Ukrainian Public Opinion

Linked here is an article that provides some hard data on Ukrainian public opinion. Although it does not specifically address my often-made claim that Ukrainians do not want to join NATO, it does give some useful background about where Ukrainians stand in terms of their views of Russia, and of Russian politicians.

Opinion polls show that Ukraine is a Russian-leaning country, very different from the one described by Western media and the Ukrainian foreign policy elite. “If we were to fantasize, and pretend that [the Russian Prime Minister] Vladimir Putin would run for the post of Ukrainian president, then according to opinion poll results he would win right off,” sais Alexei Lyashenko, an analyst at Kiev’s Research & Branding (R&B) polling institute. “His only serious competitor would be [Russian President] Dmitry Medvedev.”

The R&B poll published on May 25 shows that for all the rhetoric about the Westward-bound Ukraine breaking free of Russia’s malignant influence and Putin’s imperialism, the reality on the ground is very different. “In fact, Vladimir Putin’s high rating in Ukraine is nothing new, but quite steady,” Lyashenko added. “It was over 50 percent even during the ‘Orange Revolution’.”

Opinion poll results published in May indicate that 58 percent of Ukrainians have a positive attitude toward Vladimir Putin, and 56 percent approve of the current Russian President Dmitry Medvedev. Twenty-one percent take a neutral stance, and 16 percent think of them negatively—25 percent disapprove of Putin and 14 percent of Medvedev.

As for the regional breakdown of public opinion, it should be noted that the article tries to paper over a very clear regional distinction in attitudes towards Russia:

According to Lyashenko, the Ukrainian affection for Putin and Medvedev is most concentrated in Eastern Ukraine, where 75 percent think of them positively. However, even in the Western Ukrainian districts where Russian is hardly ever spoken, around 25 percent of respondents described their attitude toward the Russian leaders as favorable.

While 75% of Ukrainians in the eastern regions think favorably of Putin and Medvedev, it seems that 75% of Ukrainians in the western regions do not think favorably. Given that the thrust of the article is to present some sort of union between Russia and Ukraine as a distinct possibility, this clear regional disparity was, not surprisingly, downplayed. A more even-handed reading of this data would suggest that, although the western media's portrayal of Ukraine as a western-leaning country is clearly false, this article’s suggestion that most Ukrainians would be perfectly happy with some sort of union with Russia is equally false.

At this moment in time, a sharp move in either direction—towards a union with Russia or towards NATO/EU membership—is sure to inspire a strong backlash in either the eastern or western region of Ukraine. Political instability in Ukraine and tension between the U.S. and Russia would be sure to follow.

There Will Be Blood in Kirkuk

Today’s NYTimes has a piece reporting the shocking(!) development that the Kurds in northern Iraq have written a constitution, to be put to a vote in Kurdistan, that will create a formal autonomous region for the Kurds that would cripple any chance of Iraq becoming a centralized, coherent state. It also claims the disputed oil-rich region of Kirkuk to be within the bounds of the Kurdistan region.

This supposedly shocking news is only shocking in that it arrived on the front page so quickly after the beginning of American disengagement. It is no secret that the Kurds have always and forever coveted a state of their own; and it doesn’t take a rocket scientist to figure out that any new state would be thrilled to have oil-rich land within its bounds. It was only a matter of time before the Kurds made their move. And now they’ve made it.

The infuriating thing about all this is that, since before the Iraq war even began, it has been obvious that this would eventually happen. The Turks were screaming at the top of their lungs that this was in the cards. But, of course, they were ignored, along with common sense. The amount of willful ignorance that American government officials can display is truly astounding. This inevitability should have been planned for from day one of the Iraq war. Or better yet, considered as a strong reason to not go to war in the first place! Also, the Kurds should not have been held up as “the stable, peaceful, and responsible” part of Iraq, and as examples for the Sunni and Shiite populations of Iraq to try to emulate. Now it is the Kurds who are the ones causing instability in Iraq. And let’s not kid ourselves: this is a major problem. As was predicted by many observers years ago, blood will likely be shed over Kirkuk.

