Lane Community College and the PERS bond

About five or six years ago, when the Public Employees Retirement System (PERS)crisis in Oregon was at its worst, a number of public agencies floated bonds, took the proceeds and sent them to PERS to reduce their Unfunded Actuarial Liability (UAL). Lane Community College was one such entity. The theory was simple. Bonds could be sold for rates between 5 and 6 percent. PERS has an actuarially assumed rate of return of 8% on the funds it manages. Uncorrected, a UAL grows by 8% annually, so giving the money to PERS reduced that cost. It also allowed LCC to fund the UAL over 20 years, a much longer period than PERS would require otherwise.

In one regard, it worked great. The bond spreads that pain over a long period of time and shifts the burden to the next generation. This is particularly true since the bond was back-end loaded, so that initial payments are low and increase over time. Starting at $2 million and change, they pass $7 million in the final year.

Overlooking the immorality of this, it still only worked if PERS produced the 8% return. But that was never a guarantee, it was an actuarial assumption used to calculate the fund's ability to cover future liabilities. PERS may have earned 8% over carefully selected timeframes, more in some, but in the last 14 months they've been losing their shirts.

This includes their investment of the $55 million that LCC sent them. The college was lucky to time the bottom pretty closely and earned a good return over the first four years. But PERS has been hammered and I doubt that today the "side account" for LCC contains more than the $55 million it began with.

So after five years, the college

a) Has a greater UAL than it started with,
b) Still owes just about the full $55 million, since it has hardly been covering accrued interest,
c) Has a steadily increasing bond repayment schedule in the years ahead,
d) Faces a sharp decline in state funding, as Oregon, dependent as ever on income taxes, goes into a sharp recession.

Not all of this will become apparent at once. But there's no doubt it will come into full view over the next four years and budget making for LCC will be gruesome. The college is fortunate to now have available the abilities of Greg Morgan, who replaced the catastrophically incompetent vice-president Marie Matsen in 2007, but it takes more than administrative skills to get out of this mess. It will take a fundamental rethink of the mission of the college.

The difference between Madoff and the Oregon PERS

Bernie Madoff differs from the managers of the Oregon Public Employees Retirement System investments in one crucial aspect. Madoff pretended to be doing something brilliant to produce steady gains when he was not. The PERS managers are doing it in full view of the public. Amazingly, nobody seems to care.

At the end of October, they were deeply in the hole for the year, but they still were able to brag about doing better than the market. This is straight horse pucky. They are doing better because, for a very large portion (perhaps 20%) of their investments, they know they have lost money but not how much. Their investments in real estate and "private equity" are so illiquid that they don't know what value to assign.

So they are continuing to assign the last value they could come up with. In reality, based on what others in the same asset class have done in the past year, they have likely lost 80% of their value.

There's no great secret to making extra money in an up market. You simply use leverage, borrow at fixed rates, invest at higher returns, and the difference accrues to the small equity base rather than being spread over the whole investment. But as Galbraith wrote in "The Great Crash of 1929," when the market goes down, people discover that the magic of leverage works in both directions. Thus the spectacular gains the PERS enjoyed for several years are quickly turning into massive losses.

The source of all this woe is that the Oregon legislature has declined to fix PERS. It has permitted the managers to make risky investments that, during the good years, went a long way towards backfilling the Unfunded Actuarial Liability (UAL). It was never a sound, long-term strategy and the consequences are coming back to haunt the state.

Putting Mumbai in Perspective

The violence in Mumbai last month was terrible, but also illustrated the fact that what captures the attention of Westerners is not people in India being killed by terrorists, which happens frequently, but people in India in expensive hotels being killed by terrorists. Nevertheless, it's a problem and India needs to take security mesaures.

On the other hand, before we hyperventilate over this, let's think about what the Santa Claus killer in Covina did. In one evening, one disgruntled ex-husband killed nine people. Adjusted for population, that's like 36 people in India. Less than Mumbai, but it happens here all the time. We only see it in the news when there's something quirky, like the guy dressed up like Santa or the victims in Jennifer Hudson's family in Chicago. But if you add them up, there's no doubt that the United States has as big a problem with angry ex-husbands with handguns as India does with terrorists.

Israel's Purpose is ... what?

Israel has shown once again that its military machine, financed heavily by the United States, can wreak havoc on any military opponent in the Middle East. The pertinent question, is why prove it again?

An editorial writer for the Times of London opined that a military conflict with Hamas was inevitable. But that's to give Hamas much too much credit. They have been able to lob a few missiles into Israel, but they can't hit anything. They had recently stepped up a bit, but the casualties consisted of no deaths and not many injuries. The Israeli response produced a hundred times the death and destruction that they has sustained.

Skip the morality of this, the "right to defend" and all that crap. Does Israel ever want a solution? It's been demonstrated that the effect of bombing, from World War II on, has not had the effect of "breaking the spirit" of the bombees. In general, it strengthens their resolve. The Jews are proud of hanging together through a couple millenia of persecution. The Palestinians have maintained their identiy and their enmity through six decades. This will only redouble the hostility of both sides.

America can't bring peace to the Middle East, but we can stop financing violence. Times are now tough in this country and the federal budget must be reviewed, in every program, to see if we're getting value for our money. Subsidies to the Israeli military looks like a good candidate for elimination.

Huckabee the Magic Honky

The point about the silly CD sent out by Mike Huckabee's former campaign manager, now hoping to head the Republican Party aparatus in the country, is not whether it rises to the level of indictable offense. It's simply a mirror on the Republican Party.

Imagine a Democrat, trying to distance himself from Joe Lieberman, writing a song that made fund of the senator becauser he's Jewish and sending it to the Democratic Party power structure in America. Hard to imagine? Of course, because he'd know that he'd be on tricky ground with a large number of Jews with influence in the Democratic Party.

That Huckabee's guy had no such concern about writing about Obama the Magic Negro says a little about his taste, but it speaks volumes about the Republican Party. He could distribute his ditty with almost no fear that an influential black Republican would object. If you're scrambling for the top in the Republican Party in 2008, you don't need to worry a lot about losing the black vote.

Opportunity Knocks

After 9/11, my opinion of Thomas Friedman was pretty low.  His support for the Iraq invasion and the even dumber remarks he initially made about Afghanistan turned me off.  But his observations about America's relative position in the world have been insightful and his latest opinion piece, Time to Reboot America, is well worth reading.I'm pessimistic about America's economic future because, although as Friedman rightly point out, we have many advantages, we also seem so committed to a series of structural problems that I'm doubtful that we'll achieve our potential. 

Compared with other countries, we overspend with little effect on health care, which cripples the competitiveness of some of our large, unionized industries. We allow lawyers to run wild, with little net benefit to the population. We keep energy taxes low, creating a huge national security problem, while we spend billions on the almost immaterial threat from Islamic terrorists. We allow our education system to be run by unions that insist that no teacher can ever be paid according to ability, only seniority and farcical "education" credits.

We've lost the momentum and it won't be easy to regain it. I wonder where we'd be today if in 2000, we'd elected someone like Obama instead of George W. Bush. It's asking a lot to thrust Obama into the current mess and expect him to fix it, but OK, we're asking.

Wall Street may bring Peace to the Middle East

It may seem odd, but the Wall Street debacle of the past eighteen months may provide the impetus for peace in our time. I don't think this was intentional, although I'd be prepared to thank them if it turns out that this was planned and it proves successful.

The first stage was the destruction of demand for oil, which has brought the price of a barrel of crude down by $100. Without high priced petroleum, the leading sponsor of anti-American and anti-Israeli activities in the region, Iran, will not be in a position to do nearly as much. I rather doubt they will continue active pursuit of nuclear weapons. When you need all your money to buy rice, or whatever Iranians eat, you may have to give up on plutonium for a while. And Hezbollah may need to go on a financial diet as well.

On the flip side, the general decline of wealth and income among Wall Street types had affected their ability to fund Zionism with the same esprit, even before the events of the past week. To this, Bernie Madoff may have added the coup de grace. The $50 billion he seems to have stolen came disproportionately from Jews, and perhaps even more so from Jews with a special fondness for letting another Jew manage their money. Some of them were definitely among Israel's best friends.

Maybe it won't work out, but if it turned out that peace could come from the antagonists running out of the funds necessary to remain obstinate, it would be an elegant and symmetrical solution, as mathematicians would say.

Euphemism of the day

The Wall Street journal has an article on Bernie Madoff that may set a new standard for euphemism. The quote is:

Colleagues of Mr. Madoff said he was fair to those he dealt with and generous to charities including the Special Olympics. Mr. Madoff treated employees well and loved to take friends and colleagues on his 55-foot fishing boat, called Bull, said Frank Christensen, a retired New York Stock Exchange broker. "I really think very highly of him," said Mr. Christensen. "People make mistakes."

The people that Mr. Madoff dealt with have been taken for about $50 billion. That doesn't strike me as particularly fair.

And if somebody gives me $50 for safekeeping and I misplace it, that's a mistake. And people might still think highly of me. But $50 billion? I don't think the word "mistake" is adequate. Mr. Christensen is understanding to a fault.

