The billionaire’s dangerous ego

Below, I’ll list 4 political positions. Maybe you can give me the person behind the positions:

  • Pro-choice
  • Believes in man-made climate change
  • Supports gun control
  • Supports path to citizenship for law-abiding illegal immigrants

“Hey,” you’re thinking. “That sounds a lot like Obama. Or Hillary Clinton. Or Bernie Sanders.” You’d be right. It also sounds a lot like former New York City mayor Michael Bloomberg. But this is admittedly an incomplete list.

Suppose you’re a voter who agrees with those 4 positions. But somehow, Bernie Sanders and Hillary Clinton just aren’t cutting it as candidates on all the issues. In particular, you wish that they’d take it easier on Wall Street banks and that they’d try to cut Social Security benefits.

Oh? Such a voter doesn’t exist? Are you sure? Because I just read that Michael Bloomberg is considering a White House run.

The billionaire former mayor believes that he is the answer to the country’s problems, “sensing an opening.” Despite largely having liberal positions and thus making himself unpalatable to any conservative voter, he believes that he, through his “pragmatic” and “results-oriented” approach (terms to be investigated later), is the right man for the job. The few areas of disagreement with liberals, like the regulation of Wall Street and the future of Social Security, show him as out of touch and beholden to bad ideas endorsed by Washington insiders.

Speaking at a financial industry trade group conference in 2014, Bloomberg claimed that the harsh regulations on Wall Street were detrimental to Main Street. He noted, however, that: “But they keep creating new products and you know the earnings of these big banks…they’re still making a lot of money.” Typical of Bloomberg, he did not actually debate the necessity of Dodd-Frank, but he argued that that it should have been drafted by “experts” rather than allow Congress to write it. He applied the same logic to Obamacare. It seems he is free to live in a world where a president introduces a piece of legislation and gets it passed without any substantial changes, when virtually every Republican was opposed to both Dodd-Frank and the Affordable Care Act. Furthermore, Obamacare and Dodd-Frank did incorporate ideas of experts. For any healthcare legislation to expand insurance without changing the system to single-payer, it requires exactly what Obamacare put into law: a requirement that people purchase insurance, a subsidy so that they may purchase the insurance, and denying insurance companies the right to deny coverage based on pre-existing conditions. It was based on another model, which again was designed by experts in healthcare: see Jonathan Gruber and Mitt Romney in Massachusetts.

It’s also not clear what Bloomberg would change with Dodd-Frank. There is no doubt that it is an imperfect bill, but like Obamacare, it is a product of realistic constraints: no Republican (save for Scott Brown for Dodd-Frank, helping the bill pass 60-39 after watering it down) would support it, and even many moderate Democrats were intent on watering down the bill.

Bloomberg’s criticisms are short on substance, but implicit in them is the dangerous idea he has fully bought into: I could do it better, because I’m me. There’s ignorance of constraints and a willingness to believe that if he just was able to talk to Congress unlike that dastardly Obama, he would get things done.

This is similar to the “Obama should play golf with Boehner more in order to pass legislation despite serious ideological differences” theory espoused by many “centrists”: in Bloomberg’s mind, there’s no serious disagreement on the big issues of the day, but instead the polarization is just a result of leaders not being “pragmatic” and “results-oriented”. This could not be further from the truth.

Michael Bloomberg’s entire third term is a testament to his belief in himself and no one else. Amidst the financial crisis and the economic downturn, he did not feel the city could be governed by anyone else, and he used the extraordinary circumstances to push the New York City Council to change its term limits without a public referendum.

For whatever reason, some people buy into the “centrist” line of thinking. Krugman writes in his recent blog post, How To Make Donald Trump President:

Step 2: Michael Bloomberg decides to save the country by entering the race as a supposed alternative to the two extremes [. . .] Step 3: Some Democrats defect to Bloomberg, because they actually listen to those centrist pundits. Hardly any Republicans do

In other words, a presidential run would not be enough to get anywhere close to winning, but it would be enough to deprive the Democratic candidate of a victory, thus giving Trump or Cruz (or whoever) the presidency.

The party system may have its flaws, but it does give voters the chance to debate for over a year the merits of individual candidates before nominating them and then voting for them in the general election. The problem with a rich independent candidate is he has none of those constraints: he runs much later than everyone else, because he can afford to. Credit to Trump: he went through the process, whereas Bloomberg seems intent on skipping it.

