From The Street...
Monday, December 30, 2002
Prognosticators...
John Mauldin - Wave 2000 - looks at recent prognosticators and applies some fundamentals to temper their enthusiasm. And he unabashedly shows what they've said "previously".
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"The ability to see that some things cannot be foreseen is a very necessary quality." -- Jean Jacque Rousseau.
It's the season when so many analysts participate in a group masochistic ritual: the annual yearly predictions. Like lemmings, they rush to the edge and leap. That they are so often wrong does not seem to deter them from making the same mistake the next year. And there they differ from lemmings, in that they live to repeat the act every year.
As we will see, they often recycle the same mistakes from the previous year, in the hope that this year it will be right. It also helps that they do not lose their jobs if they are wrong. I will also be participating in this tribal rite, although I will take a week off in Mexico, contemplating the tides of both the ocean and the economy, prior to charging once more into the forecasting breach.
But since you are going to be subjected to a lot of predictions, perhaps we should explore the usefulness of some of these forecasts. Today we will look at how well the predictions of mainstream analysts have done over the past few years: basically they have been abysmal. Then we explore why they have been so bad. I will also give you at least two reasons as to why they will be so bad this coming year.
What piqued my interest in this topic, aside from the fact that I am gathering a lot of information to make my own predictions, was a note from Richard Russell and the arrival of the year end Business Week.
Writing on Christmas Eve, Russell led off this observation:
"Early in the year 2001 twenty-two "expert" Wall Street analysts from Louis Ruykeyser's "Wall Street Week" gave their estimates as to where the Dow would be at the close of the year. The estimates ranged from 11,400 to 12,300. But the actual Dow close was 10,021. Not one of the 22 panelists guessed that the Dow would close under 11,000.
"Again, early this year the same twenty-two top analysts gave their estimates as to where the Dow would close in 2002. The estimates ranged from 10,750 to 12,100. As of today, the Dow is at 8,460. Not one of the 22 experts saw the Dow closing below 10,000.
"How can this be? My answer is that none of these analysts is able to recognize change. Although we are in a primary bear market, evidently NONE of these experts understands what this means. Either that or they are so inculcated with the optimism of the last 25 years that they are not able to envision an extended, disastrous bear market."
Then comes Business Week. We are told that BW "polled some of the smartest players on Wall Street." They polled 67 analysts. Only 3 see the Dow going down. A different group of three see the S&P going down and only 2 see the NASDAQ going down. Some of the predictions are interesting. Bernie Schaeffer, for instance, sees the Dow slipping to 6000 by mid-year to rise back to 8500, roughly where we are today. Not a bad guess. I could see that happening. But he also forecasts a rise in the NASDAQ by over 50% to 2200!!! I suppose this will be led by Cisco and Sun? The P/E ratio is going back to 60? What am I missing? (I wonder at what price Bernie would sell me a call at 2200?
Over 80% of "the smartest players on Wall Street" predict at least a 10% gain for Dow, and the average prediction for the NASDAQ is 20% (or so) rise by this time next year. Should we listen? Should we shut our eyes and buy Vanguard 500 and Janus 20?
Before leaping in, we might want to see how this group did last year. With a little effort, I found the 2002 predictions of 54 of the best and brightest in the last issue of Business Week in 2001. The results suggest we should look a little deeper before plunging back into the market based upon their recommendations.
Of the 54, only four were within 5% of the where the Dow is today. (Schaeffer to his credit was one of them.) Over half thought the Dow was going over 11,000 and a few saw 13,000!!! None of the 54 saw a NASDAQ dropping below 1500 (it is at 1367 this minute), and the average prediction was 2236, or almost 900 points and a 40% difference from where we are today. None saw the S&P below 900.
How could this be? How can the "smartest players on Wall Street" be (1) so wrong and, (2) so consistently wrong as a group? A reasonable person would assume their should be some more randomness - a balance
-- in the predictions.
These "smartest players" did not change their views in mid-year. They remain bullish. Yet the stock market tanked. If everyone is so bullish, then who sold? What mass hallucination made these people into raving bulls?
A partial answer is in the make-up of the group. As you look at the firms for which they work, there is a pattern: they are mostly "sell-side" firms. They are in the business of selling stocks or investments to the public. Business Week and Wall Street Week don't go outside this rather self-interested world.
If they had asked Russell, for instance, who has been making rather good forecasts for 44 years, he would have said "down." You don't see a lot of newsletter writers in these groups. I know a number of hedge fund managers who were (and are) quite bearish. You hardly ever see a hedge fund manager in these groups.
We once asked Arthur Bell, my CPA and friend, about where to get a legal opinion on a certain matter. He asked us whether we wanted a positive or a negative opinion. It seems in a lot of fields the answer you get depends upon whom you ask. These polls essentially ask people who are in the business of selling stocks what they think their business will look like next year.
If you are forecasting a down or flat year, there is not much reason to buy if the only way you can profit is for the market to go up. Bearish predictions do not help sales. Do I think these analysts consciously alter their predictions trying to lure the unsuspecting investor? No, I don't. But I do think they look for reasons the market will go up and ignore reasons which suggest it will go down.
The bottom line is they are more cheerleaders than they are analysts.
It Takes Two to Tango
It is not simply the fault of the analysts. A lot of the responsibility goes to investors. People hear what they want to hear. It is one of the reasons we all need outside counsel, whether for business or investment or even for personal decisions: the nature of most people is to be either too optimistic or too pessimistic. It is the rare person who can be totally objective about his future. When you are making investment decisions based upon a person's advice, it is best to know his bias. There is wisdom in a multitude of counselors.
If you only listen to what will make you happy, you are setting yourself up for real problems. There are altogether too many investors who need the stock market to come roaring back so that they can retire. The very real concern about not being able to retire as they once thought they could colors their decisions. They are afraid to cut their losses, and thus let things get worse even as they hope the market will come roaring back and their portfolios will return to its former glorious state. They listen to the sell- side cheerleaders who tell them what they want to hear and then blame them when things don't work out.
Not that there isn't room for blame. There was a lot of fraud in Wall Street. But most of the bad advice and analysis came from simple human optimism: we predict that which will make things better for us. Sadly, we make more predictions based upon hope than cold calculations.
Oh, we use statistics and numbers to make our point. But these are used very selectively, precisely to make our point rather than letting the numbers determine the outcome of the advice. Never underestimate the ability of human beings to rationalize their behavior or their beliefs.
The hardest part of my job as I analyze other investment managers and funds is to sift through mounds of data to figure out what is really important: what will give me a clue as to the future of the investment. In most cases, it is NOT past performance. Trying to keep my emotions and biases from coloring my analysis is difficult, and that is why I like to get a lot of second and third opinions from people I know and trust.
I could quote a number of examples of this ability to rationalize. For instance, Laszlo Birinyi, who runs a stock research firm, told us in late 1999, "this is not a mania, because it is so broad and deep," (New York Times;11-22-99;C14). Or Abbey Joseph Cohen:
"At the end of 2000, the New York Times ran an article, which did include in passing a warning about the risk of a recession, but also included the assertion from Abby Joseph Cohen, the chief United States investment strategist at Goldman, Sachs, that "the market is undervalued, the S.& P. on the order of 15 percent or so ..... the valuations are the best we've seen in a long time" ("The End of the Party, or Is It?" New York Times, December 24, 2000, Section 3, page 1). The article reported her prediction that the S.& P. 500 index would be at 1650 at the end of 2001, compared to its close of 1,305.97 the previous week. (It closed 2001 at approximately 1150, in the summer of 2002, it briefly fell under 800.)" (CEPR; Dean Baker, see more below)
We reach our conclusions and then look for the facts to fit them. We project the types of returns that will allow us to retire in comfort, and then look for someone who will tell us that return is going to happen. If that were not the case, then why is anybody still listening to Abbey Cohen? We listen to these analysts, because we want to believe.
We project positive (or negative) trends out far beyond any reasonableness, because the projection allows us to think we will be better off. This can and will lead to very bad decisions.
This is illustrated by Dean Baker of the Center for Economic and Policy Research who writes: "The country as a whole is now beginning to feel the effects of the stock market crash. As noted above, the stock market crash was the immediate cause of the recession in 2001 and the resulting rise in unemployment. It also has forced millions of workers to radically alter their plans for retirement or their children's education. In October of 2002, the employment-to- population ratio for workers aged 55 to 64 stood more than 3.0 percentage points above the low hit in May of 2000. This increase in labor force participation rates among older workers reversed a thirty-year trend toward declining participation among this age group. Since this jump occurred as the economy was moving from a cyclical peak to a recession, when participation typically declines, there can be little doubt that it is due to the fact that millions of older workers have lost much of their retirement savings as a result of the stock market crash." http://www.cepr.net/dangerous_minds.htm -- a very interesting paper.
Can the Dow Really Rise to 11,400?
Elaine Garzarelli made her reputation by calling the crash of 1987. She has missed the recent drops, but not to worry. Things will get better. Very soon, in fact. In 2001, she saw the Dow rising to 11,800 and the S&P 500 to 1380. She now feels her timing was only a little off, and the Dow will rise to 11,400 accompanied by a rise to 1200 on the S&P by the end of 2003. (I choose her because she is the most bullish of the 2003 BW group.
This is your basic 33% rise of the S&P 500 in one year. That would be a very bullish year, indeed.
Let's analyze what she is implicitly saying, and why I believe she, as well as the majority of the other analysts, will be wrong again this year. Today the P/E ratio on the S&P 500 is about 45 or so on trailing earnings. Even assuming optimistic forward real earnings, we are still well above 25. Only if you work on reported earnings of the EBIH variety (Earnings before Interest and Hype) and not real earnings can you get back to the area of 20, which is still historically quite high.
However you look at it, Garzarelli is implying that earnings are going to grow 33% over the next year and/or that P/E ratios will stay at these nose-bleed levels or rise dramatically.
If you turn a few pages in your Business Week, you can find 66 "thinkers" giving us their view of the economy in 2003. This is from a very optimistic group of economists. They expect the economy to grow at 3.2%. The average prediction of the growth of corporate profits is 9.7%.
This is in the face of numerous studies which show corporate earnings grow at GDP plus inflation plus dividends. But the S&P 500 is made up of very good companies, so 9.7% is possible.
How can the stock market grow by 33% if profits only grow by 9.7%? Only if the already high levels of P/E ratios get much higher. In my opinion, that is not likely.
If Garzarelli is right about the rise in the stock market, P/E valuations would be off the charts. This is in spite of the mounds of evidence I have written about this year that P/E valuations are now in a reversion to the mean, which will take them back to at least 15, if not much lower. That implies a much lower market, at some point in our future.
Is it possible for the market to rise next year? Of course. But to invest on the hope of a 33% rise on the S&P 500, you have to be aware you are fighting the trend. Stock markets in all of history have reverted to the mean. Bubbles have always corrected.
I have written of studies which show that the stock market is generally random when taken on a yearly basis in terms of prior stock market data. Looking at past performance, P/E ratios or the position of the moon gives us few reliable clues as to how the markets will behave over the next 12 months.
