Twofish's Blog

September 30, 2007

Disaster Capitalism – Comments on Naomi Klein

Filed under: academia, economics, finance, globalization — twofish @ 8:57 pm

Interesting book that is worth reading.  However, there are some important points here.

First of all, it always fascinates me that the people who are most in favor of privatization and lassiez-faire capitalism are people that have spent most of their lives outside of business and finance, just like the people who are most in favor of military intervention are people who have spent most of their lives outside the military.  There’s something ironic and disturbing that the economists of the World Bank and International Monetary Fund that are telling third world nations to privatize everything are people who generally have never worked in a private company in their entire lives.

It’s also telling that the people who were the most skeptical about military intervention in Iraq were people who were the professional soldiers, and the people who are some of the loudest voices against the excesses of capitalism are professional finance people like George Soros and Warren Buffett.

“Being there” changes your perspective in a lot of ways.  For example, pretty much everyone who has worked in a private corporation has lost their job at some point, and knows in an emotional way, the consequences have being unemployed.  So when I see angry people on the streets of Baghdad and Jakarta, I know what they are feeling because I’ve been there in a way that I doubt most of the economists in the World Bank or IMF have.

I do think that Klein is a bit too much a believer of “incorrect” conspiracy theories, and doesn’t quite appreciate the breathtaking amount of incompetence there is out there.  There are people in this world that truly, honestly believe that government is the problem, and that totally privatized world will create a utopia.  These people are for lack of a better word, dangerous idiots.  Private corporations and private capital can do a lot of good, and the profit motive and pure greed can do some incredibly wonderful things, but you have to consider the entire social system.

I seriously doubt that anyone in the Bush administration intended that New Orleans and Iraq would be in such the awful mess that they are in.  Even in cases where there is obvious greed and cronyism, then attitude of the people getting the checks toward society is neutral.  People who are making big money off New Orleans and Iraqi reconstruction, frankly don’t care if New Orleans or Iraq prospers or burns, as long as they get the checks, so the trick in getting something useful done is to set up the incentives so that people make more money if New Orleans prospers.  This is one reason why you really want local people running things.  A corrupt political boss that is located in New Orleans at least spends the proceeds of their corruption locally and has some connection between their political/economic well-being and those of the community.

Finally, I think that Klein totally misses the really, really, really scary implication of her work.  One thing that you learn to ask yourself in business is “Who is the competition and what are they doing?”

So who is the competition and what **are** they doing?

Hezbollah and the Islamic Brotherhood has managed to capture the support of large numbers of people because they run schools and services that are competently run.  The reason that Islamism has become such a powerful force is because they provide a lot of social services and reconstruction aid.  The United States promised freedom to Iraq, and it brought devastation.  Meanwhile Islamist groups are getting the job done.  If things go on the way that Klein says they are going on, then we are going to lose this war……  And let me say something obvious, in the Middle East, we are losing this war….  We haven’t lost, but we are losing……

Random notes

Filed under: china, chomsky, internet — twofish @ 1:48 am

Interesting article about Chomsky and Chavez

One of the big disagreements that I have with Chomsky is when he talks about turning the public into an organized force. That scares me because within the public there are lots of interest groups that disagree about some pretty fundamental things, and turning the “public” into a large monolithic block removes a lot of the diversity within the “public.” Also, having things decided by the “majority” becomes really scary when you are a “minority.”

As far as Chavez, I really have no idea what to think about him and what is happening in Venezuela. One thing that I’ve learned about the media, is that you should always be careful when the media tries to make you feel strongly about something, and whenever I hear something in the media about someone that makes them look like either an angel or a devil, I get suspicious.

Rebecca Mackinnon has done a good job talking about misconceptions about the Chinese internet, and how the internet didn’t end the Communist Party of China. I actually was one of the few people that didn’t think that the internet would bring the end of the Communist Party and that was in large part because I had read Chomsky, Gramasci, and Foucault. Google for Panopticon.

I also think that Chomsky is making a mistake when he says that the internet will be the end of corporate domination of the media. It will certainly change the mechanics of corporate domination, but people with money and power will figure out how to use the internet for their own ends (and vice versa, people who figure out who to use the internet before anyone else does will end up with money and power).

