Tuesday, May 31, 2016

Treasury’s New So-Called Transparency about Saudi-Held US Debt

According to Bloomberg, Treasury has for the first time ever not only revealed that it hides how much US debt the Saudis are holding, but how much debt that is: $117 billion dollars this month.
The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.
It took several discreet follow-up meetings to iron out all the details, Parsky said. But at the end of months of negotiations, there remained one small, yet crucial, catch: King Faisal bin Abdulaziz Al Saud demanded the country’s Treasury purchases stay “strictly secret,” according to a diplomatic cable obtained by Bloomberg from the National Archives database.
With a handful of Treasury and Federal Reserve officials, the secret was kept for more than four decades—until now. In response to a Freedom-of-Information-Act request submitted by Bloomberg News, the Treasury broke out Saudi Arabia’s holdings for the first time this month after “concluding that it was consistent with transparency and the law to disclose the data,” according to spokeswoman Whitney Smith. The $117 billion trove makes the kingdom one of America’s largest foreign creditors.
For the record, I don’t think this is a secret. Some of it has been reported in histories of the JECOR petrol dollar laundering program. And, if I’m not mistaken (my copy is Audible not dead tree), the book The Oil Kings provides much more detail on the negotiations that set this up (and Henry Kissinger’s self-dealing as part of that process).
Also, the number Treasury released “consistent with transparency” is almost certainly bullshit. It’s not just me who thinks this is a bullshit number: so does some anonymous person who knows better.
Yet in many ways, the information has raised more questions than it has answered. A former Treasury official, who specialized in central bank reserves and asked not to be identified, says the official figure vastly understates Saudi Arabia’s investments in U.S. government debt, which may be double or more.
More likely, the vehicle of exchange and secrecy set up in 1974 were renewed when the US and Saudis signed the similar Technical Cooperation Agreement in 2008, which got extended in 2013 until 2023. Which would suggest Treasury has a reason to show us the old-style debt holdings, but not whatever they have going on now.So in the interest of “transparency” (that is, in the interest of avoiding any panic as the Saudis threaten to dump US debt if we start releasing information the Kingdom’s role in sowing terrorism) Treasury has revealed the old-style arrangement, but not whatever is the core of what we’ve got going on now.
In other words, what Treasury’s so-called transparency actually tells us is the larger part of Saudi holdings (they threatened to dump $750 billion in US debt) are stashed somewhere even more secret than the original holdings.

The Theory of Business Enterprises Part 5: A Legal System That Supports Businessmen

In Chapter 8 of The Theory of Business Enterprises, Thorstein Veblen takes up the political and legal systems of the US. Both are designed to support business at the expense of everyone and everything else. By 1904, people were used to thinking about almost everything in terms of money, and that means that “… the management of the affairs of the community at large falls by common consent into the hands of business men and is guided by business considerations.” And that’s true of both national and international matters.

He claims that this habit of mind is reinforced by the doctrines of Natural Liberty, a reference to the theory of John Locke, which I discuss here. Locke’s theory was formed at a time when production was dominated by the artisan and the small farmer. He argued that the worker, these individual small producers, were entitled by the principles of Natural Liberty to own the things they produced, whether it was the blacksmith, the cobbler, or the weaver/dyer. Locke was concerned to protect their production from the monarch, whose absolute power was backed up with troops. Apparently teh landlord was entitled to rent, and to a share of the produce of tenants, but never mind why, exactly. That notion carried over to industrial production, so that the owner of the factory was entitled to the goods produced by the workers. Veblen refers to this as a metaphysical theory, but it obviously doesn’t explain much.

The unquestioned idea that property rights are part of Natural Liberty survived the days of artisans and small farmers, where they made some kind of sense. The common people could be said to be free in the sense that they controlled their hours of work and the methods of production. The idea carried over into the era of industrial production, where businessmen controlled much more of the work and private life of the worker. It meant that the arrangements of industrial production could not be interpreted as unlawful coercion. Workers were free to take whatever work was available at whatever price. They not entitled to any of the goods produced, directly or indirectly, but only to a wage, if the capitalist actually paid one. Or, they could starve. We’ve seen this before. http://ift.tt/22wawhz

Veblen offers this explanation for the willingness of the workers to put up with this arrangement. It’s like the manorial system, where the workers thought, he says, that the production remained with the feudal lord, and thus increased the wealth of the group, and that was good for the peasantry. Also, the feudal lord provided protection to the peasants, for which they were grateful. This in turn looks like patriotism. These two ideas of property and patriotism in led the common people to feel as though they had “some sort of metaphysical share in the gains which accrue to the business men who are citizens of the same ‘commonwealth’; so that whatever policy furthers [their] commercial gains … is felt to be beneficial to all the rest of the population.” Or, as he puts it later when discussing the governmental support for all things business,

And in its solicitude for the business men’s interests it is borne out by current public sentiment, for there is a naive, unquestioning persuasion abroad among the body of the people to the effect that, in some occult way, the material interests of the populace coincide with the pecuniary interests of those business men who live within the scope of the same set of governmental contrivances.

“Some occult way”, a lovely description of much economic theory.

The main function of the law is to insure that the interests of business men are protected. In large part, that means enforcing “freedom of contract”. That means the freedom of the workers to enter into whatever contract they choose. The reality is that workers don’t have much in the way of freedom, and the businessmen were free to offer whatever terms they chose. The pressure on the workers was pecuniary, and therefore wasn’t assault and battery nor breach of any contract. Consequently the law had no interest in the matter. If the jury of workers objected to this interpretation of the law, and ruled in favor of a worker injured on the job, that was because their vulgar minds couldn’t grasp the grandeur of the rules of Natural Liberty, and they would be quickly corrected by the superior minds of the Judiciary.

Veblen’s view was to receive confirmation the very next year in the now famous case of Lochner v. New York, 198 S.Ct. 45 (1905), where SCOTUS upheld the freedom of bakers to work more than 60 hours a week despite a New York statute designed to protect their health and safety. The case is famous for the dissent filed by Justice Oliver Wendell Holmes, who claimed that the majority decided the case on the basis of “…an economic theory which a large part of the country does not entertain.” Also, it was decided under the Fourteenth Amendment, just the first of a long string of horrible misuses of that Amendment.

Here’s Veblen’s view of the results:

De facto freedom of choice is a matter about which the law and the courts are not competent to inquire. By force of the concatenation of industrial processes and the dependence of men’s comfort or subsistence upon the orderly working of these processes, the exercise of the rights of ownership in the interests of business may traverse the de facto necessities of a group or class; it may even traverse the needs of the community at large, as, e.g., in the conceivable case of an advisedly instituted coal famine; but since these necessities, of comfort or of livelihood, cannot be formulated in terms of the natural freedom of contract, they can, in the nature of the case, give rise to no cognizable grievance and find no legal remedy.

Veblen doesn’t mention one ground of support for property rights that seems important to me: That’s Mine!. This may be the most deep-seated view that any of us has, and the idea that we have to share anything, including the very air we breathe, seems unfair to many of us. I can do what I want with my property, so If I want to paint my house with polka dots, hand a garish sign on my shop, or poison the air and water, and lie about it, that’s my right and you can’t stop me. The natural extension of that idea is that businessmen can do whatever they want with their property, just like I can with mine, and screw the community.

With that background, and with a grasp of how firmly it’s held, we can begin to understand how the neoliberals found a strong basis for their reworking of neoclassical economics into the force it has here today. Natural Liberty reinforces That’s Mine to create loathing for any intrusion on the freedom to do what one wants with one’s property. Everyone agrees that the proper role of government is to enforce those property rights. And that is the real ground of property rights: raw power. Locke makes a metaphysical argument, but the Monarch had armed troops. If Locke’s conception prevailed, it was because the power to command those troops to seize property and give it to the monarch had been eliminated.

In the US, private property is protected by the Constitution, and all levels of government enforce that protection zealously. Laws that restrain the use of property to damage the community are not enforced zealously, as we know from the aftermath of the Great Crash and the rate of rise of prices of pharmaceutical drugs. This is a deeply stupid and dangerous arrangement of priorities.

Tuesday Morning: Family

Don’t read anything into this music video. It’s the only one I could think with family as the theme.

Which is why I have to bail on you folks today: family. My folks are in town and are now subsuming the entire day here. I’ll try to have a normal post tomorrow, but no guarantees since the folks are here through Thursday. And you surely know how it works when family arrives from out of state — anything can happen.

Speaking of family, this post is worth some discussion:

The richest families in Florence in 1427 are still the richest families in Florence (QZ) — Wow. I wonder how this fits into Piketty’s work on inequality?

You can see this at work elsewhere across Europe; they protected the wealthy with peerage and pulled them into royalty.

Like the marriage this past week of Lady Charlotte Wellesley, the Duke of Wellington’s daughter, to Alejandro Santo Domingo, a Colombian investment banker.

