Tag: New York magazine

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Barack Obama Criticism Economics Election 2012 Financial Crisis National Security New York City Palin Politics The Opinionsphere Videos

Must-Reads of the Week: Nukes, Inconsistencies, Graphing the Economic Crisis, Half-Hookers, Palin 2012, Mailer’s Wife, & Complex Business Models

1. Nukes. Jon Stewart and Andrew Sullivan both make the same point: Obama’s nuclear policy is the fulfillment of Ronald Reagan’s vision:

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
The Big Bang Treaty
www.thedailyshow.com

2. Inconsistencies. Matt Yglesias:

The main difference between left and right with regard to property rights is simply that the right is invested in a lot of rhetoric about markets and property rights and the left is invested in different historical and rhetorical tropes.

… Formally, the right is committed to ideas about free markets and the left is committed to ideas about economic equality. But in practice, political conflict much more commonly breaks down around “some stuff some businessmen want to do” vs “some stuff businessmen hate” rather than anything about markets or property rights per se…

Or if you look at the energy sector, you’ll see that businessmen want to push property rights for the stuff that’s in the ground (coal, oil, whatever) and a commons model for the stuff (particulates, CO2) that’s in the air. You can call that “inconsistent” if you like, but obviously it’s perfectly consistent with what coal and oil executives want! And those industries are the most loyal supporters of “right” politics around.

3. Graphing the Economic Crisis. Ezra Klein puts out some interesting graphs about the economic crisis and nascent recovery including this one:

Klein explains:

This graph is a political problem for the Obama administration (if not, in the short-term, an economic problem). But it is also necessary for all the other graphs. The bank rescue, which added temporarily to the deficit, stabilized the stock market and set the stage for its recovery. The stimulus, which also added to the deficit, helped moderate the job losses and and has contributed to recent gains. You could’ve made the lines on this graph better, but only by letting the lines on the other graphs get worse.

4. Half-hookers. Lisa Taddeo for New York magazine writes about the burgeoning half-hooker culture which exists in a bizarre alternate reality existing so close to our own where celebrities and finance guys get their women:

The general-admission crowds dance, and the table crowds dance a little more woodenly, a little more entitledly, with their finger pads on their tables. The promoters are dancing with the models and the waitresses are dancing with the bottles and everybody finds a place on the floor.

The floor people, they are just to fill the place up. The celebrities and the athletes and the tycoons are the ones for whom this world is zealously designed. A rung below in after-work pinstripes are the money guys, the Deutsche guys and the Goldman guys and the no-name hedge-fund guys—the “whales”—guys like that one over there in a Boss suit and John Lobb shoes, standing beside the table that cost him $3,000. Standing very close to it, like a Little Leaguer who wants to steal second but has never done it before. This gentleman’s not dancing, but he’s thinking about it.

There’s quite a lot to the article. A fascinating piece of reporting.

5. Palin 2012. Chris Bowers makes the argument for why Sarah will win if she runs.

6. Mailer’s Wife. Alex Witchell profiles Norris Church Mailer, Norman Mailer’s final wife, whose story moved me as I read of it:

John Buffalo Mailer [stepson of Norris:] “People are their best selves and worst selves intermittently,” he told me, “and the best marriages navigate that ride over the hurt, which I believe they did right to the end. They both had options, and at the end of the day the life they created together won out over infidelity, illness and hard times…”

7. Complex Business Models. Clay Shirsky:

One of the interesting questions about Tainter’s thesis is whether markets and democracy, the core mechanisms of the modern world, will let us avoid complexity-driven collapse, by keeping any one group of elites from seizing unbroken control. This is, as Tainter notes in his book, an open question. There is, however, one element of complex society into which neither markets nor democracy reach—bureaucracy.

Bureaucracies temporarily reverse the Second Law of Thermodynamics. In a bureaucracy, it’s easier to make a process more complex than to make it simpler, and easier to create a new burden than kill an old one.

Read the rest.

[Image by me.]

