Streetwise Professor

Even if I do say so myself.

Yes, today is the 4th anniversary of the launch of SWP.  Its evolution has been a surprise to me, in many ways, most notably in the fact that this idiosyncratic/eccentric blog has attracted far more readers than I had ever anticipated.  That’s a great birthday present, for which I am very, very appreciative.  A hearty and humble thanks to all of you.

And now for a little navel gazing retrospection.

I originally started the blog to be a way of commenting, in real time, about things related to my professional, academic interests.  It has served that purpose, and there’s been a lot to write about.  Ironically, my first substantive post was about a technical malfunction at the Tokyo Stock Exchange, and last week the TSE rolled out a new trading system designed to address the problems that shut it down when the blog started.  But there have also been exchange mergers, intense controversies over energy markets and speculation, stories about manipulation, and perhaps surprisingly, numerous developments in the previously arcane and largely hidden world of clearing, something I’d written about as an academic for almost 10 years to the collective yawn of my colleagues and the profession generally.

The posts I’ve written about these subjects have received some interest, stirred some controversy at times, and now and then have had some policy impact.  A little bird told me that one post in particular caused “several senators’ heads to explode” (I love the smell of napalm in the morning!) and resulted in some uncomfortable moments for some Bush administration officials.  (Yes, rkka, Bush administration officials.)   I know that the clearing stuff in particular has at least contributed to the policy debates on the subject, in part because it cuts against the grain of the post-crisis conventional wisdom.

The financial crisis of course played a big role in SWP over the past year.  I’ve often felt like a seismologist must during “the big one.”  At once fascinated by the opportunity to witness historical events involving instruments and institutions that I’ve written about (largely in academic obscurity) for years beforehand, and simultaneously more than a little uncomfortable at getting so much intellectual stimulation/satisfaction out of what were truly traumatic developments.

But the biggest surprise in the development of the blog is the whole Russia thing.  Perhaps it was meant to be: a Russian visitor was sitting next to me in my home office, writing applications for internships here in the US while I was writing the first SWP post four years ago.  But writing about Russia wasn’t even in the back of my mind when I started SWP.  Like Topsy, the idea just growed.

People ask me all the time: what’s the deal with you and Russia?  Why do you write about it so much?  Well, it’s a mixture of a lot of things.  As an aspiring US Navy officer in the late-1970s, the USSR was obviously a major matter of interest and concern.  After my aspirations took a U-turn, I had the opportunity to take a Russian history course from the amazing Arcadius Kahan at the University of Chicago, and sat in on some lectures from the almost as amazing Richard Hellie.

The interest went dormant for some years as I pursued my professional goals, but was reignited by a variety of things.  Notably, my increasing involvement in energy-related issues as an academic, and my longstanding fascination with institutional economics and property rights issues and the intersection between politics and economics.  The summer before SWP, I wrote a piece for Energy World magazine called “Just Say No–to Gazprom” that was my first foray into writing about Russian energy politics.  It soon became clear to me that Russia represented a fascinating case study in the effects of resource intensity (and arguably dependence) on economic development and the evolution of economic institutions.  Also, Russia is sufficiently like the West, and sufficiently engaged with it, to be familiar and not too alien, but different enough to provide interesting contrasts and cross-sectional variation.  (China, in contrast, being a blank slate and otherworldly place to me.)  Put all that together with my tendency to go overboard in my intellectual enthusiasms, and well, here we are.

There is also an element of Skinnerian conditioning involved.  The Russia material has–overwhelmingly–attracted the most comment and attention.  It’s always more rewarding to write about something that people seem to care about enough to react to, so it’s fair to say that like the rat pushing the little bar and getting food in return, SWP has focused more on Russia because that’s where the positive reinforcement is.  And believe it or not, I view even the critical comments positive reinforcement, because it lets me know you care enough to write 🙂  To paraparhase what Brendan Behan said about publicity, there’s no such thing as a bad comment, except on your obituary.

Truth be told, the blog has absorbed more of my time than I’d anticipated.  Mrs. SWP claims she has a love-hate relationship with it (the blog! the blog!); she likes the fact that it’s attracted some attention and gives me an outlet, but hates how it has the tendency to become a time sink.  As in all things, achieving balance in this is tricky.