But I guess no one in America really cares anymore. America is on the way home and the coming internal conflicts will be the Iraqi’s problems to solve. Brace yourselves: we will soon be hearing the following: “We tried our best. We brought them democracy. It’s too bad they can’t behave like adults.”

All I can say to that is: shame on us.

Obama in Russia

More kudos to Obama for yet another nuanced and pitch-perfect speech—this time in Moscow. It felt very much like his remarkable Cairo speech, only for a different audience. Step 1: show respect for the culture and history of the country you are visiting (quote Pushkin, note Russia’s great WWII sacrifice); Step 2: highlight a few areas of shared interest that are not terribly controversial (nuclear non-proliferation, fighting terrorism); Step 3: boldly talk up the thorny issues of human rights and democracy, but then make clear that these values will not be imposed by America and that, most importantly for Russia, state sovereignty will be respected; and finally Step 4: emphasize a grand vision of an integrated world based on mutual respect, free trade, shared prosperity, and non-bloody conflict resolution, making pains to contrast this cooperation-based future vision with the Cold War and imperial-era paradigms that were rooted in zero-sum thinking where one country’s gain was another country’s loss. Oh, and let’s not forget about a few well-written jokes (about Moscow being cold as sh*t).

On the tricky question of NATO expansion, which the Pickle has followed closely (see here), Obama only referred to it obliquely, embedded in a discussion about state sovereignty:

State sovereignty must be a cornerstone of international order. Just as all states should have the right to choose their leaders, states must have the right to borders that are secure, and to their own foreign policies. That is true for Russia, just as it is true for the United States. Any system that cedes those rights will lead to anarchy. That's why we must apply this principle to all nations -- and that includes nations like Georgia and Ukraine. America will never impose a security arrangement on another country. For any country to become a member of an organization like NATO, for example, a majority of its people must choose to; they must undertake reforms; they must be able to contribute to the Alliance's mission. And let me be clear: NATO should be seeking collaboration with Russia, not confrontation.

The take-away from the above quote, which may go largely un-noticed in Washington but will be duly noted in Moscow, is that Obama understands that Ukraine has no chance of joining NATO anytime soon. Although it is never mentioned in the Western press (because it never occurs to us to consider what the Ukrainian people think about NATO), polls consistently show that Ukrainian public opinion is firmly in the “let’s NOT join NATO” camp. Pro-Western government elites are the ones spearheading the drive to join. By saying that “a majority of [a country’s] people must choose to” join NATO, Obama is stealthily throwing NATO expansion in Ukraine under the bus, at least for the time being. But he is leaving NATO expansion open as a possibility for the future. This is absolutely the right policy.

As I’ve said before, the proper orientation of Ukraine is neither exclusively towards the West, fully integrated into NATO, nor exclusively towards the East, as part of a Russian “sphere of influence.” The Ukrainian people will be best served by a government that leverages Ukraine’s strategic geographical and historical position at the crossroads of what we traditionally think of as “East” and “West.” After all, the name Ukraine translates as “borderland”—a name that reflects a reality that the Ukrainian government should embrace.

Will the Real Obama Please Stand Up?, Revisited

Thinking about Dan's defense of the cap-and-trade bill and the various skeptical responses in the comments section, including my own, I was reminded of the election-era Pickle post "Will the Real Obama Please Stand Up?" It featured Dan and I squaring off on whether Obama was a politician of principle, or simply a pragmatist who would compromise away all the meaningful and effective elements of legislation. Early in Obama's tenure, it is still an open question. Is Obama's pragmatism just an excuse to sacrifice his principals for political "victory?" Or is it really the best way to go--taking baby steps forward rather than go down in flames like Hillarycare?

Clive Crook, a columnist for the Financial Times, weighs in on the subject, and thoroughly skewers Obama. I have strong sympathy for his argument. The whole piece is great, but here is the money quote:

The president has cast himself not as a leader of reform, but as a cheerleader for “reform” – meaning anything, really, that can plausibly be called reform, however flawed. He has defined success down so far that many kinds of failure now qualify. Without hesitating, he has cast aside principles he emphasised during the campaign. On healthcare, for instance, he opposed an individual insurance mandate. On climate change, he was firm on the need to auction all emissions permits. Congress proposes to do the opposite in both cases and Mr Obama’s instant response is: “That will do nicely.”

