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Monthly Archives: September 2011

Turkey Can’t Act Rationally

September 9th, 2011 - 1:07 pm

Why Turkish Prime Minister Tayyip Erdogan chose the year 2038 as the point at which his country will cease to exist, I do not know, but that’s what he’s been saying in stump speeches to his home audience, as I report in my new book, How Civilizations Die. He can’t be too far off. A generation from now, Turkey will cease to exist in its present form. The ratio of Turks to Kurds today (defined by cradle tongue) is about 4:1, but Turks have 1.5 children on average, while Kurds have 4.5. In little over a generation, Kurds will comprise half the military-age population of Anatolia. After decades of civil war and 40,000 casualties, Turkey’s Kurdish problem is as vivid as ever.

Erdogan, like Iran’s Mahmoud Ahmadinejad, is inherently incapable of rationality. Turks and Persians both show a total fertility rate of 1.5, which portends national disaster–as both leaders have said repeatedly in public. In Turkey, Iran, and almost everywhere in the Muslim world, women with a high school (let alone university education) stop having children. Paradoxically, the best-educated populations–Tunisia, Algeria, Turkey and Iran–have the same fertility rate as the Europeans. Demographically, the Muslim world has passed from childhood to senescence without ever having reached adulthood.

What’s the rational self-interest of a doomed culture? Rather than return to the Western fold, Turkey is likely to become more and more erratic. “Fatalism” does not begin to describe the mindset of the new Turkish Islamism. Its guru, Fethullah Gulen, whose movement controls several Turkish banks, the Zaman news organization, and billions of dollars of other business assets, is a madman by Western standards. He is less a modern Islamic thinker than an Anatolian shaman who lives in a world infested by magic beings, by jinn and sorcerers, as one can verify by consulting his published writings. Erdogan, the small-town Anatolian boy made good, comes from this magical world. He has a peasant’s shrewdness and self-preservation instincts, and a politician’s knack for the pulse of his constituents. The conjunction of his magical world-view and the misery of his country’s long-term prospects, though, cannot have a good outcome.

Update, Sept. 27: Erdogan’s security personnel beat up UN security guards when they attempted to stop the Turkish delegation from going through the wrong door on the way to the General Assembly. The New York Post account includes video. Erdogan mistakenly headed for the visitors’ gallery rather than the General Assembly room, and the guards were attempting to direct him to the correct entrance. That’s without precedent. What planet is this guy from? Hmmmm…. Short temper, craving for sugar? You know who Erdogan reminds us of.

Defense Secretary Leon Panetta told Charlie Rose last night that “it’s just a matter of time” before the revolts that toppled Mubarak and shook Basher al-Assad spread to Iran:

Panetta, a former CIA director who took over the Pentagon’s top job in July, was asked on the Charlie Rose television show whether the Arab Spring might spread to non-Arab Iran. Panetta responded: “Absolutely.”

“I think we saw in evidence of that in the last election in Iran that there was a movement within Iran that raised those very same concerns that we’re seeing elsewhere,” Panetta said.

“And I think in many ways, it’s a matter of time before that kind of change and reform and revolution occurs in Iran as well.”

I hope that means that the US is throwing all the covert resources imaginable into efforts to bring down the Iranian regime. But there’s something dreadfully wrong with Panetta’s statement: the uprisings all occurred in non-oil-producing Arab countries where soaring food prices demonstrated the inability of these dictatorships to meet the basic needs of their people. The Tunisians and Egyptians didn’t wake up one morning with a sudden urge for parliamentary democracy. The so-called Arab Spring reflects not just regime failure, but societal failure.

None of the oil-producers had internal protests they couldn’t buy off (as the Algerians showed at the outset of the “Spring”). Iran’s economy is in shambles and its social fabric is in advanced decay, but the regime still controls enough petrodollars to pay off its Revolutionary Guard thugs. And Iran is keeping the Assad regime in power while it continues to butcher protesters. If the mullahs can keep Assad in power, they might be able to keep themselves in power, too, long enough to deliver a nuclear weapon.

Panetta’s bland assurance amounts to a declaration that the Iranian problem will take care of itself. Meanwhile evidence continues to pile up that Iran is determined to acquire nuclear weapons as fast as it can.

The way to ensure regime change in Iran is to attack the regime, as I argued in this space last month. Nothing loses like losing. Hitler’s generals were ready to ditch him in 1938 until Neville Chamberlain handed him Czechoslovakia on a silver platter. Humiliate the regime, and its internal opponents will take it down. Reinforce the regime de facto by letting it get away with murder, and the prospects of an uprising from below diminish drastically.

