I’m Back!—and Looking for Black Swans

I’m back after some time in the great north woods, staying in a cottage without internet connection or even cell phone coverage. I wasn’t even able to get internet access while in town. It was good to be “off the grid” for a while, swimming with the loons. (There were three on the pond this year—mom, dad, and a little loon.) But now the fall semester has started, the kids are back at college, and I am overwhelmed at what’s been going on while I was away. I began accumulating tabs for all the articles that have appeared over the past month that seemed worth remarking on, and crashed Safari, thus losing them all. So, I’ll just pick up in medias res. Maybe it’s just the memory of the loons and their haunting cries, but I keep looking over my shoulder, on the watch for black swans.

I have been appalled, as I have been more or less since January 2009, at the cluelessness and corruption of our elected officials, and I have been fearing, not only the expected consequences of their actions, which are dire enough—what do you expect if you respond to a financial crisis you helped to bring about by emulating the policies of Herbert Hoover?—but also the black swan, the unexpected event that can disrupt continuity and lead to a cascade of decisions that bring us to the brink of disaster. The probability of any given black swan is generally quite low, but the probability of some black swan or other appearing is started to get perilously high. What am I worried about? Well, here’s a list, for starters:

  1. The Iranian bomb. Even the IAEA now says that Iran is engaged in producing nuclear weapons, and may already have enough material for one or two bombs. The Russians have delivered fuel to the reactor, which means that any attack risks release of nuclear material as well as international responses that include Russia. Meanwhile, the Israelis appear to be accepting a nuclear Iran, for reasons that puzzle Caroline Glick, but seem to have something to do with Obama’s influence with Ehud Barak. The U.S. and Israel may be playing a game of chicken, trying to force the other into acting to stop the Iranians, a game that seems destined to lead to a nuclear Iran, if it hasn’t already. The other possibility, which seems increasingly likely, is that the Obama administration prefers a nuclear Iran. That strikes me as insane, but it appears to me the best explanation for why Obama did not put his weight behind what was by far the best option for dealing with the Iranian problem, namely, to do everything possible to support the protests in Iran and bring about a regime change. That would have been my policy, but the administration, handed the perfect opportunity in the summer of 2009, did precisely the opposite. So, we now face a nuclear Iran and an escalating arms race in the Middle East, with a variety of countries headed by zealots who profess to believe that nuclear war is an acceptable option. Great. The black swan: Iran, emboldened by its possession of nuclear weapons, attacks, directly or through proxies, Israel, the U.S., or international shipping.
  2. The economy. The economy shows increasing weakness—unemployment remains “unexpectedly” high, the deficit is “unexpectedly” large, housing sales are “unexpectedly” low, and the Keynesians, thankfully, are running low on ammo. David Brooks observes that Germany, which resisted the Obama medicine and instead cut spending, is recovering superbly, enjoying a 9% growth rate compared to our own 1.6%. This is real-world evidence against the Obama administration’s policies, but no one in the administration seems to pay any attention to evidence. People have largely forgotten, for example, that the Great Depression which haunted the U.S. throughout the 1930s was far more severe in the U.S. than it was in Europe, where it lasted two-three years instead of a decade. The Hoover/FDR policies the Democrats so love made the Depression worse in intensity and duration. It’s happening again. But the facts don’t fit “the narrative,” so the facts are ignored. The black swan: sovereign defaults (Greece? Spain?) or downgrades (the U.S.?) brought about but reckless borrowing and spending—spending for which, as a Democratic Congressman now admits, we have nothing to show.
  3. Our inability to confront the Islamic threat. The astounding debate over the Ground Zero mosque shows that our elites refuse to admit even the most obvious facts about the war that Islamic expansionists are waging against us. I would be heartened by the Left’s sudden discovery of property and First-Amendment rights, except that they are so blatantly insincere. (Would they defend the right of a property owner across the street from the mosque to display a large banner reading “To Hell with Muhammed”? Of course not!) While it’s encouraging to see 70% of the public realize that the mosque is, in effect, a monument to Islamic victory that might as well fly a banner reading “To Hell with the U.S.A.”, the fact remains that the other 30%, and a majority of the political class, don’t see it that way at all. The black swan? The next Islamic initiative, which the political class will again do all it can to accommodate. If they’ll accommodate this, they’ll accommodate anything—or, at least, anything accompanied by a large enough check.
  4. Fascism. It’s now becoming acceptable to say what I began saying privately to people back in 2008: Obama is a fascist (or, if you will, a believer in the “corporate state“). I don’t mean that in the sense the Left uses the term, as a generic label for people I don’t like. I mean it in the sense Jonah Goldberg uses in Liberal Fascism. Obama believes that every problem is a public and indeed political problem, which the State must address. He believes that a very large State, with no formal or substantive bounds on its power, must “work together” with unions, nonprofit groups, Leftist political organizations, and large corporations to formulate and implement policies that direct economic activity to what are perceived as social goods, but tend in practice, if not in intention as well, to promote the interests of those in power. He believes that people’s lives are capable of having meaning only through association with the State, and that anything outside the State and its corporate/union/NGO partners is an expression of false consciousness and potential threat to the State that must be crushed. As Warren Meyer observes, all this is great for government, for large corporations, and for unions. But “The losers in all of this are … everyone else. In effect this corporate system is just another age-old, historically time-worn effort to cement the power of a small group of elites. Entrepreneurship and innovation are often impossible, as incumbent businesses can call on tremendous state powers to stifle competitive threats. The unemployment rates of the young and unskilled can be astronomical, even in rich nations like Germany and France, as older unionized workers have worked to calcify labor markets to their own advantage. In the end, consumers and taxpayers pay for the whole system in the form of reduced growth and economic output, higher prices, higher taxes and less mobility for those not already in power.” The rest are starting to figure this out, which is why Congressional approval ratings are so law and why Republicans seem poised to make huge gains this November. The black swan: Fascism and democracy are an unstable mix. The possibility of electioneering of a kind we haven’t seen before, electoral fraud, lame duck enactments, unconstitutional end runs, conflicts between executive and legislative branches, declining respect for government and democratic processes generally, etc., is increasing. I expect a series of attacks on an already weak system.

There! So much for my worries. Fall classes look great. It’s a beautiful, sunny, Texas summer day outside. I’m taking the family and dog to an outdoor cafe to eat breakfast tacos. I saw West Side Story on a big screen last night; tonight, a Telemann concert, and, tomorrow, playing jazz with Rich and Alex. Life is good. Let’s hope it stays that way. (Hope and change, indeed!)

2 thoughts on “I’m Back!—and Looking for Black Swans

  1. Welcome back!
    I’m surprised you didn’t mention hyper-inflation. That’s one of my black swans. The more the Fed worries about ‘deflation’ (a grossly exaggerated concern, since deflation by itself is relatively harmless – it’s only deflation in the face of increased union power and wage regulation that’s dangerous), the greater the likelihood that the trillions in new monetary base may soon ignite. The Fed thinks it can suck back all the excess reserves a the first sign of inflation, but the odds are good that they’ll act far too late, and no one’s ever tried to contract the money supply so much and so quickly before.

  2. Rob, good point. I think a sovereign debt default may be the first step, but hyperinflation is not out of the question. I’m inclined to think that the combination of Fed and Obama policies is more likely to produce Japan 1990-present rather than Germany 1921-1923, because I see businesses and consumers alike as reluctant to invest and spend given Obama-created uncertainty, but the current levels of borrowing don’t have many historical parallels, so it’s hard to know how to assign probabilities.

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