Saturday, September 30, 2006
Special Graphic Post:
Friday, September 29, 2006
Ludwig von Mises
I have made mention of von Mises in comments at The Dark Wraith Forums, but I have without attribute used his work and understanding of economics far more often than I could recount, for it is he and men of similar thinking who so greatly influenced me and generations of other students of economics in the United States and a few other parts of the Western world. He was an intellectual colossus of the discipline. The body of his work at once formalized and structured how we think about the world and how we rigorously analyze economic life. He did more than that, though: he conveyed to economists the sense that our understanding is far greater in scope than what most would imagine when thinking of the word "economics."
Ours is the study of praxæology, the study of human action: human action in consumption at the level of the individual and the household; human action in productive work, be it as labor or entrepreneur; human action in aggregates of pools of labor and bodies of industry; human action at the level of the great accumulations of individual consumers, firms, and other organizations that comprise the very economies of nation-states. Without a mind to sentiment, we can see why economic entities do what they do, and we can predict what they would do under circumstances brought to bear upon them. We need no crystal ball to conceive human reaction arising from circumstances, especially so long as we dismiss the notion that, because we are dealing with problems involving people's behaviors, our economic principles cannot unfold and reveal all.
Ludwig von Mises brought to the 20th Century the "Classical" school of economics that had been broadly and deeply outlined by the founders and early thinkers in the discipline, men like Adam Smith and David Ricardo. He reinforced the principles of economics with mathematical girders and rock-solid foundations. He gave us the clear, unapologetic view that economics spans the sciences, and in such scope it is none of them. Economics delves into the realm of social science, yet we have no concern for soft, unshaped theories twisted this way and that by the vicissitudes of that which is the fashion of the day. Economics is a mathematical science, yet our work is persistently dedicated to deriving that which is worthwhile to the world and not that which is merely the fleeting and arcane curiosity.
Ludwig von Mises made no bones about how we disdain the primitive notion that human action exists outside the scope of the scientific inquiry. From the Introduction to his 1949 tour de force, Human Action: A Treatise on Economics, I quote the almost disturbingly timely rejoinder to the critics of rigorous economics inquiry:
"The characteristic feature of this age of destructive wars and social disintegration is the revolt against economics. Thomas Carlyle branded economics a 'dismal science,' and Karl Marx stigmatized the economists as 'the sycophants of the bourgeoisie'. Quacks--praising their patent medicines and short cuts to an earthly paradise--take pleasure in scorning economics as 'orthodox' and 'reactionary'. Demagogues pride themselves on what they call their victories over economics. The 'practical' man boasts of his contempt for economics and his ignorance of the teachings of 'armchair' economists. The economic policies of the last decades have been the outcome of a mentality that scoffs at any variety of sound economic theory and glorifies the spurious doctrines of its detractors. What is called 'orthodox' economics is in most countries barred from the universities and is virtually unknown to the leading statesmen, politicians, and writers. The blame for the unsatisfactory state of economic affairs can certainly not be placed upon a science which both rulers and masses despise and ignore."But make no mistake: Ludwig Von Mises, like many other economists both before and after him, was the victim of his own strait-jacket. He believed that, because he commanded the tools and methods of science, that which came from the invention of his own prejudices must, ipso facto, be positive economics, free then as it were of any assumptions that would render its results at best inapplicable to the real world and at worst destructive of human dignity and long-term benefit to economic success. The list of economists of this ilk is as long as the list of economists, themselves: from John Kenneth Galbraith to Milton Friedman, the ranks of practitioners of economic theory, analysis, and application are laden with men who allowed their own biases to infect their thinking; and to the extent that those biases drew them away from objectivism, they hurt their world when their advice was actually heeded. John Kenneth Galbraith believed that unions were somehow an adequate "countervailing force" to the threat of a military-industrial complex that was pivotal to his model of rapid economic growth. Milton Friedman purports that "positive economics" must dismiss government intervention in things as basic as food and drug safety laws. Neither of these men, nor others like them, can be considered anything but shills of their own constituencies when their policy prescriptions are held up to the light of a more comprehensive consideration of the human condition.
That does not, however, serve in any way to repudiate the ideal to which von Mises aspired in himself, his life, or in most of his writings.
Human action is based upon rationality and marginalism. Ludwig Von Mises ensured that I shall make no apology for the iron-clad results that follow in unbearable legion from that. I wrote about rationality in Rationality, Incentives, and the Agency Dilemma: the economic "person" (be it an individual or a group acting to a common end) makes decisions rationally, and this means that greed will be the greatest and most animating force affecting behavior. I shall leave it to others to imagine that there is something else that solves the equation of how our species has managed to both survive magnificently yet be so unrepentantly awful in its ways despite having what now is called a sense of "morality."
"Marginalism" means that the human action is based upon the last or the expectation of the very next event, not upon the average or the past or the first or even the best. Whether we choose to consume another drink is based upon the pleasure we anticipate that we shall receive from the next glass based upon what we experienced with the very last glass; and the firm will produce another unit of output based upon how the cost of the next unit will be configured against the revenue obtained from that unit: if the cost of producing the next unit exceeds the revenue gained from it, that unit will not be produced because it would erode the total profit of the enterprise; but if, on the other hand, the revenue to be gained from making another unit is greater than the cost that will come from it, that unit will surely be produced, for its production will add to total profit.
Ludwig von Mises ensured that these pivotal, deep understandings were with us as the 20th Century brought forth great change and, therefore, great challenges to economics as a useful tool of modernity. For example, he applied the principles to design a complete, comprehensive theory of money and interest rates, a theory that was certainly not overturned by his contemporary, John Maynard Keynes, whose The General Theory of Employment, Interest and Money was most decidedly no repudiation of Von Mises' monumental theory that touched in some parts upon the same and similar subject matter. Ludwig von Mises's general theory of money, itself, later came to be a focused school of thought called "monetarism," and one of its chief proponents would achieve fame and a Nobel Prize perhaps in part on the misguided notion that he, and not Ludwig von Mises, comprehensively set forth the theory. (It should be noted, in fact, that even as far back as Ricardo, writing in the early years of the 19th Century, fully grasped the relationship between oversupply of money and inflation, however).
Even though supporters of von Mises in his own time saw his model and the Keynesian framework as diametrically opposed with respect to prescriptive policy action, later analysis would come to see that the models were little more than short-term versus long-term descriptions of the same process. Keynes was bluntly and unapologetically interested in the short-term amelioration of a debilitating recession dragging down the economy of the United States, while von Mises, being a Classical economist, was interested only in maintaining and encouraging long-term economic growth.
In the Keynesian framework, short-term aggregate supply (the supply of all goods and services produced by an economy) is somewhat reactive to the aggregate price level, and this is due in large part to the fact that the wage rate for labor does not respond instantly to general price increases, which means that additional real productivity can be extracted from labor in the presence of increases in the amount of money, even when that extra money being printed is not backed by real growth of the economy. In this short-term economic world of "sticky wages," aggregate demand stimulus through over-printing money can actually produce real growth of the economy.
The Classical school, considering only the long-run, had since the time of David Ricardo (and most definitely by the 1850s with a British school of economic thought) seen the aggregate supply curve as perfectly insensitive to aggregate price increases; in other words, the production side of an economy simply will not deliver more goods and services to a market merely because of inflation pressures. The reason rising aggregage prices alone cannot spur real increases in the level of goods and service delivered to the market is that factor prices (labor, land, physical capital, and entrepreneurial risk-taking) will invariably and more or less instantly absorb any oversupply of money by rising in response to the "phony" extra money being printed to just to get people to buy more goods. If extra money being printed does not reflect genuine, real value added to an economy, it simply cannot cause anything buy inflation. Hence, to Classical economists, trying to stimulate an economy through aggregate demand management inevitably fails because the consumers of an economy want more goods and services merely because they have more money, but that new money is not backed by new, real value, so the stimulus of the over-printed money causes no aggregate output increase, but does cause aggregate prices to jump by just about exactly the amount of the monetary overhang.
The reader must understand that economics is not the study of intentions; rather, it is the study of capabilities and incentives under constraints. The "desirable" means nothing to human action when compared to the "desired." As an economist, I do not care what people want to do; I do not care what people say they will do; I do not care what people stand for. All I care about is what people actually do; and what people do is rational, bounded as it must be by the constraints of available information, time, money, and access to resources. This applies equally to individuals, to households, to businesses, to entities bound in contract or other agreement to common goal, to private institutions, and to nation-states in their aggregate expressions of governments.
