Saturday, February 28, 2009

"Nationalization" and the Semantics of Manipulation
February 28, 2009

Manipulation via semantics has a long history in politics and its well-cloaked twin, propaganda. The "nationalization" issue is a textbook example of manipulation in progress.

Knowledgeable correspondent Craig M. recently alerted me to the crass dishonesty of framing the bank cleanup/recapitalization issue with the hot-button word "nationalization" rather than the more accurate and less inflammatory word "reorganization":

This is an excellent article on the "nationalization" issue: Bank Nationalization Is Done Deal, Let's Move On: David Reilly (Bloomberg)

However, it misses a critical point in the debate over the banks. Those opposed (i.e. Geithner, Bernanke, banksters, etc.) to a RTC/FDIC reorganization of the banks have framed the discussion around the word "nationalization", which is "knee-jerk"/pejorative word in the American vocabulary with negative connotations.

If the debate was being framed honestly, the discussion would be how to best reorganize the banks instead of hiding behind the pejorative word "nationalism" as an excuse to continue the current crony-capitalism. The American taxpayers deserve better from their leaders than being manipulated by semantics as the banking system fails."

Thank you, Craig, for this timely insight. As I wrote in Collapse of Complex Systems I: Nationalization and Shadow Capitalism (February 23, 2009), the same semantic manipulation is in play with the powerful word "Capitalism," which is constantly used as an ideological cloak to "sell" blatant crony-capitalism and central-state-planned actions as "good old American capitalism."

In case we forgot, these are simulacrums of capitalism, semantic constructs designed to confuse illusion and reality, as they contain none of what defines Capitalism: free markets, transparency and capital put at risk for an uncertain return as dictated by the "invisible hand" of the market.

The classic text on semantic influence/manipulation is How to Do Things with Words by J.L. Austin. It may well be the most marketable knowledge gained by English majors (presuming current English majors are still being assigned this text.)

Here are a few classics in the "political marketing/manipulation" field:

The Hidden Persuaders by Vance packard
The Selling of the President 1968 (used hardback editions)
The Selling of the President 1968 (new paperback)

Spin Cycle: How the White House and the Media Manipulate the News (as I recall, the subtitle used to be punchier: "inside the Clinton propaganda machine")

On Bended Knee: The Press and the Reagan Presidency

And the book which provides a revolutionary account of the power of the Web to change the MSM/spin game by the master of Howard Dean's Internet-based campaign: The Revolution Will Not Be Televised: Democracy, the Internet, and the Overthrow of Everything

Shameless pitch for my own book on marketing in the Depression and leveraging the power of the web for your own business/livelihood:
Weblogs & New Media: Marketing in Crisis

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew


New Operation SERF Installment:
Operation SERF, Part 11
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.


Thank you, Dan L. ($30) for your stupendously generous second contribution to this site. I am greatly honored by your support and readership.

Read more...

Friday, February 27, 2009

Friday Quiz: Is Gold Set to Rise or Fall?
February 27, 2009

Answer: nobody knows. But there are technical reasons to expect a pullback within a long-term uptrend. Risk management suggests caution at the moment.

What with all the buzz about gold touching $1,000/ounce again (when priced in dollars), I asked frequent contributor Harun I. for some charts and commentary on the yellow metal.
Harun was kind enough to share some charts on oil yesterday, Oil Market Update (February 26, 2009) and recently he shared the possibility that the general market might well be setting up for a Bear Market rally: Forgotten Indicators: Is the Stock Market About to Turn Up? (February 5, 2009)

Please go to http://www.oftwominds.com/blogfeb09/gold02-09.html to view the charts.

Chart 1. Long term, Gold is still in an uptrend. The 2008 annual high is being tested and January's highs were unambiguously taken out. October was the 4th quarter 2008 low. It was important that October's strong down bar was not confirmed by follow through. As the upper band comes under pressure this rally may stall. MACD is divergent with the major histogram (red) coming up against signal line resistance. Price at the upper and without confirmation from MACD usually leads to a correction.

Chart 2. Commitment of Trader data suggests that net-percent open interest of Commercial and Large traders has reached a level which has shown to facilitate sustained rallies. Overall open interest is increasing at a significant rate-of-change -- another indication of sustainable activity. The intermediate level bollinger bands are expanding indicating good volatility on the breakout at this level of trend.

Chart 3. Daily chart with 200-day Bollinger bands and RSI indicate that price is at a relative high and overbought. The earlier divergence noted in RSI went unconfirmed. This is why it is usually a good idea to wait for price to confirm. More aggressive traders may have tested the market on the basis of the divergence. However one trades, the important thing is risk management. The 200-day mean is turning up. History shows that after the upper or lower band is achieved with an RSI overbought/oversold reading a correction has occurred.


Gold may have completed its correction but timing is everything. From a purely educational perspective entry now may not be advantageous based on the risk/reward scenario. March may see a correction that sets up a challenge of the highs for the second quarter. Thank you, Harun. Gold has a knack for becoming overloved, and then it's time to be careful. As a naive rube I learned this the hard way back in 2004 when $500 was the "guaranteed target"... alas it promptly dropped to $450.

Yes, it's a wonderful store of purchasing power and yes, it's in a long-term uptrend, and yes, I own it and ABX, but that doesn't negate the notion that buying on the dips rather than at the tops is a worthy money-management goal.

As usual, this is not investment advice, just a free opinion by an amateur; please read the HUGE GIANT BIG FAT DISCLAIMER on the main blog page.

Books of interest mentioned this week:

The Fall of the Roman Empire
Collapse: How Societies Choose to Fail or Succeed
The Collapse of Complex Societies
Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
Reinventing Collapse: The Soviet Example and American Prospects
Shameless pitch for my own book: Weblogs & New Media: Marketing in Crisis

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.



Thank you, Jason Y. ($10) for this latest in your most generous contribution to this site. I am greatly honored by your support and readership.

Thank you, Evan O'B. ($25) for your most-welcome very generous contribution to this site. (Hello to Oz!) I am greatly honored by your support and readership.

Read more...

Thursday, February 26, 2009

Oil Market Update
February 26, 2009

Astute reader Dave D. recently requested a technical update on the oil market. He mentioned this entry from last September: Checking In on Oil's Head-Fake (September 18, 2008), and once again I asked frequent contributor Harun I. for some charts and commentary.

Please go to http://www.oftwominds.com/blogfeb09/oil02-09.html for the charts.

Chart 1.
This is a semi-log chart. Primary level virtual support (SE channel lower channel line) and annual/fourth quarter/January low has held. This has formed a triple bottom that may be better analyzed in shorter time frames. Currently the February bar has formed a hammer but there is still a week to go before this bar closes. The December, January and February bars indicate a rejection of the lows confluent with the lower channel line. Trading has remain within the range of December's bar. March will be important.

The challenges Crude oil will face at the primary level are: 1) maintaining upward momentum that successfully assaults the February (20-day) high. 2) testing the January high. The minor histogram of MACD is deeply oversold but has not given any indication of slowing downside acceleration.

Chart 2.

Relative to Gold, Crude Oil is underperforming. The RS line is revisiting 1998 lows. Price has not followed, therefore Crude Oil is relatively quite expensive. The ROC (rate of change) is deeply oversold. Investor will want an asset that is outperforming or increasing their purchasing power. Absolute return traders may make more aggressive plays by betting on nominal increases, relying on leverage to increase wealth.

Chart 3.

The daily chart with 200-day Bollinger bands and RSI indicates the sideways movement of price. The 200-day mean is still declining. The triple bottom in price is not confirmed by RSI which has made higher lows. This may be a warning of a short-term or intermediate level rally.

Currently the trend in Crude Oil is down. The rapid price decline has led to a consolidation in the first quarter of this year. There is no rule that says there will be no further decline. Curiously overall open interest is still hovering near historic highs and Large traders net-percent holding are significantly long (not shown). The longer price trades in this consolidation, the support and resistance points mentions earlier will increase in significance."

