Response to Di Rita’s Criticism of Shinseki

The following is my response (submitted as a comment on WP.com) to this Op-Ed in today’s Washington Post criticizing General Eric Shinseki and his supporters for viewing his actions favorably:

I am confused by Di Rita’s essay.  I must have misunderstood.

As I understand it, the argument on behalf of Shinseki’s wisdom and courage is as follows:  Shinseki had a different estimate of the troop requirements than the administration did.  The administration discouraged the communication of views, such as troop estimates, that differed from its own.  Shinseki was one of a very small number of participants in the decision-making process who voiced his difference of opinion.  The wisdom of this opinion was ignored and Shinseki was punished in some way for expressing it.  Thus, Shinseki took a personal risk on behalf of the country to advocate an plan from which the country would have benefited.  Therefore, this action is deserving of our respect, and the actions of those who sought to discourage him are worthy of shame.

I do not see what aspect of this argument is refuted by Di Rita.  In fact, he seems to be supporting it.  Most tellingly, he offers that “At no time, even as a surge was being considered, did anyone recommend doubling U.S. forces to the ’several hundred thousand’ troops Shinseki said might be needed.”  Right.  That is the whole point.  No one, other than Shinseki, recommended this course of action, even though it might have had serious advantages.

Why wasn’t it recommended?  There are two competing hypotheses:
1) because it was unrealistic — it didn’t really merit serious consideration
2) because it was just the kind of idea that the administration sought to discourage.

We have at least three facts that support the conclusion that the answer is #2, not #1. Two of these are provided by Di Rita himself.  First, there is the basic fact (not provided by Di Rita) that the Iraq invasion has failed in comparison to the standards offered by the administration prior to the invasion.  This means that either the administration knew things would be worse than they said, meaning they deliberately deceived the rest of us, or they sincerely mis-estimated the situation.  If the latter is true — their assessment of the situation was seriously flawed — then, necessarily, their assessment of alternative courses of action was also flawed.  Thus, Di Rita is in no position to claim that any strategy was not worthy of consideration on its merits — he and his colleagues clearly didn’t know what the merits were.  This is evidence against choosing #1.

Furthering this case is the fact that Di Rita, now, even with the benefit of hindsight, offers no critique of Shinseki’s argument.  He says nothing in this essay about why 300,000 troops would have been a mistake.  He merely appeals, again, to the fact that no one recommended it (other than Shinseki).  This defense is predicated on the belief that the process by which recommendations were brought forth and entertained was a sound one, yet it is precisely our doubt of this process which makes Shinseki’s testimony compelling.  Thus, it is precisely the situation where some other defense is called for, something that indicates that there was good reason, other than a flawed decision-making process, to ignore Shinseki.  The absence of any such defense in such a circumstance is at least some evidence that no such (credible) defense exists.

Finally, there is the tone and emphasis of Di Rita’s essay, which is to blame Shinseki for what he claims, initially, is a media phenomenon.  According to Di Rita, it is Shinseki’s fault that public opinion has turned against Rumsfeld.  I wonder, did Di Rita talk like this when he was working in the administration?  Because if he did, that sounds to me like exactly the kind of insinuation that would discourage people from stepping forward and voicing disagreement.

Di Rita’s argument matches closely to the logic we have observed the Bush administration use in many contexts: Since, before events occur, we know we are right, debate that exposes the weaknesses of our rationale is purely disruptive dissent and should be suppressed.  Then, after events occur, when it is clear we were wrong, we claim that we “couldn’t have known any better” because everyone agreed our rationale had no weaknesses, and so the fault lies with those who didn’t speak up.  In this case, the fault lies with the person who did speak up for not speaking up even more.

Letter to Friedman

Tom Friedman had this column in Sunday’s NYT.  The basic point was that Obama should deal with the major problems of Detroit, Afghanistan, and banking with an eye toward fixing the underlying problems.  I sent this to him to further his point:

Great column today (Sunday). One thing to emphasize with both Detroit and the banks: bad decisions now will make things worse in the future.  And yes, they can be worse (see 1932).

