Category Archives: Anthropology

Walking the Walk

Walking the walk has become a core lesson learned for me.  I’ve tried to live an adult life of walking the walk instead of talking the talk.  When I was a suburban, socially disconnected kid, I spent most of my time on early BBCs, gaming networks, and the internet posing as a normal adult because that was the only way I could fit in.  As I got older, I actually was a normal adult, but I still felt left out.  It wasn’t until I joined the Army that I began to understand how important it is to be a member of a community and to “know” what it is to be in a community.

Since then I have moved on from the Army and intelligence community, although I still keep in touch with people there, and can spot those types instantly from a crowd.  I went and joined another community, the Georgetown community, and, with more time, became a tangential member of the DC community.   Those people have their own customs, rituals, schedules, and uniforms.  In many ways, DC people are not unlike military people:  long hours, dedication towards greater purposes, responsibility, discipline.

My infatuation with starting a company has continued to grow.  But I’ve found just how incompatible the DC community is with social entrepreneurship in my area, online stuff.  While there are a lot of initiatives in DC, partly because of cloud computing, cheap CPU cycles, and Obama’s initiatives to drag the government into the present, you can sum up most early pitches in DC this way:

"Looking for Full-Time Coder for DC Start-Up"

It’s funny because in DC, you can stop anyone on the street and they will be some high-level program manager or policy wonk interested in federal-level funding and grant-making for this or some other project.  But when it comes to finding people to implement all these plans and programs in a tangible way, the pool is thin.

Contrast this with stories from Silicon Valley, which is continuously castigated for building only incremental improvements to useless features.  One-hit non-wonders.  Things that make a prettier gadget abusing a Google Calendar API.  Or making a more hipsterish movie review site.

So DC is great, important ideas in search of engineers, while Silicon Valley is talented engineers in search of serious projects.

If I had my way, I would found an engineering school in DC, and feed students into the projects that DC is dying to implement.  Instead of relying solely on schools like Stanford, Berkeley, MIT, and Carnegie Mellon, DC should have some sort of computer science/social entrepreneurship program.

It might even need a broader project than that.  I often think about the short booklet I read from SnarkMarket called the “New Liberal Arts”.  The booklet proposes a new curriculum for students to learn applicable skills to our digital world:  attention economics, coding and decoding, finding, food, home economics, inaccuracy, iteration, journalism, mapping, marketing, micropolitics, myth and magic, negotiation, play, and video literacy, among others.

I’ve found through my job, which involves me reading pretty much as much as I can that comes across the web daily, that so many people are lacking in fundamental skills to interpret their world.  They do not know how to parse a story to see a particular agency’s bias, or to see which facts are actually facts and which were selectively chosen for inclusion.  The ability to figure out important data from unimportant data is also woefully lacking.  There is so much fluff in the world, in the form of excess meetings, long and boring Powerpoint decks, redundant employees, stifling bureaucracy, that it seems like a system built more to protect constituencies than to be lean and efficient.

Just read internet comments some time if you want to see how badly people interpret data they read online.  It’s so bad that Tim Berners-Lee, creator of the World Wide Web, said the inability to judge facts and disprove false stories online is one of the biggest problems out there.

“Sir Tim told BBC News that there needed to be new systems that would give websites a label for trustworthiness once they had been proved reliable sources.

“”On the web the thinking of cults can spread very rapidly and suddenly a cult which was 12 people who had some deep personal issues suddenly find a formula which is very believable,” he said. “A sort of conspiracy theory of sorts and which you can imagine spreading to thousands of people and being deeply damaging.””

Students do not know how to build the things they study.  The top jobs are going towards lawyers and businessmen, but their studies are so abstracted from anything concrete that it’s all just theoretical to them.  The culture of hacking, where you sit down quickly and prototype things with simple building blocks, does not exist in most bureaucracies, and it’s certainly bred out of children by the time they reach high school.  The only escape for natural hackers has been the internet and for people who live out in the country and are exposed to working with their hands with minimal supervision.

Everyone has great ideas, but few have the know-how to implement or even prototype them.  Which means the ideas die.  Few are part of the appropriate communities to make things happen, either.

That is.  I learned in the Army that if you’re not in the military, you have no clue what military culture is like.  Military bases are usually separated from the rest of the American fabric, in small towns that exist only because of the base.  Veterans and their family members live in a separate world.  Thus to hear people talk about the military without never having been close to it is so hard to swallow.  Likewise, I just became a full Catholic, during a publicized, grueling, disgusting scandal of pedophilia within the Catholic bishopry. (Indeed, before the Easter Vigil before my baptism began, I stood outside the Cathedral of St. Matthew the Apostle and some guy in flipflops walking his dog tried to cut through our preparatory line and said, “Excuse me, child molesters”, as he walked through.  What, so all Catholics are child molesters?  Have we reached this level of disdain for strangers we meet in the world?)

My more agnostic and atheist friends ask me why I would join the Church, knowing about all this.  Again, a Catholic within the Church would not ask.  A religious person would not need to ask.  Churches, despite being so numerous, and religious folk, despite being a clear majority in the US and in the world, exist in a separate world than the rest.  Put a pastor next to a programmer and I’m sure you’ll rarely see such polar opposites.

So I’ve been in some pretty disconnected communities.  Would that make me a crypto-first-world-urban anthropologist?

I was actually fortunate enough to have a Mac Plus and subsequent Apple products (even the Newton) because my dad would get them as part of his professor’s grant.  And I remember learning Logo and Pascal in school, while playing with BASIC at home (typing in those programs out of books and then running them).  As I got older, I wished badly to be able to speak in different human languages.  I wondered why I couldn’t have known French or Spanish while a lot of people I knew were multi-lingual.  When I became an Arabic linguist in the Army, I really lamented it.

But since then, as the internet has exploded, English has become a comfortable lingua franca for me, and what has become far more important to me is computer language.  Why couldn’t I have become a god at C++ or Java?  Would I need to have gone into CS in school to do that?  Would that have doomed me to a linear career?  I’ve picked up PHP inasmuch as I need it to prototype and build stuff online — I guess it’s no accident I spent time learning PHP since it’s so easy to build out online.

One article I read recently from RSA, talked about employing the human “third drive”, which roughly coincides with Maslow’s higher levels of human needs.  The article claims that carrots and sticks at work is rarely effective and sometimes harmful.  Management leads to compliance only, in many cases, as rigid hierarchy means people are only ultimately going to care about their own lane and not take on extra work, which may get them in trouble.

It’s tough because in any organization, the top people may not be the best people to “start” a project.  Someone at the lowest level of an organization may have figured out what the organization needs in order to improve, but the authorization and legitimacy bestowed upon that person does not exist.  Thus the idea will never see the light of the day.  The higher up on the food chain, the less likely the people will be to possess skills needed to prototype.  I think this is why I’m so preferential towards organizations that hire strictly engineers and people with serious experience — they were at that lowest level once, and knew the pitfalls invisible to the highest people.

At The Future of Web Design conference in Miami a couple years ago, and with a recent NYTimes article, people have begged for more women in computer science.  I’m beginning to wonder if my above hypothesis, that there’s a disconnect between the cultural maps of doers/searchers vs. planners, holds true for women too.  DC is interesting because it’s known as the WORST city in the world for single women to find a mate, because women here are so highly-educated and well-off, while outnumbering men.

