Streetwise Professor

Last week marked the 1000th dreary day of the Russo-Ukrainian War. It also saw a new, and disturbing, phase in the conflict.

Specifically, the Biden Administration (not the non compos mentis Biden, of course, but some shadowy cabal of aides) granted permission to Ukraine to utilize Army Tactical Missile Systems (ATACMs) to attack targets on some Russian territory, specifically Kursk oblast and environs. In response, the Russians launched a nuclear capable experimental intermediate range ballistic missile (IRBM) into Ukraine: the missile was topped with six non-nuclear (and in fact non-explosive) warheads.

In many respects the western response to Russia’s launch was overwrought. It was obviously a signal of escalation dominance that reminded me of Crocodile Dundee and the knife:

“That’s not a missile. That’s a missile.” I see your tactical missile and raise you a ballistic missile. I call.

Regardless of the merits of unleashing the ATACMs (which I will discuss below) it was utterly irresponsible for a lame duck administration to do so. It will not have to deal with the consequences. The incoming Trump administration will. And it can only complicate Trump’s already daunting task in Ukraine. Given how clearly disruptive this move was, it could only have been undertaken with malign intent. An “if we can’t rule, nobody will,” spiteful decision.

Regarding the merits. On the one hand ATACMs do not represent a substantial escalation: Ukraine has for months launched attacks on Russia using drones, and on soil Russia has claimed its own (notably Crimea) using various western-made cruise missiles. However, and ironically, by previously pointedly refusing to permit the use of ATACMs on targets in Russia the administration effectively deferred to Putin’s declaration that doing so would cross a red line. Thus, the volte face can only be interpreted as a deliberate flouting of said line, and therefore a deliberate escalation.

And for what? ATACMs, especially in the limited numbers that the US has supplied to Ukraine, cannot have a decisive effect on the war. (Nor can Storm Shadows, or SCALPs, or Taureses, or JASSMs). At most they can disrupt to some degree Russian logistics (e.g., by blowing up munitions depots) or command and control (by striking headquarters). (The fact that the administration made this argument to justify its previous denial of permission for using ATACMs in Russia demonstrates that it recent reversal was an act of spite rather than a reasoned military judgment).

But Ukraine’s military problems so fundamental that inconveniencing Russian operations in these ways will not be decisive.

Ukraine’s first fundamental problem is manpower. Yes, Russia is suffering far larger casualties, but the bloody minded Putin has shown his willingness to tolerate them, and Russia can absorb them far more readily than Ukraine.

Ukraine’s second fundamental problem is air defense, which has both a tactical and a strategic dimension. Tactically, after almost two years of complete ineffectualness, the Russian air forces finally found a way to influence the battle zone by dropping large numbers of FAB glide bombs (some weighing 3 metric tons) on Ukrainian positions from beyond the range of Ukrainian air defenses. Yes, ATACMs can be used to strike the airfields hosting the SU-34s that drop the bombs, thereby forcing the Russians to base them further away and reducing the number of sorties they can launch, but this effect is at the margins. Strategically, through drones and missiles (like iskander, which is more capable than ATACMs) Russia has devastated Ukraine’s energy infrastructure. Whether Ukraine can survive another winter of concerted attacks on its power grid is debatable.

Zelensky has been screaming for more anti-aircraft missile systems (especially Patriots) and some have been forthcoming, especially from Europe. But the need far outstrips the capacity of the US to provide more.

Ukraine’s third fundamental problem is its military command, starting with Zelensky himself, his military chief Syrski, and his general staff (“GenStabU”). The excellent Sarcastosaurous substack is the go to source on this, but its critique is echoed by Ukrainian troops that bear the consequences of the command’s incompetence.

The problems are myriad. The underlying problem is that old Soviet habits die hard. Most notably, command is overly centralized, leading to slow responses to battlefield crises, and a shocking indifference to information coming from those on the front lines.

The centralization has also led to an extremely defective organizational structure. The Ukrainian army has brigades which control battalions, but it has no divisions that control brigades, or corps that control divisions.

Supposedly because divisions are too expensive. Getting brigades and battalions destroyed due to command and control problems isn’t?

The lack of divisions leads to poor coordination between adjacent brigades, and the Russians have learned to exploit these seams. (Seams between units are always a vulnerability. Multiplying the seams multiplies the vulnerabilities). Moreover, Syrski et al control the brigades and even battalions directly, and shuttle them around willy-nilly in response to the latest front line crisis. This has created numerous opportunities that the Russians have exploited, for example by attacking when a new unit is shuffled into line without adequate preparation, or by putting units with no communication channels next to one another, making coordinated response to Russian attacks almost impossible.

When you see reports of this brigade or that being in some place, it is often not an intact brigade, but just a few battalions (and sometimes only one) from that brigade. Meaning that Ukrainian lines are held by jumbles of units controlled (or pretended to be controlled) by generals in Kyiv with minimal operational awareness. It makes the (often exaggerated) Chateau Generalship of World War I look good by comparison.

The Ukrainian command has also exhibited at times a Hitleresque (or Stalinesque) tendency to demand that units fight to the last and not withdraw when caught in an untenable situation, leading to pointless casualties (including the loss of prisoners who are executed by the Russians). This is particularly disastrous when manpower is in precious short supply–as it is.

Ukraine’s only saving grace is that Russian command is even more incompetent. The difference is that Russia has the material resources to compensate for this incompetence. Ukraine does not.

Ukraine has also made some incomprehensible decisions on how to allocate its scarce resource. Most notably, despite the demonstrated effectiveness of the Russian prepared defenses (and in particular the use of heavy minefields) in stopping the much vaunted but failed Ukrainian counteroffensive of 2023 (the Surovkin Line), time and again Ukraine has failed to fortify obvious targets of Russian offensives.

So as it is, Ukraine is barely hanging on. It’s not losing yet, but it certainly is not winning. And definitely not by Zelensky’s definition of victory: regaining all occupied Ukrainian territory. That is the pipe dream to end all pipe dreams.

Yet he insists on it.

