Why Inequality gets so Little Traction

I heard a guest on a recent National Public Radio show wonder why inequality in America is getting so little political traction this election year. Maybe it's because there are so many of us who know we have enough, and can't be bothered to envy those who have more.

Occupy Wall Street: The Real Story

The Occupy Wall Street people seem to have no clear idea of what they want and why they are occupying anything. It turns out, however, that they may have more of a point than they realize. Take a look at this Science News article entitled, "Financial World Dominated by a Few Deep Pockets." Researchers have determined that 40% of all the world's wealth in the financial markets is controlled by 147 corporations. You download a PDF of their original paper, "The Network of Global Corporate Control," at arxiv.org.

These 147 corporations (mostly investment banks and brokerage firms) are highly interconnected. This has a number of policy implications. First, when one goes down, it can take the others with it — this can destabilize the entire global economy. And regulators in any one nation are pretty powerless to do anything about it. Second, those who want to forecast market conditions might do better to scrap their statistical models and just monitor what these 147 are doing.

What they are doing is properly the subject of further study, but I'll take a guess, which brings us to a third policy implication. I think they are concentrating wealth. True, they redistribute some wealth to buy off the forces that would try to take control of them if they concentrated wealth too fast, or too intensively. And if they really mess up, they might redistribute a lot of wealth (or a lot of debt in the case of Lehman). They give us little guys some chance to get our small cut. But over my lifetime, the average net flow has been away from the middle class in places like the US and Europe. I assume that it's been toward the big players. But that's a subject for further study as I said.

The concentration of wealth and the flows of wealth enabled by globalization and high-speed networking are things worth watching, by national policy makers acting together around the world. It is also worth watching by investors. Maybe they should learn more about their investments and actually vote their shares.

Deja Vu

I became a supervisor at Bell Labs around the time the AT&T telephone monopoly was broken up in 1984. IBM had fought off a similar lawsuit, but the AT&T management agreed to settle their suit by divesting the Bell Operating Companies — their only direct connection to their end customers. The AT&T guys figured they were bright enough to compete and win in the computer business. After all, the No. 5 Electronic Switching System was just a big computer, wasn't it? The Unix operating system was invented at Bell Labs. Piece of cake, right?

Wrong. AT&T had been a regulated monopoly for 100 years. The senior managers didn't have a clue as to what competition was about. And they pushed out any new senior manager brought in from the outside to show them. They simply intensified their internal power struggles to the point that any information from outside the company was treated as noise, unless it could be used as a tool in the incessant maneuvering. Reality, the profit motive, didn't matter anymore. The company had gone into a collective neurosis.

Eventually, AT&T failed, and was bought out by Southwestern Bell (one of the former Bell Operating Companies) which promptly changed its name to at&t. And Bell Labs died.

When I reflect on Congress' past months of debate, and the lame compromise that raised the debt ceiling, I see the same pattern. Incessant wrangling for position and power, manipulation, and trying to make the other guy look bad to the voters. Any information from reality is ignored, unless it can be used to hurt the other party. The rulers of our ship of state are in collective neurosis. They are fighting tooth and nail over the arrangement of the deck chairs, while the ship of state is sinking.

So you heard it here, folks. The downgrading of US debt by Standard & Poor's, however superficial, will probably be seen years from now as the definitive point at which US power, influence, and standard of living began to decline. Our leaders are incapable of doing what it takes to reverse it, and the voters won't force them.

The Population Bomb is Fizzling Out

In 1968, Paul R. Ehrlich wrote a book called The Population Bomb, in which he predicted an explosive rise in the world's population would outstrip the world's food supply, causing unprecedented famine and conflict over resources. Well, it's 42 years later, and his prediction did not come to pass. Instead, the world's population is beginning to stabilize. Check this video from The Economist:



Dr. Ehrlich made predictions based on extrapolating the statistics of the day, without a deep understanding of the underlying processes behind the statistics. And indeed, some of those underlying processes weren't clear to anyone until a couple of decades later.

If you are wondering why the population is stabilizing, it may be because people realize that they are now living longer and can therefore delay child-bearing: take a look at this data.

Anyway, the global emergency of the 1960's was pollution, the 1970's was population, and now it's climate change. Shall this, too, pass?