Do women fall into communities and roles that by their nature seek to improve the human condition and standard of living?  Would it be fair to say that while men have sought power in DC, women have sought to use social institutions to improve human lives?  Could one say that women have not been as interested in hacking, which in many ways is a very solitary, almost autistic profession, and have sought instead positions that are more socially networked and responsible and creative?

Would there be more female hackers, and hackers in general, in DC if an institution existed to encourage computer science in a town that’s so heavily geared towards policymaking?  I am beginning to think so.  How can we link together the separate groups of engineers and policymakers/changemakers?

In a broader sense, shouldn’t America, which likes to see itself as a greasy-knuckles, hard-working blue-collar country (despite being the richest and fattest), find in itself a core value of walking the walk?  After all, we used to subscribe to walking softly but carrying a big stick.  We have imposing science, nuclear, and military programs.   We were great because we had substance and experience unmatched elsewhere in the world.  It is not like now, where what we value are lawyers who can argue any case as long as they’re paid well enough, or bankers who can innovate money out of our pockets while underlying assets remain unchanged in value, or businessmen who spend their lives adjusting reports while barely understanding the very product or service they sell.  That is all image, abstracted away from the core economic and power realpolitik.

I just finished watching Season 4 of The Wire, which brings in the new component of Baltimore life, the public school system.  What struck me was the experimental pilot program to remove the problem kids from the general population and try to socialize them, since they were all training to be “corner kids” and learning that school was just a safe zone to learn how to test rules and adults.

Are we preparing people to live and work in the world we now and will live in?

Can we move away from a culture of FOXNews, with its chickenhawk lawyers who rattle their swords on patriotism, love for the military, and mercantilist realpolitik but who consistently seem to have absolutely no experience in anything except morning zoo drive DJs, sportscasting, lawyerships, working for conservative thinktanks, etc.?  Can we move away from seeking advice on small business and policymaking from people who have never started a business or who make fun of community organizing?

Can we praise a culture where walking the walk, being a member of a community instead of an outside criticizer and observer, becomes the gold standard?

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Filed under America, Anthropology, Tech

Dreams of the Future

What do I hope to accomplish within my lifetime?

Keeping the American Dream in Perspective

The American Dream is an incredibly alluring concept.  It resonates with me because my parents came from England to work and start a family back in the 60’s, and have done well for themselves.  They were not leaving a horrible situation in England, but I imagine they smelled opportunity.

This whiff of opportunity inspires new generations to come to the US, but as I’ve gotten older I’ve learned just how many obstacles to progress there still are here.  The civil rights movement was a brief generation or two ago, I have to keep reminding myself.  Cosmopolitanism and multiethnic communities are still not feasible for most, and views on immigration are muddled and confused.

The idea that you can come to the US with nothing except the clothes on your back and then build a life for yourself is still more true here than anywhere else. But the pursuit of the Dream comes now at greater cost:  the protection of the ideal of a middle class is being chipped away, while the desire for unfettered capitalism is powerful.  In other words, you have to want to get rich or die tryin’.  The safety net underneath taking risks and undertaking entrepreneurship is no longer so safe.

I love capitalism.  I love open, competitive markets.  I would love to duke it out as a business fighting competitors.  I love maximizing profit.  However, I also know that not everyone is an entrepreneur, not everyone can or wants to slug it out every day.

And it’s not enough to just get rich and then retire off to buy big boats and go to the best parties.

The idea of the American Dream is not complete until it includes the responsibility to plow philanthropic projects back into the country.  The biggest robber-barons, capitalists, and monopolists of our history, like the Kennedys, Morgans, Rockefellers, Carnegies, Gateses, Vanderbilts, Waltons, and Buffetts turned their money into philanthropic juggernauts.

No one does private philanthropy like the US has.  We look beyond ourselves, towards ideals and virtues, using wealth to create what would be impossible without that wealth.  We take on human-changing projects and change the course of history…for the better.  Who else can claim to have this in their genes?

Combine this with a theory of mine:  there’s plenty of money and food and resources in the world.  Those are not issues.  What are the central issues now are power, injustice, corruption, and tribal affiliation. These factors restrict which people have access to all that money and food, in order to get and maintain influence.

Human Capital

The underlying sense of my beliefs is becoming more strongly linked to building human capital.  Some of my fellow Georgetown MSFS grads who studied international development met up to discuss Sheryl WuDunn’s and Nick Kristof’s “Half the Sky”, a book about female empowerment and girls’ education.

In my studies I never really thought much of most development projects, which seem like dei ex machina, disregarding lifetimes of habits and traditions for the sake of Western scientific rationalism (which is not always correct and certainly isn’t embraced universally).  But bottom-up microfinance and whatnot also seemed to be like pushing a Sisyphean rock up a hill.

What I’ve come to believe is that children’s education should be viewed as a force multiplier.  Universal human rights should be viewed as a force multiplier.  Look at it this way:  if you were to spend all your money solely on 5 girls to go from birth to graduating college, making sure they received proper diets, health screenings, and education, then they may not choose to go on and use their educations.  They may even choose to just get married and have kids.  But that education is impossible to ignore:  they will raise their children better, and will probably send them on to school.  They might be so compelled by their educations that they seek to better their situations through social entrepreneurship.  At the least, it won’t just be them that’s affected.  At best, they will steer their children, demand more suitable conditions for a husband and community, and undertake more community roles.

Everyone is unique, surely, and they must be allowed to go off in the directions that they were given the talent and interest for.  Shoehorning women into jobs isn’t sustainable, but having them go to school will allow them to make more informed decisions.

With that, here’s what I intend to do with the rest of my life.

1) Found Galapag.us. This is of course the key, since it will be subsidizing everything else.  Add in tricky twists like my needing to maintain another job until Galapag.us takes off, and my not wanting to cash out on my personal baby project.  But I do think Galapag.us as a new measurement and identity/reputation system has the potential to disrupt a lot of different sectors, while bringing back human traditions.  So that should be bank…if not directly then indirectly through building a public good!

2) Get Married, Have Kids. I mean, otherwise, what’s the point?  I believe in the security and strength of having an equal companion to rely on, and raising kids has to be the greatest educational lesson one could ever receive.

3) Build a New School. I was watching Andre Agassi’s interview on 60 Minutes.  He reveals that his father thought his education was a waste of time, and he preferred that Andre would go practice tennis instead.  Andre was a meal ticket, and he loathed tennis for it.  Later he would bottom out, CHOOSE to play tennis, and become a great player because he found the love.  What really made the story, though, was hearing that Andre had created a school in Las Vegas to give selected students the education he never had, as long as they and their parents swore to go to college afterwards.  Andre just had his first graduating class, and ALL the kids were going on to college.

How can you measure the social good of that?

4) Subsidize Co-Working Locations and Up-and-Comers. For me, raising capital isn’t the main barrier to starting a project.  It’s finding enough incentive to not just get a normal job that provides stability.  So provide consummate hard-workers and creative types with a competitive salary ($70k-ish) so they can work on their projects without the stigma of not actually having any income.  As for the social environment that work provides, a co-working area with other alpha-dog social entrepreneurs with common, open offices that allow for collaboration, sharing, and resources to build businesses or work on “20%” ideas.  Certain people will always work hard and try to create things; they just need security and stability in order to feel safe enough to reach higher.  Web folks championed this idea; see Citizen Space in San Francisco.

