Executive Order on CIA interrogation - "in any armed conflict"

(I am cross-posting this from Opinio Juris.)

I am unclear as to one thing in the Executive Order issued by President Obama regarding interrogation practices.  The text of the Executive Order is here.  It provides that the CIA must conform to the Army manual with respect to interrogation techniques, but says (bold-face added):

(b)  Interrogation Techniques and Interrogation-Related Treatment.  Effective immediately, an individual in the custody or under the effective control of an officer, employee, or other agent of the United States Government, or detained within a facility owned, operated, or controlled by a department or agency of the United States, in any armed conflict, shall not be subjected to any interrogation technique or approach, or any treatment related to interrogation, that is not authorized by and listed in Army Field Manual 2 22.3 (Manual).  Interrogation techniques, approaches, and treatments described in the Manual shall be implemented strictly in accord with the principles, processes, conditions, and limitations the Manual prescribes.  Where processes required by the Manual, such as a requirement of approval by specified Department of Defense officials, are inapposite to a department or an agency other than the Department of Defense, such a department or agency shall use processes that are substantially equivalent to the processes the Manual prescribes for the Department of Defense. 

 
I am unclear why the language “any armed conflict” is included.  Why would the Executive Order not direct the CIA to conform to such techniques as limited to the Army manual under all circumstances?  The CIA does not act solely in the context of armed conflict; on the contrary, although it sometimes acts in armed conflicts, of course, its domestic law authorization extends to non-armed conflict situations as well, provided various domestic legal provisions are met.  

I understand of course that under Supreme Court rulings, the US is in an armed conflict with Al Qaeda - the specific legal meaning in domestic law of the global war on terror - and that this was the mechanism by which the Court applied Common Article Three standards.  (That holding has always seemed to me quite unjustified as a matter of the text of the Geneva Conventions and the history of Common Article Three; I regard it as an instance of the Court, without a lot of expert knowledge or briefing, grabbing onto a legal text that allowed it to prescribe and proscribe the conduct it wanted, result oriented jurisprudence.  But okay, water under the bridge.)  The Court has ruled that as a matter of US domestic law, the US is at war with Al Qaeda everywhere, and in the conclusion that it is a war, all branches of the USG have concurred.  As far as US law is concerned, it’s war with Al Qaeda and the meaning of the Executive Order is clear on this point.

 
But a couple of things.  One, not everyone agrees that as a matter of international law, IHL, the US is legally at war with Al Qaeda in the sense of a global, everywhere in the world, armed conflict governed by IHL.  So far as I last understood the ICRC view, it did not believe this.  On the contrary, the last time I was in a public meeting with the ICRC, for example - at SAIS here in DC - its view was that as an international law matter, the US was involved in two wars, one taking place in the theatre of Afghanistan and the other in the theatre of Iraq.  It was simply not factually the case that there was a “global war” underway in a legal sense; although it plainly welcomed the result reached by the Supreme Court in deeming Common Article Three applicable, so far as I have understood it has not accepted that there is a global war in a legal sense.  And, let me add, that is my view as an international law matter as well; I distinguish between the strategic virtues of seeing a global war and the legal facts.  

Suppose, however, that the Obama administration were also to reach this conclusion about the issue of whether there is, as a matter of international law, a global war that reaches to all agents of Al Qaeda?  I.e., conclude that there is no global war?  What would be the reach of the Executive Order?

Well, that’s pretty easily handled by the lawyers.  I just don’t understand why the limitation.  More importantly, however, even in the context of jihadist terrorism, it is not the case now and will certainly not be the case into the future that future terrorists will always and necessarily be part of or affiliated with Al Qaeda.  The whole idea of affiliation in a membership or ‘corporate’ sense has been eroding in favor of far looser networks of ideology.  Not to mention covert action in the future that has nothing to do with jihadists.  If that is the case, then sooner or later, folks picked up by the CIA will not be part of “any armed conflict.”  Will the CIA be limited to the Army manual in those circumstances, given that they will not necessarily be picked up in the course of an armed conflict?  Why the limitation?

I suppose I might be missing something really obvious here, so I would welcome anyone explaining the reason for this limiting “in any armed conflict” language.

Thanks to Larry Solum for the shoutout

That was very nice of Larry Solum to post a mention of my new paper, The Assumptions Behind the Assumptions in the War on Terror, on the Very Great Legal Theory Blog. Even nicer of him to call it highly recommended! Alas, I’m not so sure I highly recommend it, though. I picked an easy target and then scattered shots all over the place. There are some important things in there, but I don’t think it’s the best organized or written thing I’ve done.

But I think the topic is hugely important, and I plan to pursue it in a series of articles or some kind of venue.

One perhaps overlooked part of the article, however, is the comparison of cost benefit analysis comparisons in private business settings versus public governmental settings. As the article notes, in the private firm setting, the comparisons are automatically self-constraining - meaning that you don’t wind up comparing completely wacko things, or in other words, private firms automatically tend to limit their comparisons to things that are in some real sense comparable - because they have no special obligation or necessity to be involved in any particular line of business.

Government, on the other hand, doesn’t have that luxury - it must be involved in radically different forms of comparison because it has to be involved in the provision of things that involve different and plural values. The mechanisms of comparison developed for private firms, however, tend to be developed - NPV, etc. - within a constrained universe of things to be evaluated and compared, in a way that is not true of public institutions. This isn’t exactly news, of course; public management theory has recognized this difference between it and private firm management decision theory for a long, long time. But I don’t see the distinction showing up so much in the law and economics literature as I would have thought.

This is one of those observations that tends naturally to occur to someone like me, of that small subset of people who do both finance law and national security and public international law. There is something peculiar, at least to a finance professor like me, to seeing a technique that has a routine, less than transcendental meaning within the world of private business, ratcheted up to be a kind of philosophical talisman to be applied to, well, everything. Tools like NPV have meaning - says this finance law professor - only within bounded universes in which something else sets the terms of what can be meaningfully compared. NPV depends upon exterior concepts of meaning; it does not generate them itself.

Assumptions Behind the Assumptions in the War on Terror: 'Event-Specific Catastrophism', Cost-Benefit Analysis and Its Limitations

I have just posted a new article up to SSRN: The Assumptions Behind the Assumptions in the War on Terror: Risk Assessment as an Example of Foundational Disagreement in Counterterrorism Policy, 54 Wayne Law Review 5505-535 (2008).

Here is the abstract posted to SSRN:

This 2007 article (based around an invited conference talk at Wayne State in early 2007) addresses risk assessment and cost benefit analysis as mechanisms in counterterrorism policy. It argues that although policy is often best pursued by agreeing to set aside deep foundational differences, in order to obtain a strategic plan for an activity such as counterterrorism, foundational differences must be addressed in order that policy not merely devolve into a policy minimalism that is always and damagingly tactical, never strategic, in order to avoid domestic democratic political conflict.

The article takes risk assessment in counterterrorism, using cost benefit analysis, as an example of a foundational disagreement that cannot easily be elided. Examining an extreme, indeed crude, recent example of cost benefit analysis applied to the risks of terror and the costs of counterterrorism - John Mueller's widely noticed Overblown - the article suggests that cost benefit analysis, at least applied in this way, runs roughshod over other important values in counterterrorism policy, such as justice, but in addition, makes radical yet unstated assumptions about what cost benefit analysis seeks to compare in establishing counterterrorism policy or estimating the risks and costs of terrorism - unstated assumptions that, in fact, assume the conclusion.

The article notes that cost benefit analysis tends to promote a policy-minimalizing "event specific catastrophism" - seeking above all to prevent simply the next, serial terrorist attack, with however no greater strategic vision. Indeed, the article says in conclusion (as Philip Bobbitt has noted) cost benefit analysis is "relentlessly tactical," not strategic; it also tends toward serial 'event specific catastrophism' as its analytic frame; and it is a method of evaluating proposed courses of action, not generating them, and hence promotes a strategically questionable tendency to reaction as a response to terrorism.

This article presents these ideas in brief fashion, however, as the first draft in a larger project on cost benefit analysis and counterterrorism, and it does so by reference to a book that is unabashedly crude in its approach to both cost benefit analysis and terrorism/counterterrorism. The critical project will extend beyond this particular article, which is in effective a a first pass at developing a critique. It is also an article that does not extend beyond events of early 2007 (when the original address was given) and should be read in that light.

