Streetwise Professor

As something of a coda to the previous post, it’s worth commenting on Sunday’s story that Russia dispatched 100 troops to Venezuela. Within hours of their arrival, the power went out, and the country was plunged into darkness yet again.

This is how deep Russia must dig to find allies, all in a pathetic effort to tweak its bête noire, the US. Yet this is the colossus that has preoccupied the fevered minds of the American governing class since 8 November, 2016.

It is also a rather scathing commentary on Putin’s alleged strategic genius. There’s an old adage: never reinforce failure. Venezuela is a failure–and a failed state–on a grand scale. Yet perhaps thinking of his previous “investments” in the country, Putin reinforces this failure.

Succumbing to the sunk cost fallacy is hardly a sign of strategic genius.

Further, if Trump is in Putin’s thrall, why has Trump ramped up the pressure on the Maduro regime? Maybe Max Boot or Bill Kristol can enlighten us.

The image of Vladimir Putin as an all-powerful mastermind was central to the Russia Collusion Hoax. In this telling, the omnipotent and omnipresent Vova, secure in his lair in Moscow, could manipulate at will the electoral process in the most powerful country in history. His power, devious intelligence, and malign purpose made it especially reprehensible and dangerous for Trump to collude with him, and the image of the Putin evil mastermind made collusion with him a grave threat to the republic, in a way totally different from, say, assorted Chinese boodlers boosting Bill Clinton.

The entire Russian Collusion Hoax was farcical to me from the beginning, and this grotesque exaggeration of Putin’s power and influence was the most farcical part of the charade. It was particularly annoying to hear about it from idiots who hadn’t paid the slightest bit of attention to Russia since, well, ever, and who when they did weigh in on Russia it was to slam Mitt Romney for calling it a threat, and to chortle at Obama’s snarky response to Romney’s alarums.

Put simply, most of these people who have been running around with their hair on fire about Russia since, come to think of it, the minute that Hillary conceded defeat and needed an excuse, couldn’t find the place on a map, despite the fact it is the biggest country on earth. But all of a sudden they were experts on all things Putin and all things Russia.

Perhaps in a signal to the hysterics that they should back off, the NYT ran an oped titled “How Powerful is Putin Really?” The answer: pretty much the same one I gave 12 plus years ago, and repeatedly–not very. Because Russia is not that powerful, and because Putin’s main role is to be an intermediary in wars between completing clans in the security forces and business, rather than to be a grandmaster moving inanimate chess pieces around the board.

This is comic gold:

The gulf between what Mr. Putin says and what happens in Russia raises a fundamental question about the nature of his rule after more than 18 years at the pinnacle of an authoritarian system: Is Mr. Putin really the omnipotent leader whom his critics attack and his own propagandists promote? Or does he sit atop a state that is, in fact, shockingly ramshackle, a system driven more by the capricious and often venal calculations of competing bureaucracies and interest groups than by Kremlin diktats?

I won’t keep you in suspense as to the answer. Hell, if you have been reading here anytime since around 2007, you know the answer. But then again, if you read me you probably haven’t been drinking the NYT Kool-aid, and won’t need them to tell you the answer 12 years too late.

If you read the rest of the article, you will see a description that echoes exactly the one I first applied to Russia in April, 2007: “a natural state.” As I quoted North, Weingast, and Wallis:

A natural state is a specific way of structuring political and economic systems so that the economic rents created by limited entry are available to secure credible commitments among politically powerful groups. Potential rivals in a natural state stop fighting (or fight less when the economic rents they enjoy depend on continued existence of the sate and of social order. Natural states limit economic entry to create rents and then use those rents to credibly commit powerful groups to support the state. In other words, natural states use the economic system as a tool to solidify the stability of the ruling coalition.

