Video: Niall Ferguson Interviews Peter Thiel

Video: Nassim Taleb On Occupy Wall Street

Video after the jump:

Video: Steve Jobs 2005 Commencement Address at Stanford

Michael Lewis on Bankrupt California

It's Michael Lewis week here at the PolyCapitalist.

His latest in a series of financial disaster pieces he's been penning for Vanity Fair is about his home state of California. The whole article is a must-read (here's a link to the full article) but below are a some of the highlights:

But when you look below the surface, he adds, the system is actually very good at giving Californians what they want. “What all the polls show,” says Paul, “is that people want services and not to pay for them. And that’s exactly what they have now got.” As much as they claimed to despise their government, the citizens of California shared its defining trait: a need for debt. The average Californian, in 2011, had debts of $78,000 against an income of $43,000. The behavior was unsustainable, but, in its way, for the people, it works brilliantly.

On the fiscal nightmare that is the City of San Jose...

The ex-Governator

The relationship between the people and their money in California is such that you can pluck almost any city at random and enter a crisis. San Jose has the highest per capita income of any city in the United States, after New York. It has the highest credit rating of any city in California with a population over 250,000. It is one of the few cities in America with a triple-A rating from Moody’s and Standard & Poor’s, but only because its bondholders have the power to compel the city to levy a tax on property owners to pay off the bonds. The city itself is not all that far from being bankrupt. 

By 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. “There is no way to run a city with that level of staffing,” he said. “You start to ask: What is a city? Why do we bother to live together? But that’s just the start.” The problem was going to grow worse until, as he put it, “you get to one.” A single employee to service the entire city, presumably with a focus on paying pensions. “I don’t know how far out you have to go until you get to one,” said Reed, “but it isn’t all that far.” At that point, if not before, the city would be nothing more than a vehicle to pay the retirement costs of its former workers. The only clear solution was if former city workers up and died, soon. But former city workers were, blessedly, living longer than ever. 

This wasn’t a hypothetical scary situation, said Reed. “It’s a mathematical inevitability.” In spirit it reminded me of Bernard Madoff’s investment business. Anyone who looked at Madoff’s returns and understood them could see he was running a Ponzi scheme; only one person who had understood them both­ered to blow the whistle, and no one listened to him. (See No One Would Listen: A True Financial Thriller, by Harry Markopolos.) 

“How on earth did this happen?” I ask him. 

“I think we’ve suffered from a series of mass delusions,” he says. 

I didn’t completely understand what he meant, and said so. 

“We’re all going to be rich,” he says. “We’re all going to live forever. All the forces in the state are lined up to preserve the status quo. To preserve the delusion. And here—this place—is where the reality hits.” 

...and the bankrupt hell that is the City of Vallejo:

On the way back to the elevators I chat with two of Mayor Reed’s aides. He’d mentioned to me that, as bad as they might think they have it in San Jose, a lot of other American cities have it worse. “I count my blessings when I talk to the mayors of other cities,” he’d said. 

“Which city do you pity most?” I ask just before the elevator doors close.

They laugh and in unison say, “Vallejo!” 

I notice on his shelf a copy of Fortune magazine, with Meredith Whitney on the cover. And as he talked about the bankrupting of Vallejo, I realized that I had heard this story before, or a private-sector version of it. The people who had power in the society, and were charged with saving it from itself, had instead bled the society to death. The problem with police officers and firefighters isn’t a public-sector problem; it isn’t a problem with government; it’s a problem with the entire society. It’s what happened on Wall Street in the run-up to the subprime crisis. It’s a problem of people taking what they can, just because they can, without regard to the larger social consequences. It’s not just a coincidence that the debts of cities and states spun out of control at the same time as the debts of individual Americans. Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans. 

The evolutionary explanation underpinning society's collective behavior:

The road out of Vallejo passes directly through the office of Dr. Peter Whybrow, a British neuroscientist at U.C.L.A. with a theory about American life. He thinks the dysfunction in America’s society is a by-product of America’s success. In academic papers and a popular book, American Mania, Whybrow argues, in effect, that human beings are neurologically ill-designed to be modern Americans. The human brain evolved over hundreds of thousands of years in an environment defined by scarcity. It was not designed, at least originally, for an environment of extreme abundance. “Human beings are wandering around with brains that are fabulously limited,” he says cheerfully. “We’ve got the core of the average lizard.” Wrapped around this reptilian core, he explains, is a mammalian layer (associated with maternal concern and social interaction), and around that is wrapped a third layer, which enables feats of memory and the capacity for abstract thought. “The only problem,” he says, “is our passions are still driven by the lizard core. We are set up to acquire as much as we can of things we perceive as scarce, particularly sex, safety, and food.” Even a person on a diet who sensibly avoids coming face-to-face with a piece of chocolate cake will find it hard to control himself if the chocolate cake somehow finds him. Every pastry chef in America understands this, and now neuroscience does, too. “When faced with abundance, the brain’s ancient reward pathways are difficult to suppress,” says Whybrow. “In that moment the value of eating the chocolate cake exceeds the value of the diet. We cannot think down the road when we are faced with the chocolate cake.”

