Some old UR comments by Michael S. on money and banking

When UR moved from Blogspot to Moldbug’s (?) own site, all the comments were left on the floor. This is a pity, because his comment sections had some of the best commenting and writing I ever saw. The best of the lot was Michael S., who seems to have been a middle-American aristocrat of Scots-Irish extraction whose family also held some estates in Scotland. Below, I post some of his old (good heavens, more than 10 years ago!) posts on money and banking, without editing except where I snip off opening salutations (marked by brackets). They are long, but I assure you they are well worth taking an hour or two to read through. You won’t often encounter material of such quality.

P.S. to Michael S. in the unlikely case that he happens upon this: sir, I apologize for republishing your content without permission. If I may claim extenuating circumstances, it was previously posted in a public forum and stayed up for almost a decade. And if I may further presume upon no acquaintance at all, please drop me an e-mail.

November 15, 2007 at 2:01 PM:

The benefit of the gold standard is that it is not utterly manipulable by politicians, because there is a finite amount of gold in the world (including what is still in the earth’s crust). The detriment of the gold standard is that the supply of specie cannot increase in proportion to real increases in the total amount of wealth. And there has been a real increase in wealth, as measured by improvement in the general standard of living. The probably unreachable ideal is a currency that represents a constant unit of purchasing power.

The hazard of the fractional-reserve gold standard as historically administered was that when the gold reserves that backed a circulating currency fell (due perhaps to a transfer from one nation’s central bank to another), the amount of currency in circulation also fell, and by a multiple of the amount by which the reserve contracted. This led to periodic liquidity crises like the panics of 1893 and 1907.

The pressure for bimetallism – William Jennings Bryan’s pet cause of “free coinage of silver at a ratio of 16 to 1 with gold” – arose from these panics. It was basically a plea for inflation, put in the only terms that a society which expected currency to be backed by a precious metal was willing to accept. The silver content in old U.S. coins is worth the face amount when silver is priced at $1.29 per ounce. The 16:1 ratio between the prices of silver and gold had roughly obtained through most of the 18th and early 19th centuries, but in the late 19th century the Comstock lode was discovered, and silver fell to a market price of perhaps 35 cents per ounce. This makes clear the extent of the inflation that Bryan proposed as a remedy for the evils of the panic of 1893, which he correctly understood was the result of the operation of fractional-reserve central banking based on a gold standard.

It is interesting to note that in the late 19th century, as great a political difference existed between the gold Democrats (exemplified by Grover Cleveland) and the silver Democrats (whose spokesman was Bryan) as did between Democrats generally and Republicans. Cleveland is a much underappreciated president. Mencken said that he was a good man in a bad job, which seems about right to me.

The torch of the silver Democrats was, in a little-noted way, passed to Franklin Roosevelt early in his presidency, when legislation was passed enabling him to cause silver to be coined freely at 16:1 with gold. He opted not to use this authority, choosing instead to devalue the dollar relative to gold by a lesser amount, and restricting the private ownership of gold. The time is within fairly recent memory when American citizens could not lawfully own gold bullion or coins that were not deemed numismatically collectible.

The key to the successful function of the gold standard appears to me to lie in the skillful administration of central banking. Not only that, but the premises of that central banking practice must be accepted by all of the developed economies in the world. In examining the last period of history in which this was true, roughly speaking a century between the conclusion of the Napoleonic wars and the inception of World War I, the purchasing power of the pound remained remarkably constant. It is noteworthy that during this period, the central banks were privately operated. The Bank of England remained private until the time of Attlee and the United States had J.P.Morgan as its unofficial central banker.

Morgan’s command of the knowledge necessary for successful central banking would undoubtedly have put Greenspan’s to shame, were there a way to compare the two men. Morgan’s mathematical genius is little known or credited today. He was said to figure out his foreign currency arbitrage transactions for the day at the breakfast table before going in to his office. Morgan was educated at Göttingen. It is said that when he let his tutors know he was returning to his father’s banking business, they told him he was making a mistake, and should stay, because he had a shot at becoming a professor. To put this in perspective, the leading mathematician at Göttingen at the time was Karl-Friedrich Gauss.

The Great Depression, as Milton Friedman and others demonstrated, was not caused by “market failure” as claimed by Keynes, but by the ineptitude of the central banks after World War I. The Bank of England bears some of the blame for trying to restore the gold standard at the previous valuation of the pound after its wartime inflation. Nonetheless, the Federal Reserve system in the United States was worse, and its response to the crash of 1929 was clumsy and wrongheaded. It may usefully be contrasted with Morgan’s handling of the panics of 1893 and 1907.

Central banking may not be able to prevent a panic or crash, but it can and should try to avoid causing one, while its response in the aftermath can make the difference between a brief contraction and a protracted depression like that of the ‘thirties.

Of the New Deal we must observe that not only didn’t it end or even very much mitigate the Depression, but worsened and lengthened it. Furthermore, the appeal of Keynesianism during this period lay almost entirely in serving to provide an intellectually respectable pretext to do what politicians wanted to do, and were in fact already doing when Keynes’s “General Theory” was published in 1936. As analysis, it is hard to imagine anything more perversely wrong, this side of Marxism.

January 3, 2008 at 11:42 AM:

I do not think the subprime mortgage collapse is so fundamentally related to the nature of fractional reserve banking. It is more simply explained by the perverse incentives created by the system of loan origination followed by securitization.

When a traditional mortgage lender makes a loan, the lender owns 100% of it and retains it to maturity. There is accordingly a strong incentive to assure the borrower’s creditworthiness and the adequacy of the collateral. Such a lender will probably insist upon a loan-to-value ratio no greater than 80% , so that even if the loan ends up in foreclosure and the property has to be sold at a distressed price, there will be no loss of principal – the amount by which the balance sheet account for “other real estate owned” is reduced will be equalled or exceeded by the addition of the proceeds of the foreclosure sale to “cash on hand and due from banks.”

The subprime mortgage situation was created by a departure from this system. Mortgage loans were originated by mortgage brokers who then bundled them into securities which were sold to financial institutions. Theoretically, this should reduce risk by spreading it, in the same way reinsurance reduces the risk of an insurance underwriter. In other words, instead of one lender taking the entire loss when a loan it has originated and held goes sour, a small fraction of the loss is borne by each of the many holders of the securitized mortgage portfolio. This advantage, however, is negated in practice because these mortgage brokers have had little incentive to assure the quality of their loans. Their primary incentive is to get the origination fees associated with each loan made and sold. Inflated appraisals are favored (I am personally acquainted with one appraiser that could get no work from mortgage brokers because his valuations were too conservative) and unacceptably large loan-to-value ratios are allowed in pursuit of that end. The buyers of the securitized mortgages, on the other hand, were given an unrealistic expectation that the loans were sound. The situation was inherently unstable.

Anyone who has observed the market for housing will be aware that the critical determinant of a buyer’s ability to own a house is not its price, but the monthly mortgage payment, which is a product of the prevailing interest rate and the price of the house. Most of the troubled subprime mortgage securities represent adjustable rate mortgages. The risk of the subprime borrower is that if he has bought a house at a payment close to the maximum he can afford (e.g. 1/3 of disposable monthly income) at a low interest rate, when the rate adjusts upward he will be obliged to make a payment he cannot afford. Such borrowers end up putting their houses on the market. When enough do, the resultant oversupply leads to a fall in price, so the collateral of the mortgages is soon under water, and when the inevitable foreclosures take place the lenders are not able to recover all their principal. We then have a classic liquidity crisis of the sort that good central banking is supposed to forestall.

An aggravating factor is the perverse tax incentive given to investment in residential real estate. The current tax code exempts almost all capital gains resultant from the sale of residential real estate from taxation. On the other hand, long-term capital gains on the sale of marketable securities are taxed at a Federal rate of 15%, and other capital gains may be taxed at rates up to 28%. It should be obvious that this has had a substantial role in creating the circumstance that the largest asset possessed by most working- and middle-class Americans is a house.

It should be evident from all the above – whatever criticisms might be made of fractional-reserve banking – that it is not, by itself, the cause of the subprime mortgage collapse. Rather, that collapse is the result of a combination of incentives that are products of the structure of taxation and regulation. It is worth pointing out that almost any time one hears the word ‘deregulation’ what it in fact means is selective relief from regulation. Traditional mortgage lenders (e.g. community banks) still have their loan portfolios strictly examined by state banking commissions, the FDIC, Comptroller of the Currency, etc. On the other hand the sort of loan production offices that have been set up in strip malls or office buildings by the mortgage brokers which originated most of the subprime mortgages has been almost completely unregulated. This selective relief from regulation has contributed to the entirely predictable results. Very few traditional mortgage lenders own bad loans.

January 24, 2008 at 10:33 AM:

I agree that gold, or some other commodity of which there is a supply not manipulable by government, would be a better basis for a currency of stable value than we have today. However, history shows that even specie standards have been repeatedly manipulated by states. Inflation happens because it is in the interest of the state (as defined by the politicians in charge of it).

The original currency of the Roman republic was the as, a copper bar weighing one Roman pound (12 oz.) The difference between this Roman pound and the present pound troy is negligible enough that for practical purposes they may be considered the same. The as was reduced from 12 oz. to 4 oz. in about 268 BC after the war with Pyrrhus, again to 2 oz. in 242 BC at the end of the first Punic war, to 1 oz. in 217 BC at the beginning of the second Punic war, and in 89 BC to 1/2 oz. during the Social war. The Lex Valeria of 86 BC allowed debtors to take advantage of the last devaluation in that they only had to pay 1/4 of their debts.

The devaluation of the as led to the introduction of a new unit of currency, the sesterce, worth 2-1/2 (semis tertius) asses. It is in sesterces that we find most ordinary transactions expressed during the time of the late republic and early principate. Four sesterces made a denarius. By the time of the Antonines (I have in my collection a denarius of Antoninus Pius) the denarius was a silver coin a little bigger than a modern dime.

These monetary units had a long survival, their descendants circulating in most of medieaval Europe. The denarius became the English penny and as such was debased on numerous occasions. Finally it became impossible to maintain it as a silver coin at all. Copper halfpennies were introduced tempore Elizabeth I and the ‘cartwheel’ penny that circulated in Britain until the late nineteen-sixties was introduced temp. George III. The sesterce, of course, was represented by the farthing, a coin about the size of the present U.S. cent. If one considers what 40% of an old copper U.S. cent (they are now copper-washed zinc) would be worth, one has the current value of the Roman as after 2,300 years of inflation!

England preserved the value of the old Roman units of coinage better than did most of the nations on the Continent. Twelve denarii made a solidus (shilling). The British shilling was a silver (later cupro-nickel) coin about the diameter of a quarter, and a little thicker. In France the solidus became a billon, later a copper coin of very low value – the sou. Twenty of these made up the livre, which by the time of the French revolution was a coin about the size of the 19th and early 20th-c. silver franc. So, when one says “I haven’t a sou” one is very poor indeed.

It is certainly more difficult to trick the citizenry by debasing the metal of coinage or reducing its size than it is by, say, cutting the discount rate by 75 basis points. Nonetheless, people wise up sooner or later. I recall touring through Argentina and Brazil in the early 1980s, when both those countries were experiencing severe inflation, the effects of which were palpable from week to week. Every hotel or retail store had a little exchange window at which foreign tourists could get a supply of the local shinplasters. The operators of these places were, I suspect, rather sophisticated arbitrageurs. If one presented a traveller’s cheque rather than American or European currency, they would always ask that it not be dated. They’d fill in the date a week or two later, I suspect, and get more of the local currency than they could have done had they cashed it immediately.

I do not think that fractional-reserve banking (in “blue dollars”) is possible to eliminate. It grew up outside the state, even before the Medicis started broking pawn, and will continue outside the state, because banks are not the only sources of credit. As long as there is credit, there will be monies of account and some sort of bills of exchange, even if all these are are the little chits one used to get from the manifold books of grocers and druggists when buying on open account from them as one did when I was a boy.

The way to have sound money is rather to manage fractional reserve banking properly under a gold standard, as (for example) it was done by the Bank of England from about the end of the Napoleonic Wars to the beginning of World War I. During that approximately century-long period, the pound was very stable and price levels fluctuated very little. It is worth noting that during this period the Bank of England was privately owned (mostly by the Cavendishes, the family of the dukes of Devonshire). The most drastic inflation of the pound took place subsequent to its nationalization in 1946 under the Attlee-Cripps Labour government, illustrating my initial point that inflation takes place because politicians think it is in the state’s (or their own) interest.

October 20, 2008 at 5:57 PM:

I can assure you that banks pay a great deal of attention to the duration both of loans and of deposits and apply sophisticated methods of analysis to balance them. A failure to do so is not the reason for the current financial crisis. There are a great many commercial banks that have not been directly affected by it, and are indirectly affected only because of the financial stresses placed on their customers arising from sources outside the commercial banking system.

