Phantom Erection Of The Eunuch (1 of 2)

They have been saying that the Palestinians never miss an opportunity to miss an opportunity but those of us who know them well understood at once that the Israelis must have looked in the mirror, seen what was ailing them and attributed to the Palestinians what they saw in themselves. Indeed, accusing others of what they are has been the method of operation of these people since the beginning of time and they have not changed one iota. In fact, the opportunity is here now for the Jews of Israel and for their friends in New York to have the “normal country” they say they have been yearning to have for thousands of years but instead of grabbing it, they are kicking it now like they have been doing for decades. And once again a few gentiles have tried to understand this mentality but failed to find an explanation for the phenomenon because they used conventional methods to analyze what they were seeing. And so in the absence of a conclusion, it has become necessary to test a bold new idea and see if it will yield a satisfactory explanation as to what is going on.

Here is the idea. People who lost a limb say they sometimes feel as if they still have it; even feel the sensations that the limb used to impart. To explain the phenomenon, a number of psychiatrists called it a phantom sensation and attributed the manifestation to the refusal of the mind to accept the loss of the limb. If this sort of thing really happens, you need not stretch the imagination too far to see that a castrated eunuch may get the sensation of having an erection when testosterone is injected into his bloodstream by what used to turn him on. But true or not, the image of the castrated eunuch yearning to become a stud and acting like he is enjoying a phantom erection serves as a metaphor for the behavior of those Israelis and their friends when they speak of the political and military successes that Israel can still have and will again. Strange as it may seem, this state of the mind has been at the root of the rejectionist attitude which Israel and her supporters are exhibiting but this is not the whole story as there is more that can be said about it.

Like all metaphors, the Israeli phantom sensation is not a perfect one given that the hapless individual who lost a limb actually had it then lost it whereas the Israelis have scored but a few of the successes they fantasize about. From the beginning, they and their dreaming comrades only had the illusion of glorious achievements, an illusion that humanity allowed them to create and to maintain for various reasons, one being that the illusion kept them occupied and out of our collective hair. Yes, the Israelis and their friends looked funny at the beginning as they amused themselves and amused us with their antics but in the end, their game began to look more pornographic than anything else. And the sight of them playing out their fantasies began to irritate the people of the world, in consequence of which they were advised by all the decent people to refrain from playing the same game again in the manner that they did before.

To cite an example as to how that game was transformed from funny to pornographic, it was one thing to send jets and make a sonic boom over a neighbor’s city thus startle the people below but another to send American made helicopters armed with guided missiles to blow up mothers and their babies in the middle of the night as they slept in the quiet of their bedrooms. While this sort of behavior became the norm that Israel and her supporters lived by and saw reasons to be jubilant about, the rest of humanity determined that no fun could be had with such antics and no glory should be celebrated in the aftermath of the carnage. And while it can be argued that a sonic boom over a crowded city represented a sickly kind of psychological erection, the blowing up of women and children from afar represented a primitive sort of debauchery that nothing could justify. And so humanity let the Israelis and their friends know what we thought of their behavior.

To get a fuller sense of what motivates these characters and makes them tick, you need to understand the sordid saga that is behind their mentality. The saga had its genesis when their self-styled leaders began to follow the teachings of the book they call the Talmud. This is a book that took its present form less than two thousand years ago but has roots that go back two thousand more years before that. And it is written in this Talmud, in the style of the doublespeak, that the best way to lead a marauding life and live off your neighbors is to do what the ancient Hebrew tribes did which was to attack the peoples who least expected it while their guards were down and they sat utterly defenseless. You rob your victims, you murder their women and children and, for thousands of years, you brag about how potent you have been. It also helps to claim that God was on your side guiding you every step of the way in the execution of these God-awful and devilishly organized criminal treacheries.

The lesson to draw from the preceding is that when these cowardly characters plan to commit an act of murderous treachery, they do not advertise it. They wait for the most propitious moment to surprise their prey and deliver a blow as savagely as they can. In fact, they have proven repeatedly, in modern times as in the past, to be the most treacherous of all and so, when they deviate from their established habit and warn repeatedly that they are about to hit and destroy someone, you know they are having the false sensation of a phantom erection. The alternative view is that they are the ones who are about to be destroyed because, like they say it themselves: When God intends to destroy someone, He first renders them mad. They are certainly going mad and it could well be that like the rest of us, the big Guy up there got fed up with them and has decided to do something about it yet again.

