Sojka's Call

Must the Rich be Lured into Investing?

2012-02-10T15:24:00.000-08:00

Link to Brin's blog here......

David Brin is just making so much sense lately. He slices and dices supply-side economics and trickle-down economics to pieces. We all knew on one level they did not make sense. It was like someone telling you that eating cookies will make you thin because all that sugar is going to hype up your metabolism and then your body will burn it off. Yea right!

Why should Mitt Romney and the fabled "one-percent" pay only a 15% marginal tax on investment income ... half the rate charged to a dentist or auto mechanic on wages earned from work? This was not the case until recent Republican Congresses slashed taxes on passive, unearned dividends and capital gains.

The rationale for that immense tax cut for (mostly) rich investors was simple and alluring - that super-low rates would entice more of the rich to invest in companies within the U.S., helping them to increase their productive capacity and hire more workers. Moreover, the resulting boom in economic activity would then result in so much new tax revenue, even at low rates, that deficits would disappear.

Let's put this in context with a term you may have heard. "Supply side" economic theory maintained that this flow of investment capital would pump up the factory end of things, increasing the supply of goods and services, offering them cheaper, thus stimulating demand.

In contrast, the standard Keynsian "demand side" model was to fight recession by ensuring that poor and middle class folks had enough cash ("high-velocity" money) in their pockets to buy - or "demand" - goods and services. Whereupon producers would be drawn into greater production.

For a more detailed description of the differences between these two economic models, see my earlier missive A Primer on Supply-Side vs Demand-Side Economics. (It really is one of the top issues of our day and an informed citizen should know about it.) Here in this place, I'll try to be brief.

Who was right? Blatantly, the Keynsian approach worked in the 1940s, when massive government spending on WWII resulted in a boom that ended the Great Depression. A boom that then continued for 30 years, till Vietnam crushed it against a wall. Throughout that period, high tax rates and stimulative spending seemed to work, whenever the economy needed a little help. Moreover, during that era, a very flat social structure - (CEOs earned only a few times what factory workers did) - combined with the most rapid growth of the middle class and the most vibrant era of startup capitalism in human history.

That does not make Keynsianism perfect! Critics like Friedrich Hayek, have indeed exposed some faults and blunders that later Keynsians, like Paul Krugman, openly admit and have striven to correct. Still, the Demand Side approach can point to many clearcut successes.

In particular, it is plain that during recessions, when economic activity lags and deflation looms, what you want is "high velocity" money in circulation - money that will pass from buyer to seller and then to another seller and so on. Not money that just sits.

We have been told about supply-side economics since Reagan. And, we have been told over and over that it works. Now, we find out that it has all been lies to continue deceiving the average person into handing their money over to the rich. People like to say, no - we are not going to have anyone feeding the gov't beast. The plain truth is that those deficits will have to be paid for sooner or later. It will either be taxes, inflation, or your currency becoming completely worthless when the government defaults. The rich will have long taken precautions with overseas investments, foreign real estate, and precious metals.Their tax dollars would have prevented more than half of the current deficit.

Does Supply Side have a similar track record? Not even remotely. Not even once. Simple charts - and hard conclusions from the Congressional Research Service - show that the Supply Side assertion was... and is... utter mythology. None of its predicted effects ever happened. And let me reiterate. Not ever, even once.
Specifically, cuts in tax rates for dividends and capital gains have never had any long-term effects upon capital investment, since records were kept in the United States. (See this cogent article putting the myth to rest, once and for all. Also my article: A Primer on Supply-Side vs. Demand-Side Economics.)

In fact, this is no surprise, for several reasons:

1) Supply Side assumes that the rich have a zillion other uses for their cash and thus have to be lured into investing it! Now ponder that nonsense statement. Roll it around and try to imagine it making a scintilla of sense! Try actually asking a very rich person. Once you have a few mansions and their contents and cars and boats and such, actually spending it all holds little attraction. Rather, the next step is using the extra to become even richer. Naturally, you invest it. Whatever the tax rates, you invest it, seeking maximum return.

Instead of enticing the rich to invest, these super low dividend and capital gains rates simply used money taxed from middle class wage earners to give bonuses for speculations wealthy folks were doing anyway. If anything, the only major effect, other than budget deficits, was a pumping up of asset value bubbles.

2) Now to be sure, some of the rich ... a few... put a fair amount of their wealth into truly bold and risky new enterprises. I know such men and women, who engage in Venture Capitalism or starting up creative new enterprises. And just so you know that I'm no socialist I believe this kind of investment truly should be encouraged by taxing it at a very low rate! Not only because of the risk, but also because equity shares that are bought de novo directly from a new firm actually deliver nearly all of that value directly into capitalization and company development.

In contrast, most exchanges through the NYSE or NASDAQ are purchases from other stock-owners who happen to disagree with you about prospects for future capital gains and dividends. It is just as much a betting/gambling system as any Vegas casino, Your trades may marginally raise or lower the posted price, allowing the company to raise a little capital on the side, but almost nothing from your stock transaction actually goes to the company itself, or into new products or plants and equipment.

(Hence, that kind of investing - by far the largest portion - helps industry only at appallingly low levels of efficiency, but diverts management into spending nearly all its time trying to bribe stockholders with short term benefits, ignoring long-term company health.)

No wonder Adam Smith himself expressed contempt for passive investments that he called "rents"... compared to investments in which the owner actually gets involved in starting up or entrepreneurial development of long term company or enterprise health.

This is the point held up so often by supply-side folks. They say that unless we reduce taxes on the rich that those rich people will not create jobs with all that wealth. This has been getting more discussion lately and I would favor reduced taxes on money spent to create jobs in the US. To just reduce the rates overall and let the wealthy do whatever they want with their tax savings i.e. saving it, spending it overseas, investing overseas, buying precious metals, etc. does not make any sense.

3) So what about "targeted investing"? The towering hypocrisy of supply side tax cuts for the rich is that they are claimed (without a scintilla of evidence) to help create jobs. But then, why treat investments overseas equally to those made in domestic companies? President Obama proposes narrowing the super-low rates to U.S. companies that are (a) startups, or (b) demonstrably adding jobs, or (c) investing directly in new equipment or R&D. For this he is derided for "picking winners and losers"... even though the list of targeted tax breaks for GOP-favored industries like coal and oil are myriad. (and outrageous.)

4) In fact, we spoke earlier about how stock and equities markets have lately become the tail wagging the dog. Instead of serving the capital needs of companies, firms like Mitt Romney's Bain Capital show that productive corporations making goods and services are now like cattle, farmed by Wall Street, to be bled or dissected at whim. Nor is the whim even human anymore! Most trades are now propelled by hyper-aggressive, parasitical "flash trading" computer programs that vastly amplify volatility, sap investor earning potential, and threaten our entire economic system in a dozen ways.

5) The reduction of dividend and capital gains tax rates almost to zero has coincided with the rapid ending of the relatively flat social structure that we inherited from the Greatest Generation of the 1950s and 1960s. Back then, the rich managers of major corporations earned only ten or twenty times what factory workers got, a situation that still exists in Japan. Only now, American wealth disparities are approaching levels not seen since the American Revolution.

The last thing that the GOP or Fox wants you to do is look across the last 6000 years. The class that they call "job creators" used to have another name. Lords.

6) The outrageous inherent unfairness of passive dividend-clipping getting far better tax treatment than earned wages is inherently suspect. It is exactly what you would expect rich and powerful men to lobby for, whether or not their supply side rationalizations were true! It should be no surprise that, in our money-drenched political system, those with such power and influence have benefited immensely.

But are the arguments and rationalizations valid at all? At minimum, supply-siders should bear some burden of proof. Their experiment has been run, now, for more than three decades, and never once has their core predication come true... that cutting taxes on the rich will result in increased overall revenues and a vanishing federal deficit.

Yes, reducing deficits would be good! Indeed, under Clinton they vanished. The middle class, according to all opinion polls at the time, wanted any surplus to go to buying down debt. It was the upper caste who used the surpluses as an excuse to demand immediate tax cuts. So where does maturity reside?

The results are utterly conclusive.

Supply side is disproved, top to bottom.

What we need in this depression - and by most of the metrics it has been a depression, not a recession* - what's needed is what ended the last one. The circulation of high velocity money that goes hand to hand very quickly, generating economic activity with every transaction. Not the exact opposite, money that sits in portfolios, not helping capitalize industry but simply fostering the aggrandizement of a parasitic caste. One the the founding father of free enterprise - Adam Smith himself - quite despised.

"All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as they could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons."

Smith is not talking about charity, but the vigor of trade. In this case, we "share" by buying from one another. The middle class is very good at that. It is the middle class that - assisted prodigiously by technology and science - propelled our economy to be the wonder of the world.

It is the middle class who should get whatever tax benefits can be doled out. They'll use it to make small startups. They'll use it to educate bright, competitive kids. They'll spend it!

They are the real "job creators."

I am looking forward to see how the supply-side defenders will come up with a defense for this analysis. It will most likely contain emotion, patriotism and folksy wisdom and not a shred of good analysis.

American Gridlock Part 2 - Why The “Left” And The “Right” Are Both Wrong

2012-02-07T08:25:00.000-08:00

In this part 2 article, Dr Brock goes further into the 2008 economic crisis that still grips the world today. He also attempts to craft win-win solutions that are not partisan politic driven. I have not read the book yet so my notes are based on the two teaser articles written so far.

Understanding game/bargaining theory and the noted background writing of Mordecai Kurz would help the interested person more fully comprehend what Dr Brock used to build his model. An excellent section to remember "But as Nash proved brilliantly, if you are a pacifist who wants peace, not war, then you had better articulate rational, credible, and enforceable threats up front. Or as the ancients said, “If you want peace, be prepared for war.” If you do not believe that extreme US risk aversion explains risk-averse US bargaining behavior with China, then the only other explanation is that successive administrations were stupid, incompetent, and oblivious to the most elementary realities of bargaining." because so many of us get tied to what we believe are moral positions when in reality those blind us to the most moral outcome. This is not an ends justifies the means argument. We must look at the totality of actions personally and as a nation and not be blinded by rhetoric and specific moral concepts separated from the whole fabric of our reality.

On to Dr Brock's book synopsis which should give you a very good idea of whether you want to spring for some $$ or if this gives you enough ideas for your own further self-education.

American Gridlock

Why The “Left” And The “Right” Are Both Wrong

Commonsense 101 Solutions to the Economic Crises

Part 2
Dr. Woody Brock
In this sequel to my essay on American Gridlock that appeared last week, I confront four final policy dilemmas confronting the US: (1)How can we prevent future Financial Perfect Storms of the kind that brought the world down in 2008? (2) How can we avoid bargaining with China as we have for several decades, ending up on the losing side of most negotiations despite possessing four times the “net power”of China, as measured correctly within the theory of games? That is, how can we earn an A rather than a D in Bargaining Theory 101? (3) Given today’s widespread discontent with “capitalism,” what kind of resource allocation system might be better? By what criteria can we legitimately rank systems such as communism versus socialism versus capitalism versus whatever? (4) Finally, what exactly do we mean when we speak of “fair shares”of income and wealth? What exactly does fair mean? What can be said to those concerned with the top 1% of the population owning a grossly disproportionate share of the nation’s wealth?
These four topics are discussed in my book American Gridlock in Chapters 4 through 6, respectively. As was the case of the policy proposals I introduced last week for redressing today’s Lost Decade and tomorrow’s Entitlements Spending crisis, my goal will be to deduce win-win solutions to these issues, solutions that are neither Left- nor Right-wing in nature. My most ambitious effort along these lines arises in topic 4, the thorny issue of the distribution of wealth. On the surface, this is a 100% partisan issue, with little common ground to unify the Left and the Right. I shall argue that this is not the case, as the issues that arise here are profound, and all I can do in this brief synopsis is to sketch the problems involved. A much more satisfactory discussion can be found in my new book, where detailed policy solutions to all four above questions are deduced.

