OLX: a simple sovereign bankruptcy procedure
Dear open-minded progressive, as we reach Chapter X it is time for some administrivia.
First, we are switching to Roman numerals. At least past 10, they are just classier. Also, if anyone wants to provide design suggestions, or what would be even more super-duper graphics, logos, templates, free hosting, free money, free beer, or even just free parenting advice, they may of course contact me at the usual address, linked to over on the right.1
I would note, however, that my email responsiveness of late has been unusually poor. In fact, it has been amazingly poor. For some reason I had entertained the idea that being chained to my daughter would enable me to actually catch up with the large number of extremely interesting and well-written epistles sitting unanswered, many a few months old, in my inbox. You see why UR is not a good source of financial advice.
However, my daughter is three months old today. (And her 8ra1n is growing like a prize melon—she pops out of the 0–6 month hats, she is firmly in the 6–9.) She may not scream less, but it seems like she screams less. So I will attempt to work into the pile, probably in reverse order.
Second, there is a second awful truth, which is that for my daughter’s whole life, I haven’t even been reading UR’s comments section. This is a deed so shameful it is probably unknown in the Western world. In case you accept excuses, however, my excuse is that it is a sort of crude literary device. If it was written in response to its weekly feedback—which, in the past, has often proved much more interesting than the post—UR would be very different. Chattier, more bloggy, and I suspect less interesting. Or so I claim. We’ll never know, though, will we?
I will even be brazen enough to suspect that if I were reading them, the comments would not be quite as good. I do get the impression they haven’t degenerated into mindless Web nonsense, puerile flamage, Jew-baiting and ads for spineless anal balloons. But if there is any such content I of course disclaim it. After I am done with this series I will edit out any and all stupid comments. If they are all stupid, there will be none left. Ha. As Terence Stamp put it: “Kneel before Zod! Kneel!”
I will, however, attempt a collective response to the non-stupid comments, unless they are so devastating as to leave me speechless. Please continue leaving them. You may not be enlightening me, at least not immediately, but you are enlightening others.
And speaking of General Zod: if you are finally resolved to consider yourself a pathetic dupe of the Mold, you are of course free to either describe or not describe yourself as a formalist, a reservationist, a restorationist, or even a Mencist. This last coinage sounds faintly ominous and evil, which of course is not true—Mencism is all happiness, smiles, and light. In turn, however, be prepared for the fact that anyone can accuse you, with perfect accuracy, of neo-Birchery, postfalangism, pseudo-Hobbesianism or even rampant moldbuggery. To paraphrase Barack Obama: if you don’t have a knife, don’t start a knifefight.
If I had to choose one word and stick with it, I’d pick “restorationist.” If I have to concede one pejorative which fair writers can fairly apply, I’ll go with “reactionary.” I’ll even answer to any compound of the latter—“neoreactionary,” “postreactionary,” “ultrareactionary,” etc.
So when I call someone a “progressive,” what I mean is that his or her creed is more or less the direct opposite of mine. Of course, we both believe that the sky is blue, apple pie is delicious, and Hitler was evil. And since we are both polite, mature, and open-minded people, we can converse despite our disagreements. But just as there is no such thing as a progressive reactionary, there is no such thing as a progressive restorationist. Or vice versa.
I am comfortable using the word “progressive” because, and only because, I know of no significant population of English speakers for whom it conveys negative connotations. Similarly, when speaking not of the ideas but of the set of people who hold these ideas (or, as they like to put it, “ideals”), the name Brahmin is time-honored and nonpejorative.
This is not a reference to the Tam-Brams. In fact, there is a fine practical definition of Brahmin in this video, which is long (15 minutes) but I feel worth watching: Barack Speaks To HQ Staff & Volunteers.
This is, of course, internal video from the Obama campaign. I don’t think it was leaked. I think it was intentionally published, and so it has to be taken with a grain of salt. However, the people in it are all their real selves. For once, they are not acting. I recognize the meeting. It reminds me a lot of the first post-IPO meeting at the tech-bubble company I worked for.
There is one main difference: a few more blacks (and nowhere near so many Tamils). A few more. And the camera eye, hilariously, stalks and pounces on all the diversity it can find. But it cannot conceal the horrible truth: almost everyone inside the Good One’s campaign is white. Maybe one in fifteen is black. Maybe one in twenty. Definitely not one in ten. And I suspect many of these hold positions for which melanin is a job requirement, i.e., working with the “community.”
And weirdly, given this explanation, there are no, no, no Mexicans. Okay, maybe one or two. The video is grainy. It’s hard to tell a Jeremiah Wright from a Cuauhtemoc Cardenas. But I live in San Francisco, I am quite accustomed to encountering a progressive population with a strong Aztlanic contingent (SF State is, after all, the home of the notorious Third World Strike), and I ain’t seeing it. (And isn’t that maneuver with Patti Solis Doyle charming? Doesn’t that just show you the maturity level of the whole organization?)
Bell curves being what they are, you need one thing to achieve the Obama team’s rarefied whiteness: an ultra-competitive, race-neutral employee filtering process. These people could be the audience at your average Google tech talk. Everyone in the room, whatever their skin color, is not just a Brahmin but a high Brahmin, a status held by anyone obviously smart enough to get a Ph.D., MD, etc., from a top school.
There is no mainstream American university whose general student body is anywhere near this segregated. Or anywhere near this 31337, I suspect. I wonder why that is. Isn’t it curious, then, that so much of Obama’s support should come from our wonderful universities, to which “diversity” is so important?
Surely, dear open-minded progressive, one can disagree honestly on whether employment decisions should be made on the basis of skin color. It is after all a Humean ought. Given how unusual the idea of racial preferences for colored people would have sounded to the Americans of, say, 1908, don’t you find it a little unusual that there should be so little, um, variation, in all of these supposedly-independent decisions in Humean ought space, as produced by our glorious variety of supposedly-independent universities?