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Barack Obama China Criticism Domestic issues Economics Financial Crisis Foreign Policy Health care Iran National Security Politics The Bush Legacy The Media The Opinionsphere The War on Terrorism The Web and Technology War on Drugs

Must-Reads of the Week: Google/China, Liberal American Exceptionalism, The Failed War on Drugs, Defending the Individual Mandate, Counter Counter-Insurgency, Idiocrats, and Men Did It!

1. Google v. China. I’ve refrained from posting on the Google v. China battle going on until now. So much of the praise for Google’s decision seemed overblown and I wasn’t sure what insight I had to offer, even as I read everything on the matter I could. But now, the wave of criticism of the company is pissing me off. I get the source of the criticism – that Google is so quickly criticizing other companies for staying in China after it left, and that Google’s partial exit may have made business as well as moral sense.  But motives are new pure – we’re human. Those who the critics accuse the company of merely using as a pretext for a business decision see the matter in other terms – according to Emily Parker of the Wall Street Journal, “Chinese twitterverse is alight with words like ‘justice’ and ‘courageous’ and ‘milestone’ “ and condolence flowers and cups being sent to Google’s offices in China.

What the Google/China conflict highlights though is the strategic incompatibility of a tech company like Google and an authoritarian state like China. One of James Fallows’ readers explains why Google and China could never get along:

Internet search and analytics companies today have more access to high quality, real-time information about people, places and events, and more ability to filter, aggregate, and analyze it than any government agency, anywhere ever.  Maybe the NSA can encrypt it better and process it faster but it lacks ability to collect the high value data – the stuff that satellites can’t see.  The things people think but don’t say.  The things people do but don’t say.  All documented in excruciating detail, each event tagged with location, precise time.  Every word you type, every click you make (how many sites do you visit have google ads, or analytics?), Google is watching you – and learning.  It’s their business to.  This fact has yet to sink in on the general public in the US, but it has not gone un-noticed by the Chinese government.

The Chinese government wants unfettered access to all of that information.  Google, defending its long-term brand equity, cannot give its data to the Chinese government.  Baidu, on the other hand, would and does…

The reader goes on to explain how China would slow down and otherwise disrupt Google services in China enough to ensure that Baidu would keep it’s dominant position. This, he explains is:

…just another example of the PRC’s brilliant take on authoritarian government: you don’t need total control, you just need effective control. [my emphasis]

Which is why it is so important that a country like China have constant access to search engine data. In a passage deleted at some point in the editing process from a New York Times story (which an internal Times search reveals to be this one), it was reported that:

One Western official who spoke on condition of anonymity said that China now speaks of Internet freedom in the context of one of its “core interests” — issues of sovereignty on which Beijing will brook no intervention. The most commonly cited core issues are Taiwan and Tibet. The addition of Internet freedom is an indication that the issue has taken on nationalistic overtones.

2. Liberal American Exceptionalism. Damon Linker of The New Republic responds to critics:

[T]he most distinctive and admirable of all [America’s] qualities is our liberalism. Now let me be clear: unlike Lowry and Ponnuru, who identify American exceptionalism with the laissez-faire capitalism favored by the libertarian wing of the Republican Party, I do not mean to equate the ideology that dominates one of our country’s political parties with the nation’s exemplary essence. On the contrary, the liberalism I have singled out is embraced by nearly every member of both of our political parties—and indeed by nearly every American citizen. Liberalism in this sense is a form of government—one in which political rule is mediated by a series of institutions that seek to limit the powers of the state and maximize individual freedom: constitutional government, an independent judiciary, multiparty elections, universal suffrage, a free press, civilian control of the military and police, a large middle class, a developed consumer economy, and rights to free assembly and worship. To be a liberal in this primary sense is to favor a political order with these institutions and to abide by the political rules they establish.

3. The War on Drugs Is Doomed. Mary Anastacia O’Grady of the Wall Street Journal echoes me saying: The War on Drugs is Doomed. (My previous posts on this topic here, here, here, here, here, here, here, here, here, here, here, here, and here.)

