Sunday, February 28, 2010 22 Comments

Uncorrected Evidence 39

This is an unusually short UR post. I apologize. I was actually going to complete and present my long-awaited World War II: Primary Source Anthology. But for once, current events beckon.

Briefly, reality as the faithful know it has torn itself asunder. All trust in authority is shattered. The Donation of Constantine is a medieval forgery; the Pope is a woman; the Archmonk, in the Tomb of Buddha's Thumb, has found a dried-up gibbon toe. Otherwise, nothing is wrong at all. Your garbage will still be picked up tomorrow morning.

But the Institute of Physics, which is only the national physics society of the country that invented physics, has submitted its public comment to Parliament's CRU inquiry - posted as Uncorrected Evidence 39. Which starts like this:
1. The Institute is concerned that, unless the disclosed e-mails are proved to be forgeries or adaptations, worrying implications arise for the integrity of scientific research in this field and for the credibility of the scientific method as practised in this context.
Wow! (And note that no one has claimed that the emails are forged.) If you are unfamiliar with bureaucratic prose, this is extremely strong language. Basically, the IOP is demanding heads. And not just a professor or two, but the entire field.

And the submission keeps going. As Steve McIntyre puts it: "no mincing of words." If you are not already convinced of the IOP's perspective, read McIntyre's own submission. Read it anyway - it's short. Both are masterpieces of administrative English. If you find anyone who still believes there is nothing to see here, point that person to these two documents.

This revolt of the British physicists cannot be a mere bureaucratic accident. For the IOP to have defended climatology, a position for which no institution or individual - yet - has suffered any negative consequence, would have been expected. "No one ever got fired for buying IBM." Even cautious silence on the matter would have been normal.

Almost all scientists today are bureaucrats. For scientists with administrative positions in professional societies, it goes without saying. But not all bureaucrats are evil, dishonest people. Far from it. For a successful bureaucrat to stick his neck out on a matter like this, however, he has to be very sure he's right, and he needs a large army behind him. Whether he is leading the army, or the army is arresting him, cannot be discerned. UE39 was produced either by the goodness in someone's heart, or the bayonets in someone's back.

Or, I should like to think, both. Either way, it was produced. It cannot be un-produced. Now, consider the ramifications.

Having written about the matter earlier, I remain convinced that what we're watching here is nothing more or less than the end of your regularly-scheduled 20th-century reality. Uncorrected Evidence 39 is the logical consequence of "a miracle just happened." What further miracles may proceed are bounded only by the bounds of human history. Which is not, contrary to popular belief, over.

Not that the problem in climate science was not already clear to the curious, intelligent and open-minded. The curious, intelligent, and open-minded were already well aware of the problem, well before the emails were leaked. For one thing, they might have been reading UR. If Google Analytics is at all reliable, however, the curious, intelligent and open-minded are a very small percentage of humanity.

The percentage of humanity so wise as to trust only duly-constituted authorities is much larger. Always has been; always will be. This is the fundamental problem of UE39: a conflict between two infallible authorities, Science and the Press. They cannot both win. They cannot both be right. But the demise of either is unthinkable.

Even after UE39, that crack is still quite shallow and latent. All we see in UE39 is a developing fracture between British physics, which apparently has a Feynman or two left, and climatology. But as UE39 makes clear, this conflict is existential and cannot be resolved by any compromise.

For the first time, a major scientific authority of unchallenged official legitimacy has called this spade a spade. Climatology, as now generally practiced, at least in the picture revealed by the emails, is not science, but a corruption thereof. Not science, but pseudoscience. Not a few scapegoats, but an entire profession.

Fracture dynamics 101: cracks spread. Real science, being the best possible information by definition, is stable. Pseudoscience, not so much. The IOP is a tank any physicist can march behind. Physics is a tank any scientist can march behind. Science is a tank anyone can march behind. Anyone can follow legitimate, official authorities. Those who have been silent will speak; those who have been speaking will fall silent. When the Defence Minister criticizes the Minister for State Security, comrades, it's always a big deal.

Pseudoscience and science cannot stably coexist. And since climatology is after all a branch of geophysics, it cannot retreat behind an interdepartmental firewall - like other junk sciences. (Indeed, all too many of the climatologists are failed physicists whose brains weren't quite sharp enough for string theory.) It cannot possibly say to the IOP: who are you to criticize us?

Climatology cannot evade scrutiny of this level. It cannot survive scrutiny of this level. It cannot survive any meaningful scrutiny at all. After wearing its ring of power for three decades or so, it is pretty much garbage from ass to elbow. Its fudged statistics would prove nothing, even if they weren't fudged; its models might as well be predicting the Super Bowl winner in 2051.

Yet climatology exists - because it is funded. If it continues to be funded, it will continue to exist. If it continues to be officially funded, it will continue to officially exist. (If it does not continue to be officially funded, it will not continue to be funded.) It is not the continued existence of climatology that is in question, but its continued legitimacy.

This is a very serious matter whose implications go far beyond a few degrees Fahrenheit. It is the Press (consider the NYT, with Governor Paterson's freshly-pickled head on its mantel) that must decide the institutional fate of climatology. As this fascinating transcript of a panel discussion among British science journalists reveals, it is far at present from demanding heads. Quite far!

And how could it be otherwise? The malfeasance has been so enormous - again, of capital proportions. "Last year we just printed press releases on AGW if they came from people with the right credentials; that won’t do any longer." Well, it will for some people! Then again, there are some pensioners in Moscow who'd still like Comrade Brezhnev back.

Again, what we see here is not a problem of power - the Press is as firmly-seated as ever, and will remain so for the foreseeable future. Official status ensures eternal life. It does not ensure eternal legitimacy, however.

Thus the difficulty in which Official Journalism finds itself. It can acknowledge its error in assiduously, chronically and unrelentingly promoting these charlatans, and be doomed. It can conceal the error, and be doomed. History has little mercy for those whose power outlasts their legitimacy. The longer this inconsistency lasts, the more energy is released in its termination.

Meanwhile, for the poor, ignorant faithful, Science is their father and the Press is their mother. How can they be throwing plates at each other in the kitchen? The voting public, while not expert in physics, knows what stoneware is, has done a great deal of eating off of it, and doesn't like to see Mom and Pop playing frisbee with it. Frankly, it scares them. Frankly, it should.

Therefore, UE39 poses an immediate practical problem to the entire journalism industry. At least as presently constituted, it is not constitutionally equipped for any of the following tasks: (a) arguing with physicists about physics; (b) agreeing that Rush Limbaugh was right; (c) embarking on a savage, McCarthy-style purge of climate science; or (d) ignoring matters entirely.

(d) is probably the most obvious, and probably some devious form of it will be constructed. But it has already become quite difficult, because Fleet Street is already on the case. TCP packets do not take long between here and London. As one NYT commenter notes:
I am grateful to Al Gore for inventing the internet so that I am able to read the foreign press coverage as well as the blogosphere.
Moreover, (d) will become much harder in the wake of UE39 and the like. Still, because it is only improbable, while all other options are impossible, it will have to be the mainstay.

The response, which I am grateful not to be responsible for, will probably be some variant of that famous Washington tactic, the modified limited hangout. That is: the damage, now inevitable, must and will be at some point contained. My guess is that some heads will roll in paleoclimate. My guess is that the social networks described in the Wegman report, and again alluded to by the IOP, will not be rolled up. Guess? No - color that a certainty.

There is simply no institution of government today capable of purging itself in any way, shape or form of any sort of left-wing malfeasance. Purging rightist deviation is a snap of the fingers. If climate science was permeated by racism, for instance, it could purge itself. Indeed, it would be required by law to do so. By definition, however, purging leftists is McCarthyism; by definition, environmentalists are leftists. J. Edgar is no longer in the building, and no agency of USG is anywhere near equipped to resume his work. Which was not, in any case, successful!

But this does not mean that everything is just hunky-dory and will go on as usual. For a time, it will. History is longer than that, however.

When among the faithful, one fact you believe both of Science and of the Press is that both are self-purging. Similarly, as a Catholic, you recognize human fallibility - you know that the Church is a human institution. Priests are men, bishops are men, cardinals are men, the Pope is a man. These men can go wrong, as all men do. But the institution is far greater than its human parts. Just as medium-term weather cannot be predicted, but long-term climate (according to climatologists) can, the Church can slip but not fall. In the long run, it is always right.

As always in the modified limited hangout, the message will be: this is an exception. It's never happened before; we'll make sure it never happens again. We can make sure it never happens again by taking measures X, Y, and Z, and retiring individuals A, B, and C. Who were, quite frankly, a little long in the tooth anyway.

Anyone who believes that global warming can or will be discredited, that this entire movement (which now employs millions of people) will dry up and blow away, that even paleoclimatology will dry up and blow away, will be quite disappointed. At most, the personal research empires of Professors Mann and Jones will just go away. At most, having been one of their students will be
a black mark on the ol' CV, not a gold star. The players will change, but they change anyway. The machine will keep ticking and ticking and ticking.

The problem is that these institutions - the University and the Press - cannot tolerate such exceptions. They are human institutions, not divine ones. They are fundamentally political. Their continued enjoyment of sovereign authority is not a matter of natural law. They rule by consent, not force; that is, by psychological domination of their subjects, not (solely) physical domination.

This control is encapsulated in the word I have used, legitimacy. If the subject views his regime as legitimate, the regime has achieved psychological security with respect to that subject. The converse of a legitimate institution is a corrupt one - not specifically one which engages in graft or any other self-serving practice, but more generally one which is not what it pretends to be.

Any government dependent on psychological security must maintain the illusion of permanence. All regimes do. All regimes, however, can be changed. And in the new regime, the governing institutions of the old dissolve like fairy-dust castles - and nowhere is this more true but in the psychological-security organs.

The University and the Press are power junkies. They rule. They know it. Ceasing to rule, they must cease to exist: this is history's law. And their rule is a consequence of their legitimacy, which is a consequence of their perceived infallibility - or, to be more precise, their tendency to converge automatically on the truth.