But I should be fair to pre-President Obama—whom I really like calling the Good One. I feel that if this locution could be persuaded to spread, it might be of some benefit to humanity. Needless to say, I don’t mean it satirically.
Because after watching the clip above, my impression is that the Good One is exactly that: good. That is, he is good at his job, which is all you can ask of anyone. More precisely, he talks like a competent manager. If I were working in at a startup and I had a boss who gave pep talks this good, I’d feel quite comfortable with the administration. Management is more than just talk, but can you call the Obama campaign anything but a successful operation? The graphic design alone is brilliant.
There is only one problem: this outfit is very good at winning presidential elections. We have no reason to think it is any good at anything else. The candidate is a great presidential candidate. He will probably be a good president, too. Of course, that is to say he will be good at reading his lines and pretending to be an 18th-century statesman, which is the job of a US President in 2008. Perhaps we should just write in Paul Giamatti, who I’m sure could act the Good One off the stage.
Moreover, the Nazis had an effective campaign team, too. Plus some pretty good graphic design to go with it. Most people don’t know it, but the SS dress uniform was designed by Hugo Boss. If design is your criterion, the Third Reich was the best government of the century. In fact, even if architecture is your criterion, I will take Nazi architecture over progressive architecture, any day of the week and twice on Sundays.
And since the quality of architecture is indeed a good rule of thumb on which to judge the general quality of government, this is worrisome indeed. But all it means is that the case is an exception to the rule. Like anyone with any sense, I’d rather be governed by progressives than by Nazis.
(Nazis matter, because a Nazi-like outcome is the most catastrophic failure mode of any restoration effort. Restorationism is to fascism as a bridge is to a pile of rubble in the riverbed. Bridge collapses can be dangerous and unpleasant, but that doesn’t make bridges a bad idea.)
But comparing one’s enemies to Nazis is old hat. Progressivism has a much better match on the other pole of the totalitarian continuum. The meter lights up like a Christmas tree and the little arm goes all the way to the right. Or left, as it were.
Recently in a used bookstore I found five issues of Soviet Life from the mid-late ’80s. I had not previously been aware of this publication. I find it quite revealing. Unfortunately for me but fortunately for you, someone has already scanned three whole issues of Soviet Life. So I will not bore you with my endless, Gollum-like chortling over this bibliomanic coup.
But I thought it’d be fun to share one sweet little piece, from January 1986. Of course, this is a news story, not an ad. (No advertisements sully the pages of Soviet Life.)
Georgian plastic surgeon Dr. Vakhtang Khutsidze helps people look younger. Just look at Edith Markson. Would you believe she is 72? Of course not. She is an attractive woman who looks many years younger than her actual age. That’s what happens after treatment with Dr. Khutsidze, many of his satisfied patients maintain.
Edith Markson, who has spent several years in the Soviet Union, heard about Dr. Khutsidze’s skillful hands when she was in Tbilisi visiting a few of her theater friends. It was then she decided to have cosmetic surgery. Particularly since, as she told local reporters, a face lift would cost several thousand dollars back home in the States. In the USSR the operation costs from 30 to 100 rubles.
“I’m an ordinary American,” Edith Markson said, “and I’m not responsible for official policymaking. Making friends with people from many countries is the best human politics. And now I’ve added Vakhtang Khutsidze, the Georgian doctor, to my list of friends.”
Twenty-five years ago Dr. Khutsidze was one of the first plastic surgeons in the Soviet Union to use the so-called sparing method in nose operations. Ever since then he has performed approximately thousands of these operations. His work, which requires expert surgical skill, has a lot in common with sculpture, the surgeon maintains.
(Please don’t skip the Edith Markson links—they really round out the episode. The Soviet Life article comes with its own photograph, but I feared younger readers might find it disturbing. Although, frankly, the results are pretty good for “30 to 100 rubles.”)
Then, for maximum disorienting effect, skip directly to this Times story—which appeared on Tuesday. Do you notice any resemblance? Any at all? Obama, Prince Royal of the Blood, beloved by all God’s children but especially the colored ones, from Bolivia to Clichy-sous-Bois? What is he, the second coming of Comrade Brezhnev? Is the Times going to continue this kind of coverage after he’s elected? That would really be turning the obvious up to 11.
I especially love how the Times’ last piece describes Edith Markson as if she were an ordinary retiree, perhaps a cashier at Macy’s or as a dental hygienist, who just happens to have moved to Manhattan in her late ’70s “despite the fear of crime, grime, and hassles in the city that never sleeps”:
Edith Markson stumbled and crash-landed on the sidewalk in Greenwich Village shortly after her return to New York more than a year ago. The badly injured 80-year-old woman was spotted by two homeless men, one of whom swooped her in his arms and majestically carried her one block to a nearby medical laboratory.
Even in old age, with a mending broken hip and a metal valve in her ailing heart, Mrs. Markson is surprised at how uplifting New York City can be. Coaxed back here from San Francisco by anxious relatives who wanted to keep an eye on her, she has found that the city has much to offer an “old lady” like herself.
“It’s wonderful to know when you really get into trouble, somebody will come to help you,” said Mrs. Markson, a widow who had left New York for what she thought was the last time four years ago. Instead, she now lives in a midtown Manhattan apartment where the management installed bars on her bathtub and security guards occasionally check on her.
Despite the fear of crime, grime and hassles in the city that never sleeps, experts say Mrs. Markson is one of a growing number of retirees who are bucking decades-old migration patterns by actually moving to New York for its quality of life.
Words fail me, dear open-minded progressive, they really do. As my wife, who happens to be a playwright in the city where Edith Markson’s little theater company, now essentially a permanent branch of the US Government, remains the 31337, puts it: “does a theater promoter ever really retire?”