However, the market is NOT random over longer periods of time, and there are primary trends which can be predicted over these periods. The primary trend today is what is called a secular bear market. That is why I believe the stock market is headed lower over the long term. (See the chapter on secular bear markets at http://www.absolutereturns.net .
But within these primary trends there will be counter-trends, which can last a long time. Could we see a rise in the stock market next year? Absolutely. I can think of a few reasons for the market to rise, and will write about them in my 2003 predictions. But I also believe that if the market does rise, it will be part of a bear market rally.
But let's get back to the Business Week. If the group of analysts they select to make those predictions was truly representative of the entire universe of analysts, you would find a much wider range of predictions. You can come to only two conclusions from looking at this group: either the market is getting ready to rise in spite of anemic profits growth or there is a built-in bias in the selection of the forecasters.
I think the latter is obvious. You would think the editors of Business Week would get tired of being so wrong and bring a little diversity of opinion to the list. I predict they will do so, but that will be the beginning of the next bull market. (Their cover story entitled the "Death of Equities" in late1982 comes to mind.
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Your expecting the best year of his life analyst,
John Mauldin John@2000wave.com
Copyright 2002 John Mauldin. All Rights Reserved
(John@2000wave.com)
Friday, December 27, 2002
Third party candidates - 2004 - Gideon's Blog
This fellow has a pretty good sense of current and 2004 political issues.
What happens when a 3rd party candidate gets some money and attention and votes in 2004? Both Right and Left Strategies ....
Excerpts from: Gideon's Blog
The item: 3rd party nightmares.
Most folks are assuming that President Bush is going to be re-elected without too much trouble in 2004. We're even expecting him to add to his majorities in the House and Senate. He will, by then, have presumably won a war in Iraq, the economy will be somewhat on the mend, he'll have a handful of minor but soudbite-friendly domestic accomplishments to point to (leave no child behind and all that) and maybe even something significant (Medicare reform, anyone?) on the domestic front to point to. Plus he'll be the beneficiary of a broad trend towards greater patriotism and concerns about foreign policy that generally benefit Republicans.
None of this is foregone. We should win in Iraq, but we'll still be there in 2004, and "winning" by then won't be looking so pleasant. The economy might not be on the mend; I swing back and forth between bull and bear myself. Those legislative accomplishments might turn out to be thin on the ground.
But what could really take the wind out of W.'s sails, I think, is a credible challenge from the nationalist right.
Suppose a credible figure - not necessarily a politician; could be a Perot-type self-made businessman with a sharp speaking style and, preferably, a military background - came forward and said: we are not taking the war on terrorism seriously. We are getting caught in a classic trap of a dominant power, worrying about placating allies and maneuvering among rivals while letting our enemies get away. We're tying down our military in Iraq and Afghanistan because we were too humanitarian to use our full firepower, and scare potential enemies off ever attacking us again. We do not have the head of Osama bin Laden to hang outside the White House door, and so our enemies have no respect for us. We are unwilling to offend domestic minorities or Arab allies, and so we are vulnerable to further terrorist attack.
His platform would be simple, and consist of five planks:
(1) Secure the borders. There are people in this country with no right to be here, and some of them are a danger to the security of the country. Deport 'em all. At a minimum, deport all the ones from countries or with ethnic backgrounds that give us reason to worry. Rescind the student and other visas of people who come from suspect countries - including supposed allies like Saudi Arabia. Deploy the National Guard along our southern border and, if the Canadians won't play along, our northern border as well, to keep out undesireables. Damn the economic consequences; the economic consequences of a successful nuclear or biological attack on America would dwarf any possible cost to an enforcement of immigration laws and the encumbrance of trade.
(2) Raise the body count. Make it plain to our enemies that we don't care how many civilians are killed; if killers come from their country, they are going to get fried. Saudis not being forthcoming? Seize the oilfields, seize their overseas assets, and take Mecca hostage - any more terrorism against America or Americans and we nuke the place. The Arab world resents us because of their weakness? Show them just how weak they are, how completely impotent they are to protect themselves from our wrath. The message has to be clear: you want a war, you'll get a war, and we don't care if your civilization never recovers from the damage we do. Deliver that message and we'll finally get some results.
(3) Reinstitute the draft. We're in a world war but we don't have enough men to win. We let OBL get away because we didn't have the men on the ground to take Tora Bora ourselves. We're being played for suckers by a Korean nutjob with Don King's hair because we don't have the forces to take on two nutjob dictators at once. Well, why not? What are we waiting for? All those English grad students protesting America: give 'em a rifle and ship 'em out to the Straits of Malucca. That'll teach 'em something useful.
(4) End politically-correct pussyfooting. Look, there are people out there who want to kill us. Might as well know who they are and let our kids know. Islam is not a religion of peace. Stop pretending it is. Stop telling our children this isn't a war with Islam; it is, and they started it. You want to teach kids that America brought September 11th on ourselves? Go teach in Paris, or Beijing, or Riyadh. This country was founded by Christians, and has a Christian culture, and while we are tolerant of other faiths and treat everyone equally, we do not need to apologize for our civilization to anyone and we do not need to change because y'all are offended. If you don't like the products of our civilization, don't buy 'em. If you don't like it here, leave.
(5) Take care of Americans first. Our trade policy, our foreign policy, our immigration policy - all our policies - should be designed to take care of Americans first. Our allies and our trading partners need us more than we need them. If the Koreans don't want us, we should go home and leave them to the mercy of their Northern brothers. Ditto our "allies" in the Gulf. For that matter, ditto the Europeans, Egyptians, Israelis, Canadians - everybody who relies on American protection or aid to survive and then has the gall to set conditions for us or make further demands on us. There's only one superpower around. Get used to it. And get in line.
Now, there's stuff in that platform that is counterproductive, stupid or just wrong. My point was not to outline my dream candidate's platform by any means. My point was: a plain-spoken, tough-talking, angry but credible candidate like the above could take a bite out of Bush's hide. He would hammer away at the Bush family connection to the Saudis, the fact that OBL is still at large, the fact that the FBI and CIA haven't been revamped, the fact that illegal immigration is still massive. He would put the Bush Administration on the defensive in a way that a Democrat could not.
How well do you think such a candidate could do? 2% of the vote? 5% of the vote? How about if the economy was in a double-dip recession, and this candidate had an economically nationalist platform as well?
How well do you think he'd do if there were another, major successful attack on America, with thousands of casualties?
Of course, the Democrats have a third-party nightmare of their own. 2004 is going to present them with the same problems as 2002: the Democrats will have to somehow answer the Bush fiscal policy and the Bush foreign policy in a way that is credible to their base and credible to the country as a whole. In 2002, that meant attacking the Bush tax cut but not calling for its repeal and criticizing the plans for war in Iraq while voting for that war. Turned out to be a pretty poor strategy. So what will they do in 2004?
Whether they reprise the same strategy or turn right or left, the Democrats cannot credibly run in 2004 full-on against the war on terror. This country was attacked, and most of the country understands we won't become safe by running away and hiding our heads in the sand. The country wants a successful war and a successful homeland security strategy. The can run from it or embrace it or even try to one-up Bush on it, but they can't run against it without embracing a loss of McGovernite proportions. And that leaves an opening for the McGovernite left.
What do the Democrats do if a third-party candidate runs on the following four-plank platform?
(1) End the war. Yes, we were attacked by al Qaeda, and yes, that terrorism was indefensible. But we have removed the government of Afghanistan, and now we are occupying Iraq, and the war shows no sign of ending. Bush says the war will continue for a generation. The Democrats don't really argue with him about that, but are debating around the edges - how much attention we should pay to this target vs. that, how much we should defer to this ally vs. that. We are reviving the Cold War National Security State in a new and more dangerous form, and this will not end terrorism but will increase it, as every country we attack seethes with anger and resentment at us. The only solution is to end the war. We should continue to pursue specific targets of criminal investigation, under the auspices of international bodies such as the International Criminal Court. But we should immediately end the occupation of Afghanistan and Iraq, pull our troops home from Asia, stop undermining governments in the region and committing assassinations and other war crimes, and get out of places where we don't belong and are not wanted. The Democrats are afraid to say it, but we're not: war is not the answer; only justice is the answer.
(2) End fossil-fuel dependency. Whoever runs on the Democrat ticket will embrace some kinds of restrictions on fossil fuels. But nothing really serious. Nothing like raising gas taxes to European levels, or initiating a massive carbon tax, or committing to California-style restrictions on auto-emissions. Democrats, after all, do have to win some votes in the middle of the country. But third-party candidates don't. The argument is clear: the reason we were attacked on September 11th is that we are involved in a heavy-handed way in the politics of the Middle East. And the reason we are in the Middle East is our dependence on fossil fuels. If we care about saving American lives - and the environment, of course - the first thing we must do is dramatically reduce fossil-fuels use, and damn the economic consequences.
(3) End the alliance with Israel. Look, it's a simple fact that American support for Israel is not appreciated in the Arab and Muslim world. Israel is an ethnic nationalist, exclusivist state that is oppressing an Arab people by denying them equal citizenship in Israel or a viable state of their own alongside Israel. America should not be party to supporting such a country. Jews have suffered a great deal in history, but so have many other peoples, including the Palestinians. America should, at a minimum, end all aid to Israel until unconditional peace negotiations are resumed. We'll end terrorism a lot quicker by ending injustice than by dropping bombs.
(4) End economic racism at home. I have no idea what that means, but it is definitely part of the platform. The Democrats are afraid to reverse the Bush tax cut terrorism. They are afraid to challenge the corporate conspiracy state that gave us Enron and Worldcom and so forth. The Democrats are dependent on corporate money just like the Republicans; the only thing that changes is which corporations, and in some cases not even that. Etc. etc. - you know the drill.
This is pretty much the usual laundry list of lefty posturing. It isn't particularly popular in the country. But it is very popular on the fringes, and it will be more popular against a 2004 Democrat who refuses to attack Bush frontally on the war. And even if the war is bogged down and ineffective, the Democrats are not going to run on a platform of surrender; they are going to run on a platform of more competant foreign policy. That means the dogmatic anti-war types will be tempted to vote for their own candidate. In 2000, the Nader vote almost tipped Wisconsin, Minnesota, Washington and Oregon to the GOP. A vigorous McGovernite campaign in 2004 should push all these states over the edge into Bush territory.
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Thursday, December 26, 2002
Arkansas Call-In
I'm not making this up...
"And here's our next caller on Items For Sale..."
"Hello? I have a real nice Silver Glider. It was in an accident and lost a leg and the tail, but I repaired it and I'm now looking for a good home for it."
"Hey, great. A good home for a ...did you say... Silver Glider?"
"Yes."
"Um..well...what is a Silver Glider, exactly?"
"Well, it's from Australia and it's kind of like a flying squirrel, but a lot less mean. And as I said, I have repaired it since the accident , and..."
"And your looking for a good home for it..."
"Right. And you know, it stretches out and could go from one edge of it's cage and kind of runs and then glides. And the repairs went well..."
"Okay then, a good home for a ...can we say Like New ? ...Silver Glider."