I think we will learn more about David Friehling in the coming week as well. Friehling's CPA firm, Friehling & Horowitz of New City, New York, had the task of doing a (wink, wink, nudge, nudge) "audit" of Madoff, if you know what I mean. Done without staff, it would seem.

A Google search for "David G. Friehling" shows that Cornell University had listed him on their Honor Roll of donors from the class of 1981. If you check out the URL that Google directs you to, the Cornell site responds with "Sorry, a problem has occurred." Another euphemism. They mean an error 404, but it seems more broadly applicable. Although Cornell has removed the page, you can still find it in Google's cache. Not long ago, Cornell grouped him on a list of honor. They are now maybe having second thoughts about associating him with that word, or for that matter Cornell.

Madoff -- Where was the New York State Society of CPAs?

The firm of Friehling & Horowitz, auditors of sorts for Bernard Madoff's financial empire, belonged to the New York State Society of CPAs. You can go to their Web site and search for Mr. Friehling yourself. He's right there, a member, apparently in good standing. More than in good standing. A July 15 newsletter from NYSSCPA shows board members of their various chapters. David G. Friehling is shown as a board member for the Rockland chapter. Earlier in the year, on April 15, he has an article in the newspaper of the NYSSCPA and is identified as the president of the Rockland chapter. The newspaper is, ironically, named The Trusted Professional.

CPAs perform three levels of services on annual statements. They render compilations, reviews, and audits. A single person would have trouble doing a compilation on financials as complex as Madoff's. A proper compilation would have been impossible without a team of CPAs, and Friehling is reported to have worked alone.

But an audit?! It can't have been a secret in Rockland, or at the HQ of NYSSPCA, that Friehling & Horowitz audited Madoff. Any sensible CPA must have realized that he could not either (a) conduct an audit that would meet AICPA standards or (b) remain independent when clearly, he can't have had any other clients. He has no Web page and he runs from essentially a storefront. No alarms bells anywhere?

The NYSSCPA has noticed the Madoff scandal and published an article on it. The article does not note, as other journalists have, the peculiarity of Madoff's outside auditor.

Clean water or rising waters

A number of things have started me thinking again about global warming and the analysis of Bjorn Lomborg, the Danish "skeptical environmentalist," that if we're going to address the world's ills, it makes sense to choose the ones with the greatest possible benefit for the least cost.

So despite Al Gore, I don't see anybody being swamped by rising oceans. Subsiding land is a problem, especially in deltas, but this has nothing to do with global warming. Stopping the rise in CO2, which thus far actually hasn't had a measurable effect on the rate of rise, would cost trillions, if it were possible at all. Moving people out of the fringe regions would cost a fraction. Having fewer people there in the first place, by producing and distributing a trillion condoms, is probably more economical yet.

Contrast this with clean water. There are definitely people dying, millions of them every year, because they don't have access to clean water. I don't know how much it cost per thousand people now, but putting this problem on a high priority list and developing high volume technologies would make the solution a lot cheaper. Certainly not more than a few hundred dollars per person.

So we might redirect the money we spend on Iraq and Afghanistan, provide clean water to a half billion people in the Third World and save a couple million lives annually. Or we could try to reduce CO2 emissions, or at least make them stop rising quite as fast, and delay but not stop global warming. And the consequent rise in ocean levels which have cost the lives to date, rounded off to the nearest whole person, of nobody.

Pick one.

Metric System -- the Best Infrastructure Investment

At present, there are three countries worldwide that have not adopted the metric system (SI). Besides the United States, they are Liberia and Burma. Not the greatest company for the world's preeminent economy.

Barack Obama is calling for a stimulus package that will have immediate impact on employment and a long-term impact on the competitiveness of the country. I can't think of anything better than to begin the conversion to metric. There are a million small expenses. We need to begin with highway signs that display both systems. You could have people at work doing that in a month.

Some things are going to be difficult and expensive to convert. Buildings that have studs spaced in inches are going to be a challenge for decades. Nevertheless, this must be done eventually and there's no better time than when the economy is slow and much of the productive capacity is idle anyway.

Making life easier for India and Pakistan

It seems that India wants to keep the consequences of the Mumbai attacks to a reasonable level and avoid war. We should applaud that. It would also be nice if we would put our trouble in this part of the world in perspective and make things easier for the parties to stay peaceful.

The death toll in Mumbai was significant, and clearly tragic for those directly involved. But every day in India, about 2,000 children under the age of six die of diarrhea. That replicates the Mumbai death toll every two hours, and if not addressed, will do so forever.

But however insignificant in the big picture, Mumbai is a political issue of great importance and Pakistan has problems. Muslims everywhere feel threatened and for Pakistanis, Kashmir is a permanent sore point. A government that tries to be reasonable about Kashmir, however, is compromised if required to support the U.S. war against the Pashtun ethnic group that straddles the Pak/Afghan border and opposes the current regime in Kabul.

For many, many reasons we should get out of Afghanistan. This just adds another. Pakistan's government is close to civil war against a segment of its own population because they are our ally and we're fighting in Afghanistan. Tensions would fall in Pakistan if the Afghan war were to end.

It would be nice to bring democracy and prosperity to Afghanistan, but the prospects have never been good and haven't gotten better since 2001. On the other hand, India is the world's largest democracy and Pakistan has a semblance of one. They have 25 times the combined populations of Afghanistan and Iraq. For what we're pissing away in Afghanistan and Iraq, we could bring clean water and basic sanitation to everyone on the Indian subcontinent and become relatively beloved.

Iraq and Afghanistan run by people we don't like isn't a disaster. Much of the world is run by people we don't like. This would have been a better proposal in years past when the United States actually had the wherewithal to be internationally generous, but we should start by ending the wars ASAP and then, after the depression, start to do something constructive.

Silly Economics

Perhaps the dumbest suggestion I've read about curing the current financial crisis was published by Forbes on their Web site. It's by one Frank Beck and advocates a 30% devaluation. Not just by the USA, but by every other country in the world as well. There are a lot of comments attached and I haven't read them all in detail, but scanning through I only found two that raised the question, what does this mean? Neither suggested an explanation.

Since we're not on the gold standard, we can't devalue the currency relative to gold. If every country "devalues," then they aren't devaluing relative to each other. It's mathematically impossible to devalue the dollar relative to the dollar.

Mr. Beck seems to be confusing the fact that a rising CPI "devalues" the purchasing power of the dollar, but this has nothing at all to do with "currency devaluation," which he seems to advocate in some puzzling form.

And for historical accuracy, FDR eliminated convertibility between gold and the dollar, but not the peg. Nixon took us off the gold standard. And the economy did not recover much after 1934 before crashing again in 1937.

This is a good example of why the blogosphere will not ultimately replace serious reporting. Almost all of the 50-odd comments presented a strongly felt opinion -- ranging from support to denunciation as Keynesian and communistic. Nobody observed that "good" and "bad" cannot be applied to a concept that is self-contradictory. If you want to read about economics, check out Robert Samuelson, who has qualifications and is paid to write. Amateurs writing blogs are usually idiots. Present company excepted, of course.

Mr. Beck evidently earns a living giving investment advice. Caveat emptor.

Pirates are maybe not so simple after all

Some time back, I offered the opinion that we could fix the Somali piracy problem by a quick military initiative. It's got much worse and nobody seems to be doing anything about it. It's particularly ironic that the muslim Somalis have now captured a Saudi oil tanker and a ship taking grain to Iran.

The problems, in addition to restrictive international law, seem to include the fact that the pirates hold a large number of ships and crews at this moment and military action would probably result in a great deal of death and destruction. The shipowners are probably less worried about the rule of law in general than their specific need to get their crews, ships, and cargos back intact.

There's the follow-on problem that since Somalia lacks what we would call a vibrant economy, or any functioning government, piracy is going to remain the career of choice for so many violent young men that suppressing once isn't going to do it. And a violent military intervention is likely to just make them more violent.

We had a solution, which was the Islamic Courts that ruled Somalia until we forced them out with the help of Ethiopia. Unfortunately, our substitute government can't govern. It's probably time that we stopped worrying about people who don't respect Jews and Christians particularly and concentrated more on who can maintain law and order.

Getting ready for Wednesday in Oregon

The governor and the legislature obviously know that something bad is going to come out of Wednesday morning's update on the state's tax revenue forecast. They are already starting to ask agencies for suggestions for 5% reductions in their budgets for the current biennium. Since there are only a few months left, this is an impossible target. For the schools, with contracts in place for their expenses, it's not likely they can do anything at all.

So when the new estimate comes in, showing at least a billion dollars shortfall for the next biennium and enough damage for this one to wipe out the rainy day fund, there isn't much they will be able to do except spend it. They were already planning to spend the EFB (Ending Fund Balance) down to almost nothing, which means that the so-called rainy day fund was just the EFB. With the two combined reduced to almost zero, they will be legally obliged to super-balance the next biennium and restore some semblance of an EFB. So figure that the actual shortfall for 09-11 is already down a billion before it starts, and will be down two billion at least when the forecast comes in. When the forecast becomes realistic, which by policy in Oregon is always very and generally too late, it will be down three billion or more.

