Remora

The best comment on the looming war this morning comes from an Independent columnist, Mark Steel. Steel zeros in on the logic of this caper. Here are two delicious grafs:

"Blair admitted how pointless the inspections are when he justified military action by saying "The inspections can't go on forever." Which seems to miss out the point that the reason the inspectors are asking for more time is they haven't found anything. So another way for Blair to have put this would have been to say, "Saddam continues to try and hold up this war by not having weapons of mass destruction, and that is something we simply cannot allow. He consistently flouts the inspectors by not having a secret cave full of chemical warheads, with Tariq Aziz laughing loudly next to a giant map with a ring drawn round Chicago while a digital clock counts down, and that is, frankly, intolerable.

"Blair went on to say he wasn't prepared to play "hide-and-seek" with Saddam, which again assumes the only possible reason why stuff hasn't been found is Saddam must be hiding it. You could apply this to anywhere and come up with a reason for war. After Iraq, Blair could send weapons inspectors into the Blue Peter Garden, and after six weeks announce that as no nuclear devices have been found, the only way to ensure peace was a full-scale invasion. Then, when the presenters started running round the studio with rifles and shouting "We're ready to make you die," Blair could say "See, it's working because they're rattled."

The Independent is full of jewels this morning. While Steel intended to be funny, the serious news report about Iraq is even funnier. Here's the latest in the Blair government's attempt to justify its synthesis of sycophancy and belligerence:

"British sources said there was further evidence of internal opposition to Saddam's regime as the military build-up and diplomatic pressure on Iraq increased. They said graffiti, slogans and underground activity had increased sharply in recent weeks. Slogans such as "Down with Saddam" and "How long will the Iraqi people sleep?" were appearing on statues and photographs of Saddam and on the walls of public buildings. Opposition groups, including the Iraqi Communist Party and National Liberation Movement, had also stepped up activity."

There you have it, folks. Surely Rumsfeld should mention the sharp spiking of the grafitti factor in his next broadcast to the "real Europe" ... the Europe of our allies ... the Europe of Poland, Italy and Spain. (We have the finest allies, you see. Rumor has it that Slovenia itself is about to join our mighty coalition).

Remora

Yesterday, LI went downtown and witnessed the remains of the inauguration parade that heralded the enthronement of Rick Perry as Governor -- surely one of the luckiest politicians in Texas history; surely, also, one of the dumbest. Perry is at the crest of the Republican tide in this state. LI was delighted to see old men, in coonskin caps, carrying rifles, walking down Congress avenue. These had surely come from pockets of Perry's warmest supporters -- little villes in East Texas where lynching is looked back to, nostalgically. We nearly bumped into two cowgirl cheerleaders, who flashed very, very pearly smiles at us.

While one governor of Texas was whooping it up, our gift to the world -- the current commander in chief -- was pouting. Or at least for the cameras. As the war Bush has been planning on is about to take off, there are these last minute hitches. The American press has been especially kind about this. How often, in the last four months, have we been assured that, in secret, the Europeans and the Arabs are one hundred percent for us? The commentators explain this by saying that nobody wants to miss out when the U.S. occupies Iraq. However, it never seems to occur to them that France, for instance, might get more out of opposing that occupation. After all, positioning itself to oppose the U.S. might be more popular with not only the Middle East's street, but be welcomed by Middle Eastern leaders as a tool to redress the balance with the states. As has been the case since the get go, the scenarios go only one way in the U.S. press. The deluge of foreign news items that, over the past year, have assured us that Turkey, or Saudi Arabia, or France, or Germany, or Ireland, or whoever, was privately assuring the Bush administration of their undying love and devotion has started to shut off as it becomes more and more implausible that this is the case. To guage the deluge, go back to, say, July of last year. The US News published an analysis of Europe by Michael Barone that assured readers of European compliance with the Bush foreign policy. Barone points out that the chattering classes -- and oh yes, the popular majority -- is against war with Iraq. But he breezily continues:

Interviews and talks with government leaders and political insiders in London and Berlin leave a different impression. The leaders of major European governments would not have chosen on their own to require democratic reform among Palestinians before pressuring Israel to make concessions or to insist on regime change in Iraq--policies set forth by Bush and supported by large majorities of American voters. But they are going along with the first and will go along with the second--although both are opposed vociferously by articulate elites and not supported by popular majorities in their countries. America is leading and European governments, although grumbling that they have not been consulted on what will come after a war in Iraq, are following.