That’s the past.  What about the future?  Well, if anything, the history of this blog has reinforced my agreement with the old saw that it’s hard to make predictions, especially about the future.  SWP reacts to the world, for the most part, and the world moves in strange ways.  It’s likely that the main subjects–derivatives markets, Russia, military developments, AGW, and from time-to-time, politics–will remain the focus in the future, but as for the specifics–who knows?

All I can say is that I hope whatever the future holds, you all continue to check in from time to time, and that new folks join in.  Thanks again for your time and interest, and “see” you soon.

One of the protagonists of “Fannie and Freddie Have Two Fathers,” Connecticut Senator Chris Dodd, has announced he will not stand for re-election.

It will be interesting to see how this affects the financial market “reform” slouching through Dodd’s committee.  It could cut multiple ways.  In the end game, the incentives of other senators (and of representatives, when it comes to reconciling House and Senate bills) to cooperate with Dodd decrease, but by the same token, his incentive to compromise/deal on this bill in anticipation of reciprocity on some other matter in the future declines too.  So, I don’t have a directional view on how this will affect his committee’s bill’s prospects, but I would buy a straddle on it because it makes the prospects more volatile.

Along with Dorgan’s similar announcement, and the likelihood of other sudden urges among senators and representatives to spend more quality time with families and the likely losses of others (e.g., Harry Reid), Dodd’s retirement signals that 2010 will be a wild political year.  Especially with the increased odds that the Democrats will not be able to maintain a filibuster proof majority in the Senate, they will view this year as a rapidly closing window of opportunity to enact their agenda.  Hence, I expect a series of banzai charges on a variety of fronts, from health care (assuredly), to cap-and-trade (likely but not certainly), stimulus (high probability), and perhaps even immigration.

This will all take place in the midst of what already promised to be a bitterly contentious 2010 campaign.  Normally, one would expect that rising unpopularity would lead to a trimming of these ambitions.  But this will not be a normal year.  I would actually expect that the Dems will become more frantically committed to implementing their agenda by means fair or foul, the more dire their electoral prospects become.

Time to strap it on, folks.  It’s going to be a wild year.

David Brooks, the New York Times’s simulacrum of a conservative, is getting a lot of attention for his condescending NYT article (but I repeat myself) on the Tea Party movement.  He moans about how His Kind of People, you know, The Right Kind of People, just don’t get the kind of respect they deserve from the Great Unwashed:

The public is not only shifting from left to right. Every single idea associated with the educated class has grown more unpopular over the past year.

The educated class believes in global warming, so public skepticism about global warming is on the rise. The educated class supports abortion rights, so public opinion is shifting against them. The educated class supports gun control, so opposition to gun control is mounting.

The story is the same in foreign affairs. The educated class is internationalist, so isolationist sentiment is now at an all-time high, according to a Pew Research Center survey. The educated class believes in multilateral action, so the number of Americans who believe we should “go our own way” has risen sharply.

A year ago, the Obama supporters were the passionate ones. Now the tea party brigades have all the intensity.

The tea party movement is a large, fractious confederation of Americans who are defined by what they are against. They are against the concentrated power of the educated class. They believe big government, big business, big media and the affluent professionals are merging to form self-serving oligarchy — with bloated government, unsustainable deficits, high taxes and intrusive regulation. [Now where in God’s name could they ever have gotten that idea?  Some people!]

Excuse me while I wipe this tear from my eye.

I’ve been at research universities for 25+ years as a PhD student and faculty member, so I’ve been immersed in the “educated class” for virtually my entire adult life.  I know all about the David Brookses of the world.  Hell, David Brooks and I became members of the “educated class” at the same place and almost the same time: he is AB Chicago ’83, I am AB Chicago ’81.

So, perhaps arguing against personal interest and being a traitor to my class, let me enlighten my fellow Chicago alum on why vast swathes of the American populace are rebelling at his ilk.

The Jacksonian version, courtesy of my grandfather*: “They are as useless as tits on a bull.”  (Also sometimes rendered as “as useless as tits on a boar,” depending on his mood.)

