of emails and documents that’s not random. This is 13 years of data, and it’s not a job of amateurs.”

The leaked emails, Professor van Ypersele said, will fuel scepticism about climate change and may make agreement harder at Copenhagen. So the mutterings have prompted the question: why would Russia have an interest in scuppering the Copenhagen talks?

This time, if it was indeed the FSB behind the leak, it could be part of a ploy to delay negotiations or win further concessions for Moscow. Russia, along with the United States, was accused of delaying Kyoto, and the signals coming from Moscow recently have continued to dismay environmental activists.

When Ed Miliband, the Secreatary of State for Climate Change, visited Moscow this year, he had meetings with high-level Russian officials and pronounced them constructive. But others doubt that Russia has much desire to go green.

In brief, M. Van Ypersele rests his case on (a) opportunity, and (b) motive.  The notorious abilities of Russian hackers provided the opportunity.  This cannot be disputed.  The motive is much murkier, however, and very indirect.  First, Ypersele assumes that the motive of the leak was to derail Copenhagen.  Perhaps–or perhaps it could have been the result a fit of conscience by someone at CRU (or an affiliated institution) who was scandalized by the anti-scientific behavior of Jones et al.  That could explain the very specific documents targeted in the leak emphasized by Ypersele.

Second, Ypersele stretches to argue that Russia has an especially strong motive to derail the implementation of a global cap and trade system.  The reverse could be true, given that Russia owns the largest stock of Kyoto-created emissions credits: an aggressive climate change deal that required other nations to reduce sharply emissions would enhance the value of these credits.  Yes, Russia has other agendas, such as protecting inefficient polluting industries and encouraging demand for its energy.  Thus, it is hard to determine on net whether Russia’s interests lie with or against CO2 caps.  (And in saying “Russia” one always has to remember it is the Russian elite and power structures that matter.  The credits could create a very nice slush fund for these folks to skim.)

There are other interests–Saudi Arabia comes to mind–that does not have such conflicting interests.  And, as Ypersele notes, Russian hackers are paid for their services: I’m sure Saudi money spends just as well as Russian, and the Saudis are likely to have more at the moment.

So the motive angle is very weak, and does not put Russia at the top of the list of suspects.  (This is sounding like a game of Clue or something.)

Nor does the fact that the documents appeared on a server in Tomsk mean much of anything.  The hackers originally tried to put the stuff on the RealClimate website (and no, I won’t link to that) using a computer in Turkey.  Then, using a computer in Saudi Arabia, they put up a link to the Tomsk site.  Given the murky international connections in the hacker world, it’s impossible to make anything of this.  Moreover, these sorts of analyses inevitably get into the Holmes-and-Moriarty on the Train quagmire: the FSB wouldn’t have put the stuff on a Russian server because it would have drawn suspicion; because people would figure the FSB would never draw suspicion to itself by posting on a Russian server, they put it on a Russian server; because people would figure . . .

This isn’t like Georgia at the time of the invasion in 2008, or in Estonia on 2007.  In each of those cases the motive was clear, few others had the same ability or opportunity, and other circumstances made it clear that Russian interests, and likely the Russian state were involved.  Here, the circumstantial case that Ypersele advances is pathetically weak. Not to say that it’s impossible that the FSB was involved, just that it’s far from proven, or even the most likely scenario.

One final thing.  The NYT article linked above discussing Russia’s Kyoto credits has yet another example of the economic idiocy that characterizes its news pages:

That is because Russia, as a result of the collapse of much of its heavy industry in the 1990s, owns one of the largest stocks of credits to offset carbon emissions.

The unearned windfall, a legacy of the Kyoto agreement that tried to deal with the threat of  climate change, is worth several billion dollars. If abruptly sold abroad, those credits could send the price of carbon on the world’s fragile emissions markets plunging toward zero.

I see.  The credits are worth billions.  Unless they’re sold.  In which case they’re worthless.  Whatever.

This ranks with a story I read some time back in the NYT which expressed astonishment that the unemployment rate went up even though the rate of increase in layoffs had fallen.  First derivative.  Second derivative.  Again–whatever.