Signs of Progress and Holiday Greetings

For those of you who have ever doubted it, there has been real objective progress in the human condition over most of the world during the last 200 years. Here is the evidence:



So, all the world's countries are healthier (have longer life expectancies) than they did 200 years ago, and nearly all of them are wealthier, too. Thanks to ideas and inventions from Western Civilization. The Civilization that Christianity launched, and even now that the Church has been largely put in its place, maintains. The Civilization in which people can still be moved by surprise events like this one, done in a shopping mall's food court:



And what culture gave rise to Christian West? The people who think like this:



So, to all who are not offended by public displays of Christian and Jewish religiosity: Happy Hanukkah and Merry Christmas!

To everyone else, Happy Hanukkah and Merry Christmas, you ingrates!

And to those of you who actually are Christians, it isn't Christmas yet. It's Advent.

Healthcare Reform

I turned off the news coverage. I'm not one of the loudmouths in the town hall meetings. I have not been organized by anybody. I just have a memory.

The last time we tried to reform the American healthcare system, the Democrats over-reached so far that they swept Newt Gingrich and his fellow neocons into a Congressional majority - specifically to stop a poorly thought-out and un-tested healthcare reform bill. The Democrats took the wrong message from this. They figured they needed to do the same thing as before, but in stages. They are now trying another such mindless and untried overreach.

They are doing so because the Republicans also took the wrong message. The Republicans figured they should do nothing about healthcare reform.

The real message was that we need healthcare reform, but not what the Democrats propose. (As if they knew. None of them has actually read the current bill, and none of them wrote it. Their staffs pieced it together and probably no one human being knows everything in it.)

What we need is to take some baby steps.

(1) For the uninsurable, mandate at the Federal level that all health insurers pay into an Assigned Risk Pool, just like auto insurers pay into such pools for uninsured motorists. Let these pools be administered by the states. That way we can get 50 parallel experiments to find out how best to do it.

(2) To promote public health (part of the general welfare mentioned in the preamble to the Constitution), continue and strengthen Federal programs to vaccinate all people living in America (legally or otherwise) against common communicable diseases. Strengthen programs to maintain and improve our nation's water, food, and sanitation infrastructure.

(3) Create a minimal national standard for providing statistically based ratings of all health care providers in terms of patient outcomes and costs for all known conditions. These ratings need to be understandable, accurate, and fair. Then make them publicly available on the internet and by other means. Mandate that providers inform their patients of these ratings.

That's enough for now. Give it a few years to see how it works. Have we improved things, or made them worse? How have providers and insurers and consumers learned to game the system? What adjustments need to be made? This implies

(4) Create a tracking system to measure the improvement in the quality, availability, accessibility and affordability of healthcare, so that we will know whether the reforms are having a positive effect.

What I really object to is the idea of enacting a complex, major new system that no one understands with lots of unintended consequences that cannot be undone. In other words, the Democrats must be stopped again, but we still need healthcare reform. Just not their preposterous and ponderous "solution" that breaks what isn't broken, and fails to fix what is.

Yes We Can - Value Mortgage-Backed Securities

I can't tell what exactly the FASB (Federal Accounting Standards Board) did about "Mark to Market" valuation. (Earlier I wrote about how Mark to Market is destabilizing, making up markets go up too fast, and down markets go down to far.) Not even the Wall Street Journal seems to be able to report in any detail on what they've done. But it seems that firms can now mark assets to what some sort of extrapolated market would do, if the market were functioning "normally."

Bullshit. That's make-believe. If the actual market is non-existent, just make one up. There is no justification for this nonsense, because there is a real way to value assets, which I've also written about earlier. It's called expected discounted cash flow.

Let's pick what the Wall Streeters claim is the hardest of all assets to value right now - mortgage backed securities. For each one of them, an electronic and/or written trail exists to track down each mortgage and mortgagee that is bundled into each one of those securities. It is therefore possible to track down each mortgagee and do the due diligence (check his/her credit history, income, employment stability, loan amount, monthly payment, payment history, historical and present market value of the property that is mortgaged, etc.) and make a probabilistic determination of his/her likelihood of continuing to pay that mortgage. That probability times the number of payments, times the value of the payments discounted for inflation (again estimated from the historical moving average of the Consumer Price Index over any n-year period, where n is the number of years left on the loan) is the expected discounted cash flow from that mortgage - that mortgage's value.