I don’t think this is the smartest piece I’ve ever written, alas. I’m treating it as the first draft of a larger, but important, project on the limits of cost benefit analysis. Mueller is popular, in all the vulgar bad senses of the word, and in that sense an easy target. But the vulgarity of Mueller’s analysis has certain advantages, in that it makes every conceivable mistake, openly and notoriously. But I think much of the critique also applies even to much more cautious formulations of CBA as the driver of policy in responding to terrorism. Here is the conclusion, by the way, slightly rewritten to stand alone, as something I shared with the Hoover Task Force last week:

Kenneth Anderson, The Assumptions Behind the Assumptions in the War on Terror: Risk Assessment as an Example of Foundational Disagreement in Counterterrorism Policy
(Wayne Law Review, 2008)

(Slightly modified conclusion from the not-final draft galleys.)

V. CONCLUSION: OF STRATEGY AND TACTICS

This essay has made five over-arching points.

First, US responses to terrorism—whether one calls it generically
counterterrorism policy or a war on terror or anything else—depend on
certain underlying assumptions, what this essay has called the
‘assumptions behind the assumptions’ in counterterrorism. Cost benefit
analysis is a core ‘assumption behind the assumptions’ lying below the
surface of operational counterterrorism policy.

Second, cost benefit analysis itself depends upon further
assumptions. These further assumptions have a large impact on the
otherwise apparently straight-forward comparative approach to weighing
up policy options in the face of risk and uncertainty. These further
assumptions embedded, but not necessarily transparent, within cost
benefit analysis include, among others, the difficulties in ensuring that
the analysis compares apples-to-apples or oranges-to-oranges. In a social
and political world of multiple and plural values, this is far more difficult
than it would be, for example, in the case of financial analysis in the
private marketplace, where, at least in principle, comparisons can be
reduced to the common denominator of money. Not all values in our
social world can be reduced to a common denominator.

Third, although cost benefit analysis can provide important data
for making moral judgments about such fraught matters as how to
respond to terrorism, it does not finish the moral discussion—at least not
for most people in American society. Beyond whatever advice cost
benefit analysis might give, most people are ‘permissive deontologists’
when it comes to matters of how to respond to purposive and intentional
actions such as murder and terrorism. For the same reason—justice—we
devote far greater resources to the pursuit of criminals than cost benefit
analysis might plausibly justify, we are also inclined to devote more
resources to responding to and preventing terrorism. Arguments from a
cost benefit analysis that suggest that we devote too many resources to
counterterrorism would also apply with equal force to the argument that
we allocate too many resources to the criminal justice system for the
pursuit of ordinary criminals.

Fourth, similar observations about the overreaching tendency of cost benefit
analysis, under an apparently simple exterior, can be made with respect
to ‘commensurability.’ As noted earlier in the essay, this is a point
closely related to, but still different from, the observation that we, as a
society, embrace plural values that are not reducible to one common
denominator. cost benefit analysis relies upon the comparison of
‘opportunity costs,’ but the comparison of opportunity costs depends
upon them being genuinely available ‘opportunities’—social choices that
might genuinely be made. Whether an opportunity is genuinely an
opportunity in our existing social world or not is a question of social fact
about the world. Arguments from cost benefit analysis that rely upon
opportunity cost comparisons involving socially or politically
implausible opportunities—opportunities from another, alternative
world, so to speak, not our real one—are of much less importance than
their conclusions might seem. Again, such arguments overreach.

This essay has focused on the writings of one particular analyst, John
Mueller, and his book Overblown, as an example of the deeply flawed
use of cost benefit analysis. It is a more than fair point to respond that
using Overblown as the case study in the ills of cost benefit analysis is
the worst kind of strawman argument. On the one hand, the book has
been widely noticed, cited, and relied upon for argument by important
journalists and policy analysts, such as journalist James Fallows.62 On
the other hand, serious academic students of cost benefit analysis would
recoil from the sweeping, breezy assertions and conclusions made by the
book, on all the objections raised above and perhaps more. The reason
for making it the target in this essay is not in order to suggest that it
stands in for much more serious cost benefit analysis. It does not.

But, Overblown is illustrative of the basic errors that can and might
arise from failing to take into account the underlying assumptions of cost
benefit analysis—and the illustration is far easier to see in a crude form
of cost benefit analysis, rather than a more careful and hedged version of
it. The point of this essay is not to undermine the case for cost benefit
analysis in responding to terrorism—far from it—but instead to help
define the subtle limits upon the method and the matters that must be
drawn out carefully and explicitly in order to ensure that comparisons are
indeed comparable, particularly with respect to counterterrorism policy.

It is therefore useful to start with a view, claimed on its own terms to be
generated by cost benefit analysis, that America’s approach to terrorism,
far from trying to wipe out its perpetrators or even devote much in the
way of resources to prevent it from taking place, might instead merely
“center around creating the potential to absorb its direct effects,” and
“mitigate its longer range consequences.”63 The very boldness of the
claim, and the fact that the claim reached such radical conclusions
through the application of cost benefit analysis, puts squarely on the table
what the method can do, cannot do, and what assumptions it relies upon.
There are sophisticated and defensible applications of the method to
counterterrorism,64 but as a starting point for considering the method’s
assumptions, sometimes the crudest, least methodologically protected
example provides the most illustrative value (provided that the critic
understands that the baby of cost benefit analysis cannot, therefore, be
thrown out with the bathwater, as it were).

Fifth, one final observation can be made about cost benefit analysis and its
underlying assumptions. It is an observation particularly pertinent to its
application to terrorism and counterterrorism. The nature of cost benefit
analysis is essentially reactive. It is—and this point deserves an essay all
its own with respect to national security and terrorism policy—a method
of evaluation, a mechanism for evaluating proposed courses of action,
not for generating them.65 As a method, it is, in Philip Bobbitt’s phrase,
“relentlessly tactical.”66 Cost benefit analysis does not propose solutions;
it evaluates solutions offered by other processes. It is not a strategic form
of thinking.

The fundamental limitation of cost benefit analysis, in other words,
lies not so much in its own assumptions, but in the limits of what it does and does not do.
The long-term US response to terrorism—counterterrorism policy, the
war on terror, however one wants to frame it—requires a strategic form
of thinking. We will not agree on what the strategy should be, which is
why, as a democracy, we have majoritarian processes to sort out the
agreements and disagreements, and come to a form of action. Cost
benefit analysis can provide indispensable information for arguing over,
and finally formulating, strategic approaches. But it will not come up
with those strategies in the first place. And that, in the end, is its true
limitation.

Thanks for MLK

Like many people, I reread MLK’s ‘I have a dream’ on MLK Day. But today I also reread the Letter from Birmingham Jail. Here is hoping all of you have a peaceful and lovely MLK day. As far as I can tell, things are pretty hopping and jolly down on the Mall here in DC; it seems like a lot of cars and buses have parked up on American University campus in order to take the Metro bus downtown. But all is very quiet out here on the edges of DC in Spring Valley. I don’t have the stamina to deal with either the crowds or the cold on the Mall and am just hanging out at home. The semester is finally beginning for real in the last half of this week, or at least that’s how it seems. Everyone have a good holiday.

Asylum?

I wonder if the time has come for the United States to offer political asylum to the Jews of Canada, Britain, France, Belgium, the Netherlands, and elsewhere in Europe?

The NYT and the information theory of the leisure class, part 1/4

(Welcome Instapunditeers!  This is a long essay, put up in four successive posts, on the business model of the New York Times and how it can be seen to follow certain parts of Veblen’s theory of the leisure class. An abbreviated version of it was published at Pajamas Media online. This long version goes into more discussion of pricing under conditions of conspicuous consumption and luxury goods.)

The Information Theory of the Leisure Class, or,

A Requiem for my New York Times Home Delivery

I

Is it the politics, or is it the business model, and are they the same thing?

I am about to drop my Washington DC home delivery subscription to the New York Times. We’re going online for free.

Most readers surely wonder not why I would drop it, but instead why I hadn’t done it years ago or why I ever had it in the first place. It’s not cheap. It runs $53 a month – over $600 a year. But cut me a break – my wife is a native New Yorker, and even after a dozen years in DC, the Times is still the hometown paper.

It’s not the political content of the paper that is causing us to drop the subscription. Sure, I’m irritated that subscribing to the Times probably counts legally as a Democratic Party donation. I’m annoyed not so much by the Times’s relentless cramdown of its politics on the news pages, but the risible manqué that its “opinions” are “facts” – along with its suppression of discussion even remotely unfavorable to its candidate in this just-past election cycle. But this has been said a thousand times: what’s new in that?

