Streetwise Professor

In my humble opinion, too many people are way overthinking what Putin is doing in Syria. It seems pretty straightforward. A long-time Soviet and Russian client was on the verge of collapse: the loss of Idlib earlier this month, after a long battle which ground inexorably against Assad, represented a major blow. Syria is Russia’s only outpost in the Middle East, and is also important to Iran, with which Russia cooperates because they share a common enemy: the US. Absent Russian intervention, Assad’s destruction appeared imminent.

Meaning that this is more of a rearguard action, defending the rump of the Syrian state, than an offensive thrust. And it is a reaction to events, not a part of some grand geopolitical strategy.

Some get this.

Donbas is a precedent. Direct Russian military intervention only occurred last August when it seemed that the Ukrainian army was on the verge of crushing the rebels. Once the situation stabilized, Putin seemed-and still seems-to be willing to accept a stalemate.

As for the military effect, the major resources committed appear to be aircraft, and ground units to protect them and their bases. The US campaign against ISIS shows that air power alone is unlikely to be decisive. The Russians have Assad’s army to work with, but it is battered and demoralized after four years of war, and even with air support is unlikely to be capable of sustained offensive action. It is probably on a par with the Iraqi army in terms of combat effectiveness (and may be worse), and past months have shown that even with US (and some Iraqi) air support, the Iraqi army can’t wage offensive warfare. I seriously doubt the Syrian army can either, even with additional Russian air support. Thus, the most likely outcome of the Russian intervention is to stave off Assad’s defeat and perpetuate the stalemate.

There is much gnashing of teeth and rending of garments in Washington and Europe, but since they haven’t done anything in the past four years and had no plans of doing anything serious going forward, this reaction is decidedly overwrought.

The administration persists in its pathetic insistence that Assad must go. Today Kerry repeated this demand, but said Assad’s departure doesn’t have to happen on day one or month one. What about century one? That seems feasible.

The US wants to negotiate Assad’s departure, and somehow thinks it can enlist Russia in this effort. That is utterly delusional, especially now that Russia has upped its commitment to Assad. It is also delusional because by making it clear that the US will not do anything serious to combat Assad (especially since that would anger its new BFF, Iran). Our negotiation leverage is therefore bupkis. Therefore, it is better for Kerry and Obama to keep quiet, and let the world think that they are neutered losers, rather than speak up and remove all doubt.

The biggest loser in this is Israel. Iran cares about Syria primarily because it is its bridge to Hezbollah. Israel has periodically launched air attacks in Syria to prevent the movement of advanced weapons (especially anti-aircraft missiles) to Hezbollah in Lebanon. The Russian presence complicates Israel’s problem greatly. But of course, this is probably a feature not a bug from Obama’s perspective.

The puzzle is Turkey. Turkey wants to see Assad’s destruction, and is perfectly fine with replacing him with Islamist radicals. Russian intervention reduces the odds of Assad’s defeat, and this is a defeat for Turkey. I have no idea how someone as erratic  as Erdogan will respond. One response will likely be greater covert support for the jihadists fighting Assad.

In sum, Putin’s actions in Syria will perpetuate a grim status quo, rather than cause a dramatic change in the strategic situation in the Middle East.  What happens going forward depends in large part on developments on the ground. If the current level of intervention is insufficient to slow the crumbling of the Assad regime, how much further will Putin be willing to go? His resources are constrained. As I wrote earlier, he faces daunting logistic difficulties in mounting a bigger intervention.

Regardless, we (in the US) are cast in the role of spectators: as Anthony Cordesman notes (perhaps stating the obvious), at present the US has no realistic military options in Syria. Obama made that choice four years ago, and reiterated his choice in 2013. Putin is now making his choice, and will have to live with the consequences: his options are no more palatable that the US’s (though he does have a coherent objective, which the US does not have and never had). We should leave him to it.

One way to identify a scientific paradigm in crisis is an attempt by its adherents to crush those who dissent. These efforts become all the more frantic, the more advanced the crisis becomes.

We may be witnessing such a moment now. Jumping on a proposal made by Senator Sheldon Whitehorse (D-CO) in a WaPo oped, a group of noted climate scientists have signed a letter addressed to the Attorney General supporting a RICO investigation of those individuals and organizations who are climate change skeptics and deniers. Whitehorse compared those who dispute the climate change consensus to the tobacco scientists who disputed the cancer-smoking link, who were RICO targets in the early-2000s.

This is a perversion of science in the name of science. Certainty, faith, and conformity are the domain of religion: Skepticism and doubt are the domain of science. Skepticism is perhaps the preeminent scientific virtue: certitude is the leading scientific sin.

Indeed, the sociology of modern institutionalized science, with its dependence on government funding, tends to produce excessive consensus, and is rife with mechanisms that suppress challenge. Skepticism and doubt need defending and nurturing, not stigmatizing and outright repression.

The whole climate change debate is framed in a logically fallacious way because it is posed as a false choice: is anthropogenic climate change true or false? I believe that it is true, but that is a trivial answer to a trivial question. The more interesting questions involve the magnitude of the effect, and the costs of alternative means of mitigation or adjustment, and on these issues there is much room to be skeptical about the much vaunted consensus.

