Category: Economics – Miscellaneous

On Shaky Ground

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The Book of the Week is “On Shaky Ground, An Invitation to Disaster” by John J. Nance, published in 1988. Prediction of earthquakes is an age-old issue that can be improved, if enough money and political support is thrown at it, in connection with studying the geologic, tectonic, volcanic and geophysical problems that crop up along fault lines.

Even in 1960 when a major earthquake hit Chile, there was disagreement among scientists over the behavior of underground structures. The opposing theories consisted of “steep vertical fault” and “shallow, sub-horizontal dip-slip fault.”

To that time, ivory-tower “experts” at Caltech relied on only seismograph data for ideas. In the coming decades, graduate students looked elsewhere to disprove the old theories. One young scientist personally, physically surveyed a large swath of the topography of the Alaskan countryside. His data disproved the steep vertical fault theory. Another graduate student became a pioneer in paleoseismology, which identify the substances piled up underground in an earthquake zone, showing how they changed and moved over the course of millennia.

In the early 1960’s, the U.S. government and military were the major employers in the city of Anchorage in Alaska. They were eager to urbanize the place, and construction was booming. They ignored a pesky report issued in 1961 by the U.S. Geological Survey warning that the city’s underground foundation– Bootlegger Cove Clay– would be unstable in the event of an earthquake. Building codes were lax on structural soundness.

Alas, a major earthquake hit the area in March of 1964. The epicenter was under Unakwik inlet in North Prince William Sound, ten miles from Valdez, Anchorage and Seward, Alaska. Many structures collapsed, including but far from limited to: docks, warehouses, a newly opened J.C. Penney store and a Four Seasons apartment building.

The underground clay became liquid, causing the location of oil, army and cannery docks, and railroad yards to shift many feet. Fortunately, there had been regulation of natural gas lines. They had been programmed to shut off in an emergency, and they did, preventing explosions and fires. However, wooden buildings swayed instead of collapsing, but they burned in fires when a Texaco fuel tank exploded.

As fate would have it, the Seismological Society of America happened to be holding its annual meeting in Seattle, on the campus of the University of Washington on that very day. But news of the disaster in those days took hours to reach them. As is well known, communications technology has come a long way since 1987, when there were different radio systems for Los Angeles’ more than one hundred and forty police and fire jurisdictions.

The seismic waves generated vibrations in numerous other places around the world. The quake’s severity was “off the charts” given the existing technology for measuring such activity. Four tsunamic waves spanning twelve thousand square miles of Alaska’s sea floor was felt as far away as Hawaii, and swamped Vancouver Island. Seward’s economy was ruined, as it was based on oil, fishing, import/export, railway transportation, and boating.

Sadly, human beings have short memories; possibly because they’ve become desensitized to cautionary tales. Greed eventually results in business as usual. Political candidates in at-risk communities are loath to spend precious campaign time on safety regulations– their donors benefit financially from disasters. In recent decades, American communities have become wise to the fact that they can always apply for federal aid when they are hit by a disaster (whose loss of life and property damage could have been minimized!).

Anyway, read the book to learn about additional disasters in China, California, Mexico, South Carolina, and much more about the science of earthquakes, and the mentalities of the people in connection therewith.

Cuba on the Verge

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The Book of the Week is “Cuba on the Verge, 12 Writers on Continuity and Change in Havana and Across the Country” edited by Leila Guerriero, published in 2017.

After Cuban leader Fidel Castro died in November 2016, there was a slight relaxation of economic restraints on the common people. Under the one-party rule of Castro’s brother Raul, Cubans could engage in entrepreneurial pursuits– serving tourists through renting out their homes or turning their cars into taxis, supervised by the government. Americans have begun doing the same in the last two decades, but through centralized corporate entities such as Airbnb and Uber.

Ironically, under Fidel’s leadership, Cuba developed a reputation for literacy and affordable, quality healthcare; during which time, America developed a reputation for deleterious (greedy!) practices in education and healthcare.

At the book’s writing, Cuba required working mothers to take paid maternity leave halfway through their eighth month; the paid leave continued for four and a half months after the births. An additional year was optional, for which mothers received sixty percent of their wages. Further, abortions were not only legal, but used as a form of contraception, with neither shame nor emotional hysteria generated by political activists, attached. On the other hand, the Cuban government spies on its people 24/7.

Cuban children are taught sex education beginning in the fifth grade. So kids are sexually precocious, as they learn from their older siblings. They are casual about relationships, so there are no hard feelings when families become fragmented, but there are many latchkey children, and males dominate.

