Big Apple Circus

An afternoon conversation via acoustic telegraphy with johndon't sashayed across a good deal of territory, including the ground broken by contractors working for the Metropolitan Transit Authority here in New York City at the 135^th Street and Lenox Avenue stop of the 2-3 subway line. Blocking pedestrian traffic in front of Harlem Hospital is a gaping hole through earth and pavement from which will spring, the labourers assure me, an elevator to the platform below. Perhaps spring is too forceful a word to bandy about. After a lengthy gestation period, spring having come and gone, a lift will emerge in slow motion circa this time 2008. With any luck after all this anticipation, eager elevator-goers will be able to descend to their waiting rail cars and travel anywhere the 2-3 line is wont to go, providing they don't mind losing their wheelchair routes for a year while the sidewalks on both sides of the street are removed.

Meantime, I don't anticipate much rioting by the masses of the stranded infirm. Not because they don't riot (on the contrary! In their own special way) so much as that there aren't any. If I were an executive (let's assume for the purposes of this example that the MTA is a real company rather than a government-chartered monopoly with a board staffed by annointed political hacks and union reps) and somebody handed me a capital project costing many millions over a lengthy construction period, I might enquire how much revenue she expected this outlay to generate, and when. Suppose she handed me the wildly optimistic figure of $10,000 per annum and I (because I enjoy being lied to) bought in. Let's also pretend this undertaking costs a mere $1,000,000. It doesn't. In reality the price is a great deal more elevated and will be raised on the backs of taxpayers from here to Binghampton and beyond.

At that rate, it will tkae 100 years just to recoup our costs!¹ Preposterous! (I would shout, pounding upon my desk for emphasis). Incompetent! Get thee back into the tempest and the night's Plutonian shore!

Though no business in its right mind would get on board such a crazy scheme, the people who run the transit system are ever clamoring for more of them. It makes you wonder how they get away with it in a neighbourhood like mine, where it's pretty difficult for your average family just to make the rent for the roof over its collective head, a rent that owes much to stratospheric property taxes (which shouldn't even exist!). Ignorance & Apathy, as the saying goes, but two other factors play a role: cartels, and the complete unequality of human networks to the task of disseminating large amounts of correct information.

There's lots of information out there. Some false, some true, much totally irrelevant. Certain people in computer sciencey disciplines even have numbers that attempt to define the size of the totality of information in existence with words like terra- and exabytes. (That's scary! The idea that all knowledge could possibly, somehow, be stored on an enormous tape drive in Google's basement -- but its scarriness falls into the domain of irrelevant information and I'd do well to drop it). In a nutshell, there's a lot of information: many, many nutshells worth. Given that human beings aren't some strip of theoretical magnetic tape, none of us can ever "know"² all of it even if at different times in our lives we might manage to know bits and subsets of it here and there.

When people do know a given thing -- perhaps it might be more accurate to say when people carry given smattering of information, as knowledge implies true facts -- it's worth noting that sometimes the information or a variant of it is fairly widespread. A neighbourhood, club, city, hemisphere might all be heavily invested in some notion or other. And just as we have popular culture, popular music, popular science, and popular trees³, so do we also have popular information. As anyone who's ever survived a "pep rally" run by his high school's duly elected student council can attest, popularity contets aren't necessarily the best way to make choices; they're just the most prevalent.

Winston Churchill's famous adage about democracy being a terrible form of government is doubly true for the democracy of information dissemination: it sucks, but its still better than the alternative. To the extent that human networks are even capable of the Orwellian information tyranny that the Soviets aspired to and the Chinese, with their American corporate pals, still strive for, there is no recourse against ignorance or falsehood.

Given the difficulty of seeking out, discovering, and keeping good information, we often find it easier to live by our illusions. As Artemus Ward pointed out, it ain't the things we don't know that get us into trouble: it's the things we know that ain't so⁴. Apart from the insatiable demand for conspiracy theories, there are many examples of popular information on our day-to-day lives. Just think US Presidential Election 2008 in which Barak and Hilary, campaign bank accounts already bloated with $30 million apiece, will enlighten us with all manner of Very Important smears and soundbites. And surrenders.

So much for the failings of human networks, which aren't capable of telling the people in my neighbourhood that the MTA is up to no good and should be stopped. Knowing necessary facts is not even half the battle; it's a precursor, like gathering intelligence. The real fight is dislodging the vested interests that want to keep things the way they are. In the case of our subway elevator, the cartels involved probably comprise a lobby group of some kind; there's likely a law firm or two and suits under the famous "Americans with Disabilities Act"; probably also a lot of powerful transportation "czars", as the media love to call them, who really enjoy managing pointless and expensive projects and a few tantalizing cost overruns here and there to keep things exciting.

These cartels don't just lurk in the labrynths of the city's underground system. Consider the fortunes of Enron's stock and bondholders. As is frequent in cases where people find themselves fleeced on such a grand scale, a great outcry arose to the effect of, "there should be a law against that." Nevermind that there already was. In any case, with much ado, the Sarbanes-Oxley Act⁵ was born, and accountants are chortling all the way to the bank. To an accountant, the SOA is important. After all, it protects the American people from dishonest company managements, right? That and it makes thousands of highly-paid CPAs indispensable.

Ever wonder why a simplified, or even flat, tax system is hard to get accepted? Is it because current systems are "progressive" and thus inherently righteous? Or is it maybe because billions of dollars change hands every year in totally unproductive labour as tax accountants doing relatively easy work leech off the work of the economy's productive segment? Now we even have tax preparation software, and tax-breaks for using professional tax preparers. How do you shut down an industry like that?

