Aside from highlighting dysfunctional economic structures and the need for reform, a very immediate consequence of the crisis is that Governments have been taking a much more active role in the world economy through financial sector bail-outs,  stimulus packages, nationalization of ailing industries, and ad-hoc policy measures such as temporary taxes on banker bonuses and bans on short-selling. Most recently, the Euro-Zone bailout of Greece – complete with stringent demands for fiscal reform and at least some degree of budgetary control from Brussles – is the last example of how this plays out.

That kind of direct market participation, though, is perhaps more a matter of economic politics than economic policy. And while we are arguably not yet near the end of heavily indebted governments being major players in turbulent financial markets, I think it is unlikely that this situation will be politically sustainable beyond the recovery, and I do not think this is what Kaletsky is referring to when he talks about a return to less ideological “common sense” economic policy. Rather, it is an issue of how the political-institutional structure modern capitalism rests on should and will be reformed.

This is not a matter that can be understood in naive terms of “government versus market”, but rather an issue of how markets and capitalism function in the first place. Of course, some believe that the best possible institutional underpinnings of a well-functioning market will appear as if by magic if only governments would disband and leave everyone alone. Nevertheless, most if not all countries where this experiment has been tried in one way or another are commonly referred to as “failed states“. The strength of the economy and capitalist system in Somalia, for example, can tell us much about the quality of the market-supporting institutional structure that spontaneously emerges in anarchy. The country does have a booming “maritime” industry, though, and as the quote below from Foreign Policy magazine describes, a well-functioning and liquid weapons market:

…Mogadishu’s Bakara Market, the country’s largest open-air forum. Sellers and buyers used to be well-stocked with food staples and other daily essentials. Today, the strongest product line is weapons — everything from handguns to rifles to rocket-propelled grenades. Such arms have been the quickest means to power and subsistence in Somalia since chaos erupted 18 years ago. As Somalia claimed the No. 1 slot on the Failed States Index for a second year in a row, militant attacks had forced the country’s fledgling transitional government literally into a corner; by December 2008, it controlled merely a few blocks in a country of 627,000 square kilometers.

We here at Evolution-Revolution certainly think it is a good thing that the subject of economics gets shaken up a bit, and hope that it is becoming much more intellectually diverse than it has tended to be in the last forty years or so. I have written a piece before on what I call the Smorgasbord Approach to economics. George Akerlof and Joseph Stiglitz also agree with me that more diverse economics means better economics.

Notwithstanding, while Kaletsky is proclaiming that we now are entering a period where the approach to economic policy will be more pragmatic, I would argue that economic policy in the western world was never really that ideologically driven in the first place. Policy makers labeling themselves as “conservatives”, “liberals”, “socialists”, or whatever tag you want to put on it have by and large always ended up promoting a kind of middle-of-the-road pragmatic capitalism that is very far from what one might call a “free market” in the libertarian/anarchist sense, as well as any kind of real “socialism”. As an example, Norway’s last minister of finance, Kristin Halvorsen, came from the rather radical sounding “Socialist Left Party”. Nevertheless, Norway remains one of the world’s most open capitalist economies, ranking close to the top in the World Bank’s “doing business”-index, and is home to capitalist multinational corporations such as Telenor (the world’s seventh largest wireless telecommunications provider) and Statoil. The supposed minister of finance supposedly belonging to the “socialist left” never once mentioned the issue turning over ownership of means of production to the proletariat, but fought hard for better, cheaper, and more accessible kindergartens – arguably one of the most effective ways of increasing female participation in the capitalist labor market. At the same time, “conservative” governments in the U.S. have been spending billions of dollars on all kinds of market-intervening programs, far from what is thought of as the ideal case both in standard economics textbooks and amongst right-wing ideologues. Dani Rodrik elaborates on this in a blog-post previously linked to by my co-author:

In fact, industrial policy never went out of fashion. Economists enamored of the neo-liberal Washington Consensus may have written it off, but successful economies have always relied on government policies that promote growth by accelerating structural transformation….But when it comes to industrial policy, it is the United States that takes the cake. This is ironic, because the term “industrial policy” is anathema in American political discourse. It is used almost exclusively to browbeat political opponents with accusations of Stalinist economic designs.Yet the US owes much of its innovative prowess to government support. As Harvard Business School professor Josh Lerner explains in his book Boulevard of Broken Dreams, US Department of Defense contracts played a crucial role in accelerating the early growth of Silicon Valley. The Internet, possibly the most significant innovation of our time, grew out of a Defense Department project initiated in 1969.

Nevertheless, the most important point here is not that particular policies are more or less pro “free-market” or pro “big-government”, but that a policy-paradigm based on the understanding that economics, policy, and institutions are far from separate; but also on the idea that capitalism in some form is most desirable. Even more importantly, it is based on the understanding that there is no such thing as a context-independent platonic ideal type capitalism associated with a set of unchangeable and derivable policies that can easily be imposed anywhere.  As the Epicurean Dealmaker writes:

I am a dyed-in-the-wool capitalist and investment banker. Unlike many of my fellow citizens at the moment, I continue to believe both of these are good things, and better than the alternatives. Nevertheless, I acknowledge, apparently unlike many of my blinkered brethren, that there is a good way to run capitalism and investment banks and a bad way.

This basic idea – that there are many different ways to do capitalism, markets, and business – is in a sense contrary to the ideologically driven style of economic policy and capitalism Kaletsky refers to. I think there is little evidence, though, that it really ceased to be an underlying assumption in western-world policy making after Reagan and Thatcher.

There are two very important exceptions to this: financial regulation and development economics. The financial crisis is to some extent evidence of the former, with basket-cases such as Iceland as horrid examples of how badly ideologically-driven policy can go. I am sure that many Icelandic people would wholeheartedly agree with TED’s quote above. Certainly, it would be grossly unfair to call someone anti-market or anti-capitalistic for arguing that Iceland should have had a more regulated financial sector in the years preceding its total financial annihilation in 2008. Actually, Iceland’s capitalism would most likely have been a lot better off today had in not been for the hardcore ideologically driven financial-sector liberalization set in motion by its conservative Sjálfstæðisflokkurinn (Independence Party) at the beginning of the decade (a forthcoming paper by Baldur Thorhallsson, Iceland’s Neo-Liberal Laboratory, describes how this happened in great detail).

The question, of course, is whether we are really seeing a return to “pragmatic” financial regulation, or are getting a bunch of ideologically driven, vain, and inefficient policy responses aimed at pleasing an understandably disgruntled electorate. I think the current European attempt at imposing much stricter regulations on private equity and hedge funds in order to rein in “speculation” might be a sign of the latter. I find the argument that “speculation” is to blame for the financial crisis quite unconvincing (speculation can actually be stabilizing), I am pretty sure there have been some more fundamental structural dynamics at work. I will write more on this elsewhere.

The second area where actual policy has been  heavily ideologically driven is development economics. More specifically, the kind of economic policies pushed on a whole range of countries by the World Bank and IMF as conditionalities and structural adjustment programs associated with various loans and aid packages in Latin America, Africa, and the former communist economies in Eastern Europe were arguably heavily laden with fundamentalist-like free-market ideology. In this policy area, through, the reversion to pragmatism described by Kaletsky had started happening before the financial crisis as a result of lacking growth and lots of  financial crises in a range of countries where reforms were the heaviest; as well as the counterpoint of rapid and sustained growth in countries like China and India, which have been far from implementing anything like an  IMF-style policy package. Nevertheless, the most recent – and global – financial crisis arguably made the glass spill by adding legitimacy to non-mainstream economics. The effect has been a dramatic and still ongoing turnaround in the World Bank and the IMF on what constitutes good and acceptable economic policy for developing/emerging-market countries. Most importantly this includes allowing governments to engage in active industrial policy, in particular to promote export growth and diversification, and prudent regulation of international capital flows.

As such, it appears that where the return to pragmatism from ideologically driven economic policy will matter most is in the developing world. If such pragmatism yields sustained economic growth, this is of course not without benefit for the West either.  The world economy is like a big party, it is much better when everyone is having a good time.

And of course, economics will probably be a more interesting subject to study. At least I hope so.

–

All pictures are from the Wikimedia Commons

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King Solomon -the wise and rich by Giovanni Demin (1789-1859)

For the past 8 years Dani Kaufman has been publishing his Governance Matters papers in which  assessment of the level of governance in countries across the world is performed. Last year he followed up with pointing out a group of 8 (ggg-8) which apparently could teach other countries around the world how governance should be done. When the financial crisis struck Dani Rodrik used the opportunity to attack Kaufmann, who he finds, puts too much weight on governance when it comes to economic growth:

“After all, no-one can deny that the United States, for all its financial follies, is a rich country.  It turns out that it is possible to be corrupt in a fundamental way and still be rich. My own view is that there was never a strong theoretical or empirical argument for relying on governance reform, as conventionally understood, as an engine of higher growth.  The case for governance reform is that it is a good thing to do in and of itself.  But don’t confuse it for a growth strategy.”

For Rodrik, who has also recently come out as a skeptic to democracy’s effectiveness in promoting growth, the active measures and policies a government implements is more important, more resembling industrial policy. In response to Rodrik the Governance Matters blog of the World Bank say that

“It is true though that the debate about the causal relation between governance and growth is open and far from reaching final conclusions -and even when evidence suggests its existence, the transmission mechanisms from good governance to growth remain unclear. This makes more relevant the analysis and diagnosis of what aspects of governance matter the most for growth -under local and more specific circumstances.   There is an agreement that the times of cookie-cutter approaches for the governance reform agenda are over.  Instead, a country-oriented approach provides the best chances to effectively link the governance reform agenda to a country’s growth strategy.”

At least one agrees that governance must be looked and evaluated at at an aggregate, national level, but there are major flaws with the way Kaufmann tries to measure governance and its effects. By subjectively setting a standard for what ‘good governance’ encompasses, one assumes that what is good governance for one country would also constitute good governance for another. This is clearly wrong. Even though Norway scores close to top on the list on most measures, adopting Norwegian style institutions would not necessarily work very well in most other countries.

For good governance, I would argue, there is no gold standard, every country has to design its system to fit its context. Moreover, one needs to take history into account and basing a governance system on what is already there. Rather than searching for Platonic ideals we should seek effective governance systems that work – very much in line with the Neo-Schumpeterian or Evolutionary approach.

Lastly, governance should be evaluated in terms of effect or result and not process. I would say China constitutes excellent governance, how would it be possible to achieve above 10 percent growth almost  every year for the last 30 years if not? This is not to argue China is an ideal democracy or that it is treating all of it citizens very fairly, but in terms of improving the life’s of its citizens it has been truly successful. By evaluating policies on the basis on results we also ensure that the debate becomes a lot less biased and ideological.

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Dani Rodrik recently had a commentary where he argued that industrial policy is returning to the main stage.  Within the Tallinn School (i.e. the economic research associated with the Technology Governance program in Tallinn) active government policies are seen as essential in order to create the ‘virtuous circles’ of high value-added economic activities. Rodrik (not associated with Tallinn), argues that industrial policy is  (i) “a state of mind rather than a list of specific policies” (ii) “relies on both carrots and sticks” and (iii) “industrial policy’s practitioners need to bear in mind that it aims to serve society at large” As Erik Reinert has shown, history abounds with  examples of how almost every successful economy has at some point employed some kind of industrial policy. Skeptics usually reply, yes, but what about all the failures?   By no means is industrial policy always effective and how well it works in a specific case depends on an inordinate amount of variables. Importantly, it is “a state of mind” and one must experiment to see what works. I would rather ask: what is the alternative, if industrial policy is the only way we know to have worked? Recently, the World Bank has come off as a bit more positive towards industrial policy, but their understanding is quite narrow:

“If industrial policy is nothing more than government agencies organizing conferences with private sector players, I’m all for it. If we include in the definition of industrial policy the supply of classic public goods like infrastructure and education in coordination with the needs of the private sector, I am still fully in support. However, I tend to part ways when the state gets involved to the point of picking winners, which must inevitably be the case when more heavy-handed interventions are put on the table. ” from the World Bank Private Sector Development Blog.

Industrial policy is more than supplying basic infrastructure, but still it is not about picking winners. One aims to develop specific sectors of the economy, calculating that the spillover effects will benefit the economy as a whole. The Asian economies, of India and China,  but also Brazil are recent examples of how industrial policy has been implemented successfully. But Chris Blattman points to an interesting example of how it has been carried out for shoe manufacturing in Ethiopia.

From my experience, how one looks at industrial policy depends a lot on one’s view of economics: In the first post here at Evolution-Revolution, we argued that “understanding the dynamics that propel the economy into the unknown should be at the core of economics, rather than optimizing a static economy that only exists in the abstract.” As such if one believes the most efficient allocation of today’s resources is essential one quite naturally comes to the conclusion that any form of intervention is inefficient. By incorporating the dimension of time however, one can more easily conclude that its worth sacrificing a little efficiency today for what might be a much more prosperous tomorrow.

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According to the Washington consensus, open international capital flows were essential to developing countries in order to achieve cheap financing and efficient allocation of resources. In particular, the IMF and the World Bank were stalwart defenders of floating the exchange rate and letting the market forces determine the inflows and outflows of capital of a country.

Classical development economists, such as the Estonian Ragnar Nurkse, pointed out the fragility of relying on external financing as early as 1944 and paradoxically laid the basis for the founding of the Bretton Woods institutions (IMF and World Bank). With Bretton Woods came the managed flow of international capital, but which collapsed in 1968 and led to subsequent liberalization. In receiving aid and loans from the World Bank and IMF, developing countries were pressured to liberalize and open their economies to foreign investors.

After the Asian crisis of 1997, more attention was paid to fragility that arises when foreign investors withdraw capital and local currencies collapse. The problem is especially acute when locals have taken up loans denominated in foreign currencies, thus the depreciation causes their debts to sky-rocket. But it is first recently that mainstream economists have argued for letting developing countries control the capital inflows.

