At the Rescue Mission

Poverty, to an economist, is mostly an abstract matter. Just like GDP is a number and unemployment is a number, the poverty rate is also mostly thought of as a number. It’s a very important number, and one that we work hard to try to reduce. But the essential nature of the task is mostly thought of as a technical problem to be solved, like a constrained optimisation – consider the variable to be minimised and the policy variables that can be altered to achieve this, check that the Lagrange multipliers on all the constraints are satisfied, check the second order condition to make sure you haven’t found a maximum instead of a minimum etc. Out comes optimal policy.

But real poverty, when you see it up close and in the flesh, is raw and visceral.  It is shocking, in fact. This may sound melodramatic, but bear with me. Like anyone living in a large US city, I see poverty mostly in the form of the shambling figures of the homeless walking around downtown areas. But they tend to feature as the Banquo’s Ghost at the fringes of whatever otherwise pleasant social function I’m attending, or the nice area of town I’m walking around in. They are, in other words, an aberration – the puzzling exceptions left behind in the sea of prosperity.

No, to actually see what abject indigence looks like at the coal face, one must venture to where poverty is not the exception, but the norm. I was at a homeless rescue mission the other day, with an out of town friend of mine. His family was dropping off a large order of dinner for Thanksgiving and helping out in the serving. If I had not been spending the day with him, I would never in a million years have headed there.

They say that one of the important things that you are taught in the Marines is to overcome one’s instinct to run away from the sound of gunfire. Everyone has this instinct, but to an army, it is disastrous. A soldier must run towards the gunfire. In a less dramatic way, driving into the really poor part of town is like that. The onset of tent cities and strung out hoboes on the street is mostly experienced in life as a sensation that a) one has wandered into the wrong part of town, b) one should change routes, if possible, and c) a back of the mind feeling of hoping one’s car does not break down. Driving to the mission, in this metaphor, is the equivalent of having left the greenzone altogether and heading for the Fallujah of poverty. Of course, everyone else in the car has done this before and is relatively at ease – it’s only me seeing it for the first time.

Both in the car, and when I arrived inside the mission, we are the exception. Dysfunction is the norm, and the norm is all around us. To someone who generally associates homelessness with either drug use and/or mental illness, it is initially quite disconcerting to experience the sensation of being vastly outnumbered by the homeless. The instinct for self-preservation battles with the obvious cowardice and shame that such feelings generate. This is not a hostile army, and everyone here ought to be an object of pity. But the law of large numbers holds nonetheless – how many unstable people can one have in a room before the left tail of outcomes becomes dangerous? And yet here is this 5’4 blonde lady smiling and greeting me, seemingly unconcerned.

And, of course, it isn’t actually that bad, just unfamiliar. When we ascend the levels to meet people who have successfully gone through the programs to get their lives back on track, they seem relatively normal. We meet a man who is studying for a computer degree, and tells us he’s now been clean for 15 months. It’s really quite heartening. A lot of the people at the mission will only be in and out of the ‘emergency food’ section, where assistance is given without any questions. But for the ones that are trying to get their life back on track, I’m very glad to see that there are programs ready to help them.

The other fact that becomes very apparent is the reason the whole enterprise exists, evident from the signs on the walls and the people helping out at the center. The rescue mission is not staffed by economists or government social workers. It is staffed by Christian volunteers, as the various posters on the wall and the Chaplain in charge indicate. I am not a Christian, but I am glad they are there, toiling away at this kind of thankless task. If one ever needed a reminder that Christianity is not the problem with America, this was one. It motivates genuine selfless charity in a way that the default of consumerist secular humanism simply does not achieve. Of course, even the selfless often have personal reasons for being there. My friend’s brother in law ended up becoming very involved in the mission and donating a lot of money there after his own brother, who had been a drug addict, went through their program. The homeless live at the outskirts of society, and are easy to just look past, unless you have a particular reason to seek them out.