Another good like about whether NGO’s are selling their soul to be in China. Of course they are. The question that people need to ask themselves is not whether or not they are selling their souls. You *have* to sell your soul to some extent in order to do something useful in politics and economics. The real question is *what is the price you are getting for your soul*? By agreeing to do or not to X in exchange for Y, are you making the situation better or worse? That’s a tough question to answer sometimes.

One final note with relevance to getting around internet censorship in China. I’m suspicion of technical tools to do so because they may be worse than useless. A faulty anti-censorship system is *MUCH* worse than no system, because it gives people a false sense of security, in which they start doing things that they wouldn’t if they didn’t think that they weren’t being watched. The big mistake that Yahoo China made with respect to Shi Tao was to not make it clear that everything someone writes on Yahoo should be assumed to be readable by the Chinese government, and I doubt that most of the cyberdissidents would have said the things that they did if that warning had been present.

About how Yanukovich has become extremely popular due to American media strategists. Of course, this is a very funny article because I’m sure that this article is part of Yanukovich’s media strategy.

September 29, 2007

Systems of social control – How Chomsky is right — and wrong

Filed under: academia, austrian economics, chomsky, finance — twofish @ 10:20 pm

In George Orwell’s 1984, Winston Smith asks O’Brien whether the things that Smith has read in the secret banned book are true. O’Brien’s reply is “As description, yes. The programme it sets forth is nonsense.”

I keep thinking about this in relation the writings of Noam Chomsky

who I think is a wonderfully lucid and accurate description on how the power elites in developed nations keep their control by corporate control of the media. My big difference with Chomsky, is that he assumes that there is a better system out there, and I’m skeptical. Part of the reason I’m skeptical is that I’ve been in academia. Presumably the academics that write about systems of social control want to model society in the image of academia, and in any case they have the power to model academia after their vision of a perfect society. However, my first hand experience is that the world of academia has a rigid caste system and is exploitive in a way that is unheard of in the “corrupt world of business and politics.” Let’s be brutally honest about this, academia is a world of lords (tenured faculty) and serfs (adjuncts and graduate students). The one nice thing about the academia is that academics don’t run society, and there are enough social limits to keep the dysfunctions of academia inside of academia, where they are harmless. In cases where academics have free rein to run a society, the results have invariably been disastrous. The one clear modern example where you had academics running a society was the Khmer Rouge.

Let me give you an obvious example of how the power elite in the United States maintains control over society, and why it isn’t such a bad thing. I want to invite you to a speech by Chomsky. Except that you can’t go because you have to work. Why do you have to work? Just quit your job, and join the revolution. Well, because you have this mortgage and you have car payments, and you just bought this big giant big screen HDTV and you want to catch the latest episode of Lost. Well why don’t you get rid of these things, become a hermit, quit your job, and join the revolution. Well, I just saw this commercial that makes me want to buy this bigger HDTV and I don’t want my neighbors to think that I am a “loser” for having a small HDTV or a small house. Why do you think you are a loser if you aren’t a business success and have a small television? Well, there is this commercial that I saw while I was watching Lost….. And….

So who ends up joining the demonstration. It’s people who don’t care about money and status, and these people generally have no money and connections and so are harmless. The US doesn’t have political prisoners, because anyone that wants to change the system in a way that is unacceptable to the power elite either by bought out or ignored. I’m a good example of this. I say good things about the power elite, because the power elite dumps enough money in front of me to keep me happy and controlled. If the checks stop coming, I become unhappy and uncontrolled, and seeing that I have some useful talents, the people that run the United States don’t want to see me uncontrolled. And this is true for most of the people living in the United States.

So what the hell is wrong with the system????

Personally I don’t think that there is much wrong with the system (and that’s largely because of those semi-monthly paychecks that I get from it that allow me to satisfy the urges that the system makes me thing that I have). Basically what is happening is that the rich and powerful are bribing the less rich and less powerful with wealth and goodies so that the rich and powerful can keep their wealth and goodies.

