Streetwise Professor

I am in Belgium, which just held an election.  A Flemish nationalist party dominated the voting.

Belgium is Europe in a fractal, self-similar kind of way.  A prosperous Flemish north heavily subsidizes a poorer, Francophone Walloon south.  I have spent the last two days criss-crossing the country.  The contrast between the Flemish and Walloon regions is stark.  After visiting Waterloo today, I bounced around Wallonia, looking for Ligny–the scene of the battle preceding Waterloo–then going to Dinant and Namur.  Along the way, I covered a lot of the Wallonian countryside.  Especially in comparison to the northern part of the country along the Dutch border, it looks seedy and hard used.  It is much more similar to, say, parts of northern Italy than it is to Holland.

The stress of subsidization of one culturally and linguistically distinct community by another threatens to pull Belgium apart.  This is especially true in hard economic times.

And as it is in Belgium, it is in Europe more generally.  In hard times, wealthy and (relatively) thrifty northern Europeans, largely culturally Protestant, are in no mood to carry any longer poorer and (relatively) spendthrift southern European nations, culturally Catholic or Orthodox.

For these reasons, Belgium is fracturing, and Europe is on the verge of doing so as well.  If you want to see the future of Europe in a miniature, more bite-sized portion, you could do far worse than look at Belgium; a political scaling relationship is clearly evident.

Is the Hobgoblin of little minds, according to Emerson.  And if you want a pitch-perfect illustration of the kind of mind Emerson was disparaging, I present Obama:

“Some of the same folks who have been hollering and saying ‘do something’ are the same folks who, just two or three months ago, were suggesting that government needs to stop doing so much,” Obama said. “Some of the same people who are saying the president needs to show leadership and solve this problem are some of the same folks who, just a few months ago, were saying this guy is trying to engineer a takeover of our society through the federal government that is going to restrict our freedoms.”

I mean, really.  Does this guy have the slightest clue?

When I complain when my waiter brings me a bowl of melted ice cream, am I guilty of an unpardonable inconsistency because I had earlier griped when he brought me a bowl of ice cold soup?  Because, of course, if I like warm soup consistency demands that I must therefore like my ice cream warm too, right?

Hardly.  The waiter screwed up twice.  He served the thing that should be cold hot and the thing that should be hot cold.  No tip for you, pal.  (And the absence of tipping might explain why service in France is so often has much in common with the performance of government small and large in the US.)

This is not rocket science, or advanced logic.

Government has some functions to perform, and some things it should keep its damn paws off of.  Just because people rightly point out that the government under Obama’s “leadership” has vastly expanded its reach beyond the things it can–or should–do, does not mean that they cannot with perfect intellectual consistency criticize the same “leader” when he, and the executive branch for which he is responsible, fail miserably to carry out their legitimate functions.   The people who do this have it exactly right–just as in the case of my hypothetical of the clueless–and tipless–waiter.

There is so much to say about the appalling response of the administration to the spill, but I’ll just limit myself to one: the fiasco over the report of experts that the administration used to justify a ban on drilling.  Except that experts never signed, never agreed to, and in fact object to, the paragraphs in the report that recommended the ban.

Am I imagining things, but didn’t Obama and many of his supporters excoriate the Bush administration for politicizing science?  Didn’t they pledge, sanctimoniously, that this administration would respect the independence of science, and restore it to its proper place in public policy?

What is this, if not an outrageous politicization of science, using extremely dishonest means–putting new, political opinions over the signatures of members of the National Academy of Engineering, opinions that the members never saw and in fact have criticized?

The politicization really isn’t a surprise from a gang dominated by Chicago pols. Nor should the smallness of Obama’s mind be surprising.  I am still mystified at the gushing encomiums to his intelligence.  What is the evidence for it?  None that I have seen over the past nearly three years since he catapulted to prominence in the primaries.  In his response to the criticism of his failures of doing too much in some things and too little in others, he has more in common with Homer Simpson than Einstein.  And Emerson had him pegged 169 years ago.

Last August, I wrote a post titled “Not Tall Enough to Regulate” in which I skewered CFTC Commissioner Bart Chilton.  He was very peeved.  He’s not going to be any happier about this post, because he hasn’t changed his mind, nor have I.

This weekend’s WSJ has a semi-fawning story on Chilton, focusing on his advocacy of position limits–and the endorsement thereof in the House and Senate bills currently in conference.  The article gives Chilton an opportunity to explain his position.  His utter failure to do so, which implicitly implicates the entire position limits initiative both at the CFTC and in Congress, speaks volumes about the intellectual bankruptcy of the pro-limits side.