4. Defending the Individual Mandate. Ezra Klein explains why the individual mandate is actually a really good deal for American citizens:

The irony of the mandate is that it’s been presented as a terribly onerous tax on decent, hardworking people who don’t want to purchase insurance. In reality, it’s the best deal in the bill: A cynical consumer would be smart to pay the modest penalty rather than pay thousands of dollars a year for insurance. In the current system, that’s a bad idea because insurers won’t let them buy insurance if they get sick later. In the reformed system, there’s no consequence for that behavior. You could pay the penalty for five years and then buy insurance the day you felt a lump.

Klein also had this near-perfect post on our unhinged debate on health care reform and added his take to the projections of Matt Yglesias, Ross Douthat, Tyler Cowen on how health care law will evolve in the aftermath of this legislation.

5. Counter-Counter-Insurgency. Marc Lynch describes a document he recently unearthed which he calls AQ-Iraq’s Counter Counter-insurgency plan. Lynch describes the document as “pragmatic and analytical rather than bombastic, surprisingly frank about what went wrong, and alarmingly creative about the Iraqi jihad’s way forward.”

6. Idiocrats Won’t Change. Brendan Nyhan counters a point I (along with many other supporters of the health care bill) have been making (here and here for example) – that once the bill passes, the misperceptions about it will be corrected by reality. I fear he may be right, but I believe it will change opinions on the margins soon and more so over time.

7. Theories of the Financial Crisis: Men Did It. Sheelah Kolhatkar looks at one theory of the financial crisis some experts have been pushing: testosterone and men.

Another study Dreber has in the works will look at the effects of the hormones in the birth-control pill on women, because women having their periods have been shown to act more like men in terms of risk-taking behavior. “When I present that in seminars, I say men are like women menstruating,” she says, laughing…

Positioning himself as a sort of endocrine whisperer of the financial system, Coates argues that if women made up 50 percent of the financial world, “I don’t think you’d see the volatile swings that we’re seeing.” Bubbles, he believes, may be “a male phenomenon.”

His colleague, neuroscientist Joe Herbert, agrees. “The banking crisis was caused by doing what no society ever allows, permitting young males to behave in an unregulated way,” he says. “Anyone who studied neurobiology would have predicted disaster.”

A very interesting thesis. And one that strikes me as broadly true. I previously explored other theories of what caused the financial crisis:

[Image by me.]

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Politics Scandal-mongering The Opinionsphere

The Edwards Morality Tale

One of the most interesting stories of the past two years has been the tale of John Edwards. In 2004, several essays by William Saletan (here, here, and here) as well as his forceful speeches, positive tone, and life story convinced me to support Edwards. He was passionate. His message was upbeat, tapping into the hope of the American dream, but he acknowledged how far it had fallen. He campaigned on the theme of the economic restoration of the American dream – the same theme that imbued Michael Moore’s Capitalism: A Love Story. But it is also a theme that has haunted liberalism since the 1970s – as it has sought to recreate the economic conditions that lead to the stable middle class of the 1950s and 1960s, a kind of reactionary nostalgia. Whether this is the correct view of history or not, it is excellent politics. By 2008, Edwards had doubled down on this – and was running a policy-intensive, netroots focused campaign on economic issues. It was only upon hearing him answer Tim Russert’s questions on Iraq and national security in 2007 that I finally abandoned him as a candidate for 2008.

But in the meantime, he himself was apparently changing – was being corrupted by his success, was becoming greedy for attention and privilege:

[E]veryone who met Edwards was struck by how down-to-earth he seemed. He had fewer airs about him than most other wealthy trial lawyers, let alone most senators.

Many of his friends started noticing a change – the arrival of what one of his aides referred to as “the ego monster” – after he was nearly chosen by Al Gore to be his running mate in 2000: the sudden interest in superficial stuff to which Edwards had been oblivious before, from the labels on his clothes to the size of his entourage. But the real transformation occurred in the 2004 race, and especially during the general election. Edwards reveled in being inside the bubble: the Secret Service, the chartered jet, the press pack, the swarms of factotums catering to his every whim. And the crowds! The ovations! The adoration! He ate it up. In the old days, when his aides asked how a rally had gone, he would roll his eyes and self-mockingly say, “Oh, they love me.” Now we would bound down from the stage beaming and exclaim, without the slightest shred of irony, “They looooove me!”