I find it very warming that both the IMF and World Bank seem to have changed tack, and returned to their more Nurksean / Keynesian roots. In this very interesting blogpost, Jamus Lim of the World Bank presents data that out of 189 major capital account liberalizations since 1970, at least 154  have led to a severe financial crisis!  He concludes by quoting a recent IMF staff paper.

“Finally, the the selective use (PDF) of capital controls in a broad policy mix may be useful in helping moderate surges in portfolio inflows, especially when they are directed toward debt rather than equity. “

Striking words when coming from Washington indeed.  More depressingly though, Estonia seems to have forgotten the lessons from its premier economist.

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If you are interested in the topic of international financial fragility, the excellent work of  Jan Kregel and Hyman Minsky is recommended.

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I was particularly struck, today, by one of the latests post on the World Bank blog, linking to a paper with the same title:

A Primer on Export Diversification: Key Concepts, Theoretical Underpinnings & Empirical Evidence

The post and the paper are not, as you might think, written by Erik Reinert, but by a World Bank economist by the name of Salomon Samen. It discusses, amongst other things, the importance and relevance of classical development economists such as Raul Prebish and Hans Wolfgang Singer:

Based on the Presbish-Singer hypothesis, free trade and its corollary specialization were to confine developing countries in the production of primary products which are subject to short and long term detrimental effects for developing countries. Hence, in order to stabilize export earnings, boost income growth, and upgrade value added, developing countries had to increase the variety of their export basket. In the light of the dismal economic performance of many developing countries that implemented trade restrictive protectionist policies in the 1960s, and 1970s, many policy makers have, since the 1980s, been seeking to expand their exports and have increasingly been recommending development strategies based on outward orientation including reduction of trade barriers and opening of international trade to foreign competition. Because export supply responses following first generations of outward oriented trade policy reforms have been mixed, expanding and diversifying exports remains a major concern for policy makers in many countries.

It will be interesting to see how long parts of “heterodox economics” will remain heterodox.

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If you haven’t read his memorial from Auschwitz, Man’s Search for Meaning, you should

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Ultimi Barbarorum:
If the Fed, especially under Greenspan, was always the loving Mommy, the Bundesbank was the harsh Prussian Vater, prepared to let its kids die if they thought it was good for them.

The Economist:
Anybody who has ever taken a meeting knows that trying to hold the attention of people with BlackBerrys is like trying to teach Latin to delinquent teenagers.

Wikipedia:
Financial Times, which named Blankfein as its “2009 Person of the Year,” stated: “His bank has stuck to its strengths, unashamedly taken advantage of the low interest rates and diminished competition resulting from the crisis to make big trading profits.” Critics of Goldman Sachs and Wall Street have taken issue with those practices.

and finally do think beyond, do some Kaupthinking:

thanks to Ultima Barbarorum for sharing this one and also offering some excellent comments.

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Now, first of all, I am unsure about whether Goldman’s supposed “big short” really had a significant impact on housing prices. Arguably, the collapse of the U.S. housing market in 2007-2008 was a necessary consequence of unsustainably rapid price increases brought about by horribly easy credit in the years before, and would have been just as painful for regular hard-working Americans regardless of whether Goldman had a net short position or not. One could perhaps even argue that the crash would have been worse if Goldman had not been as hedged as they were.

Above: Charles Ponzi, the model banker, according to the Senate Subcommittee on Investigations

Nevertheless, it is interesting for the sake of argument to assume that Goldman’s supposed “big short” did in fact push down the price of property, which seems to be an important assumption in the politicians’ criticism of the bank’s conduct (unless, of course, one thinks it is morally despicable in and of itself to do well when others are doing poorly, regardless of any cause-and-effect relationships). Now, if one is to follow the argument that contributing to lower housing prices is a bad thing per se to its logical conclusion, one ends up at a pretty strange place. Firstly, while falling property prices tend to be bad for those who own property – or more specifically – for those that own property and want to sell it or borrow against it, it is a very good thing for those people that want to buy or rent property. Recent university graduates working hard in entry-level positions while caring for young children, for example. Or low-income families who struggle to pay their rent in a tough economy. If my memory serves me right, many of the same politicians who are now reprimanding Goldman for supposedly contributing to lower property prices were, not many years ago, supposedly very concerned about affordable housing - which is exactly what falling property prices brings about.

The counter-argument, of course, is that as long as property prices keep rising, the recent university graduates and low-income families can borrow money and invest in their home (this is, of course, exactly what the various complex derivatives investment banks are being so criticized for helping create were meant to facilitate). Again, let us see where such an argument brings us if taken to its logical conclusion. If property prices are rising indefinitely, at a brisk rate, even NINJA (no-income-no-job-or-assets) lenders can borrow lots of money and buy a nice, big, expensive, house, and pay both the principal and the interest by refinancing the loan as the value of the house increases. Translation: affordable housing for everyone. This, of course, is exactly how sub-prime mortgage lending worked in the years before the financial crisis, and one might think that it somehow contributed to it. Let’s assume it didn’t for now, and the collapse was caused by evil Goldman Sachs “betting against home-owners”. A happy scenario that is, where, in 20 or 30 years time, recent university grads and low-income families buy houses valued at hundreds of millions of dollars, leveraging their downpayments (if they pay them at all) thousands of times, producing imaginary profits for a financial industry vastly, vastly, larger than it ever was before the crisis. Sounds sustainable? About as sustainable as a good old Ponzi-scheme.

If only Goldman and the other investment banks had shorted the housing market a little more, a little harder, and a little earlier, perhaps this whole mess could have been avoided. “God’s work”, indeed.

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Yngve Slyngstad, not yet fifty years old, started his career as a junior researcher at Norges Bank at the age of 31 after completing a whopping four Master’s degrees in Law (University of Oslo), Economics (UC Santa Barbara), Business Administration (NHH) and Political Science (University of Paris, Sorbonne), spending years backpacking around Asia, and living by himself in the wild and weather-torn Northern Norway reading Wittgenstein. Needless to say, we here at Evolution-Revolution think this is a pretty awesome guy.

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In particular, three factors underlie this prognosis:

1) Norway’s economic performance has been even better than expected in January, and the structural deficit covered by transfers from the Government Pension Fund (GPF, the $300 billion “Oil Fund”) is now smaller than predicted. Interest rates will probably rise faster than previously expected.

Last year, many domestic commentators were afraid that “temporary” spending increases from after the crisis that appeared to become more permanent in the 2009 budget would leave the government spending money from the Government Pension Fund  above the “budgetary rule” for several years. This “budgetary rule”, a guideline for policymakers, states that in order to ensure macroeconomic stability and long-term fiscal sustainability, no more than 4% of the value of the fund (the estimated average yearly return) should be spend in each year’s budget. The consensus is that more can be spent during recessions, and that this will be covered during periods of higher growth – basic Keynesianism, except the Government is “borrowing” from it’s own piggy-bank to finance expansionary fiscal policy. Numbers from the national accounts presented last week, however, show that the government spent around 15% less money from the Government Pension fund than previously expected. Norway’s already rock-solid public finances are even more rock-solid than previously expected.

Unless this windfall is turned into more spending in next year’s budget, or GDP shrinks unexpectedly, Norway will be back to the 4% budgetary rule in 2013. Regardless of whether spending is increased, though, less pressure on Government to cut spending will ease the need to keep interest rates low.

Above: Realised and expected values for the key policy rate, from the latest Monetary Policy Report published by Norges Bank (Norway’s Central Bank), expect them to be adjusted upwards, perhaps as early as tomorrow (source).

There is still worrying, though, that increasing spreads between Norwegian and foreign interest rates will cause the Krone to rise so much as to harm a Norwegian export industry already troubled by falling international demand. According to Central Bank Chief Svein Gjerdrem, “There is much to suggest a higher interest rate now. What makes us hold back, is that the interest rate is even lower in other countries. If we are too radical, the krone might strengthen too much.” Nevertheless, the Chief of the Central bank worrying that rate hikes he thinks are necessary might strengthen the Krone too much is hardly a bearish sign. Even if Norges Bank does not raise interest rates more than the expected 0,25 percentage points after the meeting tomorrow, interest rates will have to go up in the near future.

2) The Eurozone is even weaker now than it was in January. Even if the massive Greek bailout saves the country from financial collapse, it has left the Eurozone less able to deal with troubles in Spain or Portugal, should they worsen.

So much is written on this that I won’t spend a lot of space on it here. At any rate, even if everything blows over eventually, it won’t do so for a while, and it is unlikely that financial markets will stop worrying in the near future. In the meantime, the need for a “safe haven” currency is likely to increase as contagion worries proliferate and the Euro weakens as more debt is taken on to keep the southerners afloat.

3) Britain might have a hung parliament on Friday, making spending cuts and handling the deficit more difficult.

Some of this risk was arguably priced in as early as Nick Clegg’s spectacular debate performance on April 16th. Nevertheless, in the event of a hung parliament, worrying over the pound is likely to continue and worsen as the political battles in the parliament unfold over the next months and years. The need for a “safe haven” currency vis-a-vis the pound is likely to increase, and the pound is likely to weaken further amid increasing debt worries.

One risk factor, though, is the high correlation of the Norwegian Krone with the oil price, which could mean a dramatic dip in the price of the currency if the price of oil does so. On the other hand, this also makes it possible to hedge a long krone position with short oil exposure. Depending on how expensive such a hedge would be, hedged carry trades could be possible.

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Still, Norway’s Labor Party led coalition government is arguably leaning towards opening up the area for oil and gas investments, in spite of vocal protests from its Socialist Left Party members. It has certainly been  eager to drill further north. In the Barents Sea the massive Snøhvit project has already been developed in spite of claims from environmental groups that the nature in the area is too sensitive.  And after Norway and Russia finally settled its 40-year old maritime border dispute during president Medvedev’s visit last week, Minister of Oil Terje Riis-Johansen announced that new searches for oil and gas resources in the area will commence as soon as possible.

The Deepwater Horizon disaster might change this, though.  Snorre Valen of the Socialist Left Party wrote a piece in Dagbladet yesterday urging the government to do like the Americans and ban any new offshore drilling until a full investigation of the Deepwater Horizon disaster has been conducted. The influential environmental group Natur og Ungdom also posted an article on their website titled Deepwater Horizon Must Have Political Consequences [for Norway].

It is still early, however, and it remains to see if the events in Louisiana will influence the Norwegian policy debate much more. Here at Evolution-Revolution, though, we think Statoil’s public relations people at least are worrying. To the extent that pictures of oil-soiled wildlife along the Gulf of Mexico helps create similar images of spoiled Northern Norwegian nature in the imagination of Norwegian voters and policy-makers, they are hardly in the interest of Norway’s powerful petroleum lobby. The fact that bad weather has been causing trouble for the clean-up efforts in the Mexico Gulf are extra worrying, as Northern Norway’s coastal areas are known for their sometimes extreme weather conditions, which would make clean-up and containment extremely difficult in the event of a spill.

Nevertheless, if we are to believe the Wall Street Journal (which Dagbladet seems to do), the ongoing disaster could have been averted if a $500,000 acoustic backup-switch had been installed on Deepwater Horizon.  Norwegian regulators, apparently more concerned with risk-management than their American counterparts, have required the switch to be present on almost every platform operating in Norway since 1993. Perhaps the Gulf spill is not so relevant to the Norwegian policy debate after all.

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In connection with this year’s women’s day celebration in March, my younger sister who is a Seargeant in the Royal Norwegian Air Force was interviewed by an “investigative journalist” from NRK making a piece about women in traditionally male occupations. She recounted to me a part of the interview that did not make it past clipping. It went something like this:

Interviewer: Have you ever experienced gender discrimination?

Sunniva, female Air Force Sergeant: No, I can’t recall any situation where I have been discriminated against.

Interviewer (a little surprised): But, you must have… Eh, well, I have heard stories about women in the military…

Sunniva, female Air Force Sergeant: I can only speak for myself, but I have never experienced anything like that.

Interviewer: Well, have you ever experienced ALMOST being the victim of discrimination?

Sunniva, female Air Force Sergeant: Eh, no…

Interviewer: OK, so you don’t feel like you are being discriminated against, but do you think that some other women perhaps could feel like they were if they had your job?

…

I feel so much safer now that I know that the media is investigating hypothetical gender discrimination.

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According to the subcommittee, it has chosen to investigate Goldman Sachs  merely as “case study”, and yesterday’s oral exam was generically titled “Hearing On Wall Street and The Financial Crisis: The Role of Investment Banks”. It appears, however, that the subcommittee members were not primarily interested in the general issues pertaining to what role Investment Banks may have played in creating the credit bubble leading to the financial crisis (although that too is addressed, and Blankfein concedes that they and others “failed to… sound the alarm that there was too much lending and too much leverage in the system). Rather, it seemed the subcommittee wanted to pick a fight with Goldman Sachs over the bank being a little too successful at hedging its positions during the financial crisis, and over the fact that it at times were selling assets that some of its clients were buying (and vice versa). Specifically, the subcommittee claims that Goldman Sachs acted unethically and contributed to the financial crisis because of:

(3) Shorting the Mortgage Market. As high risk mortgage delinquencies increased, and RMBS and CDO securities began to lose value, Goldman Sachs took a net short position on the mortgage market, remaining net short throughout 2007, and cashed in very large short positions, generating billions of dollars in gain.

(4) Conflict Between Client and Proprietary Trading. In 2007, Goldman Sachs went beyond its role as market maker for clients seeking to buy or sell mortgage related securities, traded billions of dollars in mortgage related assets for the benefit of the firm without disclosing its proprietary positions to clients, and instructed its sales force to sell mortgage related assets, including high risk RMBS and CDO securities that Goldman Sachs wanted to get off its books, creating a conflict between the firm’s proprietary interests and the interests of its clients.

