Saturday, October 19, 2002

Terror insurance

As I do not know all the aspects of the bill, I can not comment on all its contents. Therefore, I will comment only on the aspect of the bill Grant cited in his article. It might be especially interesting because the President cited similar examples of hardship with the construction businesses as typical problems that the “terror insurance” was aimed to solve.

I believe the idea of "terror insurance" is a bad one. It would take a long article to explain in detail why, and, depending on the level of economic knowledge of a reader, it might even take a book on basic economics.
Fortunately, there are good articles and books on the subject. Here is a review of a book I like. *) As for the article, Gene Callahan, the reviewer, published an excellent article explaining economic fallacies calling for "temporary" government interventions, which are based on similar arguments as the “terror insurance” for buildings. The closest topic to the “terror insurance” discussed in the article is the bail-out of the airlines by the Federal Government.

As for the terror “insurance,” the 9/11 mass murder caused market participants to adjust their assessments of the risks of constructing and using high-rise buildings. According to the markets, i.e. to the opinion of the people who vote with their money, allocation of resources to the real estate development in high-risk areas will increase risks of future casualties.
To put it simpler, people recognize that those who own such buildings, as well as those who work or live in them, risk their lives and/or their assets more than those people who own, work, or live in low buildings. Those companies that are still building in the middle of Manhattan, downtown Chicago, or other areas of high risk of terror attacks, according to this opinion are increasing the risks of new attacks and higher casualties, while the companies that are constructing low buildings in the areas less targeted by the terrorists are decreasing the overall risks of such casualties.

By providing “insurance” in such cases, Government forces resource reallocation in the construction businesses. Ironically, the Government will obtain the money for this action from the very same people whose lives will be put at greater risk as a result of the “insurance.”

As there are not enough statistics to estimate the mean losses from terrorist attacks, private insurers are unable to calculate the right prices for the insurance of such buildings. Therefore, they consider insurance (the term is defined here, or, in other words, the business of statistically managing known risks ) not applicable to the situation. The “terror insurance” by the Government is not insurance at all in the accepted definition of the term. It is just an income redistribution program aimed at “saving” the construction industry in the same way the government tried to “save” the airlines.

I believe that the best “insurance” by the government against terrorists is a success in fighting them and in protecting the country against them.

One good thing about this bill was that it was supposed to restrict the size of "punitive" damages (a pure anti-economic concept in the lawyer's set of tools).

*) It is a pity that this clear and concise book, written with a layman in mind, is not a standard economics textbook for the secondary school. This country would have been significantly different had most people been familiar with the “toolbox” of fallacies that has been “in the public domain” for centuries, but is still successfully used by both dirty and well intentioned politicians to bring repeating damages upon the economy. Some of the book's weaknesses are commented upon by the reviewer, but they are hardly significant for a novice, and the review points out the directions for further learning.

Mitsubishi Tunes

That's it. I don't need the radio anymore. I am going to get all my new music from Mistubishi commercials. First there was Dirty Vegas now there is Telepopmusik. They can put together a CD and sell it as the "Mitsubishi Mix" through their dealerships.

Etu, Brutus?

Well I had a poor opinion of "Carter the President" and a good opinion of "Carter the human being", but this changes that. That is pretty close to treason.
Using the Russians to influence the presidential election was nothing new for Carter.
Schweizer reveals Russian documents that show that in the waning days of the 1980 campaign, the Carter White House dispatched businessman Armand Hammer to the Soviet Embassy.
Hammer was a longtime Soviet-phile, and he explained to the Soviet ambassador that Carter was "clearly alarmed" at the prospect of losing to Reagan.
Hammer pleaded with the Russians for help. He asked if the Kremlin could expand Jewish emigration to bolster Carter's standing in the polls.

Friday, October 18, 2002

Enron, still a mystery

Mr Anderson goes to a conference on the collapse of Enron and learns nothing, and tries to make the best of a bad situation.
In attempting to explain at least a portion of the Austrian business cycle theory to those present, I reminded them that individuals always have been greedy. Furthermore, I also reminded them that regulatory regimes almost always create perverse incentives, and that the tax law changes created by Congress a decade ago that sought to limit executive salaries created incentives for "creative financing" of pay and perks for CEOs. I pointed out that Congress has no business involving itself in what executives receive for compensation, especially when the government is trying to say that the head of a major corporation should be paid less than a kid who just finished high school and signs a contract with the National Basketball Association.

Finally, we heard that we had a sudden crisis of ethics in the business world. No, we had a regulatory and monetary regime straight from Washington that all but guaranteed that firms that tried to be honest about their financial conditions would find themselves swamped by lawsuits from angry shareholders demanding to know why those firms were not doing everything they could to prop up their stock prices. Massive monetary creation as practiced by the Fed during the 1990s has a way of creating illusory profits and stock price bubbles.