This is before considering the effect on costs of PERS. Maybe this time, we can collectively agree that making promises that oblige future generations is unethical, and that whatever money the current generation chooses to provide its public employees for their pensions should be given to them via 401(k) or whatever, at their own future risk entirely.

Another stimulus

W.C. Fields said, "If at first you don't succeed, try, try again. Then give up. No point being a damned fool about it." So on the basis, maybe we should give another shot of federal stimulus to the taxpayers a second chance.

But that's when it seems at least to make sense to begin with, which the theory behind the federal stimulus doesn't. John Maynard Keynes said many years ago that the most effective way for a government to stimulate was to spend. That guaranteed economic activity. If the same amount is simply passed back to the taxpayers, if they are frightened, many of them will just pocket it.

Keynesianism was born from the Great Depression and held sway in economics until around 1979. There is some talk that is has been embraced again in 2008, because governments are using tax money to try to avoid another depression. But they are doing it in a way that Keynes would have argued strongly against.

In fact, we've really already given the money-back-to-taxpayers strategy its best chance, with the Reagan and Bush tax cuts, which have eviscerated federal revenues over the past three decades. Part of Keyesianism is to put money away during good times, which is anathema to both right and left, it seems.

My guess is that there will be a further stimulus package and it won't stimulate much. What will happen when the dust settles and we're a couple trillion farther in debt, I have no idea.

Oil and Military Spending

The New York Times has just reported that Russia has backed off on its threat to expand its missile system provocatively close to the Baltic countries. The original threat was seen as a quick challenge to Obama, although he wasn't yet in office so he couldn't have responded. The withdrawal may be seen as an attempt to be conciliatory to him.

I see it as more likely a realization that it doesn't make political and economic sense. According to the CIA, Russia is still losing population. Its health care system is in tatters and men survive, on average, only to the age of 59.

Twenty-odd years ago, the USSR failed largely, according to myth, because they responded to the buildup of the U.S. military with spending on their own systems which they could not afford. I've always thought it interesting to think that, by ignoring the U.S. challenge and focusing instead on building what communist theory says they should have been building, they would have won the Cold War. That's the logic, but I don't quite believe it.

However, the Russians may be discovering that they have large civilian needs to meet and, what they could afford at $147/barrel of oil, they can't at $58. I expect Iran to ratchet down their pursuit of nuclear weaponry. I don't think this has anything to do with trying to act in harmony with Obama. It's the realization that international posturing won't matter if the mobs at home run you out of office.

Who exactly are we bailing out in Detroit?

Understandably, the plan to bail out the Big Three has some formidable problems. First is that the $25 billion is probably three times the market value of the businesses. GM and Ford are worth about six billion and Chrysler can't be that hot itself.

When the CEO of GM said he just needed money to fill a gap, he said it was until 2010 when his UAW cost savings would kick in. Why 2010? We're not being asked to bail out GM, we're bailing out the UAW. Remember how they had this deal where if the economy slowed down, laid off workers got paid just like they were working?

The country is full of workers who have been displaced by the economy and who got no golden parachutes. Why tax money to make this happen for auto workers? I suggest we let them go bust, so they can start over. A new board, new management, and a new union contract. They can do all that without my money.

Testing my Iraq Theory of Dividing the Oil Spoils

My theory that the relative calm in Iraq was the result of politicians realizing that there was too much money available at stake to waste time quarreling, is about to be tested. The price of oil is dropping so far so fast that the cash available to keep the typical Iraqi comfortable isn't going to be there.

There are some 25 million Iraqis, although a census now would be distorted by the number of refugees in other countries, and the daily oil production could be about 2.5 million bpd without much trouble. At $150, less $30 cost, that's $12 daily for every Iraqi. Most of that, of course, is siphoned off by corruption and mismanagement, but it's still enough that it could trickle down to the man on the desert fast enough to bring them all to the brink of the middle class, by Iraqi standards.

Knock $100 off that, and the post-cost figure is closer to $20, or $2/day. Now there isn't enough. The country can continue to do OK, but only if the 60% Shiite population agrees to stay economically marginalized. If the Kurds want the 40% that's in Kurdistan, the Shiites may want the balance that's in the south, leaving almost nothing for the Sunnis, who will then be forced to fight. That's been my theory.

The other possibility is that they are all just getting too tired of it all to go on fighting. We're coming up to six years. With luck, they have been pushed to the point that they just can't see why they benefit from more civil war. I hope so. One thing I share with the average Iraqi is the intense wish for the U.S. of A. to simply get the hell out of Iraq.

Time to Become a Republican Again

On Wednesday, I'm going to change my voter registration from independent to Republican. There's a measure on the ballot here in Oregon that would make it possible for me to vote in primaries, thus reducing the need to pick a party in order to have a say in who appears on the November ballots, but I'm going to switch anyway.

Frankly, I think the Republican Party is too important to be handed over to Sarah Palin and her ilk. After McCain loses, I expect those responsible to gain rather than lose influence, unless there's a counterattack. I'm sure that many of those who presently lead the Republican Party will be uncomfortable finding me within their fold. But it's mutual so that makes it fair.

I'm going to pick an issue to rally people around and it's going to be the "war on drugs." I just read an interesting comment about how it's going in Britain and it seems much the same as here. America's cost is pushing $200 billion a year, when you consider all the impacts. After nearly four decades, it has failed. Let's give it up.

Simply consider this alternative. All dangerous drugs are legal but regulated, taxed enough to pay for treatment, viewed as public health issues, and made the subject of unfavourable publicity. You become a drug criminal in the same way you become a booze criminal. It's illegal to sell to minors. It's illegal to hijack trucks filled with drugs, but then it's illegal to hijack trucks filled with Tootsie Rolls. If you treat drugs as health problems, there is very little to be unduly concerned about.

Which is different from being completely unconcerned. We tell people to fasten their seat belts, exercise, and cut down on fat. Employers pay uniform medical insurance whether or not we do these things. If we simply discourage drug use and treat addiction as a health issue, almost all the problems go away.

Mugabe should read the Wall Street Journal

According to the AP, Robert Mugabe's party in Zimbabwe isn't about to bow to outside pressure. "They can't impose anything on us," they brag. Meantime, it is estimated that by early 2009, almost half the population will need food aid.

And where, pray tell, is that food going to come from? Perhaps from the people who produce a surplus beyond the food needs of their own people, many of them white. Such people are likely to get a little tired of being asked to save a people whose government denounces them incessantly for, pretty much, being white.

It's also going to become more difficult not to notice the obvious feedback loop facing anyone attempting to solve the food crisis in Zimbabwe. The reason the government is to keen in staying in power is that it is enormously profitable. There aren't a great many of them at the top, but they can extort money from anyone with hard currency who wants to help the people. This river of cash is what allows them to stay in power, oppress the people, destroy agriculture, and create the need for continued food assistance.

It's interesting to note the deep silence on Zimbabwe in the "progressive" press, compared with their concern over Darfur. In the Eugene Weekly, the acknowledged voice of the hard left in Eugene, Oregon, a Google search turns up more than 200 references to Darfur, and seven to "Mugabe," of which six refer to a local band.

It's not hard to understand their quandary. A couple of decades ago, the EW was probably full of approving comments about Robert Mugabe, a black leader, steeped in the tradition of Marxism, leading a government whose leaders called one another "comrade," and devoted to redistributing wealth so that landless blacks could get the prime farms "stolen" from them by the colonialists.

Now that the redistribution of wealth has run afoul of the related destruction of wealth, Mugabe has turned out to be a ruthless dictator, and the black-run governments of subsaharan Africa to be generally spineless, this is not a story that plays well. The Left seems to want America to jump into the mess in Darfur, with no clear idea how this is going to improve things. But not Zimbabwe, where the obvious question is going to be, why did we force Ian Smith to turn everything over to Mugabe?

Do we speak English or that one?

It appears the John McCain has angered some people by his use of "that one" during the debate. To quote from an article on the subject:

Don Hammonds of The Pittsburgh Post-Gazette also took offence.

"Regardless of intent, it showed Senator McCain to be culturally ignorant, and completely unaware of the implications of what his off-the-cuff statement meant to people of colour," he wrote.

"Whether Senator McCain meant it that way or not, if you are a person of colour, and someone trots out the 'that one' remark, you instantly take it as racist. I know that I did."

OK, I'll bite. What are the implications to a person of color? These are two extremely common English words. I had never heard of them having racial overtones. "That?" "One?" Put together as "That one?"

It wasn't perfect style. The contrast should have been "Him and me," or "That one and this one," but instead he said first, "That one" and later "me." But apparently this transcends rhetorical style and reflects, somehow, on McCain's psyche.

In fact, it says nothing about him at all. It says much more about the people who have taken offense. McCain was indeed trying to show that Obama was the "risky" candidate but not because he is black. He's the Democrat. McCain would have tried the same tactic on Hillary. It's simply politics.

The word "racist" springs immediately to the lips of many people with holier-than-thou attitudes towards anyone they consider to be less sensitive. The effect has been to trivialize the word, and by extension the reality of racism. Kathleen Parker, who wrote in the Washington Post that, "McCain supporters have tried to explain what he meant, but there's a reason it was so stunning in the moment. I'm don't think it was racist, as some have argued. But it was objectifying. "That one" isn't the same as "that man." One is an object; the other is a person. A human being. 'That one' has a dehumanizing effect and one is right to recoil."