If even a single exception to this rule appears, we see at once a string of questions which ascend in seriousness, and to which the answer as dictated by Occam's razor is increasingly frightening.
1. If Mann and Jones were, as individuals, corrupt, why did paleoclimatology not purge them? Because paleoclimatology was, as a field, corrupt.

2. If paleoclimatology was, as a field, corrupt, why did climate science not purge it? Because climate science was, as a department, corrupt.

3. If climate science was, as a department, corrupt, why did science, as a faculty, not purge it? Because science was, as a faculty, corrupt.

4. If science was, as a faculty, corrupt, why did the university, as an institution, not purge it? Because the university was, as an institution, corrupt.

5. If the university was, as an institution, corrupt, why did the government, as an institution, not purge it? Because the government was, as an institution, corrupt.

6. If the government was, as an institution, corrupt, why did the press, as an institution, not purge it? Because the press was, as an institution, corrupt.
By question 6, we have reached the position of the mainstream American conservative or libertarian. This person is not at all sure about how he wants to purge the Press; but, broadly, he would like it to disappear as a business, ignoring the facts that (a) privileged access to inside information will always be a good business (see under: Reg FD), and (b) if the "MSM" blows this advantage so completely that it fails as a business, it has a thousand and one ways to continue operating as a nonprofit.

The democratic conservative or libertarian believes that his government is bad because it pursues the wrong policies; it pursues the wrong policies because its elected officials are the wrong people; and its elected officials are the wrong people because they were elected by bamboozled voters, miseducated by information sources 1 through 6 as described above.

Here is a question you can ask any conservative or libertarian. Granting that the MSM, today, is not supplying the People with accurate information, causing them to support misguided and counterproductive policies: when did this become true? When did it start?

If the American people of 2010 are, by and large, misinformed by their own journalists, until what date were they well-informed and capable of properly fulfilling their democratic function? 1980? 1960? 1930? 1910? If considering dates between 1856 and 1900, I recommend first consulting this historical sketch by Charles Francis Adams, Jr.

Thus we may continue our questions:
7. If the press was, as an institution, corrupt, why did the electorate, as an institution, not purge it? Because the electorate, as an institution, was corrupt.

8. If the electorate was, as an institution, corrupt, why did the constitution, as an institution, not purge it? Because the constitution, as an institution, was corrupt.
And here we rest. UR's answer to the question is, of course: never. Never - neither in the age of American democracy, nor in the Athens of Cleon the Tanner - has there ever been anything like a prudent, intelligent and well-informed democratic electorate. None of these three criteria has ever been achieved, least of all the third. Not in the 20th century, not in the 19th, not in the 18th, and not in the 5th BC.

As for the self-enforcing constitution, the magic parchment that compels all to abide by natural law, without any force of sovereign compulsion that could become corrupt, it strikes me as even more fantastic and impossible than democracy itself. When government becomes corrupt, to cry for its absence is only natural. Nothing is more foul than a corrupt government. But as for natural law, nature's first is this: she abhors a vacuum. Paper cannot rule. Some person or persons are always in the throne, or fighting for it. I prefer the former condition.

Hence I cannot share either the conservative dream of restoring the Old Republic, or the libertarian dream of no republic at all. The lies of the past, it's true, may have been more noble and gracious than the lies of the present. In fact, let's just say they were. The political engineer still faces a vast task in exhuming and rehydrating them; and, the task complete, what does he have but lies? Can he beat new lies with old lies? Color me skeptical.

Thus, the task is not that of reforming these institutions; for they cannot be reformed. It is not that of destroying them; for, corrupt as they are, they remain vastly superior to those of Somalia. Rather, as Carlyle wrote in Past and Present (1843):
The Toiling Millions of Mankind, in most vital need and passionate instinctive desire of Guidance, shall cast away False-Guidance; and hope, for an hour, that No-Guidance will suffice them: but it can be for an hour only. The smallest item of human Slavery is the oppression of man by his Mock-Superiors; the palpablest, but I say at bottom the smallest. Let him shake off such oppression, trample it indignantly under his feet; I blame him not, I pity and commend him.

But oppression by your Mock-Superiors well shaken off, the grand problem yet remains to solve: That of finding government by your Real-Superiors! Alas, how shall we ever learn the solution of that, benighted, bewildered, sniffing, sneering, godforgetting unfortunates as we are? It is a work for centuries; to be taught us by tribulations, confusions, insurrections, obstructions; who knows if not by conflagration and despair! It is a lesson inclusive of all other lessons; the hardest of all lessons to learn.
For instance: if we grant that global warming is not a real problem, we must grant that global warming could be a real problem. It is certainly a member of a set of problems, one or more of which may be real. While it is valuable to know that the pseudoscientific techniques currently used to evaluate the problem are worthless, all it tells us is that we know nothing at all. The problem may still be a problem! And even if it is not, we may encounter other real problems, which are real but quite insusceptible to hindcasting or modeling.

If we grant that the scientific method can produce no mechanical decisions in this matter, that anyone claiming the contrary is a quack, and that present authorities are quite incompetent to decide the matter on our behalf, whether by ox-entrails or bristlecone pines, we have come far - but not so far. For we have only solved Carlyle's smallest problem. The large problem, the problem of who shall decide, remains. No one, of course, is working on it.

Wednesday, February 24, 2010 11 Comments

UR postponed due to BTD

UR is postponed until this Saturday due to a Sibyl-transmitted disease. (I think we'll just have to call the next one "Vector.")

Sunday, February 21, 2010 14 Comments

One-sided conversation with a headless professor

I don't actually want Professor Hanson's head, of course. I don't want it in a box; I don't want it on my socks. I don't want it stuffed, embalmed, cremated or even cryopreserved. Physically and biologically, it should remain screwed firmly to Professor Hanson's neck - and thence, indirectly, to his chair. A post to which it in fact brings much credit. As I told the Professor at our debate, he's as far ahead of his profession as his profession should be ahead of him.

But a man can only go so far. Metaphorically, only Professor Hanson can prune, pack and ship his own capital peduncle. He can do so by agreeing with me on these two statements:
A prediction market can be used as a decision market if (a) it is accurately integrating genuine distributed information, and (b) it is robust against any causal feedback from its potential decisions.

Assessing (a) and (b) is a nontrivial, generally non-computable task that demands good intuitive judgment, sometimes known as "wisdom."
Thus, a prediction market is not an effective decision market if it is unable to predict accurately due to Knightian uncertainty, asymmetric information, etc, etc. (The uncertainty in Feynman's "Emperor of China's nose" example is Knightian - a prediction market cannot predict the length of the Emperor of China's nose, if no one has ever seen the Emperor of China's nose. And no, Feynman was not making an argument about biometric distributions.)

For instance, a prediction market in terrorist actions should not trade, because it is subject to both Knightian uncertainty (no one really has a computationally accurate model of terrorism) and asymmetric information (except the terrorists, whose predictions of their own actions will always be the best.) Therefore, rational actors will not trade in a terrorism prediction market. It is thus a machine for transferring money from fools to terrorists - a sort of high-tech Islamic relief fund. Alas, it's really quite typical that the Pentagon would fund such a thing.

In addition, whatever the financial strength of the predictive forces in a market, these forces must be stronger than the financial strength of anti-predictive forces, which can profit from a decision error that balances the expected loss of their anti-predictive bets. The cost of manipulating a market is a function of the players in that market; it is not a matter of theory. It can be anywhere from zero to infinity. So can the anti-predictive profit, of course.

The good news is: if Professor Hanson will agree to these declarations, I think we can all agree that he's earned the position of Sith Lord and the honorary title of "Darth." When the DHL van shows up with the box, I'll send out that red-lightsaber kit. Some assembly required. The Professor can start putting it together as soon as his new, Sith head grows back. He doesn't even need to resign his professorship, although the tattoos may arouse some faculty attention.

The bad news is: he probably won't. At least, I've already offered him the chance to turn his path away from the lies of the Jedi Council and the grotesque, stuffed corpse of the dead Republic. And he has already refused. I enclose my side of the conversation, and replace the Professor's with codes - which he can disclose if he wants, and not if he doesn't. I've also elided paragraphs in which I disclose dark secrets of the Sith order.

Subject: head

Me:
Let me know when you get the thing off, and I'll send you that DHL label:

http://unqualified-reservations.blogspot.com/2010/02/pipe-shorting-and-professor-hansons.html
Professor Hanson:
[H1]
Me:
Really? I'd be happy, of course, to comment in response if you have a reply.

You might focus on the Popperian question of what empirical evidence would discredit your design - if this empirical evidence does not, or if it is not evidence at all. Because frankly (unless you deny the allegations against Berlacher et al), if this doesn't, I can't imagine what would! Maybe you can fill that imagination in.

[SS #1]
[SS #2]
Professor Hanson:
[H2]
Me:
[SS #3]

If the strategy does not succeed, why do they keep doing it? What is the cause of the "familiar fact pattern" which is "rampant?" I quoted from three separate areas of financial expertise: prosecutors, journalists, and academics. You can't possibly deny that PIPE shorting is rampant.

Therefore, if it is not as you posit successful, the onus is on you to explain this irrational behavior. (In fact, it would probably make a good paper.) I have a perfectly sensible explanation: because it works. It is not irrational, but rational.

And I really wonder what, say, Charles Darwin, would make of your persistent complaints about my word count. Dear Lord Jesus, do we need to think in sound bites just because it's the 21st century? Must we twitter, just because we can?
Professor Hanson:
[H3]
Me:
Laying off, at least if it's this:

http://www.dictionaryofgambling.com/gambling_terms/general/l/

is totally different. It's hedging a bet already made. Hedging is not manipulation.

In a PIPE, the bet is not already made, because the stock issue is not yet priced. The goal of manipulation is to affect the price at which the deal closes.