I also quoted Celeste Wallander:

Patrimonial authoritarianism is a political system based on holding power in order to create, access, and distribute rents. It is well known that Russia is deeply corrupt, but corruption in the Russian system of patrimonial authoritarianism is not merely a feature of the system; it is essential to the very functioning of political power. The political system is based on the political control of economic resources in order to enrich those within patron-client clans. The patron remains in power by rewarding clients, and the clients are rewarded by supporting their patron. The patron requires support from his clients, and he must access and distribute rents for that support. Without the creation and control of rents, political power disappears. At the top of the political system, Putin manages relations among competing patron-client clans headed by top government and business figures, such as Development and Trade Minister German Gref, Deputy Prime Minister and Gazprom chairman Dmitry Medvedev, Gazprom president Alexei Miller, and Igor Sechin, deputy head of the presidential administration and chairman of Rosneft. Each of these individuals in turn has his own set of clients, who are in turn patrons of their own clans, and so on, creating a complex web of relationships that sustain political power and distribute patronage rents.

The basic point of the analysis was that of course someone like Putin is powerful within such a system, but he is not all powerful. Further, his power derives from his ability to intermediate between independent sources of power within Russia. The main purpose of the state in Russia is to organize theft, and divide the spoils. The main purpose of Putin is to keep that process from devolving into violent chaos.

Put differently, I’ve often emphasized the deinstitutionalized, highly personalized nature of the Russian state. The personalism is a bug, not a feature, and inherently limits the power of the person at the top. It is a great mistake to confuse the prominence of the public face of a shambolic state with actual power. Institutions are necessary to generate national power, either domestically or abroad. The power of deinstitutionalized state is inherently constrained.

But especially post-8 November, 2016, the left and the media and Hillary needed a figure to personify evil, and to tie him to Trump, so the reality of Russia and Putin and Putinism–which is pretty plain to see if you actually look–was deliberately ignored, and in its place our “elite” became fixated on a cartoonish Dr. Evil figure in a way that would make the most crazed 1950s Bircher blush.

These are people who fell for the scary wizard and his pyrotechnics, and paid no attention to the little man behind the curtain. Some because they were fools. Some–the worst of them, and the most powerful–because it advanced their political agenda.

So I say to the NYT: Bravo! Better 12 years late then never! But this should be a lesson: don’t pay the slightest bit of attention to those Bozos, because their news and editorial “judgments” are driven by a political and ideological bias that is impervious to readily observable realities.

There are many silly things written about commodity traders, and alas many of the purveyors of this silliness get paid large amounts of money for it. Case in point, this just-released Oliver Wyman study, “Commodity Trading Goes Back to the Future.”

The piece begins with a well-recognized fact (that I’ve written about frequently in the past): commodity trading firm margins are down, relative to 2014-15, and especially 2008-9. It goes off the rails in totally misdiagnosing the cause:

Signs of the coming dramatic shakeout that will result from the commodity trading margin squeeze are already at hand. Trading margins have fallen by more than 20 percent from their recent peak in 2015.

This trading margin meltdown will continue as commodity markets become more mature, stable, and liquid. Over the past decade, the volume of commodity contracts traded nearly tripled and the value of contracts traded on standard electronic platforms doubled. Commodity market data is also increasingly readily available and widely socialized, as a greater number of players sell information and provide services to commodity traders. These new sources of data allow commodity traders to estimate much more precisely events that impact their trading strategies, such as when commodities will arrive at a specific destination and when local stockpiles will be high or low.

The combination of increased transparency and gluts in almost every commodity should keep volatility in the relatively tight band it has been confined to since 2012.

Where to begin? For starters, the electronic trading volumes of futures and futures option contracts has jack-you-know-what to do with the margins on physical commodity trading. Ditto the market data from these transactions. To throw these topics into a discussion of physical commodity trading profitability is to shoot your credibility in the head on page 2.

Further, as I’ve written extensively, particularly with regards to the ABCDs, “gluts in almost every commodity” do not necessarily imply compressed physical trading margins–in fact, they usually do the reverse. What has happened is that commodity transformation capacity has outstripped commodity transformation demand.

So that’s a self-inflicted double tap. Quite a trick!

Relatedly, low flat price volatility is a complete red herring. What matters to physical traders–who transform commodities in space, time, and form–is the volatility of relative prices, specifically the spreads between transformed and untransformed commodity prices.

Triple tap. Even more impressive!