Not just any banker; a billionaire already highly connected and swimming up to his ears in more billions from your beer consumption.

Two hundred years ago this would have been unthinkable, a scandal; peers did not wed the trade class. Apparently wars and the expensive amusements of the idle rich have a way of upending class barriers when capital accrues on the other side of the tracks.

Side note: Fear of Zika kept attendees away from the couple’s engagement party this February. If big money is afraid of Zika, why aren’t we seeing more investment in addressing prevention, infection control, vaccine, and therapy?

I guess not every family matters. Open thread as usual, play nicely!

Monday, May 30, 2016

Monday Morning: Diasporic

Hope you’re having a pleasant holiday. I feel sorry for many East Coast folks who are wet due to Tropical Depression Bonnie today. We’ve got clear skies, a light breeze out of the northwest and 80F degrees here, which seems odd for Memorial Day in the Great Lakes State.

The pleasantness heightens the contrast of this embedded short film, Robots of Brixton by Kibwe Tavares and FactoryFifteen. It’s a nice example of Afrofuturism, this one blending science fiction, fantasy, and historical nonfiction from perspective of the African diaspora. We are treating technology as we do humans of color — as disposable inconveniences, seeing their frustration as nuisance rather than a angry plea for deeper consideration.

I’ll let you imagine the things I typed and deleted here about the future. That is the entire exercise of futurism — imagining what could be, will be, should be — and it’s not limited to nor should it be defined by the dominant culture. What do you imagine?

And what did they imagine, the ones we memorialize today? Did the future fail, meet, or exceed their expectations?

Sunday, May 29, 2016

Pat Buchanan, Dick Cheney, and American Exceptionalism

Back when Dick Cheney was being hailed for calling out Donald Trump’s racism, I noted one aspect of that radio interview that escaped notice: his embrace of the myth that the American continent was empty when his Puritan ancestors got here.

Cheney didn’t stop there. He then emphasized that one of his ancestors arrived as a religious refugee, a Puritan. “A lot of people, my ancestors got here, because they were Puritans.” Cheney suggested, then, that the place was empty when William Cheney arrived in the 17th century. “There wasn’t anybody here, then, when they came.”

There has been little recognition that, in speaking out against the ban on all Muslims, Cheney either unintentionally or intentionally propagated another racist myth, that there “wasn’t anybody here” when the Puritans came.

It’s unclear whether Cheney meant there was no formal state to exclude the Puritan refugees, or whether he really meant — which is what it sounds like — that the continent was empty in the 17th century.

But it seems like a very subtle dog whistle, the kind Republicans used to limit themselves to, suggesting that it is OK for white men to colonize a previously occupied space, even while espousing a kind of tolerance for what we would recognize as religion. By claiming “there wasn’t anybody here” when colonists first came to America, Cheney normalizes conquest, the same kind of conquest he demanded in the Middle East a decade ago, which has so badly exacerbated extremism and continued to make us insecure.

The degree to which Cheney’s perpetuation of that “empty America” myth went largely unnoticed is worth remembering as you read this Pat Buchanan piece, which complains that middle aged whites are killing themselves because their children are learning that America wasn’t actually empty.

A lost generation is growing up all around us.

In the popular culture of the ’40s and ’50s, white men were role models. They were the detectives and cops who ran down gangsters and the heroes who won World War II on the battlefields of Europe and in the islands of the Pacific.

They were doctors, journalists, lawyers, architects and clergy. White males were our skilled workers and craftsmen — carpenters, painters, plumbers, bricklayers, machinists, mechanics.

They were the Founding Fathers, Washington, Adams, Jefferson and Hamilton, and the statesmen, Webster, Clay and Calhoun.

[snip]

The world has been turned upside-down for white children. In our schools the history books have been rewritten and old heroes blotted out, as their statues are taken down and their flags are put away.

Children are being taught that America was “discovered” by genocidal white racists, who murdered the native peoples of color, enslaved Africans to do the labor they refused to do, then went out and brutalized and colonized indigenous peoples all over the world.

In Hollywood films and TV shows, working-class white males are regularly portrayed as what was once disparaged as “white trash.”

Unlike Cheney’s embrace of the empty America myth, Buchanan’s is (rightly) getting a lot of attention. I obviously don’t endorse his views, but I do think they explain the strength of Trump. Buchanan not only talks about declining economic prospects of white working class men, the relatively improved fortunes of people of color, but especially about the plight of white men losing their myths of superiority, losing the myth that white men made this country and led the world without the often-coerced labor and deaths of lots of brown people.

Trump’s lies, Buchanan suggests, permit these white men to believe their myth again, the myth of white American exceptionalism.

Here’s the thing. A lot of people are linking Buchanan’s post are pointing just to those far right nutjobs whose enthusiasm has fueled Trump’s rise this year.

But — as the example of Dick Cheney perpetuating the very same myths, even while criticizing Trump’s overt racism — that underlying myth extends well beyond the far right nutjobs, well into mainstream Republican and even Democratic ideology.

America has a Donald Trump problem — one that its diversity will probably defeat, at least in the short term. But underlying that Donald Trump problem is a desperate insistence on clinging to the myth of American exceptionalism, with its more offensive parts even embraced in the mainstream. For the sake of the white men who’ve relied on those myths for their sense of dignity, but also to prevent future Trumps, it is time to start replacing that exceptionalist myth with something else.

Friday, May 27, 2016

Friday Morning (Somewhere, Maybe in Alaska): Rhapsodic

Friday, you old dog, you. You came back once again, a little worse for wear but alive and kicking. Let’s see what kind of jazzy treat we can cook up for you.

Ah, let’s have some Third Stream (not to be confused with neoliberalists’ Third Way). Music in this not-quite-jazz subgenre walks the line between classical music’s formality and jazz’s improvisational nature. This isn’t chamber jazz — jazz performed on chamber instruments, discussed in a previous Friday Jazz post. Third Stream is composed work heavily influenced by jazz, played by an orchestra.

In the example shared today, George Gershwin’s Rhapsody in Blue, this is a composition without improv, but with strong jazz and pre-jazz elements. You can hear the pre-jazz particularly well in the piano; by pre-jazz I mean ragtime, using rapid, “ragged” hand movements (note this sound as early as 1:35 in the music video). The example here is a performance of the original composition using a 24-piece jazz band. Do open the video and play at YouTube’s site in order to expand and read the notes accompanying this piece. Compare this version to a performance based on the later arrangement of the same piece for a full orchestra (ex: Leonard Bernstein and New York Philharmonic, compare ragtime-like keyboarding at 2:09).

And then poke around and enjoy some other Gershwin. It’s a nice way to start the weekend.

All about the (free) speech
Good gravy. This week has been a mess when it comes to free speech and the media. Hard to pick a starting point, there’s so much content. Let’s begin with the circus-like story and a bit of a tick-tock for n00bs unfamiliar with it.

  • December 2007 — Gawker’s Valleywag outed technology venture capitalist Peter Thiel. Thiel is a co-founder of PayPal and Palantir, and a major investor in Facebook with a seat on its board of directors.
  • October 2012 — Gawker published part of a sex tape showing Hulk Hogan engaged in sex with radio personality Bubba the Love Sponge’s wife about six years earlier. (Christ, I couldn’t make this shit up if I tried.)
  • November 2015 — Hogan sued Gawker for defamation, loss of privacy, emotional pain.
  • March 2016 — Court found for Hogan, awarding him $115 million.
  • May 24, 2016 — Hogan’s lawsuit financier revealed — it’s Peter Thiel.
  • May 25, 2016 — Gawker tried to get award reduced; the media outlet has already been forced to sell a sizable portion of itself to fund the award to Hogan.
  • Today — Denton published an open letter to Thiel with a mess of questions, some focused on the legitimacy of Gawker media. It’s a fair question when Facebook is under fire for its presentation of news content to its users.
  • Speaking of Facebook, the now-open warfare between Thiel and Denton casts a different light on the stories Gawker property Gizmodo published about Facebook. You’ll recall the furor raised among conservatives after Gizmodo relied on a single conservative contract-employee as a source for its claim that Facebook filters out conservative media.
  • Media outlets are very concerned about the future, especially if Trump is elected to the presidency (see also CNBC’s opinion‘s mentioning a chilling effect, suggesting investormnt media very concerned). Billionaires shopping for cases to wipe out small-to-medium-sized media outlets could become more common where laws prevent the use of strategic lawsuits against public participation (SLAPP). Trump has admitted to using litigation to harass or punish media.

Bottom line: Reporting on someone’s sexuality and outing them merely because they’re a hypocrite isn’t adequate reason to do so. Some rich people are going to be asses as they have been through history; media should report when wealth’s actions affect the public’s interests. But using one’s billions to burn down the entire Fourth Estate isn’t merely revenge against careless journalism. Attacks intended to weaken a media outlet are attacks on the First Amendment in general; this only exacerbates inequality, and it’s fundamentally unAmerican.