This way of seeing the world quite often seems brutish. A Classical economist would, for example, flatly declare that all unemployment is voluntary. Any person can find work. It might be menial, degrading, miserable, and altogether awful, but it is there if a person wants it. If someone wants better than is available, then the person should find it; but in such a search, the person cannot presume that his valuation of the marginal product of his labor is the only determinant of the wage he will be paid. In fact, the tides of labor markets are every bit as cruel as those faced by the entrepreneurs who ultimately bring together the factors of production, including labor. Markets determine prices. More difficult for labor is that, not only do forces far greater than the individual guide the prevailing wage rates, but it is demand for the final products that governs the "derived demand" for the factors of production. Unemployment is the luxury of trading off what would otherwise be earned at labor, and no rational person long suffering unemployment at an anticipated or hoped-for level of compensation can avoid the perhaps deeply troubling, eventual realization that he or she will never again make what was once earned, but that he or she will at the same time never again eat without accepting the new, prevailing labor market conditions.
As mean-spirited as that sounds, the Classical economist untempered by patience might very well lash out at a critic with something like this: "Should you not like the cruelty of the market, then join Karl Marx and his economics 'revolution'. Cry! Cry for the right of the worker not to be exploited! Maybe you can find a woman, as Herr Marx did, so devoted, so utterly in your thrall, that she will for decades work herself like a rude animal with no sense of her own pain for the bread on your table that you may sit in the warmth of a library day in and day out to contemplate the innumerable outrages of capitalism and the best distortions of history to validate your world-view."
I am by my training a Classical economist. It is only by great and sustained effort that I may see the economic world more evenly and bring convergence to the schools of thought to form a comprehensive scope of suitable view. I train my students first as Classical economists, too, and then bring to bear the apparent disputes that, in the end, they can share with me such a broadly reasonable and soundly based understanding. That does not mean I am interested in finding some mythical "center" or fantasy of "moderate" course, not for myself, and most certainly not for my students. Economics has carried me no place near "truth"; but by the discipline of the Classical school and the demand upon myself to bring to it that which is offered in Keynesian economics, I do know the way; and so, too, will my students, admittedly at the risk that somemaybe manywill stop when they have heard what they want to hear and will no more be a part of the difficult, demanding, and complicated journey from ignorant conviction to thoughtful uncertainty.
The term "positive economics" means the study of "what is," while the term "normative economics" refers to the study of "what should be." Ludwig von Mises, for all of the power he put into our hands to study what is, in the end made himself our role model for misrepresenting to both ourselves and to those who seek our counsel the extent to which we allow the normative to be carried on the steel wings of our powerful tools. I fight within myself the urge to pose as objective economic analysis that which is far from it; and to the extent that I eschew the words and results that always come out the way my compatriots want, I am subject to criticism: on the Left, there is a suspicion that I'm really a Right-winger in cloak; and there is no doubt that on the Right, I am viewed in my objective analyses as some traitorous and biased "Liberal."
I am close to von Mises in a compelling way, I must admit. Academia is a mean-spirited little world all its own, and von Mises suffered its peculiar excesses of ostracism. I know well the viciousness. To believe that academia has even a modicum of purity in nurturing and promoting freedom of thought is naïve. In a world turning to a new century polarized by Fascists and Communists, von Mises could find no academic institution in Europe or, later, in the United States that would suffer the radicalism of his scientific approach to economics, this despite the obvious success of his theory in modeling the macroeconomic dynamics of Austria in his early years. His lot was so grim that New York University, where he would finally secure a teaching position and stay until the age of 88, would never grant him more than Visiting Professor status and would insist that he be paid by funds from Right-wing organizations. Academia has changed only for the worse since then: he was afforded a decent living; now, academia's institutionalized rules ensure that the scholar and teacher unacceptable to professorial and administrative sensibilities teaches at length in the most difficult of situations and quite literally lives in poverty his entire, pathetic life.
It is the culmination of Classical economics: the value of marginal productivity, be it that of the great Ludwig von Mises or the lowly trash like me, gets what it deserves.
But stand we must on principle. While I want neither camp to think that I am somehow either the "sycophant" of Marx's condemnation or the sycophant Marx, himself, wanted for his groveling believers, my greatest hope is that I do not end my life as Ludwig von Mises did, having written my towering and greatest work, only to have it rendered utterly worthless as he did in one stunning sentence. Remember that quote above?the roar against the craven critics of our science? This is the very next sentence:
It must be emphasized that the destiny of modern civilization as developed by the white peoples in the last two hundred years is inseparably linked with the fate of economic science. This civilization was able to spring into existence because the peoples were dominated by ideas which were the application of the teachings of economics to the problems of economic policy. It will and must perish if the nations continue to pursue the course which they entered upon under the spell of doctrines rejecting economic thinking.This man who preened himself on the objectivism so critical to the claim of economics as science, this man who would pose in righteous indignation to condemn both collectivism and statism as destructive, subjective monstrosities was, himself, infused of the idea that it is the 'white peoples' and 'their' civilization that hold undeniable claim to all that is good and right about modernity and some 'destiny' we have, presumably to bring the savage world and its savages their senses by our obviously superior, enlightened understanding and ways.
So, in conclusion, I ask that I be forgiven for my direct address to the good professor on this, the 125th anniversary of his birth.
Herr von Mises, go to Hell.
Oh, that's right: you were an economist. You already did.
The Dark Wraith has spoken.
Thursday, September 28, 2006
Anatomy of a Cyber-Attack
Security rule- Default Block NetBus Trojan horse
Time- 2:28 PM
File name- N/A
Local address- XX.XX.XX.XXX [IP redacted for privacy]
Local port- NetBus (12345)
Remote address- 22.214.171.124
Remote port- 3520
It's small-time stuff: somewhat amateurish. The NetBus Trojan is too famous for its own good. Sort of like Rush Limbaugh trying to be anonymous at a Vegas brothel. He might be able to get away with it in the Dominican Republic, but not in the good ol' Hew Hess Hay (not that Mr. Limbaugh would do such nasty things anywhere in the world, of course).
I'm rather fragile about cyber-attacks in general, and since the brutal episode last weekwherein the firewall on my server got hacked and one of my own IPs was installed as a bogeyI've gotten downright bitchy. I'm going to take you on a brief educational lesson in cyber-sleuthing. I'm going to over-simplify things at every turn, and I shall do so to the end of keeping at least some of you marginally interested in what could otherwise be about the most boring post this side of "Making Cracker Crumbs." To those who would flog me for making things so simple that they're downright outrageous, I say this: bite me.
NetBus Trojan-type stuff is easily smacked down by any decent antivirus program. Anyone stupid enough to be on the internets these days without layers of shields deserves what happens. NetBus Trojan takes control of certain functions on your computer and makes them respond to a remote client's commands. In other words, your computer becomes what we call a "zombie."
Anyone who's seen Night of the Living Dead knows that being a zombie sucks big time, and the situation isn't any better for a computer: you end up doing all manner of things you really wouldn't want to do were you still to have a soul within your meat bag. A zombie computer can pump out thousands of spam e-mails every day, it can launch spambots that post links to casinos and porn sites on hapless blogs, or it can participate in distributed denial of service attacks wherein a whole bunch of computers simultaneously flood a server with little packets of data, thereby overwhelming and thus shutting down the victimized machine. Like I said, being a zombie sucks big time.
NetBus Trojan is lame, and so is the little dweeb who uses it for an attack.
So, now, let's get down to the fun part. Who was behind this little gambit? The key is in that "Remote address" line above. That string of numbers is a "dotted quad," or in more modern terms, an "IP address," a unique identifier of a machine. The problem is that most of you readers will have direct IPs, which means I can track you down very easily if I must; but if you're running through a "proxy server," I'm going to end up tracking you down to some weird place in the middle of nowhere. And if you're doing things to really cover your tracks, you're going to be using some program or service that will run you through all kinds of hand-offs that will make my job of finding you a total nightmare. I'll be chasing you down through "onion servers," academic racks, miserably weak Chinese computers, and pathetically out-of-date Eastern European clunkers, all to the final end of coming up bupkis.
I might try to contact the techs at some of these intermediate IP switching places, and they'll tell me that there's not a thing on Earth they can do to help me out: being on or even near the backbone means getting a zillion pounds of traffic hopping through on its way from one place to another, and no one can do anything about one lousy burst of packets popping in for an IP freshener.
Welcome to the Age of Anonymity... provided, of course, you know how to play the game (and like Hell I'm going to explain here how easy it is to play the game).
So that "Remote (IP) address" above is useless, right? Ah, not so fast. Remember that above I used the term "somewhat amateurish" to describe this attack? Well, here's why.