The collapse began in the secondary mortgage market, which was for all practical purposes created by Fannie Mae. Fannie Mae (the Federal National Mortgage Association) was created in 1938 as one of FDR’s New Deal Agencies. In 1968, during the Johnson administration, it was spun off the Federal government as a “GSE” (government sponsored enterprise) in order to get its debt off the Federal balance sheet. Shortly thereafter, Freddie Mac (the Federal Home Loan Mortgage Corporation) was created by Congress to compete with Fannie Mae, so that Fannie would not have an effective monopoly. Between them, Fannie Mae and Freddie Mac hold or have guaranteed over 50% of the residential mortgages in the United States.

Many of these mortgages were and are badly undercollateralized and were made to borrowers of doubtful creditworthiness. The GSEs accepted loans of up to 97% of appraised value. Loan originators made their money from origination fees and had little incentive to underwrite their mortgages soundly since they stood to lose nothing if the loans went bad. Furthermore, appraisers learned that they had to be generous in their appraisals in order to do business with the store-front mortgage brokers. An appraiser we use at my bank told us that he could not get work from such operations because his appraisals were too cautious. Thus, not only were the loans undercollateralized at 97% of appraised value, but the appraised values were unrealistically high.

Fannie Mae and Freddie Mac did not operate under the same rules regarding their lending practices and capital-to-assets ratios as do commercial banks. In addition, under HUD supervision, the GSEs were told how to allocate loans. In 1992, Congress pushed them to increase their purchases of mortgages going to low-income borrowers. For 1996 they were given an explicit target – 42% of their loans had to go to borrowers with incomes below the median in their geographic area. In 2000 this target was increased to 50% and in 2005 to 52%. But politically mandated credit allocation did not stop there. For 1996, HUD specified that 12% of the GSEs’ mortgage purchases be ‘special affordable’ loans to borrowers having incomes less than 60% of the median in their areas. This target was increased to 20% in 2000, to 22% in 2005, and to 28% in 2008.

Fannie and Freddie obtained the funds for these loans not by soliciting deposits from the public, as commercial banks do, but by selling bonds, backed by the mortgages they bought – mortgages we now know, and which we should have known all along, were largely unsound. Why didn’t we? First, because a buyer of such investment securities does not and cannot examine each of the mortgages by which they were backed with the same level of scrutiny that he might investigate an individual borrower applying to him for a loan. He instead relies on bond rating agencies like Moody or Standard & Poor to evaluate the obligation. He further looks to bond insurance companies for guarantees of payment. Second, the bond buyer, like the rating agency and the insurance company acting as guarantor, assumes that- whether or not it be explicitly provided by contract – that a GSE has the implicit backing of the U.S. government. As we now know the U.S. government has been called upon in that role, and has accepted it.

The Federal Reserve’s manipulation of interest rates brought about the first wave of defaults, as customers who had borrowed on 5-year adjustable-rate mortgages with balloon payments at the end of their term found they had to re-finance their remaining balances at rates 2 – 3 percentage points higher than they had paid for their first 5 years. It may not seem like a great rise in rates, but when applied to a mortgage on a 25- or 30-year amortization schedule, such an adjustment can nearly double the monthly payment. Since it is not the price of the house but the monthly payment that really dictates whether a buyer can afford it, many of these houses went on the market when their owners could no longer meet their monthly payments. As more houses came on the market than had willing buyers, the prices at which they could clear the market fell. Now many of them were worth less than the outstanding mortgages on them, which had been made at excessive loan-to-value ratios to begin with. The result was a cascading fall in the price of housing, akin to the fall in the price of stocks in 1929, when people who had bought them on margin could not meet their margin calls. In both cases, the bubble was inflated by easy money and excessive leverage, and punctured by a reversal of the easy-money policy. As housing prices fell, mortgages began to go into default; as mortgages began to go into default, mortgage-backed securities began to fall in value.

Investment banks were affected more profoundly by the collapse in the secondary mortgage maket than were commercial banks, because investment banks were more highly leveraged. Those commercial banks that were affected were, not so much because they had bad loans on their books, as because they owned securities that had fallen so badly in value that when marked-to-market they devastated their balance sheets. Bad investments or loans are charged first to loan-loss reserves, then to current earnings, and finally to stockholders’ equity. It does not take many such charge-offs to burn through most or all of a bank’s capital, leaving nothing to support its deposits.

What is most sad and perplexing about this situation is that politicians – not least of them Barack Obama – have presented it to the public as the result of ‘deregulation,’ and the public has largely swallowed their explanation. Yet it is hard to see how bank deregulation, properly so called, has anything to do with it. The principal bank deregulation that has taken place in the past fifteen years was the relaxation of restrictions on interstate branching in 1993 or ’94, and the Gramm-Leach-Bliley act of 1999, which eliminated some of the barriers set up by the Glass-Steagall act between investment and commercial banking. As an owner of an independent community bank neither of these actions was particularly favorable to me, yet I can’t find particular fault with their effects under present circumstances. Interstate branching has probably strengthened commercial banking more than it has weakened it; the soundness of Wells Fargo and U.S. Bancorporation provide examples. Gramm-Leach-Bliley has permitted J.P. Morgan Chase to acquire Bear Stearns, and Bank of America to acquire Merrill Lynch. These former investment banks will now be subject to the stricter reserve requirements of their acquirers, which is all to the good.

The collapse of housing and the secondary mortgage market stemmed not from ‘deregulation’ but from the political allocation of credit through Fannie Mae and Freddie Mac. Now, under the Paulson plan, which has forced the country’s largest banks to accept senior capital investment from the Federal government (and all of the conditions attached to it) whether they want or need it or not, we shall see more, rather than less, politicized allocation of credit.

Alexander Hamilton’s project of a national Bank of the United States horrified Thomas Jefferson and his followers, because they foresaw that political allocation of credit would lead to favoritism, consolidation, monopoly, special privilege, jobbery, patronage, and theft by taxation. The First and Second Banks – the latter killed by Andrew Jackson – did not last long enough to yield the expected results, but in Fannie Mae and Freddie Mac we have seen the fulfillment of these predictions. Yet do you suppose that the voters of Connecticut will ever call Christopher Dodd to account, or those of Massachusetts do likewise of Barney Frank? I don’t. Like beaten dogs they will return to slobber and fawn over the hands that abused them. The worst irony is that these people claim to represent the party of Jefferson and Jackson, while exemplifying everything those historical figures feared and detested.

October 21, 2008 at 12:25 PM:

I can’t speak for other commercial banks, but mine holds no loan at a fixed rate for more than 72 months, which is the same length as our longest-term CD. Mortgage payments may be calculated on a 25- or 30-year amortization schedule, but all of our mortgages so amortized have 5-year terms with a balloon payment at the end, refinanceable at whatever is the then-going rate. Good funds management indeed tries to balance the maturities of loans and of deposits in what MM describes as a Misesian fashion.

The assets of a bank are cash on hand and due from banks (e.g., checks deposited but not cleared are ‘due from banks’), loans, investments, the banking house and its furniture and fixtures. Its liabilities are demand deposits, time deposits, other borrowings, and stockholders’ equity (comprising capital stock at par value, surplus, and undivided profits).

On the asset side one may hold investments (e.g., bonds) for longer terms than one has deposits. Indeed it is necessary to hold them because some large depositors require securities to be pledged against their deposits. Such investments do not need to be held to maturity, but can normally be liquidated at any time by sale. Hence the Misesian requirement to balance maturities of bank assets against bank liabilities isn’t ordinarily called into question by their presence on the balance sheet. The exception, of course, is if the investments have proven to be of less quality than expected, and there is no market for them. I suspect that if we look at the problems of several prominent banks we will find they originate with investments in mortgage-backed securities rather than with loans the banks intended to hold to maturity.

Misesian requirements were not really breached by operations that held long-term fixed rate mortgages, because those operations (e.g., Fannie & Freddie, Countrywide, etc.) obtained funds for them by the issuance of long-term bonds – the infamous mortgage-backed securities. The problem with these, as explained in my earlier post, is that the collateral of the underlying mortgages was inadequate to begin with, and in many cases the borrowers were not creditworthy. Had these circumstances not existed, the securities might have been sound instruments.

What MM’s discussion of Misesian vs. Bagehotian banking failed adequately to emphasize – a glaring omission! – was the role of a bank’s capital. Stockholders’ equity appears on the liability side of the balance sheet, but it is a liability of a very peculiar kind. Unlike a deposit it can neither be withdrawn on demand nor redeemed after a certain term. If its owner wishes to liquidate he must sell it to a willing buyer, at whatever price the market may bear. This has no definite relationship to the amount of money actually paid in as capital at the time of the stock’s issuance, nor to its book value at any given time thereafter.

Adequate capital is necessary to provide sufficient liquidity when depositors wish to withdraw their funds. The ratio of capital to a bank’s total footings – i.e., how leveraged the bank is – tells whether it can continue to do business or not.

I think it is quite useful to note that the two great market crises of the past thirty years have mainly involved institutions other than normally-organized commercial banks, and that those institutions are distinguished from them by their capital structure.

Remember the savings-and-loan crisis of the ‘eighties? In those days there were a great many savings-and-loan associations that were mutually owned – i.e., at least in theory, they were owned by their depositors. They did not have a separate group of stockholders whose equity was at risk standing between the depositors and any losses on loans or investments. If one looked at a mutual S&L’s balance sheet, where there would on a commercial bank’s have been an entry for stockholders’ equity, there was only a single line for what was called ‘surplus’ – viz., the amount left over after depositors had been paid their fixed ‘dividends’ and the operating expenses of the S&L had been paid. Things were well and good as long as the S&L had positive earnings after expenses, but these ‘surpluses’ were typically thin and they were really ‘nobody’s baby.’

In theory, the surplus could be touched only at the liquidation of the S&L, at which time it would be divided pro-rata amongst current depositors. In practice, control of S&Ls typically fell to boards consisting of their large customers, who were often real-estate developers. These worthies would finance their developments through their captive S&Ls, and as they sold houses would retire their debt as they referred the buyers to the S&L for mortgages. Assuring the capital adequacy of the S&L was far down the list of their priorities.

S&Ls were the fair-haired children of politicians, regulatorily favored over commercial banks, which were subject to more stringent oversight. In the absence of stockholders and boards acting in their interest, the surpluses of mutual S&Ls were swiftly dissipated and at their liquidation there was nothing for the depositors, who had to be bailed out by the (then) FSLIC. Within relatively little time there was a great contraction and consolidation of the thrifts. At the same time commercial banks were largely unaffected, because of their superior capital structures.

The secondary mortgage market collapse, as we have seen, first affected specialists in it such as Countrywide, and the two GSEs, Fannie and Freddie. It then spread to investment banks such as Bear Stearns, Merrill Lynch, and Lehman Bros. A characteristic of all of these institutions was that they were much more highly leveraged than commercial banks – i.e., were less well capitalized.

As far as ‘deregulation’ of investment banks goes, my recollection of that industry goes back to a day when the stock exchanges had their own rules about who could hold seats. One of them was that member firms had to be proprietorships or partnerships, and could not be corporations. This rule was swept away by the Federal government along with fixed commissions, the requirement that all trades take place on the floor, etc., all being regarded as constituting anti-trust violations. Here is a classic instance of the conflict described by Nock between state power and social power.

There are many differences between corporations on one hand and proprietorships or partnerships on the other. The salient one here is that the liability of corporations is limited to the capital paid into them, whereas the liability of partners and proprietors is unlimited – if the capital they have invested in their business is not sufficient to satisfy their liabilities, their personal assets, down to the clothes on their backs, may be attached for the purpose. For an example of how this works, see Lloyd’s of London.

I cannot help but think that the old rule the stock exchanges, exercising Nockian ‘social power,’ imposed on their members, was right, and that government thoughtlessly discarded this vital baby along with the bathwater of fixed commissions, etc. If one is going to operate with as much leverage as investment banks customarily did, would it not be well to have the caution that potential loss of one’s whole net worth would bring to bear? The limited liability of their status as publicly traded corporations enabled the management of Bear Stearns, Lehman, and Merrill to operate on the principle of the auld Scots saying, “dinna fash – it’s nae our siller” – and not a penny of (for example) the half a billion dollars taken home from Lehman by Jeffrey Fuld from 1993 to 2007 can be touched.

Genuine deregulation levels the playing field in an industry and destroys the monopolies and other rent-seeking opportunities that are the inevitable concomitants of political interference. Can anyone sincerely argue that deregulation of, say, the telephone or truck freight industries has been anything but a benefit to consumers?

By contrast, what has passed for ‘deregulation’ in the financial sector has often been the selective relief of regulatory requirements for politically favored constituencies. It has facilitated rent-seeking rather than eliminated it. Dealing in the delivery of such favors is the stock-in-trade of politicians. There is little to distinguish them from gangsters in the ‘protection racket,’ save that politicians have the great advantage of making the laws.

[A]ssuming we can’t go back to the requirement that investment banks be unlimited-liability organizations, the next best thing would be to emulate the French bankruptcy law, which at least used to provide for a finding of ‘banqueroute frauduleuse.’ The corporate officers of a company that collapsed as a result of fraudulent bankruptcy were not only liable to criminal penalty, but were disabled for life from holding positions as corporate officers or directors. Fool us once, shame on you; we won’t give you a chance to fool us twice.