Here’s what the article says (emphasis added):

The volatile summer of 2008, when $145-a-barrel oil led to $4-a-gallon prices at the pump, was the pivotal moment for the Midwesterner. Mr. Chilton says he largely ignores prices, but the surging cost of oil changed his mind. “I’ve seen nobody who can justify $147 [a barrel for crude oil]. It doesn’t mean the massive passives are the sole culprit. I think they’re having an impact. As regulators, it’s our job to be asking these questions,” he says. Mr. Chilton pushed the CFTC to propose position limits that would prevent traders from having a large concentration in energy contracts for four of the most highly traded commodities at the center of the global energy market.

“Position limits that are reasonable,” Mr. Chilton says, “would end the possibility of large concentrations in individual markets that could inordinately influence price.”

. . . .

In July 2008, the CFTC staff issued a report saying that financial traders weren’t driving oil prices higher. Mr. Chilton was infuriated and publicly called the report “deeply flawed.” Today, he charges the report was “political” and done to appease Republicans.

Mr. [Dr.] Harris says, “There was no political pressure from any party. We looked but we couldn’t find any smoking gun. There were a lot of people working hard to find out what was going on. We had dedicated economists and their reputation was more important than political pressure.”

Possibility.  Could.  I think.  A refusal to take seriously empirical evidence, or to critique it rigorously, and a complete failure to provide any of his own.  Ad hominem accusations of politicization when competent economists–which Chilton certainly is not–did not give the answer he wanted.  (This is particularly rich from a political lifer who owes his position to long service as a Senate staffer.)

This is the basis for major policy changes that could have serious effects on the market?

I have a piece on position limits coming out in Regulation titled “No Theory?  No Evidence?  No Problem!”  That’s Chilton (and to a large extent, Gensler, and most of the Senate) in a nutshell.  Any cogent–or even coherent–theory of how speculators are influencing prices?  No.  In particular, any cogent/coherent theory of how passive traders–buy and hold traders so beloved in securities markets–cause prices to increase 100 percent in a period of months?  Surely you jest.  Any empirical evidence to support the claims that speculation and/or passive traders have distorted prices?  See above slander of CFTC economists, along with the CFTC position limit NOPR, for illustrations of the “we don’t got to show you no steekin’ evidence” attitude of Chilton et al.  He just “thinks” it’s “possibly” true–that’s enough, dontcha know.

Here’s a guy who has never been in the markets, and who has never seriously studied markets (“he largely ignores prices”), declaring that prices are somehow wrong.  He wants to restrict the market in order protect against the theoretical possibility (and a theoretically ungrounded theoretical possibility at that), but does not give serious consideration to the far more realistic and likely deleterious effects of the limits on liquidity, hedging, and price discovery.  His justification for the “crowding out” provisions are particularly inane, and not based on any serious economics analysis.

As I point out in the Regulation piece, markets aggregate massive amounts of dispersed information, so it is impossible to explain–“justify”–exactly why prices are what they are.  If it were possible, we wouldn’t need markets to discover prices. That’s why debates over speculation never end: you can’t prove or disprove that the price was right.  Bob Barker doesn’t give you the answer just before going to commercial.

But we know that people spend tremendous time and resources to develop information about values–arguably too much time and resources–and that through trading decisions, this information is embedded in prices.  Moreover, since prices guide the allocation of resources, distortions in prices should result in distortions in quantities–something which (as I point out in the Regulation piece)  were not observed in the commodity price boom and bust.  Commodities are different than say, internet stocks: they are consumed and produced every minute of every day, and distortions in prices will distort those decisions–and such distortions are noticeable.  And if speculators are overpaying–they’ll end up owning the stuff.  None of that happened, and Chilton and others have failed even to acknowledge the issue, let alone confront it.

There should be a pretty high bar to overturn the operation of markets.  Any such action should be based on serious economic reasoning and sound empirical evidence.  And no, deep musings during guitar picking sessions or boat trips to restaurants don’t count.

Kudos to Jeremy Grant at FT’s Trading room, who published not one, not two, but three articles expressing serious reservations about clearing mandates.  One is by Sanjit Das, another by Shearman and Sterling attorney Barney Reynolds, and the third byReuben Lee.   Each echoes points I’ve been making over the last 20 months.