And the fact that the two “homeless men” “scooped her up” not just lovingly, not just respectfully, not just adoringly, but no less than “majestically,” really takes the cake. Presumably they carry around spare Burger King crowns, to supply stumbling princesses of the arts with the requisite majesty.
I assert, dear open-minded progressive, that attempting to understand the world of today by reading the New York Times (and its fellow authorized channels) is a lot like trying to understand the Soviet Union by reading Soviet Life. Any such publication will be informative to a trained student of the period. But a proper appreciation of its real meaning requires significant independent understanding and a willingness to—dare I say it—deconstruct.
For example, the wonderful story of Edith Markson shows us that even still in 1986, the social networks in which a New York Times reporter might travel actually connected into the Soviet Union. At least, to her great new friend, Vakhtang Khutsidze—and to the hip young apparatchik who wrote them both up for Soviet Life.
Historically this Greenwich Village connection had always run straight from the Cathedral’s high Brahmins to the Soviet nomenklatura—a word that explains Ms. Markson and Dr. Khutsidze with equal precision. By the ’80s this, like everything else about the Warsaw Pact, was fraying—but what is Red October without John Reed? Flash forward to Judge Guevara, and it is all so perfectly clear. It looks like the same thing because it is the same thing.
Moreover, if you read the political essays in Soviet Life—about a third of the magazine seems to be political content—you realize that the Edith Marksons of the world followed, and did their level best to persuade everyone else to follow, the exact same party line on every political topic that appears in any of my Soviet Life issues, from the nuclear freeze to the Middle East to the abominable persecution of the black man.
Of course this last horror, our vast Caucasian conspiracy, has persisted to this day. It almost cost the Good One the nomination. Etc. Etc. Do I really need to mock this any further? But if you are still not convinced, there are always the O-Ba-Ma videos…
Dear open-minded progressive: frankly, progressivism is just creepy. Do you really want to associate yourself with it? And if the answer is yes, do you think you’ll you still want to be associated with it after the Good One’s vigorous, musky buttocks have spent a year or two in George W. Bush’s Aeron?
If the answer is still yes, I’m afraid you are just not spiritually prepared for the grueling mental ordeal that follows. Deep down inside, you are still a hippie. At the very least, do not continue reading this essay without at least one massive bong hit. Frankly, you’ll need it.
Because finally, there are the lines for which the Good One will always, I feel, be known:
I face this challenge with profound humility, and knowledge of my own limitations. But I also face it with limitless faith in the capacity of the American people. Because if we are willing to work for it, and fight for it, and believe in it, then I am absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on Earth.
Some people are inspired by this kind of emanation. If you are one, how can I fault you? You are probably a pretty nice guy, or gal. There is probably something else in your life besides the Good One—or, of course, his Good Causes. As your attorney, I recommend a real effort to figure out what that thing might be. And maybe focus on it a little more.
For the rest of us, let me note merely that at present, the oceans’ cold and inexorable rise, the salty revenge of Gaia’s tears, the wave looming over Manhattan, is three millimeters per year. This puts us well within the new DSM-IV guidelines for fulminating hydrophobia. And I see no reason to tolerate such systematic servility to such a blatant case of contagious hypochondria.
This suggests a trivial test, a sort of pons asinorum, for any potential restoration. I suggest that as its initial act, any responsible and effective transitional government will set its tone and establish its good faith by assisting the Good One, along with his wife, his people, his wife’s people, and frankly anyone who for whatever reason chooses to accompany him, to transfer their lives, pleasantly and with a minimum of personal disruption, to the Good One’s scenic paternal homeland: the great African nation of Kenya.
It’s entirely possible that Kenya will demand compensation for accepting this crowd. While hard to count in advance, it could easily number in the millions. If so, there is a simple solution: ask the Kenyans how much they want, and pay it. Think of it as a small but symbolic reparation for the vast tragedy of postcolonial Africa.
Of course, there would be no hard feelings on either side of this expatriation. In fact, the Kenyans might well make the Good One president-for-life. His people, the Luo, are riding high these days. And I actually think the Good One might prove a wonderful ruler of Kenya, which if troubled remains one of the most beautiful countries on earth.
For open-minded progressives who doubt that deporting political opponents has anything to do with responsible, effective government—the value of selective relocation as a security measure can hardly be doubted, of course—I have a question for you.
I’m going to play a magic trick. I’m going to pick a historical period in the recent past, in the memory of many of those now living. And I’m going to pick two sources of information. To you, source A will be a source of automatic, near-absolute reliability. To you, source B will be a blatant outlet of mendacious propaganda, produced by some of the nastiest people in history.
But on the major issue on which the two disagreed, hindsight has provided an answer. At least in my opinion, it is impossible to argue the proposition that source A was right and source B was wrong. And it is trivial to argue the converse. To even debate the issue is a sign of complete detachment from reality. Quite simply, B was right and A was wrong. Even Professor Burke admits it.
Our period is 1965 through 1980. Our source A is the international press corps. Our source B is the Rhodesian Ministry of Information. Our issue is the perspective of postcolonial African governments in general, the liberation movements in specific, and Robert Mugabe to be exact.
Dear open-minded progressive, if you can produce any explanation of this trust failure which is coherent, scholarly, realistic, and consistent with progressive ideals, I will admit defeat. Please do remember that extraordinary claims require extraordinary evidence. I don’t like to hear hypotheses that involve UFOs, international Jewish conspiracies, Freemasons, or the like.
In fact, let’s whale on UR’s favorite crash-test dummy, Professor Burke, for a little while here. As I’ve said, this man (an assistant professor at Swarthmore) is my current case study for the fundamentally and irreparably evil character of the Cathedral. He comes across as a perfectly nice guy, of course, and I suspect that’s exactly what he is. So was Albert Speer, who once wrote that you can’t expect to recognize the Devil when he puts his hand on your shoulder.