(From exhibit 1 in the exhibits list for the hearing)

Let me see if I am getting this right:

1) Goldman Sachs is being subjected to a congressional lynch mob because they managed their risk relatively well. In response to what they saw as increased risk related to RMBS and CDO assets they aggressively and successfully hedged their long positions in those markets with equivalent short positions, at times so much that they were net short overall. I always thought managing risk well was something very good for a bank to do, but apparently aiming for gambler’s ruin is a more “ethical” strategy. As The Economist points out, Lloyd Blankfein “must have wondered if Goldman would have been better off from a public-relations point of view by incurring giant losses”.

2) Goldman Sachs acted like a greedy, unethical bastard because it let clients decide for themselves what assets they wanted to buy or sell at a given time and price regardless of what positions the bank held itself, and because it sold assets it wanted to get rid of to clients who wanted to buy them. Now, it takes two parties who agree on a price to make a transaction, but it seems the subcommittee subscribes to the notion that Goldman alone decided which securities its clients would buy or sell at a given time and price. Furthermore, it does not matter if a certain client would not have been willing to buy a certain security if they had known Goldman was short that security, as long as the client also knew at the time of the transaction that Goldman’s positions were confidential. The fact that Goldman might be short the given security is necessarily a consequence of  the known fact that the bank’s positions were kept secret, and something one can only expect clients to take into consideration. If the fact that Goldman might be short a security a client is planning to go long would make a client uncomfortable about making the trade, she should not do it. If the fact that Goldman might be short a security doesn’t matter that much for the client, then who cares?

It doesn’t take a government-skeptic with paranoid tendencies to see that this “case study” is a politically motivated attempt at making Goldman Sachs commit to a round of Maoist-style self-criticism because lawmakers are in need of recession-scapegoats. While such a lynching may give some satisfaction both to the senators on the committee, as well as their disgruntled voters, it hardly sheds a lot of light on the causes of the financial crisis. It will certainly make the Volcker rule more likely to pass, though, and also provides some pretty strong incentives for investment banks to improve their public relations. Goldman would perhaps have been better off had they heeded The Epicurean Dealmaker’s prescient warning about the possible consequences of having an approach to PR comparable to that of the Mouth of Sauron.

Of course, none of this makes it okay to drag a firm through the mud just because it has been doing very well when many others have been doing badly. I recently wrote an article on how, in North Korea, the government executed a senior communist party economist found guilty of treason after a currency reform he was named responsible for failed and led to an economic crisis. Just like Goldman Sachs, he was a much-needed scapegoat. In the article, I wondered ironically how the West would have looked if one was act more like North Korea and charge senior finance executives for treason in the wake of the financial crisis. Sadly, it almost appears as if the Americans are intent on showing us.

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A complex system that is very difficult to describe by a single phrase – Photo Credits

Thinking further about  this problem, business books that try to coin new phrases come to mind. Malcom Gladwell is a master of this art writing books such as “The Tipping Point” and “Outliers”.  Be careful when reading this, it is most probably oversimplifying the world, making you less wise than you were prior to reading it while simultaneously leaving you with the impression that you are more intelligent and knowledgeable.  Or as Steven Pinker has described his style: “cherry-picked anecdotes, post-hoc sophistry and false dichotomies”

Another example that comes to mind, is the now well established ‘truth’ of  The Long Tail, proposed by Chris Anderson of the Wire. It argues that as the internet and communication technology decreases the acquisition costs of niche products, less people will buy ’superhits’. Instead a larger amount of sales will be made up of many low-volume products that were simply to costly to keep in stock earlier. Anita Elberse of Harvard Business School and several other studies question whether this is the case, empirically-speaking. This it not saying the Long Tail is non-existent – it is an effect in some markets, but not in all. A networked and complex society can just as easily channel everyone into reading and watching all the same webpages and videos. Think about how aggregator sites function, they only show you the most popular articles within a category with little room for long tails.

To conclude we again invoke our Pledge to our Readers. Sweeping generalizations are seldomly right. The world is complex and truth or objectivity – in the words of Nietsche – can only be found by viewing reality from as many angles as possible.

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Property investments are notoriously illiquid. Currently the reserves of the GPF is used to cover the domestic fiscal budget deficit. As wee have recently seen, the deficit and need for fiscal expansive policy will usually be the highest when liquidity is the lowest. Illiquidity  implies below real value prices and as such NBIM will always be selling its real estate investments when prices are the worst (this is in a longer term perspective when oil revenues are actually smaller than the budget deficit)

It was the Yale endowment fund under management by David Swensen that started advocating that long term investors such as the GPF should allocate more of its investments to illiquid assets or ‘alternative investments’ such as real estate because the should – theoretically – bring excess returns. Moreover since they are not fully correlated with other securities risk will be lowered. The empirical evidence for this is ambiguous at least.  Yale’s endowment fund ant others following similar strategies suffered heavy losses during the crisis of 07-09, forcing colleges like Harvard and Princeton to cut back on spending and research. For a university with a more or less constant expenditure rate this is bad, for a country when expenditure has to be increased when the values of your investments fall, its worse. Even though alternative investments seem to deliver superior returns when the market is rising they do most probably not if one takes the whole market cycle into account and the correlation with other asset classes is surprisingly strong due to the systemic nature of the financial market. Even if two assets are not correlated at all, if the price of one collapses, leveraged investors of both will sell the other to cover their liabilities and index investors, just like NBIM, will also be forced to sell to maintain their previous ratio of investment. If the financial crisis has thought us one thing it is how incredibly close to 1 the correlation of most assets are in times of distress – and that’s what really matters.

NBIM should be allowed to focus on what it knows best; investing in bonds and stocks.

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Yesterday, one of these these rallies, named “Restore the Constitution Rally”, was held right across the river from Washington DC, in Fort Hunt and Gravelly Point, the symbolic effect of being almost within shouting (shooting) range of Capitol Hill said to be important. Ironically, it has only recently become legal to openly carry guns in these locations after president Barack Obama signed into law a bill allowing for open-carry in national parks. It does not appear that this has led the gun-toting demonstrators to become less wary of the “socialist” president, though.

CNN reports on the attitudes of some of the partcipants:

“We’re in a war. The other side knows they are at war, because they started it,” said Larry Pratt, president of the Gun Owners of America. “They are coming for our freedom, for our money, for our kids, for our property. They are coming for everything because they are a bunch of socialists.” (article)

…

The Oath Keepers call on members to disobey any orders, as they put it, “to disarm the American people” or “to force citizens into detention camps.“ (article)

Somehow, forcing people into detention camps has recently become part of the democratic agenda.

And according to the Washington Post:

[Daniel Almond] organized the rally because he is upset about health-care reform, climate control, bank bailouts, drug laws and what he sees as President Obama’s insistence on and the Democratic Congress’s capitulation to a “totalitarian socialism” that tramples individual rights. (article)

…

Among the group was Tim Hammond, who carried two pistols, a rifle and plenty of ammunition as part of an all-black outfit that included a black tricorn hat. Hammond, who said he flew in from California, told another demonstrator he believes that President Obama is the antichrist.

“If he’s not the antichrist, he’s pretty close,” the second man concurred.

“We’re definitely in the end times,” Hammond continued. “The rapture, in my opinion, has to be sometime this fall.” (article)

As such, it appears the main point of the open-carry protest was not so much to protest against stricter gun-control laws (which no Democrats or government officials have proposed), but to protest “President Obama’s insistence on and the Democratic Congress’s capitulation to a totalitarian socialism” (and, for some, to prepare for the “end times”, which is about time if the rapture is coming up this fall).

Above: A well functioning democracy is impossible without a heavily armed citizenry, in the United States as well as in other places.

This protest makes a lot of sense, considering that in the United States publicly subsidized health-care apparently means that one must also have totalitarian socialism. Which is worrisome – very few people like totalitarian socialism. In my native Norway, though, one has somehow managed to harmonize the two deeply conflicting goals of avoiding totalitarian socialism on the one hand and still have decent health-care for everyone on the other. Nevertheless, I suppose that one could hardly hope to successfully replicate this unlikely policy outcome of public health-care without totalitarian socialism anywhere else in the world.

Of course, if one is worried about liberal democracy being under threat, resorting to political violence or the threat of it would appear to be an obvious choice. One of the main speakers at the “Restore the Constitution”-rally, Mike Vanderboegh, has a proven track-record of doing so already. After the health-care reform was passed, he encouraged his followers to “break the windows of hundreds, thousands of Democrat Party headquarters” by throwing bricks at them. According to the Washington Post, “Some of them did as they were told”.

Of course, bricks are not as cool as guns, nor as American. But some of the participants insisted that the gun carrying was merely symbolic:

“Rosa Parks stood up on a bus one day and made a statement that changed the world,” said [Timothy] Whittamore, likening himself and other protesters to the late civil rights activist. “When she stood up on that bus, it’s the same thing we are doing here today.” (article)

Other participants, like Mike Vanderboegh (who happens to be from the same state as Rosa Parks), seemed more trigger-happy:

[Vanderboegh] recounted for the crowd his successful calls for bricks to be thrown into Democrats’ offices. “I hope to make them understand that the situation was coming to a fundamental break when people innocent and guilty alike were going to begin dying for their own stupid failure to comprehend the real situation that we are all in,” he warned.

He then led the crowd in chanting what he called a Southern “battle cry” of “Oh hell no!” Explained the Alabaman: “When you hear it, where I come from, you know that somebody’s going to get beat, stabbed or shot, and the guy that takes the beating, the knife blade, or the bullet undoubtedly deserves it.” (article)

I always thought that the United States Constitution was about the rule of law (as opposed to mob justice), representative democracy (as opposed to rule by means of political violence), and generally adhering to the principle of sorting out problems by discussing them in a civilized manner (as opposed to killing one another over them). Apparently, I was wrong. According to the people who really care about protecting the United States Constitution, the main point is the right to kick ass. The founding fathers would have been proud.

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An excellent article on zoophiles, animal lovers – there is more to human sexuality than I would ever have expected and somehow horses are particularly attractive

Steve Randy Waldman explains why measuring bank balance sheets (capital) is impossible

A report from Morgan Stanley on the emerging global trends of internet usage, especially mobile

Dani Rodrik on the return of industrial policy – governments can pick winners

How to make a  freestanding handstand Push-Up – my goal for the next year

Stiglitz on an agenda for reforming economics at the newly established, Soros-financed, Institute for New Economic Thinking (video)

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Thanks to my uncle Ashley, a loyal Evolution-Revolution reader, for sending me the link.   Picture from http://affordablehousinginstitute.org/blogs/us/2007/07/the-value-of-foreclosure.html

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The following were (seriously) the top three headlines last night on the RSS feed I get from Dagens Næringsliv, Norway’s biggest business and economics newspaper:

LONG, LONG LINE OF GOOD WINES

(Lang, lang rekke med gode viner)

-

APPEALING SYRAH-WINES

(Tiltrekkende syrah-viner)

-

ABDUCTED FINANCIAL ADVISOR

(Bortførte finansrådgiver)

That last link is foreign news, of course, about a something that happened in Germany. So far, it appears we are still living the good life.

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I was recently reading some older posts on Andrew Clavell’s Financial Crookery, and came across a post from early January on the decision made by Iceland’s President Ólafur Ragnar Grímsson to let the so-called Icesave bill (with which Iceland agrees to pay back Britain and the Netherlands the deposits made by its citizens that were lost by its banks) be subject to a popular referendum that it surely would not survive. It didn’t, on March 6th 93% of voters wanted it dead, compared to a diminutive 1,6% who wanted Iceland to compensate the British and Dutch for its losses. Now, of course this is old news at this point, but I don’t think it’s too late to keep debating it a little more. I’ve included Mr. Clavell’s post here:

An avuncular Icelandic president appeared live on British TV screens last night to explain why he was handing over the envelope and stamp, if not the keys, so the 320,000 strong public can engage in jingle mail. It seems possible the doughty Icelanders will vote to repudiate direct, legally binding, sovereign obligations to Britain and the Netherlands foisted upon them by their uncontrollable banking sector.

In the US, low credit rating prospects with little ability to repay were offered virtually free money by fee grubbing securitisers. With little credit rating to protect, jingle mail provided them a free put option on house prices. When prices turned sour, they simply stopped paying the loans. Most now benefit from servicers’ incompetence to extend their rent free dwelling as long as possible in advance of foreclosure.

That is rational strategic default as the consequences are low and the lender incompetent – the borrower simply returns to status quo ante. In Iceland’s case, the lenders are not. If the population mails in the keys, they can forget EU membership, IMF loans, and prepare for a decade of eating boiled fish (hot water and fish being the only two natural resources in the remote island). Handing over the equivalent of $16,000 each to avoid this dietary choice may seem steep, but it is well worth considering.

It may be worth considering paying $16 000  a person to join the EU sooner rather than later. It appears, however, that the Icelandic people have done so and decided it’s not worth it. Don’t forget this country managed to become one of the richest countries in the world without an EU membership, even before its financial sector evolved into a booming bubble during the last ten years.

And while IMF loans (which tend to have strict conditionalities attached, anyway) may be out of the question, it could be in the interest of Iceland’s oil rich neighbor Norway (Evolution-Revolution’s native country) to extend credit to the former. Firstly, Icelandic EU membership will weaken Norway’s negotiating position vs. the EU with regards to important fish exports. Secondly, extending “a helping hand” to Iceland might be domestically popular in Norway – the two countries have long cultural, historical, and family ties. In fact, almost the entire population of Iceland is of Norwegian descent. And Iceland has played an important role as a keeper and creator of Norwegian culture and history. Snorre Sturlason, author of the epic Heimskringla, the most well known of the old Norse sagas and a quintessential piece of Norwegian culture and history, was Icelandic.

EU membership is another issue, but while it may be out of the question for now, defaulting on the debt is unlikely to threaten Iceland’s  already well established membership in the European Free Trade Area (EFTA); which anyway gives access to the EU Single Market. Arguably this is one of the most important benefits of EU membership generally speaking, but it is one that Iceland already has and one which probably won’t be affected by a strategic default. At any rate, the Icesave repayment scheme as it was would have cost Iceland 1,2% of its GDP over fifteen years. It is very difficult to imagine that the economic benefits of membership in the EU would come anywhere close to this. Econometric estimates are that because of the Single Market, GDP is about 1,7% higher in the member countries than it would have been in a hypothetical non-EU baseline scenario. This is the same, however, for non-EU EFTA members, such as Iceland (as well as Norway and Switzerland). Such estimates are highly model-dependent, but even if we take them at face value it is difficult to believe that it would make a big difference for Iceland to be an actual EU member when it already has access to the free market.

