Tuesday, November 30, 2010

Financial past, future

UPDATE: I'm slated to be on the Gabe Wisdom Show on Dec. 13 at  7:30 pm ET to discuss the article linked below.

For three years I've been writing a regular feature for Research magazine on financial history, for an audience of financial advisors but often with material that has broader interest. In the December issue I have some thoughts based on this work: "Excavating Finance's Past." Excerpt:
In the wake of the Great Meltdown, financial innovation is viewed with great suspicion. Some innovations turned out to be duds, or at least to have problems and exposures that were poorly disclosed and understood. The auction-rate securities market is effectively dead, for example, and few would argue these days that its benefits justified its risks.

The history of financial innovation, however, is not some one-sided litany of duds and debacles. Rather, many products and techniques that were cutting-edge for their time have done much good. One wonders, for instance, how companies would have coped with floating exchange rates without the currency futures pioneered by Leo Melamed at the Chicago Mercantile Exchange in the 1970s with inspiration from Milton Friedman.
Whole thing here.

Friday, November 26, 2010

Cosmic genius and dumb article

I happened across the Atlantic at the supermarket and read “The Danger of Cosmic Genius,” Kenneth Brower’s critique of physicist Freeman Dyson, summed up in this line: “How could someone as brilliant as Freeman Dyson take the positions he does on global warming and other environmental issues?” I found it an obnoxious article, what with Brower throwing around various theories before seeming to settle on the idea that Dyson’s driven by a quasi-religious faith in the power of science and technology.

Instead of trying to explain that Dyson’s wrong about the environment, Brower mostly takes this as a given, and shifts to questions about whether he could be senile or not mean it, etc. Instead of focusing on any factual statements Dyson’s made that might be disproven, Brower hones in on something Dyson said once on Charlie Rose to the effect that we humans have largely been kind to the planet, or at least often repair the damage we do. That’s a rather vague and interpretive statement, but Brower treats it as if Dyson said the sun goes around the Earth.

Further lame tendentiousness lies in Brower’s complaint that Dyson’s speculations about ordinary people, including housewives and kindergartners, someday playing biotech games that might require regulations, show that “Dyson has misjudged the desperation of housewives, the dark anarchy in the hearts of kindergarten kids, the efficacy of rules and regulations, and, most problematic of all, the deliberation with which Darwinian evolution shapes the authentic organisms of Creation, assuring the world of plants and animals that make sense in their respective biomes.”

I don’t know what Brower thinks he’s saying about desperate housewives, and the last bit about Darwinian “deliberation” reads as if it came from some planet where there haven’t been domesticated plants and animals for thousands of years. Is Dyson the one who’s out of touch with reality?

And for all Brower’s speculations about how Dyson’s long career shaped his skepticism of environmentalism, he never gets to Dyson’s writings about the debate over nuclear winter (see Infinite in All Directions, ch. 15). In that debate, Dyson found that scientists were receptive to the nuclear winter theory not necessarily because facts showed it to be true but because they wanted it to be true so as to provide an impetus for disarmament. And he, Dyson, softpedaled his skepticism because he too shared that political perspective. I suspect Dyson’s experience with nuclear winter shaped his later skepticism about the consensus that global warming is catastrophic, as he saw this consensus too had a political element.

I write all the above as someone who has no interest in touting climate change skepticism, but who thinks Freeman Dyson deserved a better article than this sugarcoated hit piece in the Atlantic.

Wednesday, November 24, 2010

Political gratitude

FrumForum has a symposium on "What Are We Politically Most Thankful for?" My contribution:

Rand Paul’s victory in the Senate race in Kentucky fulfilled my unenthusiastic pre-election wish, which was driven by aversion to Paul’s opponent, the guy with the Aqua Buddha commercial.

