Wednesday, November 22, 2006

Dealing with Iran

Jules Crittenden has an interesting take on what should be done about Iran:
An erroneous assumption has been made by the Iranians and by many in the west that because our ground forces are hyper-extended in Iraq, and Iranian nuke facilities are buried deep, there is nothing the United States can do about an Iranian nuclear program. This is not true. There is no need to invade or occupy Iran. We do not want to do that. We would prefer to see the Iranian people's desire for free elections honored, but that doesn't appear likely any time soon.
What we have to do to influence Iran is explain that if Iran does not begin to cooperate with the international community, we will substantially isolate Iran and destroy its means of supporting terrorism and pursuing nuclear weapons. This can be done incrementally, to give the Iranians an opportunity to reconsider their policy. Our Navy, not hyper-extended in Iraq, can blockade their ports. Our Air Force, also not hyper-extended in Iraq, can begin reducing their terrorist-support infrastructure. Things like oil fields, refineries and roads leading toward Syria and suspected nuclear sites. This can continue ... pretty much as long as the Iranians want it too.
Do read the whole thing. Interestingly it mirrors a more detailed - and very interesting - analysis in this month's Commentary by Arthur Herman, entitled Getting Serious About Iran: A Military Option (will require subs. after the end of the month; a free version can be found here).
Another aspect of the Iran "question" which I think generally goes unnoticed in the West, is the regime's increasing fragility. This is underlined in another essay in Commentary's November issue by Amir Taheri, Getting Serious About Iran: For Regime Change (will also require subs. after the end of the month; a free version can be found here or here):
There remains another option: regime change. The very mention of this term drives some people up the wall, inspiring images of an American invasion, a native insurgency, suicide bombers, and worse. But military intervention and pre-emptive war are not the only means of achieving regime change.
What matters is to be intellectually clear about the issue at hand. The U.S. will not be safe as long as Iran, a key country in a region of vital importance to the world economy and to international stability, remains the embodiment of the Khomeinist cause. Nor can the U.S. allow the Khomeinist movement, itself a version of global Islamism, to achieve further political or diplomatic gains at the expense of the Western democracies.
For consider the consequences if that were to happen. The most immediate would be to strengthen the mullahs and demoralize all those inside Iran who have a different vision of their country’s future and an active desire to bring it about. In 1937 and 1938, many professional army officers in Germany, realizing that Hitler was leading their nation to disaster, had begun to discuss possible ways of getting rid of him. But the Munich “peace” accords negotiated by British Prime Minister Neville Chamberlain handed Hitler a diplomatic triumph and, with it, a degree of international legitimacy that, from then on, any would-be putschists could hardly ignore.
In the Middle East, this story has been repeated many times. The West helped Gamal Abdel Nasser transform the Suez fiasco into a political triumph, thereby encouraging an even bigger and, for Egypt, more disastrous, war in 1967. The 1991 ceasefire that allowed Saddam Hussein to remain in power in Baghdad, interpreted by him as a signal of American weakness, emboldened him quickly to eliminate his domestic opponents and to begin preparations for a bigger war against the “infidel.” After the first al-Qaeda attack on New York’s World Trade Center in 1993, President Clinton dispatched a string of envoys to Afghanistan to strike a bargain with Mullah Muhammad Omar and the Taliban. Not only, to quote the Taliban foreign minister, was this seen as "a sign of weakness by the Crusader-Zionists," and one that immensely enhanced the prestige of al Qaeda and Osama bin Laden, but it discouraged the anti-Taliban forces, many of whom concluded there was no point in fighting a foe backed by the world’s only superpower.
But—some might object—even granting the virtue of the idea, how realistic is regime change in Iran? Can it happen?
The short answer is yes. Without underestimating the power still held by the mullahs over the Iranian people, let alone their ability to wreak devastating havoc in places near and far, a number of factors suggest that, like other revolutionary regimes before them, their condition is more fragile than may at first appear.
One sign is the loss of regime legitimacy. The Islamic Republic owed its initial legitimacy to the revolution of 1979. Since then, successive Khomei-nist administrations have systematically dismantled the vast, multiform coalition that made the revolution possible. The Khomeinists have massacred their former leftist allies, driven their nationalist partners into exile, and purged even many Islamists from positions of power, leaving their own base fractured and attenuated.
The regime's early legitimacy also derived from referendums and elections held regularly since 1979. In the past two decades, however, each new election has been more "arranged" than the last, while the authoritarian habit of approving candidates in advance has become a routine part of the exercise. Many Iranians saw last year's presidential election, in which Ahmadinejad was declared a surprise winner, as the last straw: credited with just 12 percent of the electorate’s vote in the first round, he ended up being named the winner in the second round with an incredible 60 percent of the vote.
Still another source of the regime's legitimacy was its message of "social justice" and its promise to improve the life of the poor. This, too, has been subverted by reality. Today, more than 40 percent of Iran's 70 million people live below the poverty line, compared with 27 percent before the Khomeinists seized power. In 1977, Iran’s GDP per head per annum was the same as Spain's. Today, Spain's GDP is four times higher than Iran's in real dollar terms. As the gap between rich and poor has widened to an unprecedented degree, the corruption of the ruling mullahs, and their ostentatious way of life, have made a mockery of slogans like "Islamic solidarity."
A second sign is the presence of a major split within the ruling establishment itself. The list of former Khomeinists who have distanced themselves from today’s regime reads like a who's who of the original revolutionary elite. It includes former "student" leaders who raided the U.S. embassy in 1979, former commanders of the Islamic Revolutionary Guard Corps, and dozens of former cabinet ministers and members of the Islamic Majlis (parliament). Most have adopted a passive stance vis-à-vis the regime, but a surprising number have clearly switched sides, becoming active dissidents and thereby risking imprisonment, exile, or even death. Any decline in the regime’s international stature could deepen this split within the establishment, helping to isolate the most hardline Khomeinists.
A third harbinger is that the regime's coercive forces have become increasingly reluctant to defend it against the people. Since 2002, the regular army, the Islamic Revolutionary Guard Corps, and the professional police have refused to crush workers’ strikes, student demonstrations, and other manifestations of anti-regime protest. In many instances, the mullahs have been forced to deploy other, often unofficial, means, including the so-called Ansar Hizballah ("Supporters of the Party of God") and the Baseej Mustadafeen ("Mobilization of the Dispossessed").
A fourth sign is the emergence of alternative sources of moral authority in Iranian society. Even in religious matters, more and more Iranians look for guidance to non-official or even anti-official mullahs, including the clergy in Iraq. (Admittedly, this is partly due to the fact that the present "Supreme Guide," Ali Khamenei, is a mid-ranking mullah who would never be accepted by senior Shiite clergy as a first among equals.)
As for non-religious matters, there was a time when the regime enjoyed the support of the overwhelming majority of Iran's "creators of culture." Today, not a single prominent Iranian poet, writer, filmmaker, composer, or artist endorses the Khomei- nists; most have become dissidents whose work is either censored or banned. Opposition intellectuals, clerics, trade-union leaders, feminists, and students are emerging as new sources of moral authority.
Finally, there are at least the outlines, although no more than the outlines, of a political alternative. Like nature, society abhors a vacuum. In the case of Iran, that vacuum cannot be filled by the dozen or so groups in exile, although each could have a role in shaping a broad national alternative. What is still needed is an internal political opposition that can act as the nucleus of a future government.
Do read the whole thing.