I don’t know how we could go back to requiring investment banks to be organized on an unlimited-liability basis. Certainly no new ones will be so organized voluntarily, and the existing players would of course complain vehemently of such a change being forced upon them. There is a sort of corollary to Gresham’s law at work here: bad and unsound forms of industrial organization chase the sound and good ones out of existence.

It would not be so difficult to require these firms to be better capitalized. In fact this has already happened to some extent. The acquisition of Bear Stearns by J.P. Morgan Chase, and of Merrill by Bank of America, effectively require them to adhere to commercial banking standards for capitalization, which will force them to be less leveraged. As I noted in an earlier post, these serendipitous outcomes would not have been possible without the passage of the Gramm-Leach-Bliley act – part of the ‘deregulation’ which Obama and Biden (the latter of whom voted for the act in 1999) are now blaming for the crisis!

Years ago commercial banks were subject to ‘double liability’ – i.e., although they were limited liability corporations, should circumstances require it, the stockholders could be assessed for an amount equal to the par value of the stock they held, in addition to what they had already paid for it. This requirement was eliminated years ago, but with the understanding that banks would henceforth carry a surplus above the total par value of their stock at least equal to the latter.

Surplus in this context is distinguished from undivided profit by being part of a bank’s permanent capital, not being able to be paid out to shareholders except upon dissolution (and then only if it is still there!). It is the combined capital and surplus of a commercial bank that set its legal lending limit, a ceiling on the amount of credit it may extend to any single customer, expressed as a fraction of the bank’s permanent risk-based capital. Legal lending limits are intended to prevent banks from having “too many eggs in one basket,” since the ruin of a given customer cannot thus burn up more than a fixed fraction of the bank’s capital.

No comparable limit applies to banks’ investment portfolios, although prudent management dictates that securities be laddered in maturities, reasonably diverse in issuers, etc. I have run across a couple of delicious phrases attributed to Pierpont Morgan in this context. He once described a market in the doldrums as being due to the amount of “undigested securities” in circulation. Our problem today is that we do not know whether many securities are merely undigested, or are in fact indigestible. The available information about them is so opaque as to suggest deliberate obfuscation. In another circumstance Morgan described certain market participants as having an “undeveloped sense of trusteeship.” I suggest this has become much more common since his day.

Revising the bankruptcy law would be simpler than going back to unlimited-liability partnerships or double liability, but consider the difficulties the last revision of bankruptcy laws faced. All the usual bleeding hearts bled for the poor debtor who was supposedly going to be squeezed harder. It seems to me it would be hard to portray a stiffened provision for fraudulent bankruptcy of corporations as facilitating the eviction of poor widows and orphans from their humble homesteads by greedy financiers, but never underestimate the ingenious venality of politicians. They are almost invariably low fellows who conceal behind their bleatings about the poor the delivery of favors to rich constituencies that have bought them.

Our present problems are deeply rooted in current social and moral attitudes, and politics as much represents these as it serves to exercise influence upon them. When I was a child, two of the greatest disgraces that anyone could possibly face, short of being convicted of a crime, were bankruptcy and divorce. They led to ostracism from respectable society. Now neither is more than a passing inconvenience. The social and economic order under which we live reflects this. It is unclear to me whether efforts to reform behavior by passing laws can succeed if there is not first a transformation in popular moral attitudes. If recent history teaches anything about this, it is that laws can keep the door closed to bad behavior, but once it be opened, it is almost impossible to close again by legislative or judicial means.

February 2, 2009 at 2:18 PM:

The current American financial system is, to be sure, constructed and operated to a great extent under the laws of the U.S. government, but neither fractional reserve banking nor maturity transformation are artefacts of those laws. They are the inevitable concomitants of a credit economy and have existed since such an economy first emerged in Europe in the late middle ages. As organic elements of the commercial and industrial societies that have developed since that time, they cannot readily be eliminated by something as superficial as regulation.

Money is created upon a fractional reserve any time anyone (not just a bank) extends credit. If the ownership of the credit can be transferred, as for example by the sale of a merchant’s receivables or a landlord’s rents to a factor, that credit has effectively been monetized. The ability to engage in such transactions has been essential to the development of modern Western civilization. To suppress such monies of account based on a fractional reserve of specie (or some other arbitrary store of value) would be a cure worse than the disease, and furthermore very difficult to enforce..

The maturity transformation issue – speaking from my experience as a bank director, and at least at the level of an individual bank – is not quite as easy to identify as the source of economic fluctuation as it might have been in Bagehot’s time. As a matter of fact, well managed banks do not “borrow short and lend long.” Balancing the maturities of deposits and of risk-based assets (i.e., loans) is the central task of what bankers call ‘funds management’. This is an art made much easier today by computerized analysis, so that ordinary bankers can today determine easily about their loan portfolios what a century ago perhaps only the Göttingen-educated mathematical genius J.P. Morgan was able to envision about his.

The troubles of the financial system today do not arise from such fundamental issues. They are problems of liquidity and capitalization. Capital, of course, is the longest-term obligation on the liability side of a bank’s (or any business’s) balance sheet. Unlike demand deposits, which can be withdrawn at any time, and time deposits, which may be withdrawn at the end of a certain term, capital is perpetual. Its owners cannot withdraw it – if they wish to liquidate, the only option open to them is to sell their share of it to a willing buyer at whatever price he is willing to pay.

The crucial thing about bank capital is that there be enough of it – that it not be over-leveraged. The U.S. commercial banking system is restricted by its regulators to rather conservative leverage ratios. The same has not been true of investment banks, and it has not been true for non-bank mortgage lenders (e.g., the GSEs Fannie Mae and Freddie Mac, and outfits like Countrywide Financial). What distinguishes these operations from commercial banking is that they did/do not accept deposits from retail customers, a circumstance that put them outside the purview of commercial banking regulations (including capital requirements). To obtain the money they lent, or used to buy mortgages from others who initially made the loans, they issued securities, pledging the mortgages they held as collateral.

The way the financial collapse spread from mortgages on residential real estate to the commercial banking sector wasn’t mainly directly through its loan portfolios but indirectly through its investments. Commercial banks obviously cannot lend all of the money deposited with them. They must keep some cash to satisfy those depositors who wish to withdraw it. In practice a bank may lend only about 70-80% of its deposits. But they don’t keep the remaining 20-30% just as cash. They use some of it to buy securities. If there is a maturity-transformation issue in the commercial banking business, it is in its investments rather than its loans. Bonds are ordinarily long-term investments – perhaps as long as 30 years. This is of course longer than the longest time deposits ordinarily held at commercial banks, which normally have terms no longer than 72 months. However, maturity transformation in the investment portfolio doesn’t ordinarily pose a liquidity problem because the assumption is that securities are marketable and can easily be sold as the need arises.

Today, of course, mortgage- backed securities issued by the GSEs and private-sector operations like Countrywide are not as easily marketable as the people who bought them expected they would be. Countrywide is in bankruptcy. Fan’s & Fred’s debt has only such worth as the implicit guarantee of Uncle Sam givs it. The preferred stock of the GSEs, sold as a gilt-edged investment, is now worthless.

How does this affect the commercial banks that bought such investments? Let’s assume that a hypothetical bank, before the events of last fall, had a capital-to-deposits ratio of 8%, i.e., for every $100 million of deposits it had $8 million of capital. It would accordingly have been considered ‘well capitalized’ by regulators. Let’s further assume that it was 75% loaned-up, i.e., for every $100 million of deposits it had $75 million in loans. The rest of its deposits were divided between cash and investments.

Now let’s assume that 5% of its deposits were invested in bonds and preferred stocks issued by the GSEs, Fannie Mae and Freddie Mac – securities once considered ‘bank-quality.’ All of a sudden the unsoundness of these institutions becomes apparent, as it did last year. The market for the securities collapses – buyers cannot be found. As a result, our once well-capitalized bank becomes illiquid. It cannot sell the securities for anything near their purchase price, if at all. This is expressed as a marking to (non-existent) market, and all of it is a reduction of capital from the well-capitalized 8% down to perhaps half of that. There’s now $4 million in capital for every $100 million in deposits. The bank is now no longer ‘well capitalized,’ but has insufficient capital to carry its deposits. This is true even if not one of the commercial or personal loans it holds is non-performing!

What has happened in the past few months illustrates the difficulty of relying upon regulation to stabilize the financial system. Commercial banks were subjected to very stringent regulation in the aftermath of the crash of 1929 and the subsequent depression. Contrary to much of what has been said in the popular news media, very little of this regulation has been removed. Indeed, it has been more added to than reduced for years. However, economic pressure is rather like hydraulic pressure – it leaks through all attempts to contain it, at the points of least resistance. During all this time, an extensive sphere of non-bank lending activity was allowed to develop completely outside the bounds of commercial banking. Because it didn’t fall within the legal purview of bank regulation, it didn’t have to meet standards of capitalization, and its loans didn’t have to be as well collateralized. Leading figures in the non-bank financial sector like Franklin Raines and Angelo Mozilo paid very effective court to politicians like Christopher Dodd and Barney Frank to assure that they were not regulated as strictly as commercial banks. It is a travesty that these politicians are now permitted by the ideologically blinkered news media to scapegoat others for the disaster they themselves were instrumental in causing.

November 22, 2008 at 11:52 AM:

I well remember bearer bonds. They were once common, but no new ones were issued after the passage of TEFRA in 1986. I think I clipped my last coupons one morning a couple of years ago. It was an occasion for nostalgic reminiscence of the Optimacy’s better days; I had lunch at my club, and visited my tailor that afternoon.

The excuse for doing away with bearer bonds was basically that the IRS didn’t like them. Since a bearer bond can be transferred simply by delivery to its new owner, large transactions in near-equivalents to cash could take place without being easily scrutinized by government. The nominal objection to this was that participants in organized crime might use such a means to conceal their illegal dealings – the same excuse offered many years ago for removing bills of denominations larger than $100 from circulation. The real reason, of course, was that the lack of a paper trail facilitated tax evasion.

However, if there were ever bearer equities, they disappeared long before bearer bonds, and I must suppose for other reasons. It must, for example, have been nearly impossible to determine the legitimacy of proxies, or indeed to know whether there was a quorum, at a stockholders’ meeting.

Of course, in MM’s futuristic world, how could we expect a sovcorp that could control its men-at-arms by means of cryptographically locking their weapons not to use similarly sophisticated technology to identify its shareholders? This strains credulity. You may recall Murphy’s law – what can go wrong, will. I offer these corollaries to it: what government can do, it will; what power it is able to abuse, it will abuse. History provides many examples.

February 3, 2009 at 1:31 PM:

[H]istorically, money creation through credit was accomplished by just such bills of exchange as were created by the sale of a promise to deliver payment in the future. This happened long before there was a Federal Reserve Bank or even a Bank of England. Fractional reserve banking, based on monies of account, existed in the days of the Medici and the Fuggers. It is worth pointing out that both those banks, after long expansion, eventually collapsed. The history of fractional-reserve banking has been one of trying to find, by a process of trial and error, the parameters within which it can safely operate. Someone or other is always exceeding them, with fatal results.

It is true that modern central banking has exacerbated the problem, but booms developed through the free expansion of credit even under the pre-WWI gold standard – and were followed by busts as gold reserves were drawn down. This was what led, as just one example, to J.P. Morgan’s bailing out of the U.S. Treasury in the second administration of Grover Cleveland, and to William Jennings Bryan’s famous “cross of gold” speech. Bryan’s platform plank of free coinage of silver at a 16:1 ratio with gold was effectively a call for inflationary monetary policy, since with gold at $20.67/oz. silver would be supported at $1.29/oz – the level at which U.S. silver coinage of the time contained its face value in silver. However, at the time, market value of silver was about $0.35/oz.

World War I brought inflation, as other wars had done, but it was more pronounced than previous wartime inflations had ever been. This was facilitated by the central banks and by the governments’ wartime suspension of the gold standard. Reintroduction of the gold standard in Britain at the pre-war ratio of £1 = US$4.86 led to profound deflation, and brought about a severe recession in 1921. Gradual recovery was followed by the even more dramatic crash in 1929 and the subsequent depression.

Central bank activities and government policies designed to stabilise the economy since WWI appear from present perspectives merely to have lengthened the frequency of the credit cycle at the expense of increasing its amplitude. But the cycle has existed since a much earlier time, perhaps even from the first emergence of a credit economy.

July 13, 2010 at 3:01 PM:

On the bank “bailout,” I can tell you from personal experience that the story behind it is radically different from what has been represented to the public.

Government money was forced by Paulson on many banks that didn’t need and didn’t want it. The rationale given for this was that the Treasury did not want a public perception that banks which had received the money were troubled. So banks such as J.P. Morgan and Wells Fargo had to take the funds, even though they didn’t need them, at the same time that Citi, which did, took them.

The conditions attached were onerous. The government was to be issued preferred stock, paying a 5% dividend for the first four years, and a still higher one if not redeemed before then. Not only (as with all preferred stock) did this dividend have to be paid before a dividend could be paid to stockholders of any other class, but the government asserted a veto power over the payment of any other dividend even after its own were paid. The preferred stock also came with warrants for common stock. Executive salaries and directors’ fees fell under government limits. Finally, government reserved the right to add other conditions unspecified at the time the funds were placed.