Let us look at an example which illustrates how these characters play in modern times the game they used to play in biblical times. At first they appeared to score a few successes and so they got the idea that everything they do from now on will be met with success. To their credit, they managed to exert considerable influence on the media, especially those in the English speaking world. In fact, they made many publications cease to function like a medium of journalism, turning themselves into mouthpieces for promoting the glory of Israel, something they did wall to wall with tireless devotion. Most English media then became lobby groups that gladly went under the command of the self proclaimed Jewish organizations which used them to spread the Judeo-Zionist propaganda in every corner they saw a center of power they coveted and wished to dominate.

And here is a useful secret I divulge to my readers: If you can tell to what degree a publication has devoted itself to promoting the glory of Israel, you can paint a clear picture as to what transpires in the heads of the people who run the outfit, and by extension what transpires in the heads of the Jewish organizations that control it. Learning this will help you a great deal because you will feel like watching a movie whose ending you know will be banal but will in the meantime provide you with a sense as to the makeup of the world you live in and with valuable information about its unfolding around you.

So let me tell you of a method you can use by which you may assess the degree of control that the Jewish organizations exert on a journalistic outfit. The method has to do with the ancient cultures of the Middle East, including the Hebrew culture. The English word “milet” is derived from the Arabic word “mellah” which refers to a group of tribes that are loosely related to each other. A milet could be thought of as a nation except that these people were nomads who never had a territory of their own but moved from place to place in small groups. When such groups encountered each other in the desert, they needed a way to identify themselves to each other so they devised a few methods. One of these methods has survived to this day and is now used extensively in the entire Middle East. It got picked up by the Jewish organizations of the West and spread with a vengeance throughout the English speaking world where it was force fed to the population in the print media, from the reporters to the editors to the copy writers, and force fed to their counterparts in the audio-visual media.

In part 2 of the series, I discuss that method in detail, explain how it works in the Middle East today, show how it was transplanted into the Western culture and what the consequences have been for journalism, especially the English media.

Finally A Definition About Rationing

On August 18, 2009 Mr. Martin Feldstein published an article in the Wall Street Journal under the title: “ObamaCare Is All About Rationing.” In it, he says this: “In the British national health service, a government agency approves only those expensive treatments that add at least one Quality Adjusted Life Year … about $49,685 of additional health-care spending. If a treatment costs more … the health service will not pay for it. The existence of such a program in the United States would … deny lifesaving care …”

So this is how those who talk about rationing healthcare services define the word ration. Well then, in the interest of saving time and mental energy, let us not squabble as to whether or not the definition matches the word and accept that nomenclature. This done, let us look at what Mr. Feldstein is saying and what he is not saying. By not proposing that the expenditure on “expensive treatments” be raised to a higher value, Martin Feldstein is saying that there should be no limit.

First of all, let us observe that having no legally mandated limit is the case in Canada and all the public plans that I know of. Second, let us be honest and admit that if having a limit is a sign of deficiency in a system, then the most deficient of all is the American system because it is in it that the adjuster for a private insurance company determines whether or not they will pay for a treatment, and if they do, how much and for how long they will pay.

And this raises an important question which is the following: Was Mr. Feldstein aware of this part of the argument? The answer is: Of course he was aware; he is an intelligent man. And this is why he hastened to add the following to the statement I quoted above: […The existence of such a program in the United States would not only deny lifesaving care but would also cast a pall over medical researchers who would fear that government experts might reject their discoveries as "too expensive.”]

Anticipating an attack on his argument, Feldstein tried to reinforce it preemptively with the speculation that future researchers will go sour and stop researching because their discoveries might go over the limit and be rejected. And of course, there is no suggestion here that having made the discovery, those researchers would try to make it more affordable. In addition, there is something odd about the idea that researchers can determine the cost of a treatment before they even discover it and thus be forced to refrain from researching it.

And there is still more to it than meets the eye because what Martin Feldstein has actually done is clarify what the choice comes down to in his opinion, and what his preferred choice really is. However, before we delve into this, we must all stop beating around the bush and admit that everything we do in life, especially when it comes to allocating scarce resources, we do it according to a list of priorities we draw up whereby we make the choice every step of the way as to what is more important under the current circumstances and proceed with it.