I can answer your question, actually. In a PIPE short, the direction of manipulation is always downward. That is, the PIPE manipulator is always shorting, never pumping. That's why it's a PIPE short, not a PIPE pump (the other direction of manipulation being the pump-and-dump).

As you know, a predictable price error is a predictable profit. So why are there no wolves? I'm not sure. But I suspect that there is no predictable profit, because there is no reliable way for a wolf to see that (a) the PIPE is being shorted by the new investors, and (b) if so how much.

That is, if you assume the PIPE is shorted, the error is predictable. But since the activity is after all illegal, it is not known whether it is done - thus not predictable. Thus there is no predictable profit and various sensible assumptions are not violated.

Are you ready for that DHL label yet? I've already paid for the shipping. You'll just need to perform the procedure.
Me, again:
Also, another reason these markets are not predictable, despite the "rampant" unidirectional manipulation, is that, since it dilutes the company, PIPE shorting actually decreases the value of the shares it attacks. The false prophecy of the ganked decision market is also a self-fulfilling prophecy.

Thus, it is not sufficient to notice a pattern in which PIPE shares decline between the announcement and the closing, or even before the announcement. If you buy in against the shorts and your purchase is not large enough to overcome the manipulators, you will just lose money along with everyone else. You are now a dolphin, too.

Is it impossible, still, to profit from this pattern? I'm sure it isn't. I am not a trader, but I'm sure there is action in the area. There are no trivial strategies, however, or the manipulation would not work and hence would not exist.
Professor Hanson:
[H4]
Me:
I can't imagine what you mean by "increases price accuracy." How would that be measured? What do you even mean by "increases price accuracy?"

Are you saying that PIPE shorting is a self-fulfilling prophecy? In that case, we agree! It is most certainly a self-fulfilling prophecy. My point is that futarchy will be manipulated by those who can profit from self-fulfilling prophecy. Eg, that in the case of PIPE shorting predicts that the stock will decline - and thus dilute it, decreasing its value.

In a self-fulfilling prophecy, there is a circularity: because the prophecy is made, the prophecy comes true, because the prophecy is made. For instance, in one of these PIPE scams, the profit is made because the stock goes down. But the same action that made the stock go down - putting on the shorts - is itself the bet.

My point is that futarchy will be manipulated to be non-predictive, even anti-predictive, in precisely this way. Government will make insane decisions for the sake of funneling profit to self-interested players. It does this already! But in your system, it will do it far more efficiently. Futarchy is basically automated graft.

Therefore, if I am right about what you mean by "ex ante the possibility of such situations increases price accuracy," it is by no means a defence. Quite the contrary - it is a confession. Susceptibility to self-fulfilling prophesies is very much a bug in a decision market. It is not a feature, and I will indeed require that head. (Blame it on too much Japanese history.)

Moreover, I am not at all convinced that this defence is even true. All self-fulfilling prophesies are profitable and (by my definition) false, but not all profitable false prophesies are self-fulfilling. Rather, the bet can take a loss, and the bettor can still win by some other mechanism.

There is an easy way for you to clear up my confusion. If my empirical data, such as it is, does not falsify your theory - what would?
Me again:
Any more thoughts? If not, I will post this exchange, or at least my side of it. I'll also include your side if you give me permission.

In my (basically industry-centric) view, accepting the limits of prediction markets makes an argument *for* prediction markets. Obscuring these limits is an argument against them. So, if you invent the suspension bridge, and then claim that the suspension bridge can be used to bridge the Atlantic, you are sabotaging your own invention.

A prediction market can be used as a decision market if (a) it is operating correctly and accurately integrating genuine public information, and (b) it is robust against any feedback process involving the decisions it makes. Assessing (a) and (b) is a nontrivial task that may even demand good intuitive judgment, or "wisdom."

If you can accept this result, I will harass you no more!
- and here the matter resteth.

Thursday, February 18, 2010 17 Comments

Horseshoe Pit in Golden Gate Park

The Conservatory horseshoe pit,
Long a hobo-jungled ruin,
Was made again last year
By volunteers and money,
Asphalt, rebar and white paint.
Now, in March, the stakes,
Some thirty-two in folded file,
Stand like rifles in the wet sun.
Nobody is here. Nobody will be.
Nobody plays horseshoes now
In San Francisco. There is no click,
There is no clack; no curses
And no yells. Above the pit,
Twice lifesize in bas-relief
But sliding from the withers,
A white horse, in old concrete,
Prances on without his torso.

Thursday, February 11, 2010 33 Comments

PIPE shorting and Professor Hanson's head

Thanks to the awesome editing of Monica Anderson, the Moldbug-Hanson video is up at Vimeo - so you can compare it with my report.

Some have said that the debate was actually won by Professor Friedman. Cannot one imagine him with a green lightsaber? One can, can't one? And others have expressed surprise that I don't actually wear a black cloak or have facial tattoos, and in some ways could even be mistaken for a normal person. The better to seduce you with, young rebels. It is your destiny!

Best of all, the video is timely. For there's a new development in the conflict. I believe I may finally be able to claim Professor Hanson's dried head for my mantel.

Briefly, I've spotted an actual decision market which is actually manipulated - precisely as my sinister theories predict.

If this be so, my attack is not just deductive and philosophical, but also inductive and scientific. In short: it severs the neck, at the third cervical vertebra. The seconds ice the thing, trim it lightly, and DHL it to my taxidermist - Oxford Street's best man. Like cryonics, only different! And Professor Hanson must complete his career with whatever neural matter the stump retains. I believe he has tenure, so this should cause him no undue difficulty.

Of course, the Professor still has an out. Since any such chicanery is illegal - American financial markets not being the free-market utopia some fancy - it is too much to expect undisputed evidence of decision-market manipulation. His spinal tissue will find no other point to quibble on. It can always quibble on this one. Indeed, I expect it to.

For instance, the defendants in cases such as Berlacher could be entirely innocent of any manipulative intent. They might have profited just by coincidence. It looks bad, however. As the prosecutors wrote:
Berlacher involved the same familiar fact pattern as the earlier cases: an investor purchased shares in a PIPE transaction and simultaneously sold short an equivalent number of shares in the open market.
"Familiar fact pattern." Of course, it's just an allegation. But worse - we see not only mere Federal prosecutions, but genuine, verifiable rumors. For instance, widely-disrespected financial journalist "Tyler Durden" writes:
Think of it as a PIPE investor who shorts stock of a company he/she knows will give out stock at a discount to market, a practice since banned by the SEC but being done rampantly to this very day.
Again, we cannot expect anyone to actually admit to this behavior. But as a student of history, I'm going to say: smoke, fire. There is clearly something going on here. What the hell is it? And how do my sinister theories (actually more, um, dexter) predict it?

PIPE stands for Private Investment in Public Equity. In a PIPE deal, a publicly-traded company sells a large number of shares not in the usual way, by conducting an open secondary offering (not just dumping the shares on the market, but close to it), but by selling a large block of shares to a single investor or syndicate thereof - generally, private equity.

There is nothing intrinsically wrong with this. However, one common PIPE structure has an interesting wrinkle which turns the market for this stock into a decision market. This decision market is chronically manipulated, which is at least one of the reasons that PIPE deals suck.

In practice, PIPEs are generally restricted to companies in a dire financial position. The investors who buy into them are notorious bloodsucking leech bastards - squid who feed on vampire squid. PIPE is strictly Mos Eisley finance. Not mobbed-up, but close. Just the sort of subterranean scum-market in which we'd expect to see systematic manipulation.

The way this structure works is: dolphin in dire straits comes to predatory squid. Dolphin in dire straits says: "Hello, predatory squid! I have a big problem. I need 20 million fish."

Predatory squid says: "Hello, my juicy little dolphin! I can solve this problem. I have 20 million fish for you. I'll give you 20 million fish right now, in exchange for something you can print at no cost - your own stock. What is it now, April? Whatever your stock price is on June 1, I'll take 20 million fish of it."

That sounds good to the dolphin. His stock is trading at 10, and there are 10 million shares outstanding. To save his whole dolphin pod from starvation, he accepts a mere 20% dilution.

But mysteriously, dolphin stock begins to sink. By June 1, it is down to 2 fish per share. The squid ends up with 51% of the pod. Since that's enough to do anything you want with anything, he has all the dolphins canned and sold as cat food, maximizing the return on his investment. Property rights and free-market economics!

Not that this is the government's fault, of course. It's the dolphin's fault. He never should have gotten involved with a squid-eating squid. Since he did, he needed the government to protect him. Alas, it doesn't always do such a good job of that. More regulation is needed, comrades! Not.

But what did the dolphin do, exactly? What was his mistake? He created a decision market. Normally, the market in dolphin stock is just a prediction market. The stock price matters, but abstractly. It does not matter directly and mechanically. It does not have profitable side effects. It does not create a conflicting incentive, which overpowers the market's predictive signal.

For the whole month of May, dolphin stock is a decision market. The decision is: what price does the squid pay for its shares? The number of shares it gets for its 20 million fish, hence the percentage of the dolphin's ass it gets, is the inverse of the stock price on June 1. A very real and palpable decision! And a profitable one. For the squid's gain, of course, is the dolphin's loss.

The squid has a clear incentive to manipulate the market. During May, he profits automatically if dolphin stock goes down. He has a non-predictive incentive to short. As one expert writes:
Hence, structured PIPEs lacking floors or caps are pejoratively labeled “death spirals” or “toxic converts,” because investors in these deals may be tempted to push down the issuer’s stock price through short sales, circulating false negative rumors, etc., so that their structured PIPEs become convertible into a controlling stake of the issuer.
This incentive may contradict the squid's own predictions for the performance of dolphin stock. If he has any. He's a squid, after all. He's not investing in dolphin because he loves dolphins. Squid love nothing. They have neither heart nor brains. They are certainly not in any way cerebral. They eat, that's all. Actual market prediction - not their cup of blood.

