28 July 2010

Will American Politics Remain Deeply Partisan?

Richard H. Pildes, at the New York University Law School argues that the highly partisan politics that we see today will remain in place indefinitely, because this partisanship, rather than the the muddy party lines that previously existed are the mature state of our political system.

We have not seen the intensity of political conflict and the radical separation between the two major political parties that characterizes our age since the late 19th century. Within Congress, the parties have become purer and purer distillations of themselves. The parties are now more internally unified, and more sharply differentiated from each other, than anytime over the last 100 years. Moreover, this polarization is not limited to those in office. Over the last generation, there has been a dramatic ideological and partisan sorting of voters as well. A center in America’s governance institutions has all but disappeared. . . .

[T]he major cause of the extreme polarization of our era is the historical transformation of American democracy and America's political parties set into motion by the 1965 Voting Rights Act. Thus, perhaps the extreme polarization over the last generation should not be seen as aberrational (indeed, the pre-1965 structure of parties is the one to view as aberrational). This polarization, for better or worse, might be the "mature" structure of American democracy. As such, it is likely to be enduring, despite the best efforts of Presidents and reformers to transcend the extreme polarization of recent years.

I am not convinced of Pildes' prognosis. Yes, the process of realignment has run its course. Yes, the one party rule of the American South by Democrats from the end of Reconstruction to 1965 was aberrational. Yes, the political process in the United States "naturally" favors a two party system in which the parties are ideologically distinct. But, the two party system is out of balance right now.

Ideological Gaps Are Great Because The Relative Strengths of the Two Parties Is Out Of Balance

Partisan preferences in the United States aren't anywhere near 50-50 among people with a preference. The current Republican party has shrunk to its strongly conservative core in the wake of a 2008 election that was a repudiation of George W. Bush's administration, and it has been captured by an even more conservative subset of the GOP because the party establishment was discredited by the party's electoral defeats.

Democratic party identification is up, but because its establishment was not discredited, its basic ideological bent has not changed very much. The soft support it has received from moderates has increased Democratic party power without expanding the ranks of those actively involved in serving as elected officials and running the party very much. It is broader in support and has a bigger cushion in electoral office, mostly because it has captured a large share of moderates alienated by GOP extremism for the moment. Recent Gallup polling provides some fairly direct evidence that GOP extremism alienates moderate voters.

But, while an American style electoral system "naturally" produces a two party system, its natural tendency is to produce nearly evenly split parties. It takes a crisis like the Great Depression or the social revolution of the 1960s, to throw the balance of power between the two parties far out of balance.

In other words, the deep ideological divide between the two major political parties at the moment is largely a result of the Republican party becoming much more conservative, and that extremism isn't stable.

We can see the instability in the 2010 election cycle. While both parties are having some primary battles, the intensity of the conflict is much greater for the Republicans who threw out Utah's incumbent Senator, for example, because he was not conservative enough, despite the fact that he is one of the most conservative Senators in the nation. The Tea Party movement in the GOP has pushed an already conservative political party further to the right.

Former Tom Tancredo has gone so far off the deep end that he is willing to run as an candidate of the American Constitutional Party which is off in John Bircher territory. When even conservative insurgent candidates, like Ken Buck, are calling the Tea Party activists "dumbasses," it is clear that conservatives, whatever they have accomplished, have overreached, and that the ideological pendulum in the Republican party is about to swing back towards moderation.

As the Republican party moderates its ideology, and the Democratic party holds its ideology largely steady, the result will be that the parties will be less far apart ideologically.

Ideology isn't static

Even though our electoral system tends to produce two political parties that are ideologically distinct, the issues that draw that line are not static. The Republican and Democratic parties almost completely reversed their respective ideologies over the past hundred years, with the Republican party going from being the liberal leaning party to the conservative one, and the Democratic party going from being the conservative party to the liberal leaning party. There is no reason to believe that the ideologies of the two parties will not remain fluid.

In the long run, ideological battles are won or lost, and conceded. No one in politics favors the de jure segregation that was the norm when realignment began. The political stances Strom Thurmond took on race at the end of his career would have been considered quite liberal when his career began. Conservatives lost that battle, just as the lost the battle to preserve slavery.

No one in politics favors dismantling Social Security, Medicare, Medicaid, or a predominantly public funding model for K-12 education. There are reforms to those programs on the table, but the basic notion of mandatory government support for those programs is secure. The Lochner/Hoover era effort to restrict the scope of government failed. Likewise, even the financial industry has no interest in return to the pre-New Deal state of affairs when securities were regulated under state rather than federal law.

The Left changed too. The Democratic party is not trying to mobilize rent strikes, or calling for the nationalization of the oil industry to appropriate its excess profits, or even calling for top marginal income tax rates of 70%. The American Left has pretty much given up the call for universal, free higher education that is the norm in Europe, for the time being. A single payer health care system didn't even make it to a floor vote in Congress during the debate on health care reform.

On some social issues like gay rights, young conservatives are far to the left of their elders and likely to remain that way, shifting the political center on the issue. Assuming that war does not come to dominate the national consciousness and the economy turns around, the political climate will change. Radical conservatives in the Republican party will lose ground to more mainstream candidates who have wider appeal. Bitter extremism doesn't sell well in ordinary times.

Right and left in politics are relative terms, not absolute ones. They are tendencies, not policy agendas in and of themselves.

So, while I believe that a clean partisan divide between two political parties will remain, as Pildes predicts, a long standing feature of the American political scene that is resistant to reform, I don't think that the parties will always be so far apart ideologically. And, when the Republican party is less extreme, moderates will stop looking like Democratic partisans, and compromise will be possible.

Marsupial Family Tree Established

Genetic evidence has provided a definitive phylogenetic tree for the seven orders of marsupials. It shows that all four Australian marsupial orders have their origins in a single South American marsupial ancestor.

The orders, with representative members are:

South American marsupial orders

Didelphimorphia, Virginia opossum;
Paucituberculata, shrew opossum;
Microbiotheria, monito del monte;

Australian marsupial orders

Notoryctemorphia, marsupial mole;
Dasyuromorphia, Tasmanian devil;
Peramelemorphia, bilby;
Diprotodontia, kangaroo.

Microbiotheria and the Australian marsupial orders form the cohort Australidelphia, which was based on the belief that the five orders shared a common ancestor (which they do). But, the new genetic research indicates that all Australian marsupial orders share a common ancestor not shared by Microbiotheria, and proposes a new name for the four “true” Australasian orders (Euaustralidelphia).

A common ancestor of Paucituberculata and all five marsupial orders of the cohort Australidelphia broke off from the order Didelphimorphia, which includes the Virginia opossum, around 130 million years ago.

Three of the Australian marsupial orders, Notoryctemorphia, Dasyuromorphia, and Peramelemorphia, share a common ancestors not shared by the Australian marsupials of the order Diprotodontia, which includes the kangaroo.

While marsupials in Australia are all descendants of the common ancestors of South American marsupials (and the reverse is not true), the Australian marsupials are more diverse:

There are about 250 species of marsupials, and they are found in a variety of habitats. About two-thirds of them live in Australia, Tasmania, or New Guinea, where they have evolved into a wide variety of forms, including plant-eaters such as kangaroos, koalas, and wombats, and also animals such as bandicoots and quolls, which have sharp teeth and feed largely on insects and other invertebrates.

The remainder of the world's marsupials live in the Americas. They include about 70 different kinds of opossum, one of which—the Virginia opossum—is the only marsupial found in North America.

There were once marsupial families distinct to Antarctica, but as that continent grew colder many millions of years ago, they went extinct.

The three species of montremes such as the platypus are only found in the places where Australian marsupials are found, but genetic evidence appears to favor the theory that their closest common ancestor is shared with placental mammals rather than with marsupial mammals, something called the Therian hypothesis, as opposed to the Marsupionata hypothesis that montremes share a closest common ancestor with marsupials, although the data are not definitive.

Bar Examinee Shout Out.

My condolences to those of you out there taking the bar exam this week. FWIW, taking the bar exam sucks much less than passing it but not having steady paycheck as a lawyer six months later, a situation that many of you will also have to endure this year.

As I noted in a post many months ago at this blog (under the Legal Education tag):

Prior to 1890, when New Hampshire adopted one, there was no such thing as a bar exam; every state, but one, had one by 1915. A college education wasn't a prerequiste to law school in the United States until about 1900 (and is still not in most of the world). When Yale Law School was founded in 1843, there were only eight law schools in the country and many lawyers learned the profession in another lawyer's office rather than in a law school. From 1779 to 1817, there was only one law school in the United States (at the College of William and Mary). Harvard Law School, founded in 1817, was the second.

27 July 2010

The State of the Housing Markets

To the extent that housing prices are a barometer of a metropolitan area's general economic health, there is good reason to feel bullish about Denver. Of the twenty major cities studied by Case-Schiller, only Dallas has lost a smaller percentage relative to its peak housing price than Denver, as of May 2010. Denver is down 7.4% from the peak. Dallas is down 4.8%. Third place Charlotte is down 13.3%.

Las Vegas is worst off, down 56.1% from the peak. Las Vegas appears to still be in the grips of collective insanity:

Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.

Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more. ... Land and labor costs have fallen significantly, so the newest homes are competitively priced.

June 2010 had fewer new home sales than any June on record. The runner up was June 1982. The inventory of unsold new homes remains above average.