Consequently, Feldstein says that the choice now comes down to either spending the available money to give nearly 50 million Americans an adequate coverage or spending it to aim at giving those who now have a luxurious coverage an even more luxurious one -- so luxurious in fact that it has not yet been discovered but remains a glimmer in the eyes of some researcher. And guess what Feldstein’s choice is: Very sad to say, he has chosen the second proposal.

The figure I have is that the American health bill amounts to approximately 2 trillion dollars. This means the bill for covering 50 million Americans would come to about 300 billion dollars. Martin Feldstein says throw these people to the dogs and spend the 300 billion dollars on research that will end up coating the existing gold plated coverage which some people have with an even thicker layer of gold. Is he serious?

I hope the man is only playing the devil’s advocate because I know he is a much better person than that.

Paralysis By Self Deception

Usually I don’t write about matters relating to my health but I am obliged to do so now because of the erroneous statements made about our Canadian health plan, in addition to the false pronouncements delivered by American politicians and the misleading commercials that emanate from south of the border. And the reason why the Americans are saying bad things about our plan is that they are having a debate as to the kind of plan they want for themselves. By criticizing our plan they compare what they never had with what they never understood, having decided beforehand that they were correct all along for not choosing a plan similar to ours. They seem to believe we were wrong all these years because we neglected to conduct a debate in a style similar to theirs before settling on our plan, and they intend to do all that they can to keep their Republic safe from any influence we may exert on them.

Well then, here is my story. When I was on vacation a few weeks ago, it was more than fun and games for me because I had to mix my leisure moments with a trip to the hospital where I underwent a surgical operation on my hand. And what I can report from experience is that the negative things the Americans are saying about our plan are way out of line. In fact, I have lived with the Canadian plan for nearly 45 years now because, if my memory serves me right, it has been this long since we adopted it in this country. I used it over and over; so did every member of my family and everyone I know without a single complaint being lodged against it. And certainly, I never heard criticism that would come close to what the Americans are saying.

And here are the facts: I chose my doctor, chose the hospital where to operate and chose the approximate date of the operation. No one questioned me, no one telephoned me, no one visited me and no one suggested that I do anything differently. This is how we do healthcare in Canada and this is what they cannot dream of doing in America except for the people who are wealthy enough to buy the so-called gold plated Cadillac plan where they pay something like 2,000 dollars in premium to a private insurance company each and every month for as long as they live or run out of money. Compare this to the one-time parking fee of twelve and a half dollars that it cost me to have my operation and you’ll ask yourself: What’s wrong with these Americans? Why do they want to stay with a plan that is bankrupting their country while delivering less than half what we get in Canada? Are they nuts or something?

What is especially vexing about their view of the Canadian healthcare plan is that because it uses a single payer system, they deceive themselves into believing it rations medical services. The Americans make this accusation without explaining what they mean because they have no explanation to give, not knowing what the hell they are talking about. Of course, the word “ration” means different things to different people but in the context of the debate they are having, it sounds like they are using the word in the most negative of ways. Well, to counter this view, I propose that the following commercial be aired in response to their fraudulent commercials.

A mother carrying her infant daughter enters the emergency of a hospital where she sees a female who looks like an insurance lobbyist talk to a wealthy looking man. Distressed, the mother explains to the two that her daughter swallowed something and has difficulty breathing. The female asks the mother if she has insurance and the mother says probably not but she is not sure if the husband who is a trucker on the road has arranged to buy coverage for the family. The man interrupts the two women and offers to pay the expenses if it turns out that the girl has no coverage; and he pleads that the child be looked after immediately. The female lobbyist protests that this would be rationing healthcare which is bad for America. “But this is an innocent child who could be dying” says the man at which point the female bursts into a hysterical tirade accusing him of being a Canadian style, European trained socialist renegade who is betraying the American way of life. Then, in a slow and dramatic fashion, the infant grows in size while retaining the features of a child. She turns to her mother and says: “Mom, will I live and grow up to be a socialist renegade?”

