The "Martin O'Malley" effect

Noam Chomsky once said of the election of Lula De Silva showed that Brazil was able to elect a candidate that was not approved by the establishment or media and this could never happen in the United States.  I never quite believed this. He is suggesting that a secret Cabal of people (establishment and media) in the U.S. decide which candidates can run for election before they are put before the people. I always had trouble with this. It is also the theme of this Ted talk:

https://www.ted.com/talks/lawrence_lessig_we_the_people_and_the_republic_we_must_reclaim?language=en


In a crude primary process, America has ended up with two candidates the majority of Americans don't like. Rather than add to the volumes written about Trump and Clinton we can instead look at the guy that probably would have won easily against Trump, yet got one of the lowest vote tally ever in a 3-way primary, Martin O'Malley who scored just above 0% in his last primary before he quit the race.

Martin is the ideal democrat and even has some conservative bents.

He's been a very successful governor of a medium sized state with success in all major metrics (Crime, education, guns etc). As a democrat, he is a perfect centrist. Admittedly, he didn't get far enough to have all his baggage aired, but, assuming nothing damning was found, would have easily beaten Trump in a general election, since he did not evince the same visceral resentment shown towards Hillary Clinton, who has been famous and in politics so long that she has a lot of baggage.

The press dismissed his bid for presidency as "he didn't get enough party support" or "he didn't get enough money" But in reality,  he just didn't get enough press, which makes the media's argument a self fulfilling prophesy. Sanders had the same disadvantages  (no endorsements and minimum money at the start) but he was propped up with a populist extreme message which was highly newsworthy that gave him the exposure (money followed). Could Obama have been elected if he wasn't that bit extra news-worth by being african american. Could George Bush has been elected if he wasn't from the famous clan. Could Hillary be elected if she wasn't a Clinton. Back when no one knew Bill Clinton, could he have won the primary if he wasn't up against equally unknown candidates, since the party stars didn't think they could win against the (temporarily) very popular incumbent George H W Bush? Perhaps he wouldn't have won if he didn't have the Jennifer Flowers scandal that made him much more famous.

Are we simply supposed to assume the non-democratic view that "hey, if they are not already famous, or can't create sensationalist press headlines, then the system disqualifies them from being President". Britain just got another prime minister who was  colorless in the  press and who's main claim to fame was being a competent Home Secretary, a relatively technical job, so it does not seems to be a universal law.

So Martin O'Malley (or John Kasich for the Conservatives)  would probably win a general election more easily than Hillary Clinton but decisions were made early in the process that precluded him from getting party support and press exposure. How were those decisions made and who made them? More importantly, is it a structural part of the system and are we condemned to only famous or extreme people forever.

Neither door was open to O'Malley. He didn't eviscerate  Hillary onstage. He didn't propose a a giant wall or free college. He was not newsworthy since his plans were sensible, practical and modest. Bernie Sanders however, even without support from the party elders, could get headlines with his scathing attacks on Hillary and the revolutionary talk of turning the U.S.A. into Denmark with as much "free everything" as possible and punishment for the 1%.

So how can a competent centrist (who is not famous already) win the primary? It appears they can't. Parliamentary systems depend on impressing (and rewarding) insiders to get the job, whereas winning the presidency is about winning sound bites, and if you are not already famous, the most outrageous sound bites. So the first round of the selection process is determined by how many papers you can sell. 

Apathy and Opacity - Live Together in Perfect Catastrophy

Winston Churchill is credited with saying "Democracy is  the worst of all systems except for all the others". I would amend that to say "Democracy is the worst of all systems when you at the mercy of someone else's democracy".
The U.S. is certainly one of the most stable and successful democracies in the world. However, the U.S. is so powerful that it has had immeasurable power over other fledgling democracies.
The U.S. has been instrumental in ripping apart the democracies of:

Iran
Chile
Nicaragua
East Timor
Congo
etc

In truth, none this is particularly disputed, even by the U.S. government itself.
When Colin Powell (U.S. Secretary of State for George Bush) apologized for the U.S. involvement in the bloody coup which overthrew the democratic government of Chile  and replaced it with the brutal dictator Pinochet, it was headlines all over latin America but barely made a whisper in the U.S.
In each case of these countries, as a direct or indirect result, thousands to hundreds or thousands died.
The U.S. knew that the Shah of Iran was corrupt and brutal when they destabilized the democracy in Iran and replacing the democratic government with a demagogue. The backlash which brought in the current Republican Guard was a direct result of their interference.