It is very hard, however, to square my sympathy for Crooks critique with my over-all satisfaction with Obama as a president. This largely is a function of my (so far) nearly complete satisfaction with Obama's foreign policy. I also am highly sympathetic to Dan's argument in favor of the cap-and-trade bill.

But it's always good to remember what Obama could be doing, but has chosen--for political reasons--to compromise on. It might be political suicide to stand up against the insurance companies or against coal producing states, but the constant lowering of the bar of success is troubling. Three (or seven) more years of achieving rather modest goals is not something to celebrate.

Update, 2:41 pm, From Dan: In support of Peter's point, see Kevin Baker's cover story in Harper's' July issue. I read it this weekend, and it's worth a look, if mostly because it will tell you you didn't know who Herbert Hoover was. Also, can anyone tell me the correct way to possesivize Harper's?

Still more on Waxman-Markey

Now to Chris’ comment:

If you read my last post, in response to Anonymous’ comment, the answer to Chris’ comment (hidden in the humidity post) is related. Yes, the best way to reduce carbon usage is to increase the cost of carbon. But beyond simply increasing the cost, it is also beneficial to increase the cost relative to non-carbon alternatives. Without getting back into the morass from the last post, a cap and trade program that doesn’t rebate the allowance value to consumers in any direct way does both, but even a cap and trade program that does rebate the allowance value directly as a function of energy usage can do the latter – it can raise the cost of carbon-based energy relative to non-carbon alternatives, even if it doesn’t raise the overall cost of using energy.

Now, with respect to the CBO study to which you refer, a couple of points.

First, I don’t see $28/year anywhere in that study, nor is that a figure with which I’m familiar, having spent more time with this document in the past week than I care to remember. It does say that the expected price of an allowance in 2020 is $28. Is that what you’re talking about? For those who don’t have an intuitive idea of what a ton of carbon dioxide should cost, I’d say that’s a low but not wholly insignificant cost, relative to the kind of stimulating figure we should be looking for. It’s at the bottom of the useful range.

Second, CBO estimates the average cost per household in 2020 to be $175. That figure is NOT the cost of the allowance value necessary to meet an average household’s share of compliance obligations under a cap and trade program – that’s $890, a goodly sum. Rather, $175 is the net cost, once the allocation of allowance value and certain other benefits are factored in. Again, not to belabor the point, but the full impact of that $890 would be felt in the policy’s environmental impact if the allocation of allowance value were done on the basis of something other than greenhouse gas emissions or energy use – say, for example, if it were simply a flat tax credit, or as one particularly smart and creative GOP staffer proposed to me the other day, a payroll tax reduction. But that is the kind of winners and losers creating formula that the US Congress can’t stomach. (I mean winners and losers among ordinary taxpayers. Of course, the US Congress has an insatiable appetite for making winners and losers out of special interests and the general public.) If the allowance value is rebated based on volume of energy consumed, not greenhouse gas intensity, you get some of the environmental benefit – ie, the environmental benefit that flows from the comparative advantage that carbon-free sources of energy have over carbon ones, but not that which would flow from an overall increase in energy costs. And finally, if it’s rebated based only on greenhouse gas intensity, you get very little environmental benefit at all. The cap and trade scheme in Waxman-Markey has elements of all three.

Third, the CBO analysis goes deeper into that $175 figure and divides it up by income quintile. Bottom line: the poorest fifth of households see a net benefit of $40, and the second poorest – the lower middle class – see a net cost of only $40. In other words, the burden of the program falls on those most able to pay. That’s good. And by the way, the CBO study does not include all the benefits of the program; it leaves out the simulative effect of the growth of good new clean industries, and the avoided costs of adapting to climate change. Both are significant.

Fourth, Chris, you say “even out to dates as far as 2020,” but 2020 is just the beginning. The best thing about the cap and trade scheme is that it plots a trajectory all the way out to 2050. Don’t judge this policy by our absolute emissions level in 2020 – judge it by the rate at which we are reducing emissions year over year in 2020, and beyond.