And now speech having nothing to do with the above…

Long Reads
Hey. You could use a couple for your road trip to your summer weekend hide-out destination. Try these:

  • The Bank Robber (The New Yorker) — Great piece on an unreliable character, Herve Falciani, who ‘liberated’ client data from HSBC while working in IT at its Swiss facility. Wonder who’s buying the film rights?
  • Welcome to Disturbia (Curbed) — Interesting look back at the origins of our suburbs and how they were then perceived as toxic. A look at bowling alone, long before Bowling Alone.

That’s a wrap on this week. See you Monday!

Ben Wittes’ Delusion: FBI IS the Intelligence Community

Screen Shot 2016-05-26 at 10.33.28 AM

Ben Wittes has started a series of posts on how to tyrant-proof the presidency. His first post argues that Jennifer Granick’s worries about surveillance and Conor Friedersdorf’s worries about drone-killing are misplaced. The real risk, Wittes argues, comes from DOJ.

What would a president need to do to shift the Justice Department to the crimes or civil infractions committed—or suspected—by Trump critics and opponents? He would need to appoint and get confirmed by the Senate the right attorney general. That’s very doable. He’d want to keep his communications with that person limited. An unspoken understanding that the Justice Department’s new priorities include crimes by the right sort of people would be better than the sort of chortling communications Richard Nixon and John Mitchell used to have. Want to go after Jeff Bezos to retaliate for the Washington Post‘s coverage of the campaign? Develop a sudden trust-busting interest in retailers that are “too big”; half the country will be with you. Just make sure you state your non-neutral principles in neutral terms.

[snip]

There are other reasons to expect a politically abusive president to focus on the Justice Department and other domestic, civilian regulatory and law enforcement agencies: one is that the points of contact between these agencies and the American people are many, whereas the population’s points of contact with the intelligence community are few. The delusions of many civil libertarians aside, the intelligence community really does focus its activities overseas. To reorient it towards domestic oppression would take a lot of doing. It also has no legal authority to do things like arresting people, threatening them with long prison terms, fining them, or issuing subpoenas to everyone they have ever met. By contrast, the Justice Department has outposts all over the country. Its focus is primarily domestic. It issues authortitative legal guidance within the executive branch to every other agency that operates within the country. And it has the ability to order people to produce material and testify about whatever it wants to investigate.

What’s more, when it receives such material, it is subject to dramatically laxer rules as to its use than is the intelligence community. Unlike, say, when NSA collects material under Section 702, when the Justice Department gets material under a grand jury subpoena, there aren’t a lot of use restrictions (other than Rule 6(e)’s prohibition against leaking it); and there is no mandatory period after which DOJ has to destroy it. It has countless opportunities, in other words, to engage in oppressive activities, and it is largely not law but norms and human and institutional decency that constrain it.

I don’t necessarily disagree with the premise. Indeed, I’ve argued it for years — noting, for example, that a targeted killing in the US would look a lot more like the killing of Imam Luqman Abdullah in 2009 (or the killing of Fred Hampton in 1969) than drone killing of Anwar al-Awlaki in 2011 (given that Abdullah’s selling of stolen items got treated as terrorism in part because of his positive statements about Awlaki, it is not inconceivable FBI started informing his mosque because of SIGINT).

My gripe (I have to have gripes because it is Wittes) is on two points. First, Wittes far overestimates how well the protections against abuse currently work. He seems to believe the Levi Guidelines remain in place unchanged, that the 2008 and 2011 and serial secret changes to the Domestic Investigations and Operations Guide since then have not watered down limits on investigations for protected activities. He suggests it was a good thing to use prosecutorial discretion to chase drugs in the 1990s and terrorism in the 2000s, and doesn’t consider why the rich donors who’ve done as much damage as terrorists to the country — the banksters, even those that materially supported terrorists — have gotten away with wrist-slap fines. It was not a good thing to remain obsessed with terrorists while the banksters destroyed our economy through serial global fraud (a point made even by former FBI agents).

We already have a dramatically unequal treatment of homegrown extremists in this country based on religion (compare the treatment of the Malheur occupiers with that of any young Muslim guy tweeting about ISIS who then gets caught in an FBI sting). We already treat Muslims (and African Americans and — because we’re still chasing drugs more than we should — Latinos) differently in this country, even though the guy running for President on doing so as a campaign plank isn’t even in office yet!

The other critical point Wittes missed in his claim that “delusional” civil libertarians don’t know that “the intelligence community really does focus its activities overseas” is that DOJ, in the form of FBI and DEA, is the Intelligence Community, and their intelligence focus is not exclusively overseas (nor is the intelligence focus of other IC members DHS — which has already surveilled Black Lives Matter activists — and Treasury). The first dragnet was not NSA’s, but the DEA one set up under Bill Clinton. One big point of Stellar Wind (which is what Wittes mocked Granick for focusing on) was to feed FBI tips of people the Bureau should investigate, based solely on their associations. And while Wittes is correct that “when the Justice Department gets material under a grand jury subpoena, there aren’t a lot of use restrictions (other than Rule 6(e)’s prohibition against leaking it); and there is no mandatory period after which DOJ has to destroy it,” it is equally true of when FBI gets raw 702 data collected without grand jury scrutiny.

FBI can conduct an assessment to ID the racial profile of a community with raw 702 data, it can use it to find and coerce potential informants, and it can use it for non-national security crimes. That’s the surveillance Wittes says civil libertarians are delusional to be concerned about, being used with inadequate oversight in the agency Wittes himself says we need to worry about.

Four different times in his post, Wittes contrasts DOJ with the intelligence community, without ever considering what it means that DOJ’s components FBI and DEA are actually part of it, that part of it that takes data obtained from NSA’s surveillance and uses it (laundered through parallel construction) against Americans. You can’t contrast the FBI’s potential impact with that of the IC as Wittes does, because the FBI is (one of) the means by which IC activities impact Americans directly.

Yes, DOJ is where President Trump (and President Hillary) might abuse their power most directly. But in arguing that, Wittes is arguing that the President can use the intelligence community abusively.

Thursday, May 26, 2016

Less than 10% of Germany’s SIGINT Spying Targets Terrorist

Sorry I’ve been AWOL. I’ve been on a trip to DC.

Among the things I did was attend a presentation from Konstantin von Notz, one of the Bundestag members who is investigating Germany’s SIGINT spying in the wake of the Snowden leaks.

He made a comment that was really telling. They asked the BND (their NSA) to reveal how many of the selectors being targeted are terrorist targets. It’s less than 10% of the selectors.

I’m not (too) surprised by the number. But it’s a telling detail. For all the fear-mongering about how the government needs dragnets to combat terrorism, the bulk of what the Germans, at least, are doing is spying to serve the self-interest of their country.

Thursday Morning: Try

Where there is a flame, someone’s bound to get burned
But just because it burns, doesn’t mean you’re gonna die
You gotta get up and try, and try, and try

— excerpt, Try by P!nk

Racier than the usual video here, but I’m trying — hence this selection. I’m fried after a late night, can’t muster much mental wattage this morning. Only one cohesive theme emerged by itself from my news feeds, though I kept trying for a second one.

Surveillance

  • Surveillance as shrug: British activists doing nothing about surveillance (OpenDemocracy) — Study shows UK activists have not taken action against state surveillance, offering a number of explanations for why. But perhaps the most obvious one not addressed is an unconscious chilling effect of surveillance combined with cognitive dissonance about the degree of instrusion by the state.
  • Surveillance as future shock: State’s ability to monitor us has exceeded our laws (Ars Technica) — No shit, really? ~sigh~ It’d be nice if this piece actually called out lawmakers for their inability to keep up and put a brake on the state’s capabilities and practices. Even educators on this topic — like Prof. Elizabeth Joh interview here — don’t appear to realize pre-crime has arrived. It’s just not yet evenly distributed.
  • Surveillance as filler: Access to private surveillance cams makes local news (KOKI) — Fox affiliate in Tulsa OK demonstrates ease with which strangers can access surveillance cam feeds — and the story is picked up by another local news affiliate in Memphis TN. Reaction appears blasé as the story doesn’t spread to national outlets.
  • Surveillance as art: Watched! Surveillance, Art and Photography (e-Flux) — The panopticon pervades our culture as it becomes the topic of our art, manifest in this exhibition. Anybody making a trip to Gothenberg, Sweden this summer? Check this show out.
  • Surveillance as social life: Fairly average 13-year-old’s life online (WaPo) — Unrelenting self-examination of one’s life as it may be observed by others — that’s what our kids and grandkids are doing to themselves and others. They’re growing up with a deeply embedded sense that watching everything and critiquing what they see is their life. What is it doing to their sense of privacy, to their understanding of human social boundaries?

Yuck. I could just barf after that last one. We are jacking our kids into this monster without pause. That’s enough for today.