If that bovine (or porcine) reference puzzles the denizens of the Upper West Side whose closest encounter with livestock has come at the grocery store, perhaps something more literary–more educated–might be in order.  Might I suggest the following readings:

• Hayek, The Pretense of Knowledge.
• Paul Johnson, Intellectuals.
• And, a brand new book by Thomas Sowell, Intellectuals and Society.  (Knowledge and Decisions and The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy are also on point.) National Review’s Uncommon Knowledge is running a series of interviews with Sowell about his new book.

In fact, my grandfather was too kind.  If only they were just useless.  But as Hayek, Johnson, and Sowell mercilessly demonstrate, self-styled “intellectuals” and “the educated class” have been, for the most part, positively pernicious because of their hubristic belief in their own powers, and their own righteousness. We are currently experiencing a gale of destructive destruction at their hands.  A lot of people may not be able to articulate exactly what’s wrong in ways that David Brooks would find convincing, but they have enough common sense to know something is wrong, to understand the basic contours of what’s wrong, and to know who is to blame.

And David, if you think that condescension from the likes of you is going to do anything but (a) make them laugh at your buffoonery, or (b) just get them more POd, think again.

And if you think (as you clearly insinuate) that the Great Unwashed are agin’ it (global warming, abortion, gun control, big guvmint, multilateralism) just cuz’ yer fur it, don’t flatter yourself.  They’re agin’ it because they know BS when they smell it, and because they don’t like getting it shoved in their faces.    Put differently, it’s not that they don’t like your ideas because they don’t like you.  It’s that they don’t like you because of your ideas–and the consequences of putting them into action.

One year of the rule of the self-styled intellectuals has made it abundantly clear to a strong majority of the American populace that it has put the nation on the road to ruin, and they’re not about to accept that meekly.

And thank God for that.

* Lest you think him an anti-intellectual reactionary, my grandfather, though of matchless Jacksonian heritage (he was a Hatfield, through his mother), was nonetheless a highly educated and well-read man.  He was, however, almost completely self-taught, due to the educational handicaps of being born poor in Appalachia at the turn of the last century.  Moreover, his intellect was relentlessly practical.  He learned electronics in the Navy (in which he enlisted after lying about his age to escape a dysfunctional home life and a likely future in the coal mines or shooting oil wells in the back of beyond West Virginia), and then went to work as a lineman for Illinois Bell, eventually working his way up through the ranks to become head of the North Division of Chicago for “The Telephone Company”–as it was then.  He actually had to use his mind to make things, you know, work and stuff; unlike with most intellectuals, he bore the consequences of failure.  He also had an intense interest in history, of all sorts.  In short, although not a member of “the educated class” by any measure, he was far wiser about the world than most of those who, pace Hayek, delude themselves with the pretense of knowledge.

I swear I saw Hillary Clinton’s picture on a milk carton.  But she just made an appearance to weigh in on pressing issues of the day, including the junkbomber and Iran.  She should have stayed in whatever undisclosed location she’s been hanging out in over the past couple of weeks.

On Iran, she intoned:

Iran is going through a very turbulent period in its history. There are many troubling signs of the actions that they are taking. And we want to reiterate that we stand with those Iranians who are peacefully demonstrating. [That’s cheap talk if I ever heard it.]  We mourn the loss of innocent life. We condemn the detention and imprisonment, the torture and abuse of people, which seems to be accelerating. And we hope that there will be an opportunity for Iran to reverse course, to begin engaging in a positive way with the international community, respecting the rights of their own citizens. But we’re going to continue on our dual-track approach.

I can just see the mullahs, giving themselves an IcouldahadaV8 head slap, saying: “If we’d only known there was another way to treat our citizens than to murder them, beat them with truncheons, torture them, etc., etc..  Thanks for pointing that out, Hillary! ”

“We hope.”  Sheesh.  It’s far better just to STFU than to say something so risible.   Like Mark Twain said: “It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.”  Especially when you are a senior official of the US government and you make the entire country look foolish.  If she wanted a surefire way to increase Iranian intransigence, she’s succeeded by making such a vapid, toothless, and utterly unserious statement.

