I try not to comment on current events directly. I think that we've got
to progressively become a society where banks are deemed to be too
precious for us, for our currency, to take too much risk. We need to
have a banker who is just as responsible as someone working for the
water company. Banks are going to become a utility. And banks probably
will not have a lot on their balance sheet, and the risks taken will be
borne by individuals like myself who have capital, and who know the
risks, with their own money. Otherwise you're going to keep having a
cycle that's deeper every time.
Nassim Nicholas Taleb, Time Mag interview, 10/24/2008)
Archive for October 2008
I try not to comment on current events directly. I think that we've got
Mr. Taleb is fascinated by the rare but pivotal events that characterize life in the power-law world. He calls them Black Swans, after the philosopher Karl Popper's observation that only a single black swan is required to falsify the theory that "all swans are white" even when there are thousands of white swans in evidence. Provocatively, Mr. Taleb defines Black Swans as events (such as the rise of the Internet or the fall of LTCM) that are not only rare and consequential but also predictable only in retrospect. We never see them coming, but we have no trouble concocting post hoc explanations for why they should have been obvious. Surely, Mr. Taleb taunts, we won't get fooled again. But of course we will.
Capitalism, then, is by nature a form or method
of economic change and not only never is but never can be stationary.
And this evolutionary character of the capitalist process is
not merely due to the fact that economic life goes on in a social
and natural environment which changes and by its change alters
the data of economic action; this fact is important and these
changes (wars, revolutions and so on) often condition industrial
change, but they are not its prime movers. Nor is this evolutionary
character due to a quasi-automatic increase in population and
capital or to the vagaries of monetary systems, of which exactly
the same thing holds true. The fundamental impulse that sets
and keeps the capitalist engine in motion comes from the new
consumers, goods, the new methods of production or transportation,
the new markets, the new forms of industrial organization that
capitalist enterprise creates.
(Joseph Schumpeter, "Creative Destruction"
From Capitalism, Socialism and Democracy 1942, p. 82)
Eric, I'll reply this time referring directly to some of the things you say in your email.
To start, you say:
"One third of your retirement money… that money is now in the pocket of the thieves. Or transformed into wind."
No, neither, not with the thieves nor is it "gone with the wind." (Did you ever see the movie of that name? You must have, and it must have been a favorite of yours. It goes along with the "big pictures" of things you like.)
That loss, which includes our loss, represents the people's (those with the monetary means anyway) loss of confidence in one another. So from that point of view true wealth is having confidence. Wealth vanishes along with our confidence in one another. Therefore, even in my monetary loss I try to retain confidence, and to the extent I do I'm still wealthy. Do you believe it? (Well, if you do, as the expression goes, I have a bridge I'll sell you. That expression refers to naive newcomers to NYC buying the Brooklyn bridge from city dwellers for cash.)
"I interviewed some traders of BNP Asset Management; in spite of colossal losses, they keep all their arrogance. They looked at me and my friend as at snails which can never understand anything about the fabulous risk markets."
I admire your courageous attempt to understand risk and the BNP management people. I wouldn't even try. That's one more subject matter that is far beyond my ability to comprehend. But I do learn from an article in today's Wall Street Journal, Capitulation: "When the Market Throws in the Towel" (Do you read the WSJ?) that I'm not alone in my inability to understand. I read:
"Wall Street often resembles a blindfolded person looking in a darkened
closet for a pair of black shoes that isn't there. With the Dow taking
another battering in the past week, another round of futility is under
way: the search for "capitulation."
Eric, as I'm sure you know stocks have only gone up over time, up and down but always more up,
Here's a portion of the chart, from 1986 to the present, that proves it (go to this internet site to see the complete chart):
The overall upward movement is a fact, maybe not like the sun coming up in the morning, but almost. That is so because there is always more production, more growth, which the stocks have to reflect. And there has to be more production in order to fill the stomachs (and desires) of more and more people. The confidence I have in America (the USA) comes most of all from the huge numbers of people who come here every year from nearly all the countries of the world. Our productive capacity, our businesses, our stocks, have to grow if only for them. (And they have to eat, even while working on the plantation.)
If there is one country that is ever going to represent the whole world it will have to be America where more and more people from all the world are now living. I see it right here in Tampa, at least in terms of the Blacks, Latinos, Whites et al. that make up the colorful population of this city.
I love this city for that reason. There are all kinds of people here, people I encounter every day as I ride my bicycle throughout the grid of streets (lined mostly by magnificent live oaks and ordinary strip malls) that is the city, the very rich and the very poor, people of color and people supposedly all white (of course they're not).
