Great Minds Think Alike, Steve Heyward Edition

Last month it was the Paul Rahe edition, this month it is the Steve Hayward edition of "Great Minds Think Alike."  Hayward channels an analysis of recent events through the prism of Nassim Taleb's "Black Swan" and also notes the laughable dangerous ground of PC on which he treads.

Everyone is by now familiar with Nassim Taleb’s idea of low probability, high impact “black swan” events that come seemingly out of nowhere to disrupt the world as we know it.  The events of the last 48 hours look like they might be Obama’s black swan, except that we can’t say “black swan” and “Obama” in the same sentence because that would be, you know. . . racist or something.

Much like I did way back when

Obama is a Black Swan

Gosh I know that will draw howls of racism but I am talking about a Talebian Black Swan. (If you don't get the reference, then get off my website.)

 Although the point I made and that Hayward makes are different.  My point was how many on the world stage forty years ago would have predicted the utter flakiness and feckless that America would sink to, which is manifested in our selection of Barack H. Obama as POTUS.

It is not the deficits. It is not the foreign policy fecklessness. It is not the socialism. It is not the despoliation of creditors' rights (Chrysler!). It is not the invitation to non-taxpaying Maoists into the halls of power. It is...alas...that the US is now...flakey. We are an international airhead. A ditz on the global stage. This is however not "Obama's fault" as in the fault of Barack H. Obama the man. It is however the fault of Obama, the phenomenon. The loss of America's reliability and steadiness on the world stage is culminated in Obama. He's doing it but he is merely our vessel and the fact that he is there, doing this to our nation and our nation's standing is more a reflection on us than on him.

Hayward's point touches on the question of the day (and likely a question for the ages): how can the utter debacle of a fiasco that is the Obama administration not be way way behind in the polls let alone leading them?  It is a mystery for the ages indeed.  Given the destruction he has wrought on the fabric of American economic life, the assaults on the rule of law and to liberty, and the irresponsible fecklessness of his foreign policy, he should be trailing the love child of Donald Duck and Josef Stalin by double digits.  Alas, he isn't. 

Does the world have to be in full-blown conflagration to dent this teflon-clad loser?  Can only a "Black Swan" event sink the Lightworker?  Apparently so, and even then maybe not, but at least we'll get to see as the Middle East erupts in Islam-inspired America Hatred, Chicago's schools remain closed at the hands of their greedy Marxist overpaid subpar teachers, and the economy sputters leaving people out of work and earning less. 

NY Times Will Wait on Greatest Scandal Of All Time??

The lid is blowing off global warming science, representing what could be the greatest scandal of our time - the exposure of the greatest fraud of all time - and the NY Times has...wait for it...nothing (CNN, as well, nothing)! (More here and here.) I always said that the anthropogenic global warming theory would meet its Black Swan, I just thought it would be mere inaccuracy, not fraud. But a Black Swan is a Black Swan.

UPDATE: Naturally, it's a full news blackout, except for guess where. I have my biases, but think about this rationally - if this turns out to be a big story (and not reporting on it does mean it is a small story), why on Earth would other news outlets leave the entire playing field for Fox to clean up on? Why willingly cede marketshare? If it is a story that tens of thousands of viewers want to learn about, why not provide information, if you are in fact in the news business? Maybe because some institutions are aren't, in fact, in the news business as we would understand it...? Hmmm.

Obama is a Black Swan

Gosh I know that will draw howls of racism but I am talking about a Talebian Black Swan. (If you don't get the reference, then get off my website.) This is a serious but, I am sure, little contemplated issue. Thanks to the Neo-Neocon for raising this thought. It is not the deficits. It is not the foreign policy fecklessness. It is not the socialism. It is not the despoliation of creditors' rights (Chrysler!). It is not the invitation to non-taxpaying Maoists into the halls of power. It is...alas...that the US is now...flakey. We are an international airhead. A ditz on the global stage. This is however not "Obama's fault" as in the fault of Barack H. Obama the man. It is however the fault of Obama, the phenomenon. The loss of America's reliability and steadiness on the world stage is culminated in Obama. He's doing it but he is merely our vessel and the fact that he is there, doing this to our nation and our nation's standing is more a reflection on us than on him.

So yes, the damage is done. As stated, it is not the tangible, dollars and sense, touch with your fingers damage - the Tea Party movement has blessedly helped us avoid that to date. It is the sad, ineffable, slumping reality...the United States of America has become...officially...flakely. And no one would have ever thought that. That is the Black Swan.