Another point to make is that, as opposed to for example Estonia or Latvia, Iceland has little to gain from EU membership in terms of international security or other general political goals. It is not like it’s next door neighbor is an increasingly aggressive Russia that fondly remembers Iceland as a province (which is the case with, a.o. the Baltic states and Georgia). Of course, poor relations with Britain and the Netherlands will most likely come with a price tag – the British have already called off a planned RAF mission to Keflavik Air Base. But again, this cost is unlikely to come anywhere near 1,2% of Icelandic GDP over 15 years.

If I were living in Iceland, I’d be more worried about having my diet limited to boiled fish by paying off the British and the Dutch than by not doing it. Of course, by defaulting, Iceland is screwing over foreign taxpayers. As it is, our Viking ancestors raided both the British Isles and the northern coast of the European continent with impunity for many years. While we ended this habit many hundred years ago, it is probably appropriate for Iceland to make an exception in this case.

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Above: “I think this is a very good death”, Lord Katsumoto tells a perplexed Tom Cruise, soon to become The Last Samurai

Like Custer at Little Bighorn, Lehman Brothers bravely removed the possibility of surviving by means of a tactical retreat in case they were befallen by a great host of hostile Indians by making use of the now infamous repo 105 contracts. Andrew Clavell, author of Financial Crookery, posted an interesting article on how and why they work here. Especially recommended for those of our readers who aren’t working with or haven’t studied a lot of finance or derivatives.

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The policy environment leading the execution of the North Korean economist, who was most likely a scapegoat, is hardly one that should be emulated. However, I can’t help but think about how the U.S. or Europe might have looked in the wake of the financial crisis if a more North Korean approach had been taken during the witch-hunt that followed it (and is still ongoing).  Could you charge Richard Fuld with treason for over-leveraging, or Eugene Fama for trying to make people think that capital markets are efficient?. Certainly one would expect the emergence of a slightly more risk-averse financial sector.

For a more realistic discussion about discretionary power being given to regulators, check out The Epicurean Dealmaker’s recent post about fire alarms, strong men, and big axes.

Thanks goes to loyal Evolution-Revolution reader and good friend Jan Petter Janssen, creator of Developing Trader, for the tip about Pak Nam Gi.

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Above: Microsoft’s Entertainment and Devices Division after one of Steve Ballmer’s “angry” days.

The Wall Street Journal reports that Microsoft management is cracking down on the use of iPhones amongst company employees. In a recent meeting executives Andy Lees (who is in charge of mobile-phone software development) and Robbie Bach (President of Entertainment and Devices Division, responsible for a.o. the Xbox) were chastised by CEO Steve Ballmer when arguing that their employees should be encouraged to use competitor products so as to learn from them and aid innovation. According to WSJ, “he told executives that [when] his father worked for Ford, …his family always drove Fords.” Moreover, it appears the boss’ distaste for otherness has not gone unnoticed throughout the organization:

Some Microsoft workers take pains to hide their iPhones. While rank-and-file workers tend to use the iPhone openly around peers, some conceal them within sight of more senior executives. One Microsoft worker said he knows several colleagues who try to disguise their iPhones with cases that make them look more like generic handsets.”Maybe once a year I’m in a meeting with Steve Ballmer,” said this employee. “It doesn’t matter who’s calling, I’m not answering my phone.”

 

In a more overt move to discourage iPhone use amongst its employees,  Microsoft announced last year that it would only reimburse work-related cell phone bills made from phones running on Windows software. The company denied that this had anything to do with too with discouraging the use of iPhones, claiming that “it made the change as part of a broader cost-cutting plan.” Of course, if simple logic is applied, one quickly realizes that the only way Microsoft can save money by only reimbursing calls made from phones running Windows is if a significant number of employees thinks that the iPhone is so much better than their own products that they would rather pay the bill for work-related calls out of their own pocket than use Microsoft’s phone software.

Above: Polish cavalry, more nimble than Microsoft?

For us here at Evolution-Revolution, humble students of Technology Governance (which translates into Economics of Technology and Innovation, for those of you who are not familiar with term), Ballmer’s attitude to iPhone usage amongst his employees and the approach to technology-business management it is symptomatic of appears tantamount to Polish cavalry in 1939 charging German tanks head on with lances lowered. This particular Polish cavalry charge is, of course, a myth – the Polish cavalry commanders were perhaps more apt than Ballmer. In fact, the 18th Pomeranian Uhlans Regiment under Colonel Kazimierz Mastalerz were, in spite of their technological disadvantage, able to successfully delay the German advance at the battle of Krojanty by means of nimbleness and suprise – hardly common features of Microsoftian management during the last decade or so.

And Big Three auto companies as they were during the 1960’s – the time during which Steve’s father, Fritz Hans Ballmer, was working as a manager at Ford – are hardly good role models for Microsoft. Even if one is to disregard the recent troubles of the U.S. Auto Industry, the rigidly hierarchical management structures that were avant-guarde pre World War II hardly gave the American Auto industry an edge when faced with Japanese competitors, in particular Toyota, from the 1970 and on. The latter’s flat, flexible, and lean organization; which heavily emphasized participatory innovation and “continuous improvement”;  was far better at improving efficiency and product quality than the rigid structures of Ballmer Senior’s Ford. And the American Auto industry’s lack of organizational innovativeness was not a result of lacking opportunities. In 1946, after conducting a comprehensive two year in-depth research project at General Motors, the (later) highly distinguished Peter Drucker advised management to move away from the current “command and control” structure, and allow for more flexibility and divisional autonomy. GM did not take kindly to criticism, though, and the recommendations Drucker made in his famous book Concept of The Corporation caused him to be considered a traitor to the corporation. In a Soviet manner, then CEO Alfred Sloan forbade people from mentioning the book in his presence, preferring to act as if it did not exist. The Japanese, however, eagerly took on Drucker’s work, which became instrumental in the development of what today is known as the Toyota Production System.

Above: The Soviets, more adept at photo-modification than Alfred Sloan, have removed the traitorous Leon Trotsky and  Lev Kamenev from the lowermost picture.

In the current techno-economic ICT-paradigm – especially for tech-firms, whose real product essentially is innovation -  organizations need to be run like open and flexible networks, not like command and control hierarchies. IBM, for one, has understood this, and have made open innovation a key part of their development strategy.

Now, it is unfair to say that Microsoft is completely lost. It too has made steps to become make use of collaborative and open innovation, and the new strategy announced in February 2008 was a huge improvement on their previous fortress-approach. The  evil sorcerer Sauron’s tower of Barad-dûr is not a good model for a modern, innovation-intensive ICT-business.

Culture matters, though, and Ballmer & Co’s insistence on punishing their employees for using iPhones appears more symptomatic of a Barad-dûrian culture than one centered around openness and flexibility. Essentially encouraging his company to be more like Ford was when his dad worked there in the 60’s is exactly the wrong thing to do.

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Above: “I am *this* much more awesome than all of you guys!”
Picture from unattributable.com

Attending a small rock concert this weekend (a good one, with the Estonian band Mild), I was struck by tremendous amount of unabashed ego displayed by the lead singer of the band. Now, in the case of an aspiring rock star, this is of course not a bad thing. In fact, I would argue that a big, proud, and unapologetic ego is mostly a very good thing for a most live performers, especially would-be rock stars. Bashfulness is certainly not often a desirable attribute when performing live in front of thousands of people (perhaps this also is part of the reason why ego-inducing, bashfulness-reducing substances have tended to be popular before such appearances).

Of course, the optimal level of ego in a rock star setting is hardly the same level that is optimal in most walks of normal life (see graph below). Of course, ego-levels may be consciously adjusted over time (here, again, the use and abuse of mind-and-mood altering substances may play a role). Nevertheless, ego levels arguably vary as much or more across individuals as it does across time for specific people. To the extent that this is true, one would of course hope that ego is allocated as efficiently as possible across the economy, such that those with a big ego are doing things that require a big ego and not doing things where a big ego is a bad thing.

Now, there is probably a great extent of feedback taking place here. To the extent that – in some fields – a little bit of ego is rewarded with a higher probability of success, and that success causes the emergence of even more ego; very rapid increases in ego can be expected until the process is sabotaged by diminishing marginal returns.

We here at Evolution-Revolution are happy to see that rock-star-dom appears to be one place where high levels of ego in fact are being efficiently allocated. In fact, anecdotal evidence from my little sister’s high school, which offers one of Norway’s best preparatory programs in music and is a breeding ground for aspiring rock-stars, would suggest that a significant number of high-ego individuals are directed into the field already at an early age.

There are, however, some areas where ego may be excessively incentivized. Politics, for instance, appear to be a field where a similar kind of ego exhibited by many successful rock stars often is rewarded with votes and popularity. I think it his highly questionable, though, whether excessive amounts of such ego is a desirable attribute of our elected politicians (see my post: “Power Corrupts”).  Here as elsewhere, externalities are pervasive.

The question remains, of course, what the optimal amount of ego for a blogger is.

Update:

I remember one very distinguished professor of mine made a note in our reading list about Paul Wilmott, a financial derivatives guru and the author of our main textbook, stating that “His immense ego is only dwarfed by the ridiculous extent to which he deserves it.” You can be a rock-star in financial derivatives, too.

March 16th.

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Learning by analogy:

sometimes supposed solutions make the original problem worse. In whale-removal as well as in economics.

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How about a really big steel plant… right here?

A friend and fellow Technology Governance student here at the Tallinn University  of Technology shared with me two papers by Tatiana Mikhailova from Harvard’s Davis Center and Boston University’s economics department, in which she argues that spatial inefficiency caused by Soviet planning may be costing Russia more than 1,2% of their GDP annually compared to a market-based counter-factual scenario, chiefly because of higher energy costs necessitated by cold weather.

I’ve included the abstract of Mikhailova’s paper The Cost of the Cold: The Legacy of Soviet Location Policy in Russian Energy Consumption, Productivity, and Growth below:

The spatial allocation of productive resources in present day Russia is inherited from the Soviet Union. Soviet system allocated investments without regard to economic efficiency, as the result the colder regions of Russia are significantly overpopulated compared to the market-based counterfactual. This paper estimates the cost imposed on Russia by this excess exposure to cold through excess energy use and loss of productivity. We show that the inherited spatial inefficiency costs Russia above 1.2% GDP annually in extra energy consumption and construction productivity alone.

Thanks to Mihhail, a loyal Evolution-Revolution reader, for sharing the papers.

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I just came across a post at the North Korea Economy Watch blog linking to North Korean comic book translations made by Heinz Insu Fenkl, an associate professor in the department of English at the State University of New York, New Paltz . As such, I have spent the last couple of hours or so reading about the Great General Mighty Wing and the Kim Brothers in Blizzard in The Jungle. It is easy for those of us who grew up after the end of the cold war to think of authoritarian dictatorships and ultra-explicit propaganda as relics of the distant past. These North Korean comics sadly remind us that this is not the case. They are, however, both interesting and amusing.

The Great General Mighty Wing is a children’s comic about a brave general who saves the bees from the invading wasps and spiders, and the all-important honey-producing garden of 1000 flowers from a dangerous drought (which, according to Fenkl, refers to a very real drought in North Korea happening at the time of publishing). Interestingly, it features “inspirational” proverbs written in the margin of every page, tailored to the the unfolding of the story. I’ve included some of them here – I think they are very telling about the sort of attitudes the DPRK government, as well as authoritarian governments in general, are interested in cultivating:

“A home is secure behind a deadbolt, and a yard is secure behind a fence.”

“An old enemy is still an enemy.”

“Forgiving the enemy is tantamount to suicide.”

“Treat an enemy cordially, and he will climb on your head.”

“The enemy will not appear before you, but behind you.”

“A small enemy? There is no such thing anywhere.”

“Debts, flames, an enemy’s stump – they will all rise up again.”

“The jackal that appears to be small always appears to be the most vicious.”

“The singular purpose of fireworks is to inspire victory.”

“The sight of an enemy’s smile – a piercing needle.”

“Though the enemy be no more than a mosquito, consider him no less than an elephant.”

“Radicals and idiots are both mentally deficient.”

“Snuff out a fire before it spreads, and squash dissent before it takes root.”

I find it all eerily reminiscent of certain books written by George Orwell.

I’ve also added some excerpts below from Blizzard in The Jungle, a story about two Korean Doctors, the Kim Brothers, who save a group of survivors after their plane crashes in the African jungle near the infamous Devil’s Mountain, from which no one has escaped alive. The plane crash was orchestrated by the evil “Mafia”, who are trying to steal secret documents carried aboard the plane. To make matters more interesting to the Western observer, the secret documents are military plans belonging to North Korea’s valiant allies – the Government of the Democratic Republic of Congo. The site hosting the comic to also includes some interesting commentary on the comic by Ri Chol-Geun and Jo Hak-Rae.

–

The two North Korean doctors Kim are of course in peak physical shape (it is soon revealed to the reader that this is because of the Korean miracle plant Ginseng). The other survivors discuss amongst themselves:

“I just don’t get it. How can those two be so much stronger and kinder than us?”

“I don’t understand either. I’m an athlete, and I should have a better body than them.”

“It’s hard to believe. These men as so full of confidence in our survival and in their ability to take care of us in this infamous jungle from, which not even the strongest men have escaped alive.”

The North Korean heroes are also imbued with a righteous revolutionary spirit and love for their dear leader:

“Our great leader, comrade Kim-Jong-Il, will be losing sleep tonight awaiting news of us.”

“My heart aches for the warmth of our dear general’s love!”