You probably think it’s excessive to compare Burke to Speer. Oh, no. Think again:
The really major thing, I think, is that the Soweto uprising of 1976 and subsequent campaigns to make South Africa’s townships “ungovernable” put the apartheid regime under what proved to be unbearable pressure, largely on the pure grounds of resource limitations. The apartheid state simply couldn’t cope in the end with the demands that ungovernability put upon it, even when it put up a pretty good show of having everything under a tight authoritarian lid. Few of us saw this clearly in 1986–87 precisely because the state was putting on such a good performance, but underneath, the leadership was increasingly seeing collapse as inevitable.
Let’s review what led to ungovernability. The vast majority of the population without any vote or democratic outlet. An authoritarian state that legally defined almost all dissent as terrorism and gave itself entitlement to retaliate against dissent with imprisonment, torture, and murder. A state which routinely censored all media. A state which ignored property rights of most of its citizens. In short, a state which was in every respect the antithesis of liberalism, in which there was literally no avenue for democratic or liberal protest for the vast majority of its citizens.
Let’s review what ungovernability consisted of. Refusal to cooperate with any institution controlled directly or indirectly by the national government. So leaving school, refusing to pay any rents or fees assessed by governmental bodies, refusal to comply with orders from authorities no matter how routine those orders might be, and an embrace of violent resistance to the state and any perceived agents of the state. Making large areas of the country “no-go” areas for civil authorities unless they were accompanied by strong military forces. Murder or threat of murder of suspected collaborators.
As I said, I think it worked. I think it was justified not just because it worked but because there were no other alternatives. The apartheid state and the National Party spent twenty years steadily crushing all other avenues for political change and rewriting the laws and constitution of South Africa so as to define itself as the permanent and unchanging ruler of South Africa.
That’s right. Our sweet, jocular D&D-playing history professor has just endorsed the practice of putting car tires full of gasoline around his fellow humans’ necks, then lighting them afire. I wonder how many d6 of damage that attack does?
(Professor Burke’s historical analysis is also self-serving in the extreme. The proximate cause of the end of apartheid was the 1992 referendum in which a majority of whites effectively voted to hand over their country to the ANC, a decision they would never have taken if they could have known the consequences. This was the victory of the verligte or “enlightened” Afrikaners over their verkrampte or “narrow” cousins. In other words, it is best seen as a triumph of psychological warfare. No points for telling us who was enlightening the “enlightened.”)
As for the wonderful omelet cooked from these eggs, see this BBC documentary, whose title is misleading (the BBC doesn’t really mean that the “international community” should never again hand over a First World country to the well-spoken frontman of a murderous gang), but whose transcript is glorious:
KEANE: But you see here’s what I can’t understand, and I’ve known this country for a long time. It’s just the ease with which people kill nowadays.YOUTH: Yeah.KEANE: How did that happen?YOUTH: When I get up, I can go to town or I can took your car.KEANE: Would it bother you to kill me to get the car?YOUTH: If you don’t want to give me your keys I’ll kill you. It’s nothing to kill you because of what.. I need the money to survive. You see I need more money. You see it feels like using a gun there’s no feeling. There’s no feeling. It’s just yourself, you’re the big boss. You got a gun, no one will tell you shit or f*** you. No one can tell you f*** you. If you said f*** me, I took out my firearm and I shoot you in your ears, then what will you say? You’re dead! I will took all the things. If you don’t get money, if you don’t get a car you’re nothing.KEANE: Do you think that the life that you’re living and the way that you’re carrying on is what Mandela…YOUTH: But…KEANE: No, but hang on a second, is this what Mandela spent 27 years in jail for so you could go around killing people?YOUTHS: No. No.KEANE: So why do you still do it?YOUTH: Because we want money. Listen, listen to me, because it’s money. I have to rob this thing now.KEANE: You want to rob the camera?YOUTH: Yeah.KEANE: You could do that, if you wanted, I know you could do that, but it wouldn’t achieve any purpose. You might have money for a day and it’s just brought trouble on you.
When they suggested stealing the camera we decided to leave. Crime is being fuelled by another legacy of apartheid, poverty. There is democracy, free speech and economic growth. But real wealth is in the hands of the few. Even though millions more now access electricity and water, two million new homes have been built and there are grants for the poorest of the poor, the growing economy hasn’t delivered jobs. Official figures say 25% are out of work, though many economists estimate it could be as high as 40%. Millions of South Africans still live in squatter camps.
Sunday afternoon in Soweto:
How many of you live in this shed?WOMAN: Four.KEANE: What do you feel about the life you have here?WOMAN: (translated) Life here isn’t good. We’ve no electricity and so we have to use paraffin which makes the children sick.KEANE: Do you ever think your life is going to get better, Joseph?JOSEPH: Maybe my life would change if the Nationalist party came back, not the ANC.KEANE: I don’t believe you, come on, it was a white government that put you down, that treated you terribly. You can’t really believe that.JOSEPH: But in terms of work they didn’t oppress us. We didn’t struggle for work then.KEANE: Now do I really think that he is serious about wanting a white government back? I don’t think so. Not back to the days of forced removals and passbooks and all of that. But I’ll tell you what it does do, when you listen to somebody expressing that kind of anger and frustration, you really get a sense of how the ANC, the people at the top, the elite, have drifted away from their core constituency, the people of the squatter camps, South Africa’s dispossessed.
The ANC has indeed drifted away from its core constituency. But that constituency has nothing to do with “Joseph” or “Youth.” It consists of Fergal Keane and Timothy Burke. And of course, a few others like them. (Unlike Albert Speer, all these individuals are replaceable.)
What we’re seeing here is a power structure which has lost its connection to reality. Its rulers consider it the most ethical and responsible system of government in human history. In fact, it is morally and intellectually bankrupt.