As this “ego monster” took over his personality, Edwards met Rielle Hunter – who, aside from offering herself sexually, stroked his ego. And so, Edwards apparently fell in love with the idea of himself that Rielle Hunter presented to him. This allowed her past all the numerous safeguards that Edwards had built to keep himself from being embroiled in any Clintonian affairs and added to his apparent descent into hubris.

The Edwards story has advanced a bit – with tawdry detail after tawdry detail leaking out over the last months. From the book proposal by close aide Andrew Young (who initially took responsibility for the affair with Rielle Hunter) claiming that Edwards comforted her by promising that “after his wife died, he would marry her in a rooftop ceremony in New York with an appearance by the Dave Matthews Band” to the revelations in Game Change by John Heilemann and Mark Halperin (excerpted for New York magazine) to the most recent acknowledgement that despite his earlier “confession” he was in fact the father of the “love child” with Hunter.

Even with these scandals under the surface, he still was determined to get some prominent post in the government. He was so cocooned, he believed he could get past all these stories and that Obama could appoint him to a top position:

“John will settle for attorney general,” Hindery e-mailed Daschle.

Daschle shook his head. How desperate is this guy?

“Leo, this isn’t good for John,” Daschle replied. “This is ridiculous. It’s going to be ambassador to Zimbabwe next.”

When Obama heard about the suggested quid pro quo, he was incredulous. That’s crazy, he told Axelrod. If I were willing to make a deal like that, I shouldn’t be president.

South Carolina brought an end to the Edwards campaign; after finishing a derisory third in the primary, he dropped out of the race a few days later. Yet for months that spring, as Obama and Clinton engaged in their epic tussle, Edwards continued in his Monty Hall mode, attempting to try to claim some reward from either candidate for his backing.

The trouble with Obama, from Edwards’s point of view, was his refusal to get transactional. When Edwards told Obama that he wanted him to make poverty a centerpiece of his agenda, Obama airily replied, Yeah, yeah, year, I care about all that stuff. Clinton, by contrast, proposed that she and Edwards do a poverty tour together, even suggested that Edwards would have “a role” in her administration. Edwards still had his eye on becoming attorney general, and thought the odds of getting that plum were better with Hillary than with Obama. But after South Carolina, the chances of Clinton claiming the nomination just kept falling – and Edwards didn’t want to back a loser.

So Edwards sat there, perched on the fence, squandering his leverage. Making the situation all the more absurd was the birth in late February of Hunter’s baby, a girl she named Frances Quinn – a development that Edwards somehow convinced himself would not preclude his being nominated and confirmed to run the Department of Justice.

Finally, in May, after suffering a blowout loss to Clinton in the West Virginia primary, Obama phoned Edwards and briefly managed to pierce his bubble of delusion. Tomorrow is the last day when your endorsement is going to make a difference, he told Edwards. And what would Edwards get in return? Not much more than a prime-time speaking slot at the Democratic convetion.

At 1:15 a.m., Obama sent an e-mail to his staff: Edwards is a go.

I normally like a good scandal which brings a fast-inflating figure down to size (though I really hate the media’s moralizing tone in covering these scandals.) But this story has the feel of a pathetic side figure in a Shakespearean comedy – a decent but not great man undone by his own egotism.

[This tremendous photograph by alexdecarvalho licensed under Creative Commons.]

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Barack Obama Catholicism China Criticism Economics Financial Crisis Gay Rights Politics The Bush Legacy The Media The Opinionsphere

Chinese Racism, Andrew Ross Sorkin’s Power, Andrew Sullivan’s Catholicism, America’s Decline (?), and Megan Fox’s Savvy Self-Creation

Chinese Racism. Reiham Salam posits that China’s ethnocentrism will retard it’s development into a superpower – especially given the demographic obstacles it is facing thanks to it’s One Child Policy.

Andrew Ross Sorkin’s Power. Gabriel Sherman describes the world of Andrew Ross Sorkin, star financial reporter for the New York Times, in New York magazine. He describes the unique amount of power Sorkin has accumulated in financial circles, all from the paper that was traditionally lagging behind the others in financial journalism. Attending a book party, Sherman observes the way Sorkin is treated by the many powerful titans of Wall Street:

“What you noticed when you went was how many powerful Wall Street people were there to kiss his ring,” adds The New Yorker‘s Ken Auletta, a party guest. “He’s a 32-yeard old guy, and there were all these titans of Wall Street crowding around to say hello and make nice to Andrew.”