The major reason the economy can, and will, get worse if we aren’t smart with the bailout money is that it is borrowed money.  Since the bailouts involving loaning money to companies, we citizens tend to think of ourselves as the big bankers assessing these companies with our charitable but scrutinizing hearts.  We forget, though, that just like most bankers, we’re not loaning our own money.  We’re loaning money we borrowed and had better pay back on time, or else…

These loans allow us to keep our economy alive in the short term, but like all loans, there is a time limit to their health-giving power.  Loans soothe short-term pain by re-packaging it as the risk of long term catastrophe.  This means that by borrowing money to give bailouts, we just made our short term situation less important and our medium term situation more important.  We don’t need to be marginally more healthy now, when our credit is good enough to borrow, we need to be considerably more healthy in the future when, if we aren’t healthy, we won’t have any credit to fall back on.  This means that any use of the money that doesn’t improve our fundamental economic health is not only “wasted” but is in fact endangering us at the time when we are most vulnerable — the future.

This is not to suggest that we should just let Detroit and many banks die on the spot.  Institutional stability plays an important role in the process of learning and innovating.  It is hard to grow anything in an environment of chaos.  But our goals cannot waiver: long term, sustainable growth.  And if that means short term pain, we need to accept that, because we still have a supply of pain relievers…. for now.

Community Squares

I agree with David Brooks column yesterday on how Obama should spend on infrastructure. We need to spend money to help people connect with one another. This will both improve the economy, because it will help with innovation and the distribution of risk, and quality of life.

Liesl and I were in Mexico this summer and in Belize in the fall (visiting the wonderful Cesiak and Blackrock resorts). In the towns there they always have a central square, the “plaza.” In the evenings, particularly on the weekends, everyone in town gathers there. Families with young kids, the elderly, and teenagers. They all do their own thing but they are there together and can’t deny they are part of a common experience. It’s great!

The untold story

Very few people are aware of this, but the so-called “free market” is dominated by the decisions made by a very small number of people at the very small number of rating agencies that set the credit ratings for debt. In fact, it is written into the rules of the contracts by which the vast majority of the world’s wealth is invested, such as the bylaws of institutional investors like pension funds, that these ratings are to override human judgment without exception. If debt is rated below a certain grade, these institutions may not hold it. For many companies, especially highly leveraged ones (ones that borrow a lot), this means that a drop in their rating equals instant bankruptcy, instant death. They are thus beholden to ratings agencies the way that a Soviet company was beholden to the central planners, with all of the attendant incentives for distortion of business practices and deception in reporting.  But as I said, very few people are aware of this.  Those outside the financial world don’t know about it at all, and those inside the financial world know about it but it is never discussed.  Ratings are treated like an objective fact of the world when they are, in fact, anything but.

Here is the NYT on the rating agencies involvement in creating the mortgage bubble.

It’s the Executives, Stupid

I think the Big 3 can be saved and there is a good case for the long term national benefit of such a rescue.  But I very much doubt they can be saved by the same people who got them into so much trouble.  Congress should open the debate to outside investors and managers who can argue for more innovative approaches, and the replacement of top management should be a part of any bailout package.

Cyclicality = Volatility = Lost Value

In today’s WP, David Ignatius describes some of the tensions at this week’s G20 summit. I’m very glad he pointed out what I think is the single biggest factor that is contributing to the failure of the market system: rules and practices that amplify, rather than dampen, “cyclicality.”  If we can figure out a way to have free markets that behave less cyclically, the benefit to the world economy would be tremendous.

Lead the Brains

Tom Friedman wrote this column in today’s NYT about the shamefulness of Detroit’s inability and unwillingness to innovate.  In response, I wrote the following to him.

Another reason Detroit can’t innovate: lack of talent.  Top engineers and creative business students simply do not go to work in the auto industry.  They go to work in computers and finance.

The market has been mis-allocating brains to industries that can pay the biggest (but most volatile) bonuses.  The government should intervene in the talent market and shift incentives to encourage the best students to serve the national interest.  That means creating rewards programs for talented students to enter the auto/energy/conservation technology industries.

