Monday, June 24, 2019

Modern History: Ports, Finance, Power, and Free Trade (1919-2019)

I've discussed modern history before, but I see no harm in trying again. Summarizing any time period is bound to exclude important events and people, and assigning exact percentages of influence is impossible. (For example, Elon Musk is better known than Martin Eberhard, but the latter founded Tesla Inc., and Eberhard surely benefited from GM's EV1 research in the 1990s.) With these two caveats in mind, let's continue. 
"Europeans... are the conflicted inheritors of a long military tradition." -- Justin Vaïsse
In 1919, WWI's devastation forced Germany (aka the Weimar Republic) to accept the Treaty of Versailles' onerous terms, which did not contemplate re-establishing Germany as an equal member among world nations. In 1920, the League of Nations, the precursor to the modern United Nations, was convened, but its difficulty enforcing terms contrary to Britain and France's wishes meant true diplomacy was limited from the start. Indeed, in 1922, after Germany claimed it couldn't make its scheduled reparations payment, France and Belgium invaded the Ruhr in 1923 and occupied Germany until 1925 to ensure deliveries of coal, iron, steel, and timber. 

Inflation, high unemployment, and Germany's lack of a stable currency made it hard to administer the German economy in mutually beneficial ways. In 1924, the Dawes Plan, for which Charles G. Dawes and Austen Chamberlain received the Nobel Peace Prize, injected American capital into Germany, shifting much of the burden of German reparations onto American bondholders, creating a more probable repayment scenario and convincing French and Belgian occupiers to leave the following year. 

The United States's credibility in international relations derived in part from its large post-WWI gold reserves, some of which were housed at Fort Knox (built in 1918). Although the U.S. dollar ceased to be backed by gold reserves in 1919, Britain in 1925 returned to a gold bullion standard, likely causing potential investments to leave European neighbors and the United States and enter Britain--around the same time American bondholders had taken risks in stabilizing Europe. Britain's action assisted it in repaying its own debt to the United States as well as signaling an answer to declining wages and inflation across Europe, but had the unintentional effect of France devaluing its own currency to undermine Britain's desired status as superior trade exporter. In choosing the gold standard, Winston Churchill wanted Britain to be both a financial and trading center during a time when America was reeling from the Teapot Dome scandal and President Calvin Coolidge was preoccupied with Latin American affairs: 

I believe that the establishment of this great area of common arrangement [aka the gold standard] will facilitate the revival of international trade and of inter-Imperial trade. Such a revival and such a foundation is important to all countries and to no country is it more important than to this island, whose population is larger than its agriculture or its industry can sustain which is the centre of a wide Empire, and which, in spite of all its burdens, has still retained, if not the primacy, at any rate the central position, in the financial systems of the world. (Churchill, 1925, to Britain's House of Commons)

Although the initial effects of a strong pound/sterling attracted investment, Britain was unable to stimulate demand, leading to sustained unemployment. Meanwhile, in America, taxes were slashed, consumer credit extended, and wartime manufacturing capacity transitioned into peacetime production. Such success led to increased borrowing generally and speculation in America's stock market. 

By 1929, greater complexity in currency obligations, international trade, and wage stability prompted the creation of the Young Plan (promoted by America's J.P. Morgan, Jr. and finalized on August 31, 1929) to supplant the Dawes Plan in 1930, but it was too late. In Germany, the National Socialists (aka Nazis) sought a "Liberty Law" (aka Law against the Enslavement of the German People) to disavow all reparations, which was overwhelmingly voted down on October 16, 1929. Even so, on October 24, 1929, America's stock market crashed, perhaps anticipating global instability and large losses in its German-linked bonds. The German government's rejection of the "Liberty Law" increased Adolf Hitler's and the National Socialists' visibility when they took the proposal directly to the German people on December 22, 1929. On January 30, 1933, Adolf Hitler was appointed Chancellor of Germany. In 1938, Hitler invaded Austria, setting in motion WWII from 1939 to 1945. 

Britain would abandon the gold standard in September 1931, about two years after America's October 1929 stock market crash. By 1933, almost two-thirds of world trade had vanished. That same year, President Franklin Delano Roosevelt banned private ownership of gold bullion, gold certificates, and gold coins, intending to remove impediments to the devaluation of the U.S. dollar in 1934. 

(Bonus: Germany did not pay off the interest owed on its reparations debt until 2010. As of June 2019, Germany has the strongest economy in Europe, and one of its banks has loaned billions of dollars to the current president of the United States, a man sometimes compared to a former German Chancellor. With "Brexit," Britain continues to vacillate between maintaining preferential American relations or becoming a full member of a new Europe, where it will compete with non-English-speaking France, non-EU Norway, and Germany.) 

In July 1944, forty-four Allied countries attended the Bretton Woods Conference in New Hampshire, where they, anticipating Germany's defeat, looked ahead to a new international paradigm led by the United States. In 1945, Congress ratified the Bretton Woods agreement, establishing a new gold exchange standard promoting currency convertibility, the International Monetary Fund (IMF), and the World Bank. The USSR (aka the Soviet Union), one of the primary reasons for Germany's defeat in WWII, did not ratify the Bretton Woods agreement and did not join the IMF or the World Bank. With respect to the gold standard, America, anticipating greater spending and involvement in the Vietnam War, once again forbade private ownership of gold in 1961, then de-linked the dollar with gold in 1971, four years before its defeat in Vietnam. 

