The beloved and often controversial Iron Lady of Britain, prime minister Margaret Thatcher was given a funeral ceremony in St. Paul’s Cathedral yesterday. Notably absent were all members of the Obama administration including the President, Vice President Biden and the First Lady. The White House sought cover from this obvious snub by “sending” two Reagan era Secretaries of State. Firstly, Shultz and Baker would have gone anyway and secondly these men obviously do not represent the this President. Nobody from the current administration could be bothered to attend (and to be clear the invitations were turned down before the events in Boston).
The offensiveness of this appalling act is all the more apparent when one considers the breadth and depth of the British delegation to President Reagan’s funeral in 2004. Our good friends across the pond did not see the Gipper’s death as an opportunity to make a political statement against his conservative record. They treated the occasion with the appropriate dignity and in good British style did what needed to be done. In attendance were the sitting Labour Party Prime Minister (Labour being the equivalent of the Democrats in the UK), Prince Charles along with the ailing Lady. Tatcher. In fact, aware of her own failing capacity, she had taken the time to record this moving video in tribute the American President 18 months in advance of his actual death.
The British public are rightfully offended and outraged as are many Americans including myself. As an individual American with great respect for the UK and for the ideals Mrs. Tatcher represented I’d like to offer my sympathy to the people of Britain and offer my apologies for this obscene oversight by our leadership. We should all take the time to do so publicly.
“42″ is the feel good movie of the year. Heck, it was even worth watching with rabid Dodgers fans.*
Seriously , Jackie Robinson’s inspiring story reminds me of something I’m constantly trying to explain to my cynical critics who are always quick to produce a list of American historical sins as though some awful thing that happened 150 or 70 years ago in the US should excuse any manner of Chinese misbehavior today via the magic of moral equivalence.
What they miss is that in America we celebrate our errors, not bury them like a Chinese bullet train accident and in doing so we move forward and get stronger. Every player in baseball wears Jackie Robinson’s number on Jackie Robinson Day each April to celebrate his victory over our own evil behavior. There is a giant monument to Crazy Horse being built by the family of an Italian immigrant to celebrate the great native American who stood up to the U.S. Army and killed a famous general. There is a memorial to the four student protesters slain at Kent state. These days Americans are having an anxious public debate over the role of the state in marriage and whether rights are limited by sexual preference. We will survive this, eventually do the right thing and come out a better and stronger nation. It may seem embarrassing, but it is something to be proud of, because America is not a static concept or even an ideology; America is a process.
America is not great because it is perfect; rather America is great because it aspires to perfection.
The day we see a statue to the fallen at Tiananmen Square on 六 四 is the day we will know there is hope for China and the world. That would take more courage than China’s leadership can muster. Xi Jinping is not half the man Branch Rickey was.
So, our brilliant and tough (heavy sarcasm intended) Secretary of State, John Kerry has recruited China as a “partner” in calming down the artificial crisis on the Korean Peninsula. What an amazing accomplishment of diplomacy and how wonderfully convenient for the Chinese leadership that we cannot “risk” confronting them over the massive Cyber Warfare directed at the US., since we suddenly need them to calm down their Korean pit bull.
OMG! Why don’t we just send over a couple of really nice junior high school girls to deal with China? They’d love the panda bears, it would be cheaper and the outcome would be exactly the same.
I’ve edited the Congressional hearing on cyber attacks down to 12 fun filled minutes. You just gotta love Congressman Rohrabacher’s exchange with Obama administration cyber security expert, Chris Painter.
I was very pleased to see that included in the continuing resolution bill passed by Congress were two items I’ve been advocating for sometime including in my recent testimony. Hats off to Congressman Wolf and others who have helped America take this step in the right direction!
SEC . 109. The Department of Commerce shall provide a monthly
report to the Committees on Appropriations of the House of Representatives
and the Senate on any official travel to China by
any employee of the U.S. Department of Commerce, including the
purpose of such travel.