While some fear the devastation of the planet from overpopulation I see more and more people as being the source of more and more wealth, and even, and this is the paradox so hard for many to understand and accept, the source of more and more efforts to protect the planet. For only wealth enables people to care for their physical environment. Otherwise they will use it for their own purposes, as during the move West of our pioneers, and as today in the banlieux of France's cities where poverty and joblessness force people, by and large young people, to have only thing on their minds, how to grow their own monetary wealth.
"But my instinct says to me: this is a new chapter in the big story of humanity: the game is going to become less funny. Like in the Heart of Darkness of Joseph Conrad."
No, I don't think so. Comedy is still what most "contains" the world, what most is the world. Whatever else you might say about the present what is happening is not tragedy. At most there is fear, and incomprehension, but no sense of tragic loss.
Why in some ways these happenings make me feel even more alive. I have lost nothing yet of great value. The people I love are still with me, and we can be together (much as the Soviets about their thousands of kitchen tables during the Empire) and talk about what is happening, and yes, as you and I, you in the Luxembourg Garden in Paris and I here in Tampa, this most American of cities, we can laugh at the folly of it all.
No Kurtz with his mumblings here to disturb us. Just a lot of clowns, but also as I learn every day some reasonable men and women writing for one or more of the Web puclications and whom we read with great pleasure. Just as it's good to read you, and your take on what's happening.
"The Mafia’s hedge fund holds 20 % of the world's wealth now. This is the synthesis of the figures of numerous governments, US universities, offices of strategic analysis on the evolution of the balance of power between states, multinational firms, and even criminal organizations. In the 50's this percent was much lower, perhaps 2-3. I don’t know what all that means because I do not control these figures…"
If what you say about the Mafia is true why that's a good thing. The best way to end thievery (and terrorism) is to make sure that the thieves (and the terrorists) have their own stake in society, their own wealth that they too want to defend. I'm much more afraid of those with nothing to lose, the suicide bomber for example, the al qaeda cell without a country of its own.
" …statuts des preuves qui ont contribué à les élaborer, mais je pressens qu’à l’ère de la monnaie virtuelle, où les capitaux peuvent changer de mains en un millième de seconde, les particuliers comme vous et moi sont des pigeons tout juste bons à plumer. And the figures which you mention at the end of your message are really beautiful. Ils représentent la preuve que le vol existe à une échelle inconnue. Vol des capitaux au sens propre (comme un oiseau vole d’un continent à l’autre) et au sens de dépouiller les épargnants.
Ici, en France, c’est absolument merveilleux ce qu’on voit en ce moment. Le gouvernement vient d’autoriser les banques qui ont été renflouées par l’argent des contribuables après des menaces de faillites (ou des faillites réelles) à puiser dans les livrets de caisses d’épargne. C’est fabuleux ! Le vol est devenu légal !!! Great move in chess game!!! On privatise les gains et on nationalise les pertes!!!!! We are singers delighted to sing and grateful that the bandits leave us alive for the next game."
Here with all due respect I lose you. I've never seen myself as a victim. I've made plenty of mistakes, and my real losses have always come more from my own mistakes than from the machinations of evil people. Eric, I don't believe in evil. Selfishness, egoism, insensitivity to others, and the other "sinful" behaviors, yes, but not evil.
Evil is not one of the deadly sins. There are not evil people, only weak and stupid people, a lot of them, who mess things up, as our President and other such of our world's leaders. But I don't see what's happening now as being the work of the Mafia, of thieves, of evil individuals out there trying to strip us of what we have.
No, what's happening is the result of our own mistakes, compounded now by our fears, and our unwillingness to trust our fellows. OK, lack of trust is perhaps as close to being an evil as it gets. As for the government of France I'm not able to judge their actions, no more than the moves of a great chess player (I'm not comparing government leaders to chess players, other than in respect to my own inability to understand their actions!)
"Pour terminer, convenons que nous ne savons pas grand chose de la vérité de ce qui se passe actuellement sur les parquets des salles de marchés, dans les câbles qui relient les ordinateurs des brokers aux banques, dans les cerveaux des gens qui décident de couper leurs positions lorsque les indices atteignent tel ou tel plancher, mais… quel spectacle. Même si les gens qui devaient me donner de l’argent pour fabriquer ma saga littéraire se désistent en ce moment, je ne voudrais manquer le show pour rien au monde. C’est quelque chose de voir les hors-la-loi s’empoigner les uns les autres, se tirer dessus par derrière, le shérif embusqué derrière le traditionnel tonneau de whisky, son chapeau troué par des balles qui ne lui étaient pas destinées, et derrière lui, dans le saloon, le pianiste qui continuer de jouer The Mapple Leaf Rag of Scott Joplin."