(Bonus: from Allison J. Truitt's Dreaming of Money in Ho Chi Minh City (2013): "The United States' massive military expenditures in Southeast Asia led to the collapse of its ability to maintain the dollar's fixed value relative to gold. When the US government put an end to the dollar's convertibility in 1971, it ushered in a new era of more flexible and more volatile exchange rates.")

After 1945, naval power plus nuclear and satellite-related technology plus natural resources (e.g., oil) determined which countries would set the rules of the world. America could set many of these rules because its two neighboring oceans had afforded it the protection to enter WWII late, minimizing its human and materiel losses. Having the advantage of only needing to rebuild a single state (Hawaii) rather than numerous cities, America was willing to assist other players through a mutually beneficial system in which it distributed power--and favor--through ports, loans, and trade agreements. 

Countering America's power were the Soviet Union--equally determined to spread its economic system--as well as a China comfortable in being isolationist in the short term. The task of rebuilding infrastructure required not just the possession and transport of raw materials but implicit assurances of reliability. Hence, shipbuilding, ship repairing, refueling stations, and port efficiency became prized skills, and strategically-located countries like Singapore, Hong Kong, and Taiwan (aka Chinese Taipei) became valuable allies. 

To diminish the West's military strategy of choosing a small country along a strategic shipping (e.g., Singapore, Eritrea, Falkland Islands) or geographical (e.g., Poland) point, then shepherding that country into an alliance at the expense of its relations with its neighbors, the East attempted to use the same strategy with Cuba and other countries, primarily Vietnam and Mongolia. The East's mimicking of the West in this regard failed, in large part because its comparatively underdeveloped banking, legal, and insurance sectors could not generate similar investment returns, leading to slower income growth (though less inequality) and personal dissatisfaction in Eastern countries. By the 1980s, the resource-rich Soviet Union was borrowing money from Western banks because its ruble was not freely convertible to other currencies, foreshadowing its 1991 dissolution. 

While both the Soviet Union and China pursued a strategy of self-sufficiency, America demurred, using its naval power and satellite countries (Singapore, Taiwan, South Korea, Saudi Arabia, Israel, South Africa, United Kingdom) to increase its share of worldwide foreign trade. By 1962, America's Trade Expansion Act allowed President Kennedy to reduce tariffs by up to 80%, increasing foreign trade and therefore the influence and strength of the U.S. dollar. 

The Soviet Union's failure to create multinational banks--resulting from the assumption its vast natural resources and military strength were enough to maintain empire--meant its economy and ability to project power depended wholly on oil prices. The Soviet Union's lack of economic diversification also exacerbated competition, most pitched during WWII, between the East and West for control of oil supplies. 
Such competition had the effect of requiring large military expenditures to deter others from seeking similar control, rendering empire and power contingent on military and industrial cooperation. As oil, naval efficiency, and multinational banks became more important to an increasingly globalized and interdependent economy, military spending began driving economic growth. To protect investments and jobs, large financial outlays were channeled through an increasingly smaller elite, often associated with banks, insurers, and military on national levels; educators, natural resource producers, and unions on state levels; and real estate development and police on local levels. All aforementioned players would have access to financial terms and conditions unavailable to most people outside their spheres, allowing debt to inflate their influence at the expense of perhaps more innovative competitors. Most troubling, the projection of external power backed by foreign currency into a developing nation disfavored minorities and dissidents within such nations, sometimes with violently tragic consequences. 

As the West's international influence grew through debt and trade agreements, so did domestic vested interests, making substantive change increasingly difficult. For example, though the 2007-2009 financial crisis was caused by excessive debt and lax financial regulation, by 2019, overall debt had increased beyond its 2007 threshold. Such debt was deemed necessary to project influence or gain access to lucrative markets, though wise politicians found a balance between foreign trade and domestic infrastructure spending. As competition increased between major powers--designated by access to the most advanced nuclear, AI, cyber-warfare, surveillance, and satellite technology--risks continued to multiply in the interlinked worldwide economy. A rising EU, China, and Russia meant post-WWII alliances such as U.S.-led NATO no longer yielded the same positive economic or humanitarian results. [From UNHCR (2019): "the number of people who are forcibly displaced globally is indeed at an all-time high since the end of World War Two."] 

With technological advances outpacing cultural understanding (e.g., seamless and accurate language translations), negotiation and cooperation within the same geographical spheres became unwieldy and ROI uncertain, causing politicians to use tariffs and other measures to favor their own technological platforms, currency, and media content. In addition, the desire for consistent debt repayments made monopolies more acceptable and free trade's premise of fair competition less benign. 

Part of the problem was that overlapping and trans-continental trade agreements were based, at their root, on economist David Ricardo's ideas of tangible trade between just two nations: Portuguese wine for English cloth. In short, the global trading system assumed a paradigm of clear laws, finite trading partners, mutually beneficial cooperation, and tangible products. In reality, countries favoring fair play had to contend with greater unpredictability in consumer demand, tax revenues, informal economic actors, and domestic resource needs, making them more dependent on debt. As such, "free trade," especially within the context of intellectual property rights, favored developed over developing nations, and corporations over individuals, with developing nations often pledging fealty to one particular developed country over another to gain access to capital. 