Chapter 4: Preventing Future Financial “Perfect Storms”

“What is happening in the credit markets today is a huge blow to the Anglo-Saxon model of transactions-oriented financial capitalism. A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From “NINJA” subprime lending, to the placing and favorable rating of assets that turn out to be almost impossible to understand, value, or sell, these activities have been riddled with conflicts of interest and incompetence.

These events have called into question the workability of securitized lending, at least in its current form. The argument for this change—one that I admit I once accepted—was that it would shift the risk of term-transformation (borrowing short to lend long) out of the fragile banking system and onto the shoulders of those best able to bear it. What happened, instead, was the shifting of the risk on to the shoulders of those least able to understand it.”
—Martin Wolf, “Why the Credit Squeeze Is a Turning Point for the World,” Financial Times, December 11, 2007

Widely acknowledged as the dean of world financial commentators, Martin Wolf outdid himself in these prescient comments made during the early days of the global financial crisis of 2007–2010. Going deeper, Gretchen Morgenson’s book Reckless Engagement argued that a self-dealing network of politicians/lobbyists/regulators/bankers enriched themselves at the expense of the broader public. Greed on stilts! While Wolf, Morgenson, and many others are right in what they say, they fail to point out that much deeper forces were at work here—forces that would transform the US housing market collapse into a veritable Perfect Storm. These deeper forces were identified only 15 years ago by means of a completely new concept of market risk developed by Mordecai Kurz at Stanford University. Kurz’s new theory of “endogenous risk” (risk that bubbles up from inside an economic system) teaches us that, while greed, incompetence, and conflict of interest stressed certainly exacerbate Perfect Storms, they are not in fact necessary for the occurrence of such crises. Something bigger is going on.

The primary purpose of Chapter 4 is to explain how such storms arise, and to do so from first principles utilizing the paradigm introduced by Professor Kurz. His theory represents the particular form of “deductive logic” I utilize in this chapter to help resolve an otherwise intractable problem. Because this new theory permits an identification of the true causes of market risk, and does so at a deeper level than ever before, it makes possible two other important advances. First, it can help policy makers identify valid policies for preventing, or, at least, mitigating future financial market storms. That is, the field of risk management receives a boost. Without understanding exactly what causes Perfect Storms to arise, meaningful storm-prevention policies cannot be identified. This point is often overlooked as legislators vent their rage at“the system.”
Second, the field of risk assessment receives a boost. There are, of course, many perspectives on market risk, including the popular “fat tail” theories celebrated by Nassim Taleb in his delightful book The Black Swan. But these theories usually describe risk rather than explain it at a fundamental level. Once again, without an understanding of the factors that give rise to risk in the first place, how could risk be properly assessed? For reasons stressed by Taleb and others, it is simply not enough for “quants” to massage historical data in an effort to determine meaningful probabilities of future events. For the probabilities of future events such as market meltdowns that define future risk cannot be assessed without first assessing the probabilities of the underlying causes of such events.

One caveat is in order here at the outset. The global financial crisis of 2007–2010 consisted of two parts. In the first part, the mortgage banking crisis in the United States and the United Kingdom held center stage. In the second part, the crises in these two nations spread across the globe like wildfire immediately after Lehman Brothers was allowed to go under in September 2008. I shall focus on the first stage because this is where the greatest confusion reigns. I ignore the second stage because the causality here is well understood: The collapse of Lehman Brothers and AIG precipitated a panic-driven cessation of interbank lending among all major financial institutions. This in turn caused the crisis to go global, and to impact the Main Streets as well as the Wall Streets of the world.

The Four Origins of the 2008 Financial Crisis: Figure 1 offers a summary of the four principal sources of the Global Financial Crisis. The contents of the boxes should be intuitively clear, with the exception of the first box: Poor Economic Theory. This is at once the least understood, yet arguably, the most important issue, along with Excess Leverage appearing in the fourth box on the right. It turns out that the two are closely interrelated, since poor financial theory provided bogus justification for levels of leverage that proved catastrophic to the entire world.

Financial economics between 1960 and 1990 was dominated by a highly problematic economic theory. This theory is usually referred to as Efficient Market Theory. More technically, economists refer to it as the theory of“Rational Expectations.” A theory (whether in physics or economics) is problematic if it neither explains nor predicts real-world data and if, at a deeper level, its Basic Assumptions are indefensible. In the case of good theories, the reverse is true: the Basic Assumptions from which the theory is deduced are judged“eminently reasonable,” and the resulting theory has the power both to explain and predict real-world data. Additionally, a good theory must be“falsifiable” in Karl Popper’s sense.

In what follows, Kurz’s new theory will be a foil against which the deficiencies of classical financial theory will become crystal clear. For it is a good theory in the precise sense just articulated. In particular, whereas classical theory could only explain about 19% of stock market volatility between 1900 and 1980 when tested by Robert Shiller at Yale in his classic 1981 essay, Kurz’s new theory can explain some 90% of observed risk. This represents remarkable progress. Regrettably, his new theory has been set forth in articles that are very demanding mathematically, and for this reason, his work is not yet widely known. This is SOP in the history of science.

Root Problems With the Efficient Market Theory: In the case of finance, the Efficient Market Theory is a poor theory insofar as: (1) It posits as a basic assumption that participants in markets never make mistakes, properly defined; (2) It assumes that all risks can be hedged, as well as that hedges never melt down—a pair of assumptions which, when combined with the no-mistakes axiom, imply that leverage will rarely cause significant problems; (3) It assumes that everyone in a market knows how to correctly “price” the news once it is announced—there are no disagreements as to how to interpret news; (4) It predicts a level of volatility that is about one-fifth of what is observed in reality—with no Perfect Storm being possible; (5) It gave rise to the creation of new financial securities that did not perform as they were supposed to, and in fact became weapons of massive financial destruction; and (6) It implies that markets left to themselves will almost always function well, and will not break down.

As the following case study will show, poor financial theories—not just poor policies—can be very deleterious to the public welfare. They affect how we think, and thus how we regulate markets, or deregulate them, for that matter. As years go by, the Global Financial Crisis of 2008 should remind us of the extent to which bad thinking can lead to bad policies, as well as the extent to which bad policies really matter.

Superiority of the New Theory of “Endogenous Risk”: I believe that the new theory of endogenous risk developed at Stanford University is the appropriate antidote to the Efficient Market Theory, and the disaster which its models helped to foster. Like most good theories, the new theory does not reject the predecessor theory—Efficient Market Theory—but rather generalizes it. That is, it includes classical finance as a special case that will only work under idealized conditions that will rarely, if ever, be encountered in the real world. This was the case with Einstein’s general theory of relativity, which incorporated Newton’s theory of gravity as a limiting special case. Specifically, if and when space-time can be approximated as “flat,” not curved, then Newton’s laws work just fine, as they do in everyday life.

My job is now to explain the new theory, and convince you of its power. I shall demonstrate how it can explain the emergence of Perfect Storms—one form of those“fat-tailed” events that are usually described, but rarely explained from First Principles. Moreover, once the new theory is understood, the true deficiencies of classical Efficient Market Theory will become crystal clear. In particular, it will become clear how traditional financial theories have blinded policy makers, bankers, quants, and investors alike to the true magnitude of risk and, hence, the true likelihood of Perfect Storms.

Explaining Financial Perfect Storms Without Assuming Malfeasance: Can a Perfect Storm arise even if there are no greedy bankers, and no regulatory authorities beset by conflicts of interest—the conditions stressed by Martin Wolf in the opening citation above? The new theory of endogenous risk demonstrates that such crises can indeed arise without malfeasance. Of course, malfeasance will always exist, and its ancillary role is to amplify the story we are about to tell. But malfeasance turns out not to be a necessary condition for Perfect Storms.

Please consider Figure 2. You see here the conditions that lead to a Perfect Storm, even when greed and self-dealing play no role. The best way to make sense of the four factors in the four outer boxes is to understand how and why each is a violation of the strict (and wholly unrealistic) assumptions of the Efficient Market Theory reviewed above.

Precondition 1: The Right-Hand Oval—Correlated Mistakes:In the world of efficient markets, it is assumed that all agents learn from historical data the true probabilities of all future events and prices. Thus, all agents share the same probability forecast. Moreover, given the assumption that the random process generating historical data cannot change—so the past is a perfect predictor of the future—then all agents’ forecasts will be the correct forecast. Accordingly, the concept of “mistake” does not arise in classical finance, and in no finance textbook will you find this word. A mistake occurs when someone looks back and says: “Gosh, the world has changed (e.g., global warming occurs, OPEC arises, derivatives are invented), and the betting odds I calculated from historical data were wrong.” Given the reality of “structural changes” that often make historical data unreliable, investors end up with a plethora of different forecasts. Since at most one forecast will be correct, most everyone will end up wrong, to one degree or another. What a contrast this is to the calm of an efficient market world in which no one ever says “I was wrong,” or rushes to change his portfolio.

Once mistakes enter the picture, market risk is transformed, a point central to Kurz’s new theory of risk. More specifically, it turns out that what matters to market prices and volatility is not merely that people’s bets are wrong, but additionally how correlated their mistakes are. It is when most investors are wrong in the same direction that the greatest portfolio adjustments occur, and that prices change the most; for most everyone will either sell or buy, and the price swings accordingly. This is not the case when your bet ends up 15% high of reality, whereas mine is 15% low of reality. In this case, our mistakes cancel out, and prices do not move.

A classical example of a “correlated mistake” were bets on US house prices as late as 2006. Almost no one assigned high probability to the inconceivable 35% drop in house prices that transpired. The market response was fast and furious. Correlated beliefs of this kind are an important source of what Kurz calls “endogenous risk.”

Precondition 2: The Left-Hand Oval—Problematic Hedging: Life would be a lot less risky for almost all of us if we could perfectly hedge all the risks in our lives, the “complete hedging markets” assumption of classical financial theory. But as Professor Robert Shiller of Yale and others have shown, many of the most important risks in our lives cannot be hedged at all. These include the probability of unfairly being fired, the probability of having to sell a house when house prices are low rather than high, the probability of a good marriage remaining a good marriage and not ending in divorce, and the probability of stock prices being high versus low during the month we retire and seek to annuitize our wealth for a guaranteed lifetime income. The problem here is known within economic theory as the problem of“missing markets.”

You might suppose that non-hedgability of this kind has become much less of a problem than it used to be as instruments for improved risk-hedging become more available (e.g., many types of “derivative” securities). While there has been great progress along these lines in recent decades, it is well known in the economics community that many of the most important risks will never be able to be hedged due to problems of “moral hazards” and other related issues in economic theory.

In addition to the non-existence of hedges for smoothing out some of the bumpiest moments in our lives, there is the reality that hedges that do exist can melt down and malfunction just when they are most needed. Recall the terrifying U.S. market crash of October 1987, “Black Monday.” Also recall the collapse of the hedge fund Long-Term Capital in 1997. In both cases, distress was compounded and hence “risk” was greater when numerous hedges ceased to function. To conclude, problematic hedging is the second source of Financial Perfect Storms.

Precondition 3: The Lower Oval – Pricing Model Uncertainty: This condition is a bit more technical in nature. Have you ever been in a car with other impatient passengers, vainly trying to locate a destination on a roadmap when you cannot read the map? Confusion and mistakes result. The same idea arises in finance due to investors’ inability to read another kind of map. Do you recall from school the idea of a “function” F? For example, consider Y = F(X), expressing the concept that variable Y is a function F of some other variable X. Suppose X denotes “the news” in some market, and Y denotes market price. Then the function F transforms or “maps” this news X into price Y. In traditional finance and indeed economics as a whole, it was always assumed that, if investors knew the news, then they would know the price, or more correctly, the true probability of price that would result. That is, everyone knows and agrees on the function F. This is called Pricing Model Certainty.

Now let’s consider a different function Z = G(Y) where Z denotes the price of mortgage-backed securities—that class of weird, newfangled assets that melted down during the financial crisis of 2008. Let Y in this case represent the mortgage default rate on single-family houses. So this time, the function G specifies mortgage-backed security prices as a function of mortgage default rates Y.