As I left the conference, it occurred to me that no one had connected the dots. Instead, they were championing government practices that are sure to bring down the U.S. economy, prevent recovery, and expand the state. It would have been encouraging to me had someone there figured out how to put the puzzle together, but from what I can tell, the people who teach business are no more informed about what really happened at Enron than the typical demagogue who occupies a seat in Congress.

Terror Insurance cont'd.

This Slate article, once you get beyond the "Bush-bash", has more details about the Terror Insurance issue.
BTW, Val e-mailed me telling me I am wrong about the bill being a good idea. Maybe he'll post his reasons later.

Terrorism Insurance

Another reason the market has been feeling so chipper lately is that the Terrorism Insurance bill is moving through the legislature. The idea for this bill was presented by the President earlier in the year (it was a good idea). The bill was going to take away some of the uncertaintity with regard to liability stemming from terror attacks. The bill was halted by Senator Daschle. Daschle was pressured by the trial lawyer lobby to kill the bill because it would limit their ability to sue the US government for terror attacks. This had the effect of almost bringing the construction industry to a stand still. Bloomberg LP is building a new facility in Midtown Manhattan (where the old Alexanders used to be) and the builder could not get insurance beyond October-November. Amazingly they kept building hoping for the best.

So now there has been a compromise (I really hate that word)
The real breakthrough came this week, when the White House backed off a push to ban all punitive damages and agreed to more-limited tort change.

This cleared the way for Senate Majority Leader Thomas A. Daschle (D-S.D.) to get behind the bill and for a deal to be reached.

"We're disappointed that agreement couldn't be reached on additional protections on punitive losses," said a senior administration official.

The agreement consolidates civil suits into a single federal court, something the White House and the Republicans had sought. The legislation also preserves state insurance laws.
So when I say that the legislature has been f**king with the economy, I am not kidding.

A. Sullivan on N. Korea

Andrew Sullivan gives credit where credit is due regarding North Korea.

Lula's latest...

Apparently, Brazil's president to-be (final election Oct 27), "Lula" issued a joint communication with the stock exchange. I have been trying to find the document but with no success. What I can piece together is encouraging, but time will tell (politicians have been known to lie, and leftists have been known to starve millions of people).
What has he said?

1. The current interest rates set by central bank are too high (they are something like 30%)
I have to agree with him on this point. The central bank raised interest rates a couple days back to counteract the capital flight. This is often done to defend a currency's value, but is of questionable utility. The main reason the Real was falling was a loss of confidence that the Real will maintain its value. People are simply concerned the new government would not take steps that would help grow the economy and would print more money to meet its needs for social services and debt servicing. The money supply would grow, ie inflation, ie you do not want to hold Reals.

Raising interests is supposed to offer an incentive for people to keep their Reals instead of converting to USD, EUR or JPY. The problem is that raising interest rates increases the probability that events people we're concerned about will come to pass. Higher interest rates means the government's debt would be more expensive to service, adding pressure on the government to print money. Higher rates means less investment by individuals, which means less production, and less tax receipts for the government. This is a double whammy 1) less tax revenue means more likely the gov will print money 2) less production means the ratio of money supply already out there versus goods being produced grows, ie inflation.

2. He said there is no need to structure Brazil's debt.
This is encouraging, because he may be preparing to make some structural changes, or at least not expanding the current public sector.

3. He is concerned about the credit difficulties Brazilian companies are having.
This is partially a function of Brazil's credit rating. So he may be sensitive to improving the countries credit rating.

4. He thinks Brazil's debt is serviceable at current levels (debt stands at $260 billion)
This is a huge number, but if Brazil grows its economy that debt will become easier to manage. So if what he is implying is that he will take steps to grow Brazil's economy, than great.

There are lots of "ifs" and "maybes". The major flaw in leftist philosophy is "they feel they know better than the average person what is good". So Lula may be willing to take some serious steps today because he has little room to maneuver, but once the worst is over ... I would be very wary. I guess one silver-lining is that there is no talk of nationalization at the moment.

Brazil's Steel is HOT

Brazil's steel exports grew by 32% this year and exports to the US grew by 25%. This is despite the tariffs imposed by our benevolent leader. The growth of exports to the US is another data-point indicating US economic activity has been picking up throughout the year. Despite the best efforts of the Senate and President to impoverish the populace.

Thursday, October 17, 2002

Plot for a Thriller

Here is an idea for a plot of a thriller.