He used a freaking pronoun. What exactly does "objectifying" mean? A "dehumanizing effect?"

Obama wants the big one. Many people don't want him to get it, and would think so if he were defined by his 50% whiteness rather than his 50% blackness. They are not obliged to give him special treatment. I rather think Obama knew this going in, although his supporters don't. If you can't take the heat, get out of the kitchen.

In an election year, it's cut taxes and spend

The Senate has decided to upstage the House with its own version of the bailout, which is going to include tax breaks. So much for the notion that the crisis was going to impose a new fiscal discipline on America.

Granted the "tax cut" is a fix to the alternative minimum tax which was flawed when it was written because it wasn't indexed to inflation. Nevertheless, it adds more to the estimates of the federal deficit. For the moment, the feds have managed to create so much anxiety that everybody wants their debt, but if that ever changes, the U.S. government is just going to be a large scale version of Lehman Brothers.

Out here on the Oregon Coast, our little local governments have to keep expenses within revenues. Probably the same in Alaska. Maybe Palin has more credentials for running the national government than I've given her credit for.

Just kidding.

EmX doesn't really cost money, cuz its federal

On Sunday, Andy Vobora, a spokesman for the Lane Transit District wrote in the Register-Guard that the cost of new EmX bus station at Gateway was only $2 million and, most importantly, none of it was local money. It was being paid for by the federal government.

It's true in the sense intended, that the local transit budget is not being drained for pay for construction. But, just as all politics is local, so are excise taxes, and the federal dollars provided for mass transit are due to some driver filling up at some gas station. Or more accurately, it's a penny each from 200 million drivers, none of whom is specifically aware of the fact.

The same newspaper editorialized earlier that the impact of RideShare, which is LTD's program to provide public transit services to people who can't ride buses, should not fall on local taxpayers, even though the disabled are Lane County residents. Since the federal government noted the problem and required a solution, the argument goes, they should pay for it.

A reasonable idea on the assumption that the feds have unlimited cash. That seems to be the popular belief. It underlies the notion that we can run a trillion dollar deficit and it won't matter. The LTD money is a little different, since it comes from a designated source, but in fact that source is rapidly running out of cash. The treasury overall is broke and borrowing madly to cover Iraq and Wall Street, stealing the money that Social Security will need in future years for current consumption.

Foreigners are not amused. Which is too bad because we need $2 billion daily from them to stay afloat. The US dollar is in decline, and it has a lot farther to fall.

Impoverishment at the highest levels

It seems that one of the sticking points in our bailout of Wall Street is how much should we pay the bankers who come asking for help. John McCain is on record that bankers who ask for our tax money to get themselves out of their pickle should not expect to earn more than the highest paid person in the federal government. That being the President, who takes in $400,000 per year.

Secretary Paulson has responded that we can't make this work if we include "punitive" provisions like this. Punitive? There are no government employees in America, outside of college athletic coaches, earning that much. Are the banks pretending they couldn't get the talent they need? That you can't make ends meet, after years of 7 and 8-figure salaries, if you're reduced for one year to $400,000? Punitive?!

It should be clear now that the people running the financial world are not amazing geniuses. They just had really large sums of other people's money to gamble and, although they often did well, they once too often have done badly. They are probably reasonably bright and some of them may be good technicians, but they are not irreplaceable.

The free market advocates are all keen on Darwinian selection in the corporate world. Let's see it work. Let's see which banks are willing to throw some of their bloated executive salaries out in order to survive. Those that aren't, won't. Sounds good to me.

A trillion here, a trillion there, and pretty soon ...

Older people will remember when Senator Everett Dirksen of Illinois said (or was supposed to have said): "A billion here, a billion there, pretty soon you're talking real money." We've moved into a new era; when we talk about government disasters, the unit is trillion rather than billion. First the Iraq War, now housing and mortgages.

The figure of 700 billion is now being used for the bailout of Wall Street, but these are always low ball at the outset. It comes on top of $200 billion for Fanny and Freddie, plus 85 further billskis for AIG, plus whatever for Bear Stearns and sundry. Detroit wanted 25 billion, but they now probably realize that such an amount is chump change in the new landscape of public subsidies.

The long term impact on America is going to be horrendous, as people with real economies decide that we are addicted to government spending without taxes and that the dollar will become, if not worthless, then greatly depreciated. This will be unfortunate, as the American economy depends on such people exchanging their own hard currencies for greenbacks still damp from the printing press, at a rate of some $2 billion daily.

In the short term, I can only predict that the Democrats will pile on, asking for more unemployment benefits and other middle-class benefits. Oh, and I think I can safely predict that no politician will suggest the anyone should actually pay for any of this with taxes.

Here's hoping Ike hits New Orleans

People are worried about Ike making landfall somewhere along the Gulf Coast. In general, this would be a bad thing but there's a possible silver lining. It might hit New Orleans and take the city out of its misery. It wouldn't need to be a direct hit, just something close enough to cause another evacuation and perhaps a minor breach of a levee.

It's not that I don't like New Orleans. On the contrary, I've been there, enjoyed myself, and look forward to a city named New Orleans, on essentially the present site, continuing long into the future. But the premises behind all reconstruction conversations I've heard are foolish.

Much of New Orleans lies below the level of the surrounding waters of the Mississippi River and Lake Pontchartrain. Until Katrina, it contained many poor people. Their homes have been devastated and now the theory seems to be that there should be some way in which New Orleans can be rebuilt so as to house a lot of poor people.

Sorry, but building a city below sea level is intrinsically expensive and nobody is going to do it on behalf of poor people. Nor should they. Many more poor people could be given decent housing elsewhere for the cost of doing so in New Orleans, assuming that the package included enough civil engineering to ensure that the new housing would not be flooded like the old.

The lowest portions of New Orleans should never be rebuilt. We should stop thinking of New Orleans in terms of the Florida Everglades and switch to Amsterdam or Venice. This is prime land for development, both residential and commercial, provided that some of it is moved up and surrounded by sturdy walls and the rest excavated to a level that would allow small craft to ply the newly created lakes and waterways.

This wouldn't be cheap, but we're the country that built the Grand Coulee Dam and this is certainly doable. And the result would be fabulously valuable. People will pay tons of money for waterfront, and New Orleans could have oodles of it.

What about the poor people? Well, what about the poor people? Is anyone building their housing today? Will they tomorrow? Let's get real, build subsidized housing somewhere on naturally-occurring dry land, and get over the sentimental attachment. Subsidence happens.

The Real Message about McCain and Palin

I don't normally pay much attention to Andrew Sullivan but his comments on Sarah Palin, coming from a conservative, are on point. It's not whether Sarah Palin actually will ever turn out to have the talent for the job. It's that nobody has any reason to believe she does. We'll skip the fact that there are reasons for a progressive, or just somebody who thinks teen pregnancy is not a desiderata, to be actively skeptical. Even those who think she may pan out must admit that she hasn't proven anything. Yet, the GOP has nominated her to be VP. For no reason except that a large portion of their followers, who vote based on litmus tests rather than ability, love the idea.

Sitting out here in Florence, on the Oregon Coast, I have come to know a number of elected city officials. We have about the same population as Wasilla AK. I like these guys, but I wouldn't nominate any of them to be President of the United States.

And governor of Alaska? That's been for 20 months. When you're an executive, you make decisions and time tells whether they were right. There hasn't been enough time. Alaska has a budget surplus and worries mostly about who to give it away to, although they are not shy about asking the lower 48 to subsidize them. Put simply, there has been nearly nothing about her resume that demonstrates her ability to handle the job she's running for.

So first, it's scary that McCain might croak and she'd replace him. Then it's scary that he might not and this is the sort of considered judgment we can expect from him. Either way, it's Obama '08.

Sarah Palin is not riveting

Writing for Newsweek, Howard Fineman suggests that Sarah Palin's performance tonight will be riveting, because we'll have a complete unknown in a situation where she will sink or swim and nobody knows what to expect.

I know what to expect. She'll be coached that she doesn't need to capture the right wing, which is hers already, so she'll use the opportunity to talk about silly things and make herself more human and appealing. None of this will have any real bearing on her ability to lead the world's largest economy, nor will it truly reflect anything that would be likely to result from her eventually becoming president. Remember the W. ran as a compassionate conservative, only to turn out in reality to be just another frothing-at-the-mouth fascist. Likewise the lovely Sarah, regardless of what sugar-coating she applies to her scanty resume in the speech.

Someone has remarked that Ms Palin is probably the first national candidate ever to know how to dress a moose. I can't speak specifically about moose, but I'll wager that some of the early 19th century candidates knew how to handle a knife to dress game. It was once an important qualification for dealing with life.

She may, however, be the first candidate for national office for whom that ability ranks high on the list of qualifications to hold the office.

Appalachia, the Ozarks, and evidently Alaska

Levi Johnston's mom, commenting on the marriage plans of the children, said that they had planned to get married all along and that the pregnancy was a "bonus."