But Hillary was just getting started.  She added a variation on the Janet Napolitano “the system worked” theme.  (Hasn’t she gotten the memo stating that theme is, as Ron Ziegler once said, no longer operative?)  At least her part worked, and that’s all that matters:

Based on what we know now, the State Department fully complied with the requirements set forth in the interagency process as to what should be done when a threat is – or when information about a potential threat is known.

She did say that a review is underway to determine whether procedures should be changed.  But please.  Spare me the bureaucratic CYA.

I think we now know she wouldn’t have been prepared for that 3AM call either.

The American Economic Association/American Finance Association Meetings are just about over.  I made a quick trip there to comment on a paper.  Upon returning home, I downloaded a couple of the papers presented that seemed of interest.  Good call on one, bad call on the other.

The bad one is “Centralized versus Over The Counter Markets” by Viral Acharya of LBS and NYU, and Alberto Bisin of NYU.  Although the motivation of the paper is admirable, the execution is execrable, and is representative of a lot of what is wrong in the profession.

The motivation is to compare the efficiencies of alternative ways of organizing derivatives trades: centralized exchanges and over-the-counter (OTC) markets.  Great.  Big question.  I’ve written a lot about it, and would be very interested in seeing other takes thoughtful on the subject.

The paper concludes that organized exchanges are (constrained) first best efficient, and more efficient than OTC markets.  A quick review of the paper makes it clear, however, that they’ve rigged the game to produce that result.

Specifically, Acharya and Bisin assume that there are different “types” of traders; they differ based on the characteristics of their endowments. Due to their finite wealth, and the risks of derivatives positions, traders are sometimes unable to meet their derivative contract obligations. So far, so good: all that makes sense.

Then they go off the rails.  Specifically, they assume that centralized exchanges set price schedules for a single derivative contract, and specifically, set a price for every trader that varies depending on (a) the trader’s type, and (b) the size of the trader’s positions.  They motivate (b) by arguing that exchanges can view a trader’s entire position.  That is, every trader pays a different price depending on his position and his type.  In contrast, in OTC markets, they assume that no counterparty can observe any trader’s entire position, and hence although prices can be conditioned on type they cannot be conditioned on position.

It’s no surprise, then, that they find exchanges to be a more efficient way of trading.  Exchange prices are conditioned on more information that is relevant in determining the likelihood of default, and the cost thereof, and hence can be set to control default and risk taking more efficiently than is possible in the OTC market.

Perhaps there is a planet somewhere in the universe in which exchanges can do what Acharya and Bisin claim they can do.  All I can say is that on earth they can’t and don’t.  In fact, the situation here on the planet in the Milky Way with the blue sky is almost an inversion of the what they assume.

Specifically, exchanges don’t condition trade prices on anything.  Indeed, the whole idea of clearing on an exchange is to create fungible contracts in which prices are the same for all traders at a given point in time, and don’t depend on the traders’ endowments or positions.  That is, exchanges facilitate anonymous trading among consenting adults by taking actions that make trader types and positions irrelevant to the price determination process.

In reality, collateral depends on position size, but not trade prices.  Moreover, exchanges quite specifically do not condition collateral terms on trader type (e.g., on traders’ balance sheets).  So, even if you argue that collateral variations are effectively price variations, the Acharya-Bisin assumptions are unwarranted. Exchanges are not, as Acharya and Bisin assume, central planners implementing a centrally-imposed price schedule conditional on fine information on trader type and trades.

Put differently, clearing on exchanges creates a potential moral hazard that exchanges control at cost.  The cost can be sufficiently high to make it inefficient to adopt clearing.  Acharya-Bisin assume that exchanges have and can use costlessly the information required to control this moral hazard.  Again, an inversion of the truth.

Also in reality, OTC market participants do condition trading prices on counterparty type, and explicitly take balance sheet risk into account.  Although OTC traders don’t view their counterparties’ entire exposures/positions, they do have noisy signals on this and take it into account when setting trading terms.  Moreover, as I’ve argued before, there are a variety of channels (e.g., the repricing of short term debt) by which diffuse information on the entire risk exposure of a financial institution is aggregated, and affects the incentives of said institution to take on risk.

