Hodak Value

I have to take the day off tomorrow, so here are my early best wishes for a Happy 4th.

Having recently read 1776, I'm reminded how remote the situation of our Founding Fathers must seem to Americans today. The Declaration ends with the famous pledge by the signers of "our Lives, our Fortunes, and our Sacred Honor." Today that sounds like the kind of campaign hyperbole spouted by presidential candidates when they're concluding a stem winder.

Here is a trick question: which presidential candidate do you think would stand for freedom if they knew that losing the election meant the distinct possibility of death by public hanging? Which would do so if they knew that they had something like a ten percent chance of winning?

Answer: Neither. Not necessarily for lack of courage, but because neither candidate stands for freedom.

Up until July of 1776, members of the Continental Congress could hold out some hope for a negotiated settlement with the Crown, whereby they might get the King to see the errors of his ministers in provoking the colonies. The colonies had been in a state of rebellion for over a year by then. By June 1776, they were facing long odds behind an army that was barely being held together.

This was the point when the Founding Fathers decided to attack the King personally, publicly calling him a "tyrant." This was the moment they chose to completely sever their bonds to England, and challenge the most powerful military on Earth. To every practical person alive that day, each signer of the Declaration had basically signed his death warrant.

And they weren't doing it for better health care or teachers unions.

Lesson #1: It's OK to take money that your boss gives you, but you better be willing to fight for it if the AG doesn't like it.

Spitzer was basically suing Grasso for accepting what he was awarded. Grasso was given several opportunities to settle the case. He was, in fact, willing leave about $48 million behind to the NYSE, but Spitzer said it wasn't enough. So Grasso fought for it all under the quaint notion that his bosses, the board, awarded him his pay, and so he was entitled to it. Five years and millions of dollars later, Grasso gets to keep his money.

Lesson #2: If you want to avoid being sued, be a good friend of the DA

Spitzer's real complaint in this case would have been with the board of the NYSE by alleging that they weren't acting as good fiduciaries. But that would have meant suing the heads of Wall Street's major banks for not knowing what they were doing. Spitzer in his heyday would have no qualms about that, but it would have been tough to argue that people like Henry Paulson, then head of Goldman and now Treasury Secretary, Larry Fink, head of BlackRock, and Richard Fuld, head of Lehman, got all confused about the numbers. So Spitzer narrowed his focus to the compensation committee of the board. There, he had one committee member saying he knew exactly what he was doing, and another saying he had no idea what he was doing. Spitzer was able to thread that needle by going after the first guy, Home Depot founder Ken Langone, and gaving a total pass to the second one, fellow pol Carl McCall.

Lesson #3: The state will cause $12 worth of expense to recover $11.

Spitzer was trying to get back $110 million from Grasso. Langone said the total cost of litigating this thing for the defendants, the exchange, and former directors who were deposed approached $70 million. It's very likely that the state (i.e., New York's taxpayers) spent almost that much in prosecuting this thing.

I hear that Spitzer is now looking to start a private equity fund. I hope he gets better returns than this.

Forbes just came out with an issue about Best Places to Raise a Family Most of these places seem very geared to young families, with great schools and kid-friendly open spaces. Other issues have touted best places to retire. These tend to have lower property taxes (which often, though not always, translate into poorer schools) and easy living.

I'm wondering if in our more mobile society, certain political jurisdictions will realize they can't be all things to all people, and begin to specialize. Florida itself seems to be doing that with senior friendly areas (with pretty crappy public schools), and family friendly areas with sky-high property taxes.

I know that some individual states and counties are starting to give significant property tax breaks to retirees as a way of keeping them, presumably as sales tax and fee payers with higher-than-average disposable income (not to mention a significant voting block).

Michael Kinsley and Conor Clarke have opened up a discussion on Bill Gates's new, big idea: "creative capitalism." Kinsley tries to confer some intellectual heft upon these musings by labeling Gates "the most successful capitalist in the history of the world."

Bill Gates is arguably the most successful businessman in history, and he achieved his success in a largely capitalist system, so I suppose it's fair to refer to him as a successful capitalist.* But does that endow Gates with any special insight into the system of capitalism, i.e., the legal and social framework under which market-based economies function? In other words, does his great success as an economic agent make him a great economist? I don't think so, any more than my cat's ability to jump from the floor to the window sill without knocking over a vase makes her a great mathematician or physicist.

Gates is certainly more self aware of market and political processes than a cat is about angles and muscle reflex, but that doesn't get him anywhere close to being an expert on capitalism. In fact, one of the key features of economics is that you don't have to be an expert in anything except your space in the overall market in order to be a financial success. Ignorance of unrelated matters may even help, if it contributes to enhancing one's focus on one's own business.