There are certain attitudes towards life that we have come to identify, fairly or unfairly, with hillbillies. Mrs. Johnston shows that they are alive and well in Alaska. Levi, a fine strapping youth, is not evidently attending high school. His mother says she doesn't know whether he graduated. We deduce that he's not planning on college. Apart from hockey, there's no evidence of an ability to support a wife. Yet he will be trotted out in St. Paul at the convention for everyone to cheer.

The Republicans must be just busting their buttons with pride.

Sarah Palin is the .... Words fail me.

It seems that Sarah Palin's problems are all due to the liberal media. Reminds me of the line, that no girl ever got pregnant from reading a book. It seems to me that Bristol Palin didn't get pregnant from watching CNN. However, more relevantly, she may have got pregnant because in the Palin family nobody talks about how to avoid pregnancy and in schools in Alaska, if it happens, it happens against the opposition of Sarah Palin and her ilk.

I wasn't going to get involved. I was just going to write in Paris Hilton and let it go. It seemed like I could handle either candidate and with neither candidate saying anything I particularly liked with respect to war, this was going to be one that I could sit out.

Not anymore. Sarah Palin opposes everything I believe, which is that the world needs to be managed on the basis of evidence. She's George W. Bush without the deep intellect. There aren't a lot of people that I would not be happy to take over the White House after W. but given the decent statistical prospect that if we elect McCain, it will be her in less than four years, I find her frightening. What are we frightened of, the right wing asks querulously. You wouldn't understand, I reply. I'm sending a check to Obama.

Betrayal in Zimbabwe

The Voice of America reports that supporters of Mugabe's opposition in the spring elections now fear they will be betrayed in the negotiation process.

Of course, they will be betrayed. These are "negotiations" with Robert Mugabe, who only sits at the table because he waged war on his people in order to steal the election results. The people behind him need to keep control in order to continue to steal the small amount of hard currency that the economy generates. It's a small amount compared with the 12 million or so citizens (hard to say who lives there since so many have fled), but it's enough to keep a handful of powerful and ruthless men living in great personal wealth. Negotiations with them mean sharing this crime. It certainly doesn't mean bringing to Zimbabwe a government that will be sensitive to their needs and will try to restore the economy.

There is no government bureaucracy to speak of in Zimbabwe, just a kleptocracy. This will not change as a result of negotiations that include ZANU-PF.

The Edwards Affair

It appears that Senator John Edwards had an affair a couple years ago. I see three lessons from this.

One is that powerful men attract good looking women and, when temptation presents itself, are generally unable to resist. Our political system would be much better if we simply acknowledged this fact and left it between husband and wife to sort out in whatever manner they prefer. The Edwardses seems to have done so, and it's not clear why it's anyone else's business.

Two is that men will always lie (or at a minimum, prevaricate) when first confronted, hoping that the evidence will turn out to be insufficient. This means that when a man denies having had an affair, it is not newsworthy and should not be reported. If he confesses, that's unusual enough to merit attention, but denial definitely falls in the "dog bites man" category.

Third is that those who most strongly denounce the moral turpitude of philanderers are fully as likely as the rest of the crowd to be doing so already, or to do so in the future. John Edwards is just one more example. There should be a similar rule to that above. When a politician decries the immorality of another, it is meaningless and should be ignored by the press.

Of course, none of this is going to happen. Men will be caught in sex "scandals," which in mature societies would simply be ignored, and the press will hound them. They will deny everything. Eventually they will be unable to wriggle free and they will issue some mea culpa. Other prominent men will pontificate, although they are probably banging their secretaries. It's boring, really.

Ivins, Anthrax, and Guarding Tess

Everybody remembers the resourceful Secret Service agent Doug Chesnic shooting the weasly chauffeur in Guarding Tess, thereby forcing him to reveal the location where Tess was being held? It all worked out fine, but remember what the chauffeur had said a few minutes earlier? I don't remember the exact words, but the gist was, "I know how this works. You people have to pin this on somebody and that person doesn't have to be guilty."

In the movie, of course, it worked out marvelously because he was guilty. But if he hadn't been? Then agent Chesnic of the federal government would have left him unable to walk without a limp for the rest of his life. He was already in a hospital, so I'm assuming he wouldn't have died.

The real FBI is much more cautious. I doubt that any agent would risk his career to go outside policy in the defense of a third party. But it's reason to wonder, as you think about the suicide of Dr. Bruce Ivins in connection with the anthrax letters case. Not having found the guilty party in such a high profile crime was obviously a stain on the agency's reputation. Six years on and they didn't have an indictment. This guy looked like their best hope.

So they searched his place twice, his computer once, and kept him constantly under surveillance by obvious agents for a year. Let's suppose for a minute that he was everything he said he was. A faithful government employee, a church-going Christian, active in his community, devoted to science. And the FBI spends half a decade putting his existence under an unrelenting microscope. Some of us might crack.

Years ago, I had a much higher opinion of government and this line of reasoning would have seemed outrageous, but after six years, if you haven't got an indictment you have a weak case. Nevertheless, the FBI has its desired outcome. They can reveal that they were close to an indictment, which is a couple of steps from a conviction but sufficient for the popular imagination. They wanted him dead. He's dead. They didn't actually have to shoot him. Pretty neat.

There's no such thing as a free war

The Bush administration is now suggesting privately that the next fiscal year's budget will be at $490 billion. This is in the Neverland world in which the war in Iraq, which has been going on since 2003, is not a regular expense item. Add another $80 billion for that.

Then add another $180 billion of so for the Social Security surplus, which is going to be needed in another few years. If we're going to maintain that the SS Trust Fund exists, then its money is not also the general fund's. The general fund must be running a deficit of more like $750 billion. According to Wikipedia, "earmarks" are also off budget and run around $50 billion a year more.

$490 billion may be optimistic, since the administration probably expects a shallow recession, which may not be the case. I wonder how much the $490 billion depends on cheaper oil than we are now experiencing. The U.S. government is a huge consumer of petroleum products.

All of this, however, is very little compared with the rate at which the government is incurring actuarial liabilities for future retirees. It also assumes that foreigners will continue to lend America the money to fund its twin deficits while experiencing a declining greenback and low interest rates.

But why worry. It's summer. Everything's going to be just fine.

Too Big to Fail: Fannie, Freddie, Iran

If we had waited on Iraq and today faced the problem we did five years ago, I doubt we would invade. We wouldn't risk their oil production. With Iran today, it's even more important to the US economy that Iran keep pumping oil. This morning, oil prices are headed back up just because Iran didn't say nice things about their nuclear program. I'm not sure who expected them to, but oil traders get nervous just because of the perceived threat.

I'm firmly of the opinion that Iran realizes that its greatest asset is the appearance of wanting nuclear weapons. Actually having them would be futile. It would be suicidal to use them pre-emptively, probably unrealistic to expect them to be deployed if the US decided to take them out, and runs the risk of an Israeli attack. Actually, if they were known to possess them, that is probably the certainty of an Israeli attack.

On the contrary, the appearance is of great benefit. It keeps tensions high and adds to the price of their primary product. Knowing that they can't actually attack without ruining their own economies, the Western powers are offering more economic incentive to a country that is wallowing in cash already. I see no benefit to Iran in resolving the crisis, so I expect it to continue for a long time.

Too much of Fannie and Freddie debt is held outside the U.S. by people whose credit we will continue to need. The people who sold overpriced houses will keep the proceeds. The people who bought them will keep their houses. People who prudently avoided the bubble will pay for it with taxes. The music goes round and round.

Jackson, Sharpton, and the word "nigger."

When I was very young, my mother explained to me that a rhyming game I was playing, which involved the use of the word "nigger," was inappropriate (she probably used different language) and I should never use that word. So I haven't since, except within quotation marks.

There are several things that are very irritating about the current "controversy." One is that Jesse Jackson, who preaches the public avoidance of the word, uses it in semi-public. He wasn't being broadcast, but he was in a newsroom.

Next, that anyone pays attention to what Al Sharpton says about it. It's akin to listening to what Jamie Lynn Spears says about her motherhood. It irks me that such people get publicity.

Finally, that people don't know the purpose of putting a word in quotation marks. At that point, you are talking about the word as a component of English. You should be able to talk about essentially any word that way, although since there are few legitimate reasons to use George Carlin's famous seven words except to shock and offend, I can legitimately see how they should be kept out of most writing and conversation.

But the word "nigger" is completely different. It clearly does not shock and offend Black Americans, because it is used casually. We are supposed to believe that they are shocked and offended when white people use the phrase, ever, for which reason we are not allowed to put it in quotation marks. We are obliged to refer to the "N-word" as a transparent euphemism.

When some words are so offensive to certain people that they never hear them spoken and prefer that, it's legitimate to shield them with a curtain of polite speech. But when a word itself is commonly used, this doesn't apply.

That Jesse Jackson used "niggers" to refer to American blacks doesn't bother me except for the hypocrisy. If Bill O'Reilly had used the same word in the same context, I would have thought it very bad taste. However, if people are going to get upset because in a blog, discussing the word and its political importance at this time, I come right out and skip the euphemism, then it's an indication of a complete misunderstanding of legitimate words in the language.

