Belmont Club

Who will Colin Powell endorse for President?

Open thread. But first, some background reading material may be of assistance in getting the discussion going. Powell is McCain’s friend, but his professional interests suggest that his choice may be a tough one. A reader notes that Colin Powell is a “Strategic Limited Partner” at Kleiner Perkins Caulfield and Byers, one of the best performing venture capital firms in history, having sponsored Google, and Apple, among others. Kleiner has made huge pushes into ‘clean technology’ of late — over the past 3-4 years. They have even raised an all clean-tech fund. Al Gore is also a special partner.” An Obama victory would put Kleiner in a strong commercial position. But on the other hand, John McCain himself has often talked about the need to stop climate change. So it is not at all clear that Kleiner wouldn’t benefit under a McCain administration as well.

So with Colin torn — or perhaps not so torn — I will leave the crystal ball in the good hands of the readers, observing only that nothing is as simple as it seems in Washington. Neither Colin Powell’s allegiances nor John McCain’s beliefs can be completely separated from the interests which are swarming through the capital. At this point in history Green also means greenbacks. It’s sad to think that maybe everything in this world, even environmentalism, could come down to money. Perhaps it is too much to ask politicians to disregard the pressures in Washington altogether; and hope that in satisfying every need, the interests of Joe the Man on the Street might occasionally be remembered.

In one of the classic scenes in the original “Die Hard” movie,  the villain, played by Alan Rickman, eventually confesses to his incredulous victim that his outrages are all motivated by the desire for money. The victim is shocked and not a little disappointed. After all, we like to think that people murder, maim and ruin their fellowmen for altruistic reasons, or perhaps, out of a desire to spread the word of Allah or save Gaia.  How terrible it would be if it were all about money.

Bloomberg has this interesting article on a man who, despite his many faults, has the virtue of directness.

Oct. 17 (Bloomberg) — Andrew Lahde, the hedge-fund manager who quit after posting an 870 percent gain last year, said farewell to clients in a letter that thanks stupid traders for making him rich and ends with a plea to legalize marijuana. …  “I was in this game for money,” Lahde, 37, wrote in a two-page letter today in which he said he had come to hate the hedge-fund business. “The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. “All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades. God Bless America.”

In Boom and Boom, I raised the possibility that from time to time we are reminded that the law of dog eat dog has not yet been repealed. I recalled in comments how many Communists eventually discovered that not the best, but the worst floated to the top of their revolutionary organization. Maybe the last words every millenarian true believer hears, just before the end, is the phrase “so long suckers.”

It seems odd to believe we can entrust our lives and fortunes to anyone but ourselves, or at least those subject to our supervision. In the current crisis the push is to give more power over our lives to others to ‘save us’. But there’s an inherent problem with that. In economics, the agency problem describes the difficulties which arise when the agent — a government bureaucrat, attorney or someone we have delegated power to — has interests which don’t quite line up with the principal. It is at the heart of doubts about how far we can solve our problems with regulation. Our “agents” — the regulators — often have interests which don’t coincide with those they claim to represent. To a large extent, it is an information problem: the public doesn’t know how much of the contract between representative and voter is actually being fulfilled.

This is the case to some extent for all contracts that are written in a world of information asymmetry, uncertainty and risk. Here, principals do not know enough about whether (or to what extent) a contract has been satisfied. The solution to this information problem — closely related to the moral hazard problem — is to ensure the provision of appropriate incentives so agents act in the way principals wish.

The public has to trust publicly available information sources to judge whether the politicians (or regulators) are in fact protecting them.  As long as we trust them, the public just pays up. We are told not to worry because the MSM, with their professional journalists acting as watchdogs, is keeping the public informed. But the evidence suggests that we should worry, since the recent shocks are a very public indicator of a massive failure in information gathering and dissemination. Things got out of control and people didn’t realize it until the vehicle went over the cliff. Now that everyone is worried, the regulators are using that fear to apply for more power. But a moment’s thought will show that delegating more power without receiving more information to verify whether the principal-agent contract is being fulfilled is a recipe for disaster. This is why the noises about imposing a Fairness Doctrine on blogs and suing anyone who dares to question ACORN are so disturbing. Newsbusters says that “ABC News Used Obama Contributor as ‘Expert’ in Defense of ACORN”. That raises questions about how good our current information providers are.  If we restrict journalism to the professionals we will actually be throttling the information bandwidth of the principals while simultaneously delegating power to the agents.


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