The Eastland and Government Regulation

Today marks the 100th anniversary of the capsizing of the S.S. Eastland in the Chicago River, trapping and drowning 844 passengers, most of whom were Western Electric employees on a family picnic.  Of the 844, most were women and children and over 250 were teenagers or young children.  This disaster has a place along with the Chicago Fire and the Iroquois Theater fire as the deadliest and most scarring in Chicago history.  The photos found on the internet of bodies being recovered still haunt today, and recently actual film footage was recently discovered in Europe (www.eastlanddisaster.org).

For years, many theories and myths surrounded the causes of the disaster.  A common tale passed down was that the passengers all moved to one side of the boat to witness a commotion on land.  That theory turned out to be a myth.  In 2005, George Hinton published a well researched book, Eastland: Legacy of the Titanic.  Hinton documented the construction and history of the ship and consulted with maritime engineers.   The Eastland had a history of stability issues from the start.  But the government regulation that required a place in a lifeboat for every passenger turned out to be a major contributor to this catastrophe [although that conclusion has been disputed by Michael McCarthy in his recent book : Ashes Under Water: The SS Eastland and the Shipwreck that Shook America].  The Eastland was not designed to carry the lifeboats and could not handle the additional bulk and weight.   As a result, in a matter of minutes, on that fateful July day, hundreds of lives were cruelly snuffed out.

We should never forget that tragedy.  But we should also never forget the real consequences when government regulation is blindly applied.  As Nassim Taleb so wisely noted in his book Antifragile, government often inadvertently and tragically increases risks when trying to control them.

If You Like Your Centrifuges, You Can Keep Your Centrifuges... Really

There are lots of happy faces in Tehran this week.   Not since the U.S.S.R. invaded Afghanistan and deployed intermediate range missiles in Eastern Europe have I so feared for the survival of the West.   Fortunately, we had Reagan and Thatcher (and Helmut Kohl) to pull our chestnuts out of the fire that time.   Despite the howling of the nuclear freeze crowd and the overt mocking of Ronald Reagan as the "amiable dunce" and the "simpleton warmonger,"  Reagan knew when to compromise and when to walk from a deal, as he wisely did in Reykjavik when he refused to commit not to deploy the strategic defense initiative (derided by Ted Kennedy and others as "Star Wars."

Well, the nuclear freeze, medal tossing folks are in charge of our national security now and it shows.  Less than 90 days after the Chinese launch a major cyberattack on a pitifully exposed OPM database protected by a washed up school administrator, the Iranians, starting from a position of complete weakness, and on their knees economically, ran the table on Team Obama.   Others have written more fulsome analyses of this catastrophic "deal" so I will just highlight the few points that I find most repugnant.

• $140 billion signing bonus.  Money is fungible.  Tehran has extended a line of credit to Bashar al-Assad.   Therefore, the United States is a large financier of terrorism in the Middle East.  For the sake of full transparency, I propose that all Hamas missiles now bear, "Financed by U.S.A. and E.U." labels on them.
• We left 4 Americans hostage in Iran that were not part of the deal.  Perhaps we should be thankful that the mullahs did not demand more.  But we released 5 Gitmo jihadis for deserter Bergdahl because of our commitment to "do everything we can to bring him home."  To facilitate this "deal," however, the 4 Americans can rot.  
• The U.S. has committed to cooperate with Iran to thwart Israeli sabotage to their nuclear program.  Evidently, Stuxnet really pissed off the mullahs.  So, now we have to turn our friends, the Israelis in to the authorities if they try that again.  The mullahs now want us to take on the role of Capos, which we have agreed to do.
• After the Chairman of the Joint Chiefs of Staff Martin Dempsey exclaimed, "Under no circumstances should we relieve pressure on Iran relative to ballistic missile capabilities and arms trafficking," we promptly agree to the military embargo in 5 years and ballistic missile technology in 8.  So, Obama is willing to sunset restrictions on a terror state and give an explicit timetable for that expiration.  For the Canadians that want to build an oil pipeline in the U.S., however, Obama grants no such timetable for relief.