Thank you, Harun. My crude takeaway (pun intended) is that despite horrifically nregative news on the global economy, oil refuses to drop below the $35-$40 range and it held a triple bottom--technically quite significant. The fact that Large Traders are holding net long positions tells me the smart money is expecting oil to rise.

Also, note how oil is bouncing off the lower channel. The last time it hit the bottom channel line in late 2001, the price popped dramatically soon thereafter.

Despite the technical headwinds, the price has built a decent trading range base. Given the RSI indicator is diverging and the ROC is in oversold territory, then a short-term rally looks possible and perhaps overdue.

In full disclosure, I have been long APC and VLO during this consolidation and am adding some May calls (options) in anticipation of a significant short-term rally. Please read the HUGE GIANT BIG FAT DISCLAIMER below; this is NOT trading advice, it is only a disclosure of my trading positions.

Books of interest mentioned this week:
The Fall of the Roman Empire
Collapse: How Societies Choose to Fail or Succeed
The Collapse of Complex Societies
Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
Reinventing Collapse: The Soviet Example and American Prospects
Shameless pitch for my own book: Weblogs & New Media: Marketing in Crisis

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.



Thank you, Cudick A. ($50) for this latest in your many stupendously generous contributions cash to this site. I am greatly honored by your support and readership.

Thank you, Katalin H. ($30) for your astoundingly generous contribution to this site. I am greatly honored by your support and readership.

Read more...

Wednesday, February 25, 2009

Collapse of Complex Systems III: Incremental Change and Collapse
February 25, 2009

A host of beneath-the-surface causes cannot be eradicated by incremental reforms, policy tweaks and giveaways. Masking the problem does not make the cause go away.

This month I've attempted to describe deep cultural and economic causal trends which are unaffected by stimulus packages and policy tweaks. Here are several recent entries on this broad theme:
What Won't Change (February 2, 2009)
The Middle Class Is Crumbling (February 3, 2009)
Complacency and The Will To Radical Reform (February 12, 2009)
Complacency and Scalability Traps (February 14, 2009)

Structural causes identified in the above entries include:
1. demographics (retirement benefits unaffordable)
2. financial deleveraging
3. top-heavy, high-cost U.S. economy
4. rising interest rates
5. de-scaling of large enterprises/structural job losses
6. scalability trap/structural job losses
7. crippling regulation and overhead burdens on small business
8. cultural complacency
9. "head-fake" drop in energy removes incentives for alternative energy

Let's add a few more today.

In The Fall of the Roman Empire , author Michael Grant identified political disunity as one the one key causes of the fall of the Western Roman Empire (Rome).

One engine of such disunity and squabbling, of course, is a deep-denial complacency: if a large percentage of the ruling class/citizenry sees nothing wrong, or counts on feeble "reforms" to resolve mounting global challenges, then they will hobble those seeking systemic, sweeping changes required to survive the challenges.

Another key reason for this crippling disunity is the resistance of the plutocracy/welfare recipients to any change in the status quo. It may strike some as ironic that the two ends of the political spectrum are united in one goal: fiercely resisting any shifting of largesse/benefits. At the top, the "fortunate 400" in Roman society paid less and less tax as the crises mounted, while 300,000 fortunates at the bottom rung continued to draw free bread and 170 days of free public entertainment in Rome as the Empire collapsed inward on Rome.

We see plentiful evidence of both trends around us. The number of political appointees who felt paying taxes was for plebians is not just embarrassing, it's indicative of a broad cultural trend; and it seems many of the riots we read about in western Europe stem from proposed cuts in what are essentially "bread and circuses" welfare benefits which the Empire can no longer afford to shower on its residents.

As the plutocracy contributes less and less to the finances of a heavily burdened central government, wealth disparity rises. This trend has been firmly in place for years. Friday Quiz: The Fortunate 400 (January 30, 2009) For 'Fortunate 400,' a Tumbling Tax Rate (Wall Street Journal)

As in fast-declining Rome, the plutocracy is pleased to wield its wealth and influence to insure it pays 17% tax rate (much, much less when tax-free muni bonds are counted as income) while the productive elements of the economy are saddled with 40%-50% tax burdens.

Also as in headed-to-oblivion Rome, the plutocracy no longer contributes its sons and daughters to military service; that is left to the poor.

Lastly, rigid ideological camps are creating disunity as the middle (and the middle class) are eroded. Thus we have a Congress which united under pressure to give $700 billion in borrowed money to the banks under a Republican administration, and now under a Democratic administration the Republicans in Congress have belatedly discovered a deep desire for fiscal prudence--a desire which they mysteriously lacked for the 8 years of the borrow-and-spend Bush administration.

Though it is impossible to summarize the wealth of information in Jared Diamond's monumental Collapse: How Societies Choose to Fail or Succeed , it seems to me that the inability to see the underlying fragility of the environmental base of the economy was a key factor in the collapse of the cultures Diamond examines.

In an eerily similar way, the Powers That Be in the U.S. are essentially blind to the extreme fragility of the global energy complex, global fresh water supply, global soil reserves and the global public health system. As many authors have detailed, a global economy without abundant cheap fossil fuels will be unable to feed and maintain 6.5 billion humans.

Though neither Grant nor Diamond mention this specifically, I note that the Roman plutocracy/ central leadership obviously hoped that additional regulations and edicts would somehow turn the tide. I see the same over-reliance on legal mechanisms and edicts and policy tweaks in the U.S. today. A Congress of attorneys rather unsurprisingly is enamored of legalisms and laws and policy tweaks, and a plutocracy and welfare class wary of any reduction in benefits and tax breaks is pleased to hope tweaks and tucks will somehow maintain a crumbling status quo.

But as Donella Meadows outlined in her seminal paper, Leverage Points: Places to Intervene in a System (Sustainability Institute), adjusting the perameters of a system has limited effects. What this means is that fiddling around with "reforms" like increasing the fee paid by Medicare recipients by $10 will never make Medicare financially sustainable.

Ditto tweaking the gas mileage of the U.S. fleet by a mile or two, and 99.9% of all the other "reforms" proposed and fought over.

What we have in essence is an over-regulated, overly complex, cost-heavy structure which we attempt to "fix" by adding further layers of complexity and overhead costs. The idea that these incremental approaches can change the fundamental structural flaws is simply false; their net effect will be to hasten the collapse of the systems they seek to repair.

This is what I call The Seductive Illusion of Incremental Change (May 13, 2008).

As noted yesterday, Trainter's The Collapse of Complex Societies suggests that at some point the citizenry of failing societies more or less choose to let their unsustainable systems topple over rather than continue the draining attempt to support the burden.

Disunity, complacency, growing wealth disparity, rising military and taxation burdens, fragile environmental foundations--all these need only a sustained drought or energy shortage to tumble like dominoes.

While we're on the subject of "collapse," here are a few other relevant titles:

Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
Reinventing Collapse: The Soviet Example and American Prospects
Shameless pitch for my own book: Weblogs & New Media: Marketing in Crisis

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.



Thank you, John F. ($50) for your unceasingly generous contributions of medical knowledge and cash to this site. I am greatly honored by your support and readership.

Thank you, Paul G. ($10) for your much-appreciated generous contribution to this site. I am greatly honored by your support and readership.

Read more...

Tuesday, February 24, 2009

Collapse of Complex Systems II: Marginal Returns Trigger Implosion
February 24, 2009

As systems counter increasingly marginal returns with greater complexity and energy inputs, a breaking point is reached where the system either implodes or citizens choose to let it crumble.

Astute correspondent Geoffrey G. recently recommended The Collapse of Complex Societies and offered this insightful summary of author Joseph Tainter's primary thesis:

You cite Rifkin's argument about how marginal returns on conquest led to the collapse of the Roman Empire. The U.S. Economy: Increasingly Marginal Returns (January 15, 2009). I haven't read Rifkin's book, but this is very familiar: it is the argument of archaeologist Joseph Tainter in his 1990 book The Collapse of Complex Societies.