But, since the profit from X should exceed any losses he may expect from Y, our squid expects to eat. He expects to eat so well that he engages in this foul, predatory behavior - despite its obviously unethical and SEC-attracting nature. He's a squid. He plays the game.

Now, let's look at how Professor Hanson's theories describe this situation. To Professor Hanson, our squid-eating squid - who, by shorting, is investing non-predictively for ulterior motive - is in fact a sheep. His behavior is not predatory, but imprudent.

And why? Because the squid will not succeed in depressing the dolphin market. Rather, by investing non-predictively, he is making a wrong bet. Or at least, a bet with (according to the squid's own predictions) negative expected value. Here the Professor and I agree.

Because this bet has negative expected value, there must be an equal and opposite counter-bet with positive expected value. In Professor Hanson's universe, this will attract wolves - expert speculators, who can smell inefficiency the way a professor smells grants. The wolves home in on the counter-bet and devour the squid/sheep, quite incidentally restoring the dolphin market to its original and inevitable state of Platonic efficiency.

Here is where we disagree. I believe this scenario is plausible. Professor Hanson considers it (so far as I can tell) inevitable - at least, in a large public market.

Do PIPE deals attract wolves? Will speculators, hoping to detect (note that in Professor Hanson's spherical-cow models, positions and even motivations are visible) the inefficiencies of manipulation, buy dolphin in May? They might well. There is certainly nothing stopping them. Nor - as with the squid themselves - would we know if they did. Real markets are opaque.

For manipulation to be entirely precluded, however, the wolf counterattack must be inevitable - and of equal magnitude to the squid feeding frenzy. The latter is indeed finite, if only because there is a finite amount of dolphin! And the former potentially includes all players in the market - but only potentially. Potentially is not actually.

If this wolf army was inevitable, squid would not profit routinely from PIPE shorting - which would not be, in Mr. "Durden's" colorful phrase, "rampant." Hence, Professor Hanson has claimed that there is no such thing as a coelacanth, and I have dumped one in his inbox. The ball is in his court! But frankly, I'm already wondering where I'll put that moose head.

For the wolves to attack the squid and save the day, there need to be heavy wolves in the dolphin market, and they need to smell (squid) blood. They must be able to detect the fact that dolphin stock (remember, this is a weak, vulnerable company to begin with) should not be falling in May, and hence deduce the presence of a bet with positive expected value.

In other words, a large amount of money needs to be sitting behind a large amount of certainty. And the bigger the squid (the larger X, our ulterior motive), the larger and more confident the wolves must be. As we've seen, even with a small, simple, bounded X, wolf activity is not apparent. At least, it's not apparent to the Berlachers of the world.

Instead, the Berlachers of the world follow the "familiar fact pattern" of selling short roughly the same number of shares they expect to acquire when the deal closes. Professor Hanson's hypothetical wolves aside, any market can be manipulated downward by artificially increasing the supply of shares, which is what short-selling does.

In an ordinary market, this is not a way to produce expected profit, because to actually collect profits the manipulator must bury the corpse. He must cover his shorts by buying them back on the market. Which drives the price back up, erasing the expected profits. The Berlacher-squid, however, need not buy the shares on the market - he gets them straight off the dolphin's ass. Far from burying the corpse, he eats it.

Now, I remind you of the devil the Professor wanted to bridle with this weak rein. He wanted to make arbitrary sovereign decisions with his "futarchy." He wanted to control the government this way. As a student of history, I can tell you that history is just about the biggest, wackiest, least predictable thing there is - and history is the story of governments.

In short, Professor Hanson claims to draw out Leviathan with a hook. Wilt thou play with him, as with a bird? No, Professor, thou shalt not. Thou shalt be learning to eat through thy pharynx.

At least, in the game of squid versus dolphin that is a PIPE structure, the ulterior motive (X) is both bounded and well-described. The decision market is just setting a stock price. No one besides squid and dolphin have any incentive to intervene in the game - and the most the squid can win is, well, the entire dolphin. X, in short, is under control. Still Y, though potentially infinite, appears actually, empirically insufficient to dominate it. One white raven, delivered.

Sovereign decisions have no such mild X. Who has an incentive to gank the market in, say, war? Who doesn't? Obviously, if America is fighting Hitler, and Hitler can intervene in the decision market that decides whether America should surrender - to Hitler - well, a man like Hitler's not going to say no to that, is he?

Quite the contrary. Hitler will bet the whole Reichsbank - then put on leverage! American surrender, after all, is a Pascal's bet for Hitler. So, in a sovereign state controlled by decision market, we all suffer the fate of the poor dolphins, and are made into cat food by Hitler.

This is the future that Professor Hanson wanted, for you and your children! This is his "futarchy." Hitler - cat food. Cat food - Hitler. Picture it, America. That red lightsaber is looking better and better, isn't it?

Tuesday, February 9, 2010 56 Comments

Maturity transformation: cat, bag, out

The neo-Austrians have (re-)discovered it:
Even if we accept the case for a 100 percent reserve requirement, we see that the maturity mismatching of liabilities and assets (borrowing short and lending long) is itself perilous—and in the same sense that fractional reserves are perilous.
The matter also now seems understood in high places:
On the liquidity front, there are a host of initiatives underway. The Basel Committee on Banking Supervision is working on establishing international standards for liquidity requirements. There are two parts to this. [...] The second is a liquidity standard that limits the degree of permissible maturity transformation—that is, the amount of short-term borrowing allowed to be used in the funding of long-term illiquid assets. Under these standards, a firm's holdings of illiquid long-term assets would need to be funded mainly by equity or long-term debt.
Yeah, good luck with that, guys. I hope those 57% mortgage-interest rates don't cramp your style. Can I offer you any pitons to go with that yield curve?

In any case, precious UR bandwidth need no longer be allocated to this matter. Just remember - you heard it here first.

Our financial analysis can now address more fundamental concerns. For instance: Ben Bernanke and Robert E. Lee - separated at birth! Again, you heard it here first.

Thursday, February 4, 2010 121 Comments

From Mises to Carlyle: my sick journey to the dark side of the force

I often get requests for a one-word label. I generally go with royalist.

So here you are in the year 2010, reading royalist samizdat on the Internet. And here I am in that same year, writing it. Quelle strange! Especially for those of us with perfectly crisp memories of 1979.

Royalist is almost always the start of a conversation, not the end. It's a tabula rasa - it does not associate you with anyone else's propaganda. Hardly anyone else goes by "royalist" today (unlike "monarchist," which connotes a reverence for the present, ceremonial or "constitutional" institution - there are few ideologies more disproven than constitutional monarchism). And if anyone gives you any grief, you can just step up to neoroyalist.

Of course, any such label just means you've drunk the Kool-Aid here at UR. That's the whole point. But why broadcast it, eh? The libations will make their way in time. Frankly, turning people on to this kind of subversive material is like turning your literary friends on to acid in 1964. Is so-and-so hip? No? Oh, that's too bad. Make sure he gets a cup from the blue pitcher.

By 1974, of course, so-and-so is calling himself "Bhang Raj" and teaching yoga in Big Sur. So if royalism sounds exciting to you, it should. Especially if you don't remember 1964. Or 1984. Actually, Socrates also had a fine old time corrupting the youth of Athens, and what was he corrupting them with? Not what you think, pervert. In a word: hatefacts and crimethink. (Specifically, Socrates was spreading seditious lies about democracy.)

But let's face it: "royalist" is challenging. It's punk - punk in 1976. You can be for it or against it. You can't be indifferent. Well, as it happens, the punk future of 1976 did not come true. Which is probably for the better. But it indicates that one can be too punk.

Therefore, I have an alternative label. I am a Carlylean. I'm a Carlylean more or less the way a Marxist is a Marxist. My worship of Thomas Carlyle, the Victorian Jesus, is no adolescent passion - but the conscious choice of a mature adult. I will always be a Carlylean, just the way a Marxist will always be a Marxist. And it is not too late for you to join us yourself! It's a big tent, this cult of Carlyle. The only problem is that since Carlyle is dead, you can't sell your possessions and give them all to Carlyle. No - you'll have to think of some other worthy recipient.

But wait. Who the fuck is Carlyle?

Well, perhaps you saw that recent classic of the silver screen - Sherlock Holmes. As you may or may not know, ignorant Earthling, this was actually based on a book. In this book, some dead old white guy writes (1887):
His ignorance was as remarkable as his knowledge. Of contemporary literature, philosophy, and politics he appeared to know next to nothing. Upon my quoting Thomas Carlyle, he inquired in the naivest way who he might be and what he had done.

My surprise reached a climax, however, when I found incidentally that he was ignorant of the Copernican Theory and of the composition of the Solar System. That any civilized human being in this nineteenth century should not be aware that the earth travelled round the sun appeared to be to me such an extraordinary fact that I could hardly realize it.
To be fair, "he" is Sherlock Holmes himself. Holmes is entirely ignorant of Carlyle, however, only because he is entirely ignorant of both politics and literature. Since not one man in a thousand today knows anything of Carlyle, and that man is almost surely misinformed (please read Carlyle before you read about Carlyle), the slate is - once again - blank. Are you, too, entirely ignorant of both politics and literature? We can't all be Sherlock Holmes.

This Presbyterian Balrog was locked in the stacks for a century. Sergei and Larry, blissed-out on whatever blissful techno-hippie whim, scanned those stacks in bulk; and sprung his ass. If you are familiar with the Copernican Theory, yet ignorant of Carlyle, read him! You can! He lies naked at your feet - albeit in ancient, blurry scans, often with a picture of someone's finger on the page. (How appropriate it is to see Carlyle restored by intern slave labor.)

Now, I will admit that the Sage of Ecclefechan had his off days. He did live in the 19th century. He shaved with a straight razor, if he shaved at all. His crystal ball was a delicate analog instrument. Often, Carlyle understands the 20th century better than anyone in the 20th century. Sometimes, there is some kind of disturbance in the force, and he's just picking up Pluto. Carlyle is not to be taken without salt, tuning and calibration; and would want no less. But properly tuned and restored, he is Messiah enough for any grown man. Hey, man, we all need a Jesus.