Think we should clamp down on frivolous lawsuits and insane "damages" awards? Try to talk the lawyers into that, and they run everything anyway. Think members of your legislature are too well paid or get to spend too many years in office? That's too bad because any effort to change things has to go through that same cartel and they will circle the wagons. Want to fire lazy/lousy/loopy public school "educators" who couldn’t teach their way out of a paper bag if you gave them the instructions in phonics? Talk to the union, boss⁶. And though I hate to touch upon so tender a nerve after the last couple of days, seriously: want to hire MTA crews that don’t get their track workers run over every couple of days? To penetrate the closed ranks of that labour provider/service provider monopoly is no less a challenge.

Every day, some fresh⁷ law or regulation or bureaucracy conjures a brand new industry devoted entirely to maintaining it out of thin air. Every day, somewhere, there’s a catastrophe either real or imagined that is read by a cabal as an opportunity to concentrate a bit more power in its hands – most often accompanied by vehement protestations of the public good. As Adam Smith pointed out, people of the same trade seldom meet together but the conversation ends in a conspiracy against the public.

I heard a cute little quote the other day to the effect that, by definition, half the employees at a given company are below average. It’s frankly so easy to believe that that, between myself and johndon’t, nary a conversation can end without one of us observing that people are stupid (which is true, by the way). After all, half the voters in a given electorate are below average by definition. The thing is, many structural problems in our governments result not so much from a problem with individual people as from a known failure of human networks to disseminate correct and useful information, a failure that leaves us at the mercy of various cartels that get their way either through the slickness of their advertising or the fecklessness of their maneuvers. Worse, we’re all part of a cartel – everybody gets a tax break, grant, or special privilege he’d as soon take to the grave with him than give up for the greater good.

Open question, then: what do we do? Those of us who believe that things that are right are right for everyone can’t go over to the enemy, quietly using the system to our advantage. We have to try to change things. How, against those two adversaries? Ideas aren’t in short supply – you can fill up a library with books written by very smart people. Getting them put into action is another thing, for you can equally fill a pretty long Hansard with the empty promises of those who’ve said they would help only to join their own cartel, that of the career politician who has more in common with his opponents across the Commons than, well, anyone who’s common. We have ideas, but fail to enact them because it’s easier to dig a new hole down to the subway. What do we do?

¹ This completely ignores the opportunity cost of having a million bucks around for a of hundred years, too.
² What is the definition of "know" anyway? To have stored somewhere? To have stored somewhere coupled with the ability to retrieve it at all the right times? The preceding plus the ability to thread it into an argument or rational thought?
³ Lighten up... I'm just kidding 'bout that one.
⁴ It definitely ain't so that Artemus Ward was anyone's real name!
⁵ Since I'm really going to town with footnotes, is it just me or are American lawmakers becoming more grandiose by the day. Back in the thirties, they made laws like the Securities Act of 1933, the Trust Indenture Act of 1939, and so on. These days it's all Sarbanes-Oxley, McCain-Feingold, and what have you. Say what you will about rampant egomania -- at least one can tell at a glance what those old acts were about.
⁶ Or take your kids here.
⁷ I of course mean this in the loosest possible sense of the word…

He Said, She Said

Beginning in 1969 and carrying over into the early seventies, there were a number of brokerage house bankruptcies. Here, we compare two versions of the explanation.

...in the early 1970s when the New York Stock Exchange had to shorten its trading hours to reduce the number of transactions occurring in a day--just so the firms could keep up with the paperwork.

During this time, many firms went out of business not because they ran out of money but because they couldn't keep up with the mountains of paperwork created by the cash and carry system of settlement. Clearly a new system was needed.

What we have above might be called the popular theory of brokerage bankruptcy; the voice that echoes it there is Stuart R. Veale in a book called "Stocks, Bonds, Options, Futures" (2^nd Edition, Ch.7, p.102, 2001). Contrast with:

The first financial troubles of the brokerage houses (in 1969) were attributed to the increase in volume itself. This, it was claimed, overtaxed their facilities, increased their overhead, and produced many troubles in making financial settlements. It should be pointed out this was probably the first time in history that important enterprises have gone broke because they had more business than they could handle. In 1970, as brokerage failures increased, they were blamed chiefly on the "falling off in volume." A strange complaint when one reflects that the turnover of the NYSE in 1970 totaled 2,937 million shares, the largest volume in its history and well over twice as large as in any year before 1965. During the 15 years of the bull market ending in 1964 the annual volume had averaged "only" 712 million shares--one quarter the 1970 figure--but the brokerage business had enjoyed the greatest prosperity in its history. If, as it appears, the member firms as a whole had allowed their overhead and other expenses to increase at a rate that could not sustain even a mild reduction in volume during part of a year, this does not speak well for either their business acumen or their financial conservatism.

A third explanation of the financial trouble finally emerged out of a mist of concealment, and we suspect that it is the most plausible and significant of the three. It seems that a good part of the capital of certain brokerage houses was held in the form of common stocks owned by the individual partners. Some of these seem to have been highly speculative and carried at inflated values. When the market declined in 1969 the quotations of such securities fell drastically and a substantial part of the capital of the firms vanished with them. In effect, the partners were speculating with the capital that was supposed to protect the customers against the ordinary financial hazards of the brokerage business, in order to make a double proft thereon. This was inexecusable; we refrain from saying any more.

Above, the voice of Benjamin Graham from the 1973 edition of "The Intelligent Investor" (Ch. 10, p.139).

It appears that Mr Veale has hitched his wagon to the popular version of events and that his two sentence analysis is better accepted today than Graham's two paragraphs. Seriously though, reading them, which one sounds more plausible?