Commodity Fetishism, Revisited
By now, unless you spent August 2003 lying under some rock, you have heard about the Pentagon's failed plan to have a wagering pool on terrorism and political turmoil. The Pentagon planned to allow qualified traders to place actual monetary bets, with actual monetary winnings to go to those traders who bet correctly. Media reports accurately, and correctly, mentioned the moral hazard involved: it might not prove too difficult for bad actors to profit from their bad deeds.
Press reports noted that the Pentagon had, somehow, already spent some $600,000 on this "Terrorism Futures Market." The idea for such a market apparently came from current projects like the Iowa Electronic Markets, which have allowed academic and other traders to place (relatively small) bets on American elections and similar events for almost a decade. (I would think that Iowa could have saved the Pentagon at least a few thousand bucks.) American elections are something that a market could theoretically predict fairly well. But how such a market would predict terrorism or other events with any sort of alacrity seems a bit farfetched.
In the Washington Post recently, Justin Wolfers and Eric Zitzewitz tried to explain why such a market was not such a bad idea after all:
Financial markets are incredibly powerful aggregators of information, and are often better predictors than traditional methods. The examples are numerous. The futures market in orange juice concentrate is a better predictor of Florida weather than the National Weather Service. The Iowa Electronic Markets outperform the opinion polls in predicting presidential election vote shares.
I cannot personally vouch for the first example (although I can report that Wolfers and Zitzewitz appear to have dramatically overstated the power of the orange juice futures market), but I can speak to the second. I have had a modest stake in the Iowa Electronic Markets since 1996, and I cannot fathom how one would equate the IEM with prescience.
The 2000 Congressional Control Market: The market has no clue that Republicans will control the House but not the Senate (control being 51 or more Senators). (In fact, exactly the opposite shares had higher prices for much of the period that the market was open.)
The 2000 Presidential Election Vote Share Market: The actual election yielded final prices shares of 0.499 Dem, 0.497 Rep, and 0.004 Reform this market never contained a Green party vote). This market concerned shares of the overall popular vote for president. The market consistently overestimated the Reform vote and, in the days leading up to the election overestimated the Republican vote as well. On 1 November, the Republican shares traded in the range of 0.504 to 0.519. On 4 November, those shares traded in the range of 0.500 to 0.515. On 6 November, the day before the election, they traded in the range of 0.496 to 0.530, and ended the day at 0.520. These figures are certainly interesting, but they didn't predict squat.
The 2000 Presidential Election Winner-Take-All Market: In this market, Gore shares were worth $1 after the election, because he won the nationwide popular vote. Yet Bush shares were worth more than Gore shares from 16 October, through 7 November, the day of the election. Even though Gore had a substantial lead in the popular vote, the "outperform[ing]" market still had traders selling Bush shares for nontrivial amounts some three days after the election.
The 2002 Congressional Control Market: This market predicted with consistency that Republicans would not control the Senate.
I suspect that the IEM does a decent job of assembling publicly available information such as polls, but it hardly provides any deep insights into the future. In markets like public stock markets, the volatility of many issues speaks volumes about how unreliable markets can be about predicting the future. Why should it be any different in any other market?
Pumping Irony
Well, our brilliant idea for drafting Warren Buffett for president are probably delegated to the dustbin of blogtopia now that Buffett is advising Arnold Schwarzenegger on economic issues. But the question remains: why did Buffett sign on with the Schwarzenegger campaign?
- Is it that Buffett sees the Schwarzenegger campaign as an opportunity to air some progressive views on taxation in a state that could use them? Perhaps.
- Is it that Schwarzenegger is a closet liberal? Perhaps: but then the revanchist wing of the Republican Party would be right.
- Is it that Buffett, seeing a potentially winning team, decided to subvert it from within? Perhaps, but that might be asking a bit too much from Dame Fortune.
- Is it that Buffett is not really the left-leaning image of Croesus that he appears to be? Probably not: that would mean that we were in error! For shame!
- We think it happened because Arnold found Warren some truly righteous chronic.
Remember These Weapons of Mass Destruction?
The bad news is that the Bush administration has found over 2,000 tons of weapons of "mass destruction," to wit, chemical weapons. The good news is that they're being destroyed. The ironic news is that those weapons are in Alabama.
Now that the Army has won a lawsuit that would have halted the incineration of this stuff, it now has to worry about what to go with the incinerator once it's doing its incinerating:
The Army has plans to clean agent and hazardous waste from facilities and equipment, leaving only miniscule amounts of each to a standard called 3X. That standard calls for only .0001 milligrams of GB nerve agent per cubic meter. VX would be cleaned to .00001 milligrams per cubic liter. Mustard agent would be cleaned until there is .003 milligrams per cubic liter.
Just remember the mantra. Horribly poisonous, lethal, crap is irredeemably bad when bad dictators have it, but it's ignorable when our friends have it, and it's a force for good when we have it.