Tainter argues that societies collapse as a result of diminishing marginal returns from increasing complexity. In response to diverse pressures and changing circumstances, they adapt in ways that make them more complex (complexity seldom diminishes). In many cases, the situation reaches a point at which marginal returns on increases in complexity turn negative, and people actually prefer collapse to continuing to live under the current regime. Then the society collapses (i.e. undergoes a rapid decline in complexity).

He deals specifically with two major techniques for avoiding collapse, technological innovation and new sources of energy, but argues that these too suffer from diminishing marginal returns and therefore offer no ultimate way out."

Thank you for the recommendation and comments, Geoffrey. I have augmented Trainter's excellent (but written-for-academia) study with these more general-audience works:
The Fall of the Roman Empire
Collapse: How Societies Choose to Fail or Succeed

We don't have to look very far to see various complex systems completely mired in diminishing returns and thus poised for collapse. How about the "healthcare" system ( a.k.a. sickcare) of the U.S., which vacuums up an ever-increasing percentage of national wealth (some 16% of the entire GDP) but which produces ever more marginal increases in measurable health, longevity, etc.

By many metrics, the health of the nation has decreased even as ever more stupendous sums are thrown at more MRI machines, more tests, more procedures, more medications, more lawsuits, etc. Lifestyle-related chronic diseases are outstripping population increases, as are possibly pollutant-related conditions like autism.

The "fix" to date is ever greater complexity. The sickcare system is a hopeless snarl of legalese, pharmaceutical research mumbo-jumbo ("if we take out the sick patients, then our new drug has a measurable positive effect, more or less equivalent to the placebo effect..."), arcane insurance forms and exemptions, mind-bending Federal and state regulations, and billing insanity.

Since our entire system is set up on a "fee for services" basis, then services must be rendered regardless of efficacy. Telling the patient to lose weight and walk 20 minutes a day is not a billable service, hence the under-emphasis on prevention or a set of incentives which rewards patients for taking responsibility for their own health and charges them for refusing to do so.
Instead of prevention which would alleviate many chronic conditions and lower the nation's medical costs, we get bills like this:

1. wake patient up to administer sedative: $500
2. sedative: $200 ($2 generic pills)
3. glass of water to take sedative: $100
4. test patient to see if sedative worked: $400
5. consultation to review side-effect of sedative (sleep disruption): $1,000
6. prescription of medication to counter side-effect of sedative: $200
and so on. Then the bill must be massaged by various levels of bureaucracy to ascertain who pays what, if the charges meet federal fee standards, etc.

Ironically, both the U.S. and the Chinese healthcare systems are doomed because both are employer-based rather than national. In the U.S., as costs zoom up, employers cannot afford $1,000/month insurance costs per employee (and their families). In China, as state-owned enterprises and collectives have closed, then there is no alternative system to provide care for unemployed or marginally employed workers.

Instead of a simple, rational system, the U.S. has attempted to fill the yawning gaps in this failed employer-based healthcare model with ever-more layers of complexity which require ever-greater sums of money and energy.

Sadly, well-intentioned "reforms" and all the good work of hundreds of thousands of people working in the system cannot address these fundamental flaws and marginal returns.

The complex sickcare system is visibly ripe for collapse. All the "fixes" proposed which do not remove layers of complexity are doomed to merely push the system closer to collapse.

We might add numerous other complex systems to the list of systems which increase in cost and complexity even as the returns on rising investment become ever more marginal:
1. financial legerdemain (derivatives, "financial innovations", securitization, et.)
2. debt
3. DoD weapons procurement
4. governance (see California bankruptcy)
5. legal system (lawsuits, counter-suits, violations of thousands of overlapping regulations, etc.)
6. regulation of small business (overlapping authorities galore)
7. campaign finance "reform"

That's just off the top of my head. I am sure you can add many more systems whose complexity and marginal returns have pushed them to the brink of collapse.

While we're on the subject of "collapse," here are a few other relevant titles:
Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
Reinventing Collapse: The Soviet Example and American Prospects
Shameless pitch for my own book: Weblogs & New Media: Marketing in Crisis

NOTE: I barely had time to turn on a computer the past few weeks. Thus the usual haphazard nature of site slipped even further toward entropy. My apologies as I work toward a semblance of normalcy--whatever that is.

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.


Thank you, Don E. ($15) for your amazingly generous (and numerous) contributions to this site. I am greatly honored by your support and readership.

Thank you, Paul B. ($20) for your much-appreciated generous contribution to this site (Hello to Oz!). I am greatly honored by your support and readership.

Read more...

Monday, February 23, 2009

Collapse of Complex Systems I: Nationalization and Shadow Capitalism

February 23, 2009

Perhaps the "debate" about nationalizing banks is distracting us from the more interesting questions: what complex systems are spinning apart? Who stands to win and lose if the current financial pyramid does topple under its own weight?

Lost in the media kerfluffle about nationalizing banks is the larger question: exactly what difference does any of this make? Not to put too fine a point on it, but if assets are falling in value, risk is being priced into loan qualifications for the first time in a decade and nobody in their right mind is seeking to saddle themselves or their firm with more debt, then who cares who or what owns the banks?

I've been working through three related texts in the past few weeks:
The Fall of the Roman Empire
Collapse: How Societies Choose to Fail or Succeed
The Collapse of Complex Societies (recommended by astute correspondent Geoffrey G.)

The name of this week's theme, "Collapse of Complex Systems," arises from these excellent analyses.

Before we get into the main topic, let's review the case for nationalizing banks as a "cure for what ails us:"

'Nationalize' the Banks (Nouriel Roubini interview) (WSJ.com) Dr. Doom says a takeover and resale is the market-friendly solution.

"Mr. Roubini tells me that bank nationalization "is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] -- i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector -- it's clear that it's temporary. No one's in favor of a permanent government takeover of the financial system."

There's another reason why the concept should appeal to (fiscal) conservatives, he explains. "The idea that government will fork out trillions of dollars to try to rescue financial institutions, and throw more money after bad dollars, is not appealing because then the fiscal cost is much larger. So rather than being seen as something Bolshevik, nationalization is seen as pragmatic. Paradoxically, the proposal is more market-friendly than the alternative of zombie banks."

And courtesy of frequent contributor Michael Goodfellow, here is a counter-argument which suggests that "nationalizing the banks is the fix" is simplistic, naive and perhaps entirely wrong-headed:
Banks vs. bank holding companies (Marginal Revolution blog)

"I usually don't like to speak so negatively, but it's the advocates of nationalization who are in denial. There is a belief that Obama, Bernanke, and/or Geithner are somehow spineless or in the pocket of the banking lobby. The sadder truth is that they understand just how ill-prepared the U.S. government, or the Fed, would be to run such an enterprise.

I do understand that if all the water runs out of the sink, as it may, nationalization will come in some form or another, however disastrous that may be. But the desire to postpone it until the last possible moment, and the desire to pursue even a small chance of avoiding nationalization, are signs of wisdom, not cowardice.

When you read about nationalization, and see only the word "bank," and not "bank holding company," be very afraid of the advice on tap."

What strikes me about the nationalization "debate" (in italics to suggest it is staged/phony/a mere distraction) is its extreme reification/distance from the core issue, which is what passes for "capitalism" nowadays is a shadow simulacrum of the real thing. These bogus "debates" dominate the mainstream media (MSM) not because the issue is "important" in the sense of "curing what ails us" (beware facile medical analogies) but because they offer brilliant obfuscation of what really "ails us": a model of capitalism which only superficially simulates real capitalism.

Large-scale enterprises which are passed off or presented as "free market capitalism" are in fact one of the following simulacrums of capitalism:

1. Crony capitalism in which money is siphoned off and funneled to one's pals (see TARP).

2. Gangster capitalism in which legitimate competitors are restricted/limited by regulations
designed to favor the gangsters' enterprises, or by financial legerdemain or threats/blackmail/seizure.

3. Monopoly capitalism in which an oligarchy owns controlling stakes in key institutions and enterprises, and then maintains a carefully tended facade of "competition" to shroud the reality of plutocracy.