Indeed, the irrelevance of gluts is readily evident from Exhibit 1, a graph of margins by year. When were the biggest margins in oil and oil products? Glut years–2009, and 2014-2015. The traders made easy money on simple storage plays. As Trafigura illustrated in its half-year report last September, it is the disappearance of the contango (i.e., the disappearance of the oil glut) that crushed margins.

Amazingly, the word “contango” does not appear in the OW report. That just screams credibility, I tells ya.

The report also discusses increased price transparency as a source of pressure on margins, but I am unpersuaded that there has been any meaningful increase in cash market transparency, at least not enough to make a difference. Take the grain markets. Yes, you can go online and see what local elevators are bidding in the US. But bids and transactions are very different things, and in these markets there can be huge differences between offers and bids. Having studied the US grain markets for almost 30 years, I don’t see a material increase in cash price transparency in that time. And I can say pretty much the same about cotton and oil.

This is moderately intelligent, at least as a forecast rather than as a diagnosis:

Major commodity producers and consumers like national oil companies and miners will charge higher premiums and claim more margin as they expand their global reach and become more sophisticated market participants. Simultaneously, physical infrastructure service providers and new online platforms will impinge on traders’ traditional roles. These players are making traders less essential by removing bottlenecks in order to correct supply imbalances and connecting more commodity producers and consumers directly

But that has everything to do with increased transformation capacity chasing a limited supply of transformation opportunities, and nothing to do with gluts or increased price transparency.

But every moderately sensible statement is undone by silly ones, like this:

As commodity markets become more liquid and accessible, commodity traders are relying more and more on algorithmic trading, coupling predictive analytics with robotic trade execution. Traders are improving their ability to hedge and speculate by developing codes that more nimbly identify trades and execute them across a broader set of
tradable instruments

Yeah. Robotic execution of physical trades. Right. These statements have some applicability to paper spec/prop trading. Virtually none to trading of physical barrels and bushels.

After completely misdiagnosing the disease, Dr. Wyman has a cure–BIG DATA!

Well, I guess that’s something: they could have prescribed blockchain.

Yes, improved data analytics may permit those who employ them to pick up a few more pennies in front of the steamrollers, but its beyond a stretch to claim that this will affect industry profitability overall.

The report in fact hedges its bets, acknowledging that there is no proof that BD is not just more BS:

It is often unclear if anticipated relationships between data feeds and commodity prices actually exist, and even if they do it is not certain the volume of data is sufficient to make meaningful predictions. For example, it is incredibly difficult to analyze global satellite imagery
to identify precisely the daily flow of commodities given the frequency at which images are being taken. Depending on the specific market, these signals are often also relatively limited compared to just market sentiment when forecasting in the horizon of interest

Who knew?

Nonetheless, OW boldy recommends that traders “completely revamp” their operating models, and closes with:

Traders need to make maximizing the potential of information
advantages their top priority. Previously unthinkable digital
capabilities will determine who will be the industry’s leaders
in the long term.

And no doubt, big fat consulting contracts with Oliver Wyman are ESSENTIAL!!!! to make this leap.

Yes, data analytics will no doubt prove of use, and they will become a necessary tool in traders’ kits. But they are unlikely to be transformative–because the big determinants of trader margins are the demand for transformations in space, time, and form, and the capacity available to perform them. Further, the industry is a very competitive one, with relatively free entry and exit, meaning that any persistent increases in margins will be eroded by new entry, and persistent decreases by exit.

The pool of entrants has plausibly increased, as the one sensible part of the OW piece says. That will tend to lead the traditional players to contract (or at least lose share). Some of the entrants are not mentioned by Wyman, such as the farmers in North and South American who are integrating into traditional merchant niches.

These are the first order drivers of past, current and future commodity trading profitability. Big data is an attention grabbing subject, but at the end of the day, it will be a second order (if that) driver of physical commodity trading profits.

But I guess consultants gotta eat too, right? But that’s no excuse for anyone to pay them, especially for drivel like this report.