Carlyle, one of the few 19th-century writers to predict the impending Siglo de Muerte, includes all the ideologies of the 20th. However you think government should be carried on, you'll find it in Carlyle. For instance, if you must have an introduction to Carlyle, try Edwin Mims in this 1918 edition of Past and Present. You will meet Carlyle, the royalist Progressive. There is also Carlyle, the royalist fascist. And I even discern - albeit with tender eye - Carlyle, the royalist libertarian. (For instance, "red tape" as a metonym for bureaucracy is a Carlyleism.)

Which brings us to the meat of today's episode. As it so happens, before I became a royalist or a Carlylean or whatever, I was a libertarian. Specifically, a Misesian. (And before that, I was an Instapundit reader. Teh Internets radicalized me. Now, lets dem radicalize u. Cast off the snares of the Jedi Council. Surrender to my Sith powers - and those of my Master! And pleez u cn send more moneys in teh mail.)

I don't think I've read everything Mises ever wrote, but I certainly have Theory and History, Omnipotent Government, and other less-trafficked Misesia, on my shelves. My gaps in Rothbard studies are more pronounced - for instance, I have never read the History of Economic Thought. Nonetheless, I have been through Mises and Rothbard more or less from ass to elbow, and my judgment on the two remains unchanged. Mises is a titan; Rothbard is a giant.

Carlyle is the greatest of all, however, because his vision is the broadest. The analytic power of Mises is much greater; when Mises and Carlyle disagree, Mises is usually right. Mises is almost never wrong. No one could possibly describe Carlyle as "almost never wrong." Carlyle is frequently wrong. His strokes are big. He excavates with a pick, not a dental drill. But there is really nothing in Mises' philosophy that is not in Carlyle; and the converse is not the case.

The problem with Mises as guru is that Misesian classical liberalism (or Rothbardian libertarianism) is like Newtonian physics. It is basically correct within its operating envelope. Under unusual conditions it breaks down, and a more general model is needed. The equation has another term, the ordinary value of which is zero. Without this term, the equation is wrong. Normally this is no problem; but if the term is not zero, the error becomes visible.

Just as Newtonian rules only make sense at low speeds, Misesian rules only make sense in a secure order. Mises himself once wished for a praxeology of war, which is fairly good evidence that he didn't have one. Carlyle was not a place he would have looked. Carlyle was taken - Carlyle, the statist, the royalist fascist and the royalist progressive, was the prophet of those (on both sides of the Atlantic) who had no place for Mises. To say the least!

Einstein once said: a theory should be as simple as possible, but no simpler. As a Carlylean libertarian, I would say: government should be as small as possible, but no smaller.

You'll notice, for instance, that, Mises is almost never normative. He will never tell you that the fashionable interventionist policies of his era are bad. He will tell you that they will not produce the results purportedly intended, or that they will have some other unadvertised effect. He will tell you, in other words, that the political reasoning behind them is bad. And as always, Mises will be right. But he does not prove that the policies are bad - just supported by bad reasons.

So, for instance, Mises will tell you that mercantilist policies such as high tariffs or exchange-rate manipulation do not just reward exporters, but also punish consumers. Mises will not, however, tell you whether such a policy is good or bad for a country containing both exporters and consumers. (Rothbard will. But Rothbard often goes too far.) By Misesian theory itself, there is no such index of economic good, no quantitative means by which one man's advantage can balance another's disadvantage.

Mises will tell you that policies such as these cannot be calculated. Mises is right: they cannot be calculated. As Carlyle says in his Chartism: government cannot be carried on by steam. Rather, its interventions (if intervene it must) can only be calculated by judgment.

In any responsible position, no formula or computer (given present technology) can replace human decisions, because no formula can exhibit wisdom or exercise judgment. These essentially human qualities are essential for any responsible position, but most of all in the most responsible position of all: sovereign command.

And all organizations, big or small, public or private, military or civilian, are managed best when managed by a single executive. Hence: royalism. However he or she is selected, the title of such an executive, in a sovereign capacity, is King - or, at least, anything else is a euphemism. And why trade in euphemisms? Whose dogs are we?

Mises, being a liberal, is operating whether he likes it or not in the Benthamite tradition. He does not tell you that central planning is impossible; he tells you that central planning by objective process, ie public policy in the modern American sense, is impossible. The alternative of human judgment is one that he does not consider - both because this alternative is ideologically repugnant to him, and because his own generation had an extremely bad experience with it. (Question: who sold the Continent on blood-and-soil ethnic nationalism? Answer: well, it certainly wasn't the bloody Tories. More below.)

So, for instance, a typical neo-Benthamite public-policy construction needs a measure of national utility, such as "GDP" (roughly, net business-to-consumer sales). Both Mises and Carlyle will tell you (a) that there is no conceivable quantification of national utility, and (b) this measure, or any other, is of no use whatsoever. A policy that decreases GDP may be good; one that increases it, evil.

To a Carlylean, any such policy of government-by-steam is a simple declaration of surrender to Satan, like leaving port 23 open on your e-commerce server. For instance, America has built an enormous debt by consuming beyond its income - thus maximizing GDP. Oops.

Good does not tolerate evil, but drives it out entirely. If you see a process inviting further evil, it may well be compromised itself. Chaos breeds more chaos; order must extirpate it entirely, or surrender to it. So again, Carlyle and Mises get the same results. If in very different ways.

When I went from Misesian to Carlylean, my vision of the ideal state did not change. I, and others like me, want to live and should be able to live in a liberal regime of spontaneous order, which is not planned from above but emerges through the natural, uncontrolled interaction of free human atoms. Hayek in particular, though no Mises, is eloquent here.

What my conversion to the cult of Carlyle has changed - completely - is my understanding of the means by which this free society must be achieved. If it exists, it must be preserved: by any means necessary (as Malcolm X used to put it). If it does not exist? Bueller? Bueller?

It is easy to see that libertarians have trouble with the means part, because they have never come anywhere close to succeeding. There is a reason for this.

Modern libertarianism is an invention of Rothbard's, consisting entirely of Rothbardianism either straight, diluted or adulterated. Like Wicca, it may continue the beliefs of an older movement (classical liberalism), but its social links with that generation are tenuous at best. Mises himself is one such exception; he is, obviously, a rarity.

For the most part, Rothbard created libertarianism by resurrecting a 19th-century political phenomenon, that of Manchester liberalism. Absent Mises himself, this incredible fossil of the Austro-Hungarian Empire, Rothbard could have worked "just from the books" - as of course I do with Carlyle. Absent Mises, he probably would have.

Rothbard was always a practical fellow - or, at least, a pragmatic one. He knew his doctrines were right, and had earned the right to rule. So he tagged along on any coach he thought would get him there - from the Black Panthers to Pat Buchanan. In a similar spirit, he revived Manchester liberalism - the political rhetoric of Cobden and Bright.

History is yet young, of course, but none of these strategies strikes me as showing any real sign of working. (Lew Rockwell, Rothbard's organizational heir, has reversed course again and is back working the Left, along with HIV deniers, etc. Every scholar-dynasty finds its Commodus.)

Why hasn't libertarianism worked? One thing we notice about Manchester liberalism is that, in its time, this movement was a left-wing cause. In that era, the terms left and right were used, as they are now, to mean liberal and conservative; which axes had exactly the same social and cultural connotations they do now. Nonetheless, even though the policies of 19th-century Manchester liberalism are exactly the same as those of 20th-century Rothbardian libertarians, libertarianism in 2010 is normally identified as a right-wing movement. At least, by everyone except libertarians.

If Rothbardian libertarians understood this reversal of polarities, they would understand why their means is not, and cannot be, successful. As a democratic platform, Manchester liberalism is effective from the left, but not from the right. Most tactics (as James O'Keefe is finding out) that are effective from the left, are not effective from the right. There is no such thing as effective right-wing Alinskyism - at least, not in the United States in 2010. Again, we see a missing variable in the equation. Symmetry is not guaranteed.

The libertarian has a characteristic problem in explaining his tyranny-versus-freedom political axis. The problem is that most people, when they inspect history, do see a clear political axis. The axis they see, however, is not tyranny versus freedom, or even big versus little government. It is left versus right.

Moreover, it is not just most people who appear to see the left-right axis. It appears across the spectrum, even to rightists. Rightists may mistake other rightists for leftists, or even if sufficiently misguided present themselves as such. It makes no difference. Leftists do not mistake rightists for leftists - at least, not systematically. They just don't have that ant smell.

Right is right; left is left. The axis is real. Jonah Goldberg can call Hitler a leftist; Hitler, indeed, called Hitler a leftist, at least in the sense that he called his party a Socialist Workers' Party. But Hitler, while a very bad rightist, was a rightist. Not to mention a lying bastard. And anyone in the '30s with a dime's worth of brains on a dollar knew him as such. And this includes rightists with brains, leftists with brains, and centrists with brains.

You can change the definition of the word, of course. But the phenomenon remains recognizable. Being otherwise abstract and meaningless, the terms left and right are perfect. Why try to flip them over? No good reason, I fear.

I see this Hitler-was-a-liberal trope catching on all over the right. Of course, it is a leftist trope - in two senses. First, the tactic of tarring all political adversaries with some abstruse connection to fascism in general, and Hitler in particular, is of course a characteristic tactic of the Left. Second, the tactic of disseminating a palpable misreading of history, for political purposes - etc.

To a Carlylean, Satan is the Lord of Chaos and the Father of Lies. When you lie - intentionally or unintentionally - you sacrifice a kitten to Satan. Satan loves you for this! And, since he is not uninfluential on this earth, he does what he can for you. Which is sometimes quite a bit.