It is happening in the U.S. during a war with Alqaida and their allies. A talented analyst, working for FBI is up to something. She does not know about it yet, but she is about to discover a network of enemy agents who managed to get important positions inside FBI and/or other important services which are fighting terrorists. However, she does not know all the implications of her recent findings and the danger she got into by advising her superiors about them. An agent of Alqaida (or some other enemy intelligence, to be decided later...) have access to the documents she prepared. He feels that it is only a matter of weeks while Linda (let that be her name) will discover the truth. She has to die.

But how? A murder, a car accident? Too suspicious. If anyone suspected the true reason for her killing, it would be easy to figure out who was behind it. Congress is already investigating a series of "strange" events, including a case when someone in FBI headquarters blocked the investigation that could have lead to the 9/11 hijackers. "Luckily, they thought that was a usual bureaucratic ineffectiveness", the enemy agent was thinking. "But this time it would be impossible to blame bureaucracy in the analyst's murder. We have to come up with something better... Eureka! I remember reading a detective where the murderer had the same problem and he just killed several people randomly before killing the person he really wanted to murder." I don't know, whether he could have found this idea outside of Western literature, say in the Koran, for example. However, he had a Western education, as many leading people in Alqaida do (or he may be a defector who decided to learn Islam, or was just bought?)

Now it is a matter of a precise execution. First, let's order a professional and connect him with a local sleeping cell. What a luck, a real Chechen fighter with great combat experience is available. His resume includes contracts for the Russian Chechen Mafia, fighting Russian troops in cities and mountains, and he has had some local knowledge of the Washington DC Metropolitan Area. Some additional advantages of the plan could be instilling fear in the local population and testing of the innovative "sniper" tactics for possible further use.

Now, the plan gets executed with a big success. The population is in panic, and politically correct media conducts long discussions about mad serial killers with the "experts" on the topic. Are they THAT stupid? Of course, the police and the FBI can not be fooled forever, can they? Almost from the beginning they announced that they are looking for more than one person. Do those Americans really have a bad habit of going crazy in groups? To keep them longer on this track, let's supply them with a Tarot card with some crazy inscription, made by someone unrelated...
Anyway, it's time to move to the real target. The only problem is that she is working round the clock and she is almost never outside, as the people, responsible for following her, report. How to prepare the attack? There is no time to wait until she could be killed the same way the other victims were, i.e. shot by the "sniper". Too many police, FBI agents, and other secret services are already involved, and more importantly, they seem to be wising up. They are going to use spy satellites and military planes with special equipment very soon. There is no time to waste.
The plan is to have several people follow her, and when she is in a convenient place, call the "specialist" on the cell phone. This time, he will have to shoot from a shorter distance and, possibly, in the presence of many people, but it should be easy to disappear in the panic: those people, fortunately, don't have weapons on them.

As far as dealing with the police investigation, the people who follow Linda will not go away. First, immediately after the shot, they will divert attention of those present at the scene from the killer, shouting and pointing in wrong directions. The murderer does not even need to hurry away, but after quietly slipping the gun into an accomplice's car, may join the pool of witnesses, or just walk away. Then the accomplices will give contradictory descriptions of the attacker and his van, which, compared to the descriptions of other witnesses present there by accident, will create even messier picture for the investigators. Let them look for a "cream van" or whatever, while the killer simply walks away. By the time they figure out where to look, the "professional" will be in safety. By the way, the witnesses are safe. They don't know much anyway. Those people are from a sleeping cell and the only thing they know is that they were ordered to confuse the police.

I do not know how to finish the plot yet. Any ideas?

70s Gas Lines

There are some very persistent inaccuracies about what happened in the 1970's oil embargos; as evidenced by J Bowen's post.

There were two ways in which the embargo was enacted. One, was an overall cut by some of the Arab states of 5% per month, the other, was banning companies like Aramco to sell to the US and the Netherlands. The embargo lowered global oil supplies by 4.4 mill barrels per day (9% of the free world's oil, 14% of traded oil). Why was there panic? Lots of reasons all at once. Nixon was having lots of problems (the Watergate circus was in town), price controls were used to counteract the rise in prices, Brezhnev was unhappy with the Israeli success at almost destroying Egypt's 3rd Army.

The ban on exports to the US were a joke, oil going to Europe would be resold to the US. It was impossible to enforce this type of controls than and impossible today, the Saudi oil minister said as much. The price controls caused the gas lines. Countries like Switzerland and Japan that did not institute price controls had no gas lines. The price controls caused the gas lines because people were panicking and rushing to the pump the gas stations quickly sold the artificially cheap gas. Since gas prices were set lower than the market price of gas (the market price being the price outside the US) there was no incentive for gas stations to work harder, refill their tanks quicker. Gas stations soldout and closed. Welcome to the wonderfull world of rationing and state control. Now imagine if the government started setting prices of toilet paper, you would quickly find yourself using newspaper.