Anybody who gets economic analysis from the NYT is sadly misinformed, but probably considers him- or herself as one of America’s elite.  Which explains quite a lot of our current economic and political troubles.

Perhaps reporter James Kanter can hide behind the adverb “abruptly.”  But why would Russia dump them on the market if that would drive the price to zero?  And if the price doesn’t go to zero due to self-destructive behavior, the whole premise of the rest of Kanter’s article disappears.  Oy.

Update:  An interesting analysis by a systems administrator that casts serious doubt on the hacker story.  In brief: it is almost certain that all the documents had already been assembled, probably by a freedom of information act officer, in response to or anticipation of FOIA requests.  Now, it could have been the case that a hacker gained access to this and disseminated it, but since it was (per this analysis) assembled and ready to go out, it’s also quite possible that this was a leak.  And if it was already assembled for FOIA/FOI purposes, the reasonable inference is that it would have been released in time.  That said, the release weeks before Copenhagen–just enough time for the story to get traction, not enough time for it to die–is crucial.

Shadows of the Power Vertical in the Light of the Flames of the Lame Horse

Filed under: Politics,Russia — The Professor @ 11:36 am

The tragic fire that occurred in Perm over the weekend is not the kind of thing that is unique to Russia (as illustrated by a similar fire at a club in Rhode Island several years ago).  But it is far more common there than elsewhere: the death rate from fire in Russia is approximately ten times that in the US.

The fire has, not surprisingly, led to calls from the highest level for a tightening of fire codes and fire enforcement:

President Dmitry Medvedev on Saturday demanded Russia tighten its notoriously lax fire codes after the deadliest blaze since the Soviet era killed at least 107 people celebrating in a nightclub with a decorative twig ceiling and single exit.

. . . .

President Dmitry Medvedev on Saturday demanded Russia tighten its notoriously lax fire codes after the deadliest blaze since the Soviet era killed at least 107 people celebrating in a nightclub with a decorative twig ceiling and single exit.

The (perverse) irony, of course, is that tightening fire codes and enforcement will only create increased opportunities for corruption.

Don’t believe me?  Well, maybe you’ll believe Putin, who of all people recognizes that Russia is on the hamster wheel from hell:

“We are in a vicious circle. When you give more rights to controlling bodies you get corruption. As soon as the burden is eased you get negligence and cost optimisation, first of all on safety,” Putin said.

True, that.  As succinct a synopsis of the futility of “power verticals” as could be imagined, from the mouth of their most stalwart advocate.  But do you think that he will follow this flash of insight to its logical conclusion?

Nah, me neither.

December 6, 2009

The Graveyard of Timelines

Filed under: Military,Politics — The Professor @ 4:36 pm

I’m reading a book by a University of Houston colleague, history professor Frank Holt.   (I tend to juggle books.)   It’s called Into the Land of Bones: Alexander the Great in Afghanistan.   Written in the immediate aftermath of 9-11 and the American invasion of that country, Holt puts current events in historical perspective by analyzing Alexander’s Bactrian and Sogdian campaigns in detail, mixed with discussions of Britain’s First and Second Afghan Wars, and the USSR’s travails there.

Reading it makes it clear that any thoughts of “time lines” or “exit strategies” in Afghanistan are delusional.   Utterly delusional:

[W]e must acknowledge that the wars waged in Afghanistan by Alexander, Britain, the Soviet Union, and now the United States share some salient features that may not bode well for our future.   For example, all these invasions of Afghanistan went well at first, but so far no superpower has found a workable alternative for the recipe for ruin in Afghanistan:

  1. Estimate the time and resources necessary to conquer and control the region.
  2. Double all estimates.
  3. Repeat as needed.