Let's run a WHOIS on that IP. First, let's try ARIN WHOIS. This is what we get:
OrgName: RIPE Network Coordination Centre
Address: P.O. Box 10096
NetRange: 126.96.36.199 - 188.8.131.52
NetType: Allocated to RIPE NCC
Comment: These addresses have been further assigned to users in
Comment: the RIPE NCC region. Contact information can be found in
Comment: the RIPE database at http://www.ripe.net/whois
If that data above looks like hogwash, you're smarter than you think you are about this kind of stuff. Yes, that search did nothing but take us to a bunch of nameservers we'd probably end up chasing down to get even more information that didn't tell us much of anything. We got bupkis. (We really didn't, but life is short, and there should be a quicker way to get some gold.)
Let's try again. Let's go to one of my favorite sites, DNSstuff.com. This place is like a candy store for the cyber-sleuth. It's not the best, but it's really user friendly compared to some other tracking sites.
Let's run that IP through the "WHOIS Lookup" utility. Here's the output, with some of the boilerplate stuff removed:
% Information related to '184.108.40.206 - 220.127.116.11'
inetnum: 18.104.22.168 - 22.214.171.124
descr: Please Send Abuse/SPAM complaints To *****@012.net.il
status: ASSIGNED PA
changed: ***@linux.goldenlines.net.il 20060605
role: DNS REG
remarks: Goldenlines DNS Registration and LIR
address: Hasivim 25 Petach-Tikva,Israel
changed: ***@linux.goldenlines.net.il 20060921
% Information related to '126.96.36.199/24AS9116'
descr: Golden Lines
changed: ***@linux.goldenlines.net.il 20050607
Oooo! Paydirt! The jerk came out of Tel Aviv! And it looks like some cable TV company that has a cable modem service, or at least something like that.
Oh, but maybe not. Recall that I told you above that the bogeys bounce around the world on "hops," picking up the IP addresses of hapless, innocent servers. This IP address in Tel Aviv, Israel, might belong to nothing more than a server that was on a hop the bogey did.
Darn it! That was almost exciting. Again, though, we got nothing.
Or did we? Let's go back to that screen and have a closer look.
Check out the line that reads,
"descr: Please Send Abuse/SPAM complaints To *****@012.net.il"
and think about it for a second. Every server has to provide a contact for abuse complaints. That's a rule. But look at that e-mail address for complaints: *****@012.net.il. There's nothing in front of the '@' except for a string of "wildcard" stars, which means the e-mail address is useless. Of course, you can always simply put whatever you want in front of the '@' and send them a message: one place on the Internet shows a complaint address of Abuse@012.net associated with Goldenlines Ltd., which apparently owns the server from which the exploit came to us.
Nevertheless, they've made me curious.
Let's go back to the main DNSstuff.com page and run that IP through the "Abuse Lookup" utility, which should tell us exactly who the abuse contact is for the domain.
Oh, my. Here's what we get:
Looking up 188.8.131.52 at whois.abuse.net.
Above are the results from www.abuse.net, and are the E-mail address(es) that abuse complaints should be sent to.
See that blank little grey box? It's supposed to be filled with information, but it's not. Well, my goodness, gracious. Whoever runs this server is just making me curiouser and curiouser.
Let's go back to the main page of DNSstuff.com one more time and use the Spam database lookup utility. (See what I mean about that DNSstuff.com site? It's a candy store.) We put in the IP address and we get the results from requests made to 271 services concerning that IP. They pour out, row by row, telling whether or not the IP submitted is in their respective databases.
HEL-lo! Nine bright red rows. In other words, nine databases have that IP being listed for blocking or other action.
The server is a swarm node. Either it's a source, or it's so weak that half the pimple-faced loser computer geek crackers hanging out at the corner of Cheetos Street & Sleep Deprivation Avenue are popping it.
And there's no e-mail address for the complaints desk. Understand that this '012 Golden Lines" claiming the IP seems to be pretty pleased with its operations. The homepage is all in Hebrew, but they do have a company profile blurb written in English. It's the usual, self-pat on the back.
That company profile page for 012 Golden Lines is not without its irony, though. After bragging about its voice over broadband (VoB), wireless public Internet access hot spots, video on demand, and other services, we get treated to a nice brag about their "...email services that include the use of a personal mailbox from any computer (webmail), anti virus, anti spam ,content filtering, surfing from anywhere in the world..."
So what do we do? Well, there's the InterNIC Registrar Problem Reports Webpage, but you'll notice pretty quickly that, even though they have a complaint form you can fill out, they let you know in no uncertain terms that, no matter what your problem is, it's not their problem. In fact, those cats have this little beauty of a disclaimer:
"If you have a problem with one of the registrars, you should first try to resolve it with that registrar. Contact information for the registrars is posted at http://www.internic.net/contact.html.Of course, if you can't track down the registrar, that makes their first suggestion sort of moot. And all those 'private-sector agencies involved in addressing customer complaints or governmental consumer-protection agencies'?Uh, yeah. Sure. Find someone who cares; and when you do, let me know.
"If you cannot resolve your complaint with the registrar, you should address it to private-sector agencies involved in addressing customer complaints or governmental consumer-protection agencies. (The appropriate agency will vary depending on the jurisdiction of the registrar and the customer.)"
Okay, I shouldn't be that way. The Feds have several avenues available, but I won't give you links here. I have this thing about not being a turkey making loud turkey calls to people who might think I'm a turkey.
Don't ask me what that last paragraph meant; just leave me out of it if you're going to have law enforcement of the 21st Century be your helpmate.
In conclusion, let's run down where our little adventure got us. Ah, yes: nowhere. We know the name of the exploit that was trying to get in, and we know in a general way what it does if it makes it into a computer. We knowmaybe sort of, maybe kind ofwhere the attack originated, but maybe we don't. In fact, to be honest, we really have no clue yet about the particulars of the festering little nodule of a human being who was responsible for launching the attack. We know that the company running the server from which the attack came our way is going to whine that there's not a damn thing man or God can do about servers being used as pass-through points for malicious Internet bogeys.
And finally, we also know that no one in the universe really cares about our tiny little problem because the Internet is an unregulatable jungle. (Note there, by the way, that I described it as 'unregulatable', not 'unregulated'.) If you were a very important person or a very reputable corporation, people would care. Law enforcement authorities tasked to cyberspace criminal exploits would work with you. But you're not that important, and neither am I.
Some of you might recall what I've said before:
I'm just a computer program waiting for deletion to be confirmed.
Protect yourself. It's really dangerous out here in the night of this new world.
The Dark Wraith now rests.
Tuesday, September 26, 2006
Put a Cork in It, Arianna
Okay, it was not she, herself, who sent me the e-mail message; it was most likely a "cron job" the server does on a 24-hour cycle, but I still feel close to the big dogs when I get those early-morning reminders that she and her crew have once again written the definitive word for progressives on the events of the day.
Most of the time, I enjoy reading the latest articles at The Huffington Post. This morning, however, Arianna irritated me. In fact, she did so to the extent that I actually posted a comment to the article. Unlike John Dean, who a few months ago chose not to publish a comment I made to one of his articles at FindLaw, Ms. Huffington's people got mine up on the board after a few hours. That Ms. Huffington will never read what I had to say to her is pretty obvious; but that she is in dire need of having her journalistic pedestal brought down just a few notches is equally obvious, at least to me.
You see, her article was about Bill Clinton: she used the occasion of the former President's ass-mauling of Fox's Chris Wallace to let everyone know that she most decidedly is not sufferingO God forbid!the awful disease of being all Soft On Bubba. The particular beef in her stew is that, although Mr. Clinton has now endorsed Ned Lamont for the Senate race in Connecticut, he still might have... uh, you know... certain... how should I put this... ummm... tendencies.
Yeah, that's the ticket: "tendencies." Even after the primary, even after the Democrats of Connecticut had spoken, the Big Dog might still have... gawd, but this is embarrassing... Feelings For Joe.
Now, let's get something straight, here. No one who is a regular reader of mine should have any doubt that I am delighted that Joe Lieberman lost the Democratic Senate primary in Connecticut. The man had become the poster boy for appeasement of bad, bad men and women who have for nearly six miserable years held a death grip of incompetence and mendacity on the reins of power in Washington.
At the same time, though, I'll take this opportunity for a quick side tripa little detour for a scenic visit with that nice young Ned Lamont fellow who can get Arianna to show off her best sneer to boring old Bubba:
Sir, you'd damn well better be as good as your supporters think you are because, once a political base gets a taste for the blood of its own kind, it just might want another taste of the good stuff pretty quickly; so you'd better hope the next hunting trip we go on aims to bag a few more cowards in our midstguys like Inouye, Rockefeller, Salazar, and Baucus, to name a fewand not you because you turned out to be a rich-boy campaigner and not a hard-working, brass-knuckles, long-haul representative of the people. In other words, Mr. Lamont, don't look all surprised when the revolution comes back to your door if you don't deliver in spades.Back to Arianna and me. She and some of her commenters annoyed me to no end. Proving how worthy she is of the Authentic Progressive brand label has worn thin on me; but Lord knows, I maintain decorum, even during the adversity of a Washington pundit who pumps her "blog" content promos out like the Weiner Mobile pumps out hot dogs at the ball park.
