Twofish's Blog

December 22, 2006

Notes to Ian Williams

Filed under: academia, china, law, taiwan — twofish @ 4:11 pm

Comments on

The problem with that article is that it ignores nationalist sentiment on the Mainland, and misunderstands the complexity of popular sentiment on Taiwan. Also it attempts to analyze a situation by applying rational rules, which causes problems because 1) other people may not accept those rules and 2) without referring to fundamental issues of “will” and “power” any rules you come up with are disconnected from reality.

With regard to “will” and “power,” the basic reality is that public sentiment on the PRC is such that people are willing to fight for and die to keep Taiwan from being independent, whereas the number of people on Taiwan that will fight for and die for independence is relatively small. The other basic reality is that while the major powers of the world will fight in case of an unprovoked invasion by the PRC, no one is willing to fight and die to defend a unilateral declaration of independence by Taiwan.

The reason that popular sovereignty trumps historical claims is that claims that people are willing to die for trump claims that people are not willing to die for, and any discussion on Taiwan has to take into account the fact that there are huge emotions on this issue among the population of the PRC, and any PRC would be forced to take strong, possibly suicidal, action to prevent “de jure independence”.

The other thing that is missing is that while no one on Taiwan wants to be ruled by Beijing, there is a large fraction of the electorate that is against “de jure independence” or “one China, one Taiwan” for emotional reasons, and pushing Taiwan to one of those options rather than keeping the situation ambiguous is extremely destablizing for Taiwan democracy.

Finally, analogies with other situations are useless if you don’t take into account “will” and “power”. What matters is what people are willing to fight for and what people are willing to die for. The willingness to fight and die for a cause is fundamentally irrational, and therefore trying to come up with a rational rule that explains why one situation is analogous with the next is rather pointless. Also trying to come up with a political sentiment that doesn’t take into account “irrationality” is also pointless.

This makes Taiwan different from a lot of other situations, and it also makes this different from other PRC disputes. Askai Chin, the Spratlies, and Senaku/Diaoyutai simply don’t arouse the passions that Taiwan does, and this limits and constrains the situation. Also once you recognize that the root causes of political conflict are because of inherent and *necessary* human irrationality, you can come up with solutions that address these issues. No one really cares if Beijing effectively rules Taiwan, what matters are names, flags, and colors, and you can deal with those relatively easily.

What do we mean by judicial independence in China?

Filed under: china, law — twofish @ 2:21 am

I thinking about a discussion I had about judicial independence in China, and it occurred to me that people mean two different things when they talk about judicial independence.  One is the idea of “judicial impartiality” which is the idea that judges should interepret and apply Chinese law impartially.  The second is the idea of “judicial oppositionism” which is the idea that the judiciary should develop into a independent branch of government which reduces the power of the executive, legislature, and the Party.

The first I think is a good idea, but the second definition of judicial oppositionism is problematic in a number of areas.  Lets suppose someone holds a demonstration calling for the overthrow of the Communist Party.  This is clearly state subversion under the Chinese criminal code.  Under the theory of “judicial impartiality” the judge would have no real choice but to send the person to jail regardless of what their feelings were on the matter.  Under the “judicial oppositionist” meaning of judicial independence, there is perhaps the hope that the judiciary would challenge and limit the rule of the Party.

The judicial oppositionist approach would see the judiciary in China playing the same role as the judiciary in England in limiting the power of the king.  However, I would argue that the role of the judiciary in England was only part of a larger story, and there is no particular reason to believe that having an “oppositionist judiciary” would end up on the side of the “good guys” in China.

The bigger problem with the idea of judicial oppositionism in China is the question “if the judiciary does not apply the laws as written, then what laws does it apply.”  Unlike the United States, the Constitution of the PRC pretty explicitly has provisions which justify and legitimize putting our hypothetical protester in jail.  There is no historical “Fundamental Laws of England” for the judiciary to fall back on.  This leaves some theory of natural law which the judiciary should advance.  The trouble with that is “which natural law?”  Much of the reason that PRC got into the mess that it is in now was because governmental decisions were made by appealing to the “natural and scientific laws of Marxist-Leninist-Maoism.”  Part of the solution to “which natural law” seems to an appeal to “international standards” but that opens the question of who sets international standards, and what happens if you don’t agree with them.  Also, like many countries, when “international standards” hits “national interest,” “international standards” loses.