The Carlylean technique accepts only absolute veracity as the basis for any political strategy. The fact is: by sacrificing the occasional kitten or two, by twisting the truth a bit for the sake of this quarter's sales, libertarians and other rightists get nowhere. Their enemies are (a) in power today, and (b) operating an assembly-line rhinoceros abattoir for the sole benefit of His Satanic Majesty. Surely, sir, you had not thought to out-scoundrel such a bunch of scoundrels.

To a Misesian, the struggle of good and evil (so plainly displayed by history) is the struggle between tyranny and freedom. Evil is tyranny; good is freedom. As we have seen, there are problems with this perspective.

Its main problem, however, is that it must obscure the difference between left and right, which is clearly significant and qualitative. If the left-right axis does not exist, why does everyone see it? If it does exist, the up-down axis gets scraped right off by Occam's razor. With one axis, do we need two?

To a Carlylean, the main event is the struggle between left and right. Which is the struggle between good and evil. Which is the struggle between order and chaos. Evil is chaos; good is order. Evil is left; good is right. Evil is fiction; good is truth. Gentlemen, there is no other road! The facts, it's true, are stones between our teeth. Shall we chew these stones? If not now, when?

Note that if we find a way to make this theory work, we completely explain the Misesian perspective. Mises becomes, as promised, a subset of Carlyle. Freedom is good, because freedom is fundamentally orderly - ie, right-wing. Tyranny is evil, because tyranny is chaotic - ie, left-wing.

Tyranny is one form of chaos; freedom is one form of order. There are others of each, however. And order is always preferred to chaos. Thus, to a Carlylean, the fatal error of libertarianism is the confusion of anarchy and freedom. Not only are they not the same thing; they are opposite poles of the political spectrum. Freedom - spontaneous order - is the ultimate form of order. Anarchy is the ultimate form of disorder.

To a Carlylean, anarchy and tyranny are fundamentally and essentially allied and indivisible. And again: the apparent affinity between anarchy and freedom is wholly illusory. In fact: to maximize freedom, eradicate anarchy. To achieve spontaneous order: first, achieve ordinary, down-to-earth, nonspontaneous order. Then, wait a while. Then, start to relax.

Here is the Carlylean roadmap for the Misesian goal. Spontaneous order, also known as freedom, is the highest level of a political pyramid of needs. These needs are: peace, security, law, and freedom. To advance order, always work for the next step - without skipping steps. In a state of war, advance toward peace; in a state of insecurity, advance toward security; in a state of security, advance toward law; in a state of law, advance toward freedom.

The Newtonian envelope of libertarianism is the last of these stages. Once the state of lawful government is reached, that state can generally improve itself by minimizing its interventions and applying a policy of laissez-faire - advancing from enforced to spontaneous order. With the caveat, of course, that this policy not jeopardize the more important achievements of peace, security, and law.

When a state finds itself outside this Newtonian window, however, Mises and Rothbard are of no assistance whatsoever in helping it get back in. Worse: Rothbardian libertarianism can be a positive hindrance to the Carlylean roadmap.

Consider the first stage of restoring order: peace. In war, advance to peace. Now, in any war, while it may be quite difficult to identify the aggressor in a moral sense, it is generally easy to identify the aggressor in a military sense. This is the party taking the offensive - the party that would not consent to ending the war on the basis of uti possidetis, the status quo on the ground. In English: in any war, there is a party that would be happy to stop, and a party that wants more.

For a state "with the ball and moving it," peace is easy. It can be achieved by mere forbearance. For a state on the defensive, however, there are only two means to peace: surrender, or victory.

Surrender comes in two forms: unconditional, or incremental. If unconditional surrender is necessary, it should by all means be pursued. If incremental surrender is effective, it may be pursued, but it is generally not effective. A predator will come back for more, knowing that he can get it. Incremental surrender may be associated with effective deterrence, but this is rare.

Therefore, in many cases peace can be achieved only in the Roman way: by victory. As with all military objectives, victory is achieved by any means necessary. Including artillery. Clearly, if the enemy uses artillery and you don't, your chances of victory are greatly reduced.

But the libertarian artillery officer faces a serious moral dilemma. Does artillery violate the natural rights of the target? I would say: the entire purpose of artillery is to violate the natural rights of the target. Clearly, if you could get your hands on the people your artillery is pointed at, and subject them to a full and fair judicial trial for whatever their offenses may be, you would have no need at all for artillery. Since you have no means by which to achieve this, you subject them to a 120-mm shell instead. Hence violating their natural rights - with both blast and shrapnel. When they may have committed no offenses at all. Boom! Hey, man, that hurt.

This is war: inter arma silent leges. Or so the Romans believed. One can, of course, reverse this axiom - just as Einstein himself, on so many bumper stickers, reversed si vis pacem, para bellum. When reversing millennium-old proverbs, be sure to expect the reverse results. Perhaps they won't happen; in that case, you'll be pleasantly surprised.

Similarly, once outright military conflict is ended, peace is established. But mere peace is a low state of order. In peace, the state must work toward security.

A state is secure if it maintains a monopoly of coercion. Security does not mean the absolute absence of crime, ie, private coercion; this is unachievable, because crime cannot be universally preempted. Security does mean the absolute absence of systematic or organized crime, as well as the absence of any other systematic resistance to state authority - from banditry to tax protest, terrorism to "civil disobedience."

And how does this resistance become "absent?" Well, of course, it does not do so on its own. Oh, no! Au contraire, mon frere! In certain rare instances, systematic crime can be legalized, and thus become orderly. Indeed, if the state's orders are physically unenforceable, it should reconsider them. It cannot outlaw the moon. Marijuana laws are perhaps a case of this - not due to the harmlessness of the drug, but the hardiness of the plant.

Otherwise, alas. Security is achieved when resistance is crushed. The use of artillery in this process should be unnecessary. If you need artillery, you are probably still working on the peace stage. On the other hand, the assumption that all security problems, in all cases, can be resolved by the use of rights-preserving judicial procedures, is entirely unwarranted.

Here we meet a good old friend, martial law - yet another traditional attribute of sovereignty recognized for millennia, yet strangely forgotten in the late 20th century. Martial law is no law at all, of course, but the arbitrary will of a military commander. It is really martial order. And there are countries in the world - quite a few, in fact - that need martial order, the way a camel that's just walked across Libya needs a glass of water.

Just like artillery, martial order is an essential step in the journey from military chaos to libertarian order. A state that can win its wars with artillery, but not enforce the result with martial law, is a state whose subjects can never feel secure. Have you ever lived in a fully secure society? It's an experience most of us can barely imagine.

But martial order is, by its nature, only temporary. As soon as it is achieved, it is time to move on to the next step: law. Once the state has suppressed all resistance to its will, it must render its own actions consistent and predictable. This result is produced by the institution of law.

Authorities differ on the merits of codified law, in the Continental style, and case law, in the Anglo-American style. While not a lawyer, or even a student of comparative law, I am inclined to be sympathetic to those who think of common law as simply a medieval abuse - a consequence of England's unfortunate failure to distill and codify its body of precedent. Clearly, justice in the common-law system is neither especially fast, nor especially cheap, nor especially fair. It may have other advantages, but these have not revealed themselves to me.

Once again, attempts to achieve law before security simply disrupt the task of achieving security. Once security is achieved, however, law provides the inestimable boon of safety from state actors, as well as independent bandits. If official actions are lawful, they are predictable. If they are predictable, a rational person can predict them, and thus avoid infringing them. Martial "law," by its very nature, can provide no such guarantee.

Finally, once the rule of law is achieved, the government can relax its sphincter, let down its hair, slouch a little, have a beer, and let people do what they want. It can replace enforced order with spontaneous order. It can minimize its intrusions and interventions - since it knows there is no danger that freedom will develop into disorder.

Thus applying libertarian principles of natural rights, outside the Newtonian envelope, moves a state not toward the libertarian goal of spontaneous order, but away from it - ie, toward chaos, defeat, and destruction. Because its enemies use artillery, and it doesn't. Its enemies do not bother with trials, and it does. Etc. Therefore it is weak, and cannot produce any order at all, spontaneous or otherwise.

Whereas to a libertarian, freedom is no more than the absence of tyranny. To achieve freedom, defeat tyranny - ie, any government that violates natural rights. You can see how this rule, while virtuous in some cases, in others becomes a spanner in the Carlylean works, because a Carlylean artillerist may violate quite a few natural rights on his way to order.

Thus, to a libertarian of particularly anarchist bent (for instance, a strict Rothbardian anarcho-capitalist), an illusory method for producing this genuine desideratum, spontaneous order, turns traitor and serves instead as a form of chaos. Thus libertarianism can be advertised to chaotic forces, and even attract some energy from them. Frankly, young male humans are instinctively attracted to anything which reeks of chaos. It's just a character flaw in the species.

True chaos knows its own, however. There is an anarchist bookstore a few blocks from my house. They don't carry Rothbard, or any other "anarcho-capitalist." They know the difference between left and right. The support base may blend at some low level, but this level is well below the liability line. More supporters is not always better.

There is actually a very easy means by which a Misesian can go past libertarianism. The means has a name: Hans-Hermann Hoppe. Professor Hoppe's Democracy: The God That Failed is still one of the best anti-democracy tracts I've read, and it was most certainly the first. Professor Hoppe is no Mises, perhaps even no Rothbard, but he is certainly the leading Rothbardian scholar of the post-Rothbard era.

To remain within the Newtonian envelope, Professor Hoppe executes a stylish double-axel of libertarian ketman:
Despite the comparatively favorable portrait presented of monarchy, I am not a monarchist and the following is not a defense of monarchy. Instead, the position taken toward monarchy is this: If one must have a state, defined as an agency that exercises a compulsory territorial monopoly of ultimate decision-making (jurisdiction) and of taxation, then it is economically and ethically advantageous to choose monarchy over democracy. But this leaves the question open whether or not a state is necessary, i.e., if there exists an alternative to both, monarchy and democracy. History again cannot provide an answer to this question.
History also cannot provide an answer to the question of whether there are any blue dragons on Neptune - only that none, so far, have been observed.

