Useful Fools

Election
Iraq has just completed a remarkable election. Iraqis showed a strong desire for democracy, with a large percentage risking their lives and that of their families to vote. This is a tremendous success for Iraq and for the coalition. It should presage the start of the end for the “insurgency” in Iraq, and hence enable foreign troops to be withdrawn over time.

With the election comes the time to re-examine the Iraqi situation, and that of the overall war on terror. George Bush, the central figure in the war, is being criticized and praised. The United States is relatively isolated in the world (although much of that was inevitable, as Europe fades in importance and the Pacific Rim grows) and is facing much criticism.

George Bush, Personality
George Bush is completely genuine in his desire to spread democracy. Bush is an unusual politician in that he personally feels, as a result of 9-11, a “mission”: protect America and the world from megaterrorism, where the greatest threats involve the use by Islamic extremists of WMD’s, especially nuclear explosives. He has a related mission of halting nuclear and long range missile proliferation.

He has a broad strategy, but key is spreading democracy to failed states. Iraq is the test case of a dangerous and unpopular dictatorship being transformed into a local democratic form.

A significant advantage that Bush has as commander of this battle is his single minded determination, to the extent of forgoing some political considerations in the furtherance of national security. Additionally, his immediate intuitive understanding of the strategic depth of the megaterrorism problem, still not appreciated by many of his critics, indicates an effective viewpoint and abilities. His war cabinet is unusually good, with experience deep into critical agencies. His weaknesses are a reluctance to communicate frequently with the American people, his delay in ridding himself of low performing appointees from cabinet level on down - especially in the State Department, CIA and FBI, and his failure to veto bills from congress. The latter may be necessary to preserve the political capital needed to carry out his war aims and his Supreme Court goals, although with a more favorable congress for at least the next two years, this may be less of an issue.

The Strategy
The hope and theory (largely from neocons) is that this democracy, a great good in itself, will spread itself by destabilizing dictatorships. The preemption doctrine is for states that are major threats where internal democratic movements are likely to fail. The success of communism, Baathism and Naziism in preventing internal regime change suggest that totalitarian states can usually defeat democracy movements.

Those who ridicule or question Bush’s motives will think this analysis naive. They are wrong. This is the core of the administration’s “war on terror” (horrible name - almost as bad as “Patriot Act”) strategy. Other parts include Homeland Security (not being done well, but ultimately impossible even with significant reductions in civil liberties - primarily privacy), diplomacy, the Preemption Doctrine, covert action (such as the use of Special Forces throughout the Sahel), improving and refocusing internal and external intelligence, the Proliferation Security Initiative (apparently quite effective
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Rent control is a way to steal from productive people - landlords - for the intended benefit of the renters. It is remarkably perverse in its side effects and in most cases ineffective in its original goals. The perversity is due to human nature, which seeks to defeat the rent control. From a human rights standpoint, there is no excuse for preventing a potential renter from reaching a consensual agreement with a landlord - this is merely a reduction in freedom. Enforcement requires the use of government coercion (ultimately the threatened use of deadly violence).

As people in New York City know, rent control causes a dramatic drop in available housing, and causes economic dislocations and rank injustice of all sorts.

The most common side effect is the halt in building new rental units. Why invest in property where government, rather than the market, decides how much income you make, which may be negative, costing you your entire investment.

Another side effect is landlords abandoning property from which they can no longer profit, leading to entire neighborhoods being destroyed (in New York CIty, this obliterated huge amounts of housing space, as buildings deteriorated due to lack of maintenance and the replacement of renters with squatters). This results in a major decline in available space and the conversion of healthy neighborhoods into war zones.

Yet another effect is corruption, as landlords seek to raise rates by bribing the bureaucracy responsible for enforcing what ultimately become complex rules.

Building condominiums, instead of apartments, is another effect. Condominiums don’t have rent, so they avoid the regulation. But they also don’t satisfy the needs of the typically more mobile and more cash strapped renters, instead creating housing for those with enough capital to purchase them, and life circumstances allowing them to be locked into their location for longer periods of times. Rules are then made, and bureacracies appear to stop this practice and a related one, which is conversion of apartments to condos, and bribery or other corruption goes up.

A bizarre and perverse effect is that your rent is determined more by how long you have been in an apartment than by the value of it. This leads to rich people paying peanuts for a nice place, while much less well off people pay much more. A consequence of this is illegal subletting, where the first renter sublets the property to another renter, for a reasonable market price, and pockets the difference between that and the controlled rent - without ever investing money or taking any risk. Naturally, this leads to additional rules and more bureaucracy and bribes.

Landlords buy or build property in order to make a profit. Many are small business people, who own a few units. Landlordship is one of the best ways to trade labor and risk for a long term improvement in financial status. I knew a person who went from virtually no money to multimillionaire by doing this. Landlords risk their money, and spend a lot of their time, to provide space that they hope to rent for more than it costs. If they cannot rent enough units, or the market price drops, they can easily lose their entire investment. Thus the social function, even of an absentee landlord, is to take risks and allocate capital for the benefit of the renters and the landlord, although both sides are operating out of their own selfish interest. Smaller landlords, of which there are a large number, often also do the maintenance themselves, taking calls in the middle of the night to fix toilets, etc. They also have to put up with obnoxious tenants, and tenant disputes.