5) Philanthropic Contribution to American Education, Health. I’ve long had a dream of giving away money to developmental projects.  Studied the damn subject in grad school.  And nothing seems to be more of a force multiplier than education, particularly girls’ education.  And nothing seems more measurable in developmental work than disease vaccinations, hygiene, and nutrition.  Final point:  I don’t know any country as well as I know my own, and there is a LOT of poverty, illiteracy, and other scarcities of human capital to address.  So my developmental work would focus on the United States. Similar to what Bill Gates is doing up in Seattle for their schools.

6) Open a Digitized Restaurant. I would like to build a ChurchKey-like dark-woodish comfort food bar that is built from the ground up around digital technology.  Touchscreens at every table and at the bar for ordering, having seamless order processing and check-out ease for large groups.  A strong, embracing neighborhood presence with approachable comfort food items.  Suggested:  a damn good burger, gourmet PB&J, smoothies.

7) Own an NBA Basketball Team with My Buddy Chris. Surely the most selfish thing on the list.  It’s an idea we’ve been throwing around for a while.  I guess my angle is that basketball is full of some pretty insipid business people who seem to run franchises into the ground, so why not give it a shot?  Hell, there’s so many things I’ve always wanted at a game that you’ll NEVER see because owners are all pretty conservative…  Read Bill Simmons’s “Welcome to the No Benjamins Association”.

8) Contribute Legal Fees for Key Cases. It seems true that the scales of justice are easily tipped by enough money and lawyers.  For a mega millionaire, throwing a million dollars’ worth in legal fees towards a significant intellectual property or civil rights case seems justified, and keeps your dogs in the fight, instead of letting justice fail just because a sole voice of dissent can’t afford the financial bullying cost (i.e. SourceWatch, “Goliath and David:  Monsanto’s Legal Battles Against Farmers”).

See this propaganda, by the way:  Monsanto, MPAA.

So yeah, there you have it.  That’s what I’ll be up to.  Of course, it won’t turn out this way — you can’t predict anything — but these are my dreams.

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Filed under Anthropology, Education, Health

Labor Costs

One of the topics I want to study more about is what we’re all going to do in the future for work and jobs.  Part of the sharp upheaval of the 20th century of rapid economic development was that a stable career was not sustainable except for certain professions.  It is true in the US that most jobs that students are being taught for, ostensibly, do not even exist yet.

The manufacturing jobs we used to have have been pushed abroad to cheaper labor markets.  Farming has been turned into a large-scale industry needing expensive fertilizer inputs and economies of scale.  Services and data processing have, for a while now, been offshored to cheaper labor markets as well.

The idealized hope was that at least with the offshored jobs, those countries that welcomed such labor-intensive tasks would develop their way into the first-world club.  That has not exactly happened the way people hoped; instead, what has happened (and which is well-documented in Naomi Klein’s book “No Logo”) is that international companies shift resources to whichever country prostrates itself by way of tax-exempt zones, cheap wages, and lax regulation.

Furthermore, as machines and robots will become increasingly capable of completing labor-intensive tasks, they will replace the vast pools of labor that we currently use.  The limits of technology have made vast human workforce scale cheaper (that is, it is still cheaper to use humans to finish sock production than to use machines, if only by pennies per sock).  But that will eventually change.

So what the hell are we all going to do?

We can at least rely on a flattening population curve, which (one would hope) will lead to international competition for higher education for newer information and programming and mapping and engineering jobs.

But what I’m hoping for is that, freed from some of the requirements of labor in order to make the world function every day (whether it’s through a massive breakthrough in energy production, perhaps through solar, or if it’s through using robots instead), that we will actually need to work fewer hours per day and can spend more time engaged in creative and teaching endeavors.

Right now among my friends in DC, it’s pretty common to work from 8 or 9AM up to 8PM or even 9PM, daily.  What on Earth takes them so long to complete tasks at work?  Why is there so much work to do?  Is it because labor costs are so high that firms choose to hire fewer people, but work them harder, knowing that American work ethic looks highly upon those who work long hours for their pay?  Is it because people are just highly inefficient workers when they put in longer hours?

This isn’t sustainable, particularly for raising children, enjoying life, being creative, being social, being helpful in the community.  Surely part of that has assisted the drastic decline in civic life in the US (again, see Putnam’s “Bowling Alone”).  But we don’t want to end up letting robots do anything while we lounge around and become fat (think Wall-E).

I watched a talk given by the host of Dirty Jobs, Mike Rowe.  It takes a while for him to set up his talk, beginning with lamb castration.  But eventually Rowe, whose show has him apprenticing for people who have really dirty, labor-intensive jobs, talks about how these people tend to be really happy, satisfied people.  Rowe says that we work too hard in jobs we don’t enjoy.  He also says that “following your passion” isn’t actually good advice — more important is that you go do something that no one else is doing, to find your niche.

“We’ve declared war on work,” Rowe says.  He says that working people on TV are portrayed in horrible ways (fat plumbers as punchlines).  Rowe says that we consistently feel a longing to have more personal time, but we aggressively fight it in our culture.  We marginalize lots and lots of jobs.  Trade school enrollment is on the decline.  Infrastructure jobs are disappearing.

Think about the old NASA engineers and nuke engineers.  With the strangling of the NASA budget and the public abhorrence of nuclear power plants, those with the technical skills to remember how to build spaceships and construct programs, and create nuke plants, are dying and disappearing.  The ranks aren’t being re-filled.  As a society we are forgetting how to build things and how to do things.

What is going to happen if we run out of products to market and advertise?  What is going to happen if we’re too busy working to raise our children properly and enjoy life?  What is the standard of living that we want?  How do we balance work, family, religion, recreation, creativity, et al?  Do we even know how to measure all that yet?  We’re going to need happiness and well-being metrics on an individual and an aggregate scale.

The path of the internet’s development has shown us that software and hardware are hollowing out the core of labor within modern goods and services.  A small software company of 5 people can now use the cloud to host their data — all they’re doing is programming and internal business management and marketing/sales, pretty much.  Large-scale projects can now be done by a handful of people.  Sure, somewhere the cloud must be managed, but the costs to start a well-educated programmer/business idea are so low now.  You don’t need the capital for hiring lots of people or the capital expenditures to purchase equipment.  You can work out of your apartment.  What are 8 billion people going to do when software runs a highly-autonomous network of computer systems in the future?

Guess we better start learning to enjoy each other’s company and free time…

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Filed under Anthropology, Business, Computers, Development, Economics, Education, Globalization, Policy, Tech

Surpluses and Shortages

I’m moving out of my Georgetown rowhouse and just started my job, so I’ve been a little busy and haven’t been able to write much.  That’s one reason Twitter is so great — I’ve been able to just send some quick tweets (the other reason it’s so great is its generativity (see Jonathan Zittrain) — Twitter provides such a vast platform/ecosystem for other ideas to thrive in).

[edit:  I didn’t know this until after I published the post, but apparently the Pop!Tech 2008 conference was focused on the subject of abundance and scarcity.  Fitting!  Here’s the opening video presentation that the Pop!Tech conference began with.]