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Accident?
Repairs?
Wednesday, December 25, 2002
Kwanzaa is crap....sez Ann
The Blond Source - I love this woman...
KWANZAA: A HOLIDAY FROM THE FBI
Tue Dec 24,10:02 PM ET
By Ann Coulter
Trent Lott, call your office: Apparently some parts of American history CAN be sanitized and forgotten. Earlier this week, President George Bush issued a formal White House proclamation celebrating Kwanzaa.
Sounding like a "Saturday Night Live" send-up, Bush praised the "seven principles" of Kwanzaa, "known as Nguzo Saba," and discussed the "early harvest gatherings called 'matunda ya kwanza,' or first fruits." He included the usual claptrap about how Kwanzaa celebrates "traditional African values" and "uniting people of diverse backgrounds and beliefs."
It is a fact that Kwanzaa was invented in 1966 by a black radical FBI (news - web sites) stooge, Ron Karenga, aka Dr. Maulana Karenga. Karenga was a founder of United Slaves, a violent nationalist rival to the Black Panthers and a dupe of the FBI.
In what was probably ultimately a foolish gamble, during the madness of the '60s the FBI encouraged the most extreme black nationalist organizations in order to discredit and split the left. The more preposterous the organization, the better. Karenga's United Slaves was perfect. In the annals of the American '60s, Karenga was the Father Gapon, stooge of the czarist police.
Despite modern perceptions that blend all the black activists of the '60s, the Black Panthers did not hate whites. They did not seek armed revolution. Those were the precepts of Karenga's United Slaves. United Slaves were proto-fascists, walking around in dashikis, blowing away Black Panthers and adopting invented "African" names. (That was a big help to the black community: How many boys named "Jamal" currently sit on death row?)
Whether Karenga was a willing dupe, or just a dupe, remains unclear. Curiously, in a 1995 interview with Ethnic NewsWatch, Karenga matter-of-factly explained that the forces out to get O.J. Simpson for the "framed" murder of two whites included: "the FBI, the CIA (news - web sites), the State Department, Interpol, the Chicago Police Department" and so on. (He further noted that "the evidence was not strong enough to prohibit or eliminate unreasonable doubt" -- an interesting standard of proof.) Karenga should know about FBI infiltration.
In the category of the-gentleman-doth-protest-too-much, back in the '70s, Karenga was quick to criticize rumors that black radicals were government-supported. When Nigerian newspapers claimed that some American black radicals were CIA operatives, Karenga leapt in to denounce the idea publicly, saying, "Africans must stop generalizing about the loyalties and motives of Afro-Americans, including the widespread suspicion of black Americans being CIA agents."
By now, there is no question that the FBI fueled the bloody rivalry between the Panthers and United Slaves. In one barbarous outburst, Karenga's United Slaves shot Black Panther Al "Bunchy" Carter on the UCLA campus. Karenga himself served time, a useful stepping-stone for his current position as a black studies professor at California State University at Long Beach.
Kwanzaa itself is a lunatic blend of schmaltzy '60s rhetoric, black racism and Marxism. Indeed, the seven "principles" of Kwanzaa praise collectivism in every possible arena of life -- economics, work, personality, even litter removal. ("Kuumba: Everyone should strive to improve the community and make it more beautiful.") It takes a village to raise a police snitch.
When Karenga was asked to distinguish Kawaida, the philosophy underlying Kwanzaa, from "classical Marxism," he essentially explained that under Kawaida, we also hate whites. While taking the "best of" -- I'm not making this up -- "early Chinese and Cuban socialism," Kawaida practitioners believe one's racial identity "determines life conditions, life chances and self-understanding." There's an inclusive philosophy for you.
Coincidentally, the seven principles of Kwanzaa are the very same seven principles of the Symbionese Liberation Army, another charming invention of the Least-Great Generation. In 1974, Patricia Hearst, kidnap victim-cum-SLA revolutionary, posed next to the banner of her alleged captors, a seven-headed cobra. Each snake head stood for one of the SLA's revolutionary principles: Umojo, Kujichagulia, Ujima, Ujamaa, Nia, Kuumba and Imani -- precisely the seven "principles" of Kwanzaa.
With his Kwanzaa greetings, President Bush (news - web sites) is saluting the intellectual sibling of the Symbionese Liberation Army, killer of housewives and police. He is saluting the founder of United Slaves, who were such lunatics that they shot Panthers for not being sufficiently insane -- all with the FBI as their covert ally. It's as if David Duke invented a holiday called "Anglica," and the president of the United States issued a presidential proclamation honoring the synthetic holiday. People might well stand up and take notice if that happened.
Kwanzaa was the result of a '60s psychosis grafted onto black community. Liberals have become so mesmerized by multicultural nonsense that they have forgotten the real history of Kwanzaa and United Slaves -- the violence, the Marxism, the insanity. Most absurdly, for leftists anyway, is that they have forgotten the FBI's tacit encouragement of this murderous black nationalist cult founded by the father of Kwanzaa.
Now the "holiday" concocted by an FBI dupe is honored in a presidential proclamation calling it a "holiday that promotes mutual understanding." A movement that started approximately 2,000 years before Kwanzaa leaps well beyond merely "promot(ing) mutual understanding" to say we are all equal before God. It is so inclusive, people get mad at it. That movement is also celebrated this week. But the Christian leaders at the forefront of the abolitionist and civil rights movements have been washed down the memory hole.
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Digital Television Agreement - one step forward...
Guru (he's smart AND he looks like a Guru...) Mark Schubin's take on the agreement between cable operators (most of them) and TV manufacturers follows in excerpts from his weekly memo.
In addition, Samsung has a readable guide to digital television as a ten-page pdf file here: Digital Television They're the Zenith folks, remember, and a product lineup is part of the brochure.
From Schubin:
- Speaking of cable and HDTV, the big news of the past week is the
agreement signed Thursday by eight of the largest cable operators (the
one that purportedly sent the above letter is NOT among them) and 14
consumer electronics manufacturers regarding "unidirectional digital
cable products."
In a nutshell, the agreement is to allow consumers to plug advanced
TVs directly into cable systems without needing set-top boxes
("plug-&-play"). Here are some details:
- The eight cable operators are Advance/Newhouse, Cable One,
Charter, Comcast, Cox, CSC (Cablevision), Insight, and Time Warner; they
serve about 3/4 of U.S. subscribers. The 14 consumer-electronics
manufacturers are Hitachi, JVC, Matsushita (Panasonic), Mitsubishi,
Philips, Pioneer, Runco, Samsung, Sharp, Sony, Thomson, Toshiba, Yamaha,
and Zenith; they provide almost all the HDTVs sold in the U.S.
- The agreement covers only cable systems transmitting digitally
with 750 MHz or more of bandwidth. It is for unidirectional
cable-compatibility only, meaning it doesn't deal with the cable
electronic program guide (EPG), impulse pay-per-view, or video-on-demand
(VOD). Talks about a two-way agreement are to begin in January. Access
to an EPG carried within a channel as PSIP is okay.
- In many ways, the agreement is quite similar to the FCC's old
1998 rulemaking on allowing TV sets to be connected directly to digital
cable systems. It calls for the use of point-of-deployment (POD)
modules to be provided by cable systems to deal with conditional-access
security and channel-navigation issues, and it deals with the Dynamic
Feedback Arrangement Scrambling Technique (DFAST) to secure decoded
signals.
PODs were to have been available since July 1, 2000. Motorola and
Scientific-Atlanta both reported they had the PODs available on time.
According to Scientific-Atlanta vp Tom Robey, "We haven't gotten an
order for any. Part of the problem was the economics here. Consumers
weren't going to go to a Best Buy" while cable companies offered set-top
boxes at low monthly rates (and who knows how much the fee for PODs will
be?):
- The agreement requires the FCC to ban selectable output control
(SOC, the ability to cut off, say, analog outputs at a programmer's
discretion) for ALL multichannel video programming distributors (MVPDs,
e.g., cable, satellite, video-via-DSL, etc.). If the FCC does not do
this, the agreement falls apart. The concept of intentionally reducing
resolution as a security mechanism, however, is left open.
FCC head Michael Powell and Commissioner Kathleen Abernathy both
acknowledged this onus on the FCC and said they would act expeditiously:
CEA's Home Recording Rights Coalition said the agreement "would
provide for at least a partial ban on the 'downresolution' of
high-definition television (HDTV) signals in home devices." I did not
find such a partial ban in my initial reading of the agreement, just the
SOC ban:
- Receiver manufacturers are to provide protected (HDCP) DVI or
HDMI connections for 720p or 1080i sets on a schedule matching the FCC's
DTT "tuner" mandate. For 480p sets, the 36-inch-and-up category matches
the FCC schedule, but after that only sets of 32-35 inches are affected
(50% to be equipped by July 1, 2005, 100% by July 1, 2006); 480p sets
may also have Y/Pb/Pr analog connections instead of DVI or HDMI at the
manufacturer's option. Labeling (e.g., "cable-ready") is covered.
Cable operators are to provide IEEE-1394 outputs on request by the
end of 2003, PODs and support by July 1, 2004, and DVI/HDMI and
IEEE-1394 connections by July 1, 2005.
According to Warren's Consumer Electronics Daily online yesterday,
Panasonic is still planning a cable-ready HDTV next fall; other sets are
not expected to appear until 2004 at the earliest (the agreement doesn't
require them until mid-2005).
The affiliated Consumer Electronics newsletter says the
"cable-ready" HDTVs are expected to cost $500-$1000 more than
non-"cable-ready" versions. FYI, the non-"cable-ready" HDTVs currently
being sold (even just the "monitors") work just fine with current HDTV
cable set-top boxes.
=============================
Bull Shoals Christmas...
Snow came for Christmas. About seven inches. My California Bred Volvo handled it well...but a friend's Ford Taurus had a flat tire just as the storm got heavy. A State Trooper stopped to see if we were okay, then politely took off for the scores of other First Snow accidents throughout the county. As we "read the book" and groped under the front end to find the place to put the jack, a friendly fellow - from New York - stopped and helped us change the tire. The baby doughnut spare did well getting us the last five miles, but a trip to WalMart for the tire fix will have to wait until this snow passes and the roads get better.
So we just hunkered down to wait out Christmas. But not before a quick visit across the county line to the Packaged Goods store. Met a neighbor lady with similar foresight, stocking up before the Christmas storm; and a bunch of fellas in trucks, work finished, on their way home. "Getting a new shirt and a piece of ass for Christmas", said one. "Both will be too big"
Nice to live next to Mayor Margaret - the street gets plowed, just like Chicago. But admission to the New Year's Dance at the VFW is only a $7.50 donation. Hmmm...the snow is the same, but not much else.
Merry Christmas from Bull Shoals...
Tuesday, December 24, 2002
Report From Darkest France...
From The American Prowler
Bob Tyrrell of The American Spectator fame, before George Gilder bought it and lost it, writes from Paris.
Darkest France
By R. Emmett Tyrrell, Jr.