Lewis concludes on an optimistic note:

When people pile up debts they will find difficult and perhaps even impossible to repay, they are saying several things at once. They are obviously saying that they want more than they can immediately afford. They are saying, less obviously, that their pres­ent wants are so important that, to satisfy them, it is worth some future difficulty. But in making that bargain they are implying that, when the future difficulty arrives, they’ll figure it out. They don’t always do that. But you can never rule out the possibility that they will. As idiotic as optimism can sometimes seem, it has a weird habit of paying off.

For more Michael Lewis, both past and present, simply click on the tag with his name at the bottom of this post.

Video: Why Is There a Nobel Prize in Economics?

Video: Ethics in Economics

More on this topic here and here.

Book Review: The Bed Of Procrustes By Nassim Nicholas Taleb

'Most people write so they can remember things, I write to forget' - The Bed of Procrustes: Philosophical and Practical Aphorisms

Nassim Taleb's latest book is a collection of miscellaneous memorable thoughts (aphorisms), many of which relate to Taleb's disagreement and frustration with the academic economics practiced and publicly promoted by many Nobel prize winning economists.

There are two aspects of the title which warrant further discussion.

First, the term 'aphorism' comes from the classical Greek writings of Hippocrates. Given the various ills in economics which Taleb would like to see fixed, the appeal of referencing the father of medicine is quite clear.

The second aspect of the title, the 'Procrustean Bed', is also borrowed from classical Greece. The mythological figure of Procrustes would cut or stretch people to make them fit into his iron bed. Taleb's view is that many leading economists basically do the economic equivalent by framing the world in a way so that it fits into their quantitative models, rather than the other way around.

Continue reading the full review at SeekingAlpha here.

Video: Author Sylvia Nasar's 4-Minute Illustrated History of Economics

I'm a huge fan of Nasar's book A Beautiful Mind and am very much looking forward to her latest work, Grand Pursuit: The Story of Economic Genius.

Below is a video of a presentation on A Beautiful Mind Nasar gave at MIT on October 28, 2002, where at the end she makes a reference to her upcoming history of economic thought.

Video: Our Political and Economic Problems Are Fundamentally a Crisis in Virtue

Marcus Aurelius

George Friedman of STRATFOR gets to the heart of the current political and economic malaise in a brief and succinct video interview here.

He's spot on about the point that all the new regulation in the form of Dodd-Frank, Basel III, etc. do zero good without enforcement.

And why aren't both existing and new regulations being enforced? In Dr. Friedman's view, it comes down to a lack of virtue among our current elite.

The good news is that this is not an insolvable problem for two reasons: First, virtue, in my opinion, is unlike height, raw intelligence, or good looks, in the sense that it is not something that one is by-and-large born with. Virtue is both learned and cultivated over time.

But how much attention do we currently place on the development of virtue? The classics in the western world on this topic include the works by Marcus Aurelius, Benjamin Franklin, Adam Smith, Thomas Aquinas, Aristotle, among others. To perhaps unfairly single out two disciplines, what room is made for those works in our current economics and business curriculum? From my personal observations, zip.

The idea of a renaissance education has been steadily pushed aside through the years in favor of the poly-technical practicalness of the 1-minute manager MBA and quant-PhDs. Today's economic and political conundrum is arguably a by-product of this de-prioritization of the study and development of virtue.

The second reason I am optimistic we can solve this problem is that when our leaders first fail society in such an epic fashion, and then next fail a second time by not fixing the root-cause of the problem, then those of us in representative democracies often make change.

Here's to hoping we get the change right this time.

Playing it Safe, Losing it All

Two facts worth highlighting from Drew Westen's controversial NY Times piece titled 'What Happened to Obama':

1. Obama published nothing (except his autobiography) during his twelve years as a faculty member at the University of Chicago
2. Before joining the Senate he voted 'present' (instead of 'yea' or 'nay') 130 times

What is one to make of this?