4. Pie-in-the-sky capitalism as presented by ideologically funded think-tanks and MSM/plutocracy shills in academia, NGOs (non-governmental organizations, a.k.a. non-profits) and the media.

Virtually every example of monopoly/crony capitalism can be cleaned up via propaganda and manipulated/edited "data" into shiny "free market capitalism" if sufficient manure, oops, I mean funding, is shoveled into the think-tanks and shills' pockets.

5. Central government planning masquerading as "free market capitalism." Look no further than the millions of dollars in contracts awarded under the umbrellas of Homeland Security and Defense. Not to mention TARP, "loans" to the so-called "domestic" auto industry, and other blatant central planning/politically driven awards within supposedly "competitive" structures.

From this perspective, the "debate" about who "owns" the banks, or if the government
nationalizes them just long enough to absorb the losses and then spins them off to the old cronies as "private enterprises" again, is essentially Kabuki theater for the edification of the masses.
By all means, rake those evil greedy bankers over the coals in front of the hot lights of an indignant Congress (which collected millions of dollars in campaign donations from said evil greedy bankers without a peep)--great stuff, great theater; all we need is a gladiator match or two afterward to complete the public "show."

And yes, let's "nationalize" the losses (that is, shove them onto the taxpayers), pull a few wires and strings, and then sell the profit centers off as private companies. And who stands ready to buy these newly cleaned-of-bad-assets banks?

Hmm--does this remind anyone else of how the assets of the old Soviet Union ended up in the hands of a small oligarchy?

The line that "we need to fix the banks before the economy can prosper again" has been repeated so often that it has acquired a truism status akin to gravity: of course apples must fall to earth.

But is this really true, or is it just a way of defending a desperate attempt to return to the glory days of simulated capitalism?

Maybe the "problems" we face globally lie elsewhere than the banks' bad debt and inability to leverage 40-to-1. (Sob; without unlimited borrowing and leverage, capitalism is broken!)
Maybe we should look for systems which are collapsing beneath the superficial "debate" about nationalization. We are told as a matter of faith that the central "problem" is bad debt and insolvent banks. That seems too simplistic and convenient to be true; at a deeper level, it seems the real "problem" is that free-market capitalism has been entirely subverted by simulacrums presented as capitalism.

We are supposed to be terrified of systemic financial collapse, as if civilization will end the second we can't buy cars and houses with almost no money down and banks can't write trillions of dollars in derivatives. I would hazard that what the powers that be are terrified of is the collapse of simulacrum-capitalism, of which the financial system is the most visible facet.

While we're on the subject of "collapse," here are a few other relevant titles:
Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
Reinventing Collapse: The Soviet Example and American Prospects
Shameless pitch for my own book: Weblogs & New Media: Marketing in Crisis

NOTE: I barely had time to turn on a computer the past few weeks. Thus the usual haphazard nature of site slipped even further toward entropy. My apologies as I work toward a semblance of normalcy--whatever that is.

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.


Thank you, Tracey T. ($20) for your wonderfully generous contribution to this site. I am greatly honored by your support and readership.

Thank you, Cameron A. H. ($20) for your most generous contribution to this site (Hello to Hong Kong!). I am greatly honored by your support and readership.

Read more...

Friday, February 20, 2009

Friday Quiz: Feedback Loops, Positive and Negative
February 20, 2009

What is the difference between positive and negative feedback loops?

A: "Positive feedback, sometimes referred to as "cumulative causation", is a feedback loop system in which the system responds to perturbation in the same direction as the perturbation.
In contrast, a system that responds to the perturbation in the opposite direction is called a negative feedback system. These concepts were first recognized as broadly applicable by Norbert Wiener in his 1948 work on cybernetics.

The effect of a positive feedback loop is not necessarily "positive" in the sense of being desirable. The name refers to the nature of change rather than the desirability of the outcome. The negative feedback loop tends to slow down a process, while the positive feedback loop tends to speed it up.

A system in equilibrium in which there is positive feedback to any change in its current state is said to be in an unstable equilibrium, whereas it is possible for one with negative feedback to be in a stable equilibrium.

The end result of a positive feedback is often amplifying and "explosive", i.e. a small perturbation results in big changes. This feedback, in turn, will drive the system further away from its original set point, thus amplifying the original perturbation signal, and eventually become explosive because the amplification often grows exponentially (with the first order positive feedback), or even hyperbolically (with the second order positive feedback).

A simple and practical example of negative feedback is a thermostat. When the temperature in a heated room reaches a certain upper limit the room heating is switched off so that the temperature begins to fall. When the temperature drops to a lower limit, the heating is switched on again. Provided the limits are close to each other, a steady room temperature is maintained. The same applies to a cooling system, such as an air conditioner, a refrigerator, or a freezer.

Some biological systems exhibit negative feedback such as the baroreflex in blood pressure regulation and erythropoiesis. Many biological process (e.g., in the human anatomy) use negative feedback. Examples of this are numerous, from the regulating of body temperature, to the regulating of blood glucose levels."

A kind and astute reader corrected my confusion on positive and negative feedback a few years ago. In essence, the question posed by the global financial meltdown could be phrased: which feedback loops will dominate the process? If positive feedback loops predominate, then we get the doomsday runaway-train/nuclear fission analogy in which the entire global financial system implodes and life becomes nasty, brutish and short for millions, if not billions.
Alternatively, if negative feedback loops predominate, then the downtrends currently in place will be slowly modified until a new equilibrium is established.
It seems many see only positive feedback loops in play, but I see numerous negative feedback loops in play as well. For instance, as gasoline prices rose and the economy stumbled, gasoline use fell dramatically in the U.S. This is a negative feedback loop. The government throwing trillions of borrowed dollars at "the problem" is also a negative feedback loop. Citizens demanding an end to the bank bailouts (see link in right sidebar) is also a negative feedback loop.
Panic tends to be a positive feedback, reasoned action based on practical gleanings from history tend to be a negative feedback loop.

NOTE: Family is visiting once again this week and so my email replies will be delayed / sporadic; your patience and understanding are most appreciated.

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.


New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.


Thank you, John B. ($15) for your much-appreciated generous contribution to this site. I am greatly honored by your support and readership.

Thank you, Gene B. ($50) for your outrageously generous donation to this site. I am greatly honored by your support and readership.

Read more...

Thursday, February 19, 2009

What's Obvious III: Some Transformations Will Be Positive

February 19, 2009

With so many downtrends in place and anxiety understandably rising, we should recall that most feedback loops are self-correcting. Broken systems will be transformed, not neatly, but messily, via multiple feedbacks; trends reverse and much of the change, however wrenching, will be positive.

It is extremely easy to extend any trendline indefinitely into the future. Thus just as the bogus "prosperity" of the past decade was expected to last forever, now the trends toward dissolution and crisis seem irreversible.

But "the Way of the Tao is reversal," and we can expect the meltdown/Depression to usher in necessary reforms and transformations.

I recently received missives from two correspondents on just this subject. Longtime contributor Harun I. made these observations:

"Currently, the U.S. government and its population en masse is experiencing cognitive dissonance which is causing cognitive distortions. Either we undergo a voluntary cognitive reconstruction that leads to more productive behavior or it will be forced upon us.

This period is much more important than 1929. Peak utilization? Actually, we have overshot. Maintaining a growing population amid declining resources is irreconcilable.

Make no mistake, this is not doom and gloom. If you travel to the slopes of Mt. St. Helens today you will find a lush and flourishing ecology. Growth requires destruction.

Changes that pose survival challenges cause man to raise his mental level to match the task. Literally, we are alway one thought away from answering every question. The answer is already here, has been since the beginning, it is just waiting to be received."

Correspondent Richard Metzger foresees very positive outcomes from the wreckage of failed insitutions and policies:

"I so totally see the upside to this mess. I see it to the point where I feel utter and total *revolutionary* joy and excitement. I'm not depressed or even that apprehensive, I feel energized. Like I am about to join a street parade. True euphoria. The feeling of certainty, that I was born the right year!