The Reynolds piece was interesting, though I don’t quite track his claim that end user clearing will result in said end users posting collateral to a clearing house, and to the dealer it trades through, to cover the dealer’s collateral costs.  But Reynolds does make a key point: namely, that the impacts of clearing on the normal day to day operations of the market should be taken into account, not just the systemic risk implications.   He says that clearing rules should be set “with a view to preserving commercial hedging activity, not merely with a view to protecting financial institutions from another black swan event.”

Since it is quite possible that CCPs are vulnerable to black swan events, systemic risk considerations are close to a push.  This means that the efficiency effects of clearing under normal market conditions should be given considerable weight, and as Reynolds argues, and as I argue, OTC bilateral dealings have clear advantages on this score.

But it doesn’t really matter, does it?  The clearing train has probably left the station, both in the US and Europe.  A clearing mandate is in both bills currently being merged in conference between House and Senate, so it’s a done deal here, and the European Commission has made it plain that it will require the bulk of deals to be cleared.

It would have been nice if people had spoken up rather earlier, when it was possible to influence the debate.  As it is, I don’t think it’s an exaggeration to say that I was nearly alone, at least among academics, in my criticism of clearing mandates when they were first mooted.  And who am I, anyways?  People have finally figured out that this is a big deal, and that Sorcerer’s Apprentices may wreak havoc with ill considered rules on clearing.  So they are saying this now, but now is too late.

This is, to my mind, a black mark against the academic community.  It has, for the most part, paid virtually no attention to matters of market infrastructure, despite their crucial importance; the subject has been relegated to, at best, specialty journals, and often not even there.  My stock remark in this regard is that in the military it is said that amateurs talk tactics, professionals talk logistics, and in finance professionals talk counterparty risk and how to manage it, but academics are amateurs who ignore it by and large.  At the margin, the value of an imperfect paper on clearing or counterparty risk is far greater than the value of yet another paper on testing asset pricing models or on some aspect of corporate finance.  But that value isn’t recognized, and such things are devilishly hard to get published, so that Nth paper on asset pricing or capital structure gets written and perhaps published.  As a result, academics have far too little to say, and hence far too little influence, on what is perhaps the most important of the seismic changes that will take place in financial markets by legislative fiat.

(As an aside, some academics have weighed in on clearing issues late in the game, including some very prominent ones.  Much of what they have to say is an embarrassment, unfortunately.)

At best, serious thinking and research might affect the implementation of the clearing regulations.  Legislation will leave a lot of the specifics to regulators like the CFTC (God help us all), and perhaps some serious academics could lead to Pareto improvements by weighing in now, even at this late date.

* This is one of my grandfather’s expressions. (He had many, which I have appropriated, often to the mystification of those to whom I am speaking.) It always mystified me, so I asked him to explain it.  Apparently there was a product to treat baldness, back in the 30s or 40s, called Herpicide.  (Yeah, like I’d put something with THAT name on my head.)  Apparently you had to use it just when you were starting to lose your hair; it wouldn’t work–they said–if you waited too long.  To make the point, they ran an ad campaign with pictures of cue-ball headed men, with the caption “It’s A Little Late for Herpicide.”  So now you know.

Today we saw sites associated with the initial German breakthrough at the south of the Bulge, to the edge of Bastogne.  The terrain in this area was quite different than in the northern Ardennes, which is why larger numbers of American troops could not stem the initial German onslaught.

But the most important part of our day was a trip to the northern shoulder of the Bulge, a part of the battle that seldom gets as much attention.  We went there because my late uncle, Norbert Katarski, fought there.  (Norb died in January, 2009.)  He was a machine gunner, operating a water cooled 30 caliber M1917 weapon, in Company K of the 290th Infantry Regiment, 75th Infantry Division. (K Company was typically the heavy weapons company of an American infantry regiment.)

The 75th was a raw outfit that was thrown into the Bulge in a hurried fashion, and it paid the price for its inexperience and the chaos of its deployment.  The regiment attacked on the night of 24-25 December, on a line from Hotton to Soy, towards the south.  My uncle recalled that he and his weapon were loaded onto a jeep, and ordered forward in the dark on a recon mission.  His orders: “See if you can draw fire.”  I’m sure THAT was reassuring.

Norbert remembered driving forward along a narrow road through heavy woods in the pitch darkness and freezing cold, waiting for all hell to break loose any minute, hearing in his mind Germans around every bend and behind every tree.  Nobody knew exactly where the Germans were, and Norbert, his loader, and the jeep driver were sent out as bait for them.

Norb recalled rolling into a small town (the name of which he never knew) while on his mission.  He had been told that the Germans typically utilized church steeples as observation posts, so when he saw the steeple he let rip with the 30 cal, and emptied an entire can of ammo into the steeple.  No Germans were there though.