Despite perennially low (and sometimes even negative) interest rates, the economic stability promised through open markets and respect for domestic producers had not come to fruition, reducing esteem for moderate Western politicians and existing practices. Smaller or less developed countries began to better utilize trade associations such as ASEAN or to develop new ones like the African Continental Free Trade Agreement (AfCFTA), realizing their local consumer populations were sufficient to improve living conditions without excessive interference by developed countries. The more developing countries began to wean themselves from post-WWII economic rules, the more the future of capital and labor became unpredictable, causing a rise in extremism. As governments, mostly in the West, realized they had sanctioned a technologically-driven economy without any firsthand technological expertise, they enacted flaccid countermeasures which further damaged their credibility. In 2019, tech corporations, often run by executives not subject to removal due to supermajority voting shares, began exploring plans to issue their own currencies

[W]e believe that the right to coin money and issue money is a function of government... We believe it is a part of sovereignty and can no more with safety be delegated to private individuals than can the power to make penal statutes or levy laws for taxation... I [say] that the issue of money is a function of the government and the banks should go out of the governing business. 

-- William Jennings Bryan, American, anti-imperialist politician, in 1896 

By summer of 2019, the first stanza of W.B Yeats' 1919 poem, "The Second Coming," written after WWI, seemed tailor-made for the present: 

"Turning and turning in the widening gyre 
The falcon cannot hear the falconer; 
Things fall apart; the centre cannot hold; 
Mere anarchy is loosed upon the world, 
The blood-dimmed tide is loosed, and everywhere 
The ceremony of innocence is drowned; 
The best lack all conviction, while the worst 
Are full of passionate intensity."

So it goes

© Matthew Mehdi Rafat (2019) 

Sunday, June 23, 2019

Santorini Dave Travel Blog Advice

Santorini Dave, a popular travel blog, is against the idea of using travel blogs as storytelling vehicles--at least if you want to make any money: 

I’m sorry, but you will not make money from travel tales and adventure stories. Or, if you do, you’re far more talented than me and you’re not reading my lame-*ss post about focusing on your brand. So stop reading and go do it. Start your blog about all your crazy stories traveling the world. (Also: good luck. There’s a place for storytelling in the world but you won’t find a blog post on it. You might as well read self-help books on how to be original. There are a dozen people in the world that will make money from travel storytelling. If you think you could be one of those twelve then go for it.)

Anyone who's read Yuval Noah Harari will initially gasp--until s/he remembers he has a tenured university post, a privilege available to less than 1% of the world's population. Lacking such security, most people will need to sell something to be able to tell a story. Consequently, social media, which relies on quantitative metrics, has turned the internet into a giant marketplace not of ideas, but visual titillation. 

To be clear, I don't mind titillation or mindless distractions, but the Native Americans, Muslims, and to a lesser extent, Jews, have been proven right in their approach against a culture based on figurative images. You may quibble that the ban on figurative images revolved specifically around religion or living things being elevated to the status of idols (God being a jealous mistress), but such categories were close to all-encompassing in olden culture. 

We tend to forget once the Bible was transcribed and translated, it became the primary book marketed by people in power. Consequently, just like any other product, chapters were modified depending on local audiences (whither Lilith?) and promises/rhetoric/advertising didn't always match reality. Regardless of the specific make and model of the book, because advertising/missionary financing was strong, and competition almost non-existent, a single book often became the way a person learned English. First mover advantage has never been disputed, but the point here is that it resulted in moving from pictures as the basis for storytelling to written words--an improvement. 
From Codex Gigas, seen in Stockholm, Sweden.
Fast forward to 2019. On the subway, most people are using mobile phones to play online games (visual, no words) or to shop (visual). Except for Wikipedia and reddit, the most popular apps and websites rely entirely on either the spoken word or visual images

No one doubts images are more compelling to the human brain than written words. ee cummings may have said it best: "the best gesture of my brain is less than your eyelids' flutter." Women have always realized this fact about human nature, so cosmetic products are always in demand, and even in periods when women's clothing lacked pockets, small jade purses or ornaments like ivory combs would be deployed to attract the wandering eye. 

Of course no one is arguing we want societies mostly of Socrates or Shakespeares--intellectuals often rely on more daring friends and lovers for inspiration, and obviously technology and buildings do not appear spontaneously--but a society that does not advertise its own individual stories properly will find itself depending on non-native and perhaps outdated stories for cohesion. The lesson? If you let marketers dictate your culture, perhaps you will soon find the underlying reason our ancestors disfavored graven images, especially ones made of valuable commodities. For some of us, it is just as easy to drown in a shallow pool than a deep one. 

© Matthew Mehdi Rafat 

Saturday, June 22, 2019

Privatization vs. the Public Good

Marc Lamont Hill succinctly describes the liberal Democratic platform in a single page in Nobody (2016) (paperback, pp. 177): 

The problem with this approach is that it ignores government's tendency to borrow, particularly from private banks. If tax revenues and other fees do not match the cost of services, especially when new services are needed, private banks provide the loans/bonds. In short, the "liberal" anti-privatization model renders government at state and local levels dependent on private banks. (It should not be surprising, then, that many have called America's Democratic Party the party of Wall Street, and its Republican Party the party of Big Oil.) 