The consensus is based on models. Very large, complicated models of coupled, complex systems. I know enough about models to know that one should always be skeptical of them. One should be particularly skeptical of large models. And one should be especially skeptical of models of coupled complex systems (non-linear) with myriad feedbacks. By their very nature, such systems defy modeling, especially where computation is involved because computational tractability almost always involves linearizing the non-linear.

Climate models are all these things, so doubt and skepticism are more than warranted: they are mandatory. Climate is filled with poorly understood feedbacks and processes that are handled-if they are handled at all-by crude parameterizations (a polite way of saying SWAG: scientific wild assed guess). Furthermore, their empirical validity is doubtful, at best. The longstanding inability to predict the behavior of the tropical troposphere is one example, but even more tellingly, the failure to predict the recent temperature plateau is a massive empirical failure.

Alarm bells should also be triggered by the repeated fiddling with historical temperature data. Especially since that fiddling always seems to work in one direction: past temperatures are pushed downwards to increase the upward trend.

A confident science would relish the challenges of skeptics, secure in the knowledge that it will prevail because theory and evidence are on its side. A frightened and insecure science-especially one dominated by scientists fearing for their funding and their academic sinecures-responds by attempting to throttle those who criticize it. That’s what we are seeing now, with these efforts aided and abetted by politicians and journalists (e.g., jackholes like Jake Tapper-who would be a jakehole, I guess-and his performance in Wednesday’s GOP debate).

It is particularly risible to see scientists who dominate journals, dominate the peer review process, dominate the funding review process, dominate the universities and research departments, and who secure the lion’s share of government funding, whine about the dread threat posed by a few (and they emphasize that they are few) dissenters from the consensus. The constellation of organizations and funders that support the climate change consensus dwarfs that which the scientists and Whitehorse claim threatens science and truth. The letter reeks of projection by the signers. It’s very Russian.

Again, a confident science, a correct science, in control of all the commanding heights of the modern scientific establishment, should have nothing to fear. But we see the elephant quaking before the mouse, demanding that it be squashed.

But it is perhaps the fact that they have a lot to lose that explains the ferocity of the response to anyone who threatens them.

The endorsement by politicians of inquisitorial means is to be expected. That’s how they roll. The endorsement by scientists of inquisitorial means to be applied to other scientists is an abomination.

Update: When not applied to its original targets, the mafia, RICO is almost always a tool of government extortion and intimidation. I am reminded in particular of the Giuliani prosecutions of Michael Milken in the 1980s. Even in criminal cases it is almost always a perversion of justice. To invoke it in a scientific dispute is beyond outrageous.

Cast your eyes around the world, and they are likely to land on a scene of conflict and chaos. In the Middle East, obviously, from pillar (Libya) to post (the Persian Gulf). In the center of Eurasia (Ukraine). In the South China Sea and the DMZ. The world situation has not been this fraught since the 1930s.

If you are like me, you crave an explanation. You could do far worse than start with Samuel Huntington’s Clash of Civilizations. Huntington’s article and subsequent book of the same title unleashed a storm of furious criticism when it came out in 1993. But standing 22 years later, Huntington looks prescient, and many of his critics look like utter fools.

The best evidence of this is to look at the antagonists in the most important cockpits of conflicts.

Start with Ukraine. Putin has explicitly invoked the idea of “a Russian world” and has justified his actions in Ukraine and elsewhere as a legitimate defense of Russian people, language, and culture from the assaults of his enemies, especially in the West. Putin and other Russians tirelessly invoke contrasts between Russian civilization and European civilization in particular.

Putin and Russians generally think they are in a Clash of Civilizations.

Next consider China. China’s leadership too views China as a great civilization that was oppressed by others (Westerners, Japanese), and which is now assuming its proper place in the world. They express a clear cultural-civilizational-chauvinism. If anything, the Chinese people are even more aggressively chauvinistic than their leaders.

The Chinese leadership and people think they are in a Clash of Civilizations.

And of course, there is Islam. That Islam believes that it is in a civilizational war with just about everybody, but in particular the West, needs no explication. Yes, there is an intramural civil war within Islam, between Sunnis and Shia, but (a) this is complicated by a civilizational clash between Arab and Persian, and (b) this conflict is in no small part a battle over who will lead the clash of Islam with the infidels.

The jihadis and the mullahs and vast numbers of Muslims generally believe they are in a Clash of Civilizations.

Who doesn’t believe it? The skeptics and doubters reside mainly in one civilization: the Western.

Indeed, Huntington’s harshest critics resided (and reside) in the West. They are, in the main, progressives, which, like top quarks, come in left-handed (mainly those who self-identify as progressives) and right-handed (e.g., neocons as epitomized by Francis Fukuyama) varieties. Despite their differences in specific policies, they share a dialectical view that history progresses in one direction, and that it is relentlessly moving to a final state, and that in the end, humanity as a whole will converge to this state. The left progs’ final state is socialist/statist: the right progs’ final state is liberal and democratic.