The situation now is that both sides need an end to the fighting, but neither is willing to acknowledge it. Ukraine’s dire circumstances are evident, and although Russia’s aren’t quite so dire, they are bad, and the cost Russia is incurring is certainly not worth the possible gain–adding another string of shitholes to Putin’s collection. Eastern Ukraine was a shithole before Russia invaded: now it is a depopulated shithole buried under rubble.

And the economic consequences for Russia have been baleful. Speaking of rubble, that describes the ruble now: it is now worth less than a penny. Official Russian statistics tout the strength of the Russian economy, but it is a war economy. Shoveling massive resources to the military, to be blown up in Ukraine, props up GDP, but people don’t consume aggregates. The economic circumstances of Russians have degraded substantially in the past 1000 days, and will only degrade more every additional day the war goes on. The Portuguese living standards that Putin once promised are a bad joke now.

Neither side can achieve victory as they have defined it. Heretofore neither side has been willing to acknowledge that.

Trump has boasted that he will end the war. Given the intransigence of the parties, this boast seems unrealistic. But perhaps he can exploit the fact that neither side gains from continuing the war to to cobble together something resembling peace.

The most likely path: another frozen conflict in which Putin will get de facto control of what he has grabbed in the past two plus years.

The biggest obstacle to this outcome is Zelensky. I think he is genuinely dead set (emphasis on the dead) on driving the Russians from Ukrainian territory. But that is a delusion.

Zelensky, apparently not realizing that he who pays the piper calls the tune, has demanded that the west supply the resources to achieve his objective. For one thing, such resources don’t exist, and meeting even a fraction of Zelensky’s demands would denude the US’s already scanty stocks of missiles and shells. The US has more pressing concerns than eastern Europe: eastern Asia in particular. Moreover, the real binding constraint on Zelensky’s ambitions is not hardware but meatware. Ukraine has too few soldiers, a large fraction of its military-age population is unwilling to serve, and it is even more of a demographic basket case than Russia.

In brief, Zelensky played a vital role at the outset of the war, and his conduct then was exemplary. But it has quite clearly gone to his head, and he is now a delusional autocrat who is an existential threat to the people he claims to represent. Not to mention a military incompetent (as discussed above).

The establishments in the United States and Europe inveigh against a settlement that leaves Putin in control of even a sliver of Ukraine. They invoke the ghost of Munich, and claim that Putin will use the respite to rearm and will then set his sights on Nato’s eastern flank.

As if. If this war has shown anything, it has shown that Russia’s ability to project conventional military power beyond its borders is virtually non-existent. Further, the army that went into Ukraine was supposedly the product of serious reforms that addressed the flaws exposed in Georgia in 2008. In the event, it wasn’t. Given the systemic defects of the Russian system (of which corruption in the military is just one symptom) any future “reforms” are almost certain to be as tragicomic as the previous ones.

And how long would they take? Years. The establishments obsess on Putin, who is already 72. He will be well past his sell by date (especially by Russian male standards) by the time his allegedly reformed military will be capable of doing anything. And that is time that the Europeans can use to put on their big boy lederhosen and pantalons and create something other than Potemkin militaries that Putin (or more likely his successor) would be unwilling to confront.

That is, deterrence of Russia is completely in European hands. And if they decide to forego it, that’s their choice and their problem.

So Trump has a chance to realize his boast by negotiating (a la Teddy Roosevelt perhaps) an outcome that satisfies no one. But war is politics by other means, and politics is the art of the possible. The dreams of Putin, Zelensky, and the establishment are impossible. If Trump can get them to accept that, an imperfect peace is possible. And an imperfect peace is far preferable to the current nightmare.

The biggest challenge to achieving this is making it clear to Putin that he cannot prevail. Abandoning Ukraine altogether now would undermine that. So, rhetoric and I think genuine belief notwithstanding, to get his peace Trump will have to hold his nose and continue to fund Ukraine to some extent. The delicate balance to be found is between providing enough support to persuade Putin that continuing the war is futile, but not so much as to refill Zelensky’s pipe of dreams.

The acts of the dying Biden administration are certainly no help. The road to a settlement is torturous enough as it is without its malign actions.

Give Trump a chance. The odds are against him, given the characters involved in the conflict. But the Biden administration seems hell bent on stacking the odds against him and denying him–and hence those dying in Ukraine–that chance.

Trump’s cabinet nominees are provocative, to say the least. There has to be some stratagem behind Gaetz in particular, because it is facially hard to understand on the merits, but I’ll be damned if I know what that strategem is. Yes, I can see Trump wanting Gaetz or someone like him. But a choice should depend on both the desirability of the outcome conditional on its occurrence, and the probability of it occurring. Since Gaetz’s odds seem extremely low, and Trump must know that, I infer that Trump is deliberately courting rejection. But why? I have nothing.

I could go through all of them, but there’s only so many hours in the day. I will therefore focus on the one closest to my interest, SecDef (Hegseth). I will try to do a post on Tulsi Gabbard soon.

Of course the assault on Hegseth started nanoseconds after his name was announced, and was launched from the usual swampy quarters on the usual swampy grounds. He hasn’t served in the swamp! Therefore he is unqualified to be SecDef! There is also a concerted personal attack under way: racist, white supremacist, alleged sexual assailant. The usual, in other words.

Now those are the stated reasons for opposing him, but as we’ll see, not the real reasons. Indeed, I think the real reasons are that the swamp fears that he is capable of running DoD in the way Trump wants it run.

As for qualifications, just what are they? What individual who has run for, or has been, commander in chief or in line to be commander in chief, has the qualifications? For example, Tim Walz was supposedly qualified to be commander in chief, but based on what? Twenty plus years as a National Guard NCO who bugged out when there was a risk he’d actually get shot at? If so, and I see no other qualifications, Hegseth–20 year NG veteran, retired as major, multiple combat tours, two Bronze Stars–is qualified to be SecDef. If someone is qualified to be CinC, they should be more than qualified to be SecDef. Similar things could be said about Obama, Harris, Biden, and Trump, and pretty much any late-20th-21st century president or veep you could name except for Eisenhower. Their military and managerial bona fides ranged from non-existent to extremely limited.