"It' is about to erupt in the culture. Here, in Europe, in Japan, maybe China and Russia even. I think it'll start in the UK and spread.

I believe that it is inevitable that the species will come out ahead THIS TIME and that the excesses of capitalism will be shunned and even outlawed. This will be another French Revolution, less violent, but as far-reaching in the ultimate outcome.

I was mentioning that I was quite surprised to see the peace punks/anarcho punk slash squatters movement taken so seriously by UK academia and even BBC television via a GREAT series called "Lefties" --which you must see, it shows you how far these folks really got.

I'm also struck by the fact that many of the young fans of this music and philosophy (pacifism, veganism, anti-vivisection were all strong elements of the movement) who are now in their 40s are starting to re-meet each other on various online forums. Also that these people are instilling their children with this ethos of thinking for yourself and that NOT engaging in the system might be a damned smart way to go. And that there are options.

Within the 45-year old bodies of the late 70s/early 80s anarcho punks and "New Age Travelers" (as they were later called) lie hearts still beating to the ideals of their youth. It would appear that they are being "reactivated" as activists again and it's a development that is astonishing for me to witness in 2009.

This is why I say it will happen in the UK first, because the ideological underpinnings of true revolutionary politics once had a very strong foothold in England's green and pleasant land. It lives on in these people and they're going to be very influential, I feel.

Incidentally, have you ever read about the "Stop The City" (which is what the UK "Wall St." is called, "The City") demonstration of 1984 organized by London Greenpeace?

I was in THE CENTER of those riots and I had a camera, too. It was insane. I didn't realize this until a few days ago, but that protest is considered the very first anti-globalist demo, the granddaddy of the riots in Seattle and elsewhere. People were there to SMASH THE STATE and it was an amazing thing to see.

The BBC reported that 10,000 people had shown up (what I saw) but by day's end they'd cut the number to 2500, which was very typical for the time.

Thank you, Harun and Richard, for these insightful commentaries.

If asked for a concrete example, I would turn to the failed "healthcare" system in the U.S. When 40 million mostly poor, politically inactive people lack any coherent healthcare coverage, then the political effect is essentially zero. But when 10-20 million formerly middle-class people join the ranks of the uninsured as the economy declines, then the political pressure to transform the current dysfunctional snarl will rise to the point that fiddling while Rome burns-- the preferred option of all players--is no longer a political option.

The cries of various sacred cows being gored will be deafening.

NOTE: Family is visiting once again this week and so my email replies will be delayed / sporadic; your patience and understanding are most appreciated.


Thank you, G. Booker N. ($25) for your much-appreciated generous contribution to this site. I am greatly honored by your support and readership.

Thank you, Alberto R. ($20) for your ongoing amazingly generous donations to this site. I am greatly honored by your support and readership.

Read more...

Wednesday, February 18, 2009

What's Obvious II: This Is Not the Bottom in Housing

February 18, 2009

Unfortunately, many are being lured by the siren-song of apparent "bargains" in housing. But no financial bubble ever bottoms until it fully retraces to pre-bubble prices--for housing, that means prices circa 1996-1998.

It seems a "35% off" tag is good enough for thousands of new home buyers. Unfortunately, the item in question (housing) will be tagged with much deeper discounts in the years ahead. The temptations offered by the current "false bottom" are indeed high.

"For years, even as her friends bought huge houses in the expensive Phoenix market, Elizabeth Child remained a renter.
But in January, the airline customer-service agent and her boyfriend closed on their first home. The three-bedroom, two-bath house, complete with granite countertops and a pool, had been listed for $340,000 in late 2007, but the couple bought it for $220,500. "Six months ago I didn't think I would own a home," says Ms. Child, 27 years old. "And now I do. It's so perfect." (excerpted from the WSJ.com story linked below)

A $100,000 discount certainly is appealing, but the more important questions for potential first-time buyers are:

1. Is it cheaper to own than rent, when all maintenance costs and property taxes are included?

2. What was the price of the home in 1998?

Impatience is not a virtue when it comes to investing, but we can all understand how waiting for the final housing bottom tries the patience of those who have already waited years. As the Wall Street Journal recently reported: For Some, It's Finally Time to Dive Into Housing Market:

"The housing bust is creating a new group of winners: first-time home buyers. People who sat on the sidelines -- often watching wistfully as their friends became homeowners -- are suddenly in a position to grab some great deals. Indeed, first-time home buyers made up 41% of all buyers at the end of 2008, up from 36% in 2006, according to a recent survey from the National Association of Realtors."

I would hazard that it's a bit early to declare new first-time buyers "winners." My prescient and provocative blogging colleague Dr. Housing Bubble laid out a steel-trap case for prices to continue falling until at least 2011: The Rise and Fall of the Southern California Housing Empire: Foreclosures, Bad Investments, and Psychological Deception (December 10, 2008)

One key trait of any financial bubble is the inevitability of the retrace to pre-bubble valuations. Consider by way of example the NASDAQ dot-com-era chart:

Please go to http://www.oftwominds.com/blogfeb09/capital-trapRE02-09.html to view the charts.

This chart illustrates another very common trait of bubble pops: prices often drop below the pre-bubble starting point in a panic reaction to apparently bottomless losses.

It's important to recall that the housing bubble was not a bubble in shelter--it was merely part of a global financial bubble which played out in real estate as well as in stocks. collectibles, etc. etc.

Now let's look at a chart of California median prices:

If we consider this the chart of a financial bubble, then we can deduce that prices of whatever asset this chart tracks will retrace to approximately 1998 levels, or $200,000, down from $570,000 at the peak.

This would be a 65% decline, not a 35% drop. Thus the buyer of a home which topped out at $340,000 might think $220,000 is a bargain, but if the price is set to fall all the way back to its pre-bubble value of $120,000 (a 65% decline), then there is another $100,000 to go.

One of the most pernicious consequences of buying in during a "false bottom" is the "capital trap" which snaps closed on the new buyer. I have updated my early-2008 Capital Trap illustration to reflect updated points in time:



A capital trap simply means the owner cannot extract their trapped equity because both prices and demand have fallen. If you're immediately underwater after purchasing the asset, your desire to sell at a loss is understandably low. But even worse, if demand dries up, you can't sell at any price except a give-away one, i.e. close to the pre-bubble valuation.

When the capital trap snaps shut on new buyers, the consequences are not just a loss of equity: the buyer has also lost their mobility and their freedom to seek employment elsewhere in the nation. This will become increasingly important as layoffs and business closures spread into every nook and cranny of the U.S. economy.

The single most effective strategy to escape poverty is to move to better opportunities. That might be a relatively more prosperous locale, or it might mean returning to the family home to live on much less income, or it might mean moving to a place with a longer growing season or it might mean returning to school to upgrade one's skills for a much tougher, more technics-focused economy.

But if someone is trapped in their house, either loathe to sell at a stupendous/total loss of equity or trapped by a dearth of buyers at any price, then this most fundamental "escape from poverty" strategy is no longer in their grasp. Indeed, when it comes to mobility, renting is far and away superior to owning.

Though I am a big believer in valuing all real estate in terms of its market rent, that is, how the asset performs as a business proposition in the real world, we have to be cautious of this metric as unemployment is very likely to drive rents much lower in many parts of the nation. The "silent killer" of rental properties as a business proposition is vacancies. A property can look quite attractive if rented 12 months a year; but if the economy spirals down then people will double up and move back home, removing considerable demand from the rental market in many locales.

Bottom line: a property which sits vacant for 20+% of the year is a losing proposition if it was purchased on the assumption of 100% occupancy and 0% vacancy. And property purchased for investment can be as much a capital trap as a owner-occupied home.

Lastly, we should recognize that trends do not last forever. The notion that buying real estate would, in the long run, be an easy avenue to rising equity and wealth may well be a cognitive capital trap.

My own view is that all available evidence suggests that investment opportuities will shift in volatile fashion for the foreseeable future; all attempts to predict long-range trends will be foiled. Rising equity, in this view, will go to those not wedded to any one strategy or asset class, but to those who refuse an ideological/quasi-religious attachment to any strategy of the past, i.e. "buy and hold stocks" and "real estate only goes up."