Of course, Team Obama framed this up as a take this deal or war choice, which was a false choice, and always was.  There were plenty of options other than total war that were available to us.   

This "deal" confers legitimacy and power on a tyrannical and authoritarian regime that remains committed to destroying Israel AND the United States.  It all but ensures that Iran will become a nuclear power and sooner rather than later and cements the hold of the regime on that country.  

Eventually, Israel will have to take matter into its own hands.   If we learned one thing from the Third Reich, it's that evil people most often mean what they say.

Neville Chamberlain, you've been one upped.

Words and Symbols

I was taken aback by the Pope Francis's full throated attack on capitalism a couple of weeks ago and wrote a spirited response to His Holiness.  His views were not simply an appeal for people to do more to help the poor, but an assault on capitalism itself.  This assault came within weeks after I attended a panel discussion of three Nobel Laureates who showed that capitalist reforms were responsible for lifting hundreds of millions out of abject poverty in China, India and elsewhere and that it is starting to do the same in Africa.

The Pontiff ratcheted up the rhetoric on his trip to South America, deriding the pursuit of money as "the dung of the devil." His words harkened to Hugo Chavez's attack on George Bush at the U.N. in '06,"The devil came here yesterday.  And it smells of sulphur still today."  Chavez further skewered Bush, "As the spokesman for imperialism, he came to....preserve the current pattern of domination, exploitation, and pillage of peoples of the world."  The Pontiff echoed these thoughts almost precisely, "Once capital becomes an idol and and guides people's decisions, once greed for money presides over the entire socioeconomic system, it ruins society, it condemns and enslaves men and women, it destroys human fraternity, it sets people against one another and, as we clearly see, it even puts at risk our common home."  The Pope went on to call for "overthrowing an empire of money," and denounced "the new colonialism."   His themes and even his choice words were virtually indistinguishable from those of Chavez;  the former Venezuelan president has evidently been reincarnated with a miter.  

But it gets even worse.  Over the last few weeks we were caught up in the symbolism of the Confederate flag because many found that it symbolized slavery and bigotry.  I understand the power of symbols. When Evo Morales, president of Brazil  offered a gift of a crucifix shaped like a hammer and sickle to the Pope, while initially surprised, accepted it and later affirmed that he was not offended by it.

By heritage, I am part Lithuanian and Polish and grew up in a neighborhood with others from the former Eastern bloc.  I heard the stories of the murder, torture and starvation perpetrated by the Stalin regime under the symbol of the hammer and sickle.  My best friend's father witnessed his buddy shot in the head on a road in the Ukraine by the KGB.  The parents of another childhood friend of mine escaped one of Stalin's concentration camps in Siberia, and were chased by dogs through the woods before it to America.  Because they were schoolteachers, they were deemed part of the intelligentsia and would certainly have been killed.  There were millions like them that suffered under the boot of Communism (for an excellent novelization of the Lithuanian deportations, read Between Shades of Grey by Ruta Sepetys).

The hammer and sickle represent death, torture, and tyranny to me and nearly everyone I grew up with.  It is no less offensive to me than the swastika is to a Jew.  That the Pope chooses words that are nearly identical to those of Hugo Chavez and chooses to accept a symbol of death to my people tells me that I may not have a place in this Church while he is its leader.  His recent exhortations are antithetical to all the values I hold dear.  Indeed, freedom, democracy and capitalism have provided a decent, dignified life and have liberated more people across the globe than any other system.  It is the brutal, corrupt regimes that fly under the banner of the hammer and sickle that crush the human spirit, brutalize and impoverish.  As a result, I am taking a sabbatical, a trial separation from the Catholic Church and I do not know if I will be back.  I cannot be part of an organization that would so willingly embrace the symbols of totalitarianism and reject the things I hold most dear. 

Getting It So Wrong!