“…When we return to the bosom of our dear leader, let us do it in the spirit of the anti-Japanese  revolutionaries who dreamed of the revolutionary government!”

The Americans in the group, however, are hardly portrayed very positively:

American #1: “Look, we’re all independent adults, I say it should be every man for himself.”

American #2 : “What we do is our own business.”

Others: “We have injured people! How can you go off on your own?”

“You are being selfish!”

“Do you think you’ll survive if the Mafia catches you?”

American #1: “Hah! The mafia would’t dare kill a white man!”

American #2: “We’ll do whatever the hell we want!”

North Korean Doctor: “If that’s what you want, we won’t stop you…”

American #2 :”Good, you get it, then. Let’s go, Lincoln …”

American #2: “If we follow the river, it should take us to a village or something.”

American #1:”Yeah, I saw that in a movie once.”

Soon thereafter the Americans are eaten by crocodiles after happily helping the evil Mafia in their hunt for the rest of the survivors. The latter are of course led to safety by the North Koreans, whose great virtue and strong character can hardly be questioned:

(One of the survivors, speaking to the oldest of the Kim Brothers ) “As a botanist, I have been many different places in the world, and met many different people, yet this is a first for me… I’ve never encountered anyone as kind, yet strong as the two of you.”

“…If it weren’t for you, we would all have fallen by the wayside, one by one. We would not still be standing.

If only we could be more like the North Koreans.

–

Pictures are from Heinz Insu Fenkel’s site. I hardly think North Korean comics are covered by the WTO Agreement on Trade–Related Intellectual Property Issues, though.

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Question 2010 by Katinka Matson

That is the annual question of the Edge Network. They have several interesting essays on the topic here.  In particular, I like Frank Schirrmacher’s asking if  we are we turning into a new species — informavores. Recommended.

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The Future State of Humanity? Photo by Aaron Haussman

Friedrich Georg Jünger, translator of the Iliad to the German and expert on Pre-Socratic philosophy has written one of the most powerful critiques of technology named “Failure of Technology: Perfection without Purpose.” I will present some of his most important criticisms of technological progress in general and their relevance for the technological development we are seeing today.

For better or worse, it is certain that technological development is truly changing our society and the way we live. The general view of technology is often very utopian, it sees technology as changing our lives for the better; helping us live more comfortable and easy. Technology relieves us of work through the automatization of processes that were formerly done manually.  Jünger asserts that this is an illusion. Leisure is only fruitful if one has a “spiritual and mental life from which on draws meaning and worth.” To Jünger the real value of life comes from seeking spiritual wisdom. Other kinds of leisure are hollow and without dignity. Empty time will, according to Jünger, in fact harm the uneducated worker who loses heart and feels degraded; as without a function in life.

Moreover, technology is inherently collectivistic and forces society and the state to organize according to it. Think only of how the emergence of computers and the internet has completely transformed both the organizational and operational structures of almost any organization. The German Conservative Philosopher Arnold Gehlen has described it as a “complete spillover from technology into the social sphere.”

Hieronymus Bosch -The Garden of Earthly Delights: Are we heading towards a such a serene state of being?

As we adopt a new technology, say the GPS, it promises to make our lives simpler. It is easy to use, but learning to live life with it, we forget how it was without and rapidly grow dependent upon in. If you are a regular user of GPS; try only to navigate in a city without it and you will soon realize just how much harder it is than it was before you started using it. What will we do if we lose access to these accessories that have become so important to us – just for functioning in the modern world? Jünger puts it nicely: “First we use technology, then technology uses us.”

Even as technology is making life more functional it has certain implications for lives we lead that are not necessarily so pretty. Like the workers in the pin factory of Adam Smith, increasing proportions of humans are becoming technicians, specialized in performing a certain technical task. This specialization is also a narrowing of what knowledge we have, rather than becoming well-rounded educated individuals we are moving towards a society where everyone has a Ph.D in a very narrow subject-field. We are moving away from the classical university, where the goal was a well-rounded education and formation in philosophy, art and culture, in essence learning about what it really means to be human. Understanding of philosophical matters and reflections upon them was the core; and through this trying to teach students how to think and reason.

According to Jünger, modern technical training is very different from such an idealized state. It focuses merely on the accumulation of facts, like multiple-choice tests, and the university is turning into merely a technical training center and a laboratory. Wisdom as such is vanishing and knowledge is not perceived to be equal to power anymore. Many would beg to differ with this assertion and probably with good reason, but still the increasing presence of technical subjects in academia is non-deniable. Even if we look at a subject like philosophy which in ancient Greece, concerned itself with the act of living a good and responsible life is nowadays more concerned with moral technicalities than spiritual exercises.

Jünger goes further in his criticism of the technician himself: “[His] preoccupation with facts not only prevents him from thinking about himself; it also blocks his approach to that more spiritual wisdom which cannot be reduced to mechanics.” It is definitely true that spiritual wisdom can hardly be attained inductively and as living a good and just life is what we should be preoccupied with, only caring about technological development becomes absurd. Of course, there is the Aristotelian ideal of “bios theoretikos”, the contemplative life, which is devoted to the activity of the intellect, but such an ideal state presupposes understanding of both deductive and inductive reasoning. To learn about the human condition, one truly needs to look within. Jünger appropriately says of the narrow-minded technician: “[he] is crippled in his mind also. He is one-eyed like all Cyclopes. His empiricism alone indicates this. He is not bothered by the question where ultimately his efforts lead.” One is merely following technological progress for technological progress’ sake, not able to understand that there is a larger interrelated whole.

What are the consequences of a hollow fact-obsessed mind, devoid of true understanding and spiritual enlightenment? Naturally, such a person that doesn’t understand his own humanity will have trouble feeling or to the least appreciate real human feelings.  One ends up experiencing true and intolerable emptiness; “a void in their lives which they cannot endure and from which they try to escape by intensified motion.” (Jünger)

To compensate for the lack of real feelings, we will have to seek synthetic amusements that can give us synthetic emotions. Seeking such stimuli has become increasingly simple in our convenient modern world.  50 years ago one would have the cinema or maybe the radio, and then came television, but with the internet and the emergence of web 2.0 it increasingly easy to get access and to such stimuli and spend vast amounts of time one them, for example the Skinner-box that is Facebook; without doing anything productive at all. Still, we experience a small feeling of pleasure or reward every time something new happens, as status update or we receive an SMS or an e-mail. ICT technology resembles Pavlov, and we, the users, are all his dogs wagging the tale in euphoria at every new happening or motion.

The modern scientist at large

“Motion has a narcotic attraction to [the technician] . . . He needs this stimulant as an addict needs his drug to feel alive. He must always feel that something is going on, that he is participating in some action. Hence, his insatiable thirst for news, a thirst that no rotary press can quench,” is what Jünger, very appropriately, has to say on the subject. We have “lost the faculty of amusing and entertaining [ourselves] and that for [our] enjoyment some apparatus is indispensable.”

Rather than valuing the far fewer but more intensely rewarding experiences and stimuli we received in earlier times, we are increasingly going with quantity and comfort. It permeates all of our activities. Whereas nobody complained about the length of Clarissa by Samuel Richardson when it was published in 1748 – people where just happy they could be entertained for such a long time – today most people would find it far too long to justify using their short attention spans on reading it. Everything is numbered and quantified; one is more concerned with the number of books one has read than the content of the actual books, i.e. if one reads books at all. We clearly value the easy and accessible over the more rewarding. Many living today, would be wise to heed the advice of the Spanish Jesuit Baltasar Gracián in his “the Art of Worldly Wisdom: “Prize intensity more than extent. Excellence resides in quality not in quantity. The best is always few and rare: much lowers value.”

All this activity, this focus on quantity and continual entertainment hinders us from doing what is truly important: thinking and reflecting upon ourselves. Thinking according to Aristotle, means to suffer, hardly what people in the western world are doing today.

Increasingly, our lives and our vision of ourselves are based on how other people perceive us.  We update our status on Facebook or upload pictures from our latest travels, hoping that people will comment; believing that this will somehow make our experience more “real”. Uneducated and unreflected as we are, we have an inherent need for an audience and Web 2.0 is an excellent platform for providing it. We become more dependent on social approval without noticing it; riding along the path technological development takes us.

But Jünger doesn’t believe this to be everything, he says that: “Technology spells the mobilization of everything which was heretofore. Man too has become mobilized. He not only follows automatic motion without resistance; he even wants to accelerate it still more.” Man is as such a catalyst for further technological development and increasing hive-mind like behavior.

In his monumental work, Termitologia on termites, the French biologist Pierre-Paul Grassé (1895 – 1985) introduced the term stigmergy which is a mechanism of spontaneous, indirect coordination between agents, where the trace left in the environment by an action stimulates the performance of a subsequent action, by the same or a different agent without any coherent overall plan. Web 2.0 and the open source movements can be seen as such where we are nudged into participating even more deeply, developing or technician mind and forgetting about the real spiritual life we might once have been quaintly familiar with.“The masses are running berserk, now in  blind, furious enthusiasm then again in a stampede of terrified panic that dives them irresistibly to hurl themselves blindly and madly  in to the abyss, just like cattle or lemmings,” is how Jünger goes on to describe our herd behavior.

The final stage of human evolution. Photo from Emmitsburg.net

We are now witnessing a convergence between the real and virtual world. Whereas formerly playing outside was deemed superior to playing video games, it is now often, to the children, the other way around. Some will rather talk to each other on an online chat program than meeting up in the real world. It is not impossible to imagine a world where the virtual world is thought more “real” and where most humans prefer that way of interaction. Given time it will surely be technologically feasible and we might very well be moving towards a Matrix-esque world where the human bodies are put in liquid tanks to ensure our longevity and we “live” online in some World of Warcraft universe of our choice. Developing the notion further, one can think of a world where the quantity of positive stimuli is all that counts and all our brains are just connected to an electrical apparatus that jolts us constantly; enabling us to feel the greatest physical pleasure continuously for the entire duration of our lives. Meanwhile, automated machines will be enabling us this “leisure,” because we have mechanized all tasks that are needed for our physical human existence. Dostoevsky talked of civilization, but insert technology in the following quote and one might see where we have been heading: “The only gain of civilization for mankind is the greater capacity for variety of sensations – and absolutely nothing more. “

Is this really a world we want to be living in? The dismal predictions aside, the movement towards greater appreciation of “synthetic” pleasures looks quite probable and factual, and with it comes an increasing focus on the physical and the opinions of others – we become less self-reliant.

The classical Greek practice of philosophy, especially the Stoic, was practiced at three levels , physics, logic and ethics. Technology will never be able to satisfy anything more than our physical needs. It fools our logic: “the act of not letting ourselves be deceived in our everyday lives by false representations” and it will definitely not help us act in an ethical way. The exhaustive focus on the physical and on technical progress and materialism inherit in our modern world is a break with the Stoic and Epicurean belief in controlling the senses and temperance.  Epictetus notes that “people are not troubled by things, but by their judgments about things” We must be aware of our place in and relation to the world, but still remember the Kantian Autonomous Individual: saying that anything that limits the autonomy of man must be seen as negative. Technological development and its brother materialism definitely has its negative sides and if we are not careful, we might very easily end up a lot poorer than we were initially. As Palahniuk states in Fight Club “I am helpless. I am stupid, and all I do is want and need things.  My tiny life… This is how bad your life can get. Kill me.”

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Above: Nanotech is coming to get you

One of the first definitions of Economics I came across in my life was “the study of scarce resources and unlimited wants.” That is, how choices are made with regards to which of the unlimited wants are to be met and not, or in other words, how resources are allocated. Here, markets come in as one of many possible mechanisms for making such choices socially.

In the context of Technology Governance, another way of understanding economics appears. That is, in recognizing that in the presence of innovation and changing technology, economic systems are not static, the extent to which resources are scarce depends on our ability to produce. As such, economics in this context can be better described as the study of how humans mitigate scarcity of resources by means of technology. Here, the core questions do not so much relate to allocation of scarce resources but to our changing capacity to make available those resources.

However, technology does not only change which resources or goods are available in which quantities, they also strongly influence the market (or other) mechanisms by which they get distributed. The unfolding of the current ICT paradigm has provided us with ample examples of this. For one thing, it has become increasingly difficult to monetize web-based content, such as online news, etc. And – to the great dismay of many former entertainment industry giants, more and more previously offline content is moving online. Here, music was an early mover as the MP3 music format emerged. Moving on, as bandwidths have increased dramatically, movies and TV series have proliferated dramatically on online file-sharing networks and live-streaming websites. Additionally, the book printing industry is also being hit as .pdf versions of printed works become available freely online. In spite of iTunes, Kindle, and other valiant attempts at keeping market power in the same hands as in the last paradigm, the free online sharing of content appears unstoppable. In particular, this is the case because consumers appear less and less willing to pay for online content at all. Demographics tend towards making this feature of development even more important, as young people are the least willing of all to pay for content. The important point here is that we are seeing a total change in the workings of some large markets, not because the modes and means of production have changed (even though they have), but because the means of distribution have changed.

In parallel to the de-monetizing of some industries, the unfolding of the ICT paradigm has also brought with it a plethora of non-market production of intellectual content. This includes the vast open-source encyclopedia project Wikipedia (along with a host of other wiki’s), the renowned (and supposedly super-stable) open-source operating system Linux, a vast “blogosphere” of (amateur or professional) journalists and analysts publishing for free, open-source resources for warfare primarily produced and made use of by loose networks of guerillas and/or terrorists, as well as a huge number of other open-source software for basically any use in direct competition with a range of monetized products (Mozilla Firefox and Open Office are examples of this).

In explaining both of these developments, the central feature of ICT as enabling copying and movement of information at incredibly low cost is critical. Instead of distributing music on CD’s, which are very cheap but require physical transportation and handling – making it conducive to being distributed through monetized transactions (in for example shops) – online file sharing is as if it were invisible, and can move through space across rivers, forest, mountains, and oceans without ever changing hands. As such, the nebulousness of its physicality makes its distribution almost impossible to monetize.