That type of praise only makes your job harder of course.

Andrew Sullivan’s Catholicism. Andrew periodically writes these moving pieces about his Catholicism, and why he is still a Catholic. Yesterday, in an emotional response to a number of recent events, he writes:

Maybe I am too weak to leave and be done with it. But in my prayer life, I detect no vocation to do so. In fact, in so far as I can glean a vocation, it is to stay and bear witness, to be a thorn in the side, even if the thorn turns inward so often, and hurts and wounds me too.

I stay because I believe. And I stay because I hope. What I find hard is the third essential part: to love. So I stay away when the anger eclipses that. But the love for this church remains through the anger and despair: the goodness of so many in it, the truth of its sacraments, the knowledge that nothing is perfect and nothing is improved if you are not there to help it.

America’s Decline (?). John Plender writing in the Financial Times pokes several more holes in the growing consensus that China’s power will soon eclipse America’s. Rather, he sees China as returning to it’s historic position of economic power – increasing relative to America, but not eclipsing it given the various problems they are facing.


Megan Fox’s Savvy Self-Creation. When I saw the New York Times Magazine was writing a major article about Megan Fox I was intrigued. What about her might be interesting enough to hold up a feature? It turns out that there was quite enough. Lynn Hirschberg writes about a starlet whose main focus is her own image, the character she plays in the media. Fox deliberately holds herself apart from this character:

I’ve learned that being a celebrity is like being a sacrificial lamb. At some point, no matter how high the pedestal that they put you on, they’re going to tear you down. And I created a character as an offering for the sacrifice. I’m not willing to give my true self up. It’s a testament to my real personality that I would go so far as to make up another personality to give to the world. The reality is, I’m hidden amongst all the insanity. Nobody can find me.

As she studies Marilyn Monroe, Ava Gardner, Elizabeth Taylor, and other Hollywood icons, almost all of whom were overwhelmed by their characters, Fox seems to be searching for lessons she can take herself:

Monroe was her own brand before branding existed. “She lived her whole life as a character playing other characters,” Fox said. “And that was her defense mechanism. But Marilyn stumbled and lost her way. She became overwhelmed by the character she created. Hollywood is filled with women who have tried to cope. I like to study them. I like to see how they’ve succeeded. And how they’ve failed.”

Hirschberg didn’t seem to know whether Fox’s obsession with Monroe and other starlets would foreshadow Fox’s own decline, or whether it could be managed. The last lines Hirschberg leaves her readers with are plaintive:

In a few short weeks, she had gone from happily outrageous to virginal and controlled. It was, perhaps, a healthier attitude, but pale by comparison. “I have to pull back a little bit now,” Fox said. “I do live in a glass box. And I am on display for men to pay to look at me. And that bothers me. I don’t want to live that character.”

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Barack Obama Colombia Conservativism Criticism Foreign Policy Health care Iran Liberalism National Security Political Philosophy Politics The Clintons The Opinionsphere The War on Terrorism War on Drugs

Must Reads of the Past Two Weeks! (Extended Edition): J Street, NPH, Liberalism, Topless, Colombian Hippos, Grassroots, 1990s Reunion, Insuring Illegals, and the Iranian Time Bomb

J Street. James Traub of the New York Times profiles the new Jewish lobbying group J Street. For anyone who is interested in the Israeli-US relationship, a very interesting read that tries to profile one group trying to change the dynamic in Washington.

The Unique Figure of Neil Patrick Harris. Andrew Sullivan has an interesting take on Neil Patrick Harris, and speaking with Emily Nussbaum of New York magazine, Neil Patrick Harris also has an interesting take on Neil Patrick Harris. Takeaway line from Sullivan:

Everyone is a shade or two away from normal; and the pied beauty of humanity should not be carved into acceptable and unacceptable based on things that simply make us who we are.