He reported back that no Germans were in the town, and then he and his unit moved back into the town in preparation for their assault.  In the attack, Norbert crawled forward on his elbows and knees, cradling the heavy machine gun in the crooks of his arms.  While crawling in this fashion, a shell burst overhead in the trees.  The force of the explosion drove the weapon into Norb’s arms, causing compound fractures in both elbows.  He got shrapnel in his wrists and thighs.  One splinter entered his helmet, and split his scalp open from back to front.  A couple of millimeters lower, and he would have been a dead man.

Norb believed his loader was killed.  He didn’t know.  He staggered back to an aid station.  The scalp wound was bleeding profusely, so his face was covered with blood, and bone splinters were sticking out of both arms.  He said that he looked so bad that the corpsman who first saw him became physically ill.  (Given that this was a raw unit, it is quite likely that Norb was the first badly wounded man the corpsman had seen, so perhaps it is not surprising that he hurled.)

Norb spent the next three months in the hospital.  After that, he guarded prisoners in Reims.  The German POWs tried to kill him by cutting the brake lines in his truck.  That crap stopped when Norb put his .45 in the face of the ranking POW he was responsible for.  The big, gaping muzzle of the 45 put the fear of God into the German.  Doubt you can do that today.

We are not sure, of course, exactly where Norb fought.  But there is only one town–Soy–in the area where the 290th attacked, and there is only one church steeple in the town, so odds are we saw the spot.  I took a photo of the place.  The roof is obviously new.  Maybe it is the church a kid from Chicago shot up.  Maybe it isn’t.  But it was pretty amazing to realize that 65 years ago a family member came close to death near to that place, but lived to tell about it.

And he didn’t tell about it for a long, long time.  He let out little pieces of the story over the years, but one Christmas–60 years after the event–he told the whole story.  I am glad he did, and I am glad that I could pay my respects by putting together his story with the official records to try to pin down just where he did his service for his country.  And I am very glad I was able to see that place–or what I am pretty sure that place is.

When you read a lot of military history, as I have, you can try to use your imagination and understanding of terrain to envision how the ground shaped a battle.  But there is nothing like actually seeing–and standing on–the spot where a battle was fought to help you comprehend what actually happened and why.

Today dad and I followed the route of Kampffgroup Peiper, the spearhead of the 1st SS Division that made a mad dash for the Meuse bridges during the Ardennes Offensive (known to Americans as the Battle of the Bulge).  I had read about the action, and could understand intellectually the importance of road junctions, as emphasized by historian Russell Weigley (in Eisenhower’s Lieutenants), in the heavily forested, hilly, and stream-cut Ardennes.  I could envision how the banks of a minor creek could be important.  As Weigley wrote, “[l]ike most of the streams of the Ardennes, the Ambleve cuts a deep trench through the hills.  It is not wide or deep but, because its banks are steep, tanks can cross it only by bridges.”

But you really can’t grasp the relevance of such a fact, you can’t internalize it, you can’t understand it, until you see that stream.  Until you drive the same roads that the panzers did.  It was slow, hard going in a single, small automobile over the rough Belgian roads and the hilly terrain, nearly at summertime, after a restful night in a warm bed.  One can only imagine the difficulties of moving a column of Tiger II (one of which stands outside the museum at La Gleize–a truly awesome sight) and Panther tanks, with their supporting vehicles, along these same roads during winter, driven by wet, exhausted, frightened men.

We saw the bridges over the Ambleve at Stavelot and Trois Ponts and Cheneux, and the bridge over the little Lienne Creek at Neufmoulin.  Seeing the terrain, seeing the dense forests that made off-road movement unthinkable, made it possible to truly comprehend how valiant little bands of American engineers, supported by hastily assembled odds and ends of infantry, armor, and anti-tank artillery, were able to defeat a force that was far more powerful on paper than anything the Americans could throw against  it.  Blowing a bridge or picking off the first couple of tanks in a column effectively  made further advance impossible.  One can, for instance, cross the Lienne Creek on foot in a couple of jumps.  But the banks are very steep, and once the engineers of A Company, 291st Engineer Battalion blew the bridge to splinters in the Germans’–the Nazis’–very faces, that way to the Meuse was barred; the narrow creek might as well have been the Atlantic.  Four kilometers beyond, Pieper would have been on a good road with open ground.  But a few satchel charges stymied him.  Read a book about it and you are amazed: seeing where it happened and you nod in comprehension.