After the Soviet Union broke up, Moscow’s government no longer funded Cuba’s economy. Beginning in the 1990’s, this “Special Period” saw severe shortages of basic consumer goods such as health and beauty aids and clothing, not to mention food. Unsurprisingly, domestic violence spiked.

People sold their jewelry at government trading posts in order to survive. They received mostly Panamanian goods in return. They adopted casual dress all the time– flip-flops, shorts, T-shirts– even where formal clothing had been worn previously, such as the theater. Counterfeit big-name goods flooded the market, sourced mostly from Miami, Panama, Madrid and China.

Yet another cultural change included males’ taking on of domestic chores and child-rearing, as more women could earn money through prostituting themselves. Socially-skilled men collected and sold coconuts from private properties, or sought out sexual relationships with visiting of out-of-town women who paid their everyday expenses.

Read the book to learn of the numerous other ways Cuba changed in the 1990’s, and ways it hasn’t– such as in its practices of numerology and witchcraft and in its love of baseball.

Warnings

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The Book of the Week is “Warnings, Finding Cassandras to Stop Catastrophes” by Richard A. Clarke and R.P. Eddy, published in 2017. The authors explored the concept of “sentinel intelligence” which means that certain members of humanity have a sixth sense for future dangerous occurrences. The one who issues a warning in connection therewith, is called a “Cassandra.” The Initial Occurrence Syndrome means humans find difficulty in acknowledging that an extremely improbable event could happen, simply because it has never happened before.

The authors recounted various instances in which Cassandras spoke up prior to horrible events. A few of the events they described should not count in the annals of Cassandra-warnings; wars, for instance. There are going to be needless deaths and ruined lives in any and all wars. Predicting what is going to happen when tensions are rising in the hotspots of the world is not rocket science. Those who see them are not Cassandras. People like them are basically Nostradamus. He got famous in the 1500’s for “predicting” all kinds of catastrophes that are inevitably going to happen to human beings, such as wars, pestilence and natural disasters, over the course of centuries.

Also, the authors failed to define “catastrophes” referred to in their book’s title. They might want to refine their description of Cassandra events. The difference between Nostradamus’ and Cassandra’s premonitions is in the specificity: Cassandras identify one individual and/or entities around whom or which one specialized scandal is brewing, or describe signals around which, say, a natural disaster, financial crash or pandemic is coming, within a relatively short time frame (i.e., a Jeffrey Epstein or a Chernobyl).

One good example the authors provided, was the Bernard Madoff scandal. Madoff was a specific criminal– a power broker who harmed a significant number of people in a community. The circumstances were not a general, ongoing situation like welfare fraud or insider trading.

However, the situation still all boils down to how one defines “catastrophe.” There were various Cassandras who claimed to know the different events associated with Donald Trump that have actually come to pass. If one defines his getting elected in 2016 for instance as a catastrophe because the community harmed was the entire United States, then yes, its qualifies as a Cassandra event.

Anyway, the authors explained how a Cassandra in the securities industry helped forward the women’s movement. She issued a warning before a financial crash. She garnered kudos when she turned out to be correct. At the book’s writing, though, another female Cassandra issued a warning in the field of public health. Of course, a white male made a sexist remark about her appearance in an ad hominem attack. That’s how critics seek to discredit female Cassandras.

In another of the authors’ Cassandra cases, in July 2004, the federal U.S. agency FEMA (which provides disaster assistance) and the Army Corps of Engineers held a severe-storm-drill in the New Orleans area, but didn’t take it too seriously. Insufficient funding was provided to make specific plans regarding evacuation-transportation for people who were unable or unwilling to heed the evacuation order.

Nevertheless, the Coast Guard and (federal agency) Wildlife and Fisheries did. At the end of August 2005, they were somewhat prepared when Hurricane Katrina actually hit Louisiana. But hilarity did not ensue. Many needless deaths and ruined lives did, as the aforesaid New Orleans residents couldn’t be evacuated. Of course, the exacerbated disaster aftermath was caused by honest ineptitude, profiteering and opportunism rather than malicious intent. Beforehand, there were a few Cassandras who tried to tell others that a “Katrina” was on the way.

The reason Cassandras aren’t listened to, is that they tend to be gadflies in their organizations. There are: clashing egos, jealousy, and inter-agency rivalries. Cassandras are outspoken, and their mouths get them in trouble. They begin their careers as idealists, and usually end up disillusioned, frustrated, cynical and emotionally burned out. They embarrass powerful and/or monied groups whose support they need to keep their jobs.