Finally, your question about why cap and trade over tax. Two things. One, a tax is no simpler than a cap. It just seems like it might be because the cap has gotten so complex. But the same people who demanded relief from the cap would have done so with the tax, and you’d be left with something just as complicated. Two, the most important way in which a cap differs from a tax is that those who get allowances freely allocated to them still have a compliance obligation. That is a crucial point. If a coal plant operator is exempted from paying a tax, they have no incentive to abate. But if that same operator instead gets allowances freely allocated in an amount equal to their compliance obligation under a cap and trade scheme, the incentive to abate remains. From the perspective of a shareholder, no difference. From the perspective of a Bangladeshi, very important difference.

More on Waxman-Markey

Anonymous, in his/her/its/their comment to the last post makes a good point that I hadn’t considered carefully enough in my argument, which boils down to this: opportunity cost is not everything. I partially agree.

Yes, electricity providers generally pass variable costs through into rates, and Waxman-Markey’s free allowance allocations to utilities are accompanied by structural measures that are intended to make sure those “negative variable costs” get passed through too. So rates should not go up to the extent that permits are freely allocated, whereas if permits were auctioned, we would expect rates to go up.

Anonymous goes from there to make two points. First, the higher the rates, the more frugal the average consumer with his or her electricity usage; higher rates means less electricity consumption. Second, higher electricity bills for coal and natural gas makes renewables (and nuclear, btw) more cost competitive.

Before directly engaging those points, let’s be clear about something: whether you freely allocate or you auction, you have the same fundamental question: What do you do with the allowance value? Either way, there’s a store of value created by the policy – it’s the market price of an allowance times the number of allowances. It’s a transfer from the people who have to pay for the permits to the treasury, and policymakers are immediately faced with the question of what to do with that value. If the permits are auctioned, that value comes in the form of cold hard cash. If you don’t auction the permits, the value stays in the form of the allowances themselves. On a balance sheet, the difference between cash and a liquid commodity is not very different at all.

Here’s a political reality: If you are going to inject a multi-billion-dollar cost into every nook and cranny of the economy, and if taxpayers are going to see their share of it every single month on their electricity bill qua direct mail campaign advertisement against every incumbent congressman, you’d better find a way to ease the pain as best you can. It’s hard to imagine getting a bill through congress wherein most of the allowance value does not flow back to consumers.

With that under our collective belt, we can get to Anonymous’ point. The environmental objective of cap and trade comes from two things: A) the relative price of energy from carbon and carbon-free sources, and B) the overall price of energy. It’s not hard to get A right without raising electricity prices in the aggregate. You simply slap a price on carbon emissions, and then send all of the allowance value back to consumers, either by auctioning allowances and rebating electricity customers based on volume, or by handing out allowances, again based on volume. Waxman-Markey is a partial success in this respect – about half of the allowances that are allocated for this purpose are distributed as a function of volume, and half on the basis of greenhouse gas intensity. To the extent that they are distributed on volume, A is very cleanly achieved, though B is not, and Anonymous’ second point – about renewable – is not correct. But if you allocated purely based on volume, then people whose electricity usage now is especially greenhouse gas intensive get shocked. Hence the 50-50 compromise. For the permits that are distributed based on greenhouse gas intensity, A is still achieved, because the coal generator still has something to gain from reducing emissions and selling permits, but Anonymous’ point about renewables is correct – the policy does not help them. It’s a true giveaway to coal and its consumers. However, per my last post, I think that 50-50 split in the early-going is fair.

As for B, Anonymous, you are right, I was painting with too-broad strokes. Free allocations under cap and trade should keep prices overall lower than if we had 100% auction, so the potential efficiency gains are foregone. Point well taken. I guess I would just say a few things in response to that, in defense of the bill. One, Title 2 is all about energy efficiency. Two, I think objective A is more important than objective B. And three, as evidenced by what a gut-wrenching cave-in to the all powerful agricultural lobby was made to get this thing passed, you can only do what you can do.

This post is too long to respond to Chris’ point (which he artfully hid under the wrong post.) That’s next.