Our current SecDef has the kinds of credentials the swamp thinks necessary–general who retired to clean up in the MIC–and he’s been a complete dolt who cannot claim any positive accomplishment. (Name one. I dare you). The fact that he could go missing for several days without anybody really noticing, a la Major Major Major Major, tells you all you need to know about his contributions to our national defense.

In recent decades most SecDefs have been apparatchiks who had no lasting impact.

Meaning that the background that the swamp demands is neither necessary nor sufficient for success. I doubt it is even a strong predictor of performance.

The SecDef’s job consists of two basic parts: establishing policy objectives, and steering the Pentagon towards achieving them. The swamp tut-tuts about Hegseth’s ability to do the latter, but they really fear the former, and his ability to achieve the latter.

In rather outspoken, and frequently salty, remarks before his name was floated as the nominee, Hegseth revealed that his overriding policy objective is to change fundamentally the culture of the military. In particular, to change it back to what it was. MMGA. Make the Military Great Again.

The uniformed and civilian incumbents who advanced in that culture, and who have actively promoted it, detest Hegseth on those grounds alone.

In particular, Hegseth has made it plain that he believes that the DEI culture that pervades today’s military is inimical to the purpose of the military–war fighting–and must be eliminated root and branch. Part of that rooting out means terminating many general officers, including (and he has called him out specifically) the Chairman of the Joint Chiefs.

He has said that the expression “diversity is our strength” makes him throw up in his mouth. I can relate.

In my reasons to vote for Trump post, I specifically listed elimination of DEI, in the military in particular. It is vital for restoring the culture of the military.

So yes, he is a “culture warrior.” A “warrior culture warrior” actually. “Culture warrior” is hurled as an epithet against him. It’s actually a great qualification given the depths to which the military has descended.

He’s absolutely right that rescuing and restoring the culture is necessary to rescue recruiting, which is one of the military’s current grave problems.

In interviews he has suggested going back to the standards and procedures in place around 1995. That is actually a very thoughtful idea. Not necessarily to be applied literally, but as a useful exercise in resetting the military.

The mid-90s represents what is arguably the acme of American military power and performance. The military of that era was optimized for peer and near-peer conflicts, and had yet to have experienced the corrosive effects (doctrinally, force design, weapons acquisition, morale, etc.) of decades of counterinsurgency focus. We are again in an era where we need to focus on peer conflicts. Moreover, it predates the descent into DEI madness (though that had begun, with “don’t ask, don’t tell”).

So use the mid-90s as a baseline. See what has changed, and determine why. See what effects the changes have had. Get rid of the pernicious changes–of which there have been many.

As for firing generals, this will be salutary for many reasons. To get rid of those responsible for the cultural decay and prevent them from doing further damage. And pour encourager les autres.

Indeed, although a board to vet the current generals has been mooted, maybe that isn’t necessary, or at least could be supplemented by instituting the Roman practice of decimation. Just axing 10 percent at random. I say that only partly in the spirit of A Modest Proposal.

Decimation was adopted and worked for a reason. It was a punishment exacted on an organization (a cohort, a legion) that had failed. It was a signal that the failure was collective, and the responsibility of all. It incentivized each legionnaire to police others, for each knew that they could pay a price for the failure of others.

The American military has failed in recent decades. The failure is collective. Take it from there.

Fixing the culture is an overriding priority. Another is fixing procurement–another collective failure. Current flag ranks plus senior civilian DoD staff are responsible for that. This is another reason for a thorough culling.

Here’s an area where Elon Musk could provide very valuable insight. Name one procurement program that has come close to matching what Musk has done with SpaceX, or Tesla for that matter. You can’t.

Indeed, I’d prefer Musk focus his DOGE efforts on this, rather than spread them across the entirety of the US government. Military procurement is government inefficiency par excellence, and needs a major overhaul.

I therefore agree with Hegseth’s policy priorities, as he has expressed them in pre-nomination interviews.

And I don’t GAF that he has bad tattoos.

The jury is of course out on how successful he can be in implementing them.

He will face intense internal opposition. Which is precisely why a thorough culling of the flag ranks and senior civilians is imperative.

Hegseth obviously can’t do it alone. Strong and aligned service secretaries are essential. As are the various under- and assistant secretaries and their staffs.

But it can be done. Reagan inherited a dispirited and lost military when he took office in 1981. Under his leadership, and that of Caspar Weinberger (who definitely did not have a MIC background, and indeed wanted to be Secretary of State but was given Defense instead) and his deputies, the military was turned around within a few short years.

I believe that the task will be more difficult, 44 years later. The institutional rot and bloat is worse now than then. But it must be done. And it must start with the culture. For that, a culture warrior is essential.

Donald Trump’s post-election blitzkrieg (see! He is Hitler!) has shocked and awed the ruling class. One of his moves that has attracted the most attention is his announcement of a “Department of Governmental Efficiency” (“DOGE”) to be headed by Elon Musk and Vivek Ramaswamy.

Musk has promised to use the yet-to-be-formally-established non-department department to trim trillions of dollars from federal spending (although it is somewhat unclear if this is an annual number or a cumulative total over some period).

The mechanism by which this laudable goal can be accomplished is unclear, given Congress’ power of the purse, and previous Supreme Court rulings regarding things like impoundment by which the president can thwart Congressional appropriations. Various stratagems have been floated, but these will set up a Constitutional clash, which, ironically, will get bogged down in the political and judicial quagmire that is the source of much inefficiency.

Moreover, it must be recognized that the room for budgetary maneuver is quite limited. Entitlements plus interest (including spending on veterans in entitlements) consume about 53 percent of federal spending. Discretionary spending accounts for “only” $1.6 trillion, half of which is for the Pentagon. Even axing entire departments, like the Department of Education, would only free up modest sums: Department of Education spending accounts for 4 percent of the budget, and no doubt closing down the entire monstrosity would result in a lot of that spending being shuffled elsewhere. (The case for eliminating Education rests–and rests quite firmly–on non-budgetary grounds, namely its destructive effects on American education at all levels).

Looking at trends, the Covid spending spikes (which added appreciably to debt and per the Fiscal Theory of the Price Level were a major contributor to inflation) stand out, but so does the increase in the growth rate of federal spending under Biden.