The open-source movement shares ease of copying and dissemination as the basis for its existence. People have been writing letters to the editor or participating in town-hall meetings for a long time without expecting any payment. People have also shared their knowledge on motorcycle repair or botany with their friends and neighbors long before the internet came around. Offline “open-source” design and development on a small scale has also taken place on a day-to-day basis, in local communities and to some extent within organizations. The vast proliferation of online versions of these same activities makes a lot of sense, precisely because the process of sharing is so cheap and easy. Again, the production itself is arguably not the primary driver of the development, but rather the changing mechanisms of distribution.

With this in mind, the emergence of nanotechnology begs the question of whether a very similar market breakdown may occur on a much more vast scale, as one of the core features of the technology in question is that “copying” of physical things; machines, buildings, clothes – even food – is one of the core features offered by the new field. In a primitive, Solowian sense, this will show up as tremendously increased productivity. And of course, an important feature of nanotechnology will be just that – tremendously increased productivity. However, to the extent that nanotechnology makes possible extremely small machines with the ability to self-replicate and manipulate matter down to a sub-atomic level, we may expect – if not in the first generation – that infinite-purpose nano-robots may easily become available to consumers at large. At this point, the market-devastating possibility of nonphysical distribution of every kind of physical good becomes possible. What if one can download an open-source car design and have nano-robots build such a car in your garage overnight? Would there be a market for cars left? Would there be markets for anything left?

Not only markets for replicable physical goods could possibly be obliterated by advanced nanotech. Service industries too, would be profoundly affected. It would be no matter serving you automatically in a restaurant with (literally) flying saucers. Not to mention fixing your car. But even in highly advanced services such as medicine could humans be largely replaced by advanced nanotech. Who needs a doctor when one is being kept in tip-top shape by an army of tiny nano-robots?

An unlikely model for a post-nano economy can perhaps be found in the work of William Morris, the British anti-technological socialist. In his main literary work, News from Nowhere, he describes a socialist economy based on arts, crafts, and voluntarism. Notably, there is no money, and not even barter in a strict sense. Rather, everyone works for the sake of working – working with something worth working on, that is – not mind-numbing and exploitative industrial work which produces garbage-like goods totally removed from any sense of eigentlichkeit. In the Morris economy, the carpenter builds houses – beautiful houses – because he takes pride in his work and derives pleasure from seeing the results of it, the farmer grows high quality vegetables for the same reason, and the baker bakes wonderful artisan bread because he wants to.

William Morris, anti-tech socialist prophet of the open-source nano-economy

Now, one might ask why not then, if it is free, the first few people to arrive at the bakery in the morning would not take with them 20 loaves of bread each, such that the last ones would be left wanting. Morris’ striking answer is “why would they?”; after all nobody would be hungry enough for it to make any sense. Such notions, Morris argues, are but a result of the absurd ideas propagated by a sick industrial society, where one produces nothing but garbage and everyone is poor because of it. In the Morris-economy, competition would not be about who can make things “a little worse and sell a little cheaper”, as in an industrial setting, but rather centered on artisanal pride and good workmanship.

There are some striking problems with the Morris model. A modern economist would immediately point out that with no prices affecting production choices, the Morris economy would be frightfully inefficient. That is, one would tend to see (potentially huge) overproduction of things that a lot of people like to make but not so many want much of (beautifully carved tobacco pipes?), and underproduction of things that a lot of people want a lot of but not so many people like to produce.

Moreover, with no real mechanism for trade, one would hardly be able to enjoy any goods from foreign countries. For example, the happy and harmonious people populating William Morris’ utopia – which presumably is set in Britain – are enjoying wine, although they do not appear to have means of obtaining such or any other goods from abroad (and if the wine they were drinking was made from British grapes they would be neither happy nor harmonious). Of course, one could perhaps argue that one could more than contently enjoy pale ale and porter in Morris’ utopia.

The most important problem with Morris’ anti-technological utopia, however, appears to be that it is only possible for it to support a very small population – which begs the question of what happened to all the Brits who were around before the revolution. Arguably the only adequate (and morbid) answer is that they died in it – a holocaust-like solution Morris himself hopefully would not be very satisfied with.

Now, while not enabling an economy built around arts and crafts, nanotechnology in its fullest sense could perhaps both enable and necessitate an economic structure very similar to that envisioned by Morris. Firstly, by potentially breaking down the ability of firms to monetize transactions of hardly any goods, and by replacing humans in many or even most service industries, the stage is set for a spreading of the ICT “open-source” system throughout the economy. Already, “open-source” as it exists today is astonishingly similar to that of the voluntarist William Morris-economy. Participants contribute their time and knowledge toward common goals apparently because they enjoy doing so. Again, as in Morris’ utopia competition is not based around who can do things “a little worse and a little cheaper”, but around who can do things better. In a very real way, a high-tech artisanal pride is a driving force.

With nano-robot as a pervasive tool throughout the economy, and raw materials not being a problem as such robots in their most advanced form potentially would be able to rearrange not only atoms but electrons (so that any material could be created from anything else, like air or sand), one could easily imagine global, online, open source communities producing and disseminating downloadable designs for almost any product; food, cars, even spaceships; with little grounds left for markets as we know them today to stay alive. Even the market for land would not necessarily stick around when it becomes more than possible to build one’s own continents, either on this planet or new ones, and at the same time travel and communicate so quickly and efficiently that being based in the same place no longer is very valuable. While there may of course remain numerous tasks left that have to be done by humans on a professional basis – public administration and education comes to mind – the lack of markets and monetization in most of the economy would still leave one with the problem of how to pay those who already have everything. As such, it is not inconceivable that those jobs that would still have to be filled by people would be done so either on a voluntary basis, or on a rotating compulsory “community service” basis.

Above: Various kinds of arts and crafts, William Morris wallpaper on the left and bundles of carbon nanotubes to the right

Nanotech would also in large part solve the main problems of Morris’ original utopia. That is, the efficiency problem would no longer be relevant in a scenario with near infinite abundance of resources. Furthermore, one major difference between the open-source nanotech-utopia and the William Morris utopia is that while in the latter production of goods happens on a voluntary basis, in the former production of design happens on a voluntary basis; while production of actual goods happens on everyone’s private initiative, using freely available designs and self-reproducing infinite-purpose nano-robots. That is, in the nanotech-utopia, consumers produce their own end-user goods, effectively eliminating the need for prices to steer production and allocation of goods. For the same reason, the population problem of Morris’ utopia is not an issue in the nanotech-utopia. Nor is international trade – British villagers can easily download great Italian wine instantly. And if you are worried about the wine’s eigentlichkeit, imagine the countless hours spent perfecting it by the thousands of wine-loving Italian nano-engineers.

Of course, the nanotech-utopia is hardly what Morris envisaged. Its economic structure however, may fit better to that of Morris’ utopia than any anti-tech utopia could ever have done.

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Picture by Eric Pouchier

As we are being told that global warming looms, fossil fuels are running out, people are starving all over the world, and a global recession may not be over for a while;  encouragements to only take for oneself what is really necessary are becoming increasingly common. On the surface, this sounds nice. If we only consume what is necessary, then there will be more of everything left for those in greater need, we won’t pollute as much, and so on.

Nevertheless, whenever I hear someone urging others to restrict themselves to what is necessary, I can’t help but think: “necessary for what?” Necessity, by definition, means something you can’t do without. However, in order for such a word to make any sense at all, one needs to define what something is necessary for. For example, gasoline is necessary for most cars to drive. It is not, however, necessary for bicycling. And so on.

Now, when we are urged to only take what is necessary, then what are we really imagining as whatever we take being necessary for? The “good life”? In that case, how is “what is necessary” different from “what we want”? Perhaps it is necessary for a lot of us to have a summer house in Tuscany and drink expensive red wine for dinner every day. Or are we talking about what is merely necessary for survival? In that case, pretty much all conveniences that have been discovered during the last  hundred thousand years are not necessary. Forget about needing a cellphone, you don’t even get a house – your ancestors did just fine in a nice, warm cave. Is it necessary to live beyond age 80? Is it even necessary to be alive at all?

By all means, conserve all you want. But all this talk about restricting ourselves only to what we need is – at the very best – both quite absurd and a little intellectually annoying.

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Picture from: http://pressthat.wordpress.com/2007/10/19/reinterpreting-islam/

Most of the links contained in this article point to Norwegian-language websites – as such I hope those of you who do not speak Norwegian and are interested in their contents make good use of Google translate. All the quotes below are translated from the original Norwegian by myself. If any Norwegians amongst you find any wrong or questionable translations, please email me and I will do my best to correct them.

During the last few weeks the homeland of Evolution-Revolution’s authors has been the stage of a fiery public debate after Dagbladet, one of the biggest newspapers in Norway, printed a picture on their front page of the Islamic Prophet Mohammed as a pig scribbling in the Koran with his trotters. However, despite its unpleasantness, the still ongoing furore following the publication has arguably been very valuable in that we have learned a whole lot about the state of immigration, integration, and Islam in Norway.

The picture in question was linked to in a post on the the Norwegian Police Security Service (PST’s) Facebook-page discussion board, amongst other posts containing highly racist remarks. After recieving a tip about it, Dagbladet wrote an article presumably meant to criticize PST for allowing a considerable amount of hateful and racist statements to be posted on their discussion board with apparent impunity. In doing so, however, they put the  - to Muslims – extremely offensive caricature in question on the front page of their print edition.

Predictably, there were heated reactions from many of Norway’s approximately 140 000 Muslims. In particular, many saw Dagbladet’s “lack of sensitivity” as wanting to capitalize off of controversy caused by humiliating Islam, and as a symptom of media bullying of Norway’s Muslim population. Many Muslim-owned shops and newsstands would not sell Dagbladet on the day the pig-picture was published. On the Friday and Monday following the publication more than a thousand of Oslo’s Muslim taxi drivers stopped their cars for several hours in a protest against what they saw as Dagbladets complete lack of respect for their religion and values. And during the next week, Dagbladet’s website was shut down for two and a half hours by a group of Turkish computer hackers – as a protest against the publication of the depiction of Mohammed as a pig on their front page. At this point, a surge of “counter-outrage” from many ethnic Norwegians, already skeptical of immigration, began to become apparent. When Dagbladet’s website came back on its discussion-board moderators had to shut down the comments thread on the news article about the hacking of their site due to the large number of “unwarranted and racist remarks” (this statement is made at the bottom of the Dagbladet article linked to above).

More controversy ensued when a group of young religious Muslim men organized (via Facebook, again) a public demonstration to protest Dagbladet’s publication. There were, already before the protest, concerns that some of the organizers were considered radical. In particular, Arfhan Bhatti, who was administrator of the Facebook group advertising the event, has previously been under investigation for his alleged involvement on an attack against a Jewish synagogue in Oslo. Also, last years demonstrations against the Israeli intervention in Gaza were still fresh in mind for many. These demonstrations, also attended by many Muslims, deteriorated into some degree of violence and vandalism. As a result of these concerns, the Norwegian Islamic Council, amongst other groups, advised against attending the planned demonstration. Still, around 2500 people showed up – mostly young, male Muslims – and a peaceful and civilized demonstration took place. In encouraging the protesters to abstain from violence, the organizers told the crowd to “…not let them win, do not let them see us in rage”; them referring to those who predicted the demonstration would turn turbulent. Notably, there seemed to be a strong commitment on the part of the organizers to protest in a way consistent with Norwegian democracy and law.

Nevertheless, there was little  attention left for this fact after one of the organizers, 24-year old Mohyeldeen Muhammad, referred to the September 11th and May 7th terrorist attacks and suggested that Norwegian politicians would be wise to “get the message” before something similar happened in Norway. The fact that he followed up his somewhat inflammatory statement by saying “this is a warning, not a threat”, did not inhibit many Norwegians from interpreting it as precisely that. Nor did it help that Mohammad, in an interview he gave soon after, argued that homosexuals deserve the death penalty. He also stated that “democracy has no place in Islam, because Islam forbids man-made laws.” In doing so, he did much to fuel the concerns of those Norwegians who remain unconvinced that most Muslims can be successfully integrated into Norwegian society.

Reassuringly, however, Muhammad’s views hardly appear to be representative of those of most Norwegian Muslims. Shortly after the statements were made, they were condemned by the other protest organizers (amongst them the convert and blogger Yosef Assidiq), the Norwegian Islamic Council, several Muslim politicians, amongst other Muslim organizations and public figures. If anything, this goes a long way to show that Mohammad’s radical views are not at all mainstream amongst Norwegian Muslims. In particular, this is also the case in the more conservative part of the Muslim community, which has also been vocally . In a commentary in Dagbladet, Olav Elgvin, Christian author of a the blog Muslimprosjektet (The Muslim Project) as well as a forthcoming book on Muslims in Norway

“…it is a misunderstanding to think that the conflict is between “Norwegian values” and radical Islam. The established Muslim milieus and mosques in Norway are relatively traditional and conservative. Some of them front values and opinions that many in Norway react negatively towards – especially when it comes to gender relations. But they have all accepted that disagreement should be solved within the democracy, and they are all against using violence as a means to achieve political goals. The radical stay lonely.”

This point is echoed by the a recent press release published by the Norwegian Islamic Council:

“The Norwegian Islamic Council distances itself from the radical attitudes of Mohyeldeen Muhammad. These are not representative for our member organizations or for most [Norwegian] Muslims, who appreciate the rights the democratic Norway gives us the live in tune with out values.

We hope that with maturity, the young man with achieve a better understanding of his religion and the world around him.”

Such messages are reassuring. And if anything good comes out of Muhammad’s inflammatory remarks, it may be that it allows for mainstream Norwegian Islam to clearly show itself as separate and different from those that do.