Home ownership is at an eleven year low of 66.9%. This is still higher than the 63%-66% home ownership rate that prevailed for the three decades before that. The home ownership rate is falling despite herculean stimulus fund efforts in the form of the home buyers tax credit, record low mortgage rates, and significantly lower housing prices. The fact that it hasn't been more affordable to own a home in decades has not preventing home ownership rates from falling.

Perhaps it is a sign of times then, that Andrew Romanoff has sold his Washington Park bungalow, removing himself from the rank of homeowners, in order to raise funds that he can loan to his U.S. Senate campaign. Clearly, he is betting the farm on this race. He did make a handsome tax free profit in the process, as a result of good timing in the Denver real estate market:

Romanoff said the house, which he bought for $190,000 in 1996, sold for $360,000. After paying off the remaining mortgage and cashing out other savings, he put $325,000 into the campaign in four installments, ending Monday.

For what it is worth, I can vouch for the fact that the price he secured to sell the house was not a sweetheart, above market rate deal.

Voting in the U.S. Senate primary in Colorado ends August 10th (in a mail in ballot election, it isn't really accurate to describe August 10th as "election day" anymore). So, in a couple of weeks we'll learn if Romanoff's high stakes gamble (precisely the kind that one should be making when the odds are winnable but against you) will pay off. I am on record at Colorado Pols predicting that he will win that primary.

Skill, Luck, Investing and Sports

Michael J. Mouboussin at Legg Mason Capital Management has written a really thoughtful analysis of ways to analyze the extent to which activities involve more skill or more luck, with particular applications to sports and to investing is available here (42 page pdf).

The article considers, for example, which sports have relatively high components of skill (e.g. running, professional basketball), and which are heavy on luck (e.g. baseball), as well as which individual measures of player performance have a high skill component (e.g. strike out percentage), and which do not.

Investing, it turns out, have a very high luck component. For example, about 75% of mutual funds fail to generate excess returns from their active management that significantly exceed their costs. In any given year, about 60% of mutual funds do worse than benchmark indexes. While not actually a pure luck endeavor as many kinds of gambling are, it involves far more luck than professional baseball or football, for example.

Return on investment in publicly held non-financial corporations, likewise, are highly random, as shown by their tendency to revert to the mean from results in any given year. The more strongly results revert to the mean, the more likely it is that the results are simply a product of luck, rather than anything fundamental.

The ten year return on investment for the bottom 60% of Russell 3000 firms in the first year of a study on the subject showed them to be virtually indistinguishable in returns ten years later. Firms in quintiles that did poorly in the first year of the study (1999) and firms the middle quintile, all had remarkable similar returns ten years late (reverting to the mean). A roughly 45 percentage point spread between quintiles in first year performance collapsed to just a few percentage points ten years later.

Firms that were in the 60th to 80th percentile of first year returns (the fourth quintile) did slightly but distinguishably better, ten years later, than firms in the bottom three quintiles based on first year returns returns, but only by a couple of percentage points. Only firms that were in the top 20% of first year returns did significantly better (collectively) ten years later, with a not quite ten percentage points edge over other firms, but their edge in the first year was muted dramatically in the long run. "[T]he spread between the highest and lowest quintiles shrinks from 70 percentage points in 1999 to about 10 percentage points in 2009."

Thus, while some public held non-financial companies in the Russell 3000 (roughly the 3000 largest capitalization publicly held companies) did provide consistently higher long term returns on investment, only about one in five of these big publicly held non-financial companies fit that profile.

Very high long term returns are almost never sustainable; businesses that survive a long period of time tend to be stable, low rate of return businesses.

Investment returns of mutual funds and a wide variety of other investments revert to the mean (and hence have returns that are likely to involve a greater component of luck rather than skill) to an even greater extent than the companies they own.

Jack Bogle, a luminary of the investment industry, illustrates this by ranking mutual funds in quartiles based on results in the 1990s and seeing how those quartiles performed in the 2000s. The top quartile, which had handily outpaced the average fund in the 1990s, saw a 7.8 percentage point drop in relative performance. Symmetrically, the bottom quartile in the 1990s witnessed a sharp 7.8 percentage point gain in results in the 2000s. . . . By 2009, the excess returns for the best performing funds in 2000 was effectively zero, while the lowest quintile delivered strong excess returns. Because investing results have a large dose of randomness, reversion to the mean is mighty. . . . reversion to the mean in the investment business extends well beyond the results for mutual funds. It applies to classifications within the market (small capitalization versus large capitalization, or value versus growth), across asset classes (bonds versus stocks) and spans geographic boundaries (U.S. versus non-U.S.). There are few corners of the investment business where reversion to the mean does not hold sway. . . .

To illustrate, the S&P 500 Index generated returns of 8.2 percent in the twenty years ended 2009. The average mutual fund saw returns of about 7 percent, reflecting the performance drag of fees. But the average investor earned a return of less than 6 percent, about two-thirds of the market’s return. The reason investors did worse than the average fund is bad timing: they put money in when markets (or funds) were doing well and pulled money out when markets (or funds) were doing poorly. This is the opposite of the behavior you would expect from investors who understand reversion to the mean.

Of course, we can't simply blame investors for being short sighted in their market timing; their below index investment returns are also a product of necessity. Investors invest when they have money to invest, which tends to be when business is doing well and the stock market is generating good returns. They tend to take money out when they need it, often when the economy is weak. The whole point of investing is to invest when you don't need money as badly and to take money out when you need it.

This would seem like a firm case for index investing, at least, and it is suggestive of that notion, but even the benefits of active investing vary considerably at different phases of the market:

The 1990s were one of the worst decades for active management, with an average of only 35 percent of funds generating returns in excess of the S&P 500 annually. The 2000s were one of the best decades for active management, with an average of half of all funds beating the index in each year.

There is also another interpretation of the reversion to the mean phenomena, which is popular in part because it doesn't make large numbers of financial professionals look like idiots that are no smarter than monkeys throwing darts. This is the efficient market hypothesis. The efficient market hypothesis argues that the capital markets are actually extremely smart and incorporate almost all available information to generate prices that predict the future to the greatest extent that skill makes possible.

A strong version of the efficient market hypothesis is not true. Price bubbles (i.e. prices that do not accurately measure long term value given all available information) in a wide variety of markets can be apparent for sustained periods of time. But, the evidence in favor of a weak version of the efficient market hypothesis that inaccurate prices do not persist in the markets over the medium to long term (i.e. periods of several years to decades) and are less likely to persist the longer the time period involved, is quite solid. Price bubbles almost almost collapse sooner or later, usually less than a decade, often much sooner.

Now, it is a fair criticism of this weaker version of the efficient market hypothesis that it is correct almost by definition. A price that does not correct itself in the medium to long term is presumably a correct price based on the fundamentals. But, a studies of skill relative to luck for professional athletes or professional investors, as Mouboussin notes, obscure the fact that some of the randomness is due to the fact that nobody participating is horribly unskilled.

Baseball looks much more skill based when you look at exhibition games between professional baseball players and amateurs, or major league and minor league players. The fact that publicly held companies tend to have similar long term returns on investment does not necessarily mean that businesses promising enough and proven enough to lead to public offerings of their stock and enter the ranks of the largest 3000 companies in the United States aren't a select group that as a whole produce better returns on investments than unproven small companies that can't secure significant outside investment.

Similarly, while mutual fund managers really do struggle to look more skilled than monkeys throwing darts, this doesn't mean that they aren't doing their clients a favor. Being in the market, in any kind of equity investment, produces better long term returns for most investors most of the time, than the alternative. Even in my generation, which has been cursed with a "lost decade" where equity investments have done no better than savings accounts, investing in equities hasn't actually been a significantly worse decision than not investing in equities in the long term.

The most important investment decision for most people is the decision to invest at all, not the particular investments actually made by those people. Due to the wonders of reversion to the mean, or the weak efficient market hypothesis, whichever you prefer, even people who ignored their securities law and finance professors and invested in an undiversified portfolio in a single industry or asset class have probably come out ahead, so long as they haven't kept switching their investment from one previously hot kind of investment to another; which is demonstrably the worst possible strategy (and the one implicitly encouraged by the only well reported data that ordinary investors consistently look at and think that they understand, charts of past performance).

Even what looks like periods when active management really matters suggest that the big thing that investment professionals bring to the table is getting people into the investment world in a way that they otherwise wouldn't have, rather than picking stocks:

The reason active managers did so much better in the recent decade has little to do with skill and a lot to do with style. Most funds that use the S&P 500 as a benchmark construct portfolios with stocks that have an average market capitalization that is much smaller than that of the broad index. This suggests a simple relationship: when large cap stocks outperform small cap stocks, active managers will struggle. Conversely, when small cap outperforms large cap, active managers will shine. This was the case with the 1990s versus the 2000s. In the 1990s, large cap stocks beat small caps by an average of 6.6 percentage points a year. By contrast, small caps generated returns 4.5 percentage points greater than large caps, on average, in the 2000s. As transitivity suggests, different strategies win from one environment to the next.

As the article notes, however, styles of investing, like the kinds preferred by active investors over large capitalization index fund investors, rarely work all the time. Sometimes small stocks do better than average, other times they don't. Even trends that have held for long periods of time won't necessarily continue to hold true. One can expect some fundamentals to hold, approximately, in the long term. Higher risk should produce greater returns, on average, in the long term, for example. But the weasel words in that assumption hides a multitude of sins.