Chomsky does have a problem because he has a model of economics in which the wealth that the developed world has has to come from exploitation of the third world. That HDTV? Where did it come from? Chomsky would argue that it came from a slave labor factory in China. But that is not what is happening.

The Chinese government is bright enough to know that they just can’t stay in power through tanks and torture. There aren’t enough soldiers and police to keep control, and then you run into the problem of keeping control of the soldiers and police. So the Chinese government has copied the American government and is trying to stay in power by bribing the masses. People work in Chinese sweatshops because *they* want their goodies, *they* want to be seen as a success, and *they* want a bigger house and motorbike than their neighbors. And as long as the checks keep coming, people are too exhausted to demonstrate. If you look in situations where people *are* demonstrating in China, it’s largely because of economic issues. Their checks aren’t big enough. So people make noise, and when they get a fat enough check, they stop making noise. The system isn’t quite as developed in China, so the government has to sometimes resort to jailing dissidents, but what the government is trying to push for is a system like that American system in which the dissidents are harmless and jailing them causes more problems than ignoring them.  The ideal system would be one in which anyone who wants to destroy the system, gets to join the party.  *wink*

For this system to continue to work both the US and Chinese economic and political elites need to generate enough wealth to keep their populations satisfied, and they need to be open enough so that people (like me) that could be threat to the basic stability of the system, get bought out. That’s not a bad thing, and it’s a heck of a lot better than what the academics have come up with…….

Let be close by pointing out the fatal flaw that academics have that I think causes them create such hellish systems. Academics think that they are smarter than everyone else. The people who get a paycheck, buy a high-definition TV, and then relax to watch Lost, they are stupid sheep in the eyes of academics. They should be reading about Chomsky or joining the revolution. The trouble with this attitude is that it means that academics ignore the ideas and perspectives of non-academics, and so when they get into a position of power, they know what is right, everyone else is wrong, and this causes hell to happen…..

So now that I’ve told you all of this, are you going to go out and revolt…… I don’t think so. I think you are just going to go into the refrigerator, pull out a cold beverage and watch TV….. which is exactly what the power elites wants you to do…..

More about the real world

Filed under: academia, china, immigration, politics — twofish @ 8:58 pm 

The reason that I think democratic societies have lower corruption indices is that democratic societies tend to be richer and also tend to have working administrative systems and bureaucracies. This means that there is the wealth available to prevent corruption and the systems in place to prevent corruption.

Also, curiously I don’t think that the average person in the United States has more control over their lives than the average person in China, and I don’t think that power in the United States is more evenly distributed than in China. In both societies, the number of people that actually run things is in the neighborhood of two to three thousand people.

However, people in the US have the *belief* that they have more control, and that matters a lot. There are lots of processes and rituals in the United States system of government designed to give people the belief that what they think really matters, even when it doesn’t.

In your typical mid-term House election, about 90% of the seats have already been decided, and the remaining 10% you are choosing between two parties that agree on about 90% of the issues. Senate elections are more open, but that is because the larger districts allow more campaign spending. Your chances of getting elected to Congress are nil unless you have money and connections.

But still it is a much better system than China’s, for a number of reasons, not the least of which it is that is more stable. If something really bad happens in the US, and the Republicans are in power, they get blamed, voted out, and the Democrats come to power, and vice versa. Whatever happens, the system as a whole doesn’t collapse or really change in a fundamental way.

Yes, you need money and connections to get elected to anything, but it is not impossibly difficult to get money and connections, and in the process of getting money and connections, you have to agree to play by some rules. This means that people who seek to challenge the system get absorbed by it and end up strengthening it.

In China, if something really bad were to happen, people get angry, they can’t take their anger out by “voting the bums out” and so they get even more angry. This makes the system unstable. Also because there are isn’t a firm system of rules, it sometimes becomes difficult to absorb challengers into the system. This also makes the system unstable.

Having the power elite in the United States maintain control by “manufacturing consent” (lawyers, lobbyists, and media consultants) is a lot better than maintaining control via using tanks and torture, and also more effective in the long run.