I suppose one could argue "deficits don't matter" and render Congress's power of the purse into a literal money tree, showering all cities and states with interest-free loans. And yet, if governance could be so simple, why not make it even simpler and have Congress give all individuals money directly? Indeed, many have suggested the latter as the basis of UBI (Universal Basic Income), but the experiment has always been directed towards the unemployed or the neglected, perhaps assuming human beings prefer meaningful work over none at all. 

We have now arrived at the true difficulty at the intersection of commerce and government: creating meaningful jobs while avoiding excessive and uneven inflation. 
From local Los Altos, California newspaper (June 2019)
Every single state executive office is run by Democrats, from Governor to Insurance Commissioner.
Even ignoring, as Mr. Hill does, commerce's complex trade/security agreements with other nations and the trillions of dollars of debt these agreements assume, nowhere in his analysis of commerce does he make room for the ambitious, the persecuted, or the minority not agreeing with his definition of the "common good." And while it is true ambition often paves its way through artifice, there we can find government's true calling: protecting common people from the ambitious while creating an economic system bringing everyone together so as to prevent persecution as well as self-segregation. 

The problems of modern commerce are vast and complex, centering chiefly around unimaginative local governments favoring the tried-and-true, leading to uneven development, de facto segregation, then the very inequality Mr. Hill abhors. Private entities are not silver bullets against corruption, but history teaches us any entity suffering from a lack of competition--such as public jails or police departments--will eventually become corrupt or deficient. With respect to privatized jails, we have learned it is possible for the private to become as corrupt as the public without sufficient oversight of necessary adjoining agencies--in this case, ICE and police departments. Finally, if corralling commercial activity were so straightforward as prioritizing the public good over the profit motive, one wonders why the mafia or black markets exist at all. 

The first step to strengthening social cohesion is trust in government, which requires not only transparency, but an understanding that modern commerce is so complex, only cooperation at both the neighborhood and national levels will create viable solutions. States like Singapore are small enough to make the gap between neighborhoods and their national Parliament a short walk, while countries like Norway have such small populations, a gap between their capitals and outlying regions can never become too great. America, like Russia and China, possesses none of these advantages and must work harder to prevent a police state from taking over completely in the name of the public good. As an American resident, I am confident most Americans favor the public good, but less so when it comes to the hard work and humility in getting there. 

© Matthew Mehdi Rafat (2019) 

Bonus I: when academics without a direct understanding of law and economics talk about the "profit motive," almost every criticism as applied to corporations could be applied to the mafia, which operates across borders using the singular method of violence--a tactic corporations cannot use. (Unlike your local loan shark, Wells Fargo or JP Morgan cannot send someone to break your legs if you default or declare bankruptcy.) 

GQ article by Alex Hannaford (June 2019)
Instead, multinational corporations must contend with three or four layers of overlapping jurisdictions, a level of red tape making it easier for governments, whether liberal or conservative, to demand ever-escalating payments, legal fees, or bribes to do business and to bring consumers more choices. When such choices are made without any regard to long-term planning, chaos results, causing critics to blame the profit motive rather than the target government's poor vision. Thus, the better arguments against corporate power revolve around short-termism (i.e., short term profit motives) and lobbyists' efforts to insulate corporations from accountability or transparency (i.e., giving corporations the same qualified immunity as some government agents). 

Bonus II: while we're on the topic of overlapping jurisdictions, let's review why such a dynamic exists. First, redundancy. If a local police department is overwhelmed (think riots), it needs to be able to request additional personnel. A local entity prepared for all worst case scenarios will bankrupt local government or deprive cities and counties of much-needed social and other services, eventually guaranteeing a repressive police state. (Mr. Hill himself explains this exact issue in discussing Ferguson, Missouri.) 

Second, local entities represent local citizens, who may have different needs and wants than national representatives. By forcing national and multinational participants to adhere to local regulations, cities and counties can shape their own destinies--up to a point. (Justice Louis Brandeis' shorthand term for this interplay is "laboratories of democracy.") 

Third, if a local entity is corrupt (think Mississippi Burning (1988)), a local resident has no recourse but to appeal to an outside authority having jurisdiction. 

In short, overlapping jurisdictions were not designed to promote complexity for the sake of complexity, serving an unnecessary expansion of law school and academic influence, nor to allow looser federal purse strings to wedge themselves between police departments and local residents.

Bonus III: democracy is hard to successfully implement over long periods of time, and even harder the larger the geographical area. A blue collar worker in Kansas, absent some respected intermediary, may have nothing in common (except language) with a software engineer in California. The idea of a common language is to establish respected intermediaries, such as journalists (think Charles Kuralt, Studs Terkel), to bridge the gap and help form a national identity, but of course language can manufacture social dissolution just as well as social cohesion. 

It may be the case that a 5 to 7 days workweek is inimical to a well-functioning democracy by not allowing enough voters sufficient time for study and contemplation. And yet, one can be certain a majority of contemporary American adults, most of whom had ineffective public school teachers, would spend their additional free time on less-than-edifying activities. Is it any wonder, then, that America has become the land of the distracted, home of the vested interests? Why would a minority or immigrant with options choose such a place? And how have less developed areas, which preserve local agency through national neglect or capitol corruption, attained the very character wished upon us by our most educated and most sincere? 