There is no simple procedure for moral and intellectual restructuring. However, this system of government is not just morally and intellectually bankrupt. It is also financially bankrupt. This is a disaster, of course, but it gives us a concrete way to think about fixing all three of these problems at once.
A restoration is a regime-change procedure designed to safely and effectively reverse the damage which progressivism has inflicted on civilization, acting under the principles of good government that prevailed in theory, if not always in practice, in the late classical or Victorian period, and producing a new era in which secure, responsible and effective government is as easy to take for granted as tap-water you can drink, electricity that is always on, or a search engine that returns porn only if you searched for porn.
A good way to define a restoration is to model it as a sovereign bankruptcy. Since a government is just a corporation, albeit one whose rights are protected not by any higher authority but by its own military force, it is subject to the same inexorable laws of accounting.
More specifically, a restoration is a sovereign bankruptcy with restructuring. There are always three options in a bankruptcy: restructuring, liquidation, and acquisition. While it can be interesting to wonder what the People’s Liberation Army would do with West Oakland, in general restructuring is the only practical option at the sovereign level.
In any restructuring, a restoration delivers temporary control to a bankruptcy receiver. The receiver’s goal is to render the company both solvent and profitable. Solvency is achieved by converting debt to equity, diluting existing equity holders and treating equal commitments equitably. Profitability is achieved by optimizing corporate operations as the receiver sees fit.
In a sovereign bankruptcy, there is one extra quirk. At least in today’s real world, the corporation which we are restructuring does not think of itself as a mere corporation. It doesn’t even think of itself as a sovereign corporation. It thinks of itself as a mystical pact which echoes across the centuries from generation to generation, bonding human souls across time, space, language, gender and race. So we can expect its accounting to be a little funky. But accounting, still, is accounting. And not rocket science.
Let’s start by taking a closer look at the general principles of restructuring.
First, restructuring starts with an enterprise which is in some way financially broken. Most commonly, it has defaulted on its debts. Sovereign corporations, however, have another failure mode, which is especially hairy and which we’ll discuss in a moment.
Second, restructuring assumes an enterprise which is intrinsically profitable. In the sovereign case, this is almost automatic. An asset which cannot produce profits is worthless by definition, and no real country is worthless. Invite people to reside there; tax them; profit.
Third, restructuring produces an enterprise which is unlikely to renege on its commitments. In other words, it creates a new allocation of the future profits of the restructured enterprise. Typically these profits are inherently uncertain, so a common result of restructuring is a company with all equity and no debt.
An equity instrument is one that pays some percentage of a completely unpredictable profit. While we do not know the magnitude of the restructured corporation’s future profits, we can still divide them into formal shares. These shares are distributed among beneficiaries, who receive their dividends. Shares are typically allocated according to the commitments made by the bankrupt enterprise.
Fourth, there is no requirement that the bankruptcy receiver preserve any policies, assets, divisions, brands, or employees of the old company. He or she has full operational authority, as of course is normal in the productive economy. Of course, the receiver must be responsible to some board, regulator, or other supervisory agent.
In a sovereign context, it is probably appropriate to capitalize the title: the Receiver. The goal of the Receiver is to convert the bankrupt government into one that produces maximum dividends for its beneficiaries, who may be internal or external. A restoration plan should give the Receiver a set of goals and a timeframe, and let her do the rest.
One way to imagine the Receiver’s job is to imagine her endowed with a mythical symbol of power, the Wand of Fnargl. Within the country it controls, the Wand turns its holder into a sort of superhero. He can strike down anything or anyone with a bolt of fire, and he is invulnerable to all attacks. However, the Wand has a serious downside: it is disposable. After two years, it crumbles away to nothing.
Therefore, the Receiver has two years in which she holds full sovereign power. At the end of this period, she should leave a secure, responsible, and effective government which can sustain its sovereignty without recourse to magical instruments. While there is no Wand of Fnargl, its powers are clear, and can be reproduced albeit imperfectly by more mundane technologies. Sovereignty is a very well-defined concept. Thus it is a legitimate question to ask anyone what he or she would do, if appointed Receiver and handed the Wand.
For some distance, let’s assume we are restructuring the country of Elbonia. At present, Elbonia uses its own fiat currency, it has no formal distribution of benefits or clear ownership structure, its decision-making procedures are byzantine, opaque, and mutable, it is plagued by internal violence, it exercises significant power outside its own borders, and its decisions are often affected by external aggression.
After restructuring, Elbonia will be on a metallic standard. All its financial commitments will be formal. It will be, as America’s first Chief Justice liked to put it, governed by those who own it. Its owners will establish precise and immutable decision-making structures. They will eliminate systematic internal violence, and they will neither tolerate external interference nor interfere themselves:
Our policy in regard to Europe, which was adopted at an early stage of the wars which have so long agitated that quarter of the globe, nevertheless remains the same, which is, not to interfere in the internal concerns of any of its powers; to consider the Government de facto as the legitimate Government for us; to cultivate friendly relations with it, and to preserve those relations by a frank, firm, and manly policy; meeting, in all instances, the just claims of every power, submitting to injuries from none.
Any restructuring must start with the currency. Elbonia’s debts are denominated in its own fiat currency, so it cannot never default. Does that mean it’s not bankrupt? No, that means it is sovereign. Bankruptcy is any state of indefensible accounting.
