Chinese Logistics

I had the pleasure to spend the Sunday of Thanksgiving weekend with both sides of a major American logistics firm that is expanding into the Chinese market. I met several of their experts from Shanghai, and had just a wonderful time. Texas Hold ‘Em, Guitar Hero, and Call of Duty provided the entertainment, as did several delightful young children.

I probably would have done better at Hold ‘Em if I had bothered to learn the denominations, instead of just calling the chips blacks, reds, blues, and whites. Still, my strategy of making sure that some of every color were in each pot made for an interesting game, worthy of Wall Street (or my new favorite boardgame, Credit Derivative Monopoly).

The Return of Depression Economics

Paul Krugman argues that the idling of productive capacity in the world economy makes investment in public goods more likely to pay off now than at other times. While in good economic times credit is rapidly transferred to speculative growth opportunities, in bad economic times credit contracts, and much more production can be achieved with the same amount of wealth. Krugman calls this ‘Depression Economics,’ because it is true in bad economic times only.

Economist’s View: Krugman: What to Do
What to Do, by Paul Krugman, NY Review of Books: What the world needs right now is a rescue operation. The global credit system is in a state of paralysis, and a global slump is building momentum as I write this. Reform of the weaknesses that made this crisis possible is essential, but it can wait a little while. First, we need to deal with the clear and present danger. To do this, policymakers around the world need to do two things: get credit flowing again and prop up spending.

I believe not only that we’re living in a new era of depression economics, but also that John Maynard Keynes—the economist who made sense of the Great Depression—is now more relevant than ever. Keynes concluded his masterwork, The General Theory of Employment, Interest and Money, with a famous disquisition on the importance of economic ideas: “Soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”

We can argue about whether that’s always true, but in times like these, it definitely is. The quintessential economic sentence is supposed to be “There is no free lunch”; it says that there are limited resources, that to have more of one thing you must accept less of another, that there is no gain without pain. Depression economics, however, is the study of situations where there is a free lunch, if we can only figure out how to get our hands on it, because there are unemployed resources that could be put to work. The true scarcity in Keynes’s world—and ours—was therefore not of resources, or even of virtue, but of understanding.

However, the market, not the government, picks winners through the savage mechanism of creative destruction. The government is not able to perform this role effectively.

Simply spending money on neat toys like new schools or bridges to nowhere is not the answer, because such project generate nothing and leave us with costs we will have to pay once the economy comes back.

Rather, we should focus on infrastructure spending that changes the system in ways favorable to us. The most obvious bad aspect of the system is that economic growth leads to greater consumption of oil and natural gas, which enrich bad states like Venezuela and Russia. Spending projects should focus on breaking this link, so that we can become wealth without them becoming powerful.

Projects like Solar Los Angeles, Windy Maine, and a million electric cars are part of the solution.

Heck, even the CEO of Poet Ethanol will be addressing a forum together with Tom Daschle and Jim Woolsey. The time to weaken the chains that bind us to Gap states like Russia and Venezuela is now.

The Minimum Winning Coalition

In politics, victories are achieved by “minimum winning coalitions.” To the extent possible, each side does what it can to win, which involves selling the goods of victory to potential allies in exchange for their support. So grand coalitions that obtain 70% or 80% of the vote are unusual. Whatever side is losing will promise everything — up to and including kitchen sink bail-outs — in order to attract friends.

While flying cars are still off the agenda, GM, Ford, and Chrysler are beginning to hear what terms will be needed for them to form their minimum winning agenda.

The farm states sound like they can support a bail-out… in exchange for a massive increase in ethanol consumption. Others are talking about federal Volt fleets… or even a free trade agreement with Colombia.

Time is running on Detroit. The median home/condo price there is $9,250. (That is not a typo.)

The Hysterical Crowd on Georgia

Interesting that the same clique that was once saying that our only alternative to allying with Russia (supporting their military adventurism in Eurasia) as a “new Cold War” now claim that Russia’s humbling was inevitable, that oil prices would have collapsed anyway, that Russia is too small to matter, etc.

Trying to understand what things are inevitable is useful, I think. Asserting that whatever has happened is inevitable — and proves whatever you said in the first place — strikes me as more needy and childish.

