Nils Gilman posted a series of “nonsense beliefs” on his Twitter account, but didn’t reproduce them on his blog for discussion, so I have taken the liberty to reproduce them here as I think Twitter is not a good forum for debating such propositions. Here are the nine:

1) In the economic system, what you can’t count doesn’t count.
2) The environment is an externality—it doesn’t ‘count’.
3) What can’t be measured can’t be reasoned about: it’s either economics or irrationality.
4) In economic terms, sacrificing near-term gains for possible long-term benefits for posterity is irrational.
5) Probability and harm can be priced, and so every risk has its price.
6) Everything has its price.
7) By definition, profit maximisation is social responsibility.
8) By definition, markets are efficient and regulation inefficient.
9) We can use the past to model and predict the future.

My quick take just to get the discussion rolling: as any historian will tell you, context is important (1 and 2); I am iffy on 3 since concepts (justice, morality) can be reasoned about but metrics are handy especially when policy-making; yes on 4; i don’t get 5; 6 is not nonsense (except in quantum mechanics) since price doesn’t necessarily mean gold; 7 I agree; 8 is a strawman argument so I agree; 9 conflates “prediction” with “forecasting”, which I am not sure Nils is clear on.

Since these are all short tweets the points are difficult to qualify and we must tread carefully. That said, I think it is a good check list for examining bias, and a good discussion starter.

In early October 2008, I wrote about the concept of sovereign bankruptcy in the context of Iceland’s banking crisis, and that we should get used to the idea of a country declaring bankruptcy. The following weeks saw Iceland’s crisis result in the collapse of its currency and stock market, and nationalization of banks.

A year later, media outlets such as The Economist and WSJ are buzzing about sovereign bankruptcy once again, as the subsidiary of the Dubai emirate Dubai World is extending its payment deadlines. The ruling family of Dubai has sworn off ultimate liability for the debts, claiming that they are the shareholders and not jointly and severally liable, but this has nonetheless ignited talk worldwide about the issue of sovereign bankruptcy.

Of course, the United Arab Emirates have plenty of money—it’s Dubai that is facing liquidity problems. And I think the problem is more an issue of “subprime meltown, part 2” than defaulting on sovereign debt, with the amounts at a paltry 10% of Lehman’s obligations when it filed for Chapter 11 last year. Dubai also has a number of cushions unavailable to many debtors over the past few years as the “Too big to fail” institution of the Middle East. The emirate of Dubai may feel compelled to bail out Dubai World; Abu Dhabi, as the oil-rich capital of the UAE, may feel compelled to bail out Dubai; and other interested parties in the region may feel compelled to further help Dubai, such as the Saudis, if things get even worse. (There are also some who think that Abu Dhabi’s mass purchase of Dubai bonds is to limit possible Saudi influence over Dubai.)

But “too big to fail” is supposed to apply to multinational institutions, not sovereign states—modern states in today’s world are “too big to even contemplate failure”—until now. Commentators are now worrying that Iceland and Dubai may only be the beginning, and the New York Times has a graph that shows the scope of debts by at-risk countries.

On top of this, there is the risk that developed, industrialized countries such as Portugal, Spain, Italy, or even Japan—which now has public debt in excess of 200% of it’s GDP with poor future prospects for growth—could default on debt in the near future. All of this is bringing us into a world that makes the future impossible to forsee with any accuracy, and sovereign bankruptcy could bring us into unknown territory far beyond what Lehman’s collapse showed us.

As you have read and otherwise probably noted, I relocated my base of operations to Dubai last week. Days after I arrived, the emirate snatched global headlines as a number of companies owned by the emirate asked for a delay in payment deadlines on as much as US$60 billion in debt. The primary culprit is Dubai World, the emirate global investment vehicle, followed by its subsidiary Nakeel Properties, the developer responsible for such projects as the Palm. Dubai World accounts for almost three-quarters of the emirate’s public debt.

There are a few ways of looking at this.