... Britain, as after September 11, will be on our side.That is true as well of major countries on the Continent. Italy's Defense Minister Antonio Martino, as reported here three months ago, is confident that his government can muster its majority in favor of military action in Iraq. Germany's Defense Minister Rudolf Scharping, interviewed July 4, says that his government would very likely do so too, a view that is echoed by the foreign affairs spokesman for the Christian Democratic opposition, which has been leading in polls and may take office after the September 22 elections. These European leaders are careful to say that the United States must make a convincing case that it has exhausted nonmilitary alternatives. But they argue only perfunctorily if at all that inspections can limit Iraq's weapons of mass destruction. Perhaps reluctantly, they accept what their chattering classes are busy denouncing."

That was at the summer height of Bush's propaganda offensive. Now we have the frustrated Bush. Perhaps we are witnessing a charade, as the European nations fold and the coalition invades Iraq. But what if we are not? What if the advantage is in opposing the US invasion?

There's an editiorial in the Nouvelle Obs that makes a timely point about opposition to the war: it shouldn't be support for Saddam Hussein.

Un h�ros de Malraux (un anarchiste dans �l�Espoir�) finit par se demander s�il n�est pas aussi important de savoir avec qui l�on se bat que contre qui on le fait. Mais on pourrait dire aussi qu�il est important de savoir aux c�t�s de qui on renonce � se battre. Lorsque le pape, comme il vient de le faire avec force, rappelle que toute guerre est une d�faite de l�humanit�, il stimule la r�flexion. Mais lorsque, le m�me jour, nous apprenons que des �pacifistes� europ�ens, et surtout fran�ais, acclament dans Bagdad le r�gime et la personne de Saddam Hussein, alors on se sent pris d�un immense malaise. Et c�est un euph�misme. Ce que je ne pardonnerai jamais � George Bush, c�est de para�tre justifier par sa politique tous ceux qui, en se pr�tendant les champions des victimes et des faibles, confortent le pouvoir des oppresseurs et des bourreaux. Il n�en manque pas, je le sais depuis longtemps, du c�t� de ces pr�tendus amis de la cause arabe, qui ont toujours �t� plus soucieux d�obtenir les faveurs des gouvernants que de contribuer � l��mancipation des peuples.


"One of Malraux's heros (an anarchist in Man's Hope) ends by asking himself if it isn't as important to know who one is fighting with as to know who one is fighting against. It could be said that it is also important to know on the side of whom one renounces to fight. When the Pope, as he just said with force, recalls that every war is a defeat for humanity, he stimulates reflection. But when, the same day, we learn that european pacifists, mostly french, have acclaimed, in Baghdad, the regime and the person of Saddam Hussein, then we feel an immense malaise. And that's a euphemism. What I will never pardon George Bush for is to appear to justify, by his politics, all those who, pretending to be the champions of the weak, comfort the power of the oppressers and the hangmen. There are plenty of pretended friends of the Arab cause who are always more careful to obtain the favors of their governments than to contribute to the emancipation of their people -- that I know."

Remora

The Bush administration, in pursuit of its policy of why not the worst? is pushing for tax credits for SUVs. Of course, many of you think LI is pulling your leg, but we aren't. Here's the story in the NYT:



"ETROIT, Jan. 20 � The Bush administration's economic plan would increase by 50 percent or more the deductions that small-business owners can take right away on the biggest sport utility vehicles and pickups.