However, the outburst of ethnic Norwegian anti-Muslim outrage on Dagbladet’s website following the hacker-strike has hardly been an isolated incident. In the aftermath of the Pig-picture publication discussion-boards on major newspapers, blogs, and Facebook pages (a.o. PST’s) have seen a very large number of more-or-less racist or islamophobic remarks presumable posted by ethnic Norwegians already highly skeptical of non-western immigration to Norway. In particular, many are upset by what they see as Muslims continued demands for “special treatment” and “extra sensitivity” towards them on a number of issues – demands immigration-skeptics hardly think they have a right to make. On a broader level, some are concerned whether “Islamic values” are compatible with modern Norwegian society at all – in particular with important features of it such as gender equality, a high degree of personal freedom (as opposed to a more traditional family-focus), tolerance of homosexuality, secular politics, and free speech. The latter has of course been a major component of the recent debate. Dagbladet has from the beginning argued that it has the right to print anything relevant to its news – and of course it does. As a response to this, some Norwegian Muslims have argued that expressions such as Dagbladet’s front page should be made illegal – either through a “blashpemy-law” (which in fact already exists, as a so called “sleeping” or “dead” law, as it has effectively gone out of use) or a broader regulation against publishing highly offensive materials in general; something akin the more specific ban on hardcore pornography – also based on the reasoning that such materials were highly offensive – which was lifted some years ago. Such appeals are seen by some as evidence that Islam is incompatible with free speech and democracy. In response, some point out that if public racism is punishable by law in Norway – which they are, although the law is rarely invoked in practice – then public exhibits of racism-like prejudice against a certain religion be punishable as well. However, it does not appear that most of the people protesting Dagbladet’s decision want a special law limiting what can be published and not. Rather, it appears that many are offended by what they see as a kind of cultural bullying by Dagbladet and the media more generally. An apology is asked for, and more generally – respect. In an interview made by Olav Elgvin for the conservative periodical Minerva, Sarah Selaihi made this point

“…No, I am not opposed to freedom of speech. But even if you are allowed to express yourself freely, you can always assess what you say, and when you say it. You don’t see Norwegian media testing the limits of freedom of speech by affronting the Jews, for example. Why should they always prove their freedom of speech by provoking Muslims?”

It appears that many non-Muslim  Norwegians also agree with this point. Amongst others, Per Anders Madsen – the editor of Aftenposten, argues that even though Dagbladet certainly has the right to publish whatever they want, and even though this right should not be infringed upon in any way; the decision to publish material they knew would be highly offensive to a large group of people was still disrespectful and highly questionable. As such, it would not appear to be an issue of free speech or rights, but whether it is appropriate for one of the country’s largest newspapers to print highly offensive pictures on its front page. In a commentary in Aftenposten, he wrote that

“When Peter Mueller was fired as ice-skating coach (for the national team) because of sexual harrassment, I wrote a commentary which Inge Grødum illustrated with a drawing where a bulging phallos came out of Mueller’s mouth – he is known for being big-mouthed.

The drawing was good, and it illustrated the main point of the case in an excellent way. But it was never printed. It was sleazy and could appear offensive.

To compromise freedom of speech? Self-censorship?

Rather, it is one of many examples of the kind of undramatic decisions the editors make  all the time when we edit a newspaper in line with our basic philosophy, profile, and desired readership.”

In a another commentary he also argues that in this particular case, printing the picture on the front page where it is visible to anyone as opposed to inside the newspaper did not add any particular news-value to the article – in fact, it appears to have done the opposite, as nobody appears to worry about the actual news item, but rather the controversy ensuing from it.

Certainly, to the extent that Dagbladet was criticizing PST for allowing the links and statements made to stay posted on their website they are certainly implying that the material was of such an offensive kind that it would certainly have been taken off the newspaper’s own online forum. In that light, it appears strange to put it on the front page of its print edition.

In a post on Aftenposten’s discussion pages, the country music singer Ottar “Big Hand” Johansen went as far as to argue that Dagbladet’s decision to publish the picture on their front page was “not only exaggerated stupidity and poor journalism… but it also represents a fundamental violation of Norwegian values and culture.” He goes on to echo Madsen’s point that there is little point to

“I am beginning to get tired of Kokkvold’s (General Secretary of the Norwegian Press Association) endless repetition of the inviolability of free speech, when this is not the core of the issue. It shouldn’t be illegal to publish a caricature like this, and I do not think that most Muslims are of the opinion that it should be either.

It is discouraging that Dagbladet is abandoning all sense of decency as a response to declining sales, and thus prints a highly offensive drawing in order to create controversy. Everyone in the Norwegian press knows the real reason why this was printed… it is a front page that sells.

This reminds me of classic bullying in the schoolyard… It is hurtful to Muslims to see these kinds of drawing of Mohammed. And it seems like this is why Dagbladet prints them, because they know it is hurtful.

Personally, I would tend to agree with Madsen and Johansen. Dagbladet has the right to print whatever they think is newsworthy, and that right should not be violated (on this point, we here at Evolution-Revolution follow the great philosopher Immanuel Kant: that the right to freedom of speech cannot be violated in a truly free society). However, that still does not mean that Dagbladet or any other newspaper should print pictures of, for example, the molested bodies of Norwegian NATO soldiers killed in Afghanistan. Not because they do not have the right to do it, but because it would be highly offensive to many and very hurtful to some. Importantly such pictures (like the drawing of Mohammed in question) would hardly add any significant value to whatever news item they were attached to justifying their offensiveness.

Per Anders Madsen also bring up another important point. In January, Aftenposten printed several of the Mohammed caricatures that sparked huge international protests several years ago after being printed by Danish and Norwegian newspapers, in solidarity with Kurt Westergaard, the artist who drew one of these caricatures, after was attacked in his home by a Somali extremist. As opposed to the picture on Dagbladet’s front page, little controversy ensued from the printing of these caricatures. One Norwegian Muslim organization even publicly stated that they were not offended, arguing that conservative Muslims had dominated the media to a far larger extent than is warranted by their actual influence in immigrant communities. He argues that there is a big difference both in the way the pictures were published and in the degree of offensiveness.

Blissfully areligious?

Moreover, people seem to forget that the Muslim community is not the only one that has heavily criticized  the media on religious grounds. In 2007, when TV2, the largest private network in Norway, aired Kristopher Schau’s De Syv Dødssynder (The Seven Deadly Sins) several conservative Christian groups organized boycotts against companies who had paid for advertising time on TV2 during the show (it is not surprising that Christian groups reacted, the idea of the Jackass-like series was that the stunt-comedian Mr. Schou would travel around the world and commit a new deadly sin in each of the seven episodes to see what would happen). As a result of the pressure, Coca Cola and Disney, amongst a considerable number of other corporations, responded by canceling their TV ads aired during the show. At that time too, there were both vocal and other protests from the other side – one store in the Expert-chain was vandalized after the company decided to withdraw its advertisements (in this sense the counter-reactions to the Christian protests in 2007 were far more undemocratic than anything we have seen from the Muslim community this time around).

There is an interesting parallel between the resistance towards the Christians in 2007 and the resistance towards the Muslims now, in that it to some extent reflects a general Norwegian skepticism towards any religion at all outside of the private sphere. Norway is arguably one of the most secular countries in the world, and today religious groups have negligible political power to influence issues such as whether homosexuals should be allowed to marry or whether women should be able to have an abortion (which continue to spark great controversy in a.o. the United States). Furthermore, conservative Christian values play a very minor role in forging mainstream social norms, such as attitudes towards pre-marital sex, homosexuality, and abortion. Nor do Christian organizations or people figure prominently in the public debate, compared to for example the United States or many catholic countries (nor do Muslim ones). This does not mean that they are without influence – but it certainly means that they are hardly “major players” as they are in many other countries. In this sense, some of the resistance towards Islam can be attributed to a fear that Islam will bring new strength to the case of religion in the public sphere – where most Norwegians arguably think it does not belong. On many web-based debate forums, this connection is often made quite specifically by Islam-skeptics. Perhaps, ironically, it could be easier for Muslims to become integrated into a conservative Christian society than a liberal secular one.

However, there has been a much more sinister and hostile tone in the argument this time around (although no vandalism has been reported) than against the conservative Christians in 2007. And, in defense of those who think Dagbladet is more worthy of criticism than TV2 (myself included), there is a difference between airing things that some people find extremely offensive on a TV channel which people can choose whether to watch or not, and printing something on the front page of a newspaper front page visible on every newsstand and shop across the country. Again, no laws are required, just basic decency. And when that decency is abandoned, it is more than appropriate to yell loud.  In this sense, it appears that those who claim that criticism of Dagbladet from the Norway’s Muslim community have been subject to so much resistance precisely because it comes from the Muslim community may be right. In a commentary in Aftenposen, Shazia Sarwar, editor of the online magazine X-Plosiv, argues that this kind of resistance is a threat to free speech in and of itself.

It is also interesting to compare the current controversy to a case in 2006, when Dagbladet published a caricature (inside the newspaper) depicting Israeli prime minister Ehud Olmert as the Nazi concentration camp commander in the movie Schindler’s List, who famously shoots the camp inmates for sport. The caricature, which made no reference at all to Mr. Olmert’s religion, was a criticism of the Israeli assessment of their recent campaign in Gaza as a success in spite of the overwhelming number of Palestinian civilian casualties. The admittedly harsh comparison to the Nazi commander was meant to highlight the Israeli (not Jewish) apparent obliviousness to civilian deaths. Of course, Dagbladet was immediately accused by the Israeli Ministry of Foreign affairs of abusing Norway’s freedom of speech, and of championing anti-semitic attitudes. The case was given ample attention in the international media, on a.o. BBC, in the New York Sun, and on Fox News. On the latter news network, Brit Hume reported that “If you doubt there is a real strain of anti-Semitism in European opinion, consider this. One of Norway’s largest newspapers has published a cartoon…” No, there are of course no problems with complaints from the Israelis. However, the interesting part is that while the complaints made by the Israelis were rejected by both Dagbladet and the Norwegian Press Association, no one argued that “Jewish values” are incompatible with democracy and freedom of speech. On a related note, I strongly doubt that Fox News would even dream about angrily reporting that “If you doubt there is a real strain of Islamophobia in European opinion, consider this…”

Nevertheless, the controversy ensuing from the publication has brought forth a very real, very important, and very much needed discussion about immigration and integration in Norway. Part of this discussion, of course, has been dominated by those who now feel entitled to champion a kind of narrow-minded xenophobia previously thought to politically incorrect (or just plain racist) to be a viable position to take in public. While in the Muslim community, it appears some feel that now more than ever, Muslims are unwelcome in Norwegian society at large. None of these positions are in the least conducive to working towards an ethnically diverse and religiously pluralistic Norway. However, some good things have also come out of the controversy. Importantly, it seems apparent that the vast majority of Norwegian Muslims do not at all identify themselves with radical or extremist versions of Islam, and that they recognize the value and inviolability of Norwegian democratic institutions. Also, there is a sense that many non-radical Muslim organizations and public figures to a larger extent than before have become part of the Norwegian “mainstream” than before This, I think, is a good sign – isolation is hardly conducive to successful integration. Furthermore, there seems to be a real sense, both amongst Muslims and Non-Muslim Norwegians, that there still is a job to be done (and that revoking the citizenship of 140 000 Norwegians is not an option). On this point, Olav Elgvin quotes on his blog a piece advice given by the vice president of the Norwegian Islamic Council Asghar Ali: “Remember when the prophet Muhammed lived in Mecca! Do you think he experienced more or less reproach than you do now? More, of course! And how did he react? With patience.” I think Olav Elgvin’s commentary on this is worth reprinting here:

“…The interesting part of Asghar Ali’s comment is that it shows what he sees as the ideal for Muslims in the West today. This ideal is not to imitate what the prophet did as warlord and political leader in Medina, but to what he did when he lived as an ordinary citizen amongst non-Muslims in Mekka. Which means: to live like citizens who accept diversity, and who meet resistance and hostility with patience and forbearance.

Actually a quite good ideal for all of us, I think.”

Perhaps we’re not doing so bad after all.

–

Note:

In a previous version of this article I wrongly alleged that Per Anders Madsen argued that Dagbladet was motivated by the prospect of increased sales when they made the decision to publish the Mohammed-cartoon on their front page. In fact, Madsen made no such claim.  I deleted this sentence after the mistake was pointed out to me. I also wrongly named Per Edgar Kokkvold editor of Dagbladet. He is in fact general secretary of the Norwegian Press Association. Lars Helle is constituted editor of Dagbladet. I apologize for any irk or offense caused.

(March 1st )

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The Grinch Who Stole Twelfth Grade

So argues Republican state Senator Chris Buttars in the Utah State Assembly, who recently proposed to drop the last year of high school altogether in an attempt to balance the state of Utah’s bleeding budget. Of course, an advantage of doing this from state Sen. Buttars point of view would be less time to teach students Biology – the senator has previously sponsored a (failed) bill to change the curricula of the science subject so as to add in “Divine Design” as an alternative to evolution. Last year, Senator Buttars also stated that radical homosexuals are “probably the greatest threat to America going down I know of.” We here at Evolution-Revolution think deteriorating education might be a better guess.

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Thanks to Ulf Jakob, an avid Evolution-Revolution reader

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I recently read Siddharta by Hermann Hesse,  a wonderful book set in ancient India about a young man’s search for understanding and inner peace. Amongst other profoundities, the book also contains some interesting insights on trading and investment. After a thorough brahmin education, followed by three years of life as an ascetic sadhu, the young Siddharta becomes an apprentice under a rich merchant. Only knowing how to, according to himself, think, wait, and fast, he quickly becomes a highly successful and very rich merchant. Importantly, he does this not by using greed or a hunger for “success” as a motivation, but rather by means of cool detachment. Hesse, of course, describes this far more eloquently than I could ever hope to:

“This Brahmin,” [the master merchant Kamaswami] said to a friend, “is not a proper merchant and will never be one; never is his heart passionately engaged in our transactions. But he has the secret of those to whom success comes of ts own accors, be it that he was born under a lucky star, be it magic, be it something he learned among the Samanas. He seems only to be playing at doing business. Never do the transactions have any real effect on him; never are they his master; never does he fear failure or worry over a loss.”