It's been a tough few weeks for advocates of individual liberty, capitalism, and the rule of law.   The competency and fiscal responsibility of the State has been on full display over the past few weeks.  Yes, government tried to make us feel better by bathing the White House in multicolored lights to celebrate the Supreme Court decision on gay marriage and there was lots of self righteousness on display as South Carolina was pressured to pack up its Confederate battle flag (has anyone even thought about that flag over the past 20 years?) in the wake of the tragic killing of 9 black churchgoers by a lone sick white supremacist.

But instead of all the hoopla over 150 year old flag, perhaps a better discussion should be around risk assessment and the competency of the state to deal with those risks.

And this administration's batting average in its priorities and actual actions in this area have been atrocious and, indeed, frightening.

• Yesterday, Katherine Archuleta, director of OPM resigned after it was discovered that the Chinese had hacked into the OPM system and swiped the records of 21 million federal employees, which records included sensitive information and social security numbers.  Many have called this intrusion the equivalent of Pearl Harbor, yet we get no statement or strategy from the President.  This fiasco comes on the heels of the botched rollout of the Obamacare website.  Perhaps Archuleta and Sebelius should start an IT consulting firm that develops websites that are too clunky to be hacked.
• After mocking Romney mercilessly for asserting that Russia is our largest geopolitical threat, Obama's nominee to the head the Joint Chiefs now says that Russia poses an existential threat to the U.S. and that it's recent geopolitical actions are, "nothing short of alarming."
• Of course, Obama's derision of ISIS as the J.V. stands as one of the largest blunders in assessment of all time as ISIS continues to ravage whole swaths of the Middle East and North Africa, murdering and destroying antiquities in the greatest display of genocide since Srebrenica.  After months of admitting he had no strategy, Obama last week said that "Ideologies are not defeated with guns.  They are defeated by better ideas and more attractive and more compelling vision."  That was it.  After months of not having a strategy, our strategy appears to rely on Obama's powers of persuasion.  Good luck with that.
• Now we learn that the South Carolina shooter, Dylan Roof's background should not have permitted him to have a firearm but that the FBI did not log him properly into its system.  So we can pass laws and take down flags if that makes us feel better, but again, lack of execution on the part of the government has turned out to be the real culprit.
• Undeterred by the consequences of the last time government meddled in housing markets, the Obama administration launched new rules attempting once again to discover "patterns of segregation".  It is a heavy handed way to force upper crust communities to house the poor in their midst.   Evidently current fair housing laws aren't enough, so the federal government has to meddle even more into people's local communities. What could possibly go wrong?
• Kate Steinle, a beautiful young woman, dies in her father's arms, crying, "Daddy, help me" after an illegal immigrant shoots her in the back.  The perpetrator was deported multiple times but was protected by San Francisco under its "sanctuary (read: defy federal law) laws."   There is no comment from President Obama (Maybe, "she was a beautiful young woman just like my daughter").   Why is it not OK for a state to defy federal law on gay marriage but it is fine for local governments to defy federal law on immigration?
• After Ferguson, the Obama justice department descends on local police departments to ensure that police aren't unfairly singling out black youths for heavy handed treatment (while offering no evidence that this was epidemic).  The result-- murder rates and violent crimes have spiked. Obama policies have actually caused more deaths in the black community.
• The Iranian negotiations drag on despite the ridiculous demands of the mullahs and our constant retreats.  No anytime anywhere verifications.  No divulging history of its past nuclear activities.  No "snap back sanctions."  A $150 billion signing bonus.  All while the Iranians affirm their commitment to wipe Israel off the face of the map and their parliament and citizens are chanting "Death to America."  The esteemed Henry Kissinger and George Shultz have warned Obama not to do this deal.  Yet he plows ahead anyway.

This is just a depressing sample of the horrendous judgment (and misjudgment) of this administration.  I can't remember a president that was so consistent in making bad calls, and then either having no strategy, or a strategy that is certain to result in the opposite of what is intended.