After the Treasury saddled the big nationwide banks with this, it began working down to the regional and larger community banks, where the reception was uniformly negative. My own bank was spared because it was limited by its charter (like many others) to one class of stock, and by the time government figured out a way around this conflict in its own laws, the public support for the TARP program had fallen even further from its initially low level, and seemed to be running out of steam.

It is very difficult to get anything like a 5% return on capital, especially in the environment that existed after October of 2008. All of the big banks that took TARP money have paid it back as quickly as they were able. Treasury actually MADE money on the TARP funds placed with banks – even Citi.

The speed with which the plan was unveiled and the conditions that surrounded it made me think that it had been on the shelf for a long time, just waiting for the opportunity – kind of like the Schlieffen plan, except more rewarding. What it amounted to was a huge power and money grab in which the earnings of sound banks were mulcted, initially perhaps with the purpose of shoring up the weak ones. Ultimately, even the weak ones have mostly paid it back. The real bail-out went to Fannie and Freddie, and to a lesser extent to GM and Chrysler.

There is a very odd distribution of bank assets in this country, which might be described as hourglass-shaped. A very few big nationwide banks hold over 50% of domestic deposits, and about 8,000 community and regional banks hold the rest, most of those having assets less than $1 billion. Your country gentlemen will be found amongst the owners and managers of these little banks.

The mega-banks – those deemed “too big to fail” – are the products of a fairly obscure banking law change called the Riegle-Neal Act of 1994. Everyone likes to blame Gramm-Leach-Bliley, which repealed parts of the Glass-Steagall Act’s prohibition on combining commercial and investment banking, as a cause of the meltdown. This doesn’t stand up too well on investigation. Riegle-Neal, on the other hand, is directly responsible for the creation of mammoth disasters like Citi, because it broke down the barriers to inter-state branch banking.

Before Riegle-Neal, bankers who wanted to do business across state lines had to charter separate banks in each state, separately capitalized. The banks could be held by a multi-bank holding company, but the separate capitalization requirement compartmentalized the risk. The wisdom of this requirement was not appreciated in 1994. Unfortunately, it still isn’t appreciated in 2010. Mega-banks play the Washington game very well, and legislators know that little ones could never pay nearly as rewardingly. And thus the court party burgeons!

July 16, 2010 at 2:37 PM:

‘[T]oo big to fail’ banks resulted from regulatory changes that altered systemic risk in a way that existing safeguards (e.g., FDIC) failed to take into account. The compartmentalized risk of the pre-Riegle/Neal commercial banking system was within the capacity of the FDIC to handle. FDIC failed to change its actuarial assumptions to account for the added risk posed by the Riegle/Neal changes. If it had, TARP would probably not have been necessary, at least for commercial banks.

Financial regulation has a history of this sort of failure. Remember the debacle involving mutually-owned savings & loan associations in the ‘eighties? At that time the savings and loan industry had its own deposit insurance agency, the FSLIC. It had been set up at a time when S&Ls were restricted to residential mortgage lending, and could not offer demand deposits. “Reg Q,” which restricted the interest rates S&Ls and banks could offer on time deposits, allowed S&Ls a preferential 1/4 of 1% advantage over commercial banks. The time honored maxim of S&L executives was “three, six, and two”: pay 3% on deposits, charge 6% on mortgages, and take 2 months vacation in Florida every winter.

Carter-era stagflation, and the phenomenon of ‘disintermediation,’ whereby depositors abandoned S&L and bank CDs for more lucrative returns outside insured institutions, changed everything. Reg Q was abandoned. S&Ls were permitted to offer demand deposits and to engage in other types of lending than residential real-estate mortgages. Unlike commercial banks, they were inexperienced in these activities, and the FSLIC did not change its actuarial assumptions to allow for the change in the risks it faced due to new circumstances. Soon, S&Ls began to fail, and the FSLIC’s resources were not adequate to deal with the consequences. This led to the creation of the Resolution Trust Corp., and the merging of the FSLIC with the FDIC. It’s noteworthy that very few commercial banks succumbed to the problems that the S&Ls did at this time, and the FDIC never faced the same challenges. The reason was that commercial banking’s underlying assumptions had not changed in the way the S&L industry’s had.

It is said that the generals always fight the last war, and in parallel fashion it should be said that financial regulators always plan for the last crisis. The lengthy and diffuse Dodd-Frank bill just passed by the Senate is a perfect illustration of this pattern. It will not only not prevent the next crisis, but may well set it up to be worse than the present one.

Posted in Uncategorized | Leave a comment

Lev Navrozov explains Putin’s business policy

“The Education of Lev Navrozov”, ch. 42:

Private enterprise! Free enterprise! Surely thousands of dangers to possession-power lurk everywhere. Was not the bolshevik party under the tsar financed by private people who had made their money privately: the privately published writer Gorky or the private factory owner Morozov? Did not Parvus and Ganetsky, who passed on the Kaiser’s money, both pose as private businessmen? It was private tradesmen who sold the bolsheviks printing presses, weapons, and whatever was sold privately for money (and a lot was!)

As for businessmen in democracies—why, quite a few of them have been vying with each other ever since 1921 to sell any pseudo-tsar-god a better and cheaper rope to hang them with, as great Lenin put it. Even if all businessmen knew that the rockets they will be building, say, in Siberia are trained on the cities in which their families live, enough of them would rush to the site to build these rockets in the hope that they would manage to evacuate their families before the firing. Not that businessmen are more treacherous or greedy or ignorant than any other randomly sampled group. Up to three-quarters of the population of a democracy may be willing (as in Germany in 1933) to sell democracy for any personal gain in status and wealth. But there is no way they can do it at a high profit (the pseudo-tsar-god pays notoriously little to rank-and-file spies because they are very many of them and hard currency is too valuable). Now, businessmen handle unique equipment, patents, weapons and what not. They can lobby their statesmen amid the complete indifference of the rest of the population.
Why should a pseudo-tsar-god have a rich, numerous, powerful subversive or treacherous group like that in his country?
True, free enterprise would create in his country “high living standards for the entire population”. But does a pseudo-tsar-god need that? No. To each serf according to his rank. That is, according to his value to the pseudo-tsar-god and his devotion to him. Serfs who will enrich themselves on their own as privateers will be so much less devoted to him. They will also be freer, for independent property means so much more latitude. And freedom for them means danger to him. He must be the only source of all values of all serfs of all ranks and castes. From a writer‘s world fame to a death-slave’s extra day of life.

Posted in Uncategorized | Leave a comment

Genetic engineering

West Hunter worries about potential problems in a scenario where genetic engineering vastly increases human intelligence:

There are some possible problems with this scenario. The new & improved humans might not like us. They might be crazy: the risk for certain kinds of crazy increases with the number of plus alleles. Smarter than human, they might realize that life is not worth living, then rush out and do us all a favor.

It risks the death or domestication of the human race.

Now genetic engineering certainly exists, and human intelligence is largely genetically determined, but it does not follow that a disaster scenario is remotely plausible. The first objection is from the purely engineering side. Suppose Steve Hsu’s estimates of the genetic architecture of intelligence are correct and the number of sites that determine g is on the order of 10,000, with about 1,000 sites per standard deviation. Editing a few thousand sites would be trivial in a computer file, but biological tools don’t work like that. There is always a bit of hit or miss because of thermodynamic constraints, and the effort required increases exponentially with the hit/miss ratio. Even though gene-editing tools are improving from the older versions used by those Chinese biologists who made waves last year trying to fix beta-thalassemia in human embryos with CRISPR, they are probably a decade from practical application, and even then involving only a few edits. Similar engineering difficulties afflict de novo genome synthesis. Living cells have the immense advantage of being able to limit themselves to copying an intact genome and are extremely efficient at this, so the engineering difficulties are not in principle insuperable, but they are nevertheless very great. In one respect, genome proofreading or editing for highly polygenic traits is easier on technical requirements compared to therapeutic applications, because you don’t particularly care about any single one of the thousands of sites you’re targeting. This means you don’t need a hit rate that close to 100%. On the other hand, even a fraction of a percent failure rate per site – whether from off-site damage, incorrect DNA repair or the sheer volume of foreign proteins and RNA dumped into the germ cell – will mean that an overall success rate per embryo will be very low, and the lower the higher traits you shoot for. This will severely limit the potential growth rate of any edited population, even if you add natural increase, which brings me to the other group of objections.

Consider two scenarios. The first, and in view of the above much more likely, one is when the edited population is just 2-3 SD above average. If no deliberate effort is made to make this population “ethnically” distinct, and keeping in mind the slow rate of growth, they would just add to their nations’ relative strength. This scenario does not present any unusual features; it’s just more of the same, except a little more so. If such an effort is made, or they somehow evolve a self-consciousness as a distinct group, the first scenario will become a weak version of the second one.

In the second scenario, which is closer to what West Hunter seems to have in mind, the edited population is so much more intelligent (+10 SD?) as to be radically different. I don’t believe such people could successfully conceal themselves in the general population. It is very difficult for an intelligent person to systematically pretend to be dumb. If there are few of them, they will not make much difference overall, no more than geniuses do now (are there many Von Neumanns among the multibillionaires and Davos men? I don’t think so.) If there are more, and they decide to meddle in normie affairs, they will be a market-dominant minority and we know how that story usually ends. Increased intelligence isn’t much help against machetes and Kalashnikovs. So they’d have to secede, but then the reasons against any secession would apply (until they produce force fields or something to protect themselves, a prospect which I don’t regard as very likely from general physical considerations). If they secede internally, they would be vulnerable to mob action; if they secede externally, they’d still be very vulnerable because it doesn’t take a Von Neumann to drop an ICBM or dump a couple of New Panamax ships’ worth of starving Third World people somewhere, and we must not forget that it takes a very large number of people to keep a modern technological society going. Ideally, they would hope to fall off the radar, unobtrusively trade in necessary items and hire as few servants as possible. They could hardly hope to be useful enough to prevent destruction at the hands of competing normie factions. Trade doesn’t stop wars. On their own side, dealing with normies would be a dreary chore even if they liked them. Imagine having to entertain a kitten for a whole day. You wouldn’t hate the cute fluffy thing or wish to kill it, but you would want to leave it a ball of thread to play with and go do something more interesting. Their interests would be unlikely to intersect much with normies; they couldn’t teach them any more than we can teach chimpanzees, couldn’t use them in any but a menial capacity. This is not a recipe for a healthy relationship. They would leave*.

* the summary is bad and the English translation atrocious, but Strugackis describe essentially this scenario, with a fictional “third impulse system” in place of genetic editing. “Initiating” it gives unspecified superpowers in addition to super-intelligence, so ludens don’t need trade or menials.

Posted in Uncategorized | 2 Comments


Like many others, I scan the New York Times to learn what the Cathedral is thinking and to get heads-up on the most important events, but we know better than to rely on its reporting. It is not often outright false, and not always biased in the sense of using different words for the same actions by opposing players. Its favorite tool is selective reticence. A particularly egregious example is this story (background 1, 2) about a Chinese immigrant to France beaten to death by Muslim MENA immigrants to France, though a naive subject would not learn the latter part from the story. Not all people know enough to google place names and see that these contain the most extreme ZUS, and to understand what sort of Chinese might live there or what sort of “French” kids are likely to have enough time on their hands and enough feeling of impunity to behave in this manner:

“A group of about 10 kids started shooting fireworks at our cars,” she recalled. Residents of the housing complex chased the youths away and called the police. “When the police arrived,” Ms. Huy said, “we told them that this couldn’t go on, and they told us it was nothing.” A few minutes after the police left, the youths emerged from the darkness with pistols. “They were firing in all directions,” Ms. Huy said, still clearly shocked. “Four people were wounded by bullets.”

This sort of selective reticence reminds me of nothing so much as of one of my favorite passages from Solzhenitsyn’s First Circle (vol. I, p. 329 in my edition, my tr.) describing a Soviet diplomat accidentally turned dissident showing his sister-in-law how to read the Pravda:

— Well, let’s begin to learn to read, — Innokentiy spread out the [Pravda*]. — Take this caption: “Women are full of labor enthusiasm and exceed their quotas.” Think: what do they need these quotas for? Aren’t they busy enough at home? This caption means: the husband’s and wife’s combined wages are not enough to support the family. The husband’s wage alone ought to be enough.
— Is it enough in France?
— Everywhere. Then here, look: “In all capitalist countries taken together there aren’t as many kindergartens as in our country”. Is this true? Yes, probably true. But there is a small piece of explanation missing: in all other countries mothers are free to be with their children, they don’t need kindergartens.
— Now look here, the most trifling news items: “So-and-so, member of French parliament, stated that…” and it goes on about the hatred the French people feels for Americans. Had he stated that? He must have had, we publish truth! But the news item neglects to say which party does the member of parliament belong to. If he weren’t a Communist, this would certainly have been mentioned, because his statement would have been that much more valuable! So he’s a Communist. But it’s not mentioned! And everything is like this, Clara. The paper writes about a record snowfall, thousands of cars buried, a national calamity! And the catch is that there are so many cars that they don’t even build garages for them… All this is freedom from information. Even sports news is affected, here: “the match brought a well-deserved victory” — no need to read on, it’s clear: to our team. “The panel of arbiters surprised the spectators by awarding victory” — again clear: to the foreign team.