Thursday, November 16, 2006

Have we thought of the victims?

Even assuming that climate change is a serious problem I find it amazing how many companies and people go around glibly boasting that they have "offset" all or part of their carbon emissions. Austin Williams in Sp!ked explains the incredible hypocrisy and quasi-imperalistic thoghtlessness of this approach, which basically involves the idea that since our Western technologies currently emit carbon dioxide we will pay some of the money we earn as a result of our level of development to encourage developing countries to implement low-technology, carbon neutral projects that ensure their economies do not industrialize like ours (which IMHO is the equivalent of saying: we got there first and we intend to keep all the goodies). This idea is despicable, not to mention idiotic, since it is the further development of technology that offers the only viable solutions. On a similar tack, Paul Driessen (the author of the excellent Eco-Imperialism) has an interesting article in Townhall (via GayandRight) which explains who the real victims in this travesty are:
Just the current Kyoto Protocol could cost the world up to $1 trillion per year, in regulatory bills, higher energy costs and lost productivity. That’s several times more than the price tag for providing the world with clean drinking water and sanitation – which would prevent millions of deaths annually from intestinal diseases.
Over 2 billion of the Earth's citizens still do not have electricity, to provide basic necessities like lights, refrigeration and modern hospitals. Instead they breathe polluted smoke from wood and dung fires, and die by the millions from lung diseases. But opposition to fossil fuel power plants, in the name of preventing climate change, ensures that these "indigenous" lifestyles, diseases and deaths will continue.
Opposition to hydroelectric projects (damming rivers) and nuclear power (radioactive wastes) likewise perpetuates endemic Third World poverty. So would a new European Union proposal to tax imports from China, India and other poor countries that are exempt from the Kyoto Protocol, because this gives them an "unfair trade advantage" over EU countries that are struggling to meet their Kyoto #1 commitments.
Yet, even perfect compliance with Kyoto would result in Earth's temperature being only 0.2 degrees F less by 2050 than under a business-as-usual scenario.
Do read the whole thing, which also puts the kibosh on some of the more outrageous claims floating around.
Another trend that I find simply flabbergasting is the idea, put forward by some, that the "debate is closed" on this subject. Apart from the significant number of prominent scientists who disagree with the supposed "consensus" view, how can the scientific debate be closed on a subject, if one of the fundamental tenets of the scientific method is falsifiability? Roy Spencer has an interesting article on this point in TCS Daily, and Brendan O'Neill makes a particularly spirited case in Sp!ked arguing that the demonisation of "climate change denial" is an affront to open and rational debate. Do read the whole thing.