Read the rest of this entry »

For my third consecutive post related to the fall of the Berlin Wall, I would like to bring up The Economist’s Leader on the Berlin Wall, who I thought had a thought-provoking insight as to globalization in the post-Cold War. The specific observation lies near the end of the article: “Economic freedom could be slowed down, perhaps even reversed, by politics.” Citing Marx the article points out the uneven distribution of capitalism’s winners and losers:

[Capitalism] leaves behind losers in concentrated clumps (a closed tyre factory, for instance), whereas the more numerous winners (everybody driving cheaper cars) are disparate.

Capitalist economics is about the average level of boats. Politics, on the other hand, are personal. Despite globalized economic freedom Leader laments that: “Above all politics remains stubbornly local.” All those tyre factory workers are voters, voters that see only their locality sinking and vote to protect their boat. Hyper-localized popular animosity to globalization works its way up through democratic representation to national policy in the form of trade protectionism. The provincial outlook of electoral politics blinds voters to The Big Picture of Globalization. Thus, the gap between political and economic freedom is geographic. And the ironic thing is that globalization is supposed to remove those provincial boundaries, both in terms of trade and of information dissemination.

Which leads me to wonder: has the Internet, with its geography-destroying power, removed any of these blinders? There is ample evidence of the Internet giving local economic “losers” another chance in the global marketplace. Except for places like North Korea the Internet has worked wonders in showing how “the other half” lives. Is there any evidence that this has changed views on economic globalization or voting patterns?

And as for the other side, protectionist policies remain strong. Is there any evidence of use of the internet for protectionist ends? For example, like-minded unions from across the country or the world joining forces using the power of the internet?

The international organs, drugs, malware and weapons trades (among others) have been growing and flourishing, and the reason is globalization says Nils Gilman a consultant and scenario planner. Well, not regular old Thomas Friedman-style World is Flat type globalization, but deviant globalization. Gilman outlined his concept at the 2008 European Futurists Conference in Switzerland. Watch him describe how the global illicit economy works alongside — and expands with — the licit economy in an era of globalization (28:23).

Gilman presents seven rules of deviant globalization. Here is a reproduction of his slides where you can see each rule clearly:

Being that the talk was only 30 minutes, Gilman only had time to present the concept and the accompanying rules. The talk is entirely descriptive, offering no solutions to the problems. However, he does seem to emphasize international cooperation when cracking down on a specific illicit activity. Not doing so can act as an incubator, and cause more harm down the road in a different corner of the world via globalization (cf. his Brazilian hacker story).

If you look past all the social/political science jargon he throws at you, there is nothing really new in Gilman’s outlook, except perhaps the idea of professionalization under pressure of a crackdown. Nevertheless, it is a well put together presentation filled with interesting little anecdotes that I am sure the crowd here at CA would enjoy. If anybody has any suggestions for solutions, or more rules, sound off in the comments.

Via an old post by John Robb where there is a good discussion in the comments.

Long-time blog pal the strategist has been posting on the recurring theme of Leadership as of late. He has two worthy posts What can Chuang Tzu tell us about leading people? and Where can you find good books about leadership? that anyone interested in leadership should go read.

The first post emphasizes the role of a leader as a facilitator: A leader must “create or shape situations where people succeed through their own initiative and effort.” The second post is chock full of resources on leadership that do not use that specific term in the title, and a further discussion of the term itself.

A couple of years back we had a lively discussion on leadership that Peter himself took part in. It might be interesting to see if and how views have changed.

In his latest book Tribes, the famous marketer Seth Godin makes an important distinction between leaders and managers:

Leaders have followers. Managers have employees.
Managers make widgets. Leaders make change.

I think this could definitely extend to military and political leadership. Godin’s point is a manager’s role is that of increasing efficiency within the current paradigm. Leaders on the other hand, break with the past.

Furthermore, Godin stresses in his book that in this day and age anyone and everyone can be a leader of their own movement, if they are willing to take the initiative. In our field this is evidenced both by super-empowered individuals like Osama bin Laden, and the Strategic Corporals on the ground all over the world. I also hope it can evidenced by our current political leaders soon, because it always seems that blog posts on leadership are compelled to refer to the bygone works of Churchill, Sun Tzu and Xenaphon.