Certainly, it is possible, in theory, to identify moments at which the market has incorrectly priced something, make a bet on that fact, and profit. A suitably skilled person ought to be able to do so repeatedly. But, the evidence seems to suggest that the luck to skill ratio in investing is high even for the very best of the best, and that luck utterly swamps skill for the vast majority of investors, professional and amateur alike.

Of course, there is a certain amount of skill and strategy that goes into even pure gambling, and one of the best expositions of the general principles that apply in gambling and surely also in investing because it has such a high component of luck, is that of Lester E. Dubbins and Leonard J. Savage who wrote the classic "How to Gamble if You Must."

They looked at the question of what sort of strategy you should use when you need a certain sum of dollars and are trying to turn your current pool of money into that larger amount by gambling. For example, what strategy should you use when you have $1000, you need a $1,0000 to pay off a loan shark, and the consequences from the mob of not being able to pay the full $10,000 are far more important than the consequences of losing your $1000 stake?

One of their basic insight was that the best strategy to employ changes dramatically depending upon whether the odds are for you or against you. When the odds are in your favor, you want to make as many small bets as you can, because that makes a result close to an average one most likely and when the odds are in your favor you want an average result.

In contrast, when the odds are against you, you want to bet as infrequently as possible. The less often you play, the more likely it is that you will get an atypical result in favor. If you make many small bets, in contrast, the law of averages is sure to catch up with you.

Another insight was that the best strategy for securing a certain amount of money that you need when the odds are against you is to stop playing when you have attained it. Any strategy based on continuing to play indefinitely when the odds are against you is doomed to lose. Strategy makes it possible to win some of the time when the odds are against you and to maximize that possibility. But, it remains the case that when the odds are against you that you will usually lose.

The insights, it turns out, a deep insights on strategy in life in any situation that has a component of luck. The strategies that make sense in favorable environments where the odds are in your favor, are very different than the strategies that make sense in unfavorable environments where you will usually lose.

When you need to perform far better than you are likely to in order to avoid big downside risks, you need to take big risks that can produce big payoffs. When par for the course is good enough, you are better taking small chances with small potential returns and not putting all of your eggs in one basket.

The most important rule of gambling, where the odds are designed to be against you, is to not play if you don't have to, while the most important rule of investing, where the odds in the long run are in your favor, are to play if you can.

26 July 2010

Deportations At Record Levels

The Obama Administration is deporting more people than ever, about 400,000 last year, and stepping up audits of businesses that employ undocumented non-citizens. Workplace raids are down, but they never made up more than 1%-2% of the total.

Almost half of deportations are of non-citizens convicted of criminal offenses, some serious and others not. Even someone with a permanent resident alien (i.e. a non-citizen with a "green card") can be deported for many criminal offenses, no matter how long the person has lived in the United States.

The President himself is apparently surprised at the extent to which the deportations continue to rise.

Meanwhile, reports from some time ago indicated that undocumented immigrants returning to their home countries due to a lack of employment are outnumbering those who are entering the United States. The total number of undocumented immigrants in the United States fell by about one in ninth (about 1.3 million) in the first year of the financial crisis. There is no reason to think that the economy has turned around in a way that would change that trend, so the total now may be in the vicinity of 10 million out of a total population of 300 million or so.

The economy is having twice as much of an effect as deportations.

Increased enforcement is resulting in the deportation people who would be helped by pending legislation like the DREAM Act, which provides legal status and a path to citizenship to young adults who grew up in the United States and graduated from high school here, if they then go on to college or military service. Most Democrats support the bill, but it isn't clear that it has filibuster proof majorities behind it.

Border patrol and border fence construction also continues unimpeded, even though overstayed visas are a much more common means of entry into the United States than illegal border crossings.

In short, anti-immigration forces in Congress seem to be getting more of what they want than they did in any prior administration, but prospects for liberalizing legal immigration or providing a path to legal status for undocumented aliens, which was supposed to be the other half of immigration reform, appears to have hit a dead end.

Can Schools Be Too Big?

An interesting blog post uses satellite photos at the same scale from three different schools in Alabama to make the case that too many acres, as well as too few, can be a defect in a school. (Warning, slow to load).

The Fall of St. Louis

Steam Powered Opinions notes the decline of St. Louis, which appears to me as best described economically the Southern-most outpost of the Rust Belt. Its fate mirrors that of the more extreme case of Detroit. Like many central cities, its downfall was greatly furthered by urban planning approved, interstate highway assisted suburbanization. Timothy Lee's blog has explored the issue at length in multiple posts from his perspective as a libertarian, one who appears to be liberal leaning, or at least, free of some of the nasty "hate the world" cynicism that sometimes accompanies that label.

A comment to the post linked suggests that white flight from the central city was also a factor. While the comment doesn't reach this conclusion, most of the narratives of white flight point to school desegregation in the wake of Brown v. Board of Education and subsequent cases as a factor that was an important as the interstate highway system in the migration away from central cities. (Equally important, in my view, was the U.S. Supreme Court case follow up to Brown that held that desegregation efforts did not have to extend beyond racially neutrally drawn school district lines.)

One of the fascinating aspects of the fight over land use generally is the extent to which local politics in the United States are decoupled from national ones. You will find die hard Democrats and Republicans alike at both ends of the land use debates played out mostly in local politics, even when, as in this case, national policies concerning civil rights and transportation had a major impact.

You will find proponents of strong land use regulations in liberal strongholds like my Washington Park neighborhood in Denver (which has been home to much of the legislative leadership of the Democratic party in Colorado at one point or another), where the instinct is a preservationist/historic one, although also anti-density, and yet you will also find proponents of strong land use regulations in affluent, conservative suburbs like Cherry Hills Village and Greenwood Village to the Southeast of Denver.

Meanwhile, you will also find proponents of weaker land use regulations like myself, among proponents of infill development, who see urban density as mostly a virtue, for environmental and economic development reasons among other motivations, while weak land use regulations also find favor among conservative suburban developers of large lot tract housing.

The decoherence of local political ideology compared to national political ideology is probably one reason why it leaves open room for constructive engagement across traditional political identity boundaries. It is a place where “liberaltarian” common ground (what a god awful word!) is possible, as are other unlikely alliances.

Timothy B. Lee, who is confident enough in his own judgment to take libertarian heroes like Austrian school economist Ludwig von Mises with a grain of salt, and to recognize that issues that don't impact him personally are still important, is certainly an easier voice to hear libertarian rooted ideas from than most.

Fermilab Tightens Higgs Window

If there is a light Higgs boson, its mass must be between 114 GeV and 158 GeV, according to combined data from two major research projects at Fermilab. The evidence that there is indeed a Higgs boson of that mass, however, is not statistically significant. Many physicists betting that it will be on the light side of that range (140 GeV or less), because the closest thing the data have found to a non-statistically significant sign of a Higgs boson is at a mass of 140 GeV.

(Strictly speaking, a giga-electron volt needs to be adjusted by a factor of the speed of light squared to provide units of mass, but it is customary to omit that factor as a short hand; a proton is about 1 GeV.)

The particle was proposed in 1964 by Peter Higgs to explain why Standard Model particles have mass. If it isn't found then there is something deeply wrong with the theoretical structure of the Standard Model, a possible extension of it called Supersymmetry (SUSY), and an even grander extension of its commonly called String Theory or M-Theory.

The converse is not true. A light Higgs boson does not necessarily imply Supersymmetry or String Theory, although a light Higgs boson would not be inconsistent with them. The key discovery necessary to validate either of those theories would be the discovery of the LSP, the lightest supersymmetric particle, hypothesizes to have a mass of around 500 GeV or so. This would be within the range of the Large Hadron Collider's ability to detect, but beyond what could be found at Fermilab.

While many physicists are still giddy with the possibility of new physics as the window of possible masses (and hence the range of possible theoretical models and time frame for possible discovery of the Higgs) narrows, I'm skeptical. It seems at least as likely to me that there is nothing in the narrow remaining range of masses.

The fact that physicists have searched so long without finding anything makes the assumption that the one undetected predicted particle is in the mass range that can't be detected seem like wishful thinking. Experiments have produced many unpredicted phenomena in the three and a half decades since 1964, in addition to the few predicted but undiscovered ones they have revealed.

Why Is Royalty Relevant?

I woke up in the middle of the night last night from a dream about Romanian princesses. My daughter finished one of her assigned summer reading books, "The Princess Diaries," by Meg Cabot, this week. Earlier this month, my son and I headed off to an Elvis theater to watch "The Prince of Persia." The tabloids continue to scream out the latest headlines about William and Kate's rumored engagement in the grocery store checkout line - and I read them and can explain the story to my children, despite the fact that the British royal family hasn't had political power for a century and I have no business as a life long American knowing the British royal succession (complete with footnotes about cadet lines). Princess Diana was as beloved in the United States as she was in her homeland.

This isn't a particularly American phenomena. One of the best selling graphic novel series in Korea, for example, "Goong," is the story of an alternate history in which Korea's monarchy survived into the modern era.

Every third boy and girl dreams of growing up to be a prince or princess, a near impossibility. How many kids do you know who dream of growing up to be city council people or a state representative or a county commissioner?