Venezuela’s Election System

Like Russia and Iran, Venezuela also maintains a facade of democracy while not allowing democracy.

I want to thank “sonofsamphm1c” in the “Hidden Costs” thread for pointing me to an article on Venezuela’s electronic voting machines. While the tone of the article if laudatory, electronic voting machines allow much easier and more sophisticated vote-manipulation than other voting systems. Algorithms can reduce only a certain fraction of votes from each district, leaving no statistical trace of manipulation while changing the victor. Likewise, electronic voting machines can simply not record, or double-record, some votes, in a way that does not require messy business like “finding” votes in someone’s trunk.

During Venezuela’s recent election, Hugo Chavez also threatened to send in the military and arrest opposition leaders if he or his allies lost.

The Russian Navy is visiting Venezuela, by the way.

Comprehensive Immigration Reform

Good news, courtesy of The Weekly Standard, that Senate Majority Leader Harry Reid (D-NV) sees comprehensive immigration reform as a priority for the next Congress:

Q: With more Democrats in the Senate and the House and a Democrat in the White House, how do you see congressional efforts playing out on such issues as health care and immigration?

A: On immigration, there’s been an agreement between (President-elect Barack) Obama and (Arizona Republican Sen. John) McCain to move forward on that. … We’ll do that. We have to get this economy stuff figured out first, so I think we’ll have a shot at doing something on health care in the next Congress for sure.

Q: Will there be as much of a fight on immigration as last time?

A: We’ve got McCain and we’ve got a few others. I don’t expect much of a fight at all. Now health care is going to be difficult. That’s a very complicated issue. We debated at great length immigration. People understand the issues very well. We have not debated health care, so that’s going to take a lot more time to do

The most recent entry on whitehouse.gov’s comprehensive immigration reform page is from January 2008. Hopefully, under an Obama Administration, it will be more active.

The Credit Card Bailout

The Bush-Pelosi bailout has now officially jumped the shark.

Hank Paul, empowered by George Bush and Nancy Pelosi, now present: The Credit Card Bailout.

What is disturbing about our President, and our even worse Congress, is that we are throwing good money after bad in a way that is not only wasteful, but also foolish.

The purpose of the credit card bailout is obviously to increase spending. The credit card bailout does so by socializing the losses that individuals and banks have taken because people bought things they could not afford, while allowing the individuals to keep those toys and the bansk to keep collecting interest payments.

Without the credit card bailout, less bad offers would be made, and more people would forced into bankruptcy by institutions desperate to get whatver cash back is possible, as soon as possible.

However, instead of rewarding bad behavior, this money can be spent on ways that will help our country and our world.

For instance, while the government maintains a large fleet of flex-fuel vehicle, 92% of them consume pure gasoline because they are too far from E85 stations. We could spend money to subsidize nearbye stations putting in E85 pumps, which would immediately create work and then reduce the flow of capital from us to petro-states.

Instead, we do a credit card bailout.

We subsidize men like Hugo Chavez, who recently threatened to send in the tanks if a friend lost an election, in order to bailout credit cards.

The financial crisis is an opportunity: money will have to be spent to limit the pain, and this money can be invested in mediating the destructive influence of oil and natural gas. However, the same forces make alternative energy sources (ethanol, wind, etc) less attractive in the short term.

The Democrats may be ready to do their part.

Unfortunately, with Bush we get more of the same: a credit card bailout.

Update: While I was writing this, the fed announced a $500 billion plan to bailout bad mortgage-backed securities. The quicker we can get the Bush financial team out of office, the better.

Picture the Past

Over at Catholicgauze, I note this story on La Cartoteca about “HistoGrafica – Picture the Past.” HistoGrafica allows viewrs to look at photos of a place through time — kind of like a PhotoSynth of the Ages.

For one of the more depressing contrasts, compare the Omaha’s Kountze Park in 1898 with the ghetto firing range that it’s become.

For the deeper past, the genetic map of Europe is discussed in more detail by Razib at gnxp, who also notes that Henry Harpending points to similar work 20 years ago.