Read the book to learn about many more Cassandra events, and the authors’ suggestions for encouraging Cassandras to come forward (Hint: one idea is to revive the White House group from the Reagan Era that evaluated foreign policy threats– but expand it, to take other kinds of disaster-preparedness measures).

People’s Republic of China – BONUS POST

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This is the song Janet Yellen is singing now.

PEOPLE’S REPUBLIC OF CHINA

sung to the tune of “Hotel California” with apologies to The Eagles.

In a busy Asian city, bright lights in my eyes,
the stink of cigarette smoke, crowds in every high rise.
Given the agenda, I tried to relax.
The talks were heavy and deal chances slim.
It’s all spies and hacks.

I was geared to debate there. I heard the opening bell.
I was thinking to myself– so much stress. I hope I stay well.
Then they fed me their specialties, and they showed me the way.
The media waited in the corridor. Thought I heard someone say,

Welcome to the People’s Republic of China.
Such a lovely place.
Such a lovely place.
But they’re in the rat race.
Plenty of excess in the People’s Republic of China.
Oppression and fear.
Oppression and fear.
Paradoxes here.

They’ve got top officials– they got fancy cars.
They got factories and technology, they might go to Ma-ars.
How they danced in our peace talks. Overtures and threats.
We jockeyed for position. A treaty is anyone’s bet.

I said to my hostess, you’ve got a great crew.
They said we haven’t had that spirit here since 1972.

And still we put up a front in all-ll we say.
We talked circles around human rights; be reasonable– okay?

Welcome to the People’s Republic of China.
Such a lovely place.
Such a lovely place.
Always saving face.
Livin’ it up in the People’s Republic of China.
Put on a good show.
Put on a good show,
till it’s time to go.

Warships and solar panels, semiconductors and rice.
We’re all just prisoners here, of our own device.
And as part of the ceremony,
we gathered for the press.
They stab it with their steely words but it’s still an economic mess.

This was a trip to remember, as I headed for the door.
Haven’t made much progress from the place I was before.
These talks scratched the surface. But I was gladly received.
We’re entrenched countries joined at the hip, we can NEVER leave.

the signal and the noise (sic)

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The Book of the Week is “the signal and the noise (sic)” by nate silver (sic), published in 2012. In this volume, the author described in redundant and wordy terms, why human beings are so fallible in their predictions and forecasts (and explained the difference between the two). Basically, humans get distracted by noise, so they don’t zero in on the right signals in order to tell the future correctly.

Ironically, the author used less-than-ideal language in describing the epic failings of ratings-agencies in the 2008 financial crash. He should have pointed out that they could have mitigated, just a little, their false advertising by using better risk-assessment wording.

Silver wrote, “… trillions of dollars in investments that were rated as being almost completely safe instead turned out to be almost completely unsafe.” (Never mind the awkwardness of the word “being” in the middle of the sentence, or “it” in the middle of a sentence– so many recently published books have that kind of bad writing.) The ratings agencies should describe investments as “low-risk” or “high-risk” and use the adverbs “extremely” or “very” or “somewhat” or “slightly” as applicable, but never use the word safe.

Anyway, another irony was that the author appeared to be distracted by vast generalizations that were just noise– as cherry-picked data tend to be. He provided all sorts of line graphs and scads of data on housing bubbles. He cited a study on market prices of the “American home” completed by Robert Schiller and Karl Case that created an index based on a century’s worth of data– the years between 1896 and 1996, inclusive.

The research indicated that an inflation-adjusted home bought for $10,000 in 1896 would be worth $10,600 in 1996. Is that noise or what? Silver didn’t specify what “American home” meant. Anyhow, who would buy a home in 1896, and sell it in 1996?

Silver did admit that predictions and forecasts were less inaccurate when qualitative data supplemented statistical models. Worded facts are considerations that add real-world conditions because numbers never tell the full story in complex situations, which are dynamic.

Incidentally, at the book’s writing, he had had success in making predictions in professional baseball because: 1) an excessive amount of data on it had been collected, and 2) he claimed its rules didn’t change. The latter is not true anymore. And besides, performance-enhancing drugs, not to mention new stadiums– among other factors– have put new noise and signals in baseball statistics.