Note: the meaning of the Russian word pravda is close to, but not identical, to English “truth” and “right”. A more arrogant name for a newspaper is difficult to imagine. Soviet Pravda was the most important organ of dissemination of official thought to the broadest masses; Izvestiya (“Dispatches”) was for the broad middle-brow audience.

Posted in Uncategorized | Leave a comment

Malaysian Airlines MH17 shoot-down in Eastern Ukraine

Image: Wikipedia

Regarding same, a lot of self-professed ‘military experts’ have been saying that the pro-Russian rebels/separatists could not have shot down MH17 with a “Buk” missile because “it would take too much coordination” or “many years of training” or “they would need manufacturer codes” or even “they did not have a radar”, and possibly other equally absurd statements. Now I have studied 9K37 SAM system “Buk” during my military training in university, and my military rate is commander of a 9A310 self-propelled launcher (in the middle on the image to the right). I admit upfront I’ve never shot one for real, university trainees are second-line reserves, but we did do some simulations and practiced taking the system online from cold shutdown and back. Here’s what I have to say on the matter of “Buk” and MH17.

First of all, a 9A310 is capable of fully autonomous operation. It is equipped with a search, tracking and illumination radar (mechanical scan in older versions, phased array in newer versions; it is hidden under that green bulbous cover in the image) and a simple computer capable of detecting and locking onto targets, and normally has 4 missiles ready to fire. No codes need to be input for launching a missile, it’s not a nuclear weapon or anything, you only need the key to open the lock on the launch buttons. In a military setting, 9A310 usually acts as a part of a radar and command network on battery and battalion levels, but this is not mandatory.

As for training required to use the system, this depends very much on the circumstances of its use. In a tight anti-aircraft fight, when there are many targets on different altitude levels, maneuvering and employing anti-radar and anti-missile measures, with radar jamming active and radar-homing missiles around, it takes a highly trained officer and crew to use the system (I’m not nearly qualified). You can’t just rely on default automatic tracking modes to do the job for you. However, a commercial airliner is a single, non-maneuvering target flying at altitude, employing no counter-measures and with a radar signature like a barn. If any of the thousands and thousands of students who took the same military training course in universities in various locations in ex-USSR had their notes or a manual, they could take a functional 9A310 online (you have to throw some twenty switches in the correct order, check some lights and dials etc.) and shoot it single-handedly. The system would detect and track the plane automatically. The shooter would only have to move the cursor and push a couple of buttons to designate it as target, possibly throwing a switch to override IFF identification (I have no idea how would a Boeing-777 respond to a Soviet IFF ping), turn the key and push the launch button. Automatic tracking would do just fine guiding the missile. The shooter would keep an eye on the radar and tracking display until the hit. Commercial airliners are not built to withstand hits by high-explosive fragmentation warheads such as the one used in the 9M38 missile. My guess is that some hot fragments punctured the MH17’s fuel tanks — the plane was 3 hours out of Amsterdam and had already burned some fuel off — and the fuel-air mixture exploded, ripping the plane apart in mid-air. Or the fragments could hit and fracture the structural elements of the plane; the warhead creates several thousands of these fragments, which fly in a cone along the missile’s flight path, and a 777 is a big object. I hope the person who finds the tail of the missile (it should fall down mostly intact) has enough conscience to turn it over to the international investigators, once these are able to reach the site. My sincere condolences go to the friends and relatives of the deceased.

Posted in Uncategorized | 1 Comment

Putinophilia and Ukraine

The ongoing Ukrainian crisis has produced, especially in the last month, an explosion of odd bedfellows, stupendous displays of credulity and motivated thoughtlessness (I like this better than motivated cognition) among the so-called alternative media and on the right generally. Infowars syndicates material from the Progressive, Gates of Vienna runs stuff from Russia Today, and Marie Le Pen’s FN endorses Russian seizure of Crimea. Rumors and unsubstantiated claims are reprinted (and translated) until the Chinese whispers chamber magnifies them into established fact. Now that I think of it, the phenomenon is quite a nice CT scan of the various parts of the body politic, if only one had the time and capacities to interpret it.

Let’s work through a couple of examples. First is the often-quoted purported admission by Ms. Nuland that USG has spent $5 billion on revolution in Ukraine. Having seen something of said revolution, I prefer to believe my own lying eyes rather than the legions of nameless commenters on the internet, but this ‘fact’ was apparently too juicy for anybody to bother with actually checking what relationship it had to reality.

To begin, here is the original speech by Ms. Nuland on Ukraine. I spent all of 15 minutes finding it on teh internets, obviously too much to ask of the average content creator in the Twitter age. The part that raised up all the stink is the following two sentences:

Since Ukraine’s independence in 1991, the United States has supported Ukrainians as they built democratic skills and institutions, as they promote[d] civic participation in governance, all of which are preconditions for Ukraine to achieve its European aspirations. We’ve invested over 5 billion dollars to assist Ukraine in these and other goals that will ensure a secure and prosperous and democratic Ukraine.

Now, I bear small love towards USG in general and Ms. Nuland in particular; I thought her handing out cookies on Maidan in December (another beloved staple of Putinophiliac propaganda; one gets the distinct impression that for three months Maidan subsisted exclusively on Ms. Nuland’s cookies) was cheesy. However that may be, her original statement is very far from what Putinophiliacs, of all stripes, commonly make of it. I won’t insult your intelligence by pointing out the specific differences. Instead, I’ll note that Ukraine’s economy is bigger even than Fairfax County, where a billion dollars is petty cash, and list some details on how much has actually been spent, and on what.

The most recent and relevant data can be seen on USG’s retarded ‘user-friendly’ website, where you can see a detailed list of USAID disbursements for 2013, totaling a little less than $160M. The biggest single item is $37M added to EBRD funding for Chernobyl NPP’s New Shelter, a largish piece of pork for European atomics and construction companies. The first items which could be plausibly considered related to the recent events is $6M for something called Ukraine Media Project, and $5M for a fair judiciary project. Field note: in modern Ukrainian justice, $5M only gets you in the door in a high-stakes case, although methods are less crude than the cartons of cash emblematic of the halcyon days of the ’90s; frequently, a friend or relative of the judge manages a ‘charity’ and you are expected to make a generous contribution.

For older and slightly less detailed data, you can turn to USAID loans and grants website. This Excel table shows data for FY2001-2012. You can see for yourself the scale of the machinations of the National Endowment for Democracy, Millennium Challenge Corporation and other worthy outfits. The fuss raised in some quarters over these pathetic puddles of mouse piss strongly reminds me of the screeches of AGW credulists over the funding of the Heartland Institute.

To check up on the whole interval since the breakup of the Soviet Union, head over to this custom query builder. It does not compute totals, but you can do the sums and see that Ms. Nuland was not far off the mark with her figure. Then you will be equipped to tell the $5B-for-Maidan people to eat it, but of course they won’t listen.

Now the funny thing is that until Russia more-or-less kicked out foreign aid in 2012, it used to receive at least 3-4 times as much economic and military aid from USG as Ukraine did (1, 2, 3). Much of it went towards managing and securing Russia’s crumbling nuclear weapon infrastructure (that’s what Kevin DrumEzra Klein’s ‘loose nukes’ probably meant), but, Russia being what it is, the money frequently went to such mundane but useful stuff as fighting AIDS or building sewage treatment plants in St. Petersburg. Funny how Russians have billions for Gazprom City but somehow can’t scrape together funds to manage city wastes without EBRD’s help. (Reportedly, this project only got off the ground when the Finns across the bay got disgusted with St. Petersburg’s untreated effluvium and started making noises. Russians’ noises about, e.g., their hospitals are easily ignored and the money is much better spent building roads for the Olympics at ten times the market price.)

Another famous example is the recording of a call between Ms. Ashton and Mr. Paet, Estonian foreign minister, intercepted by Russian security services and published on YouTube, apparently, in a fit of public-spiritedness in the interest of justice and world peace. This recording is often cited as an admission by the parties responsible that the sniper shootings at the Maidan on the 20th of February was a false flag operation by nefarious Maidan leadership. First, here is the text of the call, transcribed by yours truly, with the exception of the first two minutes covering the secretaries’ back-and-forth and the salutations.

A: I just wanted to catch up with you on what you saw when you were there.
P: Okay. I returned last night so I was one day.
A: Yuh. Yuh. Impressions?
P: Impressions are sad. I met with representatives of Regions Party, also new coalition representatives and also civil society, there is this lady called Olga who is head of the doctors, yes, you know her.
A: Olga, yuh, yuh, I do.
P: Yes. So that, well, my impression is, in recent sight[?], that there is, well, no trust towards also these politicians who return[?] now to the coalition. Well, people from Maidan and from civil society, they said they know everybody who will be in the new government, all these guys have dirty past (A: Yeah.) so that, well, they made some proposals to the same Olga and some others from civil society to join new government, but this Olga, for example, she says directly that she is ready to go to the government only in the case if she can take with her her team, foreign experts, to start real health care reforms. (A: Yeah.) So that, well, they sicdit[?] that the trust level is absolutely low, on the other hand all these security problems, these integrity problems, Crimea, all this stuff. (A: Mhm.) Regions party was absolutely upset, they said that, well, they accept that now there will be new government, there will be extraordinary elections, but there is enormous pressure against the members of parliament, that there are uninvited visitors during the night to party members, well, journalists, some journalists who were with me, they saw during the day that one member of parliament was just beat in front of the parliament building by these guys with the guns on the streets, so that all this mess is still there, and of course this Olga and others from civil society were absolutely sure people will not leave the streets before they see that the real reforms will start (A: Yuh.) so that it’s not enough that there is just change of government. (A: Yeah.) So this is the main impression, so that from EU’s and also, well, Estonians’ point of view, of course, we should be ready to put this financial package (A: Yuh.) together, also together with others. (A: Yuh.) This very clear message is needed that it’s not enough that there is change of government but the same real reforms, rail[?], real, you know, action to increase the level of trust, otherwise it will end badly. (A: Yeah.) Because the Regions Party also said that, well, you will see that if the people from the Eastern part of Ukraine will really wake up, and, and, and will start to demand their rights, some people also admit they were in Donetsk, there people said that, well, we can’t wait, how long still the occupation of Ukraine lasts in Donetsk (A: Yuh.) that it is really Russian city and we’d like now to (A: Yuh.) to see that, well, Russia will take over, so that, well (A: Yuh.) short impressions.
A: No, very very interesting. I just had a big meeting here with Olli Rehn and the other Commissioners (P: Yeah.) about what we can do. I mean, we [inaudible] financial package is short, medium-long term. Every (P: Yes.) how we get money in quickly, how we support the IMF and how we get kind of investment packages and business leaders and so on. On the political side, we’ve [?] resources we’ve got, and I offered the civil society and to Yatsenyuk and Klichko and everybody I met yesterday (P: Uhm?) we can offer you people who know how to do political and economic reform. The countries that are closest to Ukraine have been through dramatic changes and through damn big economic reforms, so we’ve got loads of experience to give you, which we’re happy to give. I said to the people in Maidan, yes you want real reforms, but you got to get through the short term first, so you need to find ways in which you can establish a process that will have anti-corruption at its heart, (P: Mm.) that will have people working alongside until the elections, and that you can be confident in the process. And I said to Olga, you may not be health minister now but you need to think about becoming health minister in the future, because people like you are going to be needed to be able to get, to make sure that it will happen. But I also said to them, if you simply barricade the buildings now, and the government doesn’t function, we can’t get money in, because we need a partner to partner with.
P: Yeah, absolutely.
A: And I said to the opposition leaders shortly to become government, you need to reach out to Maidan, you need to be, you know, engaging with them, you also need to get ordinary police officers back on the streets under a new sense of their role for the people feel safe. I pled to the Party of Regions people, you have to go and lay flowers where the people died, you have to show that you understand what you have, what had happened here, (P: Absolutely.) because what you’re experiencing is anger of people who’ve seen how Yanukovich lived and the corruption, and they are seeing you’re all the same. And those people who’ve lost people and who feel that, you know, he ordered that to happen, there’s quite a lot of shock, I think, in the city, a lot of sadness and shock, and that’s going to come out in some very strange ways if they’re not careful. (P: Mhm.) I think all of this, we’ll just have to work on it. We’ve done a big meeting here today, (P: Okay.) to try and get this in place [inaudible] very interesting, your observations.
P: It is, and, well, actually the only politician people from civil society mention positively was Poroshenko. (A: Yeah, yeah.) So that he has some sort of, how to say, trust among all this Maidan people and, and civil society. In fact it was quite disturbing, the same Olga told that, well, all evidence shows that people who were killed by snipers from both sides, among policemen and people from the streets, that they were the same snipers, killing people from both sides. (A: Well, that’s… yeah. That’s) So that [inaudible] and she also showed me some photos, she said that has medical doctor, she can, you know, say that it is the same, same handwriting, the same type of bullets, and it’s really disturbing that now the new, new coalition, that they don’t want to investigate, what exactly happened. So that there is now stronger and stronger understanding that the hiring[?] snipers, it was not Yanukovich, but it was somebody from the new coalition. [9:09]
A: I think we do want to investigate, however, I don’t know [inaudible] gosh.
P: Yeah. So that it was indeed[?] disturbing that if it starts now to live its own life very powerfully, that it already discredit dates[?] from very beginning also this new coalition.
A: I mean this is what they’ve got to be careful of as well, that they need to demand great change, but they’ve got to let the Rada function. If the Rada doesn’t function, then (P: Absolutely.) complete chaos. So that it’s all, you know, being an activist and a doctor is very very important, (P: Mm.) but it means you’re not a politician, and somehow they’ve got to a kind of accommodation for the next few weeks. (P: Absolutely.) have the country that she’s going[?] to run, and that’s the[?] elections when things can change, (P: Mm.) and that’s [inaudible] going to be quite put[?]. I’m planning to go back early next week, probably on Monday. (P: Mm.) [inaudible]
P: It’s really important that now when people from Europe and also West show up there, so that it’s absolutely [inaudible]
A: [inaudible] from where Slav[?]’s going with the Visegrad group on Friday, [inaudible] William Hague on Sunday, (P: Yes.) I’m back again Monday…
P: Yes, I’ve heard also that Canadian minister is going on Friday, and yesterday also William Burns was, was there so we met (A: Yeah.) and we met also with Burns there in Kiev yesterday. (A: Yeah. Good.)
A: [inaudible] and I know John Bird was going, I’ll get hold of him. (P: Um-hum.) Okay, my friend, [inaudible] to you.
P: Well. Thanks for these comments, and I wish you well. Nice Australia.
A: Uh? What?
P: Nice Australia. Enjoy.
A: Oh, I’m not going to go, I’ve got to delay it ’cause I’m going to do more Ukraine instead.
P: Okay, good, good.
A: Alright, speak to you soon.
P: Thank you and all the best. See you.