Out of the Iraq Skillet and into the Afghanistan Fire

Did the Surge work? Right wing commentators seem to think so and to imagine that Obama is now embarrassed at missing this golden opportunity. Think back a year, however, and recall what the Surge was supposed to achieve. We were going to send some more troops to Iraq to create a security situation in which the Iraqis could negotiate a peaceful arrangement among themselves.

A more peaceful situation has resulted, but the negotiations never panned out. Yet the "fragile" peace is looking ever better. Why? Mostly because the politicians want the money that expensive oil can bring them, but they can't publicly abandon positions of supposed principle. I don't think many of them have real principles beyond profit maximization, so this shouldn't be an obstacle to their finding a modus vivendi so we can go home.

But, alas, that's not what the Surge is going to deliver. Obama actually has something of a problem here, because it appears that with the success in Iraq, we are merely freeing more troops to go to Afghanistan. To sound pro-Jingoist, he has allowed himself to say that we should have put our efforts into Afghanistan rather than Iraq because that's where (roughly) Osama Bin Laden is.

But it's hard to say we should have in the past without being stuck saying we should now, and Afghanistan is a genuine quagmire. In Iraq, the terrain is mostly flat with little vegetation and our military can prevent the build up of any significant fighting force. Not so in Afghanistan, as we are increasingly seeing. We want the Paks to jump in. Not damned likely. They know this region and they are not fools.

It's interesting that we have so much more European support for our objectives in Afghanistan than in Iraq. Maybe it's some vast Machiavellian plot through which the United States bankrupts itself and the Euro becomes the international reserve currency. It seems to be working.

Obama, tne New Yorker, and Satire

I just read a commentary in the Sun-Times about New Yorker's cover controversy. The point of the article is that "of course it's satire." One of the public commenters noted that anyone with a fifth-grade education would realize that it's satire.

Unfortunately, this race will be decided, in the end, by the opinions of the booboisie. There may be few voters who don't actually have a fifth grade eduction, but if you include those who, as adults, have no mental acuity greater than that of a well schooled fifth-grader, then you haven't sat around in a greasy spoon cafe and listened to the banter.

Presumably the readers of the New Yorker recognize that much of what is said about Obama, and everything about his Muslim connection, is nonsense, but this is certainly not true of the electorate as a whole and some people will see confirmation in that cover. I'll certainly defend their First Amendment right to publish as they see fit, but it's also my right to say that it was tasteless and showed bad judgment.

Sandra Harding -- can anything more be said?

After my last post about Obama and the Denver convention, it followed a tortuous path through cyberspace and wound up at the Wikipedia article on Sandra Harding, a feminist theorist. The article ended with the following controversial statement by Ms Harding:

One phenomenon feminist historians have focused on is the rape and torture metaphors in the writings of Sir Francis Bacon and others (e.g. Machiavelli) enthusiastic about the new scientific method. Traditional historians and philosophers have said that these metaphors are irrelevant to the real meanings and referents of scientific concepts held by those who used them and by the public for whom they wrote. But when it comes to regarding nature as a machine, they have quite a different analysis: here, we are told, the metaphor provides the interpretations of Newton's mathematical laws: it directs inquirers to fruitful ways to apply his theory and suggests the appropriate methods of inquiry and the kind of metaphyiscs the new theory supports. But if we are to believe that mechanistic metaphors were a fundamental component of the explanations the new science provided, why should we believe that the gender metaphors were not? A consistent analysis would lead to the conclusion that understanding nature as a woman indifferent to or even welcoming rape was equally fundamental to the interpretations of these new conceptions of nature and inquiry. Presumably these metaphors, too, had fruitful pragmatic, methodological, and metaphysical consequences for science. In that case, why is it not as illuminating and honest to refer to Newton's laws as "Newton's rape manual" as it is to call them "Newton's mechanics"?

This is a woman who has spent a lifetime in academia, writing books, holding important posts, evidently generating widespread if not universal respect. I ask you to consider what any freshman, at any university in America, would be told if they wrote something like this in a paper and turned it in to a professor? An "F" certainly, and perhaps a request to enroll somewhere else. But Ms Harding is in fact Sandra Harding, PhD. That means she must be taken seriously.

Wikipedia, with its usual deference to objectivity, commented:

This article or section may be inaccurate or unbalanced in favor of certain viewpoints. Please improve the article by adding information on neglected viewpoints, or discuss the issue on the talk page.

I gave it some thought, but in the end, if this is an accurate quotation, what is left to say? Apart from editorializing, as I am doing here, I don't know what could be added that would not dignify an absurdity.

Democrats still think a command economy works

First, I'm an Obama supporter. He makes me nervous, but I attribute this mostly to the pressure of running a campaign where the results will be decided by, as H L Mencken so aptly put it, the "booboisie." An honest and intelligent presidential campaign is essentially an oxymoron, so I'm giving him a lot of latitude.

However, I'm not a fan of the Democratic Party. Or the Republicans, the Greens, the Libertarians, or Socialist Labor, but it's the fact that Obama belongs to the Dems that concerns me. Witness the botched job that they are making of the upcoming Denver convention.

First, the lavish expense on office space, $100,000 plus $50,000 for rented furniture per month. The attitude appears to be, "It's not our money and we deserve this." It's not an appealing attitude and makes you wonder how they would run the country if they had the chance.

Second, there's the deal with the caterers, who are being told, probably by people who don't know a lot about catering, exactly how to construct each meal, down to the presence of fried foods (not) to the combination of colors. It's the kind of top down thinking that didn't work well in the Soviet Union and doesn't here either. The potential caterers are not showing much interest and time is running out.

I don't know why the Dems are so intent on having a "green" convention. It has nothing to do with the political imperatives. Who do they think they'll sway? The handful of people who might otherwise drive to Nader? There's no need to have a green convention. Eat hot dogs, drink beer, wave flags, cheer, vote, go home and start an exercise plan to wear off the extra calories.

There is a serious political reason, however, to appear to be competent. If the DNC runs around, tilting at politically correct windmills and failing to deliver an efficient convention within the budget, then it will reflect badly on Obama.

Kiwanis and the Internet

I recently returned from the International Convention of Kiwanis in Orlando. It was generally a stimulating and valuable experience, but as an active Kiwanian, I'm concerned that the organization is not fully incorporating the power of the Internet into its programs.

This is most glaring in its approach to membership growth. Like all the large, established service organizations in America, Kiwanis has been losing members. Those that remain are, on average, older than before. It's a bad trend since the need for the services provided, which focus on children in Kiwanis' case, has never been greater.

Yesterday, I found a site for an Oklahoma-based church, LifeChurch.tv, which has gone so far as to adopt its domain name as its DBA. In a list of past achievements, and referring to the year 2006, they say on their site:

"In April, the LifeChurch.tv Internet Campus was launched. This revolutionary campus provides live church online for people around the world with the ability to engage in genuine community, unique volunteer opportunities, online LifeGroups, and even mission opportunities on the Internet."

I have no idea whether I agree with their theology, but their technology looks right on the money. Kiwanis should be doing this as well. It's where the future will be found.

Legalize Drugs and Prostitution

It would have been almost enough to vote for Ron Paul just because he wanted to get us out of Iraq and to legalize drugs. Unfortunately, he came with enough baggage that I could never quite bring myself to seriously support him.

But as an article in the LA Times points out, the war on drugs has set us back $2.5 trillion since its inception and shows no evidence of progress. This is serious money to be spending on futile public relations.

One of the great thinkers of the nineteenth century, Lysander Spooner began his 1875 book Vices are not Crimes as follows:

Vices are those acts by which a man harms himself or his property.

Crimes are those acts by which one man harms the person or property of another.

Vices are simply the errors which a man makes in his search after his own happiness. Unlike crimes, they imply no malice toward others, and no interference with their persons or property.

In vices, the very essence of crime - that is, the design to injure the person or property of another - is wanting.

It is a maxim of the law that there can be no crime without a criminal intent; that is, without the intent to invade the person or property of another. But no one ever practises a vice with any such criminal intent. He practices his vice for his own happiness solely, and not from any malice toward others.

Unless this clear distinction between vices and crimes be made and recognized by the laws, there can be on earth no such thing as individual right, liberty, or property, and the corresponding and coequal rights of another man to the control of his own person and property.

For a government to declare a vice to be a crime, and to punish it as such, is an attempt to falsify the very nature of things. It is as absurd as it would be to declare truth to be falsehood, or falsehood truth.

The argument against drugs is that some people will fall into the habit if drugs are legal. Possible, but the fact is that we give up regulation, taxation, and provide incentives for drug pushers to promote the substances. The moral argument against prostitution is pretty weak, since there are lots of women in degrading relationships based on sex and this isn't illegal. The crime that supposedly gravitates naturally around prostitution is mostly related to drugs, so this is circular.

For a small fraction of the expense of the "war on drugs," we could offer free treatment for any addict who chooses it. We could also treat addiction as a terminal disease, when the addict is indigent and refuses treatment, and provide enough of whatever substance they want so they can over time kill themselves. They're going to do it anyway, and this would be more humane.

Oil Rules

The BBC has outlined the policy conflicts that are going on in several capitals regarding the prospect of war over the Iranian nuclear program. I am going to go out one a limb and state that cooler heads than Bush, Ahmadinejad, and the Israeli cabinet will prevail and no such attack will take place.