Besides, I believe in reading widely across the political spectrum – this being one of the asymmetries between right and left wing intellectuals. The issue at bottom, with respect to keeping or not the hard copy subscription, is not the New York Times’s politics, but rather its business model and what it is doing to the content as a function of the newspaper’s price. The politics and the business model are intertwined in the creation and publication of content, true, but they are still not quite the same thing.

This, of course, against the well-publicized backdrop of the New York Times Company’s economic woes. Its corporate debt downgraded a few weeks ago to near junk status. Share price down around $7 today. Plunging revenues even outside the current recession. A sale-leaseback of part of the Times’s stake in its (overly-opulent) midtown headquarters (a wonderful real estate investment in better times in Manhattan, which will come again, but a great investment only if the Times mostly decamps to New Jersey). Some $400 million in debt repayment due in April. No, the Times is not indebted to remotely the same extent as, say, the now-bankrupt Tribune group under Sam Zell. The Times’s many enemies should give up the fantasy that it is somehow about to go under; it’s not. It has many problems, starting with Pinch Sulzberger deciding to break the unwritten pact of family-controlled-but-publicly-traded newspapers, viz., that the family would use its control only for editorial content, not to enrich itself at public shareholder expense. The rapacious Sulzberger family has been willing to keep Pinch in power provided that he continue paying out completely unsustainable dividends, at the expense of share price and value; well, even the dividend has finally been slashed. The New York Times Company might be ripe for a buyout by a private equity group, if the family were to splinter sufficiently – no one should doubt that the brand name has huge value, or that it is currently substantially discounted, weighed down by inept and greedy family management and the broader newspaper economic crisis. I have close friends who work at the Times, and I do indeed worry about them, their careers, and their families.

(Continue to part 2/4.)

The NYT and the infomation theory of the leisure class, 2/4

(This is the second of four posts, putting up a long essay on the business model of the New York Times ... a short version of this was published by Pajamas Media online.)

II

From newspaper to daily magazine

I used to be a shareholder, by the way, and a close reader of the New York Times Company’s endlessly disheartening financials. Not very many shares, please; I am not, as the assassin says to Mal in Serenity, a complete moron. Eventually economic reality must set in – even for this finance law professor who owned the shares as a finance class teaching aid (economic sectors in crisis make for good classroom examples). I finally sold at a hefty loss over the summer.

In the 90s, the Times bet that it could become the general newspaper of elites across the United States – become in the category of a general newspaper what the Wall Street Journal had already become as a national business paper. Falling printing costs and new forms of communication brought the costs of distributing the paper nationwide down sufficiently far that regional production and distribution were within striking distance of costs of the metropolitan NYC paper. Combined with a rising urban elite in many city centers, the national newspaper strategy was not a mad dream. I certainly thought it a smart strategy at the time. Elite regional papers, such as the Los Angeles Times, were justifiably frightened; the Washington Post Company did the smartest thing of all and diversified a few years later out of media and into the Kaplan test prep cash machine.

Content was already shifting. The Wall Street Journal, by contrast, always had to remain anchored in the core presentation of semi-specialized facts and data to satisfy a hard nosed business audience, but it wrapped that staid, fact-oriented newspaper around a conservative, polemical editorial page, while keeping them emphatically separate, and so got two national audiences for one paper. The Times could not do that. It correctly understood that its new, national target audience was what David Brooks famously called the Bobos, the market oriented yet professional, bourgeois yet bohemian, affluent and self-regarding, self-involved elites of the major cities. They didn’t seek facts as such from the New York Times. They already had the ones that really mattered from other, more specialized sources. The only factual area where the Times retained an edge was in foreign reporting, but years of shutting down foreign bureaus and cutting correspondents had largely depleted that competitive advantage, to the extent that this new readership cared about it.

What the Bobos sought instead from the Times was a cultural attitude, confirmation of who they were. The Times, for them, was less about sense than sensibility. The tendency of contemporary baby boomer journalism to narration, reportorial self-expression, and Dickensian sentimentalizing was already pronounced; call it the Long March of the New Journalism through the Institutions. The result was a New York Times that gradually began turning its news pages, and especially the front page, into a magazine.

Magazines are good things. At their best, they are ‘informed opinion’ – each of those, however, a separate qualification. But magazines are not driven by a fundamental, baseline assumption that a story, or a front page, or a newspaper is worth reading each and every day just because the facts are the facts and you need to know what’s going on. A caricature, of course; every newspaper understands that it needs a certain amount of sensation beyond the straight facts. Still, the ultimate justification of a daily paper is “this happened.” A good magazine, by contrast, is not about the value of contemporaneous facts as such, but instead some form of post-hoc analysis – sometimes deep and sometimes not and sometimes pure entertainment – but always something that draws you in beyond the bare fact that the facts are the facts. (As for television “news” – the nature of the medium is visceral imagery, not facts; it is finally just about shocking sensibilities, including via the ubiquitous talking heads, whose principal function is to appear to talk – their mouths move, sounds come out – but actually merely to emote: sensibility, once again, not sense.)

In the Times’s new business model for content, the newspaper is really a magazine and opinion is the draw. Value is supposedly added by publishing stories that are carefully calibrated to the pre-held sensibilities of the consumer-reader. And yet, in order to preserve the idea that this is still a newspaper, the opinions are presented not as a magazine would, but as a daily newspaper does – as verisimilitude. Confirmation bias reigns; this is true at conservative as well as liberal media outlets, of course, but the difference is political dominance of the mainstream media oligopoly, as Noam Chomsky might say. The New York Times as facilitator of elite onanism; high-gravitas journalism as convenor of the elite circle jerk. Opinion as news, offered daily as fact. Readers are no doubt yawning at this ‘discovery’; tell me something I don’t know.

But one bit of collateral damage from the magazinification of the Times is the New York Times Sunday Magazine – the Times has a magazine, and a very good one (for which I have occasionally written). Yet it is tough these days to distinguish the writing in the news pages from the writing in the Magazine, though the latter is better edited. If I were Gerry Marzorati, editor of the Magazine, I think I would be mightily pissed that the newspaper had taken over my gig on a daily basis and stupidly de-valued my weekly niche product by deciding to compete with it.

III

From daily magazine to online cocooning

Come the Internet Age. The magazine model remains in place, but the national strategy is dead in the water. Virtually every strategic piece is upturned. Costs may have fallen for regional and local printing and distribution – but not as far as costs of distribution on the Internet. Print ads are going downhill, too – long term, not just in the recession – because readership is migrating to the Web. And because, ominously, so is consumer purchasing. It’s disintermediation – middlemen getting cut out and, at least as far as advertisers are concerned, precisely the same economic transaction taking place – look at pretty girl in cute clothes and then buy some, click – but in a much more cost effective way.

And the coolness factor of having the Times in, say, Austin, is rapidly evaporating; who cares about having any hard copy newspaper? My students certainly don’t. There is a national general-interest magazine and it is called the Internet – or at least your political part of it, red or blue. The Times is left with declining stock values, questionable bonds, a glamorous headquarters building, hefty payroll costs, fleeing advertisers, declining subscriptions, a failed national strategy, a Boston Globe barely on life support, opinion based content, the possibility of serious competition even in Manhattan from a revamped Wall Street Journal, and a brand name that increasingly means to its readers, “Be not afraid – we won’t challenge your world.”

The brand name will survive, of course, even as the Times collapses back into a metropolitan New York paper that, to be sure, has legacy political clout nationwide and disproportionate impact on the national media’s vertical oligopoly. More parts of the ‘paper’ will migrate to cheaper environs on the Web. Whole sections, along with a proliferation of blogs and reader communities. Sometimes this interactive reader model is useful – primarily in material with a close connection to readers’ personal lives anyway, such as the personal health sections or John Tierney’s consumer-oriented Science Lab.

As touching political news stories, however, these interactions do little to increase factual content, and instead promote merely inter-reader emotional solidarity even as they present themselves as the online “debate.” Under the guise of open debate, they are in fact mostly production forums for confirmation bias, as Cass Sunstein pointed out as a general problem of online forums in Republic.com 2.0. Times reporters will be pressed to produce ever more words for these forums and moderate them – productivity starting to be measured by word counts and the variety of forums able to recycle the same limited factual content – at the expense of time actually to pursue expensive, off-line, value-added, new facts.