All this is not to say that Gates has nothing to say about capitalism. His contributions, however, are far more likely to be empirical than theoretical. Unfortunately, I'm doubtful that he will be forthright about his achievements on the empirical front. I doubt we will hear about the virtues of vaporware in marketing, or how the vigorous attempt to monopolize via the network effect gave him a sustainable competitive advantage. I say this as one who was never bothered by Gates's ruthlessness in achieving market dominance. I actually supported Microsoft in their defense against federal anti-trust charges.

So, I don't think Gates will defend capitalism the way he practiced it, red in tooth and claw. It appears that he has joined the pursuit of a third way. That's a shame, because he does understand vanilla capitalism better than most, and the Gates Foundation is capable of doing much good short of saving the world. But the title of "world's most successful capitalist" makes him no more likely to develop a better approach capitalism than his ability to leap onto a big, new stage will enable him to develop a new proof in math or physics.

* I tend to think of a successful capitalist as one who made their pile as an investor rather than entrepreneur, but that's a minor quibble in this discussion.

The movie was pretty good, despite having the most illogical premise ever.

I'm not talking about the robot love story, where machines go against their programming to acquire free will and human emotion. I grew up with Hanna-Barbera. I'm cool with smart-ass robot maids and rambunctious robot pets, so I have no qualms about robot romance. What bothered me is the inexplicable strategy of the humans in this film.

B'n'L, a rapacious corporation-cum-government, has taken consumerist pandering to such obscenely wasteful levels that the earth is no longer fit for habitation. (OK, Hollywood blames the Earth's environmental destruction on a monolithic corporation; nothing surprising there.) Then, as they deploy robots to clean up the planet, this same company has chosen to build a mammoth, luxury space liner, called Axiom, to transport the people away, with robot servants catering to their every whim. Think Starship Enterprise meets Royal Caribbean. Then, as B'n'L would, super-size it. And Axiom provides this luxury indefinitely, for centuries at a time, even though it was only designed for a five-year cruise.

Maybe I'm just a victim of my aerospace engineering training, here, but it seems obvious to me that a spaceship is a self-contained environment. It has to provide everything needed to sustain the basics of life, let alone its luxuries. It must have a permanently renewable source of energy. It has to be able to recycle everything--water, air, waste of every kind--otherwise this ark would eventually be depleted. (There is a moment where we see that the ship regularly ejects waste from a trash hold into space, but let's ignore that.)

So, if B'n'L could, and would, create this sustainable, self-contained haven as a space-borne habitat, why couldn't it have built it as a earth-bound biosphere? I mean, it could be as sealed off on Earth as it would have to be in space, except that it wouldn't need all that extra propulsion and navigation equipment. Ask Hilton; a land-based hotel is much less complicated and costly than a sea-borne one. At least some people would presumably prefer a hotel to a high-end prison, even if that hotel were on a spoiled Earth. (That was, in fact, a conclusion quickly reached by the humans in this film.)

I can abide retro notions of robots that don't (quite) take over the world, and Brave New World monopolies that do. I can laugh at human stupidity in a dystopian future, and at human kinkiness in a post-apocalyptic paradise. But I can't help but notice when people make totally uneconomic choices about technology right there in hand. That does not compute.

After years of being the poster boy for greed, the whipping boy of the New York media and political establishment, for having the temerity to accept what he was paid by his bosses, Dick Grasso can finally smile. The New York Court of Appeals basically affirmed the business judgment rule by affirming the dismissal of four of the six charges against him originally brought by then-AG Elliott Spitzer. It's highly unlikely that the new AG, left to clean up his predecessor's mess, will be able to prevail on the remaining counts.

While some will no doubt grouse about fair pay, I will be wondering about the headlines that weren't written about this story on C1:

"Grasso Gets to Keep What He Was Paid"

"Court Dismisses Spitzer's 'Attempt to Circumvent Law'"

"We're Sorry For Sullying Grasso's Good Name"

Larry Ribstein, predicting this outcome, wrote:

It likely will be recognized as the bald-faced political gambit that it was.

A state's attorney can get away with "attempting to circumvent the law" with impunity. In fact, he can be rewarded for leading a crusade supported by shameless, moralistic enablers.

When Spitzer got tossed out of the Governor's mansion, it wasn't for doing something that should be illegal, but isn't; it was for something that shouldn't be illegal, but is.

Alas, most people are more bothered by the idea of sleaze in making a buck, even if that turns out not to be true, than they are about sleaze in winning high office, even when that turns out to be true.

Update: Now it's game, set, and match.

