After a month spent searching, without great success, for snow in the American West, I am back with a roundup on some of the things that I have been reading and thinking about lately. Since a month is a long time, I will break this into multiple parts so as not to strain the attention span of my readership or me.
We and the People of Libya Thank You, Hillary, Samantha and Barack
Foreign Affairs has recently run an article entitled “Obama’s Libya Debacle: How a Well-Meaning Intervention Ended in Failure”. If anything, the title is far too mild. This “humanitarian” intervention, championed by Hillary Clinton and Samantha Power (the “responsibility to protect” (“R2P”) simpleton whom Obama has made Ambassador to the United Nations), is a poster child for most of what is wrong with American foreign policy.
At the behest of the US, the UN Security Council passed a resolution in 2011 authorizing the use of military force to create a “no-fly” zone over Libya. Within seven months, the rebel forces, with support from NATO airpower, had overthrown the Qaddafi regime and summarily shot its leader.
Shortly after the rebel victory, the Administration was vigorously patting itself on the back. US representatives to the UN and NATO stated: “NATO’s operation in Libya has rightly been hailed as a model intervention”. The Commander-in-Chief himself stated: “Without putting a single U.S. service member on the ground, we achieved our objectives.” Since then, the White House has grown notably more silent.
And well it should. The article lists a catalogue of disastrous consequences from the intervention, including:
The conclusion of the article is damning: “In retrospect, Obama’s intervention in Libya was an abject failure, judged even by its own standards. Libya has not only failed to evolve into a democracy; it has devolved into a failed state”.
And what is the conclusion that President Obama has drawn from this? In an interview with NYT columnist Thomas Friedman in 2014, he stated: “I think we underestimated…the need to come in full force….If you’re gonna do this, there has to be a much more aggressive effort to rebuild societies.” So, POTUS’ conclusion is that we should have added to the societal building sites that the US has recently erected around the world. This follows on, no doubt, from our great successes in “nation building” in Iraq and Afghanistan.
Can anyone doubt that the United States was better off with Saddam Hussein and Muammar al-Qaddafi in power than with what has ensued? And that, not entirely coincidentally, so were the people of Iraq and Libya? When will this hubristic madness cease?
But I am being too tough on Obama and his Democratic minions on this. The sad reality is that the Republicans, with the notable exception of closet libertarian Rand Paul, have been no better. Still, Obama’s war in Libya does show that one of the few arguments for voting Democratic, to avoid John McCain and his fellow neo-conservative nutters in the Republican Party, is hollow. Foreign overreach is one of the few policies that enjoys bi-partisan support in Washington.
(Robert Kagan, who is virtually the high priest of an interventionist foreign policy from his lofty seat in the Brookings Institute, has recently published an article nauseatingly entitled “Superpowers Don’t Get to Retire: What our tired country still owes (sic) the world”. This article, the reading of which follows Sun Tzu’s admonition to “know thy enemy”, attempts to build an edifice of US foreign policy activism on nearly the sole example of the rise of Nazi Germany and World War II. In this way, Kagan falls prey to “Godwin’s Law” which holds that, whoever first mentions Nazi Germany in any debate, should be automatically declared the loser. Someone should tell Kagan that there is a large difference between stopping an economically, scientifically and militarily sophisticated Nazi Germany from dominating half of the civilized world and stopping the likes of Muammar al-Qaddafi or Bashar al-Assad from putting down a domestic revolt, no matter how violently or repulsively.)
“It Doesn’t Matter if a Cat is Black or White, As Long as it Catches Mice”
I was reminded of this quote from Deng Xiaoping when reading a recent Economist article about Chicago’s mayor, Rahm Emanuel. Rahm, as you remember, was Obama’s former White House Chief of Staff who noisily parted ways with Obama in 2010 to run for office. Obama famously joked that, after Emanuel lost half of his right middle finger, it “rendered him practically mute”. Obama also famously did not help in Emanuel’s winning mayoral campaign. Now we know why.