There is an interesting connection here, of course, to modern “practical investment” literature, in which the virtues of emotional control and self discipline are frequently emphasized as being of critical importance to success. The lesson to be drawn from Hesse, then, is perhaps that one possibly extremely effective way of achieving this just this is to not care very much about money – in a Siddhartian sense, “rise above” is perhaps a more appropriate choice of words.

It might not be so easy, though. In Hesse’s work,  Siddhartas spirituality is almost completely killed off by many years of hedonism and financial success – and he becomes so emotionally and philosophically tortured that he abandons his life as a wealthy merchant and almost commits suicide.

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I like Nassim Taleb, author of the Black Swan and Fooled by Randomness. His criticism of risk management and the notion that we fail to notice that for every success story we see, there are many failures – don’t be fooled by randomness (so-called selection bias). At the same time he is extremely harsh towards those he criticizes and always a fun, but not too serious read.

He has a new essay up on his website where he anecdotically promotes a new form of living and exercise. Instead of working out an hour everyday and getting our healthy steady 8 hours of sleep, he suggest we should live like hunter gatherers. Fast randomly a couple of days, vary our sleeping schedule and walk low intensity a couple of hours a day, but mix that with some very intense ones, introducing stochasticity, Black Swans, and leptokurtosis into our efficent, normally distributed lives.

A few quotes:

“The only thing currently missing from my life is the absence of panics, from, say, finding a gigantic snake in my library, or watching the economist Myron Scholes, armed to the teeth, walk into my bedroom in the middle of the night.”

“walks in a stimulating urban setting, but with occasional (and random) very short sprints, making myself angry imagining I were chasing the bankster Robert Rubin with a big stick trying to catch him to bring him to human justice.”

Read it here

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via Locklin on science

-JHA

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According to this article in The Economist, recent research into the psychology of power has provided som interesting insights into the anecdotal hypothesis that “power corrupts”. In a study done by Dutch and American researchers, experiment participants in an emotionally induced position of power tended to hold themselves to a lower moral standard than participants assigned to a control group not given power. That is, they would be significantly more likely to think that it would be perfectly fine for them to cheat on their taxes while at the same time frowning upon others doing the same. There are of course ample examples of this throughout human history and present.  Ted Haggard, the former leader of one of the largest American conservative evangelical mega-churches as well as the enormous National Association of Evangelicals, condemned homosexuality while frequently purchasing sex and methamphetamine from male prostitutes. The notorious Chairman Mao (pictured above gracing a crowd of cheering Chinese proletarians with his presence) caused the deaths of more than 70 million people and demanded that the entire population of China give up private property while he himself lived a life of extreme luxury.

However, the most interesting part of the recent study suggest that the picture is more complicated. In particular, the study found that when people feel like the power they have is not deserved the picture changes completely. In fact, test subjects who felt like they had undeserved power were significantly more likely than the control group to judge themselves much more harshly than others. That is, they would think it would be more okay for their neighbor to cheat on their taxes or steal a bike than for themselves to do it.

This brings up some interesting points about leadership, both in politics and business. In a sense, the moral foundation of capitalism is the idea that you always get what you deserve – and what better way of being told you are entitled to power than being given millions of dollars to thank you for having it. Democratic government is perhaps even worse. Cheering crowds and millions of supporters marching off to vote for you on election day is hardly a way to make you feel like you didn’t deserve it.

Venetian Democracy

The Greeks and their successors emphasized education as a means to ensure moral ballast and humility. Anarchists believe that we could do away with power altogether (I’ll see you in the Hobbesian state of nature).  Personally, I like the Venetian approach.  The longest surviving republic in history partially solved the problem outlined above by using an exceedingly complicated election process featuring numerous lotteries to select people  for office. Of course, the question remains whether humble and responsible leaders selected by random are better than self-righteous ones we elect. Optimality, as always, is elusive.

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Hurray!

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The Fall of Icarus by Rubens 1633

Intuitively, large foreign account reserves should be a cushion against runs on the local currency especially for countries with high foreign debt levels or lots of foreign investments that at some point need to be repatriated. If you don’t have enough foreign currency to repay, crisis will surely follow as we have seen during the many Latin-American or Asian balance of payment crises. As such, China’s enormous reserves of about 5-6 percent of global GDP should be reassuring, but as Michael Pettis explains the risks that threaten large developing countries are quite different from those smaller countries can experience.

“The risks that China faces today (and the US in the late 1920s and Japan in the late 1980s) is of excessive domestic liquidity having fueled asset and capacity bubbles, the latter requiring the uninterrupted ability of foreign countries to absorb via large and growing trade deficits. These risks include an explosion in domestic government debt directly and contingently through the banking system.”

Quite similar to what countries rich in natural resources often experience, where large inflows of foreign currency and current account surpluses cause bubbles to arise. And importantly, as foreign reserves cannot be used to solve the problems the solution lies domestically through higher interest rates, less lending, stronger currency and consequentially a less competitive export industry.

We all know what happened to the US and Japan, hopefully China will manage better.

Read the whole post over at China Financial Markets here

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Rescuing a virgin in dire straits

The development of Norway’s soverign wealth fund, the Government Pension Fund (GPF), has always been interesting. GPF will this year attend 2000 meetings with American companies, in which they own up to 5 percent, urging them to separate the role of CEO and Chairman. They hope to make the governance structure more transparent and independent. Governance structure in many American corporations is arguably quite old fashioned and this should be a welcome nudge in the right direction. It’s hard to argue this to be a bad thing and it could quite possibly increase returns for Norway in the long run. Even a marginal increase would be significant as the stated investment horizion of the fund is infinite, that is until the collapse of the universe or the world financial system, whichever should come first.

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We do what we can to keep the battle of ideas raging.

Here at Tallinn University of Technology, our professor Wolfgang Drecshler pointed out today that as ICT enables more choice in where to get political commentary and analysis, the tendency is that people choose to only get it from sources with whom they already agree. The predictable effect is more political polarization and less real public debate.

To the extent that the authors of Evolution-Revolution are amongst those who humbly provide political commentary and analysis, we pledge to do what we can to help prevent such polarization. By eclectically embracing the ideas of the political left, right, and radical center, we sincerely hope that none of you will agree with us all the time.

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Picture from http://www.jimrlong.us/

On our recent and very pleasurable trip the the United States, some of my more conservative friends who we were visiting insisted on showing us one of their new favorite movies - An American Carol. The movie is a railing if highly inconsistent criticism of any and every idea championed by liberal America anno 2008, in particular its anti-war sentiment. The main character of the movie is Michael Moore (“Malone” in the movie), who takes the role as the scrooge of 4th of july – and is visited by three ghosts, amongst them General George Patton and country singer Trace Atkins (proudly playing himself). On his way to salvation and pro-war attitudes, he is slapped in the face repeatedly by an (as always) morally righteous Bill O’Reilly (also played by himself), who warns Moore that he is abusing his freedom of speech by preaching pacifism. In particular, the film echoes conservative America by claiming that Michael Moore and his followers – by questioning the moral superiority of the United States at war – hates the United States.

Now, before we go any further, let me point out that I wholeheartedly agree with those who claim that much of Michael Moore’s work is troubled with rather dubious one-sidedness and even lies or half-lies. While such claims are easy to write off as right-wing propaganda, they are in fact rather well documented (This site on Farenheit 9-11 and this site on Bowling for Columbine are fairly sober). However, I take issue with the claim that his liberal anti-war attitudes – or for that matter his support for public health care or stricter rules for corporations – means that he hates the United States. If anything, one of the absolutely most important characteristics of a liberal democracy is its ability to tolerate active self-criticism. Accusing dissenters of hating one’s country and demanding that they shut up for that reason is dangerously close to rejecting free speech altogether.

One might take this line of thought further and ask what role – if any – patriotism has in liberal democracy. On this topic, I found an article on Mark Twain by Jeffrey Tucker at the libertarian Ludwig Von Mises Institute web site interesting. The article strongly suggests that although Mark Twain’s political views would be considered very conservative by today’s standards, his stance on both patriotism and the use of military force was far more radical than Michael Moore’s, or even that of most contemporary American liberals. To quote him on the matter he argued that “Talking of patriotism what humbug it is… it is a word that always commemorates a robbery.” Furthermore, according to Tucker, “He was an opponent of the Spanish-American War, believed that Filipinos who were harassing US troops were only fighting for their independence, and might have been the only American who publicly defended the Boxers in China as good patriots.” In today’s setting, Twain’s views would be tantamount to hailing the Taliban in Afghanistan and the various Iraqi militias as valorous freedom fighters – a position not even Michael Moore (the “America-hater”) would dare take.

Still, no one would in their right mind would make the claim that Mark Twain hated America. If anything, his literary works are tantamount to a series of beautifully written love letters to the continent and the country. Nevertheless, he derided patriotism and sympathized with America’s enemies.

Mark Twain, white-suited America-loving anti-patriot.

Perhaps there is a powerful logic behind his apparent inconsistency. First of all, there is a strong connection in Twain’s view between patriotism and war. In a very powerful way, patriotism justifies war, and war both necessitates and strengthens patriotism. Both are also powerful means for an aristocratic-cleptocratic oligarchy to maintain political control. Both George Orwell and Friedrich Hayek, amongst many others, certainly echoes this sentiment in their work. In the late 19th and early 20th century, as patriotic nationalism and imperialism was on the rise in Europe, Mark Twain’s vision of the United States would have been one of a country rising above such pettiness and moral corruption. However, the U.S. military involvement in China, Cuba, and the Philippines would certainly have appeared to Twain as a deeply disappointing sign that the country he loved was headed towards what he saw as the morally degenerate patriotic imperialism of Europe.

Is Mark Twain’s anti-war anti-patriotic love for his country no more than a curiosity in the world of political ideology? I think not. Regardless of one’s own political views (mine, one the matter of military intervention, is a firm “it depends”), Twain shows us that there is a big difference between being staunchly opposed to militant patriotism and hating one’s country. This is a lesson for modern America – and perhaps one that can aid in healing the rift between the political-ideological right and left.

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James Galbraith argues that falling bank stocks are a sign of good things to come with respect to the planned regulatory overhaul of the financial sector. To the extent that such regulation is intended to limit rent-seeking and moral hazard, Mr. Galbraith makes a fair point. Perhaps the Obama administration is on the right track.

However, if the same indicators apply to the health sector, skyrocketing health insurance company stocks can hardly be taken to be a sign of better and more affordable health care around the corner for most Americans.

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Picture by Josh Abene

In economics, the assumption that economic actors – i.e. people – are “rational” is a common one. By “rational” we mean that people, given a ranking of their preferences, will choose whatever options they prefer the most. Ironically, our definition of “rationality” means doing whatever you feel like.

More importantly, it means that if we propose to know how “rational” economic actors will behave, we are in fact proposing that we are intimately familiar with the emotional life of every economic actor relevant to our model.

It is of course easy to assume a preference ranking when working in the abstract. Also, we can argue that by putting a price or “pseudo-price” on anything and everything, we can just assume that everyone just wants a ton of money because this can be traded in for whatever else you might want. If you ask me, such a argument only proves right those who claim economists are amongst those who “know the price of everything, but the value of nothing.”

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The authors of this blog merrily receive about 82000 Norwegian kroner (NOK, €10 000) every academic year in living support for students from the Government of Norway. As we study in Estonia and do not engage in currency hedging, our standard of living (in economic terms) is subject to the NOK/EUR exchange rate. (Estonia has pegged its currency to the Euro and is most probably joining next year)

Over at Financial Times they report that Credit Suisse has made its currency predictions for the next year and betting on the strength of the krone and selling the Euro. With the budget balance and current account surplus larger than 10 percent of GDP, lowest unemployment rate in Europe and buoyant stock and housing markets Norway looks like a sure bet. It looks like we can expect a lenient new year in Tallinn.

Of course there are certain caveats to such a prediction. Foreign exchange markets are notoriously hard to predict and from what I remember investment banks tend to fare worse than just predicting the current exchange rate. Further, as a small economy, Norway would suffer under the curse of small currencies if a new financial crisis was to arise (which many are predicting). Last, the krone correlates rather well with the oil price which might / might not be a benefit for an eventual speculator.

Thanks go to Radu, a loyal evolution-revolution reader, for sharing the FT-article.

Update (May 4th, 2010): More on the Future Prospects of the Norwegian Krone (it’s still on the way up) – New article

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Der Spiegel has a very interesting article on three Swedish guys who have started their own jeans brand, Noko Jeans. Noko has chosen a quite unusual country for the manufacturing of its jeans: North Korea. Apparently the People’s Republic has its own web site where it offers opportunities for foreign investors. Maybe we are actually seeing the first few steps of a softening up of North Korea and its eventual emergence as a part-taker in the global community.

For Noko the deal was closed in the same way as most early investors in China did it. Heavy drinking and socialization with the locals to build trust and making a deal with a conglomerate that really seems to make everything. They couldn’t get all that they wanted though; the jeans had to be black since blue denim jeans were considered too much of an American symbol. Some old habits die hard after all.

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The authors of Evolution-Revolution are currently visiting New York as part of our January tour of the United States. A proud bastion of capitalism and free markets, Manhattan also has some fine examples of what decent government can accomplish. Try asking a New Yorker whether Central Park ought to be sold off to a real-estate developer because having it government-owned is socialism.

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The name Evolution-Revolution is not chosen because the authors wish to align themselves with any particular political activist group looking to overthrow someone in power, nor because we wish to have an active role in the ongoing debate about whether or not biology curricula in the American heartland should be based on religious texts. Rather, it reflects our basic belief that the most important economic forces are not those of self-stabilization, but those of change. That is, forces of often de-stabilizing evolutionary and revolutionary change, perhaps most frequently brought about by technological change and innovation. The Jørund writes more on this here.

We do not wish to align ourselves with any particular economic or political dogma. However, it is nice to be bombastic sometimes. We will do our best to be as eclectic as possible, referring to our pledge to our readers.

Indulge!

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