Tuesday, May 24, 2016

Tuesday Morning (Kind of): Assembly-Required Future

Sorry, gang, I’ve got a lot of balls in the air today and not much time to write. I’ll try to come back as time permits to flesh out this post but no promises.

I’ve been thinking a lot about the future — apart from the political realm, because that part of our future is just plain bat-shit crey — and I don’t know, nothing seems clear. My crystal ball reads like a shattered Apple iPad display.

Take a look at this new phone concept, Google’s Project Ara. Users can assemble the components they want or need at any time. In fact, I’d go so far as to say it’s not a phone at all. It’s a new mobile computer platform with communications capability. We’ll accept it more readily if we think of it as a phone first, though, especially since we have yet to fully grasp how our current smartphones have replaced PCs.

Do enough people want a customizable device like this badly enough to merit all the effort put into its R&D?

If you’re a parent, you’ve probably stepped barefoot on a LEGO piece in the middle of the night; imagine instead stepping on your kid’s camera component for their Ara. Or the baby swallowing one of the components. Or the cat flicking off the dresser a key part you needed with all your spreadsheets for work.

Color me skeptical.

The impending decision in the Oracle v. Google lawsuit over Java’s open-source license may also play a critical role. Not because Ara’s technology may be released as open source, but because a negative outcome in the lawsuit may have a chilling effect on development by component makers. If every company participating in the Java development community (prior to Oracle’s acquisition of Sun Microsystems) believed Java was open source, BUT the court thinks otherwise, what good are any other assurances that any technology is open source?

As usual, morning threads are open. Talk amongst yourselves. What’s the future look like in your crystal ball?

Monday, May 23, 2016

Mullah Mansour Drone Strike: Important Milestone or Radicalizing Event?

How much more ironic could it be? More than 43 years after the last Americans evacuated Vietnam, ending our disastrous occupation there, the dateline reads Hanoi on President Barack Obama’s statement today on the US drone strike that killed Mullah Akhtar Muhammad Mansour. Mansour was the head of Afghanistan’s Taliban but was in Pakistan at the time the US killed him with a drone, striking a similarity to the US “secret” bombing of Cambodia during the Vietnam war.

From today’s New York Times, we have parts of Obama’s statement:

Calling the death “an important milestone,” President Obama said in a statement, released just as he was meeting with top officials in Vietnam, that the United States had “removed the leader of an organization that has continued to plot against and unleash attacks on American and coalition forces.”

“Mansour rejected efforts by the Afghan government to seriously engage in peace talks and end the violence that has taken the lives of countless innocent Afghan men, women and children,” Mr. Obama continued in the statement. “The Taliban should seize the opportunity to pursue the only real path for ending this long conflict — joining the Afghan government in a reconciliation process that leads to lasting peace and stability.”

So Obama is saying that the Taliban should respond to our extrajudicial killing of their leader by reconciling with the Afghan government (chosen in large part by John Kerry) and working toward peace. What are the odds of that happening? Max Abrams has some very important points to make on that topic:

Dr Max Abrahms, from Northeastern University in Boston, said the US Government does not look carefully enough at the strategic implications of its strikes on extremist leaders.

He said he had done a number of studies on leadership decapitation of a militant group and he had not found a statistically significant reduction in the amount of violence perpetrated by the group after a leader was removed.

“In fact these decapitation strikes can actually be counter-productive, because one of the assumptions of the targeted killing campaigns is that the replacement of the leader that you killed will be more moderate,” Dr Abrahms said.

“And yet I find just the opposite to be true. The replacement is even more extreme.

“So for that reason, in the immediate aftermath of a successful targeted killing, like over this weekend, the group’s violence tends to become even more extreme, in the sense that it’s even more likely to attack civilian targets.”

And so our circle of irony is complete. Obama’s statement on the killing of Mansour, released from Vietnam, shows that US military misadventures still rely on faulty logic when major moves are made. A strike made to make the Taliban more peaceful seems virtually certain to result in more indiscriminate killing of civilians.

Because I know how much Marcy enjoys miraculous “left behind” documents, I couldn’t resist following up on a Twitter reference I saw flit by yesterday about how a passport for Mansour somehow survived the conflagration in the taxi in which Mansour met his death by drone. By following it, though, I found even more deep irony in the drone strike. This article by ToloNews carries a photograph of a pristine-looking passport. Compare that with the photo in the New York Times article linked above with the burned out wreckage of the vehicle Mansour was said to have been in when hit. How could the passport have survived?

But wait, there’s more! ToloNews tells us that the passport has Mansour’s name and carries a valid Iranian visa. Furthermore:

Meanwhile, a number of analysts said the Taliban in recent months tried to extend relationships with Iran and Russia to fight Daesh and that there is a possibility that Mansour traveled to Iran to escape ISI and talk with Iranian officials.

“Iran is afraid of Daesh presence in Afghanistan, because Daesh is an enemy to Iranian clerics; therefore, Iran wants to eliminate Daesh with the help of the Taliban. Previously, Taliban had strong affiliation to Saudi Arabia, but now there is a rift between Iran and Saudi Arabia and Iran wants to expand its influence on the group [Taliban],” political analyst Shafiq Hamdam said.

So while Mansour and his group have continued to reject peace talks with the Afghan government, at least some observers believe that he was in the process of trying to join the fight against Islamic State. And it may well be that he died because of that effort. Here’s a map of the region, showing that the site of the drone attack, Ahmad Wal, lies about 100 miles away from Quetta (where the Afghan Taliban has long been believed to be headquartered) along the highway that is the most direct route to Iran from Quetta.

Google map of the region surrounding Ahmed Wal, where Mullah Monsour was killed.

Google map of the region surrounding Ahmed Wal, where Mullah Monsour was killed.

Monday Morning: Tarantela

I could listen to this piece on a loop. It’s Santiago de Murcia’s “Tarantela,” performed by noted lutist Rolf Lislevand. The instrument he is playing is as important as the music and his artistry; it’s an extremely rare Stradivarius guitar called the Sabionari. While tarantellas more commonly feature additional instruments and percussion like tambourines, this instrument is stunning by itself.

You can learn more about the Sabionari at Open Culture, a site I highly recommend for all manner of educational and exploratory content.

And now to dance the tarantella we call Monday.

Wheels

  • What’s the German word for ‘omertà’? Because Volkswagen has it (Forbes) — Besides the use of obfuscation by translation, VW’s culture obstructs the investigation into Dieselgate by way of a “code of silence.” And money. Hush money helps.
  • Growing percentage of VW investors want an independent investigation (WSJ) — An association 25,000 investors now demands an investigation; the problem continues to be Lower Saxony, the Qatar sovereign-wealth fund and the Porsche family, which combined own 92% of voting stock.
  • VW production workers get a 5% pay raise (IBT) — Is this “hush money,” too, for the employees who can’t afford to be retired like VW’s executives? The rationale for the increase seems sketchy since inflation is negligible and VW group subsidiary workers at Audi and Porsche won’t receive a similar raise.
  • Insanity? VW Group a buy opportunity next month (The Street) — Caveat: I am not a stockbroker. This information is not provided for investment purposes. Your mileage may vary. But I think this is absolute insanity, suggesting VW group stock may offer a buy opportunity next month when VW publishes a strategy for the next decade. If this strategy includes the same utterly opaque organization committing fraud to sell vehicles, is it smart to buy even at today’s depressed prices? The parallel made with Apple stock is bizarre, literally comparing oranges to Apples. Just, no.

Bad News (Media)

Cybersec

  • Organized criminals steal $13M in minutes from Japanese ATMs (The Guardian) — And then they fled the country. What?! The mass thefts were facilitated by bank account information acquired from an unnamed South African bank. Both Japan and SA use chip-and-pin cards — so much for additional security. Good thing this organized criminal entity seeks money versus terror. Interesting that the South African bank has yet to be named.
  • Slovenian student receives 15-month suspended sentence for disclosing state-created security problems (Softpedia) — The student at Slovenia’s Faculty of Criminal Justice and Security in Maribor, Slovenia had been investigating Slovenia’s TETRA encrypted communications protocol over the last four years as part of a school project. He used responsible disclosure practices, but authorities did not respond; he then revealed the encrypted comms’ failure publicly to force action. And law enforcement went after him for exposing their lazy culpability hacking them.
  • Related? Slovenian bank intended target for Vietnamese bank’s SWIFT attempted hack funds (Reuters) — Huh. Imagine that. Same country with highly flawed state-owned encrypted communications protocol was the target for monies hackers attempted to steal via SWIFT from Vietnamese TPBank. Surely just a coincidence, right?

Just for the heck of it, consider a lunch read/watch on a recent theory: World War 0. Sounds plausible to me, but this theory seems pretty fluid.

Catch you here tomorrow morning!

