The Intransigent Tea Party and Germans, Part II

Contrast the positions taken by the NYT and WSJ editorial boards on the "obligation" of the Germans to save the Euro.

According to NYT:

"[I]t should be utterly clear that no country — including Germany — is immune [from the potential disaster]. ... German officials are still insisting that their profligate neighbors need to pay for their sinful ways — and that Germany’s virtuous taxpayers will not be made to foot the bill. ... The best solution would be for the European Central Bank, which can print money, to become the lender of last resort and buy the bonds of distressed European nations."

It is remarkable to me that NYT can simplistically assume that flooding the world with Euros will end the crisis. A much more likely result of such an action would be that the Euro would decline in value and inflation would ramp up across the Continent. Lenders would still demand exorbitant interest out of fear that the value of their loans would be inflated away by the ECB, through a kind of "soft default."

WSJ takes a more sensible position:

"Berlin's alleged sin is its reluctance to write a blank check to save the euro—either by underwriting a new euro-zone fiscal union, or granting permission for the European Central Bank to buy trillions in sovereign debt. The chant comes in unison from the debtor nations themselves, the bailout caucus in Brussels, an Obama White House concerned about its re-election, and liberal pundits worried that their welfare-state economic model is under assault. Like the "rich" in America who must pay their "fair share," the Germans are supposed to pay up to save a united Europe. The reality is that the Germans—along with the Dutch and the Finns—are the rare Europeans who understand that saving the euro requires more than a blank check. It requires a new political commitment to better economic policy. Chancellor Angela Merkel and her cabinet are as euro-centric as the French, but they realize that money alone won't solve Europe's more fundamental debt and growth problem."

Once again the Keynesian, liberal, tax and spend lobby is trying to stampede the world into accepting the "too big to fail" argument: "Italy and Spain are too big to fail. If we don't bail them out, global catastrophe will ensue. And that catastrophe will overwhelm even the innocent. In fact, there are no innocents. We all, including the Germans, are sinners."

Hold your ground, Mrs. Merkel.

The Intransigent Tea Party and Germans

Intransigent. That is the adjective that is commonly applied these days to members of the Tea Party and to the Germans.

This adjective is applied to members of the Tea Party because they adhere to the principle, enunciated most vociferously by Grover Norquist, that taxes must not be raised and spending must be cut. Just this last Sunday on CNN, Senator Patty Murray, Democrat Co-Chair of the Joint Select Committee on Deficit Reduction, said: “Republican lawmakers ... feel more enthralled with a pledge they took to a Republican lobbyist than they do to a pledge to the country to solve [America's debt and deficit] problems.”

This adjective is applied to the Germans because they refuse to support the idea that the ECB should buy up all the debt of the various EU countries (for example, Greece, Italy, and Spain) that have spent and borrowed themselves to the brink of ruin. This week's Economist puts it succinctly: "Far better, goes the standard German line, to remain principled and just say no."

A similar criticism made of members of the Tea Party and Germans is that they are "moralizers," viewing excessive spending, borrowing, and the defaults that result therefrom as "sins" that must be expiated through the "pain of austerity," which serves as a "purgative" or "punishment" for the fiscal excesses. For example, back in September, Paul Krugman wrote:

"What Mr. Trichet and his colleagues should be doing right now is buying up Spanish and Italian debt ... In fact, the E.C.B. started doing just that a few weeks ago, and produced a temporary respite for those nations. But the E.C.B. immediately found itself under severe pressure from the moralizers, who hate the idea of letting countries off the hook for their alleged fiscal sins. And the perception that the moralizers will block any further rescue actions has set off a renewed market panic."

Let's be clear. I certainly agree with Mr Krugman that austerity measures will cause short term pain. This is because, over the short term, austerity measures always result in lower aggregate demand, which causes the economy to grow more slowly. But does this mean that we should instead engage in short-term stimulus to increase aggregate demand?

The problem is that the argument that short-term stimulus should be applied to an ailing economy is a sound one only for a government operating under "normal circumstances," where normal circumstances are defined as

a.) the government is not already burdened with debt from having taken on enormous social obligations and having run chronic deficits for the last 30 years, and

b.) the government has demonstrated over multiple business cycles that, when the economy starts to roar and tax receipts are running high, it will withdraw the stimulus and reduce its spending and borrowing to apply a counter-cyclical dampening influence on the economy and will set aside certain amounts of money to tide it over during future downturns.

But, this is never the way American government works. When the economy is roaring and tax receipts are high, that is precisely the time when federal and state governments ramp up their social spending and borrowing even further and take on even greater social obligations to their citizens. At such times of prosperity, the need for austerity measures, for reducing debt, and for saving, is forgotten.

Thus, the problem with the Keynesian approach is not chiefly a theoretical one, but a practical one. There are two sides to the Keynesian coin: short-term stimulus during hard times, and counter-cyclical fiscal tightening during good times. But for modern Keynesians there never, in fact, comes a time when the austerity measures are applied and spending and debt are reined in. Instead, ever expanding government spending and borrowing become a permanent way of life. And what is worse, the government spending is often the kind of spending that has an abysmal return on investment. The end result of this process is that, as the years roll on, mountains of debt are piled up while the return on the spending funded by that debt becomes less and less. We owe more and more and get less and less in return.

Laurence Fink, chief executive officer of BlackRock, said recently in a Bloomberg interview:

"Germany is playing their cards really well. ... We have seen two changes of government. Governments are working towards constitutional amendments to balance the budget. You have unions in Spain now talking about restructuring wages. So, you have countries like Spain and Italy that are finally now responding to the global capital markets. And Chancellor Merkel saying "We're not doing anything" and the ECB following suit has had some very good results. Now, obviously, the capital markets are not happy about it. We're getting really stressed about it. But, I think there has been positive movement in these countries. It is a very dangerous stake that Germany is playing.

Yes, it is a dangerous game that Germany is playing and, over the short term, there will continue to be stress in the capital markets and pain as the profligate economies get their fiscal houses in order. But, our only hope is that Germany, and the Tea Party here in the US, intransigently adhere to their principle that profligate spending and borrowing must stop. That is the only thing that can pull us back from the brink. Following the prescriptions of the Keynesians is like following the prescriptions of some mad doctor who claims that curing a heroin addict of his addiction will cause too much short term pain, so that what we must do instead is give him more heroin.

Meritocracy != Quotas

Eric Ries has written a piece about the recent brouhaha over the question of whether there is enough "racial diversity" in Silicon Valley. As I read Ries' piece, the phrases that kept coming to mind were "mealy-mouthed" and "fence sitting." Here is someone who obviously has been thoroughly cowed by the diversity police and shakedown artists.

Ries attempts to dress up his argument in scientific clothing. He writes:

"We should use science, whenever possible, rather than anecdotal evidence. ... Picture those two bell curves. ... There is some research on the differences between men and women, ... If you’d like to examine the math involved, check out this excellent slide deck courtesy of Terri Oda. ... There’s plenty of good research on the subject of team performance that shows that diverse teams outperform homogeneous teams on many different kinds of tasks. ... The whole premise of Moneyball was the triumph of science, data, and reason over the gut feelings and beauty contests of baseball scouts."

And yet, after spouting all this scientistic nonsense, Ries falls back on the favorite tool of the diversity police, the quota:

"For example, I have been a mentor for several years in the Founder Labs program, which was originally created by Women 2.0. It’s a pre-incubator program, that helps potential founders figure out if they should become entrepreneurs. They created it as a way of encouraging women to apply to startup schools and create companies. But they took a novel approach to this problem. They did not advertise the program as being about diversity. Instead, they adopted a minimal rule: each founding team had to have at least one woman. ... I believe this is why certain programs, like Founder Labs and 500 Startups, that boast of their meritocratic “moneyball” approach to admissions have more diverse applicants – and participants. [emphasis added]

How it is possible to be meritocratic at the same time you adopt a quota requiring that at least one person on each founding team be a woman is a non sequitur that Ries, despite all his protestations about being guided by reason, does not feel needs to be explained. Ries praises the protagonists of Michael Lewis' book Moneyball for using science, data, and reason instead of depending on gut feelings. He mocks the baseball scouts who were looking for the "right look" in players. And yet, if Ries is intent on using quotas, he has missed the point of Moneyball entirely.

The reason why Billy Beane uses spreadsheets and other analytical tools to measure baseball performance is to eliminate inessential characteristics, such as "the right look" (or "race," "gender," and "sexual orientation") from consideration in the selection of talent. Ries, on the other hand, apparently believes that the correct approach is to do precisely the opposite; namely, to reintroduce consideration of inessential characteristics back into the evaluation process through a quota requiring that there be at least one woman on each team. This is just mealy-mouthed nonsense.

A meritocracy is a meritocracy. You cannot have a meritocracy and quotas at the same time. Silicon Valley has thrived for decades because it is a meritocratic environment. If we ever lose that robust spirit, entrepreneurs won't kowtow to the diversity police or care if they offend equivocaters like Eric Ries, they will simply up and silently leave.

To CNN, "Asian diversity" isn't real diversity

In a stupid recent article CNN frets that there may not be enough "diversity" in the workforces of high tech companies of Silicon Valley and subtly insinuates that this state is due to racism and sexism. CNN places great emphasis on one metric, namely, that blacks, Hispanics, and women are underrepresented among Silicon Valley workers, while ignoring the plain implication of a second metric, namely, that Asians are vastly overrepresented among these same workers. Apparently, "Asian" diversity does not count as real diversity. In order to have "real" diversity, in CNN's view, workers must be black or Hispanic or female.

Anyone who claims that there is not enough diversity in Silicon Valley has never worked here, has never walked up University Avenue in Palo Alto on a weekend night, has never walked into a bank in Fremont or down the aisles of the Great Mall Shopping Center in Milpitas. Anyone who has actually done these things knows from first hand experience that Silicon Valley is one of the most diverse places in the entire United States, if, by diversity, you mean a mix of individuals from all corners of the world, and not just from the select "victim" categories of blacks, Hispanics, and women.

It is true that blacks, Hispanics, and women are underrepresented in the Silicon Valley workforce. But, the insinuation that this situation is due to racism and sexism is, in my personal observation, just wrong. The Silicon Valley engineering community is meritocratic to a fault. All non-essential aspects of the indivdual, such as race or color or sex, count for little. People judge you in Silicon Valley, for example, not by the clothes you wear, but by what you have actually accomplished. Take a look at Steve Jobs strolling out onto the stage of an Apple product introduction in Levis and a turtle neck. The most talented engineers at the software company I work for come to work every day in ripped Levis and t-shirts. No one respects Silicon Valley engineers for the clothes they wear or for the sharpness of the crease in their pants, but because they are fucking good engineers. Also, the number of hours one works is insignificant. Jeff, one of the best engineers I have ever worked with, always arrived at work at Informatica just in time to go to lunch, but he made up for it by working late into the night and over the weekend. Besides, even if Jeff had worked many fewer hours than other engineers, his productivity and the quality of his work were such that he was still more valuable than most other employees. What mattered was not the hours he put in, but what he produced.

In a meritocratic community like this, it hardly matters if you are Indian or Chinese or Eastern European or young or old or gay or black, Hispanic, or female. These attributes are not essential. What is essential is that you are a good, productive engineer. And, when it comes to judging good engineers, Silicon Valley engineers are quick to judge and keen and unforgiving in their judgment. If, on the one hand, you are a good engineer, it simply won't matter what the color of your skin is, what your ethnic background is, what set of genitalia is connected to your body, what you wear, or whether, even, you have taken a bath in the last couple of days; engineering teams are too starved for good talent to allow themselves to be distracted by such non-essential characteristics as race and gender and sexual orientation. On the other hand, if you are a crappy engineer, it won't matter how lily white and male you are: you will be received with nothing but contempt.

Yes, it is true that blacks, Hispanics, and women are underrepresented in the Silicon Valley workforce. But, this is not because of racism or sexism, but because blacks, Hispanics, and women simply are underrepresented in all the engineering occupations in the United States, just as they are underrepresented in math, science, and engineering classes in high schools and colleges all over America. Why this is so I do not know. But, it is certainly not because high tech firms in Silicon Valley are racist or sexist. Why is there a disproportionate number of blacks on high school and college basketball teams in the United States? Is it because coaches practice racism against whites?

One thing is for certain. If high tech companies are ever strongarmed into instituting "diversity programs" to increase the number of Hispanics, blacks, and women in the ranks of the Silicon Valley workforce, it will be the death knell of the area's vibrant economy (the only thing that might be more damaging would be the unionization of the high-tech workforce). Instead of being allocated strictly on merit, jobs will be allocated based on the color of one's skin or gender (or seniority in unions). As I noted above, these are non-essential characteristics that have nothing to do with engineering talent. Any industry that bases its selection of workers on such non-essential characteristics is doomed to failure. You might as well pick me to play center for the Golden State Warriors on the assumption that enhancing the "diversity" of the team will lead them to an NBA title.

The CNN article claims that many Silicon Valley companies refuse to release information about the ethnic and sexual makeup of their workforce. If this is true, it is not because their workers are not diverse, but because of the perverse way that diversity has come to be "measured." As noted above, by any objective standard, Silicon Valley is one of the most diverse areas in the entire United States. But, maybe the companies are afraid to release demographic information because they know that, if the poisonous and divisive element of racial and sexual patronage (for patronage is all diversity programs are) is introduced into Silicon Valley hiring practices, the quality of the workers will decline precipitously.

There could be no surer way of killing the goose-that-laid-the-golden-egg that is Silicon Valley than by introducing racial and sexual quotas into hiring practices there.