Global Warming Versus The Black Swan

OK, so I'm not immune to reading a trendy book now and again. Right now, Nassim Nicholas Taleb's "The Black Swan" is the hot book of the moment in my business. I have mixed feelings about the book, but it undeniably has its virtues. Particularly in its discussion of the failure of expertise. Taleb hues to the belief that the world is simply too complex for "expertise" to really exist, and he discusses at length the demonstrable failure of so called experts' predictive efforts. This isn't a new concept, the dismal receord of prediction and forecasting is well known, so much so as to be part of the 'wisdom of the common man'. Still, Taleb arrays the evidence and the argument against expertise impressively, and as he demolishes economists, securities analysts, CIA intelligence analysts and all manner of forecasters, I can't help but thinking about global warming. The global climate is mind-blowingly complex, just the sort of system for which expertise is essentially unattainable. The implications of this are that it is a near certainty that current consensus predictions of global warming and the damage it will cause will be proved wrong. The current forecasts of what temperatures and climate conditions will be 50 years hence may be too pessimistic or even too optimistic, but they are all but certain to be wrong. We may indeed be in life threatening climatological danger, but it won't be because of excessive man-made greenhouse gases in our atmosphere, or we may be in no danger whatsoever. We are simply unable to know. (Of course, scientific absolutists will vociferously disagree but that doesn't mean their predictions will be any good.) If that sounds too fatalistic, it is. That is proably why humankind has had a fatalistic outlook for much of its existence, and much of the world still does. What are the policy implications? We should probably encourage smart things that reduce pollution at the margin, but mostly we should not inhibit spontaneous technological discovery (which, for example, could yield a 'Black Swan' advancement in fuel technology) by picking winners today (i.e. ethanol) and we should maintain a level of flexibility just in case the consensus is dead wrong. Certainly what we should not do, is elevate global warming prevention to the central organizing principle of society as Al Gore suggests.

Bush's Black Swan?

David Brooks is dead on in today's NY Times, but the point that goes underemphasized here is that the experts are usually wrong, not because they aren't well-versed or out of mal intent, but because expertise in many fields is a false promise, it's unattainable. Complexity makes expertise unattainable. The experts' plan has just as much chance of working as an outlying plan - perhaps even less so, because the experts are likely to all be relying on data or ananalytical framework derived through consensus. Consensus has a tendency to overlook certain data or institutionalize an analytical flaw, either of which could render the whole exercise worthless. Bush saw this and placed the Black Swan trade.

Is the Market In for a "One Term Rally"?

Savvy political observers in the blogospere like me (and even some actual paid journalists in the MSM) all knew that Obama's Bus Tour would flop and that it seemed decidedly ill-thought out given the recent downgrade of the US's sovereign debt rating. Likewise, the decision to cap it off with the simply disastrous Martha's Vineyard vacation which has the double distinction of showcasing an actual lack of leadership as well as having terrible optics - an example of Obama's tendency to find, in Walter Russell Mead's characterization, the "sour spot". Well, the effects of Obama's terrible August are starting to show up in the polling, and the results are unambiguous. Take a look at this RCP chart. Polls that include recent periods show massive declines in the Lightworker's approval rating. The less severe declines don't capture the entire month of August. I think the polling averages will continue to get bleaker for the Smartest President Ever as the averages reflect mid to late August polling.

Looking at the RCP data, I am struck by two things. First, except for two small periods, Obama's approval trajectory has been nothing but one way, down. It is almost as if this guy's incapacity to lead in a way that pleases voters had become obvious from day one. (Actually, it was to some of us, but you certainly didn't here or read about it.) The second thing that struck me was the two brief instances of inflection that Dear Leader experienced, one around the start of the year and the other after the bin Laden killing. The former was almost entirely a media conjuring. The MSM puffed up lame duck "victories" into some sort of unassailable comeback. I chronicled and debunked that mirage rather thoroughly here, here and here. I also came out fairly clearly on the "bin Laden bounce will fade" side.

So, what is my point? My basic conclusion is this - the mega-trend, or the "big idea", is that Americans have always known deep in their bones that Obama was a gamble and they are now 90% convinced that they have lost that gamble. There is almost nothing that can stop this trend from playing out. Look at the two things that had any effect in reversing the big trend, one was a media-created mirage and the other was a "Black Swan," neither of which stuck. The MSM is increasingly less inclined to devote the energy to conjuring up a pro-Obama illusion (note I said less inclined, as opposed to not inclined), so I wouldn't be counting on a game-changing performance out of the MSM. That leaves a Black Swan development that will have to outdo even the monumental significance of killing bin Laden. That is a long shot, a very long shot.

Finally, why should we all care? I don't know why you should care but I'll tell you why I care. First and foremost, I think this is good for my individual liberty and for the country broadly. Secondarily, I think this is good for the stock market. The economy will muddle through for the remainder of this year and into next, but the further Obama slides and the lower his chances at reelection get, I think we will see an inversely proportional growth in economic optimism. The more it looks like Obama is a goner, the more American business leaders will feel like a giant weight is being lifted, the more entrepreneurs will feel like the sky is clearing. I predict a rough inverse correlation from here on in between Obama's poll numbers and the stock market - call it the "one term rally."

Galston Goes From Blah to Reprehensible

William Galston, the WSJ's token liberal columnist, has finally eased into his role and is now comfortable to be more than merely innocuously anodyne.  In today's column he let's loose.  He rails against the horrible vision that evil conservatives have for America - meritocracy.

And it's a horrible misfire in many respects.  First, the obvious one, is that Galston laments the default state of mankind.  Societies in which exceptional and educated people do much better than the average and much much better than the low-skilled and uneducated have been the norm throughout time across most of the globe, with the notable exception of post-war, rapidly modernizing America.  Galston, like most liberals, laments that the world has changed from basically the age of the automobile in the 1950s and 60s.  Furthermore, the alternatives to "meritocracy" are undesirable, but we wouldn't know what alternatives Galston would prefer because he doesn't tell us. 