Liberalism Defined and Defended. E. J. Dionne writing for Democracy magazine reviews Alan Wolfe’s book [registration required] (which was one of the inspiration for this post of mine on the 10 Principles of Liberalism). An excellent review of a book I now feel compelled to read:

Wolfe notes that “it is not sufficient for me merely to be left alone, I must also have the capacity to realize the goals that I choose for myself. If this requires an active role for government, then modern liberals are prepared to accept state intervention into the economy in order to give large numbers of people the sense of mastery that free market capitalism gives only to the few.” Exactly right.

Topless. Meghan Pleticha writes for Alternet about her experiment where she “legally exposed [her] breasts in public.”

There they were — in the sunlight, the eyes of God and New York Penal Law 245.01 — my boobs out, nipples blazing. The girls sitting on the blanket next to us giggled. Some passersby glanced over, smiles on a couple of the guys’ faces. My nipple ring glinted in the sun. Amazingly, I felt relatively calm. Warm. Neither lightning nor cops had struck me down. Furtively looking around, I noticed some guys attempting to be respectful. Maybe they were just thinking be cool or she’ll put her top back on, but gentlemen would glance over and grin, but rarely stare.

The Colombian Hippo Problem. Simon Romero of The New York Times describes how Colombia is dealing with yet another of the legacies of the larger than life Pablo Escobar, the drug kingpin who was gunned down sixteen years ago: an infestation of hippos who are thriving in Colombia’s ecosystem after escaping from Escobar’s private zoo.

The Right Wing Grassroots. Daniel Larison has a rather insightful piece on his blog regarding the relationship between the conservative elites and the right wing grassroots. I don’t endorse his entire analysis, but worth reading.

Like the Opening of a 1990s Political Joke. Dana Milbank of the Washington Post sketches a 1990s reunion of Speaker of the House Newt Gingrich, President Bill Clinton, and Senate Majority Leader Trent Lott. An interesting quote by Trent Lott:

I thought it might be a good time for us to show that a president, a speaker, the leaders, can find a way to come together. If three good ol’ boys from the South like the ones you’ve heard today can find a way to get it done. I know the outstanding leaders that we have in the Congress . . . can get it done.

Insuring Illegal Immigrants. Ezra Klein makes the case persuasively:

Illegal immigrants are clustered in service sector and food sector jobs. They clean buildings, prepare boneless chicken breasts, wash dishes, pick food, and generally do jobs that are much more conducive to spreading germs than, say, blogging is. I don’t know exactly why Rep. Joe Wilson and Lou Dobbs and all the others in their cohort want to make it more expensive to hire American workers and make it more likely that Americans get sick, but that’s why I’m not a political strategist, I guess.

The Iranian Time Bomb. George Friedman of Stratfor sees a world of trouble arising from the Iranians’ pursuit of nuclear weapons – as he analyzes how almost every interested party seems to misunderstand the interests and willingness to act of every other interesting part, which he believes could result in catastrophic consequences à la the opening of World War I.

[Image by Eamonn.McAleer licensed under Creative Commons.]

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Economics Financial Crisis The Opinionsphere

Theories of the Financial Crisis: Misjudging Risk

[digg-reddit-me]The bankers – whose enormous salaries were earned based on their skills at judging risk and making money – caused a financial cataclysm because they disastrously misjudged the riskiness of the complex financial instruments they created and sold.

This was the lesson I learned in the immediate days after the financial crisis – and it still explains a great deal of what happened. (Of course, there was also a good deal of outright fraud and the perversity of short-term incentives in which bankers could profit exorbitantly if they made profits regardless of how their investments turned out over the long-term.)

Cognitive errors may have contributed to the misjudging of risk. Megan McCardle for example gave a compelling description of different cognitive errors which contributed to the financial crisis – including the recency effect which she describes:

People tend to overweight recent events in considering the probability of future events.  In 2001, I would have rated the risk of another big terrorist attack on the US in the next two years as pretty high.  Now I rate it as much lower.  Yet the probability of a major terrorist attack is not really very dependent on whether there has been a recent successful one; it’s much more dependent on things like the availability of suicidal terrorists, and their ability to formulate a clever plan.  My current assessment is not necessarily any more accurate than my 2001 assessment, but I nonetheless worry much less about terrorism than I did then.