Now if a non-accountant like me can figure out how to value mortgage-backed securities, you can be sure that the Wall Street accountants know how to do it. So why don't they do it? Because they already have a pretty good estimate of the answer and they don't like it. They don't want to know. And more importantly, they don't want you and me to know.

In other words, they're lying. They're still trying to keep from having to come clean and do business the right way.

It is not conceptually hard to value mortgage-backed securities. It is conceptually easy. The only hard thing about it is that it is tedious. A lot of people are going to have to hit the streets and do a lot of due diligence that was not done when these things were bundled up and sold and bought in a vast game of financial musical chairs.

Well, get to work all you lying assholes in the financial industries. I'm a taxpayer, and I want my chair back.

Squirting Money

If you want to give yourself a rude shock, go to the Thomas website, and look up the bill H. R. 1, under consideration by the current Congress. That's the economic stimulus bill.

It reads more like it was not written, but excreted by a bunch of inarticulate, immature staffers in a terrible hurry. They just threw anything they could think of against the wall and are waiting to see what sticks. As if someone else was going to come and bail them out. The problem is that we are counting on them to be the adults. They are supposed to bail us out.

I was expecting several large, well thought out directives to make long neglected investments in infrastructure that will help to avoid or minimize future problems or that will stimulate growth in economic areas that we need to remain strong and free at home and dominant in the world. Things like fixing the levees in the Sacramento River Delta, and around New Orleans. Like inspecting and repairing or replacing bridges and tunnels. Like drawing fiber optics to replace CATV cable and twisted wire pair throughout the country. Or even - gasp - reviving the integral fast reactor (IFR), a type of inherently safe, proliferation resistant nuclear reactor that could power the country and the world for decades without a nuclear fuel enrichment cycle. We would have had dozens of them by now if they hadn't been nixed by the Clinton Administration.

I was also looking for things to draw investment preferentially into this country's economy, like reducing, suspending or eliminating the capital gains tax.

But no. What we get are a bunch of placeholders without any executing or enabling legislation that reserves money we don't have for spending on everything the Democrats have felt deprived of for the last eight years. Of course, some of those things need to be funded. Like insulating and weatherizing our homes and buildings. But not the whole load.

This thing looks like the product of brainstem rather than frontal lobe thinking, like it was produced by reflex rather than reason. It's Democrat trickle down economics, and it will work about as well as Republican trickle down economics.

Which means that it will work, sort of, if you don't mind the unintended consequences. Like the pseudo-neo-populist protectionism put into it that could start a beggar-thy-neighbor trade war that could tip the world into another Great Depression.

Oh, yeah. I forgot to mention that at our President's urging, our trusted representatives will get it all sorted out and voted on by tomorrow. They aren't just going to lay a turd on us. They're going to have the legislative and economic equivalent of diarrhea. The hershey squirts of money.

When it's all over, I hope I can afford Lysol.

Hope and Concern

Let us hope that Barack Obama has become and will remain a powerful symbol in the minds of urban youth that if you go to school and work hard, you just might make it. You might even become President. If that is the major change wrought by the Obama Administration, it will be change enough.

On the other hand, Obama has already moved to change things. He's closing GTMO, which has become a public relations disaster for the US. But what will we do with the 250 remaining detainees? Even if we manage to repatriate the 60 we want to send back to their countries of origin, there are 80 that the CIA says are really bad guys but that there is not "enough evidence" to try them in US courts. That could be code for "if we put them on trial a bunch of classified information might get put into the public record." The kind of information the CIA is skittish about because it might reveal what they call "sources and methods."

And that still leaves 110 bad guys who could be tried and presumably convicted, and then what? Do we have the will to keep these SOBs in solitary confinement for the rest of their lives so that they can't recruit other convicts to their cause while they're in prison? It's not as is we haven't had home-grown Islamofascist terrorism before.

Then there is the next big round of bailout money. Which, given the relentless politicization of the Washington crowd, will be misspent either all or in part. But that's not so bad. What bothers me is that it will be spent in the absence of a viable economic model that predicts the effects of the expenditure. It's like the scene at the end of the Wizard of Oz, when the Wizard boards a ballon whose mooring rope is loosed prematurely. When Dorothy shouts for him to come back, he shouts back, "I can't! I don't know how it works!"