A landlord typically wants to eventually sell the property for a profit, and to do so must increase the cash flow. Normally this happens through inflation, increases in rent justified by either landlord made improvements or an increase in the overall market , or increases in occupancy, perhaps because of actions taken by the landlord. This is the flip side of the risk the landlord takes of rental rates or occupancy dropping - it is how the landlord builds equity.

I had my own experience with bad landlords in Santa Monica (actually, a landlord run city council) and I chuckled a bit when Jane Fonda et al. turned it into the People’s Republic

This lesson addresses property valuation in the context of nationalization, and specifically the Allende attempts to nationalize copper mines. It is a simplified approach to give the ideas behind property evaluation, and is not meant to be complete. I am not an accountant.

In the case of Chile and copper mines, compensation for nationalization was proposed by the government with a formula that did not attempt to estimate the value, but was instead apparently based on some odd socialist idea of value - a “social justice” formula. The copper companies appropriately rejected this, but then (according to Marc Cooper) joined the coup against Allende, which was very wrong - companies should not get involved in violence.

So how do you value a property? The value is affected by the following major factors:

1. The net present value of the future cash flow. This just means the current value, where the cash flow is discounted by the cost of money.
2. The risk - the likelihood of achieving that cash flow. This includes how volatile the market is, the probability that taxes will rise, the stability of the government, the nature of the labor force, and all sorts of other variables. Hence risk estimation is quite tricky and not precise.
3. The value of salvagable assets and outstanding debt - if you stopped operating the company, how much money could you get out of it by selling its capital assets and paying off its debts

A simple way to look at it is to add the salvage value to the net present value, and then adjust the result for the risk. A simple formula for the net present value (given typical non-insane cost of money) is 7 years of profit. This is sort of a quick rule of thumb, if the assumptions are correct and the risk is relatively low.

The only accurate way to set a value is to sell on the open market, and see how much it brings. That amount, whatever it is, is the precise value of the company at that time, by definition. Note that past profit and investment are irrelevant (except as they created a cash excess - a salvageable asset, or debt).

In the case of nationalization, another factor comes into play: did the company acquire the assets dishonestly? In other words, did it use government coercion or bribery to not pay full value? This is a social justice issue that can be demagoged but must be considered.

This is similar to the concept of “odious debt,” where an illegitimate government runs up a large debt, and then leaves the following government to pay it. The best example is Iraq, where Saddam ran up huge debts, mostly to France and Russia. These are odious debts because they were not used for legitimate purposes. Furthermore, France and Russia knew that and hence acquired that debt through immoral means. In such a case, it is sometimes appropriate to renege on the debts.

This post was created as a short reference defining characteristic the relationship between Capitalism and governing ideologies.

Capitalism is an economic ideology. It is often mistakenly placed in the same category as governing ideologies that may contain complete economic ideologies, such as Marxist-Leninism or Fascism. It functions under almost all kinds of governments and governing ideologies, but works optimally with the following government and social characteristics:

1. Strong legal and societal recognition of property rights (this is something too many environmentalists fail to understand)
2. Personal freedom with the minimum level significantly less than seen in the US (e.g. Singapore or China)
3. A transparent government that supports the concept of corporations and keeps crime at a low enough level
4. A transparent legal system which delivers the best possible approximation of equality under the law in both criminal and civil law
5. Low levels of governmental corruption (which is really a side effect of #’s 1-4. In general, the more regulation, the more corruption.
6. Not overly high taxation of corporations or individuals - put another way, government spending needs not be too large a part of the economy
7. A minimal regulatory environment - one that meets not overly ambitious social goals with overall system efficiency.

Even at this late date, Kerry supporters are threatening, harassing and suing Vietnam veteran activists who helped defeat his presidential bid.Not know is wheter Kerry approves of these actions, but his political future may depend on suppressing or discrediting these former soldiers. He has threatened John O’Neil with a libel/slander suit, to which O’Neil has said “bring it on” - he welcomes the opportunity to air his charges in court where the biased Main Stream Media cannot cherry-pick the facts.

Many of these soldiers witnessed Kerry’s actions in Vietnam. Others are unwilling to let Kerry, part of the treasonous VVAW, who gravely harmed our country and our veterans, continue with his privileges as Senator or become president. Those soldiers proved that Kerry had received medals which he did not deserve (the press has never pushed Kerry to release all of his military records, and he has not done so, leaving unclear how he manipulated the system, and also preventing the final validation of the charge that he received a less-than-honorable discharge, which was replaced in 1978 with an honorable due to the Carter amnesty).

Actions have included picketing individual homes, SLAP lawsuits (a lawsuit where a rich person sues someone not well off, leaving them with the choice of bankruptcy or making a settlement saving face for the plaintiff, background investigations with threats of revealing very private personal information (the so-called “brown folders”), offensive and unbalanced press coverage and intimidation through threats of lawsuits.

Vietnam veterans won the war in the field (twice) and won it again in the ugly political arena last year. We are not even given the freedom to criticize Kerry without facing potentially life ruining oppression.

Now we may have to fight and win yet one more time.

Stay tuned as we get exclusive details on this ongoing last battle of the Vietnam War over the next few weeks.

If you are one of the people who have faced attempts to suppress your opinions and testimony, or are facing preemptive or revenge attacks of any kind, please contact me.

According to The Washington Post, Staples has cravenly given in to a radical left movement to silence dissenting opinion. In doing so, they have also shown a dangerous lack of understanding of the blogosphere and the internet age. I would not want to be one of their stockholders.

My letter to them follows:
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