No Hope for the Pope

 When Pope Francis was elevated to lead the Catholic Church, I had high hopes for him.  He eschewed the regal trappings of the role, opting for more modest dress and living quarters.  He immediately began to signal that he wished to de-emphasize sexuality as a centerpiece of church doctrine.  He halted the hostile takeover of the Leadership Conference by Women Religious (organization of American nuns) by bishops from the Vatican.  He took steps to clean up the Vatican bank.  These steps were even noted at the Booth School of Business at the University of Chicago in an article by Italian Catholic professor Luigi Zingales, praising his management skills (http://www.chicagobooth.edu/capideas/magazine/winter-2014/is-the-pope-a-good-manager).  As a fairly recent returning Catholic, I viewed a Pope that could turn the Church into a modern institution that understood the realities of the real world as a welcome development that could steer the Church away from the rigid, imperious, hierarchical, doctrinaire church I left so long ago.

The Pope's encyclical on climate change and economics smashed all that.  The Pope could have and should have said we need to be good stewards of the environment and that the wealthy have a moral obligation to find ways to help those less fortunate.  That's it.  But that is NOT what he said.  Instead, he launched into a diatribe against a "perverted economic system" and condemned the "short-term consumerist patterns" and that people allowed technological and economic paradigms to tell us what our values ought to be."  Richer nations should hand over "superfluous wealth" to poorer ones. "Those who possess more resources and economic or political power seem mostly to be concerned with masking the problems or concealing their symptoms,"  he asserts.   As a result of the consumer oriented West, the poor of the world are being exploited and the environment is being turned into "an immense pile of filth".  This view, in essence, is pure Obamunism--the notion that the West has exploited the poorer nations for their labor and resources.  Not content with making statements on helping the poor or taking care of the environment, he launches a frontal attack on capitalism.

The Pope inveighs against our "perverted economic system." What system does the Pope think will be an improvement?  Communism?  Feudalism?  Monarchy?  Military juntas?   We have tried all those.   It is only when capitalism begins to take hold that we see poverty lifted.  One need only look at poverty levels in all of Asia to see what liberalization has done.  All other systems in which the State controlled production have ended in disaster, misery and, often, mass murder.  Is that what the Pope wants?  Does he want to replicate his homeland?  Argentina should be a wealthy country.  Instead, it is a basket case, in constant turmoil and economic crisis caused by its redistributive policies.

Moreover, how are we supposed to transfer "superfluous wealth" to poorer countries?  Who seizes the wealth?  Who decides what is superfluous?  Why is that a better use that using that wealth to invest in companies, people and technologies that have promise?  Are we, in the West, supposed to hand it over to corrupt and authoritarian regimes that have impoverished these people?  Or distribute it directly?  Isn't it better that these people rise up and rid themselves of the thugs that rule them?  Has he not seen that these very regimes are much more devastating to the environment than liberal democracies?

The Pope also took issue with technology and progress.  What part doesn't he like?  The amazing medical breakthroughs that have eased the suffering of so many?  The drugs that have conquered devastating illnesses?  Does he not like the technology that has revolutionized agriculture, permitting us to feed millions more cheaply and on less land and control pests?  Or the advances in methods of distribution that permit us to deliver more and better food to more people more efficiently?  Or does he not like the technology that permits me to respond to my daughter instantaneously even when she is half a continent away?  Or, perhaps it is the technology that developed fracking and permitted the U.S. to move away from coal as an energy source?

He asserts that, "some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world.  This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and sacralized workings of the  prevailing economic system." As a counterfactual, I offer Robert Lucas's observation that, "the poor in China, i.e., those subsisting on less than $1 a day, look very different today than they did 35 years ago."  Are we to exclude these millions, along with the millions in India and elsewhere in the Far East and now, increasingly in Africa, from the Pope's calculations?   

The Pope's encyclical echoes of Paul Ehrlich's work of 45 years ago (which I have read) and whose predictions were wildly wrong.   The advocates of "limits to growth" rely on extrapolation of data, i.e., "if present trends continue," blah, blah, blah.  But present trends never continue.  Things change. Technologies emerge.  This is the same crowd that talked about a new ice age 40 years ago, "peak oil" (we are now drowning in the stuff), and Ehrlich predicted worldwide mass starvation by the 1980's (actually, we have an obesity problem).

