May 27, 2004

American Colossus

The Atlantic Monthly has an interesting interview with British historian Niall Ferguson, the 40-year-old Herzog Professor of Financial History at New York University’s Stern School of Business. Ferguson has recently authored a book (his seventh), Colossus: The Price of America’s Empire, in which he discusses American imperialism and argues for its role in the world as a force for establishing functioning governments in places of chaos.

Unfortunately for us, it’s a role Ferguson feels we don’t play all to well:

It’s an empire that has all the functions of military empire, if you like. It has the capacity to project itself in terms of force over vast geographical distances. It’s an empire that is remarkably adept at spreading its culture globally. In that sense, it’s an empire with almost unrivaled military and cultural power. But when it comes to what might be called imperial governance, it is an empire which, precisely because it doesn’t recognize its own existence, consistently underperforms.

Ferguson offers many other observations worth reading, including his parallels between current American foreign policy and 19th century British liberalism, and his multiple parallels between the Bush and Nixon administrations. He also notes:

Right now in Iraq, the reliance on the military is almost complete. The British operation a hundred years ago was much more evenly divided between military and civilian administration. And indeed the civilians predominated. There aren’t that many Jerry Bremers. This country doesn’t produce people like him in large numbers. And you need to have hundreds of them to make a success of something like this. What’s interesting is that in 1945 through to the early 1950s, when Germany and Japan were the targets of American quasi-imperial nation-building, the talent was there. And the reason the talent was there was the draft. By 1945, the American armed services were full of all kinds of diverse talents because of the sheer scale of World War Two. That meant you could turn to the army in Germany in 1945 and find economists and lawyers and people who had an understanding of business. In today’s volunteer professional army you don’t have those skills at all. You have people who are tremendously good at being soldiers and Marines. But they’re not really trained to do the sorts of thing that you have to do once you’ve won a war. And they’re the first to admit it. They’re quite candid that they are practitioners of offensive military operations—killing bad guys is what they’re trained to do. The business of constructing the rule of law and a functioning market economy is about as far removed from their expertise as you could get.

Reading that, the parallel with Tom Barnett’s call for a System Administrator force struck me as less than casual.

I look forward to reading the book; it’s worth your time to read the article … not just for the items above, but for the closer at the end: Ferguson’s argument that the American Colossus has feet of clay … not because of our foreign policy, but because of the enormous Medicare and Social Security shortfalls we face down the road.

The operation itself—conquest of Iraq—is cheap. The defense budget is still going to come in comfortably under its Cold War average this year. I think a lot of Americans don’t quite see that—they assume this is costing a huge amount of money. In truth, the real financial problems lie at home.

Update: Turns out Barnett has a POV on this as well

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Survey Says

Even the folks on the turnip truck realize that foreign policy will be a salient issue in this year’s presidential election, likely more so than in any election since 1980. So what do the bulk of Americans think about the issues? Foreign Policy magazine has drawn on a range of survey data in constructing a composite interview about foreign policy issues with a fictional John Q. Public. While the premise is a bit contrived …

FOREIGN POLICY: How did you feel about going to war with Iraq?

John/Jane Q. Public: It’s complicated. When President George W. Bush said that Saddam Hussein was making weapons of mass destruction and might give them to terrorists, I found that argument pretty convincing. So I was all for trying to get into Iraq to find out if Saddam had those weapons, and to take them away from him if he did. Survey Results

FP: So did you think immediate action was necessary?

JP: Not really. I thought we could take time to build support at the United Nations. Besides, we had plenty else to worry about, like al Qaeda. And once the U.N. inspectors were in Iraq, it seemed like we should give them a chance—not that I was all that optimistic that they were going to find the weapons. But Saddam was contained, so I thought we should keep trying to find some consensus at the United Nations. Survey Results

… and while you can always argue methodology and intent, the composite does allow you to augment John Q’s answers by viewing the actual survey data.

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Economic Inefficiencies In Professional Athlete Valuation, Or Why Stanley Needs A Tan

Is this a sign of dysfunction? There I was in Aruba, Carribean climate and ocean all around, and I spend the better part of Saturday night (after cocktail hour, of course), in an island casino, drinking Balashi and smoking a Siglo V, watching our Flyers be out skated, out shot, and (gasp!) out hit, by the Tampa Bay Lightning.

Tampa Bay! Tampa!!! Land of beaches, palm trees, and hurricanes … land where ice shall not last!!

How could this happen?

Easy … they’re a better hockey team, just as Calgary is a better hockey team (at least this month) than anyone in the West.

But the location isn’t the kicker, this is: Calgary and Tampa do not pay a lot of money for their players. Indeed, a review of the statistics indicates that Calgary has the 20th-highest payroll in the league, at $35 million, and Tampa Bay has the 22nd-highest, at $34 million … both well below the league average of $44 million.