SEC . 516. (a) None of the funds appropriated or otherwise
made available under this Act may be used by the Departments
of Commerce and Justice, the National Aeronautics and Space
Administration, or the National Science Foundation to acquire an
information technology system unless the head of the entity
involved, in consultation with the Federal Bureau of Investigation
or other appropriate Federal entity, has made an assessment of
any associated risk of cyber-espionage or sabotage associated with
the acquisition of such system, including any risk associated with
such system being produced, manufactured or assembled by one
or more entities that are owned, directed or subsidized by the
People’s Republic of China.
(b) None of the funds appropriated or otherwise made available
under this Act may be used to acquire an information technology
system described in an assessment required by subsection (a) and
produced, manufactured or assembled by one or more entities that
are owned, directed or subsidized by the People’s Republic of China
unless the head of the assessing entity described in subsection
(a) determines, and reports that determination to the Committees
on Appropriations of the House of Representatives and the Senate,
that the acquisition of such system is in the national interest
of the United States.
Senior Economist, Coalition for a Prosperous America, American Jobs Alliance
Cyber Attacks: An Unprecedented Threat to U.S. National Security
Subcommittee on Europe, Eurasia, and Emerging Threats
Committee on Foreign Affairs
U.S. House of Representatives
March 21, 2013
Good afternoon Mr. Chairman and members of the Subcommittee. My name is Greg Autry. I am the co-author, with Peter Navarro, of the book Death by China. I also serve as Senior Economist for the Coalition for a Prosperous America and the American Jobs Alliance. I teach macroeconomics at Argyros School of Business at Chapman University in Orange, California. I have previously worked as a software and network engineer and have earned certifications from Novell (CNE), Cisco (CCNA) and Microsoft (MCSE).
I am testifying on my own behalf and the views expressed here are not necessarily the views of any organization.
My testimony will focus on the economic consequences of China’s persistent cyber assault against America’s citizens, firms, government and critical infrastructure.
The recent report from Mandiant Corporation has made perfectly clear what everyone in the cyber security community already knows – there is a giant sucking sound in the world economy and it is coming from China. The government of that nation has long been engaged in a massive hacking campaign aimed at Western firms, governments and infrastructure. The military origin of these attacks, the obvious economic cost, and the threat implied by intrusions into our critical infrastructure, mark this as a 21st century act of war.
These attacks are not an isolated case of industrial espionage but rather part of an integrated military-economic-cultural assault on America, a nation that China views not as a benefactor and valued trading partner, but rather as an ideological adversary who must be subdued by any means necessary. Chinese senior military strategists have discussed such multidimensional warfare for years. While the Chinese economic assault on the U.S. manufacturing base is painfully visible to our unemployed, the Mandiant report shows that China views this as a military operation. In the process China has debased the Internet, a gift to the world developed at U.S. taxpayer expense.
As a former software and network engineer, I am undeniably impressed by the skill, thoroughness and audacity of several private sector organizations whose counterintelligence work has brought the Chinese hacking threat into the light. Canada’s Information Warfare Monitor report on the Gh0st RAT threat, McAfee’s work on Aurora, Dell Secure works investigations into Chinese military connections and now Mandiant’s brilliant demonstration that Unit 61398 of the People’s Liberation Army is APT1 have done our nation and the world a great service.
However, it is reasonable to assume that our national security, military, and government officials have aware of this for sometime. Why is the Chinese regime never held accountable for of any manner of bad behavior? If 61398 were an Iranian Republican Guard unit located in Tehran the U.S. military would have reduced their HQ to a smoldering pile of rubble long before I presented this testimony.
How does an economist estimate the cost of Chinese cyber warfare? The evidence suggests these revelations are merely the tip of the iceberg. The FBI admits, “As a result of the inability to define and calculate losses, the best that the government and private sector can offer are estimates.” A full accounting of the damage done to the U.S. is impossible to compile, because most of the victims will never detect the Chinese intrusions or will decline to admit to their losses.