Anyway, since it’s been so long, I’m going to ramble a bit.  The blog is still great for that.

When I took all my money out of the market back in September/October of 2007, I did it because there were vapor bids on all the stocks out there.  Nothing was supporting any equities.  About two years later, the financial markets have stabilized quite a bit, with the TED spread finally dropping back to the levels before the markets got a whiff of collateralized debt obligations going sour.  Companies have shed a lot of jobs and have made a lot of cutbacks.

As an investor, I’m feeling a lot safer about putting my money back in.  I wanted to wait until at least this summer, when a lot of mortgage and housing resets hit the market.  Now is the dreaded velocity period of August-October, when the market is most likely to crash, historically.  But it can also rally pretty strongly in that time period — I think this has something to do with new fiscal years beginning and a lot of annual inflows/outflows taking place around that time.

I’m still only interested in Amazon ($AMZN) stock, but since it’s already pretty high I have to leave it alone.  There is no other stock out there worth holding right now, in my opinion.  I suspect the next big runner in tech will be a Facebook IPO or perhaps Yahoo! ($YHOO), if  they can ever find a moneymaker.

I went to the premiere of Barack Stars, a play showing at the Woolly Mammoth Theater in DC, done by the Second City Comedy Troupe (SCTV, some Saturday Night Live folks).  It’s a play lampooning the reverence for Obama and all the political scandals in DC lately.  One of the joke skits involved poor laid-off finance guys from NYC.

Funny to be sure (I highly recommend you go see this), but how accurate?  My suspicion is that while a lot of finance types in NYC lost their jobs, it wasn’t long before they found new ones.  All the smart money that didn’t vaporize probably went to the next unregulated market out there, or as some have hinted, towards carbon credit markets, the next bubble target according to Rolling Stone’s Matt TaibbiThe NYTimes just ran a story about how the big brokers were trading with a 3ms advantage on retail traders, racking up tons of money through arbitrage.   This just goes to show you that when you combine fierce NYC finance types with the new quant PhD players, every aspect of the market is a game that no layperson is going to win.  Back in the 90’s, daytrading was somewhat fair, but now the game is entirely stacked towards brokers.  Combine this with the scam that is now common stock:  common stock is worthless, effectively, since there’s now so many classes of preferred and private stock for the company insiders that no common stock holder is actually entitled to as much equity as he/she may have thought.

That really leaves the only effective vehicle for making money in the stock market picking solid companies that are undervalued.  Tech stocks are especially good for this; the thing about NYC types and PhD folks is that they’re not particularly good at identifying good companies.  Yes, they make money selling companies’ stock to their clients, but they come up with long bullshit reports that they charge over $100 for that just basically say how every company in a sector is worth buying.  However, if you know your tech, or you know the zeitgeist about a company, you can still stand to get a triple-bagger on a stock (triples from the price you bought at).  Long-term investing, in my opinion, is dead.  The market is set up to scam you unless there’s a major regulatory overhaul.

Anyway.  Surely there are many people who were working in NYC because of connections, hook-ups, etc. and they don’t have the goods to keep doing it.  But I bet many of the financial class either have merit-based wealth (good skills either in smooth-talking or in quant models) or status-based wealth (being born into east-coast privilege), a dichotomy discussed in John Clippinger‘s “A Crowd of One”.  In other words, they did not lose their money and leave town.  This wasn’t like the Great Depression, where people ended up leaving the cities and going back to their family farming traditions or joining the military.

Sadly, the military adventure continues.  Afghanistan now looks a lot like Iraq a few years ago.  Soldiers are still dying and money is being wasted.  To Obama’s credit, we are now pressing into the Taliban as we always should have been doing, and Robert Gates seems to be a responsible steward of the armed forces.  But the inertia of occupation still continues forth and it’s only those Americans who give a damn and enlist who seem to be paying the price.

The rest of America goes on as usual.  Unemployment is higher, for sure.  This could end up being a large problem, especially since I view those lost jobs as jobs that will never return — the high velocity of job destruction and creation requires adaptability, quick learning, and higher and higher levels of education…qualities that the American innovation and education systems are no longer producing in any citizens except wired kids, who are doing all that learning outside of the system anyway.

The fact that America and the rest of the world are still pumping away and doing okay must be because the world is just awash in money.  There are far too many people you or I or anyone can name who do not seem to have earned their money or their ease of life.  Deals that are completely nonsensical still seem to happen.  People make careers out of nothing more than proposing meetings that never happen.  Job hiring, as I’ve talked about a lot lately, is a complete farce of a system, an inane game that we all have to play.

My own impression of venture capital is that it’s become extremely risk averse and dumb money.  There are some cool angel firm ideas, seeding start-ups with a little money and lots of training.  But look at the trash they are producing.  Some incremental improvement on video watching.  Some tiny adjustment to file sharing.  Did Twitter come out of one of these programs?  No, and it never would:  it had no financial model (if you’re unimaginative, anyway, like most people) and it took a while to catch on.  As it turns out, Twitter is a massively open platform for innovation.  How do you put a valuation on that, exactly, using today’s financial models?  You can’t.  That’s why vencap and angel insistence on financial modeling is so retarded.

If the world is awash in money, why are there so many poor?  Amartya Sen intimates that there are no longer food shortages worldwide, just rationing.  More specifically, he says that no democracy has ever had a famine.  In other words, when food is allocated at least somewhat responsibly and with a conscience towards those who need it, there is enough of it.

The fact that people are poor, hungry, weak, sick, etc. has, in the past, been because of material shortages.  But now it seems as though poverty exists because of socio-political power structures.  Clientelism, warlordism, authoritarianism:  these are the systems that withhold from those who need resources to survive.

The American Republican party itself has become a curious modern system bordering on clientelism but within a democratic system.  Made up of a steeply declining older white male base of paternals, the Republicans have somehow convinced even the poor that cutting taxes, reducing responsibilities and ties to the government, and getting more privileges in society will somehow benefit everyone.  That Republicans immediately think of government as being 100% inept, refuse to pay more taxes to help out fellow Americans (even when more accountability and transparency has been promised, under Obama’s Gov2.0 plans), and yet still claim themselves to be the most patriotic Americans is absurd.  That poor, disenfranchised white people go along with it is even worse.  You have people who have never been rich before advocating that Goldman Sachs plunderers and profiteers MUST receive higher and higher bonuses in order for them to be sufficiently motivated to work at all.  What the heck?

The Republicans have successfully blended Friedman/Reagan trickle-down economics with moral conservatism — highly successful for recruiting, but only if you’re white, old, and usually rich.  No one takes them seriously in financial conservatism anymore, their having been responsible for ballooning the national deficit in the name of security.  Sadly, fiscal conservatism is probably one of their strongest platforms.  That they abandoned it gives you some idea of how defunct their party is.  Perhaps one of the biggest flaws was assuming that the “invisible hand” is naturally benevolent.  Incentives can, at some level, often be predictable, and that’s where economists and public policy people would be important for identifying where the market will exploit resources and prices to make a lot of money.  The proof of this most recently was in the financial crisis, which resulted from the market splendidly moving away from regulated areas into shadow pools through hedge funds, cascading collateralized debt obligations and packaged mortgages on top of each other.  The market did exactly what it was allowed to do.  But that impulse is not always used for good.  Does that not imply a need for government checks and balances upon ravenous capitalist incentive?