The Bible and the liturgy and prayers that go with it, are deeply immersed on a monarchical milieu. The second chapter of the Gospel of Luke notes that Jesus is a descendant of King David (an odd claim traced through his father Joseph for a product of a virgin birth), a great king of the Jews that tracks the prophets, and ends with Jesus ironically crucified for being "King of the Jews." A common translation for Biblical common references to God is "Lord," a term that shouldn't, by rights, have much meaning anymore.

Modern Islamic fundamentalism is basically monarchist politically. Sunni Muslim insurgents don't want elections, they want a Caliphate. The Shi'ite movement is Islam was fundamentally a monarchist faction of the early faith, favoring a leader with family ties to Mohammad.

While democratic reformers try to disavow them, voters from Pakistan to the United States, love political dynasties, be they the Kennedy, Bush or Ghandi families. In Japan, some popular politicians make a point of tracing their family histories to the Meiji regime capital of Edo (now called Tokyo); it summons up a sense of noblesse oblige and native virtue that the modern Japanese voters crave.

While they are mostly (outside a number of predominantly Islamic states), in theory, politically irrelevant, monarchies of one kind of another are still alive in many of the world's nations: Japan, Thailand, Saudi Arabia, the United Arab Emirates, Brunei, Belgium, Cambodia, Kuwait, Swaziland, Lesotho, the Netherlands, Spain, Tonga, Monaco, Australia, Canada, the United Kingdom, Malaysia, Morocco, Sweden, Norway, Jordan and Denmark.

In Afghanistan, the blessing of a representative of the line of the former monarch was important for the legitimacy of the current regime. North Korea is on the verge of domesticating its dictator as a monarch in a regime close to entering its third generation.

Even in what are considered healthy, secure democracies, it isn't unusual for powerful legislators and judges to hold onto their seats of power for decades.

In fairness, it is republican government, and not hereditary rule, that is the new kid on the block. The earliest known political histories are king lists from Sumeria and Egypt. Brief flirtations with democratic government in Athens and the Roman Empire didn't last long. Both the United Kingdom and France saw republics revert to monarchies.

The United States, Iceland and Switzerland have the longest unbroken histories as republics. But, it was some time before it became obvious that it would turn out this way. While George Washington is famed for stepping down from the Presidency of the United States after two terms in office, setting a precedent that would remain until the Presidency of FDR after which it was made part of our constitution, he spent far more than eight years as the leader of the United States of America. He led to revolutionary government for almost two and a half decades and many foreign observers initially described him as a constitutional monarch.

One hundred and sixty years ago, it was far from a sure thing that democratic and republican government would become a political norm. The world has seen 5,500 years, more or less, of rule by monarchs and only 3% as long with rule by elected leaders. In some places, the history of republican rule is far shorter. There are people alive today who remember when China was a monarchy.

Perhaps the more relevant question is not "Why is royalty relevant?," but "What made royalty irrelevant in the last century and a half?" Anthropologist John Hawks may be correct that evolution may be accelerating, but the human race has certainly not changed all that fundamentally that fast, and states as expansive and multi-ethic as the nations on our map today are nothing new, even if they did not cover the entire globe for most of human history. The Hittites and Egyptians both ruled empires larger than modern Turkey and Egypt respectively back in the Bronze Age. China was almost as vast as it is now three thousand years ago. The Mayan, Inca and Aztec empires all rivaled modern Latin American states in size.

The notion that republics are fundamentally more stable is not obviously true. Nations that have escaped periods of non-democratic rule en route to government by elected leaders are the exception, not the rule. The many coups and dictatorships in newly democratic countries from Latin America to Africa to Asia are well known. But, these are not cases of Third World exceptionalism.

Russia, Germany, Italy, Greece, Spain, the United Kingdom, and France all saw democracy fail before it prevailed. While the United Kingdom has had continuous parliamentary government for longer than the United States, the era in which its monarchy has had purely symbolic power in the United Kingdom is shorter.

The European Union's most economically troubled states at the moment, Greece and Spain, which are on the verge of defaulting on their sovereign debts and home to six of the seven European banks to fail stress tests last week have had military governments in my lifetime.

History is not yet old enough to declare that republican democracy, and its close cousin, democratic constitutional monarchy, are the end of history.

It is also worth noting that despite the rise of the publicly held corporation, that family owned enterprises that are the private sector equivalent of monarchies continue to comprise a large part of the economy, and that opponents of a meaningful shareholder say in the operation of publicly held corporations, like Professor Bainbridge, remain highly influential voices in corporate law. Even in companies that no longer pass from parent to child (a process that I make a good share of my living perpetuating), the wealth often does -- recreating an economic aristocracy.

While sovereign princes may be heading towards the dustbin of history, merchant princes and princesses continue to walk the streets of Vail, Manhattan, London, Paris and Beverly Hills.

Ayn Rand's polemic novel "Atlas Shrugs," is widely viewed as a defense of radical libertarianism. But, in a sense, it is a work of economic monarchism. It makes the case that the giants of our economy can seize power if they want it, removing the illusion of popular rule. From this perspective, the power of lobbyists in Washington is not a perversion of democratic rule, but a necessary corrective to maintain the illusion of republican government that is contrary to the natural order of things.

I am not so pessimistic, but I also think that political theory of Common Cause and its allies, which sees campaign contributions and personal gain as the factors that corrupt politicians to listen to corporate interests is basically wrong. Big business would have immense power in political circles even if not a single corporation or corporate executive's campaign contribution dollar was tendered, even if every politician lived like a Franciscan monk, and even if their case was made by executives personally, instead of by highly connected corporate lobbyists. Big business is powerful mostly because it runs such a large share our economy, for reasons that have as much to do with economies of scale as they do with outsized political influence. The voice of anyone who holds the economic fate of whole cities and states in their hand will always find an attentive audience among policy makers. If Big Business did not press itself upon Congress, Congress would make its way to the nation's boardrooms to ask its opinions.

Increasingly, there is a trend is to see the graduates of Harvard and Yale, of Oxford and Cambridge, of the École Nationale d'Administration and École polytechnique as the legitimate ruling class of our society. The flip side of meritocratic admissions to elite institutions of higher education is that they enhance the legitimacy of a ruling class, whether or not this is deserved.

In short, while it is conventional wisdom to think that aristocracy and non-democratic rule are the irrelevant fantasies of regnancy romances and fairy tales, I'm not entirely comfortable that this is true. The public still likes its pomp and circumstance. We still re-create the imagery with Prom Queens and Homecoming Kings. There is a deep yearning in the public for a legitimate, superior ruling class awash in wealth that can guide us wisely, however ahistorical that notion may be. One of post-Soviet Ukraine's most influential and popular political leaders styles herself as a princess. Officially impotent elected Presidents often wield formidable political power. It is hard to see the deeply ingrained political instinct to trust nobility remaining suppressed for too many generations. Mankind is too opportunist to let such a powerful gimmick go to waste.

23 July 2010

Suspect in Glendale Colorado Terrorism Arrested

A 34 year old Utah man suspected of having burned down a leather business, the Sheepskin factory, in Glendale, Colorado, as a terrorist act in support of animal rights on April 30 of this year, has been arrested yesterday. He was linked to two other fires including a previously unconnected fire at the Tiburon Restaurant in Sandy, Utah earlier this month.

He allegedly confessed his involvement to a person who informed authorities in July. The authorities then arranged to secretly record a meeting between the informant and the suspect.

On Thursday, with FBI and ATF agents watching, the informant met Bond at the Ramada Inn, 1150 E. Colfax Ave., and audio- and videotaped the meeting, according to the affidavit.

According to the ATF affidavit, the informant, who had had no contact with Bond for more than a dozen years, said he/she came forward because of the fear firefighters might be hurt or killed in the arsons.

During the conversation, Bond told the informant he burned the Sheepskin Factory in Glendale as well as the leather factory and a foie gras restaurant in Utah.

Bond said he used the nickname "Lone Wolf" and the businesses "represented animals wolves typically hunt."

According to the affidavit, Bond said he once lived close to the Sheepskin Factory in Glendale and it angered him that the business profited from animals.

Absent a successful suppression of the evidence, a conviction and long prison term seem very likely.

A Dozen Stray Friday Afternoon Ideas

What follows are a few ideas for making our world better that I haven't gotten around to hashing out at length, but want to record before they are forgotten:

* Motorcycle EMTs: In urban areas where traffic is a problem, delaying the arrival of an ambulance, fire truck or police car to the scene where someone needs emergency medical treatment, why not deploy an EMT by motorcycle to provide care and stabilize a patient until an ambulance arrives? In rural areas, the equivalent would be to have an EMT who could drop from a helicopter or ride out on a snowmobile or jet ski to some place that is difficult for a flight for life helicopter or ambulance to pick up a patient in a timely fashion.

Of course, this idea only makes sense if the skills of the EMT, and not the heavy equipment of the larger vehicle or the actually arrival time at a full fledged ER matter.

* Satellite ERs: How feasible would it be to develop stand alone emergency rooms that provide care almost as good as one at a conventional hospital? Many hospitals seem to be relocating or closing. Consolidation isn't that big a deal for non-emergency care like planned surgeries. But, distance is the enemy in emergency care where the "hour of power" after a medical event in which high end medical care can be most effective is critical.

* Devil's Advocates in Search Warrant and Grand Jury Proceedings: The empirical evidence strongly suggest that lawyers who request things like search warrants from courts and indictments from grand juries in ex parte proceedings almost always prevail. A right to counsel for the subjects of search warrants and arrest warrants would be infeasible. Surprise is often critical to reducing risk to law enforcement, and the name and contact information of the suspects is often unavailable anyway.