Once all that taxpayer money has flown away, we won't be able to get it back, because nobody really knows how the economy works. My concern is that we will have set in motion the chain of events that leads China to world hegemony and makes the US an also ran. You can bet that China will not be as benign a hegemon as the US.

Finally there was the "all hands meeting" that our new Secretary of Energy, Steve Chu, held today, which was broadcast throughout the DOE complex. He didn't have much to say about the National Nuclear Security Agency, much less the future of nuclear deterrence and nuclear forensics, or even next-generation nuclear power that doesn't require enrichment. He might be a Nobel prize winning physicist and a brilliant administrator, but it looks like there is a gap in his awareness thus far.

Energy, Wealth and Money

Wealth is energy.

Let's say you buy a potato. The potato was produced by energy - the energy of the person who planted, tended, and harvested the potato, the energy of the sunlight on the potato vine's leaves that enabled it to grow, the energy of sunlight on the earth and oceans that evaporated the water that condensed into clouds that rained on the potato vine and watered it. Add to that the energy used by vehicles that transported the potato to the market, and the energy that you used getting yourself to market as well.

In other words, the potato is made of energy. And what is true of the potato is true of everything else. Wealth is energy, or rather the ability to command or use energy to do, to make, or to bring you whatever it is that you need or want.

There are those who claim that the nations of the world should use less energy, which they hope to achieve by economic contraction. If you get poorer, you use less energy.

But it is also true that if societies use less energy, they get poorer. They can get more efficient in their energy use, but eventually as human populations grow, they will get poorer unless more energy can be made available.

On the other hand, if more energy can be made available to humankind, we may eventually achieve the kind of utopian, moneyless economy envisioned in the old television series Star Trek. In Star Trek any character could walk up to a matter-dispenser, and get anything he or she requested, made from energy congealed into matter and re-constituted according to a pattern of information stored in the associated computer's limitless memory. To do this in the real world would take an enormous amount of energy, probably the equivalent of the output of a star for each person's lifetime.

But the economy of plenty eliminates money. Of what use is money when everyone has access to unlimited energy, i.e., unlimited wealth? If the tyranny of money galls you, then there is only one constructive solution - create so much wealth, create access to so much energy, that money is no longer useful or meaningful.

Notice that I said create access to energy, but I did not say create energy itself. All energy on earth comes from the sun, and all the energy in the sun comes from thermonuclear fusion of the sub-atomic particles created in the Big Bang with which our universe began. All energy "generation" is just finding ways to unlock the energy stored in little caches throughout the universe from that primordial event.

So the path to a utopian economy is not via using less energy, but more. By unlocking the energy in the little batteries left throughout our universe when it was created. By more technology, not less, by nuclear energy and whatever we can discover to succeed it. Sure, we need to avoid wasting energy, and we need to be careful how we "generate" energy and how that impacts our environment. But more is the ultimate path, not less. Not unless you think universal poverty is good.

Your wealth, your ability to use your energy can be dissipated by your culture or amplified by it. In the United States, it is normally amplified by the infrastructure in which we have invested, as well as by the relatively high level of trust we have in each other and in our institutions. In Mexico and Russia just to mention two examples, your energy is typically dissipated by lack of infrastructure and endemic corruption. But that is another story.

California Dreaming: Irma La Duce goes to Sacramento

First, some background for what I'm about to say. We have had "The Wire," a serial TV drama on HBO about the illegal narcotics trade in Baltimore. Now HBO wants to do one about prostitution in Oakland, CA.

Dellums unhappy HBO drama about pimp set in Oakland

By Kelly Rayburn, Oakland Tribune, 12/21/08

OAKLAND — An HBO drama that would examine the world of prostitution in Oakland has come under fire from Mayor Ron Dellums and other city officials even before filming has started.

The show, called "Gentlemen of Leisure" and based on the 1999 documentary "American Pimp," would be set in Oakland and would focus on a pimp in his 40s and his attempts to get out of the business.

The show’s production, slated to begin in 2009, could be an economic boon for the city, which has made efforts to bring in more filmmakers, but officials such as Dellums worry about what impact the show would have on Oakland’s image.

Oakland under Jerry Brown and now Ron Dellums has become the murder and corruption capital of California. We already have a role model for how this should be handled in former mayor of New York, Rudy Giuliani, but this being Northern California, there is no chance anyone remotely like him that would ever get elected mayor of Oakland.