I'm a great fan of Westerns. One of the great achievements of America is, I believe, the Western film. So I'm with you here, with your final image of the saloon, one of my very favorite cinematic places. Maybe someday you'll be here with us in Tampa and while we count our newly refound wealth, as the market again rises, you'll be here with us, perhaps, playing Joplin's rags for us in the background. That would be excellent.
Now I need a big drink but it's morning, and I have to wait until evening for others to join me with a bottle.
"About schools the media report the present with no apparent historical awareness that it’s the same story once again." Perhaps many of Ed Week's readers will remember this comment from Gerald Bracey's "Education's Groundhog Day" in Commentary of February 2, 2005. He was speaking of the poor math achievement of US students compared with their peers in other countries, and what this meant in regard to this nation’s lost competitiveness.
I recalled Bracey's article while just recently reading another series of articles in our national news media about the dropout crisis in our public schools, especially the schools in our inner cities. Clearly the writers of these articles had little or no apparent historical awareness that this "crisis," if you will, has been with us at least since 1969, the year that the ratio of diplomas awarded to the number of 17-year-olds in the population was at its highest point.
Since that year this ratio has been in decline, and severely so in our large cities with large impoverished and minority populations. Today, for example, we learn that in Detroit the graduation rate, meaning the percent of entering freshmen who complete four years of high school in four years, is 25.
That does sound like a crisis, doesn't it. And readers with no more historical awareness than the writers are appalled and want to know what our leaders are going to do about it.
Should, shouldn't we all, as the educational leaders in the city of Houston are doing, go out into the neighborhoods and knock at the doors of students who are staying away from school and try to persuade them, with carrots (payment for school attendance) rather than sticks, to return?
If I hadn't read about this crisis over and over again throughout a good part of my own life, I might have joined the good people of Houston out there in the neighborhoods, knocking at the doors, but I'm now convinced it's wrong, all of it, not only the solutions proposed, the knocking on the doors and such like, but even more important the fashion in which the problem has been posed.
In my opinion we no more have a dropout problem than we have an attrition problem, say, at West Point. However, in regard to the public schools, if not West Point, we certainly do have a dropout industry to which untold numbers of educators, ed schools, and politicians are contributing an unending series of reforms, reforms that so far have been without measurable effect, let alone success.
Not a year goes by, not six, even three months, that we don't read headlines such as the following, these all taken from news articles appearing on the very same day, October 23, of this year:
The High School Dropout's Economic Ripple Effect,
Mayors Go Door to Door, Personally Encouraging Students to Stay in the Game for Their Own Good — and for the Sake of the City. (the Wall Street Journal)
2,500 dropouts a week in Texas Public Schools! (the San Antonio Express-News)
Report: Kids less likely to graduate than parents (the Associated Press)
School Diploma = $18K More Pay, the High Price Of Dropping Out (the Lancaster New Era).
Twice as Many High School Dropouts Unemployed & Living in Poverty Than Diploma-Holding Peers (the PR Newswire).
Dropout Battle Needs More Help (The Santa Fe New Mexican).
Why is the use of the term dropout in regard to our public schools so widespread? There isn't a program or school in the country that doesn't lose members of its entering class. Be it the Marines, the Air Force Academy, Harvard University, the Art Institute of Chicago, the Julliard School of Music, and if I were to do the research I might find that in some cases the “dropout” or attrition rate were higher than that of the Detroit Public Schools.
And at these schools, as at most places, those who for whatever reason leave are not treated as dropouts, as failures, as having given up their chances for a better life. In most cases everyone accepts that they simply made a wrong choice and that when they realized it they corrected their earlier mistake.
Of course there are major differences between the public schools and the institutions, and any number of other similar, mentioned. For the most part the kids in our public high schools haven't chosen to be there, and it’s much more remarkable, I think, that so many of them do choose to finish something they never chose to undertake. In this regard dropping out seems to me entirely normal.
We, society, have turned this highly normal and understandable situation into a problem by insisting that the kids should stay where they are. Why? When will public high school, which is at present mostly a word and number skills preparation for college, be seen as something not for all kids, not even perhaps for the majority, but strictly for the minority who want, or in a number instances whose parents want, that preparation?
Our mistake has been, at least since the beginning of the so-called dropout problem, and probably well before, to provide nothing for these kids for whom book learning, algebra, essay writing etc. are just not very interesting, not something they want to have for themselves.