Suppose, finally, that investors neither understand nor agree on the nature of the function G. More generally, assume that everyone knows that everyone else is uncertain about the true nature of G. Then, evenif everyone knows the truth about the default rate, they will not know the price of the associated securities. In my own research, I have called this Pricing Model Uncertainty. It can be proven mathematically that, the greater this type of uncertainty is, then the greater the volatility of the market will be. In the case of a bubble, the greater the magnitude and duration of the bubble will be. Likewise, when the bubble bursts, the greater the resulting crash will be. Price “overshoot” thus occurs in both directions.

The intuitive reasons why this is true are explained in American Gridlock. Recall that classical financial theory assumes that such Pricing Model Uncertainty does not exist at all. This is one reason why classical theory has trouble explaining market booms and busts, and why it underestimates risk in general.

The existence of Pricing Model Uncertainty in the recent Perfect Storm was implicitly acknowledged by Federal Reserve Chairman Ben Bernanke in a speech he gave at the Plaza Hotel in New York late in 2007. He apparently asked a large audience:“We know the mortgage default rate news, but can anyone in this room stand up and tell me what this stuff (mortgage-backed securities) is worth?”Martin Wolf expresses a similar view in his above comment when he points out that such assets were “almost impossible to understand, value, or sell.”
So this is our third precondition for a Perfect Financial Storm: maximal Pricing Model Uncertainty. It is important to note that the kind of risk being generated here encompasses short-term volatility as well as longer-term bubbles.

Precondition 4: The Topmost Box—Excess Leverage: The last requirement for a Perfect Storm is that the various parties involved be maximally leveraged, just as both banks and homeowners were in the years preceding the Global Financial Crisis. The intuitive reason for the role of this last precondition is pretty obvious. Just think of yourself having made a significant investment without any leverage. From the start, there is the risk that this investment will either increase your wealth or reduce it over time. Now, suppose that you make the same investment, but you leverage your position 1:1, that is, you borrow half and put the other half down in cash. Next, suppose that you as an individual have leveraged your house 15:1, and that your bank is leveraged 50:1.
When your bet on future price goes badly wrong, and so do the bets of most others (recall that the housing crash represented a correlated mistake of this kind), then all hell breaks out in this case. Excessive leverage amplifies the role of the correlated mistake, of non-hedgability, and of pricing model uncertainty, as depicted clearly in the figure. This amplification is the principal source of the Perfect Storm seen in the center of Figure 2. Combined, these four factors shown in the outer boxes generate “maximal endogenous risk,” or equivalently, the Perfect Storm seen in the center circle.

What Must Be Done to Prevent Future Perfect Storms: The new theory sketched just above implies a great deal about how to reform the financial system, and why. To begin with, let me cite a distinction familiar to any engineer or systems theorist. There are two kinds of variables in the theory of the control of dynamical systems: state variables and control variables.The former refer to “states of the world” over which people have little, if any, control. Think of waves breaking on the shoreline of a coastal community. Control variables, on the other hand, are variables that can be chosen by human beings to improve a situation. For example, the denizens of the shorelines can choose to construct a granite sea wall to prevent the waves from damaging their community.

From this standpoint, note that all of the variables appearing in Figure 2 with the exception of“Excess Leverage” are state variables. Mistakes are going to happen, and cannot be banished. Hedging markets will always be “incomplete,” and hedges will often break down in extreme market conditions. Pricing Model Uncertainty is a fact of life in virtually all asset classes, with the possible exception of government bonds—at least prior to 2011! We can complain about such problems, and wish them away. But they will not go away. The same is true of those “malfeasance”variables not shown in the figure. We may dislike stupidity in regulators, but we are most likely stuck with it.
As for “greed,” the idea that you can legally exorcise greed is as absurd to hoping to exorcise horniness among teenagers. People are no more greedy now than they were five thousand years ago. If you do not like this, go live on Mars.

But leverage offers a different story. It is a control variable as is designated by being“boxed,” as opposed to “circled” in the figure. Leverage used to be vigilantly controlled, prior to the advent of the Greenspan-Bernanke era with its extreme deregulatory ideology. The principal policy conclusion of Chapter 4 in American Gridlock is that leverage must be reduced in all asset markets, and managed counter-cyclically by a new“leverage Tsar” on an asset market by asset market basis. This responsibility should be separated from the Federal Reserve Board, where as is customary attention should focus on setting interest rates to maintain price stability and growth on Main Street. The notion that the Fed funds rate should—much less can—control prices both in the goods markets and in the asset markets is one of the more preposterous conceits of current monetary theory. If you doubt this statement, just calculate the negative correlation between goods prices and asset prices during recent decades.

Why am I so insistent that excess leverage is the principal culprit in generating Perfect Storms? This is because of the highly non-linear way in which such leverage amplifies market risk in the context of Figure 2, and thus, can give rise to Perfect Storms, even in the absence of malfeasance. Demonstrating this formally is extremely mathematical, and the underlying theory is new. But it is correct, as well as commonsensical. The good news is that leverage is a control variable—not a state variable—and hence can be regulated at will as it once was and should be. Who will be the losers, and will oppose this with all their might? Partners in firms whose incomes will fall from $100 million to a measly $10 million per year. Pity such players, many of whose wives will doubtless sue for divorce. Many other financial markets reforms are proposed in Chapter 4, but these can best be understood by reading the book.

Chapter 5: Bargaining Theory 101, And How Not to Negotiate With China

This chapter has two different missions. In Part I, I argue for a resurrection of the disciplines of political science and political theory—both being“updated” to incorporate the modern logic of game theory. Part II applies this new logic to a real-world case study: the bargaining game being played between the US and China. In the first part of the chapter, I argue that politics is becoming more important than economics, or in Aristotelian terms that Res Politica will trump Res Economica as the future unfolds. For example, what was traditionally a free market in many commodities will become an increasingly politicized system in which nations vie to obtain “resource permits” from China for access to the markets it increasingly controls. In another direction, remember how Putin turned off the supply of natural gas to the Ukraine for not playing ball, politically, with Russia.

Need for “Core Models”: For the moment, economics is the dominant discipline, certainly not political science. Over the past five decades, we have gained a very good understanding of many aspects of economics, largely because of the existence of the core model of supply/demand/price familiar from page 1 of Econ 101. How does political science compare? Miserably. It offers no corresponding core model and is a discipline held in low esteem. When it comes to political philosophy, the discipline that is, at present, most needed since governance everywhere is breaking down, students are referred to the stale work of Dead White Males (Rousseau, Hobbes, Aristotle, Mill, Locke, etc.) who lived ages ago.

Yet how ironic all this is. For the dismal state of political science can easily be remedied, as the “core model” that is so needed already exists, and could play precisely the role in political science that the Law of Supply and Demand plays in economics. This is the model of n-person multilateral bargaining developed jointly by John F. Nash Jr., John Harsanyi, and Reinhard Selten during the period of 1960 to 1975. All three shared the Nobel Memorial Prize in economics in 1994 for their creation of this and related landmarks in game theory. I had the honor of working closely with both Harsanyi and Selten in my formative years, and am thus privileged to know this work intimately.

As I show in American Gridlock, their path-breaking bargaining model can be summarized in a few simple diagrams setting forth the basic logic of who gets how much of the pie in the political process of multilateral bargaining, and why. In a political science textbook of the kind I hope to see written, these graphs would be the political counterpart of those elementary supply/demand/price graphs appearing in Chapter 1 of Microeconomics 101 texts. The only difference is that the subject matter of the political graphs is far more embracing than those of “perfectly competitive markets,” and far more relevant to today’s increasingly politicized world.

Meaning of “Relative Power”: In my book, I describe their model, demonstrate how it works, and show how it gave rise to the first quantitative index of Relative Power, arrived at deductively (with no data) by John Harsanyi in 1962. We learned from Harsanyi’s work that relative power represents the weighted-sum of five different dimensions of relative bargaining power in any n-person cooperative game. More specifically, a player is more powerful than other players to the extent that:
1. Resource Power: He has greater resources than other players (money, military prowess, athletic prowess, intellectual capabilities).
2. Threat Power: He has greater threat power than other players as defined earlier. [John Nash brilliantly solved the problem of measuring “relative threat power” back in 1953. He showed that my relative threat power against you is a function of (i) how much my optimal threat can hurt you, net of the cost to myself of doing so, versus (ii) how much your optimal threat can hurt me, net of the cost to yourself of doing so. He proved formally that, in any two-person game, there will be a unique pair of optimal threat strategies, one for each of us.
3. Worth-to-Coalitions: He contributes more “worth” to the coalitions that he joins (e.g., an MVP has more power than other players because he contributes the most to his team).
4. Coalitional Muscle: He joins coalitions that are more powerful in opposing other coalitions than are the coalitions that other players join—that is, he has greater“coalitional muscle.”
5. Risk Tolerance: He has greater tolerance for risk in pressing his demands during bargaining than other players have, or equivalently, he has less “fear of ruin,” as game theorists put it.
Harsanyi formulated a power index measuring the relative power of different players in a manner that captures all five of these strategic dimensions of power.

The second part of Chapter 5 is quite different from the first. It is a case study analyzing the bargaining behavior of the US versus China during the past thirty years. I show informally that in the case of dimensions 1–4 of relative power just listed, the US was far more powerful than China, even if its relative power is now shrinking along some dimensions. The problem lies with dimension 5, the relative risk aversion of the two superpowers.

Given Harsanyi’s theory, there is only one “rational” explanation for the supine behavior of the US, and for its poor bargaining performance given its superior strength in dimensions 1–4: The US was risk averse in the extreme (the 5^th dimension), and was never willing to take the risk of standing up to China. The evidence suggests that this was indeed the case. Along these lines, I reveal the dirty little secret that the yuan/dollar exchange rate today is nearly 50% lower than it was in 1991. Economic theory says that this exchange rate should have appreciated by about 300% during the past 22 years—not depreciated by nearly 50%. This is currency manipulation in the extreme. During a comparable period of 1971 and 1991, the Japanese were strongly criticized for currency manipulation, yet their exchange rate more than doubled against the dollar.

How could we have let China join the World Trade Organization without demanding remedies for such egregious currency misalignment, not to mention intellectual property theft of a magnitude never before witnessed? The interests of millions of American workers were sold down the river by successive administrations who seemed to view Nash’s concept of “optimal threats” as politically incorrect in the extreme. Can you imagine Secretary of State Clinton (whom I admire) ever issuing credible threats? This would be a contradiction in terms. But as Nash proved brilliantly, if you are a pacifist who wants peace, not war, then you had better articulate rational, credible, and enforceable threats up front. Or as the ancients said, “If you want peace, be prepared for war.”
If you do not believe that extreme US risk aversion explains risk-averse US bargaining behavior with China, then the only other explanation is that successive administrations were stupid, incompetent, and oblivious to the most elementary realities of bargaining. Bluntly, they were repeatedly and unnecessarily duped. At the end of Chapter 5 in the book, I propose several ways in which the US can regain the upper hand in its negotiations with China.

Chapter 6: Beyond Democratic Capitalism: An Idealized Policital Economy, Including Distributive Justice

The last chapter is the most profound and, I believe, the most interesting in American Gridlock. Due to limitations of length, the most I can do is to sketch the issues addressed, and refer you to the text for a more satisfactory discussion.

I start off explaining why true capitalism properly understood represents one of the great institutional innovations and successes of history. As the eminent New York Times journalist David Leonhardt wrote in his economics column published on July 27, 2011: Economic truths may not rise to the level of certainty of two plus two equals four, but they are not so different from the knowledge that the earth is round, or that smoking causes cancer. When it comes to economics, we know that a market economy with a significant government role is the only proven model of success. The United States has outgrown Europe because of our greater comfort with market forces. . . . On the other hand, unencumbered market forces often lead to disaster, as 1929 and 2008 made clear.