Beyond backdating

In the midst of the stock option backdating scandal (also see here and here; may require subs.), Fortune's Justin Fox makes some interesting points about stock-options (via the excellent RealClearPolitics Blog):
Yermack figured that this wasn't just luck, and theorized that companies were timing their grants to precede good-news announcements and follow negative ones. His findings began making the rounds in 1995, sparked a flurry of interest among finance and accounting scholars, and were published in The Journal of Finance in 1997.

Accounting professors David Aboody of UCLA and Ron Kasznik of Stanford followed up with an examination of companies that made options grants on more or less the same day every year, and found a similar stock price pattern. Their theory: Companies time releases of bad and good news to depress prices before the grants and boost them afterward.
Then there's the realization that, even before Lie's backdating bombshell, scholars suspected that executives were using insider information for financial gain in timing options grants and news releases.
Does that make backdating just the most obviously illegal tip of an iceberg of dodgy corporate behavior? And is anyone going to get in trouble for the other stuff?
Those are questions currently of great interest to securities lawyers, I learned at a late-October conference at Washington's Union Station. "Lucky Strikes" was the title of the event - organized by Stanford's Rock Center for Corporate Governance, of which Grundfest is faculty director - and much of the jargon was along similarly flip lines.
"Bullet dodging," for example, is the term for delaying options grants until just after the release of bad news (or moving up the release of bad news to precede an already scheduled grant). Because the grant comes after the news is out in the open, such behavior is nearly impossible to prosecute on insider-trading grounds.
More problematic is "spring-loading" - timing an options grant to precede the announcement of good news (or delaying the happy announcement to follow an already scheduled grant).
At Union Station, Grundfest divided this into "symmetric spring-loading," where the members of the board of directors who approve the grant are fully aware of the good news to come, and "asymmetric spring-loading," where they are not. Asymmetric spring-loading itself comes in two flavors: "with ratification," when the board says after the fact that it's okay, and without.
As Grundfest reeled off these terms, I and the reporter sitting next to me giggled, mainly because they sounded so much like something from a diving meet. ("She's going to attempt a reverse double asymmetric spring-loader and ... she nailed it!") But the distinctions may make all the difference, legally speaking.
And a proposed solution for boards who want to remain above suspicion:
In the meantime, Grundfest has been advising companies to schedule their options grants three trading days after a quarterly earnings announcement. This minimizes the amount of inside information that executives could possibly take advantage of. It also has the interesting side effect of giving them an incentive to miss the quarterly earnings target set by Wall Street analysts (because that might depress the strike price of their options). Now that would be a shocking development.
Given the current furore, I expect a lot of companies will be following that advice.