Waxman-Markey, and in defense of coal and the people who use it

The House passed comprehensive climate change legislation yesterday, and despite the fact that we still have a steep hill to climb before cap and trade becomes law, and despite the fact that it is a far, far cry from what the IPCC says needs to be done to stop global warming before it gets unmanageable, it is a signal moment. In 2007, the judicial branch said EPA had the authority to regulate carbon dioxide, in 2008 we elected an executive who intended to do it, and in 2009, this from the legislative. Even the GOP opposition, during yesterday’s debate, almost all of which I watched, and almost all of which was intolerable, did not dispute the premise that something has to be done. This was, simply a big step in the right direction.

A few things about it, though:

First, 219 votes. It was a squeaker, for sure, but that makes it appear just a bit closer than it actually was. This was a hard vote for lots of congresspeople, and I suspect there were probably 10 or so more votes that the leadership could have had had they been needed. Once they got to 218, I think about 5-10 Democrats with tough races were grateful to be cleared to vote “no.”

Secondly, and more interestingly and importantly, I’ve been getting a lot of questions in the past couple of days, from the left, about whether or not Waxman-Markey was actually good enough to support. A month ago, I wrote that it was, despite the fact that it was loaded up with giveaways to industry. A month ago, it was less loaded up with giveaways than it is now. In fact, the Democratic leadership scheduling it for a floor vote despite the fact that they weren’t sure they had all the votes was like yelling sub-prime mortgage in a pool of hungry derivatives traders. Market price of a vote: a new $50 million taxpayer-funded hurricane center.

A lot of what was horse-traded in the last three days was in a 300-something page amendment that came out about 16 hours before yesterday’s vote, so it will take the next week to put a real figure on the aggregate price of bribes paid to get this deal done. The worst of it as probably the deal that Waxman had to make with Agriculture Chairman Collin Peterson to get a dozen or two aggie Democrats to come along, giving the USDA the lead role in making a determination about whether a farm project to sequester carbon meets the exacting environmental standards to earn offset credits that can be substituted for emissions allowances under the cap. In truth, that deal really does weaken the cap and trade program significantly.

Nevertheless, I continue to support it. The crux of the matter is this: From an environmental standpoint, it doesn’t matter (much) whether you give people emissions allowances for free, or whether you auction them off. Either way, the market price for the right to emit a ton of carbon is about the same (despite the claim to the contrary in today’s NYT, a mistake a find remarkable), and firms will choose to abate when they can do so for less than that price. Same result. I think a lot of the complaints from the left don’t understand that. A lot of people seem to think that by giving away allowances to polluters, you undermine the environmental objective of the bill, and that simply isn’t so. There are things to complain about – things that do undermine the environmental objective, and the fact that the environmental objective really should be stronger – but that isn’t one of them.

The difference between free and auctioned allowances is in who pays, and here again, I think the complaints from my left get it wrong, though more subjectively so. Auctioned allowances are what has come to be called a “polluter pays” system, whereas with free allocations, we all pay; taxpayers pay.

But step back. Generating electricity from coal is not an evil act. Certainly, pollution from coal plants and other sources can be a public health risk, and some of the most pernicious sins of private industry have been and continue to be the protection of private wealth over public health, sometimes by lying and cheating. But carbon dioxide pollution is not that. People who own businesses that emit carbon dioxide have the misfortune of being in the wrong place at the wrong time. Coal is cheap and abundant, and though those who profit from its burning must make a transition, it is wrong to saddle them with too much of the burden of that transition. Especially since Americans who depend on coal-fired electricity are disproportionately poor, it makes sense that we should all pitch in. “Polluter pays” isn’t exactly right when it comes to carbon dioxide.

This is a complex topic. I got an up-close look at the process over the last two weeks, so post a comment if you want to know more about a piece of it, and I’ll do my best.

Notes on Humidity

I’m in Washington DC for the summer, and I have to wear a suit to work, which, with the humidity, feels more or less like a stillsuit from Dune. (Emergency on the internet: I’m pretty sure that is a wiki entirely devoted to Dune.) I keep wondering, why is our nation’s capital so god damn humid?