As this migration takes place, too, the economics of the paper will shift accordingly. From a revenue generation standpoint, the difference between the print paper and the online paper is not simply as a channel of distribution, it is a fundamental matter of what different advertising streams pay. Notes the Times’s media columnist David Carr, more than 90 percent of the newspaper industry’s revenue still “derives from the print product.” (NYT, October 28, 2008) A single newspaper ad in the printed newspaper might pay the newspaper “many thousands of dollars” – whereas the equivalent online ad might bring in a mere “$20 for each 1,000 customers who see it.”

(Continue to part 3/4.)

The NYT and the Information Theory of the Leisure Class, Part 3/4

(Third part of a long essay posted here in four parts, on the New York Times and its business model, such as it is.)

IV

Opinionification = commodification

So what? Well, this goes a long way to explaining the Judith Warner phenomenon at the Times. Warner is one of the new breed of online blogger-writers at the legacy media. John Podhoretz calls her America’s “most embarrassing online columnist,” purveyor of inanities we might charitably call mommy-feminism-lite. But reaching deep inside yourself to access your Warner-nature as a source of public authority, it turns out, requires little to no factual or reportorial effort; she is, therefore, in the Times’s new business model, remarkably productive. More productive, alas, than David Carr – because what she (re-)produces is group, indeed class, solidarity. The Times as though transformed into a string of middle-school mean-girl text-messages to Warner’s nationwide posse: a nearly flawless harbinger of what the economics of “$20 for each 1,000 customers” brings. Does the Times pay her? Why? The problem beyond Warner, however, is that “embarrassing” and “online columnist” are something of a redundancy (let’s be honest) even for a Web enthusiast like me who understands fully and celebrates how the Internet has managed partly to pry open the oligopoly of the MSM.

Facts are expensive; opinion cheap. And confirmation-bias-cocooning – cheapest of all. But newspapers made a fatal mistake deciding their competitive advantage lay somewhere other than facts. Facts not easily available, facts not already priced into the information stream. Once facts are out there enough to be part of the opinion stream, they have already been discounted to near zero and priced accordingly. No one will pay for them at that point. Developing new facts is expensive. If it weren’t, it wouldn’t likely add value in what is a surprisingly efficient information market – at least in that part of the information market in which people care about accuracy.

You do have to figure out what kinds of facts people will pay for, true. But you don’t remain profitable going after the least-value-added line of business available. And, worse, you don’t remain profitable trying to compete with people willing to do it for free in an environment of zero barriers to entry. Opinionification is commodification. And commodity pricing will not pay the rent in Manhattan.

Anyhow, the idea that newspapers would have a competitive advantage on the Internet merely in offering opinions was always complete madness. More precisely, it was always completely ego-driven madness. Do the “professionals” have an advantage in writing quality, and does the reading market actually value that edge? I understand the pain and wonderment of the newspaper reporter who, after toiling in mere facts for decades, finally ascends to a column on the opinion page; you have to believe that the opinion-columnist is a higher calling, or requires greater experience, expertise, skill, writing ability, something. Whereas facts, new facts, relevant new facts – those are premium priced, while even extremely skilled opinion writing is today, on the web, a mere commodity, priced as such. The sad truth is that the vaunted columnists of the Times and elsewhere are lucky to have ascended to their opinionating posts – because there are any number of writers as good as they, as prose stylists and thinkers, and experts too, who do it for free because, after all, their day job is … lawyer.

But at least the folks on the opinion page are on the opinion page. The issue is not the Times’s opinions, it is that the Times’s news pages assert its opinions as facts. And then (mirabile dictu) it seeks to price those opinions as facts. This is, in effect, the Times’s way out of the trap of commodity pricing: re-brand your apparently not-so-valuable commodity into a ‘luxury good’ and then sell it at a premium price. Talk about chutzpah.

This puts us squarely in the land of Thorstein Veblen. It puts us squarely in the land of The Theory of the Leisure Class. Conspicuous consumption, and the pricing of luxury and prestige goods as an exception to the usual rules of supply and demand. The Times’s core subscribers (which is to say, its core confirmation-bias readers) follow a Veblenesque “prestige goods” pricing model. They are thus – or so the Times must hope – more willing to pay higher prices for the Times’s opinions-asserted-as-facts, in no small part because having paid higher prices is a social signal that they must be … true. Or, if not true, then at least a sign of sophistication, sophisticated consumption which, after all, is more important than truth. Indeed, the more heavy-handed the cramdown of political opinion, the happier this readership is. It is ideological satisfaction that the Times must hope will somehow, some way, translate into greater reader loyalty and the willingness to pay above-market prices for mere opinion.

(Continue to part 4/4.)

The New York Times and the information theory of the leisure class, Part 4/4

(This is the concluding section of a long essay I am posting online, “The Information Theory of the Leisure Class, or, Why I am Dropping My NYT Home Subscription.)

V

Price in the land of the leisure class, or, Veblen puts lipstick on a pig

Thus the ordinary connection between price and quality, supply and demand, evaporates, as with other ‘leisure class’ goods. Subscribing to the Times is like buying expensive, but not such high quality, chocolates in Paris, where you do it for the sake of making a gift back home in genuine Parisian wrapping paper, instead of merely buying a higher quality chocolate in Trader Joe’s for genuine gourmet value.

Hence dropping Times home delivery is, for my family and me, the way one minor individual subscriber re-establishes the connection of price to quality. I’ve decided against conspicuous consumption; I’ve decided to pay the actual value of the goods online, by going online. Pay, that is, exactly the value that the Times itself puts on it as factual information, rather than a prestige good. There is a substantial psychic cost to me in doing this, by the way – and not just to my New Yorker wife, losing the paper connection to home. I’m an academic – and as a conservative academic (heaven forfend), there is a genuine prestige benefit to flaunting my paid-for, pulp-paper, hard-copy, print edition of the New York Times at my university office and around, thus showing my colleagues that I am broad-minded enough to pay for the damn thing, something they wouldn’t bother to do and, anyway, they wouldn’t ever consider subscribing to the WSJ or the Washington Times, and as for the Weekly Standard, I doubt they’ve even heard of it. Losing that is a genuine cost in conspicuous academic consumption.

Yet the Times’s preferred path out of the wasteland of commodity pricing of its opinion and into the promised land of premium pricing that same opinion depends crucially upon being able to repackage its cheaply produced opinion pieces as facts, worthy of respect, and pricing, as such. If the mask of facticity falls, so finally does the price. It will eventually be reflected directly in fewer premium print subscriptions or indirectly as the lower price online advertisers are willing to pay or as some other loss of value. It will show up, somehow, some way.

Note that the contrast with the Wall Street Journal news pages could not be greater. The WSJ would pay a stiff price in readership for errors in business news, including ideologically driven ones. It is helped by its long-time strategy of wrapping, as the Economist once observed, a relatively opinion-free newspaper, well written but deliberately low-affect, around an ideologically-driven conservative magazine on the opinion pages. In that regard, unlike the Times, it has the best of both worlds. In this, it is helped by its policy of allowing the op-ed pages some amount of independent factual reporting, in the manner of a true magazine – which reduces the temptation to do it in the rest of the paper. In the WSJ’s news pages, especially the core business news, the quality of information drives its price, which is to say that it has so far eschewed the Times’s Veblenesque prestige pricing model. Murdoch could change this at the WSJ, but so far he has not.

And yet note, too, that in today’s financial crisis, the Times’s regular business reporters and writers have impressively risen to the occasion. Times editor Bill Keller was not wrong recently to boast about the Times’ Business pages’s superb reporting and explanations. What explains this sudden influx of factual quality? Well, when what’s at stake are not superfluous luxury goods, but the readers’ own money, facts suddenly matter once again, even to bankers (or ex-bankers) in Manhattan. Veblen is out, ordinary value for price back in, when it comes to the facts about money that matter to readers, not just attitude.

Even so, certain political topics, without which the financial crisis is incomprehensible, remain firmly in the cocoon, to be mentioned blandly and vaguely if at all, starting with Barney Frank, Christopher Dodd, Chuck Schumer, Barack Obama, and their relationships to Fannie Mae lobbying money, Friends of Angelo special mortgages, etc., etc. Apparently the Times has decided that never again – never, ever, ever, ever again – will it repeat the ideological ignominy of having pop up, ten years later, a precisely-worded news story such as Steven A. Holmes’s from 1999, embarrassingly putting the Times’s imprimatur on a devastatingly prescient, witheringly factual assessment of where Democratic Party politicization and cronyization of subprime mortgages and Fannie Mae would lead – and did.