Saturday, May 21, 2016

Testing The Limits on Wealth Inequality

In this post, I pointed out that we are going to see an empirical test of Piketty’s theory of rising wealth inequality. The theory itself is not well understood, and Piketty has revisited it since the publication of Capital in the Twenty-First Century, and published an economist’s dream of a paper in full mathematical glory here. The American Economics Association devoted space in its journal to arguments about the theory, giving Piketty an opportunity to discuss his theory in what I think is a very readable paper, and one worth the time.

He starts by saying that the relation between r, the rate of return to capital, and g, the rate of growth in the overall economy, are not predictive. They cannot be used to forecast the future, and are not even the most important factor in rising wealth inequality. The crucial factors are institutional changes and political shocks. Neither can the relation tell us anything about the decrease in the labor share of national income. He points to supply and demand for skills and education in this paper, as he does in his book, but this is a at best an incomplete explanation, owing more to the neoliberal view that the problems of workers are their fault than to a clear understanding of social processes in the US. A better explanation lies in tax law changes, changes in labor law and enforcement of labor law, rancid decisions from the Supreme Court, failure to update minimum wage and related laws, and government support for outsourcing and globalization.

What the theory does say is the subject of Part II.

I now clarify the role played by r > g in my analysis of the long-run level of wealth inequality. Specifically, a higher r − g gap will tend to greatly amplify the steady-state inequality of a wealth distribution that arises out of a given mixture of shocks (including labor income shocks).

In other words, as the raw number r – g increases, wealth inequality reaches a limit at a higher level, and income and wealth mobility become lower.

The important point is that in this class of models, relatively small changes in r − g can generate large changes in steady-state wealth inequality. For example, simple simulations of the model with binomial taste shocks show that going from r − g = 2% to r − g = 3% is sufficient to move the inverted Pareto coefficient from b = 2.28 to b = 3.25. Taken literally, this corresponds to a shift from an economy with moderate wealth inequality — say, with a top 1 percent wealth share around 20–30 percent, such as present-day Europe or the United States — to an economy with very high wealth inequality with a top 1 percent wealth share around 50–60 percent, such as pre-World War I Europe.

The inverted Pareto coefficient β is a measure of inequality used by Piketty and his colleagues. Here’s how he explains it in this paper:

That is, if β = 2, the average income of individuals with income above $100,000 is $200,000 and the average income of individuals with income above $1 million is $2 million. Intuitively, a higher β means a fatter upper tail of the distribution. From now on, we refer to β as the inverted Pareto coefficient.

The theoretical basis for this result can be found here, where Piketty and his colleague Gabriel Zucman provide a typical economists mathematical explanation. I’ve read some of this paper, but it is tough going.

The returns to capital, especially business capital, are quite a lot higher than the levels given in Piketty’s example. Here’s the chart:

real returns on capital
The returns to all capital after tax are about 7%. Paul Krugman put up a blog post saying that a realistic growth rate is about 2.2% at best for the next few years. This gives a difference r – g = 4.8%. Then using the equations on page 1356, we get an estimate that the inverted Pareto coefficient would be in the range of 11, which is a lot higher than the levels Piketty uses in the quoted material. By way of comparison, with that number, the average wealth of people with more than $10 million net worth would be $110 million. In the example Piketty gives for the top .1% with β =3.25, the figure would be $32.5 million.

Piketty notes that these coefficients are a rapidly rising function of r – g, which is apparently the case. In a recent paper, Emmanuel Saez and Gabriel Zucman estimate that the top .1% has a wealth share of 22% as of 2012, and there is every reason to think that has risen.

With Piketty’s general rule standing alone, there is no obvious limit to the level of wealth inequality, but in practice there are many practical reasons that it will level off. Some people will have more children, so the fortunes are divided into smaller shares. Some are lucky in investments and others aren’t. There are external shocks, wars and depressions. There are divorces, which split fortunes. Some people are able to earn high levels of labor income on top of capital income, increasing their wealth. Some die early, so their offspring are forced to spend more of their capital income to preserve their existing level of consumption. Others have expensive tastes and spend too much. These external forces eventually bring about a more or less static level of wealth inequality. Overall, this static level is higher when the fraction g/r is lower.

The time periods in the theoretical models used by Piketty and his colleagues are generational, they run 30 years. The big changes in wealth inequality began in the 70s, I’d guess, but became prominent enough that they were noticed in the late 80s and early 90s as the Reagan/Bush era tax cuts took hold, and regulatory structures were dismantled. By 2000, the final touches of formal deregulation were complete, and the Bush administration stopped enforcing most remaining laws leaving capital accumulation without restraint from legal pressure. It’s been about 15 years with little change, about half a cycle. The results follow the line Piketty and his colleagues predicted, and every year the new data supports their theories.

From this we can see that the coming empirical test is the maximum level of wealth inequality, or to put it another way, it’s a test of the downward pressures on the limits of wealth accumulation.

As a nation we have only taken the smallest possible steps to stem that tide, such as slow increases in the minimum wage, and tiny increases in taxes on the wealthiest to the extent they choose not to evade taxation in all sorts of allegedly legal ways. Neither of the presumptive candidates has any intention of making the kinds of changes necessary to change the outcome.

That brings us to the second empirical test: the level of wealth inequality that a civilized nation will accept before demanding change.

Or maybe the test is whether we are so cowed we won’t ever make any demands on our new lords and masters.

Thursday, May 19, 2016

Thursday Morning, Late: Like a Sucker Punch

It’s true
That it kicks you in the teeth when you are least expecting
Bad news
Oh it beats you black and blue before you see it coming

— excerpt, Bad News by Bastille

This little ditty seemed appropos for today. I’m surprised it was just a B-side.

Spin Factory
BAD DOG, REUTERS — When a big event happens, news media jump all over it and churn out reporting. But in the age of social media and the failure of traditional business models, crap is published and too often blown off. Like this tweet:Reuters_tweet_813am_19MAY2016
Looks innocuous, right? But it’s not — this is the replacement for a tweet that preceded it. Same story, but with a frigging picture of Donald Trump attached. I’d post that original tweet here but they deleted it before I could snag it.

Initial reaction too often is “It’s just a tweet, it’s just Twitter.” No. Hell, no. If Reuters can’t get something as simple as a photo on a tweet correct, what else are they getting wrong with slap dash coverage?

Reuters isn’t just any news outlet; businesses pay its parent corporation, Thompson Reuters for their information products. What are businesses getting in purchased real-time feeds? Some of these businesses are broadcasters. Are erroneous feeds shaping broadcasters’ perceptions before they even reproduce news content? It’s rather important today when some news outlets sought whacko tweets and quotes from Trump before attempting to get a reaction from the White House.

Reuters’ alleged bias has already been controversial; a contributor left in 2013 claiming editorial bias for climate skepticism demanding false balance made reporting on climate change difficult. Reuters denied the claim.

ON THE MEDIA — Rather than allow media churn to burn us with bad (as in poorly executed and unethical) news, best to consult On The Media‘s Breaking News Consumer’s Guide — Airplane Edition.
OnTheMedia_BreakingNewsConsumersGuideAirplaneEd_19MAY2016

FIFTY CENT PARTY — You’ve probably seen a news story about this research. Cut out the middlemen and read it at this link:

King, Gary, Jennifer Pan, and Margaret E. Roberts. How the Chinese Government Fabricates Social Media Posts for Strategic Distraction, Not Engaged Argument. 2016. http://ift.tt/1XAD7S6.

RIP MORLEY SAFER — And more bad (as in sad) news: former CBS reporter and correspondent Morley Safer has died at age 84. The three-time Peabody Award winner retired from CBS only last week. We need more journalists like Safer, who began his career with reporting from the Vietnam War that galled then-President Lyndon Johnson for its honesty.

Busy day here, can’t spend any more time at the keyboard. See you here tomorrow morning!

Imperialist Robert Kagan Disavows the Bureaucracy of Immense American Presidency He Championed

The chattering class is in love with this Robert Kagan op-ed warning of Donald Trump bringing fascism,

not with jackboots and salutes (although there have been salutes, and a whiff of violence) but with a television huckster, a phony billionaire, a textbook egomaniac “tapping into” popular resentments and insecurities, and with an entire national political party — out of ambition or blind party loyalty, or simply out of fear — falling into line behind him.

I suppose I’m unsurprised that Beltway insiders are so gleeful that this Hillary-endorsing Neocon has turned on Republicans in such a fashion. Or, perhaps more importantly, that they’re so thrilled someone with such a soapbox has written a warning of impending fascism that so neatly disavows any responsibility — for Kagan himself, and by association, for other insiders.

But there are a couple of real problems with Kagan’s screed.

First, Kagan would like you to believe that Trump’s success has nothing to do with policy or ideology or the Republican party except insofar as the party “incubated” Trump.

But of course the entire Trump phenomenon has nothing to do with policy or ideology. It has nothing to do with the Republican Party, either, except in its historic role as incubator of this singular threat to our democracy. Trump has transcended the party that produced him.