Friday, June 21, 2019

Segregation as Logical Extension of American Policies

Regular readers understand de facto segregation--based on race or class--is the primary scourge of modern Western societies, particularly when governments do not adhere to any borrowing limits. Yet, few people realize modern segregation is rooted in logic, not a nature-based pattern of "birds of a feather flocking together." To summarize, in a decentralized environment without a trusted mediator, new residents gravitate towards informal norms, including those relating to communication and conflict resolution; and because self-segregation allows minorities to replicate their informal norms (for example, see Amish or Mennonites), immigrants as a whole have tended to succeed when they self-segregate and to fail when they don't. (The West's response to its failure to correct racial segregation has been emphasizing or promoting individual minority outliers.) 

When Malcolm X and others discussed separation, they weren't just concerned with violence and police dogs--they were acknowledging a link between failure and ineffective governance in their own communities. More controversially, W.E.B. DuBois, Harvard's first African-American graduate--also referring to a lack of institutional trust--wrote of Germany's Jews banding together due to "oppression in the past." 
Kwame Appiah's The Lies that Bind (2018)
In my own California county, I notice clear distinctions when I drive 15 minutes in any direction, with Sunnyvale "belonging" to Indian-owned businesses, Cupertino "belonging" to Taiwanese-owned businesses, and East San Jose "belonging" to Vietnamese-owned businesses. Like DuBois, I, too, have seen minority Jews succeeding through voluntary separation, though in my case, I had argued other minorities ought to follow the same example in America. In the end, regardless of profession or location, the catalyst for self-segregation remains the same: a lack of trust in institutions, especially police and courts, increases the likelihood self-segregation will provide favorable outcomes, leading to a rise in the informal economy, which eventually weakens social cohesion and inhibits formal economic activity. 

Some countries understand this phenomenon well. Singapore, one of the world's most diverse countries, has taken so many measures to signal integrity, its overreach is sometimes comical--though no one can argue with its success. Like everywhere else, Singapore can be clannish; after all, its Chinese population was famously "kicked out" of Malaysia, and its experience with riots in 1964 led to its founder insisting "on a multiracial, multireligious, multicultural model to provide a cohesive identity for the new nation." (Kwame Appiah, The Lies that Bind Us (2018), hardcover, pp. 93) Despite its hallowed status as SE Asia's least corrupt country, most Singaporean experts have not fully connected their tough social harmony laws with a lack of entrenched mafia or a black market. Why not? Given the West's history, where racial subjugation and slavery have been based on widely publicized theories of inferiority, Western-educated graduates tend to focus on laws relating to "free speech" or race more than others, missing the fact that Singapore's laws restricted all non-modern behavior--to the point of fining residents in their own condominiums for being naked. (LKY, a lawyer educated in London, had no patience for those wishing to maintain "backwards" kampong behavior.) Somehow, Singapore knew it first had to establish social harmony then economic success, especially if it demanded sacrifices from most of its residents. 

Oddly enough, when modern thinkers today argue multiculturalism has failed, they do not cite poorly distributed government funding, inadequate governmental hiring practices, or convergence between vested political interests and historically one-race residency. They certainly do not point to their own failures of institutional integrity, causing either intentional or unintentional misdirection and further strengthening separatists, who often overlap with racists. The popular solution to modern society's ailments has been more meritocracy; however, elevated debt levels in both private and public markets have effectively propped up existing institutions regardless of merit, thereby entrenching the status quo. 
Appiah's The Lies that Bind (2018)
Indeed, any country where a man can borrow billions of dollars to invest in real estate under a tax code favoring such investments, then become president primarily on such a basis, means wealth and banking have become divorced from societal good. The effects of such a result are not only a coarsening of culture and greater skepticism of the kind of public-private partnerships making Singapore and China successful, but disillusionment, especially among young adults. 

As I write, I am reminded of 12 year-old Cassius Clay being assisted by Louisville police officer Joe Martin in a state prohibiting race-mixing in social venues, public parks, recreation centers, schools, and public transportation (one reason Cassius must have been so distraught over his lost bicycle). What was it that made Officer Martin look at a scrawny, tearful boy, realize the bike was gone for good, and decide he had to make sure this kid wouldn't lose hope? Why did the same conservative legal Establishment in that same Louisville city continue to protect the teenager when he was no longer Cassius Clay but a man with a foreign name and an unfamiliar religion? How did one Southern city looked down upon by Northerners look out for a boy different from themselves and then a man even more different than the boy? It must be because social cohesion and integrity, whether in Singapore in 2001 or Kentucky in 1954, are the stewards of any successful enterprise, cities included, and authority, when just, can prevail in spite of written laws or because of them. 
From Louisville's Muhammad Ali Museum, featuring meritocracy in action.
I do not claim to know all the reasons some communities succeed while others fail. I do know, however, the more Americans continue their current path, where they do not learn from Singapore and its foundation of informally and formally enforced social harmony and also from Louisville's refusal to allow formal laws to dictate social outcomes, the more they create a society where a Schwinn bike is just another bicycle, and a police officer's badge just another piece of tin. 