The economy did indeed go down the tubes, but it had very little to do with the oil embargo and more to do with the government's interference.

McSoft

Microsoft announces record revenues of $7.75 billion.

I demand that the Senate put a stop to this obscene success. All of the Senate's hard work at purging the United Socialist States of America of the obscene urge of its subjects to better their lives will come to naught unless they take immediate action. I recommend you contact your elected representative and demand that they subpoena Bill Gates, Balmer and the rest of Microsoft to explain themselves.

I can't wait to hear Lieberman say those fateful words... "Are you now or have you ever been a Capitalist?"

Do Not Defend Yourself

In merry England Mr Hastings (25 years old) was sentenced to 5 years in prison for killing a burglar armed with a crowbar.
The two men struggled and, admitted Hastings: "I would have been hitting him as hard as I could because every time I hit him I believed I was protecting my children. Instinct took over. I never intended to stab anyone. I wanted to scare away whoever was in the house."

It was only after Mr Williams fled that Hastings, who has a conviction for burglary and cautions for carrying a knife and causing actual bodily harm, discovered that the house was empty and his wife and children were elsewhere.

Mr Williams collapsed in a nearby street and died in an ambulance on the way to hospital.
Thanks to Samizdata for the heads-up.

About 55 years ago

The Russian immigrant Ayn Rand testifies before the House Un-American Activities Committee on October 20, 1947. Below is a small excerpt from her testimony, I have an idea for some writings and will post them later, but after reading this I wanted to post it
Mr. McDowell: That is a great change from the Russians I have always known, and I have known a lot of them. Don’t they do things at all like Americans. Don’t they walk across town to visit their mother-in-law or somebody?

Miss Rand: Look, it is very hard to explain. It is almost impossible to convey to a free people what it is like to live in a totalitarian dictatorship. I can tell you a lot of details. I can never completely convince you, because you are free. It is in a way good that you can’t even conceive of what it is like. Certainly they have friends and mothers-in-law. They try to live a human life, but you understand it is totally inhuman. Try to imagine what it is like if you are in constant terror from morning till night and at night you are waiting for the doorbell to ring, where you are afraid of anything and everybody, living in a country where human life is nothing, less than nothing, and you know it. You don’t know who or when is going to do what to you because you may have friends who spy on you, where there is no law and any rights of any kind.

Wednesday, October 16, 2002

This Just In...

Is it really better late than never?

An explosives-laden boat rammed a French oil tanker as it neared a Yemeni port, the interior minister said Wednesday in the first official Yemeni acknowledgment the ship was the victim of a terror attack.

Thanks for clearing that up

Tuesday, October 15, 2002

A Parallel Universe

The National review has a very poignant letter from a young woman in Iran. What amazes me is how the struggle for democracy in Iran parallel's the struggle in the Soviet Union. I don't want to give the impression that Russians' situation was identical to Iranians', but the parallels are remarkable. I remember how Russians looked to the US as the land of promise. The limited immigration out of the Soviet Union inflicted great risk on those bold enough to attempt and leave. Submitting forms to leave the country started the ball rolling for official and social ostracism. People who left were branded traitors (which in Russia had much harsher connotations than in the US), family members would often cut relations (my Grand Mother stopped talking with my Mother). Official approval to leave sometimes took years, and rarely less than one year. During that time you were not allowed to work. In the Soviet Union if you were not working you could end up in prison. During the waiting period you had to rely on family, catch-22. Married couples applied one at a time, so that one could work while the other waited for approval or denial. If approval did not come, your life would slip to the lower rungs of society unlikely to climb out. If approval came couples hoped their spouses would be allowed to accompany them.

Here in the states we could not believe how inane politicians and media treated the Soviet Union. The writings of Bill Buckley first attracted us to the National Review, nowhere else in the media could you find the truth about the Soviet Union. The "moralists" like Carter who wanted to maintain a civil working relationship with the Soviets was a slap in the face. What were they preserving? The suffering of millions. When Reagan ran for president all the immigrants I knew (in those days there were not as many as there are today) voted for him solely because of the stance he took with the Soviets. There was going to be no playing nice. When Reagan spoke his equivalent of "we will bury you" we were ready to back him.

So today I see how Iranians are living in misery and look to the US. Looking for help. If they feel the same as the prisoner-citizens of the Soviet Union felt, they are not asking for an invasion. At minimum they want their situation portrayed accurately, because the liberal and moral people of the US will not be able to feel anything but sorrow, sympathy and anger that people should be forced to live like this in this century.

Sunday, October 13, 2002

One way ticket

The Wash Times has an article about the dangers faced by those who convert from Islam. This isn't love it or leave it, this is love it or we'll kill you.