Being on the ground I could imagine that Peiper was frustrated.  Following the twists and turns of his route you could sense that he was like a cornered animal, desperately lashing out in all directions, frantically looking for a way out of the embrace of the forest and the hills.  I doubt one could sense that without being on the same terrain, following the same route.  While on our drive, I remarked to dad that it would have been a miracle for the Germans to have prevailed, despite their superiority in manpower and equipment at this spot.  Everything had to go right.  They had to draw an inside straight.  The Americans only had to get lucky once or twice.  Nature was on our side.

Relics of the battle also indicate how a few gritty men exploiting the landscape can overcome huge technical disadvantages.  In the Bastogne town square, immediately outside our hotel (the lovely Hotel Collin) there is a US Sherman tank.  It has two clean holes right through it, one through the left side, the other through the rear, made by 88mm rounds.  The aforementioned Tiger II had three nicks in the front armor, made by the 75mm main gun on US Shermans; dead hits that probably did little more than leave a slight ringing in the ears of the Tiger crew.  But the Tiger was abandoned, out of fuel and out of options, cornered by guys with M1 carbines, riding in jeeps, but carrying enough explosives to blow up bridges.

Being on the ground also brought home the futility of WWI.  Yesterday we visited Verdun.  I have read little about WWI, because stories of mass slaughter are depressing even on the flat printed page.  But that’s nothing compared to the feeling you get visiting the Citadel in Verdun, and Forts Vaux and Douaumont.  The interiors of these forts are dank and bone chillingly cold.  They are dispiriting beyond belief.  Everything is dripping wet.  There were no toilet facilities in Vaux and Douaumont to speak of.  Even without hundreds of sweating, breathing, shitting and pissing soldiers, without the cordite fumes and the smoke and gas and cooking odors, the air in these places was smelly and dank.  Walking around these places 94 years after the battle was enough to suck out your soul.  Just think of what life–for as long as you had it–would have been like in these places, under constant artillery barrage, gas attack, flame thrower attack.  With the knowledge that your life could end any minute–and perhaps thinking that that might be preferable, given the horrors of living.  The only thing worse than being underground in these tombs would have been to venture outside, into the hailstorm of shells.  I have never been in more depressing places.  I don’t think I will ever visit a WWI battlefield again.

And if I think about doing so, memories of the endless shell craters that still scar the landscape, and most importantly, the memory of the Douaumont Ossuary, a massive stone structure that houses the bones of upwards of 100,000 unidentified French and German soldiers killed on the hills around Verdun will quickly disabuse me of the notion.

I know that even standing in these places today I cannot truly understand what went on there in December, 1944, or February-June, 1916.  But one can come far closer to such an understanding walking and driving where the soldiers walked and drove.  It is an educational experience, and a humbling one, and a haunting one.

Yesterday Putin did his best King Canute impression, and ordered a group of financial regulators, including the finance ministry, to draft plans for an exchange to trade steel, coal, coking coal, and other metals.  By 1 August.  Putin believes the exchange will, in the words of the Moscow Times article just linked to, “avert price rows between producers and industry.”

In other words, even though no exchange anywhere has created successful spot or futures markets for steel and coking coal, and really for thermal coal either, in the 150 odd years since the advent of modern futures trading, Putin has commanded that Russia, which has never really created a successful commodity exchange for anything ever, do it in less than 2 months.

Yeah.  Right.

My reference to Canute was a slight to Canute, of course.  The Danish (English/Norwegian/Swedish) king knew that he couldn’t make the waves cease their beating: he just wanted to make the point to court sycophants.  Putin, by contrast, apparently thinks that his command will make it so.  I can just imagine the furtive and panicked looks between those in Putin’s audience charged with implementing the (impossible) task.  I can also imagine the “jump? how high boss?” responses to his command.

This is another case of Putin, Man in a Hurry, as I dubbed him soon after I began this blog.  It is clear that he has tired of the squabbling between the upstream and downstream firms in the Russian ferrous metals sector.  He evidently believes (or at least hopes) that a command that a market magically appear will relieve him of mediating this conflict to maintain the equilibrium in the natural state.

Ain’t gonna happen.  Markets don’t just magically appear.  As has been documented in the academic literature, most notably by Dennis Carlton, auction type futures markets are devilishly hard to start.  Far more contracts fail than succeed, despite the concerted efforts of experienced exchanges to identify the most promising candidates, to work to design contracts that will suit the needs of the target industry, and to build industry support through favorable fees, liquidity support programs, etc.