The Meaning of True Capitalism, and the Concept of the Public Good: But what exactly is Leonhardt claiming here? What are the various economic, institutional, and governmental preconditions for successful capitalism? What are the precise circumstances under which Adam Smith’s concept of the “invisible hand” really does work as advertised? And under what other circumstances will it fail? As we review these circumstances, we will see that true capitalism does not represent some libertarian alternative to a system with a strong government. For strong and good government has been presupposed by capitalist theory from the time of Adam Smith, a point many self-styled conservatives seem to have forgotten. Additionally, the role of “perfect competition” that is central to Adam Smith’s concept of capitalism is all too often overlooked in today’s debates about the status of capitalism. Do the Occupiers of Wall Street understand that, according to “pure” capitalist theory, firms like Goldman Sachs would not be allowed to exist? Do they know that K Street in Washington would be closed? These are theorems, not opinions.
This section of the chapter culminates in a definition of the “public good” as set forth in classical economics. This concept makes clear what the market and the government should each do to maximize the public good, or in economics jargon, to achieve an efficient allocation of private and public resources. This ideal provides a yardstick for measuring how far today’s“bastardized capitalism” falls short of the way things should be.

Beyond Capitalism – Idealized Social Systems: The second section of the chapter builds on the classical results of the first, but delves much deeper. It investigates the concept of idealized social systems. More specifically, we investigate those properties above and beyond economic efficiency that might characterize an ideal economic resource allocation system. For example, do not most of us value the properties of freedom, distributional justice, informational efficiency, system stability, and privacy—along with classical efficiency? Drawing upon the brilliant work of another former teacher of mine, the late Nobel laureate Leonid Hurwicz, I explain how “snow-white capitalism” alone is consistent with all these norms, norms to which any of us would subscribe. [By snow-white capitalism, I mean the perfectly competitive free market backed up by the rule of law.] Hurwicz proved this from First Principles, and he also demonstrated how virtually any other resource allocation system (including communism and central planning) will not be compatible with these appealing norms.

Confronting “Distributive Justice”Head-On: The chapter then shifts to the polarizing issue of justice, and, in particular, the subject of Distributive Justice, which concerns the optimal distribution of wealth and income. My principal goal is to show how the issue of redistribution of wealth is not “outside” of free market economics, as is widely and erroneously believed, but is in fact integral to it. In particular, I demonstrate how a belief in the principles of true capitalism logically requires a belief in redistribution. This remarkable (and little known) result stems from combining the concept of “economic efficiency” on the one hand with an appreciation of the role of luck in wealth creation on the other.

This finding will make many self-styled conservatives and anti-redistributionists do a double-take! More generally, it renders the familiar Left- versus Right-wing divide on redistribution highly problematic. Bluntly, if you believe in market efficiency, then you must believe in a large dose of redistribution from the lucky to the unlucky. This is not an opinion. Rather, it is a theorem proven by Kenneth Arrow, of Stanford University, yet another Nobel laureate and, arguably, the most important economic theorist alive.

Morally-Based Theories of Distributive Justice:Arrow’s theorem just cited established a new link between the economic norm of“efficiency” and Distributive Justice. It does not, however, tread on the turf of political philosophers concerned with moral arguments for redistribution from the rich to the poor. The traditional prejudice here is that, because people possess what economists call“diminishing marginal utility of wealth and income,” then the poor ought to be taxed at a lower rate than the rich. The reasoning here is completely different from (but supportive of) Arrow’s results on redistribution implied by economic efficiency. It is reasoning relying on the concept of the relative “neediness”for income by the poor versus the rich.

The Left/Right Divide Over Redistribution:Moral philosophers have traditionally taken the side of the Left in interpreting Distributive Justice as a case for higher taxes on the rich, due to the greater relative neediness of the poor. In doing so, they have ignored a completely different dimension of the “fair shares” problem, namely “To Each According to his Relative Contribution.” No concept of “To Each According to his Relative Needs” can overcome the reality that, if you are the MVP of a team, then you should walk away with a larger share of the earnings than less valuable players. If this were not the case, then you would quit the team, and your teammates would soon be out of work. Certainly this outcome would not be“fair”!

At Last – Integration of Both Needs Justice and Contribution Justice: The challenge for moral theory, then, is to create a theory which integrates both Needs-Justice and Contribution-Justice, each norm operative in its appropriate domain. I created and published a theory achieving precisely this integration upon completing my doctoral work at Princeton. This theory is described at the end of Chapter 6, and has been deemed the highpoint of the book. What matters for my purpose in this book is how this achievement further narrows the divide between the Right and Left: For whereas the Left has always focused on Relative Neediness, and the Right on Relative Contribution, it turns out that both concepts of fair shares must and can be successfully integrated within a single theory of the state. Once again in this book, we learn how to transcend Left/Right gridlock, even in this most controversial of all topics: Who really owes how much to whom, and why? This reaffirms my optimism that win-win solutions to our most difficult challenges are possible, and I hope it will render you more optimistic too.

When you read the chapter, you will learn how to measure the “relative contribution” and“relative neediness” of different agents in any situation, and you will learn that there is only one acceptable way to do so in both cases. Both measures were discovered by deductions from First Principles. I hope readers will come away from this discussion astonished by the recent progress that has been made in utilizing game theory to clarify age-old ethical concepts long that have long been recognized as important, but that were previously murky and non-quantifiable.

This wraps up the present two-part synopsis of American Gridlock, now available on Amazon or wherever books and ebooks are sold.

ERROR: I apologize for my stupid arithmetic mistake in last week’s essay where I said
7 x $12 = $94, rather than $84. Too much bad wine!

H. Woody Brock, Ph.D.
New York City, NY
Woody@sedinc.com
www.AmericanGridlock.com
www.SEDinc.com

Here is the amazon link. When I wrote this post, 4 people had reviewed it on Amazon with all giving it 5 stars thus they are probably students or friends of Dr. Brock. That aside, this book deserves serious consideration by policy makers to create an economic system in the US that would not melt down again.

Societal IQ and Leadership

2012-02-05T20:54:00.000-08:00

This post is based on the musings in a Bruce Charlton post regarding IQ and leadership in different societies. First consider IQ scores by country. Then look at a map of IQ score averages.

First Charlton supposes what is the probable level of IQ needed for leadership. His reasoning is logical.

Suppose that the threshold IQ for effective leadership is about 105 (roughly the top one third of the population of England, when IQ is normed at 100 average and with a standard deviation of 15). In other words, by IQ 105 I mean a level of general intelligence (as measurable by capacity for abstract and systematic thinking, ease of memorising, swiftness of calculation etc.) which is somewhat but not much above average for European natives. (This is roughly the IQ of an effective foreman, police or Army Sergeant, or a master craftsman - somebody with potentially high technical skills, good practical reason and tactical nous.) I am suggesting that IQ 105 is the threshold for 'intellectuals' in a global and historical context - for those who take leadership roles in social domains requiring cognitive expertise (most obviously priests, sorcerers, sacred kings, law makers and judges, in military societies those roles where 'generalship' is required and so on).

So, if you think back now to the IQ map and look at Africa, parts of South, Central and Latin America you would start to think there is no way those countries have enough leaders to function. Yet, some of those countries seem to be getting along (Brazil with a 87) while others not-so-well (Haiti with a 67). Yes, that is a 20 point difference and probably correlates well with Charlton's next point.

Therefore: In a population with an average IQ of 70 or less, there would be (functionally) zero individuals capable of intellectual leadership. Therefore it would be intellectually egalitarian. In a population with an average IQ of about 80, there would either be just a few percent or less of the population as an intellectual leadership - therefore at most specific individual leaders (and not an intellectual leadership class). In a population with an IQ of about 90, there would be an intellectual elite of leaders (more than just a few percent, something around 10 percent of the population). It would probably be ruled by an upper class or caste. In a population with an IQ of about 100 plus, there would be around a third of the population above 105 IQ, and therefore potential leaders - this would be a middle class society, tending toward some version of 'democracy' or majority (skilled class) rule (eg rule by organised skilled workers, crafts, guilds, unions etc). * Summary: Average IQ 70 or less (two and one third SD below IQ 105) - zero/ very small proportion of individuals are intellectuals, therefore no significant social role for cognitive specialists. Average IQ around 80 (one and two thirds SD below 105) - a few percent of intellectuals, therefore individual intellectual leadership. Average IQ around 90 (one SD below 105) - an elite of intellectuals. Average IQ around 100 (one third of an SD below 105) - a mass-minority middle class of intellectuals. * The general point is that the proportion of 'intellectuals' in a society (when 'intellectual is defined as above) is likely to be a strong influence on the general type of society, and the diffusion and nature of power in that society.

From this we can see (based on limited data correlation), that a society most likely needs an average IQ of about 90 to have a good chance in the modern world. On the other hand, a high average IQ does not necessarily guarantee success. Look at Italy, for example, which has an average IQ of 102 but seems to forever have political and economic turmoil. Why?

There are things which a society with a given IQ distribution can and cannot do - higher average IQ brings new capabilities and powers, but also new pitfalls and problems - since being an abstracting and systemising intellectual is a disposition which entails that life will be framed in abstract and systematic fashion. Hence the societies with an average IQ around 100 must expend tremendous resources on internal propaganda, to maintain cohesion of the abstract world of the large minority of intellectuals - such that much intellectual activity is merely keeping intellectuals in order, and not contributing to social well being... * This is NOT a prediction relating to monarchy, oligarchy and democracy - rather relating to whether power is individual (e.g. Big Man), minority elite (Priesthood), or minority class (a large minority of multi-specialized intellectual/ skill specialists). * This set of assumptions is consistent with my impression that the societies which have the most cohesive and obvious intellectual elites are mid-range IQ societies - despite that these intellectual elites are less intellectual than the intelligentsia of high IQ societies. Indeed the intelligentsia of high IQ societies (those c. ten percent of the population with an IQ greater than 120) are a different thing altogether from the intellectual elites of the mid-range societies which constitute much of the current and recent world populations; and quite possibly are not a sustainable leadership class. It is possible that things work better over the long term when there are only a handful percent of 120 IQ intelligentsia - not enough to form an elite, but enough to provide specialist expertise and advice, operating as one-off gifted individuals not as an interest group. *** The 'smart fraction' theory suggests that there is a threshold IQ around 108 http://lagriffedulion.f2s.com/sft.htm The argument here and in the above paper is different' but 108 is anyway so close to 105 that the two values cannot reliably be distinguished in individuals and small groups.)

Maybe, once there becomes a larger percentage of the population at the 105 level or greater, you actually run into problems. As Charlton stated, (not his exact words) a greater amount of resources must necessarily be spent on propaganda to keep the intelligentsia placated and confused. Maybe that explains what happens in some Western societies. Asian societies are on the ascendance though to me they are being very careful not to tip their hand and make western countries feel inferior. They know that this will be detrimental to them in the short-term for sure. Long-term, it is probably inevitable that they will take a ruling role if demographics don't do them in (China's 1 child rule for example causing an ever aging population).

The next group I wonder about is the middle-eastern countries whose societies are controlled by their religion to a large extent. Iraq comes in at a 87 and then Iran, Afghanistan, Jordan, Pakistan and UAE at 84 with Lybia and Syria at 83. Those countries are just at the level where there is an emerging intelligentsia capable of discerning the proper direction of the country irregardless of religion. They must be encouraged and not beaten. Forcing the smart ones in those countries into a corner will not be in the long-term interests of the western world. Pakistan, for instance, already has "the bomb" and helping that country maintain stability is in the world's interest. The western world must intelligently appeal to the silent middle-eastern intelligentsia - not too hard for a smart person to imagine.

There are many ways to look at and interpret this data. I have made just a few suppositions and discussion lines pertinent to current thinking in the group I discuss world events with. What do you think?

