Wednesday, January 29, 2014

Politicians Playing Special Interests and Visa Versa

President Obama gave his State of the Union speech today (I didn't watch it but saw lots of tweets about it).

Politicians attempt to use speeches to show as many special interests as they can that they politicians cares about them and will help them.

Special interest professionals know what matters is results, not talk. Getting results from politicians is much harder.

Certain special interests care about mentions because they use those mentions as political pressure. If you don't mention NRA issues they will take action. If you mention your support of the NRA they then hold you to that in every word on every piece of legislation they seek to bend to their special interest. They are extremely effective at getting politicians to do what they want.

If you are a special interest you would love to have the same power the NRA (National Rifle Association) does to dictate to politicians the wording of bills and regulations and political appointments and demands to be publicly recognized.

Many special interests are much better at getting public support from politicians but don't get results. This is a sign of a weak lobby. These are often less well off groups - poor kids, for example. But the NRA, while it has developed lots a rich infrastructure for cash really has not natural leaning toward having lots of cash to but political action (they really were an effective special interest lobby that realized they needed cash and then built that aspect of their organization).

There are also special interests that don't care what politicians say, they care about results. This is normally an interest that knows they have no political leg to stand on, they just want cash to buy what they need in the back rooms. They are perfectly happy for politicians to say all sorts of stuff about how they are against too-big-too-fail banks for example as long as they pass legislation, write regulation and appoint regulators that all advance all the interests too-big-too-fail banks want. Other example of this type of special interest is trust fund babies, hedge fund "managers" (or non-managers) that get ludicrous tax advantages... Those knowing there is no rational or political support for the benefits their special interest takes they are perfectly happy for politicians to feign dislike of the benefits the government heaps on them as long as the government keeps piling on the cash to their special interest.

You can see what type of special interest is involved based on whether politicians get away with just meaningless mentions (poor kids, small business, education, punishment of crime [strong words required, safer communities not required], environment), wether there is a some combination of mentions and delivering that is required (farmers - must use words about family farmers but instead of crafting legislation that protects them without heaping benefits on corporate farming they mainly give lip service to family farms and gear benefits to reward factory farms), wether the politicians have to say the words the special interests demand (unions, different sides of abortion/choice), wether the politicians have to do what the special interests demand (too big to fail banks, big business - often with words about small business and policies suited to big business pushed by the likes of the Chamber of Commerce) or whether the politicians have to say the words and do what the special interests demand (NRA, copyright cartel).

Most special interests fall into the the first group - they get words and some token action (usually whatever doesn't interfere in any significant way with a special interest that actual has power). But most of the lobbying that matters, that takes hundreds of billions of dollars a year and redistributes it to specific special interests (or provides non-monetary rewards) and that is where special interest politics really matters. That is where we lose and special interests gain.

And occasionally that is where we will and special interests win against other special interests (but that is rare). An example is when the special interest in support of air bags finally pushed through rules to require them against the objections of car manufacturers. This has been a big benefit to society. But those types of special interest wins that happen to aid society are not the norm.

One of the structural weaknesses is benefits to special interests are often large (for manipulating the system in their favor) the costs to society are often large but spread out in such a way it isn't very painful for most people. So the special interest can pay or cajole politicians to give them a benefit that helps them a lot (they can pay the politician a portion of their benefit and still have a huge gain) while society loses no one loses enough to care enough to try and pay or cajole politicians to save society from a big loss.

When two (and really it will often been numerous) special interests are facing off on issues the loss to society is often limited (because those facing losses are going to be pained enough that it is worth their will to object to sweetheart deals to other special interests). Sometimes these conflicting issues are actually resolved fairly sensible as you have competing interests fighting to limit damage (while it might be possible for the groups to figure out how to have them share a big gain at the expense of society this often isn't so easy - the reason this issue ended up in this pile is that the costs were concentrated in a way that a special interest was motivated to protect itself).

Sadly there is little evidence politicians in the USA today play a role that would be natural/good: seeking to optimize the benefits to the society by listening to special interests and having as their primary mission benefiting the county. Instead they seek to maximize the cash they are given, the cash they and their staffs will be given (jobs and speaking engagements) and perks (private plane trips to exotic vacation sports with some transparent excuse to claim as legitimate, seats in the luxury box at sporting events, etc.). And they also seek not angering any special interest that has power enough (cash and/or political influence) in their constituency to throw them out of office.