Having said that, godspeed to you, Ned.
Herewith reprinted is my comment posted on the thread for that article at The Huffington Post.
It seems that the latest fashion in objectivism among some Democrats is to claim they never really liked Bill Clinton or that they somehow are enlightened enough to understand how deeply flawed he now is or was as President.
Such hubris. Such utter hubris.
Perhaps someday, someone will find a candle he or she can hold up to Bill Clinton; but that won't be today or even tomorrow. Neither the small and hateful legion of incompetence on the Right nor the faddish, "I'm so intelligent that I'm objective" on the Left could muster a jury of Mr. Clinton's peers.
I would humbly suggest we set as our single, invariant goal the destruction of the Republicans as the ruling party.
When that glad task is completed, we might want then to purge the ranks of elected Democrats, specifically addressing those who groveled cravenly to the venal agenda of this extremist Administration for the past nearly six years.
Once that noble, if brutish, work is completed, we might want to turn our attention to shouting down the secular and religious extremists who have promoted with their mouths and their money the policies of this awful Administration.
Should we be successful in those worthy endeavors, perhaps from our ranks will then have emerged someone of such stature that he or she might sit in harsh and final judgment of Mr. Clinton.
But, again, that won't happen today, nor will it happen tomorrow.
And it certainly won't happen here.
By: DarkWraith on September 26, 2006 at 09:46am
In conclusion, then, Ms. Huffington, this is the bottom line: the next time you feel the urge to start braying about the failings of former President Clintonthose during his time in office or those of his current rank as elder statesmantry your best to think long and hard about how the period from 1993 to the end of 2000 compares to the past six years. Try your best to imagine that midget we now have for a President being anything other than a lying, venal failure for the rest of his life.
And if the stunning juxtaposition of Bill Clinton against George W. Bush can't get you to shut your cake hole, then please, Ms. Huffington, just do the right thing and put a cork in it.
The Dark Wraith has spoken.
Monday, September 25, 2006
In Response, If Response Were Appropriate
Now, someone please give me logical and true explanation as to why gas is now under $2/gallon? The neo-con response is it is the end of summer driving, and prices always drop this time of year. But this is a 90+cent drop since the Lieberman/Lamont primary! Or since Isreal and Lebanon "quit" the shooting... both events heralded the slide.I elevate my answer to her to an editorial post, and I do so in part specifically because I am interested in avoiding giving answers to her query. I leave it to the readers to understand why I would not want to answer a question about the current state of gasoline prices.
Hence, herewith is my response.
Good morning, Wild Clover.
It never ceases to amaze me that the mainstream media pundits find all kinds of irrelevant reasons for what happens in the world.
The truth of the matter is that, a few months ago, there were pinches in the extracted hydrocarbons supply chain. These were not all that notable; but what was notable was the violent price reactions in the futures markets for raw and, by consequence, retail hydrocarbon products.
More notable still was that I did not hear one media punditnot one of any significancemention the fact that some of the biggest participants in those futures markets for crude, gas, and distillates are the oil industry companies, themselves. Every last day, those corporations are in the markets hedging and playing with open positions in the billions of dollars; and lots and lots of tradersmost of whom are way too smart to buck hurricane price movementsfollow the herd, even when the herd is led by a bunch of bull(s).
That part of my preamble to a rant might sound good to the weary heart of a progressive person, but there's a whole lot more to the story than just the tale of a bunch of greed-driving, multi-national corporations that are, by their very presence in futures markets, affecting and maybe even manipulating gasoline prices. The rest of the story has parts with the serious potential to irritate some on the Left as well as just about everybody on the Right.
Folks, for the next fiveprobably ten or moreyears, there's going to be plenty of oil. Major new platforms are going to be springing up, pipelines are coming online that will allow for better distribution, and we might even get our heads out of our butts and get some better refining capacity of our own lined up.
That doesn't mean there won't be problems. We are competing with aggressive, nasty cheaters: Russia is in the business of trying to exercise something that looks like monopoly control over hydrocarbons not just within its own boundaries, but all through the region. China has a history of cheating like a mo'fo' at everything it does in international trade. The Middle East will remain about as stable as a drunkard standing in a canoe to pee.
We used to be pretty good at the games, too, but we're being out-maneuvered, out-flanked, out-smarted, and out-spent everywhere we turn, these days.
In a nutshell, we are getting our butts kicked.
But "we" refers to you and meto all of us, both individually and as a nation. Oil companies will do quite well because they're not in the business of protecting the "we" that includes you and me and all of the rest of America, and they're most certainly not in the business of protecting the "we" that includes you and me and all of the rest of the peoples, animals, plants, ecosystems, nation-state autonomies, and postulates on human rights and dignities of the world, even though it is nation-states that ensure the massive financing through the World Bank and its affiliates for their profitable ventures.
And the "we" that includes the you and me and all of those other non-corporate things and ideas? We're on our own.
And as an aside, we've gotten ourselves pretty much roundly hated just about everywhere, but that's not really the important part; what will become overwhelming to the dialogue of the future about the American economic empire is the reality in the here and now that we have lost the world's presumption of the enduring standard of our currency. It is no longer respected; and in time, just like our military might, it will no longer even be feared.
Now, don't get me wrong: it's going to be years before the dollar loses its status as the denominating currency of choice in international contracts, but the handwriting is on the wall. We've squandered our future for a few short years of butch cowboy stupidity and national financial irresponsibility; and no amount of military firepower, swaggering neo-conservatism, and vapid flag-waving is going to fix that.
We had our fun. And just for old time's sake, let's pull out a credit card for one more toy we don't need, and let's go get a mortgage for a house far beyond any semblance of basic, reliable shelter. Yes, let's do that: the Communist Chinese government has its wallet open for one more round of beggars.
Of course, among us are those who honestly do live by the maxim that enough is abundance, but no one gets to walk away clean. Unlike Jesus, who insisted He was in but not of this world, we don't get to die brutishly but with a really cool Get-Out-of-Hell-Free card. We're in and of this world, whether or not we particularly like the blood and misery it lays to our own material lives and eternal souls.
Here's the good news: it is not "we" who will pay. Most of us will be dead before the time of reckoning is upon us. If we're lucky, we shall be buried deep enough to be spared listening to what the "we" of our world's future will say of us.
Yes, for a while longer, oil will be relatively plentiful, competition for it will be fierce and nasty, and gas prices will go through spasms of economically debilitating volatility.
But there will be enough, at least for the "we" of this moment.
That's what I want to say; but I won't.
The Dark Wraith believes that sometimes it is best to let the future tell its own story.
Tuesday, September 19, 2006
Special Graphic Post:
When a Server Gets Hosed
Recovery of The Dark Wraith Forums and Big Brass Blog is still underway.
The Dark Wraith is less cheerful than usual right now.
Saturday, September 16, 2006
The Written Peace:
Open Forum of September 16, 2006
Pundits will prognosticate, then look back and explain; but the damage to the modern neo-conservative movement and its craven appendages will be the result of something not nearly as well understood as some would have us believe. Yes, of course the Republicans have caused all manner of fiasco during their six-year reign, but let us have a moment of honest, if discomforting, analysis.
Our occupations of Iraq and Afghanistan have become unmitigated disasters, but the average American would not think of using the term "unmitigated disasters" to describe the two situations. Many who would once have had no problem at all with George W. Bush, his policies, and his methods are now beginning to grasp that things are not going well, but they still get virtually all of their information from the mainstream media, which still reactively retouch and soften what their own reporters are seeing on the ground, both in those two miserable countries and in Washington. People know something is wrong, but they don't know how wrong it is.
We here in the Blogosphere know how wrong things are going, but ours is a selective group: we're news hounds, we're information consumers; we're not only interested, but we're also interested in finding out. And we're atypical.
But the tide of public sentiment in the country is shifting; and if my reading is accurate, the shift will be reflected in dramatic fashion come November. This reflects currents affected by forces much deeper than the news of the day, the week, or even the year. Public sentiment, expressed through the political process, has a life of its own. The promoters of one political view or another are only marginally responsible for the tides that ebb and flow. The psychology of the American electorate is a living, sentient beast of its own right; and it behaves by forces that are better understood in long historical retrospect than in anything approaching the currency of a movement of those tides.
Demographics are part of it: as crests and troughs form across cohort groups, different balances of public opinion come to dominate, recede, and vanish, only to re-emerge much later as if out of nowhere. Other forces are in play, too. Economic, intellectual, technological, and even environmental and ecological pressures change the way people express themselves politically. What seems impossible to imagine a society even so much as contemplating in one era becomes altogether fashionable and dominant as political preference in another.