Paris under a gray winter sky does not see the morning light until 8:00 a.m., and nightfall is here by 5:00 p.m. The air is chill and damp. Still Paris is supremely beautiful, the cheeriness of more clement seasons being replaced by the cheeriness of Christmas decorations everywhere and Beaujolais Nouveau. A few days in Paris at this time of year are as memorable as "April in Paris," though as I sat in the Café Flor, sipping espresso and reading of the blasé French response to terror and the weapons of mass destruction the old line echoed through my mind about how grand France is except for the presence of the French.
Actually the French have gotten much nicer over the past two or three decades. Yet some of the unpleasant facets of the French remain. They are among the most reluctant of our allies to support us in war against Saddam Hussein and the terrorists. They seem to have missed the terrorists' boasts that angry Islam is at war with all Western countries. They have apparently not read the reports that terrorists have targeted monuments and buildings in their capital city. And let us remember that the French do have a problem with their army. Since Napoleon it has been perhaps the most polite army in Europe. Based on its recent history, I have even composed a motto for the French army, "Give No Offense." No wonder they are reluctant to send troops against Saddam.
Yet there is another source of France's reluctance to join us in war against the keeper of weapons of mass destruction and abettor of terrorism. I encountered a manifestation of it during an elegant meal in a posh Parisian apartment with a view of the Arc de Triomphe so intimate that I thought I might reach out the window and touch the great luminous heap. My dinner companion was telling me why the French are reluctant to go to war against Hussein. The reason is Israel. Yes, apparently were it not for Israel the Middle East would be a peaceful paradise of democracies and smiling Mohammedans. The only reason that the Middle East's leaders are all tyrants (except for Israel's) and that its youth occasionally transform themselves into suicide murderers of Westerners is aggressive Israel…and the Jews.
This additional source of France's reluctance to fight Saddam is anti-Semitism, and it goes back in French history to at least the Twelfth Century when King Philippe Auguste, an otherwise distinguished French king, found himself sorely-pressed to pay the bills. So he had the Jews of Paris, who had amassed large commercial holdings, arrested, imprisoned, and forced to pay for their freedom. That was in 1180. Two years later he kicked them out of France and, by the way, grabbed their property. Such depredations against Jews continued in France for centuries. By the Twentieth Century out and out stealing had fallen into disfavor, but the sentiment of bigotry remained, becoming particularly invidious in the 1930s and taking a grisly turn with the Nazi occupation of Paris and cowardly Vichy.
In the years following the Holocaust French anti-Semitism has become more subtle. But it remains and now serves as the mood music for a new form of overt and criminal anti-Semitism, that carried by French-born Arabs -- often the children of immigrants from former French colonies. They live in the suburbs around France's major cities. They have grown increasingly ardent for militant Islam and are perpetrators of frequent acts of vandalism against Jewish properties, cemeteries and synagogues. The polite French wring their hands and say they will not tolerate it. But the depredations continue.
What are the French going to do? There is an escapism that the French adroitly practice. Mention their responsibilities to defend the West against the angry threats now mounted against us, and they slip away behind complaints that it is all about Israel. Mention that they have a proclivity towards genteel anti-Semitism and they change the subject or confess to it but insist it causes no pain. But it does. If the French squelched their anti-Semitism they would take serious action against the Arabs in their midst who now vandalize Jewish property. Moreover they would stand by the United States in the looming war with Saddam. They are as much at risk from weapons of mass destruction and terrorism as are we. But they are hobbled by old prejudices.
============================
Saturday, December 14, 2002
Dallas Observer | dallasobserver.com | News : Feature
Marketing Classic - from a colleague
Several women have asked for an explanation of Marketing. Perhaps the following analogies will help clear it up:
You see a handsome guy at a party. You go up to him and say, "I'm fantastic in bed."
-- That's Direct Marketing.
You're at a party with a bunch of friends and see a handsome guy. One of your friends goes up to him and pointing at you says, "She's fantastic in bed."
-- That's Advertising.
You see a handsome guy at a party. You go up to him and get his telephone number. The next day you call and say, "Hi, I'm fantastic in bed."
-- That's Telemarketing.
You're at a party and see a handsome guy. You get up and straighten your dress. You walk up to him and pour him a drink. You say, "May I," and reach up to straighten his tie brushing your breast lightly against his arm, and then say, "By the way, I'm fantastic in bed."
-- That's Public Relations.
You're at a party and see a handsome guy. He walks up to you and says, "I hear you're fantastic in bed."
-- That's Brand Recognition.
You're at a party and see a handsome guy. You talk him into going home with your friend.
-- That's a Sales Rep.
Your friend can't satisfy him so he calls you.
-- That's Tech Support.
You're on your way to a party when you realize that there could be handsome men in all these houses you're passing. So you climb onto the roof of one situated toward the center and shout at the top of your lungs, "I'm fantastic in bed!"
-- That's Spam.
Friday, December 13, 2002
Asia Ascending -
Here are some interesting observations on Asia's Economic history - and projections, from a resident HKG expert for many years - Dr. Doom - Marc Faber.
From The Daily Reckoning
==================
12/12/02
THE GREEN FIELDS OF ASIA
by Marc Faber
In the early 1990s, Asia entered a period of economic, social, and political transition, which, in my opinion, has begun to change the face of Asia.
In the same way that a visitor to Asia today who had last visited the region prior to the Second World War would be stunned by its progress and by the changes that have occurred in the balance of power, a visitor to Asia in the year 2010 will find a totally different economic, social, and political landscape than the present one.
By then, a number of countries that until recently hibernated economically under a totalitarian or socialist/communist ideology - Myanmar, Vietnam, Laos, Cambodia, North Korea, and China until the late 1980s - or under policies of self-reliance and hostility towards foreign investors - India and Bangladesh - will have caught up with the rest of Asia, or may even have overtaken some of today's centers of prosperity in terms of economic development.
Conversely, some of today's "successful" Western countries facing intense competition from these "newcomers" will likely under-perform, or may even succumb to absolute declines in their fortunes. This is what changes are all about: they inevitably produce not only winners, but also losers.
Following the Second World War, several major trends became apparent in Asia: the end of colonial rule, the formation of sovereign nations, and the rise of communism in countries such as China, Vietnam and Burma. The end of colonial rule was initially accompanied by hostility towards the former colonial powers and a reluctance to allow foreigners to participate in the development of the Asian economies. The priority was to build nations, not economic growth. Furthermore, foreign investments were for a long time perceived as potentially destabilizing.
The end of colonial rule also shaped the political systems of Asian countries. Since independence had frequently been gained through guerrilla warfare or after a period of civil strife, very close ties remained between political leaders and the army. In order to gain independence, the opposition armies were usually organized into some kind of a feudal system, with each army unit having the right to collect "taxes" from the region in which it operated. Not surprisingly, after independence was gained, this system of privileges remained in place, so that we still find in some Asian countries these feudal-style political systems.
The leader of a country will assign some privileges (monopolies, tax concessions, state loans, etc) to some of his trusted followers (leading businessmen, influential local politicians, and army generals), and they in turn will give full support to the ruling party. This system functioned quite well from 1950 up to the mid-1980s because it guaranteed peace and stability (although at the expense of some freedom).
Domestic stability, in turn, fostered economic growth. Until the late 1980s, this feudal system, which incorporated political, economic, and military power at the top, was well accepted by the people because of the communist threat in the region and the memory of the "evil" colonial powers.
However, in the 1990s, cracks began to appear in Asia's feudal systems, for a variety of reasons. More and more countries were liberalizing their economies and moving towards a capitalistic system with the participation of many foreign investors in the form of direct and portfolio investments. Free markets, capitalism, and foreign investors undermined the power of the privileged class, as capitalism lead to more structured political, legal, and economic systems. In addition, as political and social tensions eased in the Asian region - peace between Indonesia and Malaysia following President Sukarno's "crush Malaysia" policy in 1963, the end of the Vietnam war and the demise of communism - governments could no longer justify their tight controls over the economy on the grounds of domestic security issues.
As a result, in the 1990s, Asia entered a transition phase characterized by significant changes in the political sphere - away from a feudal system and towards more pluralistic societies where the rule of law was increasingly challenging absolute state or military power.
I might add that Western countries, especially the U.S., supported totalitarian rule or military dictatorships in Asia, as long as the threat of communism existed. But when, in the 1980s, the communist threat receded and the Western powers developed a strong interest in opening up previously closed markets for exports, economic reforms in Asia became a priority for the industrialized countries because feudal systems based on monopolies and privileges were simply not conducive to free markets and free trade. Therefore, by pushing the Asian countries to carry out economic reforms, the Western countries encouraged their ongoing transition from ad hoc feudal hierarchies to more liberal and more constitutional systems.
So far, we have seen that the demise of communism in Asia has had a favorable impact on the region, as it has defused much of the tension that existed as long as communism was perceived to be a threat.
Although I am highly skeptical of the forecasts of futurologists who write thick books, I also think it highly probable that in ten to twenty years' time, Asia will be far less dependent on exports to the West than it is today.
Trade within Asia will dominate, as Asia requires few products that are manufactured in the West. Exports to the Western industrialized nations, however, are here to stay because of the competitiveness of Asian manufacturing and IT services. In addition, I should like to debunk myth that is widespread among Westerners. I am frequently told that China and the rest of Asia still rely on Western knowledge and technology, and that Asians aren't capable of innovation and invention. When I hear these arguments, I always have to smile.
The number zero was invented in India, without which science in the West could never have progressed at the pace it has, since Roman numbers were unsuited to complicated calculations. Francis Bacon thought that three inventions - paper and printing, gunpowder, and the magnetic compass - had done more than any religious conviction, astrological influence, or conqueror's achievement to bring about the modern world and mark it off from the Middle Ages and antiquity. And guess where these inventions came from?
Moreover, if I look at the achievements of Japan in the manufacturing sector over the last 30 years or so, there is simply no doubt that Asians can be great innovators as well. Furthermore, in most Western high-tech companies and leading research laboratories, we find Indian and Chinese scientists.
All that Asia needs to do in order to really take off in terms of its own innovations is to create a more favorable social and political environment, which Western Europe enjoyed from the Middle Ages and the U.S. from the 19th century on, and which was one of the main reasons for the rise of Western civilization.
In other words, what is really required in Asia is the creation of the social environment and the institutions that catapulted Western Europe from the Dark Ages to the Industrial Revolution.
Sincerely,
Marc Faber,
for The Daily Reckoning
P.S. The demise of feudalism in Europe during the 15th and 16th Centuries was precipitated by two major events. Innovations in the art of warfare (especially the invention of the cannon) led to a decline in the military effectiveness of armed cavalry - fielded by noblemen - and to the obsolescence of feudal castles as a military stronghold.
In addition, the rise of the merchant class along with a money-based economy in the city-states displaced the feudals, whose income had come principally from bartering agricultural products and from all kinds of other privileges. The rise of the merchant class came as a result of technological changes which promised commercial and industrial advantages, and the rapid expansion of overseas trade in the 15th and 16th centuries.