VI

Who will pay for reporting of facts?  Who, indeed?

Which sadly puts in a somewhat different light what Carr says, correctly and ominously, that the difference between “print dollars and digital dimes – or sometimes pennies – is being taken out of the newsrooms that supply both.” Very true. It is also true that the blogosphere is not about developing new facts. It happens, but only very, very occasionally. The blogosphere is about (in Carr’s well-chosen word) annotating the mainstream media. But if that’s the case, why then has the Times decided to join the annotators, rather than making its stand (as Instapundit's Glenn Reynolds has urged legacy newspapers to do) on the value of the facts as such, and figuring out what and which and how and to whom to sell them? Carr skips over those questions and asks instead, regarding those peculiarly missing facts, who in the brave new world of Web economics will pay for the “phone calls that reporters have to make?”

Fair question – if it’s really about facts. But I received a phone call a few months ago from a Times reporter, one William Glaberson, who writes front page stories on Guantanamo, calling with a perfectly legitimate, although dry-hole, query about proposals for terrorism courts. Fine. What he actually said in the phone call, however, was, “So you would agree that …” – followed by a lengthy, convoluted paragraph of all sorts of “facts” and assertions that he had already worked out in his own head and intended for me to agree to, in his language, so that he could stick it in his obviously already preset narrative. But, sorry, that was as obviously dubious as it was his seemingly normal modus operandi. The phone call, which Carr wonders who will pay for, turns out, in the world of the Times, only-too-easily to be an exercise in confirmation bias, not the discovery of new facts. Not necessarily, of course – but if your pricing model skews toward Veblen-prestige goods pricing, you skew your information gathering away from the Very Great Reporter Gretchen Morgenson of the business pages and toward the not-so-great Magazine Opinion Writer William Glaberson, and finally you give it up altogether for the Online Nurse Judith Warner. So, if you ask me whether it matters that the Times has a way to pay for that phone call or, for that matter, pay Glaberson, the answer is no. The Republic will not fall if Glaberson has to make an honest living in advertising or Warner has to go back merely to raising her children without a national mouthpiece through her womb.

It would be nice if the world were as Carr implies it: the heroic Times struggles to do its fact collection against a bitter economic world that does not value “the facts” and is barely willing to pay for its valiant efforts. There is indeed a demand-side problem – if your target audience seeks confirmation bias first, and especially if you have nurtured them on that view of a newspaper, they will not be very willing to pay for “mere” facts. And so they are not. Yet the Times threw in the “fact” towel before the battle was even joined, saw the future and decided it was in opinion writing asserted as fact in order both to charge a higher price than a mere opinion magazine could charge and seek to satisfy, at least superficially, the fact-based raison d’etre of the daily newspaper. It looked at its ‘elite’ readership and concluded that, at bottom, those readers were not very interested in facts, much less in paying for them. Instead they wanted high falutin’, high-gravitas chat based around politics. And so the Times has proceeded to offer it.

As a business model – not politics – I’m skeptical this can work on a daily basis. There are reasons why magazines appear weekly or monthly, not daily. As politics – well, the Times’s relentless cramdown of skewed, confirmation bias opinions-as-facts this election cycle represents one of two things. The cramdown might so annoy that segment of its readership that still cares about facts on the traditional basis of them being, well, true that it recalculates price in relation to facticity and drops the paper subscription, crippling the business model even further. In that case, I sincerely hope that the Times’s and its employees think the political self-satisfaction was worth it. Or, alternatively, the cramdown might handsomely pay off in cementing the emotional bond ever more closely with the core subscribing, offline readership and allow it to raise the price, directly and indirectly, to a smaller, wealthier, more devoted leisure class audience. But is there really room for a daily New Yorker?

VII

I’d pay good money for a grey, affectless, fact-driven newspaper that’s

not a magazine and not an online cocoon – would you?

Which means, in the end, that my family and I are (until tomorrow, that is) subsidizing through our annual print subscription, at $600 post tax dollars, a publication that the Times itself is already moving to discount to the content quality of an online publication sustained by zero online subscription costs and the pennies of digital advertising. It is also true that the Times’s online ‘look’ is magnificent – it has invested heavily in recreating as close as anyone has come to the genuine look and feel of the print edition, and with many hyperlink advantages. It is much more like a newspaper than the online WSJ site; WSJ.com makes money from subscribers, but that’s precisely because its web presence is not as a newspaper but as an indispensible research tool for the business world. It is systematically organized, and it feels like what it is – a highly organized database. The Times’s site, by contrast, feels like the newspaper – a place to browse.

This is to say, however, that the Times online is a wonderfully successful, fabulously designed … website. If the economics of moving online were merely about the form of delivery, none of this would be particularly momentous; win-win for newspaper and subscribers, cheaper cost of distribution for producers and, for increasing numbers of consumers, more convenient form of delivery. But it’s not. It’s about advertising revenues, subscription revenues, and what the economics of no-subscription revenues (zero) plus online advertising streams (pennies) will support in the way of content. Which came first – the chicken of opinionification or the egg of the loss of paying readers like me, not willing to pay for mere opinion? Who knows. But my family is leaving the Veblen-world of conspicuous consumption of the hard copy Times. It’s time for us to treat ourselves the way the Times so clearly sees us – as readers of the online edition for free. It’s a future, I regret to report, in which the Judith Warners, not the David Carr’s, are the opinion divas, and in which facts, to the extent they are still gathered, are carefully marshaled in support of predetermined emotional conclusions that bolster the biases of the online audience.

Whether the world would support a paper, online or on paper, devoted to entirely affectless statements of fact, sustained only on the basis that this is the news, I do not know. I wish someone would try. Let’s try a daily paper defined by its greyness, sustained by its lack of emotional content, nurtured by its utter indifference to sensibility over sense. Today’s Times regards itself as a magazine of upper bourgeois elite sentiment and sensibility, increasingly fact-lite, and destined to live under the economics of the Web. The Times thinks even less of its readers, curiously, than I do. But given that it has discounted the content, I may as well discount the price.

END

Kenneth Anderson is a law professor at Washington College of Law, American University, Washington DC. (This article was written in November 2008, published in abbreviated form by Pajamas Media in November online; I have updated it and altered it somewhat as of January 2009.)

Joe Nocera's outstanding NYT magazine article on financial risk

Kudos to Joe Nocera for his splendid NYT magazine article, January 4, 2009, “Risk: What Led to the Financial Meltdown.” (Note that it begins with a quote from Peter Bernstein’s also splendid 1990s book, Against the Gods, which I reviewed for the TLS back when the book first appeared.)

Happy New Year!

The Christmas tree has just gone down, thanks mostly to my wife and very little thanks to me. And, a little late, here’s to 2009 being a very good year.

Merry Christmas and Happy Holidays to All

The Proprietor of This Blog takes the opportunity of wishing everyone a Merry Christmas or, in the alternative, Happy Holidays and Best Wishes in the Year.

(Mostly you can find me over at Opinio Juris, but I occasionally put up stuff here that is unrelated to OJ or written stuff that is too long for an OJ post.)

We have finished opening gifts here at our house - JM and I drove to Chapel Hill, NC on Tuesday and picked up JM’s parents from their retirement community to spend xmas with us here in DC. It was a long drive, especially there and back again in one day, but it was nice to have some time with JM in the car, no other distractions. The plan was to reduce the Christmas materialism and gifts and all that in keeping with a recession year, and although I think we did that in dollar terms pretty well (and also that things were very Practical and Utilitarian rather than Frivolous and Fripper), it still looked like an awful lot of Materialism, spread out as packages on the floor.

Did the Kid learn any lessons in frugality this year? She heard her mother and me express so many concerns about the importance of being frugal this year that, she said, she came to regret every time the mail person brought another Amazon package - it made her feel guilty. This does not strike me as a good thing - ideally one learns to take a certain pride in being frugal, rather than guilty for not.

But I managed to go the entire season with one brief and mostly unnecessary trip to the mall, because I bought everything on Amazon or ... Ebay. I learned to use Ebay, and did extremely well with it this season. It seems that there is a vast amount of overstock out there - presumably supply will drop this upcoming year to meet reduced demand, but at the moment, at least in things like apparel, the left over supply from the last year or two amounted to excellent bargains.

