Tuesday, March 9, 2010

Give Iraq a Chance

Despite recent success, many seem determined to see the half empty glass in the Iraq.

Jeff Miron writes:

In addition, merely holding elections is not the ultimate goal; many countries have held elections that were meaningless in practice. We have yet to see whether Iraq’s “democracy” will become a de facto religous dictatorship.

I understand that elections are not the ultimate goal. However, they are a mean to an end are they not?

Would anyone looking in on the United States in the lase 18th Century have predicted anything but the collapse of this aberration/experiment?

Was the goal, in the end, not worth all the struggles?

I understand that we want to disincentivize American military adventurism. I’m all for that.

I understand that the cost in treasure and blood is high. But that cost is sunk at this point.

It’s time to stop beating the doom and gloom drums for Iraq. Give them half a chance will ya?

They deserve it as much as we did in 1776.

BTW - you should buy Jeff's new book Libertarianism, from A to Z

Monday, March 8, 2010

Maslow’s impact on global financial boom and bust cycles

I love simple explanations. Not because they are accurate, because they are not. Not because they are comprehensive, they are not. I love them because they explain things in way that is easy to grasp, and therefore easy to action. As long we keep an eye out for black swans, and are ready to revise our models, simple explanations trump complex ones in sheer utility.

What’s been top of mind lately is the apparent acceleration of the global financial boom and bust cycles. These cycles seem to be not only more frequent but of higher amplitude as well.

Take the current bust cycle: you can argue whether the Fed’s easy money policy led to unsustainable inflation in housing prices, facilitated by government policies implemented by Freddie and Fannie which purchased questionable notes turned them into mortgage-backed securities, and sold them to investment banks which purchased credit default swaps from AIG as a hedge....

And I haven’t mentioned the money supply issue yet.

But there is a simpler explanation: Maslow is at fault. You see, in the US consumer spending accounts for 70% of economic activities so it follows that consumer behavior becomes a significant driver in the economic equation. If we divide consumer spending into tranches following Maslow's hierarchy of needs an interesting pattern emerges.

Over the last 4 decades, consumer spending has steadily climbed the sides of this pyramid. For example, according to the USDA, in 1929, food consumed 29% of personal income, that measure went to 17% in 1960 and is now less than 9%. Similarly, expenditure on cars dropped from 8% of income in 1984 to 5% today, gasoline expenditures dropped by 10% while women’s apparel is up 25% since 1984. In fact many experts now look at discretionary spending as an early predictor of stock market activity (see this and this).

But what does this trend towards higher Maslow state mean? Well to put it simply: higher volatility and deeper boom and bust cycle. A simple assumption about the ease with which consumers can cut 20% of their spending yields a 50% more decrease in economic activity.

As our society trends richer expect deeper more frequent boom and bust cycles. It’s a fact of life, might as well get used to it.

Tuesday, March 2, 2010

2 vs. 14

As the Supreme Court considers the case of McDonald v. Chicago (summary) it’s likely the verdict will uphold Chicagoans’ right to bear arms.

The problem is that Supreme Court will most likely use the 14th amendment to uphold the people’s right to bear arms, as outlined by the 2nd amendment.

A win is a clear victory for gun rights, but it does establish a precedent of Federal intrusion into state matters.

Sometimes, I wish I could have it both ways.

Mommy-Daddy and Venus-Mars Metaphors

When I wrote my Venus & Mars piece last year, I tried very hard to avoid the male-female analogy. I just did not have the intestinal fortitude to deal with the fallout.

Well, in “The Enduring Mommy-Daddy Political Divide” David Paul Kuhn, with more courage and eloquence, applies this same principle to domestic policy and the R vs. D world view. Great read.

Monday, March 1, 2010

Vindication of the Bush Doctrine?

It would have been safer to wait after the March 7th election to post this, but caution has never been my strong suite. So here goes: It’s starting to become conceivable that all the blood and treasure we spent in Iraq hasn’t been in vain. That the Bush doctrine had some merit. That it is possible to create a multi-ethnic, multi-religions, multi-cultural democracy in the Arab world. Even Newsweek is starting to admit that.

I feel a “thrill going up my leg” when I watch Sunni and Shiite politicians jockey for positions, wheel and deal, and play hardball but with a commitment that a unified Iraq is that only way to go.

I’m not ready to concede that the cost-benefit analysis of the Iraq was has turned positive at this point. Nor should you take from this any encouragement to repeat this experiment in the future. It succeeded mostly because the Iraqis wanted it to succeed, full stop.

But the benefit side of the equation has clearly turned positive: Iraq and Lebanon, liberated by the Bush doctrine, might not turn the entire Arab world into western-style democracies overnight. But the seed has been planted and they now stand as a few small green shoot on a desert dune.

The Arab youth hasn’t the right to ask for anything more than to be given a chance to succeed.

America owes the Arab youth nothing more. It’s all paid up.