These cognitive errors were so damaging because they were programmed into the models for minimizing risk that the “quants” created to divvy up mortgages and just about everything else that could be bought and sold. 

Michael Osininski tried to claim some share of the blame in a recent New York magazine article – as one of the top “quants.”  Osininski described how he had an inkling of the disaster ahead:

[T]he world I had helped create started falling apart. I hadn’t anticipated it, but at the same time, nothing about it surprised me.

Last month, my neighbor, a retired schoolteacher, offered to deliver my oysters into the city. He had lost half his savings, and his pension had been cut by 30 percent. The chain of events from my computer to this guy’s pension is lengthy and intricate. But it’s there, somewhere. Buried like a keel in the sand. If you dive deep enough, you’ll see it. To know that a dozen years of diligent work somehow soured, and instead of benefiting society unhinged it, is humbling. I was never a player, a big swinger. I was behind the scenes, inside the boxes. My hard work, in its time and place, merited a reward, but it also contributed to what has become a massive, ever-expanding failure.

Jordan Ellenberg described how these models that purported to minimize risk actually just compressed the risk into “one improbable but hideous situation” in a manner similar to that of the 400 year old sucker bet, the Martingale. For example, Wall Street bankers combined hundreds of mortgages into securities in the belief that while some of the mortgages might default – most would not. The more mortgages you combined, the safer the investment was – as only a small percentage of mortgages typically defaulted. Unless something went very wrong. Comparing Wall Street bets to the Martingale, Ellenberg described the bet Wall Street was making:

(0.99) x ($100) + (0.01) x (catastrophic outcome) = 0

Wall Street bankers thought that the collective assets they were trading were worth $99 each in this estimate – rather than $50 as they would be if each asset were judged individually. 

One of the few people who saw this misjudging of risk as the inevitable cause of a financial crisis was Nassim Nicholas Taleb who wrote that Wall Street had consistently ignored the possibility of what he called “Black Swans” and what Ellenberg described as an “improbable but hideous situation.” Taleb has placed a great deal of blame on the mathematical models used by the quants and on the hubris of the bankers and traders who believed that they were created wealth when they were instead building an elaborate house of cards.

While he was running his own hedge fund in the 1990s, he turned his own knowledge of his lack of knowledge – and others’ lack of knowledge – into enormous profits. It came at the expense of losing a little money 364 days of the year – but making enormous profits in that one remaining day. He would bet on market volatility – which he understood financial firms repeatedly underestimated.

Taleb was castigating Wall Street barons for years as they hubristically bet greater and greater sums of money – making leveraged bets that the market would continue to rise.

Taleb’s key insight is that we know very little of the world itself – and will be more often fundamentally wrong than right. The example he uses is the Black Swan as described by David Hume:

No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion.

This fundamental unknowability of the world must inform our actions, and perhaps points to some solutions. Taleb himself recently wrote a list of steps we should take to create a world more resistant to Black Swans. But his overall philosophy insists that we must attempt to resolve this crisis by tinkering with different solutions, and seeing what works, while being mindful that our actions will inevitably have consequences we do not imagine. And remember – at any point – a black swan could come around and reshape our world suddenly – as 9/11 did, as the assassination of the Archduke Ferdinand to start World War I, as did the invention of the personal computer, as has this financial crisis. The solution will not come from our determined application of fixed ideas, but by our openness to the possibility that we may be wrong, even as we are determined to act. We must see the shades of gray and acknowledge that we do not fully understand the world, yet still act – tinker, if you will. 

In this, Taleb seems to have reached a philosophical end point similar to the famous libertarian economist Friedrich Hayek who in his Nobel Prize speech explained that “we needed to think of the world more as gardeners tending a garden and less as architects trying to build some system.”

To tinker, to garden, to nudge – all of this points to a more modest liberalism, a market-state liberalism.

[Image courtesy of robokow licensed under Creative Commons.]