The problem is not that all governments are inherently incapable of doing something right; the problem is that the Congress of the United States of America swims in a culture of little imagination and a sea of pork. When a bill comes up for a vote and every congressman and his favorite lobbyist want to add an earmark to it, the socialist aura that descends on the bill is due not to the Canadian or the European way of paying for healthcare but to the American way of doing politics. Indeed, nobody has cultivated the idiotic habit of adding earmarks to their legislation but the Americans, and nobody is idiotic enough to make wild accusations about the Canadian plan but those who are sloppy with the truth as much as they are careless with the money of their taxpayers.

The reality is that having a single payer system -- as do the Canadian and most European nations -- has nothing to do with what goes into a health plan. Whether it is the government or the private companies that issue the checks to healthcare providers, what goes into the final bill will be determined by what every house representative will earmark for their district and what every senator will earmark for their state. The difference between the single payer system and the multi-payer system is that the first brings simplicity to the procedure, lack of confusion into your life and the certainty that when you need medical attention you will only have to listen to your body and to the advice of your doctor … absolutely no one else. If this is socialism, give me more of it. And since the American plan requires that you put up with the dim-witted questions of a hysterical stranger from the insurance companies, I say without reservation: If this is the American brand of capitalism, they can take their brand and shove it.

Of course, what is good can still be made better and I am convinced that the Canadian healthcare plan can be improved upon. To this end, I wish to suggest something, having no illusion that it will work well or work at all. But this is something that can be debated, perhaps tested with a pilot project and adopted universally if shown to work adequately enough. Otherwise it can be rejected and forgotten all about with no harm done for having discussed it or tested it.

The plan is this: Determine at the beginning of every fiscal year how much it will cost each individual and each family to pay for the health bill of the nation. Give every taxpayer a tax credit in the determined amount. The individuals or families that exceed the amount in a given year will not be required to reimburse the government. On the other hand, those that cost the government less than the predetermined amount will be allowed to use the unused portion to reduce their taxes. This will make everyone conscious of the burden they place on the system every time they make the decision to seek medical help, and thus refrain from abusing the system. This idea should apply only to adults and not the children who do not make the decision to seek medical attention. And to avoid determining the level of medical care that a child receives based on economic considerations alone, the children will be given unlimited attention and all the care they need without any restriction.

The most important part in the debate about healthcare anywhere in the world is the one that deals with cost. But as everyone knows, you control the cost of something by having enough people watch it to determine what is excessive about it and participate in cutting down on these excesses. Well, if implemented in America, the plan I am proposing will empower nearly 200 million American users to watch what they are doing, make the correct determination, take action where necessary and reduce the cost of healthcare by refraining from abusing the system. In addition, these users will have the incentive to shop around for the best medical practices where they are dispensed. They will reward the good institutions by visiting them when the need arises, and punish the abusive ones by cutting them off. In this way, the users will also help the single payer -- be it the government or otherwise -- monitor how well each practitioner is doing their job. And with little imagination, this feature can be used to cut down on lawsuits; something that seems to have mushroomed into a huge problem in America but not in Canada or in Europe.

It has been our experience here in Canada that the Americans know little about us and say dumb things about our country but we never get upset because we are big enough to take their insolence and keep an Anglo-French kind of stiff upper lip. But what we cannot tolerate and what brings our Franco-Latin blood to a boil is when they use us to hurt themselves. When this happens, we feel guilty and we react like this: “Mais non, c’est stupide!” And we get the feeling it is our duty to let them know they have gone too far. Well, my dear friends in America, I spoke my mind and have thus discharged my duty. It is up to you now to remain stupid and keep on deceiving yourselves or see things our way and adopt a system of healthcare that will not kill your economy or keep you out of step with the civilized world.

Financial Mismatch At The Interface (4 of 4)

An economic jurisdiction is made of thousands of entities, some being individual investors operating privately or in a group and some being corporations ranging in size from the small to the very large. They each have a set of tools to work with and a variety of strategies to choose from in their quest to implement the plans they draw up for themselves and reach the goals they set out to accomplish. However, all these entities have one thing in common, the imperative of having to stay alive and to look after their interest.

Ever since the time when people first came together and started to live in society, they created an economy, and this is when they discovered that they must have a system which will work for everyone or they will be generating a discontent that will please no one. The people concluded they must try something and a few got busy thinking about what to do. They conceived all sorts of systems, one to harmonize with the environment in which the system was created, one to flow nicely with the situation in which it was adopted, one to suit the temperament of the ruler that called for its creation and so on. And all these systems were implemented at one time or another, were tried under different conditions and were allowed to yield their results.