The more the Communist Party of China relies on “effective propaganda” (I’m thinking here of Fox News and CNN) and less on brute force, then better things are……

There is a weird sort of “doublethink” that some people have when it comes to democracy. On the one hand, people promote “democracy” but what they have in mind is a not a real system but some imaginary ideal system that doesn’t exist, and quite possibly can’t practically exist. I’m not interested in imposing a theoretical ideal system. I want to see real political systems in action.

Caveat Emptor

Filed under: academia, Career, china, ghosts, gifted children, mental health, new york city — twofish @ 11:42 am

One of the things that I’ve learned is that history doesn’t end, and problems don’t end.  You get what you want, and that resolves some problems, but the world changes, and you end up with new problems.  They might be better problems.  But unlike a movie or a novel where you reach the end, there is end to history.

One new problem that I’ve found is that I’m now in a position that I’ve giving advice to people, mostly about careers and strategy.  That worries me a lot because anything that I say is going to be incomplete, and I hope it is not incomplete in a way that will get people into trouble or which is misleading.  People thing in terms of “scripts” and “stories.”  There’s the “American dream” script, the “model student” script, the “patriotic overseas Chinese” script, and what I’m often asked to do is to basically help people conform their lives and efforts to a script.  Recently, it’s usually the “successful person in business” script.  What worries me is that a script is an incomplete description of a human being.

What I found is that sometimes you get a better idea of reality by asking the right question. If you ask enough questions and design an experiment well, you get answers. If enough people ask the right questions, you can make a huge amount of progress.

And sometimes the right question is something completely obvious?  Why do I write some much?  Why do I have such a strong urge to help people in their careers?  I think I have a vague understanding of my motives, and it’s a story I don’t want to tell you, and in some ways I can’t tell you.  But it’s something that doesn’t quite fit into the “successful person in business” script or in the “classic immigrant story” script.  Behind my motives, there is a lot of things that most people would consider “negative.”  There is fear, pain, anger, hate, shame, sadness, and guilt.  There are shadows all around me.  When you have lots of bright lights in the big city, shadows are difficult to avoid.

Let me talk about a recurring nightmare that I often have…..

There is a brick floating in mid-air.

That is frightening to me.  Brick don’t float in mid-air, they fall to the ground.  Maybe, one day I will see a brick floating in mid-air, and if that happens, then there is something very, very wrong.  That’s why I care a lot of about physics, math, economics, and law.  They provide certainty or at least the illusion of certainty.  If I see something, it should explainable by the laws of conservation of mass and energy, or it should be consistent with the Peano axioms of natural numbers, or it should be explainable via judicial precedent and constitutional law.  But what it doesn’t.  What if I see a brick floating in mid-air without any explanation.  They I know something is very wrong with the world, and it’s a deeply uncomfortable feeling.  If a brick floats in mid-air, and the laws of physics no longer hold, then what keeps me from falling into the center of the earth.  If I’m in a situation where there is no constitutional, legal  or economic framework, then what keeps “them” from doing nasty, unspeakable things to me.

I want to know that I’m sane, and that the world around me is sane.  That’s why it is important that 2+2 keep adding up to be 4, because if it ends up adding to be something else, then I’m not safe any more, and much of my life has been to deal with the horrible reality that things are not as safe and secure as I would like them to be.  And if they world starts going crazy, at least I want to know how crazy it is.  Maybe when I add 2+2 I don’t get 4.  Do I get 3.99999, 1, -2, or is the answer that I get when I add 2+2, magenta elephant or something that else that is not even a number.

The annoying thing is that the world being as confusing as it is, that I often don’t get 4 when I add 2 and 2.  Sometimes I get 3.999, sometimes I get nothing.  Sometimes I get -3.   Maybe I added wrong.  Maybe there is something I’m ignoring.  I don’t know.  But I find those moments very frightening and disturbing, because when I add two numbers and they don’t come out exactly right, I get the glimpse of that brick floating in mid-air.  And my strange insecurities and frustrations about numbers, gets me to the social embodiment of numbers….. Money…..