© Matthew Mehdi Rafat (2019)

Thursday, June 20, 2019

Henrik Ibsen's The Wild Duck (1884)

From Henrik Ibsen's The Wild Duck, a Norwegian play from 1884. The more things change, the more they stay the same. 

Bonus: Voltaire in 1770 (France): "Le meglio è l'inimico del bene." 

Henrik Ibsen in 1884 (Norway): "Oh, life would be quite tolerable, after all, if only we could be rid of the confounded duns that keep on pestering us, in our poverty, with the claim of the ideal." 

Silicon Valley marketers in 2019 (USA): "Perfect is the enemy of good." 

(Influence seems to be becoming less discriminatory by lowering itself to the literacy level most common around it.)

Poem: For Monica Lewinsky

"Splendour in the Grass," for Monica Lewinsky

You did not make a mistakeNo decent person would call falling in love at 22 a mistake. 

It is normal to fall in love at any age, and even more normal for a young woman to love. 

In an office now sullied by political election and genuine threats of impeachment, you alone had the innocent brightness of a newborn, the strength to think of someone other than yourself. 

The only indecency witnessed was the way the tenderness of the human heart by which we live is so often ignored, spat on, and finally, forgotten by prurient politicians whose fingers pinch and poke anyone they please. 

May thou answerest them 

                                            only with 



© Matthew Mehdi Rafat (2019)

Wednesday, June 19, 2019

Of Cigars, Old Creeds, and F. Scott Fitzgerald

In high school, I was assigned The Great Gatsby, which I despised. In Mexico City, of all places, I found an Indiana University magazine called The Folio, which included reprinted sections from another F. Scott Fitzgerald book, This Side of Paradise (1920). Much better written than Gatsby, it includes his wife's experiences as a so-called flapper, giving the prose a liveliness I hadn't expected. (One of my favorite songs, the Pet Shop Boys' "Being Boring," was inspired by Zelda Fitzgerald.) Here's the portion I liked: 

Here was a new generation, shouting the old cries, learning the old creeds, through a revery of long days and nights; destined finally to go out into that dirty gray turmoil to follow love and pride; a new generation dedicated more than the last to the fear of poverty and the worship of success; grown up to find all Gods dead, all wars fought, all faiths in man shaken...

Sounds like Allen Ginsburg and the 50s' Beat Generation, doesn't it?  Excepting my wonderful math and science teachers, the lack of mirth in my American middle school and high school teachers makes me increasingly convinced the Europeans and others are misdirecting Americans on matters of the English language and literature in order to preserve their status as arbiters of Western culture. Here's another segment from the same 1936 magazine:

I don't smoke, but I love this paragraph. It's beautifully written and helps me, a non-smoker, understand why someone would pay to get mouth and lung cancer. The ability to transfer your love of an activity, a person, or a thing to another is the essence of writing, something I see rarely these days. Part of the problem is America's habit of "borrowing" culture from other countries; part of it is North America's geographical isolation; and part of it is its relatively small population, only 4 to 5% of the world's. Taken together, you'd think most Americans would agree immigration is a necessary national goal to prevent well-funded, well-traveled military culture from taking over the dialogue, but as liberal elites began disdaining difference not aligned with popularity, they paved the way for the most dull amongst them to rise, providing little resistance to conservative (think)tanks. 

And so here we are, starved for creativity and ravenously hungry despite being overly fed. Without good, honest, and interesting writers, we cannot place ourselves in a fellow resident's shoes, making politics a game between the out-of-touch and the even more out-of-touch, and giving marketers undeserved influence. My personal solution seems to be reviewing the old creeds, which aren't much different than the new, human nature being what it is. But the more I delve into the past, the more I taste decline in the present, and the more my palate demands justice. 

I go to working-class Calgary, Canada in one week. Let's see what's on the menu there. 

© Matthew Mehdi Rafat (2019)

Bonus: meanwhile, in China... 

Friday, June 14, 2019

Lessons in Counterintuition

1. A popular survey question purports to expose our innate irrationality. It goes like this: you can have 100,000 USD if your enemy or your ex-spouse gets 1 million USD. Apparently, most respondents declined the offer. 

But all one has to do is add more nuance to the scenario to get a different overall response, thereby exposing the original question as meaningless. Try this: you have non-dischargeable debt of 50,000 USD. You can have 55,000 USD if your enemy receives 550,000 USD. Answers to the second question will be more varied, indicating short-answer surveys don't offer enough nuance to justify their cost or relevance. 

When such deficient "research" is passed off as newsworthy, serious journalism has died in America, but I'm also worried about inattention to the sociology field. Medical advances, especially in neuroscience, are leading governments and academics to focus on psychology and pharmacology departments without the involvement of independent entities capable of institutional knowledge. Absent relevant and reliable anecdotal evidence, scientific researchers may spend taxpayer and other funds chasing chimeras. 

2. Speaking of a failure to appreciate nuance, people are worried about AI's ability to increase unemployment. 
One person believes AI may wipe out 47% of existing jobs in America,
an astoundingly specific number.
Yet, the AI problem may be even bigger than unemployment if the world's technological AI race gives existing leaders--not necessarily in power by merit--the potential to cement their advantage over others, snuffing out change from local sources. 
Roberto Unger's Free Trade Reimagined (2007).
Imagine a robot that can scan all local residents for weapons as well as criminal records. No longer would a rural recruit dropped in a foreign land need be in a position to kill unarmed civilians. No longer would a wary security guard at a private establishment need assume every patron a potential threat. 