Yesterday, the Department of Justice announced a round-up 21 children who were being prostituted in the United States. Few things evoke more horror than the idea of children in sexual bondage, and few things worth celebrating more than their release from that horror. It seems rather petty after such a success to ask "at what cost?" But the question is not just about cost in dollars (answer: about a quarter million dollars per child saved), but a question of cost in credibility of our government.

In 2001, the State Department estimated that about 45,000 to 50,000 people were trafficked in the U.S., defined as the use of force or coercion—violent or psychological—to exploit a person for commercial sex or the recruitment, transportation, or provision of a person for any form of involuntary servitude, debt bondage, or slavery. This is horrific stuff, especially in the "land of the free." This report came out in the midst of one of those "white slavery" panics that has periodically gripped western nations.

By 2003, the State Department estimates had dropped to 18,000 to 20,000, later to be further revised to 14,000 to 17,500. The attorney general later grudgingly admitted that even those estimates were likely too high.

These continual downward revisions, where the government ends up with a new high that was below the prior low, is not because the government has ferreted out tens of thousands of cases. The total number of sexual slavery cases identified by the government since 2000 through the end of last year has been 1,362.

Given the increased incentives since 2000 for government agents, and for the sex workers themselves, to characterize individuals as "sex slaves," even this 1,362 number is cast into doubt.

Continue reading "U.S gov't wipes out sexual slavery epidemic, sort of" »

At first, I thought their headline "Mugabe's remarkable comeback" was an Onion story. In fact, it was a BBC story that somehow managed to write about Mugabe's brutal suppression of democracy with a sense of awe.

It has been done with great brutality, but Robert Mugabe has achieved an extraordinary turnaround here.

I'm sure I could come up with numerous other parallels, but it wouldn't be long before I Godwin the post.

In the head of a utopian.

We said to ourselves ... what if we can create a city where there is no persistent underclass and where the children of the poor [are] achieving at a level that approximates the level of middle-income families? ... [T]hat's the mentality we have here -- that we want to say enough is enough," she told the Hartford Courant in 2001.

The Supreme Court said it was OK, as long as the city had a plan, even a dubious plan without any accountability to the taxpayers.

Like most utopian plans, this one is on it's way to failure. The distressed taxpayers, far from benefiting from their leaders' vision, have been left $78 million poorer.

Government climate scientists: policy advocates who may or may not have science credentials, such as PhDs in physics or chemistry

The USA Today headline was "Scientists: Weather extremes consistent with global warming." Wow. They're not exactly saying the weather extremes are actually caused by global warming, but that distinction is bound to be missed by headline readers, which is the likely intent of the headline writers. More to the point, they're implying that scientists are making this connection. So, you'd think that they were quoting scientists. They work at something called the U.S. Climate Science Change Program.

Folks, these people are not scientists, they are advocates. They may have scientific credentials, and may even conduct real science in other contexts, but in this context, they are advocates.

Science is a process of developing and testing models based on theoretical and empirical evidence. Models tell you the relationship between A and B. Concluding that B is bad and therefore we should do less of A is advocacy.

I won't get into whether the climate models behind the grand pronouncement of this headline has any merit or not (better persons than I have looked at this already). I will only suggest that once a scientist has signed up for "change" they are no longer doing science. They are doing advocacy.

Sometimes, the line can be blurred. Let's say that a scientist develops a model that says: "If you put tennis balls into a toilet, the world will blow up." If they release these findings, it may safely be implied that they are doing two things at once: they are explicitly illustrating a relationship between tennis balls in toilets and global destruction; and they are implicitly advocating against tennis balls in toilets. Although these things are happening at the same time, one can still distinguish between their science and advocacy.

When Einstein wrote and published his paper on Special Relativity, he was acting as a scientist. When he wrote a letter to FDR suggesting the possibility of developing a nuclear bomb, he was acting as an advocate. That's not to say that Einstein wasn't a scientist when he wrote that letter. The point is that the letter itself was advocacy, not science.

The line between science and advocacy is further blurred by high impact results with a low statistical significance. For example, statistics may indicate a less than one chance in 20 (a common standard in science) for the relationship between tennis balls and global destruction to be true. But the stakes are so high that a less than one-in-20 chance may still be alarming. In this case, it is clearer that a scientist publishing these results is acting as an advocate, but it's less clear that they are also acting as a scientist since their work has not met a common standard for scientific achievement.

People working in a "Climate Science Change Program" illustrate this blurred distinction. Scientists suggesting that industrialization creates global warming are acting as scientists as long as they are clear about the statistical significance, or lack thereof, of their findings. But scientists who know that the statistical significance of their findings are low, and parade the results anyway, and highlight the negative effects of global warming, or linking global warming to select events in order to portray it as bad, are simply advocates in white robes.

Continue reading "Practical definition: Government climate scientists" »