Money is a funny thing in that I found that people who seem to care a lot about money, really care about something else.  I care a lot about money.  For me, money is a sign that I am sane and that the world is sane.  In business there are so many things that can go wrong, and it is a constant struggle against chaos.  Being able to make money is hard, and making a profit demonstrates that in some way, you are connected to the rest of the world, and that you aren’t in your own little reality disconnected from the reality in the rest of the world.  Having money and making money allows me to convince myself that I am sane.

I say this because one day I might end up labeled as a “business success” and that happens, your story gets repeated, and like all stories, it is incomplete.  Descriptions of reality are always incomplete, but they can be incomplete without being misleading.  Just be aware that there are shadows following me.  I don’t want to tell you what they are, and pretty much everyone who finds out wishes that they didn’t know.  Just be aware that they are there…….

America, the world’s biggest reality game show

Filed under: economics, politics — twofish @ 8:17 am

vorpal: The US cannot afford the amount of oil it purchases because we are in a huge trade deficit. As the price goes up, we will be the first major industrial country to feel the bite. Germany and Japan, both wholly dependent on imported oil, are still in better shape because they have trade surpluses.

The US trade deficit is still a few percentage of GDP. Also if it is one thing that people should have learned from the 1980’s, is that deficit=bad, surplus=good is wrong. There are cases in which surpluses reflect defects in the underlying economy, which was the case in Japan-1980 and it is the case in China today. China is generating massive amounts of wealth which its financial system cannot invest well internally, and this is why there is such pressure to export money from China.

vorpal: The US has racked up a huge bill, and is dependent on more credit to get by.

And the reason people are willing to extend the US so much credit is that people still believe (I think correctly) that their money is better put in the US than anywhere else.

vorpal: Moreover, the cost of living is set to increase more rapidly as the price of scarce resources increases (Jeffrey Sachs has a recent article on this.)

Jeffrey Sachs has been wrong before (disastrously wrong in the case of his plans Russia). Personally, I think that technology will cause standards of living to go up faster than resources cause standards of living to go down. If this is correct, then the nations that will do well are those which have a track record of being able to develop technology rapidly, and the United States leads the world in this.

But it is not this country versus that country. The US is very good at coming up with new ideas. It’s much less good at implementing those ideas on industrial scales. Japan is better at that. It’s also much less good at actually producing the final widget using cheap labor. China is better at that. But asking what country is “better” is the wrong question. You set up your systems so that you put different functions in different countries, all playing to that countries strengths.

A lot of that involves finance and social organization. It’s not that US engineers are smarter or more creative than Japanese or Chinese ones, it’s that there are linkages between private equity, venture capital, and the research universities that exist in the United States that don’t quite exist elsewhere. (And even in the US, they exist only in a few cities.) China is trying to replicate Silicon Valley, but that will take about two or three decades.

vorpal: The US is most vulnerable. Because it depends on imports while it’s ability to pay for them has eroded. The true cost of the imports has been depressed, but it is impossible for this to continue forever.

But the US has some core strengths, which become more obvious if you look in the past and try to figure out why all of the previous the “US is doomed” predictions failed.

One is the structure of US university admissions. In the US, you are more likely to get admitted to a high ranking university if you are captain of the football team or president of the debating society whereas in Japan and China, it’s all about how well you score on tests. People who are football team captains tend to have the social and management skills necessary to start and run small/mid sized companies more so than someone that spends 100% of the time on tests.

The other is the way that the US sees itself. Part of the strength of the US university system is that it takes the brightest people from around the world and turns them into Americans. So China and India are producing upteen million engineers. The US can go through those upteen million engineers, and set things up so that the brightest, most motivated end up in the US.

This actually contributes to the American character. If you are quiet, obedient, and do what you are told, you are just not going to make it past the US immigration system. The people who get into the US, whether legally or illegally, are motivated passionate people who want to get rich. These are people who tend to start small businesses.

People say that the US is doomed because Americans are lazy and people are borrowing lots of money to buy useless stuff like McMansions and HDTV’s, but they are not looking at the big picture. This is how the US works.