Change is coming. For progressives, it will be welcome relief. But make no mistake: a reign of a dozen years by intelligent, effective, dedicated people will not repair what six years of Republican rule have wrought upon this land. We as a nation are diminished, and some of the harm is irreparable, both to us and to the world we were supposed to have led into the new century. And lest anyone forget, two years ago, sixty-two million American adults voted for George W. Bush, the man on whose watch a little cabal of maniacs in a matter of only a couple of hours wiped out 3,000 of our own fellow citizens and $31 billion worth of property. Whatever alliances we form with former Bush supporters, they will always be former Bush supporters.
We should keep that in mind, even as we must find ourselves gratefully climbing into bed with them to fix a badly injured nation.
That's enough of that. Agree or disagree with me in the comments. This is an open thread: you speak your peace here.
Allow me once again to treat you to a little history of the English language. The brief passage below has wonderful and straight-forward implications for our own time here in the United States. This paragraph is by a scholarly bulwark of the late 14th/early 15th Century, John of Trevisa, who was quite the colorful and opinionated gentleman from the South of England, where the "better" people lived. I shall allow you to slog through his fine southern dialect of Middle English to figure out the substance and details of his righteous rant. In the comments, once you've had a chance to take your stabs at what he's going on about, I shall offer a translation. As one helpful guide, the "thorn" character, þ, is pronounced as a thick th: so, for example, "þis" is nothing more than the Middle (and Old) English way of writing "this." Other than that, pronounce the words phonetically, and the meanings of most of them will become obvious pretty quickly.
"...Al þe longage of þe Norhumbres, and specialych at York, ys so scharp, slyttyng, and frotyng, and vnschape, þat we souþeron men may þat longage vnneþe vndurstonde. Y trowe þat þat ys bycause þat a buþ nyy to strange men and aliens, þat spekeþ strangelych..."Just delicious. And so timely, too.
Say what's on your mind. The weekend is fresh, the espresso bar is open, and we might have time for a rousing rendition of "Gimme One More Chance" by the Republicans Without Jobs brass band.
The Dark Wraith reaches for the earplugs.
Wednesday, September 13, 2006
Special Blog Post:
Big Brass Blog, Release 2.0
The project that has consumed me for the better part of a month is now ready for its public debut. Without further narrative, The Dark Wraith Forums proudly announces that Big Brass Blog, "The Blog of the Greats," lives.
The Dark Wraith is thoroughly toasted from this latest adventure.
Monday, September 11, 2006
Special Blog Post:
The man at left was the leader of our country on that day: on September 11, 2001, he had been the President of the United States for 234 days. His name is George W. Bush; he is the 43rd President of the United States. One thousand one hundred forty-eight days after the attackson November 2, 2004he won re-election, garnering 62,040,606 votes, while his closest rival received 59,028,109 votes. The man at right has been held responsible for directing the attacks upon the United States of September 11, 2001. He is Osama bin Laden. He has not been captured or killed in the 1,826 days since the attacks. He has, instead, continued to be the spiritual and inspirational leader of an organization called al-Qa'ida, which has in the intervening time been in part or in whole responsible for leveling as many as 30 significant, lethal attacks across a dozen countries, among them Spain, Great Britain, Egypt, and Indonesia.
Since 2001, Mr. Bush and his allies in Congress have spent $430 billion waging a "global war on terror." This world-wide engagement includes large-scale wars in two countries, Iraq and Afghanistan, where a total of approximately 3,000 American soldiers have been killed, along with perhaps 70,000 civilians.
Yet, despite all of the thousands upon thousands of lives lost, the hundreds of billions of dollars spent, and the nearly two thousand days since the United States fell victim to the largest attack in history on its continental soil, the man in the picture at right, above, is still free, and by President Bush's own testament we must remain fearful because al-Qa'idaas well as other, similar terrorist organizationsremains a clear and present threat to the United States and its citizens.
Lest we ever forget what has become of our nation in the years and days of George W. Bush's Presidency, we must continue the counts, for it is in the numbers that the truth shouts for all to hear, should we so choose.
The Dark Wraith has thus spoken upon the anniversary of a melancholy day.
Thursday, September 07, 2006
Special Graphic Post:
A handy sidebar version of the above graphic is available for download here. The Dark Wraith herewith grants permission to republish any of these graphics at full or reduced scale.
Saturday, September 02, 2006
Rationality, Incentives, and the Agency Dilemma
Moving along, to present an important concept from economics in this article, two assumptions will be presented in the course of this exposition. As is typical in Pulp Economics articles here at The Dark Wraith Forums, we shall advance the plot by featuring the activities of an average person whose life cannot help but be infused of economics. Along the way, we shall also set forth some terminology in a more or less formal way. A few terms to lay the groundwork must be provided at the outset, but first, the protagonist of this story must be introduced.
Percival Luntz has lived near Batavia his whole life. He graduated from high school back in 1994 and has worked in the area ever since. The best job he had was at the chemical factory over in Wyoming County, but that place closed its doors in 1999. A couple of wood mills still kept busy, but Percy couldn't keep up with the pace the foremen expected. He did some construction work, but not much new building had gone on in the whole area since so many men got put out of work when the factory closed. For a while, he was driving to Rochester to work at the mall, but gas prices eventually made the trip too expensive so he finally settled down to work at the Ice Kreem Kween at the corner of Jackson Street and Maple Avenue, where he's been for the past year or so.
Percy is a pretty solid worker. He was brought up by his mother since his father died in a fishing accident in 1988 when he was reeling in a walleye and fell out of the boat and drowned when he tried to net the thing. Percy's dad had instilled in him some good values, but it was his mom who got Percy to thinking right about being honest and working hard.
Not everyone at Ice Kreem Kween was like Percy, though. It wasn't Percy's business, of course, but Ned Stambaugh, who owned the Ice Kreem Kween, hired a lot of people, especially high school kids, who just didn't have what Percy's mother called "the work ethic"; but Percy did his job just fine, and at least at first, he figured it was up to Ned to know what was going on at the shop. If Ned didn't care, why should he? That way of thinking didn't sit well with Percy, though, and as time went on, he saw things differently.
In economics terminology, Percy is an economic agent. So is Ned, and so are all the other people who work at Ice Kreem Kween: each person has a set of incentives governed by what we describe as bounded rationality, which is to say that they, like all people, are genuinely rational in their decisions and actions, but those decisions and actions are made under constraints, four of which are significant in almost all situations.
Constraints on Rational Action
The first constraint on rational action is information. People who know Percy don't think a thing about the fact that his front teeth on both the top and the bottom look funny, but strangers kind of stare at him when he smiles because they're trying to figure out why those front teeth are so white compared to the teeth just to the sides of them. The truth of the matter is that those incisors Percy sports are false teeth: he lost his real teeth in an accident in 1991, when he was a sophomore in high school. It seems he and some friends were messing around out by the old, abandoned mine just off what's now called Fort Street. Percy's friend Joel, a scrawny kid with a knack for climbing and crawling in tight spots, had managed to work his way past a rusty steel barrier at the entrance to one of the mine shafts. Joel came back from his foray down that shaft with a box of blasting caps. They were as old as dirt, and that's what they were covered in, but Percy, Joel, and "Bruggie"that's what everyone called Harmon Bruegemandug out the dirt from the box and retrieved four perfectly good looking ones.
None of the boys had ever seen one of these things before, and they certainly didn't know how to make them blast, but Joel said he thought they were sort of like loud firecrackers. The boys went back to the repair garage Bruggie's dad ran, and they put the blasting caps on a table. Joel took a whack on one of them with a hammer, and nothing happened. Bruggie tried, too, but the thing just sat there. Joel and Bruggie banged on the thing several times each, but they got nothing for their effort. That's when Percy grabbed one of the other blasting caps and said, "Lemme try this": he put it against his lower front teeth and chomped down hard.
The thing went off like a gunshot. So did Percy's front teeth. Fortunately, even though his lower lip took a pretty good measure of the blast, it stayed attached, and Doc Gatshalt was able to sew it back on darned near perfectly. The dentist in town, Dr. Yoeman, couldn't do anything to save the teeth even though Bruggie found two of them on the other side of the garage. After Dr. Yoeman dug what was left of the roots out and gave Percy's gums some time to heal, he put in permanent falsies. They weren't the best but they took, and Percy looked pretty good for his photo at the Junior-Senior Prom the next year.
Even though Percy's uncle called him the "dumbest ass God ever made" for biting down on the blasting cap, Percy knew better. For one thing, he'd gotten more B's than C's in his freshman year of high school; but more to the point, he knew he'd learned a valuable lesson from nearly blowing his face off.