Categories
The Opinionsphere The Web and Technology

My Mixed Feelings About Facebook

Vanessa Grigoriadis in New York captures many of my mixed feelings about Facebook. One of the most fascinating yet disturbing aspects of Facebook is the giant web of relationships that is being constructed through it – a web of relationships which is not strictly our own, yet seems particularly personal. Facebook of course wishes to mine this data for profit (or perhaps for the CIA). But more interesting and disturbing is the social graph (almost all-knowing) that is being created of humanity in general – with you placed right in the middle:

This is part of who I am now—somebody who knows that her nursery-school tormentor wasn’t a bully without a heart. It will get logged into my profile, and that profile will become part of the “social graph,” which is a map of every known human relationship in the universe. Filling it in is Facebook’s big vision, a typically modest one for Silicon Valley. It’s too complex for a computer scientist to build. Just as our free calls to GOOG-411 helped Google build its voice-recognition technology, we are creating the graph for Facebook, and I’m not sure that we can take ourselves out once we’ve put ourselves on there. We have changed the nature of the graph by our very presence, which facilitates connections between our disparate groups of friends, who now know each other. “If you leave Facebook, you can remove data objects, like photographs, but it’s a complete impossibility that you can control all of your data,” says Fred Stutzman, a teaching fellow studying social networks at the University of North Carolina at Chapel Hill. “Facebook can’t promise it, and no one can promise it. You can’t remove yourself from the site because the site has, essentially, been shaped by you.”

Grigoriadis captures nicely the paranoia that seems evident in this wariness of Facebook’s possible ulterior motives:

Kubrick dreamed of villains like this: nerds in fleece, controlling the information, calling their cult a family. It was an image, a kind of inchoate anxiety about the future, rather than anything you could put your finger on.

Inchoate anxiety – there’s been a lot of that going around recently. 

On the one hand, I love Facebook for the connections to people from my past – and for the ease with which I can connect to people for my future. I love the control it gives me – and the way it reminds me when it’s someone’s birthday or lets me know that a friend I have lost contact with married his college sweetheart. But next to this love is a vague, unsettled feeling – an unease. What are they planning on doing with this extremely valuable information?

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Edwards: Santa Claus & Easter Bunny More Plausible Than Hillary as the Agent of Change

[digg-reddit-me]The Charlotte Observer headlined ((Or is subheadlined more appropriate?)) an article yesterday:

Bill Clinton: N.C. now crucial
He says wife’s bid to get nomination will hinge on Tar Heel state
Like it did in Texas and Ohio, the Clinton campaign for president has drawn a line in the sand, down the middle of the Tar Heel state.

Donklephant interprets this to mean Mr. Clinton is saying that if his wife doesn’t win North Carolina, she’s out. As Mr. Obama is ahead by high double digits in most polls, this line in the sand is surprising. Donklephant asks:

One can’t help but wonder if Hill and company have a big endorsement announcement up their sleeves if Bill is drawing a line in the sand like this.

A prominent North Carolina Democrat who has not yet endorsed anyone and whose opinion might have significant weight – perhaps enough to throw the state to Ms. Clinton. That narrows it down to this list:

  1. Former Senator John Edwards (D-NC).

With the recent revelations by John Heilmann that caused a stir a few weeks ago that Mr. Obama offended Ms. Edwards by objecting to both Ms. Clinton’s and Mr. Edwards’ health care mandates too strongly while Ms. Clinton charmed both of the Edwardses after Mr. Edwards dropped out. I’ve also heard the rumor that Mr. Edwards demanded the position of attorney general to endorse Mr. Obama; but that Mr. Obama refused to give it to him. Regardless, there is some sort of bad juju between Mr. Edwards and Mr. Obama since Mr. Edwards suspended his campaign. It’s enough to overcome the natural alliance that should exist between the two men with similar diagnoses of the nation’s problems, and the alliance that did exist while both tried to catch up to Ms. Clinton.

But for Mr. Edwards to endorse Ms. Clinton would be to go against his rationale for running in the first place, and would elevate his personal feelings over what he knows to be best for the country and for the Democratic party. In his own words:

In the end, I don’t think John Edwards will endorse anyone until after the last primary. He can’t choose Ms. Clinton because of his politics; and he doesn’t want to choose Mr. Obama for mainly personal reasons.

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