I drive back in the car, having mostly just been a silent observer during my time there. Going from the relative function of the program graduates back to the chaos of the tent cities outside, blending back into relieving normal society, reinforces the scope of the problem. How did all this happen? And was it always thus? George Orwell wrote of the tramps in ‘Down and Out in Paris and London’, and Dickens wrote of it even earlier. From talking with my friend’s sister, my preconception that a lot of the problem was mental illness is apparently overstated – a lot more of it, according to her, is just substance abuse. Some of the people who seem crazy actually just need to dry out, and they’re hallucinating at the moment.

It is tempting to see tent cities seem like an enormous failure of governance, and there is definitely a decent amount of truth to this. Whether the failure is a lack of money and support or a lack of police presence is a matter upon which people will disagree wildly, but the unsatisfactory nature of the status quo is hard to ignore.

Unfortunately, the narcissism of our age mistakes the feeling that ‘something ought to be done’ for the belief that as long as we vote for the right person (whoever that is) the problem will resolve itself. But does anyone really know how you deal with whatever it is that makes people start taking meth? Especially when they took it up even after seeing other meth addicts losing their teeth and turning into barely living skeletons (and then non-living corpses).

The lazy but satisfying response is outrage – substitute the feeling of pity and disgust for one of anger at some political force that is deemed to be responsible. Insufficient money. Lack of institutionalization of the mentally ill. Greater funding for substance abuse treatment. Stronger police action against vagrancy. Pick your chosen policy. They all make great soundbites and feel satisfying, but when you drive past the tent cities outside the rescue mission (and not for lack of space at the missions, either), it becomes apparent that there are a large number of real people in front of you who cannot find a reason in their life to stop taking self-destructive quantities of mind-altering substances, and this is actually an extraordinarily difficult problem to solve.

After all the policies are proposed, and some are even tried, few people today will tell you what was once considered received wisdom – the poor you will always have with you. When society as a whole was poorer, it used to be easier to convince ourselves that economic growth would take care of the problem. But it turns out the Biblical observation was wiser than we knew. If only the problem were just money. Money, we have now have substantial amounts of. What we do not have is a way to give purpose to the lives of those at the bottom of society. And if we have gotten any closer to solving the problem in the past few decades of growth, it is hard to see it.

The Financier's Roar

Finance is not generally considered a stirring subject. Interesting, maybe. Remunerative, certainly. Complicated, definitely (and don't believe anyone who says otherwise). But stirring?

Well, not often, but occasionally.

2001 was not a great year for Berkshire Hathaway. The firm had experienced its first decline in book value per share (their chosen measure of performance) in their history. This was coming off the back of a very poor 1999 result where their growth in book value per share underperformed the S&P 500 by 20.5%. In 2001, at least everyone else did poorly too, but to a firm that prided itself on consistent results, this was a tough pill to swallow.

The proximate cause of this problem was that they run a huge reinsurance business, and September 11th caused them to have to pay out a ton. And Warren Buffet, in his 2001 letter to shareholders, had the job of fronting up to investors about what was going on.

He began by explaining what he called the three principles of underwriting, which he acknowledged that they had failed to live up to:

1. They accept only those risks that they are able to properly evaluate (staying within their circle of competence) and that, after they have evaluated all relevant factors including remote loss scenarios, carry the expectancy of profit. These insurers ignore market-share considerations and are sanguine about losing business to competitors that are offering foolish prices or policy conditions.

2. They limit the business they accept in a manner that guarantees they will suffer no aggregation of losses from a single event or from related events that will threaten their solvency. They ceaselessly search for possible correlation among seemingly-unrelated risks.

3. They avoid business involving moral risk: No matter what the rate, trying to write good contracts with bad people doesn’t work. While most policyholders and clients are honorable and ethical, doing business with the few exceptions is usually expensive, sometimes extraordinarily so.

The third one I'm less certain of than the first two. But they all fit a pattern - pick carefully which risks you want to take on. Make sure you can survive them, and pick the ones likely to be profitable.

But having done that, how should one approach the vicissitudes of fortune? How should one weather the storm?

Buffet's answer is perhaps my favourite line in finance. I call it 'The Financier's Roar'.

At Berkshire, we retain our risks and depend on no one.

Just so.

Risk and return are not just academic constructs, but the very stuff on which the economic world is built. The point is not to eliminate risks. If one wants to do that, buy treasury bills, accept a zero rate of return, and don't ever leave your house. You will earn zero, and you will never succeed.