The most important thing to understand about Iran is that the country is dying. After three thousand years, the Persian nation can see its demise just a generation or two down the road. It has passed the point of no return. Today’s Iranians were raised in families of six or seven children, but have on average 1.5 children of their own. No country–and in particular no poor country–can survive an inversion of the population pyramid. The industrial nations are buckling under the costs of aging. Iran will disintegrate.

That is why Mahmoud Ahmadinejad has been screaming for years that national doom is in sight. He’s not stupid, just crazy. He’s the geopolitical equivalent of a fellow with an inoperable brain tumor who robs a banks and takes hostages. This is man who knows he has nothing to lose. You  can’t “engage” him. He has no rational self-interest, for he won’t be part of any rational outcome. You have to neutralize him.



How the Hijackers Changed American Culture

September 7th, 2011 - 12:14 pm

Back when we called a monster a monster and set out to drive a stake through its heart, Americans did not fear the evil that lurks in the psyche of the Old World. The horror movie genre after World War II gave us Abbott and Costello Meet Frankenstein, a spoof that showed what Americans thought of Dracula, the Wolfman, Hitler, Mussolini, and other exotic monsters. We refused to be horrified by Hitler. But we were less resilient during Vietnam, and even less so after 9/11. Americans have become prey to morbidity. Our leaders no longer tell us who our enemies are and how to defeat them. Instead, the liberals tell us that we are to blame for Communist aggression in Vietnam, or for Muslim terrorism against the West. And this has horrified us. It has changed our culture.

During the mid-60s the horror genre was represented mainly by lampoons like The Munsters; as the shadow of Vietnam fell over the United States in the late 1960s, it returned to the mainstream.

That’s what worried me most after 9/11. On Oct. 12, 2001, I wrote,

The grand vulnerability of the Western mind is horror. The Nazis understood this and pursued a policy “des Schreckens” (to cause horror) and “Entsetzens” (terror, literally: dislodgement). Horror was not merely an instrument of war in the traditional sense, but a form of Wagnerian theater, or psychological warfare on the grand scale. Hitler’s tactical advantage lay in his capacity to be more horrible than his opponents could imagine. The most horrible thing of all is that he well might have succeeded if not for his own megalomaniac propensity to overreach.

America, as Osama bin Laden taunted this week, lost in Vietnam. But it was not military setbacks, but the horrific images of Vietnamese civilians burned by napalm, that lost the war. America’s experience in the war is enshrined in popular culture in the film Apocalypse Now, modeled after Joseph Conrad’s story, The Heart of Darkness. The Belgian trading company official, Paul Kurtz, sinks into bestiality and dies with these words: “The horror! The horror!” It was a dreadful film, but a clever reference. At the close of World War I, T S Eliot subtitled his epitaph for Western civilization, The Waste Land, with a quote from the Conrad story: “Mr Kurtz, he dead.”

In an essay today at Asia Times Online, I conclude with sadness that the 9/11 terrorists succeeded in their most important goal. They have horrified us. Osama bin Laden’s a moldering in the grave, but his foul spirit still infects our psyche. We haven’t yet driven the stake through his heart. When we blame ourselves for horrific events, the horror becomes part of us.

As I observe in the essay, “The ‘horror’ genre supplied one out of 10 feature films released in the United States in 2009, according to the International Movie Database. During Universal Studios’ heyday in the 1930s, the proportion was one in 200; only a decade ago it was one in 25. By way of contrast, 716 horror features were released in 2009, compared to 39 Westerns, a ratio of almost 20 to one. Westerns invariably portray a well-understood form of evil and contrast it to the courage to stand up to evil. Horror films involve an evil that is incomprehensible because it is supernatural and so potent that ordinary courage offers no remedy. In the 1960s, Americans thought they understood what they most feared; today they appear to fear most what they cannot understand.”

Until our leaders can rally America on the strength of it exceptionalism against the evil directed at us by the moribund cultures of the Old World, horror will continue to erode our culture. Be afraid; be very afraid.

Bloomberg News reports this morning that Obama may ask Congress for “middle-class tax cuts” to boost consumer spending. It reminds me of Mortimer Duke in Trading Places, shouting, “Turn those machines back on!” That is dead wrong. When consumers spent more and saved less during the past fifteen years, the incremental demand sucked in more imports. Between 1998 and 2007 the U.S. ran a cumulative current-account deficit of $6 trillion. Households saved nothing, as the housing bubble boosted their balance sheets. Now that $6 trillion of home equity has vanished, households need to save more, especially in face of the biggest retirement wave in American history.