I won't speculate on Obama's not publishing anything in an academic journal, but one thing presidential candidates are often attacked on is their voting record. During a heated political campaign a candidate's previous legislative votes are scrutinized and picked over for any possible controversy (see John Kerry). As an astute observer of political history and campaigns, Barrack Obama would be well aware of this.

Was his voting 'present' strategy all about playing it safe and as Westen puts it "dodging difficult issues"? Or is there another explanation all together?

From Westen:

Perhaps those of us who were so enthralled with the magnificent story he told in “Dreams From My Father” appended a chapter at the end that wasn’t there — the chapter in which he resolves his identity and comes to know who he is and what he believes in.

One of the hallmark qualities of Barrack Hussein Obama's rise to the presidency has been his exceptional risk aversion. That strategy worked well in the campaign but is not serving President Obama or the country well at a time when bold, visionary political leadership is needed.

Like many, I've been scratching my head trying to put my finger on what it is about Obama that just doesn't seem right. And then I remembered a comment made by fashion designer Karl Lagerfeld when he was asked to describe himself: "I don't want to be real in other people's minds. I want to be an apparition."

I completely agree with Westen that right now the U.S. desperately needs the gregarious optimism and energy of a Franklin Delano Roosevelt or Teddy Roosevelt type personality in the White House, and not the Lagerfeld-esque 'complete improvisation' we seem to have at present.

I will never wholly forgive and forget the missed opportunity in 2009 to conduct a perhaps once-in-a-century overhaul of the global financial system, along with Obama's decision to reappoint many of the same people who led us into the crisis - Larry Summers, Tim Geithner, and Greenspan protege Ben Bernanke.

With the way things are going at Bank of America and the Eurozone we may soon get a second bite at the financial system overhaul apple. Fighting to keep Timothy Geithner on as Secretary of the Treasury doesn't exactly instil in one a sense of optimism, but there is still time for President Obama to do what is necessary to restore American optimism.

The Xinjiang 13 and Chinese Appeasement

A disturbing report from Bloomberg about several elite U.S. universities not standing up to Chinese suppression of academic research freedom and free speech:

They call themselves the “Xinjiang 13.” They have been denied permission to enter China, prohibited from flying on a Chinese airline and pressured to adopt China- friendly views. To return to China, two wrote statements disavowing support for the independence movement in Xinjiang province. 

They aren’t exiled Chinese dissidents. They are American scholars from universities, such as Georgetown and Massachusetts Institute of Technology, who have suffered a backlash from China unprecedented in academia since diplomatic relations resumed in 1979. Their offense was co-writing “Xinjiang: China’s Muslim Borderland,” a 484-page paperback published in 2004. 

“I wound up doing the stupidest thing, bringing all of the experts in the field into one room and having the Chinese take us all out,” said Justin Rudelson, a college friend of U.S. Treasury Secretary Timothy Geithner and former senior lecturer at Dartmouth College, who helped enlist contributors to the book and co-wrote one chapter.
The sanctions, which the scholars say were imposed by China’s security services, have hampered careers, personal relationships and American understanding of a large, mineral- rich province where China has suppressed separatist stirrings. Riots and attacks in Xinjiang in July left about 40 people dead.

In the race to embrace China's riches the leaders of elite U.S. academic institutions (who should know better) seem to have forgotten that China is run by a brutal, freedom-suppressing dictatorship. Yet Stanford, the University of Chicago, Duke and NYU have or are in the process of building branch campuses in mainland China. Have many of the U.S.'s best universities forgotten that history has not looked kindly on those who have cozied-up to regimes like China's current one?

The Xinjiang 13 incident also smacks of the same problem in academia which Oscar Winning Director Charles Ferguson documented in his must-watch film Inside Job. Has the academy not learned anything about the importance of professional ethics these past few years?

Full article on the Xinjiang 13 here.

Video: The Commanding Heights - the battle between government and the marketplace

No less relevant today than it was roughly ten years ago when it first premiered, below is Part 1 of the must watch video series The Commanding Heights. Globalization, Keynes vs. Hayek, the future capitalism -- it's all here. Especially recommended for those interested in intellectual history. You'll find the remainder of the episodes at PBS here.

Podcast: Keynes vs. Hayek Debate at LSE

Here's the podcast.