All this suggests that the illiquidity of real estate is a staggering impediment to earning high returns/protecting capital in volatile times. As scary as the stock and bond markets can be-- not to mention currency and commodities markets--at least you can exit your positions and go to cash with a click of a mouse button. Not so with real estate.

One last proviso. A position in gold, stocks, bonds, currency or commodities isn't going to need a new roof or new refrigerator. Houses fall apart rather quickly when not occupied, and a "bargain" that has sat vacant for many moons will probably require a lot more capital than just the down payment.

NOTE: Family is visiting once again this week and so my email replies will be delayed / sporadic; your patience and understanding are most appreciated.

Of Two Minds reader forum (hosted offsite, reader moderated)

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.


Thank you, James J. ($20) for your much-appreciated generous contribution to this site. I am greatly honored by your support and readership.

Thank you, Will T. ($25) for your most generous donation to this site. I am greatly honored by your support and readership.

Read more...

Tuesday, February 17, 2009

More on Legalizing Drugs

February 17, 2009

As always, readers know far more than I do about complex issues like drug use-- from alcohol abuse to unintended consequences...

Readers checked in with some thoughtful comments on legalizing drugs. Let's start with a Prosecutor who warned of unintended consequences of legalizing all drugs:

"I have great respect for you and I’ve learned a lot from you (you opened my eyes with your contrarian view on the Chinese economy a year or two ago and you are being proved right). But we often differ, and I certainly disagree about legalization.
I am a prosecutor. I worked for years in a previous drug court assignment. I’ve talked with real addicts. I’ve attended seminars and talked with experts like a doctor who ran the Haight-Ashbury free clinic and worked with Jerry Garcia. I have a brother who is addicted to methamphetamine. And I myself went to college in California in the seventies (I’ll leave it at that). I’m not an expert but I do have some education and practical experience.

The devil is always in the details, and your thesis is no exception. For example, you say “The way to ‘take out’ crack cocaine and crystal meth is to legalize plain old powder cocaine and make it cheap.” But, any novice can easily “rock up” powder cocaine to make “crack.” So if the alkaloid powder is cheap and accessible then the base rock derivative will be too. Some slopes really are slippery. Where is the logical or practical distinction to legalize one form of cocaine but not the other?

I also don’t follow your main exception for methamphetamine. Meth is comparable in every way to cocaine. Abuse of meth by oral or intra-nasal ingestion is virtually identical to intra-nasal abuse of alkaloid cocaine (powder)—in these modes of ingestion the two CNS stimulants create a similar subjective experience (very mild “high”), the same side-effects and a similar addictive process and potential. Likewise, smoking meth and IV injection are comparable in every way to injecting or smoking cocaine (in the alkaloid or base rock forms, respectively).

Addicts who smoke or inject either drug can experience severe psychosis, intense addiction, and extreme side-effects. The subjective experience of smoking or injecting either one is extreme. People who are prone to addiction can be hooked instantaneously upon the first overwhelming “rush” the very first time they smoke or inject either meth or cocaine. If anything, smoking allows an even faster, more direct and intense assault on the blood/brain barrier—a bigger rush—than IV use. Some describe it as an extended orgasm. Severe abusers of cocaine and methamphetamine often add heroin to make “speedballs” –the addict’s holy grail (and Garcia’s drug of choice). You get all the euphoria of the heroin and the meth/cocaine combined, plus you get to stay awake to enjoy it all, and you can take bigger doses without depressing CNS activity down to the point of death. (Similar effects to a lesser degree with alcohol/stimulant combos.)

By way of contrast, the casual abuser ingesting either drug orally or intra-nasally experiences mild stimulation—a “boost.” There is no extreme or overwhelming euphoria. Many abusers of either drug in the milder form experience little more than alertness, agitation, depressed appetite and insomnia, with little or no “high.” Some novice alkaloid cocaine abusers say there is a “learning process” requiring several repeat uses before one can even begin to identify subjectively the “high” of intra-nasal cocaine ingestion. Years ago I read a double blind medical study where most first-time users could not subjectively distinguish the intranasal use of alkaloid cocaine and procaine/novocaine (the latter two are purely local anesthetics without CNS effect).

I don’t see a logical or practical distinction between legalization of meth and cocaine. If anything, methamphetamine produced by thousands of ragtag meth labs is more dangerous than illicit cocaine. Meth labs are smaller and temporary so the quality of the basic product is more ragged with great variability in amounts of red phosphorus and other byproducts remaining in the finished drug. Some batches are “wetter” or “redder” indicating more phosphorus. (I’m not sure. What’s more dangerous to eat or smoke, pure meth or pure phosphorus?)

Imported cocaine at least comes from larger centralized factories overseas with greater economies of scale and investment in production with some quality incentive from repeat sales opportunities. Thousands of fly by night meth labs have no quality incentive whatsoever. The production problems happen before the “pure” drug even gets “stepped on” by illicit retailers.

Bottom line, I understand the appeal for legalization on a grand and idealistic level. It breaks down when you really start to analyze it, but I’m always open to discussion. One thing is certain, addiction in a large scale, poly-substance abusive society is not a simple problem susceptible to easy elegant answers. It is a hard, hard problem with dirty, ugly details.

Even the goal to eliminate enforcement, prosecution and incarceration through legalization is simplistic. Perhaps we can reduce expenditures but we will always have black market production, sales and abuse even if we legalize. If nothing else we’d have to police production like we now police the licit and illicit production of Vicodin and Valium for example here and overseas.

I prefer to continue carefully with recent reforms emphasizing treatment (and limiting incarceration of addicts) as California started with Penal Code Section 11357b and Proposition 36. Grand legalization schemes break down when you get into the hard, ugly, difficult details. In your proposed legalization scheme I can’t comprehend the distinction between alkaloid cocaine on the one hand and methamphetamine and base rock cocaine on the other hand. This just makes no logical or practical sense to me at all.

I then asked about legalizing marijuana, and received this cogent response:

Marijuana and hard drugs are different animals. And California is different from some states because possession of less than 1 oz. of marijuana is punished with a maximum $250 fine--no jail. Plus, you have a right to a jury trial before even the de minimus punishment. Under Prop 215 a doctor's "recommendation" is rather easy to obtain for "medical marijuana" (say the ubiquitous "low back pain"). Then it's completely legal and you can even grow your own supply. Yet the gangs continue to import and sell it here. Go figure.

It's also my understanding that counterfeit prescription drugs continue to be big business and they're sold on the street. I haven't personally seen much of that. I do understand the idea of taking away the profit and it's an important goal if we could establish a practical, workable approach that the voters would embrace.

It's also my personal experience after Prop 36 that incarceration of prison inmates for simple possession of hard drugs is overblown in the press and popular imagination. It's very hard to get into state prison for anything, and it almost never happens for simple possession anymore.

I certainly don't have all the answers, I just know these are horrible problems. If we change our policy dramatically there will be unintended and unexpected consequences so we have to be careful. My only specific point is the similarity between cocaine and methamphetamine. The main distinction is the location and scale of the production process. (Bear in mind that without easy access to pseudophedrine there can be no crank labs. That's what they make it with.)

The highly distributed and temporary nature of current methamphetamine labs makes the end product more unreliable. Perhaps if we legalized everything else and cocaine products became very cheap then we could undercut meth. I don't know. I'm very fearful of dramatic changes. I personally would just re-emphasize treatment and continue to de-emphasize criminal custody for addicts."

One of the site's physician-readers, "Ishabaka," M.D., made these observations:

"As an old hand in the E.R., who's seen people on just about every drug, I agree with your legalization article. MAYBE not cocaine, as crack is about as destructive as meth, and is easy to make from powder cocaine at home.

You left out the most horrific act associated with alcohol abuse - child abuse/killing. I've see two babies beaten to death by their parents. Remember when "shaken baby" syndrome was discovered? An astute doctor realized that babies coming in with serious brain injuries didn't suffer them spontaneously - he thought their parents lost control, grabbed the babies and shook them so vigorously their brains riccoched around in their skulls causing bruising and bleeding.