To immediately do away with the dropout problem we need only to provide young people with a wide variety of realistic career paths, reflecting the seven or more intelligences or talents one or more of which all kids, possess.
The reasons most often given for why kids should stay in school and why dropping out is bad are principally two. First, those who stay in school and obtain their diploma will obtain better jobs and have higher life time earnings than those who don't. While that finding on the face of it does seem to be without dispute it probably mostly follows from the fact that we provide so little in the way of realistic career paths for those who quit school. And given that how could they possible make out better than those who don't?
Second, our nation is in competition with other nations for new sources of jobs and wealth, and it may very well be true that the greatest source of new jobs and new wealth be the educational attainment level of the population. The most skilled and resultantly best paid jobs will go to where the people are best able to perform them, for high job performance does relate directly to one's educational level.
High school dropouts as currently categorized and compartimentalized in our society will not help us to be more competitive in the race for a larger share of the world's economic wealth. But new jobs and new wealth, while important is only one of the things that life is all about. By making it the be-all and the end-all we have created the dropout problem.
This is the kind of reasoning that is the source of the "crisis" talk. This is why, our making earning power and economic competitiveness all important, we have a dropout industry. As long as we pose the problem in this fashion nothing will change and we'll go on, as Bill Murray in Groundhog Day, living the same day over and over again.
How was it in the movie that Bill Murray did finally break out and move on to a new day? In his case it was by an attitude, a radical change in how he saw the world and especially the people about him. For when he was able to value others for themselves, when he was able to recognize the worth of others, and no longer be so entirely wrapped up in himself, then he could move on and live with others, one new day after another.
The realization that we need to come to, similar to that arrived at by Bill Murray in the movie, is that not everyone should take the same path, most often that of preparation for college, in order to have a good life. The realization is that there are, while perhaps not as many paths as there are people, many more paths than we are currently providing for
our kids in our public schools.
For the time being anyway dropping out is probably a good thing. It does show, if nothing else, a resistance to an otherwise all powerful school establishment, as well as an independence of spirit, the recognition and acceptance of which could become the basis of a complete restructuring of our public schools.
First Charles M. Blow in the Times of October 17th:
I’ve studied the polls and the electoral map
for months, and I no longer believe that John McCain can win. Unless
Barack Obama slips up, Jeremiah Wright shows up or a serious national
security emergency flares up, Obama will become the 44th president of
the United States.*
The wayward wizards of Wall Street delivered
the election to Obama by pushing the economy to the verge of collapse,
forcing leery voters to choose between their pocketbooks and their
prejudices. McCain delivered it to Obama with his reckless pick of
Sarah Palin. That stunt made everything that followed feel like a
stunt, tarnishing McCain’s reputation and damaging his credibility so
that when he went negative it backfired. And, some radical rabble among McCain’s supporters delivered it to Obama by mistaking his political rallies for lynch mobs….
*If I’m wrong, I’ll take my crow with a six pack of Liquid-Plumr
Second, Frank Rich in his column today:
The election isn’t over, but there remain only three discernible, if
highly unlikely, paths to a McCain victory. A theoretically mammoth
wave of racism, incessantly anticipated by the press, could materialize
in voting booths on Nov. 4. Or newly registered young and black voters
could fail to show up. Or McCain could at long last make good on his
most persistent promise: follow Osama bin Laden to the gates of hell
and, once there, strangle him with his own bare hands on 'Hannity &
And the third, Matt Bai in the Times Magazine today:
…. And yet it seemed fair to question whether anything about this
sudden movement [the movement among white voters in Virginia where McCain’s 22-point September
lead had shrunk to single digits and where the candidates were now tied.] actually validated Obama’s central argument about
OBAMA WOULD gladly take that outcome, of
course. But it would not be the transformational victory he envisioned
when he set out to run, the one in which white men in exurbs and rural
counties wouldn’t just grudgingly vote for a Democrat out of
frustration with the alternative but actually come around to the idea
that a Democrat can share their values. “If I’m able to change this,”
he told me on his plane, meaning the cultural breach in our politics,
“then it’s probably going to be most powerful after I’m elected, when
you’re no longer in the context of day-to-day battle, and I can prove
it by what I do.”
I asked Obama if it was frustrating to have seen, throughout the
campaign, so many polls that showed him trailing badly among white men
with lower incomes or less education.
“It’s not frustrating,” Obama said, shaking his head. I found this
believable; Obama seems almost impervious to frustration. “There are a
couple of things at work here. No. 1, let’s face it — I’m not a
familiar type.” He laughed. “Which means it would be easier for me to
deliver this message if I was from one of these places, right? I’ve got
to deliver that message as a black guy from Hawaii named Barack Obama.