Watching the wailing, moaning, shrieking, rending of garments and gnashing of teeth emanating from people I despise following the release of AG Barr’s summary of the Mueller report brings to mind this epic scene:

I realize that the metaphor extends. Yes, Charlie got smoked here, but this is just one battle. He will be back. He will shift the fight to Congress in particular, and the media will continue its assault. But here I think Trump actually has some advantages. This will be a political battle, with partisans on both sides: it is no longer possible for the left/media/Democrats to hide behind the alleged impartiality of Mueller. (Indeed, I think this is another reason that Mueller’s report is a huge benefit to Trump: given the partisan makeup of his team, if even he can’t find collusion or obstruction of justice, it’s not there to be found.) In fact, this may redound to Trump’s benefit because even on his most unhinged day he will seem normal compared to Schiff, or Swalwell, or AOC, or “impeach the motherfucker” Tlaib, or Maxine Waters, or and on and on and on. He will have a surfeit of fools providing a surfeit of foils.

The left/media/Democrats are also holding out hope that some other authority–the US attorneys in the Southern District of New York (do they know it reports to Trump, which is the whole purpose of special counsels?), the New York AG, or maybe Officer Mcgillicuddy from Queens who saw Donald jaywalking as a youth–will take up the cudgels and find something to indict Trump for. But it won’t be collusion. Because get real, if after all this Mueller can’t find any evidence, the evidence ain’t there to be found:

When I witness these desperate, pathetic clowns pinning all their hopes on somebody, anybody, else in authority, this comes to mind:

I also find it infinitely amusing that they are channeling their inner Donald Rumsfeld, and flogging variants of “absence of evidence is not evidence of absence” for all it’s worth. The irony! Which is fitting, because the Russia conspiracy hoax will go down in infamy alongside WMD.

And there must be a reckoning. An incomplete list, but a necessary start:

• The “leadership” of the FBI that started the whole counterintelligence operation against the Trump campaign, and once it was elected, continued it against the Trump administration, starting with James Comey. These were the people who were interfering with US elections.
• Key figures in the Obama administration, notably Brennan, Clapper, and Rice . . . and then following wherever that leads.
• The Hillary Clinton, and the Hillary Clinton campaign and its beard, the DNC, which concocted the Russia conspiracy hoax first as a campaign dirty trick, then continued it as an excuse for its loss and as a means of crippling the administration of the man who had the temerity to derail her coronation.
• Hillary’s henchmen, especially the loathsome, beyond execrable Glenn Simpson and his tool, Christopher Steele. (One thing I would really like to know is what the Mueller report says about the farcical dossier.)
• Last, but surely not least, the entire media establishment, not just in the US (the usual suspects, CNN, MSNBC, NYT, WaPo and on and on) but their foreign fellow travelers (esp. the FT, the BBC, and other supposedly reputable UK outlets).

There are many institutions in government and the media that deserve to be pulled out, root and branch. But of course they will fight, tooth and nail, hammer and tong.

Meaning that the smell of napalm might be sweet today, but many more strikes will be necessary before the war is over.

One can understand the reason why a slim majority of the British electorate voted to divorce from the EU. They wanted out from under a condescending, arrogant, meddling, progressive, metropolitan, globalist elite that has no appreciation or respect for British (especially) English tradition (as indeed they scorn all national traditions, including not least religious ones).

There is only one problem with that plan: the UK governing class today is dominated by a condescending, arrogant, meddling, progressive, metropolitan, globalist elite that has no appreciation or respect for British (especially) English tradition. These are the people who are in apoplexy over the prospect of the UK departing from their soul brethren in the EU. Britons may be able to escape the grasp of the mandarins in Brussels, but they have little prospect of escaping that of the mandarins in London, who if anything are even more loathsome.

The incompetence of the British ruling class is manifest. The incompetence, oppressiveness, and intolerance of its social elite is plain. They make no attempt to conceal their antipathy for the traditionally, conventionally English. Brexit, in whatever form it takes, will do little to free those who voted for it from the tender mercies of those who hate them. And there will not be the consolation that it’s bloody foreigners doing them wrong: it will be their own fellow Britons.