Kagan gets Trump’s relationship with the Republican party exactly reversed. The party did not in any way incubate Trump. 80’s style greed and cable TV incubated Trump, if anything. What the Republican party has long incubated is racism. Trump just capitalized on that and pushed it just … a … bit … further than Republican dogwhistles traditionally go, in a year in which the GOP had lost a great deal of its credibility.

Which is why Kagan is also wrong in claiming that Trump isn’t about policy or ideology. I admit that Trump has always shown great deal of ideological flexibility, both before and during this run. But he has been consistent on two points: that racism, but also protectionism. There are a lot of reasons those two ideological keystones have appealed this year, but one has to do with the failures of globalization and the related American hegemonic project it assumes. That’s ideology and policy, both Trump’s, but also DC’s, including Kagan’s.

Kagan goes on to deal with these two issues.

We’re supposed to believe that Trump’s support stems from economic stagnation or dislocation. Maybe some of it does. But what Trump offers his followers are not economic remedies — his proposals change daily. What he offers is an attitude, an aura of crude strength and machismo, a boasting disrespect for the niceties of the democratic culture that he claims, and his followers believe, has produced national weakness and incompetence. His incoherent and contradictory utterances have one thing in common: They provoke and play on feelings of resentment and disdain, intermingled with bits of fear, hatred and anger. His public discourse consists of attacking or ridiculing a wide range of “others” — Muslims, Hispanics, women, Chinese, Mexicans, Europeans, Arabs, immigrants, refugees — whom he depicts either as threats or as objects of derision. His program, such as it is, consists chiefly of promises to get tough with foreigners and people of nonwhite complexion. He will deport them, bar them, get them to knuckle under, make them pay up or make them shut up.

Note the assumption that Trump’s protectionism is not an economic remedy but some unstated alternative is? Note Kagan’s treatment of racism, an ideology, as fear divorced from that ideology of white American exceptionalism?

Fear!! Kagan wants to boil Trump’s popularity down to fear! A guy who has had a central role in ginning up serial American aggressive wars is offended that someone wields fear to achieve political power!!! And having done that, this warmonger says the ability to gin up fear is precisely what our Founders — the men who set up three competing branches of government, each jealously guarding its power — were concerned about.

Which brings me to the Kagan argument that most baffles me. After bewailing Republican politicians’ refusal to stand up to Trump’s demagoguery, Kagan then argues (though I’m not sure he even realizes he’s making this argument) that Article I and Article III (the latter of which goes entirely unmentioned in this op-ed) will be powerless to stop Trump and his “legions” once he becomes president.

What these people do not or will not see is that, once in power, Trump will owe them and their party nothing. He will have ridden to power despite the party, catapulted into the White House by a mass following devoted only to him. By then that following will have grown dramatically. Today, less than 5 percent of eligible voters have voted for Trump. But if he wins the election, his legions will comprise a majority of the nation. Imagine the power he would wield then. In addition to all that comes from being the leader of a mass following, he would also have the immense powers of the American presidency at his command: the Justice Department, the FBI, the intelligence services, the military. Who would dare to oppose him then? Certainly not a Republican Party that laid down before him even when he was comparatively weak. And is a man like Trump, with infinitely greater power in his hands, likely to become more humble, more judicious, more generous, less vengeful than he is today, than he has been his whole life? Does vast power un-corrupt?

Never mind that Kagan describes general election numbers that simply don’t exist in our democracy. What he’s really complaining is that a President — one he happens to distrust and dislike — would have “the immense powers of the American presidency at his command: the Justice Department, the FBI, the intelligence services, the military.”  Of course, Kagan focuses not on the government as a whole, but on the Deep State and the Justice Department that has increasingly become an integral part of it.

The guy who, for years, championed the unfettered exercise of the Deep State in the hands of people like Dick Cheney is now troubled about what would happen if Donald Trump got the same powers Dick Cheney had. And for what it’s worth, while I don’t buy Michael Hayden’s claim the CIA would resist a President Trump’s order to torture (Hayden’s successors at NSA and CIA will likely do just what Hayden himself did, capitulate to unconstitutional demands), I also know that neither Trump nor anyone in his immediate orbit has the kind of bureaucratic mastery of the Deep State that Dick Cheney had.

One more really important point: the Deep State — those tools Kagan is horrified Trump might soon wield — got so powerful, creating the danger that a demagogue like Trump might tap into them fully formed, largely in the service of an imperial project significantly sold by Robert Kagan. Kagan has claimed to be selling “Democracy™” around the world, but all along that project has rotted our own democracy here at home.

Kagan (and his fellow imperialists) did that. Not Trump. Trump would just take advantage of the bureaucratic tools Kagan’s propaganda has served to justify.

I’m not denying Donald Trump is a huge threat to American democracy (though I happen to think Hillary’s foreign policy will come with great risks and costs as well). I’m saying that Robert Kagan is not the one to make this argument — at least not without a whole lot of soul searching and commitment to change the underlying empowerment of “the immense powers of the American presidency.”

But Kagan doesn’t want that. Rather, he just wants to hand those powers, still unchecked, to Hillary Clinton.

Wednesday, May 18, 2016

The Theory of Business Enterprises Part 3: Capital and Credit

In Chapter 5 Veblen takes up the use of credit. He defines credit as any money obtained from third parties to run a business, including the owner’s capital, but excluding profits. He disregards the form in which the capital is contributed: equity, preferred stock, debt whether collateralized or not, all are credit. That’s because the business has to pay for the use of the money one way or another. Of course, structure matters in bankruptcy, because debt gets a preference over equity, and the order of payment is set by the documents of the capital structure. Veblen says that in economic downturns, bankruptcy takes hold, and the creditors determine the ownership of the material means of production and redistribute them in their best interests.

Veblen distinguishes the newer credit economy from the money economy described by the earlier economic thinkers, including Adam Smith.

It has been the habit of economists and others to speak of “capital” as a stock of the material means by which industry is carried on, – industrial equipment, raw materials, and means of subsistence. This view is carried over from the situation in which business and industry stood at the time of Adam Smith and of the generation before Adam Smith, from whose scheme of life and of thought he drew the commonplace materials and conceptions with which his speculations were occupied. It further carries over the point of view occupied by Adam Smith and the generation to whom he addressed his speculations. That is to say, the received theoretical formulations regarding business capital and its relations to industry proceed on the circumstances that prevailed in the days of the “money economy,” before credit and the modern corporation methods became of first-class consequence in economic affairs. They canvass these matters from the point of view of the material welfare of the community at large, as seen from the standpoint of the utilitarian philosophy. In this system of social philosophy the welfare of the community at large is accepted as the central and tone-giving interest, about which a comprehensive, harmonious order of nature circles and gravitates. These early speculations on business traffic turn about the bearing of this traffic upon the wealth of nations, particularly as the wealth of nations would stand in a “natural” scheme of things, in which all things should work together for the welfare of mankind. Chapter 6.

In Adam Smith’s time, and the generation after him, production occurred in a “money economy”. The earlier economists examined this from the standpoint of natural law and later utilitarianism. I understand the first part, about natural law. That appears in a number of French thinkers and British as well, and perhaps is part of the thinking of Smith, as Veblen asserts. The idea is roughly that factory owners would benefit from an engaged working class, and all would want to improve things in their communities because that would benefit them and because it was the natural order of things. Veblen adds the notion of the utilitarian philosophy which I assume is a reference to Jeremy Bentham, although that name does not appear in the book. The connection isn’t obvious to me.

By the early 1900s the money economy was replaced by a “credit economy”. Veblen seems to be saying that the ideas of the money economy were imported into the credit economy, including the ideas of natural law and utilitarianism. He does not elaborate on this idea at this point, turning to a discussion of the general forms of business organization.

Chapter 7, The Theory of Modern Welfare, is primarily a discussion of the business cycle. Financing costs, including interest on debt, preferred stock dividends, and a normal rate of profit, are more or less fixed. Prices decline because of competition as new entrants use more efficient machines and processes, while facing the same or lower financing costs. When prices decline, the more heavily burdened businesses fail, causing a downward spiral in prices for suppliers and their suppliers. It takes an external shock such as a war to restore the previous price levels. And, as noted, the creditors get to decide how to redistribute the capital equipment and factories of the bankrupt companies. From this he concludes that the natural condition of the capitalist economy is chronic depression.

He concludes his discussion of the business cycle by arguing that the economy will sink unless prices can be maintained by oligopolies and monopolies operated through trusts. That’s not a complete solution, though, unless almost all competition can be eliminated.

The great coalitions and the business manoeuvres connected with them have the effect of adding to the large fortunes of the greater business men; which adds to the large incomes that cannot be spent in consumptive expenditures; which accelerates the increase of investments; which brings competition if there is a chance for it; which tends to bring on depression, in the manner already indicated.