Afghanistan cannot be subdued by half measures.   Invaders must consider the deadly demands of winter warfare, since all gains from seasonal campaigns are erased at every lull.   Invaders must resolve to hunt down every warlord, for the one exception will surely rot the fruits of all the other victories.   Invaders cannot succeed by avoiding cross-border fighting, since the mobile insurgents can otherwise hide and reinforce with impunity.   Invaders must calculate where to draw the line between killing and conciliation, for too much of either means interminable conflict.   Finally, all invaders so far have had to face one more difficult choice: once mired in a winless situation, they have tried to cut their losses through one of two exit strategies:

  1. Retreat, as did the British and the Soviets, with staggering losses.
  2. Leave a large army of occupation in the area, as Alexander did.

Neither option seems acceptable to the United States, which must therefore learn from its predecessors’ mistakes and seek another path.   (pp. 18-19).

In other words: go large, or go home.   (Holt wrote this, note well, in 2003.)   Half measures, like those in Obama’s plan, are likely doomed to failure.   This is especially true inasmuch as Obama’s “other path” (building on Bush’s “other path”) depends heavily on transferring responsibility and control to an Afghan government and army in a period of months; Holt provides chapter and verse on how this is almost certainly an exercise in futility, given Afghan history, and the nature of its society (or more accurately, societies).

As I’ve written before, there are no good options in Afghanistan.   But by far the worst is the “middle path,” especially when it is not sold to the American people honestly.   The “time line” has short-term, domestic political considerations written all over it.   But what happens in July, 2011 when it is almost certain that the objectives Obama has set have not been achieved?   Obama will suffer a crisis of credibility regardless of what option he chooses at that time: if he decides to leave then, he will raise questions about why he spent additional lives and treasure on what was foreseeably an unworkable strategy; if he decides that “conditions on the ground” require continued heavy involvement, he will raise questions about his judgment in setting a time line in the first place, his honesty in asserting that there was a time line, and the wisdom of a strategy for 2010-2011 predicated on such a time line.   Even as a cynical political calculation, it makes no sense (except perhaps to the extent it reduces the salience of Afghanistan as a 2010 campaign issue). He can kick that can down the road for awhile, but the problem he will face will only be worse when it comes to rest, and he will have so damaged his credibility (on issues of both judgment and honesty) that he will be ill-disposed to deal with it then.

I supported the surge in Iraq in 2006 (and have the posts to prove it).   The circumstances in Iraq, tactically, operationally, strategically, and (essentially) logistically, were all different than in Afghanistan.   The odds of even a robust surge in Afghanistan working are substantially smaller than the odds were in Iraq.   The odds of Obama’s semi-surge succeeding, hedged as it is, with the palpable lack of enthusiasm and will that oozes from Obama’s every pore, are virtually nil.

If you read Frank Holt’s book, you’ll know a good deal about Alexander.   And you’ll know that Obama is–for both better and worse–no Alexander.   Which bodes ill indeed for the prospects in Afghanistan in the coming months.

Identity Politics

Filed under: Politics,Russia — The Professor @ 10:32 am

I am reading Who We Are: the Challenges of America’s National Identity, by (the late) Samuel Huntington.  It’s a quick read, but there are many interesting insights.  One that resonated with me is Huntington’s critique of the notion of America as a nation of immigrants.  He says that no, America is a nation of settlers and immigrants.  These are quite different, and until recently the settler ethos was the dominant strain in American identity.

Americans commonly refer to those who produced independence and the Constitution in the 1770s and 1780s as the Founding Fathers.  Before there were the Founding Fathers, however, there were the founding settlers. . . . It began with the first settler communities of 1607, 1620, and 1630.  What happened in the 1770s and 1780s was rooted in a product of the Anglo-American Protestant society and culture that had developed over the intervening one and a half centuries.

. . . .

Before the Revolution . . . English and Dutch colonists “conceived of themselves as settlers and planters–the formative population of those colonial societies–not as immigrants.” . . . The term “immigrant” came into the English language in the America of the 1780s to distinguish current arrivals from the founding settlers.