Percy wasn't dumb, and he certainly wasn't irrational; he just lacked the information about blasting caps he would have needed to make a better decision. He'd never seen one before, and he didn't understand the risks involved with pyrotechnics of any kind, since he hadn't grown up around guns or anything like them. His dad was a fisherman, not a hunter, so Percy didn't really even know about the force, heat, and pressure that can be created by things that have explosives in them. Percy biting down on the blasting cap wasn't irrational; it was, instead, an act committed under severely bounded rationality. From a financial economics perspective, Percy was rationally accepting risk for an expected returnthe thrill of having the cap explodebut his assessment of the risk was woefully lacking. In other words, people accept greater risk in order to get what they expect to be a better return; but in Percy's case, he did not yet grasp that lack of information is, in and of itself, a sourcemaybe the primary sourceof risk. Had Percy known that his ignorance was creating extreme risk, he might have considered any return he expected to get from his stunt not to have been worth it.
The second binding constraint on rationality is time. Ned, the owner of Ice Kreem Kween, was forever saying "time is money," but Percy knew this was a fact. That drive Percy had made clear to Rochester every day wasn't just draining money directly from his bank account; it was also taking away his ability to do something else with his time on the road. Percy kept thinking to himself on that long drive that he could be working in Batavia instead of being on the road for a couple of hours, and he'd be earning money instead of burning gas. Even if Percy could clear just five bucks an hour working at some local place, he was wasting about fifteen to twenty dollars every day just being on the road instead of working.
Percy was right on the verge of understanding the economics concept of opportunity cost: the cost of the most valuable alternative foregone by taking an action or using something. In fact, Percy really did grasp opportunity cost pretty well. He never went into the fancy grocery store in Batavia, a place called Shirkman's, because the prices were too high there; but the well-to-do people in town all went there, and their motivation was more than about the quality of the produce, meats, and other items on the shelves. It had much more to do with the opportunity cost of time: the wealthy people were willing to pay higher prices so they wouldn't have to wait in the ridiculously long lines at places like Walmart, where the prices are lower, but the lines are always stupid. The linesformally called "queues" in economics and industrial and systems engineeringrepresent a hidden, indirect cost: people who make low wages have a lower opportunity cost of time than wealthier people, and this is reflected in many behaviors, not just willingness to stand in long lines to save a couple of pennies.
But rich or poor, people are trapped by time. Percy had planned to take some classes at the community college. He never got around to it, and his plans to do so got fuzzier and fuzzier the more he made working full-time and then some. To an outside observer, Percy was not being all that rational by foregoing college, especially since he was a pretty bright fellow. But for Percy, attending classes, doing the necessary studying, and driving back and forth to school was part of the total costthe sum of direct and hidden costsand that total cost was going up and up as Percy made a better and better hourly wage as his productive life proceeded. The constraint of time was quietly but effectively forcing Percy to make choices; and even though the choices Percy was making might not have been "rational" in some grand scheme of a well-planned life, they were most certainly rational when considered in the context of the binding constraint of limited time that had to be allocated from day to day and week to week in his life.
The third constraint binding rationality is capitalspecifically, money. A whole lot of decisions seem irrational to an outside observer who has the money to do something "better." When Percy needed those new teeth, it would have been better if his mom had taken him to Rochester, where orthodontists could be found who do that kind of thing every day. As it was, though, Percy's mother couldn't possibly have afforded that kind of fancy work, so Dr. Yoeman took care of it (even though he really wasn't supposed to since he was just a dentist, after all).
Money can help people make the right choices. More to the point, lack of money can make people look like they're stupid, crazy, incompetent, or just plain lazy.
The fourth constraint on rational behavior is cultureculture in the large, culture at the level of the community, culture at the level of the family, its religious practices, its peculiarities, and its background. In Percy's case, this played out powerfully every day he worked. His boss, Ned, was hardly ever at the shop anymore. He let Percy run the place, even to the extent of taking care of getting cash money from the bank every morning and taking the receipts to the bank every evening. Percy could take a twenty or even a couple every so often, and Ned would never miss it. But Percy never did.
Percy's dad died while fishing, something he didn't have to do. No one in the family was all that thrilled about eating fish, and Percy's father could well afford to buy meat at the grocery store. Fishing wasn't a rational activity, except that it was a culturally sanctioned, almost required, behavior among men of his time and place. You either fished or you hunted or you did both; and if you didn't do anything like that, there might be something a little odd about you. Percy's dad didn't even think about the actual why of his hobby: he just did it, and he did it at least two or three times a month. Eventually, he got killed pursuing his hobby. As Percy would grumble years later, "He didn't even get the damned walleye," a expressed sentiment to which his mother sighed and nodded her head in agreement.
Rationality and Greed
Bounded rationality is still rationality; and in economics, one of the most rational of human instincts is greed. More is better than less, and more is preferable to less. If it comes down to you or me, I'll choose for me unless I think I can gain something really important by taking care of you first. Even if someone's going to die to save someone else, there'd better be a darned good reward in the afterlife.
If the Lord Jesus Christ came to a Christian and said, "Your life is pre-ordained that you should die and burn in the tormenting fires of Hell for all eternity," most Christians would dispense with the much-touted "purpose-driven life" right on the spot. If the Prophet Mohammed were to step in front of an Islamic suicide bomber and say, "I'm sorry, but that mullah who told you that blowing yourself up to kill some infidels would earn you brown-eyed virgins in Heaven was full of camel crap: you do this, and I'll personally see to it that Allah brings you back as a sand flea stuck in the dried turd on a goat's butt hair," the young bomber would very likely say something like, "Oh. Well, screw that then," and give up his plan to decorate the shopping mall with his shrapnel-infused viscera.
That's how economists see it, anyway. Greed is the motive force of life. Contrary, however, to what the character Gordon Gecko said in the movie Wall Street, greed is not "good." It isn't bad, either. It just is; and it is the fundamental reason people do just about everything they do.
This assumption of greed as both neutral and central in human action was the triumph of the so-called "father" of economics, Adam Smith, as he broke the ancient connection between religion as a guide to human action and instinct as the motivator of human action. Greed is not some "mortal sin"; greed is what makes people act rationally to benefit themselves. The "desirable" and the "desired" are not the same: the first is the realm of ideals, the latter is the realm of reality.
But the expression of greed, like all results of rational human action, is constrained by information, time, money, and culture. For some, greed compels taking without thought and without concern for reciprocation, accommodation, or larger issues of interpersonal consequences; for others, greed is far more narrowly focused, perhaps even suppressed, by everything from available opportunities to real or imagined fears of adverse formal and informal consequences. This is what lays out the spectrum of human behaviors as each person lives and dies in a world of those who are more capable of predation than trustworthiness against those who are more prone to be the counterpoint to and prey of the greedy.
A recognizable, legally definable entity is called a "person." A person can be an actual human being, but it can also be something larger, like a married couple acting through the contract of marriage or like a partnership or corporation acting through the contract of its recognized organizational enterprise. In the case of the marriage, the "couple" is a person, significantly bound by and recognized through the state-sanctioned, standardized, legally enforceable contract of marriage. A partnership is a person by virtue of the expressed or implied, legally enforceable contract that constructs the interactive, joint relationship of action in the enterprise to which the partners are mutually bound. A corporation is a person by virtue of its state-recognized, qualified, so-called "articles of incorporation," which set forth the particulars of matters that include, among many, the divisibility of the entity's capital stock among its current and possible owners and the physical place of nominal business activity. A government is a person, too, by virtue of its sovereign right to act as a single, unified, comprehensive body with respect to the governance of its citizens and other residents, its right and capacity to make treaties with other, similar sovereign entities, its ability to specify and enforce terms of internal and external commerce, and its putative right and nominal ability to interact with expressed defensive or aggressive intent and result against other, similar entities.
A "principal" is a personspecifically in economics, one that is acting to the end of maximizing self-interest. An "agent" is a person who is charged by formal or informal contractual agreement with carrying out such duties as will promote the maximization of a principal's self-interest.
Percy is Ned's agent with respect to the enterprise of Ice Kreem Kween. Because Ned incorporated the business under relevant provisions of general corporation law of the state, Ice Kreem Kween is a person in its own right, and Ned is its owner. The employees of Ice Kreem Kween are contractually bound to do their best in their productive employment by the company to advance the interest of Ice Kreem Kween. In other words, the employees are duty-bound to do whatever they must, given the business and legal environment constraining their actions, to ensure that Ice Kreem Kween is as profitable as possible.