That doesn’t include workers, though. They are hung out to dry in this setting. Or as Veblen puts it: “there remains the competitive friction between the combined business capital and the combined workmen.”

Veblen begins Chapter 7 with this interesting observation. In a money economy, the welfare of the community, apart from issues of war and peace, “turned on the ease and certainty with which enough of the means of life could be supplied.”

Under the old regime the question was whether the community’s work was adequate to supply the community’s needs; under the new regime that question is not seriously entertained.

This fleshes out the section quoted above about natural law. With this measuring principle, under the natural law, “…all things should work together for the welfare of mankind”. It makes a nice contrast with the credit economy which disregards the welfare of the community and concentrates all its efforts on the frantic search for profits.

It seems to me that the structures and theories Veblen identifies have grown into the structures of business today, but observing them in their earliest stages is helpful in thinking about alternatives. Veblen’s point that the costs of financing are included in the price reminds us of something we rarely think about. The price we pay for goods in a credit economy includes the amount necessary to pay off banks, bondholders, preferred stockholders and so on, and to produce profits to pay off shareholders and managers. The profits have to be great enough to persuade the businessman to stay in the business. At each step in the process, the ultimate consumer pays for capital.

At the same time, Veblen points out that competition will force profits to zero over time through efficiency gains, mismanagement, or other mechanisms, usually with disastrous consequences. Theoretically the US has an antitrust policy which pushes back against monopoly, but that has mostly fallen into oblivion. As a result, we preach competition but operate in an oligopoly at best, and in many areas, in an effective monopoly. That means that capital is being paid more than necessary to produce sufficient goods and services for the community.

There is effectively no limit on the amounts that the monopolist can collect. We see this in operation in the pharmaceutical industry. Pfizer, for example, raises the prices regularly on drugs in which it has a monopoly or an oligopoly. See also this discussion of an interview Pfizer CEO Ian Read did with Forbes. The pricing strategy for new drugs is to maximize profits, not to provide for the needs of the community. The explanation is that a business valued by capitalization of future earnings, like Pfizer, must show increases in earnings every year, or the stock price will stabilize or perhaps fall, and perhaps even the interest rates charged by lenders will rise. That should make us ask why we think this is a good plan for something as important as medicine. But we don’t ask that question. Instead, our politicians protect businesses with favorable trade treaties and other accommodations, and raise prices to consumers for drugs.

Suppose the goal of manufacturing drugs is to produce sufficient quantities to meet the needs of the community, and to pay the owner of a plant a reasonable living wage, as Veblen says was the case in Adam Smith’s time. This business model was used by actual non-profit hospitals like the one my Dad worked at, a Catholic hospital built and operated with cash raised from the community. In that setting, there is no need to raise prices beyond inflation and depreciation (shorthand for new and replacement equipment and plant, training and so on). Any new entrant would face the same situation, so there is no advantage to be obtained in the near term from introduction of new capital. The business of creating new drugs can be pushed off to venture capital, as is mostly the case already, so there is no need to provide for R&D. There would be no need in this setting to pay dividends, and the need for interest payments would also be reduced. There would be other savings as well.

I leave as an exercise for the reader working out methods for forcing this outcome. I assume there must be some problem with this analysis, and leave that open as well.

SEC Says Hackers Like NSA Are Biggest Threat to Global Financial System

Reuters reports that, in the wake of criminals hacking the global financial messaging system SWIFT both via the Bangladesh central and an as-yet unnamed second central bank, SEC Commissioner Mary Jo White identified vulnerability to hackers as the top threat to the global financial system.

Cyber security is the biggest risk facing the financial system, the chair of the U.S. Securities and Exchange Commission (SEC) said on Tuesday, in one of the frankest assessments yet of the threat to Wall Street from digital attacks.

Banks around the world have been rattled by a $81 million cyber theft from the Bangladesh central bank that was funneled through SWIFT, a member-owned industry cooperative that handles the bulk of cross-border payment instructions between banks.

The SEC, which regulates securities markets, has found some major exchanges, dark pools and clearing houses did not have cyber policies in place that matched the sort of risks they faced, SEC Chair Mary Jo White told the Reuters Financial Regulation Summit in Washington D.C.

“What we found, as a general matter so far, is a lot of preparedness, a lot of awareness but also their policies and procedures are not tailored to their particular risks,” she said.

“As we go out there now, we are pointing that out.”

Of course, the criminals in Bangladesh were not the first known hackers of SWIFT. The documents leaked by Snowden revealed NSA’s elite hacking group, TAO, had targeted SWIFT as well. Given the timing, it appears they did so to prove to the Europeans and SWIFT that the fairly moderate limitations being demanded by the Europeans could not limit their access.

Targeting SWIFT (and credit card companies) is probably not the only financial hacking NSA has done. One of the most curious recommendations in the President’s Review Group, after all, was that “governments” (including the one its report addressed, the US?) might hack financial institutions to change the balances in financial accounts.

(2) Governments should not use their offensive cyber capabilities to change the amounts held in financial accounts or otherwise  manipulate the financial systems;

Second, governments should abstain from penetrating the systems of financial institutions and changing the amounts held in accounts there. The policy of avoiding tampering with account balances in financial institutions is part of a broader US policy of abstaining from manipulation of the financial system. These policies support economic growth by allowing all actors to rely on the accuracy of financial statements without the need for costly re-verification of account balances. This sort of attack could cause damaging uncertainty in financial markets, as well as create a risk of escalating counter-attacks against a nation that began such an effort. The US Government should affirm this policy as an international norm, and incorporate the policy into free trade or other international agreements.

After which point, James Clapper started pointing to similar attacks as a major global threat.

I don’t mean to diminish the seriousness of the threat (though I still believe banksters’ own recklessness is a bigger threat to the world financial system). But the NSA should have thought about the norms they were setting and the impact similar attacks done by other actors would have before they pioneered such hacks in the first place.

Tuesday, May 17, 2016

For Second Year in a Row, HPSCI Tries to Gut PCLOB

As I reported, during the passage of Intelligence Authorization last year (which ultimately got put through on the Omnibus bill, making it impossible for people to vote against), Congress implemented Intelligence Community wishes by undercutting PCLOB authority in two ways: prohibiting PCLOB from reviewing covert activities, and stripping an oversight role for PCLOB that had been passed in all versions of CISA.

In the 2017 Intelligence Authorization HPSCI passed on April 29, it continued more of the same. It does so in two ways:

Requires it to get its appropriations approved by Congress

Section 303 changes the authorizing language for PCLOB to state that it can only spend money on things if Congress specifically authorized it.

SEC. 303. AUTHORIZATION OF APPROPRIATIONS FOR PRIVACY AND CIVIL LIBERTIES OVERSIGHT BOARD.

(a) REQUIREMENT FOR AUTHORIZATIONS.—Sub-section (m) of section 1061 of the Intelligence Reform and Terrorism Prevention Act of 2004 (42 U.S.C. 2000ee(m)) is amended to read as follows:

(m) FUNDING.—

(1) SPECIFIC AUTHORIZATION REQUIRED.— Appropriated funds available to the Board may be obligated or expended to carry out activities under this section only if such funds were specifically authorized by Congress for use for such activities for such fiscal year.

(2) DEFINITION.—In this subsection, the term ‘specifically authorized by Congress’ has the meaning given that term in section 504(e) of the National Security Act of 1947 (50 U.S.C. 3094(e)).’

(b) AUTHORIZATION OF APPROPRIATIONS.—There is authorized to be appropriated to the Privacy and Civil Liberties Oversight Board for fiscal year 2017 the sum of $10,081,000 to carry out the activities of the Board under section 1061 of the Intelligence Reform and Terrorism Prevention Act of 2004 (42 U.S.C. 2000ee(m)).

At one level, this looks like nothing more than bureaucratic dick-waving, a reminder to PCLOB that Congress can cut off funding if it does things like deign to comment on covert spying activities.

But — particularly given the way the Intelligence Communities stripped PCLOB’s involvement in CISA oversight at the last minute — I wonder whether this will restrict what PCLOB can do under presidential orders. Congress set up PCLOB such that its mandate covers only counterterrorism programs. But with EO 13636 (the EO that set up the information sharing system that, with significant changes, became CISA) and PPD 28, President Obama gave PCLOB a cybersecurity role beyond that defined in statute. So I wonder whether this is a way to further PCLOB remove from cybersecurity oversight than those last minute changes already did.

The authorization still granted PCLOB its requested funding (and that request did lay out those cybersecurity activities), so this may just be, for the moment, a shot across the bow.

Requires the Committee to warn the Intelligence Committees and Intelligence Agency heads before they conduct any oversight

The bill also adds new reporting requires on PCLOB, beyond the biennial reports that go to a number of congressional committees. In short, the new language requires PCLOB to warn the Intelligence Committees and the heads of an intelligence agency before they start doing any oversight.