Willfully Blind Justice
Ray Moore, Chief Justice of the Alabama Supreme Court, is still fighting a federal court ruling that ordered him to remove a substantial stone rendering of the Ten Commandments from the lobby of the Alabama Supreme Court building. Moore made a couple of telkling comments early on Wednesday, before the United States Supreme Court denied his motion for an emergency stay.
"This case is not about a monument. It's not about politics or religion. It's about the acknowledgment of God," Moore said on CBS's "The Early Show." "We must acknowledge God, because our constitution says our justice system is established upon God."
The morning television news programs are generally chock full of garbage, but this is bad, even for them. First, putting the Ten Commandments on a 5,000-pound sculpture in the lobby of the State Supreme Court is indeed about religion. Merely accepting the Ten Commandments as received wisdom elevates religions that accept the Old Testament as de jure state religions. Worse yet, accepting a particular enumeration of the Ten Commandments means throwing one's lot in with Protestantism, Catholicism, or Judaism. These three religious groups effectively agree on the relevant text, but they disagree on which ten items are the actual commandments. Moore, true to form, decided that the most recent formulation, the Protestant one, was God's original plan.
Second, Moore's claim about the Constitution is either amazingly misinformed or stunningly disingenuous. He cannot mean the United States Constitution, which does not mention anything of the sort. Article III establishes a supreme court, allows Congress to establish other courts, defines the scopes of the courts' jurisdiction, then defines treason and limits the penalties against it. It does not mention God, let alone establish the courts upon God. In fact, the only mention of God is in the phrase "Year of Our Lord" in the signature block.
Perhaps Moore means the Alabama Constitution, which dates from 1901. It has fully three references to God in the entire 287 sections and 742 amendments. Two of the references are to "so help me God" in the oaths of office for executives and legislator. The other is in the preamble:
We, the people of the State of Alabama, in order to establish justice, insure domestic tranquillity, and secure the blessings of liberty to ourselves and our posterity, invoking the favor and guidance of Almighty God, do ordain and establish the following Constitution and form of government for the State of Alabama:
"Invoking the favor and guidance" of a deity is hardly basing the entire judicial system of a state on that deity's commandments.
But the 1901 Alabama Constitution is the sixth in that state's illustrious history. What is the provenance of that reference to "Almighty God" in the Preamble? It's not from the original 1819 Constitution, which refers to God only in a section about freedom of religion and in the text of the oath of office. It's from the Preamble to the 1861 Constitution, written so that the high-minded political solons of their day could secede in a proper fashion. Surely the Chief Justice of the Alabama Supreme Court knows from whence his godly judicial system comes.
Friends of the Courtiers
Newsday reports that the Pentagon is trying to re-establish friendships that really should go the way of the dodo. If you were going to meet secretly with some Iranians, wouldn't you want to make sure that they weren't, literally, scandalous?
Pentagon hardliners pressing for regime change in Iran have held secret and unauthorized meetings in Paris with a controversial arms dealer who was a major figure in the Iran-contra scandal, according to administration officials....
The officials said at least two Pentagon officials working for Undersecretary of Defense for Policy Douglas Feith have held "several" meetings with Manucher Ghorbanifar, the Iranian middleman in U.S. arms-for-hostage shipments to Iran in the mid-1980s....
The senior administration official identified two of the Defense officials who met with Ghorbanifar as Harold Rhode, Feith's top Middle East specialist, and Larry Franklin, a Defense Intelligence Agency analyst on loan to the undersecretary's office.
I realize full well that the minions of Bush administration think that they can do no wrong. But can they admit that perhaps, just perhaps, our 1980s dealings with Iran and Iraq were just a bit unsavory?
Commodity Fetishism, or Just Greed?
The efficient market hypothesis holds that the stock markets will generally take all available information into account in determining the prices of the underlying shares. Apparently, the executives at Washington Mutual do not agree. They've taken out advertisements, big ones—nay, gaudily expensive ones—in the Wall Street Journal and the New York Times not to tout some great new deposit account, or to praise some innovative loan program, but to get investors to buy the stock. Tom Jacobs of the Motley Fool, who believes that corporations are supposed to benefit more than just their executives, complains:
This is not cheap. The New York Times open rate per column inch on Sundays is $1,342, with 126 column inches to a page. That's about $170,000. Of course Washington Mutual (NYSE: WM) gets a break for multiple insertions, but what kind of break is this for shareholders? I've seen at least 10 of these ads in the two publications. This is easily a seven-figure marketing campaign.
Tom, it's worse than you think. Washington Mutual, like a number of other companies, has a big share repurchase program that's supposed to help boost the price of the stock: when the price is low enough, the corporation buys back its own shares. This sort of plan assumes that the markets are not quire rational enough.
But If the Washington Mutual executives believed their own ad copy, wouldn't they just use the share repurchase plan to buy some shares? Or, better yet, buy some shares themselves? Or is it easier to spend a couple of million in the hopes that some of those 21 million or so stock options outstanding might go further above water?