So, the tradeoffs between exchanges and OTC markets are more complex: exchanges/CCPs have better information on some dimensions, worse on others.  It’s not altogether clear a priori which dominates.  Moreover, there are institutional innovations other than exchange trading and clearing that can mitigate the OTC markets possible information disadvantage: for instance, data warehouses that collect and disseminate information on positions could remedy the supposed weakness of the OTC markets.

And here’s where the Coase question comes into play: If a particular institution is inefficient, what transaction costs precludes agents from adopting it?  Or, to put things differently, if you believe Acharya and Bisin, agents are leaving a lot of money on the table by trading in the OTC market: there are gains to trade to be captured by trading on exchanges.  Why isn’t this happening?  Why does a putatively inefficient mechanism survive, and indeed, thrive and grow relative to the putatively efficient one?  This can happen, and policy can perhaps improve efficiency, but someone who claims that a given arrangement is inefficient, as Acharya and Bisin do, should identify the friction or frictions that precludes a change.  They, suffice it to say, don’t do this.

This model wouldn’t be objectionable if it were a purely theoretical exercise.  But Acharya and Bisin make broad policy recommendations based on their analysis.  The problem is, they are like Humpty Dumpty, who declared: “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

Humpty Dumpty-like, they use the word “exchange” to mean just what they choose it to mean, even though it bears no relation to exchanges in the real world, or the kinds of exchanges that would be the beneficiaries of exchange trading mandates, or efforts to raise the cost of OTC trading.  Their recommendation is a sort of bait and switch: sell the concept of exchange trading on the basis of an idealized model that assumes exchanges have decisive information advantages, and then deliver real world exchanges that are much more limited.

This is not uncommon, sad to say.  But it is pernicious.  And if this is the best that can be done to support exchange trading mandates, well, there you go.

The other, much better paper is “Danger on the Exchange: Counterparty Risk on the Paris Exchange in the 19th Century” by Angelo Riva of EBS and U-Paris X, and Eugene White of Rutgers.  Rather than construct otherworldy exchanges and decree that their visions should be implemented here on earth, Riva and White do something radical:  they actually take a detailed look at the evolution of counterparty risk sharing mechanisms and defaults on a real world exchange–the Paris Bourse.  They carefully trace the evolution of mutualization of countparty risk on the PB, and pay close attention to a very real-world problem: namely, that mutualization creates the potential for moral hazard that is costly to control.

The empirical analysis could be improved (and when I have some time I’ll pass on some suggestions to them), but this paper undertakes a detailed analysis of actual institutions, and actual agents grappling with hard problems.  The Paris Bourse was a real exchange.  The problems it faced are inherent to any efforts to manage performance risk.  We can learn a lot more from these sorts of analyses, than we can from constructing fanciful exchanges in a galaxy far away.  Formalism is valuable–I even commit formalism from time to time, myself–but it is important that if formal models are intended to be the basis for far reaching policy conclusions, that they bear some relation to reality.   Acharya and Bisin would put their modeling talents to much better use by trying to construct theories that reflect the gritty realities that Riva and White quite clearly document, instead of building models that bring to mind all those economist jokes with punch lines like “I assume the existence of a 100 story ladder.”

Manufacturing output is rising around the world, with bullish reports from the United States, Europe and Asia.  The global purchasing managers index reached 55.9 in December: anything over 50 indicates an expansion in output.

But not Russia.  In fact, Russia’s PMI fell further in December, to 48.8 from 49.1 in November.  This indicates an accelerating decline in Russian industrial activity.  From Bloomberg:

The decline in new orders led to another round of inventories depletion that also contributed negatively to the PMI in December,” Dmitry Fedotkin, an economist at VTB Capital in Moscow, said in the statement.

Manufacturers including OAO Novolipetsk Steel are trying to adjust to smaller markets, with Deputy Industry Minister Andrei Dementiev projecting a 7 percent decline in the country’s steel industry in 2009, Interfax said on Nov. 10. Sluggish bank lending and gains in the ruble threaten to hamper a recovery led by last year’s 84 percent gain in Urals crude, Russia’s key export. The ruble gained 13 percent against the dollar in the last three quarters of last year, a trend the central bank has said it wants to curb.