It can also tell us that our species has been operating on the basis of geographic monopolies of sovereignty for roughly the last 56 million years, ie, since the first tree-rat pissed on the first tree-branch. Perhaps we could hire some chimpanzees to experiment with multiple, overlapping protection agencies, and get back to us on that. Or we could hire the blue dragons from Neptune.

Again, we see anarchism - the pure toxin of chaos - popping up on the right. Why is that? Does it make the right more effective, or less effective? Is an anarchist right more, or less, likely to prevail, than a non-anarchist right? Will it do better, or worse, once in office?

Well, if we generalize to the history of the leftist right - that is, the right perverted to wield the weapons of the left - what we see is... well... Hitler. Left-flavored rightism is fascism. And easily recognizable as such. Fascism, in 2010, is not without enemies. So (a) it probably doesn't work, and (b) if it works, it produces... Hitler.

Now, a little anarchism does not make Professor Hoppe into Hitler. What it does, however, is to make him much less effective. It entirely dissuades him from leaving the envelope and exploring this strange Einsteinian area, royalism. Instead, he falls back on Rothbard's blue dragons from Neptune - competing protection agencies. We shall have neither democracy, nor anything else!

As a basically innocent person, thoroughly educated by our fine institutions of learning, having attained to hardcore, Misesian libertarianism I had attained a strangely Mohammed-esque position - halfway out of the official reality. Torso fully extruded from the great net of lies; hips still stuck.

I was ready to give up on the Jedi Council. I did not yet see the only alternative: a return to the old way of the Sith. In darkness, all roads are dark! Yet walk we must. Dark it is; and grows not lighter.

I did not see a contradiction between libertarianism and democracy. I saw libertarianism as the culmination of democracy. In my imaginary future, the obviously correct ideas of libertarianism would spread, by some process, to the minds of the masses; and, for some reason, remain there. And they would elect libertarian politicians, then and forever. Who would govern libertarianly, or whatever the proper adverb is.

I did not actually think these thoughts explicitly. Had I thought them explicitly, their aqueous character would have been apparent. I thought them implicitly, because I was a democratic libertarian. I had never reconsidered democracy. Once I reconsidered democracy, however, I could not help but notice the fundamental dependence of libertarianism on democracy. Without democracy, do we need libertarianism, per se? Would we even have thought of it?

Libertarianism is a formula for government. As we've seen, there are fundamental problems with the idea of any such formula. Mises quite successfully discredited nonlibertarian formulas for government, but he did not show that government by any formula is practical - including the libertarian formula.

Moreover, the entire proposition of government by formula appears motivated by a single goal: the need to design a system of government which can be enforced by democracy. Thus, libertarianism is both a method of government, and a means by which to impose that method. The method is: govern minimally (whatever precisely this may mean). The means is: convince the voting population of the need for minimal government, and ensure that they remain so convinced. Hm.

Another way to see the problem is to examine that shibboleth of libertarians - limited government. Now, the frustrated English teacher in me notes an interesting fact about this phrase: it is in the passive voice. Who shall limit the government? And how can we assure that they continue to do so? And if some other party does this limiting, who shall limit them? This is, of course, the old quis custodiet problem. To which Rothbard has no better solution than Juvenal.

Libertarians can be classified according to their wrong answers to this question. If you are a democratic libertarian, you believe that government should be limited by popular sovereignty. You also probably haven't looked out the window in the last 200 years. If you are a judicial libertarian, you believe that government should be limited by judicial sovereignty - ie, by a judiciary committed to Constitutional principles and the Anglo-American common law. And you haven't looked out the window in the last 75.

The essential problem with both democratic and judicial libertarianism is that, while we see both these phenomena succeed in history, we see them - once again - succeed only on the left. English and American history is a rich trove, as Rothbard can show you, of both popular resistance to state authority, and judicial resistance to state authority. However, this resistance succeeds only when in the process of undermining some higher order, royal or aristocratic. Once the People themselves are in the saddle, they no longer listen to complaints of this form.

In the democratic system today, to ask either the electorate or the judiciary for libertarian government is to ask an empowered body to relinquish powers it has. The People have powers X, Y and Z; they use these powers to vote government services A, B, and C; if you remove these services, you must remove the powers; if you remove the powers, you disempower.

Similarly, we live in the golden age of government by judge. Most significant executive decisions in the modern system of government land, one way in another, in the lap of a judge. This is the direct result of New Deal Legal-Realist jurisprudence. And you're asking the judiciary, itself, out of mere goodness of heart, to relinquish this fat leg of ham? You and what army?

Whereas when the likes of Coke contended with the likes of Charles I, judicially-limited government was a no-brainer. Alas, judges are men. If we had angels on this planet, we would long ago have consigned these duties to them.

Thus, again: libertarianism works for the left and fails for the right. Both sovereign electorate and sovereign judiciary are perfectly happy to restrict the powers of others, ie, the King. Convincing them to restrict their own powers is quite a different problem. When democracy is competing against the remnants of the ancien regime, it is a force for limited government. Once it defeats and disempowers these remnants, it is a synonym for socialism.

As a post-Misesian, I am a third class of libertarian: a royalist libertarian. Which is to say, a royalist. Going where Professor Hoppe fears to tread, I set myself to the problem of finding a good King. And getting him into office - and making sure he stays there. As a royalist, I take it for granted that a good King will pursue libertarian policies, if of course they are called for.

It took me some time to get to this point. My response to reading Hoppe, therefore, was to immediately go out and scour the libraries for other works against democracy - libertarian or not. Since I expected these works to violate my sense of common decency, I was prepared for the smell of sulfur. I found quite a few. There are indeed quite a few - though few post-1945. In general, the older the anti-democracy treatise, the better, although the High Victorians are a brilliant exception.

Thus I found Carlyle. Who smells of sulfur, indeed. He speaks what he sees in a sulfurous world. Which, as he predicted and as indeed came true, would get a lot more sulfurous. Once Carlyle shows you the Devil, you are not long unconscious of his presence!

Here is a simple Carlylean puzzle for Misesians. Answer the following questions:
(1) Do you live in a city? If not, why not?
(2) If so, can you safely walk anywhere in that city, at any time of day?
(3) If not, what authority is restricting your freedom?
Your answers will reveal that either (a) the planet you live in is not Earth as we know it, or (b) your natural rights are most directly and saliently threatened not by official forces, but unofficial forces. Ie: not by the police, but by criminals. Duh.

Note the enormous explosion in crime over the period of leftist ascendancy - as Carlylean theory would suspect, and as Carlyle himself in fact predicted. For example, if we go back to A Study in Scarlet, we see Holmes with an interesting complaint:
"There are no crimes and no criminals in these days," he said, querulously. "What is the use of having brains in our profession? I know well that I have it in me to make my name famous. No man lives or has ever lived who has brought the same amount of study and of natural talent to the detection of crime which I have done. And what is the result? There is no crime to detect, or at, most some bungling villany with a motive so transparent that even a Scotland Yard official can see through it."
Official statistics confirm that crime in England has increased roughly by a factor of 50 since Conan Doyle wrote. His Holmes stories, of course, were set in the real world of his present - indeed, their success depended on their close attention to detail.

So we see that an English government of the Victorian era - without DNA testing or closed-circuit TV - managed to largely abolish crime. We also see that the present-day government of England (and of other places governed in the same way) pretends to want to abolish crime - but to be unable to do so. Are we inclined to doubt this pretence? We are. Are we entitled to doubt it? We certainly are.

But if this pretence is indeed a pretence, if crime can indeed be abolished by enforcement, we accuse the present regime of something very serious. It becomes an accessory to this crime, which it could have abolished but chose not to. Furthermore, rather than admitting to this (somewhat) unprecedented abuse, it chose to deny the fact, and plead an obviously farcical incompetence. Certainly, when the SS removed police protection from the Jews of Riga, the SS made itself morally responsible for the subsequent pogrom by the Latvians of Riga. Even if all the Obersturmführers were on their lunch break, or whatever.

Therefore, the simplest way for a libertarian to support natural rights in his own society is to support a savage police crackdown on crime. For instance, by reimposing the standards and practices of the Victorian law-enforcement system, certainly both available and practical.

Inevitably some mistakes will be made; some innocent heads will be cracked. However, as a libertarian in America, exercising your libertarian rights, your goal is to minimize the number of natural-rights violations in America - whoever may be committing them, and in whatever uniform. Hence, you should generally support the police against criminals. The former violate natural rights only by accident and/or malfeasance, whereas the latter do so as a matter of regular procedure. In practice, it is not hard to know who is the cop, and who the criminal.

Unleash the blue wave! As Travis Bickle put it, someday a real rain will wash all the scum off these streets. That rain is on the way. Its name is President Brown. "You will croak, you little clown / When you mess with President Brown!" And after that rain, preventive-detention facilities will spring up like puffballs, as America's streets are scrubbed clean as diamonds and left as safe as the White House lawn.

This is, of course, one version of Rothbard - the Rothbard of the Rothbard-Rockwell Report, somewhat exaggerated but not absurdly so. There are various libertarian excuses as to why this natural elaboration of libertarian principles is inappropriate, I know. But I have never seen one worthy of remembering.

The details of this "blue-wave libertarianism" are not important. What's important is that the Rothbardian theory contradicts itself. Applying strictly Rothbardian methods - the sovereign should restrict itself to the task of minimizing natural-rights violations - we have reached a remarkably non-Rothbardian result. From the aprioristic praxeology of human action, we deduce Joe Arpaio. There may be nothing wrong with this answer - but it seems strange. At least, from a Misesian perspective.

When encountering this formula, right is right and left is wrong, first popularized by the great Austrian reactionary Kuehnelt-Leddihn (who, by the way, is a good read after Professor Hoppe; if nothing else, they host his books at LvMI, so they must approve), great care is necessary.