Framing Keynes vs. Hayek is a bit simplistic and perhaps even somewhat counter productive. Of Keynes, Hayek wrote posthumously "he was the one really great men I ever knew, and for whom I had unbounded admiration". Keynes was no socialist, and there is much these two great thinkers agreed upon.

For more on this and the type of thinker it would be more appropriate to contrast with Hayek see here and here.

Evil on Display: Anders Brievik and Insane Acts Committed by Sane People

Perhaps it would be easier to understand the horrific Norwegian killings if they were committed by someone with a history of mental illness and/or violence.

Or perhaps we could more quickly file away this tragedy into a tidy, little mental compartment if the killing was conducted by someone with far less skill and fewer economic advantages.

And perhaps over time more details will emerge to reveal a picture of someone with a history of hate or unsound mind.

But early portraits painted by people who knew him suggest a rather disturbing alternative, which is that Anders Brievik was a seemingly 'normal' Norwegian.

From one of his classmate friends of four years:

I do not know what drove Anders. But, unfortunately, I do not think he is crazy. It would have created a comfortable distance between us if I thought he was. Nothing I know about him from our school days or what I have read in his so-called manifesto suggests that. Rather, he is cold, intelligent and calculating. The Anders I knew was not a monster. 

And as the saying goes, he was not an island. He was product of our society. He was one of us.

Sadly, There is Nothing New Here

If in fact he is a sane, even likeable person as some suggest, who also can kill without concern for those he slaughters, what are we to make of Anders Brievik?

Any student of history is well aware of the unfortunate reality that people like Brievik are nothing new. Many, particularly here in Europe, had hoped the ideologies which fuel Brievik-like personalities, capable of inflicting immense harm to a great number of people not personally known, had been buried decades ago. But the carefully orchestrated supernova of violence conducted by Brievik reminds us that this flame has not in fact gone out yet.

In the wretched corner of history occupied by the Brieviks of the world resides Nazism, which, for better or for worse, has received the lion's share of attention. I say for better or worse because the Nazi-like crimes committed under Stalin, Mao, and others often do not receive the same level of emphasis as those committed under Hitler.

Some who studied the Nazi leadership on trial at Nuremberg stated that the single most important personal quality which contributed to the ability of these humans to try and exterminate Jews (and others) was a lack of empathy. In place of a sense of caring about individuals and collective humanity, which exists in varying degrees in the vast majority of us, instead resided a bottomless black hole devoid of the ability to feel what others feel.

Harm-justifying venom can be easily poured into such minds. Rather than rejecting ideas which you and I would find unconscionable, harming others can seem logical. Seemingly sophisticated moral philosophies, justifications, and ends-means rationalizations enable such people to shoot kids "not just once, but twice, to be sure".

The Anti-Change

Brievik's bomb and gun shots were basically an attack on change. Put simply, Brievik didn't like the way things were going in Norway and decided to effectively sacrifice his freedom of movement for at least 20+ years-to-life (Norway doesn't have the death penalty) to let the world know about it.

For those who don't have the time or inclination to read his 1,000+ page 'manifesto', the change he lashed out against goes by the name of globalization. Brievik would probably prefer that we refer to it as multiculturalism, but globalization and multiculturalism are inextricably linked. Reductionist arguments which try and isolate multiculturalism from globalization are idiosyncratic and counter-productive.

The purpose of this post is not to debate the merits of globalization, but it was interesting to note the stark contrast between Brievik's hate for Norway's immigrants with a recent talk on the contribution of immigrants to Britain's intellectual history. One quarter of Britain's Nobel prize winners were born abroad, as were a large number of America's. Is freedom of movement what the Brieviks of the world would have end, or are they ok with allowing just the Albert Einsteins in?

What is Evil?

Norwegians are hurting badly from this heinous crime and asking how one of their own could commit such an act. Some would like to see the whole episode go away and also deny Brievik the publicity and attention he seeks. From the lack of headlines of late on the BBC and other respectable news agencies it would seem that some clearly understand the essential role of the media to his carefully calculated plan. Hats off to media leaders who recognize this and have taken appropriate action. But what about those who are still trying to gain more information and understand why this happened?

Outside of the religious world people often scoff at whether the imprecise, black-and-white concept of 'evil' is useful. But what other word comes close to giving this its proper name?

Leave it to the shrinks to classify and rationalize empathy-devoid personality types. For the rest of us 'normal' people the word evil will suffice.

Foreskin Man

San Francisco's political battle over circumcision has produced a new comic book character known as Foreskin Man.