Overseas trade increased very rapidly after the opening of all water trading routes to the Far East and the discovery of the Americas. And, over time, the rise of the merchant class replaced the feudal political and economic system with a free market economy and a capitalistic system.
The origin of progress and economic development in Western Europe is extremely complex, but in essence, it highlights what Asia still lacks to a large extent. However, I am hopeful that the transition from the 'Asian' feudal society I described above to a well-structured market economy and an institutional capitalistic system, as opposed to a feudalistic capitalistic system - such as we still find in many Asian societies, including China - will get under way.
In this respect I am particularly impressed by developments in Taiwan over the last decade. In 1996, the then acting President Lee Teng-hui proved that the Chinese are not unsuited for democracy, as was then and is still claimed today by most of Hong Kong's leading businessmen, including some Westerners. The elections that took place in Taiwan at that time were a milestone in Asia's political history because they were truly free.
Editor's note: Dr. Marc Faber, editor of The Gloom, Boom and Doom Report, has been headquartered in Hong Kong for nearly 20 years, during which time he has specialized in Asian markets. Dr. Faber is a member of Barron's Roundtable …
Wednesday, December 11, 2002
Insidious Software...more observations
From Reasoning -
==========
Rotten Code Is a Weapon of Mass Destruction
-- By Peter Coffee --
When the latest Disney film, "Treasure Planet," yielded
disappointing revenues for its Thanksgiving weekend opening,
the company was quick to let the industry know that it had a
recovery plan. As reported by the New York Times, "Disney
executives ... point out that 'Treasure Planet' is the last
of the films to be made using more costly, complex and
labor-intensive animation processes. Future films will ...
use newer techniques to cut costs, like simplifying much of
the animation and using computers to do more of the work."
In short words, when the customers don't like the product,
Disney's solution is to find a way to give them something
that may be even worse--but is cheaper to produce. Computers
are great at doing that, but it's no way to do business.
In general, we don't need managers who follow the path of
least resistance to the worst product that can be sold, at
the lowest cost that can be achieved. What we need is
intelligent application of IT's productivity gains to
produce superior results that offer the buyer compelling
value. But it seems that the business of building enterprise
applications is busily following Disney's path.
More than half of all software projects are more than 50
percent over budget, according to Pricewaterhouse Coopers,
whose figures also suggest that four out of five projects
both cost more and take longer than planned. The reason may
well be that "the quality of the code out there is
shockingly bad," as grimly observed by CEO Scott Trappe at
the software inspection firm of Reasoning Inc. in Mountain
View, Calif. "The average is getting worse," Trappe added.
(Check out Reasoning's Web site:)
Reasoning's Web Site.
"We're finding that Java code has a similar
defect density to C/C++ code: About 70 percent of reported
errors in C/C++ are null pointer dereferences, while null
object dereferences in Java are comparable," he told me. New
problems arise from Java's more advanced facilities, such as
its ease of writing the multithreaded code that's needed for
responsive behavior despite slow network interactions:
Potential deadlocks between interdependent threads are hard
to find, Trappe said, without overwhelming numbers of the
false-positive error reports that destroy the credibility of
any quality assurance process.
One bright spot in the industry, said Trappe, is open-source
development, with its emphasis on people reading each
other's code. The potential embarrassment of public ridicule
is probably a powerful motivation to get things right--or
even better, to write code that's impressively
craftsmanlike, rather than merely good enough. "There aren't
enough data points yet to be statistically significant, but
what we've seen so far suggests that open source code may
have much lower defect density than commercial
software--about 1 defect per 10,000 lines, about three times
better than we typically see," Trappe estimated.
Apart from the obvious costs of projects that are late and
over budget, Trappe warned that many IT managers may not see
the largest but least visible component of rotten code's
costs. "Their most senior guys spend a third of their time
fixing bugs introduced by junior guys who have no idea what
they've done wrong. The answers aren't deep, this is not
obscure stuff--a lot of the stuff that we find is very
basic," he told me.
Unless the audience for your applications is as tolerant as
a movie theater full of preschool children, your strategy
had better be to fix the problem--not to cut the cost of
continuing to do things wrong.
===================
Sunday, December 01, 2002
Digital Crisis - Listening to Analog….
George Gilder has been writing recently (Oct and Nov GTR) on the limitations of "digital" and the superiority, in many applications, of analog processing. The power and time and complexity of digitizing everything and then keeping track and manipulating numbers with software has produced a "digital crisis".
"The digital crisis is so pervasive we have begun to assume it as part of the background. Six-hundred-thousand bugs in Windows XP is a crisis. Winnowing them down to two-hundred-thousand bugs is a crisis that has gone chronic, to be coped with rather than resolved"
He urges - and suggests some who are - engineers get back to the "physical" (PHY) level.
The leading application he highlights is the analog X3 Foveon chip, used for color imaging. Being built as a CMOS device, it allows the requisite analog to digital conversions to be done within the chip, and later/upcoming versions of the chip will offer this .
"Starting next month, a primary mission of this newsletter will be to propose the paradigms and uncover the opportunities that will govern, and profit from, the new analog economy."
The change in direction of GG's efforts towards exploring this has a certain instinctual appeal - simpler, more "natural", less complex, more efficient, etc.
I urge serious technology junkies to go to Gildertech.com and subscribe to his monthly technology newsletter.
==================
Exerpts from the November issue:
The rise of digital electronics is the paramount industrial feat of the century. At the heart of this development is the movement that I have called the overthrow of matter. It is symbolized by the microchip, which Gordon Moore observes has long been made of the three most common substances in the earth’s crust: silicon, aluminum, and oxygen. Although subsequent refinements have added trace elements of many other rarer chemicals, the most valuable element in the chip remains the idea for the design.
Extending the overthrow of matter beyond the Microcosm is the technology of fiber optics. Functioning through the massless movement of photonic energy, the global telecommunications network transmits more valuable cargo than all the world’s supertankers. Nicholas Negroponte in his bestselling book Being Digital memorably announced this process as the movement of the economy from atoms to bits, with atoms representing the smallest unit of mass and bits representing the smallest unit of information.
Another way of couching this theme of an overthrow of matter is as a great divorce: a digital separation of the logical processes, the algorithms of computation, from the physical substrate of the computer. Transistors are complex four-dimensional structures made of atoms with electrical, chemical, and physical properties changing over time. Every one is different. Operating at the physical layer, chip designers had to optimize every transistor.
As computer designer Danny Hillis observes, "Current day computers are built of transistors and wires, but they could just as well be built, according to the same principles, from valves and water pipes or from sticks and strings." From the application software, the cascade proceeds down the chain of abstractions in the other direction as the software code is translated by further programs called interpreters and compilers into instruction sets and machine languages that the transistors can read at the input end and that are translated at the display by digital-to-analog converters mapping the outputs onto a screen.
This circular logic conceals a hierarchical problem. Climbing the ladder from the physical layer at the bottom, where real world inputs are collected, information is lost at each level. But as information is lost, power is increased. The model of the world distilled at the physical layer is a paltry and flat sketch of reality. But at the control panel at the top of the hierarchy it is the only world there is. Content falls away, distortions creep in, and the system becomes more complex and less predictable. The computer’s output or the camera’s image— their colors and proportions and scale—diverge in critical ways from the real world.
………….
Given enough time, anything can be computed. So what? Time is precisely what we lack. As it is, we cannot model how the brain of a fly enables it to elude the swatter, let alone reduce the human mind to a Turing plot. Materialist critics respond that it is only "in principle" that they claim the human mind or the visible universe could be modeled as a Turing machine. But as Carver Mead replies tersely, "No. In principle, these physical phenomena cannot be modeled. . . . The simplest representation of the galaxy is the galaxy." A computer that could sample it would have to have time and tape exponentially greater than the galactic span. "The computer scientists must have been nodding off in class when they explained the sampling theorem."
From logic to life We are awed by the power and promise of digital electronics. But to consummate the system entails a new analog dispensation. Moving from digital to analog is like moving from a flat world of two dimensions to a multidimensional galaxy. Unlike digital, with its reductionist binary ones and zeroes that can be accurately extended toward the infinite, analog uses all the physical parameters of the device—its timing, its chemistry, its electrical currents and voltages, its capacitances and inductances. As Mead would prove at Foveon, analog could even exploit the device’s parasitics and its noise, its unwanted bugs and bad behavior. Using the entire panoply of four-dimensional physics and chemistry on the chip would create huge problems of control and regulation. It would prohibit the long serial chains of flawless logic that digital could pump out at billions of cycles per second. But by employing new parallel architectures, an analog VLSI, Mead could contrive new systems that vastly outperform digital for many applications. Now Mead’s analog VLSI turns out to be the most powerful technology of early twenty-first-century electronics.
For twenty years, while the profession moved from messy analog to messianic mathematics, from life to logic, Mead has been going in the other direction. Seeking life, he urges us back to a contemplation of the givens: "Listen to the technology and find out what it is telling you." He has sought a regeneration of information systems based not on ever taller skyscrapers of complexity but on a return to their roots in the physical layer, the foundations of material physics and biology, from which all digital functions ultimately derive. Digital logic makes sense but sensory logic is not digital. From his neuromorphic research program at Caltech have come new, more-advanced analog technologies that will enhance the sensory powers of computers as massively as the microprocessor enhanced their logical and calculative powers.
Unlike Hillis’s Thinking Machine, Connection Engine, or other supercomputer, the Foveon X3 chip could not be made of valves and water pipes, sticks and springs. A silicon device, it enables a single-chip still and motion camera that can produce images of an accuracy unparalleled in existing cameras precisely by embracing silicon’s unique physical properties as a processor of light. It enables pictures of airport throngs or stadium crowds in which every face can be recognizably resolved. It enables throwaway surveillance cameras with as high resolution as advanced professional cameras today. Rooted in a new understanding of the silicon image plane, the Foveon camera is merely the first and most devastating current fruit of Mead’s research agenda, which embraces new breakthroughs in a range of recently intractable areas, from speech recognition to national security.
Analog rising Embodying a new analog strategy that can be applied all across the universe of information systems, this achievement reflects a great paradox of the computer age. The microchip is by any reasonable measure the most important practical outcome of modern physics made possible only by an intimate understanding of the inner life of matter. Yet the supreme end to which the microchip has been directed since its creation has been to sunder our ties to the unpredictable chaos of the physical world, while creating virtual worlds that remain under our control. The most charming and seductive achievement of computer science was to eclipse the physical layer, to render the physical processes of computing ever more irrelevant to the act of computation. This was explicitly Turing’s program, and it succeeded overwhelmingly. Computer scientists don’t think about silicon. You can pore over the indexes of the seminal texts in the field, such as David Patterson and John Hennessy’s Computer Architecture: A Quantitative Approach, and not find a single mention of the material that has become the physical substrate of the global economy.
This determination to eclipse the physical layer made Carver Mead’s agenda of using neuromorphic models to design electronic devices so radical when it was announced in the early 1980s, and makes it even more revolutionary today now that it has come to amazing fruition. Carver was talking about creating a retina chip based on actual exploration of the physiology of the human retina, inspired by the work of Max Delbruck, the Nobel laureate physicist Carver studied with early on.