What’s more, the teams they beat, Calgary over Detroit and Tampa over the Flyguys, are first and fourth highest, respectively (Detroit: $78 million, Philly: $65 million).

So what gives?

Same thing that gives in the remarkable success of the Oakland A’s and Florida Marlins, which happen to have two of the lowest payrolls in baseball: Baseball and hockey coaches, scouts, and general managers do not know how to accurately evaluate the value of athletes in their leagues. If these guys were stock brokers, they’re consistently picking the wrong stocks.

But wait? They’re the experts, right? They know more about their sport and what it takes to win than anyone else, yes?

No.

Read Michael Lewis’ Moneyball, and you’ll understand. Moneyball is Lewis’ treatise on Billy Beane, manager of the Oakland A’s and architect of one of the most successful cheapskate franchises in sports history. His secret? Impassionate statistical analysis. Billy and his Harvard Law educated minions have nailed the statistical relationships between baseball statistics and the only statistics that matter in team performance: run production and wins. And their analysis indicates that many of the things scouts and GMs use to identify good “Baseball Men,” statistically, simply don’t have predictive relationships with run production or wins.

Like, for example, defense.

Beane knows that fielding percentage is meaningless in baseball … a Shortstop lines up two feet to the left, or a hit ball bounds two feet to the right, and an out becomes a hit or a hit becomes an out. Same with errors … meaningless. One error here or there simply means nothing across 162 games.

What does matter? On base percentage. The most important number in baseball is “3.” Outs are the only fixed quantity in baseball … three outs, and you can no longer score in an inning. 27 outs, and you can no longer score in a game. Burn your 27 outs and have fewer runs than the other guy, and you lose. So you need people who can get on base. A man on base is not an out. This also means that anything that risks outs … like hit-and-runs, sacrifice flies, or stealing bases … is foolish, as the odds of those gambits succeeding without an out are far lower than the odds of a man reaching base by working the count. Not coincidentally, the Oakland A’s do not hit-and-run, sacrifice, or steal.

Similarly, the statistic that matters in pitching is the production of outs. Strikes are good, but the ability to create outs … even if it’s on ground balls or flies … is most important.

What Beane knows, and why he’s succeeded, is that traditional Baseball Men don’t make impassionate, objective statistical player valuations … they make subjective ones. They look for other Baseball Men … guys who have “the look,” guys who might have one magic game that a scout sees, and that causes him, even in the face of poor statistics, to say “that guy’s a player … he just has ‘the look.’” Or, they believe mythology around baseball statistics that just don’t matter … like base stealing, or fielding percentage. Because that’s what Baseball Men have always done.

Beane believes none of that. He doesn’t care if a guy is fat or short or slow or old. If he has the right statistics … if he gets on base or gets outs … he’s an Oakland A. And because no Baseball Man wants to sign Mr. Fat Short Slow Old guy, Billy gets him for a steal. And then lo and behold, Mr. Fat Short Slow Old guy turns out to be Jason Giambi, at which point the A’s win lots of games, and once Jason’s a free agent, Billy trades him to the Yankess for a $120 million, thereby enriching the A’s and empowering Billy to continue investing in Harvard graduates, analyses, and the search for undervalued players.

The market for baseball talent is an inefficient market. Like any other market, it reflects personal biases and assumptions, many of which are founded in subjectivity, and many of which have become institutionalized as conventional wisdom. Bad wisdom, but conventional wisdom nonetheless.

There are two lessons here. The first that you shouldn’t kid yourself … the stock market is just as imperfect a market as is the baseball athlete market, so, yes, your suspicions are likely correct: your stock broker probably doesn’t know shit.

The second brings us to Stanley Needs a Tan. That’s a slogan many Tampa fans had on placards during game 7 of the Flyers series: “Stanley (as in the Stanley Cup) Needs a Tan.” And while the Flames scorched the Lightning in game 1 of the finals, those Tampa fans just might be right, because like Calgary, their team is damn good … good enough to beat everyone else in their division.

But I see more. I watched game 7 and I saw Billy Beane. I saw a team that was uglier, shorter, fatter, and less-famous than the Flyers, and they were skating rings around the Black and Orange. Tampa and Calgary have proved for hockey what Billy has proved for baseball: there are inefficiencies in the pricing of hockey players. I don’t know what those are, but I wager some Harvard grad, working in the depths of Tampa’s stadium, is huddled over a laptop at this very moment, running his latest predictive model of hockey success. Maybe it’s penalty minutes, maybe it’s shots on goal, maybe it’s plus/minus … but whatever it is, it would be great if the Flyers figured it out, too.

Until then, the city’s hopes ride with Smarty.

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