But, what if the public defender's office had someone assigned to argue on behalf of suspects generally in courts where search warrants and arrest warrants are issued, providing someone with a knowledge of the law to challenge assertions of law and inferences from the facts made by prosecutors?

The substantive law of search, seizure and arrest wouldn't have to change at all. There would simply be an additional person present who could make arguments in the hearings before an impartial magistrate that are already required. Similarly, in a grand jury hearing, there would simply be one more person present who could cross-examine witnesses and make arguments after the prosecutor made the case for an indictment.

Evidence from the differences between the results of grand juries, which are ex parte, and preliminary hearings, which are not, suggest that this would materially reduce the likelihood that warrants would issue where probable cause that a crime was committed was absent.

Since defending a criminal case imposes serious costs on criminal defendants even when the criminal defendant wins, the societal interest in preventing weak cases from moving forward is real.

* Mandatory credit card PINs: In Europe, credit cards almost universally require a PIN (personal identification number) to authorize a transaction, the same kind of authorization required in the U.S. for ATM cards. In the U.S. this is not required. The empirical evidence shows that the use of PINs dramatically reduces the amount of simple credit card theft that takes place. For example, in a system where a PIN is required to use a credit card, a stolen wallet is much less likely to lead to monetary loss.

The lack of security isn't much of a concern to U.S. card holders because if there is a theft by credit card, the charges can usually be reversed with a little hassle. Credit card companies don't care all that much, because bad debt losses are vastly larger than credit card losses, there is fierce competition to win credit card customers, in part, by maximizing convenience, and the merchants who dealt with the thief can often be made to bear the loss. But, a higher incident of credit card theft losses does impose a burden on the criminal justice system. Even more importantly, it provides economic fuel for criminal activity generally. The less economic gain stealing someone's wallet provides, the less likely it is that someone will steal wallets, and the harder it is to make money with criminal activities generally, the less likely it is that people will become criminals.

A law requiring that credit cards have PINs would solve the race to the bottom problem of competition between credit card companies and materially reduce theft losses.

In the same vein, it appears that new anti-theft measures making it hard to hot wire a care have dramatically reduced the incidence of auto theft in the United States.

* Biometric authorization of transactions: Some stores require a fingerprint from someone who wants to use a check. The New York Bar exam requires it from applicants. The DIA parking lot takes photos of the license plates of cars that don't pay for parking on the spot.

Technologies like digital photos and carbon copy paper make it possible to get someone's fingerprint without making a mess. Indeed, a fingerprint could be accompanied by a routine digital camera photo of the customer similar to the ones that are always taken by ATM machines. This serves a couple of purposes: (1) it proves in an easy to confirm after the fact way that the person named actually authorized the transaction, and (2) it provides a way to identify a criminal who engaged in fraud in a transaction through existing law enforcement databases. Signatures do neither very effectively, because identifying someone from a signature is inexact and because the increasingly common practice of having signatures collected with a stylus on a glass screen produces an atypical signature anyway.

The idea of using a fingerprint as a method of authorizing a transaction could be extended to a wide variety of financially important transactions.

Why not largely replace signatures with fingerprints as a way of authorizing economically important transactions? It certainly isn't immune to forgery and abuse, but it would seem to be better by any measure than signatures for security purposes.

Signet rings and personal seals were used in much of the world for this purpose before signatures came into wide use (and personal seals remain the norm in Japan and possibly elsewhere for this purpose in important transactions). What seal is more personal than a fingerprint?

Interestingly, a variant on this idea, hopefully not one that becomes widespread, would be for the authorizing person to leave a drop of blood on the document that could be DNA tested in the event of a dispute. There are already pens whose ink has a distinctive DNA marker designed for the same purpose.

Another variant on this idea would be to make in the norm that every bank setting up bank account have a photo of its customer on file that would come up on a screen that a teller could see whenever anyone attempted to make a withdrawal from a bank teller.

It is also worth recalling that the purpose of a measure like this one is as much to discourage fraud as it is to catch it. It makes it clear to a would be criminal that escaping detection is futile unless a highly sophisticated and costly scheme to overcome the security measure is taken.

* Neighborhood mail boxes: When I was in college, there was one mail room for every student in the college. You arrived more or less daily to take mail out of your box, and often socialized with other people you knew in the process. This approach isn't restricted to college campuses. Vail, Colorado does not have house to house mail delivery. New suburbs almost invariably have mail delivered to a cluster of boxes in the neighborhood, rather than to individual houses. Presumably, it is more efficient to deliver mail this way.

Rather than cut Saturday mail service or make other major cuts to mail delivery, why not convert more communities to the cluster of boxes mail delivery system. This could produce major reductions in delivery costs in both urban areas and rural ones, with the savings in rural areas being particularly dramatic. It would also provide a modest means by which the social capital of neighborhoods would be strengthened.

Going to a mail box a short distance from my home is not that big of an inconvenience compared to other proposed mail service cuts.

This also has the incidental side effect of increasing the sanctity of one's property against governmental intrusion. If mail is delivered to a cluster box down the road that means that there isn't a government official stepping onto our door step every day.

* Require financial accountants to be bonded or insured: One of the things that made the Bernie Madoff Ponzi scheme problematic is that the CPAs who signed off on the financial reports it sent to the SEC were from an effectively judgment proof firm, so holding them liable for their complicity in the fraud didn't help make the victims whole. Adequate bonding and insurance requirements for firms that provide financial reports for publicly held companies might change this, by leaving fiscally robust parties to partially compensate those harmed when accounting and auditing failures don't catch frauds.

* Create a centralized national/international professional discipline database: Almost every profession has some sort of licensing process and revokes licenses for cause. But, unlike criminal records databases, professional discipline databases are not highly centralized. Unless an applicant says so by answering truthfully on an application, there is probably no way that a real estate agent licensing board in Colorado could know that the applicant has had a federal broker's license revoked for fraud, for example.

This is further amplified by the common process in some jurisdictions of only privately disciplining someone for professional misconduct as a warning.

A centralized national database would allow a professional licensing regulator in one jurisdiction to instantly learn of any professional discipline an applicant had received in any other jurisdiction for any profession, not just the one applied for.

This might make it easier to prevent people with a track history of professional misconduct from being put into new positions of trust.

* Biometric databases for re-entry to the U.S. of American citizens: Today, one proves that one is a U.S. citizen and thus allowed to re-enter the United States, by presenting a passport. But, passports can be lost or stolen. Why not put the photographic information present in a passport, and additional biometric identification, like a fingerprint, into an electronic database available to border agents? Then, a U.S. citizen could simply enter a name and allow him or herself to be compared against the database, in lieu of presenting a passport. This kind of system would also allow passports presented to be checked against the document itself, so that altered photographs or identifying information could be detected. The paper document might still have value and could still be issued and used, but wouldn't be sole way that U.S. border agents would know that someone was or was not a U.S. citizen.

* Military seaplanes: The U.S. military has at various times in its history used seaplanes for a variety of purposes but has none in its active duty arsenal today. This is too bad, because there are a variety of niches where seaplanes could have military value.

There are far more small bodies of water where a plane could land in much of the world than there are field air strips. Helicopters can land almost anywhere but are slower, have shorter ranges, are less fuel efficient and are less reliable the conventional airplanes.

Seaplanes could be particularly valuable if coupled with something like the proposed Marine Expeditionary Fighting Vehicle, which is basically an amphibious armored personnel carrier. A few seaplanes could land in a lake, deploy these amphibious vehicles, and put medium weight U.S. forces in all sorts of places in the world where it would be more difficult to deploy troops that heavy by other means.

Seaplanes are also well suited to search and rescue missions in the open sea (compared to helicopters that have shorter range). They would also be a useful alternative to helicopters to resupply naval ships at sea. One could also imagine seaplanes that were supported by ships or submarines, which are much cheaper and easier to keep continuously in service, rather than air tankers.

* Military transport submarines: One of the missions the U.S. military is called upon from time to time to perform is to resupply areas that have been interdicted by opposing forces. The classic example is the Berlin airlift. The trouble with doing that by air is that transporting heavy or bulk items by air is very expensive.

Other U.S. military missions include getting people or things out of a place (e.g. evacuating expatriots from a regime that has fallen apart, or getting recovered nuclear materials out of a foreign nation), and deploying heavy U.S. military equipment or bulk supplies into areas where U.S. forces don't have perfect control of the sea.

For example, the mere threat of Iranian attack could entirely shut down the delivery of goods and people by sea in and out of the Persian Gulf, even if it was actually done only infrequently.

Anti-submarine warfare is very hard to do, even with sophisticated technologies. Submarines are much harder to attack than surface ships.

So, why not develop a U.S. capability to deploy transport submarines to transport loads much heavier or bulkier than those it is economic to transport by air in places where there is incomplete control of the sea? A transport submarine could be used, for example, to prevent Taiwan from being choked off by the threat of Chinese or North Korean attacks on merchant or transport ships.

We have a proven ability to build large submarines like the Ohio class submarines with considerable cargo capacity if designed for that purpose, and we have a need to keep the skills and technologies involved in building nuclear powered submarines in existence, but the need for nuclear attack submarines dramatically declined with the end of the Cold War and attack submarines are very expensive to build.