My personal opinion is that I really do believe that courts in the PRC will develop better if they stick to interpreting the law as written (even if it is written badly) than trying to appeal to some higher law.   Ultimately, I don’t think that the problem of bad laws is a problem that should be solved in the judiciary but rather in the legislature.

One final point.  There is a tendency to trivialize a lot of the fundamental questions involve Chinese legal reform.  The idea is that obviously the PRC system of government is a mess, and so how to improve it should be obvious.  You just wave a magic wand, get rid of the bad people, and poof, you’ll have a perfect government.

What I think is missing is a sense of how many options and open issues there are.  There is no lack of debate on the role of a judiciary in developed nations (i.e. the judicial activist versus judicial restraint debate).  What is missing I think is a realization that some of these issues are connected, and many of the issues that China faces are part of deeper debates, which have hardly been resolved in the West.  Managing and progressing in these debates requires some clarity in what we mean, and this includes clarifying what we mean by terms like judicial independence.

December 21, 2006

What I think is going on….

Filed under: china, finance — twofish @ 4:07 am

We start with the State Council directives

国务院国有资产监督管理委员会 关于推进国有资本调整和国有企业重组的指导意见


Both those documents were issued by the State Council rather than by SASAC. This makes a difference. The State Council has supervision over all of the state-owned enterprises, whereas SASAC has a dual role. It issues regulations on the disposition of state property, but also has shareholder power over industries which are controlled by the central government.

What I think happened was that the section three of State Council opinion called for the relevant authorities to list strategic industries under their jurisdiction, and SASAC informally mentioned which central SOE’s it would list as strategic industries.

The seven industries then wouldn’t be a comprehensive list of strategic industries, merely the industries under direct SASAC control that they plan to list.

Finance isn’t listed because it isn’t under the direct jurisdiction of SASAC. The big four banks are owned by Central Huijin which is run by the Ministry of Finance, and the other banks are owned by local governments. Also finance doesn’t meet the criteria mentioned by the State Council, and in any case the CBRC is not about to cede regulatory authority to SASAC.

So what did SASAC say / Xinhua articles on Taiwan elections

Filed under: china, finance, taiwan — twofish @ 3:35 am

I’ve been puzzling over this article 

Because I can’t find any Chinese source in which SASAC identifies strategic industries.  It is the case that the State Council issued an opinion on 12/18 which did refer to “key industries” but it did so in vague terms.  I don’t have much respect for China Daily’s reportage, so in absence of any other independent source for these remarks, my guess is that they got something wrong.

Xinhua didn’t mention anything like that 

The other thing that China Daily sort of got, but got stripped away when the news made it to the West was that SASAC was talking in the context of the state-owned enterprises which are directly managed by the central government.  This is a subset of the total number of state-owned enterprises.

Also in other news, Xinhua has started talking about the 2008 elections in Taiwan 

and this other article critical about Chen’s efforts to create a second republic 

The interesting thing about both articles is the tone.  The second article has an anti-Green slant, and both are critical of Chen Shui-Bian, but neither article is screaming at you, and there isn’t any of the loud rhetoric that was typical of the articles that were written a few years ago.  The articles on the rivalry between Frank Hsieh and Su Cheng-chang were rather factual and cast neither in a particularly negative light, and the article seemed to highlight both candidates “moderate” approach in contrast to CSB.  Except for the quotation marks and the simplified characters, both articles could have been written by the pan-Blue press in Taipei.

My guess is that Beijing is looking past the 2008, and hoping to turn over a new leave with whoever gets elected.  I do suspect that Beijing would prefer that Ma Ying-jeou gets elected, but making that obvious would kill his chances, and so Beijing has to maintain a disinterested outlook over what happens in Taiwan.