Tuesday, November 14, 2006

The Stern Review

A few weeks ago the British government put out a report about climate change, entitled "The Stern Review" which made quite a splash. BBC News reported:
Global warming could cut the world's annual economic output by as much as 20%, an influential report by Sir Nicholas Stern is expected to say.
While that is a worst case scenario, the report claims that at the very best the cost of tackling global warming would be 1% of annual economic output.
Sir Nicholas's comments are expected to form the core of The Stern Review that is due to be released on Monday.
A summary and the whole document can be found here. In an essay for the Wall Street Journal (via The Volokh Conspiracy), Bjørn Lomborg explains why this report is deeply flawed:
The review correctly points out that climate change is a real problem, and that it is caused by human greenhouse-gas emissions. Little else is right, however, and the report seems hastily put-together, with many sloppy errors. As an example, the cost of hurricanes in the U.S. is said to be both 0.13% of U.S. GDP and 10 times that figure.
The review is also one-sided, focusing almost exclusively on carbon-emission cuts as the solution to the problem of climate change. Mr. Stern sees increasing hurricane damage in the U.S. as a powerful argument for carbon controls. However, hurricane damage is increasing predominantly because there are more people with more goods to be damaged, settling in ever more risky habitats. Even if global warming does significantly increase the power of hurricanes, it is estimated that 95% to 98% of the increased damage will be due to demographics. The review acknowledges that simple initiatives like bracing and securing roof trusses and walls can cheaply reduce damage by more than 80%; yet its policy recommendations on expensive carbon reductions promise to cut the damages by 1% to 2% at best. That is a bad deal.
Mr. Stern is also selective, often seeming to cherry-pick statistics to fit an argument. This is demonstrated most clearly in the review's examination of the social damage costs of CO2--essentially the environmental cost of emitting each extra ton of CO2. The most well-recognized climate economist in the world is probably Yale University's William Nordhaus, whose "approach is perhaps closest in spirit to ours," according to the Stern review. Mr. Nordhaus finds that the social cost of CO2 is $2.50 per ton. Mr. Stern, however, uses a figure of $85 per ton. Picking a rate even higher than the official U.K. estimates--that have themselves been criticized for being over the top--speaks volumes.
But nowhere is the imbalance clearer than in Mr. Stern's central argument about the costs and benefits of action on climate change. The review tells us that we should make significant cuts in carbon emissions to stabilize the concentration of atmospheric carbon dioxide at 550 ppm (parts per million). Yet such a stark recommendation is not matched by an explicit explanation of what this would mean in terms of temperature.
The U.N. Climate Panel estimates that stabilizing at 550 ppm would mean an increase in temperature of about 2.3 degrees Celsius in the year 2100. This might be several degrees below what would otherwise happen, but it might also be higher. Mr. Nordhaus estimates that the stabilization policy would reduce the rise in temperature from 2.53 degrees Celsius to just 2.42 degrees Celsius. One can understand the reluctance of the Stern review to advertise such a puny effect.
The Stern review's cornerstone argument for immediate and strong action now is based on the suggestion that doing nothing about climate change costs 20% of GDP now, and doing something only costs 1%. However, this argument hinges on three very problematic assumptions.
First, it assumes that if we act, we will not still have to pay. But this is not so--Mr. Stern actually tells us that his solution is "already associated with significant risks." Second, it requires the cost of action to be as cheap as he tells us--and on this front his numbers are at best overly optimistic. Third, and most importantly, it requires the cost of doing nothing to be a realistic assumption: But the 20% of GDP figure is inflated by an unrealistically pessimistic vision of the 22nd century, and by an extreme and unrealistically low discount rate. According to the background numbers in Mr. Stern's own report, climate change will cost us 0% now and 3% of GDP in 2100, a much more informative number than the 20% now and forever.
In other words: Given reasonable inputs, most cost-benefit models show that dramatic and early carbon reductions cost more than the good they do. Mr. Stern's attempt to challenge that understanding is based on a chain of unlikely assumptions.
Faced with such alarmist suggestions, spending just 1% of GDP or $450 billion each year to cut carbon emissions seems on the surface like a sound investment. In fact, it is one of the least attractive options. Spending just a fraction of this figure--$75 billion--the U.N. estimates that we could solve all the world's major basic problems. We could give everyone clean drinking water, sanitation, basic health care and education right now. Is that not better?
We know from economic models that dealing just with malaria could provide economic boosts to the order of 1% extra GDP growth per capita per year. Even making a very conservative estimate that solving all the major basic issues would induce just 2% extra growth, 100 years from now each individual in the developing world would be more than 700% richer. That truly trivializes Mr. Stern's 10% to 13% estimates for South Asia and Sub-Saharan Africa.
Do read the whole thing. Quite a few people, not all of them so-called climate skeptics, seem to be unhappy about the report. Philip Stott comments here, Roger A. Pielke, Jr. notes some cherry-picking here, James Annan has a "stern review of the Stern Review" and see here for more. Even the UN's upcoming IPCC report seems to contradict Stern's claims. I have to say that I hope Professor Stott is correct:
I predict that Stern will sink quite quickly to join the now-forgotten Population Bomb and Limits to Growth, and many other such doomsday tracts.
Otherwise, we'll see what people think when it hits them in the pocket.

Sunday, November 05, 2006

A second Lebanon War in 2006?

A few days ago John Keegan wrote an interesting article in the Daily Telegraph (where he is defense correspondent) in which he argues as follows:
There will soon be another war in the Middle East, this time a renewal of the conflict between the Israel Defence Force (IDF) and Hizbollah. The conflict is inevitable and unavoidable. It will come about because Israel cannot tolerate the rebuilding of Hizbollah's fortified zone in south Lebanon, from which last year it launched its missile bombardment of northern Israel.
Hizbollah has now reconstructed the fortified zone and is replenishing its stocks of missiles there. Hamas is also creating a fortified zone in the Gaza Strip and building up its stocks of missiles. Israel, therefore, faces missile attack on two fronts. When the Israel general staff decides the threat has become intolerable, it will strike.
Do read the whole thing, which seems quite reasonable to me. What struck me as most surprising in his analysis, however, was this (emphasis mine):
What is certain is that – probably before the year is out – Israel will have struck at Hizbollah in south Lebanon. And the strike will come even sooner if Hizbollah reopens its missile bombardment of northern Israel from its underground systems.
If the time frame of this prediction turns out to be correct we are looking at a reopening of the hostilities in the next few weeks (the year ends in less than two months). Remarkable.