Finally, does he not see that his "limits to growth" position directly contradicts the Church's position on abortion and birth control?  More people, less innovation,  elimination of economic incentives will lead inexorably to something that looks more much more like North Korea or Cuba than the relatively prosperous, educated, healthy, and happy societies we have in the West.

Yes, I am skeptical of the climate change hysteria.  The Pope's encyclical, like Al Gore's book, is riddled with errors and massive errors in logic.  But most insidiously, it is a condemnation of a form of government and economic system that has alleviated more poverty, brought more justice and respect for individuals and individual rights, eased more suffering and has evidenced more respect for the environment than any other.  The Pope has joined in the chorus of people that wish to use climate change to advance their own agenda for a much larger role of government that will ultimately dictate how we should live.

There are many (and I among them) give as much credit Pope John Paul II as Ronald Reagan for the collapse of Communism.  He saw the devastation that system wrought on the human condition, and he rejected it entirely and helped to hasten its downfall.  Francis, in contrast, is using the climate change boogeyman to embrace and promote the redistributive policies of HIS native land, which have sent that country into a tailspin (http://www.economist.com/news/briefing/21596582-one-hundred-years-ago-argentina-was-future-what-went-wrong-century-decline).

The Pope has strayed far afield from his span of knowledge and waded directly into science and economics and has mixed them in a way that has proven itself time and time again to be toxic and deadly to the human condition and has pitched rocks at the system that has by far the best track record of elevating humanity.  I am shocked and dismayed by his hubris and overreach.  I can't help but conclude that he is not much better than the left wing populist politicians that have so ruined the economies of Latin America and South America and is merely pandering to his constituency.

For the second time in my life, I am in a crisis over my religion and am contemplating leaving the Catholic Church.  Several years ago, I answered the "Catholics Come Home" initiative, which attempted to bring back Catholics that had fallen away and attempted earnestly to practice my faith again.  After a promising start, Pope Francis has shaken my relationship with the Catholicism in a significant way.  I will have to think hard about whether I remain with this institution.  If I do, it will certainly be with much less enthusiasm.

No Strategy

It's  now clear to me that President Obama likes to think about the things he likes to think about--mostly redistributive and identity politics and golf, and hopes everything else would just go away.

Ten months after he made the stunning announcement that "we don't have a strategy yet" to deal with ISIS, President Obama this week announced that we STILL don't have a strategy for ISIS.  He carefully laid blame on the Pentagon and on the Iraqi government (whatever that is) for the vacuum, but it is clear that after the fall of Mosul, Ramadi and Palmyra, this administration is completely and frighteningly at sea when it comes to assessing and dealing with foreign threats.  Moreover, we are now sending more men and women into harm's way without a strategy.  Worse, Obama appears not to have any ability to identify the threat or develop a coherent strategy or lead an effort to appropriately confront it.  Our enemies now know this and are acting accordingly.

We are seeing patterns emerge.  Obama consistently refuses to either acknowledge the threat or to correctly identify the enemy or its aims.

Every high school football coach in America knows that you NEVER underestimate your opponent.  In sports and war, upsets happen.  Look at our own Revolutionary War.  Obama consistently downplays our adversaries.  In the '08 election, he sneered that "Iran is just a tiny country and doesn't represent a threat to us the way the Soviet Union did (he has evidently never heard of the EMP (electromagnetic pulse from a single nuclear detonation).  In the 2012 election, he mocked Mitt Romney when Romney raised Russia as a threat, "The 1980's are now calling to ask for their foreign policy back because ...the Cold War's been over for 20 years." Less than two years later, Putin took Crimea and now asserts that he considered using nuclear weapons over it.  And, of course he famously stated that, "If a JV team puts on a Lakers uniform, that doesn't make them Kobe Bryant."
The JV team has been rolling up victories through Iraq, Syria and now has a point of entry into Western Europe through Libya (created by Obama's "leading from behind" initiative).  Reports are now that ISIS has stolen enough nuclear materials to make a dirty bomb.  The JV has evidently made it varsity.