And despite all the goodwill that was poured into these valiant attempts, not one system turned out to be reliable enough for use in every instance without creating trouble of its own. Each and every time, one or the other of the systems broke down, and they all proved to be flawed in some respect. In fact, the use of these economic systems threatened the wellbeing of the societies they were meant to serve, and when you came right down to it, you could trace the flaws in each of them to the imperative of having to promote one’s own interest. Not that the idea itself was a bad one but that the pursuit of self interest was pushed to a limit that could not be sustained. In other words, the legitimacy conferred on the promotion of self interest was used by some people to promote blatant selfishness. The action of the few then forced the other people to follow suit, a development that caused the system to break down completely.

Normally, this is where the law would intervene and place a limit on the excesses of human behavior. Indeed, humanity has learned to make the kind of laws that keep blatant selfishness under check. And while such laws have met with success in all sorts of fields, they failed to do so in the field of finance. Here, the law discovered that the line separating the pursuit of legitimate self interest from what is criminal behavior is so blurred that it becomes impossible to discern where legitimacy ends and crime begins in many of the cases.

And so, the choice of system handed to humanity after all the instances of trial and error were exhausted came down to only two: First, there was the centrally planned system of economics which proved to be inefficient by virtue of the fact that to curb the tendency to descend into selfishness the system killed an important human trait, the potential for individual initiative to flourish and to improve on the existing set-up. But this being the one trait where a large number of people could benefit by riding on the coattails of the few who took charge and forged ahead, killing the trait killed the chance that the multitude had to pull out of misery and lead a better life. The experience of the now defunct Soviet system has been one such example.

Second, there was the capitalist system of economics where the excesses of the few, dubbed unfettered or savage capitalism, proved to be a serious threat to the wellbeing of the many, sometimes inflicting severe damage to the society that adopted it. And where the excesses were not restrained by law as effectively as they should have been, the capitalist system started to be feared as much as the dreaded system of central planning.

But there is here a reality that must not be ignored. As things stands now, when people succumb to the temptation of being so selfish as to clearly slide into criminal behavior, the law catches up with them and hands them a just punishment. Unfortunately, however, the goal ought not to be that of catching these people after the fact, it ought to be that of deterring them from succumbing to the temptation before the fact. What this means is that we need to find a method by which we can do the sort of early detection that will be reliable and effective most of the time.

Here is where the difficulty lies and where the researchers in human behavior have collided against a brutal reality. Because the intent to commit a crime is not something you can measure or quantify, you cannot detect it with an instrument. What you can do is rely on your intuition and the power of empathy to detect someone’s intention before they turn the temptation into an illegal act. You may then fantasize about doing something that only a few now dare to do: Warn the potential culprit that they are on the wrong path, ask them to back off and spend time talking to them about the merit of ethical conduct.

Well, if no one initiates this sort of talk with a colleague or a friend, it is something that is done by such people as religious figures, social workers, philosophers, artists and so on. Unfortunately, human beings have never been successful at making their sermons stick long enough to spread the basics of ethical conduct widely enough. The do-good preachers have been even less successful where the pursuit of self interest was legitimized as it has been in the field of finance. And the sad truth is that an approach which does not include the use of sticks together with the carrots will never succeed in this sort of endeavor. For this reason, the people who want to persuade others to practice good ethics must accompany their preaching with a deterrent that is so credible it will send the fear of punishment in the heart of potential culprits not in the afterlife but in the here and now.

And this opens the discussion about the law because in a society that is governed by law, the way to warn about possible punishment and, where warranted impose the punishment, is to do it through the law. In fact, what is happening now in many parts of the world, including the Congress of the United States of America, is that new rules are being debated to update and to modernize the body of laws that have failed to uncover and prevent the last financial crisis.