There are many reasons to dislike Bloomberg and oppose his idea of a White House run based purely on his mayoral record: his response to Occupy Wall Street, his catering to big banks, and his catering to rich foreigners buying up empty properties in NYC as essentially money-laundering schemes (quote: “If we could get every billionaire around the world to move here, it would be a godsend.”). There’s his company, Bloomberg  L.P., which pulled negative stories on China’s government in order to continue selling profitable terminal subscriptions there (recently, there were rumors that the Financial Times would not be sold to Bloomberg for fear of losing editorial independence).

There’s also the fact that the same guy thinking about running for president in the United States was also thinking about running for mayor of London just last year. And, in floating the idea of a presidential bid, he doesn’t even have the courage to do it himself. He’s letting his aides and insiders test the waters instead. He probably thought the response would be positive.

But more than anything, the reason to dislike Bloomberg and oppose his potential bid is his ego, which is fundamentally similar to Trump’s. Trump is a self-proclaimed dealmaker (synonyms: “results-oriented”, “pragmatic”). Details aren’t so important, but he’ll get it done, whatever “it” is. The issues are almost of a secondary order. Bloomberg doesn’t even realize his run would hand the White House to another billionaire with opposing views on many of the issues he claims to care about, like gun control.

The lack of self-awareness amongst billionaires like Bloomberg is scary. I imagine one begins to think he has a magic touch, and there are few in the inner circle willing to contradict this belief. Hopefully the negative response to Bloomberg’s possible run pierces his bubble.


I predict the forecasters will be wrong

Recently, the price of a barrel of West Texas Intermediate (WTI) Crude Oil dropped to below $30. Just 18 months ago, the price was over $100.

Here is the price of oil over the last 5 years:


It’s worth thinking about whether anyone saw this coming.

Earlier last year, after the initial and huge drop in the price of oil to below $50, there was a very interesting article in Bloomberg about how wrong most forecasters were in their predictions on oil. They extrapolate from the present in ways that presume a certain stability in the world that does not exist. In the Bloomberg article,  the actual price of oil was half that of the lowest Wall Street estimate.

How have they been doing since? Of the analysts surveyed, the lowest had oil somewhere around $50, a full $20 higher than where it is now. And the median estimate was closer to $70.

In April, having observed the huge declines, the professional forecaster, despite some useful knowledge of individual energy companies and OPEC,  did not fully appreciate that China’s economic growth might slow, resulting in substantially less oil demanded; that a deal with Iran might come to be, resulting in more oil on the world markets; that Saudi Arabia would refuse to cut output and instead prefer to take market share, further increasing the supply of oil.

This is not unique to oil, as you might guess. At the beginning of 2015, experts had also expected continued gains in the stock market on the order of 8%, similar to what had occurred in 2014. Instead, the S&P 500 dropped 0.7%.

The world is a complex place, and it is difficult to admit that we cannot know the ways in which things will turn. But Wall Street experts continue to believe that they can predict the world’s events. It seems even the most pessimistic of the professional analysts could not have foreseen the size of the drop in oil. Similarly, following the Great Recession and the tremendous stock market declines, most could not foresee the massive stock market rally.

Over a number of years, researchers at Duke collected over 11,000 surveys in which CFOs of large corporations were asked to forecast the S&P 500 index’s return for the following year. Not only did their forecasts (or point estimates) have zero predictive value, but the CFOs also provided 80% confidence intervals. Anything outside of this area would be deemed a surprise (or an outlier). If they had constructed accurate confidence intervals repeatedly, the actual returns would occur outside of their intervals roughly 20% of the time. In truth, this occurred 67% of the time.

At the start of a new year, I find it useful to remind myself to discount experts’ advice, especially when it is provided on the basis of authority alone: try to assess the argument rather than the self-confidence.

41: What does a former president owe?

A month or two ago, Jon Meacham released his biography of George HW Bush (41). Accompanying that book was a fascinating New York Times article, which detailed some of the most newsworthy aspects of the biography. The most prominent bit was 41’s criticism of George W. Bush’s (43) cabinet, targeting Dick Cheney and Don Rumsfeld in particular. Here is an excerpt:

Mr. Bush said that Mr. Cheney had built “his own empire” and asserted too much “hard-line” influence within George W. Bush’s White House in pushing for the use of force around the world. Mr. Rumsfeld, the elder Mr. Bush said, was an “arrogant fellow” who could not see how others thought and “served the president badly.”