I also proposed to the Kid that money that would have been spent on apparel for her could be exchanged for money in her brand-new, baby sitting funded brokerage account on etrade. In effect, I said, would you rather own the Abercrombie skirt or the equivalent Abercrombie shares, with a little multiplier supplied by Daddy as extra incentive? (Tradeoffs, tradeoffs, as Greg Mankiw points out here.) Wife and Kid both said that this was the wrong time and place for Such Tradeoffs, even with a Subsidy from Santa, and that these should be separate discussions and arrangements. One should not barter with Santa Claus.

The Kid, to her credit, has set up her checking account with an automatic monthly payment to several charities of her choice - not a lot, but it adds up over time, both for her and for the charities, and the transaction costs are very low - in this case USO and a charity that does cleft palate surgeries in poor countries. She recited last night after Mass the King James Version of the Nativity, not the literarily horrible one in the modern Bibles, “And there were in the same country shepherds abiding in the field, keeping watch over their flock by night...” She learned it when she was three or four years old, back in the days when she was made to memorize verses from the Bible. (Actually, she still remembered a bunch of them, including “How beautiful upon the mountains,” from Isaiah.)

Possibly we’ll keep her.

For my part, I forewent the new Apple laptop I really wanted. Hooray for me. But Santa brought me something that was expensive, hard to find, out of production, and very valuable to me personally - a DVD of the film version of Nineteen Eighty-Four, the version that appeared in 1984. And a whole bunch of books. And reading glasses ... I have concluded that the Time Has Come for reading glasses, the 1.25 version. I’ve never worn glasses of any kind before, so this is a kind of big deal.

Law professor dress

(I’m cross posting this from its original home at Opinio Juris. I apologize to my colleagues there for taking up blog space with trivial stuff ...!)

***
Classes have ended, exams just begun, and I’m feeling into the pedagogy of international law teaching and intellectually shallow, all at the same time … so, further to Professor Erik Jensen’s widely read (1748 SSRN downloads, which sure beats me), if not followed (abstract, in full:  ”Law professors dress scruffily, and we need to do something about that”), admonition to better classroom dress by law professors, and further to my dean’s remarkably non-judgmental observation, some ten years ago (I’m slow to respond, as some editors have noticed over the years), that I had “single-handedly lowered dress standards” at our school, I embarked this term on wearing not just jacket and tie, but suit and tie, to each and every class.  As an experiment, to see if a 52 year old bald and paunchy law professor would get Great(er) Respect by looking professional for class.  Large classes - IBT with almost 90 students and Corporate Finance with 75.

Well, not every single class; my car didn’t start one day and I showed up in jeans and a t-shirt.  But every other day.  I asked the students straight out, allowing them to post anonymously to Blackboard, whether my formal dressing had any impact, positive or negative, on how they viewed me, the class, the Respect and General High Esteem  - Reverence, even - with which they held me and Every Word I uttered, etc., etc.  

One young woman told me it impressed her because it was more than how law professors normally dressed (maybe jacket and maybe tie for men, maybe not, approximate equivalent for women although, she added, the women professors dressed far better than the men, pretty much always).  She was impressed with me because I scored better on a relative scale - she candidly said that if most or all male law professors wore a suit, she wouldn’t care, because it would turn into a genuine professional uniform.  

Special case, though:  she had also worked in fashion in NYC before law school and had a series of, I’m sure, helpfully intended remarks on how my suits were all decades out of date.  Her best advice, though, was to go to Ebay and get super-expensive second hand suits from unemployed bankers and lawyers - which, having just surfed around Ebay, is great advice.  (But then she added, “and some of them might have been your former students.”  Hmm.  How should I feel about that?  Vulturous?  Reverse-oedipal?  What’s the right word?  I’m sure Freud has a term, but we’re all Evolutionary Psychologists now, and what is the EP characterization of this?)

Other than that one student (who will go far in her career, I predict), however, all other students overwhelmingly indicated it made no difference to them how I dressed.  Period.  But should I believe them?  Does it matter - but they don’t realize it unless I show up looking scruffy and slobbish every day?  Are they victims of self-deception and shining examples of Behavioral Economics?  

There.  I have just successfully channeled Ann Althouse: this is a perfect Althouse culture post!  Which is to say, it doesn’t really belong here on OJ, but I am genuinely curious how law teachers approach the dress issue.

IBT Fall 2008 Final Exam

In case anyone is interested, here is the text of my Fall 2008 final exam in International Business Transactions. I don’t think this was my greatest exam drafting exercise - I’ve done better in past years. This one is a little bit too much - well, a lot too much - stuffing issues in willy-nilly, without having pulled it together as a clever thing based around a discrete set of parties. This is done as a take home in which students have the full two weeks of exam period to do it, but a page limit of ten double spaced pages.

My IBT class is purely transactional - it moves briefly through a series of transactions ranging from cross border sale of goods to cross border services to cross border payment mechanisms such as LC to debt financing of these transactions to project finance to ... finally, joint venture and then exit strategy. All private transactions - no public capital markets, also nothing related to international trade as such, which is unusual for IBT courses even now. We use Vagts’s book, supplemented greatly by a series of photocopied contracts from my own work in international business transactions over the years. The final is usually based around something related to my pro bono practice that year with a nonprofit private equity fund that invests in independent media worldwide; this year I instead went back to a problem in housing finance involving a South African housing agency, a problem dating back to work I was involved in during the 1990s for a while.

***

Facts - Fall 2008 Anderson IBT Final Take-home Exam

(These facts are all made up. Not true! Libelous, probably!)

You are both general counsel and financial advisor to GoodWell, a financial consulting firm based in Washington DC that offers advice and financial planning, as well as a lot of deal consulting and brokering, for wealthy individuals, philanthropies, corporations and especially corporate charitable foundations, private equity firms and hedge funds that are looking to do transactions in the developing world. Typically these transactions involve a combination of for-profit motives on the part of some parties and non-profit charitable motives on the part of other parties – and sometimes both kinds of motives in the same party. Your business model as a consultancy is based around the concept of “Doing Good and Doing Well.” Although you privately have some questions about whether it is possible to combine those in the same deal, especially after looking at what happened to Fannie Mae, your business consists of brokering transactions and advising on them in both a business and legal capacity. GoodWell is a small firm and everyone on the staff has to play combined roles – hence your role involves both the general counsel as well as financial advising/financial structuring functions.

During the previous 18 months before the global market crash got seriously underway, GoodWell had been working closely with multiple parties, in the United States, in Western Europe, and in South Africa to close a deal in South Africa addressing housing in the Soweto townships. The parties involved in negotiations include developed world charitable foundations, for profit corporations, banks, and, in South Africa, the SA government, as well as government chartered but technically private housing agency called Nurcha that will act as the primary agency for doing the whole transaction. The aim of these negotiations is to produce some set of transactions that would fund the building of basic housing in the townships – on a very basic level: a concrete foundation on which the owners would gradually build their own dwelling as they could afford it, but most importantly water, sewage, and electrical connections.

The ultimate aim of these transactions is to produce, when all is said and done, this basic housing structure for local Soweto residents that they own and pay for over a twenty year period through a basic mortgage. The goal is 200,000 housing units and the associated utility services over a five year period. Working backwards from that goal, however, there are many intermediate goals that must be met. The main recipient of funds – donated funds as well as the primary borrower on loans – will be Nurcha, acting as a private entity organized as a not for profit corporation in SA.

The housing work must be performed by local contractors – Soweto has a well established local contractor, SA Builders, that can both perform the work and also subcontract and supervise three other smaller contractors. They are excited, of course, about the possibility of at least five years worth of work, but they also have concerns about whether the promised financing will really be there over the five year period to pay them – they have had experience with foreign development groups before that promised programs of a certain number of years that bailed out midway through. Nurcha and the SA government agencies, for their part, have certain concerns about quality of materials such as cement and piping and the quality of the construction services to be provided – they have had experience with local contractors not performing in the townships to the same standard expected in more developed parts of SA.

The biggest construction issue, however, is the sewage utility – electricity and potable water are not really a problem, just a matter of building several lines to hook to the main grid. But sewage will require a very considerable infrastructure project to create – all the way from building the treatment plants and water recycling plants to main sewage lines to residential connections in a crowded urban environment. The public health benefits are enormous – but realistically it will take five years to do this whole project, at a projected cost, just for the sewage project, of US $500 million. The SA government and the housing agency Nurcha anticipate that the project will eventually pay for itself out of sewage user fees charged as a portion of the long term mortgage costs, and in fact the historical repayment rate of mortgages in Soweto has been quite good – but no one is quite sure whether the repayments on the mortgages will take place as planned and whether, therefore, the revenues to pay for the sewage project will eventually be paid. This has left questions in the minds of banks and investment funds inside and outside SA which are being asked to finance the project as to the longterm stability of the financing for the sewage infrastructure.