However, before the law is asked to intervene, I suggest that something be done first. I suggest that a quasi-judicial body be set up to oversee such matters with the mandate to encourage potential whistleblowers to come forward and share their intuition with specially trained people. The whistleblowers can come with only a hunch and keep the staff abreast of what is going on in the places where they have intimate knowledge. They will be questioned and probed thoroughly to make sure they are not doing this to get back at someone, and if found credible, their hunch will be quietly looked into by professional investigators. If the latter find something that deserves to be acted upon, they will determine the best way to trip and to warn but not to entrap or prosecute the potential culprits. The investigators will act before any hand has been soiled, not wait to catch someone red handed after the bad deed has been done.

As for the reason why some people go astray, it is clear that a mismatch is created as a result of a simple confusion turning into something more serious. It is that some people become so immersed in the joy of the financial game, they fail to see the difference between knowing how to play the game and knowing how to apply the rules of financial exchange. They play to win and to maximize the profit to themselves but ignore the fiduciary responsibility they have to benefit the largest number of people whose interest they are obliged to serve. The failure to see this difference creates a mismatch at the interface between the lure to go for personal wealth which pulls them in one direction and the duty to fulfil their responsibility which pulls them in the opposite direction.

And so while the whistleblowers will help to reduce the possibility of people succumbing to the temptation of doing the wrong thing, it will be a good idea to also have programs that will instill in the young the need to resolve the tension between being satisfied with what they have and what their imagination says they can have by taking a short cut. Before the religious figures, social workers, philosophers, artists and so on get into the act and preach ethical conduct, the parents should begin the discussion at home, and the teachers begin it in the classroom. In addition, society as a whole must talk all the time about the subject so as to remind one another that punishment exists for those who would rob society to get rich quickly. When such activities get to be viewed as being anti-social, few if any of the young will want to pursue them and most of the adults will think twice before adopting them.

The continuous message that should come out of this is that if greed is good for the nation as Hollywood says it is, it can be good only when the game is played by the rules that have been set for it. Breaking the rules is bad for the nation, and those who do so deliberately will end up spending time repairing the damage they cause to society -- which is not exactly a happy Hollywood ending.

Finally, with regard to the questions posed at the beginning of this series, the answer is yes, the forces that act on the developing nations as they experience growing pains are similar to the forces that have acted on the advanced economies in their latest predicament, and they are similar to those that usually cause the exaggerated booms and busts in the various economies. These forces are called human failings, and they can be tamed by the same approach, the use of carrots and sticks backed by a policy of eternal vigilance.

Financial Mismatch At The Interface (3 of 4)

A set of twin brothers separated at birth, leading identical lives and doing the same kind of work should be able to accumulate the same level of assets during their lifetime. However, the capitalist system works in such a way as to diminish this probability if not negate it. Understanding how this can happen sheds light on the mechanism by which cycles of boom and bust grip the developed economies -- which is the goal of this discussion.

I begin with a description of what is meant by the word cycle and use the pendulum to help in the presentation. As can be seen from the left-to-right-and-back movement of the pendulum, a cycle is said to exist when a metal disc attached to an arm undergoes a repetitive back and forth motion called oscillation. With this in mind, let us visualize the disc at the highest point on the left side about to begin its descent. If it takes it one second to reach the bottom of its path, it will take it another second to reach the highest point on the right side. The disc will then reverse direction and do the same thing going the other way. That is, it will take it four seconds to do the back and forth trip which is the full cycle, also called a complete wave.

Now imagine two identical pendulums doing the same thing with the exception that when the first begins to come down, the second does not follow until half a second later. We say that the two pendulums have the same cycle but that they are out of phase with each other; and we specify that the phase shift here is equal to half a second. And since the full cycle is run in four seconds, a division will show that the shift in this case is equal to one eighth of a cycle. Of course, we could have made it a quarter cycle or half a cycle or anything in-between. What must also be noted about the wave is that when it is drawn on a graph, it is shown to have a high peak and a low peak. The spread between the two peaks is called the amplitude of the wave, something that will play an important role in the discussion as we shall see later.

Meanwhile, the set-up need not be a pendulum because any oscillation between two states qualifies as being a cycle even when the back and forth is done by something other than a physical mass. Thus we may imagine a number of enterprises making up an economic jurisdiction where they undergo the normal business cycle of building up their inventories and selling them. For example, there is a time to start constructing homes and a time to sell. A time to ramp up the production of cars and a time to sell. A time to start stocking up on school supplies and a time to sell. The list goes on but what is important is that if the forecast done at the beginning of the cycle by a business turns out to be correct and the build up is matched by the drawdown, the cycle is said to be normal for this business. Thus, the ideal situation would be for each and every business to have a timetable proper to it and a cycle that is independent of its competitors and of its peers.