Obama is clearly a progressive, so understood. His most consistent trope in responding to conflict, with Putin or the Islamists, is to say that history will leave them behind; that they are swimming against the tide of history. Obama said this to Putin about Ukraine: he just said it about Syria: he has said it about Isis. His policy towards Iran is predicated on the belief that once Iran is readmitted in into the community of nations, it will become a Normal Country, and discard its Islamist civilizational mission.

So part of the failure of many of those in the West to believe in the Clash of Civilizations is rooted in a worldview that such conflicts are an atavism that will disappear as the world converges to-progresses to-some homogenous end state in which all existing differences are dissolved.

But that’s not the only part. Another part is a paradox of Western civilization. The West’s distinguishing characteristics include skepticism, criticism and doubt. That very skepticism, criticism and doubt have led many (especially on the left, but also many on the right) to conclude that Western civilization is flawed, corrupt, defective, and certainly not superior to any other civilization, and hence not worth fighting for. Thus, the self-criticism that defines Western civilization prevents many in it from fighting for it. In this respect too, Obama is an exemplar.

A big part of the reason the past few years have seen a waxing of the Clash is precisely that the leader of the leader of Western civilization has declined to fight for it, due to a rather strange combination of fatalism (history will progress and nations will converge due to fundamental historical forces) and a belief that its civilization has no right to assert itself, because of its inherent flaws. This is in contrast to the American role post-1945, which self-confidently (on the whole, with exceptions like post-Vietnam) believed in the superiority of Western (and specifically American) civilization, and exerted its power (economic, social, cultural, and often military) to create and maintain a rough order even at the fault lines of civilizational conflict (notably the Middle East, but also between Europe and Russia, and between China and the rest of Asia).

So one way to understand the mess that the world is in now is to take Huntington’s idea of enduring antagonisms and frictions between competing and incompatible civilizations, and add the retreat of the one power that largely kept those antagonisms and frictions under control.

We are arguably in the midst of a new world war, though one that is fortunately, for now anyways, not as cataclysmic as the two that preceded it. But it is a different type of world war not only because of its lower intensity, but because it is not a war between two dominant blocs. Instead, it is a multipolar war with at least four major civilizations jostling at various points around the globe. This multipolarity makes the struggle less predictable, and far more confusing. It will only become more so unless the West, and in particular the US, realizes the nature of the ongoing conflict, and reengages accordingly.

A phrase often attributed to Trotsky (probably wrongly) seems apt here: “You may not be interested in war, but war is interested in you.” Rephrased: you may not be interested in a Clash of Civilizations, but a Clash of Civilizations is interested in you. If we don’t awaken to that reality, we are destined to be the losers in that clash.

The last few days have seen a frenzy of outrage at Russia’s reinforcement of Assad in Syria, including the deployment of naval infantry at some bases in the country. As someone with a solid nine years of writing to establish my anti-Putin cred, I can still say that I don’t see what the fuss is about.

Russia has long propped up Assad. This latest activity is a continuation of that policy, and is driven by Assad’s deteriorating position. Since Assad is going down, Putin feels compelled to step up.

The intervention is limited. The very fact that naval infantry is involved indicates its limited nature. Dismissing Michael Weiss’s hyperventilating about these being Putin’s “Dirty War Forces”, and focusing on military realities, Russian naval infantry has little combat power, and very little offensive capability. It can seize and defend ports and airfields, and carry out some commando-type direct action operations. And that’s about it. A low-endurance, low-firepower, light force not suited for grinding ground combat in a large theater like Syria. It is there to defend ports and airfields that will be used for resupply and perhaps to intensify the air campaign against the anti-Assad forces.

The targets will in the main not be Isis. Other jihadi groups pose a more serious threat to Assad, and that is who he (and the Russians) will focus on. Indeed, by complicating air operations, Russian presence will impede the US campaign (such as it is) against Isis.

The main reason for the outrage at the Russian action is that it aids Assad, and Assad is a very bad man.

Yes, he is. And the time to do something about him is long past. Four years past. Three years at the low end. But Obama and the rest of the west harrumphed and said that Assad must go, but did nothing. Red lines were drawn, and trespassed, with no consequence. Since then, the war in Syria has descended into an apocalyptic battle between Assad and a mind-numbing array of psychotic, murderous jihadi groups: Assad’s enemies are very, very bad men too. (Even if Assad’s overthrow had been engineered in 2011 or early 2012, it is doubtful that any good would have come with it, given Obama’s and Europe’s neuralgia to securing the peace in the aftermath of the toppling of a dictator. See, for instance, Libya.)

Now it is too late to do anything to stem the holocaust. Regardless of who “wins”, the aftermath will be a bacchanal of sectarian slaughter.  And since stalemate is the most likely outcome, no one will win, and a bacchanal of grinding slaughter will occur anyways.