The government has forecast a rebound from Russia’s 10.9 percent annual contraction in the second quarter, the steepest drop since at least 1995. Output fell a further 8.9 percent in the third quarter and will contract about 8.5 percent for all of 2009, Prime Minister Vladimir Putin said on Dec. 30.

. . . .

Exports “remained a key source of weakness” as new orders from abroad fell for a 15th month, VTB said. The work backlog contracted at the sharpest pace since April and inventories of finished goods continued to decrease “at a strong rate,” the bank said. Employment in manufacturing fell in December, extending a string of declines that started in May 2008, VTB’s gauge showed.

Earlier signs of recovery in manufacturing may have been caused by one-time effects. While industrial output expanded in November for the first time in more than a year, a six-fold jump in the production of hydraulic turbines accounted for much of the increase, Raiffeisen International Bank-Holding AG’s Russian unit said in a Dec. 22 research note. Chinese imports of raw materials failed to recover in November, “raising doubts that external demand will stimulate the growth of Russian industry,” according to the note.

Rising joblessness and a drop in retail sales in November indicate economic growth last quarter was close to zero, according to Raiffeisen. The unemployment rate jumped in November to a four-month high of 8.1 percent from 7.7 percent in October.

This contradicts Russian government happy talk:

The gloomier manufacturing outlook contrasts with a brighter picture presented by the government, which said on its Web site on Dec. 30 that the economy grew a seasonally adjusted 1.9 percent in the fourth quarter, citing preliminary figures. Putin predicted on Dec. 30 that the economy will expand about 3 percent in 2010.

Russia will post “steady” growth this year after domestic producers regained access to external financing and prices for oil, gas and metals picked up on improved prospects for a global economic recovery, central bank Chairman Sergey Ignatiev said on Dec. 22, forecasting an expansion of 5 percent or more.

The Bloomberg article mentions the unemployment rate.  Even the higher 8.1 percent rate seems very low, given the cratering of Russian manufacturing, and the lack of any appreciable rebound.  I’ve conjectured that most unemployment is masked, by companies either retaining and paying idle employees under pressure from the government, thereby weakening their financial condition and limiting their ability to expand later, or as a result of government support of some kind.

This article in SeekingAlpha (H/T LR) provides some color regarding how the government provides this support:

For those interested in where Russian deficit spending is going, much of it has been used to cushion the effect of what one former senior Putin advisor has called the most precipitous decline in Russian industrial output since the Axis invasion of 1941.

Furloughed Russian workers have been paid by regional authorities to re-paint and polish-up their inactive factories for limited periods of time. Government orders have been placed for unneeded equipment, just to keep people working. Make-work retraining and adult internship programs have been instituted. And last but not least, the automotive sector has been bailed out.

This deficit spending on bailouts and social programs is rapidly draining the country’s reserve funds:

Interfax reported Monday that in a meeting with President Medvedev, Finance Minister Kudrin claimed that the Reserve Fund of the Russian Federation—one of the two components of the Stabilization Fund set up in 2004 to serve as a rainy-day repository for oil superprofits—will be fully liquidated in 2010 in order to support government deficit spending.

The fund’s prognosis seems to be growing bleaker by the hour. In an interview earlier in the day with the news channel Vesti, Kudrin had said that total liquidation would only occur in the event that oil falls below $70 dollars per barrel for any substantial length of time, thereby depressing tax revenues and forcing Moscow to dip further into its reserves.

In that interview, the minister had also stated that Russia would start rebuilding the Reserve Fund no earlier than 2013.

The fund is currently invested in dollar-, euro-, and sterling-denominated sovereign debt. According to the Finance Ministry’s website, the fund’s value has dipped from $142.6 billion in September 2008 to $75 billion at present—a decline of over 47 percent, attributable largely to asset liquidation to cover Russian deficit spending of roughly 6.3 percent of GDP in 2009.

Putting this altogether provides some insight onto the mixed blessing that an increase in oil prices (courtesy of Helicopter Ben and his Chinese counterpart) is for Russia.  The higher price has eased somewhat the pressure on the reserve funds and helped the government’s fiscal situation, but at the same time it has provided support to the ruble.  This has harmed industrial exports (n.b., a “key source of weakness” per the Bloomberg article), and thus manufacturing.