What America lacks is employment. During the past 40 years, 70% of all new jobs created in economic recoveries came from start-ups. That is not small business so much as small businesses that turned into big businesses. What is remarkable about the present situation is that large companies (the S&P 500) increased their employment by 10% during the 12 months through June 2011. These large companies only account for about 18 million jobs, so the net effect has been small. Entrepreneurs meanwhile are dead in the water.

Obama has imposed a higher threshold on business start-ups than any president in history, through Obamacare, an enormous disincentive to expanding employment (penalties kick in at 55 employees). That’s what is killing the economy. Big companies with existing health care plans and floors full of specialists at dealing with red tape have flourished in the present tough economic environment. Start-ups, by contrast, face the steepest cost incline at the outset. It’s like building an airport with runways that tilt upward at 60 degrees. No-one can get off the ground.

Throwing money at middle-class consumers is misguided. The problem with the middle class is that unemployment by the broadest measure  stands at over 22%, which explains why 18% of every dollar of personal income comes from government transfer payments.

Unemployment is high because private nonresidential fixed investment remains 10% below the 2008 peak (in nominal dollars — after inflation the dip is considerably worse).  What we need is

1) Regulatory rollback, especially Obamacare

2) Elimination of the capital gains tax

3) A cut in corporate tax rates across the board

Graph of Private Nonresidential Fixed Investment

The stupidity of demand-driven Keynesian doctrine is a perpetual source of wonder.

A Moron with a Computer Is Still a Moron

September 5th, 2011 - 2:22 pm

In the Classroom of the Future, Stagnant Scores” is the headline of a New York Times account of the uselessness of high-tech education. Since the Clinton administration, liberal “experts” have argued that giving every kid a laptop, “educational” software, and Internet access will produce a generation of geniuses. That has to be the stupidest idea in the history of education. Of course, it hasn’t worked. But that doesn’t discourage the New Age nerds who run the Obama adminstration’s education policy.

The Times reports on the miserable performance of students in Arizona’s Kyrene School District, where taxpayers have spent $33 million to digitize classrooms since 2005.

Since 2005, scores in reading and math have stagnated in Kyrene, even as statewide scores have risen.

To be sure, test scores can go up or down for many reasons. But to many education experts, something is not adding up — here and across the country. In a nutshell: schools are spending billions on technology, even as they cut budgets and lay off teachers, with little proof that this approach is improving basic learning.

This conundrum calls into question one of the most significant contemporary educational movements. Advocates for giving schools a major technological upgrade — which include powerful educators, Silicon Valley titans and White House appointees — say digital devices let students learn at their own pace, teach skills needed in a modern economy and hold the attention of a generation weaned on gadgets.

Some backers of this idea say standardized tests, the most widely used measure of student performance, don’t capture the breadth of skills that computers can help develop. But they also concede that for now there is no better way to gauge the educational value of expensive technology investments.

“The data is pretty weak. It’s very difficult when we’re pressed to come up with convincing data,” said Tom Vander Ark, the former executive director for education at the Bill and Melinda Gates Foundation and an investor in educational technology companies. When it comes to showing results, he said, “We better put up or shut up.”

And yet, in virtually the same breath, he said change of a historic magnitude is inevitably coming to classrooms this decade: “It’s one of the three or four biggest things happening in the world today.”

Just what are they doing with their computers?

Amy Furman, a seventh-grade English teacher here, roams among 31 students sitting at their desks or in clumps on the floor. They’re studying Shakespeare’s “As You Like It” — but not in any traditional way.

In this technology-centric classroom, students are bent over laptops, some blogging or building Facebook pages from the perspective of Shakespeare’s characters. One student compiles a song list from the Internet, picking a tune by the rapper Kanye West to express the emotions of Shakespeare’s lovelorn Silvius.

How idiotic is that? What about trying to understand what Shakespeare actually said? At my kids’ Waldorf school, the seventh-graders performed “Twelfth Night” in costume, alternating major roles so that all of them had to memorize a couple of hundred lines of the Bard. They learned about the characters by acting the roles, that is, reading the play through the eyes of its author.

“This is such a dynamic class,” Ms. Furman told the New York Times. “I really hope it works.” She recalls the ethnic joke about the prospective chicken farmer who buries chicks in the soil with a bit of manure and is disappointed when chickens fail to sprout.

But what about the educational foundations, the Silicon Valley sages, and the Obama administration? They bring to mind the second half of the joke; the farmer reports his methods in detail to the Agriculture Ministry, which sends him a telegram: “Send soil samples.” The education gurus at the White House really are that dumb. Obama’s National Education Technology Plan calls for a “transformation of American education” that will be “powered by technology”:

The National Education Technology Plan, Transforming American Education: Learning Powered by Technology, calls for applying the advanced technologies used in our daily personal and professional lives to our entire education system to improve student learning, accelerate and scale up the adoption of effective practices, and use data and information for continuous improvement.