The vast majority of good plans carry a risk of failure. The reason they do is that arbitrage is rare. Sometimes, life hands you a risk-free profit opportunity, but, like the proverbial $20 bill on the sidewalk, they don't stick around for long. And in the space of risky ventures, a similar mechanism holds. If an opportunity has a really high return and very low risk and everyone sees this, mostly the price will get bid up until the expected return has gone back down.

Mostly. But not always. Arbitrage may be very rare, but undervalued assets are more common. Figuring out what they are is the substantive part of the Buffet risk management. Identify things that are good risks, and buying enough that you can take on and survive.

The second part, the Financier's Roar, is the call to courageous decisions. Having selected the right risks to take on, retain them. Be willing to eat the possibility of loss and failure, and don't try to hedge everything out. Have the confidence of your own calculations to hold the portfolio of life's payoffs that you think will work out the best overall. As I have noted before, one does not eat the expectation, but the realisation. No matter how well you calculate, sometimes you will lose. That's life. But at least you won't lose in a stupid manner. Courage, when properly applied, is taking the right risks, though risks they be nonetheless.

The second benefit is the one that's easy to overlook, but is important. When one retains one's risks, one is an island. The universe may deliver success or failure, but the only thing that matters is one's calculations and the roll of the dice. By contrast, the more you hedge out risks by trading with others, the more you rely on the success or failure of others. If you're relying on a counterparty to pay up when the porridge hits the propeller, your risk management now depends on their risk management. Just ask the people who bought credit protection from Lehman Brothers.

Retaining risks leads to self-reliance. Retaining the right risks leads to success or failure with the only tools one has against the cold indifference of fate - one's own wits.

Retain your risks, and depend on no one.

No Exit, Part 2: Coups

Last time I tackled the question of exit, we talked about the feasibility of secession, and how I thought that scenario would play out (short version: not likely, because the government will use the courts to pre-emptively squelch any peaceful way of achieving it).

But the other exit possibility is to take over some other crummy country via a coup. How might that play out?

Let's ignore the question of the logistics of the coup itself. This is hard to judge - on the one hand, there are lots of possible basket case countries out there to target. But the leaders of those countries, even if their countries are ramshackle, will likely have a lot more manpower on the ground. Taking over from the outside is likely to be hard. Just ask Sir Mark Thatcher.

The more interesting question would be what happens afterwards if you actually succeed, and set up your reactionary state in some or other Godforsaken part of earth? Could such a state survive? Would the US let it?

Like in the case of secession, it's hard to tell, because there's no direct example to compare.  One has to go off various different responses to similar cases.

Given that one is presumably limited to taking over a basket case country, the first point to note, which may seem trivial, is that the political fallout from the US would probably vary greatly with the ethnicity of the host country.

Put simply, the west would simply not stand for a white unelected leader of an African country. Just ask Ian Smith or P W Botha. The West treated Rhodesia and Apartheid South Africa with a hateful vitriol that they never quite mustered for the Soviets, and those places were still partly democratic. Unless you were able to immediately turn yourself into North Korea, mostly self-sufficient and able to threaten to bring the crazy,  you could expect the full fury of the US to destroy you as soon as they could.

Unelected whites ruling over blacks simply sets off too many slavery alarm bells. Of course, if pressed nobody would say that's it's actually morally preferable for unelected whites to rule over Hispanics, South-East Asians, or Pacific Islanders. But the modern world being what it is, I somehow doubt that a coup in Fiji or Honduras would trigger quite the same visceral response.

Even better, pick somewhere dysfunctional that's  full of vaguely white people (Belarus? Turkmenistan?), or have a person of the same skin color (and ideally the same nationality as well) to lead the coup. That would help neutralise the imperialism/racism angle. The world would still be pissed, but at least you'd take away their biggest propaganda card against you.

Would that be sufficient? Hard to say, but probably not. The State Department may not actually assert control over the entire planet, but they sure as hell don't like it when you do things without consulting them first.