One thing I’m thankful for politically is that the Intelligent Design movement remains politically moribund, five years after the landmark Kitzmiller decision ruled ID a form of creationism that has no place in public-school science classes. Yes, there are still skirmishes at textbook boards and local school boards as creationists try to insert anti-evolutionism under the guise of “academic freedom” without offering a theologically based alternative. Overall, though, public-school science classes have been confirmed as places where science is taught.

And yes, the abovementioned Rand Paul declined to comment on the age of the Earth during the election campaign. Fortunately, it’s a topic Sen. Paul doesn’t need to know much about.
Whole symposium here.

Tuesday, November 23, 2010

"We are [not] all Austrians now"

Some economics-related items I've found interesting:

Over at Marginal Revolution, a good debate, possibly not yet over, about whether we need the Fed. Start with this by Alex Tabarrok and don't miss this by Tyler Cowen. For a round-up of a good deal of what I've written on this subject, see here and here.

Two items on Austrian economics, pro and con, both of which I suspect exaggerate its current influence or at least the endurance thereof. Amusing to see a commentor (#2) on the pro article who seems to think Austrian economics has to do with economics in Austria.

Some interesting background on Austrian economics and Tyler Cowen here.

Saturday, November 20, 2010

The Fed and the GOP

My latest at FrumForum: "The Fed and the GOP Weren't Always Enemies." Excerpt:
As it happened, Reagan, no stranger to hard-money conservative thought, had doubts as to whether the Fed was actually needed. He’d asked that question of both Volcker and his own economic advisors in 1981. Moreover, the president’s political advisors were largely hostile to Volcker, seeing him as a danger to Reagan’s reelection.

But Reagan put sound policy ahead of political considerations. If we were to have a Fed, he realized, it needed to have an independent ability to make monetary decisions regardless of whether they yielded short-term benefits for incumbent politicians.
Whole thing here.

Some further reading on the Fed and related matters:
“Ron Paul’s New Book: More Exaggeration and Conspiracy-Mongering"
“The Fed and Its Enemies”
“The Tumultuous 19th Century"
“T.R. vs. J.P.”
“Stocks, Gold and War”
“The Gleam of Gold”

UPDATE: For those who think the Fed doesn't know how to have fun.

Thursday, November 18, 2010

Jersey City story

Story of a House: my friend Kevin chronicles his experiences navigating the regulatory and practical challenges of renovating a residence in Jersey City.

Tuesday, November 16, 2010

Monsoon review

I finally got around to finishing Robert D. Kaplan's Monsoon: The Indian Ocean and the Future of American Power, which I’d mentioned a few times recently. It’s certainly a book worth reading; it’s hard to imagine what reader would not learn a great deal from it, as the subject matter ranges across thousands of miles and hundreds of years. Kaplan’s known for writing that combines far-flung travelogue with geopolitical strategy. In the past, some of his work has had a hawkish cast. Less so this book, which focuses on soft power and gives China’s government more of a benefit of a doubt than it probably deserves, in light of its stepped-up assertiveness in the past year.

Kaplan is surely right that the Indian Ocean will be highly important -- politically, economically, militarily – throughout this century, though I share the Washington Post reviewer's suspicion that he’s conflating places he finds interesting with those that are or will be important in the wider world. Having spent time in some wonderful places in Nepal and northern India last year, I can see how easy it would be to blur that distinction. Nevertheless, this is a valuable book about a vast region that’s too readily relegated to the bottom of our mental maps.

Monday, November 15, 2010

Connect the dots

Three pieces of news:

NASA's Chandra Finds Youngest Nearby Black Hole
"Astronomers using NASA's Chandra X-ray Observatory have found evidence of the youngest black hole known to exist in our cosmic neighborhood. The 30-year-old black hole provides a unique opportunity to watch this type of object develop from infancy."

Better Dead Than 'Fed'
"While Paul’s anti-Fed crusade is widely thought of as economic libertarianism, the roots of this combat lie in a theocratic reading of the Bible..."