Super Bowl 2012: Everything You Need to Know About Watching It Online

2012-02-04T10:45:00.000-08:00

Since I don't have cable I usually go out to a restaurant or bar to watch the Super Bowl. Hopefully, NBC's website will not crash or slow down to a crawl. Link to this post....
Super Bowl 2012: Everything You Need to Know About Watching It Online

American Gridlock

2012-01-31T09:29:00.000-08:00

The following is an article from the John Maudlin website on the current political and economic deadlock in the US specifically, but, that is gripping most of the western world. It is most likely too much for most people to think about since it will take longer than 5 minutes to read and digest.

The comments on Maudlin's website are interesting as well. With a couple exceptions, the comments posted so far about the article display the very gridlock gripping our country that the book attempts to find a way through. Are the entrenched thought patterns most people have so comfortable that trying something new on for just a few minutes becomes painful enough that they must lash out emotionally?

Personally, I found the discussion about inductive and deductive reasoning very interesting. After working 30+ years in manufacturing plants mostly at an engineering and management level, i saw the problems of using data to solve problems. Over and over, in lengthy meetings, people would show the data that supported their predetermined judgements. Alternative ideas and data were attacked in whatever way proved expedient and the truth was rarely the goal. Even 6 sigma principles were twisted to provide the conclusions already made before any study was undertaken.

Yes, the healthcare piece in the article was short on specifics and did not provide any kind of convincing case for how best to solve this dilemma. On the other hand, did I expect a complex issue such as this to be solved in a few hundred words? No.

I thought the discussion about terminating the dialogue of the deaf the best part. Hopefully this index will be brought to fruition and published regularly so we the voters have a tool to evaluate our representatives and encourage those who really want to solve problems to run for office.

American Gridlock (via JohnMauldin.com)

Tai Chi - A Personal Breakthrough

2012-01-25T16:24:00.000-08:00

This is my first published article. Check it out...... http://imos-journal.net/?p=4664 It is really aimed at experienced Tai Chi students and someone who has never studied Tai Chi might not take away much. Maybe the real point is perseverance, which can be important to anyone.

Tai Chi: A Personal Breakthrough

By Michael Sojka | Mt. Shasta
After eighteen years of struggle, practice, stopping practice for a month or two, and some outward success with my Tai Chi, this fall brought a breakthrough. One morning, not initially more unusual than other daybreaks, there was a formidable sensation of energy coming from the thigh area and being directed by the waist and flowing into my arms. The feeling of power and control was initially mind-boggling. It was so beyond anything previously experienced I was in awe of what was happening. I just kept doing set after set and used the energy to answer questions of how a move should correctly be done. The energy was so real my mind’s eye could clearly picture it flowing from place to place in the body. By the afternoon of this day, I started to look for answers in my many Tai Chi and Qigong books. Was this chi? There were no descriptions that really fit so what does a 21^st century person do? They google a description of their feeling and see what comes up.
Right at the top of the search results was an article by William C.C. Chen about the vastus medialis^{(Chen 2010)} initiating moves. Really? I started reading and rereading the article and the similarities of his description to my experience were startling. Getting some kind of confirmation was reassuring so I went back to my experimenting. Bagua seemed to ground this energy out in a way – at least the way I do it which is very much as a beginner. My Bagua practice only started about a year ago and I have not been very serious about it until the last 2 – 3 months.
Even though during Bagua, the power and energy seemed to almost be blocked, I could do another set of Tai Chi and it was back. Then preserving this new feeling became very important so I started doing some Qigong thinking this would help preserve the energy flow and not let me burnout. So far – so good!
The next day I woke up and went out to the living room to do another set and this incredible feeling was still there just as powerful as the day before. I continued to use this time to refine moves that had vexed me in the past. My sense was that it was important not to let myself get carried away by euphoria, emotions of joy, or feelings of personal power so I was very careful to monitor those types of feelings and thoughts and not let them hold sway.
The third morning I started to do the set and felt like a dead battery. The distinct body feelings and sensations were completely gone and I was back to feeling like a Tai Chi novice. But, was I really the same person as the one before the experience?

So, now what?

I tried doing Qigong and Bagua and more sets. After a few days it seemed prudent to try and recharge by doing other exercises and backing off a bit on the Tai Chi. I consulted my Tai Chi teacher. But, no matter what, the direct feeling of power and chi (?) flow were gone, or, were they?
What I started to realize was that in spite of the fact the “experience” was over, there were some lasting changes. There was a real sense of whether my feet were rooted or not and that started to become very important in my practice. And, my arm movements and kicks really were directed by an energy emanating from the waist and vastus medialis, though not the immediate and conscious feeling of the chi moving like during my awakening. There was a more indirect and still somewhat magical feeling in many of the moves that my arms and legs were being moved by the waist. The ability to pump energy from the vastus medialis has not returned.

What is Tai Chi to me?

Up until recently, I looked at Tai Chi as a way to keep my body flexible. My lower back has also improved to the point that routine chiropractor visits have been eliminated. Martial arts have always fascinated me and the history and lore of Tai Chi can be an interesting read.
After discovering the feeling of the waist almost magically moving my arms, Tai Chi has taken on a different meaning to me. Waist turn moves the arms! I heard my teachers say this so many times. And, I would turn my waist first and then move my arms – but, I was still consciously moving my arms using arm and shoulder muscles. All of sudden my arms seemed to moving without any use of a muscle and feel like they are floating into the moves.
This new experience of moving the body has created a completely new way of experiencing the set. I am only writing this article now to encourage others who maybe like me have practiced their set for years and maybe videotaped themselves one day and thought that they might as well quit.
I am glad I did not give up, but really have no idea what kept me to persist for 18 years when progress seemed so slow. And, the few times I videotaped myself, the creature that was woodenly performing the set was so unlike the picture in my head, it was almost heart-breaking and a couple times did cause me to seriously contemplate quitting.
In retrospect, what might have been the keys to moving past a plateau?

Getting teacher feedback about how much tension there was in my shoulders and starting to sense that and getting them to relax sometimes.
Using video of myself. Warning! This could cause you to quit Tai Chi – it happened to me before.
Sensing certain clicks and pops indicating muscles remaining tense through certain movements. Stork Spreads Wings seems to give me good feedback about my neck – the levator scapulae in particular along with the intersection point with the trapezius.
Bagua strengthened my waist and my awareness of the waist. This position forces awareness of the latissimus dorsi, requires your waist to be turned completely in one direction or the other, and strengthens the muscles used in waist turning. I am just a beginner and have only a rudimentary knowledge and understanding of the moves. However, even that has made a tremendous difference.
Doing three Tai Chi sets per day along with practicing the Bagua Sun Style moves that I could remember.
The 2011 Tai Chi School Summer camp on Orcas Island helped break through some mental blocks about my practice and self-image. I was stuck on many levels and the camp inspired me to practice more which starting right after camp I did.
Good physical conditioning. I am 57 now and am fairly active physically working part-time as a bicycle tour guide, recently completing the P90X exercise series, and doing self-supported cycle touring with my most recent tour spending a month touring Vancouver Island, the San Juan Islands and the Oregon Coast camping most of the time.

What is happening now?

Now, I feel like a beginner again because only now do I understand a little of what Tai Chi is about. Until a couple months ago, I did not understand what chi was and still am not 100% sure, though that energy surging from my vastus medialis fits most of the classical descriptions of chi.
When I turn the waist all the way to the right or left, I feel a slight pinch in the external abdominal oblique. After feeling that compression/pinch and relaxing the waist and the body, the arms and legs seemingly move by themselves. The explanation is that the latissimus dorsi connects to this muscle and the arm thus moving the arm. The psoas and linguinal ligament connect here as well and that moves the leg. So, this simple twisting of the waist and then relaxing it along with having relaxed shoulders allows the feeling and experience of the waist truly moving the arms and legs. The experience has now given me the ability to sometimes see it in play by other people. That has taken my learning to another level as well.
Now, I am questioning how much I should crank/twist the waist, if at all, on certain moves. I get quicker feedback on problematic areas like tensing my shoulders. If they are tense, my arms don’t move very much now. If my hip area of the unsubstantial leg is tense, the leg does not move properly.
When moves execute properly, it is a very positive experience. I am motivated to practice more and understand now how the camp leader was saying this summer that he is profoundly moved and pleased to do the set every time. I am finding the new awareness creates a more positive framework for doing a set. Maybe an analogy is, like playing keyboards, I was practicing the scales for so long, and now am actually making music.

Gratitude

The experience has given me a new appreciation of the teachers I have had. This feeling of movement now seems simple yet was completely hidden until recently. My different teachers have been trying to convey this all along.
Maybe this article will help those on the brink of discovering this feeling and inspire those thinking of giving up on their practice. I am in complete gratitude to all my teachers for their patience and ability to convey information in a myriad of formats to help me “get it”. I am thankful to The Tao.

Bibliography

Chen, William C. C. “The Vastus Medialis and Inner Thigh.” www.williamccchen.com. March 29, 2010. http://www.williamccchen.com/Vastus%20Medialis.htm (accessed November 15, 2011).

Michael Sojka has studied Yang Style Long Form for 18 years, first from Patrick Dickson, and recently with Dr. Malcolm Lewis. Mr. Dickson, who traces his lineage through Dong Kai Ying and Dong Yingjie incorporated push hands, chin na and martial applications while Dr. Lewis, who studies with T.Y. Pang (Master Pang was a student of Dong Yingjie) focuses more on the health aspects of the set. In the last year he began learning the Sun Style Bagua from Bebe Lewis. Over the years he has also studied the Dong Fast Set, the Chen Short Form, and the Yang Sabre Short Form.

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© 2012, IMOS Journal. All rights reserved. Please contact the author directly for permission to re-use this material in any other medium or location.

Best of 2011 List

2011-12-31T11:37:00.000-08:00

Best of 2011

The items below were not necessarily new in 2011 but were what I discovered this year and came to mind first when doing this list.

Best Movie (theatre) – Deathly Hallows Part II. I thought the movie was well-done and was glad the Harry Potter series came to an end. I was tired of it but also enjoyed the sense of completion.

Best Movie (DVD) – Neil Gaiman’s Neverwhere series.

Best Book – Keith Richards autobiography. He really laid it all out there without making himself come across like some elite guy better than the rest of us. Interesting story of human failure and success on personal and work levels.

Best personal breakthrough – my Tai Chi experienced a big breakthrough for a couple days.

Best new recipe – wrote my own recipe for sweet potato risotto

Best Meal – lamb chops stuffed with goat cheese and figs at the Sea Ranch restaurant

Best bike ride – Kings Ridge ride starting in Occidental and ending at Sea Ranch. Spectacular views, great weather, and I felt strong.

Best ski run – big powder day on the back side of Snowbird skiing with my son.

Best cup of coffee – my first cup of Philz coffee from the Palo Alto store. Loved the way they stirred in the warm milk.

Best trip – even though I do not like Florida that much it was wonderful seeing my in-laws, brother, sister, dad, stepmom and old friends Robert and Rachel.

Best memory – Watching the Meme Proposal short vid and remembering I proposed to my wife on Christmas Day so many years ago.

Best community experience – the Land Trust Garden Share celebration

Best work experience – getting the PayPal system completed for the Siskiyou Land Trust so donations can be accepted online and the funds can be transferred to the local bank without delay. I still cannot call my bike tour guide job "work".

Best joyful moment – rowing my cataraft through Blossom Bar on the Rogue River the first time. An indescribable rush and a peak life experience.

Best mountain bike ride – riding the new trail in Mount Shasta just completed a month or so ago.

Best car ride – driving to Salt Lake City from Mount Shasta to go skiing at Snowbird

Best day – riding my bicycle from Jedidiah Smith Park to Happy Camp. This day had everything - unknown roads, feeling lost, many helpful strangers, hard decisions, camping, motel, incredible views of the Smith River, O'Brien, headwinds, long climb, long descent, bonking, gorging, heat, and a restful sleep.

Best surprise – being continually amazed by the warmth, friendship and good vibes of the warmshowers.org people that showed up at my house or that I visited on my bike trip

Best concert – Stephen Stills at the Catalyst in Santa Cruz

Best run – chasing after clients on a bike tour in my vibram 5 toes

Best song – Abandoned Garden which is Michael Franks tribute to Jobim. Not new in 2011 but new for me and the most haunting song of the year.