Notably, Federal spending plateaued during the post-2010 period of divided government, then ticked up under Trump (no budget hawk he), and accelerated markedly under Biden.

Therefore, the best outcome is to try to recapture the (relative) budget discipline that prevailed post-GFC, and post-Republican capture of the House in 2010. This is something that will have to come from Congress, and from Trump. Not from Elon and Vivek.

This is not to say that DOGE is futile. It can–and should–focus on non-spending sources of government inefficiency, but particularly on the inefficiencies that the government inflicts on the private sector through regulation. Especially during the Biden administration, the administrative agencies have run amok in imposing new rules, interpreting existing ones in pernicious ways, and regulating by enforcement. The new administration has considerable–though not untrammeled–power to cut back on this thicket, and pretty much complete discretion at not adding to it.

This is exactly the domain which exercised Musk most, as epitomized by his Parable of the Sharks and Whales:

Gulliver Musk’s SpaceX in particular (but Tesla too) has been attacked by regulatory Lilliputians. And X would clearly have been in a Harris administration’s regulatory cross hairs.

Here DOGE can perform yeoman’s service to propose, but it will still be up to the agencies to dispose. And those efforts will also trigger protracted legal battles. But there are battles that must be waged, and DOGE can perform a vital role of identifying the most egregious problems, the fixing of which would generate the most benefits.

This is also the area where the name-and-shame aspect of DOGE can work best. Lacking any real authority, DOGE can best serve as a bully pulpit (and hopefully a bullying pulpit) to galvanize public support for anti-regulatory efforts. As a strategy guide, I recommend Alinsky’s Rules for Radicals. Virtually all of them could be quite useful to DOGE, including “ridicule is man’s most potent weapon” and “pick the target, freeze it, personalize it, and polarize it.”

Back in the day, Senator William Proxmire had his Golden Fleece Award that ridiculed particularly absurd examples of government spending. DOGE should initiate something like that, perhaps even on a weekly basis. It could echo Proxmire’s focus on spending, but it should especially focus on regulatory outrages and absurdities.

It could also serve as a clearinghouse for complaints about regulatory abuse. You know, sort of like from the days when the doges ruled Venice:

No doubt the most useful information would come from within the agencies themselves, as many of the apparatchiks within said agencies will no doubt be waging guerrilla war against de-regulatory efforts and only their peers will be able to expose them.

There are two ways to rescue the United States from its parlous fiscal circumstances: cut spending, or increase growth. I doubt DOGE can do much regarding the first, but can contribute materially to the second. Attacking regulation-induced economic sclerosis would provide a much needed fillip to the American economy, which would spur federal revenues and help boost primary surpluses. This would also have salutary effects on inflation, again per the Fiscal Theory of the Price Level.

I wish Musk and Ramaswamy and those they attract to DOGE the best. They have set for themselves the Herculean task of cleaning the Augean Stables in DC. The best way to perform it is to prioritize and to optimize the use of the tools at hand. Given the numerous obstacles to tackling spending directly, this dictates a focus on regulation, and the mobilization through transparency of popular awareness of its myriad perversities.

Note. According to Wikipedia, the word “doge” “originally referring to any military leader, becoming in the Late Roman Empire the title for a leader of an expeditionary force formed by detachments (vexillationes) from the frontier army (limitanei), separate from, but subject to, the governor of a province, authorized to conduct operations beyond provincial boundaries.” That actually seems quite appropriate here, especially the authorization to conduct operations beyond boundaries.

There is a bit of a kerfuffle in futures world about the CME winning approval from the Natinoal Futures Association (NFA) to operate its own brokerage firm (futures commission merchant “FCM”). The industry is pretty unified in its opposition to this “vertical integration” by the CME that will put it into competition with some of its customers.

(Once upon a time I worked on the 15th floor of the tower on the left).

I think this will turn out to be much ado about nothing. Yes, CME has the right to open an FCM, but whether it will, or how big it will be if it does, is very much open to doubt.

Recall that the CME launched this initiative in response to FTX’s adoption of this model. (The fact that the CME obtained approval almost exactly 2 years after FTX went kaput tells you a lot about the speed at which regulators work). FTX is no more, and no other exchange, crypto or otherwise, has adopted the model. So there’s no perceived competitive threat from an integrated exchange, which reduces (and perhaps eliminates) the CME’s need to bring the FCM to life. It likely pursued the application after FTX’s demise as a precautionary measure.

If that’s right, the FCM will remain on the shelf.

And I think it will because it’s hard to make a business case for it. Let’s consider the various economic rationales for such integration.

One commonly asserted one is to leverage monopoly power. Commonly asserted, and wrong. The one monopoly rent theorem implies that except under very special (and usually quite contrived) circumstances, a monopolist (which CME arguable is in most of its products, and in clearing) can extract all the rents from its market power by pricing its own product, and cannot increase profit be obtaining market power upstream or downstream.

Regulated monopolists have sometimes integrated to circumvent rate regulation. For example, ATT owned its equipment supplier Western Electric. ATT operated under rate of return regulation, but could circumvent that by purchasing equipment from its subsidiary at inflated prices.

That doesn’t apply to CME. It is a regulated monopolist but not subject to rate of return regulation.

Integration can also be a way of circumventing price controls. That’s also not an issue here.

Vertical integration can mitigate transactions costs when there are bilateral monopolies (at least after the “fundamental transformation” that occurs when the upstream and downstream firms make relationship specific investments). The FCM sector is pretty fragmented and competitive, and does not fit this “scorpions in.a bottle” template.

Another reason for vertical integration is double marginalization. This occurs when both the upstream and downstream firms have some market power. Each charges a price above marginal cost, and in general the all in price exceeds the joint profit maximizing price.

Again, the FCM sector, though more concentrated than it was historically, is still highly competitive. It’s not impossible that FCM prices (commissions and data charges) exceed marginal cost, but not by much.