These rewards need not cost the government any short term cash.  Student loan forgiveness programs that vest over time can provide a cash light financial incentive.  More importantly, a President Obama can channel the enormous esteem and enthusiasm he has garnered from young people into a reputational incentive that costs zero dollars.  Create a national service program called “The President’s Select Corps” for top graduates.  Participants get to meet the President and receive public honors in 10-20 years when the energy problem has been solved.  Forward thinking students will recognize that, 30 years from now, they will be able to tell their grandchildren that they saved America, and they will have a medal and a letter from President Obama to prove it.

Sincerely,
Drew Margolin

Could it be?

I will now propose a thesis that will appear both obvious and absurd.  Obvious because, though it may not be true,  it certainly fits the available data, but absurd because it is currently un-American to even consider such an idea.  Here it is:

Barack Obama was elected president because the American people are better educated than they have been in the past.

Over the years, the electorate has shifted, but the politicians haven’t.  Obama alone recognized that a voting majority could be culled together by speaking intelligently to voters, because voters are used to being spoken to intelligently.  Why?  Because they have gone to college.

The data (this is taken from the 2007 census.  Table A-1. Years of School Completed by People 25 Years and Over.  So it does not include voters age 18-24).  This President’s name stands in for the year in which he was first elected.

Columns      No HS    Some College    Col Grad
Obama          6%           54%                  29%
Bush II          7%           51%                   26%
Clinton        10%          43%                   21%
Bush I          12%          37%                  20%
Reagan        17%          32%                  17%
Carter          21%          28%                  15%
Nixon           30%         20%                   10%
Johnson        34%         18%                    9%
Kennedy       40%         16%                    8%
Eisenhower    43%        15%                    7%
Truman         60%         10%                    5%

Because I think Obama represents a paradigmatic shift from Reagan (the previous paradigmatic president), I like to look at that comparison.  In 1980, 17% of adults had not attended high school and 17% had graduated college.  In 2008, those numbers have shifted dramatically and equivalently.  11% fewer people have not attended HS (6% vs. 17%) and 12% more have graduated from college (17% vs. 29%).  I can’t imagine this shift wouldn’t have an enormous electoral impact, and I it seems to me that Barack Obama’s campaign took clear advantage of it.

Think of it this way.  In 1980, only 1 out of 3 people had ever been exposed to a college professor.  In 2008, the number is more than 1 in 2.

Now here’s the rest of the story.  Obama mops up with non-white voters, that we already know and is a huge part of this election.  But he also makes major inroads with white college graduates, who are now 29% of the nation’s population (the table above) and, according to the CNN exit poll, 35% of the voters in this election.

Columns                      Obama            McCain            Other

White College Graduates (35%)	47%	51%	2%
Whites – No College (39%)	40%	58%	2%
Non-White College Grads (9%)	75%	22%	3%
Non-White – No College (16%)	83%	16%	1%

Amongst whites who are college grads, Obama is 4 pts behind McCain — virtually even. Amongst whites who are not college grads, he is 17 pts behind. But these folks are only 39% of voters, whereas in past elections they were a majority. By my rough calculations, white non-college grads were approximately 66% of the electorate in 1980, when Reagan was elected.

Or, in other words, if I take these percentages and shift votes merely on demographics.  That is, I keep the Obama/McCain breakdowns the same but change the number of voters in each category to reflect the make-up of the country 28 years ago, here’s what I get:

Columns                     Obama          McCain           Other/No Answer

White College Graduates (15%)*	47%	51%	2%
Whites – No College (68%)	40%	58%	2%
Non-White College Grads (1%)	75%	22%	3%
Non-White – No College (15%)	83%	16%	1%

*I’ve estimate these based on census reports of population size and voting patterns.  I do not have access to actual exit poll data for 1980 at this time.

If we total this up, we get that Obama loses the popular vote by 48-50, rather than winning it 52-46!  That is, the same voting patterns, just different sizes of voting groups.