Related: Fed Continues Wall Street Welfare - Estate Tax Repeal (basically a kickback to the 1% for cash payments to politicians) - General Air Travel Taxes Subsidizing Private Plane Airports

Update, this article posted the day after I made this blog post provides an example of what good lobbyists get you versus nearly no lobbyists (the poor), food stamps for the poor cut, subsidies to famers increased (as usually they hide to the maximum extent they can how large the benefits to rich (often absent "farmers") farmers and corporate farms. Congress axes $8.6bn from food stamps in farm bill adds $5.7bn government handouts to farmers

The cuts to federal food stamps come on top of a $5bn cut in November and will reduce payments to 1.7 million of the poorest Americans by an estimated $90 a month.

Republicans had sought even higher cuts but a two-year tussle with Democrats was brought to an end after a compromise was agreed that also included increasing a cap for the maximum subsidy payments that can be awarded to individual farmers from $50,000 to $125,000.

The measures will also add $5.7bn to the cost of a 50% subsidy on premiums for crop insurance and extend a loophole allowing multiple people to claim government subsidies for one farm.

Though helping many poorer farmers too, critics of the bill claimed it disproportionately benefited those with large farms, including several dozen unnamed landowners who are thought to receive more than $1m a year in total support.

Sunday, January 26, 2014

What Principles Does the USA Government Still Honor?

When government's hide policy behind secrecy how are we to know what they will do. The SUA seems pretty clear that they will break international law intentionally and in secret (spying on private communications of heads of allied countries, hacking devices of others…). The extent to which the USA has chosen to secretly and very intrusively spy on billions of private communications is shocking.

The hypocrisy of that same government denouncing other governments for doing the same thing (supposedly spying on the USA, spying on businesses communications, hacking business and government computers) makes the actions by the USA government even more unacceptable. Blaming others for behaving unethically, immorally and illegally while you do the exact same thing is pitiful behavior.

In the past I felt it was reasonable to assume mainly the USA government attempted to do things like uphold the constitution, support liberty, support privacy, etc.. While knowing there were plenty of examples of this behavior being violated it was largely confined to extremes that could hide their actions from view (and so the bad behavior was not so much accepted but allowed because the huge government has weaknesses and those allowed bad actors to take bad actions). Now even beyond that there has always been lots of corruption and malfeasance by extremely powerful actors (Watergate, J. Edgar Hoover, …).

So while far from perfect I figured when crazy stuff like Iran-Contra debacle went on it was a sign of bad government not a sign that the government no longer cared about the rule of law if it was inconvenient. But the disaster of the last 15 years where the constitution seems to have been thrown away for the convince of those with power I no longer have confidence I have a clue about what the core principles of the USA government are.

The last 2 administration have responded to the shredding of the constitution in the same way the Nixon Administration did to Watergate. They have put the force of their administrations behind hiding their actions and in defending the governments behavior. None made more than token comments about addressing the rot at the core of government. Instead they seek to silence those exposing the bad behavior of their government.

While industrial sabotage (at least of allies - which for the USA really means puppet states of the USA - UK, Germany, Canada, Japan, etc.) would certainly be something beyond crazy in my expectations of how badly the USA government would behave. I don't have nearly as much confidence for that belief. While I still think that idea is crazy I no longer think the government would avoid such behavior because it is just clearly wrong. They are doing so much now that is clearly wrong (and trying to hide that behavior from the public view) without any sensible explanation that how are we to know what else they no longer feel obligated to do?

Those destroying the idea of the rule of law for the USA government are not complete idiots. They have done well to make classify their actions as "classified" in order to prevent the public from knowing what they are doing. They have a crop of talking heads on TV that are able to spout talking points and fail to address the issues that should be addressed. I find it hard to believe these people would think they could use industrial sabotage and industrial spying to directly benefit specific companies, in coordination with those companies without that leaking and doing enormously more damage than has already been done. I suppose their hubris could be greater than my estimate. I sure hope not.

This article doesn't support the tile (as far as I can see) but does raise the question of what seem to be one of the few remaining lines that have not yet for the USA government to consciously and intentionally dismantle the idea of the rule of law, German TV: Edward Snowden says NSA is involved in industrial sabotage. It is very dangerous for the USA to act as though what matters if might makes right and the rule of law is only enforced on those without enough might.

It seems to be the principle the USA government cares about is might makes right. After that it is hard to see what principles the government values enough to actually follow itself.

Related: Liberty and Support or Control and Hate - I Can Spy on You, But You Can't Spy on Me - Disregard for the Rule of Law by Government - Living Through Your Society Becoming a Police State

Tuesday, January 21, 2014

Investment Risk at the Portfolio Level Trumps That at the Individual Position Level

The risk related investment mistake that I think costs people the most money is thinking of risk as an isolated quality of an individual investment. What should matter to investors is the risk of their portfolio, not individual investment risk.