When questioned about Russia’s intervention, Obama recycled one of his tiresome memes, this one in the Putin-is-swimming-against-the-tide-of-history vein. He said the Russian effort is doomed to failure. This meme is quite convenient in that it relieves him of  any responsibility to do anything: history will take care of it! Given that at this time there is nothing that can really be done to prevent Syria’s descent into the abyss, and based on form, whatever Obama does is likely to make it worse, this is probably a good thing.

That aside, the issue becomes how do you define failure? With sufficient commitment of resources, Putin can likely ensure that Assad can maintain a rump state on the Syrian coast, and provide Putin a foothold in the Middle East. That’s enough for Putin.

As for vanquishing jihadi groups, let alone Isis, Putin couldn’t care less. Putin can realistically achieve his ambitions, and if he does, it is unlikely to have any material impact on US interests.  The effort is not doomed to failure, understood from Putin’s perspective, and the US should be rather indifferent to whether it succeeds or not.

Indeed, since Russian involvement is unlikely to have any effect on the magnitude of the Syrian catastrophe, but will be a drain on already strained Russian resources, it could well be a plus for the US. Why should we care if Putin perpetuates his Syrian ulcer? Indeed, a cynical realpolitik type would probably conclude that we should stand aside and let an already struggling Putin throw his scarce resources into a battle where stalemate is the best that can be achieved. As Napoleon said: “Don’t interrupt your enemy when he is making a mistake.” A Putin stuck in a Syrian quagmire is less able to make mischief elsewhere.

Seriously, if perpetuating Assad’s rule over a wrecked Syria is victory, what would defeat look like? If that’s how Putin wants to fritter away his limited capabilities, so be it. It won’t make the carnage in Syria any worse, and doesn’t injure US interests. Let Vlad have his victory, and hope he pays dearly for it.

China has created some amazingly successful futures markets in recent years. By contract volume, the top 5 ag futures are traded in Zhengzhou, Dalian, or Shanghai, as are 4 out of the top 5 metals contracts. Once upon a time, China also had the most heavily traded equity futures contracts. Once upon a time, like two months ago.

Then the crash happened, and China thrashed around looking for scapegoats, and rounded up the usual suspects: Speculators! And it suspected that the CSI 300 Index and CSI 500 Index futures contracts were the speculators’ weapons of mass destruction of choice. So it labeled trades of bigger than 10 (!) contracts “abnormal”–and we know what happens to people in China who engage in unnatural financial practices! It also increased fees four-fold, and bumped up margin requirements.

The end result? Success! Trading volumes declined 99 percent. You read that right. 99 percent. Speculation problem solved! I’m guessing that the fear of prosecution for financial crimes was by far the biggest contributor to that drop.

The stock market (led, as is usually the case, by index futures) was bearing bad news, so the Chinese decided to shoot the messenger. Then back over it a few times with a tank and bury it in cement. Just to make sure.

There is a wider lesson here. Namely, China may talk the reform talk, but doesn’t walk the reform walk. It likes one way bets:  markets when they are rising, not when they are falling. And not just the futures markets have been told to get their minds right. Chinese authorities-and by authorities, I mean security services-have told fund managers not to sell, only buy. A market with Chinese characteristics, apparently: all buyers and no sellers. Kind of zen actually, in the spirit of “what is the sound of one hand clapping?”

This urge to exercise ham-fisted control is exactly the kind of thing that will impede China’s development going forward. It will undermine the ability of capital markets to do their jobs of incentivizing the accumulation of capital and directing it to the highest value uses.

China’s predilection for control has manifested itself in futures markets in other ways. You might recall some months ago that I wrote about China’s threats against Singapore and ICE if the American exchange offered lookalike contracts on ZCE cotton and sugar at its new Singapore affiliate. Yesterday ICE announced the contracts it will launch in Singapore, and cotton and sugar lookalikes were conspicuous by their absence.

No competition for us, thank you. We’re Chinese.

This protectionism may help ensure the success of China’s new futures market initiative: an oil futures contract. Protectionism and pricing in yuan and constraints on the ability of mainland firms to trade overseas make it likely that the contract will succeed. The Chinese are overoptimistic, however, if they believe this contract will supplant WTI and/or Brent. LME and COMEX copper, and ICE cotton and sugar, to give some examples, have thrived even as Chinese markets in these commodities grew. Moreover, myriad restrictions on the ability of foreigners to trade in China and the currency issue will make the Shanghai contract impractical as a hedging and speculative vehicle for non-Chinese firms and funds: the main non-Chinese trading will likely be arbitrage plays between Shanghai, CME/NYMEX and ICE, which will ironically serve to boost to the US exchanges’ volumes.

And the crushing of the CSI300 and CSI500 contracts will impede development of a robust oil futures market. The brutal killing of these contracts will make market participants think twice about entering positions in a new oil futures contract, especially long dated ones (which are an important part of the CME/NYMEX and ICE markets). Who wants to get into a position in a market that may be all but shut down when the market sends the wrong message? This could be the ultimate roach motel: traders can check in, but they can’t check out. Or the Chinese equivalent of Hotel California: traders can check in, but they can never leave. So traders will be reluctant to check in in the first place. Ironically, moreover, this will encourage the in-and-out day trading that the Chinese authorities say that they condemn: you can’t get stuck in a position if you don’t hold a position.