In contrast, a large submarine that was designed to serve simply as a transport could be far less expensive, and have a smaller crew, while at the same time filling a gap in U.S. military capabilities. It would require no technologies that aren't well proven, and would not need to be designed to function in the extreme depths where U.S. nuclear attack submarines and ballistic missile submarines operate.

While considerable time and money has been devoted to figuring out better ways to deploy small special forces units by submarine, sea vessels are better suited to deploying heavy or large units than they are to deploying small units that could also be deployed by small seacraft or aircraft. An ability to have those kinds of resources near to a potential conflict without announcing their presence as a large surface ship would, could be a useful capability.

* Subsidize satellite telecommunications:

The United States spends about $75 billion a year and employs something like 850,000 people in the public and private sectors combined (i.e. civil servants and intelligence contractors) to spy on foreign countries. A large share of that money goes into spy satellites, sophisticated wiretapping technologies, code breaking tools, Internet scanning technologies, electronic bugs, and the like. More goes into hiring CIA agents to develop informant networks.

One of the premises of the huge expenditure we make for intelligence activities (which employ more people in the U.S. than we have practicing attorneys) is that the information that is worth having to guide our policy decisions is mostly secret.

This isn't at all obvious. For all its money and personnel, the New York Times, Wall Street Journal and Washington Post, combined, with a tiny fraction of the resources of the major government intelligence agencies. Blogs that cater to specialists in particular professions, academic specialties, or residents of a particular area often have news well before it becomes widely known for the asking.

The CIA and State Department know this, and subscribe to news outlets all over the world to add to their own data collection. But, many parts of the world have very thin supplies of journalists or bloggers, in part because the government controls the media and access to the Internet.

But, increased intelligence spending has focused almost entirely on increasing the in house information collection capacities of spy agencies, rather than looking at the big picture of how to increase the production of information generally.

There are content neutral ways that the flow of third party information like journalistic reports of things that aren't truly secret, but aren't widely known, could be increased.

For example, one of the big limitations in much of the world, particularly in closed societies, to communicating, is a lack of internet access or telephone networks that aren't monitored by their repressive governments. Satellite based telephone service and internet access are available in theory, but the subscription costs are often prohibitively high, particularly for journalists and participants in civil society in less wealthy countries.

If subscription costs for these services could be made free or available at a very low cost to people in these countries (just as GPS signals are now), an immense flow of information would develop. The social impact would greatly exceed that of the already powerful impact that access to satellite television has had in much of the Arab world.

It would cost some money to keep the satellites running, and people would still have to purchase the hardware to access the service, but this would tremendously empower groups like social movements in China, political activists in Burma, dissident forces in Iran, a journalists in many parts of the world, at a cost that we would happily pay many billions of dollars more to achieve than this cost by conventional means. Much of the information, moreover, would be available to intelligence agencies, often intentionally openly and relevant to U.S. concerns, at a cost that would be a tiny fraction of the cost of maintaining a network of informants to get that kind of information.

But, because the satellites could be monitored in the same way that the NSA already has the authority to monitor international telecommunications, these resources would not be nearly so useful to people who would like to use it to carry out plots against the United States.

Kosovo's Independence Acknowledged

The highest court of the United Nations, the International Court of Justice, has recognized the legality of Kosovo's February 17, 2008 Declaration of Independence from Serbia. Since then, sixty-nine countries, including the United States, Canada, Japan, Australia and most of the countries of Western Europe, have recognized Kosovo an a sovereign independent state over Serbia's objections supported mostly by Russia and other formerly communist countries.

Saudi Arabia and many other predominantly Muslim countries have recognized Kosovo's independence, in part because they feel that Kosovo is defending a Muslim population which was minority in Serbia.

The International Court of Justice ruling could help Kosovo win recognition from other countries, which covets a United Nations membership.

The U.N. ruling also gives heart to those separatist regions who would like to unilaterally declare independence. Previously rulings on the circumstances in which a subdivision of an existing state may unilaterally declare independence consistent with international law, such as a Supreme Court of Canada ruling addressing the conditions under which Quebec could become an independent country, have tended to require either consent from the country that the region used to belong to, or widespread international recognition. (As an aside, the United Kingdom long ago formally recognized the legality of the separation of the United States from it in a treaty.)

Kosovo isn't the only country of disputed sovereignty where sovereignty is recognized by some states but not others, in the world. Most are unsettled fallout from the collapse of the Soviet Union in the Caucuses or are Cold War hold overs (North Korea and South Korea, Taiwan and the People's Republic of China). Israel-Palestine, Cyprus-Northern Cyprus, Morocco-Western Sahara, and Somalialand-Somolia disputes also remain outstanding.

Of the currently live disputes, those in the Caucuses, in Somolia and in Kosovo, however, are the only situations likely to be in flux in the near future. The Chinese, Korean, Israeli, Cyprus and Morocco situations all appear to have reached stalemates for the time being.

Notably, Turkey has recognized the independence of Kosovo, despite the possible relevance of that recognition of a unilateral declaration of independence by an ethnic minority region to its own dispute with the Kurds.

Some of the notable European states that have not yet recognized Kosovo are Spain and Greece. In the case of Spain, this may be motivated by concerns about declarations of independence by its only ethnically distinct autonomous regions (Basque and Catalan communities, for example).

We Voted But Not In Colorado's Interesting Races

Our household's primary election ballots hit the post box today. Summer primary elections are a context when mail in ballots really show their worth. Lots of people are on vacation in early August (including my dear spouse), but with a mail in ballot, it doesn't matter and there is no need to go to the hassle of getting an absentee ballot.

As Democrats in a precinct where there is only one contested race (Romanoff v. Bennet for U.S. Senate) it was a bit anti-climatic. All the fun fireworks this season seem to be on the GOP side and in the contested state legislature primary races.

The race for the GOP gubernatorial nomination just gets more and more absurd.

McInnis has melted down. He has admitted to submitting plagiarized articles to a top GOP fundraiser in exchange for $300,000, and that he needs to return the money as a result; and both the top GOP fundraiser involved and the person who provided the materials that McInnis plagiarized have publicly denounced him. Three of his top paid staffers, all formerly affiliated with Tom Tancredo, have quit. His staff may not get paid. His fund raising has screeched to a halt. The fact that he paid his wife more than $30,000 to be his campaign manager at a point in time when he had already decided he wasn't running for re-election has resurfaced. Every major paper in the state has urged him to drop out of the race, as has former GOP Congressman Tom Tancredo. His poll numbers have plummeted. He has no hope of being the next Governor of the State of Colorado. He'll be lucky to keep his day job as a lobbyist with his credibility so completely destroyed.

Dan Maes has been excoriated by the Denver Post for his campaign finance malfeasance and incompetence as a person. The Post is convinced that he has no clue about anything having to do with state government. His claims that he is a successful businessman have been undermined by tax records that show that he is instead a struggling entrepreneur; not a dishonorable thing in and of itself, but a qualification that he has vastly oversold on the campaign trail.

Tom Tancredo is threatening to run on the American Constitution Party ticket (thereby splitting the conservative vote in the general election) if McInnis and Maes don't drop out of the race.

Republican leaders and the newspapers seem to want everybody to drop out so that a white knight can come forward to serve as a more credible opponent to Democrat John Hickenlooper in the race, but I just don't see that happening.

It is hard to see Maes losing the GOP primary to McInnis, and I don't see him dropping out if he wins the primary. It isn't obvious to me that state election law allows someone who has been registered to vote as a Republican to run as a third party candidate or as an unaffiliated candidate this late in the game, or to replace a primary candidate when another person is running for the party's nomination in the same race. Yet, all the viable candidates do have party affiliations.

At this point, the last best hope of the GOP in the Governor's race would be for Republicans to vote strategically for McInnis, for him to drop out after winning the primary, and for the party to fill the open nominee spot via a vacancy committee. But, I don't think that the GOP is capable is pulling off a strategic voting campaign on that scale. Lots of voters have ballots in hand already and Republican primary voters are even more likely than Democrats to cast their votes shortly after receiving their ballots. It is too late for Republicans to unite around a plan to vote for McInnis and replace him, particularly when McInnis claims to be still in the race and not planning on dropping out, and when no one replacement nominee has come to the fore.

Maes was more popular than McInnis with the party faithful at the state GOP convention. A lot of Republicans genuinely prefer Maes, and not much has happened since the state convention that would change the opinion that the kind of Republicans who liked Maes then. Lots of GOP primary voters who are ambivalent about Maes are going to decide that McInnis is hopeless and that Maes is the lesser of two evils. Similarly, many Republicans who might have voted for McInnis simply because they thought that he was more electable, even though they preferred Maes, may not feel liberated to vote for the candidate that they actually prefer.

Given what we know about the candidates now, in November, Hickenlooper will easily defeat Maes running as the Republican nominee, McInnis running as the Republican nominee, or Tom Tancredo running as a third party or unaffiliated candidate. The odds that any other opposition will emerge remain remote, and even then any would be Republican nominee is starting from scratch late in the game against one of the strongest candidates for Governor that the Democratic party has ever nominated.

The debacle in the Republican Governor's race has implication for beyond that race itself. Normally, expectations about how the top of the ticket races will play out drive turnout from the party faithful. It also damps campaign contributions and volunteer enthusiasm. Normally, the campaign for Governor carries the job of coordinating a lot of the get out the vote effort for the party as a whole. If Republicans believe that they are doomed to lose the Governor's race, all Republicans in Colorado and all conservative leaning ballot measures will suffer.