The discrepancy between expert estimates and the value of crimes actually reported makes this under reporting obvious. For instance, Symantec estimated 2011 individual and small business cybercrime losses at $388Billion, while the FBI’s IC3 summary of actual reports that totaled a mere $485million. McAfee even tossed out a $1Trillion estimate a few years ago. Using the more conservative number only a little more than a tenth of one percent (0.0125%) of these crimes by cost were reported. Even if Symantec overstated the problem by an order of magnitude we still have more than 98% of cybercrimes going unreported.
In any case, how do we place a value on something like Google’s source code? The firm trades at 25 times its annual earnings, suggesting most of its value is in future revenues. Conservatively assuming that half of Google’s market capitalization of $248 billion reflects the value of its technology (other factors might be labor force, brand equity and assets) this implies a property worth $124 billion has been compromised. While assessing the total cost over time has too many unknowns to model, Google has clearly suffered at the hands of its Chinese competitor Baidu. Google has lost $ billions in the Chinese market alone prompting Google’s co-founder Eric Schmidt to brand the Chinese government a “menace.” He has wisely noted that “The disparity between American and Chinese firms and their tactics will put both the government and the companies of the United States at a distinct disadvantage.” In other words we don’t cheat and steal well.
Assuming that most American firms are less savvy than Google when it comes to cyber security, it is easy to justify some very large losses. If Mandiant was able to identify 141 victims, there are thousands of compromised firms. If we set Google’s losses at just $10 billion and assume that to be fifty times larger than the average of two thousand major victims we end up with a $400 billion figure. In any case, the losses are clearly in the hundreds of billions of dollars. Putting an exact number on the damages should be no more important to our reaction than calculating the precise losses from Al Qaeda attacks. The point is that the Chinese government is currently using its military to intentionally inflict enormous damage on the American economy.
Consider that the economic costs of the September 11 attacks (excluding the military reaction) have been estimated at around $175Billion. The annual cost of Chinese military hacking to the US economy is therefore in the same range as 9/11. Every $100 billion implies a loss of about one million American jobs. Chinese military hacking has left millions of American workers unemployed. And although we’ve been spared the specter of horrible televised deaths, the suicide and death rates for the unemployed are substantially higher than the national average. The statistics would suggest that over the years, Chinese military hacking has killed thousands of Americans.
The membrane between the black-hat hacker community and the professional security services of China is very permeable. Internet trolls with handles like “UglyGorilla” have access to millions of American emails and passwords via their PLA connection. American workers often use their business computers and email for personal financial transactions. Many of them use the same password at work as they do on their bank. The American public should be in an uproar.
Technical protections against cyber intrusion have consistently proven to be insufficient because most initial system compromises are achieved via exploitation of human beings with “social engineering” tricks like spear phishing. The criminal consequences of getting caught are minimal. A report from Cambridge recently suggested, “we should spend less on anticipation of cybercrime (antivirus, firewall, etc.) and more in response . . . hunting down cyber-criminals and throwing them in jail.” Internet crimes must have punishments, even when the criminal is the Chinese government, or there is no rule of law online. As an analogy consider that if the police don’t respond and the courts don’t enforce the law, all the alarm systems and locks on Earth could not keep your home safe.
When businesses in lawless regions are left at the mercy of criminal elements they must: fail, relocate or reach an accommodation with the criminals. Consequently, victims of Chinese cyber attacks are actually helping to conceal the extent of this problem. They wish to avoid public humiliation, negative stock market reaction and the liability associated with the loss of customer data. What makes the silence more worrisome is that most large American corporations have been, for all practical purposes, coopted by the Chinese government. They are so dependent on low-cost production in China and strategically committed to the promise of the “world’s largest market” that exposing the criminal behavior of their notoriously vindictive host is unthinkable. With the noble exceptions of Google and the New York Times, an American Corporation is no more likely to “call the cops” on China than are the victims of abusive relationships likely to testify against their spouses.
Remedies proposed by the administration suggest that nothing will happen until a victim proves exactly what China took it and how they used it. What CEO wants to take another beating from China’s state manipulated economy and the stock market while trying to convince the U.S. government and the WTO of their victimhood?