Agents and principals operate within the context of a contractual relationship. Such contractual agreementsand even some agreements that don't meet all the criteria of 'contract'can be expressed or implied; they can be written or oral; and they can be "bilateral" or "unilateral." The 'expressed or implied' simply means that the parties to them can explicitly declare that there's an agreement, or they can simply understand, without saying or writing as much, that there's an agreement. The 'written or oral' means that the parties can write down exactly what their agreement entails for everyone involved, or they can simply say as much. That 'bilateral or unilateral' part means that contracts can place obligations on each side independent of performance by the other, or they can place obligations on one party that are relevant only if the other party performs.
The key, though, in agency relationships is that some kind of agreement exists whereby one party is duty-bound to advance the interests of another group.
Back about a year after Percy started working at the chemical plant, he got called to the corporate offices, which were located in a beautiful five-story building on Sandusky Street. He drove there during his lunch hour and went in to the lobby. He'd never been in the building before, so he was pretty amazed by how fancy everything was. This was back when Batavia was still doing well as a community, but the inside of that corporate office building was darned nice, even by the standards of the snooty people of upstate hicksville. Percy was escorted by a nice young man to an elevator and taken to the fifth floor, where he was introduced to a secretary sitting at a desk near a set of huge, polished wood doors. The lady called someone on her phone, and then said, "Mr. Proctor will see you right away."
Mr. Proctor was one of the vice presidents of the company. At least that's what Percy had heard. The doors were opened, and the secretary took Percy down a long, wide hallway, past doors to offices and open areas, and finally to a set of doors near the end. Sure enough, the name plate on the door read: 'John Proctor, Vice President, Human Resources.' The secretary knocked on the door and then took Percy in. Mr. Proctor got up from his chair, which was behind the biggest, most impressive desk Percy had ever seen, and reached out to shake Percy's hand.
Percy was sure he was going to get sacked, but he couldn't figure out why such a fuss was being made to do it. Mr. Proctor asked him, "Percy, how much do you know about Hockman Industries?"
Percy was shaking in his boots as he sat down in a nice chair in front of the desk, but he didn't let on. "Well, sir, I guess that's the company that owns the plant."
"You're right, Percy," Mr. Proctor smiled. "This chemical factorywhat we all call the 'Delta III Facility'is one part of a subsidiary of Hockman Industries, Inc. We're part of a public corporation: our owners are tens of thousands of shareholders all over this great country. Those stockholders have chosen to invest their hard-earned money in what we do for a living. Wethat means you, me, and everybody else who works herework for those shareholders, so we all have to do what's right by them, even when it might not be right by our co-workers, our friends, or even sometimes those we love and care about. Now, we surely don't want to ever be in a situation where it comes down to our jobs or our families, and I think we've done pretty good by our employees."
Percy couldn't argue too much with that. He was making more money than he ever had beforenine-fifty an hourand Mr. Proctor was pretty much right that a fellow should do what's best for the people who own the place where he works, so Percy summed it all up by saying, "Yes, sir, I agree."
"Good," Mr. Proctor smiled. "Listen, Percy, I need you to tell me the honest-to-God's truth here today. We've been hearing rumors that someone's trying to start up a union down at the plant. Do you know anything about this?"
Percy felt a little sick inside. Joel was the one doing the union organizing: he's been working with some people out of Rochester who'd given him literature to pass out. In fact, one of the pamphlets Joel was distributing the week before was right there on that gigantic desk of Mr. Proctor's. "Yes, sir, I've heard the talk, but about all I know is that the literature is just showing up in the break area." Percy figured he'd live through this with some lies, then he'd get Joel over to his place that night and kick his butt for getting people in trouble with the union stuff.
"So you're saying you don't know who's doing this, then," Mr. Proctor pressed.
"I'm not saying I don't know anything," Percy answered. "Everybody knows there's a few trouble-makers, and everybody I talk to figures it's gotta be the same people... probably the same ones who never get a lick of work done and never show up for work on time." Percy was going to do his best to lead the vice president off the trail and give him something to try to figure out for himself. "I understand everything you said about the shareholders and how we all have to do what's best for them, but I don't want to be the one who rats on people who could cause me and my mom grief, especially since I haven't seen anything myself, and everybody I know is pointing fingers at everybody else."
Mr. Proctor was looking a little puzzled. "What do you mean, 'pointing fingers'? Are the people at the factory not wanting a union?"
Now, Percy could get back to the plain truth. "Everybody figures that you'll shut the plant down the minute a union comes in out there. We'll all be out of jobs, 'cause you'll take the whole operation and move it to some Third World country." Percy straightened himself in his seat. "Even if some union tries to come in here, sir, no one's going to vote for it. You'll just can every last one of us. It's like you said: you have to do what's right by the shareholders; and paying us big money and giving us things like medical benefits is money out of the pockets of the owners... just like that great big giant desk you're sitting behind and just like that Lear Jet you guys fly in and out of the airport every day and just like this whole office with fancy oak doors and carpets better than anything my mother will ever have in the home she dearly loves and pays for with her own money."
Percy was expecting to hear Mr. Proctor fire him right there and then; but instead, he just laughed. "I'll give you credit for speaking your mind, Mr. Luntz. You've got it all wrong, of course, but it's not your job to get things at the corporate level right. I can always rely on Bill Teller to tell me what's really going on down there."
Bill Teller was the day shift line manager in Percy's division, and Percy couldn't resist the opening: "Yeah, I always knew Bill was good for something besides ordering everyone else to do his work for him."
The bluntness caught Mr. Proctor off his guard. He didn't have anything to say about that; he just shifted his upper body back and forth in his big, high-back leather office chair.
Percy smiled and continued, "I'm just speaking my mind, sir. The shareholders of this corporation might have a lease on my body for eight hours a day, and I'll bust my butt to do right by them; but I won't stop thinking about how things really are."
Mr. Proctor pressed the phone by his desk and picked it up to tell the secretary to come in and escort Percy back to the parking lot. He then stood up and put his hand out again for a handshake. "Maybe we'll talk again at some point, Percy."
Percy stood up and accepted the handshake. "Only next time, sir, let's meet down at Berle's Diner. You look like you could use a real meal with some roast beef, mashed potatoes and gravy. I'll buy."
Mr. Proctor, perhaps for one of the few times in his life working for Hockman Industries, broke into a solid, honest grin from ear to ear.
As Percy was walking through the parking lot back to his car, he mumbled to himself, "Damn."
Percy did, by the way, kick Joel's ass that evening, and Joel took the not-so-subtle hint and dropped the whole union organizing effort right then and there.
The above story from Percy's life illustrates a fundamental problem in agency relationships, one that will be formally set forth below. But before the getting to the explicit description of that problem, it's important to point out that agents always have some greater or lesser willingness and ability to extract costs from their principals, costs the principals do not really want to pay and will try to minimize to the extent that they can. These agency costs can be broken into four broad categories.
The first type of agency cost is the perquisite, or "perk": this is a non-contractual benefit extracted by an agent to the detriment of the principal. In the story about Percy's meeting with the vice president of the company, that entire executive office suite was a perk. Those executives did not need that fine office building, those giant wood doors, or the enormous desks to do their jobs, despite their likely insistence that they most certainly did need such things. Neither did they need that Lear Jet Percy mentioned that everyone saw coming and going all the time from the local airport. Not one of those things was a necessary part of doing the work of managing the company, and the cost of those things the executives bought for themselves came directly out of retained earnings that would otherwise have been available to the shareholders. Executive perks are a large agency cost, but executives are by and large entirely clueless that it's not a matter of not "over-spending" on such things; it's a matter of not spending at all on them.
Percy knew very well that Greyhound goes to just about any city those executives would need to get to; and Motel 6 is every bit as good asand a whole lot cheaper thanthe fancy Hiltons those guys planted themselves in when they were on the road. And all the fancy restaurants with the fancy meals at the fancy prices were perks, too: McDonald's might be hard on the delicate stomach of a well-bred executive, but Bob Evans restaurants are just about everywhere, and they're a whole lot cheaper than some French place with a name like Chateau Neuf de Derriere, or wherever it is fancy executives think they have to dine to be as good as all the other executives of all the other corporations similarly sucking the costs of perquisites out of the shareholders' pockets.
The second type of agency cost is shirking: the deliberate avoidance of duties. This can take two forms. In the story above, Percy alluded to a line manager at the plant who was always finding someone else to do his work for him. That's pretty common from the executive ranks clear down to the lowest levels. Sometimes, it's managers like that guy, Bill Teller, who are forever "delegating" their own work to their subordinates. On the other hand, often it's just co-workers who don't carry their fair share of the workload, leaving other people to handle things.