Video: Ray Kurzweil on Bill Mahrer

Real Time With Bill Maher: Overtime - Episode... by HBO

Video: Mormon Bubble?

Mormon Presidential candidates Huntsman and Romney are leading contenders. The hit musical by the South Park creators titled The Book of Mormon cleaned up at the Tony Awards. The Senate Majority Leader, Harry Reid, is a rare Mormon Democrat.

Good read over at Newsweek on the 'Mormon Moment'.

Can the U.S. Government Stop Silk Road and Bitcoin?

No sooner than a week after widespread news broke describing Silk Road, a website which some are calling the Amazon.com of online illegal drugs, we have two U.S. Senators seeking to pull-the-plug on the site and the peer-to-peer virtual currency used to pay for drugs called Bitcoin.

ArsTechnica has a nice summary of Bitcoin:

Bitcoin is a virtual currency, designed to allow people to buy and sell without centralized control by banks or governments, and it allows for pseudonymous transactions which aren't tied to a real identity. In keeping with the hacker ethos, Bitcoin has no need to trust any central authority; every aspect of the currency is confirmed and secured through the use of strong cryptography. 

Over the last few months, Bitcoin's value has risen by an order of magnitude as the sagas of Wikileaks and Anonymous (among others) have highlighted the limits of a financial system which relies on centralized intermediaries. With a current estimated market capitalization of about $100 million, Bitcoin has recently graduated from a theoretical techno-anarchic project patronized by libertarians and hackers to a full-fledged currency prompting comment from technologists and economists. At the time of this writing, one Bitcoin (BTC) is worth about US$15.

Here's the original Bitcoin white paper published by Satoshi Nakamoto.

Can the U.S. Government Stop Silk Road and Bitcoin?

Government has had success shutting down centrally managed peer-to-peer services, like Napster. However, 'pure' peer-to-peer sites like Gnutella and Tor, have proven more difficult. Data and services can simply move from a server in one country to another, and pure peer-to-peer is widely distributed by it's very nature. In short, it could prove extremely difficult for the DEA to take down Silk Road.

Bitcoin, however, does link back to actual bank accounts, which perhaps leaves more room for the government to maneuver.

I should have more to say on Bitcoin in the not too distant future.

Was putting a man-on-the-moon peculiarly un-American?

First-image of ISS docking by a soon-to-retire U.S. space shuttle

The Economist has an interesting read on the 50-year anniversary of President Kennedy's speech which set a goal of putting a man-on-the-moon within a decade.

Here's the key excerpt:

He (Kennedy) set out to make America’s achievements in space an emblem of national greatness, and the project succeeded. Yet it did not escape the notice of critics even at the time that this entailed an irony. The Apollo programme, which was summoned into being in order to demonstrate the superiority of the free-market system, succeeded by mobilising vast public resources within a centralised bureaucracy under government direction. In other words, it mimicked aspects of the very command economy it was designed to repudiate. 

That may be why subsequent efforts to transfer the same fixity of purpose to broader spheres of peacetime endeavour have fallen short. If we can send a man to the moon, people ask, why can’t we [fill in the blank]? Lyndon Johnson tried to build a “great society”, but America is better at aeronautical engineering than social engineering. Mr Obama, pointing to competition from China, invokes a new “Sputnik moment” to justify bigger public investment in technology and infrastructure. It should not be a surprise that his appeals have gone unheeded. Putting a man on the moon was a brilliant achievement. But in some ways it was peculiarly un-American—almost, you might say, an aberration born out of the unique circumstances of the cold war. It is a reason to look back with pride, but not a pointer to the future.

Barring a crisis or existential threat, are the prospects for the U.S. undertaking an ambitious, focussed transition to a sustainable energy based system, or an affordable healthcare system, extremely remote?

In short, was the U.S.'s Race to the Moon success, as The Economist puts it, a 'glorious one-off'?

Rogoff: 'Sovereignty and currency co-habitation do not mix'

Reflecting on the latest twists and turns in the Eurozone debt crisis here are some other choice quotes from Professor Rogoff's FT editorial:

• the euro is looking very much like a system that amplifies shocks rather than absorbs them
• even if the euro system was not at the heart of the crisis, it needs to be able to withstand two standard deviation shocks
• markets are more worried about the US’s lack of a plan A than Europe’s lack of plan B
• It is sometimes said that the euro is a creature of politics that would never be justified by economics. The present episode could well turn this statement on its head.

Full editorial here, and here is a recent Charlie Rose panel discussion he participated in with Paul Krugman and others.