Best music album – Thievery Corporation’s Richest Man in Babylon

Best new toy – have used the chinup bars we bought probably more than anything else but the Coomba Powder skies were/are pretty awesome for backcountry and resort powder skiing.

Best new food – Orach with kohlrabi a sold second place.

Best Wine - while probably not the best I had, the most memorable is the 2009 Alpen Cellar Lemberger Blaufrankisch we bought for $8.99 per bottle. An easy drinking red that goes with any food or all by itself. They sold it out quickly and I wish we had bought a couple cases now instead just 6 bottles.

Best Beer - the Dead Guy Ale at Rogue River Brewery

Best Drink - Corpse Reviver at The Spoonbar in Healdsburg. Introduced me to Saint Germain liqueur which has become a staple of many drinks in the house.

Best Spirits - Zaya Rum which was introduced to me by someone I stayed with in Victoria BC this summer.

Self-Mutilation is Evil

2011-12-28T22:10:00.000-08:00

Bruce Charlton posted this over on his blog. The title is Deliberate self-mutilation is an evil. At first the message seemed self-righteous and I was prepared to dismiss it, but, the more I thought about how I really felt, the more I agreed.

All forms of tatoo, piercing, plastic surgery, etc have always seemed inherently wrong to me. I could not articulate the reason and never really had a reason to think deeply about it until now. Here is part of Charlton's article.

If someone was to spray-paint Durham Cathedral with graffiti, or slash all the best paintings in the National Portrait Gallery, or blast a Vuvuzela during the climax of a great operatic performance - we would (or, at least ought to) recognize these as evil acts in their varying degrees; as destructive the Good.

We should not be distracted because deliberately wrecking Great Art, deliberately marring beauty, is somehow 'not as bad' as torturing or killing - wrecking Great Art is bad: that is the point.

*

The same applies to the human face and body - deliberately to mutilate the human face and body is bad, is destructive of Good, is evil.

It is an act of desecration - a vandalism of sanctity.

And this is an objective fact - not a matter of opinion.

What he writes here makes sense to me. The act does seem wrong and like a desecration yet I know people who see their tatoo as something of beauty. I do not know how to reconcile that in my mind. I just know that unless the activity was to restore the body to its original state, for example, reconstructive surgery after an accident, that it just feels wrong to engage in deliberate self-mutilation. More reasons from Charlton on why it is wrong and evil.

(As we all covertly recognize: our very viscera inform us of the fact.)

*

Even worse when the mutilation is permanent, scarring, cannot be undone.

Even worse when the mutilation is proudly advertized - so that others may be exposed to the act of evil; challenged to accept it, encouraged to emulate it.

*

Even worse when mutilation is normalized - brought into desirable situations in art, TV, movies, drama, news - into cultural institutions; into situations where the mutilation is accepted - perhaps after a struggle, or in face of ignorant hostility and prejudice - or simply made part of the background, assimilated unconsciously.

This is propaganda for evil - and far worse than oneself sinning (sin is inevitable in fallen Men; but the propagation - by favorable association, advertisement, by normalization - of sin is a voluntary act of strategic evil).

*

Evil cannot be undone, but it can be repented.

However, only at the cost of Pride.

Advertizing, normalizing, boasting of sin is a highly regarded activity in the modern world - by contrast it is regarded as evil to point-out sin, to reject sin, to say that a sin is bad and should elicit shame rather than admiration - because to do so is hurtful - humiliating, even.

But repenting evil hurts, it ought to hurt - it reduces one's self-esteem and status among others to say 'I made a mistake, I did a bad thing'.

He is right that repenting hurts. Is that the reason people stick with wrong acts because to acknowledge the wrong hurts too much? Is it too hard to admit I was wrong and easier to stay wrong? This could be applied to other actions we take. Do I find it easier to defend a previous wrong or evil act than to admit I was wrong to begin with and repent?

A Modern Christmas Story

2011-12-23T21:33:00.000-08:00

This video caught me off guard and completely disarmed me. So, I was suspicious and did a little research and from what information is available apparently it is for real and not done by actors.

The guy is Timothy Tiah Ewe Tiam, the co-founder of an ad-blogging site called Nuffnang. His Malaysian girlfriend who is a blogger and now his fiancee is Audrey Ooi Feng Ling. A nice vid to watch around the holiday season which is also a wonderful time to propose - I know because I did many, many years ago on Christmas Day.

Everything You Think You Know, Just Ain't So

2011-12-14T08:28:00.000-08:00

It seems I cannot get enough of playing devil's advocate with myself. Here is one more article from the Al Fin blog that challenges us to look at our beliefs about reality. While living in a System One (fast, intuitive mind) world probably will save my life in the short-term, spending more time in my System Two (slow, logical mind) world will benefit me and humanity the most when looking at the long-term results.

Our System One mind is too unreliable for making good decisions about complex subjects and is correct about those areas of study only by chance and luck. The information about how people believe they understand what someone else thinks better than that person (asymmetric insight) borders on amazing for me. Only recently had I started to become aware of this characteristic and having terminology to describe this behavior is helpful.

On to the Al Fin article.... Al Fin: Everything You Think You Know, Just Ain't So: asymmetric insight

Here are two ways in which we typically go wrong on a regular basis:

1. Cognitive hubris: each of us believes that his map of the world is more accurate than it really is.

2. Radical ignorance: when it comes to complex social phenomena, our maps are highly inaccurate. _American

We have learned from cognitive psychologists such as Daniel Kahneman that our intuition -- no matter how solid it feels -- is often built on a shaky foundation.
What's interesting is that many a time people have intuitions that they're...confident about except they're wrong. That happens through the mechanism that I call "The mechanism of substitution". You've been asked a question, and instead you answer another question, but that answer comes by itself with complete confidence, and you're not aware that you're doing something that you're not an expert on because you have one answer. Subjectively, whether it's right or wrong, it feels exactly the same. Whether it's based on a lot of information, or a little information, this is something that you may step back and have a look at. But the subjective sense of confidence can be the same for intuition that arrives from expertise, and for intuitions that arise from heuristics, that arrives from substitution, and asking a different question. _Edge
This phenomenon of "false expertise" is extremely common -- particularly among college professors, journalists, politicians, and others who are not typically held to a high standard of performance and proof. It is also a common part of everyday existence for virtually everyone.
Suppose you were to ask yourself how well you understand the world around you. How accurate is your map of reality?

If you interrogate System Two [slow, logical mind], it might reply, “There are many phenomena about which I know little. In the grand scheme of things, I am just blindly groping through a world that is far too complex for me to possibly understand.”

However, if you were to interrogate System One [fast, intuitive mind], it might reply, “My map is terrific. Why, I am very nearly omniscient!”

Evidently, in order to perform its function, System One has to have confidence in its map. Indeed, elsewhere Kahneman has told a story of a group of Swiss soldiers who were lost in the Alps because of bad weather. One of them realized he had a map. Only after they had successfully climbed down to safety did anyone discover that it was a map of the Pyrenees. Kahneman tells that story in the context of discussing economic and financial models. Even if those maps are wrong, we still feel better when using them.2

In fact, a number of the cognitive biases that Kahneman and other psychologists have documented would appear to serve as defense mechanisms, enabling the individual to hold onto the view that his map is the correct one. For example, there is confirmation bias, which is the tendency to be less skeptical toward evidence in support of one's views than toward contrary evidence.

System Two is evidently not able to overcome cognitive hubris, even in situations where one would expect System Two to be invoked, such as forecasting the difficulty of a major undertaking. _American

We have to rely upon our fast, intuitive, unconscious mind in order to get through a normal day. So much of our lives are performed on "auto pilot" simply because we cannot reason through every split second of our conscious lives. It would be a tremendous waste of very expensive conscious attention to do so.

And yet, so much of the time when we should give careful conscious attention to an action, choice, or verbal / written expression, we fail to do so. We are accustomed to trusting our intuitions, and we generally muddle through okay. But not always. And who can teach us when to take the time and make the effort to apply our consciousness, and when we can safely and effortlessly slide by on our unconscious intuition? That is where wisdom comes in.

Arnold Kling applies Kahneman's ideas to the political realm: When two ideological opponents wind up on different hilltops, neither can believe that the other has sincerely arrived at a different conclusion based on the evidence. As Friedman puts it,

Consider the most reviled pundit on the other side of the political spectrum from yourself. To liberal ears, a Rush Limbaugh or a Sean Hannity, while well informed about which policies are advocated by conservatives and liberals, will seem appallingly ignorant of the arguments and evidence for liberal positions. The same goes in reverse for a Frank Rich or a Paul Krugman, whose knowledge of the “basics” of liberalism and conservatism will seem, in the eyes of a conservative, to be matched by grave misunderstandings of the rationales for conservative policies.5

Indeed, our cognitive hubris is so strong that, according to David McRaney, people believe they understand other people better than others understand themselves. He calls this phenomenon “asymmetric insight.”6

The illusion of asymmetric insight makes it seem as though you know everyone else far better than they know you, and not only that, but you know them better than they know themselves. You believe the same thing about groups of which you are a member. As a whole, your group understands outsiders better than outsiders understand your group, and you understand the group better than its members know the group to which they belong.

In our context, this would mean that liberals believe that they understand better than conservatives how conservatives think, and conservatives believe that they understand better than liberals how liberals think. According to McRaney, such beliefs have indeed been found in studies by psychiatrists Emily Pronin and Lee Ross at Stanford along with Justin Kruger at the University of Illinois and Kenneth Savitsky at Williams College. _Arnold Kling
These are very important insights which should be applied to our own everyday thinking. They could save you from a great deal of embarassment and unnecessary interpersonal friction. But just because "conservatives" and "liberals" make the same types of mistakes when judging the other side, does not make them equally right and equally wrong on every issue. Look for people who have changed their minds, and try to understand their reasons for changing.

Some changes may be a quasi-cohort effect. The old saying, "If you are a conservative at age 20, then you have no heart. But if you are not a conservative at age 30, you have no head," is a reflection of a common tendency for the "hard knocks" of life to beat a bit of conservatism into almost anyone, over time. If one is born into wealth, achieves early success, commits irrevocably to a cause in his youth, or acquires a sinecured position at a fairly early age, they are more likely to be able to avoid many of the uncomfortable changes in perspective which others may feel compelled to go through.

Contrary Brin: Gingrich, Asimov, and the "Flash" Computer-Trading...

2011-12-13T07:43:00.000-08:00

Check out the new post by David Brin over on his blog. It starts out being about Newt Gingrich but ends up in very interesting territory. He goes into the pros and cons of a trading transaction tax currently being proposed in the EU. I think his argument in favor of the tax is compelling and think it would help on balancing the budget and making trading fairer for the individual investor.

Contrary Brin: Gingrich, Asimov, and the "Flash" Computer-Trading...: Both Republican former House Speaker Newt Gingrich and Nobel prize winning Keynsian economist Paul Krugman have a trait in common. They grew up fervent science fiction fans, especially transfixed by the future-historical speculations of Isaac Asimov. Gingrich wrote about this influence that helped to shape his life.

“While Toynbee was impressing me with the history of civilizations, Isaac Asimov was shaping my view of the future in equally profound ways….For a high school student who loved history, Asimov’s most exhilarating invention was the ‘psychohistorian’ Hari Seldon. The term does not refer to Freudian analysis but to a kind of probabilistic forecasting of the future of whole civilizations. The premise was that, while you cannot predict individual behavior, you can develop a pretty accurate sense of mass behavior. Pollsters and advertisers now make a good living off the same theory.”

See the rest of this post here >>> http://davidbrin.blogspot.com/2011/12/gingrich-asimov-and-computer-trading.html

What Happened to the Tea Party

2011-11-01T21:43:00.000-07:00

Good video on The Tea Party that includes a Q&A with one of the original Tea Party founders that talks about how the movement was co-opted by moneyed interests.