Percy would later come to be even more familiar with shirking, especially the second type, the kind where people just don't do what they're paid to do. At Ice Kreem Kween, many of the high school kids who worked there would show up for work late, drag their feet during the customer rushes, and leave early. Sometimes, they'd come to work stoned. In all of these cases, Percy was carrying the burden, to the extent that he could, of the shirking by others. But he couldn't cover everything, and sometimes customers would leave because they had been waiting too long in line. This affected Ned's bottom line. Moreover, Ned was paying these people to work, assuming that they would show up on time, be sober, and work hard; but they weren't doing that, so Ned was paying them more than what they were worth.
The third type of agency cost is incompetence: the actual inability to do the job. When Percy was in high school, his business math teacher told the students about something called the "Peter Principle," named after some management guru named Dr. Peter, who asserted that every worker rises to his or her level of incompetence. Percy thought this was a pretty interesting insight. The idea is that people who do well at one level of employment tend to get promoted or otherwise find employment that better challenges their skills and abilities; and they'll keep rising in position and responsibilities until they get to the point where they're in a position where they just aren't any good, and that's the level at which they will stop in their career growth paths. The more Percy worked in the real world, the more he came to appreciate just how many managers with authority over him had reached or were near their own personal levels of incompetence.
The fourth agency cost is direct theft. Agents have incentive to steal from their principals. Sometimes, it's minor stuff: paper and paperclips, pens and pencils, and other little things. Sometimes, it's much more. Percy knew very well that one or two kids were sneaking the big buckets of ice cream out the back door and loading them into their cars before they left work, but Percy couldn't be in two places at once, what with the slam from customers right at shift change some days. He thought about putting in a camera system in the back room with a monitor out in the front service area, but he found out that a decent system was going to cost about a grand up front, with tapes, maintenance, and other equipment and services running a couple hundred every month. Percy realized that the cost of what the kids were stealing was actually less than the cost of that extra layer of security, so he dropped the idea.
Percy had hit upon a crucial point about controlling the extraction of agency costs: when the extra cost of monitoring and enforcing compliance is more than the savings that will result, there's no point in doing the extra monitoring and enforcement. In economics terms, "extra" costs and savings (or revenues) are called "marginal" costs and benefits, and it is these marginal costs and benefitsnot the average or the total costs and benefitsthat drive decision-making. Percy correctly decided against an expensive security system because the savings in reduction of direct theft of the principal's property was going to be less than the cost of the additional (marginal) cost of implementing, using, and maintaining the system.
The Agency Dilemma
The problematic aspect of agency relationships can be summarized in the so-called "Agency Dilemma," which can be stated as such:
An agent has incentive to maximize his own self-interest rather than that of the principal to the extent possible under the monitoring and enforcement provisions of the agreement he has with the principal.In other words, if someone is supposed to do work for the benefit of another person, he has incentive to benefit himself, instead, to the extent possible, given the level of monitoring and enforcement he perceives.
A good example of this is Percy's friend, Bruggie, who's had a lead foot his whole adult life when it comes to driving. Bruggie bragged for years about the time he was driving like a blind trout down the county line road. He claims he was going 115 miles per hour when, way up ahead, he saw a county deputy sheriff's patrol car parked off the road on a spur going into Mr. Jackson's bean field. Bruggie says he climbed on the brakes and nearly went into a skid as he approached the waiting police vehicle, sure as anything that whoever was in the car had already clocked him. As it turned out, the deputy was Dale Corgan, who had been on the varsity football team his senior year and who went on to work for the sheriff because he had permanently torn up his knee in the second-to-last game of the season, so he couldn't get a football scholarship, so he couldn't go to college because he was basically as dumb as a rock. Anyway, there was Dale, and he wasn't in the patrol car. He was beside it, bent over, fixing a rear flat on the driver's side. Bruggie figured that Dale had backed into that spur to do some speed trapping and after awhile noticed that he'd punctured his tire on something in the spur. So there was Dale, out there changing a flat; and there was Bruggie, suddenly realizing that he could put the hammer down on the gas as he passed Dale, who didn't look like he gave a darned about anything other than how much he was sweating as he was changing that tire.
Bruggie's story is a great illustration of the importance of both monitoring and enforcement. Even if a behavior can be monitored, it doesn't matter if enforcement can't be carried out; and even if enforcement can be carried out, it doesn't matter if the monitoring is lax.
Life is just full of agent/principal relationships. A parent is the agent of a child because the parent has a duty to maximize the welfare of the child. The child is the principal in that relationship.
The employees of a company are the agents of the owners because the employees are charged with maximizing the return on investment of the owners.
The executive officers of a corporation are the agents of the shareholders because it is the dutyactually, it’s the fiduciary dutyof those officers to maximize the wealth of the shareholders. In this case, it is very important to notice that the executive officers are most decidedly not the agents of the employees, the community, the environment, Mother Earth, or anything other than the shareholders: it is those shareholders for whom they are working and who can ultimately hold them responsible for their actions. It is the shareholders who ultimately have the right (at least, theoretically) to reward them or dismiss them.
A governmentat least in some modern political modelsis the agent of the citizenry since the government is vested with the responsibility of maximizing the well-being of the people it governs. This model, by the way, is not universally accepted: historically, many sovereign states have operated under the assumption that the government was the agent of a god or a group of gods. Some carried it so far as to represent the head of the state as being a living god, thus making the entire population, and all of the parts of the government, agents of this human god-ruler.
The term "fiduciary duty" was introduced above. Fiduciary relationships are special: they are agent/principal relationships characterized by trust, loyalty, and fidelity, which form three pillars upon which the agent must act with respect to carrying out his responsibilities to the principal. Black’s Law Dictionary describes fiduciary duty as being "...the highest duty implied by law." This does not, however, mean that fiduciary duty is purely legal. Despite many attempts by various levels of government to codify its meaning and enforcement, fiduciary duty transcends law and reaches to the very nature of certain kinds of relationships and the cultural understanding of what they entail.
Examples of fiduciary relationships are those between a parent and a child, the executive officers of a corporation and the shareholders, (presumably) a person and his or her god, and a husband and wife (who might be characterized as both being agents of the unified entity sometimes described as the "married couple").
Not all agency relationships are fiduciary in nature, just as not all relationships are necessarily agency relationships, although agency features do have a way of creeping in. The key feature that makes duty fiduciary is an inabilitytemporary, recurrent, or persistent as the case might beof the principal to effectively both monitor and enforce the covenants of the agency relationship. In the example of the child and the parent, a child is physically, emotionally, and intellectually at severe impairment in understanding what the parent should and should not do, and the child's recourse in the event that the parent fails in duty is wholly dependent upon outside resources that might or might not come to bear to rectify failures.
When a surgeon is operating on a patient, the person under the knife is literally incapable of being able to monitor what's going on; and even if he could, his knowledge of medicine, anatomy, surgical procedures, and proper practices is generally so limited as to materially impair any possible hope he could have of assessing what was going on.
In modern corporate organizational theory and law, the shareholders of a corporation are supposed to be separated from the management of the company: that's why the corporation is allowed to exist under every state's general corporation law as an entity separate from its owners, responsible as it then is for its own liabilities, which may not impact upon the owners under any normal circumstances to any extent greater than their respective investments. In practice, that means the shareholders must legally rely upon the officers and directors of the corporation to ensure that shareholder interests are always first and foremost, within the bounds of law.
An American soldier swears oath to defend the Constitution, but the Constitution is nothing more than a piece of paper unless animated by those sworn to preserve it, those sworn to protect it, and those sworn to abide by it.
In each of the examples above, the principal is by nature or circumstance impaired in ability to monitor and enforce the responsible actions of an agent; in each of the examples above, therefore, the agent has imposed upon him, it, or them a "highest duty" under law, custom, and tradition, a duty shaped not by the normal incentive to maximize self-interest, but rather by the invocation of inspiration from trust, loyalty, and fidelity.
Life as Agency
Ned never did tell Percy, "You're the boss around here," although he came pretty close. Nevertheless, Percy knew he had become something more than just another employee: for one thing, he had to be there most days from opening to closing, and he'd even started doing most of the hiring and firing.
Percy had grown up to be a good man and a good employee; and even though he never did get to go to college and take business courses, he had a good mind for how to run the Ice Kreem Kween, and he didn't need to hear about fiduciary duty to understand that his relationship with Ned was based upon more than just Ned's willingness and ability to keep an eye on him. Percy by his nature knew when it was time to do what was right by Ned because of trust, loyalty, and faithfulness.
That left only one thing for Percy to worry about: he realized that he had risen as far as he could at Ice Kreem Kween, so if he stayed there for the rest of his life, it would probably mean that he'd made himself a textbook example of that Peter Principle his high school teacher had talked about.
That's why Percy always checked the Sunday paper to see if there was any better job in town he could apply for.
The Dark Wraith has thus offered a long and useful economics lesson.