The plan would mean small businesses could immediately deduct the entire price of S.U.V.'s like the Hummer H2, the Lincoln Navigator and the Toyota Land Cruiser, even if the vehicles were loaded with every available option. Or a business owner, taking full advantage, could buy a BMW X5 sport utility vehicle for a few hundred dollars more than a Pontiac Bonneville sedan, after the immediate tax deductions were factored in."

Surprisingly, this is not surprising, considering that the Bush administration is beginning to look exactly like the Enron management team, circa 2000. The same hasty looting of resources, the same arrogance, the same accounting shenanigans. This is about it for the Bush energy plan -- endless war in the Middle East to provide endless oil for the most gas guzzling of vehicles that emit endless pollution into the atmosphere. Infinite Justice, indeed.

"And the third angel sounded, and there fell a great star from heaven, burning as it were a lamp, and it fell upon the third part of the rivers, and upon the fountains of waters;

And the name of the star is called Wormwood: and the third part of the waters became wormwood; and many men died of the waters, because they were made bitter."

Remora

Protests

Martin Luther King's holiday weekend was appropriately chosen as the time to protest by about a hundred thousand anti-belligerents in D.C. -- although the press coverage has been typical. The Washington Post quoted the police as saying that "three people and a cat" showed up; then they quoted a man, claiming to be David Bowie's Martian twin, who said a million people showed up; then they sagely opined that it might have been in the middle, say, six men and two cats. The NYT claims the number of cats was, well, chuckle, sorta exaggerated, and then respectfully quoted an unnamed Bush administration official on the problem of using nuclear tactical weapons against protesters and their cats. The Democratic leadership denounced the idea of nuclear weapons being used against the cats -- although Lieberman, saying he was a "different kind of Democrat," admitted to being fascinated by the possibilities of blasting protesters with nuclear tactical weapons, saying that more weapons and less protesters might be acceptable if the nuclear tactical weapons industry gave stock options to its workers.

Here's the Guardian:


"On Saturday, a great throng stretched from the grounds of the U.S. Capitol and along the National Mall back to the Smithsonian Institution for a rally in bitter cold. U.S. Park Police no longer gives estimates of rally attendance. In the past, crowds taking up similar space were thought to be 70,000 strong or higher, but any parallels with other events were highly inexact. A much smaller group from the rally, but still numbering over 30,000 by police estimates, marched to the Washington Navy Yard. Rally speakers offered varying estimates of the crowd size, with one telling the crowd that 500,000 had come, but even some supporters of the event thought that was wildly exaggerated."

Notes

We have been researching our ever more Moby Dick like essay on James F. Stephen, which is the reason we could be seen, Thursday, in a down town coffee house reading the seemingly dry as toast political history of Great Britain, The British Revolution, 1880-1939, by Tory historian Robert Rhodes James. The book, published some time in the 70s, turns out to be quite unexpectedly readable. It is rather depressing that Rhodes, who from his author picture is the typical dried up prune of a nerdy Tory, has such ease as a writer -- it implies a whole background acquaintance with English prose that just isn't there anymore. It has disappeared in our lifetime. The environmental disaster of extinction has gotten prolonged and constant exposure in the news for the last thirty years; but the cultural disaster of the extinction of a prose capable of subtly incorporating the whole range of English literature, the repertoire, in its easy narrative of facts, is not exposed at all in the press. In fact, the press is one of the toxins that has killed this particular talent off. It is all quite startling. It is like a whole generation of piano players losing their knowledge of scales.

Anyway, James provides a number of really good quotes from Victorian and Edwardian worthies. Here's Lord Roseberry, briefly prime minister after Gladstone and a key architect of the latter phase of British imperial expansion, describing Northcote, Disraeli's successor, for a brief time, as the head of the Conservatives:

"Where he failed was in manner. His voice, his diction, his delivery, were all inadequate. With real ability, great knowledge, genial kindness, and a sympathetic nature -- all the qualities, indeed, which evoke regard and esteem -- he had not the spice of the devil which is necessary to rouse an Opposition to zeal and elation.... When Northcote warmed there was, or seemed to be, a note of apology in his voice..."