Obama’s report echoes a 1997 Clinton administration plan urging the same thing. There isn’t a lot of research to support the notion that saturating classrooms with high-tech toys improves education, but the American counterparts of the Slobovian Agricultural Ministry don’t have any other ideas.

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My last post on Michael Lewis’ scatological screed at Vanity Fair drew a fair number of comments regarding German bankers’ problems with toxic-waste securities sold by American investment banks. Why the world supported America’s housing bubble by purchasing derivative securities (collateralized debt obligations, or CDO’s, backed by sub-prime mortgages) is a separate question. For years, I gave presentations to German money managers (often in German) on these securities, as head of Credit Strategy at Credit Suisse (1998-2002) and head of debt research at Bank of America (2002-2005). B of A, to its credit, stayed out of the subprime origination business until Ken Lewis bought Countrywide in 2008, with consequences we read about every day. I quit B of A in 2005 over what the bank and I agreed to call “philosophical differences,” and later joined a credit hedge fund — Asteri Capital — which cashed out its investors with a profit in August 2008, just before Lehman went under. We survived the crisis by shorting the banks.

The Germans bought the toxic waste because they had to. I wrote about this in 2008:

The German financial system wanted to consume low-quality American assets, but did not want to look on what it was eating. German banks have written down about US$25 billion in securities derived from low-quality (“subprime”) American mortgages, and doubtless will lose a great deal more. But it is silly to blame the sausage-grinder. Why didn’t the Germans and all the other overseas investors buy mortgages in their own countries, instead of scraping the bottom of the credit barrel in the United States? It is because there aren’t enough Germans, or Italians, or Frenchmen or Japanese starting families and buying homes. There weren’t enough Americans, either, and therein lies a tale.

The aging pensioners of Europe and Asia must find young people to pay interest into their pensions, and they do not have enough young people at home. Germans aged 15 to 24, on the threshold of family formation, comprise only 12% of the country’s population today and will fall to only 8% by 2030. But one-fifth of Germans now are on the threshold of retirement and half will be there by mid-century.

Germany’s low birth rate means that the domestic economy can’t generate enough assets to meet the investment requirements of prospective retirees. The great Robert Mundell, the grandfather of supply-side economics and 1999 Nobel Laureate, observed in an obscure but important article that demographics explain almost all the chronic current account deficits in history: countries with aging populations lend to countries with young populations.

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Trivializing Tragedy: Michael Lewis on Germany

September 2nd, 2011 - 6:11 pm

Michael Lewis was the guy who got the coffee for the guy who got the coffee at the old Salomon Brothers in the 1980s, and parlayed his observations of the local fauna into an iconic bestseller, Liar’s Poker. He never had a clue about what was going on at that flawed and fascinating institution, but neither did his readers, and the anecdotes told themselves. Since then he’s haunted the columns of glossy magazines, wandering farther and farther afield. In the September issue of Vanity Fair he wanders off the deep end in a potty-mouthed (literally) examination of the German national character.

Somehow, the alleged German obsession with excrement explains Nazism as well as Germany’s attitude towards its insouciant southern neighbors, in Lewis’ account. It might be the most trivial response to grand historic tragedy ever to pay $2 a word, or perhaps any sum at all.

I doubt Lewis speaks more than a dozen words of German, but he has found an obscure tract by an anthropologist who thinks that the reason Germany got into deep doo-doo is the doo-doo itself:

A small book with a funny title towers over many larger, more ponderous ones. Published in 1984 by a distinguished anthropologist named Alan Dundes, Life Is Like a Chicken Coop Ladder set out to describe the German character through the stories that ordinary Germans liked to tell one another. Dundes specialized in folklore, and in German folklore, as he put it, “one finds an inordinate number of texts concerned with anality. Scheisse (shit), Dreck (dirt), Mist (manure), Arsch (ass).… Folksongs, folktales, proverbs, riddles, folk speech — all attest to the Germans’ longstanding special interest in this area of human activity.”

Now, the Germans are famously clean and orderly — respectable housewives polish the steps on Saturday — but Mr. Lewis’ academic source is, well, something of a Scheisskopf himself. When it comes to scatological humor, the Germans have nothing on the French, and in particular on the greatest of French Renaissance writers, Francois Rabelais, who offered a lengthy and mock-learned discourse on all the possible ways to wipe one’s self (in Chapter 1.xiii of Gargantua and Pantagruel).

The problem in Europe, Lewis concludes, is that the German compulsive requirement for order has run smack up against the profligate Greek enjoyment of life, and the two peoples just don’t understand each other. It pains me that trees are murdered to print this sort of thing.

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