So the US needs a jumpstart to get its innovation pipeline going again.  China and India and other countries are hungrier than we are.  They want success more than we do.  And they are at least attempting to modify their education, technology, innovation, legal, and health care systems to get success.

We, meanwhile, are plodding along with a broken health care bill.  Health care is a massive taboo subject in the US and, as I’m interested in reading about lately, anywhere where there’s a taboo, there’s some deep-seated cultural issue that is a dangerous setback for that culture’s competitiveness and advancement within the international community.

Fortunately we have smart people assessing our national broadband plan (Obama has picked some great tech guys and has enlisted the Harvard Berkman Center to look at broadband).  Combined with a great secretary of education, a new CIO, et al, the US should start to pick up again in another 5 years after the investments in basic research and education start to kick in…or at least the promise of them.  The force multipliers of these basic investments will be greatly increased if Obama is elected to a second term.  I can only hope.

The Republicans see anyone in government as being inept and unable to control costs or execute even the most basic project (as David Brooks pointed out recently, this is partially true).  But what is the proposed solution?  Radical privatization?  Are we supposed to trust the “invisible hand” of the markets to manage complex human health care problems or educational pipelines?  The problem with the libertarian viewpoint is that it seems to not take much interest in HOW you actually make people healthier, or make people smarter.  You just let the market do it.  But SOMEONE has to know these things, whether it’s a government or a private company established to do that task.  In a democratic system, citizens are the deciders of how those things are done, so it is their responsibility to become better educated about their mission.  A private company’s sole task is to make money, and combined with profiteering hit-and-run executives, there is little incentive to act with accountability — unless government puts legal safeguards on it to keep it from running off the rails.  For all their talk of incentives, Republicans can be pretty selective in how they decide to employ them.

I see the US government in today’s massively complex world as being a gardener of a national ecosystem.  The libertarians are right that a government with no incentives to cut costs will use its bottomless pockets to buy influence.  But conservatives and libertarians are wrong that government cannot play a role.  It seems anti-competitive to suggest that only private companies should be the sole provider of all goods and services and public space.  The truth is that companies provide excellent goods and services, but only with intense competition.  The truth is that companies are HORRIBLE at providing public space, because giving something away is not part of their incentives.  As Naomi Klein points out, a public square lets you protest and assemble, whereas you can’t even run a camera at a shopping mall because it’s private property, let alone pass out flyers or collect petitions.

So it seems simple-minded now to not talk about an ecosystem where public companies, private companies, the government, non-government non-profits, unions, and community networks all work in the same space with and against each other.  The competitiveness imperative must be extended from not just providing good and services but to also providing public space, social capital, and public capital.

The only factor that has mitigated the lack of such space and capital has been the internet.  Its realm of free speech and free time/space has led to places for minorities and youths and fringe movements to experiment and organize.  It is no secret that social networking has exploded online, while a privatized “meatspace” has become deathly quiet in terms of social capital, as Robert Putnam’s famous “Bowling Alone” book described, with the death of American civic life.

The people who created the building blocks for the internet should be recognized for their massive contribution to society and for bringing an end to a pretty savage era of radical privatization.

The internet and computing have driven storage and connection costs down rapidly, killing many industries and incumbents except those with the power to lobby our old, white Congressmen (i.e. the telcos and “entertainment” labels).  One of the only correct things Tom Friedman wrote about was how the internet, combined with globalization, led to a massive networking of human effort worldwide.

If you are to look forward, it is getting to the point where there are not many shortages left in the world to limit human progress.  I already discussed money — I do not see money as something there’s a shortage of in the world anymore.  Aggregate time is no longer a shortage.  People can be more productive with better online tools, and they are also watching less TV.  As Clay Shirky hints at, this means there’s a lot of surplus time out there now, although it’s up to us to figure out how we want to distribute that time.  Food (energy) is no longer a shortage — while we do it incredibly wastefully and unsustainably, we have figured out how to have more obese people in the world than starving.  There is not exactly a shortage of energy inputs either — “peak oil” seems highly dubious compared to when we will drastically reduce petroleum consumption, while the sun provides easily enough power to provide to the entire world.  If we just knew how to harness it properly.

We can expect processing power and time and storage to continue to plummet.  The cloud online will allow us to build holy grids of collaborative supercomputers, eventually perhaps providing a platform in which we can upload ourselves, the digital singularity.  At that point, it will be interesting to see which people stay and which people “go”.  Who will maintain the systems that keep the internet going so that we may live digitally forever?  When will that question cease to be relevant?

There is, right now, a significant limitation in one area of electronics that has hindered all othes:  energy storage.  It affects what kinds of cellphones we can use (a G1 barely lasts a day with background apps and GPS on), the miniaturization we can achieve with smarter devices, the distance our devices can be from plugs, and so on.

I was using a lot of electronics gear while I was in the Army.  Our equipment could operate off standard power, but it could also run off batteries if we were in the field.  But these batteries seemed to weigh 1-2lbs each, and we needed to replace them maybe once a day.  So if we were on a mission, we might need to carry 7-14 extra lbs of batteries, plus spares.  On top of our other gear.  Batteries just haven’t miniaturized like everything else in an electronic gadget has.  This is holding us back tremendously.  At the very least, we are starting to use RFID chips that are activated briefly by being stimulated by electrical interfaces like at metro stations.

The good news is that Obama has put $2 billion into manufacturing and research for battery technologies.  Even that has a wrinkle, according to the “Breakthrough team”, quoted in a NYTimes blog post:  if money is diverted into deployment, it will take away from basic R&D:

“The Breakthrough team warns that while deployment of today’s technologies is vital, if money for deployment is included in the $150-billion pie, that dangerously reduces the amount of money for laboratories pursuing vital advances on photovoltaics or energy storage and for big tests of technologies that must be demonstrated at large scale — like capturing carbon dioxide from power plants.”

Our inability to localize energy storage has meant that concentrated power has been the name of the game — it is the same for wifi right now, but WiMAX will make that issue obsolete.

So eventually there will be at least one valuable resource which is always limited and finite and definitive of our cultures and personalities:  individual time.  We will only have 24 hours in a day.  If our brains can handle more than one task at a time, our bodies can’t.  We still require sleep, eating, drinking, education, socialization, play, etc.  What’s more, we love to take part in those things, even so far as to do it alone or with others, whichever we have the opportunity to take part in.

What becomes most valuable to us, on an individual level, is whatever we spend our time doing.  And the chances are that it will be interacting with each other, or building things, or being creative, or relaxing.  These, as they should be, will be the most valuable things we both seek and trade and sell and share.  Time will dominate as a currency.

To some degree this is already occurring.  There are a lot of poor people willing to work for next to nothing, and their active time is being used abusively to produce stuff so we don’t have to.  We develop a product and market it and then buy and sell it, but it’s the poor people who put in the hard labor.