But it is not outside the realm of possibility that CME believes that the more concentrated FCM industry could use a little price competition. An exec at Interactive Brokers apparently thinks so: “If they’re going to undercut our pricing and offer cheaper market data then that will be a problem.” (It’s quite interesting that market data is mentioned. That’s a big deal in the modern electronic world).

Pro tip: “we don’t like the fact that they may compete with us on price” is not a public spirited rationale for opposing a competitor’s or potential competitor’s action.

I consider this to be the most likely reason for CME to activate an FCM and operate it seriously. And that would not be a bad thing. Although the impact on the ultimate customer is likely to be modest because lower FCM prices would permit CME to jack up its price. But the combined CME+FCM price would be lower if there is indeed double marginalization going on. That would benefit the ultimate customer.

Another reason for integration would be for the CME to secure better information on the costs of supply and the demand for FCM services. This could help it optimize its pricing.

The one potential real concern about CME’s move is that it is a self-regulatory organization that polices FCMs, and that it might favor its own or try to raise its rivals’ costs through exercise of its oversight facilities. But note that the NFA, which granted approval, regulates FCMs (under CFTC auspices).

In sum, absent competition from a new integrated FTX copycat, I don’t see a compelling business case for the CME to turn on the lights to its newly approved FCM, or at least to operate one at a scale that would compete seriously with the bank-owned big boys. (Funny how that form of integration gets little comment or scrutiny, eh?). The reason that it might–to stimulate price competition in the FCM space and mitigate double marginalization–would benefit customers, though perhaps not by much. The self-dealing issue is ameliorated considerably by the fact that the NFA regulates FCMs. (Indeed, political economy considerations, namely pressure from other NFA members, might make the NFA be harder on the CME).

So all in all, nothing to get hot and bothered about.

On Tuesday, the American people gave a new reason to remember, remember the 5th of November. Unlike the original Gunpowder Plot memorialized in the English verse, however, the 2024 version succeeded, and blew the establishment/ruling class/elite all to hell.

There was definitely a V for Vendetta vibe about this too. Ordinary people revulsing against a censorious and controlling regime.

To put it in a more American idiom, it was Jacksonians Strike Back. A populist hoi polloi giving the finger to their alleged betters. And Trump is–as I have said since his political emergence in 2016–the closest thing to Andrew Jackson in American politics since the man hisself 200 years ago. In personality, surely.

Trump’s triumph represents an extreme act of will, and his vendetta against the establishment forces arrayed against him. Any normal person would have collapsed in the face of the multi-front war waged on him by the powers that be. Just as Andrew Jackson’s rage against the machine that he believed had done him wrong in 1824 drove him forward in 1828, through grim determination Trump’s rage at the machine he believes did him wrong in 2020 propelled him to victory four years later. And as Jackson’s victory in 1828 was decisive and his loss in 1824 was extremely suspect, the same can be said of Trump in 2024 and 2020. And both men waged their campaigns in a fashion that violated contemporary rules of political decorum, to the outrage of their foes.

Jackson transformed American politics for decades, but he had two consecutive terms to engineer this transformation. The nature of Trump’s political career–with his two terms interrupted by that of a regime placeholder–will make it more difficult for him to have the same effect. But it is almost certain that American politics and government will not be the same.

The recriminations of the losers–in the Democratic Party and its media adjunct–have begun. It is quite a spectacle. Given the characters involved, unsurprisingly these recriminations have a strongly identitarian cast. It was the white bitches that did it! No! It was the misogynist black dudes! No! It was the racist Latinos!

They just don’t get it. It was them. They have yet to learn the wisdom of Pogo:

I wrote in the summer of 2016 that the “elite”/regime/establishment created Trump. He was a reaction to them. Without them, he would not exist as a political force. The Biden interregnum only reinforced the popular disgust with the regime, and powered Trump to a decisive victory. Trump’s victory is a repudiation driven by revulsion of a discredited regime.

But the Democrats/regime/establishment cannot bring themselves to face this reality. Normal people would react to such a humiliating defeat by taking a hard look at themselves. Or in the words of Chuck Leavell:

And it’s agonizing reappraisal,
Says Dusty Rhodes
And he’s the American Dream.

But no. They live so far up their own asses that honest self-appraisal is impossible for them. Perhaps not surprisingly, because they really don’t believe in the American Dream.

Normal people would say: “How did we possibly lose to the worst person in the world, Mr. Literally Worse Than Hitler? We must really suck. A lot of people must really hate us.”

But they are not normal people. Their answer is: “YOU really suck.”

They are in desperate need of a 12 Step Program–the first step of which is to admit one has a problem. But in their narcissism, they are constitutionally incapable of this.

I am of mixed minds on this. On the one hand, it will delay, and quite possibly prevent, their political rehabilitation. On the other, it condemns us to yet more years of hysterical (in the neurotic sense of the word) ranting and obstructionism and political and legal warfare.

Some leftist recognize all this. From the Nation, of all places: “This Time We Have to Hold the Democratic Party Elite Responsible for This Catastrophe”:

Democrats will need to radically reform themselves if they want to ever defeat the radical right. They have to realize that non-college-educated voters, who make up two-thirds of the electorate, need to be won over. They need to realize that, for anti-system Americans, a promised return to bipartisan comity is just ancien régime restoration. They need to become the party that aspires to be more than caretakers of a broken system but rather is willing to embrace radical policies to change that status quo. This is the only path for the party to rebuild itself and for Trumpism—which without such effective opposition is likely to long outlive its standard-bearer—to actually be defeated.

The Democrats are not the only ones who need to have a Come to Jesus moment. The regime adjacent, controlled opposition, traditional Republicans need to change as well. The Grand Old Party is just old. The nation’s political polarity has shifted completely, and the traditional Republican base has flipped to D, and the traditional Democratic base has flipped to R. The Mitch McConnells et al need to go away, and new people that align with the current political realities must replace them. (J.D. Vance provides a good role model here). In the words of Oliver Cromwell: “In the name of God, Go!”

The timing and the magnitude of the changes cannot be predicted with any precision. But they will come. And when they do, remember, remember the 5th of November. Because that will be the catalyst of those changes.

Yesterday Joe Biden called Trump supporters garbage.