Also, even if Republicans do vote, many moderate Republicans, who are make up a decent share of the rank and file of the party, even though they are rarely seen in the party machine or elected office, will vote for Hickenlooper rather than Maes in the Governor's race. And, someone who ends up splitting their ticket in that race may be more prone to splitting their ticket in other races as well. The McInnis meltdown has put some people who otherwise would have been automatic straight party ticket voters into play. This could be a real problem for John Suthers, the incumbent Republican attorney general who is running for re-election whose Willie Horton-like misstep brought Democrat Stan Garnett into the race has a heavy weight opponent.

Conversely, Democrats, assured of at least one big win, are likely to feel charged up to participate in this year's campaigns.

Another consequence of the McInnis meltdown may be more immediate. Some otherwise likely Republican primary voters will decided as a result of the controversy to simply not vote at all. But, conservatives activists and diehards being the people that they are, will vote in the primary no matter what. That gives an edge to the candidates perceived as further to the right on the Republican primary ballot.

It helps Ken Buck in his race against Jane Norton in the Republican U.S. Senate nomination race, for example. Then again, Ken Buck, apparently craving the attention that is fellow party members in the Governor's race have secured has developed a new slogan: vote for me because "I don't wear high heels." Last time I checked, the whole "women don't deserve to hold higher office" thing hasn't been very effective with voters in Colorado, which was one of the first to give women the right to vote and has one of the highest percentages of female office holders in the nation. Maybe he's sore that he didn't win Sarah Palin's endorsement when she was in Denver.

It may influence the Republican primary campaigns for the nominations in the state treasurer's race and the 7th Congressional District race, although I don't know either of those races well enough to discern who is favored if the GOP primary electorate is shifted to the right. None of these candidates, however, have much hope of winning in November against the incumbent Democrats in any case.

A failure of the GOP to make gains in Colorado in November would be a serious blow to the meme that the blue wave that swept Obama and the largest Democratic majorities in Congress in decades has completely evaporated. Everyone expects that Democrats will lose some ground in Congress in 2010. This almost always happens to the party in power in an off year election. But, if that shift isn't as great as expected, the Democrats and the Obama administration will be able to continue to govern effectively for another two years.

22 July 2010

Will Washington State Kill Arbitration?

Arbitration is a dispute resolution method almost always contractually elected by people who think they will sued in an effort to obtain a more favorable forum that the ordinary court system. Washington State's Supreme Court may have changed that equation in that state. Its state supreme court has held that statutes of limitations that bar actions in courts of law do not bar arbitration proceedings.

Thus, anyone who has a contract with an arbitration proceeding in it can be sued at any time for breaching the legal duties covered by the arbitration clause, even if the suit would have been thrown out of court if the arbitration clause was not present.

The case involved a securities arbitration suit in which the arbitrator dismissed a claim on the grounds that it was barred by state law statutes of limitation and the arbitration award dismissing the claims was challenges in state court.

The decision makes putting arbitration clauses in contracts far less attractive in Washington State than it was before the ruling. If other state courts or legislatures follow suit, it could effectively kill the practice of putting arbitration clauses in contracts.

The ruling also gives leverage to those pushing to end securities arbitration under the regulatory power the SEC has to do so under the Dodd-Frank bill. It also weakens the lobbying efforts against a bill being considered in Congress that would greatly limit the contexts in which mandatory pre-dispute arbitration clauses are allowed (banning them in most consumer and employment contexts).

Estate Tax Not Dead

The Senate yesterday rejected a proposal by Jim DeMint (R-SC) to permanently abolish the estate tax, 39-59. Two Democrats (Blanche Lincoln (AR), Ben Nelson (NE)) supported the bill; three Republicans (Susan Collins (ME), Olympia Snowe (ME), George Voinovich (OH)) opposed it.

From here.

There is not, however, any consensus on a particular estate tax reform. The status quo is that the estate tax, which is suspended this year unless retroactive legislation changes this fact, will return with a vengeance with higher rates and smaller exemptions than it has had for almost a decade in 2011.

Multiple attempts to pass compromise bills have failed. The Administration and most Democrats in Congress support a proposal to effectively make the 2009 estate tax laws permanent with some minor tweaking, but this has not received enough support to become law.

Once upon a time, I believed that Congress was sure to act before 2010. Now, I'm not at all sure what it will do.

Criminal Record Predicts Supervised Release Failure

Despite judicial screening of eligibility to supervised release in the federal judicial system, which is similar to parole, criminal history at the time of sentencing is still an important predictor of the likelihood that an offender will successfully complete the terms of that offenders' supervised release sentence:

Supervised release is a “unique” type of post-confinement monitoring that is overseen by federal district courts with the assistance of federal probation officers, rather than by the United States Parole Commission. A sentencing court is authorized (and, in some cases, required) to impose a term of supervised release in addition to a term of imprisonment. While on supervised release after reentry into the community following release from imprisonment, an offender is required to abide by certain conditions, some mandated by statute and others imposed at the court’s discretion. If an offender violates a condition, a court is authorized (and, in some cases, required) to “revoke a term of supervised release, and require the defendant to serve in prison all or part of the term of supervised release without credit for time previously served on post[-]release supervision.”...

[N]early one million federal offenders . . . [have] been sentenced to supervised release since the passage of the Sentencing Reform Act [in 1984] (including more than 100,000 offenders currently on supervised release) and with revocations occurring in approximately one-third of cases in which supervised release terms were imposed ....

[T]he percentage of successful terminations of supervision for certain offense types (e.g., drug cases) has been significantly higher than for other offense types (e.g., firearms cases). Furthermore, success rates in supervision are highly correlated with offenders’ criminal history categories at the time of the original sentencing. On average, the lower the criminal history category an offender has, the greater likelihood that the offender successfully will complete supervision without revocation for violation of the conditions of supervision.

Legalizing Pot Popular, Drug War Not

Low marks for the "War on Drugs" cross party lines, with 63 percent of Democrats and 64 percent of Republicans and 70 percent of Independents picking the option of failure. Just 8 percent believe the anti-drug war is a success.

The poll of 1,003 American adults, taken July 14 and 15, shows that the public is drawing a distinction between marijuana and other drugs. A total of 52 percent supported the legalization of marijuana. Just 8 percent would support legalization of heroin or powder cocaine or Methamphetamines. . . .

More than half of respondents (52%) support the legalization of marijuana. While clear majorities of Democrats (57%) and Independents (59%) agree with this course of action, only about two-in-five Republicans (38%) concur.

Via the Sentencing Law and Policy Blog.

The Political Theory of Second Opinions

A new paper entitled "Second Opinions" by Adrian Vermeule at Harvard Law School explores the idea that public law (i.e. constitutional and governmental law) is designed in many cases as a way to force public officials to obtain second opinions. Here is the abstract:

There is a burgeoning literature on second opinions in professional contexts, as when patients or clients seek advice from a second doctor or lawyer. My aim, by contrast, is to analyze second opinions as a central feature of public law. I will try to show that many institutional structures, rules and practices have been justified as mechanisms for requiring or permitting decision-makers to obtain second opinions; examples include judicial review of statutes or of agency action, bicameralism, the separation of powers, and the law of legislative procedure.

I attempt to identify the main costs and benefits of these second-opinion mechanisms, to identify conditions under which they prove more or less successful, and to consider how the lawmaking system might employ such mechanisms to greater effect. I claim, among other things, that Alexander Bickel’s justification of judicial review as a “sober second thought” is untenable, and that the Supreme Court should adopt a norm that two successive decisions, not merely one, are necessary to create binding law.

Drunken Decisions

A particularly amusing point, that is explored (for a deeper meaning) is the notion of deliberation while drunk v. deliberation while sober, with drunken judgment not receiving an entirely negative evaluation.

Laurence Sterne, the author of Tristram Shandy, suggested that a combination of drunken and sober deliberation was best:

The ancient Goths of Germany … had all of them a wise custom of debating
everything of importance to their state, twice; that is, once drunk, and once sober:
drunk – that their councils might not want vigour; and sober – that they might not
want discretion.

The case for drunken decision making focuses on the importance of passion, emotionally correct decision making, and honesty (even with oneself) in making decisions. The heat of passion that drives a call for action is an important part of the process.

A Framework For Future Study

There is a lot of analysis within the second opinion framework in the article, although it is short on conclusions (other than a case that two decisions rather than one might be a better standard for setting court precedents), and the insights that flow from the analysis are largely a rehash of conventional political theory.

The analysis offers few "a-ha" insights, in part, because analytically, there a strong competing considerations that govern how people who know that their opinions will be second guessed will behave. Will they be more careful, knowing that their mistakes may be discovered, or more reckless, knowing that they are not the sole decision-makers? These competing claims have to be resolved empirically.

The most promising element of this analysis, however, is that it is naturally suggestive of an approach to reviewing and, if necessary, gathering empirical evidence in a variety of otherwise seemingly unlike domains in hope of discerning general trends.

For example, there is lots of data out there that is available to compare the behavior of prosecutors in jurisdictions where their decisions to prosecute a crime are subject to being second guessed by grand juries, those where their decisions to prosecute a crime are subject to being second guessed by judges, and those where their decisions to prosecute aren't second guessed at all.