Visit msnbc.com for breaking news, world news, and news about the economy

Post 911 Blunders

2011-09-10T12:51:00.000-07:00

The majority of Americans understood this to some extent before the Iraq invasion and it was understood by W's daddy. Why couldn't Rummy and Cheney get it? I have heard the argument we had to send a statement to Al Queda and their supporter - the Saudi's and Iran, but that we couldn't tackle them so Iraq was the bow shot.

A Decade Later

Haviland Smith

We are now getting close to the 10th anniversary of the al-Qaida attacks of 9/11. Although a decade is an insufficient period for most historians to comfortably draw firm conclusions about anything, it is possible to look at our world today and see how it appears to have been affected by that disastrous event and the ensuing decade.

It is critical to remember that terrorism is not designed to overwhelm. It is designed to undermine. In that context, whatever it does to cause or initiate anxiety in targeted populations and governments, it relies on the reaction of those populations and governments equally as much to achieve its final goals. And America has reacted in ways that have haunted us and will continue to haunt us for decades. Al-Qaida could not have wished for more.

Domestically, we have seen major changes in our lives. Think of our color-coded terrorist warning system, our current airport controls, our paranoia over anyone who “looks like a Muslim” (whatever that is), or “acts differently.” What is that paper bag doing in the subway? Airport? Train station? Movie?

In the aftermath of 9/11, Americans were clearly prepared to and ultimately did surrender their civil liberties and individual rights in the hope that doing so would add to their own physical security. We forgot Benjamin Franklin’s injunction that “they who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.”

The Patriot Act, where it was designed ostensibly to increase our security here at home, did many other things that have negatively affected the way we lead our lives. It increased the government’s ability to spy on us, to monitor our activities in a very broad and general way. It introduced warrantless wiretapping and the monitoring of fund transfers and Internet communications. It also initiated the national security letter process that required any person or organization to turn over records and data pertaining to individuals without warrant, and all this without probable cause or judicial oversight.

The other major domestic impact of the decade has been financial. During that period, we have gone from what was verging on a national surplus to a deficit that is now approaching $15 trillion and increasing at the rate of $3.95 billion every day. We got there through a combination of factors, including tax cuts, the “War on Terror,” and unfunded military operations in Afghanistan, Iraq, Pakistan and now Libya. Brown University’s comprehensive June 2011 “Costs of War” project, factoring in all the costs associated with the decade, arrives at close to $4 trillion. Tax cuts add $2.8 trillion. There seems virtually no doubt that in the absence of our reaction to 9/11, we would be fiscally relatively healthy.

In addition to the foregoing difficult domestic situation, which we largely created for ourselves in the aftermath of 9/11, the changes we have seen in our foreign policy will haunt us for years to come. In that arena, our move to military-based, unilateral policy was a radical change. Yet our invasion and defeat of Iraq and the ascendance to power of the Iranian-allied Iraqi Shiites will likely prove to be our most egregious blunder.

It’s not that Saddam Hussein’s Iraq was in any sense enlightened; it is very simply that Saddam’s Iraq was the only effective impediment to Iranian control over the Persian Gulf. From 1980-88, Iran and Iraq fought a war for supremacy in the gulf. In the absence of a clear resolution of that conflict, the fact that Iraq survived served as a critical deterrent to Iranian dreams for hegemony there.

Our invasion and defeat of Saddam’s Iraq was something the Iranians could never have accomplished on their own. With Shiites now assuming power under our new order in Iraq and Iran threatening the old Sunni positions in the Gulf States, Iran has come even closer. We have destroyed the last real impediment to Iranian dreams for the gulf.

We have had our chances to deal with 9/11 in ways that would have better favored our own national interests. Instead, we panicked, invoked questionable practices at home and became involved in military adventures abroad that will almost certainly ultimately be viewed as disasters.

Without the active, witless involvement and acquiescence of our government and Congress over the past decade, al-Qaida terrorism would have caused us far less pain than it ultimately has and we would be a great deal safer, richer, wiser and internationally more powerful and respected than is now the case.

Regards,

Haviland Smith,
for The Daily Reckoning

Ed. Note: Haviland Smith is a retired CIA station chief who served in Eastern and Western Europe and the Middle East and as chief of the counterterrorism staff. He lives in Williston.

QE III?

2011-04-25T21:44:00.000-07:00

Place your bets! What is Bernanke going to do?

You can see what Aaron Task and Henry Blodget think here......

Congress and the President will show their spinelessness because as Task and Blodget say, a majority of Americans do not want to give up anything whether it is defense spending, Medicare, Social Security or any of the expensive budget busters dragging the US down.

Oil Prices Manipulated by Financial Markets

2011-04-22T08:17:00.000-07:00

I thought this short video conversation from Tech Ticker was interesting in explaining oil prices.... http://finance.yahoo.com/blogs/daily-ticker/oil-endless-bid-financial-players-overrun-energy-markets-155723942.html

This is also fits with many analysts views that we have plenty of oil and that the price is independent of supply of demand much of the time.

Homeland Security Uses Taxpayer Resources Unwisely

2011-03-11T08:20:00.000-08:00

So, this is how our taxpayer dollars going to Homeland Security are used.

This was a good site http://atdhe.net/ for finding links to, and watching sports events that are freely available on network TV. How were they a terrorist threat that Homeland Security had to get involved with this?

Another stupid waste of government resources.

Other links to this news - click here.

Why We Get Fat

2011-01-01T20:15:00.000-08:00

I took this off the Rivbike.com website. It is a post by Grant Peterson and he might take it down. Since many of Sojkas Call readers are in the 50+ range it seemed a good post for the new year. I subscribe to the basic tenets of the Primal Diet theory and have seen positive effects on myself when using it diligently. Grant's post goes beyond just PD so please give this a read and let me know what you think either pro or con and whether you are just going to intellectualize it or actually do something.

Good luck to all Sojkas Call readers in 2011 in whatever endeavor they pursue.

H. Pneu Year

January 1, 2011

Today and only today, not any other day of the year, unless this remains up tomorrow and beyond, and then later in the blogarchives, I speak to you as Grant Petersen, AA, 1975, Diablo Valley (Junior) College in the all-encompasing field of "General Studies." It was quite an undertaking, but I wanted a broad education in a short time span. No test-tubes and petrie dishes for me. That's to establish my credentials for today only, not later on when I put on my "skinny tubes and good clearances and high handlebars" hat.

One of the biggest, pervasive, and most harmful lies is that weight gain or loss is simple a matter of calories-in versus calories-out. In a non-exerciser's world, it's the notion that you can deprive yourself skinny. In a cycler's world, the notion that you can ride yourself skinny. You can't believe skinny people when they say they rode themselves that way. They're not the experts in they own bodies. It's like asking the local 101-year old the secret of long life, or worse.

Everybody knows a pound of fat has 3,500 calories, and that exercise burns calories. If you don't know that, you haven't been paying attention.

Everybody knows that pro road racers and top marathoners burn calories like there's no tomorrow and are lean. Doctors and exercise experts all over the world tell you weight loss is just a matter of burning more calories than you eat. It is mathematically irrefutable, scientifically incontrovertible, verbally unassailable, indubitably indisputable, athletically a slam dunk, but is also and unfortunately a lie of Paul Bunyan proportions.

It's tough to burn 3,500 calories on a bike ride or bike rides (or a hike, or anything else) without compensating by eating most or all of those calories back on. Hard riding burns maybe 700 calories an hour. You want to ride off a pound of fat? Go ride your bike hard for 5 hours. If you eat two Power Bars, or a Power Bar and a Clif Bar during the ride, better make it 5:45. If one of the hours wasn't hard, cover yourself by making it six and a half hours, just to be sure. Don't drink a pint of Gatorade, or you'll have to add another 20 minutes onto it.

That's how it works in the mathematically correct,Calories-in/Calories-out world.

The idea of compensatory eating isn't new. Your granny called it "working up an appetite." That's an expression we've all heard, can all relate to, but when it comes to fitness articles and promoting running or cycling as a way to get lean, it gets ignored. It's no less real for being ignored, but isn't it funny how they never tell you the obvious---that you're going to be hungry as a goat after those long hard rides, and so those rides can't, actually, be effective in weight loss.

It's not about not doing those rides. They can be satisfying, even a blast. It's about not doing them for the purpose of weight loss. Don't look at skinny guys who do them and figure they weren't that way to begin with. Lots of skinny people do endurance stuff, because being skinny makes it easier, so they get there by gravity.

Any exercise increases your appetite and makes you eat back on the calories you burned. It's likely that skinny marathoners and BORAF riders would be skinny even if they didn't ride so much. Sure, Eddy Merckx got fat after he retired, but for every athlete who gets fat after retiring, there are two dozen athletes who are fat, or at least not as lean as they'd like to be, despite years of obsessive and often hellish exercising. It's because they're eating incorrectly and eating too much.

Have you ever been sick in bed for several days and lost weight? The effect is more dramatic if you're strong going into it. Even if you don't throw up and get diarrhea, you tend to lose weight because you're eating less, and you're eating less because you're exercising less. Meanwhile, your muscled body is still burning more calories than a body bereft of tone would, so there's a net loss.

When you recover, your exercise resumes, your appetite recovers, and you gain back the weight. I bet one in five of you reading this now can relate to that.

I'm not making a case for lying around in bed. That's no way to live.

Today is the day when many of you may be here resolve that you will exercise more and eat less, as part of a weight loss plan. It will work on paper, or on your computer spreadsheet, if you resolve to ride 200 miles a week and eat 1000 fewer calories per day, or 250. Counting calories is too hard and no way to live, either. It's tedious, depressing, and not sustainable. It gives you false hope.

I can't hear or say or read the word "hope" without this 1961 Bob Dylan poem lyric coming to mind:

But hope's just a word that maybe you said and maybe you heard/On some windy corner, 'round a wide-angle curve.

It is false hope. You may have tried it last year, or five years ago. It never works, but hope is a powerful force, because in its absence people tend to blow their brains out, or at least throw in the towel.

There's a new book out, published December 28. It's by Gary Taubes, science writer, and it's written for all the people who didn't read his monster-long Good Calories, Bad Calories.

It's a short version of that book, with fewer scientific references and footnotes, and about 1/4 as many words. It is a book that will make any authority who's gone public or built their empire with the Calories-In versus Calories-Out chant peeeeeee in their pantaloons and wish for a Do-Over.

Maybe we'll carry the book. I have three copies of it. I've read Good Calories, Bad Calories, and I didn't find it hard to get though, but I'm kind of into this stuff. The new book, and of course I'll tell you what it is in a few moments, is like reading Dear Abby, or your favorite column in the Sunday paper, or the Sports Section, or whatever. Gary Taubes is a terrific writer, and his plan is to Not Lose You Along the Way.

We will stock the book. It's a companion to The Primal Blueprint. Don't think you don't need it, just because you've read TPB, though. Everybody wants to not get fat or to lose the fat they already got, or a good chunk of it, anyway. It's harder as you get older, as you've noticed. If you're 50 you may have given up, but here it is the start of a new year again, and out of habit you say you'll give it another shot---exercising more and eating less. It's perfect on paper and mathematically, but it won't work, and the you'll beat yourself up for not having will power. It's not about that, either. Will power is a circular, explanatory fiction.

The book is Why We Get Fat and What To Do About It, and if you are concerned with your weight, frustrated by past failed attempts to lose it, and barely willing to give it one more shot, get the book. The book is great. It spills the beans right on -- I think it's page 10 of the introduction. He doesn't mess around, and there are no menus with nutritional breakdowns or any of that.

The best way to get it is to go to TheOnlinePhotographer.com. It's a great photo blog. The owner is some kind of a friend, and makes money on the ads and the links. Don't look at the Joyful Nudes link on the lower left. Focus, focus, focus on the Amazon link at the top right. if you link to Amazon from that, he'll get a small percent, and it won't cost you any more, and that'll be my way of feeling good about this. In two weeks we'll have the book, but don't delay.

It's a dreary day here, all cold and rainy, and I'm going out now.