Steel and coking coal are particularly challenging for a variety of reasons.  “Steel” is not a homogeneous product, but consists of a dizzying array of differing physical types and shapes.  Some kinds of steel, e.g., scrap, are fairly standardized and traded, but its prices don’t necessarily track the prices and values of other types of steel.  Coking coal is also characterized by substantial differences in grades and uses.  Moreover, for coal in particular, location matters because it is relatively expensive to ship.

Industry structure matters too.  Futures markets tend to work best with relatively disaggregated value chains, where the same product is often bought and sold repeatedly, and where there is relatively little concentration on either the buy or sell sides.  (Structure is not independent of product characteristics, of course.  Relatively homogeneous goods tend to have a larger number of buyers and sellers, and greater turnover, than more specialized goods unique to one producer or tailored to fit the needs of a particular consumer.)

Firms in an industry will not necessarily support the introduction of more transparent pricing mechanisms, either, as Carlton points out in another paper.  The steel industry has been quite outspoken in criticizing plans for steel and iron ore derivatives markets.  (India’s Tata Group is a good example of this.)

I would imagine all these factors go double in Russia–if not more than double.  With central planning, the absence of a free pricing mechanism, and a preference for giganticism, Soviet firms tended to be few in number and dependent on a small number of suppliers and customers.  Moreover, just as was the case with the US electricity business prior to deregulation, integration and price regulation led to patterns of investment in plant and equipment that tended to create holdup problems; Steel plant S was highly dependent on coking coal from mine M because the lack of freely negotiated prices meant that outside options weren’t that valuable in constraining opportunism.  (In US electricity, firms that supplied both generation and transmission didn’t worry about holdups between these two stages of the value chain, and hence created generation and transmission infrastructures that were subject to bilateral monopoly problems when the products were unbundled in deregulation.)  Russia inherited this structure, but then eliminated the central planning and price control that was necessary to keep transaction costs  in check.  Hence Putin’s pricing problems.

In Russia, the holdup problems inherent in the mismatch between the pattern of capital investments made when government control over prices suppressed (but didn’t eliminate) pricing disputes, and the pattern that firms would choose if they had to worry about opportunism problems, has exacerbated the price conflicts that are vexing Putin.  But the problem is that saying “presto, change0, make me an exchange-0” doesn’t make these fundamental problems go away.  Indeed, they are antithetical to the effective operation of a centralized spot or futures market.  And what’s more, the prices for the stuff not traded on exchange–which would be most of the steel and coal products actually produced and consumed in Russia–would still have to be negotiated between the parties.  Yes, centralized market prices would provide some information about the underlying fundamentals that affect the values of steel, etc., but there would still be considerable room for dispute about the price relationships between the standardized and non-standardized products.  As a result, there would still be considerable potential for holdup.

I would imagine this plan will go nowhere, as it is as futile as commanding the tides to stop.  It is futile because it ignores all of the transaction- and product-specific features of the products in question, and the necessity of structuring transactions in ways that respect these features.  Putin is apparently like Gary Gensler, who thinks that auction markets should be good for everything, when experience (and economics) shows that they are really good for very few things indeed and pretty much unworkable for everything else.

Putin’s heavy metal headache is a fitting curse for a Sovietophile who is enamored with raw materials and basic industries and who has been the enemy of property rights and the rule of law.  He is suffering this malady in large part because of (a) an industrial structure inherited from Soviet times, and (b) the inability of Russia to move beyond its resource focused development, which (c) which reflects in no small part the fact that the precariousness of property and legal rights in Putin’s natural state is an anathema to entrepreneurship and tends to favor the persistence of oligarchic structures because oligarchs can bargain with the state on relatively equal terms, and can thereby protect themselves against expropriation without having to rely on courts.  Putin’s problem, then, is inherent in Putinism.

Irony can be a real b*tch.

So, good luck with that steel exchange thing, VV.  And don’t say I didn’t tell you so.

Since reading about his exploits in American Heritage in the early-1980s, I’ve had a great interest in Alvin York, the Tennessee conscientious objector who killed an estimated 22 Germans (with 21 shots, by one estimate), and captured 132 more, virtually singlehandedly, during the Meuse-Argonne battles of 1918.  I have a particular affinity for him because his hardscrabble Appalachian roots echo those of my grandfather.

There was an Academy Award winning film (starring Gary Cooper) about York released in 1941.  It was somewhat corny, but true to the subject.