In other words, China has a choice. I can choose to allow markets to operate in fair economic weather or foul, and thereby encourage the growth of robust contracts in oil or equities. Or it can choose to squash markets during economic storms, and impede their development even in good times.

I do not see how, given the absence of the rule of law and the just-demonstrated willingness to intervene ruthlessly, that China can credibly commit to a policy of non-intervention going forward. And because of this, it will stunt the development of its financial markets, and its economic growth. Unfettered power and control have a price.

The Bowe Bergdahl case largely disappeared from view, likely because it was overtaken by so many other foreign policy foulups. The Isis explosion. The Syria implosion. The Iran capitulation.

But the story re-emerged yesterday. Well, sort of re-emerged: the coverage has been muted, at best, despite the fact that the charges are sensational.

Not only did the Pentagon charge Bergdahl with desertion: they charged him with “misbehavior before the enemy,” which could result in his incarceration for life. This is about the most serious charge that can be brought. The UCMJ equivalent of the white feather:

Article 99—Misbehavior before the enemy

Text. “Any member of the armed forces who before or in the presence of the enemy—

(1) runs away;

(2) shamefully abandons, surrenders, or delivers up any command, unit, place, or military property which it is his duty to defend;

(3) through disobedience, neglect, or intentional misconduct endangers the safety of any such command, unit, place, or military property;

(4) casts away his arms or ammunition;

(5) is guilty of cowardly conduct;

(6) quits his place of duty to plunder or pillage;

(7) causes false alarms in any command, unit, or place under control of the armed forces;

(8) willfully fails to do his utmost to encounter, engage, capture, or destroy any enemy troops, combatants, vessels, aircraft, or any other thing, which it is his duty so to encounter, engage, capture, or destroy; or

(9) does not afford all practicable relief and assistance to any troops, combatants, vessels, or aircraft of the armed forces belonging to the United States or their allies when engaged in battle; shall be punished by death or such other punishment as a court-martial may direct.” ….

Maximum punishment. All offenses under Article 99. Death or such other punishment as a court-martial may direct.

Based on what was reported about Bergdahl’s conduct, there is a colorable case that he violated (1)-(5), and (7)-(8).

The White House fought tooth and nail to stop the Pentagon from charging Bergdahl for desertion: bad optics, dontcha know, to have embraced a deserter’s family in the Rose Garden, and to have traded 5 hard core terrorists for him.

The Pentagon not only defied Obama on this: they doubled down and charged Bergdahl with desertion and cowardice before the enemy. A charge almost never used. So the Pentagon is saying: Mr. President, you embraced the family of an utterly dishonorable coward in the Rose Garden, and traded five terrorists for him.

FU, in other words.

I have been writing for some time that I suspect that there is intense conflict between the White House and the Pentagon. This event is clear evidence that those suspicions are true. (The ongoing Gitmo saga is another example.) The Bergdahl swap offended the Pentagon’s sense of honor, and this is its way of making that plain.

Unfortunately, this has largely fallen on deaf ears. There has basically been one AP story, which appeared on Labor Day. (My guess is that the administration pressured the Pentagon to bury the story on a holiday weekend.) As usual, the media covers for Obama.

It is a big deal-or it should be-when the Pentagon defies the president so flagrantly, and pugnaciously. That is the sign of a deeply dysfunctional civilian-military relationship. This is particularly disturbing when the nation faces so many security challenges simultaneously: under these circumstances, it is dangerous to have a military at odds with its commander in chief, and vice versa. This story is about much more than Bergdahl. But it is getting no coverage whatsoever. Instead, we get wall-to-wall coverage of the Trump Circus. Both are symptoms of a troubled Republic.

Update (9/9/15). For further evidence of a deeply dysfunctional relationship between civilian command authority and the military, see this article about alleged distortion of intelligence about the “war” against Isis. This administration corrupts all it touches. The VA. The IRS. The EPA. And now, the military and the intelligence community.

Twitter is a strange place, part information gold mine, part cesspool. One of the distinctive phenomena is that of the Twitter exhibitionist who tweets incessantly, and gains a following of acolytes who retweet and tweet sick-making praise to him (or her). The exhibitionist often has some expertise, but usually gains a following more through repetition, bravado and the ignorance of the followers, who often don’t know any better.

One such exhibitionist is John Schindler, who in addition to being a Twitter exhibitionist, is one in real life: he had to resign his position at the Naval War College in disgrace because he texted below-the-belt selfies to a woman, who (a) did not appreciate it, and (b) was not impressed. Normal people would go under a rock and hide after such humiliation. But not Schindler. He laid low for a while, but soon returned to Twitter with a vengeance. He has parlayed his Twitter fame into appearances on Fox News and guest pieces at various publications, including the Daily Beast and the L.A. Times.