The Elbonian currency is, of course, the grubnick. What is a grubnick? It is certainly not a note certifying that the issuer holds, or will deliver on demand, a specified quantity of anything. Once upon a time, believe it or not, this was considered rather tacky:
The dollar, like so many of the world’s greatest, inspires at first sight interest, but hardly affection. From a casual study of the monetary controversy now raging in this country, I had been led to expect that the dollar was a gold dollar, and that Mr Bryan wanted to turn it into silver. It cannot be too widely known that the dollar as he is spent is neither gold nor silver; he is a piece of paper. Not only so, but often a very worn and dirty piece of paper at that. It is astonishing how a dollar will age in three or four years. True, the paper reflects the greatest credit on its inventor; it never tears—though perhaps this is because no strong man ever really tries to tear it—still, it is but a piece of paper after all. It bears on its weather-beaten face an inscription to the effect that there has been deposited in the Treasury of the United States one silver dollar, which will be paid to the bearer on demand. Others of the breed merely assert that the United States of America will pay one dollar, without specifying its material. The mysterious philanthropist who deposited the silver dollar apparently prefers to remain anonymous; while where or how you cash it is left equally dark. It must certainly be somewhere in Washington, whence the United States of America date their promise, but the American Eagle is too old a bird to give any more precise address. The dollar, so far as my experience goes, is always illustrated, usually with a vignette photograph of some eminent citizen or other, occasionally also with scenes from the life of Columbus or some other appropriate subject. This gives an aesthetic as well as a commercial interest to the dollar, which cannot be too highly prized. Its nominal value is 4s. 2d.
What we see in Mr. Steevens’ snarky reporting (from 1898) is a currency in the middle of the transition from old-fashioned warehouse receipt to our modern, up-to-date Federal Reserve Note—or grubnick.
From the accounting perspective, what is a grubnick? The answer is simple. It is not a receipt, because it does not denote title to some stored object. It is not debt, because it does not denote an obligation that is canceled by some delivery. Therefore, it can only be equity.
A grubnick, in other words, is a share. It is a fraction of some great total right. We do not know exactly what it is a share in, because we do not know what rights you would control if you had all the grubnicks in the world. If you manage to buy up all the Federal Reserve Notes in the world, do you own the Federal Reserve? If you get your hands on all the grubnicks, are you the sole and undisputed owner of Elbonia? These questions are without meaning.
In other words, we can define fiat currency as dubious equity. Owning a grubnick is like owning a share in Yukos. If you own all the shares of Yukos, you own a lawsuit against the Russian government. What is this worth? It’s up to the Russian government. At present the answer appears to be nothing, but Putin might always change his mind.
What we do know is that every dollar is equal to every other dollar. Every five-dollar bill has the same value, whether in dollars or gold or crude oil, as five one-dollar bills. Note that exactly the same is true for grubnicks, Yukos shares, etc., etc. Whatever they may be “worth” (more accurately, exchangeable for), they are amenable to mathematics.
Thus, if there are one trillion dollars in the world, and we accept the (dubious) assumption that if you own all the dollars you own the Federal Reserve, each dollar is a right to one trillionth of the Federal Reserve. Perhaps this is obvious, but it implies some corollaries.
One, creating new dollars does not affect the value of the Federal Reserve, however we choose to measure that value. Nor does it affect the value of Elbonia, Yukos, or any other right. It is common or garden-variety stock dilution. Dilution is often more convenient than transferring shares from old owners to new owners, but the principle is the same. If there exist one trillion dollars and we print ten billion new ones and give them to X, the effect is just as if we replaced each dollars held by anyone but X with 99 cents, added up the spare cents and gave them to X.
Now we can see just how screwy the accounting system of Elbonia is. Imagine a company which chooses to denominate its accounting in its own stock. Say Google valued its assets, such as its buildings, in Google shares. Its debt would be promises to pay Google shares. If it paid dividends, each share might spawn 0.05 new shares. This would be truly perverse accounting. But it would not be as perverse as a system in which Google ran its numbers in terms of shares in an internal tracking stock which represented a subsidiary whose assets and liabilities were not defined at all. That’s fiat currency for you.
To restructure this bizarre financial teratoma, we need to (a) fix the number of grubnicks in the world, and (b) define the rights divided among all grubnick holders.
(b) is easy: we convert grubnicks into proper Elbonian equity. In a liquid market, ELBO shares can be converted to gold, crude oil, Hummel figurines, or any other commodity. The only question is: if you start with fraction X of all the grubnicks, what fraction of all the ELBO shares do you end up with? Let’s say, quite arbitrarily, that a third of the equity in ELBO will go to present grubnick holders.
(a) is more interesting. Why don’t we know how many grubnicks there are in the world? Isn’t each one numbered? Indeed, each one is numbered. But the Elbonian Reserve has the power to create more grubnicks, and it always uses this power when it has to.
Thus, when Elbonia promises you a grubnick, that promise is worth exactly as much as a grubnick, because there is no reason for Elbonia to break its promise. But there is also no constraint on Elbonia’s ability to promise more grubnicks than it has actually created. Thus we have two kinds of grubnicks: actual grubnicks, and virtual grubnicks. If Elbonia is anything like America, the latter vastly outnumber the former.
For example, when you “deposit” a dollar in a bank, you do not own a dollar. You own a promise of a dollar from the bank. The bank is not the Federal Reserve, but via the FDIC the Federal Reserve “insures” your bank. The FDIC owns very few dollars, certainly not enough to protect all the banks in the world. But the Fed can print as many dollars as it likes. So your dollar “deposit,” because it is backed by a chain that ends in a virtual promise from the Fed, is risk-free.
A Treasury bond is risk-free for the same reason—Uncle Sam is implicitly backed by Uncle Sam’s own printing press. Thus, the bond is equivalent to a specialized kind of dollar bill, one that says “not valid until” a certain date—the date when the bond matures. In the world of equity, this is what we call restricted stock. Only a market can tell you how many grubnicks a restricted grubnick will trade for, but a restricted grubnick is still a grubnick.
Obviously, this is a financial Rube Goldberg machine. It can only be understood historically. Fortunately, there is a simple way to get the virtual grubnicks under control.