Monday we'll all be back to normal. I may delete this post, I'm not sure. I'm about 1/3 the way through Why We Git Fat, and it's good. He's a good writer.

A customer just this minute posted this to me:

http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=300508699645&ru=http%3A%2F%2Fsporting-goods.shop.ebay.com%3A80%2F%3F_from%3DR40%26_trksid%3Dp5197.m570.l1313%26_nkw%3D300508699645%2B%26_sacat%3D382%26_fvi%3D1&_rdc=1

I don't know if that works. If not, go to eBay and seartch for item

300508699645

I think it's kind of dirty pool, but on the other hand, it would be dirtier pool if it were a wild and rare exception to the rule, but it seems to be the rule. We don't know how it happened, but failures should be dents, buckles, and slow fatigue failures, and this isn't any of those.

G

Al Fin: Abandoning Western Civilisation: Views of an Evolving Professor

2010-12-28T15:03:00.000-08:00

Al Fin: Abandoning Western Civilisation: Views of an Evolving Professor

Interesting post that loyal Sojkas Call readers will find familiar. This one takes a while to digest unless you have previously read Professor Bruce Charlton or the French Philosopher Andre Glucksmann. Al Fin highlights the suicidal tendencies existing in western society using the writings of Charlton and Glucksmann as background. Sojkas Call readers have engaged in discussions pertaining to the insanity of government policies and how they are leading to an inevitable catastrophe either economic, social, or militarily.

Glucksmann writes using Greek mythology and the rise and fall of the Roman empire as examples and to show how the thinking from that era still permeates western culture today. Charlton, while to me not as persuasive intellectually, uses powerful religious arguments that did get my attention.

Check out the link to the Al Fin post and read the recommended background material. The posts by readers on both Charlton's and Al Fin's blog help further illuminate the thesis.

A Political Nexus

2010-10-23T16:18:00.000-07:00

Let me start out saying I am not sure this blog title is a correct label for the discussion. The readers of this blog have had many off-blog discussion threads lately about a cross-section of hot topics e.g. AGW, health care, social security, US deficit, Tea Party, etc.

Those discussions have taken the typical left-right, point-counterpoint, data vs emotion form of argument most of the time. Very seldom is anyone's mind actually changed by the discussions in spite of each persons conviction in their "rightness" and no matter what manner of convincing argument or data set they present.

In a previous post Sojka's Call: Democracy vs States Rights we discussed Spiral Dynamics and its relation to the current discussion. A video of Wilbur was recently posted on a subject called Divine Pride. Check the link to read the introduction and watch. While I am having a little problem with his use of the term pride, I believe the concept he discusses is valid.

Where am I going with this? Previous discussions usually just get all of us to state our own point usually in more and more emphatic ways. We get more data or get more mad and use more capital letters and more bold letters and if we are actually talking start to raise our voice and take the Bill O'Reilly shout-them-down method maybe.

Wilbur is proposing something different. I am proposing something different.

One of Sojkascall loyal readers always talks of a middle approach as the right way. In a sense he is right but not exactly. The real path is a holistic path. We need to find the mind-set to look at the whole.

What do you think? Are we ready for this? Please post your comment.

1914 All Over Again?

2010-10-16T12:53:00.000-07:00

I am reposting this Tom Coumans article from the Daily Reckoning. The new war???

1914 All Over Again?
By Ton Coumans

I am not one for art, statues or monuments. Most of these objects fail to touch me but every now and then I bump into something that sticks in my mind. Last summer I was drawn to the monument in the picture below, which stands on a square in Nevers - a beautiful city on the river Loire in France. I spent quite a long time studying it and I eventually took some pictures that, for some reason, I regularly review at home.

WWI Statue in France

You will have recognized that this is a monument commemorating the tribulations of the First World War. There is a lot of symbolism in the statue but it is the French soldier's sorrowful stare that won't let me go. What trauma has he lived through? France eventually battled its way to an armistice (not victory) in 1918 after having incurred 1.7 million dead (one in 28 of the population) and over 4 million wounded. Everyone will see something different, but for me this monument is whispering; my God, what have we done?

The uncanny thing is that before the outbreak of World War I, most Europeans expected the future to provide an endless stream of good fortunes, to the point of being bored by the prospect. In fact many soldiers such as the one represented by the statue, just four years earlier, were swept up by the bizarre spirit of 1914 that took hold of the peoples of Europe.

The "Spirit of 1914" which seems to have infected the passions of most of the European populations is described as a reckless urge for adventurism under the flag of nationalism. Young men in all countries volunteered to leave their prosperous lives behind and take up a fight with their European neighbors. It is difficult to comprehend the spirit of 1914. All those men lusting for adventure and the glory of battle and no one was sensing danger.

There were only a handful of people, too few to sway the opinion, that realized what lay ahead. A useless and long-forgotten quote by one of them reads: "If the scientific nations of Europe were to wage war on one another they would be thoroughly sick of it before it was finished". That quote is by Sir Winston Churchill who at the time was 37 years old and First Lord of the Admiralty. He had seen the power of artillery and machine guns in the Sudan and the Boer War and repeatedly warned against armed conflict in Europe, to no avail.

Europe had been at peace for 40 years and the millions of men that charged off to battle had no way of being able to imagine what war would be like, until they found themselves mugged by reality and stuck in the horrors of trench warfare "In Flanders Fields". That was obviously not where they had wanted the free market to take them, as Bill Bonner might assess. Nemesis, the Goddess of divine retribution, had finally found a way to sink her teeth into Europe, having waited patiently in the background during the 40 years of the Belle Epoch.

The question now is, do we stand at a similar point in history where we expect the future to provide expanding, effortless wealth, and have we been swept up by the spirit of 2006; flipping houses and living high on mortgage equity withdraws and debt? Does Nemesis have a special surprise for us and what could that be? We are in a global de- leveraging process, which is painful, but is it, in itself, truly destructive? I contend that if we are to "fall deep" there will need to be some kind of major breakdown of cooperation or even "conflict amongst peoples" resulting in a major lose-lose event that sinks the physical economy. What could that be?

In the run up to WWI, an influential book was written by General Von Bernhardi titled Germany and the next War. The book manifests Germany's frustration and militancy. Von Bernhardi proclaims that, with her scientific and intellectual achievements, Germany should have a more prominent role in world affairs, more colonial trophies with access to petroleum reserves. Germany's GDP had passed that of Great Britain and France and they now wanted more respect. France and Great Britain were maneuvering as best they could to keep Germany (a perceived threat) out of the game. Bernhardi's book also argues that war was not only a justifiable means to achieve that goal but even an obligation of Germany's leadership.

And now in 2009 we witness the wide distribution of a book titled Unhappy China, which expresses China's frustrations with their current position. The similarity in tone is uncanny. China is on its way to become the second economy of the world, yet China is not "embraced" as a member of the G8 and has almost no influence in the IMF and World Bank. China is frustrated with the West's meddling in internal affairs and with the humiliation endured by the Olympic torch run that was, in their perception, disgraced by demonstrations.

All the maneuvering by the West now is to keep China out of the game and treat them as a potential threat. Does this have automatic conflict baked into it? All out "kinetic" war does not seem realistic and more something of the past century. We have since organized the UN Security Counsel to regulate conflicts involving the use of force. But do we have adequate global institutions for monetary policy? I judge that today every government and their symbiotic Central Bank feels they have the right and obligation to use monetary policy to the advantage of their own short-sighted wealth preservation and power games. Could the conflict of the twenty-first century revolve around currency wars? Should we rephrase Churchill's warning to state, "If the financially developed nations of the world were to wage a war of competitive currency devaluation on one another, they would be thoroughly sick of it before it was finished". Could competitive currency devaluation be the bear market surprise mechanism that pits countries and peoples against one another?

The First World War is remembered for the senseless slaughter of trench warfare. Will this period be remembered for disruptive impoverishment of currency warfare? It does seem to have the potential to breed distrust and breakdown cooperation between the nations. It also has a runaway nature since it invites tit for tat exchanges. It is inherently instable because the currency that moves first and fast could have the advantage. But does it have the destructive power to sink our global physical economy? Let's hope that some years from now we will not find ourselves sorrowfully staring at the horizon and whispering; my God, what have we done.

Regards,

Ton Coumans
for The Daily Reckoning

Radical Change

2010-10-03T21:12:00.000-07:00

In some personal discussion threads about the Tea Party and US government corruption and the current military entanglements we find ourselves in my personal philosophy of the proper role of government has been severely questioned by my friends and myself. In thinking about this problem and reading up on history of our founding fathers and their intent as codified in the Constitution, various economic theories, and using must plain common sense many things are starting to become clear.

My whole philosophy of what gov't should/shouldn't be is evolving radically right now. I have realized that as long as massive money and resources are concentrated for use by an entity (US Gov't in this case) it will be misused.

1. Our military is being misused.
2. Our treasury is being misused.

If they are radically smaller than they are today the level of possible misuse is reduced the same. What does that mean?

- a radically smaller military that is not capable of foreign intervention. If it is capable of being used that way it is certain that sooner of later it will be misused for that purpose.

- a treasury with vastly reduced tax receipts and a gov't with vastly reduced responsibilities. Again, if there is much less money there to start with, there is much less to be misused, stolen, etc.

What would be the outcomes?

- Federal Government assistance programs would be eliminated and become the responsibility of state and local governments to the extent they want/need to provide them.
- Our armed forces would be reduced to about 20% of the size they are today. The military would patrol our own waters, air space, and land. We would eliminate all foreign bases and all foreign aid.

I believe that once people realized they were responsible for themselves they would take on a completely different approach to life. They would embrace life for all it was worth much more seriously than today because in a real sense their life and their loved ones' lives depended on it. That would mean much more personal responsibility and much more personal liberty.

In my mind, any other approach to fixing the corruption in our gov't is doomed to failure. As long as power (through money and military) is concentrated in one area (Wash DC) it will be misused. I believe it has always been corrupt and the amount of corruption is equal to the size of the entity. Since the US gov't is now the biggest it has ever been in history we are seeing the largest amount of corruption ever.

The Tea Party - Ideology Sources, Funding, and Network

2010-08-30T10:52:00.000-07:00

This article details the involvement of the Koch Brothers with the Tea Party. It is a long and very worth your time and effort to read and digest. If you want to understand the Tea Party, where it came from, and how it is funded read this entire article. There are some key names in here that show up over time. Remember them and when you read other articles in the future make the connections.

Personally, I have mixed feelings about the Tea Party, the Koch brothers and the agenda being pushed. I embrace many Libertarian values and much of their agenda. However, we should all understand where the messages are coming from, who is crafting them, their goals, and who is ultimately behind these seemingly disparate groups that are tied together in many complex and interesting ways.

Strongly recommended use of your time to read and understand.

The billionaire Koch brothers’ war against Obama: newyorker.com

Al Fin: Bringing Up Children Who Can Deal With Risk

2010-08-24T07:03:00.000-07:00

Al Fin: Bringing Up Children Who Can Deal With Risk

Al Fin: Electronic Armageddon on National Geographic Tuesday Night

2010-06-15T06:57:00.000-07:00

And, now this to worry about. I guess even your solar panels would be useless because they would fry.

Al Fin: Electronic Armageddon on National Geographic Tuesday Night

Another Reason to Dislike GMO's

2010-06-05T08:09:00.000-07:00

Your health is put at higher risk through GMO's due to lectins. What are lectins?

They are a plants' natural defense mechanism preventing over consumption by pests be they animal or insect. Grains and legumes are the best examples of plants with naturally higher amounts. That is why so many people have digestive issues with those foods and any food prep involving soaking, fermentation, and sprouting help lessen the lectins you consume. Oh, and you raw food folks - guess what? Cooking reduces lectins too.

Now we find out that part of the process used to make GMO plants less desirable by insects are making them less digestible by humans. Companies that modify plant genetics increase the amount of lectins for pest control.

There is an article at Mark Sisson's blog that goes into greater detail if you interested.