I don't accept that the sensible way to look at USA treasury bill risk is the same if I have 90% invested in treasury bills and am looking at what to do with the last 10% of my portfolio (or if I have 60% in USA index funds, 20% in REITs and 10% in global index fund). Putting that 10% in treasury bills in the first example is likely riskier than putting it in USA index fund, while in the 2nd example is likely a very good move to reduce risk.

Comment on: Risk doesn't get as much attention as it deserves in investing

Related: Looking for Dividend Stocks in the Current Extremely Low Interest Rate Environment - 401(k) Options, Seek Low Expenses - Disability Insurance is Very Important

Friday, January 10, 2014

Don't Let the Need to Blame Prevent Safety Improvements

Reaction to - Motor Mouth: Who’s liable when a self-driving car crashes?

While I agree we need to come up with an answer within the context of our legal system, I really see the bigger problem as the false responsibility claims our legal system encourages.

Many times there are negative results that should not result in wasteful legal proceedings but our system is so focused on pining the blame on someone to write a check that it accepts blaming x person because there isn't anyone else to blame. Often that is a bad outcome. I would welcome us examining the assumptions about everything needing to be blamed on specific parties.

I do agree there is a benefit to accessing pentalites to culpable parties. I think our current system needs to accept that complex systems often have bad results that should not be handled the way we do now. The whole issue is very complex but I think there is a need for much better decisions about blame being made in our legal system. It requires much more understanding of science, engineering, statistics etc.. And less overly simplistic blaming based on over simplified models.

My father was a professor of statistics/industrial engineering/chemical engineering and worked some trying to get a better understanding of cause and effect into the legal system decades ago, for example: Statistics, Science, Law and the Environment (The American Statistician, 1983). I think we need to do much better in this area.

Another question this raises is if 20,000 lives a year could be saved by self-driving cars and people didn't use that safety advantage are they liable for choosing a dangerous option (person driven car) even if they were not specifically negligent as far as the facts of the specific case are concerned. If we know drunk driving is more dangerous we pass laws and you can't drive drunk. Even without any proof your actions were at fault your state of being drunk makes you liable. Well, if drive less cars are much safer what is the difference, logically (I realize given the current laws there is a legal difference)?

Related: Blame the Road, Not the Driver - Separated Bike Lanes Reduced Injuries by 45% and Increased Retail Sales 49% (for nearby stores) - TPP Transparency Confirms the Worst: USA Government Still Trying to Strip Away Rights of Citizens in USA and Elsewhere - Traffic Congestion and a Non-Solution - System Improvement to Respond to the Dynamics of Crowd Disasters

Article looks at insurance companies reaction and predicts insurance rates could decline 60% with improved safety of autonomous cars.

Wednesday, January 01, 2014

Current Crop of Kleptocrat CEOs

My comment on Reddit: Professor Explains Economic Illiteracy He makes some decent points. Then he makes crazy claims about overpaid executives being good but non-economists failing to understand value of paying for success.

People that criticize executives taking huge amounts from corporate treasuries are not failing to understand paying for value. They just understand executives taking what they don't deserve is not what apologists claim. Executives treating corporations like a kleptocrat treats a country has nothing to do with economics and everything to do with some people taking whatever they can when they have power (and a whole slew of people willing to help them do so for a slice of the plunder).

Related: Executives Again Treating Corporate Treasuries as Their Money - Don't Excuse Immoral Looters - Massively Unjust Executive Compensation Damages Companies and Investments - Losses Covered Up to Protect Bonuses - Obscene CEO Pay (level of pay reached kleptocrat levels in the executive suite at the turn of the century - Warren Buffett "Too often, executive compensation in the U.S. is ridiculously out of line with performance."

Senior executive pay is 30, 60, 100... times what it should be today because:

  • the conspiracy of collaborators splitting up the spoils (boards, other executives, compensation apologists getting huge checks for making excuses for ludicrous pay packages, professors getting funding for making ludicrous excuses for pay packages...)
  • paying for failure - golden parachutes etc.
  • paying for failure with "repriced" options, new share giveaways, etc. when results are poor
  • paying for good markets - when every single too-big-to-fail bank gets gifts worth tens of billions in profit it is pretty hard to fail to make huge profits no matter how poorly you are managed, but what happens for market performance at these kleptocrat run companies? Millions in bonuses all around.
  • taking huge risks (including excessive leverage), when they work, claim leadership credit and take a huge paycheck (if they don't make other excuses or take your golden parachute)
Senior executives should be paid well. Doing so would require cutting pay by over 40% for many senior executives and 80% for many CEOs at companies that have been overrun by kleptocrats the last 15 years.