Delbruck focused Carver on transducer physiology as the key to the next generation of computation. Comprising all the transitional processing that transforms some outside input into significant signal in the brain— or the computer—transducer physiology is the heart of thinking and perception and pattern recognition and all the processes of the very physical brain, by which computers can be linked to real-world phenomenon.
Yet it is ignored by all the books on computer science written by the most formidable and exalted minds in the field. Computer scientists dismiss the science of inputs as relatively insignificant. If you are a computer scientist you assume that the inputs are fine—"that’s not my department" —and then you show that digital electronics can do anything better than analog electronics, which supposedly settles the question.
This may seem like a purely theoretical issue or academic dispute, but the whole domain of information science—the entire infrastructure of information technology —now suffers from this decision to eclipse the physical. The hypertrophy of the digital idea is reaching a crisis with very real practical consequences. The resolution of that crisis is in a resurgence of analog processing. To the extent that resurgence is seen as threatening an information science establishment whose most fundamental principle is to deny the legitimacy of physical considerations in computing, it will be resisted. But in its success is the future of the information industry and the global economy.
The digital dilemma Why are we bringing up a generation of kids who don’t know physics but know everything about Windows? Why are there entire nations such as India whose economies are increasingly devoted to this and other totemistic excesses of software? Why has software become the medium through which we deal with the physical world? We fly airplanes with software; our bombs hunt our enemies with software; we run switches with software whose annual upgrades are the singlelargest operating cost in running a network. Across the global economy we ritualistically do in software, functions that could be far better accomplished with applications- specific hardware, the all-optical network being perhaps the supreme example.
………….
Sacrificing efficiencies
As hierarchical design, the very process that shielded us from the growing complexities on the surface of the chip, ascends multiple levels of abstraction it becomes impossible to test all the resulting designs in all their possible combinations. So you must incorporate built-in self-test (BIST), devoting more and more of the processor to testing itself, and even then you don’t test it adequately. The tests become increasingly tests of interfaces. Since those cannot be fully assured as the chip gets bigger and bigger, you include a lot of redundant cells. The structures for incorporating the redundant cells become themselves increasingly complex. As this process advances, the device becomes increasingly suboptimal. At some point it becomes inferior to using a set of separate chips of a manageable size and modularity—reversing the essential teleology of the integrated circuit. But that doesn’t solve the problem; it merely shifts the complications and conflicts to the bus.
At current speeds and densities, the universal clock doesn’t work anymore, so you have to have separate clock pulses all across the chip, sacrificing many of the fundamental efficiencies of the digital system. Asynchronous designs are a partial and valuable solution. But in isolation every one of these problems can appear solvable. Taken together they entail a set of fundamentally irresolvable conflicts that suggests the whole digital endeavor is reaching an impasse. The clock problem, the power problem, the leakage problem, the interface problem, the pad-limited problem, the failure of memory technology to keep apace with processor clock-rates, so that most of the clock cycles are wait-states. All these together represent a technology in climacteric.
Moore’s law in crisis
My colleagues Dynamic Silicon editors Nick Treddenick and Brion Shimamoto have been wandering around the office with graphs showing not that Moore’s law is reaching the end of its run, but that its continuation may be irrelevant. They point out that the last four generation of chip geometries, 0.25 microns, 0.18 Microns, 0.13 microns, and now 0.09 microns (90 nanometers) account for only 20 percent of chips made by the major foundries such as TSMC. The adoption curves for the next cycle of Moore’s law used to be nearly vertical—as soon as we could squeeze more circuits on a chip, everybody wanted the capacity. Today the adoption curves for new technologies are nearly horizontal, even though theoretically the marginal cost to make a 90-nanometer function on a 300-millimeter wafer is less than 20 percent of the cost of a 130-nanometer chip made on a 200-millimeter wafer.
We spent quite a bit of time in the office recently trying to explain this through the Clayton Christensen overshoot theory (the personal computer already overserves its real market), through mismatch theory (memories cannot keep up with the processor cycle times), and design complexity (design tools have once again fallen behind the complexities of single-chip electronics). In any case, it seems that the bounty of Moore’s law which for so long appeared to drive the information industry is increasingly shunned. Whatever the explanation, the phenomenon tends to confirm the existence of a crisis of digitization.
Au naturale Nothing so epitomizes the hypertrophy of the digital as the idea, even the phrase, digital camera. There is, after all, really no such thing. The digital camera is an oxymoron because the camera is just a basic transducer, addressing an analog problem. The camera’s job is to take an incredibly complex image with all kinds of difficult features and dimensionality and proportion and light and color and very rapidly convert it to an accurate replica. That is fundamentally an analog mission. The so-called digital camera has been an unsatisfying device, precisely to the extent that it attempted to recast these as digital functions. The standard digital camera starts with failure—by throwing away twothirds of the image information. Measuring only one of three colors at each pixel, then attempting to compensate with massive, power-hungry digital processing, trying to create again the inputs nature gave us for free, the digital camera epitomizes the computer scientists’ presumption that inputs don’t matter because digital processing can fix anything.
Carver Mead’s obvious but profound insight that eventually led to Foveon was to focus on silicon as a transducer, to perfect the input and minimize the digital compensation, rather than the other way around. He did this, or learned how to do it originally not by trying to build a computer that would be better than an eye, but to build an eye, actually a retina in silicon. To do this he had to embrace the silicon as the physical layer, to let it reveal its analog capabilities. The Foveon camera was the outcome not of an attempt to transcend analog processes or render them irrelevant, but an attempt to understand the best imager we know, the human eye. In that way, for all the technological virtuosity the project evoked over more than fifteen years of work, what ultimately distinguishes the Foveon project from the general trend of computer science is its sanity.
Many crucial information functions are naturally digital. Digital is superior for storing as well as creating content. What you wish to process and compute, functions that you want to control rather than simply communicate, all want to be digital. Far more interesting, however, is the long list of functions usually assumed to be essentially digital problems that could be handled better in analog.
Security, for instance. At the most basic physical level, photons are more secure than electrons. You catch a photon and it dies; you catch an electron and the diminished power is measurable at the other end. Thus tapping an optical line is both more readily detectable and far more difficult than tapping an electronic device. All-optical communications are inherently safe. They become insecure when they are repeatedly converted to digital forms that can be processed and manipulated. Whenever we insert opto-electronics into the network, we give handles to the hacker.
The most secure forms of identification we know about are all analog. Fingerprints, retinal scans. Nobody thinks of a fingerprint as a crackable code, until we reduce the rich analog image to simple digital renditions, at which point they can be counterfeited.
The new economy Consider the digital camera vs. the analog electronic camera and the digital router switch regenerator vs. the analog all-optical network. The digital camera chip involves twenty chips to do the combination of photodetection and processing that a single-chip system from Foveon will soon perform. Similarly the router or electronic switch-driven network requires hundreds of thousands of devices to drive a signal across the country, where a Corvis (CORV) express network may use a few dozen.
Every kind of system that has to deal with electromagnetism of any dimension is far better performed by analog devices than by digital processors. All the Fourier devices that are critical to every kind of communications system become incredibly difficult exercises in computation when implemented in digital. A Fourier transform apes naturally analog and instantaneous processes that primitive systems such as your eyes and your ears and a prism accomplish continuously. Functions every raindrop can achieve are converted to an equation so complicated that in its unsimplified form it is all but uncomputable. Even supercomputers couldn’t really do it until they simplified the equation heroically down to the Fast Fourier Transform (FFT) that functions well enough and can be implemented in DSPs in what approximates real time.
To identify particular calls in a busy cell, digital CDMA phone systems entail high-speed digital signal processing that consumes time and power and restricts the degree to which noise from other transmitters can be annulled. By comparison Terry Turpin’s OPERA system, which does this processing in analog-optical form, is so powerful that, even after converting CDMA digital inputs to analog and back, time still remains to null out all competing callers and to give each user an effectively clear channel to the base station.
Throughout computer science, people are figuring out how to convert signals from analog to digital in order to process them more effectively, and here Terry is proposing with cogent evidence that it’s worthwhile to convert digital functions to optics in order to perform Fourier transforms on them in real time. That’s how much a reversal of the usual assumptions the analog alternative implies.
As analog, or relatively less digital alternatives (including digital functions specified in hardware) regain their natural role in information systems, and offer to relieve the digital crisis, information science and the entire silicon enterprise will be reordered to an extent not seen since the introduction of the microprocessor........
—George Gilder, November 27, 2002
Sunday, November 24, 2002
More Gloom from The Daily Reckoning...
Cars lead the way, circling the drain....
===============
Auto sales have also behaved in a non-traditional way, and the Fed has had little to do with them this time. Normally, when the Fed raises interest rates to combat inflation, consumer durables go into the tank - and revive quickly when the Fed lowers interest rates to fight the recession they brought about. This time, auto sales have been in boom, perhaps even bubble mode by zero-interest rate financings offered by the manufacturers. Today's headline in The New York Times is: "Sales Drop 30% In October At Big Three Automakers," and subtitled "Big Incentives For Buyers Worry Analysts."
The overhang from high sales volume in previous months was one factor - but essentially the Big Three (really the Big 2« - one is German controlled) are buying sales from the future. They are also wrecking their credit ratings (Ford-[F-$8.43] most obviously) and drastically cutting prices by as much as $3,500 per car. That's the amount that analysts in The Times article estimate that it costs General Motors (GM-$34.02) per vehicle sold with zero-interest financing.
That's a rather severe price cut to move a car - but the incentives have had another side-effect, wrecking the used car market. Since almost all new vehicle sales involve a trade-in, the used car market is glutted, and prices are down significantly. When current new car buyers turn in those cars in the future, the trade-in value is likely to be well below levels that would have otherwise prevailed. That's another cost, and another story - including the cost in gasoline consumption - since the best-selling items are gas-guzzling sports utility vehicles (SUVs). The same question as above:
how long can auto sales remain above trendline?
The short answer, briefly, is based on incentives, but eventually sales over time will revert to trendline. Prior to the zero-rate financing gimmick, which costs GM $3,500 per vehicle, the auto makers, their finance companies and banks featured very attractive promotions for car leases, rather than sales. Both schemes moved the merchandise, but the leases are expiring rapidly and cars/vehicles are coming off-lease. Combined with a stagnant economy this has also contributed to used car prices plunging. But it gets worse. "Residual value" is the key in leasing, the educated guess of what the goods will be worth when the lease expires and the merchandise comes back into the market. In order to make the lease deals more attractive two to three years ago, the auto companies pumped up their assumptions on residual values, so that the car lessee would have to finance less, with consequently lower monthly payments.
Thus, the car makers will have 3.3 million cars coming off-lease this year, into a market already glutted with trade-ins from the zero-interest financing gimmick. The fall in used car prices (already down 4% this year - to the 1999 levels), combined with the overoptimistic residual value assumptions to facilitate lease deals - and the inability to find buyers, means that they are being forced to auction off these vehicles for much less than expected.