Isn't this a perfect description of Daschle? And, cutting out the sentence that begins "with real ability," isn't this Lieberman? Indeed, it is the spice of the devil that is missing from the entire Democratic leadership.



Celebrators of the imperial process

Niall Ferguson, the Tory answer to � well, to whom? To Ferdinand Braudel? Anyway, Niall Ferguson is the news in Britain this Sunday. He has a BBC series on Empire, and a book, named Empire, too, to go along with it. Now, we find Ferguson a fascinating figure. We disagree with his cases - for instance, his case against Keynes book, the Consequences of the Peace - but we think his willingness to adventure counter-factually through the conventional wisdom of historians is bracing. The Times is all about Ferguson this week. Sunday, the Times published a number of reviews of the book and the series. Andrew Roberts, who compares Ferguson, rather nonsensically, to Errol Flynn, states Ferguson's case like this:

"AS THE subtitle of this book suggests, Niall Ferguson makes big claims for the British Empire. Not only did these small rainy offshore islands turn the world capitalist, he argues, but they also made huge tracts of it speak English, play team sports and adopt our land-tenure system and common law. Moreover, what he calls "Anglobalizsation" was a Good Thing, and was achieved with far less blood being shed than would have been done by our Spanish, French, Dutch, Russian or - God forbid- German competitors."

The benignity of Empire is the theme of the season. We think it is a deeply pernicious and misleading theme. Another review of the book, this time by FELIPE FERNANDEZ-ARMESTO, strikes a discordant note - in fact, seems to be about another book entirely:


"In Niall Ferguson�s view, one of his well-selected pictures seems fairly to sum up the British Empire: a German caricature of 1904, in which Britons cheerfully torture a black man. A capitalist forces whisky down the victim�s throat, while the rack, manipulated by a soldier, extrudes gold from his rectum. Nearby, a churchman sermonises myopically. The empire, Ferguson explains in his book written to accompany the Channel 4 series which started last Thursday, originated in piracy, unrolled in slavery, practised outrages and atrocities and struggled to �play the role of world policeman with a straight face�. The �civilising mission� was a sham: empire induced savagery in its servants. The British came to India, for example, as predatory conquistadors � barbaric exploiters of a society more prosperous and, by many standards, more impressive than their own.

All this candour is surprising after an introduction that promises a robust defence of the morality of empire. Eventually, the author wrenches his rabbit from the hat. The British Empire may have been bad in some respects; but for the world of the late 19th century and much of the 20th, the alternatives were worse: German or Russian or Japanese hegemony. The balance of investment and exploitation favoured the exploiters only a little. By espousing free trade and repudiating slavery the British enriched the world and enhanced humanity. Their legacy includes liberal capitalism, parliamentary democracy, and �finally, there is the English language itself�.

As a case for the defence, it is disappointingly predictable: the vaunted legacy surely owes more, in any case, to America�s empire than to Britain�s."

Well, which version of Ferguson's version of Empire is right? And what kind of justification is it that, in the event, the Brits were better than the Spanish or the Germans?

It seems to us that the question is being posed in such a manner as to skew the issue. The question of the British effect on India is not a matter of whether the Portugese would have been better for India, but whether the Moghuls would have. Also, there is a problem with the penchant for historical battles, and turning points, etc. The turning point in India, to use the great British colony once again, was not decided at the end of the seven years war. It was decided every year after the seven years war. It was decided, with bloodshed and mythology, at the end of the Sepoy mutiny, in 1859. Whether India, like Russia, could have governed itself, imported technology, created a framework within which to palliate the great famines of the latter half of the 19th century is something we will never know. But it definitely loads the dice to make this question turn on the alternative between the Brits and the Germans, or the Japanese, or the French.