One: find all the assets (such as bank deposits) whose price in grubnicks is protected by Elbonia’s power to print new grubnicks. Two: print the grubnicks, and buy the assets for their formal price. Three: fix the number of grubnicks outstanding. Four: convert grubnicks to ELBO shares, as desired. Five: sell the assets you nationalized, exchanging them for whatever monetary commodity your new accounting system uses. (Let’s say it’s gold.)
Doing this right will involve creating a lot of grubnicks. The best way to rationalize this is to understand that these grubnicks already exist. They just exist informally, and we need to formalize them. At present, for example, the US owes about $10 trillion in debt, in a world that contains less than 1 trillion actual dollars. Unless you are accustomed to the presence of virtual dollars, these numbers simply make no sense.
In the uneducated folk economics by which policymakers make their rule-of-thumb decisions today, this is held to be “inflationary.” The general assumption, made more on the basis of sympathetic magic than anything else, is that more grubnicks means higher prices. But this is not true when we replace virtual grubnicks with real grubnicks, because the change is portfolio-neutral—your loan of 1000 grubnicks to the bank is replaced by 1000 actual grubnicks. Thus, you have no more or less money, thus your spending patterns do not change, and thus if everyone is affected in the same way there is no effect on market prices.
The Receiver has thus gained an important power. In order to make the transition as smooth as possible, she can declare any obligation of Elbonia, formal or informal, to be a debt which is denominated in grubnicks and guaranteed by virtual grubnicks. Elbonia will then acquire that debt, since it is after all guaranteed, paying out in freshly-printed grubnicks. Rampant equity dilution is a very, very normal practice in any restructuring.
Suppose, for example, Elbonia has guaranteed lifetime medical care to all its residents. To the Receiver, this is an obligation like any other, even if it is not a formal obligation in the same sense as paying off a bond. Elbonia, at least in her unrestructured state, is too ramshackle a barge to make any useful distinction between formal and informal debts.
Therefore, Elbonia can shed this politically complex and nasty obligation by calculating the cost of an equivalent insurance policy for each resident, assuming the resident has such a policy, and buying it back with fresh grubnicks. If the resident wants to use those grubnicks to buy medical insurance, by definition she can afford it. Or she can spend them on beer and heroin. It’s up to her. The whole conversion is a Pareto optimization.
This flood of new cash has no chance of descending into a hyperinflationary spiral, because it is part of a one-time restructuring in which the semantics and quantity of shares become fixed. Hyperinflation is what happens when a government falls into a state in which it is continually funding operating losses by paying off its creditors with freshly diluted stock. In the financial markets the same effect is produced by a toxic convertible. This is a device one might use in a desperate attempt to avoid bankruptcy, a fate to which we have already reconciled ourselves.
To prevent fluctuations in grubnick purchasing power, the Receiver can also create restricted grubnicks with a “not valid until” date. Thus, when buying out a medical insurance policy or other annual obligation, the compensated parties may receive restricted grubnicks that can pay each year’s policy as it falls due, rather than getting a giant lump sum that can be spent on a yacht and will drive the yacht market haywire.
Thus armed not only with absolute political and military sovereignty, but also with the weird economic superpower of the fiat-currency printing press, our Receiver faces her next challenge: dealing with the horde of Elbonian government employees, most of whose occupations are not in any realistic sense productive.
The basic principle of a sovereign restructuring is to separate all outlays of the government into two classes: essential payments, and inessential payments. Obviously, wages paid to an inessential employee (such as a sociology professor—remember, we are nationalizing the universities) are inessential payments. Another word for “inessential payment” is dividend. From an accounting perspective, inessential employees are performing makework to hide the fact that they are actually receiving dividends, i.e., acting as bloodsucking parasites.
Of course, with the Wand of Fnargl, the Receiver could just fire them. Quite literally, in fact. But is this fair? Our sociology professor jumped through quite a few hoops, none of which he invented himself, in order to receive what is probably not a very large payment. His so-called career may be pointless, but that means he should be retired, not fired. And he should be retired on a pension that includes a significant fraction of his present pay, maybe even all of it. He has, in short, acquired a certain level of ownership in Elbonia, he has done so through means that were entirely fair and open to all, and it is not our place to decide whether or not he deserves these spoils. Since Elbonia is already paying him, it can obviously afford to continue doing so.
Moreover, as a sociology professor he is part of the ruling class, and the Wand of Fnargl does not last forever. Keep your friends close, as they say, and your enemies closer. He is already being paid to lie for money to support the old regime. If you continue to pay his salary, but let him say and do whatever he wants, will he turn around and bite you? Perhaps some will, but it is not human nature. A more likely response is permanent, doglike loyalty. This response can be accentuated, if need be, by requiring the professor to put his name on a list of prominent figures who support the new government. If he changes his mind, he can stop or restart his pension to match the fluctuations of his conscience.
This gets even better when we get to the few parts of the Cathedral that are relatively healthy. One example is biomedical research, which requires delicate and expensive toys, and so commands a considerable amount of funding over and above faculty salaries. To destroy the institutions while making the researchers very, very happy, simply make everyone’s grant or stipend their own permanent property. Divide the funding among the whole team, right down to the grad students. Result: a class of financially independent researchers who can work on whatever they want, wherever they want, sans paperwork. Perhaps a few will decide they don’t care about curing cancer and do care about living in the South of France, but they will not be the cream of the crop. Is there anyone who really believes that the grant review process adds value or improves the quality of science?
The Receiver has thus brought order to Elbonia’s books. Essential expenses—spending on goods and services that are actually necessary to maximize the Elbonian revenue—turn out to be a small proportion of budgetary outlays. The rest is profit. Elbonia, as we always knew, is massively profitable.
The Receiver’s goal is not to redirect this profit, although she can redirect it if need be, but simply to understand it. Who is profiting? How much are they profiting? We find these profiteers—who in many cases are not wealthy fat cats, but philanthropists who provide vital services to the needy—and exchange their informal commitments for formal securities, i.e., grubnicks. We eliminate any makework or other pointless camouflage that may have been used to disguise the profit relationship. And everyone is happy.