I really find it hard to find any real difference between the behavior of the British government and ruling classes and that of their peers on the continent. Transnational progressive policies, political correctness, and extreme intolerance of dissent characterize British political and civil society as much, and perhaps more, than continental.

Britain was a pioneer in omnipresent surveillance on the streets and the denial of the right to self-defense, yet crime has become endemic. Speech is under constant threat. British police brag about punishing those who express disapproved thoughts: think of the Twitter censors, only with the power to arrest, fine, and jail, rather than merely shadow ban or suspend. Indeed, to an outsider it appears that British police pursue thought crimes with much greater zeal than they do personal and property crimes–because it’s easier, perhaps, or because it brings the police greater approbation from their social superiors? Regardless, that’s the distinct impression. Speaking ill of some religions–or even speaking unpleasant facts–brings down the full weight of the British state, which at the same time deems Christianity too violent, and hence bars entry by Christian converts from twisted theocracies.

As a consequence, I doubt that Brexit will enhance the freedom or sovereignty of ordinary Britons in any meaningful way, or allow them to restore more traditional British and English ways, institutions, and values. Indeed, not only will they not gain greater freedom, they will lose the psychological comfort of being able to blame Johnny Foreigner for the loss of it. It will end up being a Hotel California experience: they will check out of the EU, but they won’t check out of an establishment run by those with the EU mindset.

I have often written that the UK is like the US’s Ghost of Christmas Future, because it has gone much further down the progressive road than the US, and its increasingly dystopian present should be a warning to the US about proceeding down that road. That future, moreover, may be distressingly close, because virtually the entire Democratic establishment, including virtually every presidential candidate, would fit in quite well in the UK. What I view as dystopian that lot views as utopian, or at least a waypoint on the road to utopia.

Germany announced that because its economy has the sniffles or something, not only can’t it meet its commitment to spend 2 pct of GDP on defense, it won’t meet it’s halfway house commitment of 1.5 percent. (Snicker. I said “Germany” and “commitment” in the same sentence. I’m so funny.)

This was widely reported as another German rebuke to the Bad Orange Man. Because of course expecting someone to live up to commitments made when nobody even dreamed the Bad Orange Man would be president is totally outrageous.

The US ambassador to Germany, the openly gay Richard Grenell (whut? The outrageous homophobe Trump appointed a gay guy to be ambassador?) called out Germany on defense spending, and on Nordstream II too. Which caused a meltdown in Berlin. The deputy chairman of the ostensibly conservative Free Democrats called for Grenell’s recall, harrumphing that “Any US diplomat who acts like a high commissioner of an occupying power must learn that our tolerance also knows its limits.” The caucus manager of the almost-commies (aka the SDP) chimed in: “Mr Grenell is a complete diplomatic failure.”

I say that if they are going to bitch about being occupied, let’s give them something to bitch about, and occupy the bastards for real. They obviously didn’t learn their lesson the last time.

I figure that given the abjectly pathetic state of the German military, the relatively modest US forces there (augmented by this contingent) could wrap up the job in short order. The main problem would be processing all the POWs. After all, this is a country in which 17 percent–17 percent!–of the population says that they would fight to defend their country: this is the lowest rate in Europe, except for the Dutch who weigh in at 15 percent. So resistance is likely to be light. Cheese eating surrender monkeys?–bah! Schnitzel eating surrender monkeys will put them in the shade.

Just to rub it in, I suggest that we invite the Poles to participate. Maybe the Israelis too. See how Fritz likes his own medicine from those he gave it to in years past.

As I’ve said ad nauseum, it’s beyond annoying for the Germans to squeal like stuck pigs at being criticized for failing to live up to their commitments to joint defense, given their pretensions to be leaders of not just Europe, but the free world in the era of the Bad Orange Man. So Grenell should redouble his efforts and make them squeal even more.

And what is the point of providing for the common defense of a nation whose people can’t even be bothered to defend themselves–and admit it (i.e., the 17 percent number cited above)?

Bismarck once said that the Balkans were not worth the bones of one Pomeranian grenadier. Germans now think that Germany is not worth the bones of one Pomeranian grenadier. So why should they be worth the bones of a single American grunt?