According to the November 11, 2002 'Boxed-In On The Car Lot,' issue of Business Week, "Art Spinella, President of CNW Marketing Research in Bandon, Oregon, an auto industry consulting firm, says that auto makers are losing an average of $2,400 on every off-lease vehicle that they sell." But the good news - they had moved the merchandise two to three years earlier. I consider the former leasing program and the current zero-interest promotions by the auto industry as the financial equivalent of slitting your wrists and sitting up to your neck in a bathtub of warm water.
Rereading Charles Kindleberger's book Manias, Panics and Crashes - A History of Financial Crises (Third Edition 1996), I was struck by another similarity with what is happening in many sectors of the present economy - deflationary pressures and the lack of pricing power. This has occurred in virtually every pre-1945 recession/recovery where the Fed has not strangled expansion in its attempts to control inflation. The $3,500 cost to GM in order to finance a zero-interest sale amounts to a back-door price cut.
The October 21, 2002 issue of Business Week documents this widespread price cutting in their article "Prices Just Keep Plunging" and subtitled "Fears of deflation are growing as a profits squeeze prompts more cuts." They cite year-over-year declines of 20.9% for personal computers (prices almost always decline-but never that much), -4.0% for telephone services, -3.8% for air fares - and a half dozen others in the accompanying illustration. There are also major articles about deflation in recent issues of The Economist and The Wall Street Journal.
The Consumer Price Index (CPI) for September 2002 showed an increase of 1.5% (CPI-U) from September 2001. The four largest gainers for the year, growing faster than that +1.5% CPI increase are, Housing (+2.3%), Medical Care (+4.6%), Education and Communication (+2.7%) and Other goods and services (+3.2%-tobacco, smoking products, personal care, miscellaneous personal services). These sectors comprise over half (56.8%) of the CPI. If these generally service areas were removed, the CPI would be around break-even year-over-year - perhaps slightly lower. During September, the Producer Price Index (PPI) was definitely in deflationary mode, with the PPI for finished goods declining 1.8% Y-O-Y.
The very significant and much-watched GDP chain- weighted price index, the broadest indicator of price levels has been trending lower, but is still in positive territory. For the third quarter 2002, it was up 0.8% down from the first half average of +1.3%. This third quarter reading is the lowest since 1950. However, the breakdown is not as reassuring - for goods, the third quarter 2002 showed a decline of 0.8%. It must be assumed now that deflation is no longer a theoretical risk - and could become a problem, as it did in the descriptions in Mr. Kindleberger's book of pre-1945 experiences.
Two other factors that were not around in time to be included in Mr. Kindleberger's book have also exerted significant downward pressure on prices: the Internet and globalization. Two of the significant advantages that retailers have had over consumers in the past would be consumer ignorance and lethargy.
The Internet can significantly lower these frictional costs - since a consumer can go online and get an array of prices for the merchandise desired. Used car prices for trade-ins are also available online now, for example. This forces the retailers to compete online for the best price. It reverses the "advantage- retailer" factor that existed previously. Lethargy existed when the consumer negotiated with the retailer, and when deciding whether or not to buy, considered that he would have to get everyone back in the car and drive 5-10 miles to another vendor - only to repeat the process. The tendency was to avoid the hassle and buy the merchandise. This is eliminated with Internet shopping.
The New York Times reported recently that consumers are increasingly haggling with retailers - even after the merchandise has been reduced in price, sometimes after two to three cuts. All these are significant deflationary pressures that did not exist when Mr. Kindleberger wrote his book. Globalization would be another significant deflationary pressure. In the early postwar period, the U.S. economy was essentially a closed-loop business, since imports were not a significant factor. I blamed the auto industry for wrecking this system after doing a book review of The Whiz Kids. It described how Mr. Robert McNamara used the cost-effective methods developed for the Army Air Corps in World War II to cut costs at Ford drastically and produce a generation of lemons.
Since the other producers (there were more than three then) were doing the same thing, the prevalent attitude was that they had a captive market and the consumer would have no choice but to take what they produced- shoddy merchandise. Shortly, the consumer discovered quality imports - particularly Japanese cars. That was the beginning of "globalization"...and the pressure has been intensifying ever since.
China, for example, must export for reasons of political tranquility. The cost structures of Chinese manufacturers are not divulged - but most state-run producers are either marginally profitable or operate at a loss. They must produce the goods to be exported and sold. The price is not the primary consideration - since the alternative is having 10, 20 or 30 million unemployed workers. That could be an unendurable political cost. So, they move the merchandise, and bring about strong deflationary pressures in this country.
This recession was the first of the post-postwar period and also the first of the "Information Age." Consumers are following the economy, not leading it - as was the case in the past. Instead of a consumer-led recession/recovery/slump business, investment has led this one - the way it was done prior to World War II - as described in Mr. Kindleberger's book. As he points out, strong deflationary pressures arise after the economic bubble has popped - and that is taking place now.
Regards,
Raymond F. DeVoe, Jr. For The Daily Reckoning
P.S. It is a rather eerie economic picture - and my way of looking at it is that the three-quarter recession of last year is incomplete. Traditionally, housing and consumer durables go negative - but they remained strong this time. Housing and autos never corrected - but are looking increasingly shaky now. Consumer spending never went negative. The trade deficit is soaring.
Stock market valuations never fell to median historic levels - much less the compressed values and higher yields seen at other bear market bottoms. And, significantly, consumer balance sheets never were cleaned up. If anything, they are far more leveraged than ever, unless refinanced mortgages, frequently for much larger loans, are considered "off-balance sheet."
I am not forecasting deflation, just citing the pressures existing in this eerie bust of the post- postwar period. The widespread lack of pricing power will make it a difficult period for profits, forcing further cost cutting and particularly layoffs. Because of the incomplete recession, I don't think there will be robust growth until the excesses of the past have been worked out of the system. And that is why the recessions described in Mr. Kindleberger's book have lasted longer than those in the 1945-2001 period, and why recoveries were slower and more labored than the traditional "V-shaped" ones of that postwar period.
Editor's Note: Raymond F. Devoe Jr. is the writer, editor and creative genius behind The Devoe Report, published by Legg Mason Wood Walker. Ray's financial analysis is a regular feature of the U.S. edition The Fleet Street Letter.
The Daily Reckoning
Friday, November 22, 2002
Kennedy Wisdom Endures....Iowa, the real terrorist battlefield....
Our Fatal Conceit
Pete Geddes, Program Director, Foundation for Research on Economics and the Environment:
"While a few environmental groups do engage in terrorism (e.g., the Earth Liberation Front), in general this claim is preposterous. It equals a statement by enviro gadfly Robert F. Kennedy Jr.:
"Large-scale hog producers are a greater threat to… U.S. democracy than Osama bin Laden.'”
Full Story: environ gadfly
Thursday, November 21, 2002
Thirty Years...
Thirty Years
Robert Bartley, editor of The Wall Street Journal, will become editor emeritus on Jan. 1. This is an excerpt from his valedictory address, delivered last week in New York.
VALEDICTORY
Thirty Years of Progress--Mostly
Leaving the helm of The Wall Street Journal, I'm optimistic about America's future.
BY ROBERT L. BARTLEY
Wednesday, November 20, 2002 12:01 a.m.
Since I'm shortly to become editor emeritus of The Wall Street Journal, this juncture is a time for reflection on the 30 years I've been running these editorial pages. These reflections bring a perspective to the times we're living through. Certainly these are troubled times. For the Journal, the terrorist conflict has been up close and nasty. We had nearly 3,000 people killed across the street from our headquarters, and were scattered in temporary locations for a year after. We were proud of putting out a newspaper, a magnificent one, on Sept. 12, 2001, and lucky that none of our colleagues died. But many of us did lose friends, and one of our reporters was kidnapped and brutally killed by terrorists in Pakistan. And terrorism is only the most prominent of a litany of troubles involving war, civil liberties, recession and a sagging stock market.
My message today, though, is that things could be worse; indeed, they have been worse. Let me take you back to January 1972, when I took the editorial helm. This wasn't merely a troubled society, but one in the process of coming unglued. Crime rates and out-of-wedlock births were rising, and we had experienced a "long hot summer" of riots. Abroad, America was mired in Vietnam and the Communist empire was on the march. Economically, we were on the cusp of a new and dispiriting era. Huge legal and constitutional controversy lurked ahead. My career has consisted of watching these dire trends unfold, and watching this remarkable society overcome them.
I was an onlooker, occasionally a participant and always a cheerleader in this transformation. In the position I've held, you have to have views and make comments on all aspects of the human condition. But my own preoccupation has centered on three of these issues in three phases. Roughly, the military balance and competition with the Soviet Union in the 1970s, the economic dilemma in the '80s, and in the '90s moral and ethical issues in government. In each of these areas the Republic has made real progress, and from a journalistic viewpoint, I like to think I've found a lot of news.
From a distance of 30 years, it grows hard to recall how passions over the war in Vietnam totally dominated both foreign policy and domestic politics. Nineteen seventy-two was the year Jane Fonda visited Hanoi, broadcasting antiwar propaganda, George McGovern called for "immediate and complete withdrawal" from Vietnam, and the Associated Press published Nick Ut's unforgettable photograph of a naked girl hit by napalm. The U.S. withdrew its last combat soldiers from the country that year, but every covering attack sparked protests on the home front.
These events on the battlefield ran in tandem with larger geopolitical developments. In 1972, the Soviet empire was approaching its apogee. Between 1966 and 1970, the Soviet Union expanded its strategic missile force, bypassing the U.S. In 1972 we saw the first Strategic Arms Limitation agreement, with the U.S. dropping its ABM system, and the Soviets codifying their lead in missile throw weight. Against Sen. McGovern's complete and immediate withdrawal from Vietnam, President Nixon offered arms control and détente with the Soviets. Aided by prosperity and the ineptness of the Democratic campaign, he won one of the greatest landslides in history, marred only by the "two-bit burglary" at the Watergate office complex.
In retrospect it seems that without Watergate we'd have had a far different outcome in Vietnam. In 1972, U.S. air and naval power had allowed the South Vietnamese to repel a major offensive, with the North suffering 100,000 causalities and relieving the legendary general Vo Nguyen Giap from command. Two years later, six weeks after the resignation of Haldeman and Ehrlichman, Congress passed the Case-Church amendment forbidding further U.S. military involvement in Southeast Asia. In March 1975 the North Vietnamese repeated their 1972 offensive against the demoralized South. On April 29, 1975, helicopters started an airlift from the U.S. Embassy to three aircraft carriers offshore; the next day the last American left Vietnam and the Communist flag flew over Saigon.
In the interactions of Vietnam, détente and Watergate lies the key to this juncture of our history. In the midst of 1972, one of our editorials said, "A look at the strategic arms pact signed in Moscow Friday at least clears up the mystery of why the Russians went through with the summit despite the mining of Haiphong." It was too good a deal for the Soviets, I complained. In the fullness of time, perhaps trading arms agreements for a way out of Vietnam was not so bad a bargain. The peace agreement with the North, at the very least, freed our airmen held in the Hanoi Hilton. And restoring domestic tranquility rent by Vietnam was essential.