You find an empty spot of land. Build a huge giant house with a pool and SUV. You fill it with HDTV’s, credit cards, citizenship papers, and a job that pays a huge amount of money for little work. You surround it with some immigration checkpoints, you broadcast it to the rest of the world and say “come and get this!!!!!” So what happens is that among the millions of scientists, engineers, shopkeepers, farmers etc., etc., all start running through loops to get the prize. They learn English, they figure out all of immigration tricks, etc. etc. Some of them make it. They enjoy the big house and the SUV, and you end up with some of the most motivated people in the world, ending up in the US, who then start the companies and come up with the ideas that pay for the house and SUV.

Of course, their grandkids and great grandkids are going to end up fat and lazy because they grew up in the nice house rather than having to fight their way in. No problem. Lots of empty space….. Build another house……

America, the world’s biggest reality game show…..

September 26, 2007

The Real World 

Exxon-Mobil has record profits, but if Iraq were online, they’d be making even more money. China and India are increasing demand for oil, and the oil companies are making large amounts of money off of this. This puts big oil on the side of China. The whole Chevron-CNOOC thing, that was a bit of hardball.

to guest:

You left off a zero. Cheney’s assets are about $90 million, most of which came from options he had in Halliburton stock. Funny thing. Once he was VP, people wanted him to sell his Halliburton stock, which he did, right before the stock plumetted.

Halliburton made about $13.5 billion of revenue. US$90 million net worth for a CEO of a Fortune 500 company is typical (and I think it’s actually on the small side). One problem with the US system is that because public official salaries are capped, all of the really talented people try to go into business or law, and having talented people go into business rather than government makes things unbalanced. The Goldman-Sachs model, where people make money then run for office, is one way of getting around that problem.

Also, once you make about $3 million/year and have about $10 million net worth, (i.e. managing director level at a bank) money no longer matters. Above that level, it’s not about the money. It’s about the power and the status.

guest: Did you mean like the “sleazy operator” George Schultz, or the “sleazy operator”,turned neocon warmonger, Donald Rumsfield? When Cheney and Rumsfield were unsuccessful with the carrot, they use the stick (“shock and awe” rather than shlock and gnaw). Is this what you mean by sleazy?

Yes exactly. If it was just about money, there are lots of deals that could have been made with Sadaam. Lots of deals *were* made with Sadaam. The whole “oil for food” sham.

Cheney and Rumsfeld went wrong when they stopped being sleazy operators and got convinced by the neo-conservatives that they could build a democracy in Iraq. If it’s about money, you can make a deal. Go to Sadaam, ask him what his price is. $1 billion? $2 billion? $10 billion? $50 billion? $100 billion? Write the check and then have the lawyers and lobbyists make sure it is all legal, and the PR people make sure that the story gets buried in the press.

If they were just in for the money, then they wouldn’t have gotten the US in nearly the amount of trouble that they’ve gotten. The US is going to be dealing with the Iraq mess for *at least* the next decade. Realistically, the next two or three. Everyone with half a brain knows it, but no one is talking loudly because they don’t know what to tell the spin doctors to say.

But I still think that the US has a good economic and political system. The thing I find interesting about ideologues on both the right and the left is that they are interested in “selling democracy” but what they are trying to sell is some system that exists only in their minds, and not some real world system.

The basic reality is that people with money get power, and people with power get money. If you try to build a political or economic system that ignores that fact, you are ignoring basic human desire and emotion, and what you come up with will be a mess. However, you can build a system that acknowledges human desire and still manages to do social good. Arrange things so that the people with money have to spread some of it around to get more money. When people complain about corruption, they usually are just upset that they aren’t getting any of the good stuff. Give it to them.

When I say that I think that there are some parts of the US system that China should adopt, I’m talking about the real world, not some imaginary system. Even with the spin doctors, the lobbyists, the lawyers, the overpaid incompetent CEO’s, there is still a lot of good stuff in the US economic and political system. With all of the damage that Cheney and Bush have done, it’s still recoverable. Not anything like the Great Leap Forward or the Cultural Revolution.

September 25, 2007

So what is going to cause the Chinese government to collapse this month????