Even in this transcript, it is clear that Mr. Paet doesn’t state anything about snipers: he merely repeats some hearsay while discussing very low levels of trust in the politicians in the ‘new coalition’, and expresses his dismay at the idea that such rumors might gain wider circulation and damage the ‘new coalition’. (This is inconsistent with his earlier statement about very low trust towards it — which is quite true and mostly deserved — but no matter.) In response to this recording, Olga Bogomolets, the doctor he refers to, most importantly stated (1, 2, 3) that she didn’t examine any bodies of the policemen killed by snipers. (Their bodies weren’t available to Maidan medics for obvious reasons.) Also, she’s a dermatologist, not a military doctor or a forensics expert. She would be an idiot to pronounce on bullet types etc., still less from seeing only photos of killed policemen. As for wound locations, any competent sniper shooting to kill will target the same locations, dictated by human physiology.

Now let’s take up the plausibility of opposition leaders hiring the snipers. I’ll borrow some ideas from Ms. Latynina’s March 8 talk radio show.

First, it is inconsistent with previous events: it was clearly Yanukovich government’s special police forces who cleared out and beat the students on November 30, attempted to clear out the Maidan camp on December 10, shot rubber bullets and car-stopping rounds over the barricades in mid-January, stripped people naked and posed them for victory videos etc., and it was his party people who hired thugs to beat up Maidan people in random locations, set fire to cars, kidnap and kill members of Automaidan etc., and after all this didn’t work for him, suddenly, the opposition hires snipers to shoot people in the Maidan? Not very likely.

Second, with all the mutual suspicions between opposition leaders, it is difficult to see how any one of them could hope to keep such an explosive thing secret. Note that even a month after the event, Russian propaganda does not make any concrete allegations: just repeating the same vague general statements to keep the fires going.

Third, what could have been their motive? To infuse fighting spirit into Maidan defenders? They have been showing a profound lack understanding of same for three months; they could hardly expect to predict what their reaction would be. In fact, the very next day, February 21, when in the evening they were on the Maidan stage proudly announcing the EU-brokered power transition deal, Mr. Klichko was shouldered aside by a Maidan platoon leader who said, in effect, fuck your agreement, if Yanukovich isn’t out by tomorrow morning we’ll go and take him out. The opposition leaders tried to argue, but it was no use, they were booed off and that platoon leader became the hero of the day. That was a colossal live-action flop if I’ve ever seen one, but it followed other smaller ones of a similar nature.

Fourth, Russia was and is waiting for situation in Ukraine to deteriorate sufficiently for them to take over Ukraine on the pretext of protecting the populace from lawless gangs. In February, Yanukovich government was looking for a way to announce a state of emergency; it needed a compliant Rada and he could not push it through over the resistance of his own party, most of whom have a fine survival instinct and little personal loyalty, without a lever — he had already been obliged in late January to rush personally to the Rada to bully them into refusing to vote for a mere opposition-sponsored Maidan amnesty law. Clearing Maidan out would have given him this lever, or, if Maidan got out of hand, he would have been in a position to declare emergency and move in the army. But what good would any of this be to opposition politicians? If emergency were declared and/or Russia came in, they would be among the first to be proscribed, just as Ms. Tymoshenko was when Mr. Yanukovich came to power in 2010.

Now Mr. Yanukovich certainly understood the Maidan situation even less than the opposition politicians, and he (as well as not a few of the latter) despises the people from the bottom of his heart. That these cattle should have the cheek to demand rule of law (make no mistake: this, rather than democracy as such or the ill-fated EU agreement, was and is Maidan’s principal demand) and an end to luxury lifestyles funded by pillaging state budget and private business on the Russian model, was unthinkable. It is also extremely likely that his information was one-sided; ensuring a supply of objective information is difficult even for smart and level-headed leaders, who aren’t apt to assault the messengers with fists (he famously broke his ex-wife’s jaw in 2004 for trying to reason with him). I can totally imagine him believing that, though batons and rubber bullets didn’t work, destroying the barricades with APCs and shooting a couple hundred people would. What finished him was, probably, that the actual ready army units ultimately refused to involve themselves. Except some top officers in charge of procurement, the Ukrainian army was never integrated into the feeding system and had little reason to like or support a cheap crook like Mr. Yanukovich.

Now consider Russia’s position. Russia has nothing to lose by destabilizing the political situation in Ukraine, as long as natural gas pipelines remain reasonably secure. On Ukraine’s part, blowing them up would anger customers on both sides and thus would probably be counterproductive. Russia has many cards to play, from rabidly pro-Russian organizations like Kharkov “Oplot” all the way to paid ultranationalists, although I believe the most potent card is the homesick feelings of millions of members of that new historical entity, the Soviet People. They really do fear and hate Ukrainian nationalists of any stripe, even though most of them have never seen one. They will ignore low living standards, thieving local officials, corrupt police and general degradation, as long as nobody forces them to speak Ukrainian and lets them keep their Lenin statues and fond memories. Ukraine’s various law-enforcement structures are another strong card; they are very well adapted to the Russian system, whereas under rule of law they would be useless and, quite possibly, open to criminal prosecution. If Russia wanted to stimulate Mr. Yanukovich into shooting people in Maidan with snipers, it would have no need to do anything so blatant as sending its own soldiers or hiring mercenaries; controlling Mr. Yanukovich’s information would have done the trick with little risk, and opportunities were ample, seeing as, for instance, Mr. Yanukovich’s closest aides, Mr. Klyuev and others, are great friends of the pro-Russian politician Mr. Medvedchuk, an ex-KGB man whose daughter’s godfather is Mr. Putin himself.

Finally, what about the EU and USG? I understand people like to compare events in Ukraine to the Arab Spring and Syria, but I don’t think the comparison is valid. First, on the geopolitical level Ukraine is more important than Syria or Egypt. Second, after the USSR broke up, Ukraine was left with a lot of nuclear weapons and, in 1994, was persuaded to give them up in exchange for security and territorial integrity guarantees from three nuclear powers, U.K, United States and Russia (lots of Ukrainians now regret this bitterly). Even if Russia has now decided to revoke its signature, reasoning, in Mr. Lavrov’s proprietary logic, that since the post-revolutionary government is not a signatory to the relevant agreement, Russia is no longer bound by it, the United States risks seeing all its non-proliferation efforts crumble to the ground if its guarantee to a country which voluntarily gave up nuclear weapons turns out to be a worthless piece of paper. I don’t know how even Obama’s PR experts can spin that as a diplomatic victory, to say nothing of such quaint stuff as real-world effects. Second, creating a Libya- or Syria-style imbroglio in Ukraine is less than ideal ideologically, because Ukrainians are (a) white, (b) European, (c) Christian and (d) nationalistic. No combination of these elements is going to appeal to diversicrats, and in fact we have seen in January strongly-worded pronouncements by the White House and the State Department condemning violence and specifically indicating the Right Sector alongside government-hired thugs and special police forces. Also, any action or military help on the ground in Ukraine is bound to elicit huge push-back from Russia, so unless USG were prepared to make an enemy of Russia, the result of such an imbroglio would be Ukraine’s being swallowed up by Russia, except maybe a rump state of three western oblasts which would be too much bother to pacify. Since this same result (maybe with the addition of some political fig leaves) would have probably been achieved had Mr. Yanukovich continued in power, assuming USG or EU wanted this result, their actual actions don’t make sense. As for intentionally making an enemy of Russia, just recall USG’s obsequiousness to Russia in the talks around Syria and Iran.

Now let’s turn to the EU. The EU likes Ukrainian nationalists even less than the United States, having some trouble of the same sort inside the EU (Greece, Northern Italy, Flanders etc.) Since they brokered the February 21st deal, they were obviously willing to keep Mr. Yanukovich in power until early elections in December (in effect, pushing them forward four months) in exchange for letting opposition politicians into government as figureheads (guaranteed with Mr. Yanukovich around) and screw the hoi polloi on Maidan. The opposition politicians cooperated eagerly and earned the citizens’ contempt thereby. This was not to be, however, and they found themselves in actual power, for which they were completely unprepared. They floundered and meandered, lost Crimea, wasted time and people’s trust, and if this is all a cunning scheme by the EU then I want to know what its objective is. I don’t see any. If they wanted Ukraine that badly, they had merely to drop the demand that Mr. Yanukovich free Ms. Tymoshenko during the association agreement negotiations last autumn, and maybe throw in a couple billion euros more money. Why start the hullaballoo?

Anyway. The most depressing thing about all this is the spectacle of intelligent people, especially people who ought to know better, who distrust Western media as self-serving and ideologically driven (both true), lap up any rumors and even material published by Russia Today, the Russian state news agency and the direct organizational successor of Sovinformburo, or Rossiyskaya Gazeta, the official newspaper of the Russian government, if they show USG/EU in a bad light. (This is especially aggravating when these people’s knowledge of Ukraine could be put down on the back of an envelope.) At times, they almost slide into the NWO conspiracy-theory gutter. I am strongly reminded of leftist intellectuals during early and middle Soviet era, admiring USSR’s democratic, egalitarian and peace-loving nature and all that crap. This time it’s the rightist intellectuals who admire Russia’s autocratic, traditionalistic and peace-loving nature, with just as much (meaning little) grounds for it. Pfui.

Posted in Uncategorized | 4 Comments


This post expands on a comment I made a week ago at Isegoria’s, about the Russian system as reconstructed by Putin. I said that Putin has consolidated his control of Russia to such an extent that he need not bother anymore about political opponents. Last year, he permitted Navalny to run for mayor in Moscow because there was no danger of his winning. He can tolerate the existence of journalists such as Latynina, because their audience is very narrow and unimportant in the Russian scheme of things. No real opposition is permitted on air TV, and now cable TV operators got the idea and took the last opposition channel off their distribution lists. Putin didn’t even have to order it, it could have just happened because the cable operators don’t want any trouble.

All nice and dandy, so where’s the catch? Some NRs prefer to think there is no catch, that Putin is the best leader Russia had for a century, and that under his gentle rod Russia has been rising off its knees on a cushion of hydrocarbons. However, I think this is an illusion, and Sochi games provide a very nice illustration to this. Consider first that the Sochi Olympics were nothing if not a huge prestige project for Russia and (more importantly) for Putin personally. He wanted to show off the new, risen Russia, prosperous and respected by foreign nations, both to those foreign nations and to his own people. Obama’s and Merkel’s decision not to attend the opening ceremony must have hurt plenty. Anyway, there is no way Putin would have wanted to look bad in the eyes of the foreign media (his own media, of course, being no problem). Otherwise what would have been the point of rounding up stray dogs, hiring volunteers etc. Naturally, he could not yield on the gay question, because that would have been seen as weak, but he could count on the West swallowing this with minimal protest, like the ridiculous rainbow Google doodle. But my point is that he would have avoided any potential problems if he could.

And problems there were. Even ignoring the Olympic ring malfunction (which was covered up on Russian ‘live’ TV by splicing in a rehearsal video), what can any reasonable person make of the Sochi toilets? Of the not-quite-completed media and sports hotels? Of construction garbage hidden by untidy fences and fresh pavement already crumbling due to the patented post-Soviet technology of putting asphalt on raw ground? I ask, is this the Olympic Games of an effective ruler?I mean, who and how can install a fucking squat toilet upside down?