The European edition of Time magazine casts a surprisingly skeptical eye on Ferguson's empire nostalgia. This graf seems to make the case, although with an example that seems, really, to trivialize the record, disparate as it is, concentrated in thousands of separate records, of atrocity:


"But Ferguson's Empire balance sheets show some creative accounting. Though he dutifully frowns on the horrors of slavery or, say, the Battle of Omdurman, Sudan, in 1898 (in which 10,000 Muslims were annihilated in five hours by Lord Kitchener's Maxim guns), few such moments make it into the debit column. "The question is not whether British imperialism was without blemish," Ferguson writes. "It was not. The question is whether there could have been a less bloody path to modernity." There might have been, he admits, but he clearly doubts it."

Finally, this is Peter Conrad weighing in in the Guardian on one of Ferguson's nuttier claims:

"Ferguson presents the loss of Empire as an act of supreme altruism, 'authentically noble'. Britain bankrupted itself in a war against alternative Empires - German, Japanese, Italian - whose treatment of their subject populations was manifestly less humane. 'Did not that sacrifice,' he asks, 'alone expunge all the Empire's other sins?' I am not sure that he establishes the moral superiority of the home team. Of course, Christianity put a hypocritical, cozening gloss on imperial venality by claiming that the Empire had a redemptive, civilising mission.But despite this piety, British colonies depended on slavery; no wonder the nabobs were offended when the Japanese, after the fall of Singapore, enslaved British soldiers and put them to work building a railway through the jungle. Hitler admired the Empire and offered to let the British keep it if they smiled on his own imperial ambitions in eastern Europe."

Remora

LI hopes the last post wasn't too obscure. We were simply speculating, in our dillantantish way, about what a cut in dividend taxes would mean in terms of changing the landscape of investment. The NYT carries a column on just that subject today, by Hal Varian. Varian starts out poorly, with the wrong set of figures:

"First, we really have become a nation of shareholders. According to "The Rise of the Equity Culture," a paper by the M.I.T. economist James Poterba, the number of individuals owning corporate stock has increased by nearly 60 percent in a decade, with about half of American households now owning stock, either directly or indirectly."



Well, if half of American households own some stock "directly or indirectly" -- indirect ownership, presumably, means that somebody bought it for them and is waiting until a major holiday to give it to them -- or maybe it means that the stock was bought whilst the homeowner was in a somnabulistic fugue -- in any case, these are not the important figures for the potential change to be wrought by the tax cut. While it is possible that small individual portfolios will shift towards stocks that pay dividends, the key stimulus to change for these individuals will continue to be stock price. The gain accrued by the increase of equity value will far exceed any gain from a dividend benefit. The question is, will the two coincide. And that question is not going to be answered by finding out whether Martha and George X , secretary and shoe salesman, are going to shift their one hundred shares of Home Depot stock to fifty of Sears for the nice dividend. No, the real question is whether those who hold a significant amount of stock -- that much smaller percent of stockholders who hold the gross majority of equity -- will also shift from non-dividend paying stocks to dividend paying stocks.

One way of understanding the difference in the figures is to use the difference in the payout from the dividend tax cut to map the concentrations of stockholding. The Brookings Institute has a nice little pdf paper up on the tax cut. Here's a quote from it, concerning ways of measuring the effect of the cut across income percentiles:

"A second measure is the distribution of the tax cut
across income classes. Table 1 shows that households
with income above $200,000 receive more than one third
of the entire tax cut in 2003. A third measure
reports the tax cuts in dollar terms, and is often the
most striking. Returns with income above $1 million
would receive an average tax cut of almost $89,000.
Those with income below $40,000 would receive an
average tax cut of $125 and those with income between
$40,000 and $75,000 receive an average tax cut of $703.
As the program becomes permanent, middle-class households would
lose much of their share of the tax cut with the resources
transferred to high-income groups."

Now, we admit that this is not a roadmap to market-maker heaven. To break up the stockholders into income percentile ignores the aggregation of stockholding effected by mutual funds. It ignores institutional investors. Etc. All those things that make up "indirect" holding. Still, we get better numbers by understanding that most of the holders of equity can be safely ignored. They are merely numerous. This isn't a one man, one vote proposition.