Moreover, although Goldman Sachs continues to be bullish on Russia, and the Russian equity market has rebounded, foreign direct investment has not kept pace.  This reflects myriad factors, not the least of which is the growing realization (hey, it’s never to late to learn!) that investing in Russia under the shadow of expropriation is a mug’s game:

Foreign investors in Russia are playing a game that Nathan Detroit, the host in “Guys and Dolls” of “the oldest established permanent floating crap game in New York,” found unwinnable. On a losing streak, the gun-toting thug, Big Julie from Chicago, forced use of his own dice— which had no spots (“I know where they are,” Big Julie assured the players)—and proceeded to roll only winners.

The modern version of Lenin’s famous prediction that “the capitalists will sell us the rope with which to hang them,” might be that they will provide the capital to develop Russia’s natural resources so the regime can dominate its “near-abroad” and increase Western Europe’s dependence on it for supplies of natural gas. But investing in a nation in which there is no established rule of law is to shoot craps with Big Vladimir of Leningrad.

One reasonable conclusion to draw from all this is that Russia is likely to be a laggard, rather than a leader, in the world recovery.  Yes, a recovering world will boost oil prices and generate some tax revenues–but it will also boost the ruble, thereby impeding a recovery in manufacturing, which will be a drain on the fisc.  Investors are still relatively cautious around the world, and hot money aside, Russia offers a lot of dangers that they are quite happy to avoid, thank you.

The result?  A familiar one: purgatory.

In (somewhat) better news, Russia’s population didn’t decline in 2009:

Despite Russia’s natural population decline, immigrants ensure the country’s overall growth, the health and social development minister said on Thursday.

Tatyana Golikova said as of November 1, Russia’s population was 141.9 million and that by January 1, 2010, it would be 15,000 to 25,000 more than for the same period in 2009.

She said although natural decline continued, the birth rate was 3-3.5% higher than a year ago and that 1.76-1.78 million babies were expected to be born this year.

Mortality was also down 3.-3.5% on last year, but still rather high – a total of 1,985,000.

According to the Russian Federal Migration Service, 333,474 foreign nationals and stateless individuals received Russian citizenship in January through November 2009.

Something of a mixed bag: more immigration, a slight decline in mortality, a slight increase in the birth rate, but still a natural decline (a “symbolic” in the words of one official increase in total population of about 20K, with immigration of 333K implies a natural decline).

It would be interesting to know whether the increase in the birth rate is more than one would have expected, conditional on the fact that women born during the last Soviet baby boomlet are at their years of peak fertility.  I’m sure somebody will answer that question for me.

Obama ties failed plane attack to al Qaeda. [That’s the Reuters headline.]

The probability that that was true was far higher, conditional on information available three days after the Christmas bombing attempt, than was the probability that the would-be bomber was a “lone extremist.” Yet Obama made the “lone extremist” assertion nonetheless, in his first remarks on the event. This betrays him as a man that is enslaved to his pre-conceptions, to a meme, to a narrative. Time after time–the Gates-Crowley episode, the Major Hasan terrorism, and now with the junkbomber–Obama’s response is to regurgitate shibboleths lifted directly from the progressive, transnational, lefty narrative. He does this even when–or, should I say, especially when–the evidence before his eyes weighs heavily against these lazy, reflexive conclusions.

Bush was rightly criticized for his stubbornness. But if anything, Obama seems to cling even more stubbornly to his delusions. It is good, I guess, that he has acknowledged the obvious, even if it took a week; but only the schizophrenic can steadfastly deny reality, especially when an entire country is watching. Absent more compelling and credible signs that he is seriously rethinking the validity of his memes–e.g., reconsideration of the decision to close Guantanamo, reconsideration of the decision to try KSM and others in the US, suspension of repatriations of detainees to Yemen at the time we are engaged in an escalating anti-terror campaign there, to name just three–one cannot be confident that this is anything more than a one-off, grudging concession to political reality, rather than the dawning of a recognition that his security policies are built upon fantasy.

It took the Soviet invasion of Afghanistan to disabuse Jimmy Carter of some of his illusions.  What will it take to disabuse Obama of his?