The Japanese have not caught up with Bernie Madoff; the Japanese creative enterpreneurs are still promising their dupes 36% returns (and world power, when the conman becomes real famous). How 1990s.

As A Tiny Revolution puts it:

INSANE BILLIONAIRES: Let's kill everyone and take their money!

SANE BILLIONAIRES: I like the way you think. I really do. But if we keep everyone alive, and working for us, we'll make even more money, in the long term.

INSANE BILLIONAIRES: You communist!!!

So from a progressive perspective, you always have to hope the Sane Billionaires win. Still, there's generally a huge chasm between what the Sane Billionaires want and what progressives want.
 

This may not be complete, all of the time; indeed, it isn't. But all too much is true all too much of the time; as the current effort to kill the stimulus unless it becomes tax cuts witness.

Thus, the next president must find ways to convince Iran that America possesses the capability to carry out a successful strike. If Iran could be persuaded that the operation would be successful, the United States would not have to carry out the strike at all, because Iran would come to the negotiating table rather than run the risk of military action.

I quote from a sophomore essay in Princeton's undergraduate foreign affairs magazine, in part because it presents this mind-set so clearly. The  claim that Iran will not come to the negotiating table is dubious; it is not Iran but the current administration which is unwilling to negotiate. However, since it is doubtful Iran will concede anything, the point is less than it might be.

But what interests me is the confident assumpttion: we can rely on the Iranian government, or indeed a statesman in general, not acting contrary to the immediate material interest of his state.  From that we go into this application of game theory, and the art of making offers Iran can't refuse.

I don't blame a sophomore for believing this; it is a novel and illuminating picture of the world, and I'm sure some of the eminent realists Woody Woo has been hiring lately present it with great vigor; the only problem with it is that it does not describe reality; and there are all too many, no longer sophomores, who believe it.

Statesmen do act in ways harmful to the immediate net interest of their states; five empires willingly engaged in war in 1914; three of them were destroyed, and the gains to the survivors scarcely made up for the loss of capital and lives in the fighting.  It would be interesting to make up a history of the world made up of such cases; it might, with enough cynicism, include almost all of human history. But I mean more than this; all parties in WWI vastly underestimated the costs, and overestimated the chances and profits of victory.

Statesmen have chosen to go to war (and do other things, but war is the most obvious) when it was obvious when they did so that it would cost more than the terms of peace they were being offered. The current Gaza disaster may be an example,  both sides of it; but there is an even clearer instance from our own history:

James K. Polk offered to buy California and New Mexico before the Mexican War; if he got his deal, he wouldn't go to war. He made the same mistake our sophomore does; his diary notes that he did not expect to have to fight, because the Mexicans would settle. They did not; they lost; they had to give up the same land, for less money. And it was predictable this would happen; the British minister in  Mexico City, and the former Minister of Foreign Affairs, both warned them, and recommended they give in.

Realists may say that all concerned had no choice: if they ducked the war, they would fall from power anyway. I'm not sure that's true; there's an argument that Ehud Barak and Labor are doing best from this war, for example, not Kadima. But this does not save the argument we began with; Ahmedinejad may be similarly forced to fight rather than surrender the national pride.
 

Dick Cheney, of all people, lobbied for the GM bailout: "If we don't do this, we will be known as the party of Herbert Hoover forever." And so they will. In the immortal words of Langston Hughes, their hind brains don't work; but like Shelby, the Hoover of Alabama,  many of them  don't just have ideological motives to be stupid: Alabama has Mercedes, Hyundai and Honda plants.

But they're not just corrupt; they don't stay bought. The Detroit firms have consistently given more to the Republicans too.

With thanks to Digby.

More: James Surowiecki has more. GM's wage bill is 10% of its costs, and this is a tweak in that amount; if the loan was sound after breaking the UAW contract, it should be equally sound without breaking it. So not only is this wage control, it's wage control without economic purpose.

But IOKIYAR.