A coda to yesterday’s post. The EIA announced that in 2018 60 percent of new US electricity generating capacity was fueled by natural gas. This outstripped wind by a factor of almost 3, and solar by a factor of almost 5.

But those ratios understate matters, given that capacity factors for natural gas are about double those for renewables. Thus, in terms of actual real generation, natural gas added about four times as much effective capacity in 2018 as renewables. Not to mention that combined cycle plants are available pretty much on demand, rain or shine, day or night. Unlike the wind and the sun.

This despite the continued subsidization of renewables.

So tell me again how renewables will permit the fossil fuel-free electrification of the economy. I like fairy tales.

So, remember that stuff about closing all sales outlets, selling exclusively on-line, and cutting prices? Tesla’s new CEO has an announcement:

So what’s “very different”? Here’s what the company says officially:

Over the past two weeks we have been closely evaluating every single Tesla retail location, and we have decided to keep significantly more stores open than previously announced as we continue to evaluate them over the course of several months.

So what you are saying then is prior to making the announcement that you were closing all retail locations you HADN’T evaluated every single location. Got it!

The company also reversed field on the price cuts.

To quote Casey Stengel: Can anybody play this game?

I mean really. A major, and arguably unprecedented in the industry, change in selling strategy and a major change in pricing policy are things that are not to be entered into lightly. Presumably they were the result of serious and sober consideration by serious and sober people. Right?

Serious and sober. Elon. Heh. Sometimes I crack myself up.

The initial decision was insanity. And the reversal validates that judgment. But too late to overcome the obvious implication of the initial decision: that the company is in dire straits. Further, the utterly botched process of pushing the panic button and then trying to un-push it answers Casey’s question quite definitively: No!

That is, the initial decision betrayed desperation. The decision plus the reversal betray the utter incompetence of the company’s management, and hence its incapacity to deal with its daunting challenges. And given that Tesla is a micromanaged company, that incompetence has a name: Elon.

I called Emily Litella the new CEO of Tesla in jest. But come to think of it, she could almost certainly do a better job. As could Rosanne Rosannadanna as head of investor relations and corporate affairs.

Natural gas has a lot going for it, especially as a fuel for electricity generation and home heating. It is low-carbon, as compared to coal and petroleum. It is also clean burning, producing less particulates than competitor fuels. It does not require extensive (and polluting) refining, like oil. It is increasingly abundant, and hence becoming cheaper, due to technological innovations like fracking. Liquefaction makes intercontinental trade feasible, breaking the previous barrier between production and consumption regions, and allowing more people to realize the benefits of gas. What’s not to like?

Short answer, according to environmentalists: it is a fossil fuel, and therefore it must die.

It is bad enough that there are concerted efforts underway to replace it with renewables for the generation of electricity. There is also a push to eliminate it as a home heating fuel, and replacing it with . . . electricity, generated by yet more renewables. That is, simultaneously to replace NG in electricity generation with renewables, and to increase the demand for electricity . . . to be produced with even more renewables. (Not to mention the desire to eliminate the internal combustion engine, and rely on electric automobiles and trucks.) All without any apparent thought to whether renewables actually scale (putting aside that they are already more costly than conventional fuels at their current scale).

The defects of wind and solar as power sources, especially for reliable baseload power, are manifest. They are diffuse and intermittent. Not a good combination where demand is geographically concentrated, and highly regular. Someday battery storage might mitigate this problem, but that day is a long, long way away Throw in the complexity of the electricity grid, i.e., the need for supply to match demand exactly at all times, and intermittency becomes eve more of a nightmare.

Further, the factors that drive electricity demand (temperature extremes) are often negatively correlated with renewables production. Supply negatively correlated with demand–Not a good thing! Using electricity for home heating will only exacerbate this problem: the wind often does not blow when it is extremely cold, which is when you might want to have the heat in your home working.