I got angry when I read the article. But not because I disagreed with the assessment. Anyone who was paying attention during the lead-up to the Iraq War and its aftermath was probably aware of these things. No, 41 is spot-on in his criticism, even as he shies away from directly criticizing his son. I got angry because of this:

The younger Mr. Bush was also shown a transcript of his father’s remarks. “He certainly never expressed that opinion to me, either during the presidency or after,” Mr. Bush told Mr. Meacham. “I valued Dick’s advice, but he was one of a number of my advisers I consulted, depending on the issue.”

His father, he added, “would never say to me: ‘Hey, you need to rein in Cheney. He’s ruining your administration.’ It would be out of character for him to do that. And in any event, I disagree with his characterization of what was going on. I made the decisions. This was my philosophy.”

As for his “hot rhetoric,” the younger Mr. Bush said: “It is true that my rhetoric could get pretty strong and that may have bothered some people — obviously it did, including Dad, though he never mentioned it.”

Quote: “He never mentioned it.

These criticisms are largely worthless now. They are largely part of a battle for history and how it judges the men who served in office. 41 has decided it’s time to let his true feelings be known about people who he felt served the country badly, knowing the level of damage done to the country in the aftermath of the Iraq War. And his true feelings might have actually meant something in 2002, or 2003, or even in the few years after while the targets of his criticism were still in positions of power. Perhaps it’s with an eye for history that 41 “has seen his reputation rise again with the passage of time” and has now decided to speak up more bluntly.

I can’t help but feel angry that these criticisms were not at least spoken directly to his son, who would conceivably be open to getting advice from his father, a former president with significant foreign policy expertise as president, vice president and CIA director. But he never tried. “He never mentioned it.” It was his son’s administration, in the end, and 41 was going to leave it at that. Still, the thought keeps coming back to me: there are issues of family, and I can understand publicly supporting your son in his presidency. But as a former president, and someone who had offered up his life to his country in World War II, it’s difficult to fathom that 41 would not have even broached the topic privately.

I worry about “Meacham’s largely admiring biography,” in this context and in others, as I fear it will appreciate public service in a cloud of nostalgia without holding it fully accountable. Another recent article details 41’s reactions to the current battle for the Republican presidential nomination:

No one, it seems, is more perplexed than the family patriarch by the race, and by what the Republican Party has become in its embrace of anti-establishment outsiders, especially the sometimes rude Mr. Trump.

Yet his son George W. Bush, and to a lesser extent he himself (both as presidential candidate and vice president to Ronald Reagan), benefited from tactics that are now being used openly by the current crop of anti-establishment candidates. Paul Krugman writes in a recent column that “this ugliness has been empowered by the very establishments that now act so horrified at the seemingly sudden turn of events [. . .] [I]n the U.S. it’s the cynicism of Republicans who summoned up prejudice to support their electoral prospects.”

Quoting the NYT article: 

the elder Mr. Bush was fuming at the news of the day: Mr. Trump had belittled Sen. John McCain of Arizona for being taken prisoner in Vietnam.

“I can’t understand how somebody could say that and still be taken seriously,” said Mr. Bush

Was it not his own son who stood by silently as outside groups assaulted John Kerry’s record as a war hero in his 2004 re-election campaign? And it was George W. Bush and his advisor Karl Rove who had mastered the tactic of race-baiting (or letting others do the race-baiting for you) in the nomination battle against John McCain in 2000. There appears to be no direct proof of their involvement, but in South Carolina there was an orchestrated campaign to tell primary voters that John McCain had fathered a black baby out of wedlock. 

There are fewer differences between Trump and the other Republican candidates than one might expect based on the elder Bush’s outrage. His son Jeb, after all, is proposing massive tax cuts (which as a corollary would require massive cuts to the safety net), just like Trump’s tax plan. The party isn’t what it used to be, but that’s thanks to George W. Bush and the Republicans that came before him. George HW Bush is not so innocent in this regard either.

PETER BAKER. New York Times, Nov. 4, 2015, “Elder Bush Says His Son Was Served Badly by Aides.”

JONATHAN MARTIN and MATT FLEGENHEIMER. New York Times, Oct. 24, 2015, “Bush at 91: Irritated and Invigorated by ’16 Race.”

PAUL KRUGMAN. New York Times, Dec. 11, 2015, “Empowering the Ugliness.”