Obama has also misidentified the threat. He has continued, in a cartoonish way, to assert that ISIS is not Islamic.  ISIS begs to differ.  Graeme Wood wrote a masterful article in The Atlantic, "What ISIS Really Wants." (http://www.theatlantic.com/features/archive/2015/02/what-isis-really-wants/384980/).  The punchline is that ISIS IS Islamic.  Failure to comprehend that and ignoring that has had devastating consequences.  Obama's failure to talk about and condemn their atrocities against Christians....BECAUSE THEY ARE CHRISTIANS is both appalling and puzzling because his handpicked UN ambassador Samantha Power's signature work centers around the prevention of genocide, and in her book, The Problem from Hell, the savagery of ISIS falls squarely within the definition and demands forceful action.  Have we even heard a peep from Power?  No.  She has been completely MIA during the rise of ISIS.   Ironically, Obamas rationale for deposing Gaddafi was to prevent genocide.  All he accomplished was to pave the way for ISIS the perpetrate its own and open a conduit to Europe.  We left the Libyan people completely stranded.  The "you break it, you own it" principle has evidently gone the way of the dial phone.  The reality is that Obama's policies are now responsible for more deaths in Libya than the lunatic regime of Muammar Gaddafi.

In the same week that Obama admitted that he had no strategy for ISIS, he unveiled a strategy to diversify wealthy neighborhoods through HUD.  He simply cannot stand the fact that some people live in nicer places than others.  Beheadings of Christians don't really get his blood boiling.  But a gated community?  Intolerable.  THAT he has thought about a lot and has a clear strategy for.

The frightening reality is that Obama has no strategy for ISIS.  But ISIS has a strategy for the West.

Trifecta!

The University of Chicago is a phenomenal place.  I had a once in a lifetime opportunity to attend a presentation of three- count them- three Nobel Laureates in economics this weekend:  Robert Lucas, Jr., Lars Peter Hansen, and James Heckman.  Moreover, I had the opportunity to spend some one-on-one time with Mr. Hansen at the cocktail reception that followed.  It was an amazing experience to have so much real intellectual heft in one room at one time...and an even more marvelous experience to be able to spend some time with Mr. Hansen.

Lucas spoke about the tremendous progress that the world has made since the industrial revolution (chart below), and pointed out that in Adam Smith's time, sustainable economic growth simply did not exist. And over the past 35 years, the per capita GDP of Asia has shifted completely over to the right.  He chided the Left's claim that income equality is THE MAJOR issue of our time.  "If Jeff Bezos has more money than I do, so what?"  The overall progress has been astounding. "We live in a lucky time," he said, "and it's going to get better.  If you really like equality, 1750 was your year," he joked, referring to the universally low per capita GDP.  

Heckman spent most of his presentation debunking the commonly held notion that Europe has more social mobility than the U.S. and showed that the U.S. pays a greater premium for education than European countries.  Denmark, in particular, provides free tuition because it has to.  There is no great economic incentive to pursue higher education.   Absent government transfer payments, there really isn't much difference.  Heckman also argued that the one place that government should spend money is in basic research.  "There is a huge return on that.  There is no return on police pensions."

Lars Peter Hansen talked about his work in risk and uncertainty and the limitation of models.  His slide of Mark Twain's quote that, "Education is the path from cocky ignorance to miserable uncertainty," was a succinct summary of his comments.  "Models are often very wrong," he asserted, and this notion has applicability in the current debate on climate change.

In my private conversation with him, I asked, "You said in your presentation that you had your own thoughts on the macro-economy, but then didn't elaborate.  What are they?"

"We are going to get back to historical growth levels.  Larry Summers is trying to argue that our economic performance is permanently altered and that we are in an era of secular stagnation.  He is trying to make the case for permanent stimulus [i.e. permanently bigger government].  I do not believe that."

After 6 1/2 years of a tepid, halting recovery, I came away with some optimism for the future.  And in any event, it was a tremendous experience to get the thoughts of three truly brilliant, world class minds.

I couldn't help but make the observations that Mr. Hansen won a Nobel Prize for what Yogi Berra recognized a long time ago, "It's hard to make predictions, especially about the future."