I’m not sure this human tendency to exploit the weak and poor will change on its own — certainly not under capitalist impulses.  Perhaps robots could take their place, ultimately becoming more productive than humans, who require food and water and sleep.  This is why some scifi people dwell so much on what happens when the robots decide they’ve had enough with us treating them like slaves.  Less a Terminator outcome than an I, Robot outcome.

The Pope released an encyclical which discussed globalization and economics at length.  I think his emphasis on helping the poor makes a great deal of sense; only through humanity’s constant effort will the number of poor be reduced.  We’re obviously not sure how that is to be done yet — but I think the development economists on the cutting edge who suggest that it has to do with leadership in government and power mainly, but then reinforced by all the other stuff:  human capital, good governance, nutrition and health, girl’s education, non-intervention, etc., are going to figure it out.

I’m not pushing for paternalistic top-down programs by any means, even if I’m talking about strong government leaders and a Catholic papacy.  Certainly I feel I’m as entrepreneurial as they come, wanting to build a massive reputation and identity platform and make big bucks from it, along with fame.  But it has a not-for-profit data-protecting component as well, and I am after all a product of mostly public institutions (public high school, UT Austin, the Army) until I went to a private institution (which is heavily influenced by Catholic Jesuit values).  I have benefited from a healthy blend of so many different structures and organizations, to include a multi-racial lineage and multiple nationalities among my family and friends, that I can hardly avoid seeing the world as REQUIRING a flourishing ecosystem of diversity and intense competition that also provides for learning and apprenticing and mentoring and teaching.

So at some point I’m looking to bring the international development component of my studies back in to my career.  But more and more this is looking like I’ll have to apply development theory to my own country, as it struggles to balance its technological and entrepreneurial bents along with entrenched and powerful radical corporatism, along with a declining propensity to seek bold policy overhauls where it needs it (education, health care).

To me, the economics of our world system demand that the most important future input will be education from low-level grade school all the way to advanced studies.  The effects of technology upon society and economics have been pervasive and profound, and in order for us to continue making breakthroughs, we’re going to need more and more advanced understanding to reach even basic levels of academic research in tomorrow’s future areas:  solar, nano, genetic modification, quantum-level, as well as reputation and forgetting/forgiving, identity, cultural anthropology, ecosystem gardening/curating, gift economics, happiness economics, etc.

The US, being so heavily reliant on its entrepreneurial technology, should be even more concerned in building up its education pipeline than any other country on the planet, because technology and risk is the US lifeblood.  So I feel as though any efforts I make in the future will have to incorporate policy and private incentives towards education.

These are my first few stabs at understanding what my career will ultimately look like, but I see them in line with the needs of the country, the trends of technology, and the progress of social demographics.  It’s kind of exciting, don’t you think?

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Filed under Anthropology, Business, Economics, Education, Globalization, Government, Internet, Policy, Politics, Stock Market, Tech

Why You Should Love the “Fast and the Furious” Series

Few people have seen all four of the Fast and the Furious movies.  Yes, there are four of them.  The titles are strange and confusing, so here they are, in order:

  1. The Fast and the Furious
  2. 2 Fast 2 Furious
  3. The Fast and the Furious:  Tokyo Drift
  4. Fast & Furious

The first movie seemed to get the most attention, mainly because it cast Vin Diesel as the leader of a street-racing crew (Dominic Toretto), Michelle Rodriguez as Diesel’s hottie girlfriend Letty (isn’t she a dyke now?), and Paul Walker (a previous no-name but eventual heartthrob for the ladies) as the undercover cop, Brian Spilner/O’Conner.  This first movie, surprisingly, was not the highest grossing movie of the franchise, despite its being well-regarded in the popular zeitgeist.  The latest, Fast and Furious, was the best-performing (although it showed on more screens and movie tickets are probably more expensive in 2009 than in 2001 when the first movie came out), according to boxofficemojo.com.

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The perception of the later movies was that the franchise was dying a little more with each progressive film.  The latest film didn’t seem to be marketed very heavily but it’s performed well by the numbers.  The latest two films have the same director, but the first two had two separate directors.  So the styles can vary quite a bit.

So what I want you to understand is that you should appreciate this franchise.  I know it looks cheesy and it seems geared towards a young high school male crowd.  But what the franchise actually does is provide an overview of the history of street-racing culture and documentation of international affairs issues.

Let me explain.

The Fast and the Furious

The first movie sets out to cover street-racing culture essentially where it became biggest, in Los Angeles.  The culture as proposed by the film is macho in nature, mainly men racing cars against each other for money or for pink slips (car titles, or the ownership of the car) or for the favor of women who are usually dressed in skimpy, bimbo’d out outfits.  Michelle Rodriguez plays a tough mechanic in Diesel’s crew who races cars — she breaks the stereotype.

The cars in this film are mostly import tuners rigged up with NOS (nitrous oxide systems) with replacement engines and pearlescent detailing on the body.  The idea is that you buy a cheap car and kit it up so it can go faster with less weight and at a lower cost than buying a sports car (with the added benefit of being a good example of how open standards and modular equipment can lead to innovation, similar to custom-built PC computers).

Since the setting is LA, the mix of people is diverse:  Vin Diesel and his sister and girlfriend are Hispanic, Walker is a cracker, Ja Rule (a rapper) is black, and there are competing street-racing gangs such as the Hispanics and the Asians (who of course have rice rocket motorcycles).  The shy, wobbly guy in Dom’s crew is a dyslexic kid who is somehow a genius with CAD and rebuilding cars.  If only our school system wouldn’t alienate these hidden geniuses!

The first movie moves at one point to a “Race Wars” in the desert, cognizant of the illegality of street-racing inside the city.

At the end, Dom and Walker’s character chase a shamed Asian gang’s leaders (victim to a Joy Luck Club-like humiliation in the form of an FBI raid while eating dinner with their parents and elders) and then finish in an industrial zoning section of LA.  Dom’s car of choice is an American muscle car, a 1970 Dodge Charger R/T.  He was afraid of its power after his father died while racing it.  Yet he rebuilt it anyway.

This movie is all about the American muscle mentality ultimately, despite the use of Asian tuner cars. (see the cars from this film)

2 Fast 2 Furious

The second film had a ridiculous title, a new director, no Vin Diesel, but Tyrese Gibson as Paul Walker’s counterpart.  The franchise lost a lot of momentum with this film.

But the second film took place in Miami around Miami’s narcotics underworld.  Instead of the LA FBI, this film deals with customs agents, Miami nightclubs, and Miami yachts and boatyards.  Instead of straight-up American muscle cars, there are convertible ragtops. (see the cars from the second film)ff2

Eva Mendes is the requisite superstar hot chick (Dom’s sister in the first film, Jordana Brewster, was hot but not well-known enough) who is an undercover agent herself.  Ludacris, the rapper, is the bankroller for the good guys in this film, and he seems to be friends with this super-hot halfie chick named Suki, who drives a pink ragtop that she designed herself.  Obviously in this film there was more effort to break stereotypes.

This was the weakest of the four films.  John Singleton directed it, and it came off plain.  It took the least risks.

Tokyo Drift

Tokyo Drift is already playing on cable TV.  It is a sleeper favorite of mine.  It was the worst-performing movie of the franchise, but it was just so outstandingly different than its previous films and than other peer films.