No, you called us garbage. It's on tape. pic.twitter.com/bxb4UDnteN

— End Wokeness (@EndWokeness) October 30, 2024

This, mind you, happened about the same time that Harris was giving her “closer” “Trump=Hitler” speech on the Ellipse.

In one of the great “Oh Shit!” moments of all time, Dementia Joe’s outburst triggered an epic cycle of spin. The gaslights were turned all the way up. You dummies–there was an apostrophe in “supporters”. He was referring to one guy, the comedian who made the stupid Puerto Rico joke at Trump’s MSG rally! Not eighty million people! Come on!

Of course that makes no sense. If he was referring to one guy, he would have said “the only garbage out there I see is his supporter.” The possessive would have referred to the supporter’s joke, which makes no sense in this context.

But who are you gonna believe? Them or your garbage eyes and ears?

We know that this is the opinion that Biden, Harris, and the Democrats actually hold of about half the electorate. Biden basically said as much in his speech (with production assistance from the ghost of Leni Riefenstahl ) in front of Independence Hall a couple of years ago. It’s an echo of Hillary’s “basket of deplorables” and Obama’s “bitter clingers.” And more media and celebrity examples than you can shake a stick at.

It’s what they believe. Truly believe.

Joe’s timing was exquisite. The Democrats were trying desperately to leverage an insult comedian’s remark into a campaign issue. Then Joe blew that up completely. There’s a big difference between a professional clown making a remark about a place and a president making a similar remark about half of the people in his country.

Trump of course jumped on it, in his showman’s fashion, jumping into a garbage truck before a campaign event, donning a garbage man’s reflective vest, and then giving a jokey speech in it. It was a move to rival his McDonald’s gambit. The man is a living, breathing meme and as a result his showmanship goes viral on a scale no other politician can match.

Biden’s remark is just a particularly crass and ill-timed part of a broader Democratic campaign theme to demonize Trump as Hitler, and therefore to paint anyone who supports him as a Nazi, or at least a Nazi adjacent enabler. It’s not working, and even many Democrats now realize it’s not working and are pleading Harris to stop.

But why would they think it would work? There is in fact some logic to it, but that logic has a fatal weakness that seems to be manifesting itself now in a major way.

The reason for this trash talk is to stigmatize anyone who expresses support for Trump: if you do, you’re a Nazi, and everyone will despise you. No, this won’t deter his hardcore supporters. But it can potentially appeal to those who are particularly afraid of ostracism. This would include those who may have sympathies with Trump on some issues (and by my reading, particularly on immigration) but who live and/or work among vocal–and often vicious–leftists. It also includes the naturally wishy-washy, who instinctively follow the crowd. Such folk hide their preferences under a bushel basket, which leads to an understatement of public support for Trump. And that can lead those who are naturally followers to go with the apparent in-crowd and vote for Harris.

That is, the rhetoric is intended to create preference falsification. Preference falsification allows authoritarian regimes to retain popular support even if many individuals’ true preferences are opposed. Every one goes along, not because they truly believe, but because they think everyone else is going along too.

But the weakness in this strategy is that even if a modest number of people stop falsifying their preferences, it can trigger a cascade of such repudiations. Roughly speaking, preference falsification has two equilibria: most people falsify, or most people don’t. A jump from one equilibrium to another is the death knell of regimes that rely on preference falsification to maintain their facade of authority–and who rely the threat of social stigma to enforce it.

I think we are experiencing such a cascade. Why? I think that the assassination attempt was the first crack in the falsificaiton wall. It got a lot of people to acknowledge their admiration for how he handled it, and to recognize that the vicious rhetoric against him was extremely dangerous: it created an atmosphere in which unstable personalities were encouraged to take acts that could spark a political and social calamity.

Moreover, the rhetoric had been used for so long that its narcotic effect had worn off. And perhaps most importantly, it clashed with what people saw in his self-created memes, like the McDonald’s episode, this Al Smith Dinner speech, and his riffs at rallies. These things humanized him and clashed with the Hitler image.

Hitler wasn’t funny. Trump can be very funny. Common Americans can relate to Trump in ways that it would be impossible for a Hitler to do. There was a disconnect between what many people saw in Trump and their image of Hitler.

Biden’s garbage remark will only reinforce the cascade. Even those who have continued to conceal their true beliefs until now will realize that the Democrats really despise them, and definitely do not have their interests at heart. Pride, self-respect, and self-interest will combine to overwhelm the fear among many of social stigma. And the more that happens, the less powerful the effect of social stigma, which only accelerates the process.

There’s the old Michael Kinsley quip that a gaffe is when a politician tells the truth. That’s what Biden did. And by talking trash and thereby telling the truth he could well have broken the spell of preference falsification that has been the foundation of a Harris campaign that can offer nothing positive either in program or personality.

In my recent post enumerating the reasons to vote for Trump, the First and Second Amendments were at the top my list. And not only mine. Consider El Gato Malo: “and if you want to know why you should be a one issue voter on censorship and a free internet this election, THAT is why. it’s not just about this election, it’s about every election after it and who gets to speak.” (Emphasis in original). If there is one thing that red pilled Elon Musk, it is the First Amendment/censorship/free speech. Or look at people like Matt Taibbi or Michael Shellenberger or Glenn Greenwald: definitely not right wingers who have been strident critics of attacks on free speech under this Democratic administration.

It is therefore beyond outrageous to see Harris say that the Constitution, and the Bill of Rights in particular, is the reason to vote against Trump:

NEW: Kamala Harris says black men need to vote for her because Donald Trump will take their guns and free speech away.

You can't make this up.

Shannon Sharpe: Blacks for Trump. They feel that Trump is better for the black community. Can you explain that?

Harris: Right. That's… pic.twitter.com/B3xc9KiAIW

— Collin Rugg (@CollinRugg) October 28, 2024

When has Trump ever said any of those things? Why didn’t he do them when he had the chance?: he was, after all, president for four years. Just didn’t get around to it? Or what?

This is the epitome of the Big Lie. Another irony given the non-stop Trump=Hitler 24/7 mantra.

But we’re the ones spreading disinformation, dontcha know.