Varian is more up to speed when he considers the effect of the dividend cut on the total financial market. He points out that the cut would undercut the rationale for holding tax exempt government bonds:

"What about municipal bonds? Odds are we would see their prices fall, since dividend-paying stocks would be pretty close substitutes under the Bush proposal. This means the cost of borrowing for state and local governments will be driven up � particularly bad news given their precarious economic position.

"One way to estimate the likelihood of the Bush plan's passing is to watch the prices of municipal bonds over the next few months: the more likely the plan is to pass, the lower those prices are likely to go."

Great. LI hasn't gone into this at any length yet -- oh, the meat and texture of the Bush fiasco! -- but the spending part of the potential Bush budget -- especially the lack of any plan to help states coping with huge budget shortfalls -- is going to bite him in the ass, to use the vernacular.

But we want to concentrate on dividends themselves, right now. In the next post, let's talk about why companies pay out dividends at all.

Remora

Drumbeat of war (on the bottom 60 percentile of incomes)

The Center for Budget and Policy Priorities has a nice little skewering of the new Bush tax giveaway. Andrew Lee and Isaac Shapiro begin with Bush's defense of the giveback:




In response to criticism that his tax cut plan is skewed towards upper-income taxpayers, President Bush noted in a speech on January 9 that, under his proposal, a family of four making $40,000 would see its taxes fall 96 percent in 2003, from $1,178 to $45. This represents a tax cut of $1,133

Lee and Shapiro point out that
"the tax cuts that would benefit this family constitute less than one-quarter of the overall cost of the bill. In other words, more than three-quarters of the package could be jettisoned and the $40,000 family mentioned by President Bush � as well as most other middle-class families � would receive just as much help."


We were reading Peter Bernstein's wonderful Against the Gods: The story of risk yesterday. We were struck by Bernstein's description of "regret theory." This theory stems from work in behaviorial economics which was summarized in an influential article by Loomes and Sugden in 1982 -- hey, LI is in a scholarly mood this morning. L and S discovered that people have a tendency to over-react to disappointing outcomes of investment decisions. This goes along with a consistent finding among behavior economists, which is that negative factors have a stronger impact on determining the weighting of probabilities than gain. We've talked about Kahneman and Tversky before on this site, who are the most prominent economists associated with studies that buttress this statement. What this means is that the content of the options available to a decisionmaker are so framed by recent patterns that there is a tendency to ignore regression to the mean, in favor of compensating for past mistakes by a retrospective "punishment" of bad decisions. For instance, you invest in a company that makes some innovative x product, and the company goes bankrupt. So you take the rest of your money out of the sector which is concerned with the species of innovative products that the bankrupt company was affiliated with and you invest it in something safe. Well, this decision sounds rational, but it actually overweights the signal given by the bankruptcy, spreading it over the whole sector.

This is the kind of thing signified by the popular wisdom that generals in the current war are always fighting the last war. This theory helps explain a puzzling feature of Bush's dividend tax. The precipitous decline in equity value over the last three years has had little to do with dividends. Studies have even shown -- often shown -- that dividends are an irrational form of outlay -- companies that give dividends often borrow money for the costs of operation and expansion that are equal to the dividend outlay. Now, there is a countercurrent that claims that, just as leveraged buyouts, by burdening a firm with debt, encourage more efficient management, so, too, dispensing dividends takes tempting money out of the hands of a management group that would otherwise invest it unwisely in unprofitable acquisitions. There might be something to this -- but still, the fact remains that the Bush plan seems to pander to the disappointment of investors in the bursting of the tech sector bubble, in a classic bit of regret behavior that has nothing to do with rational scenarios for future economic growth. In fact, it will encourage disinvestment by corporations -- corporations will be advantaged by producing dividends instead of investing in new plant or R & D. The idea that this effect will be countered by the return of investors to the market is doubtful -- investors return to markets, fundamentally, when earnings are good. That is completely unaddressed by the dividend giveaway.

Not, of course, that any of this is going to get in the way of the Bush bulldozer.