This was a huge advance in the recognition of child abuse, and the doc deserves tons of credit, but he got the mechanism of injury wrong - actually, most parents pick the babies up by the feet and slam their heads repeatedly against a wall. As an old professor of mine who dealt with patients with extreme psychopathology told me: "you and I can't imagine doing such things because we have normal brains".

Here's my problem with your proposal - there are basically two types of recreational drugs - uppers and downers. The classic downers are marijuana and heroin. They don't make anyone violent. It's the uppers that cause violence - "agitated delirium" in the absolute worst case - these people are literally like Tasmanian devils. I've dealt with a lot of them.

Alcohol is unique in that it has a biphasic action in many people - excitatory up to a certain level, after which it becomes a sedative. People commit violent acts in the excitatory phase. Other excitatory drugs are all the amphetamines (meth is just one), cocaine, the "ADHD" drugs ( which are modified amphetamines, and often abused), and Angel Dust (phencyclidine).

Lastly, and this may sound perverse - my daughter was born under near optimal circumstances - a loving married father and mother, a nice house, money in the bank, jobs for the parents, no drug or alcohol abuse, and plenty of nearby family support. She was a single child with no prematurity or health problems (both dramatically increase the likelihood of child abuse), and STILL it was tough going when she was a baby, got colic, and cried all night.

I could UNDERSTAND how some guy with no job, no money, on booze or drugs, with his wife yelling at him and six other kids fighting and crying could lose it and smack his baby too hard. I think a MAJOR problem with our justice system is the failure to distinguish between "human" and "inhuman" criminals. This guy I would classify as human - his actions, while never meeting approval, could be UNDERSTOOD by humans with normal brains. MAYBE with some support, anger management classes, detox or AA, and CLOSE MONITORING, the guy might be able to raise his baby OK - he'd never be father of the year, but he might be able to do a decent job.

The "inhumans" fall into the Jeffrey Dahmer type - people with normal brains can never understand their crimes. I have a great book by the British Medical Association called "The ABC's of Child Abuse". It is full of photos. One shows a toddler with branding marks all over him, and the wire his mother carefully bent, and would heat up red hot to torture and brand him. Such parents, in my opinion, should have their children PERMANENTLY taken away from them, and be sterilized - PERIOD. Unfortunately, far too often our system considers such parents rehabilitation candidates, and after a period, returns their children to them.

Here's a little fact I learned from a junkie friend of mine - go into a 7-11 or similar store and look at the aisle that stocks bread and such - you'll see little boxes of Arm and Hammer baking soda. As my friend told me: "You think anyone decides to bake biscuits at 2:00 am?". Baking soda is used for converting powder cocaine to crack at home. You will also notice, up near the cash register, those long butane lighters used for lighting fires in fireplaces - these are for vaporizing crack (crack is not "smoked" - it doesn't burn, rather the crystals are vaporized by flame). Poor crack addicts use regular butane lighters held upside down, and burn their hands, especially their thumb - a chronically burnt dominant thumb is called a "tweaker's thumb" and is a sign of crack or meth abuse."

Correspondent Kevin M. made a connection between the "war on drugs" and larger social catalysts:

"You hit another home run today. As you note, "follow the money" is undoubtedly the main driver in the war on drugs from the perspective of the politicians and law enforcement, but there may be a secondary catalyst running a close second and keeping the public on board.
Our society has taken bad turns on a wide number of fronts since the 1960s, some examples being the steady decline in public education, widespread divorce and the attendant fracturing of families, industry and community dislocation, and a self-perpetuating debt trap, which covers only a small slice of the possibilities. The root causes of these troubles are poorly understood by the masses, not the least of which since politicians and the media do such a poor job of articulating them--which assumes they actually know any better. The public, desperate for solutions, seeks what appear to be the simplest solutions, and usually finds them in a system of top down rules and regulations.

We are undoubtedly in the time of greatest public control going clean back to the British occupation. We have rules, regulations, laws and punative taxes connected with any and every behavior that occurs within the borders of this country. Your foam surfboard friend in California was an excellent example of this in a different direction. Desperate to control the uncontrollable, the public demands that "something be done about Problem X", which invariably is another battery of restrictions they believe will actually subdue the problem at hand. And so it is with the war on drugs; millions of people--especially in the middle classes--believe the "drug problem" will be alleviated if we just a) continue to tighten the screws, and b) stay the course.

Now human nature being what it is, the more the authorities push against the drug problem, the more distributors and users push back. The drug war will not work, any more than it has up to this point, but people will continue to believe it will."

Thank you, correspondents, for these informed, thoughtful responses. I would plead guilty to hatching my usual reductionist, simplistic proposals--but it seems that decriminalization is a necessary debate for all sorts of reasons.

I would agree with the prosecutor's conclusion to "re-emphasize treatment and continue to de-emphasize criminal custody for addicts." I still would like to see marijuana not just decriminalized but actively legalized to the point that R.J. Reynolds packaged it for sale alongside the far more addictive and deadly tobacco products in retail outlets.

I would also like to see cocaine and heroin, as awful and addictive as they are, treated more like alcohol, which flat-out kills 15,000 people a year via vehicular accidents and thousands more from "accidental" shootings, beatings and alcohol-abuse-related chronic disorders (liver disease, etc.) and less like violent crime. (Try telling the families of the 15,000 innocents killed by a drunk drivers how "safe" legal alcohol is compared to illegal cocaine. It seems the person most likely to die of cocaine addiction is the user.)

All addiction to destructive drugs is tragic--even "plain old tobacco" is tragic when the smoker is dying before your eyes, unable to breathe. And nicotine addiction flat-out kills tens of thousands of people every year.

So exactly how can we justify this distinction between "legal" addictive drugs which demonstrably kill tens of thousands of people and "illegal" addictive drugs? Am I suggesting these "other addictive drugs" should be as available as tobacco and alcohol? No, but we clearly need to rationalize what deserves treatment and suppression via control and persuasion as opposed to criminalization.

I would wager than getting R.J. Reynolds in the legal pot-growing and marketing business would quickly extinguish much of the profits being raked in by the Mexican Mafia, which is growing pot in our national forests on a massive scale.

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.


Thank you, Russ R. ($20) for your much-appreciated generous contribution to this site. I am greatly honored by your support and readership.

Thank you, Adam C. ($40) for your astonishingly generous donation to this site. I am greatly honored by your support and readership.

Read more...

Monday, February 16, 2009

What's Obvious I: Legalize All Drugs But Meth
February 16, 2009

It is difficult to state what is obvious, but I launch a good-faith effort in a new series this week. Today: legalize all drugs but crystal meth.

The difficulty is stating the obvious is, well, what's obvious to us is not obvious to others until it has reached the very late stage of "undeniable." The coming financial meltdown of the global economy was exceedingly obvious to me and to most of you in 2005, 2006 and 2007, yet the mainstream media only belatedly took notice of "the obvious" in 2008 when major players like Bear Stearns started blowing up.

In the same way, it is exceedingly obvious that we need to legalize all drugs--marijuana, cocaine, heroin, peyote, etc.--with the one exception of crystal meth, a terrifically destructive substitute for the more expensive cocaine.

I have addressed this issue a number of times:
The Worst of All Possible Worlds (April 21, 2008)
Today's exercise: design a policy which produces the following results:
1. fills a veritable gulag of prisons with a half a million nonviolent men and women
2. feeds a global Mafia of unprecedented size, wealth and influence
3. nurtures a ghetto culture of endless turf wars, murder and mayhem
4. despite spending hundreds of billions of dollars, the policy utterly fails to meet its "official" goal of limiting the supply of certain commodities
Congratulations, you've just designed the U.S. "War on Drugs." The failures of this "war" are so monumental that they beggar description. Not only are illegal drugs still readily available, the "war" has spawned a global Mafia which reaps billions of dollars in profits, enabling it to extend its reach into other businesses.