More info here: http://en.wikipedia.org/wiki/1953_Iranian_coup_d'%C3%A9tat

What I have found strange about these stories about US dismantling of democracies is that they are largely undisputed, even when they have led to unmitigated disaster. In most of these stories the U.S. is clearly the bad guy motivated by all the wrong reasons. How would the middle east be today if the U.S. had supported the democracy in Iran rather than help destroying it? However, I would have thought that transparency in a democracy would have led to a public backlash in the U.S. against its leaders. It turns out that betting on the apathy of your own citizens towards foreigners is close to a sure bet. Especially if those foreigners look different and speak a different language. Some of these stories border on the bizarre.

Noriega was essentially a CIA sponsored spy in Panama and with the support of the U.S. rose through the ranks. Eventually, he because leader in Panama and ran a brutal regime funding himself with his private drug cartel. The U.S., after a few years, gave him multiple warnings that he was going too far. Noriega claimed that the U.S. was really angry with him because he would not support the U.S. in their overthrowing of the Nicaraguan government. Fast forward many years of brutality and the U.S. invades Panama, with many deaths, arrest Noriega and sets him up for trial for long known crimes committed BEFORE he went to Panama. In fact, Noriega claimed that he would expose the involvement of the U.S. in Panamanian affairs until the Florida court gave him a gag order which he obeyed, in return, one presumes, for his palatial "prison" lodgings in Florida.

As a U.S. citizen, I love the rights and safely being American affords me. However, if I were not American but instead brown and/or muslim and/or poor,  I would be terrified of the U.S. I don't mean to suggest that the U.S. is evil, but its seemingly well intended short term goals (protect the interests of U.S. people and companies/and historically-keep down the Red scare) can lead to outcomes that are often indistinguishable from acts of complete malice. This is by virtue of the complete apathy towards the collateral damage to the people in that country.

Even today, U.S. drones can kill 10 innocents and one suspected terrorist and there is no backlash in the U.S.. The backlash in the foreign country is completely ignored, even when the innocents killed far exceed the victims of terrorism in the United States.

The purpose of this article is not to rant against the U.S. as I most certainly don't think the U.S. is consciously evil. Instead, I wish to examine what structurally is broken that the U.S. makes such bad decisions that cause so much harm and, in many cases, work against its own interest. In this realm, I can only put forward my best guesses:

(1) Lack of guiding principals in treatment of non-US citizens in other countries. (i.e. No humanitarian rights or constitution given to non-citizens) so short term and short sighted goals dominate decisions. No privacy, right to trial, right to life, due process etc. For example, even outside of war, the U.S. can legally bomb from the sky, French people, Chinese people, Mexicans but not U.S. citizens, on fuzzy suspicion of terrorism with as many innocent deaths as felt "necessary" to hit the target. Even when there are some low level guiding principles (e.g. Geneva Convention, U.N. Declaration of Human Rights) the U.S. is under no obligation to follow them since there is no enforcement mechanism.

(2) Lack of transparency for major U.S. institutions (NSF/CIA etc) meaning that the press and public cannot get accurate facts about the real reasons and depth of actions. Would the U.S. public have reacted if they knew the CIA were hiring iranian thugs and mobsters to help overthrow the democratically elected government in Iran? I hope so. These facts were only officially released by the government last year (2013).

(3) Carte blanch to act due to the apathy of the average American citizen towards foreigners in other poor countries, even when most of the facts are exposed. Americans are the least travelled of people in the developed world. The U.S. is so vast that many don't see the need, whereas in Europe you may pass two countries on the way to work. The helps lead to an insular view of America as all news and opinions come from only one country and most Americans have never meet, let alone befriend, someone from a country that America plans to disrupt or invade.

Lack of transparency and public apathy gives the politicians a blank check for the foreseeable future.

Unions and Money

If you ever spend a spell in Business School you will probably learn that Unions reduce productivity by causing an inefficient market for labor and diminishes its value. This is hard to argue against, since if you are compelled to use a Union labor you are most certainly compelled to pay higher in labor costs. There is also the restrictions that unions put on labor which can limit the flexibility and competitiveness of a company. With less than 1 in 15 being members of Unions in the private sector in the U.S., the impact of Unions has all but been relegated to the public sector. On the unions side,  if you look at jobs from 100 years ago and today and the improvements in wages and health are largely attributable to the them especially for lower waged workers.

For a minute I would like to look at the economic impact of unions today and compare it with the economic impact of capital owners. By capital owners, I don't mean the managers and CEOs of the companies, but simply those that are the owners of the capital.

This is a bit of a thought experiment and with the following assumptions:

o Unionized labor is essentially the same as non-unionized labor with an additional cost of X% higher (e.g. 10% higher)
o There is no difference in quality between unionized labor and non-unionized labor, except those captured in the higher cost  (e.g. increased time-lines, reduced flexibility etc. can all be captured in the 10% increase in cost)
o The 10% higher cost translates to 10% increase in wages for the union worker, although in reality there is a union administration which will also take a proportion.

All these assumptions are highly controvertial and for the moment make just a stick figure to do our thought experiment.

Additionally, lets look at the capital owners. In this view I look at passive investors. If a company is run by a founder who is a major shareholder, I break the founder into two people, the CEO/manager who receives a typical CEO/manger salary and the passive shareholder. With some studies that show increased equity above a certain amount does not improve performance, this is probably less controvertial than it sounds (the person promised a billion dollars in equity is not 10 times better than the person promised 100 million). So looking at these (real or virtual) passive investors one should look at the economic impact of these. With this in mind I make another simplifying assumption:

o 10% of the price of any product goes to the passive capital owners.

In terms of unionized labor, one can assume that any finished product will cost approximately 10% more if all costs going into it are 10% higher, so a 100% unionized labor force would add 10% or less (depending on the independent raw costs of materials) to the price of goods. Additionally, the need to furnish capital owners a reward for investing capital adds 10% to the cost of all goods, both based on the sweeping assumptions above.

So, based on a very simple model the average consumer pays at most 20% (ignoring compounding) above and beyond the basic raw costs of (non-unionized) labor and materials. One could see reasons to resent both groups, the unions force consumers to pay above market prices and the capital providers take money for doing absolutely nothing. But this is not the end of the story.

If you take a look at what each group does with their 10% the story starts to differ. Unionized labor made up a 34% of the U.S. labor workforce in the middle of the 1950's. How these unionized workers invested their 10% was staggering. Health standards for thier children improved dramatically, along with education and college completion. They also bought cars, refrigerators and other consumer products which helped spur further growth. Their investments in the United States was one of the most important in the history of the country. The capital owners, disproportionately rich, also spent their 10% but being much fewer in number than the labor force, the benefits was limited to a smaller group of people.

I don't want to diminish the importance of strategic investment, but lets face it, most of the stock market is not game changing venture capital but shares in long established mature companies where the investors behind the scenes are quite passive and add little value to the comapies they invest in. Their long term behavior, in chasing investment returns, does guide the actions of CEOs and managers in ways that build efficiency into capitalism and separates us from a stagnant communist system, but their investment strategies could be replaced by a simple computer program (hire money manager,  if money doesn't go up enough, get new money manager).

I don't argue whether unions are good or bad for an individual company. However, thier gradual demise from the private sector from 1980 onwards is coincident with the growing income disparity. Few would disagree that the unions did reduce the wealth gap in the U.S. which was accompanied by a huge rise in the middle classes and their demise from the private sector shouldn't be celebrated too much.

Our Rose Colored Collapsing Schools

I am writing to you from the U.S. Education apocalypse of which we are all aware. It’s actually quite warm and fuzzy here as apocalypses go and other than the ubiquitous sense of malaise, no one really seems that upset. Everyone seems to know things like…. a third of students don’t graduate high school.....teachers are coming from lower and lower tiers of graduating college students… education quality is falling behind most other developed countries. I blame statistics. Statistics have a lot to answer for, not only for my lack of love-life in College (yes honey, I love you 63% of the time)  but also because of one bizarre statistic in particular. The majority of U.S. parents give the country’s schools system a C but give their local school an A. I find this totally bizarre (a statistic from Tyack and Cuban’s “Tinkering with Utopia”) and largely ignored as a major problem in U.S. education, but I think it is one of the biggest. If you think your child is doing fine the national crisis in education becomes “Someone Else’s Problem” and not worthy of affecting your vote or your taxes. In fact, I think there are really only three problems:

(1) Parents are too happy

                If parents were truly rational and objective, then averaging up all their grades of their local schools should add up to their view of their national average. But if they think their school is and “A school” and everyone else’s is a “C school” then they are wearing rose colored glasses and can’t see straight for problems close to home. Little Johnny or Mary coming home will all A's probably rosy things up a bit. Imagine what would happen if they realized that their little Johnny or Mary was getting a “C education”, I personally think that no politician or union would stand in their way of improving the system. Parents would not tolerate the gradual deteriorating of teacher quality, the schools or state apathy. They would pay the taxes and vote to fix the problems.

(2) People around the most disadvantaged schools don’t vote

                Almost all of the “failing” schools serve disadvantaged communities. This contributes to the one third drop-out rate in U.S. schools. Although a lot of lip-service is given to this problem, there is no real political incentive to fix it. A politician’s job does not depend on it since there is no consequence to ignoring the problem. Why take resources from your voters and give it to communities that don’t vote? Your voters may even punish you for giving resources to non-voters.

(3) The U.S. is happy to have a lot more poor people than most other developed countries.