Worse, many officials in the departments of State, Treasury and Commerce upon whom we depend to make China play fair come straight from doing business with China or proceed to do so as soon as they leave government.
What is most important is recognizing the systemic nature of the China problem. None of China’s offenses, including cyber attacks, occur in isolation. They are part of an integrated, asymmetric war by other means policy. Yet, America deals with trade cheating, space debris, and espionage as though each were a completely disconnected phenomena.
We are executing an “Asian Pivot” strategy to confront China’s increasingly belligerent military posture in the Western Pacific, while our consumption of Chinese goods finances a massive PLA arms build up. The administration promises to tackle PLA cyber assaults in a similarly schizophrenic manner. Nothing could possibly make China’s master strategists happier.
The fundamental problem is that the Chinese government is not a normal government but an immoral regime conducting an active and planned assault against our political and economic institutions. These cyber attack revelations are simply the latest manifestation of that war in progress.
Do we believe that China’s corrupt, state dominated economy is actually beating American private enterprise in a fair contest? While Shanghai booms and Chinese billionaires sprout up like rice in the spring, 25% of Americans are unemployed or underemployed. This is the root of our intractable fiscal dilemma. While we cut and tax, the Chinese government can hardly think of enough new things to do with the vast wealth our consumers and corporations transfer to them – from maglev trains and moon missions to a frightening military buildup. This is what losing a 21st century war looks like.
I propose the following remedies.
Get Real about China: It is time to publicly admit that our engagement policy has completely failed to produce a democratic, peaceful China and is empowering an aggressive dictatorship. We must engage our allies in this new approach.
Systemic Penalties for a Systemic Problem: Take the burden off demonstrating damages off the victims and put the pressure on the perpetrator to stop. The PLA has been proven guilty of intending to undermine American firms and it does not enjoy constitutional rights in the US. A significant tariff should be placed on Chinese manufactured technological goods until there is no further evidence of these activities.
Technology Sanctions: The import of any Chinese computer and telecom networking hardware or software into the U.S. should be restricted. Specifically: Huawei, a technology firm founded by a Chinese military officer and routinely implicated in intelligence work.
Recover Costs of Defense from China: An import tariff equal to America’s cyber defense costs should be attached to Chinese imports. (A similar tariff should be assessed for our expense of missile defense and the “Asian Pivot” costs.)
Return Costs to Multinational Corps: It is time to stop rewarding American corporations for transferring capital, technology and jobs to an enemy state by modifying our corporate tax system to favor American based manufacturing.
Stop Conflicts of Interest: Halt the flow of US officials to and from engagement in business with China. Encourage the Senate to make the investigation of Chinese business dealings a priority in confirmation hearings for officials at State, Treasury, and Commerce.
Stop Educating Our Adversaries in Military Technology: Ban the admission of computer science student to the U.S. from nations whose militaries engage in cyber attacks against America and her allies. We are educating a massive pool of Chinese talent in our computer science and engineering schools, where they displace tens of thousand of American citizens and allies.
Encourage U.S. Education in Computer Science: Direct the majority of student aid to STEM majors and specifically graduate degrees in computer science and engineering.
Protect and Reclaim The Internet: The Internet is an invention of the American government funded by U.S. taxpayers. The U.S. government and the U.S. armed forces are reasonably entitled to demand special privileges in its use. Any attempt to transfer further administrative oversight of the Internet to international regulatory bodies must be most strongly opposed. Any opportunity to regain U.S. control of the Internet would be in the interest of all people, most notably the citizens of China. Specifically ICANN and control of the DNS root must remain in the U.S. Root servers currently in the U.S. must remain there. The location of anycast servers should be restricted to friendly nations.
Closing Note: I want to be clear that my remarks are in no way meant to disparage the admirable nation of China nor its hardworking people. My criticisms are aimed entirely at the corrupt, nominally communist plutocracy that is repressing them and at the failed American policy of engagement, which has enriched and empowered that loathsome regime a thousand fold.