Here at home, inner cities are riven by endless drug-centric turf wars and murders. Pushers are the "big men" in the ghetto, the ones young men and women respect and hope to emulate. In an attempt to render the consequences of dealing drugs so horrendous that people would forsake the immense wealth and prestige to be gained, the penalties for drug dealing and possession have been ramped up to insane "minimum sentences" which exceed those for rape and manslaughter.

More recently, I addressed legalizing drugs in End of Work, End of Affluence IV: Crime and Prohibition (December 11, 2008)

By a wide margin, no policy has failed more spectacularly and at greater cost in human l ives and national treasure than the "war on drugs." No policy runs so counter to well-established research or law enforcement views, yet at the same time no policy is more heavily defended politically as "essential" and "unquestioned."

The "War's" single success is the unparalleled reach of the propaganda machine behind the "war on drugs"/Prison Nation gulag.

Indeed, we have to wonder: how did a policy which has failed so miserably for so long, at such horrendous cost, a policy renounced by the very law enforcement officials tasked with its Kafka-esque prosecution, continue to be so utterly sacrosanct and untouchable?

One answer is of course, "follow the money." An entire Gulag/Prison Nation of well-paid police forces, sheriff's departments and prison guards now feeds off the failed "war on drugs." If the "war" were cancelled as an abject, total failure, then funding for helicopters and other goodies would dry up, and staff would be reassigned to less glamorous work like catching those committing murder, rape, larceny, identity theft, robbery, car theft, burglary, and everyone's least favorite beat, "white collar crime" in which smart guys steal millions with almost no chance of ever being caught and doing time.

Another answer is to look at the structure of "the obvious" and analyze just why repealing failed prohibition is so not-obvious. For that we turn to the 60s-era "radical" psychiatrist and thinker, R.D. Laing, who penned this prescient lecture in 1972: The Obvious:

"To a considerable extent what follows is an essay in stating what I take to be obvious. It is obvious that the social world situation is endangering the future of all life on this planet. To state the obvious is to share with you what (in your view) my misconceptions might be. The obvious can be dangerous. The deluded man frequently finds his delusions so obvious that he can hardly credit the good faith of those who do not share them.

What is obvious to Lyndon Johnson is not at all obvious to Ho Chi Minh. What is obvious to me might not be obvious to anyone else. The obvious is literally that which stands in one's way, in front of or over against oneself. One has to begin by recognizing that it exists for oneself.

The study of social events presents an almost insurmountable difficulty, in that their visibility, as one might say, is very low. In social space one's direct immediate capacity to see what is happening does not extend any further than one's own senses extend. Beyond that one has to make inferences based on hearsay evidence, reports of one kind or another of what other human beings are able to see within their equally limited field of observation. As in space, so in time.

Our capacity to probe back into history is extraordinarily limited. Even in the most detailed investigations of small fragments of micro-history, in studies of families, one finds it difficult to get past two or three generations. Beyond that, how things have come to be as they are disappears into mist. "

Following that thought: most Americans have no idea of just how dramatically, and completely, the attempt to outlaw alcohol failed in the 1920s. For a brief recap, please read this from the augustly "conservative" pages of the Wall Street Journal: Let's End Drug Prohibition: Most Americans agreed that alcohol suppression was worse than alcohol consumption.

If so many libertarian-leaning conservatives grasp the utter futility and horrendously predictable consequences of the failed "war on drugs," then why is it as politically untouchable as the so-called "third rail of American politics," Social Security?

The point of "undeniability" is rapdily approaching, as the U.S.'s insane "war on drugs" has reached the point of destabilizing entire nations and regions: Latin American Panel Calls U.S. Drug War a Failure (WSJ.com)

I am not suggesting these drugs should be uncontrolled. Common sense suggests that marijuana would be controlled much like alcohol and tobacco, and that heroin and cocaine would be controlled like morphine. We already have a system for dispensing "controlled drugs" which, while not perfect, works pretty well. Elderly patients with severe pain management needs (like my Dad) receive morphine from their local pharmacies; the local heroin junkies could pick up their prescriptions in much the same manner.

Look, the vast majority of us have no desire to stick needles in ourselves and zone out. You couldn't pay me enough to 1) stick myself daily and 2) get zoned out daily. The desire to become addicted is limited by factors we do not yet understand to a specific (small) percentage of the populace. The idea that our entire youth would rush out and get addicted to smack (heroin) if given the opportunity is simply groundless.

If we take away the profit and the "glamour" of a verboten drug, then very few would actively seek such a monkey on their back--and those few who would have already done so. And perhaps surprisingly to those who have little in the way of real-world drug-rehab experience, numerous heroin addicts function rather well in the real world. Statistically, I would wager that on a per capita basis, your middle-class heroin addict functions as well or better by most metrics (holding a job, not physically abusing his family, etc.) than the average middle-class alcoholic.

I know, I know--that's not P.C. and therefore verboten to even suggest. And so is this:

The way to "take out" crack cocaine and crystal meth is to legalize plain old cocaine and make it cheap.

Easily verifiable fact: people zoned out on dope (marijuana) and horse (heroin) do not start fights, drive drunk or otherwise create mayhem. That work is left to those high on alcohol, a fully legal drug with proven nightmarish consequences like 15,000 needless traffic deaths a year and countless murders and rapes.

What is "obvious" to an anthropologist from another culture or a visiting extraterrestrial is that alcohol should be as controlled as morphine and marijuana should be as readily available as tobacco. That marijuana has been demonized is simply political; by any metric (violence, traffic deaths, disease, whatever), it is "obvious" that marijuana is less destructive, less deadly and less addictive than perfectly legal alcohol.

As I have stated here before: the way to "legalize" marijuana is to enable R.J. Reynolds and other tobacco companies to grow, test, package and market "medicinal marijuana" like they do tobacco.

On the geopolitical scale, it would be phenomenally cheaper and more efficient for the U.S. government to buy the entire poppy crop in Afghanistan and Burma (the Golden Triangle) and the entire coca crop in South America at wholesale prices than to waste untold billions in a painfully foolish attempt to seal 10,000 miles of porous border.

My own rough guess is that the U.S. could buy the entire global harvests of poppies and coca for about 10% the annual cost of the visible "war on drugs", i.e. $5 billion versus $55 billion. And that $55 billion does not include the staggering cost of incarcerating hundreds of thousands of prisoners nailed for dealing or using drugs.

Question for "war on drugs" fans: what does prison do to dumb people caught doing/dealing drugs? It turns them into hardened criminals. Prison is so destructive to its inmates it rather "obviously" should be reserved for violent predators: killers, rapists, muggers, etc. "Club Fed" is a misnomer; no prison is fun and carefree, and for white-collar crimes, and those who manage to run afoul of the law via nonviolent means, low-security prisons free of predators are a common-sense solution to the need to punish these transgressors.
Lagniappe benefit to legalizing drugs: a huge new dollop of "sin taxes." Correspondent Craig M. recently recommended this insightful piece: Popular Delusions blog: Recapitalise the banking system - legalise drugs.

Growing and packaging high-quality organic marijuana/hemp could be a huge cash-crop for the U.S. And unlike most other cash-crops, marijuana (hemp) is hardy enough to thrive in poor soils. The harvest not deemed good enough for medicinal use could be made into clothing, rope, etc.--the traditional uses for hemp.

The list of advantages to ending the absurdly costly and destructive Prohibition on drugs is so long, so obvious, so well-supported that the question now is: can we afford to lavishly fund a failed policy which is not only a supremely ineffectual waste of money but a destabilizing force geopolitically?

For the record: I have no desire to buy or use the drugs mentioned in this entry except for alcohol in the form of wine and beer. I am of legal age to do so. "I am a beer drinker, and I vote."

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.


Thank you, Edmund H. ($25) for your exceedingly generous contribution to this site. I am greatly honored by your support and readership.

Thank you, J.D. Hines.com ($10) for your most generous donation to this site. I am greatly honored by your support and readership.

Read more...

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP