The View from Right Field

"The Daily Show" and President Barack Obama

I was watching part of "The Daily Show" a couple of days ago. Jon Stewart was doing his usual thing with respect to some of George W. Bush’s recent statements, especially President Bush’s interview with Charlie Gibson.

As I was watching, I began to wonder what is going to happen to The Daily Show (and its spin-off, the Colbert Report) when President Bush leaves office and Barack Obama becomes President. George Bush has been the perfect foil for Jon Stewart, with his inarticulateness and, for a majority of Mr. Stewart’s audience, his positions.

I wondered whether Mr. Stewart will make fun of President Obama the same way he has of President Bush. Will the Daily Show ridicule and laugh at President Obama the way it has President Bush? Certainly, President-elect Obama is a better speaker than President Bush, so the opportunity in that area will be less. But what about his positions? Will Mr. Stewart be giving President Obama’s positions the same treatment he has been giving those of President Bush?

Actually, the question is not really what Jon Stewart will be doing. My guess is that he will try to treat President Obama the same way he has President Bush. The real question is how will The Daily Show’s viewers take to such criticism of President Obama? Are they going to tune in to watch Jon Stewart make fun of their President, someone they actually like, someone whose positions they agree with?

I’m not sure, but I hope Jon Stewart has saved some of the money he has been making over the last few years because I think he may have four lean years coming up.

Facts Are a Transient Thing – #3

The New York Times reports another example of the title of this post. Twenty years ago everybody knew that

"the young Earth was a hot, dry, desolate landscape interspersed with seas of magma and inhospitable for life. Even if some organism had somehow popped into existence, the old story went, surely it would soon have been extinguished in the firestorm of one of the giant meteorites that slammed into the Earth when the young solar system was still crowded with debris."

When Norman Sleep, a professor at Stanford, wrote an article in 1986 calculating the odds that life could have survived the impact of one those giant meteorites, it was rejected for publication because it was impossible. Nothing could have lived on the earth then.

Now, however, what was thought to be absolutely true just two decades ago has been shown to be wrong by new research and new discoveries. Instead, scientists now believe that

"by 4.2 billion years ago, the Earth was a pretty placid place, with both land and oceans. Instead of hellishly hot, it may have frozen over. Because the young Sun put out 30 percent less energy than it does today, temperatures on Earth might have been cold enough for parts of the surface to have been covered by expanses of ice."

Once again, we need to remember that some of what passes as today’s scientific truth will be tomorrow’s discarded theories.

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Note: Thanks to James Taranto of "Best of the Web Today" for a pointer to this story.

Too Big To Fail

"Too big to fail" has been the reason for many of the governmental bailouts in the last few months: Bear Sterns, Fannie and Freddie, AIG, Citigroup. If we are going to avoid situations like this in the future, we have to address this problem.

First, though, let me give an example of how this problem can arise. It is not unusual for investment banking firms to be highly leveraged; i.e., to have a lot more debt than equity. A homeowner who puts down 20% on a house and takes out an 80% loan would have a debt-to-equity ratio of 4 to 1. With 10% down, the ratio becomes 9 to 1. Some of the investment banks on Wall Street had, before the crisis, a ratio of 33 to 1; in other words, for every dollar of equity, they had $33 of debts. When the value of your assets is going up, that is not a problem. In fact it can be a plus because it lets you make even more money. The problem comes if the value of your assets goes down, even a little. It doesn’t take much of a decrease in the value of your assets for you to have more debts than assets. If your debts are more than your assets, either you need to get more assets (for example, by attracting more capital) or you are going to go out of business. (The more short-term debt you have, the quicker you will tend to go out of business.)

Companies go out of business all the time. Usually, it is no big deal. But it is a big deal when the companies with financial problems are so big. Investment banks, mortgage companies, insurance companies have all become so big that their bankruptcy can have a devastating effect on the economy as a whole. They have, in effect, become so big that they cannot be allowed to fail. They have to be bailed out because it is cheaper for the economy to bail them out than to suffer the consequences of their failure.

That is a problem. If a company is too big that it cannot be allowed to fail, the management is going to know it, or at least suspect it, and they are going to take too many risks. Why be cautious if you know, or at least suspect, that you will not be allowed to fail? Why not just take chances? If you succeed, you get the rewards. If you fail, the government will bail you out.

But even if a big company is being managed properly, even if management is not taking inappropriate risks, the situation is still the same if mistakes are made. The costs to society of the company’s failure are the same. The company cannot be allowed to fail, and the government has to bail it out.

So what can we do? One possibility is to set special rules for firms that are so big that, if they fail or look like they might fail, they would have to be bailed out by the government. For example, instead of letting big investment banks have a debt to equity ratio of 33 to 1 (or more), perhaps they could be required to have at least 6% equity (i.e., a 16 to 1 ratio). Alternatively, maybe we need to impose some size limit on certain firms so that they cannot get so big that they cannot be allowed to fail. This rule would not apply in all industries, and it would only prevent companies from getting bigger than a certain size, basically the size above which the costs to the economy of their failure would be so great that they would have to be bailed out instead of allowed to fail.

Companies and their management will complain this is unfair, that it is interfering with the free market. Well, it is unfair to the rest of us to have to bail them out. It is not a free market if the government has to bail them out to prevent them from going bankrupt.

Free market proponents will argue that, in a free market, companies tend to the most efficient size. If small is most efficient, companies will stay small, but if really large is more efficient, that is what is best. That is an argument I respect, but recent months have shown there is an external cost to size that may not be included the market’s calculation of efficiency. It is, then, government’s job to set appropriate rules to guard against these unincluded costs.

The free market is a wonderful system. It is the best and most efficient system for transmitting economic information that has been devised. But it is not perfect. It has its problems, and one of those problems is that firms can get so big they cannot be allowed to fail. In such a situation it is government’s job either to set rules so companies that get to a certain size have a big enough margin for error that they are unlikely to fail or to not let companies get so big that they have to be bailed out instead of being allowed to fail.

Computer Attacks – By Whom and Why?

Note this article from Sunday’s Chicago Tribune. The article is very sketchy, understandably, but this could be very significant. What if this involves a foreign country, such as Russia? Why do they need to do this? Is it just automatic, the kind of thing the Russians just do? Or is there a real plan or objective behind it?

Last year, two members of the U.S. House, Frank Wolf of Virginia and Chris Smith of New Jersey, claimed that attempts to hack into their office computers had been made by the Chinese.

Our defense structure relies on computers, as does our whole society. An attack on our computer capabilities would be the first step an adversary would take in a war against us.

It is unlikely we will read too much about this, but it could be the next big area of weakness we have. Let us hope it is being addressed as seriously as it needs to be.