Still, for the ultimate happy outcome, I think we arms-control skeptics can also claim a good slice of the credit. By 1972 I was immersed in the strategic-arms debate. I could never understand why defensive missiles were worse than offensive ones. Yet the expert view proposed to deter a missile exchange by negotiating a balance of terror ensuring that both societies would be destroyed. This was mutual assured destruction, or "MAD." Rebellion against MAD was the start of my long association with Albert Wohlstetter, Pentagon consultant and strategic fountainhead.
Many within the government, who felt the arms-control process was locking the U.S. into a position of inferiority, were happy to come to New York and talk to a friendly journalist. So I was able to produce a series of scoops. I sparked a Pentagon investigation by reporting the MX memcon, a memo of a conversation between the chairman of the Joint Chiefs and his Soviet counterpart, who rebuffed the American assumption that the MX missile enclosed in a bunker would not count as a "mobile missile" under the treaty. In February 1976, I had an exclusive dispatch on the negotiations in Moscow to confirm agreements ostensibly reached at the Vladivostok summit by President Ford and Leonid Brezhnev. It included the news that agreement had been blocked by revolt at a meeting of the National Security Council the previous Wednesday. That Wednesday night was when détente ended.
I soon found myself invited on a trip to China by James Schlesinger, who'd been fired as defense secretary for opposing that policy. By chance Mao Tse-tung died while we were there. I was the only newspaperman in China at the time, and was able to file a report of attending Mao's funeral, especially appreciated by The Asian Wall Street Journal, then in its first week.
In 1976, President Ford faced a brief challenge in the Republican presidential primaries from an untested candidate named Ronald Reagan. I have a letter from him that reads, "Dear Mr. Bartley: Opening last Friday's Wall Street Journal to find the article excerpting my speech on détente and foreign policy was a very nice surprise. I'm both flattered and grateful. Many thanks. Sincerely, Ronald Reagan."
We arms-control critics had always argued that despite the agony of Vietnam, America's people could be rallied to resist the Communists. This is what President Reagan understood, and proved. No fewer than four times, he predicted that communism was about to collapse. No one, including me, took the predictions seriously, and we were surprised when the Berlin Wall tumbled down in 1989. In the darkest days of the Cold War, shortly after losing Vietnam on the home front, it was easy enough to be pessimistic about the American people. But President Reagan's optimism proved wiser and more enduring.
Nineteen seventy-two was also a vintage year on economic policy. On Aug. 15, 1971, President Nixon declared an economic emergency, imposing wage and price controls, and closing the "gold window"--refusing to supply gold for dollars held by foreign central banks, and divorcing the value of the dollar from even a slim tether to anything real. But with Fed Chairman Arthur Burns pumping out money, and controls temporarily curbing inflation, Nixon put in place the "prosperity" plank in his re-election effort, though a temporary and artificial one. After the Aug. 15 shock, John Brooks, that elegant commentator, voiced "a suspicion that the president and his advisers, in making their Draconian move, did not understand what they were doing." What they were doing was unleashing a wave of inflation around the world. To be fair, not many understood this at the time. A few lonely voices did, such as de Gaulle adviser Jacques Rueff and Yale's Robert Triffin. They were the few who understood the international dimensions of economics.
The era of sustained American and world economic growth from 1950 to 1973 was also the era of Bretton Woods, of fixed exchange rates anchored to the dollar, which was anchored to gold, the historical center of monetary systems. In the death throes of Bretton Woods, sealed that Aug. 15, central banks were rapidly accumulating international reserves, mostly dollars. The surge in reserves forecast a surge in prices. One body understood this, the Organization of Petroleum Exporting Countries. Within five weeks of the closing of the gold window, its member countries resolved to renegotiate prices with oil companies "to offset any adverse effects on the per barrel real income of Member Countries" of Aug. 15, 1971. Here, the "energy crisis" was born.
The Watergate era, meanwhile, gave us the economic equivalent of Case-Church, the Congressional Budget Control and Impoundment Act of 1974. This sharply reduced executive sway over spending on the promise that Congress would assume responsibility for budgetary discipline. Inflation rose to 11% in 1974 and 9.1% in '75, while real GDP fell 0.3% in each of these years. We coined a word, stagflation, meaning simultaneous stagnation and inflation. Since this combination was considered impossible in the Keynesian economics of the time, our economy was lost at sea without a compass.
When Mr. Reagan took office in 1981, the focus was on restoring the economy, primarily by cutting taxes. The Journal made itself the mouthpiece of "supply-side economics," which became an intellectual justification for the Reagan tax cuts. But it was all pretty much presaged in the Reagan campaign document Policy Memorandum No. 1, written by Martin Anderson in August 1979. It excoriated the view that there's a trade-off between growth and inflation, and said that taxation was "stifling the incentive for individuals to earn, save, and invest." This was the essence of the supply-side idea, that to solve "stagflation" you could separate monetary and fiscal policy, using tight money to combat inflation and tax cuts to spur growth.
Now Arthur Laffer grabbed attention with the Laffer Curve--the argument that a tax cut can yield more revenues for the government. But the key notion, a "policy mix" separating monetary and fiscal policies, was the insight of Robert Mundell, who's been my economic guru ever since. His policy mix did resolve stagflation. Paul Volcker's tight money cured inflation, and Mr. Reagan's tax cuts sparked a boom starting in the first quarter of '83 and running to the 1990 recession. I wrote a book about it called "The Seven Fat Years." With the shallowness of the 1990 recession, Bob Mundell says I should now do "17 fat years." He also believes that the '82 recession resulted from a timing mismatch. Tight money came so much earlier than tax cuts; if they had come simultaneously the recession might have been avoided.
In the '80s, the economics profession respected Mr. Mundell for his contribution to international economics, but considered his broader views eccentric at best. But in 1980 the profession saw no answer to inflation except a protracted recession; Bob took the optimistic view: You can both curb inflation and spark expansion. Mr. Reagan was fond of saying that an economist is someone who watches a policy succeed in practice but wonders whether it will succeed in theory. But the profession is catching up with supply-side economics. I was in Stockholm in 1999 to watch Bob Mundell accept the Nobel Prize; in his banquet acceptance he sang a few bars from "My Way."
Over the decade just past, my editorial page made a mark as paper of record on President Clinton's swirling scandals. We've republished our views in six volumes on Whitewater. There's even a CD-ROM. Like everything else in my world, this started back in 1972. On June 17, to be precise, when D.C. police apprehended five burglars attempting to plant microphones at the Democratic National Committee offices in the Watergate. In Clinton's Whitewater we see Nixon's Watergate, history repeating itself as farce.
Watergate was a huge legal, political and constitutional crisis, and I was confronting it as a 30-something editor only a year on the job. My feeling was that Nixon's critics were probably right, but they should be forced to make the case. Our role was to mark the denouement.
I was also taking guidance from one of the most remarkable men I've ever met, Yale law professor Alexander Bickel, who was dying of cancer. When asked how he was doing, he'd answer cheerily, "The voice is still good." His preoccupation was the powers of the presidency. Nixon had the power to fire cabinet officers, even in the Saturday night massacre. "Nixon won't do the truly audacious thing, like burn the tapes," he told me. These trains of thought explain why the Journal opposed the independent counsel law that resulted from Watergate as an intrusion on executive powers. I'm glad to note that with Whitewater, Democrats and liberals have come to see the wisdom of our arguments.
Yet it's also true that if President Clinton accomplished nothing else, he proved that the executive remains a huge font of power. He succeeded in mounting a political offensive against the independent counsel, who had no way to respond. A House controlled by the opposition party voted a bill of impeachment, but the Senate never conducted a serious trial. President Clinton's sin was the same as President Nixon's: not the burglary but the lies, not the sex but the lies. In Watergate, I wrote that Nixon had lost the credibility necessary to govern; in the end he had the residual decency to resign.
The success of President Clinton in withstanding the assault that toppled Nixon is only partly a result of his charm, and only partly the result of a liberal tilt in the press. To bring the strands of my story together, Watergate was an artifact of Vietnam. Without the public passion aroused by the war, judges and journalists and opposition politicians would never have had the stomach to unseat a sitting president. In normal times, this is not something the electorate would allow. The electorate takes the optimistic view.
My experience leads me to doubt that private personality quirks are irrelevant to public office. Nixon wasn't sexually promiscuous, but his manipulative side led to his troubles. The fecklessness about sex that Mr. Clinton displayed repeated itself in foreign policy, and we're still paying the price. The more we learn about JFK, the more grounds we have to suspect that his martyrdom obscured the price we paid for his presidency. A failure of moral character opened our agony in Vietnam. When he sanctioned a coup against an ally and Ngo Dinh Diem was murdered, we could no longer walk away. As the depth of this mistake became apparent, the Kennedy coterie turned against the war and ultimately against American society. The Vietnam era was not wiped away until Sept. 11, 2001. When the attack produced no yellow ribbons but a spontaneous display of American flags, the Vietnam syndrome was extinguished.
In 1990, partly because I felt no one was listening to what I had to say, I decided to take a break from editorializing to write my book. But I came back to write three editorials. One was on legal issues, dissenting from the scapegoating of Michael Milken. Since neither Jack Welch nor Martha Stewart has yet been indicted, we may make it through the current recession without a legal assault on relatively innocent bystanders.
The second editorial concerned economics, and said, "The economic ideas expounded in these columns have shared the blame, and sometimes even the credit, for the economy of the 1980s." But with tax increases to curb the deficit, "the Bush administration has joined the Democrats in endorsing quite another set of ideas. It appears that the economy of the 1990s is likely to belong to someone else. Good luck." The second Bush administration hasn't fully digested this experience. I suspect it is about to.
The third editorial, in 1991, was entitled "An Elbe in the Desert," recalling Churchill's efforts to keep the Americans from stopping at the Elbe during World War II. I predicted that the ground offensive in Iraq would go smoothly, but worried that "as the likely battle develops, we would hope that the offensive would not stop at some Elbe in the desert simply because that fulfills the immediate military mission. The first political goal is to remove Saddam from military command and political power." This lesson has been digested. The current Bush administration has closed the era of arms control as the center of our foreign policy. With the new tag line of "regime change," it is intent on ousting Saddam. But its ambitions don't end there. For all its hesitancy about nation-building, it intends to build at least a proto-democratic regime. Nothing could do more to change the face of the Middle East. Watching this foreign-policy activism, I look forward to the U.S. constructing a new, and ultimately more serious, world order.
Don't wish for the good old days. In 1972, problems were worse. We did overcome communism, stagflation, Watergate and Vietnam. For all our momentary problems, at the turn of the century the Soviet empire had collapsed, democracy was spreading to unlikely places, and the American free-enterprise model was established as the route to development. Even with today's problems the U.S. has no serious rival. In the sweep of this history, today's problems loom as another set of momentary nuisances. What I think I've learned over 30 years is that in this society, rationality wins out, progress happens, and problems have solutions. This, I like to think, is what happens when a society incorporates the editorial credo of my newspaper, free markets and free people. In that kind of a society, optimism pays.