America’s core culture has been and, at the moment, is still primarily the culture of the seventeenth- and eighteenth-century settlers who founded American society.  The central elements of that culture can be defined in a variety of ways but include the Christian religion, Protestant values and moralism, a work ethic, the English language, British traditions of law, justice, and the limits of government power, and a legacy of European art, literature, philosophy, and music.  Out of this culture the settlers developed in the eighteenth and nineteenth centuries the American Creed with its principles of liberty, equality, individualism, representative government, and private property.  Subsequent generations of immigrants were assimilated into the culture of the founding settlers and contributed to and modified it.  But they did not change it fundamentally.  This is because, at least until the late twentieth century, it was Anglo-Protestant culture and the liberties and economic opportunities it produced that attracted them to America.

There’s much more, but I recommend you read it for yourself.

That resonates with me personally.  My maternal grandfather’s family was of settler origin.  Nobody from the 1607 settlement, but many from the New England settlements, including 3 on the Mayflower in 1620, and several from the 1630s founding of settlements in Connecticut.  They remained settlers for the most part, moving west throughout the 17th, 18th, and early-19th centuries.  (A GGG Grandfather was “the last white man killed by Indians in Washington County, Ohio,” in 1794. Maybe sometime I’ll write about the full story, which is fascinating.  His tombstone inscription is priceless: “Here lyes the body of Abel Sherman who fell by the hand of the savage on the 15th of August 1794, and in the 50th year of his age.”  The original tombstone is in the Campus Martius Museum in Marietta, OH, where my mother’s family is from.)

But the rest of my  family is immigrant.  On my mother’s side, English, Scot, Irish, and German.  On my father’s, almost exclusively Scandinavian, with one German (whence the name Pirrong.)  Mainly Protestant, but a sprinkling of Catholics (Irish and German).  But for the most part, as Huntington describes, they absorbed the settler ethos.  At Thanksgiving aunt told a story that captures this perfectly.  She related how when in first grade, the teacher in a Chicago public school asked everyone to state their nationality.  Being Chicago in the 1920s, it was a mix, but mainly Polish and Irish in her school.  My aunt says she didn’t know how to answer, because this had never been discussed in her home, but her teacher told her she had to.  So she went home, and asked her dad, who took umbrage.  “Tell them that you’re an American,” he said.

(The one exception to the absorption of the settler ethos.  A maternal great-grandfather was a noted socialist.  A former concert coronetist, he would play his horn on the street corner with my pre-10 grandmother singing on a soapbox.  When a crowd assembled, he’d give a speech about socialism.  In her 90s, my grandmother would say: “I didn’t believe it [i.e., his socialism] when I was 8, and I sure don’t believe it now.”  LOL.)

I think it’s fair to say that I internalized this settler mindset, sharing many of the beliefs that Huntington identifies with it (with the exception of the formal religious aspects: as my Navy dog tags said, I’m “PROT NO DENOM,” and only cast shadows in a church as a tourist.)  And I think that the main political fault lines in the US right now are largely defined by the settler ethos, and those who reject it, or deconstruct it (as Huntington describes).  It is also a crux of many of the debates in the comments.

The subject of the current salience of historical identity came up recently in a completely different context.  I was visited by an academic for Azerbaijan who is in charge of developing an energy education program at a new university in Baku.  He was asking my opinion about what to include in his program, who would be good to bring in to lecture in it, whether I would be interested in speaking there, etc.  I asked him whether the courses would be conducted in Azerbaijani, English, or Russian.  He said English.  I asked him whether Russian was still an important language there.  He hurriedly and emphatically said “No!” and went on to say that not just in Azerbaijan but throughout the former FSU people (at least in business) were striving to de-orient themselves from Russia and re-orient themselves westward.

The conversation turned to how although Russia (or, more properly, the USSR) had been a leader in petroleum engineering and the geosciences, it had fallen far behind the times, and was now a relic, a shadow.  (Which is why this new Azerbaijani energy education initiative is consciously focused on western practices and companies.)  I asked him for his opinion as to what it would take for Russia to rejuvenate itself.  He said: “They have to figure out who they want to be.  They can’t decide on their identity.  Do they see themselves as the imperialists of the past or as a part of the modern world?  Superiors or equals?”

Good questions.  And ones that point out the path dependence of identity, and its influence on virtually all aspects of social and political interaction.

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