He is a nasty piece of work, as a look at his timeline shows. Recently he leveled a very bitter attack on the retiring Army Chief of Staff, General Raymond Odierno:

Odierno’s sin? At the time of his mandatory retirement, he signed on as an advisor to Jamie Dimon at J. P. Morgan. So this apparently makes him a sellout and a whore.

What was he supposed to do? Take up needlepoint? Commit seppuku for “fucking over soldiers” and “losing wars”?

And let’s look at Schindler’s accusations. As for being a “mouth breather” and “idiot”, Odierno has a masters degree in nuclear effects engineering. A subject a little bit more rigorous than Schindler’s (history). It’s not a subject for dummies. (One of the most impressive profs I had at Navy was a Marine Corps major who was a nuclear effects engineer whom I called Major Mohawk. Smart guy.) Odierno also has a degree from where Schindler used to teach before his photography hobby got him into trouble.

As for losing wars, Odierno served in a variety of positions in Iraq from the invasion in 2003, where his 4th Infantry Division was part of the follow on force (because Turkey denied it from being deployed to launch a planned assault from Turkish soil). Odierno’s role in the occupation was subject to some criticism for overaggressiveness, but the division has in the middle of the hornet’s nest of the Sunni Triangle. He subsequently was in operational command of The Surge, which was far more successful than the efforts that preceded it.  He didn’t lose Iraq. In fact, he was instrumental it creating the possibility of saving it, before that was thrown away.

As for “fucking over soldiers”, which Schindler insinuates he saw: well, if you make a charge like that, you better back it up with credible evidence. Schindler does not.

As for working after retirement, it’s not uncommon for generals and admirals. Omar Bradley was chairman of the Bulova Watch Company. Matthew Ridgeway, a true American hero in WWII and Korea (whom I compared to Petraeus at the onset of The Surge), was on the board of Gulf Oil. Many flag officers have served on corporate boards after retirement.

The public record clearly does not support Schindler’s accusations, which border on slander. Odierno has had a distinguished public career. If you talk smack like Schindler did, you have to bring more than a Tweet to the game.

So what explains Schindler’s attack? That Odierno went to work for a bank (as an advisor, mind you)? Maybe: Schindler exhibits some Occupy tendencies, admitting that he is a socialist who believes the “power structure” is unjust. But the vitriol seems very personal, even for someone as routinely nasty as Schindler. I’m guessing that Odierno does not suffer fools, and that in his interactions with Schindler at NWC he made that plain, and it left a mark on Schindler.

As for the bulk of Schindler’s Twitter output, he cashes in (figuratively!) on his stint working for the NSA years ago. Kind of ironic, isn’t it, that a guy who blasts a four star general with decorations out the wazoo for trading on his government service does the same. Though for a lot less money. Come to think of it, that may be part of the issue here. Schindler brags about his counterintelligence expertise, which begs the question: if he was so good, why did he punch out? I am also skeptical about people who are so vocal about their work in intelligence: the real pros don’t brag.

His commentary on Twitter and on his blog is rather tedious and not that insightful. I guffawed at his presumptuous tweets announcing how he has to keep telling people that the US Secretary of State is a target of foreign intelligence services. Who knew? What would we do without such penetrating insights?

And I have to say that I have to doubt Schindler’s counterintelligence genius based on events that came to light after his scandal. For some months prior, Schindler had been trolled hard on Twitter by someone who trolled me as well, on Twitter and here on the blog: this troll appeared in comments on SWP as Mr. X (whom I am sure long-time readers remember with fondness!) and a variety of other incarnations every time I blocked the source IP. On Twitter, this troll had one account (before being banned) that had a handle based on Schindler’s XXCommittee blog name. This individual also emailed me a few times, including one in which she included a picture of a hanged Nazi war criminal and insinuated that come the revolution I would be dealt with by citizen’s justice.

It turns out that Schindler was engaged in an email exchange with said troll, which came to light as result of a FOIA request to NWC. I figured out who the troll was. I know Schindler was told who the troll was. One clue that it is the same troll is the reference to the Hatch Act, which featured in Mr. X’s comments as well as in one of the emails in the linked piece. But he apparently never figured it out. So yeah. He’s your man to ferret out GRU agents (whom he sees behind every tree, BTW).

So go ahead, fanboys. Follow your hero. Retweet him. Even though he slanders far better men than he on zero evidence whatsoever. When he’s not engaged in art photography, that is.

The last couple of days have seen a frenzy of excitement about the possibility of an imminent Russian intervention in Syria. The hive buzzed very loudly when the Pentagon said it had seen reports of increased Russian activity in Syria. This means only that they read the linked article and other stories appearing in places like Ynet, not that they are providing confirmation based on US intelligence.

Yet, connecting a few dots, the journalist behind the story claims to have discovered a heretofore unknown Rembrandt.

Please.

I have no doubt that Russia has an interest in propping up Assad. That it has, and may be reinforcing, regime protection, intelligence, and advisory elements on the ground in Syria. That perhaps even a few Russian pilots are reprising the role of their “Honcho” forebears in the Korean War. But as for a major Russian ground intervention in Syria, not even Putin is that crazy. An expedition to Syria would make the Soviet Afghanistan adventure look like Napoleonic or Alexandrine genius.