The total costs of the whole program, including all housing costs, utility costs, the sewage project, administrative costs, and so on, is anticipated to be US $2 billion over a 8 year period. Not all the money is needed at once, of course – draw-downs are believed to be required on average of 250 million each year, although of course the particular needs and spending issues will vary greatly from year to year.

Although ultimately all of this is to be paid for out of the mortgage payments collected from the Soweto owners over a long period of time, the multiple construction projects will have to be financed somehow by parties inside or outside SA up-front. GoodWell has acted as advisor to Nurcha and, to some extent, broker in putting together possible international financing, both for profit firms and nonprofit charities, as funding sources for the multiple projects. The two main wealthy-world parties interested in seeing the Soweto project go forward are the Anderson Foundation, a charitable foundation based in New York, and the Swatch Watch Corporation, which has sizable manufacturing facilities in many places around the world but not SA, but which is considering investment in SA.

The Anderson Foundation is willing to donate US $50 million each year for eight years provided that one for one matching funds are provided other donors. The World Bank has agreed to provide US $50 million each year for eight years as a matching grant. The EU and US AID have agreed to provide an additional US $50 million annually. However, none of these parties is willing to act alone – no one wants to contribute money to a project that doesn’t get funded sufficiently to carry it to completion – and so there is a collective action problem in which these parties are willing to act provided that each knows that the others are on board, but not otherwise.

That leaves US $100 million unfunded annually, provided that the estimates of draw-downs are correct as an approximation.

The unfunded US $100 million annually – about $800 million total over the eight years – can possibly be covered by borrowing from banks. The difficulty is that the banks want collateral or guarantees – and they want them not just for the eight years of the construction project, but for the twenty years that the money will be in the process of being repaid on the mortgages. The government of SA has offered to provide twenty year guarantees for half of that amount, US $800 million, but the banks are nervous about such guarantees.

With the worldwide banking and credit crisis, however, the issue of worry about future performance is not simply banks that extend loans worrying about getting repaid by borrowers – the borrowers who have received commitments from the banks are also concerned that the banks will make the loans down the road that they have committed themselves to make. Nurcha, your client, is particularly concerned about what kinds of contractual language might be written into the documents to protect (weirdly enough) the borrower, given the credit crunch that might extend over years, precisely when the money is most needed to complete the project.

The Swatch Watch Corporation has offered assistance of a different kind. Concerned about the ability of home owners to be able to repay their loans, it has offered to set up a local manufacturing plant near Soweto that would employ several hundred local employees and so contribute to the local economy; the hope is that if this plant is successful, it will draw other multinational manufacturers to set up in an industrial park for light manufacturing and electronics and textile assembly in Soweto. The SA government is willing to offer tax holidays for a ten year period to companies willing to come. But Swatch must make it work successfully, and it is concerned about the quality of products assembled in the proposed factory.

You are general counsel and financial advisor to GoodWell. Nurcha, in SA, has retained you to assist in putting together an overall strategy and set of transactions for the deal as a whole. You must write a memo to the CEO of Nurcha (the government-sponsored but private housing firm in SA) setting out your proposed transaction, the legal documentation for it, and particular financial or legal issues that are of particular importance and your solution to those problems. Please write that memo.

END

Good luck and happy holidays!

City and Urban; Siege and Urban War; Financial Modeling versus Scientific Modeling

My second post for the Complex Terrain Lab symposium on Antoine Bousquet, The Scientific Way of War.

I want to offer four very different thoughts - they are not so much things from the book itself as tangents that the book caused me to think about, and I share them on that basis. Dr. Bousquet should not feel obliged to figure out some way to respond to them; they really are more tangents.

1. City and urban (1). The renderings of the city and urban landscapes of conflict and war offer a certain geography of spaces, walls, barriers, confusion, hiding, chaos, complexity, disorganization, friction - but a tangible and less tangible sense of space. Law and ethics, the rules of war that I study, seek to create a certain order out of the chaos, and impose senses of limits and to invent walls, barriers, and define spaces within the chaos through normativity. These are targets; these are not targets. But the creation of this normed space requires a shared norm, and the nature of the urban warscapes that Dr. Bousquet describes is not one of shared norms. There is no sense of reciprocity in the norms, and given that the organized side, the sovereign side, has decided affirmatively not to use reprisal to enforce reciprocity, that concept is fundamentally gone. It seems to me to account for a great deal of the chaos on today’s urban battlefield. What, for example, the human rights monitors propose instead as the basis for normativity is the post hoc international tribunal - but it assumes the hegemony of the norm giver, and that is far from given.

2. City and urban (2). City and urban warfare was traditionally about siege. It was traditionally about bringing down the walls of Jericho. The chaos in that operation came at the very end, in the final sack of the city. It was not traditionally about the fighting in the city as the fighting space, except at the end; otherwise it was, if anything, a less chaotic and more tightly organized battlespace on both sides. The final sack was authorized, according to the traditional rules, more or less as a reprisal against the city for its failure to surrender and, in any case, the whole of siege warfare, and the special rules applicable to siege, represented a complete reversal of the traditional notions of combatants and noncombatants. But it is also one of the oldest forms of warfare, from the moment when war took on the characteristic of the raiders against the citadel, and urban living as a form of protection. Siege of course was one of the great historical drivers of technology in war; and in that sense, the city arose as a form of defensive technology in war that happens to function in times of peace.

3. Financial modeling. Several of the commentators have inquired why the reach to the physical sciences and physics in particular as the historical model, rather than, say, biology. My day job, as it happens, is finance professor, and at risk of partisanship to my areas, I wondered whether the complexity theory, chaos theory, and network theories might not be modeled as well on the process of financial modelng - complex risk systems and network and gaming theories. But what I am actually suggesting here is not the theories themselves - but the fact that historically they have failed over and over again, being intimately intertwined with all the major market crises of the last few decades since computerization - the 1987 program trading crash (computer driven selling created a positve feedback cycle downwards since each company’s program worked on the assumption that it was alone); the 1998 Long Term Capital Management crisis (even though anyone who dealt with Russia would have said that political risk was paramount, it was treated as outside the model for financial purposes); and today’s crisis involving quant strategies (that assume that the model’s financial equivalents are in fact legal and contractual equivalents, whereas in crisis mode a whole series of non-normal contract provisions kick in but are not accounted for in the model, eg, mark to market accounting in a thin or nonexistent market). The failures in financial modeling might point to ways of understanding chaos in war and vice versa.

4. Ghost in the machine. Two books come to mind reading Dr. Bousquet’s book, Junger’s chilling On Pain, out with a new translation and penetrating introduction from my long-time friends at Telos. And Daniel Pick, The Rationalisation of Slaughter. Each of these goes deep into the disciplinary aesthetic of modern war, I think.

Strategy and Tactics; Soldiers and Warriors; Warriors and Tenders of Machines; Capital and Labor Intensive Warfare

From my second post at Complex Terrain Lab, commenting (loosely) on Antoine Bousquet’s, The Scientific Way of War:

The comments have raised the question as to the actual disposition of military thinking, actual thinking among the officer corps today: to what extent does it in fact exhibit the scientific world view as developed in Dr. Bousquet's book? I have two responses, at least with respect to US military officers and their thinking, among whom I spend a fair amount of time. Take it for what it's worth; this is all just my anecdotal sense of US military officers and their thinking.

First, my sense of the US officer corps is that it has a deliberately inculcated duality that mirrors some of the dualities in this discussion. It is, on the one hand, a cultivated self-image as "warriors." It has been an evolution beyond self-identification as "soldiers," and on the handful of occasions where I have asked what the difference is supposed to be, what I've been told is that - to the extent it signals a difference - soldier identifies an important set of virtues and duties, based around honor and obedience and discipline within an ordered structure. The concept of warrior is intended to include those, but to go beyond them to suggest a broader sense of "self-starting," entrepreneurial - very much the sense that is associated with the "captains' war" in Iraq - a great deal of responsibility and initiative devolved upon the junior officers and below. There was a sense that the sole virtue of being a soldier was simply standing around waiting for orders, rather than figuring out what needed to be done and doing it.