Tokyo Drift takes the young cornfed American muscle car driver kid and portrays him as a troublemaker with a broken family who doesn’t respect authority.  He wins a race at the beginning, his muscle car against a Dodge Viper driven by a high school football player.  Winner gets the football player’s girlfriend.  The starting line girl takes off her bra to start the race.  Very American.  But both guys end up totaling their cars so the kid gets shipped off to Tokyo to stay with his Navy dad.  Football player’s a trust-fund kid with a rich dad so he gets off, thanks to connects.ff3

So muscle car American goes to Tokyo (his flight has Japanese businessmen and a bunch of college kids going to Japan for summer vaycay) and starts attending a Tokyo school and of course hits on a non-Japanese girl who ends up being the “Drift King”‘s girlfriend.  He also befriends Bow Wow (a rapper), who’s the only other American in Tokyo because he’s a military brat.

Muscle car American challenges Drift King (DK) to a race.  But the race is within a parking garage and simple drag racing down a straight strip won’t fly.  Dolled-up Japanese girls in knee socks and lots of makeup line the race’s track.

“You wouldn’t have that problem with a V-8.”

“Boys.  All they care about is who’s got the biggest engine.”

“I’m a guy.  It’s in my DNA.  So y’all race with these things, huh?  Cute little toys.”

ff3_2

Thus the American learns about drifting, or detaching your car’s wheels from the road to skid around corners without losing speed, being bankrolled by a rich Japanese guy who doesn’t care about wasting money but is so bored he wants to see something interesting.

What’s cool about drifting in the film is that drifting started in Japan, and it is proper for this racing franchise to pay homage to it.  YouTube has a bunch of videos including the originals of the drifting founder, Kunimitsu Takahashi.  Watch this history of drifting on YouTube:

So the American has to learn to drift in order to beat DK at the end, who is actually son to a Yakuza (Japanese mafia) boss.  The American also has to learn how to drive much smaller cars (Bow Wow’s shows a VW Touran with some punched-out frame work done for a fist-shape effect, delivered out of a Tokyo-appropriate automated parking garage machine).  See the rest of the Tokyo Drift cars.  In the end, the American beats the Japanese guy by drifting…in an American muscle car.

The best part for the franchise?  At the end of the film, Dom makes a cameo at one of the parking garage races.

Fast & Furious, the Fourth and Latest

For the latest film, the original cast was brought back. Dom is on the lam, now raiding fuel trucks in the Dominican Republic and Michelle Rodriguez is trying to get his freedom back and also rebuilds his Dodge Charger (the car which takes on a mythical presence in the franchise).

This time, Dom and Brian (Walker’s character) are going to Mexico to kill/arrest a drug cartel leader who offs Dom’s girlfriend.  The American muscle cars are back, and as this page of Fast and Furious’s cars says, the German-engineered BMWs and Mercedes get destroyed.  No love for them.

ff4

Drivers are getting executed in the desert after making a run through the US border control.  Transporting massive loads of drugs across the border.

For some reason this movie did better than the rest of the films, I suspect because it had the original cast back and people expected it to re-capture the original experience.

So Why Should You Love the Franchise?

The franchise delves into strange law enforcement and black market/underground bedfellows.  It embraces the drug war, cultural and ethnic divides, and other taboo topics.  It also embraces the street-racing and car-modding communities in a way that no other films have come close to doing.  It mashes up old cars and new cars and popular actors, musicians, and unknowns.  It pays homage to Paul Newman and drag racing.

It adapts its franchise to different locations with different cultures and styles.  It wasn’t afraid to go to Tokyo to tussle up the franchise.

It’s highly stylized with quick cutscenes of fuel being injected into a combustible engine with NOS treatment to provide blurry-filmed bursts of speed (sort of an homage to the Three Kings gunshot wound scene).

This film I think defines Vin Diesel’s Hollywood presence moreso than Pitch Black did.  His glowering and growling aren’t easily replaceable.

The attention to detail in cultural differences in locations is remarkable given the pop culture atmosphere of the movies.

Women are portrayed as the educated engineer types, with every movie giving a prominent scene to a female mechanic or gearhead or computer junkie.

The FBI should totally try to use this franchise for recruiting — embracing kids who do questionable things but offer skills the FBI might need.  Maybe it’d be a complete waste of time but the FBI could at least exploit the nominally-positive FBI mood in the franchise.  The FBI is seen as the stereotypical insular, out-of-touch organization, but it’s employing a new generation of kids (think 21 Jump Street or The Mod Squad) in the franchise.

The franchise covers a decade of the American experience at home and abroad.  Drug trades in Miami and Mexicali, kitting and piracy in LA, the art of drifting and expats in Tokyo.  US primacy is no longer unquestioned, as external influences in the form of drug cartels and the mafia exert counter-balancing power against American might and American law enforcement.  The rise of the rest, with Latin America pushing in on America’s borders and Japan’s culture being completely unknown, but not untouchable, to Americans, dominates the tone set by the franchise.

To sum up, there just aren’t many other franchises covering strange subcultures like the Fast and the Furious franchise did.  There’s something unique about this one, despite its goofiness at times.  That’s why you should love it.

[More on the franchise from Mahalo.]

Other Taboo Movie Topics

I explained this amazing franchise to my friend Preetum one time — she’s still skeptical.  But there are other film subjects I will gladly defend with ferocity.  I still maintain that as much as you can make fun of Keanu Reeves (and my buddy MonkeyPope does a hilarious impersonation of him), the guy has a filmography any actor would kill to have:  Point Break, Bram Stoker’s Dracula, Much Ado About Nothing, being in a William Gibson book-turned-movie (Johnny Mnemonic), Parenthood, the Matrix trilogy, Dangerous Liaisons, The Replacements, Speed, The Devil’s Advocate, and of course Bill & Ted.  You can’t argue against that résumé.

For that matter, I also think that while the original Matrix was by far the best, the rest of the trilogy is worth watching as a whole summation of parts.

And with that, my nerddom is done for now.

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Recruitment

I was having lunch with a couple buddies of mine, one of whom took Michael Scheuer’s “Al-Qaeda and the Global Jihad” class with me.  He reminded me of one of Professor Scheuer’s best points made during the semester.

I might have forgotten some of the details, so I apologize, but I hope to capture the main crux of his argument.

Scheuer was in the Agency during the days of the Cold War, and so recruitment of Soviets was of course a large priority.

Scheuer drew a large circle with a much smaller circle in the middle of it.  The large circle represented all the Soviet military members.  The smaller one was the top brass, the tight inner circle.

He said that the higher a servicemember got in the hierarchy within the Soviet system, the easier he was to recruit.  The reason for this was that he had more access and could see the faults with the system, how flawed it was and how vaporous it was.  The grand promises extolled by the privates and the junior servicemembers were never delivered, and after promotions and receiving more responsibilities, it became an alienating experience.

Thus the US could recruit them, no doubt in part because the US had a healthy economic and political model to confront the Communist model with.

But Al-Qaeda and the mujaheddin movement is something else entirely.  The US can’t find defectors or agents in the same way.

Scheuer used the same diagram, and then explained that it was in fact those on the periphery of the mujaheddin movement who were easiest to pick off, because they were the least indoctrinated and the most conflicted about trying to earn money versus taking up the jihad against injustice, anti-Muslim policies, etc.