The reason is oil at $145/barrel. This is a precarious price and perhaps it won't stay this high, but it means that Iran's exports of oil, worth perhaps $150 million per day a year ago, are now worth $350 million. Their natural gas reserves are also much more valuable.

If they don't rock the boat too much, the average Iranian is going to get $1100/year more, which is about $3000 after considering local purchasing power. That's per capita, so figure $12,000 for the typical family. Enough to put them into the middle class by world standards. It's a lot to ask them to sacrifice this for a dispute in Palestine.

The Israelis must also understand that an attack on Iran would push oil towards $200, assuming moderately hostile response from Iran, which would in turn bring the U.S. economy to a halt. No other major power is blindly supportive of Israeli objectives, and they would risk losing their one reliable ally.

On the flip side, there's a rather Machiavellian option that the Iranians might be playing. Their nuclear program may not be doing as well as they, the Israelis, and the Bush Administration want everyone to believe. It's certainly not necessary to their wellbeing. They are being offered some incentives to dismantle it, but it might be vastly more profitable to them to have Israel bomb it. Another year of prices from $150 to $200/barrel, which they should be able to sustain with saber rattling, would bring them another $50 billion or so with no strings attached. They would push the United States into a deep recession and increase the diplomatic isolation of Israel.

I don't think Ahmadinejad is smart enough to figure this out, but he's motivated by some screwy religious concepts and there may be deeper thinkers over there who do see the possibility. Hard to know.

Meanwhile, I don't think this problem exists in Iraq. There's now just too much money available. They will settle their differences, although maybe not clearly enough that the U.S. can stop bankrupting itself with the occupation.

The Real Estate Wealth Illusion

My grandfather was a very religious man, although not in a particularly organized sense. When he sold his house in Seattle about 1953 to move to our family compound on the west side of Puget Sound, the fact that he would get more money for it than he had paid caused him some moral concern. Somewhere in the Bible it says you aren't supposed to make money without working for it. My grandmother eventually convinced him that it would be all right.

The reverse attitude was shown by the couple who bought a big house somewhere in the Riverside/San Bernardino area with the thought that having invested $1.4 million for much more housing than they needed, they could sell it in ten years for $5 million and retire on the gain.

There have been a few lucky people who have cashed out as a result of the real estate bubble, but I don't know how anyone ever thought it would work for the United States collectively. If we, the boomers, want to retire some day, we'll need to leave behind us highways, airports, factories, dams, bridges, and lots of other things with which our children will be able to produce goods and services, enough for themselves and us as well. Building excessive houses and living in them isn't going to lay the groundwork for a prosperous future for the country.

Don't short the USD, buy Pinot Noir

There's a growing concern that the production of pinot noir grapes in Oregon has put the industry in the state on track for a price crash in a few years. I don't think so.

Just consider the competitive situation. A large amount of wine consumed in this country comes from places like Europe and Australia, where the USD has fallen dramatically in the past two years. Buying patterns don't shift immediately and we can expect foreign governments to take actions to protect their domestic wine industries, but the principle of import substitution is going to rule.

Fortunately for the rest of the country, the Pacific Northwest produces great wine and Americans should be happy to buy Oregon and Washington wines instead of French. Good thing, because when the Euro reaches $2, they won't be able to afford their old habits.

Oil and dollar -- Are we in a feedback loop?

A year ago, the State of Oregon produced its official tax revenue estimate and commented that although there were some dark clouds on the horizon, one positive possibility was that the cost of oil would go down. The state economist figures that at $60/barrel, it was somehow inflated above its natural price level.

Now, with oil prices almost 150% higher than that, I'm starting to wonder if there isn't a financial feedback loop at work here. Gasoline is a highly price-inelastic commodity. If you need it, you buy it, and cut your expenses elsewhere. Over a period of time, people will come to own more efficient vehicles and perhaps live closer to where they work, but in the short run, this isn't much of an effect. Gas has doubled and consumption is down in single digits.

The problem is that so much of our consumption comes from foreign sources. As the price goes up in USD, the trade balance worsens and the USD drops relative to other currencies. Other countries find it easier to compete with the United States to buy the oil, raising the cost of oil in USD, driving down the dollar, etc.

Obviously, it can't go on forever, but it may explain why we've reached levels that nobody would have seriously even speculated on a year ago.

Mugabe and Ian Smith

A number of people seem to be having trouble with the logic of Ian Smith's rebellion against the wishes of other people that he turn his country over to black majority rule back in the 1960's when everyone else was doing it. OK, everyone except South Africa. One such article notes that "Few could argue with the logic of redistribution when some 5,000 white commercial farmers owned two-thirds of the best arable land in a country of millions of blacks."

I'm not sure why this is so difficult to argue against. First, prior to white settlement, there weren't millions of blacks. There were fewer than one million, because without white farms, the country did not produce enough food to feed that many people. Second, there simply isn't any evidence that the black farm workers were ready to run the farms, let alone the entire country. They have been in charge for 30 years now. They now have most of the land, and they are producing less and less. They are on track to starve by the millions.

Much has been made of the 30,000 people who died in the bush war, mostly black insurgents. That was over a period of 15 years. Mugabe, not long after coming to power, killed 20,000 Ndebele civilians in one year. The loss of life, when you consider the collapse of the life expectancy, has been in the millions under Mugabe.

It's really hard to make a good argument that Zimbabwe, under any plausible scenario, would have been better had Ian Smith conceded in 1965 that black majority rule was inevitable.

No help from China on oil prices

Wall Street was thrilled today by the news that China is raising the domestic price of gasoline and diesel for its consumers. This, we hope will reduce demand for petroleum products in China and lead to a decline in the price of oil.

This is dreaming. If there's one thing that experience should have taught us by now, it's that gasoline is largely price inelastic, particularly in the short term. In this country, prices are up around 35% over the past year and demand has dropped about 3%. The Chinese are upping price by 18%. Should we expect more than a 2% drop in demand? They represent only about 10% of world consumption, although the fastest growing component. A 2% drop in a 10% segment means an overall reduction of .2%. Hardly a ripple in the supply stream.

We're going to $5 gasoline. Thanks to China's move to increase prices, that day will probably be postponed by a week.

Save AgriVino! Abolish OLCC!

It has just been reported that Agrivino is going to close its doors in early July, due to the narrow interpretation of certain liquor control laws that the Oregon Liquor Control Commission has adopted. They are saying that AgriVino's high-tech Enomatic system is illegally allowing "self-pour" by customers.

AgriVino was planning to provide a very high-tech system for dispensing tastes. Economatic is "state-of-the-art wine dispensing and preserving system," which allows the dispensing of single tastes from wine bottles without exposing the wine to air. Instead, carefully measured one-ounce quantities are pushed out by argon, a noble gas that does not react chemically with wine, into the customer's waiting wine glass.

The problem is that the customer was supposed to pay at the front desk, receive a card, and use the card to sip wine until the money ran out. However, the cashier did not physically handle each pour; the computerized system did this. No can do, says OLCC.

This despite the fact that the central computer was keeping track of the number of pours for each person and would stop delivering when it felt that the customer was drinking too fast. At the price of a sip, this strikes me as a pretty academic concern, but they made the effort. In the real world, this would be among the best regulated and least excessive environments for drinking wine in Oregon.

OLCC wants us to believe that they are forced into this position by ORS 471.360(b), which they say prohibits "self pour" by customers. If you read the statute, you'll see that it says:

(b) No licensee of the commission shall permit any person to mix, sell or serve any alcoholic liquor for consumption on licensed premises unless such person has a valid service permit issued by the commission.

Notice that the statute forbids any unpermitted person to serve liquor. It does not say that, at every step, a permitted person must be taking part. In restaurants, the waiter does not pour every glass of wine. In a tavern, the waitress will almost never pour from the pitcher of beer.

Clearly, OLCC does not require a permitted person to physically take part every time an alcoholic beverage flows from a container into a glass, but they are insisting that AgriVino do this, even though it would destroy the efficiency that makes it possible for them to offer the public such wonderful wines at reasonable prices.

This is not over.

The Way out of Iraq -- Money

From the start of the Iraq war, I was plagued by the sense that there was simply no peaceful solution through which the U.S. could exit. It now seems that combat deaths are setting new lows and although there hasn't been much tangible political progress, the rhetoric doesn't seem to be all that strident.

I have never claimed to understand the Iraqi mind, so I never tried to say for sure how far they would go with their antipathies towards one another. Pretty clearly, the Kurds despised the Arabs, probably with more fervor and more justification than the Sunni/Shiite split within the Arab community. I have felt all along that the Kurds would not give up their share of oil, about 40% compared with their 20% representation in the population. This meant that the remaining 60% of oil revenue would perforce be divided among the 80% of Iraqis who are Arabs. I was pretty sure that the economic conflict would form on sectarian lines and would be bloody.

But the economic conflict may be unnecessary. At $30/barrel, there wasn't enough cash there to make everyone happy. Even the $30 wasn't clear profit, as the Iraqi infrastructure would have absorbed a lot of it. But $120 is a whole new ballgame. Just on the back of an envelope, it looks like Iraq would have enough money to bring all the Shiites into the middle class and let the formerly prosperous Sunni administrative and professional class be prosperous again. Subtract the economic imperative, and there may not be enough enmity left for a civil war.