Information Gained from Comet Hartley Already Written About in the Bible
"Long before the photos of Comet Hartley, the Bible correctly refers to the vents ('mouths') in an active comet's crust, and then correctly tells how these vents can powerfully spew out poisonous gas that can kill men (Revelation 9:17-19)."


What does it all mean? Could it be that 30 years ago, during the Volcker era, a black hole was divinely created to spew out poisonous comets and smite the Federal Reserve if it returned to its inflationary ways?

Saturday, November 13, 2010


Some recommended weekend readings:

"Post-Tea-Party Nation," by David Frum, New York Times Magazine.

"Deficit commission proposes axing commercial spaceflight without knowing what it is," by John Matson, Scientific American.

"Catholic Exorcism Conference Turns Heads," Slate. Note the curious reference to the Federal Reserve. My thoughts from a few years ago: "Exorcising the Alien Predators."

Wednesday, November 10, 2010

Tax wobble

My latest at FrumForum: "Deficit Panel Goes Wobbly on Tax Overhaul." Excerpt:
When it comes to tax reform, the bipartisan deficit commission needs to think more boldly. The co-chairs’ draft report includes options for a simpler income tax structure with lower rates and fewer deductions. That would be nice, and would repeat the basic thrust of the 1986 bipartisan tax reform (which was a significant achievement but one watered down in subsequent tax code changes).

Co-chairs Erskine Bowles and Alan Simpson raise politically sensitive possibilities such as reducing or eliminating the mortgage interest deduction and the child tax credit. They offer the interesting idea of an automatic trigger that would reduce loopholes if broad tax reform is not enacted by end-2012.

In other words, Bowles and Simpson don’t seem to be afraid of shaking things up, which raises the question of why their proposals ultimately amount to fiddling with the current tax system rather than replacing it with something fundamentally different.
Whole thing here.

Tuesday, November 9, 2010

Geographical challenge

Reading Robert D. Kaplan's Monsoon: The Indian Ocean and the Future of American Power (which I still hope to comment on at some point) makes me want to put some of our actual and would-be political leaders (and I include a certain monetary expert) in front of a map of Asia with the national borders delineated but no identification of the countries, and see how many of them could find, say, Indonesia. On a brighter note, this NPR interview with Sen. Kit Bond (R-Mo) makes it clear he would pass the test.

Saturday, November 6, 2010

Hedge fund history [updated]

I'm slated to be on the Gabe Wisdom Show on Mon., Nov. 8 Wed., Nov. 10 at 7 pm Eastern to talk about "The Birth of Hedge Funds."

UPDATE 11-11: The podcast is temporarily available here, and will find a more permanent home later.

UPDATE 11-17: Podcast is now here.

Wednesday, November 3, 2010

Flying saucer initiative downed

Over at FrumForum, I discuss Denver's Initiative 300:
UFO conspiracy theorists have little to celebrate in last night’s election results. Denver voters overwhelmingly rejected Initiative 300, a proposal to create an Extraterrestrial Affairs Commission “to help ensure the health, safety, and cultural awareness of Denver residents and visitors in relation to potential encounters or interactions with extraterrestrial intelligent beings or their vehicles.”

Anyone reading the proposal’s full text received a probe full of paranoia, including such statements as “Evidence of extraterrestrial beings has been known by United States presidents since President Franklin Roosevelt” and “The United States government has suppressed, and withheld from the public, evidence of advanced clean energy, transportation and other technologies of extraterrestrial origin.”

If such an initiative could not take off in today’s anti-government atmosphere, when could it?
UPDATE 12 noon: I'm pleased to see my analysis getting attention in India.

Monday, November 1, 2010

NY politics, aliens

FrumForum has posted a symposium of contributors' election predictions. I weigh in on the New York state governor and comptroller races, as well as Denver's Initiative 300 to create an Extraterrestrial Affairs Commission. I'm also planning to do some blogging for FF during election night.