But let's fast-forward to the future. The aforementioned technology has made it easier to invade and occupy different lands if only to prevent another competitor from doing the same. Thus, while such technology would make the weak and unarmed safer in the short-term, the long-term picture is unclear. Nevertheless, if modern history is any indication, one can imagine this technology leading to more occupation, then removal of armed resistance to foreign culture, and finally the supplanting of local culture, beliefs, and methods. In one fell swoop, the same AI technology that protected the weak and unarmed has now extinguished the capacity for the same residents to achieve Roberto M. Unger's "diversity" component--leading to perpetual dependency on a foreign power. 
From Unger's Free Trade Reimagined (2007). 
Unger discusses diversity in ways unlike any other economist or political thinker. In order for workers not to be left out as innovation and creative destruction are financed by larger players, he argues it is imperative that 1) local entities are able to innovate in their own ways, unconstrained by centralized norms (another way of saying local culture ought to be supported through "collective experimentation" rather than subservience to centralized market forces); and 2) all entities are able to disregard prior norms if doing so would improve conditions for both capital and labor. 
From Roberto Unger's Free Trade Reimagined (2007)
Unger's "economic diversity" is the characteristic most under threat with advanced AI--despite not a single politician articulating this potential problem apart from anti-trust concerns. 

3. More lessons in counter-intuition: Country A has an 80% poverty rate. Country B has a 50% poverty rate and a democratic political system. Without knowing more, which country has the better chance of avoiding societal cohesion problems in the next 50 years? 

You'd think it would be the country with less poverty, but America in 2019 proves that when at least half of a country is able to structure the tax code, government funding, and housing inflation in ways that benefit existing interest groups, anyone outside those groups is left behind not just relatively but absolutely. (For the economics wonks: I use these two terms informally, but Unger uses David Ricardo's comparative advantage vs. Adam Smith's absolute advantage as an overall framework, at the same time casting doubt on Ricardo's ideas due to their limited scope, i.e., trade between just two countries using just two popular products.) 

Where economic theory typically fails is its inability to properly incorporate the social costs of underinvestment, meaning over time, absent some mechanism--such as widespread and cost-effective public transportation, genuinely merit-based and affordable colleges, etc.--segregation occurs, cementing physical and abstract (e.g., communication) gaps and reducing opportunities for reconciliation. Worse, as existing winners gain more affluence, they begin to see others outside their increasingly closed-loop system as morally deficient, eventually rejecting public institutions as the costs of reconciliation increase exponentially every year effective solutions are not implemented. (American acceptance of exorbitantly expensive private K-12 schooling is one example of such a breakdown--as if even one K-12 school not properly educating future voters in a democratic system providing equal votes to each citizen is acceptable. As I've written before, "Generally, long-term costs of exclusion, even if unintentional, far exceed the costs of inclusion on the front end.")  

In contrast, a country with an 80% poverty rate cannot easily segregate the country excessively or irreversibly. Any national public works program must consider more rather than fewer residents by demographic default. Moreover, the cost of essential items such as housing cannot be inflated beyond a point of no return even with the assistance of the banking sector unless wages also rise among a greater percentage of the population. To sum up, it is better for individuals to be rich than to be poor, but not necessarily for countries. 

© Matthew Rafat (2019)

Bonus I: "Free trade will flourish when the rules of the world trading system are designed to reconcile openness and diversity, not to suppress diversity in the name of openness." -- Roberto M. Unger 

Bonus II: "Humanity can become more unified only by seeking to develop in different directions... [so as] to establish a machine for the creation of collective difference [that supports] alternatives by making the world safer for them." -- Roberto M. Unger 

Bonus III: continuing the third example above, one can see developing countries' biggest problem is not technological access, but corruption. Why? Because developed countries' need for more consumers, including ones willing to spend beyond their means, will lubricate technological transfers so as to establish platforms. A governor or president who chooses the wrong transportation company contract or who builds asphalt roads instead of Tokyo-style trains is a developing country's greatest threat to long-term success. 

Even if a developing country chooses well, only half of the battle has been decided--for example, if a train is chosen but goes over estimated costs, not only will the government lose taxpayers' money while further mortgaging its citizens' futures to foreign banks, it will also lose credibility, weakening its ability to govern and to regulate. 