But that's not my point. My point is that California is running a 40 billion dollar deficit, and its august body of state legislators can't seem to agree on what to do about it. Maybe they need Californians to get mad enough to march on Sacramento and demand that the legislators do their jobs. Maybe they need to be locked into the statehouse with no water going to the restrooms.

Perhaps we should combine these two stories. Why don't Californians pick any random collection of pimps and prostitutes and send them to Sacramento to solve the budget problem? They'd probably do a better job than the current legislature. At least pimps and prostitutes have demonstrated that they can handle money.

Bull----ish on the Economy

Nightly Business Report did a short piece on Barack Obama's tax cut plan that featured Moody's estimates that the cuts would raise the US Gross Domestic Product by some percentage. I like tax cuts rather than big government payouts because tax cuts let us control more directly how our money is spent. But Moody's estimates have to be bulls--t. That's doesn't mean they are going to be wrong. It just means that the estimates are founded on inadequate models.

Now I'm no economist, but I am a modeler of complex physical systems, so here is what I think is going on.

Consider that the global economy is a giant network of people, corporations, and governments all interacting with each other in a highly complex and dynamic way. Mathematically we can represent each economic actor as a point or node or vertex, and each interaction between any two actors as a line segment or or edge connecting them. This collection of nodes and edges is called a graph. The graph theory literature is large, even though the subject is relatively new. It is new because large graphs can't be analyzed by continuum mathematics (like calculus). They have to be analyzed by large computers.

But the simplest questions one can ask about large graphs can be very hard even for a computer to answer. NP-hard in fact, which means that in practice you can't get the answer in a useful time. Even searching a large graph can be hard, let alone trying to compute how a graph of interacting agents will evolve in time. But that is exactly what you have to do in order to predict how the economy will react to a given stimulus. Such a model is currently beyond the capability of anyone, Moody's included.

Moody's, like all the other predictors, must be using a much simpler, and thus over-simplified model. It has to be over-simplified because, if it weren't, they would have predicted the current economic slowdown and done their investment rating much differently.

The modelers are getting a clue, however. I noticed that an Economics and Math professor is getting geared up for these kinds of problems, a book has been published, and another one is on the way. And while you're at it, check out the blog of Valdis Krebs, one the the world's go-to people on the subject of graphs and networks.

Don't hold your breath waiting for them to do real predictive economic modeling, though. Manipulating these large graphs may require quantum computers, and we don't quite have any of those yet.

He Told Us So

See Setting the Record Straight, concerning Fannie Mae, Freddie Mac, and the current economic meltdown.

The Working Rich

A New, Taxable Socioeconomic Class

You've heard about the "working poor." I would like to introduce a new socioeconomic class, the "working rich." These are people who are rich, as long as they're working. They are rich enough to pay the lion's share of the taxes in the United States, but not rich enough to buy their own politicians — and too few in number for their votes to make a difference. They are not to be confused with the rich, who are even less numerous, but who can make those big soft money donations, award those sinecures, and otherwise buy political influence, and who oppose tax cuts because (a) they've already bought their loopholes, and (b) they feel guilty about that part of their wealth that they haven't earned.

If you are not one of working rich, you still enjoy the benefit of having them work an extra 10 to 15 years so that they can fund your favorite social programs and still maintain their lifestyle in retirement. So, the next time you see someone who has worked their ass off to get and hold one of those really great jobs that pays good money, be thankful rather than envious. Whenever you want to take their money you and your fellow working non-rich citizens can tax them any way you like. You can even call it "taxing only the rich," to make yourself feel better. But the really rich won't pay a dime — that will be left to those who haven't quite made it, the working rich.

Obama on Redistribution of Wealth

Before you vote, listen to this radio interview given by Barack Obama in 2001.



Obama sounds like my college professor talking about "redistributive justice" in a Modern Political Theory seminar. Theoretical discussions in an academic setting are meant open our minds. But in politics, ideas have real consequences.

What we need to redistribute fairly in our society is the opportunity to create or amass wealth, not wealth itself. Congress already taxes our income and redistributes our money as it sees fit. But there comes a point where redistribution blunts the initiative of those who would otherwise create wealth. The more driven of them simply leave for better opportunities in other societies. That's how we got so many talented immigrants to come to America. Too much redistribution of wealth would reverse that flow by diminishing opportunity.

Does Barack Obama know this?

Real Estate may be about to go up

An acquaintance told me that her friend can't buy a foreclosed property in Antioch, CA for cash. The friend made an offer that met the bank's price, but now the bank doesn't seem to be able to get around to processing the transaction. My acquaintance thinks the bank may have let its experienced people go and hired younger, cheaper people to replace them. The young folks don't know what they're doing, so the bank slows down and the paperwork piles up.

I'm not so sure. It's more likely that the bank thinks the local real estate market is about to go up in the next couple of months, and is delaying the sales of foreclosed properties in hope of getting higher prices. It's playing dirty against the friend with the cash, but for the rest of us, it's a hopeful sign.

Chaos and Control

Maybe it's appropriate to remember the two opposed espionage organizations in the old TV series, "Get Smart," when one thinks of the financial markets. But what we have here is an attempt by regulatory organizations around the world to control the the global financial chaos. Many of the measures the regulators take will be helpful. But none of them will "work" in the strict sense of that word, because the event loop of the markets moves faster than the control loop of the regulators. That's what control theory says.

To make that more concrete, let me give you an example: Suppose I give you a Maserati, but I have rigged it so that its brakes, accelerator, and steering won't react to anything you do for fifteen seconds after you do it. You wouldn't last fifteen seconds trying to drive a car that powerful before wrecking it. Unless you were suicidal, there is no chance you would get into that car.

But many of us got into the stock, real estate, or financial markets. (Because over the long run all other investments fail to keep up with inflation. See the Motley Fool for details.)

The stock and credit markets move on a time scale of minutes (due to programmed trading among other things) while the Federal Reserve, the SEC, the Treasury and other regulatory agencies move on a time scale of weeks. In the strict control theory sense, the markets are out of control and have been out of control for about two decades. The only hope for the regulators to get on top of things is to slow down the event loop of the markets to a human pace - to place an indefinite moratorium on both naked short selling and programmed trading.

But that itself might have unforeseen consequences. As I said here and there, nobody really knows how the markets really work, because nobody has really tried to do a rigorous stability analysis of the markets, backed up by, say a detailed and large agent-based simulation.

So buckle your seatbelts, it's going to be a bumpy ride.

More on Market Instability

Wall Street as we knew it vanished over the weekend. All the investment banks have been bought by banks, or have become banks. The difference? Banks are more strictly regulated than investments banks. But more importantly, banks can value assets based on expected discounted cash flow. By law, Investment banks must use the fair market price of the asset.

Fair market price sounds reasonable, but it makes for instability. In a rising market, your asset will be over-valued, and you can borrow against that asset to buy more over-valued assets, creating a bubble, which could burst. Then, in a falling market, your assets will be undervalued, forcing you to write them off and possibly go into bankruptcy.

All the while, the real value of your asset remains unchanged. The real value is the discounted cash flow you can expect from the asset. To make it concrete, supposed you owned a rental property. It's real value to you is the value of the rent you are receiving discounted by the inflation rate over the years you plan to own it, minus the money you can expect to pay for maintenance, etc.

The discounted cash flow valuation encourages buy-and-hold market behavior - and the market stability that goes with it.

In the meantime, our regulators (including Congress and the Bush administration, now that they are jumping into the act) are proceeding without a coherent theory of market stability. Let's hope they are not proceeding without a clue.

But what will really be intolerable is if any of these clowns hits the campaign trail without doing anything at all.

Blame and Fixin's for the Financial Meltdown

An old Soviet joke goes like this.

Upon becoming Premier of the Soviet Union, Brezhnev finds two envelopes on top of his new desk. The handwriting on them is from his immediate predecessor, Krushchev. On the outside, one envelope says, "Open me during your first crisis." The other says, "OPen me during your second crisis."

In due time, Brezhnev faces his first crisis, opens the first envelope, and unfolds the paper inside. It reads simply, "Blame me." Naturally, Brezhnev takes the advice and weathers the crisis.

When his second crisis occurs, Brezhnev consults the second envelope. Inside it reads, "Prepare two envelopes..."