The news and commentators are less grim about the world economy than they were a year ago. Some reports are even optimistic that we’ve passed through the worst of it. Housing prices appear to have stabilized. The unemployment rate may have bottomed. Financial Institutions are returning to profitability. Now, as the Federal Reserve used “every trick in the book” to stabilize the financial system, by creating new money, buying mortgages and debt. But now that the crisis is over, can it afford to stop?

That’s a question asked by Joshua Zumbrun in Forbes, with an article ominously titled, Fed Faces Its Zimbabwe Moment:

Creating new money to buy government debt is the sort of strategy that’s known to destroy economies—just ask Zimbabwe, which suffered so much hyperinflation that it destroyed its currency. The Zimbabwe central bank printed bills in the denomination of 100 trillion Zimbabwean dollars, then found they had value only as a novelty item on eBay. Eventually, Zimbabwe was forced to abandon its currency altogether.

But the difference between the U.S. Federal Reserve and the Reserve Bank of Zimbabwe (one would hope) is that the Federal Reserve will stop before it wrecks the dollar.

The first major test of the differences between Zimbabwe and the U.S. is rapidly approaching. An indication could come as soon as the Fed releases a policy statement Wednesday afternoon. The Fed is not expected to announce a major change of course, but the present course calls for current programs to unwind.

Zumbrun thinks that the deadline for making a decision as to what to do next is fast approaching, and its effect will likely be inflation. Yet there are no signs of such inflation. In some ways, America’s present financial state has baffled theoretical economists—why is the dollar having a rally and why are there not more signs of inflation? The Fed actually predicts that there will be less inflation this year than last. But how the Fed removes itself from supporting the foundations of the financial system has yet to be seen—to say nothing of how the TARP and stimulus money will have to be repaid.

As the economic downturn continues, might we see things like this increasing, and perhaps one day even occurring in the US? We already saw the recent spate of bossnappings.

Workers at a failed French car parts supplier are threatening to blow up their factory unless the company’s two biggest clients – Renault and PSA Peugeot Citroen – stump up extra compensation. Employees of the engine parts maker New Fabris have rigged up a series of gas canisters inside a factory workshop which they say will be detonated on July 31 if the two carmakers fail to pay €30,000 to each of the 366 workers facing unemployment.

Anyone worried about their job should try to find something more locally oriented and not vulnerable to global disruption. Easier said than done of course. Will actions like these further push jobs overseas? If the financial crisis worsens or drags on too long, it makes one wonder what such desperation would lead to in those circumstances.

Russia’s use of its natural resources and their delivery systems for both tactical and strategic leverage is well known by now. Thus, it is interesting to read this NYT article about Russia stockpiling diamonds and surely no coincidence that the Russian company involved is mostly state owned and working with a subsidiary of the infamous Gazprom.

Russia quietly passed a milestone this year: surpassing De Beers as the world’s largest diamond producer. But the global market for diamonds is so dismal that the Alrosa diamond company, 90 percent owned by the Russian government, has not sold a rough stone on the open market since December, and has stockpiled them instead. As a result, Russia has become the arbiter of global diamond prices.

Read the rest here.

Today, the Treasury Department issued an announcement providing for the implementation of a financial security advisory system, recognizing that the world has changed since the sub-prime crisis. The press release was clear about the driving principles behind the introduction of the guideline: “We remain a nation at risk to financial meltdown and will remain at risk for the foreseeable future. At all Threat Conditions, we must remain vigilant, prepared, and ready to take sufficient precautions.”

The government has also added provisional investment advisory subtitles to each threat alert to help ordinary citizens appreciate the changes in each level. This was deemed to be more appropriate than listing, from bottom to top, the categories as no concern, mild apprehension, nagging dread, crippling fright, and shit-your-underwear terror.

Treasury Secretary Geithner stressed that the government does not want individual behavior to be affected by the alerts, encouraging citizens to go about their business, while noting that the current status of orange is just barely this side of Red Alert, the highest level of danger possible when the entire banking system could breakdown, and when the Treasury Department warns that citizens should plant their own crops, shutter windows, and horde supplies.

Of course, there are a myriad of problems with the alert, which I’ve written about before—you can read more about them here.