Filed under: china, economics, history, politics — twofish @ 5:30 am

And the “thing that will cause the Chinese government to collapse this month” is “the environment.”   Last month it was food quality.  Next month, I’ll bet it will be food prices.  Then we go into the Olympics and it could be any number of things.  Racial tension?  Old age pensions?  Collapse mortgages?  Calls for universal suffrage in Hong Kong? No matter, what ever the problem, it will the problem that will collapse the system.

It’s kind of interesting that for the past twenty years, pundits have been coming up each month with the “issue that will kill the Chinese government.”  With the one party authoritarian system, the Chinese government couldn’t possibly solve *this* problem, and then they proceed to do that.  Now eventually the doomsayers will be right, eventually something will cause the Chinese government to collapse.  It may be the sun turning into a red giant or invaders from Alpha Centauri, and there is always the irony that the second you say that maybe this issue isn’t important that this *will be* the issue that kills the Chinese government.  But what I find amusing is that there is very self-reflection, and entertainment of the possibility that maybe the Chinese government *isn’t* quite as brittle as it looks.  People point to the Soviet Union, and say “here is an example of something that the experts said would last forever, and didn’t.”  But maybe people are making the opposite mistake with respect to the Chinese government.

I think the fundamental issue is a conflict between prediction and free will.  If you make a prediction that X is going to happen in five years, then you are really making a statement that nothing people can do will prevent X, and at that point you turn people into automatons.  Once you accept the principle that people can make decisions, and people can change the future, then there are limits to prediction.  The standard retelling of the fall of the Soviet Union makes it sound historically inevitable, but if you look at the history of the Soviet Union or that of the United States, there are lots of places where things could radically change if you put the right (or wrong people) at the right time (or the wrong time).  What if Roosevelt had died while Henry A Wallace was vice-president.  What if Khurschev had survived the 1964 power struggle.  What if Brezhenev had just followed different economic policies?  What would have happen had Elian Gonzales’s mother at the last second decided not to go to Florida?

There is a limit to how much things can be predicted.  What happens next depends on the decisions you make, and the decisions I make.

September 24, 2007

Notes on academia, power, and influence

Filed under: academia, economics, harvard, iraq, massachusetts institute of technology — twofish @ 5:19 am

Some notes that I made on the admissions system of elite universities

The way that the admission system works is that your kid’s application to Harvard gets placed in one of several queues, based mainly on the part of the country that you apply from. If you have a relative that went to Harvard or if you donate a huge amount of money, then you get put into a special queue, in which you are compete against the other people who have rich and connected parents. Only a small fraction of people who go to Harvard go through that “legacy queue” but the people who get into that queue is even smaller, so your chances of getting in are far higher if you get into that queue. Also, this is only for undergrad admissions, none of the professional schools do this.

And the people designed this system, *did* intentionally set things up to perpetuate their power and status. If it is one constant in history that is that people with power and status do everything that the can to keep their power and status, and this often involves making deals with people who can challenge them. The admissions systems of the elite universities can been seen as a deal between the upper class power elite, and the upper middle class “want to be’s”. The upper class needs to keep the upper middle class happy since the upper middle class has the means and resources to overthrow the upper class if they wanted to. By making most of the positions in Harvard open to the upper middle class, their threat is neutralized.

What makes the system work also is that US has a Federal multi-party system. If you want to be among the people who run the United States, you can get there directly through Harvard (graduate Kennedy School, get a job in a think tank or in a staff position in a federal agency). However, if you don’t make it to Harvard, you can be one of the people that run the state of North Carolina by going to University of North Carolina – Chapel Hill (become a local lawyer, or state assemblyman, or state court judge), and if you are hungry, ambitious, and lucky enough, you can get to Washington through the local elites. There is also a Republican establishment and a Democratic establishment, and the two groups really don’t like each other that much.

This makes the dynamics of power in the United States vastly different than in Japan or France which don’t have regional elites.

Yes there is a conspiracy in which people with power seek to keep that power. That’s the way that it’s always been, that’s the way it always will be. From time to time, you need to change who is in power, but don’t expect the new people to ultimately behave much better than the people they replaced.