A second misfire is his talisman for the new, awful conservo-slavery, George Mason economist Tyler Cowen.  Cowen is an enigmatic, somewhat quasi-libertarian economist, who, after reading him for years, I still can't quite pin down politically.  One thing I do know, is that the last way I would characterize Cowen is conservative.

Finally, Galston's biggest misfire is mistaking Cowen's actual argument, mistaking what is presented as likely for what is desirable.  Cowen's "Average Is Over" is not instructional but descriptive of a much-discussed economic phenomenon, the increasing returns to intellectual capital and exceptional skills that many believe is the source of increasing income inequality.  This is hardly Cowen's idea, let alone a vision.  Nassim Taleb's The Black Swan discusses this colorfully using the metaphorical locales of Extremeistan and Mediocristan.  All the theory states is that, in our increasingly globalized, information-driven economy, better educated and talented people are able to thrive more and capture greater economic returns (income and wealth).  The increasing value of information delivers outsized rewards to people who can process and make use of information.  This is as opposed to an economy which places the most value on production and delivers outsized rewards to those who can produce, i.e. specialized factory workers.  This is what is happening.  I am pretty sure that Cowen does not say that this is desirable, although he may not say that this is despicable.  Galston clearly thinks it is.

But Galston misses a much bigger point, and this is what I think is despicable.  Galston and his ilk have contributed to consigning the losers to the Shantytown America that he laments.  By running the public education system into the ground with blind loyalty to unionism, dumbed-down standards, and tolerance of truancy, liberals have consigned millions to the margins of a changing and complex economy.  By advocating the unrestrained immigration of people into a society for which they are ill-prepared to navigate even the basic demands of daily life, Galston's side piles more humanity into the America that he doesn't want to live in.  And by relentlessly undermining the family and religious community, liberals have weakened the social arrangements and values that are known advantages for economic well-being.

I bristle at the arrogance and the gall of people like Galston who cast aspersions, false aspersions even, on people like Cowen who describe the world as it is, a world that has left behind millions who languish mostly due to the false promises of the leftist vision of society.

Recipe for Disaster: We're Mixing the Ingredients in a Bowl

I have said that we are making all the same mistakes that Hoover and FDR made in the early 20th century that turned a routine recession into the Great Depression (all the mistakes save one, and we have Ben Bernanke, but not a single soul in elective office, to thank for that). Today, the top bank analyst on the street says that the SEC's bombing of Goldman Sachs could engender another financial crisis. Bove is merely saying what I've been saying, we are making the same mistakes again. Government can crater the system again through its vendetta of regulation. ObamaCare is today's NRA. We have small trade wars smoldering, threatening to burst wide open. Taxes are on their way up to highly distortive levels. And now we are on a campaign to destroy our best capital markets institutions. We are mixing the batter, but we have not yet baked the cake. If we avoid a double dip it'll be by a small miracle, a positive Black Swan, like when my three-year daughter decides to "help" and dumps a load of salt into the cake batter and we are forced to pitch it all and start over.

Books

The Washington Post compiles a recommended reading list from a list of putative luminaries to direct readers to books that will help them understand our current, volatile economic times. The results are typically good and bad, but this comment by an otherwise ignorable Mark Cuban was interesting:
"I don't think there is such a book. In my humble opinion, people who actually believe they can understand all the issues are the ones that got us to where we are today. In reality, there are so many variables and so little data, it's all a guess. I don't think a book exists that can explain it. Is there a book out there called 'No One Has a Clue What Is Going On and the Whole World Is Guessing'?"

Well yes Mark. Someone has written such a book. That someone is Nassim Nicholas Taleb and the book is entitled The Black Swan. Surprised you never heard of it.

FWIW, if you want to understand, nearly perfectly, what is going on today in our economy and our financial markets, I suggest The Panic of 1907: Lessons Learned from the Market's Perfect Storm.

Go Long Ford, Short Oil

It is always good to have a few reliable contrary indicators to supplement or confirm your own thoughts on a particular subject. Like the CIA. They don't think Iran is making nuclear weapons, so you can pretty much bet that they are. On the economy, there's Stephen Roach of Morgan Stanley. When he's a bear on the US, go long the US.

Today brings news of GM's massive corporate bet on persistant high gas prices. GM is my contrary indicator for smart management moves. So I am betting on a moderation in gas prices over the next several years. Five years hence, gas prices may not be low, but they could quite likely be merely reasonable. Although it looks bad now for gas prices, there is a logical scenario for lower prices. Even so, logical scenarios hardly ever play out according to script. It will be rogue or unforeseen developments that are likely to carry the day if gas prices do moderate over the next several years. Black (Gold) Swan anyone?

Although, good call on GM's part to kill the Hummer. I defer to no man in my appreciation for the blessed gift that is hydrocarbon technology and they will have to pry my cold dead hands off my SUV's steering wheel, but the Hummer was an atrocity, an assault on the senses, an offense to decorousness. Good riddance.