Arabs are historically very good at math (think "Al Gebra") and the thought may have occurred to them as well. They need to stop killing one another in order to get rid of the occupation and cash in. There is so much cash available that the corrupt political class (essentially a redundant phrase) can become spectacularly rich without depriving their less privileged supporters.

I'm going to now predict that a combination of fatigue and greed will lead to a modus vivendi in Iraq among the factions. One of the conditions will be that Americans leave. The super embassy in Baghdad may become an issue. But the violence will decline and we'll eventually stop spending our resources there, so we can devote them to the consequences of food riots elsewhere.

Run, run! The oceans are becoming acidic!

Plagiarism in the Digital World

In my previous post on Clergygate, I remarked that ideas should not be held responsible for their supporters. It wasn't an original idea. In fact, it may have been almost the same wording that someone else used earlier, although that person in turn may have borrowed the phrase. I could try to track it down, since search engines make the job so much easier now, but it's not worth the effort.

I will simply admit that I don't invent every phrase I use. It would be almost impossible to track down everything we know we're borrowing, let alone the many phrases that our subconscious minds allow us to think are original but which came largely intact from some previous source.

Surely, it shouldn't matter when political candidates borrow freely. In February, Obama was accused by the Clinton campaign of plagiarism in a speech. Who cares? We don't elect people to office with the idea that their platforms are original. Why should it matter if they language in support that closely mimics some prior speech by someone else?

Especially since almost no words that come out of a candidates mouth are his own anyway. They are produced by speechwriters. Does anyone think that George W. Bush actually composes his thoughts in the language you hear from him in formal situations? Not likely. But no one accuses him of plagiarizing his own speechwriter. If we're going to demand originality, let's be consistent.

Being responsible for supporters

I recall several years ago when I formed an organization known as OLL -- Oregonians to Limit Lawyers. It was a small organization, consisting of precisely myself and my mimeograph machine. OK, it wasn't technically a mimeograph, but the I like to recall it that way as a more colorful story. As an organization, however, it was definitely just me.

Our platform, using "our" in the imperial form now, was that there were already too many lawyers in Oregon and the private law schools at Willamette and Lewis & Clark were sufficient. The University of Oregon should close its. I sent out a memo to all the candidates for the state legislature, asking for their position. It was a campaign year and indeed, a few responded. Most ignored me.

I actually got a little publicity out of it and people sent me letters. One guy even sent a check, which helped cover my printing and mailing costs. Unfortunately, they seemed generally to be nut cases. I felt then, and feel now, that we have too many lawyers and the state should get out of the business of producing more of what taxpayers want less of. But it became clear that this position attracted an undesirable number of wackos, so I dropped the campaign.

I remember this situation as I watch the current presidential campaign unfold, with candidates now busily trying to explain their relationships with clergymen whose views on public matters make my anti-lawyer adherents look statesmanlike.

This is sad. Ideas should not be regarded as responsible for their supporters. No one (except perhaps some talk show host somewhere) has ever suggested that Barack Obama planned to take advise from Jeremiah Wright should he be elected, or that McCain shares Hagee's views on Hitler. As a practical matter, their support should not matter to the voter.

It's actually a bit more disturbing that although McCain now condemns Hagee's theoretical views, he hasn't moved an inch from the mindless pro-Israeli policies that Hagee's theology led him to. Obama is at least separate from Wright as regards practical impact. McCain seems like a nice guy, but when you consider that he thinks not only the Iraq War but, in retrospect, the Vietnam War as well have been good ideas, it worries me.

The Problem of the Median Home Buyer is Nonsense

I have a keen ear for statistical nonsense. Once again, I hear that it's a
great crisis in this country that a person with the median income cannot afford the cost of the median home in his area. This is not only not a crisis, it's something close to a mathematical certainty.

Not quite, because it's not certain that the average person will pay as much for a house as he can afford. Some will buy homes that are well within their abilities, although it is now clear that some others were spending above that level. But for the sake of argument, let's suppose that builders will build enough home at every price level that everyone can find a home at the highest price they can afford, which is not true but good enough to make this point.

However, not everyone will buy a home. Even though in America, there is a very high level of home ownership, there is still a segment of the population that will be unable for economic reasons to own a home. Usually, this is a question of income.

About 31% of housing units are occupied by non-owners. Add to that the number of people who don't occupy any housing, i.e. the homeless, deduct the number who are simply happy renting. For the sake of argument, let's call it 20% who would buy a home if they could but haven't got enough income.

Then the class of Americans who would be buying and selling homes is about 80%. The median among them would buy the median home, which is what they can afford (see assumption above). That would be the median of the top 80%, or the 60th percentile overall.

Consequently, people with the median income among all Americans would be around the 38th percentile of home buyers and would NOT be able to afford the type of home which someone at the 50th percentile of home buyers could afford.

This does not say that there isn't a housing price problem. One of our greatest problems is that when we're in our working years, we think we can "save" for our retirement by buying oversized houses which we expect to sell at still higher rates to the next generation so we can live off the capital gain. It's a national "greater fool" theory.

We need to be living more modestly, perhaps renting more often, and putting our money collectively into roads, bridges, and the like, and individually into productive parts of the economy. We can then leave a legacy to the next generation which will allow them to support themselves and us as well. Creating national wealth by building houses is foolishness.

Not so quick, Wall Street

Things seem to be looking up in the financial markets. optimism has returned, it seems.

This is a little premature. Remember that although 1929 had the Great Crash in October, November was a pretty good month. Overall, 1929 wasn't a bad year. 1930 was a bad year. As was 1931, 1932, ...

The usual cycle involves things getting good, people getting too optimistic and overexpanding, then pulling back at the same time. Eventually, demand is unmet and expansion begins again.

This cycle was different. We drove consumption upwards while manufacturing migrated overseas. The engine was, as economists and journalists kept telling us, the housing market, which remained robust even as the trade deficit rose.

The housing market is bust and it isn't going to be fixed. We'll of course need some housing, but not on the same scale. Manufacturing will also not rebound. We haven't had plants cutting overtime, they've just been closing down. They aren't there anymore. And because we aren't really into engineering in this country, the likelihood that the next generation of world class manufacturing will take place in America is slight.

Jobs growth in April came in unsustainable areas -- education, health, government. These are things we do for ourselves. If we want to continue to import what we need and/or want, we need to have something to barter with.

What we produce that the world wants, in exchange for the oil to which we are addicted, isn't a lot. Food, certainly. Some raw materials. A handful of manufactured goods where we're still near the top, like commercial aircraft and software. We also have tourism and higher education, but they aren't significant in the big trade picture. The dollar will fall further and we'll be required to consume less, as foreigners lose interest in funding our consumption. This recession is going to continue for a long time.

Five uncomfortable truths

I'm not usually much of a fan of Thomas Friedman but his editorial this morning was one of his better efforts. "Who will tell the people?" he wants to know. They want to hear the truth, he believes. They want to know what it would take to make America great again. I doubt it, since any politician who tries is successfully beaten down by idiocy, over and over, everywhere, all the time. However, since he brought the subject up, here are five truths to tell the American people.

First, our medical system is atrociously inefficient. We spend more than any other industrialized country with nothing on balance to show for it. We have spectacular abilities in certain specialized areas and we lead in research, but we are crushing our manufacturing sector with costs that other nations do not have.

Second, we have too many lawyers and accountants. Other countries have fewer of these and more engineers. Our children enter the fields where the money is, and as long as we reward people for gaming the system more than engineers who contribute to productivity, we're going to misdirect our best minds.

Third, we use too much oil and we must reduce our use whatever it takes. The first thing it should take is increased cost. Simultaneously, in fact with the tax money that drives up the cost, we should engage in massive research to make our energy use more efficient in general, and less dependent on oil in particular. Drilling in Alaska isn't going to do anything but postpone the inevitable by a year.

Fourth, not all teachers are created equal. I have nothing but respect for people who teach first grade or art, but their skills are not as difficult to find in the market as those of a high school physics teacher. Teachers with real world experience are more valuable than those who have done nothing since college outside of classrooms. The NEA mantras on these subjects are debilitating to education.

Fifth, we can't win the war on drugs. Some people are going to abuse drugs. Not a lot, but some. Let 'em go. Offer free treatment to those who want to get off drug dependency, offer cheap drugs to the addicts so they will stop burglarizing homes to pay for their habits. This is an enormously expensive undertaking with almost nothing to show for it.

None of these positions are politically possible. Even the modest idea of HMOs has been torpedoed by Americans' wish to have no constraints on their use of the highest cost treatment conceivable. The lawyers represent an enormously powerful lobby and for some reason, their argument that they help the little guy is hard to counter. Higher gas prices mean short term discomfort, which nobody will support. The NEA has successfully equated support for teacher unionism with support for education. And no politician can be seen as "soft on drugs."

I'm certainly not the first to identify any of these issues. However, they come up against the sacred cows of both left and right. It's not that Americans don't hear the truth. They don't want to listen.