The increase in voter education can also help explain the reduction in national division.  In this year’s eleciton,  education appears to be a moderator.  Minority (non-white) college grades are less likely to vote for Obama (3 out of 4, 75%) than less educated minorities (6 out of 7, 83%), even though educated whites are more likely to vote for Obama (~1 out of 2, 47%)  than less educated whites (2 out of 5, 40%).  Amongst college grads, 71% of Obama’s votes come from whites.  Amongst non-college grads, only 54% come from whites.

It should be noted that hypothetically, if from 1980-2008 the ethnic demographics changed but the educational demographics did not change, Obama would have still won his 52-46% victory.  But, similarly, if hypothetically the educational demographics changed — more people went to college — but the ethnic demographics did not, i.e. whites were still 83%, instead of 74%, of the electorate, Obama also wins (though it is closer, 51-47%).  He has thus, in a way, gained a firmer victory than it might appear, though the two do not combine to make a landslide because, as discussed above, the two trends tend to cancel each other out to some degree because educated minority voters are less likely to vote for Obama.

We are a more diverse, better educated, less divided country than we were 30 years ago.  That shift preceded Barack Obama and it is more fundamental than his personality and charisma.  His genius was recognizing it and having the courage to and foresight to mobilize it.

A Naked Emperor Means a Naked Empire

Things in our economy, and our society, are going to get worse before they get better.  Why?  Because we haven’t heard all of the bad news yet.  But it is coming…

We all know the story of the “Emperor’s New Clothes.”  The story is a symbolic representation of the power of social pressure to suppress dissent leading to the public acceptance of absurd ideas.  The cycle is broken only when someone who does not know enough to understand the pressure (the child) expresses dissent.  The story serves its purpose as a cautionary tale — beware of the implied opinion of the crowd.  But as an illustration of the problem — what it looks like, and, more importantly, how it is ultimately resolved — the story barely scratches the surface.  In particular, the story leaves out three critical aspects of any real world “Emperor’s New Clothes” scenario.  And since this is what we are going through, now, I thought it would be valuable to describe them in detail.

1. It isn’t just the clothes

The story centers on the clothes because this is a clear symbol that points the mind in the necessary directions.  While it is doubtful that any actual emperor, or any leader, ever actually went naked while believing he wore magical thread, we all understand the implication.  Sometimes people come to believe in falsities that are so absurd that it is humiliating — in fact completely destructive to their reputation and the reputation of the institution they serve — to admit they are anything but true.  This creates tremendous pressure on other people to act as though they are true, too.  And so the falsity is not only perpetuated but promulgated.  The emperor not only walks around the palace, naked, he organizes a parade to show off his (non-existent) “new” clothes.

The story involves the clothes because they are this ultimate, plainly identifiable absurdity.  What it fails to mention, however, is that the “new clothes” were not purchased arbitrarily, and they were not purchased in isolation.  Their celebration and adulation were not the result of a “magical” sales pitch nor merely a stupid emperor. The purchase of the clothes was merely the final, most absurd (and ultimately untenable) decision built on a series of increasingly foolish decisions that built absurdity into an institution.

Beliefs are not held in isolation.  You cannot believe that a naked emperor is wearing invisible clothes without, at minimum, adjusting some of your other beliefs about the physical properties of clothing and the universe.  For example, where and how are the new clothes washed and stored?  How do servants avoid disputes over who has them or how they should be handled?  What if someone is accused of stealing them?  It is not impossible to convince an entire staff to act as though, or perhaps to believe, that non-existent garments are in fact beautiful and magical, but it requires assembling a set of beliefs and procedures that evade challenges to this belief.  That is, a set of beliefs and procedures that evade challenges from empirical reality.  In other words, for an emperor to “buy” such new clothes, he had to live in a palace that could “handle” sustained absurdity of belief across a variety of domains.

2. The clothes are the effect, not the cause

Since I think most people would agree that the “new” clothes are a symbol of corruption at the highest level, the preceding assertion is not likely to be controversial.  We can all agree that the “new” clothes were part of a systematic corruption in thought.  But this immediately raises the question: where does this systematic corruption come from?

This is an extremely complex question that cannot be answered fully, but I would like to distinguish the merits of two basic answers.