So, admittedly, it’s just unfamiliar.
“Which, by the way, is a different argument than race,” Obama
continued, pausing to make sure I understood. “I’m not making an
argument that the resistance is simply racial. It’s more just that I’m
different in all kinds of ways. I’m different even for black people. I
went through similar stuff when I ran against Bobby Rush on the
all-black South Side of Chicago.” In that race, a Democratic primary
for Congress in 2000, Rush, the black incumbent, handed Obama his first
and only political defeat. “It’s like: ‘Who is this guy? Where’d he
come from?’ So that’s part of it.
“The second part of it is that I’m trying to do this in an
environment where the media narrative is already set up in a certain
way. So it’s hard to not be dropped into a box.”
He reminded me that back in March, for instance, he accepted a
spontaneous invitation from a voter in Altoona, Pa., to bowl a few
frames, and it turned out Obama was basically a god-awful bowler. Some
commentators gleefully used this deficiency to portray him as out of
touch with the common man, in a John Kerry-windsurfing sort of way.
(Joe Scarborough, on MSNBC, used the word “prissy.”) To Obama, this
brought home the bleak reality that, as a Democratic nominee, he was
going to be typecast, fairly or not.
“I am convinced that if there were no Fox News, I might be two or
three points higher in the polls,” Obama told me. “If I were watching
Fox News, I wouldn’t vote for me, right? Because the way I’m portrayed
24/7 is as a freak! I am the latte-sipping, New York Times-reading,
Volvo-driving, no-gun-owning, effete, politically correct, arrogant
liberal. Who wants somebody like that?
“I guess the point I’m making,” he went on, “is that there is an
entire industry now, an entire apparatus, designed to perpetuate this
cultural schism, and it’s powerful. People want to know that you’re
fighting for them, that you get them. And I actually think I do. But
you know, if people are just seeing me in sound bites, they’re not
going to discover that. That’s why I say that some of that may have to
happen after the election, when they get to know you.”…
For Blow the recession and a few bad decisions by McCain will deliver the election to Obama. For Rich only a "mammoth wave of racism" would keep Obama from winning. For Bai Obama will probably win, if only by a few votes, because he seems now to have successfully eroded McCain's earlier massive lead among white male working class voters, those who still, after all, number in the millions in the small towns and rural areas of the country, and who loom especially large in the swing states, and especially in Virginia where, Bai implies, the entire election may be won or lost.
What do I think? I most of all fear for our country, that it's not up to choosing this fine man, Black from a Kenyan father and White from a Kansas mother, as the 44th. president of the fifty states. That it's not up to having his admirable young wife and the mother of his two children as the first lady of the land.
What happens in the voting booth? Do people most of all vote their fears and prejudices? If so they will vote for McCain, for he is well known and people are not afraid of what he will do. On the other hand do people vote their aspirations, their hopes, their desire to see their country change for the better? If so Obama will get their vote, for most of all Obama represents a powerful new direction for the country. His election will oblige us all to rethink the way we do things. His election will mean that nothing will be the same as before, and that most of all is what our country needs.
In Debate No. 1, you could put the volume on mute and see what has
proved to be the lasting impressions of both candidates start to firm
up. In Debate No. 2, McCain set the concrete: he re-enacted the
troubling psychological cartography of his campaign “suspension” by
wandering around the stage like a half-dotty uncle vainly trying to
flee his caregiver. After the sneering and eye-rolling of McCain’s
“best” debate on Wednesday, CNN’s poll found the ever-serene Obama swamping him on “likeability,” 70 to 22 percent.
(Frank Rich, in the NYTimes, 10/19/08)
…what in me is dark
Illumine, what is low raise and support;
That, to the height of this great argument,
I may assert Eternal Providence,
And justify the ways of God to men.
To rest the case for equal treatment of national or racial minorities on the assertion that they do not differ from other men is implicitly to admit that factual inequality would justify unequal treatment; and the proof that some differences do, in fact, exist would not be long in forthcoming. It is of the essence of the demand for equality before the law that people should be treated alike in spite of the fact that they are different.
(F.A. Hayek, The Constitution of Liberty)
We believe that out of the public school grows the greatness of a nation. It is curious to reflect how history repeats itself the world over. Why, I remember the same thing was done when I was a boy on the Mississippi River. There was a proposition in a township there to discontinue public schools because they were too expensive. An old farmer spoke up and said if they stopped the schools they would not save anything, because every time a school was closed a jail had to be built. It's like feeding a dog on his own tail. He'll never get fat. I believe it is better to support schools than jails.