 The New York times suggest $55billion in physical damage and $123billion in attenuated economic impact. The cost of invading Afgahnistan and Iraq in reaction are separate and larger; though they are surely much less than the cost of using a traditional military response to China – something that is probably not a wise option. http://www.nytimes.com/interactive/2011/09/08/us/sept-11-reckoning/cost-graphic.html?_r=0
An article on HuffPo reports that taxes on the wealthy have reached a 30 year high while the middle class and poor are now paying diddly squat (that’s a technical term in economics). Tax inequality is no less immoral that income inequality and punishing the most successful for their very success while disincentivizing production is a non-sustainable model, no matter how smugly satisfying it may seem. Talent and capital invariably flee such a regime – see Cuba, Soviet Europe, Argentina, etc.
While the left anxiously ruminates about equality, the right is obsessed with growth at any cost. Equality without growth is equality in poverty. See Lady Thatcher’s powerful argument on that point. However, growth without equality invariably leads to resentment, in a democracy that means welfare and populist demagoguery which kills the growth. This is followed by the rise of an idiot like Hugo Chavez and deepening poverty. Two voyages to the same terrible destination.
Ironically, its the capitalist, captains of industry that charted our course to socialist misery by creating a society that would make Karl Marx salivate – one in which returns to capital are ever increasing and returns to labor dwindle. Stocks roar and wages fall. It’s full speed ahead for the 1%; America’s future and American values be damned! Let the rest of us save up our pennies and send our kids to Stanford so they can ALL design the next iPhone – sure.
The path to both sustainable growth and increased social equality will NOT be found in taxes and transfer payments. The solution both the left and right must embrace is the creation of a policy environment that that motivates businesses to invest in America and to hire American workers. We must do that even if it is a bit less efficient than our current model of funding Chinese communism in exchange for raping their environment and borrowing their slave labor. This means instituting a more competitive tax and regulatory environment, but doing so with an absolute refusal to join a “race to the bottom” in civilized standards of living for our citizens.
Consider Apple’s $140billion+ cash hoard. Most of it is overseas avoiding the US corporate tax (highest in the world). Very little of what is in the US is invested in creating good American jobs (sorry dudes in blue shirts). Our current political plan appears to be: tax the hell out of Apple and its wealthy shareholders and give that money to the chronically unemployed so they can sit at home and play video games on their Chinese made iPads.
Instead, we could abandon harsh ideology and simply make it fairly painful for Apple to invest further in China by penalizing them for the very benefits they gain via China’s illegal subsidies, currency manipulation, and environmental abuse. We should also throw in the cost of defending ourselves from the Chinese hacking, countering China’s massive military build up and dealing with the escalating regional tension in Asia that Apple is indirectly funding.
I propose that we cut Apple’s domestic taxes and then forward the bill for extended unemployment payments, our West Coast missile defense system, and Obama’s “Asian Pivot” directly to CEO, Tim Cook – with postage due.
China’s central bank withdrew an all-time weekly record high of $145 billion from their banking system this week. China often increases liquidity in early February prior to their Chinese New Year and then decreases liquidity after the holiday. But the extent of the reduction dwarfed the $106 billion added this New Year. The People’s Bank of China has now drained a net $87 billion from the banking system since December 31st, compared with a net injection of $230 billion last year. Economists refer to this activity as “Taking the punch bowl away just when the party is getting good.” What this generally indicates is the Chinese government is being forced to strangle new lending because inflation is exploding. Given that the United States is on the verge of a recession, it appears this Year of the Snake may be about to bite China’s economy.
Local governments are turning to property sales to boost their revenue. As the majority land owner, local governments are incentivized to sell property at inflated prices to developers financed by state owned banks.
China’s total credit is now a speculative 190% of the entire economy.
Andy Xie of Morgan Stanley points out that at the end of 2012, there were 95.4 billion square feet of property under construction, half residential and the rest office/commercial. This equates to 1.5 times the entire China GDP.
Mainstream economists assume the Chinese government’s actions are “prudent” to continue their high economic growth. But China’s economic statistics are not credible. The nation reported that January exports were up 25% over last year. But China’s biggest trading partner, Europe, is in shambles. If China had huge growth, it did not come from exports.