Well, the unsatisfying answer seems to be that the humidity is mostly just due to the closeness of several water sources (the Chesapeake, the Atlantic, the Potomac and Anacostia rivers), and the flatness of the general area. But the more exciting answer that we hear all the time is that Washington was built on a swamp. How deliciously counter-intuitive that our shining capital city would be sited on festering ground. How cynically metaphorical that our seat of government would be the literal home of snakes and lizards.

Alas, it isn’t true, if you believe the esteemed Bob Arnebeck, which I have no reason to do other than that this explanation sounds really really authoritative.

Swamp or no swamp, the place is disgusting, a fact that has been noted by countless internet commentators. Here’s my favorite, of recent vintage. And here’s my second favorite. And, for old time’s sake, here’s Two Live Jews with their 1990 classic off of As Kosher as They Wanna Be, “Oy, It’s so Humid.”

Fun Is With Us Still

More good fun - this choir covers Toto's "Africa." The simulated storm at the beginning really takes the cake.

What the Green Revolution in Iran Tells Us About Democratic Change

There has been much discussion about how Obama should react to the surprising, and inspiring, events taking place in Iran. He has, per usual, orchestrated a perfectly calibrated, nuanced response to a very complex and delicate situation. He has expressed concern about Iranian government violence against protesters, but he has stopped short of explicitly siding with the opposition, or explicitly calling the election a sham. He has been consistent in saying that what happens over the next few weeks and months “is something for the Iranian people to decide.”

But if the election was indeed rigged, and it almost certainly was, why not call a spade a spade? Why not use this opportunity to throw America’s weight behind a budding revolutionary movement that has an outside shot at ending a repressive and despicable regime? Republicans, most notably John McCain, think Obama should weigh in strongly against Ahmadinejad.

This would be a big mistake, as many pundits on the left have been right to point out. They correctly claim that making a firm statement in support of the protesters would likely backfire and give the Iranian government an opportunity to taint the protesters as “agents of the Great Satan.” This is a strong enough argument to end the debate right there.

But there are a few further points that need to be made.

Obama saying that what happens in Iran “is something for the Iranian people to decide” is not simply a prudent tactical statement that will best serve the protesters on the ground and thereby more effectively undermine the Iranian regime. It also happens to be a powerfully true statement that many people would prefer to gloss over.

As this so-called Green Revolution reminds us, all true revolutions are local. They are begun and fought by those who actually live in the community that desires a new government. Those who so vigorously support democracy promotion from afar—let’s call them “armchair revolutionaries”—often fail to recognize this self-evident point. Iraq recently experienced what could be called a democratic revolution; it was not begun in the streets of Baghdad, but rather in the airspace thousands of feet above those streets, by American fighter planes bringing “shock and awe.” And we know how that revolution ultimately turned out. If the Iranian people want to fight to change their regime, that is ultimately their decision, and their decision only. We should get out of their way and stop fooling ourselves that we are the ones who can, or ought to, deliver them to freedom.

Over-zealous democracy promoters like McCain should take note of Iran’s Green Revolution for another reason, which may seem counter-intuitive: the events in Iran reminder us that oppressive regimes do actually change. They must change. All governments—whether authoritarian or democratic—ultimately serve, to one degree or another, at the will of the people. If there is enough discontent in society, that discontent will out. And if there is no democratic mechanism available to throw out the incompetent bastards, the people will create their own mechanism—and that is revolution. The intensity and breadth of discontent with the Iranian regime, which has been so movingly expressed by the protesters, has come as a surprise to almost everyone—most certainly to the Supreme Leader of Iran. He will have to respond and adapt to that discontent, or face more upheaval in the future.

You can also bet that high officials in Moscow and Beijing have been closely watching--and frowning at--what is happening in the streets of Iran. They know full well that they are only able to stay in power without true democracy, without freedom of speech, and without respect for human rights, because a large portion of their county’s population is relatively content (or at least not extremely discontent) with their leadership. As time goes by, these regimes will have to adapt as well. And indeed, looking at the regime in China, that system has undergone many changes over the last twenty years, ever since they were served notice by the students who gathered at Tiananmen that the government did not have the support of the people.