Obviously, this is a big bucket of fail. Putin could not manage his cronies and contractors enough to ensure that Olympic roads and hotels are constructed on schedule and up to snuff. Putin has consolidated his control of Russia, but he did it by constructing (or rather reconstructing) a system of governance which is useless for anything except extraction of revenue. If it does anything productive or generally useful, it is to keep up appearances or by oversight. It turns all projects and initiatives into villas in UAE, Lamborghinis and Swiss bank accounts like a pig turns everything into turds.

This example shows that, contra Moldbug, mere financial incentives are not enough for effective governance. Putin and his people have financial incentives all right, they use them plenty; capital outflow is measured in tens of billions of dollars per year. Would the revenues be bigger if the country was well-governed? You bet they would. But he doesn’t do it. Something stands in the way. And that something is himself and his people, and in a more diffuse way, many of the Russians themselves — Putin and his people aren’t foreign or alien. In econo-speak, since the marginal utility of wealth slopes downward, at a certain point other considerations take over. And these considerations are, I think, fairly simple: the bummers know they cannot rule a well-governed Russia.

Posted in Uncategorized | 32 Comments


Recently I have been observing a mild attack of Putinophilia in the neoreactionary circles specifically and on the Right generally. I can distinguish three sources of this phenomenon, more or less corresponding to our three components.

The first source is the most primitive: the natural monkey reaction to an alpha male. In contrast to the insipid and dithering Western leaders, Putin is unquestionably a macho man. He does not try to hide his affairs very much, and was unapologetic when discovered. He is tough and mean, and is not at all shy to display this (and to use such displays for his purposes). This wins him respect and admiration from our manospheric component.

Second, he publicly makes much of supposed Russian spirituality and of the Russian Orthodox Church (R.O.C.) in particular, extolling Russia as the defender of the faith. This appeals to our traditionalist component, and kindles vague hopes that holy mother Russia will lead the West out of its quandary, possibly via an Orthodox Christian revival (I believe Bruce Charlton has an especially bad case of this malady).

Third, he is not afraid of standing up to the US-led ‘international community’. He supports Assad in Syria, sells weapons to Iran and hobnobs with China. He regularly denounces the State Department’s meddling and interference (which by no means prevents him from happily meddling and interfering himself). Lately he often makes noises criticising the modern Western nations, multiculturalism and political correctness, like his last year’s speech[] at the Valdai conference. His propaganda media, of which Russia Today is only the most visible organ (and which he reorganized late last year into an even more powerful structure), often present facts about the West which Western media prefer to ignore. This cannot fail to please our political philosophy component, sick of Cathedral’s lies and obfuscations.

Regretfully, I must smash these pleasant delusions. Like Lincoln’s speeches, Putin’s public pronouncements are dictated solely by expediency and can never be taken at face value. For all his bombast about the Russian people’s historic mission and his support for the R.O.C he does little for the Russian population beyond what is necessary to prevent rebellion, and it is unclear whether he has the desire, the ability or capability to do anything effective, because of Russia’s peculiar constitution (I use the word in its original, small-c sense). More on this later.

Now I don’t deny that the Russian Orthodox world has produced some good and interesting theology and religious philosophy over the centuries, although most well-known names — e.g. Berdyaev, Florensky, Soloviev, Shestov — belong to the long XIX century (this is not an accident). Splinters of the R.O.C. — especially the so-called Church of the Catacombs — did display wonders of faith and resisted the Soviet power. Nevertheless the main body of the R.O.C. has been a tool and organ of the state from its very beginning (after Stalin decided to permit the Church during WWII, it became for all practical purposes a branch of the KGB, with its top hierarchs being on the nomenklatura list of CPSU’s Central Committee). This being the preferred reactionary arrangement, the R.O.C. never suffered much from the pull of the leftist singularity and was ever a pillar of support to the government, but form alone is not sufficient. Content does make a difference, and the content of the R.O.C. was never up to snuff. The unculturedness, ignorance and even illiteracy (!) of its country priests was and still is a persistent problem, precluding any actual pastoral activity except the bare administration of the sacraments, the payment for which constitutes the priest’s livelihood. The parishioners, on their side, tended and still tend to view the sacraments as a sort of magic, and happily combine bits and pieces of Christianity with folk superstitions, witchcraft, magic and, recently, New Age and pseudo-scientific nonsense. The vaunted Russian spirituality has always existed principally in the imagination of the intelligentsia, who, conscious of the huge gap separating themselves from the masses and haunted by a feeling of being somehow inauthentic, idealized and even idolized the wise, authentic peasant people (this sounds familiar). The depth of their misunderstanding became clear in the failure of the narodnichestvo movement, which, in modern terms, was an attempt by members of intelligentsia at community organizing the people. The peasantry remained very lukewarm and conservative until Lenin recycled the program of the Socialist Revolutionary party and won their support by a transfer of land. However, this decree did not jibe with Communist ideals (it was superseded only four months later), and the peasantry had to be beaten down again and again to ensure compliance, until it was ground to atoms or destroyed.

To review the current state of the Russian masses. The demographic situation in Russia proper is dire. To be sure, TFR has been recovering since the 1999 low, but to what extent this represents shifts in maternal age at birth, responses to the Russian financial crisis in 1998 etc., is unclear. Although the Russian government does not publish fertility statistics broken down by nationality, a glance at the maps suffices to see that TFR in the regions predominantly populated by ethnic Russians is far below replacement, while for Turkic-speakers and Chechens it is well above replacement. Various efforts to stimulate fertility — cash handouts, cheaper loans, medals etc.— have met with failure, or stimulated undesirable or dysgenic reproduction. For 7 years the Russian government has been trying to woo back ethnic Russians from former USSR republics with perks and subsidies, but so far only 150,000 have signed up for resettlement, probably because most of those who wanted to return to Russia proper did so around the time the Soviet Union collapsed. Labor migration has been much more in evidence. Russia’s principal export is energy in various forms, almost all of it funneled through state-owned companies, and the redistribution of this Niagara of export profits produces billions of dollars worth of federally-funded boondoggles, inefficient infrastructure projects (the principal aim of these being to steal and embezzle state funds, nobody cares if villages rot, roads vanish and the bridges collapse next year) and private housing construction financed by the funds so embezzled. These projects generate construction jobs. Also there are streets to be swept and other menial work to be done, and the supply of immigrant labor from neighboring countries not blessed with hydrocarbons is huge, so why pay more? Besides some 3 million legal immigrants, there are at least 4 million illegal immigrants, mostly from USSR’s former Central Asia republics, who frequently live and work in truly Dickensian conditions. (They are less liable to binge drink, as well.) On the other hand, tens of thousands of educated Russians emigrate yearly to the Western countries, and a similar situation obtains in the second-largest post-Soviet state, Ukraine.

A discussion of quantity, while important, is not sufficient without a discussion of quality, and the situation here is no better. Russian love for alcohol in all forms is and has always been legendary (alcohol trade was heavily taxed when not monopolized by the state, and this “drunk money” constituted up to a third of state revenue). On top of this, criminality and drug use is rampant, and general squalor and degradation widespread, especially beyond the bubbles of Moscow and St. Petersburg. Work ethic and civic virtues are next to non-existent (not that they ever were that strong). Shoddiness, littering, neglect and destruction of communal property are closer to African than to European standards. Nothing in an American slum or a French ZUS would startle the median Russian. School quality, which used to be a bright spot in Soviet times when it was needed to produce competent engineers and scientists for Cold War, has deteriorated, partly as a result of state neglect (taking the shape of constant ‘reforms’) and partly due to the importation of progressive educational ideas and policies, increasing paperwork load on teachers, lowering standards, cutting material from the school program in favor of ‘patriotic education’ and so on. Higher education has become a joke, with grades, tests, exams and papers up for sale, both as direct and indirect bribery and as a lucrative business — belonging to the service industry, I suppose. Campuses abound with blatant advertising for paper- and thesis-writing, including Ph.D. theses, which nobody bothers to remove. Students don’t bother to learn, and teachers don’t bother to teach. Finally, what still remains of Russian science suffered a very heavy blow last autumn, when after an ineffectual protest the government ‘nationalized’ the Russian Academy of Sciences — which was not a scientists’ club like the American one, but rather an independent research body like the German Fraunhofer Institut and Max Planck Institut. This reform certainly had valid grounds — there was much ballast and dead wood in RAS’s institutes, the legacy of Soviet nomenklatura hankering for sinecures for their offspring, wives and paramours, as well as garden-variety academic log-rolling — but now that everything will come under direct control of the government with ornamental advisory input from RAS, which will be managed and funded according to the preposterous scientometric criteria so successful in the West, even the most die-hard patriot scientists begin considering emigration or a career in the private sector, which again usually means emigration. Only the offshore IT industry is flourishing, partly because there still are quite a few smart wild-growth Russian hackers and partly because the industry is so isolated from the rest of the country and from its government.

A determined and capable ruler might be able to turn this juggernaut around in a few decades, but bad as Russian demographics are, the situation with internal governance is even worse, although it is by no means new. Russia’s governance is often described as ‘corrupt’, but this description misses the point. The rule of law has never existed in Russia long enough to take hold. Accordingly, there is no widespread respect for law. There might be written law, but it has always had about the same relationship to actual governance as the American Constitution has to actual governance in Washington, DC. Law is for your enemies — to beat them with, or for them to beat you with. Therefore, rather than describe the whole system as ‘corrupt’, it is more enlightening to say that the legal framework is a sort of Potemkin village, intended to conceal reality rather than structure it. It is true that some pieces of the framework do function more or less as written, but it is merely because no-one important is interested in them.

Well, then, what is the system? Its first incarnation appeared around XII century, when cash-strapped or stingy princes, unwilling or unable to provide their tax collectors and other officials with expense money for trips to the country, made it the duty of the populace to support such officials with food, lodging and transportation as required. Unsurprisingly, this duty was called ‘kormlenie’ (feeding). The officials quickly began to collect such emoluments whether they really required them or not, and a pattern of officials deriving their sustenance directly from those under their jurisdiction was established. However, the feeding system expanded and developed to its full potential in the XIII century, after the Mongols smashed the fragments of the Kievan Rus and brought their military-oriented organization principles (partly borrowed from the Chinese) with them. These principles combined with internal processes in the Russian society to create a governance system wherein officials (a) served at the pleasure of the prince or superior officer as hired administrators and (b) were expected and themselves expected to derive their livelihood from the jurisdictions entrusted to them and from the official business they conducted (this extended to Church officials). In American terms, it might be called a militarized one-party spoils system. In Olson’s terms, it combines the worst features of roving and stationary bandits into a sort of stationary organization of roving bandits. It has some parallels to the sale of offices practised in medieval Europe, but is arguably even more pernicious because whereas a sale cannot be easily revoked, a hired administrator can be fired, reassigned or demoted at will.

The feeding system creates exceptionally perverse incentives and, once entrenched, is very stable. Because the officials have no expectation of permanence, they extract surplus far in excess of the Laffer limit, stifling the productive economy and starving it of investment. Even for them it is more rational to consume surplus than invest it (after capital controls collapsed with the Soviet Union, much of the extracted surplus is exported; even the Russian foreign trade bank estimates the yearly outflow of capital at 10% GDP). Any investment is unsafe and everyone, including non-government actors, avoids it. This reduces quality of capital and productivity, saps the will to excellence and contributes to the general shoddiness and temporariness of everything around. Like a badly mismanaged corporation, the feeding system does not reward competence in its officials, rewarding instead the most ruthless, brazen and conniving brown-noses (often also quite stupid: this story about Russian diplomats and spies in New York committing health care fraud is typical). What is more, the feeding system makes life is very difficult for any conscientious officials: the salary is usually very low, your boss demands his cut, your coworkers look upon you as a black sheep at best and actively resent you at worst, and you have probably paid a large bribe for the promotion/hire and now have debt to discharge. Such an example also exerts a baleful influence on the general populace, who become accustomed to the idea that honest labor or honest business is stupid and that nothing is or can be done without greasing palms and pulling connections. The legal and regulatory system is under selective pressure to become complex, incomprehensible and self-contradictory, so that almost any person or business is in violation of some thing or another, giving the officials a lever to extract the surplus.

In modern Russia, the courts, prosecutors’ offices, tax offices, police and other law-enforcement arms are all run on the feeding system (this is why legalistic resistance tactics, like Navalny’s, fails to achieve much. His organization can sometimes curb the worst excesses of minor offices that have little clout, but beyond that the government is treating him as a nuisance), while fire safety and public health offices are the bane of the service industry, customs and certification offices leech off of the importers and so on. Anti-corruption drives are mostly for show and to keep public resentment in check, although they also have some use as a tool of faction. The surpluses are distributed through state corporations, where officials and their relatives sit on boards and serve as corporate officers, and through the state budget via lucrative state contracts sold with no or only formal bidding. After distribution, what is not spent on luxury consumption is funneled through tax havens to the West, where assets are at least reasonably safe from confiscation by competing services or colleagues. Putin himself is a representative of this system, and his effusions on the war-mongering and decadence of the West and the spiritual superiority of Russia serve the same purpose as Soviet leaders’ effusions on the war-mongering and decadence of the West and the scientific communist superiority of the Soviet Union: they are part of the country’s political formula. The fact that there is more truth to the part of this propaganda which concerns the West than there was in Soviet times is, from Putin’s point of view, merely a happy accident.