I don't know how extensive that understanding is but that's how I've had it explained to me. Obviously there is a certain amount of tension between that entrepreneurial understanding of being a warrior and conforming to the discipline that comes from the top down - and, interestingly, and possibly simply because I'm a lawyer, I've had it suggested to me that the thing resolving the tension between those is an overall obligation of everyone top down, bottom up, to conform to a set of legal rules and obligations that override everything else. The idea being that the tension is resolved in a sort of universal law that, regardless of one's place in the hierarchy, oone must conform to and obey. That special notion of law – not simply a command backed by a threat, but something legitimately accepted by all the 'warriors' - in turn ties warriors to law, and law to honor, and honor to a professional and personal identity. This was one lunchtime conversation; how widely shared any of that is, I don't know. Although clearly someone has thought hard about why to use so extensively the language of warrior rather than merely soldier.

On the other hand, the warrior-soldiers also have enormous faith in the power of technology. They believe deeply in capital intensive war, even while thinking of themselves as warriors. It feels in spirit less like the idea of the soldier as technician tending to the infernal machines in a kind of neutral way, and much, much more like the sense of gamers whose gaming technologies have been made real – they can act as individuals with great powers in their hands. So when I say faith in technology, I mean technology as a way of magnifying personal projection of power as much as anything else. Obviously that is not especially so when one considers air power, sea power, all of these standoff technologies in which one really is a technician tending the machines. But even the development of robotics that Charli Carpenter and I have discussed some at CTLab - even the Predator - involves a sense of individual projection of power, a hand at the controls even if one is not present. Or the battlefield robotic vehicle guided by the hand with the joystick, who is a soldier directly in the field, on that same battlefield. It is a sense much closer to that of the gamer for whom technology is very personal rather than the impersonal machines of high modernism. Much of it, in other words, is technology in the service of the warrior, not technology that merely converts soldier to minder of machines.

In conversations I've had with, as it happens, wounded soldiers, their descriptions of what combat should be like is that it should be upclose, because that is how, at least in today's environment, you make it discriminating. There is no desire for or sympathy with the soldiers of the Great War or the Second World War, cannon fodder in the true sense. Their self-sense is that of commandos, never a mass as such. And fighting in the urban setting, as one recuperating (he was going to be fine) junior officer told me, requires that one fight house to house because otherwise you could never root out the enemy while sparing the innocent. He thought of it as a bit like police work, which I thought was a big stretch, but I did understand his sense that it had to be close in to make it discriminating. At some point, technology will reverse that, I imagine - robotics might well alter the way in which urban fighting is made discriminating, by detection technologies that allow much more standoff fighting with greater precision.

Second, however, in speaking with US officers at a more senior level, as well as civilian and military planners, I would say that the movement intellectually is not especially toward the "scientific" world view - that feels actually a little passe. Of course it is scientific, in the sense of applied science to bring on better technology. What is newer and more cutting edge is the growth of world view of cost-benefit analysis. This might seem odd to say - after all, when has war fighting not been about cost benefit analysis at some level? But I mean by this the application - and more profoundly the intellectual mind set - of opportunity cost, discounted probability theory, the whole array of tools taken from contemporary risk analysis in finance and the social sciences. The approach reminds me more than anything of Cass Sunstein, in something like Worst Case Scenarios, applied to military thinking. The language of present value, discounting and a whole range of metaphors drawn from modern financial theory.

In one sense, it has always been there. How could military thinking not be about cost benefit analysis - when it has always been built around military necessity? But there are differences and, peculiarly, one of the differences seems to me something that drops out - something that has always been better articulated in military ways of thought than anywhere else, but which tends to drop out in the new social-sciencey thinking. That is - don't look so surprised, please! – the distinction between strategy and tactics. But you can see the problem. If you are adopting wholesale the language, analytics, metaphors of game theory, especially - well, game theory doesn't really have a distinction as such between strategy and tactics. It is not a feature of games as such; it is a way of playing certain games. Philip Bobbitt discusses this somewhat in his Terror and Consent; I discuss it in passing in a TLS review of that book. The difficulty of letting go of the strategy-tactics distinction is that you are reduced to discounted probability analysis and opportunity cost analysis of what quickly - not necessarily inevitably, but certainly a tendency - reduces to dealing with risks on a seriatim basis, "event-specific catastrophism," I think I called it in my Bobbitt review. That's essentially what happens in Worst Case Scenarios, and it forms the basis for much of the "sophisticated" critique of the war on terror; proper discounting of risk, it says, will tell you that we are overinvested in trying to prevent terrorism.

But if you try that as a general case, you won't have much of a basis for strategy in that or any other instance, because strategy seeks to move above the "seriatim risk" analysis. Especially there will be no room to consider gambits. Gambits, after all, by definition go outside the serial risk scenarios; that is the point. In that sense - not intended this way, but it arguably has emerged this way – the Iraq war turned out post hoc to be a strategic gambit that invited a loose affiliation of Islamist jihadists to make their stand in Iraq. They took the (unintended) gambit, thinking they would win, which they might have, but it does not seem to be playing out that way. Whether you think that analysis correct or not is not actually my point. It is, rather, that it is a whole way of thinking that doesn't have purchase within the new social science of risk and game theory, any more than particular strategies in chess are foundational to general game theory. And yet the actual fighting of wars is far more like playing a game of chess (or any other particular game) than it is thinking through the abstract categories common to all games. And the general theory of risk analysis, precisely because it applies to, well, everything - discount the probabilities and compare courses of action – is of far more limited assistance in actually playing an actual game of war than it might appear.

So I find it puzzling, and a little alarming, that there seems to be a fashion these days within the US military, at least among some of the intellectuals and planners who keep a finger on the pulse of larger intellectual movements, to adopt forms of thinking that seem to me to give up, without good reason, some of the most original contributions of military thinking to general intellectual thought.

Comments on Bosquet and Clausewitz at Complex Terrain Lab

I’m guest blogging at Complex Terrain Lab over the weekend in a symposium on Antoine Bosquet’s The Scientific Way of War. I just put up something about Clausewitz and friction, and noting the relationship to LIncoln and the Second Inaugural Address. It’s a terrifically fun symposium, check it out. Here’s what I posted:

My congratulations to Dr. Bousquet for a highly insightful and readable book that engaged me with a historically shifting body of metaphors for war and conflict. I want to focus briefly on one subchapter, the end of chapter three, devoted to Clausewitz and the metaphors of thermodynamics. I was much taken, and am generally strongly in agreement with, both your intellectual history of Clausewitz's thought and its rootedness in a certain scientific world view as well as your reading of the famous "friction" metaphor. I wonder if the the friction metaphor might not be broken out still further, in four ways.

First, the famous Clausewitzian undermining of the army-as-clockwork mechanism, undermined by the friction of the clash of two armies. Second, the concept of friction as expressed in the technologies of thermodynamic weapons and war - explosions and counter-explosions. Third, Clausewitz's also famous dictum of friction as created by the accumulation of errors in the system of war, located in failures of communication, delivery, and execution that accumulate, again to undermine the army-as-clock from within.

Fourth, what I suppose we might call the friction created by the 'ghost in the machine of war': friction that arises not from a clash of two armies, nor from errors internally accumulating, nor from explosions meeting explosions, but instead from the clash of two fundamentally different conceptions of conflict, the inherent clash between, on the one hand, the mechanism that enables a vast array of people and things to act with a single will, deterministic and mechanistic and, on the other, the animal passions that are both unleashed but relied upon particularly in battle. It is not precisely that the mechanism tames the beast; it is, rather, a dialectic in which the machine needs the animal spirits and the animal spirits need the discipline of the machine.

Anyway, for what it's worth, it seems to me that those are all separable as readings of 'friction' in Clausewitz and beyond, and that some parts of those distinctions are picked up later in your discussion.

But I was also struck by your reading of Clausewitz in this way - correctly focused on friction as the central concept rather than the 'other means' trope - in part because of work currently on my own desk on a reading of the moral psychology of Lincoln's Second Inaugural. One or two phrases in that address express a profoundly Clausewitzian sentiment: "Neither party expected for the war the magnitude or the duration which it has already attained. Neither anticipated that the cause of the conflict might cease with or even before the conflict itself should cease. Each looked for an easier triumph , and a result less fundamental and astounding."

This passage is sometimes read as a sort of Clausewitzian sentiment about war as politics by other means. I have not thought that the best reading, and your chapter in this regard gives me stronger reasons for thinking so: it seems more emphatically, on the contrary, an expression that war, as its own social life, and driven by its own frictional forces, frictional forces that are internal to war itself, can independently lead politics rather than necessarily the other way around.