Answer 1: New clothes as cause.  The clothes appealed to the emperor, and, motivated by his greed, vanity, pride (what have you), he re-made the system of thought and procedure to support his belief that they were magical.  In simple terms, the emperor bought the clothes, and then he pressured everyone to conform their activities to support his decision.  The system was corrupted because of the emperor’s new clothes.

Answer 2: New clothes as effect.  A system of thought and procedure existed which could support any number of false beliefs.  The Emperor happened to be taken with these “new” clothes (because of his greed, vanity and pride) and so he bought them and then dropped them into the system.  In simple terms, the system was corrupt and so facilitated the emperor’s new clothes.  The emperor’s new clothes were purchased because the system was corrupt.

The difference between these two is profound.  In particular, I will argue that Answer 2 is both far more likely to be the truth and far more foreboding if it is the truth.  Thus, we should be prepared to assume it is, in fact, Answer 2.

Answer 2, the new clothes are the effect, is far more likely because setting up coherent systems of thought and procedure to maintain a false belief is an extremely complex task.   If the new clothes are the cause, there is the enormous challenge of implementing a system that keeps the idea of their magic alive.  How do you know who is going to challenge whom, who is already skeptical, who is trusting, and who is pressing for advantage?  Two servants with an intense rivalry and a lack of scruples will almost certainly blow the case, each framing the other for theft or deceit.  The critical problem is that while the risk of challenging the emperor’s judgment, and by implication the “reality” of the clothes and their properties, is implicitly forbidden, the logical consequences of his judgment include contradictions.  It is not possible to draw a single, consistent set of conclusions from contradictory premises.  (For example, if 2+1=3 and 2+3=6, then 6-3=2 and 3-1=2, so  6-3=3-1, so 6=6-1).  Thus, “just following orders,” which require some logical deduction from order to action, leads to conflicts.  These conflicts then threaten to expose the falsity (a servant could logically and defensibly claim that he had 6 “magic socks” whereas another would logically and defensibly claim that he had only 5).  The emperor can order that conflicts be resolved, for example, by decreeing that 5=6, but he cannot anticipate their location in advance.  Thus, in order to be resolved, they must first pop up.  It is the “popping up” that undermines the system of false belief.  These expressions of dissent, even if temporary, serve the function fulfilled by the child at the parade — they call the accepted belief into question.

But while anticipating where the contradictions might pop up is extraordinarily difficult to do, taking advantage of contradictions that are already tolerated is relatively easy.  The emperor cannot anticipate that he will have to declare that 5=6, but if it has already been declared, or, more likely, accepted as true, then this is one source of potential conflict that has been eliminated.  In fact, this accepted contradiction can actually be used to erase a host of potential conflicts.  That is, there is now a set of controversies that should “pop up” but won’t.  For example, when the servants disagree over whether they possess 5 or 6 magic socks, they are held as insubordinate, seeing as they are clearly disobeying the known rule that 5=6.  This means they are at risk of punishment if they even mention their dispute.  Therefore, they keep it quiet, and the controversy does not “pop up.”

This logic extends beyond simple math problems.  The acceptance of contradiction and nonsense in any case increases the ease with which contradiction and nonsense can be accepted in other cases.  That is, nonsense breeds nonsense.  At first, large-scale, “obvious” nonsense is not tolerated, but over time the scope of nonsensical justification increases.  Thus, the emperor does not need to design anything in order to buy his magic new clothes.  He “waits” to buy the new clothes until the system has already evolved to a point where magic clothes will be accepted as real.  He simply matches the absurdity of his decisions to the tolerance for absurdity already present in the system.  The emperor does not begin by buying magical, invisible clothes.  He enters a system with some nonsense and increases it with his greed and vanity.  He buys the magical “new” clothes at the culmination, at a point where even the most obviously nonsensical can be justified as rational within the (now absurd) system of understanding.