Now the reason I blog is that I don’t like what goes for “news” and “debate” in the media.  What’s there is just professional wrestling and bread and circuses.  The real stuff happens behind closed doors and in quiet discussions.  I do think it is important to talk about how power and influence work in America, and part of what I’m doing is to make some points about how I see it working.  I think society works better if people have enough information to make good decisions on what role they want to play in society.  As for me, the thing that makes me different is that I don’t really think that America has such a bad system.  OK, there is a power elite that runs the country.  So there’s a power elite in every country that runs the country, and the way that the power elite in the United States behaves and responds to external stimuli isn’t particularly bad.  I’ve seen worse.  I’ve seen a lot worse.

I lot of my views on how society works comes from reading Chomsky and Marxist critical theorists.  And I think they have some very good points about how there is a ruling elite, and how that ruling elite runs America. Where I part ways from the critical theorists, is that I really don’t think that they’ve come up with a better system.  Someone is going to end up in charge, and whenever it’s been Marxists, they result hasn’t been very pleasant……

There is one thing that I should point out.  You will notice that the media has been very quiet about Iraq lately.  It’s because the people that really run the country, they know how bad the situation is, and they really have no clue what to do about it.

September 23, 2007

The Exchange is dead. Long live the Exchange

Filed under: china, economics — twofish @ 8:19 am

Here is a good article on the end of physical trading on the NYSE.  What is the case is that physical trading has become much less important, and the new trading floors are vast virtual expanses that now exist in cyberspace.  People in the financial industry will refer to the “street” and the “street” is a place in cyberspace where you can buy and sell stocks and bonds, 24 hours a day.  Instead of going to Wall Street to do a trade, you log onto your machine and access one of several dozen electronic exchanges.

A few comments:

The opportunity to have people rather than computers make decisions on a customer’s trade distinguishes the exchange from its all-electronic competitors like the Nasdaq stock market, they said.

The issue here is that people *do* make decisions about customer’s trades.  People who get hired by the customers to program the computers that make the trades.  The situation with NYSE is that it is not man versus machine but rather man versus man + machine.  The way that the system currently works is that the machine handles all of the millisecond level stuff according to rules that a human being sets up.

Two years ago, the city agreed to provide about $650 million in incentives to Goldman Sachs to build its new headquarters near ground zero instead of moving to Midtown. Goldman, which has about 30,000 employees, is thriving now, as the exchange is shedding jobs and shrinking its presence in the city

One of the major causes of the shift to electronic trading has been the 2001 World Trade Center attacks.  WTC showed the dangers of having business operations in one central location, and the trend has been to distribute people and technology at multiple sites throughout the world so that a failure in one site doesn’t critically end business operations.

They understand, Ms. Wylde said, that the key components of exchanges in the 21st century are not people, but computers and technology. “The shift is happening; it’s inevitable, and it’s happening quickly,” she said.

This is wrong.  The key components of exchanges and financial transactions in the 21st century are people. Without good people, the computers and technology would instantly fall apart.  Computers don’t fix and don’t program themselves, and you need lots and lots of people who are constantly looking after the machines to make sure that they do their thing.

The focus on people is actually going to help NYC a lot.  In order to run a trading operation, you need people with a lot of different skills.  People with business skills, people with computer skills, and people with mathematical modelling skills.  The interesting thing about these skills is how specific some of them are.  When you need a problem to be solved quickly, it doesn’t help much to have a people who is a general expert in computer programming, but rather you need to get in touch with the person who is the expert of line 1344 of the file ProcessOrder.cpp.  Similarly you also need to get in touch with the person who is the expert on how vanilla options on Microsoft stock trade, and the person who knows the most recent tweak on the Heston model that is in the system.

You also need to have these people physically in the same room.  It’s often amazing how much productivity decreases when you have people fifty feet from each other rather than five feet from each other.  (The other curious thing is once that someone is on another floor, they might as well be in another city.  So once you move someone out of a room, you can move them to another continent without much loss in productivity.)  The fact that integrated teams end up being both fast and productive, means that it is easier to move people into the NYC than to distribute people away from it.

So the urban planning issue here is Midtown versus Downtown, or possibly Jersey City versus NYC.  It’s not NYC versus somewhere else.

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