Joseph Stiglitz on what went wrong:

It all started with the appointment of a Randite as Fed chairman, and continued as the Republicans made  changes which served as moral and financial incentives to the vice of gambling instead of the virtue of insurance.  Predictably, by and large, the new incentives works.  Really, they would have done better to read George Bernard Shaw on that subject; they might even have learnt to express themselves in English, instead of fake folksiness intermingled with Randese.

The next step was the repeal of Glass-Steagall Act, which left banks integrating the cautious and conservative spirit of commercial banks with the raisk-taking of investment banks; the latter won. (This analysis applies only to living memory: Glass-Steagall was passed precisely because the banks of 1935 had been rash. The crash of 1837 was brought on largely by commercial banks being irresponsible unregulated entities with a license to print money - quite literally.)

Then the Bush tax changes, and new economic strategy. Money became cheaper, and successful speculation got tax breaks. There was more of it. (Surprise!)

Then the Enron scandal showed that self-regulation by accounting standards had failed.

Finally, at the Crack of Doom, Paulsen threw money at the problem.

Thanks to Molly Ivors at Atrios(not a permalink; dated 18:49 December 11).

I went to a very interesting talk today, extending a modern theory to an ancient example.

In 1907, Francis Galton went to the fair, and watched a weight-guessing contest, in which men put in tickets to guess the weight of meat that an ox would be when it was killed and dressed. The buyers were all sorts and conditions of men,  including professional farmers and butchers, and idle souls who came by and guessed their best. He thought this a fair analogue to democracy, and asked to see the cards afterwards. He found, that although the cards included estimates over a hundred pounds off, the median (1207 lb) was only nine pounds from the actual weight (1198 lb).  (Galton chose the median, as most analogous to the 50% + 1 result of democracy; the mean was 1197 lb, even closer.)

This is not what Galton expected, by the way; he was the snob who invented eugenics. It is to his credit that he published anyway.

This has recently become a hot topic in economics, called the "wisdom of crowds" with many experiments: one, to guess the number of jellybeans in a jar, had the mean estimate of a classful of students closer than all but one of them, IIRC. 

Our lecturer, Prof. Herman, of Hebrew University, had, however, a new example to propound: the Athenian direct democracy was also composed of all sorts of men, and made decisions through the collective decisions of a large random sample: although its decisions were not always perfect, they were good enough - if sometimes just barely good enough - for two centuries. 

He quotes sections from Aristotle, Plato, and Thucydides which argue for the wisdom of the crowd; in the last two, these are from speeches not expressing the author's view. (All of them, like most surviving Greek literature, disliked democracy, or preferred something else. Herman concludes that the Athenian democrats indeed argued for the wisdom of the many.
 
James Surowiecki and Scott Page have written books on the subject, offering Deep, Thoughtful, explanations, involving diversity of knowledge and approach (thirty people know more together than any one expert knows separately, and have more techniques for problem-solving), and information exchange.

What is truly striking, if I read correctly, is that neither of them discusses, even to refute, the obvious default explanation: the central limit theorem, from which follows: one way to get the average weight of a boxful of rocks is to draw out a committee of thirty rocks, weigh all of them, and take the average of the thirty. The weights of the committee may vary widely, but their average weight is likely to be quite close to the average of all the rocks, quite possibly closer than any of the thirty individual weights. 

This involves two assumptions: that the committee is large, and chosen randomly without bias.  If you vibrate the box, and shake the big rocks down to the bottom, the thirty on top will average light; if you pick a committee of one or two, they will be no closer to the grand average than any other rocks.

Similarly, if there is a large, randomly chosen bunch of people, their average opinion on the number of jelly beans in the jar will be close to the average opinion of all possible human beings. Unless there's some reason for people to guess fewer  (some optical illusion, for example) this average will be the number of beans in the jar. The conditions implied are the same the economists come up with: a large number of people, and as diverse as possible.

But then, few economists know much about mathematics: I have been convinced of this since I took Macro and they solved the problem of how to explain calculus right by explaining it wrong.