What did happen in China is total “social lending”, the broadest measure of economic liquidity, increased in January to $399 billion from $260 billion in December. I believe the “recovery” is being driven by local government pushing real estate speculation.
China appears to be repeating the same strategy they followed during the 2008 to 2010 financial crisis. The country implemented a spectacular $640 billion stimulus package to ward off an economic slump when their export markets in the developed economies imploded. With China’s deficit-spending stimulus focused on massive infrastructure and property-related capital investments, the economy stabilized, but real estate prices exploded. When property prices leveled off in 2011, bad debts at banks skyrocketed.
Premier Wen Jiabao has stated funding this activity had been a mistake, but China’s leadership allowed it to happen again after the economy slowed in the 2nd quarter of last year. The central government officially unveiled another $160 billion infrastructure package in September, but unofficially local governments launched a similar package estimated to total up to $2.1 trillion. Total credit for January showed a sharp increase from the first half of last year. For 2012, credit financing grew 20%, trust loans were up 80%, foreign exchange loans up 27% and other financing increased by 45%.
The unbalanced Chinese export-driven economy was fragile before 2012. Now according to hedge fund mega-short expert, Jim Chanos: “They’re on a treadmill to hell. Either they try to keep blowing the bubble to maintain economic growth or they risk an immediate economic crash.”
China may have a savings rate of 53% of GDP, and $3.3 trillion in foreign exchange reserves, but the majority of these reserves are tied up in U.S. government bonds. If China sells 10% of these bonds to bail out their own economy, U.S. interest rates will spike and the U.S. economy would tank. Such an event would cause a worldwide recession and hammer China’s exports.
China’s export-reliant economy is based on expanding worldwide trade. In Chinese “symbology”, snakes are regarded as intelligent, but with a tendency to be somewhat unscrupulous. With the United States already on the verge recession, China’s economy may get bit in the Year of the Snake.
In tonight’s State of the Union address, our Offshorer-in-Chief, announced a plan custom made to destroy jobs. By combining an ill advised increase in the minimum wage with an utterly blind commitment to two additional “free trade” pacts President Obama is creating a perfect storm of structural unemployment.
The inverse relationship between wages and the availability of jobs is one of the most fundamental concepts in economics. – in fact, I taught it just last night at Chapman University. Employer demand labor, like demand for any commodity, obviously goes down when the price goes up. Further, the supply of workers increases with higher wages as non-workers in various categories (stay at home moms for instance, or students) choose to enter the work force to grab the new higher wage.
Consequently, there are very few economists (whose paychecks don’t come from the administration) who would dispute that wage floors kill jobs. Now, in a robust economy the employer’s burden is offset by strong market demand for their products and services. In those good days, liberals have a foot to stand on when they sing the praises of helping the working poor through wage mandates. In the middle, of a deep, dark employment abyss raising the cost of labor in hopes of helping the poor is simply insanity! And make no mistake, despite the President’s hand waving, we are still very much in that abyss.
The real measure of those who can’t find adequate work is at least twice the government’s fantasy unemployment number. Consider the chart below from the folks at Shadow Government Statistics who have added back in the long-term and short-term discouraged workers that the government wants to bury as well as those who are stuck in part time jobs but want full time. OMG! Not only is that blue line above 20%, but unlike the number we get from the job each every month, this very real situation for millions of struggling Americans is getting WORSE.
Now, I don’t want to see any American trying to raise a family on minimum wage. Those jobs should be going to teenagers, eager to cut their teeth and learn responsibility. But the sad reality is that the victim of the President’s higher minimum wage who get laid off from Joe’s Burgerstand are more likely to be a 30 year-old former assembly worker or a 55 year old factory foreman. These folks shouldn’t have lost their jobs in the first place and the primary cause of their burger flipping nightmare has been a two decade long, bipartisan effort to export America’s manufacturing capacity, technology and capital to China. We’ve lost not just millions of jobs, but more than 2% of our GDP growth every year – just to China.