SEC. 307. INFORMATION ON ACTIVITIES OF PRIVACY AND CIVIL LIBERTIES OVERSIGHT BOARD

Section 1061(d) of the Intelligence Reform and Terrorism Prevention Act of 2004 (42 U.S.C. 2000ee(d)) is further amended by adding at the end the following new paragraph:

(5) INFORMATION.—

(A) ACTIVITIES.—In addition to the reports submitted to Congress under subsection (e)(1)(B), the Board shall ensure that each official and congressional committee specified in subparagraph (B) is kept fully and currently informed of the activities of the Board, including any significant anticipated activities.

(B) OFFICIALS AND CONGRESSIONAL COMMITTEES SPECIFIED.—The officials and congressional committees specified in this subparagraph are the following:

(i) The Director of National Intelligence.

(ii) The head of any element of the intelligence community (as defined in section 3(4) of the National Security Act of 1947 (50 U.S.C. 3003(4)) the activities of which are, or are anticipated to be, the subject of the review or advice of the Board.

(iii) The Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate.

Of particular note: if PCLOB warned the spooks, and the spooks prohibited PCLOB oversight (again), it’s not clear how the other committees of jurisdiction — which include the Judiciary, Homeland Security and House Oversight Committee, in addition to the Intelligence Committees — would get notice.

These changes are being made based on an Intelligence Committee claim that they give PCLOB — one of the very few entities that has proven to effectively oversee the Intelligence Community — more “oversight.” But it’s hard to understand how they’ll do anything more than ensure that the Intelligence Committees return to the status quo position where they’re the only entities permitted to (not) oversee the IC.

In other words, HPSCI — of all entities !!! — claims that that committee, which has serially failed at overseeing just about anything, must give the overseers greater oversight.

Monday, May 16, 2016

Minh Quang Pham: FBI Continues Creating Terror Stories Assisted by Unrecorded Interviews

Minh Quang Pham, whom I dubbed AQAP’s “graphic artist of mass destruction” because he was busted for providing graphic design skills to AQAP, got sentenced today; neither FBI nor SDNY have announced his sentence but it will be between 30 and 50 years in prison.

The government, as it tends to do, has submitted a bunch of documents as part of the sentencing process to inflate the magnitude of Pham’s acts, which largely consist of carrying a Kalashnikov he wasn’t really trained to use and helping Samir Khan make Inspire look prettier. With the documents, DOJ suggests Pham might have attacked Heathrow if he hadn’t been stopped when he was. Materials submitted as part of the sentencing process include:

The FBI 302s have the most detail, including that Awlaki gave Pham a “clean” computer that, as described, was not clean at all (a forensics report that is sealed in the docket reportedly found it had shared data with a computer that Warsame had been caught with) and the claim that Awlaki gave Pham a phone and an email account to contact him with — or to provide to new AQAP recruits (the story varies) — in the future. One 302 provides the rather incredible detail that “the email account AULAQI provided might have been a Hotmail account.”

We’re to believe that Awlaki, a guy who learned he was being wiretapped in November 2009, had been pursued using all resources of the US government for a year and a half, and who otherwise had a sophisticated understanding of US surveillance, was still using a Hotmail account in June 2011.

The final 302 (I don’t think the previous 3 include start and stop times, which is a telling omission) provides details of what Scott Shane has described as proof Anwar Awlaki was acting as a bomb making trainer close to the end of his life, based on the description of him teaching Pham, in a single day, “how to mix chemicals to make an explosive powder” that Pham used to detonate a tin can that “generated enough force to launch the tin can away from PHAM and into the air.” This was the training, the FBI implies, that AQAP gave Pham to prepare him to attack Heathrow Airport.

Here’s the thing, though: FBI didn’t record any of those interviews, in spite of an explicit policy presuming FBI will record custodial interviews that went into effect on July 11, 2014. There are exceptions FBI might, in a stretch, be claiming here (that because Pham was not yet in a formal detention center, he was not in custody, or that it was a national intelligence collecting interview that is nevertheless being used against him in sentencing; I’ve got an email in with the FBI to find out what their explanation is). But this seems like a clear-cut case, where, for their own credibility, FBI should have recorded the interviews.

Especially since Pham says they’re inaccurate.

For four days I have willfully sat with the agents to confess my association with AL-QAIDA + to make an appeal to the government for compassion. Brian said: “we are the best representatives to the government for you.”

[snip]

The agenst [sic] had the opportunity to take recording but for some reason they did not do so. I only receive the FBI statements around couple months after my interviews. I then realize that they have omitted possibly 30 – 40% of what I’ve said, misunderstood many points + added some information I did not say. Had there been a recording, it would have shown a different picture. Had they been sincere in what they said about being “the best representatives to the government,” they would have shown me the draft of the statement for any needed correction before publishing it or have the interview recorded which would have revealed all the questions + answers.

Initially I didn’t want to tell them about the airport plot because it was something occurred in YEMEN which I never intended to do. I only want to leave YEMEN + had to accept a foreign operation. I told them that Imam ANWAR AL-AWLAQI (who was killed in a drone strike in Sept 2011) wanted me to do. The reason why I told the agents is because I felt pressured due to MATT posing the same question for 4 days, + on the 4th day he said: “Is there something they told you to do but decided not to?”

[snip]

Later at the 5th interview, the prosecutor asks me if I intended to carry out the plot, Matt intervene + said “at that point did you accept it? I made it clear that I did not intended [sic] it but I only accept it + was willing to accept any plot to go home.

The expression I got from the was that, they were trying to paint a picture oof me of intending to return to carry out the plot + had I not been arrested, I would have carried out a suicide operation at Heathrow Airport.

Obviously Pham has good reason to want to insinuate he would never have conducted the plot (but then, he was free in the UK for 5 months and didn’t take any steps to do so, not even obtaining acetone from his sister’s nail salon). Then again, obviously the FBI has good reason to want to claim that Pham was more than the graphic artist who was never really trained in fighting that the other records show him to be.

The thing is, there’s no evidence in the record that makes this Heathrow attack look credible. There are some other really funny details about this story that I hope to return to. But I’m sure the story worked to ensure Pham would spend most of the rest of his life in a US SuperMax.

CIA’s Idea of Digital Innovation: Attempt (and Fail) to Buy an Existing News Service

A week ago Sunday, the WSJ reported that Twitter had cut off an In-Q-Tel funded company, Dataminr, from sharing data with the intelligence community.

Twitter Inc. cut off U.S. intelligence agencies from access to a service that sifts through the entire output of its social-media postings, the latest example of tension between Silicon Valley and the federal government over terrorism and privacy.

The move, which hasn’t been publicly announced, was confirmed by a senior U.S. intelligence official and other people familiar with the matter.

Twitter spokesperson Nu Wexler told me this is actually long-standing policy.

Dataminr uses public Tweets to sell breaking news alerts to media organizations such as Dow Jones and government agencies such as the World Health Organization, for non-surveillance purposes. We have never authorized Dataminr or any third party to sell data to a government or intelligence agency for surveillance purposes. This is a longstanding Twitter policy, not a new development.

Indeed, as CNBC reported later in the week, this has been something the IC has been badgering Twitter about since September. Just as interesting, CNBC reports that CIA’s OSINT center wants the data.

It has not been clear exactly which entity in the vast U.S. intelligence apparatus was involved in the dispute with Twitter, but sources tell CNBC that it was a division of the CIA known as Open Source Enterprise. According to the CIA’s website, that unit is a part of the CIA’s directorate of digital innovation. It was created in the wake of recommendations by both the 9-11 Commission and the Iraq Weapons of Mass Destruction Commission that CIA focus more effort on gathering “open source” information — data that is available to anyone in the public, as opposed to information that can only be gathered through covert means.

 

Which raises even more questions for me about the timing of the request, and of these misleading claims from anonymous intelligence officials. Why go public now? It’s not like CIA is any more popular than it was six months ago (though it’s possible the pressure is tied to CIA’s reorganization).

As far as the request, it’s interesting CIA never made this demand after the Arab Spring, which CIA missed entirely because it was listening to Omar Suleiman rather than watching social media like the rest of us. That would have been the moment to make this case (I assume CIA and FBI both use more targeted tracking of ISIS Twitter).

Instead, the request seems more likely tied to the roll out of the larger organization, CIA’s new McKinsey-recommended Directorate of Digital Innovation last October. I would have thought that a claimed commitment to developing digital expertise would have led CIA to set up its own scraping system, rather than trying to purchase the same service news outlets use (to questionable value, according to some people commenting on this). Unless, of course, CIA’s goal is Dataminr’s “firehose,” including all Americans’ Twitter.

This incident ought to raise two questions: one why is CIA lying to ratchet pressure up on Twitter. And two, what the heck is the Digital Innovation Center for if this is the kind of “innovation” they’re seeking?