Put aside for a moment the bloodletting the Russians would put themselves in for. Let’s just look at the logistics, and remember that while amateurs talk tactics, professionals talk logistics.

• Operations outside of bases would require the deployment of thousands, and perhaps tens of thousands, of troops just to defend the lines of communications of those operating at the pointy end of the spear.
• A major expeditionary effort would require massive supply, and the Russians would have to operate at the end of a very long logistical tether.
• The most direct supply line would run through the Bosporus and Dardanelles, that is, through Turkish waters. Turkey is Assad’s inveterate enemy. Would you run an operation which would require you to place your logistic jugular under your ally’s mortal enemy’s knife?
• The alternative, through the Baltic, North Sea, Atlantic, and Mediterranean, is very long, and also requires passage through narrow straits.
• Russia’s navy is craptastic. It has extremely little sealift capability, and use of civilian vessels is problematic. This is what you need to support overseas expeditions. Russia has nothing even close.
• Port capacity in Syria is limited, and it would be extremely vulnerable to sabotage and direct attack from the myriad anti-Assad forces. Again, large numbers of men and materiel would be required just to defend the ports. Tartus has four piers (and then only if floating piers are operational), and it can only handle four medium-sized ships: it is too small to handle even a Russian frigate or destroyer. You can’t support major ground operations through that soda straw.

Then there are other considerations, such as:

• Russia is already militarily committed in Donbas, and has precious little additional capacity to deploy in Syria.
• Russia has never, ever, engaged in a major overseas expedition, analogous to what the US has done routinely for the past 75 years. Syria is not Donbas, Abkhazia, or Transnistria.
• The Russian economy is already in dire straits, and cannot afford to commit to a bleeding ulcer campaign in a peripheral region.
• Another well-known military adage is: Don’t reinforce failure. Assad is failing.

Other than that, it makes total sense for Russia to go large in Syria to bail out a tottering client. Total sense!

The US should actually hope that Putin is this stupid. But he’s not.

To put things in perspective, one of the things that got the hive buzzing was the transit of a couple of Ropucha class amphibious ships, each with a cargo capacity of a whopping 450 tons (8-10 tanks), and an Alligator class gator, with a cargo capacity of 1000 tons. Hardly enough to support a major operation, which requires capabilities such as this. (And by the way, I saw Russian amphibious ships-sides streaked with rust-transiting the Bosporus on my visits to Istanbul in 2013 and 2014. This is like a shuttle run.)

And let’s consider the source, shall we? The story is being flogged by Michael Weiss. Based in large part on geolocators operating in mom’s basement, Weiss has predicted six out of the last zero times that Putin has mounted an invasion of Ukraine. (Full disclosure: I thought Putin was likely to invade last fall. I was wrong. I confess to having little confidence in my ability to predict his next steps there. But Weiss never betrays any contrition at his previous failed predictions.)

And the other things I could tell you, relating to Weiss’s The Interpreter’s mysterious funding (including its relationship with Khodorkovsky), and its use of anonymous sources and unverifiable sources that it translates. And there are some other things that are even more bizarre. But you’ll have to take my word for it.

So yes, Russia will provide materiel support to Assad. It will do what it can to facilitate Iranian and Hezbollah resources flowing to Syria. But a major intervention? We should be so lucky.

The tax treatment of “carried interest” for private equity and hedge fund general partners is something pretty much everyone loves to hate. Politicians particularly. Several major candidates, including Hillary, Sanders, and Trump, have said that they will scrap it.

Their argument is simple. Carried interest is taxed at the lower long run capital gains rate  (20 pct), instead of the rate for earned income (39.6 pct). Obviously unfair!  Private equity and hedge fund managers are greedy bastards who do nothing to earn their money! (Trump says they just push paper around.) They don’t deserve a break! Restore fairness to the tax code!

Tax professionals are largely against the treatment too, though their reasoning is a little more sophisticated. Carried interest is income properly attributable to labor or service provision, and is not a return on capital. It therefore should be taxed as labor income.

A little reflection shows that both arguments are simplistic. I can’t say 20 percent is the right rate, but I am highly confident that 39.6 percent is too high. And that’s because carried interest treatment does affect returns on capital, and this should be taken into consideration when figuring out the proper tax treatment. Capital taxes are a bad idea generally, and the effects of carried interest on returns to capital should be taken into consideration when deciding how heavily to tax it.

First, what is carried interest? Private equity and hedge funds typically have limited partners as investors, and general partners who manage. These entities employ incentive mechanisms. The general partners get a percentage (overwhelmingly 20 percent) of all gains over a benchmark, and get zero incentive comp if they fail to reach the benchmark. This is incentive compensation is carried interest, and is taxed as a long term capital gain.

So what would be the effect of increasing taxation on carried interest? Basic tax incidence analysis applies here. Tax incidence analysis basically shows that the costs of a tax are paid not just on whom it is levied (PE and hedge fund GPs in this instance), but are also paid in part by those who buy from or sell to the taxed entity.