Elbonia does need revenue, of course. Since the new Elbonia will keep its books in gold, it should collect taxes in gold. The simplest way to tax, which is also one that affects all uses of Elbonian soil and cannot be evaded, is a self-assessed tax on all land and fixed structures. As a property owner, you assess your own property, which is offered for sale at the assessed price. If you don’t want to sell, set your price above the market, and pay a little more tax.
Elbonia can also make a market for ELBO shares, in gold. Since grubnicks are to be converted to ELBO shares, this market will produce the critical grubnick-to-gold ratio. As people realize how weird it is to buy a cup of coffee with shares, the financial system will gradually return from equity to metallic currency.
The Receiver thus has the finances of Elbonia straight. She can then turn her powers toward repairing the sadly decayed framework of government. Her fiduciary responsibility is not just to preserve the value of the Elbonian franchise while the financial restructuring completes, but also to enhance it as much as possible. Given the low quality of government that Elbonia has suffered in the past, this is not hard.
The best target for the Receiver is to concentrate on restoring the Belle Époque. This implies that in two years, (a) all systematic criminal activity will terminate; (b) anyone of any skin color will be able to walk anywhere in any city, at any time of day or night; (c) no graffiti, litter, or other evidence of institutional lawlessness will be visible; and (d) all 20th-century buildings of a socialist, brutalist, or other antidecorative character will be demolished.
We can see how far the US at present is from this goal by this awful, hilarious story in the LA Times. I simply cannot muster the mockery to do justice to this piece. Read it all. “Well, if I tell you who shot Ray Ray, I’ll never work again in this community.” Indeed. Meanwhile, elsewhere in the basin, “loose-knit bands of blacks and Latinos” prowl the streets, “looking for people of the other color to shoot.” Visit South Africa before South Africa visits you.
This is just over. It doesn’t work. It’s done. Stick a fork in it.
First, the Receiver recognizes that this is a military problem. These “gangs” are militias. Not only that, they are militias with an ideology, and that ideology is violently hostile to the society that hosts them. You are not going to convert them into Quakers by giving them big hugs. Nor is there any rational reason to deal with them via judicial procedures designed to contain the sporadic deviancy, or even psychopathy, that appears in any healthy society.
The ideology of the gangs is an ideology of pure war and hatred. It is no more tolerable than neo-Nazism, and in fact the best way to deal with these subcultures is to think of them as Nazi. They are certainly adept at converting hate into violence.
On the other hand, the fact that these formations are essentially barbaric paramilitary units validates one of the main arguments of the loony left. America’s brimming prisons are essentially POW camps. Their inhabitants do not recognize the laws they were convicted under, or accept the society that convicted them. In terms of cultural reality, they are aliens.
The Receiver’s message is: the war is over. Your side lost. Reconcile yourself to this, demonstrate that you have done so, and you can return to society. We can use all the manual labor you can put out—for one, we have ugly buildings to tear down, graffiti to remove, and so on.
Modern technology makes it easy for Elbonia to destroy any Morlock subcultures the former management may have inflicted on it. A trivial database query can identify the set of humans in the country who are either (a) productively employed, (b) independently wealthy, or (c) a well-supervised dependent of (a) or (b). Everyone else, including all minors, gets the tag. This inconspicuous device fits on your ankle and continuously reports your position to the authorities. If no crimes are committed near your location, you have nothing to worry about.
This is just the start. Elbonia is saddled with a large number of residents who are effectively dependents of the state—for example, those who receive housing subsidies. These people need to be reprocessed to determine whether they can become members of productive society, and during this time there is no reason to leave them where they are. Elbonia’s revenue comes from its property values, and the presence of a Morlock population is not good for same.
Therefore, we can expect the Receiver to establish secure relocation centers, in which the 20th century’s artificially decivilized subpopulations will receive social services in a controlled environment while they are reintroduced to civilized society. Mandatory apprenticeship in productive skills, language training to ensure all residents are fluent acrolect speakers, and in general a high degree of personal discipline will be hallmarks of these facilities.
There is no need to allow dysfunctional subcultures to persist in any context, not even in prison. The 20th-century prison is, like so many features of present society, a dead end. Modern technology can realize the ideal of many 19th-century penological reformers: universal solitary confinement.
In the 19th century, solitary confinement drove prisoners insane. In the 21st, adequate social interaction can be delivered electronically. Individual cells with virtual reality consoles are not a recipe for insanity. Virtualized prisoners are much easier to control, guide and evaluate. They are also easier and cheaper to guard and feed. In Third World conditions, entire slums can be surrounded, secured, and the residents moved into modular data hotels with sealed individual or family cells, in which they can live perfectly fulfilling second lives. There is simply no reason for open squalor and barbarism to persist anywhere on the planet. Outdoor relief is an idea whose time has come and gone.
From the standpoint of a society from which all forms of modern barbarism have been eradicated, the old, unrestored Elbonia will look almost unimaginably brutal and unlivable. When you have lived all your life in a country in which there is no crime and the streets are safe, the idea of “no-go zones” or random muggings, rapes, etc., will terrify you much as if the same assaults were committed by uncontrolled wild animals.
For example, I simply can’t imagine what it would be like to live in San Francisco if there were fifty or sixty leopards loose in the city. But I can see how people would get used to it. Leopards are nocturnal, so you stay in at night. They hide in trees, so you cut down the trees. They tend to hunt in certain areas, so you avoid those areas. And the situation could develop gradually—the first leopard is a huge news story, the second is a smaller story, and they build up over time. After a while, the experience of walking down the street while checking for leopards would strike you as completely normal and unremarkable. If one day the leopards were removed, however, you would definitely notice it.