The Democrats have been pushing for censorship hard for the past four years. They have created an entire parallel government structure to attempt to circumvent the First Amendment in order to censor social media. John Kerry and Hillary Clinton recently said the quiet part out loud: free speech is a problem, and must be restricted. The Democrats pant after the kind of system the EU has set up, unrestricted by any right to free speech. The belief that speech must be restricted is an article of faith on the left: just visit any college campus. “Your speech is violence.”

And spare me the “I’m in favor of the Second Amendment. I don’t believe we should be taking anybody’s guns away” crap. To anyone who believes that: Hey, I’m a Nigerian prince and I’ll make you unbelievably wealthy if you just give me access to your bank account: just drop it into the comments. Harris’ record–and Biden’s record–on gun control is crystal clear.

In sum, this pitch is as Orwellian as it gets. An inversion of truth.

The only bright spot here is that Harris feels compelled to cosplay as a stalwart defender of your Constitutional rights: it’s an implicit admission that she has nothing positive to offer, and that she is vulnerable on these issues. It’s also telling that she clearly feels it necessary to be spend the waning days of the campaign trying to secure black men’s votes. Her utterly outrageous pitch of a few weeks ago (Hey, brothas: vote for me and I’ll give you free money, a leg up in the weed business, and crypto!) which went over like a fart in church and Obama’s scolding (which generated a lot of outrage among those he was trying to cajole) are other examples.

Yesterday the Washington Commanders beat the Chicago Bears on a last minute Hail Mary. Harris gives every impression of attempting to do the same. Yeah, it sometimes works, but it’s a low probability play that is only resorted to out of desperation.

Kueen of Inkoherence Kamala has been asked about immigration on several occasions, and her rope-a-dope answer (emphasis on the dope) is always along the lines of “the immigration system is broken, we need a law that offers a clear path to citizenship.”

This begs the question of “a clear path to whom?” The path to citizenship for legal immigrants is already clear, although it is complex. Therefore, Kamala can only mean a clear path to citizenship for people who entered the country illegally at some point.

Harris offers this policy as a way of dodging the question of securing America’s borders. By dodging she implicitly suggests that these issues are separate. They are anything but.

One can perhaps make an argument for some sort of amnesty–and that is what a “clear path to citizenship” for illegal immigrants is–given the difficulties of deporting millions, many of whom have been here for years, have anchor children, etc. Perhaps.

But that is a way of addressing–and effectively admitting–past failures to secure the borders. The only way to prevent future failures–and eliminate the need for future amnesties–is to secure them now and in the future.

By answering questions about reducing the flow of illegal immigrants–and don’t give me any of this don’t say illegal say “undocumented” or “refugee” crap–with palaver about “a clear path to citizenship” Harris–and the Democratic party generally–is clearly indicating that she has (and they have) no intention of reducing the flow. A “clear path to citizenship” for illegals, combined with policies that result in massive increases in their number (like we have observed since day 1 of the Biden administration) is an open invitation to a mass incursion. Which is what we have experienced since 2021.

Which raises the question “why?” The charitable answer is that this is the product of fuzzy humanitarianism. But given their track record the people pushing this deserve no charity whatsoever. The far more likely explanation is that they are using gauzy humanitarian rhetoric to conceal a far more malign agenda. Namely, to change the country fundamentally.

Their motives for this are likely overdetermined. Partly it is a crude political calculation, based on the belief that the newly minted citizens will vote Democratic. But there is something more sinister than that. The left despises traditional America. They hate American culture, especially non-urban American culture (to the extent that they are even willing to admit that there is such a thing). The quickest way to change the culture is to overwhelm it with vast numbers from completely alien cultures. Just look at where the Biden administration has dumped them–in places like Springfield, OH, and Charleroi, PA. The type of places that leftists despise that are inhabited by the type of people leftists disdain.

I seriously doubt that if elected, Trump could carry through on his pledge to deport millions. However, it is almost certain that he will dramatically reduce the inflow, just be restoring the executive orders that Biden flamboyantly rescinded immediately upon assuming office.

Then, and only then, can there be a serious discussion about any form of amnesty. And any “paths to citizenship” that are adopted should be closed to anyone who enters the country illegally after its passage. Even a bill with such a restriction is dubious, however, given that passage of an amnesty benefitting past trespassers suggests that any promise not to so benefit future ones is not credible.

If this means that millions are consigned to legal limbo, so be it. That is a small price to pay for maintaining the integrity of the country, tattered though it may be.

The election nears. Although I’m not wild about the choices, to me the choice is completely clear. I’ve been very critical of Trump on economics, but since Harris is likely worse, this is no reason to vote for the latter and not the former, although it could be a push. However, when it comes to virtually every other issue that matters to me, it is not a push. Trump>Harris. And it’s not even close.

I decided to put it in list form. Here are the issues where I think Trump is better for America–a lot better:

1. 1A. The Democrats are virulently anti-free speech, and not shy about saying so. This could be the most important issue of our time. Free speech is under attack, and a Harris victory would go a long way towards making that attack successful. Trump lets it rip, and if he’s president he’s likely to let us let it rip. This is the first freedom. If it goes, the rest of them follow.
2. 2A. The Democrats are virulently anti-right to bear arms.
3. The Constitution generally. There is a major undercurrent of hostility (and sometimes not so under) among Democrats to the Constitution, including most especially the Supreme Court (now that it does not do their bidding), the Electoral College, the Senate, and the separation of powers. All of these are fundamental pillars of our system, and pulling them down would have extremely baleful effects, potentially including disunion and civil war.
4. Freedom generally. Kamala babbles about freedom (including using some insipid Beyonce song with that title as her theme song), but her idea of freedom is NOT freedom from the dictates and whims of the state. With the possible exception of the freedom to terminate a pregnancy. Instead it is the Orwellian progressive idea of positive “freedoms” where the state gives you stuff–but there are always strings attached. You become not a free person, but a dependent one.
5. Judges. The Supreme Court gets all the attention, but the real work gets done in the District and Appeals courts. Compare, for example, Judge Chutkan with Judge Cannon.
6. Immigration. No comment necessary.
7. The deep/administrative state. Now I seriously doubt that if elected Trump will be able to make inroads into the deep/administrative state. Indeed, he will be lucky to keep it from destroying him–as it has been attempting to do since he declared his candidacy in 2015. But a stalemate would be better than the alternative under Harris: I guarantee that the administrative/deep state will run rampant in a Harris administration. Indeed, it will be the Harris administration. As it is currently the Biden administration: you don’t think Biden is president, do you? And you don’t think Harris will be, do you?
8. Regulation. This is a corollary of 7. Trump’s main virtue in his first term was cutting back on some regulation. I anticipate that he would continue these efforts if elected. I guarantee that the regulatory agencies, notably EPA, SEC, and FCC, not to mention many others you’ve probably never heard of, would run rampant under Harris. The elimination of Chevron deference would help some in controlling the flood, but not very much–especially if the courts are stocked with progressive judges (see 5 above): progressive judges will continue to defer, even if they don’t have to.
9. DEI. Especially in the military. Here is someplace I think Trump can really make inroads, although again he will face organized resistance from within the Pentagon and within the cadres of flag officers promoted under a pro-DEI regime. A good place to start would be the service academies. They need to be torn down to the studs and rebuilt to something like they were decades ago: doing so would be highly visible and send a strong signal while being more manageable than trying to take on the entire Pentagon. Moreover, DEI has penetrated the federal government so deeply (look at recent stories regarding its impact on the Department of the Treasury and the National Science Foundation) that it is a target rich environment. Trump will be able to beat it back, perhaps considerably. Under Harris, it would only metastasize.
10. Climate and energy. Trump would pull back hard on climate insanity, and relatedly get out of the way of development and employment of fossil fuels. Both of these would be conducive to growth and prosperity, whereas the Democratic/progressive alternatives of renewables and myriad restrictions on fossil fuels are a recipe for penury. Just look at German or the UK–or California.
11. A more restrained, less interventionist foreign policy. Yes, Trump is a loose cannon on these matters, but in some respects that is conducive to peace: unpredictability, impulsiveness, and yes even craziness, have strong deterrent effects. For evidence of what a traditional, supposedly non-crazy foreign policy has wrought, just look around. The world is on fire, whereas it was not 3.5 years ago. If that’s the product of sanity, I’ll take crazy any day. Trump’s overall instinct is to look out for America’s interests, not to save the world, even if he hurts feelings (especially Euroweenie feelings) when doing so. Trying to save the world, or remake it in America’s image, has brought nothing but grief to us, and a lot of misery to the rest of the world.

I could probably add a few more things, but these are at the top of my priorities.

This really is a pivotal election. Not so much for what Trump could accomplish if he is elected, but for what Harris (or more accurately her regime/ruling class masters) would do if she is. I really do believe that this is a real fork in the road, and if the nation takes the left one there will be no turning back–and there will be a cliff at the end of it. Trump may not lead us to the promised land, but he can keep us from falling into the the abyss, at least for a while.

As a small example of the joys of Californication that would spread to the entire US under a Harris administration, a couple of days ago Gavin Newsom signed legislation that would empower the state’s Clean Air Board to require California refiners to hold certain levels of. inventory. The objective of this legislation is to prevent the price spikes that periodically occur in the state.

Implicit in this legislation is the idea that inventories are too low. Why would that be? What market failure is there that induces such allegedly suboptimal behavior? None has been provided.

And no, the existence of price spikes is not evidence of inefficiency, and in particular inefficiently low inventories. In fact, in an efficient market for a storable commodity, price spikes should occur periodically: their absence would be evidence of excessive inventory holding.

The intuition is straightforward. Spikes occur when there are stockouts–when inventories fall to low levels due to supply and demand shocks. But it is optimal to have stockouts. If you didn’t, that would mean that you have produced something that is never consumed, which is obviously wasteful. So inventories should be drawn down to low levels periodically, and prices should spike then. Therefore, prices should spike periodically.

The cover of my book on commodity price dynamics based on the theory of storage has a graph of a simulated efficient, competitive market price for a storable commodity. It has spikes.

Forcing excessive stockholding is inefficient. Moreover, it tends to raise prices on average even if it reduces the frequency of price spikes. The only way to increase inventories that are consumed in certain periods is by reducing consumption during other periods. That requires higher prices in these other periods.

But spikes are politically salient, whereas higher prices most of the time get treated as the baseline, as being normal. The fact that those baseline prices are higher than they would be absent the mandated stockholding is hidden from most voters. So politicians can claim credit for shaving off some of the highly visible spikes, and aren’t blamed for the hidden cost (i.e., higher everyday prices).

That’s all assuming the legislation has the intended (if inefficient) effect of raising inventories. But it might not. As I understand it, the mandate applies to refiners. But non-refiners–traders in particular–hold stocks too. Indeed, those are most likely to be the “speculative stocks” that are used to smooth out supply and demand fluctuations, thereby reducing price volatility.

Mandating higher refiner stocks is likely to result in a reduction in these speculative stocks, thereby reducing the effect of the regulation. Given that holding excessive inventories is inefficient, this offsetting is a good thing. Indeed, it is possible that the offset will be 100 percent, meaning that every increase in refiner stocks is offset exactly by a decline in non-refiner stocks, thereby vitiating entirely the effect of the law.

So, the possibilities are: (a) the regulation will increase what consumers pay for gasoline, or (b) it will have no effect. Making consumers better off is not one of the possibilities.

Newsom has used the legislation to demonize oil companies, whom he claims make too much money, as evidenced by the high prices Californians pay for fuel, relative to those who live elsewhere.

Riddle me this, Gavin: if being in the refining business in the Golden State is so damned lucrative, why have 7 refineries in the state shut down in the last decade? Indeed, hot on the heels of Newsom’s crowing over the law, Phillips66 announced it is closing its refinery in California.

Note to the slow learners (and no learners): exit is not a sign of excess profits. Quite the contrary.

But this is the type of deep economic thinking that infests progressives, and which they want to inflict on all of us. Oh, if what happens in California were to stay in California, what happiness there would be for the rest of us. But the Democratic party wants to Californicate all of America instead.