Thursday, June 13, 2019

Tesla's Annual Shareholder Meeting (2019)

I won't spend too much time on Tesla's 2019 annual shareholder meeting, because it was a well-oiled (pun intended) marketing job, and as a great writer once said, "All marketers are liars." 
Having attended Apple shareholder meetings when Steve Jobs was at the helm, I'm familiar with the cult of personality, which often arises when an individual, against all odds, goes his own way. Like Elon Musk against Big Oil--one of America's linchpins in its military-industrial complex--Jobs was alone in making iOS more of a closed-loop system than a less secure, open-ended, Android one. Unlike Jobs, however, Musk has no charisma (perhaps due to Asperger's) and does not seem to view the supply chain as vital to innovation. Ironically, according to Dan'l Lewin, CEO of the Computer History Museum--where the meeting was held--Jobs' "focus on supply chain and inventory and those things was phenomenal." Unfortunately, no one would say the same about Musk, a deficiency that will surely allow competitors to catch up

Musk's lack of organization--a common trait in highly-performing individuals without disciplined support teams--was such that he missed his own entrance at the meeting, forcing the emcee to walk through a door to get him. Musk's obvious idealism and intelligence have earned him the benefit of the doubt; indeed, it is because of Musk that traditional combustion engine companies have been forced to play catch-up, no longer able to argue EV consumer demand fails to justify major investment. And yet, despite all of Tesla's positive points, Musk's work in SpaceX and with satellites are the most innovative--so of course no one asked him how the 1967 Outer Space Treaty should be updated, or what obstacles private companies faced in space exploration when most satellites are still government-owned. (I didn't get a chance to ask a question because too many shareholders representing third parties (VC funds? Marketing firms?) decided to ask softball questions.) 

I'll summarize Musk's most interesting comments below: 

1. The Model 3 is the best-selling car by revenue, with second place belonging to the Toyota Camry. 10 years ago, no one would have believed it. [Note: I wasn't impressed. "Best-seller by revenue" is a made-up metric. It was originally designed to convince corporations to invest in lithium battery technology for cars, a much higher return on capital than just laptops.] 

2. The Model S will be able to go up to 370 miles on a full battery charge, while the Model X can achieve 325 miles. The sturdier-looking Model Y, scheduled for Fall 2020, can go 300 miles. [Note: research any other major car company's EV claims, and all of them claim similar mileage, indicating Tesla no longer enjoys a clear competitive advantage.] 

3. The most energy-efficient cars are all Teslas. [Again, the definition of the metric is key. How does one define "most energy-efficient"?] 

4. Operating costs of electric vehicles are much less than gas cars due to the ongoing maintenance required for a "regular engine" car. (e.g., no oil changes, fewer moving parts needing replacement, etc.)
5. On self-driving capable cars: Tesla has a goal of "one million robotaxis by 2020," but still needs regulatory approval. 

6. Tesla claims to have the world's largest battery factory and discussed opening new production facilities in Shanghai, China and Europe. [From 10K, pp. 4: "We have also pioneered advanced manufacturing techniques to manufacture large volumes of battery packs with high quality at low cost.] 

7. Tesla Energy, which makes products primarily for home/consumer use, is working on integrated, renewable energy ecosystems that last thirty years. 

8. On news reports of Tesla's safety record, Musk blamed a "crazy disinformation campaign," saying every year, about 200,000 gas fires are reported in combustion engine cars [but no one seems to focus on those instances]." 

9. Tesla has discovered "two critical selling points" in a consumer's decision to buy an EV: 1) charging stations within a reasonable distance of the consumer's home; and 2) the presence of charging stations on routes drivers want to take (so they're not accidentally stranded).
10. "When you buy a car, you're buying freedom," and any unexpected repairs interfere with more widespread acceptance of Teslas (and EVs). To that end, Tesla seeks to provide insurance directly to help achieve customer satisfaction, including a mobile repair service. (Bonus: from 10K, pp. 58, "Cost of services and other revenue increased $651.3 million, or 53%, in the year ended December 31, 2018 as compared to the year ended December 31, 2017. The increase was primarily due to the increase in the cost of our new service centers, additional service personnel in existing and new service centers.") Musk cited one instance where a repair was completed in less than one hour, later disclosing Tesla needed to complete a "small acquisition" but was "close" to selling insurance. 

11. In response to a complaint that production has been battery-constrained for some time, Musk said, "I'm sometimes [overly] optimistic. I wouldn't be doing this if I wasn't optimistic." 

12. SpaceX's satellite antenna won't be linked to Tesla's cars due to the large size of the receiver required but could be used generally for under-served and poorly served reception areas. 

One last point: Tesla continues to be a beneficiary of large tax credits, some of which don't expire until 2033(!). Check out these two pages from its 2018 annual report. 
Like Musk, I hope in time, all car companies will "go electric," but I wonder if it's possible without government subsidies and pressure on local and state governments to continue to invest in public infrastructure. While Musk has prospered in California, the state government has failed to complete a high-speed rail project, leaving it behind Tokyo and other Asian cities. Low-cost insurance, if delivered effectively, will help reduce some of the burden on the poor and middle-class, but at the end of the day, if state governments are relegated to subsidizing the private sector for public needs, the future remains as it was before Tesla: uncertain, cloudy, and stratified. 

© Matthew Rafat (2019) 

Disclosure: As of the date of publication, I own one share of Tesla (TSLA) stock. 

Bonus: If you think Tesla Inc. has always been associated with Elon Musk, look up Martin Eberhard (who claims by 2020 or 2022, EVs will be cheaper than legacy vehicles) and Marc Tarpenning. Elon Musk receives credit for Tesla because his "passion" and marketing teams are able to raise money from venture capitalists more fluidly than the original founders.

Bonus: "Assuming the full electrification of the light-duty vehicle fleet by 2040, global energy-related CO2 emissions could potentially be reduced by about 5%." -- ExxonMobil's 2019 10K, page 9.