There is a supply and demand for the services of PE and HF managers. Investors are willing to pay for managers because the managers can earn a higher return than the investors could earn by investing themselves. Like the demand for anything, the demand for management services is downward sloping: the lower the cost of managers, the more capital will be invested with them because at a lower cost PE and HF outperform more competing investments.

Since these industries are likely highly competitive, the supply curve of services reflects the marginal costs of managerial services. The supply is upward sloping, mainly because some managers are more efficient than others. To expand the industry requires some managers to expand beyond their efficient scale, and also requires the entry of new, less efficient (i.e., higher cost) managers.

Taxes imposed on managers increases their costs, and shifts up the supply curve of managerial services. As the supply curve moves up and to the left, its intersection with the demand curve moves up and to the left. At the new, post-tax equilibrium, less funds are under management (which is crucial), and the cost paid by investors is higher. Thus, some of the burden of the tax is borne by the investors. The rise in the price of managerial services is typically small rather than increase in the tax, however, meaning that managers’ after tax income declines. Thus, the burden of the tax is shared between investors and managers.

How the burden is split depends on how steep the supply and demand curves are. Only if the supply of managerial services is vertical (“perfectly inelastic”) will all of the burden of the tax fall on the PE and HF bastards. This occurs only if all managers are equally efficient, and all are willing to supply the same amount of services at any price. If the supply of their services is very flat (i.e., a small decline in the price of their services leads to a large decline in the quantity supplied), virtually all the burden of the tax is paid by investors.

Thus, like all taxes, the tax on carried interest drives a wedge between the price paid by consumers (investors in PE and HF, in this instance) and suppliers (PE and HF managers).

The fact that investors pay some of the tax means that the carried interest tax is in part a tax on capital, except in the edge case (perfectly flat supply of PE and HF management). This is true because investor returns are depressed by the higher pre-tax compensation that must be paid to managers. Further, note that except in the edge case, investment in PE and HFs will decline, and thus they have less capital to invest. Although things are complicated by the fact that capital may be diverted to other investments, it is likely that total investment goes down. This means that even if the services managers are providing are deemed “labor” or “services”,  taxing carried interest reduces returns on some capital, and likely leads to a reduction in overall investment.

Since there are strong economic arguments that capital should not be taxed, and certainly not taxed as high as labor income if it is taxed, this in turn implies that taxing carried interest exactly the same as earned income is not likely to be optimal. I don’t know what the tax rate should be, but is plain wrong to analyze carried interest as pure labor income. It impacts returns on capital and this needs to be considered when deciding the right tax rate.

There are some other considerations that bolster this conclusion. In particular, carried interest is like a call option on managerial performance: managers’ compensation increases with performance only once the “strike price” is exceeded. They underperform, they get no incentive comp.

Why choose this form of compensation? To align the incentives of managers and investors. High powered incentives expose managers to a lot of risk. They tend to be more risk averse than investors. In particular, investors shouldn’t care about idiosyncratic, diversifiable risk, but managers with incentive-based fees bear that idiosyncratic risk, and may be less well diversified. They will therefore tend to be more averse to that risk than investors: this creates a conflict of interest between investors and managers.

Option-like compensation mitigates this problem, because the value of options is increasing in risk (volatility). Thus option-like carried interests offsets managerial risk aversion, and tends to align the interests of managers and investors. It induces managers to invest in some higher risk projects that investors prefer because they offer higher average risk-adjusted returns.

Increasing taxes on carried interest reduces the after-tax payoff to the managerial option, but this effect is asymmetric: it only reduces payoffs when managers perform well, but doesn’t affect compensation when they perform badly. They have a weaker incentive to take risk because they get less of the upside, and have the same downside.

Put differently, the tax reduces the alignment of incentives between investors and managers. Managers will tend to make investments that are less risky than investors would like. Thus, increasing the tax on carried interest will tend to impact riskier investments disproportionately, and lead to underinvestment in them. In particular, investments with high idiosyncratic risks (which are likely to include many tech investments, for instance, whose performance depends on the success or failure of a technology, rather than the performance of the overall economy) are disproportionately punished.

(This can also be fit into the tax incidence analysis. With a higher tax rate, it is costlier to provide incentives to managers, and this drives down returns on capital, especially for high idiosyncratic risk investments.)

If the politicians and tax professionals are right about carried interest, raising the tax on it won’t reduce returns on capital and reduce investment, or divert investment away from risky but high average return projects. The foregoing analysis demonstrates that this is not correct. Tax incidence analysis, and a consideration of the effect of carried interest taxation on the incentive for managers to invest in high risk, high return projects that investors favor, show that raising this tax will reduce returns, reduce investment, and divert investment away from high risk projects.

And let’s remember why taxation on capital is harmful: it reduces wages. Less capital means lower productivity. Lower productivity means lower wages. So although the seen effect of higher capital taxation will be on the Gnomes of Greenwich, the unseen costs will be paid by those on whose behalf Hillary, Bernie, and Donald claim to be speaking. Funny how the middle class can get wet when the politicians try to soak the rich.