The author pointed out that more data actually made for worse accuracy in predictions in many areas of life. Technology in the form of software that can process scads and scads of data in record time has improved humans’ ability to specifically forecast severe weather, but not earthquakes. As an aside– in any area that involves linguistics, technology is overrated. A chatbot cannot comprehend complex concepts and nuanced language (like sarcasm, irony and idioms). American English is especially fraught with words that have multiple meanings, so it is highly contextual.

There are still financial crashes, gamblers who lose big-time, and “experts” who can’t modify conditions to improve the economy with certainty. Incidentally, as is well known, more and more, daily life in America has been infiltrated by politics.

Read the book to learn about futuristic pronouncements of: television pundits, professional-sports commentators and gamblers, seismologists, chess software, national-security advisers, poker players, and many others.

Just About Everybody vs. Howard Hughes

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The Book of the Week is “Just About Everybody vs. Howard Hughes, The Inside Story of The TWA-Howard Hughes Trial” by David B. Tinnin, published in 1973.

In the 1930’s, Howard Hughes inherited his father’s oil-industry-equipment company, Toolco, which sold a unique, patented, lucrative drill. By the early 1950’s, Hughes had become a pilot passionate about acquiring jets (whose engines had technology that was obsolescing pistons) for his airline, TWA. He was an alpha male whose desire for control of his company led to decades of complex litigation involving age-old economic and political issues.

As American society became ever more capitalistic in the Postwar Era, businessmen hired more and more attorneys to wield more and more power and influence. They sought to change the tax laws to make more and more money.

Hughes was a victim of his own success in that he was using highly leveraged, deficit financing to purchase the new jets through his Toolco. Into the 1950’s, individuals (rather than their companies or employers) were the ones responsible for debts if they needed to borrow money for their businesses. This economic condition has come full circle with tech startups.

Hughes borrowed from banks and insurance companies, but by the late 1950’s, his debt was so high, they refused to give him special treatment. He used dirty tricks (which arguably weren’t illegal but were unethical, at best) to order jets from a few different suppliers.

Hughes’ incestuous business transactions generated an escalation of commitment among various parties, who were averse to losing even more money if they withdrew from their ongoing deals with him. Need it be said, there is nothing new under the son (or sun– either one). In the early 1960’s, his creditors terminated his borrowing privileges and created a voting trust that took control of TWA. Neither side wanted to see TWA go bankrupt. There were, of course, other wrenches in the works, which are too numerous to mention here.

The orgy of litigation resulting from Hughes’ business activities triggered a very controversial legal and economic issue. Hughes owned 78.23% of the voting stock of TWA, which was financially affiliated with his Toolco. At that time, TWA shares were not owned by the general public. His side argued that he should be allowed to control his companies as he saw fit, because he had a controlling interest in them. On the other hand, he really didn’t own them– his creditors did!

Besides that, if TWA went belly-up, there would be far-reaching economic consequences for many stakeholders. All employees of TWA would lose their jobs, competing airlines would benefit financially, contractors supplying jets and their parts to TWA would lose a customer, Hughes’ lenders would lose megabucks, etc., etc., etc.

According to the book (which appeared to be credible although it lacked Notes, Sources, References, and Bibliography), in June 1961, the big lawsuit initially launched in federal court in the Southern District of New York against Hughes was named TWA v. Howard Hughes. TWA charged Hughes with making special deals with third parties that led to financial harm for TWA. He tried to keep competing airlines from buying jets he wanted for TWA, through monopolistic practices.

BUT, due to disastrous losses (from a downturn in air travel that prompted proposals of various airline mergers, and his tax-evasion tricks), Hughes chose to cancel a portion of jet orders for TWA. Under his crushing debt load, he couldn’t afford to pay for all of his purchases. So the airline couldn’t stay competitive in the commercial airline industry. Other airlines were purchasing jets sooner at lower cost. Hughes’ series of attorneys through the years, of course used all manner of shenanigans (through: filing a blizzard of documents with creative legal arguments, counter-suing and appealing rulings) to delay the case.

One last-minute development that aided Hughes’ attorney before Hughes would be charged with contempt of court yet again, was a curious January 1963 Supreme Court ruling regarding jurisdiction in connection with a monopolistic entity. There was a little federal agency called the Civil Aeronautics Board (CAB), that had been regulating the airlines. The attorney repeatedly tried to get the case against Hughes dismissed– by arguing that CAB, rather than a federal court, should have been trying Hughes’ case.

Read the book to learn every last detail of this suspenseful story that spawned reams of tabloid fodder, but also greatly impacted the legal, economic and tax cultures of corporate America.