Some might argue that the idea that an emperor would purchase magic, invisible clothes and parade around as though they were beautiful is extremely unlikely, anyway, and so it does not make sense to say that the former explanation is less appropriate than the latter.  But while this particular abuse of power is unlikely, the fact that some such abuse will result from a corrupt system where contradiction and nonsense are tolerated is inevitable.  The emperor happened to purchase new clothes, but he could have chosen any number of absurdities.  He could have invaded another country on false pretenses to gain access to their resources, then failed to obtain said resources.  He could have praised incompetent bureaucrats for doing a “heckuva” job when they were doing a terrible job.  He could have promoted borrowing money to purchase assets that provided no growth in real value.

3. After the parade: the implications of nakedness

The fable is a powerful, succinct, cautionary tale.  As such, it stops when the false belief is recognized.  But for the citizens of that empire, the recognition is just the beginning of their pain.  If the clothes are the cause, then the removal of the clothes, the rebuke of the emperor, and the punishment of the tailors is all that is required.  But if the clothes are the effect, as I have described above, the problem is much larger.  The clothes are, after all, only one particular expression of some portion of the false, nonsensical and contradictory beliefs that are embedded in the system.

We are beginning to see this in the news from the economy.  Corporations, particularly banks, are trying to explain their failures in terms of a reliance on magic clothes.  “We’re sorry,” they are saying, “we’ve lost a lot of money because of the magic clothes [mortgages].”  No, the magic clothes are not the cause.  They are the effect.  They’ve lost a lot of money because they were making nonsensical decisions for years and then relying, in part, on the “magic clothes” to make their nonsense appear to be sense.  If 5 = 6, then $50 million in profits can be reported as $60 million, an so on.  The fact that the clothes are now accepted to be non-existent, rather than magical, merely invites them to start admitting all of their nonsense.  It is a time, in other words, when any nonsensical decision that has been made in the last 10-12 years can be explained by a belief in magic clothes.  And since everybody agreed the magic clothes were real, the rest of the nonsense is excusable.

This brings us to two important consequences.  First, there is going to be bad news for a long time.  The emperor is naked, we now acknowledge, and now we are going to be told that he also has a drinking problem, that his ministers are insane, that there is no storage of grain.  Banks and financial services companies will write down enormous losses on bad debt, companies will re-state earnings to reflect appropriate accounting, and workers will be laid off.  We will be told that this is because of bad mortgages, because of the non-existence of the magic clothes, but this is false.  Companies lost money because they believed in nonsense.  They will not begin to make real profits again until they learn good sense.

The second consequence is that, despite our intense desire for retribution, there is really only one thing we can do.  Start thinking good sense, and waiting patiently for it to replace the nonsense.  In the meantime, expect things to get worse.  How do we distinguish good sense from nonsense?  That’s a topic for another post, but here’s a start: contradictions are bad, and conventional wisdom is not necessarily good.  If “common sense” recommends something but it appears to have a contradiction, the common sense is probably wrong.

Many nations and empires have gone through this.  Too often, they have ended up relying on the most costly and devastating means of undoing the nonsense — massive mobilizations of violence.  The innocent and guilty alike are killed and tortured until every promulgator of nonsense has either died or been ostracized as a monster, with only the sensible retaining their credibility.  But there is another way.  Sensible people can begin cutting down the nonsense in their own backyards.  The nonsense started growing there, and the new sense has to start growing there, too.

Ahhhhh!

I am screaming mad at the McCain campaign for the recent string of outrageous lies it is peddling in commercials and statements.

There was, of course, the distortion of Obama’s “lipstick on a pig” comments.  Then, the unbelieveably slimy commercial suggesting that Obama promoted sex education for kindergartners.  There’s Palin’s repeated distortions about the bridge to nowhere.  Now there is a scuzzy new commerical that lies about Obama and McCain’s records on immigration.  And, today we got to listen to McCain and Palin both talking on as if they were the reformers to come in and bring long-needed regulation to an financial sector gone bad, when they actually are long time self declared anti-regulation crusaders.

I am appalled that this consistent barage of lies and distortions is working.  How can it be countered when so many voters avoid balanced and informative news?  That all the major news outlets are calling McCain on these distortions doesn’t matter because so few people pay attention to the full story.  Seriously, I am screaming.  Please America!  Please, please, please!  Please, dont let McCain slip into the White House on a campagin of distortions.