This evidence suggests that the federal grand jury requirement has almost no impact, that grand juries do quash a significant share of prosecution decisions in rural state courts, and that preliminary hearing review of prosecution decisions by judges are a modest but real protection for criminal defendants facing weak charges.

Similar data can compare the kind of decisions made on using the juvenile or adult criminal justice process in states where prosecutors may "direct file" against a juvenile in an adult criminal justice process for certain crimes, and those where a prosecutor must seek judicial approval to charge a juvenile as an adult. It is quite clear that juveniles are significantly less likely to face prosecution as adults when judicial permission is required to do so.

According to conventional wisdom, supported by some data, judicial review of the process of granting search warrants has very little impact, although in those cases, the requirements that prosecutors review law enforcement requests may have the effect of forestalling searches that law enforcement officers not subject to search and seizure limitations might have made - in part, as a result of the red tape barrier, and in part, because a lawyer must concur with someone trained as a law enforcement officer.

The broader conclusion from these examples may be that ex parte requests for second opinions from the person making them have little substantive impact, but that a requirement that second opinions be obtained from people who are exposed to information from an advocate for another result than the one who asks for the ruling may meaningfully influence the ultimate result.

This analysis, taken to a political theory level, would suggest that a requirement in a political process for a second opinion is likely to be most meaningful when public input is required or a devil's advocate is appointed.

For example, the National Environmental Policy Act, despite simply requiring political actors to determine what the impact of a public policy decision will be for the environment, rather than imposing any particular hard and fast rules on what those impacts may be, appears to have been quite influential in causing policy makers to consider environmental impacts in their decisions. A critical factor that helps explain why this is so is that the public can participate in the environmental impact assessment process, and that there are in fact advocates in civil society who vigorously exercise their right to comment.

Notice and comment processes in a variety of rule making contexts likewise show that allowing comment from the public in situations where there are organized civil society institutions and advocates who participate in the process does routinely influence the final form of government regulations.

In contrast, second opinions not informed by new information or advocacy can be quite meaningless. Decisions subject to a public hearing process almost never produce a different result when no one attends the hearing.

21 July 2010

Calculated Risk on the Housing Credit And More

The housing tax credit was a clear and unequivocal failure. Not only did most of the benefit go to people who were going to buy anyway, but the credit didn't reduce the overall supply (the total supply includes both homes and rental units). The credit just incentivized some people to move - and pulled some sales forward - and to the extent the credit went to new home sales, it actually was counterproductive by increasing the excess supply. This is a textbook example of bad policy.

From here.

This sums up a couple of different criticisms.

The Housing Market Is Not Very Responsive To Incentives In Anything But The Very Short Term

One criticism is that the increase in home purchases per tax dollar spent was very small, and it will be even smaller once the post tax credit sales slump is taken into account.

Each additional home purchase produced by the tax credit cost American taxpayers something on the order of $150,000 (the credit was about $8,000, but the housing market statistics imply that about 94% of the buyers are people who would have bought homes anyway without the credit).

There are cheaper ways to stimulate a weak economy.

The Rule of Holes and the Value of Useless Things

The other criticism is that to the extent that the credit induced builders to build new homes, it made a bad situation even worse.

The first rule of holes is that when you have dug yourself into one, stop digging.

The proximate cause of the financial crisis was a housing bubble that collapsed in several regional U.S. housing markets. This caused the financial industry which had financed the bubble to choke, and this in turn led to a generalized, deep recession in the U.S. economy. The reason that housing bubble happened is disputable. The fact that there was a housing bubble that collapsed is not.

A housing bubble is a situation in which housing prices continue to increase far beyond the prices that economic fundamentals would suggest. In other words, it is a situation in which the market screws up and collectively overprices houses for a while.

Excessively high prices lead the market to build more houses than it should.

When a housing bubble collapses (and all price bubbles ultimately do), the market suddenly acknowledges that it has built more houses than it should have built.

It should be pretty obvious that the building more houses is not the right thing to do when the nation has too many houses.

But, politicians being politicians, it isn't. Business journalists, likewise, seem to have a hard time grasping the concept that maybe it isn't such a bad thing that the market has woken up and decided to stop building more houses when we already have enough of them. Their tendency is to see more construction as something that is always good, whether we need it or not. Gross Domestic Product (GDP) numbers share the same bias. More is always viewed as a good thing.

What politicians, business journalists and macro-economists often forget, but our capitalist economy fortunately does not, is that making more of something is only worthwhile if someone wants it badly enough to pay what it costs to make it. Making things that people don't want at the price it takes to make them does not add value to the economy.

Building houses that the economy doesn't need does not make us richer.

Perspectives On The Net Worth Slump

The housing bubble collapse has been a blow to the the aggregate net worth of American households. NPR discussed the second quarter report from the Fed on the subject. Just before the housing bubble collapsed and the financial crisis hit in 2007, the nation's net worth was about $65 trillion. As of June 30, 2010, the nation's net worth is down to about $54 trillion (about $180,000 per capita, although obviously not evenly distributed), which is were it was back in 2004.

Declining net worth sucks, and a 17% drop in a couple of years is not small. Declining net worth especially sucks if it happens to you. And, it is worth recalling that asset values have fallen even more than 17% because both assets and liabilities have fallen.

Still, a lot of the declines in asset prices were only on paper. Asset valuations were inflated in 2007 and have since returned to more normal levels. Lots of people owned real estate before prices surged, held onto it, and still own it now that prices have dropped. Those people still own precisely what they did before, it just looks different on a balance sheet.

When In The Boom-Bust Cycle Is Harm Done?

I don't mean that the financial crisis or the recession that followed weren't bad things. I am simply pointing out that a restoration of asset prices to levels more in line with reality is not the reason that the economic events of the last decade were bad.

The bad part is that a lot of people acting in reliance on artificially high asset prices made bad decisions. They borrowed more than they should have borrowed using their homes as collateral, and saved less than they should have saved. They hired people to build houses that the economy didn't need and had to lay them off because there is now an excess inventory of housing. They made unsustainable projections of future demand for all manner of public and private sector goods and services and ramped up to meet demand that never materialized. They squandered our society's pool of resources available to invest in new business ventures on financial and real estate investments, when it would have been better for our economy if that capital was available now to fund new biotechnology and high tech ventures.

Most of the decisions that were bad for our economy were actually made during the boom, not the bust. The bust is just when we collectively figure out that we were previously stupid. By the time a bust happens, some consequences of prior bad decisions are inevitable.

What Policy Options Do We Have?

We can try to economically punish those who made the bad decisions in order to set a precedent that will discourage bad decision making in the future. We can try to buffer the innocent from suffering the full consequences of someone else's bad decisions. We can try to repair problems in our political economy that encouraged people to make bad decisions. We can try to turn lemons into lemonade by making the best of the situation we inherit. But, nothing can change the fact that we built more houses than we needed, or otherwise made bad decisions in reliance on artificially high asset prices.

A long history of trying has also revealed that boom and bust cycles can't be avoided all together. Sooner or later our current round of fixes to the political economy will fail. If we do a good job, this will happen later. If we do a bad job, it will happen sooner. But, there is every indication from economic history that boom-bust cycles are an inevitable part of any capitalist economy.

The Case For A More Robust Economy

It isn't nearly as obvious that we can't mitigate that harm caused by boom-bust cycles.

Notwithstanding the many banks that have failed in the financial crisis, commercial bank failure rates post-FDIC are still lower than they were when the economy was healthy pre-FDIC, and mass institutional collapse was largely restricted to the less regulated shadow banking sector this time around. Commercial banks lost heaps of money, but, because there were limits on their leverage imposed by the FDIC, this didn't bring down a very large share of them.

There is still reason to believe that we can reform our political economy in a way that makes our economy more robust, so that the consequences of collapsing price bubbles and other economic sins that lead to recessions lead to less displacement for ordinary people. We can remove subsidies for leverage, we can provide people with more transferable skills, we can strengthen the social safety net, and we can put in place other automatic stabilizers in the economy.

Can Every Bucket Stand On Its Own Bottom? What Does This Imply For Federalism?

A harder question is whether it is possible or desirable to reduce the tight interdependence our economy. Was it inevitable that overpriced houses in California and Florida would produce lay offs for auto workers? Did a regional crisis in the U.S. have to spread to other regions and abroad? I don't know the answer to that question.

A lot of the gains that our economic system produces come from its interdependence. Wall Street is not wealthy because Manhattan is home to highly productive workers in the real economy. Silicon Valley is not an economic powerhouse because Californians need more computers than anybody else. Florida orange farmers and cranberry producers in Maine do not thrive because their neighbors have a strong commitment to buying local. Seattle is not prospering because Washington State has a particularly high demand for commercial airplanes or buggy software. The interdependence of our national and global economy is part and parcel of what makes it thrive.

But, if our economic system is indeed interdependent, then the case that the rules governing that process need to be made at a high level is great too. The entire world has suffered, in part, because the legislatures of California and Florida were overprotective of homeowners vis-a-vis banks. No amount of good policy from legislative bodies in other states mattered. Policies anyway that make create incentives that favor major price bubbles in any economically significant good or service can wreck havoc globally.

The implication is that making economic policy locally is like handing out loaded guns in bars near closing time. The vast majority of the people there may act responsibly, but it is almost inevitable that someone will make a very bad decision that hurts some other completely innocent person. Local control only makes sense in the political economy when the decisions don't have powerful externalities, and in an interdependent economy, many local economic decisions do impact people who have no say in them.