Trade is a great thing for consumers and exporters for nations that play it smart and understand the game is hardball. Countries like South Korea and Germany have been able to power right through the Great Recession and even face down a mercantilist China. Even their neighbors in Asia and Europe are feeling the pain of this. Ask Taipei or Rome what they think about the way Seoul and Berlin conduct their business and you will get an earful. We need to emulate that aggressive and successful approach, but we don’t do that. America prances into the world series of trade wearing shorts and swinging a badminton racket at 100mph fastballs. Our goal always seems to be some fuzzy headed idea like engaging our trading partner not beating them fair and square. Frankly, while it sounds good, that is NOT how a free market actual works. Most of the time real capitalism is a brutally competitive arena with actual winners and very real losers. Apple Computer didn’t get where it is today by trying to find a “win/win” with Dell or HP. Steve Jobs was out to kill and the results of that are pitilessly obvious as Dell tries to crawl under a private equity rock in hopes of staying alive. This ruthless process of creative destruction is how the market improves efficiency and increases the standards of living – for the survivors.
So while we do want to expand trade with our friends in Asia and in Europe, the last thing we should be doing is signing up for another naïve American led trade pact full of wishy-washy objectives with the open-ended specifics left to negotiators who already know they are going to be working as “consultants” for our “trading partner” as soon as they roll out of public service.
The worst possible jobs program I could imagine is a higher-minimum wage combined with more “free trade.” On the other hand, to quote my buddy, Peter Navarro, “The best jobs program is trade reform with China.” Do that and you won’t have to worry about the minimum wage.
The late Grand Master of Science Fiction, Isaac Asimov was the Renaissance Man of the last century and he penned more than 500 books on nearly every subject from biochemistry to the Bible. He was, in short, an astute observer of the universe from nuclear physics to the human condition.
I was recently re-reading Asimov’s seminal “Foundation Series” and came across a little gem at the start of Prelude to Foundation where the Emperor Cleon I speaks with his vizier, Demerzel, about how to hold together the decaying Galactic Empire by exploiting a futuristic social forecasting model. Reading the passage again, it is clear Asimov’s fictional mathematician, Hari Seldon, isn’t the only one predicting the future.
We now live in an age where politicians and business leaders defend Ricardo’s Comparative Advantage Theory and Keynes’ Multiplier Model with religious fanaticism. However, they do not really understand the context behind the math and therefore they completely fail to account for the very serious limitations and potentially fatal assumptions that support these extremely simplified economic models.
Meanwhile, the highly pedigreed economists and business professors whose job it is to keep the American public bamboozled should know and probably do know that applying such simple models in a highly complex and unpredictable real world is extremely risky. However, lacking either Seldon’s brilliance or integrity, they aspire to prestigious appointments and they love being fawned upon whenever they repeat that magic incantation that quells a restless populace: we will spend our way back to prosperity.
It’s really easy to imagine the following conversation happening in the White House today.
[Cleon I:]“But they believe in such things. Therefore, it doesn’t matter whether the forecast of the future is true or not. If a mathematician should predict a long and happy reign for me, a time of peace and prosperity for the Empire– Eh, would that not be well?”
[Demerzel:] “It would be pleasant to hear, certainly, but what would it accomplish, Sire?”
“But surely if people believe this, they would act on that belief. Many a prophecy, by the mere force of its being believed, is transmuted to fact. These are ‘self-fulfilling prophecies.’ Indeed, now that I think of it, it was you who once explained this to me.”
Demerzel said, “I believe I did, Sire.” His eyes were watching the Emperor carefully, as though to see how far he might go on his own. “Still, if that be so, one could have any person make the prophecy.”
“Not all persons would be equally believed, Demerzel. A mathematician, however, who could back his prophecy with mathematical formulas and terminology, might be understood by no one and yet believed by everyone.
Demerzel said, “As usual, Sire, you make good sense. We live in troubled times and it would be worthwhile to calm them in a way that would require neither money nor military effort–which, in recent history, have done little good and much harm.“