My basis for thinking this is the response they had to a grimly hilarious story from last December where a bunch of Ghanaian-born US citizens decided to launch a coup against the dictator of that country.

Seriously, check out this great long report on it from the Guardian. It's amazing stuff. The whole thing is like something from a Steve Sailer content generator - invade the world, invite the world. There's even a bizarre government-funded diversity angle, as one of the main financial backers of the coup made his money through getting government grants to build "affordable housing" projects in mostly white areas of Texas.

Meanwhile, the main focus of the article is about a man called Njaga Jagne, about whom the Guardian can speak more freely since he died in the coup attempt. He was a US National Guard member who served in Iraq. Iraq, as you'll no doubt remember in between the never-ending reports about ISIS, was the US's way of bringing the glories of multiparty democracy to a ramshackle dictatorship in the Middle East, as part of the crucial 'Bombing Muslims for Freedom' campaign.

Well, unfortunately Njaga imbibed the democracy Kool-Aid a little more deeply than the powers that be wanted him to. Hey, if it's such a good thing to turn dictatorships into democracies, surely the US government would be happy if I did this myself, right? After all, they've already employed me to do this once.

Yeah, it turns out, not so much.

The first problem, it seems, was plotting the coup on Facebook. Good thinking! Nobody else could infiltrate that. Things went as well as you might expect when they turned up

He and Njaga went with the team that approached the front door, while Faal went with the team taking the rear. The plan was for Njaga to fire his M4 rifle once in the air as a signal to their Gambian collaborators. But when the shot went up, the guards out front instead opened fire on him.

Afterwards, the survivors came to the bitter conclusion that they had been betrayed. But by whom? They blamed Sanneh’s moles. Some also wondered why Faal had turned himself in so quickly. But Faal told me that when he was flown back to the US and told his story to FBI agents, they indicated they had been aware of the plot all along. He claims that without prompting, they held up a picture of Njie, and asked: “Is this Dave?”

In May, the Washington Post reported that the FBI had visited Sanneh at his home in Maryland prior to his departure, asking why he had purchased a plane ticket to Dakar. The agency alerted the State Department, the Post reported, which in turn “secretly tipped off” an unnamed west African country – generally presumed to be Senegal – in the hope that it would intercept Sanneh. The coup plotters suspect that the information instead ended up in Jammeh’s [the dictator's] hands. 

Huh! It's almost like the State Department doesn't like people engaging in freelance foreign policy.

Also, how dumb do you have to be that when you're being asked questions by the FBI about the purpose of your coup-related plane trip, you aren't able to piece together the possibility that something has gone wrong in the op-sec process?

Amid the frantic uncertainty, Sigga [Njaga's sister] called the US embassy in Banjul. “They were more focused on saying, ‘If your brother is involved, it was a crime,’” she said. 

You don't say.

Talk about some stone cold diplomacy - the dead guy's sister is on the phone, and you're focused on imparting the message that the Federal Government plans to indict his corpse.

It all seems quite reminiscent of the police response to the Texas secessionists - woe be to the people that threaten the hegemony of the US Federal Government.

When the US says that it's important that all the countries of the world become democratic, what they mean is that it's important that the US make them democratic, on the US's terms.

This is very different from, say, the Russians organising a referendum for the people of Donetsk in the Ukraine to vote if they'd like to become part of Russia. THAT kind of democracy is far more problematic.

And some random pissant US National Guardsman deciding to create democracy himself in Gambia? That, my friend, simply will not fly.

I quite enjoyed the Moldbug quip that:

[T]he phrase "international community" could be profitably replaced, in all contexts, by "State Department," without any change in meaning.

I once told this line to a friend of mine who actually works for State. He laughed and said it was mostly true, in the inimitable way of diplomats in private circles who are glad to have an excuse to partially acknowledge from the mouths of others things that it would be imprudent for them to note themselves.

The international community takes coups very seriously, citizen. So if you're going to plan one, you need to think not just about how to take over, but how to resist the full might of the US government once you do. There are no partially sovereign nations. Either you have the ability to tell the US government to go screw themselves, or you don't. It would serve you well beforehand to figure out which of the two categories you fall into.

It's the US Government's world. We just live in it.