It is quite possible that this Green Revolution in Iran will fail to bring about a true change in regime. Iran may become an even more repressive place to live. But have no doubt that, whatever happens over the next weeks and months, it will be a victory for democracy. It will bring the Iranian people a good measure closer to the day when they can enjoy a more accountable and more democratic form of government. And their brave actions will have accomplished more than any amount of arm-twisting or pressure that the “armchair revolutionaries” here in America could ever muster on their behalf.

A Creator's Paradise?

In the halls of the Writers Guild and Screen Actors Guild, and on the streets of Hollywood and everywhere, you're likely to hear that New Media is a complete "game-changer," and some eagerly anticipate that right around the corner is a world in which content makers can cut out the middlemen who currently stand between them and their audiences, a sort of creators' paradise. I'd like to dispel that notion.

The story is that with traditional media, you needed a lot of capital to distribute content - broadcasting equipment, affiliates, whatever - and distribution was the limiting agent, so whoever controlled distribution (studios, networks) called the shots. But now, with the advent of New Media, distribution costs have become negligible. Now content producers can directly reach their audiences and cut out the meddlesome and exploitative middlemen - excitement about this is understandable.

But what would this New Media world, this creators' paradise, really look like? For one thing, it would be a mess. 7 billion audience members. However many hundreds of millions of "shows." As a consumer, what do you do, wade through every single bit of content on your own? That's not even possible, let alone a pain in the ass. No, the mess wouldn't last long, at least not on a massive scale. You'd go to a portal, or a channel, or a gatekeeper, or whatever you want to call it.

Distribution itself may not cost anything, but these portals have devoted resources to creating a brand and being consumers' first stops once they board the New Media train. And since they will control the flow of audience to content, we can expect them to act like the same old middlemen. Take a look at how self-publishing works at Amazon. You can upload your novel on Amazon and sell it directly to Kindle users, totally bypassing the traditional publishing establishment. Oh, and Amazon takes seventy cents on the dollar.

I don't have a completely apocalyptic view of the New Media world. It would be possible, after all, for creators to buck this new system in a way that they couldn't before - you can start your own portal, and portals are only as good as their content. But building an audience from scratch involves a huge amount of risk. Portals are a hedge against that risk, since they have a built-in audience, and there's no such thing as a free hedge.

Hearteningly, the Amazon self-publication model may not be the world's most applicable example. It's not that it's capital intensive - which it probably isn't, in the grand scheme of things. It's that it's completely proprietary and currently the only (major) way to do it - it's a monopsony not unlike Wal-Mart's, and Wal-Mart-like behavior should come as no surprise.

Credit Default Swap Market Insanity, Squared

A few months ago I posted about the strange practice of gamblers buying credit default swaps on bonds that they did not own. I wrote how this practice was like buying fire insurance on your neighbor’s house, thereby giving the buying of this insurance the incentive to then burn down said neighbor’s house.

Well, it seems that planet finance has come up with a new, and even more insane, “innovation.” Eric Kraus, who writes colorful commentary on Russian finance at this website (I particularly like what he has to say about the embarrassing state of Western media coverage of Russia), notes that a recent hedge fund bought a bunch of CDS for bonds issued by the Kazakhstan government—that is, bonds that are the equivalent of US Treasury bills, but for Kazakhstan. Ok, sounds good. But there’s a small catch: it turns out that there is no such thing as a Kazakhstan government bond! None have ever been issued. Zero.

It’s one thing to buy insurance on something that you do not own. But it is quite another to buy insurance on something that doesn’t even exist! To return to my fire insurance analogy, it’s as if I bought fire insurance on your house…that you hadn’t even built yet! And I bought that insurance, let’s remember, in the hopes that your house would burn down IMMEDIATELY after construction was completed.

In actuality, the buyer of these phantom CDS do not intend to get paid when Kazakhstan defaults on its non-existent bonds (that is, your un-built house burns down immediately after it is constructed). These gamblers are simply counting on selling their CDS to other gamblers at a profit. They think that the perceived/imaginary risk of default of Kazakh government debt is going to increase in the future because, presumably, the Kazakh economy will go into the tank. They will then be able to sell their CDS contract at a higher price than they bought it for...provided that they can find someone else crazy enough to buy insurance on something that doesn’t exist.