Today my dad and I visited the vicinity of York’s heroism.  I say “the vicinity”  because although two separate groups claim to have identified the exact spot of his actions (basing their claims in part on excavations of artifacts), neither claim is particularly persuasive.  The group that marked a trail on the battlefield particularly annoyed me because the map they created marking the site does not jibe with markers that they placed there.  But, regardless of the exact spot, by visiting there I could get a sense of the terrain and understand how remarkable it was for York, pinned at the bottom of a ravine, to move and fire at entrenched Germans at the beetling ridge that loomed over the ravine, and to kill and capture so many.  (Although I think that the take of prisoners is as much a testament to the exhaustion and demoralization of the Germans as it is to York’s deeds.)

A site we visited earlier in the day might provide some insight as to why York’s actions have led people to remember him, and indeed, to attempt to find where he–an individual man–fought, and to wage intense verbal battles over just where he did fight.

The Butte Vauquois was the scene of intense fighting between the French and Germans from 1914 on.  The town of Vauquois on the Butte was destroyed, never to be rebuilt (like many in the region surrounding Verdun).  The German and French lines were 50-60 yards apart.  The trench lines are still remarkably preserved–especially the German ones.  (The contrast between the German and French lines is living proof of the fact that the French resisted improving their trenches too much–as did the British–because to make them comfortable enough to stay for extended periods would be conceding stalemate and hence the possibility of permanent cession of French soil to the Boche.  The Germans had no such scruples.  Their trenches were deeper, more extensive, heavily revetted, and studded with deep living quarters.)

Fighting above ground was suicide, so the men became moles.  (Ironically, today’s field is filled with mole hills.)  They dug tunnels, some more than 100 feet underground.  The tunnels were mines, snaking under their enemy’s trenches.  The mines, when blown, left immense craters in the earth.  (They dwarf the famous Crater at Petersburg, from the American CW.)  One German mine contained 60 tons of HE.  Each side tried to find the other’s mines using countermines.  When the mines and countermines met, the men fought primally with digging tools and knives and pistols deep under the ground.

Have you ever heard of Butte Vauquois?  I never had, despite a voracious consumption of military history since the age of 8. It was just one of a series of pointless, vicious, slaughters carried out from the Channel to the Swiss border, 1914-1918.  Just one of innumerable forgotten places where anonymous masses were consigned to horrible lives, and even more horrible deaths, by commanders who ranged from inhumanly callous to clueless.

Out of such a hell in which men were faceless, suffering, dying masses, there is something redeeming, I guess, in the story of an individual’s heroism.  Especially a man whose biography is unusual and affecting.  A man who was, by all accounts, sincere in his religious objection to war, and who was also sincere, by most accounts (though not all), in his contentions that he only shot to save lives from the vicious German machine gunning.

But York is about the only thing about Meuse-Argonne that anyone might remember today–and then only probably because of Gary Cooper.  (The movie plays regularly on Turner Movie Classics, and is available on DVD.)  The battlefield is immense, and virtually undeveloped.  Whereas in the US, preservation groups spend hundreds of thousands of dollars to save an acre here or an acre there of some Civil War battlefield, in the M-A there are dozens of square miles of combat zone that have just returned to farmland and forest.  It is preserved not by the active efforts of anyone, but just by the fact that no one really wants to develop it.

The Meuse Argonne was the biggest battle in US military history, with 600,000 soldiers involved.  More Americans died there than in any battle in US history.

We visited the US Army Cemetery at Montfaucon.  It is a forlorn place.  Beautiful, but forlorn because unlike Arlington or Normandy, virtually no one visits there.  Even though there are more American servicemen buried there than at any cemetery outside the Continental US–over 14,000 graves, more than double the number at Normandy.

So many Americans died, in large part, because the American force was an army of amateurs–very brave amateurs, for the most part, but amateurs nonetheless–led by amateur generals, many of whom refused to heed the lessons learned at such a tragic cost by the British, Canadians, Australians, and French.  Pershing, from what I have read, was especially culpable, believing, like the French of 1914, that elan and the bayonet were sufficient to overcome massed artillery and machine guns.  With no artillery support to speak of, Americans hurled themselves at entrenched German machine guns while under rains of artillery fire from Germans in the Argonne Forest and the high ground on the east bank of the Meuse.  If you see the terrain–the hills, the woods–you realize that such an effort was insanity.  Especially in 1918.  American logistics were atrocious; the men had no food and no fresh water for days.  They shivered in the rain.  But they eventually won, despite their generals, despite their woeful logistics, despite their painful inexperience.  They were truly remarkable, and leave me in awe, and with a feeling of ineffable sadness when I gazed over their serried rows of crosses at the Montfaucon Military Cemetery.