Yes. I do believe this: right is right and left is wrong. But only the pure article. Right, pure right, is right and left is wrong. As for any mixture of the two - only the Devil knows. The two great totalitarian tyrannies of the 20th century are both mixtures of right and left, order and chaos - in which both strains are prominent. If it is possible to be more Satanic than mere anarchy alone, these mixtures proved it.

For instance, if right is right and left is wrong, must we side with the right in all the major political and military struggles of the 19th and 20th centuries? If so, we find ourselves siding with not only the Nazis, but also the Kaiser, the Sultan, and the Confederates. Which may be correct - but again, suggests an additional self-test is necessary.

The answer is that where we see atrocities of the right, we tend to see a right-wing system whose order is seriously contaminated with some fundamentally chaotic element. For example, out of many reactionary elements in the late Weimar Republic, the Nazis emerged triumphant. Why?

Because, National Socialism was best-adapted to succeeding in the democratic system of Weimar. For instance, because of its anti-Semitism (an unsophisticated, lower-class prejudice), it could offer up the scapegoat of "organized Jewry." It could set the majority, like dogs, on the minority. Fresh meat! The Tatkreis crowd, for instance, had no such bait to fling the mob. We have no idea what the national conservatives of Germany would have done after Weimar. Weimar could never have elected them, and they had no way of overthrowing it.

Furthermore, we again see the use of leftist tropes by a rightist movement. How did Hitler come by German nationalism? Where did this bug come from? Well, perhaps it came over the Alps from Italian nationalism. Or across the Danube from Hungarian nationalism. Or...

With the notable exception of (later) German and (sometimes) French nationalisms, all the nationalist movements in Europe are pet projects of the British (and American) liberal. (Yes, that same Manchester liberal - mostly, though not entirely.) Mazzini, Garibaldi, Kossuth, etc, etc, etc: all cheered by great crowds when they come to London. (Whereas General Hyaena is lucky to escape with his life.)

It is not obvious that ethnic nationalism makes any sense except in the context of democracy. Thus, we see the two as coinfections, like Kaposi's sarcoma and AIDS. The Nazis, fighting against democracy, pick up this Kaposi's sarcoma and use it as a weapon in the opposite direction. Once again, I would recommend very strongly against this trick. Not only were the results extraordinarily dire the one time it did (sort of) work, it's generally just a way to alert the immune system. Thus again, we see the practical advantage of absolute veracity.

But there is a still greater difference. When proselytizing toward a libertarian or any other red republican, a royalist has another easy question to start with. What is the difference between Frederick the Great and Hitler? Both, after all, exercised absolute personal authority over a country of Germans. Yet refugees fled from Hitler's Germany; to Frederick's Prussia. Was this predictable? If so, how?

Until you understand the difference between a king and a dictator, you will continue to confuse the timeless human institution of monarchy with these monstrous 20th-century abortions. In truth, the dictatorships of the 20th century were attempts to restore the vitality of the old regime. The bad ones were just bad attempts. Bad is bad; anything can be done badly, monarchy and democracy certainly both included.

Hitler himself was a huge Carlyle fan. But Hitler was also Hitler. If you don't understand the difference between Hitler and Frederick, it is not because you are ignorant of Hitler! The educated person of our time has a remarkably accurate picture of Nazi Germany. Of all the historical periods he understands, he understands the Third Reich best - usually, much better than his own present day. His view of the democratic regime, which survives, is shrouded in democratic euphemism; his view of the Nazi regime, which does not, is free from Nazi cant. And of the actual old regime, he knows nothing at all.

There are many differences between Hitler and Frederick, but perhaps the key one is stability. Frederick, while not intrinsically secure from his foreign enemies, was quite secure from any domestic opposition. No one was trying to kill him; no one could have accomplished anything by killing him. He was, in short, a monarch. A dead monarch is replaced, automatically, by another monarch - the identity of whom is already known. If the old monarch was assassinated, God forbid, the new monarch is generally not the assassin (or his employers).

Not so for a dictator! People were trying to kill Hitler all the time, and it's a Satanic miracle that none of them succeeded. If, say, Elser's bomb had worked, it would have changed the course of history. There was no Hitler 2.0, or vice-Hitler, or Son of Hitler, waiting in the wings. Hitler, for all his faults, was one of a kind. Thus, the incentive was considerable.

And thus, Hitler - unlike Frederick - has to devote considerable effort to shoring up his sovereignty, which is by no means secure. He has to scapegoat the Jews and fight the Communists, for instance; his sovereignty depends on his popularity, and he is popular because he fights these popular enemies. Otherwise, what's the point of Hitler?

Hitler is also noted for his "two in a box" management style, in which he gives multiple subordinates the same job and let them fight it out. This is generally not recommended at Harvard Business School. And so on. Thus, irrespective of his (dubious) sanity, Hitler has a rational motivation for tyranny. His regime is inherently violent, thus inherently chaotic.

The same, but far worse, is true for Hitler's great adversary - Stalin. One of the most amazing documents of the 20th century is the Webbs' essay Is Stalin a Dictator? The answer, of course, is no:
Sometimes it is asserted that, whereas the form may be otherwise, the fact is that, whilst the Communist Party controls the whole administration, the Party itself, and thus indirectly the whole state, is governed by the will of a single person, Josef Stalin.

First let it be noted that, unlike Mussolini, Hitler and other modern dictators, Stalin is not invested by law with any authority over his fellow-citizens, and not even over the members of the Party to which he belongs...
In other words, Stalin is not a dictator because (unlike Hitler) he is not legally a dictator. On paper, he is just what his title says he is: general secretary of the CPSU. A purely clerical position. As the title, of course, implies.

In real life, of course, Stalin was a dictator. Which made his position rather precarious! By the nominal collective, bottom-up, democratic structure of the Communist Party (completely absent, of course, in the Nazi Party), Stalin was a mere clerk. In the actual, unwritten reality, he was a Tsar.

Thus, the capacity of this system to revert from its informal Tsarism, to its formal "democratic centralism," was on every second of every day latent. Formally, officially, Stalinism is an ultra-democratic, left-wing, bottom-up form of government. Actually, unofficially, it is an ultra-despotic, right-wing, top-down form of government. The contradiction is quite great. Here is our chaos: black and white, sharing a single desk. Stalin has the power of the Tsars, but not the security of the Tsars.

No wonder Stalin killed so many old Communists. He had to. At least, once he started. He was riding the tiger. After Stalin died, Beria tried to take Stalin's place and hold this system together. A lot of bad things have been said about Beria and no doubt most of them are true, but no one to my knowledge has ever described him as a pussy.

So he lasted surprisingly long: almost four months. After that, of course, he was shot. The Soviet Union never had a true dictator again. It did not become a democracy, of course, but an oligarchy. Later general secretaries were strictly primus inter pares among the Politburo.

Thus we see the chaos implicit in tyranny. The tyrant is depraved, on account of he's deprived. Regardless of his personal mental stability, the instability of his regime compels him to tyrannize. Of course, if he's a paranoid sadist, this may compel him as well; and indeed, this tendency may aid him in getting the job. It certainly is not a qualification for monarchy.

Dictatorship, of course, can evolve into monarchy. Every historical monarchy has originated as, in some sense, a dictatorship. Caesar's is a good example. But if a dictatorship is to make this transition, if it is to achieve stability and permanence, it had better be designed to do so. 20th-century dictatorships were designed primarily to fit the needs of the processes that brought them to power. These were ugly processes, with no particular affection for stability and permanence. Hence, they bred tyrants. Only tyrants could harness the evil, chaotic power of these democracies gone wrong.

As a royalist, I favor absolute monarchy in the abstract sense: unconditional personal authority, subject to some responsibility mechanism. I am not an adherent of any particular dynasty, nor do I favor the hereditary principle as a method for royal selection; I prefer another political innovation of the Elizabethan era, the joint-stock company. I feel the State should be operated as a profitable corporation governed proportionally by its beneficiaries.

But given a binary choice between restoring the Stuarts, or sticking with the Anglo-American republican tradition, I would restore the Stuarts. At worst, an absolute President could even be elected by universal suffrage. Though, if you want a Hitler, this is how to get one.

I feel I have done a reasonable job of advertising Carlyle - or, at least, explaining Carlyle. But is my advertising true? And didn't I ask you to read Carlyle, before reading about Carlyle? If so, shall we not shit, or get off the pot?

So: enough abstractions of personal government. Let's look at a real example. And let's pick a Carlyle essay which is challenging, yet understandable. You've swallowed the theory. Now, the practice. If you can get this red pill down, you're cured. If not - well, you're probably normal. It's okay. Most people are.

Ill-informed leftist slurs to the contrary, General Pinochet is not exactly a popular, much-praised figure in libertarian circles. And not one libertarian in a thousand has even heard of his 19th-century counterpart - the subject of Carlyle's magnificent Dr. Francia (1843).

If you are interested in joining the weird cult of Carlyle, Dr. Francia is perhaps the best introduction. For one thing, it is one of the earliest works of Carlyle's later, politically incorrect period - which, if you are a busy person, is the only period you need to read. For another, you know even less about the real Dr. Francia than Carlyle did.

Carlyle - no dilettante belletrist, but one of his century's more diligent documentary historians - frankly confesses the utter inadequacy of his sources. It is unclear that they have improved. Paraguayan Studies is not one of the University's more popular majors. Please read Dr. Francia before you go Googling about for the actual Dr. Francia - it is not at all clear to me that Wikipedia's picture is any clearer than that of the aqueous Robertsons. With which it seems so synoptic. But could the Robertsons just be right? Who knows? Ah, the dark past.

And if you do read Dr. Francia, and are still shocked, there is only one cure. You are shocked because you are considering the matter in itself, on an absolute scale. You are not comparing it to the alternative. So why not have a look at the alternative?

Dear reader: I am proud to recommend the first must-see movie, or at least Internet video, of 2010. This is Shane Smith's Vice Guide to Liberia. "We here at Vice have been fascinated by Liberia for a long time..." Dr. Francia? Or General Butt Naked? Apples to apples, dear reader.