It turns out that Emanuel is fighting the good fight in Chicago, largely by taking on the traditional Democratic vested interests that have de facto bankrupted this city and its surrounding state. Mayor Emanuel has taken on the teacher’s unions –the most reliably retrograde group in any jurisdiction, along with the other public sector unions – by demanding merit pay and a longer school day; he got the latter. He has also closed 50 half-empty schools and ploughed some of the savings into charter schools, the bêtes noirs of public teachers. He has cut red tape and avoided tax increases, earning him the ultimate compliment from a local restauranteur: “Rahm thinks like a businessman, which is rare in a politician”. Business has responded with job creation. The students have responded with a higher graduation rate and, in the charter schools, better scores in standardized exams.
Emanuel inherited a basket-case and Chicago is still far from out of the woods. Among other things, despite some efforts in this direction by Emanuel, it still has massively underfunded pension obligations and serious black-on-black crime issues. But Mayor Emanuel shows, as Mayor Bloomberg so ably demonstrated in New York City, that local government is primarily about catching mice – providing decent schools, policing, transport, and other public services – and not about the color of the cat.
Can Economists Learn?
This is the title of an article written in Foreign Affairs by Alan Blinder, an economist at Princeton and a former Vice Chairman of the Federal Reserve. The article is a review of a book by the same name that pulls together a series of papers from an IMF conference in 2013. The conference featured some of the leading economists and central bankers in the world and attempted to draw lessons from the recent financial crisis.
Blinder draws “seven personal favorite lessons” from these essays, relating to market inefficiency, “balance sheet” recessions, the failures of self-regulation, financial fraud and near fraud, complexity in finance, incentives, and illiquidity versus insolvency. In reviewing his analysis of all of these lessons, I find it hard to avoid the conclusion that his last name would be better read as a comparative adjective and written “Blind-er”.
I can make a very plausible argument that there is a common thread in all seven of Blinder’s lessons: namely, the very aggressive and activist policies followed by central banks since about the mid-1990s, including during Blinder’s period in office. Yet, never once does Blinder, nor any of the other luminaries quoted in this book, mention the very substantial role played by abnormally low interest rates, QE, and “Greenspan/Bernanke/Yellen ‘puts’” in promoting market inefficiency, over-indebted balance sheets, the failure of the market to police financial fraud, complexity and bad incentives, and the aggressive funding structures that cause illiquidity-induced bankruptcies. Yet I can tell you that, as a first-hand witness to much of this excess, the single biggest factor behind these abuses was the desperate search for yield by “financially repressed” investors.
This omission is all the more astounding given that one of the stated goals of QE is, through the innocently named “portfolio effect”, to force investors out of their natural habitat of prudence and into the risky waters of complexity, heavy indebtedness, skewed incentives and near fraud. In fact, it is virtually impossible to pick up a financial publication today without some market practitioner commenting on the role that central bank policy plays in promoting bubbles and loose market practices. One has to wonder what Blinder and the others have been reading.
The failure of mainstream economics to learn this lesson, or even to acknowledge that there is a lesson to be learned, is one of the most glaring problems in the current economic dialogue. We will shortly suffer from it again.
Apple, the Teflon Company
Apple released its long-awaited Apple Watch, including a gold-cased one with a suggested retail price of about $17,000. This watch will have the same innards as a steel-cased version retailing for over $16,000 less.
I have just weighed a gold watch and it came in at just shy of 1.75 troy ounces, including the strap. It’s kind of small, so let’s be generous and say that the Apple watch will contain 3 troy ounces of gold. At today’s price, this quantity of gold would cost about $3,600, or less than 23% of the proposed price differential.
I mention this because it is another example of how Apple in particular, but Silicon Valley in general, uses some of the most predatory business practices on the planet with reputational impunity. Anyone who has bought a replacement part for an Apple product — $25 for an iPod/iPhone USB cable, really? – knows whereof I speak. But the really galling aspect of these practices is the left-leaning smugness of the technology sector. Another example of liberal hypocrisy.
Roger Barris, London
I Wish I Had Said That….
“We’ve got to stop being the stupid party. It’s time for a new Republican Party that talks like adults”, Governor Bobby Jindal of Louisiana, a former Rhodes Scholar and McKinsey consultant, speaking before the Republican National Committee in 2013
“ RELIGION IS LIKE A PENIS. It’s ok to have one. It’s ok to be proud of it. HOWEVER do not pull it out in public, do not push it on children, do not write laws with it, do not think with it”, as seen on a poster