And today they are all forgotten.*  Except, really, for a single man.

* Their contemporaries did not forget them.  The US government, and more remarkably, several state governments, erected massive monuments on the field.  These monuments are larger and more impressive than anything on any of the American WWII battlefields in France.  This says something about the evolution of American society.  The “greatest generation” did not receive the same honors as had its fathers.

I had to take an interruption from a wonderful vacation to post on this story (h/t R):

Some 6,000 zlotys (£1,200) were withdrawn from the bank account of Andrezej Przewoznik, who headed Poland’s committee in charge of monitoring national historic sites.

He was part of the Polish delegation heading to Katyn near the western Russian city of Smolensk for a commemoration ceremony marking the 1940 massacre of thousands of Polish army officers at the orders of Soviet leader Joseph Stalin.

. . . .

“Three members of the OMON (riot police) who committed this disgusting act were quickly arrested thanks to co-operation between the Polish Security Agency and the Russian special services,” Polish government spokesman Pawel Gras told Radio Zet.

Grave robbers in the police.  Is further comment required?  I leave that to you all.  I’m headed out to dinner in Reims.

Hopefully a report on my Normandy visit soon.

Due to my involvement in energy issues, many folks have asked me for my reactions to the oil spill disaster in the Gulf.  Obviously the implications of the event will be seismic, but remain to be fully grasped.  Here are some initial thoughts.

I certainly do not blame the administration for failing to stop the leak, and I definitely shudder at the prospect of it “taking charge” of the efforts to stem the flow.  The government has neither the expertise nor the resources to do it.

Where I do find the government generally, and the administration particularly, culpable is in the containment efforts, if “efforts” can be used to describe what has transpired (and is transpiring) in the Gulf.  Contingency plans (e.g., burning in situ) were not implemented, and were apparently not resourced, and hence could not have been implemented.  I wish that I could say that lacking a feasible plan, the government has been scrambling.  But “scrambling” hardly describes the business as usual, bureaucratic, check the boxes behavior of the EPA, the Coast Guard, and the Corps of Engineers.  That is an outrage, and a tragedy.

What about Obama?  Well, he has acted perfectly to form.

A detached talker, rather than a doer or leader.  “Plug the damn hole” brings to mind an old Steve Martin routine.  It also brings to mind a stock joke about economists (or academics generally): When trapped on the top floor of a burning 100 story building, all about are panicking except the economist (academic).  When asked why he is so calm, the economist (academic) replies: “We just assume a 100 story ladder.”

A man disturbingly lacking in affect.  (Obama’s emotions appear to run the gamut from smug to annoyance to pique.)   In his disastrous press conference, Obama made George H. W. Bush’s “Message: I care” look like an example of deep empathy .  (I don’t have to identify which of Mr. Transparency’s press conferences, because he has held so few that there is no possibility of confusion.)

And hyperpartisan.  Given the criticism of the above two things, Obama turned to his old standbys, partisan attack and knocking down straw men and letting no good crisis go to waste.  In his has-to-be-read-to-be-believed speech yesterday, Obama turned the spill into a political bludgeon, blaming the spill on the Republicans and a mythical era of ideological hostility to regulation that rendered the government helpless.  He is using the event to flog his cap & trade proposals.  (The adoption of which, ironically, would undermine his desire—stated in the same speech—to create jobs.)  Post-partisan, my foot.  (I leave other body parts to your imagination.)

Look, things like the explosion of the platform and the subsequent leak are complicated events that almost always involve the unforeseen conjunction of myriad factors, decisions, errors, and bad luck.  To boil it down to a simplistic narrative is deeply dishonest; even if there is a kernel of truth to the narrative, that won’t be known fully until after a thorough examination of the entire event, if ever.  The narrative is also incomplete, because it overlooks myriad other government interventions, notably those that restrict drilling in less daunting environments.  Then to use that dishonest and incomplete narrative to advance grandiose and dubious policies, and as a stick to beat his political opponents, is manipulative and opportunistic, and anything but constructive.

The spill is an epochal event, environmentally, economically, and politically.  Now is not the time for political score settling and agenda advancement.  Obama’s actions may appeal to his base, but I strongly suspect that they will instead further alienate vast swathes of the electorate, including many who supported him out of good will and a hope that he would indeed be a transformative figure that would move the country forward.  They will only feed the country’s deep cynicism, especially so given Obama’s campaign pose of an idealist fighting cynicism—which may well be the most cynical thing of all.