                The U.S. has a comfort level with wealth disparity which would not be acceptable in many other developed countries. If I told you that a neighborhood had professional involved parents, you would guess (correctly) that it had a good public school. If I told you a neighborhood had economically disadvantaged parents and had all the problems of intergenerational poverty (addiction, crime etc.) then you could guess (correctly) that the neighborhood school was probably not very good. So how much does the actual “school” matter. There are individual heroes and schools that try to tackle these problems but they are hard to scale. Schools like KIPP charter schools uses longer school hours and shorter summers to try to try to compensate for the disadvantaged backgrounds. However, when will it become clear to our leaders that sometimes it’s NOT THE SCHOOL. Intergenerational poverty creates communities that are not excited about education and you end up with apathetic students, apathetic parents which lead to schools destined to fail and need to lower performance standards just to keep teachers working in this difficult environment.

Having just finished a masters in education, I have to say that there is little mystery to fixing the schools problems. The truth is that the people that need to know, know. They know how to fix the problems. They know what other countries are doing better (even countries with highly unionized education). They have done the research and can list off the fixes. There is certainly a lot of will to fix the problem, with research groups, advocacy group etc, there just isn't enough will. People are just not motivated enough. The fixes are long, difficult and expensive, and this country is too happy and rose visioned to do it.

The end of the world.

Obama has won. The man who plans to socialize medicine and make everyone equal through wealth redistribution. Who unabashedly wishes to tax "only rich people". It does seem a bit like an Ayn Rand dystopian novel and Stephen Colbert wasn't the only one I have heard suggesting "Going Galt". So what is the worst that can happen?

(1) We drive up debt so high that we can never pay back and we and our children become indentured servants
(2) We drive taxes so high and increase regulation to the point that no one in their right might would try to produce anything of value.


#1 Simply cannot happen. The U.S. has the nuclear option, which is to cancel all its debts via printing off cash. Its not a pretty option that will have side effects but this "mini-default" is how most government gets out of egregious debts. The "mini" option is to print off enough cash every year to provide high inflation that will diminish the debt to manageable levels. The big fear that Asians will screw America by holding all our debt and using it as leverage is really the reverse. America will inevitably screw them by devaluing the debt to the point of being easy to repay. In my opinion, this is the lessor of two evils. Repaying all the debt at current face value is too much of a millstone and will probably spiral into a depression. I pretty much say a gradual "default" through devaluation is inevitable although it many take many years of pain for people to realize it, hopefully sooner rather than later. Even with the rapid rate that the Fed is printing money (aka Quantitative Easing) right now, it is barely compensating for the other factors shrinking money supply, evidenced by the very low inflation. In other words, we printing just enough to stand still.

#2 is a more realistic fear, but unlikely to justify the terror in many people's hearts. The worst case of this at the moment is probably France which is considered one of the worst countries in Europe for new entrepreneurship. However, the French are not having a famine or giving up on healthcare or education. Higher than average unemployment (10%) is their current curse. The incredibly high cost of employee terminations in France terrify anyone to hire someone, and the culture of high regulation and perceived high level of strikes and entitlement scare of most international companies thinking of using France as a European base. If the worst thing that Obama can do in 4 years is turn the U.S. into France then I don't think you need to jump off a ledge. Ask anyone who has lived in France. There are many many many worse places. France recently instituted a 75% tax against the "very rich" which has driven some out of the country. Admittedly, the list of the largest 50 French companies haven't changed much in the last 20 years, unlike the U.S., and this is indeed a very high cost of European socialism. However, many feel compensated by long vacations and some security in healthcare and aging. Additionally, Obama, even if he wants to, would want to be 100 times more powerful than he seems to create a French type state in only 4 years. His own party would fight him and the Republican controlled House would fight him more. Additionally, his foray in this direction has been quite mild so far, looking only at one mild tax that still has most rich earning more than under Clinton.

Frankly, America is the way most Americans want it to be and most Americans do not want to live in a French state. If the American demographic alters that may change but so far it doesn't seem like that would happen for a long time.

$600 Bln? Lookout, the Fedcoats are coming...

Fed announces another $600 Bln of "Quantitative Easing" (read money printing to buy Government debt). This is to join the other 5.5 trillion dollars of debt that is already owned by the FED. This dwarfs the puny approximate $1 trillion each we owe China and Japan.

So is this good or bad?

This new $0.6 Trillion, is swapped for government debt on the open market and is the mechanism used to bring the interest rate down. The fresh cash injected will get loaned out again and again multiplying the amount of loans. This will introduce many trillions of new money into the economy through bank loans. Theoretically, new bank loans don't disturb the balance if the loans create assets of equal value to the loan (e.g. build a factory) but too many of new loans go to speculation where no new value is created, only inflation.

Lets see where the next speculation bubble is going to be. My bet is on gold.