Renewables do not scale well–diminishing returns are inherent to renewables production. The footprint of wind and solar operations is huge, and increasing output by X percent requires more than X percent more land because developers locate facilities in the most favorable places first, and can only expand into progressively less windy/sunny locations. Moreover, pesky physical laws, like the First Law of Thermodynamics, lead to decreasing returns to scale. Downwind expansion is less efficient because existing upwind operations reduce the available energy in the wind. Renewables sprawl is not yet a thing, but if some people’s wishes come true, it will be.

Where the wind blows and sun shines does not match where power demand is. So substituting renewables for conventional or nuclear generation requires more transmission–which, perversely, environmentalists can be counted on to oppose.

It is not an accident, then, that the greater the reliance on renewables, the higher the cost of electricity. The diminishing returns inherent in renewables production mean that green dreams to reduce conventionally-fueled electricity supply while increasing electricity demand (not just in home heating, but in transportation) will make it even more expensive still (as these push us further up a likely very steep average cost curve).

Renewables have only penetrated to the extent that they have due to extensive subsidization. Which just means that the costs get shoved elsewhere.

It is perversely ironic that many of those who push the green agenda also claim to be deeply concerned about the poor–and yeah, I’m looking at you AOC, and the rest of the Green New Deal advocates. With friends like you, the poor don’t need enemies. They consume a far higher fraction of their income in the form of energy (both directly, and indirectly through goods like food) than the better-thans who claim to be their champions, and hence will suffer disproportionately from higher energy costs. And the poorer the person, the more they will suffer. This is not complicated.

When you get down to it, not only is the watermelon crowd completely unhinged from basic physical and economic reality, it is profoundly anti-human. Achieving their utopia requires that there be fewer humans, and that those humans whom they deign to let live be much poorer.

I wouldn’t mind so much if they did they put their beliefs that there are too many humans consuming too much stuff into action by offing themselves. Be a good example! Take one for the team! But no. They’d much rather volunteer you–or more accurately, the poorest among us–for death and poverty.

I’ve used the Jefferson Davis quote about his suggested epitaph for the Confederacy–“Died of a Theory”–on many occasions. It is sickly fitting in this context too, but worse in a way. Because it won’t be those pushing the theory who perish literally or politically (as was the case with States Rights fanatics 1860-1865). It will be those whom they claim to be helping.

The Troika Laundromat–a massive money laundering operation organized by the eponymous Russian investment bank–has been much in the news of late. Most of the coverage has focused on the western banks–including several in supposedly squeaky clean Nordic countries–that were the conduits for the money. But what is far more interesting to me about the story is what it says about Russia, and in particular how it illustrates with particular force what started me writing about Russia 12+ years ago.

Specifically, as a lower middle income country, with an educated populace and abundant natural resources, Russia should be a magnet for capital. Instead, it is one of the world’s all time greatest capital repellants. They say what happens in Vegas stays in Vegas: obviously, what is made in Moscow (and elsewhere in Russia) doesn’t stay, but gets out any way that it can.

So what overwhelms the forces that would otherwise draw capital to Russia?: the state, and the culture that supports it, and which it sustains. The predatory nature of the state, the predators the state protects, and the lack of basic legal protections make money vastly safer outside of Russia than in it. Put differently, although Russia is rich in human capital and resource capital, it is tragically poor in social capital. It is a low trust society, and one in which formal institutions do not compensate for the lack of trust, but exacerbate it.

Putinism has done nothing to encourage investment in social capital–the opposite is true. Yes, it arguably tamed the greatest excesses of the 90s, but this was essentially a matter of replacing roving bandits with a stationary bandit. An improvement, but hardly a launchpad for social and economic development.

This is a major reason why I consider all of the hyperventilating about the threat posed by Putin and Russia to be vastly exaggerated. It can raise Cain in its neighborhood, but beyond that the country suffers from debilitating weaknesses which are unlikely to change anytime soon. For all Putin’s strutting domestically, and on the world stage, to say that he (and Russia) have feet of clay is an extreme understatement. This is a country that is already far behind, and is doomed to fall even further behind with every passing year.

All the laundromats in the world cannot wash away that reality. Indeed, they are symptomatic of how filthy that reality is.