December 20, 2006

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December 19, 2006

Maybe the creationists have it right after all

Filed under: academia, religion — twofish @ 3:10 am

I grew up around fundamentalist Christians, and unlike most people with a physics background, I have a lot of respect for them and their beliefs.  Now I happen to think that the universe is 13 billion rather than 6000 years old, but I understand why its necessary for them to believe that the universe is 6000 years old.  The ultimate problem that they have is not with science itself but with “secular humanism” which is the idea that scientists are trying to eliminate God.

Now, what I’ve tried to do is to point out that ever since Descartes, there has been something of a truce between science and religion, and if you crank through the philosophy of science, you get 13 billion years for the age of the universe, and as far as what is right and what is wrong, you get nothing.  They keep telling me that scientists have this plot to get rid of God, and I keep reassuring them that that isn’t the case.

And then Dawkins comes around and proves that the creationists are right, and that there are some scientists that are trying to create a morality based on atheistic science.

Personally, I think what Dawkins is trying to do is dangerous.  The essence of science is doubt and humility.  The wonder of science is that you could wake up tomorrow and find that everything you thought you knew was wrong.  There are institutions and philosophical checks and balances that keep things from science from doing anything dangerous, and part of those limiting involve constant questioning of authority and the need for falsibility principles.

When science tries to go beyond these bounds then things get really dangerous.  The classic example of this is are the scientific laws of Marxism which ended up killing about 100 million people this century.  The problem is that you had the “aura and certainty of science” without the control mechanisms of constant questioning.  I have this fear that this is this is the direction that Dawkins is taking us.

So in the current debate between Dawkins and the creationists over the existence of God, I find myself pretty squarely on the side of the creationists.

December 18, 2006

Note on protectionism

Filed under: china, economics — twofish @ 5:57 pm

Note on Brad Setser’s blog:

[q]But the changes associated with China’s integration into the world economy have come about very rapidly — and are a bit at odds with the notion that China needs more time. Project ouy 30%y/y export and 15-20 y/y import growth for China now and you will quickly see what I mean. somethings do have to change — in real time, not historical time :)[/q]

I’m talking in terms of three to five years, not decades. What China really needs to do is to boost domestic consumption, and that requires a set of interlocking policies that will take three to five years to implement.

[q]I also strongly think you are underestimating the potential for protectionism — look at some of the polling data uber-free trader drezner has gathered, or the greenberg polling data on the 06 election. those swing voters who considered voting for the ds but stayed loyal to w often cited w’s approach to trade as a reason why they considered leaving the r camp. And it wasn’t b/c of W caved to pressure on steel in 03. [/q]

I live in the center of high-tech Texas. There are huge constituencies here against protection (i.e. pretty much everyone employed in the high-tech software or semiconductor industry). One problem with protectionism is that it isn’t a Republican versus Democrat issue. For there to be a real protectionist movement there has to be a third force (Perot or Buchanan) and right now I don’t see this happening.

Also the protectionists really don’t care about the RMB, because shifting the value of the RMB will just move things away from China to other areas. What the protectionists really want is to pull out of WTO, and I don’t see that as being very likely.

[q]It also isn’t just textiles. It is furniture and auto parts and indeed a growing range of industrial parts/ machines.[/q]

With respect to China it *is* just about textiles. In furniture or auto parts, China just doesn’t have a competitive advantage over places like Mexico. With textiles, China has loads of cheap labor, and a textile industry that stretchs back hundreds of years.

[q]But right now, ground zero is auto parts. Electronic production/ assembly hasn’t been done in the US for some time — not so for a lot of mechnanical engineering type products. And china’s capacities there are growing.[/q]

And with respect to auto parts, the question is China or Mexico. The electronic production/assembly example is why I don’t think that protectionism is that much of a worry. Once the entire industry goes offshore, then no one complains any more. Enough of the manufacturing base of the United States has moved offshore that I don’t think that there will be that much call to save jobs, because the jobs are already lost.

Note on Michael Perelman blogs

Filed under: china, economics, history — twofish @ 5:31 pm

The problem with the explanation that tells you more about David Landes than about either China or Europe. Kenneth Pommeranz does a pretty good job in the great divergence at demolishing cultural explanation for China’s lack of industrialization.