Once people had been through the training camps and had seen how the senior leaders lived and led by example, eschewing comfort and wealth and the pride and glory of the world of the infidels, they in fact became even more hardened.  The inner circle of the mujaheddin are even more devout, even more disciplined in their worship of Islam, even more devoted to their cause.  They are tied together by common suffering and hardship in the camps.  They become even more incorruptible by outside attempts of recruitment.

For more, read Omar Nasiri’s “Inside the Jihad”.

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Filed under Afghanistan, Anthropology, Globalization, International Affairs, Policy, Politics, Security, Terrorism/Insurgency, War

Casualties of Stock Market Warfare

A friend of mine linked to a blog post from Ivan Krstić about a massive short squeeze on Volkswagen stock back in October of 2008. Ivan does a great job of explaining what happened (so read that first), but I wanted to build upon the story.

Porsche vs. Traders

Basically, a bunch of hedge funds were betting on Volkswagen’s stock price being too high for Porsche to buy it out. So they added short positions on Volkswagen in anticipation of the price falling. At the same time, Porsche was buying up Volkswagen shares, purportedly up to 75% of them, almost the entire available float. This caused a short squeeze, and the price of the stock skyrocketed from its normal trading range of €200-450 or so to over €1k on October 28th.

volkswagen

Certain investors got creamed by this manipulation — part of me wonders how stuff like this is legal for businesses to engage in aggressive trading — but Porsche must’ve made a bundle from it. The price has since then floated back to its normal range.

But since any short trade is selling borrowed stock, it is classified as a margin trade (i.e. you borrow money from your broker in order to buy/short stock, usually at 2x your cash level but in some cases up to 10x, which caused the massive speculative bubble burst among some of the big banks last year).

Therefore, if the price increases and you don’t have the margin to cover the shares, your broker can force you to cover or add more capital. That is why some players couldn’t just ride out the short squeeze until it was over.

Said Ivan Krstić:

“On paper, Porsche made between €30-40 billion in the affair. Once all is said and done, the actual profit is closer to some €6-12 billion. To put those numbers in perspective, Porsche’s revenue for the whole year of 2006 was a bit over €7 billion.”

I remember reading a headline about this and wondered how it could have happened…but the EU has some weird relationships between different same-country companies. I didn’t look further into it.

Ugly Americans

I remember reading a similar story in Ben Mezrich’s “Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions”, a fine re-telling of American finance guys traveling to Japan to play the markets there in the 1990’s.  I don’t remember all the details but basically everyone in town thought a deal between two organizations was going to happen on a specific date, so everyone traded the same way on it.  The subject of the story, however, reasoned that since he couldn’t actually find anyone involved in the deal, then it must not exist.  He changed his firm’s position on it and made a ton of money when no deal happened on that date.

Warfare, stock market-style.

Suicide

The Volkswagen story came back last week when one of the speculative traders, Adolf Merckle, tossed himself under a train in an apparent suicide. Merckle himself lost about €500mil on the Volkswagen trade, reportedly, while his family’s holding company owed €5bil to banks. Obviously Merckle’s financial story was spiraling out of control and he couldn’t take it anymore.

This is what makes investing, speculative trading, gambling, playing poker, anything involving rapid changes in cash levels so dangerous and oftentimes deleterious to one’s psychological health.

Most people might now think of the recent Madoff scandal reflexively.  But that wasn’t trading or addiction to gambling; such a Ponzi scheme is a one-off affair and people got burned, but it was a consensual affair with some degree of complicity, and it’s doubtful that you’ll see much more than some sheepishness as a result of the investigation.  As my girlfriend pointed out to me, Madoff doesn’t even feel remorse after the fact.  More of an “oops” than an admittance of personal failure.

Jesse Livermore

It’s not entirely clear what caused Merckle to commit suicide (it might not have been the Volkswagen trade at all, as his “empire was falling apart”), but certainly there’s a parallel between the lives and deaths of Merckle and a famous trader, Jesse Livermore.

Jesse Livermore was a stock trader back at the turn of the 20th century. He famously shorted the market in 1907 and in 1929 and made millions of dollars (good in today’s terms but phenomenal back then). He has turned into a trading legend and Edwin Lefevre’s pseudo-biography of him, “Reminiscences of a Stock Operator”, is considered a must-read in the trading canon.

He went bankrupt a few times.  He also ended up losing big on a cotton trade gone wrong.  Eventually he blew his brains out.

Psychology

Merckle and Livermore were individual men, trading fantastic amounts of capital. It is one thing to lose a hundred dollars in Vegas, but quite another to lose what would be a massive setback ($500mil) for an entire company, let alone one person.  What I think compounds the psychological damage is to place a trade, which is usually an expression of your opinion on a matter, and then have it go against you.  Not only was Merckle wrong, he was also $500mil wrong.  The market told him in no uncertain terms that he made a bad decision.

Traders often deal with this by justifying their trades.  “Oh it’s going down, and my shares are losing money, but I know eventually it will go up.”  And they ride it all the way down.  Eventually the price plunges quickly, causing traders to panic and sell…at which point a bottom comes in, at least temporarily.  But the traders got swept out because of emotion and fear.

It is almost impossible to rewire one’s brain to not react this way — which is why good traders are so hard to find.

So at some level, for many traders, successful trades are not just making money for them, they are also verification of traders’ sense of worth and identity.  If you make a bad trade and lose a lot of money off it, not only are you poorer but you also question your own worth.  I know this because I felt the same way on some trades I made.

Which is one reason I don’t trade anymore…  I’m a lousy trader.  But I’m a somewhat decent investor, and I try to stick just to that.

Conclusions

Scale is a consistent theme within these narratives.  That is, small traders tried to play a game against a large firm on the basis of the firm’s decision-making, and so the firm held all the cards (and all the shares).  The small traders got burned.

But another phenomenon has caught my interest:  there’s so much capital out there that individuals can retire overnight.  We are all just one NYTimes best-seller or Billboard album or accidental event away from being a multi-millionaire who can coast for the rest of his life on the winnings.  Trillions of dollars float around the world, and we need only capture a million or two of that to be “rich”.

This is great for those who are keen enough to go out and grab it, but it also doesn’t scale well because individuals cannot handle much of the pressure that comes with the large swings of capital.  We are used to paying $5-15 for a meal, and we may forego that extra $1 for bacon on our burger.  But we might at the same time be in a business like poker or trading where we regularly win and lose $50k in a few minutes, and rarely think about what that $50k actually represents in terms of actual worth.  I don’t know if most human brains and nerves can deal with the swings, as Matt Damon’s character in Rounders points out (forward to 4:36 or use this link to go right there).

Now individuals (with 100% liability) are competing with large firms who have limited liability.  This provides huge opportunity and huge risk.  Will individuals encounter psychological problems with scaling in, competing against an integrated economy, and dealing with the fallout?

Some manage it well; celebrities like Britney and Lindsey handle it poorly.  And people like Livermore and Merckle end up in grizzly failure piles of suicidal detritus.

In the future, we will all be empowered as individuals, but with that comes a lot of accountability and responsibility.  If we can’t deal with it individually (or build in social safety nets and cultural/social communities), then it will consume us.

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Filed under Anthropology, Business, Globalization, Stock Market