Now in most of what is now Ukraine the feeding system never took hold until the XVIII century, when Russian emperors swept away the vestiges of local Ukrainian self-government and reorganized their Ukraininan holdings on the same footing as properly Russian lands. What is now western Ukraine was long ruled by various European powers — Rzecz Pospolita, the Hapsburgs etc., who introduced European ideas of law and order. Even in what is now central Ukraine, most towns had self-government rights — a thing unknown in Russia except for Novgorod, destroyed by Moskovian tsars in the XV century. Serfdom also came with Russian rule along the East-West gradient ubiquitous in Ukrainian society, as did the Soviets. On top of this, for reasons both of geographic and cultural proximity, western Ukrainians often go to labor in European countries. All these factors combine to produce a much larger proportion of people in Ukraine who wish to live in an orderly and lawful society, even if they don’t have a clear understanding of what this would entail, much less how to achieve it. In contrast, everybody understands that the current government represents the Russian governance system. This is the root of the protests and civil disobedience which started late last year. The abrupt retreat by the government from signing the so-called association treaty with the EU in Vilnius was merely the trigger; few Ukrainians have any idea what the treaty actually contains. The law-and-order faction saw that the government (which, to them, resembles hostile occupation forces) is turning decisively and probably irrevocably towards Russia, and rushed to arrest this motion without any clear plans or strategy. Certainly this rush was not orchestrated by the State Department as some claim; especially after the government used riot police in the ‘suppression of prison riot’ mode to clear away a few hundred of students who were staying overnight in the main square (some of them ran into a nearby monastery for sanctuary — this is supposed to be the XXI century), it was just obvious to everybody concerned that the next day (Sunday) they must go and join the demonstration. I don’t know, maybe it was the State Department that ordered the riot police to clear away the students with extreme prejudice? I grant that some remnants of the Otpor-trained NGOs have surfaced in such circumstances, but in fact there is no evidence of prior organization, otherwise the campaign would have been much more effective. The opposition parties seem to have been caught by surprise by the scale of the action, and did little but provide audio equipment and MPs, who serve as a sort of armored knights because the police is usually afraid to tackle them. Most Ukrainian parties have little in the way of real low-level organizations, being merely ‘political cooperatives’ joined more by business interests than by anything else. The only party that has such an organization, the nationalist Svoboda (regularly denounced as fascist, nazi, far-right, or all of the above), did the most, but even this party has no real ideological unity or consistency beyond the bare minimum of Ukrainian nationalism. As a result, although there has been a deal of self-organization — accepting and distributing donations in money and in kind, preparing food, providing medical and a bit of legal services, connecting people coming from out-of-city with locals who provide lodging etc. — even now, a month and a half on, there is no clear strategy, set goals, plan of action or even generally accepted leadership. The government seems to have realized that clearing out the demonstrators is apt to backfire even if possible, and is waiting for demonstrations to fizzle out. It has proved to be very difficult to clear out the demonstrators without resorting to actual weapons — there is not that much riot police in Ukraine, not more than six or seven thousands all told, almost all of them are already concentrated in Kiev. Therefore the government resorts to hiring thugs to beat journalists, MPs etc. to try and cow the demonstrators, while the latter’s defense in and around the main square relies on Afghan veterans. Finally, the loyalty of the army is an untested quantity. Resorting to armed force will mean an instant and irrevocable jump into Putin’s loving embrace and very probable arrest of accounts and properties held by government officials in the West, as well as travel restrictions. Thus for the moment there is a stalemate. Russia may move more assertively after the Olympics is over; some think that a repetition of South Ossetia and Abkhazia is in the works, with the solidly pro-Russian (except the local Tartars — a fine historical joke) Crimean peninsula as the likely target. On the other side, there is a persistent feeling in a part of the anti-government faction that it might be easier to reform the country after shedding the eastern and southern districts most contaminated by Russian influence, though there is also strong sentiment against dismemberment of the country. Most Russians don’t even see why Ukraine should be a country at all; a reduced pan-Slavism is also a part of Russia’s political formula, while on the practical level Russia would prefer to control the hydrocarbon pipes itself and not have to split profits with their neighboring government, which, while valuing the political independence that gives them their share of the spoils, has no use for Ukrainian nationalism.

Posted in Uncategorized | 9 Comments

Bryan Caplan on Open Borders: Converting the Faithful

A week ago, Dr. Caplan has solicited opinions on how persuasive his arguments in favor of unrestricted immigration have been. His post has accumulated 102 comments as of this writing, most of them containing answers to his question. I took the liberty of classifying the answers based on two criteria, how much has the commenter been persuaded and what was his original position on the immigration question. I have found it useful to distinguish five such positions: strongly pro-unrestricted immigration, weakly pro-unrestricted or strongly pro-somewhat limited immigration, no position (people who had not considered the issue or had not bothered formulating a position), conservative pro-closed borders and reactionary pro-closed borders. Here are the results at a glance (excuse my paint skillz):

I believe this picture says as much about Dr. Caplan’s audience as about his arguments. He has been quite successful in converting those who had no formulated position and the moderate pro-immigrationists into fervent pro-unrestricted immigrationists, and equally good at increasing the fervor of those who already agreed with him. He has also scored some zealous converts from the conservative camp. However, he has been less than unsuccessful in persuading the reactionaries, and the reactionary side gained some potential members through his obstinate refusal to deal with the strongest reactionary arguments (I’m quoting the commenters, not having read much of Dr. Caplan’s writing on the subject), his moral snobbishness and hypocrisy. I suspect that these results will not change even if more reactionary commenters show up now that Foseti has linked to Dr. Caplan’s post.

Posted in Uncategorized | 2 Comments

Statistics on sex and marriage in Japan

It appears that the Japanese society passed a turning point of some kind immediately prior or around 2005. Lots of sex- and marriage-related statistics bear this out. The freshest item is the 7th Nationwide survey of young people’s sexual behavior by the Japanese Association for Sex Education, an organization sponsored by the Ministry of Education, Science and Technology. The data is not yet released for public, but Asahi Shimbun carried the interesting graph reproduced to the right (hover over this and the other graphs for English legend etc.) Most of the article is behind a paywall, but the chair of the JASE reportedly interpreted this result as “herbivorization” of the girls, i.e. as loss of interest in sex; undoubtedly this is true to some extent. This article generated more than a thousand responses on 2channel, the Japanese anonymous forum. One of the common opinions there was that the younger girls, seeing how hard it is for their older and looser sisters to get married, have started to moderate their own behavior. There is more realism and common sense in a single 2channel comment thread than in a dozen liberal English-speaking blogs. The Korea-haters 2channel is notorious for are obnoxious but stupid and easy to ignore.

This survey relies on self-reported behavior and as such is open to various criticisms. However, data on abortions in minors (younger than 20 in Japan) from the very useful Japanese statistics site Honkawa, which collects interesting data from various official sources, Japanese and international, show the same picture. Honkawa points out the decline, but notes that no explanation for this phenomenon is currently accepted. Of course if minors have really cut down on sex as the JASE survey suggests, this will be a perfect explanation.

Although Japan’s crude birth rate has continued to decrease for demographic reasons, its total fertility rate has been increasing since a low of 1.26 in 2005 and now stands at 1.41, something of an achievement considering that no mass immigration by high-TFR peoples has taken place. On the contrary, importation of foreign wives, especially Filipinos, has been decreasing sharply since 2006 (third graph from the top: Chinese in orange, Filipino in green, Korean in blue). It is interesting that the importation of foreign husbands (second graph from the top: wives in yellow, husbands in green, in units of 10,000) has not been affected nearly as much either way. International marriages were 4.3% of the total in 2010, a little more than half of the foreign spouses being from China, Taiwan and the Koreas.

Update III: apparently recent changes in TFR are dominated or at least strongly influenced by the proportion of childless women, because according to Ministry of Labor’s statistics (see page 14) the average number of children per household has not changed much between 1975 and 2010, decreasing more-or-less smoothly from 1.81 to 1.7. In that same time interval, TFR swung from 2.0 to 1.26 and back up to 1.41, while the proportion of childless 40yo women (table 4) has increased from 10.2% to 27%.

Looking at marriage generally, the raw marriage rate has been declining since the 70’s (top graph, blue), recently largely for demographic reasons. The raw divorce rate (top graph, red), on the other hand, more than doubled from 1960 to 2002, but has since declined a little faster than the raw marriage rate. The bottom graph shows the raw ratio between these two rates. The decline was due to a decline in breakdown of marriages lasting less than 20 years (on the right), while the gleeful predictions of a divorce spike after Japanese wives obtained legal right to half their husband’s pension after a divorce in 2007 have not materialized. Before 2002, divorce rose and fell as economic conditions worsened and improved, or rather the reverse — changes in divorce preceded changes in GDP (on the right). But after 2002, this correlation broke down. In 2006-2007 this was explained by the above-mentioned law change, but subsequent divorce figures have not borne out this explanation either.

About a third of marriages in Japan end in divorce. Japan does not have no-fault divorce and most divorces happen by mutual consent. The marriage law has not changed much since 1898, and recognizes a very limited set of reasons for one-sided divorce in court: infidelity, malicious abandonment, death in absentia, mental incapacity with no hope of recovery and ‘other grave reasons which make the continuation of the marriage impossible’. The judge even has discretion to set aside the first four reasons if he considers that the marriage should continue. According to Arudou Debito, the family arbitration “courts”, which handle 95% of cases without going to a real court, consider both refusal of conjugal rights by wives and refusal of support by husbands as grounds for divorce. Debito is a hostile witness on the matter, so I am inclined to believe him in this instance. All of this makes for a rather old-fashioned legal environment for marriage.

The cultural environment appears to be rather old-fashioned as well. Only 2% of Japanese couples cohabit. Percentage of unmarried young men (left) in the 25-29 and 30-34 age groups has been rising since the 70’s, but flatlined in 2005. The growth in the percentage of unmarried young women (right) has slowed a lot, too. This is most visible in graphs of five-year percentage changes in the unmarried rate (on the right). There is a sizeable and growing fraction of shotgun marriages (top graph, broken down by age). Japan boasts an impressively low rate of out-of-wedlock births (on the right), and its 10% rate of single-parent households is the result of divorce and bereavement rather than illegitimacy.

Finally and most importantly, opinions of the Japanese people on marriage and divorce have turned around 2000 as well. According to the most recent opinion survey conducted by the Cabinet’s information arm in relation to plans for gender-equal society, the percentage of those who think that being unhappy with your spouse is grounds for divorce has declined from a peak of 54.2% in 1998 to 46.5% in 2008, although some ground was lost in 2010 (50.1%), no doubt because of the above-mentioned ‘plans’ (on an unrelated note, opposition to the death penalty has been steadily decreasing for decades despite leftist agitation). A 2010 international Cabinet survey shows that the twenty-something generation disapproves more strongly of out-of-wedlock births (56.2%) than the 30- (48.8%) and 40-somethings (51.2%). This phenomenon was observed in the other countries covered by the survey — Korea, USA, Sweden and France — although it was much less pronounced. Moreover, Japan’s disapproval percentage in 20- and 30-somethings was the highest of all five countries, somewhat higher even than in Korea. USA sits in the middle, and in France and Sweden the percentage does not differ appreciably from the percentage of immigrant population, about 10%.

Update I: while answering a comment over at Spandrell’s, discovered another interesting survey of opinion on marriage, and it supports my turnaround hypothesis too:

Update II: 2012 government poll has uncovered that the support for the statement “Husband’s role is outside the home, while the wife defends the home” has grown for the first time since the early nineties, and by quite a large amount. The 20-somethings exhibited the fastest growth: support shot up from 30% to 50% in just three years.

To round up with a bit of data on immigration, the graph on the right presents results of a J-CAST internet poll of attitudes to immigration attached to an article on the same subject peddling mass immigration as a cure for falling working-age population. J-CAST is not noted for its reactionary views. It is if anything neoliberal (or neoconservative?); for instance, one of its associate experts has studied with Bernanke. I daresay they were disappointed by the poll results, but still more by the excellent comments to the article. The commenters made short work of the neoliberal arguments in favor of mass immigration (‘cheap labor will pay for our social security’ etc.), pointed out the problems (especially the decline of public order) that the Western countries who tried mass immigration have saddled themselves with, or rather that Western elites have saddled their populations with, doubted whether any immigrants worthy of letting in would even come now that the economy is faltering, and laid blame on the article’s author’s generation for the low numbers of the present 20-somethings. Many said “OK, let’s become poor, but at least we’ll stay Japan and we won’t have immigrants to deal with as well” — a very Japanese sentiment. May it never weaken.

Posted in Uncategorized | Tagged | 6 Comments