As far as what I think is the reason. Look at the clothes you are wearing right now. They were not made in the factories of Europe but rather in the textile mills of China using massive amounts of cheap labor. One thing that China has done in the last few years is caused a massive deindustrialization in the world, as what used to be made with high capital industrial processes in the developed world, are now made with labor-intensive processes in China.

If the Chinese economy is causing a partial reversal of the industrial revolution *now*, then this suggests why the economic forces in China never caused an indigeneous industrial revolution in the 1800’s.

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Status report – Passion and economics / Poetry and programming

Filed under: austrian economics, economics, quantitative finance, quantlib — twofish @ 5:11 am

Did a lot of reading this weekend  on papers detail with incomplete markets and utility based pricing.

I didn’t realize how the concept of “incomplete markets” was so tightly mixed in with neo-classical economics.  The basic problem with neo-classical economics when applied to derivatives pricing is that neo-classical economics assumes equilibrium states and in an equilibrium state there is no need for a market.  I think I can “go Austrian” and assume that you have a lot of actors with different utility functions.  One immediate consequence of this is that the trading volume of Shanghai warrants should be a function of the price volatility.  If the price is constant then everything moves to equilibrium, but if the price starts changing, then people will start trading derivatives back and forth.

All this connects with my earlier posts about passion and emotion.  Neoclassical economics assumes rationality on the part of people participating in a market, whereas Austrian economics by focusing on the individual allows for passion and emotion.  Passion can be almost defined as an irrational willingness to decrease individual utility, which breaks the assumptions of neoclassical economics.

This creates a duality which I think is apt

neo-classical economics <-> Austrian economics

Plato <-> Aristole

Song Learning Neo-Confucianism <-> Han Learning / Evidential school

Chu Xi <-> Dai Zhen

Part of the reason I distrust neoclassical economics is that I’ve worked in a corporation.  You just are not going to be able to convince me that corporations are rational profit maximizers.

I need to read more about Veblen.  I think I can describe my economic views about the Chinese economy as Austrian institutionalism.  You begin with the Austrian view of individual choice as the basis for an economy.  You then look at how these choices influence and are influenced by economic institutions.  Then and only then, you see how these economic institutions behave give certain economic inputs.  The problem with applying neo-classical economics to China is that they assume that a certain institutional structure already exists, and it doesn’t.

Anyway, I now have a testable prediction which is that the volume of warrant trades on Shanghai is a function of the daily shift in prices.  This will be one of the things that I want to graph once my system comes back up.  Right now things are broken because python 2.5 is out and not all of the packages have been upgraded.  I looks like to integrate vtk, quantlib, and python will take a lot of thinking.

The other thing I want to do is to review some of the papers on the Malliavin calculus.  The problem with the Malliavin calculus is that it should be a calculus.  There should be a canned set of rules that will let you apply it to a derivatives pricing situation.  Something like Feymann rules.

OK now that I seem rational, do I have permission to go a little nuts?

Maybe not now….  But…..  There is a “craziness quotient” that I have to keep aware of.  If I start looking to crazy people tend to get scared and turn off.  So before I go crazy, I have to wear the nice suit, and look “normal.”  See I can talk about economics and program C++, so I must not be too insane, and then once I “fake normal” *then* I can take off the mask and let people know how cracked I really am.

The problem is that I’m getting a little tired of the mask.  Businesses just want the C++ programmer and the nice quantitative models.  What they don’t realize is that programming and model building is a creative, artistic process, and you just have to put up with a bit of insanity to get the good stuff.

Writing good code is a lot like writing poetry.  In fact it *is* writing poetry.  When you code something, you are trying to strip the process to its creative essence, you are using odd rules of meter and rhyming (each open brace in C++ must be followed by a close brace), and making interesting allusions in the form of library calls.

The problem with the code at work that I’ve written in the last two or three weeks is that my heart just isn’t in it.  Yes the code works, but it is not particularly elegant or graceful or beautiful.  I’m just too upset about my work environment to write poetry about it.

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