So now the world is in a deep financial crisis. There is plenty of blame to go around, and I'll let the usual pundits spread it. Here I note that quite a few physicists and mathematicians have got into analyzing the financial markets. They are the ones who invented all kinds of fancy and obscure classes of "derivative" investments, which are a big part of the current mess. They did it because they were being paid by investment houses to figure out how to make more money for them.

But there is something very big and very obvious (to a physicist) that they failed to do. I can prove it to you very simply. All you need do is go to Amazon.com and search inside the contents of Johannes Voit's The Statistical Mechanics of Financial Markets for the word, "stability."

You won't find it, because it's not there. Physicists, the people who can spend lifetimes studying the stability or instability of dynamical systems when perturbed by physical influences large and small, have largely neglected the stability or instability of financial systems.

Why? Because they were paid by investors, not regulators. All the while the investment houses were developing more intricate investments, the regulators were asleep at the wheel.

There are many things that must be done to stabilize the financial markets. Nationalizing parts of them and creating a US sovereign wealth fund may or may not be one of them. But surely, one of those things is for the regulators to hire physicists and mathematicians to understand what makes markets stable or unstable, and to help craft regulations to stabilize them.

A Litmus Test for Judicial Nominees

It's back. Around and about the 30th anniversary of Roe v Wade, presidential candidates are trumpeting their stands on abortion, and Congress is preparing to go to war against itself over appointments to the federal judiciary. Both sides of the Congressional aisle assume that there is a natural "litmus test" for judges: "How might you rule on matters of Reproductive Choice versus the Right to Life?"

I have my own litmus test. If I were the President, I would ask each prospective nominee to the Supreme Court one single question: "What is Justice? You have two hours. Talk."
I would reject candidates for the following reasons:

• Giving a definitive answer. None exists. For every definition you can give, someone can come up with a situation in which your definition is unworkable. If you have a definitive answer and are not God, yours is wrong.
• Finishing on time. Any nominee to the Supreme Court who can't talk about Justice for more than two hours, doesn't know enough about it, doesn't care enough about it, or both.
• Implying that Governments (or Courts) define Justice. Justice is prior to any government, because governments are instituted to secure Justice for the governed. In particular, Justice is prior to Democracy. Democracy is simply the best way known thus far to secure Justice for the governed, because it is the governed who choose their government, and do so at regular intervals.
• Discussing Justice without talking about the relationship of Justice to Law and legal precedent. In other words, without discussing his or her prospective job.
• Discussing Justice without giving insights into Human Nature. To do Justice with respect to Humans, one must know who they are, what they are like, and what is Good for them. Since knowledge of the Good cannot be obtained by uaided reason, this discussion must include Religion as well as Science, and lead to a side discussion of the meaning of the Separation of Church and State.
• Downplaying the centrality of conflict in the question of Justice. All questions of Justice involve deciding between the competing interests of two or more parties, whether the case is of a civil or a criminal nature.
• Discussing Justice without discussing economics. This is called distributive Justice, which concerns the distribution of wealth, and with it power and opportunity in society. This distribution tends to concentrate by race, religion, or other groupings in all societies. I would therefore require a prospective nominee to speak knowledgably on these subjects as well.
• Omitting a discussion of United States Justice toward US and non-US persons in war and peace. Or did you forget about the 3000 internees at Guantanamo?
• Failing to discuss the human use of human and non-human beings. This should open up a wide ranging exploration of our relationships with each other, our zygotes and our cloned cells, as well as our pets, and domestic and wild animals.

I would also expect the candidates to discuss retributive justice and how to deal justly with criminals, including repeat offenders, covering both psychological and sociological aspects of criminality. In fact, I would expect the candidates for nomination to the Federal Judiciary to be able to speak at length about the history and development of the idea of Justice in our own culture, those that preceeded it, and those with whom we share the world.

I think you get the idea. Justice is a vast, complicated subject, as inexhaustible as theology, and in some sense related to it. "For what does the Lord require of thee, but to love kindness, to do Justice, and to walk humbly with thy God?"

Those who would reduce it to one's stand on abortion demean the memories of all who have suffered injustice, and all those who sacrificed to further Justice. Reducing the question of Justice to the question of abortion demeans the public discourse necessary to maintain a democracy.

I would like to thank Professor Kenneth Sharpe from whom I learned the importance and impossibility of fully answering of this one question: "What is Justice?" during the academic year 1974-5 at Swarthmore College. May you make answering it part of your life's quest.