To visually express a business activity, we draw it as a curve with an amplitude whose size depends on how good the good times are and how bad the bad times are. In most business cycles, the amplitude is maintained within acceptable limits, and when the economy does not overshoot these limits, it is said to have a moderate cycle because it does not create the conditions for boom and bust. A moderate cycle is, therefore, welcomed by most people because they expect it and, when it happens, they see it as a reflection of the rhythm of life.

But because all the economic entities have the same suppliers, customer base and bankrollers, the fortunes of the largest among them spill over and affect the smaller ones. Most of the time, it is either good times for everyone or bad times for everyone. This is to say that the bigger entities drag the smaller ones into a cycle that gradually approaches theirs. Eventually, all the entities will have one group cycle common to them except that each entity will have the option to maintain a phase shift proper to it. However, human nature being what it is, an increasing number of entities will deliberately harmonize their investment strategies with the big ones and try to narrow even the phase shift between them as much as possible.

As this happens, the loss in the size of the phase gap becomes a gain that is added to the amplitude of the wave. And when the amplitude becomes large enough, it turns the economic cycle into one of boom and bust. Furthermore, the more that credit is made available and the cheaper it is, the more that the speculators will borrow and add still more to the size of the amplitude. When ordinary investors are encouraged to join the frenzy with talk of the good times lasting forever, they become the vehicles by which money is borrowed from the lending institutions and channeled to the brokerage firms, investment bankers, hedge fund managers, specialists, arbitrageurs and all those who pocket the millions of dollars doing nothing more than play the shell game with “Other People’s Money.” And this is where the dreaded economic bubble begins to form.

Let us now discuss some investment strategies to see how things ought to work and how they do actually work some of the time. Two entities such as the twin brothers of our story may adopt different strategies. One may follow the group and be safe while the other may take a risk by adopting a contrarian posture. That is, he will phase shift his moves by half a cycle in relation to the group. Thus, when everybody is selling at a low price, he will be buying. And when everybody is buying at a high price, he will be selling. The result of buying low and selling high consistently will be that he will get rich and may even accumulate a million dollars during his lifetime while the twin brother will remain average all his life. Of course, there is nothing wrong with someone taking a risk and getting rich or with someone playing it safe and be content; neither of the twins can be faulted for their choice of strategy.

But an interesting question poses itself at this point: Why is it that everybody does not go contrarian and get rich? Well, beside the fact that most people prefer to play it safe, it is clear that the question is absurd because if everybody goes contrarian, the contrary becomes the norm. And if a minority does not follow the group, it finds itself standing in what used to be the norm but is now the contrarian posture. And the reason why the question was asked in the first place is because to think about it helps to understand how the big business entities profit from the cycle despite the fact that they cannot be contrarian by definition. To think about the question also helps to understand how the medium size entities profit by narrowing the phase gap between them and the big entities.

The big entities profit by leading the cycle, and to understand how this happens we visualize a curve such as the famous Bell curve. In reality this curve is only half a wave but it is good enough for the purpose of this discussion. If you are an economic entity that is so big you dominate the market, the entities that are too small to affect your operation can go contrarian as did one of the twin brothers, and benefit from your activities without affecting your operation. But the somewhat larger entities that can irritate you but are nevertheless too small to challenge you outright will have to follow your lead or be left behind if not trampled upon. Thus, deliberately or not, they will trace the same path on the curve as you but will remain slightly phase shifted and lagging behind you all the time. What some of them will do, however, is try to narrow the phase gap between them and you thus contribute to the condition of boom and bust.

To see this, let us follow the action blow by blow. When prices rise, you will at some point decide that this level ought to be the peak of the curve. You will sell and thus force the prices to fall which will cause the level you have chosen to indeed be the peak. Sooner or later, the other entities will realize that you are selling and they too will start to sell but will do so at a lower price. Then, at some point, you will decide that you have reached the bottom of the curve and you will start to buy at the lowest of prices only to be followed by the other entities who will buy at higher prices. Thus, when you consistently buy at a price that is lower than anyone and sell at a price that is higher than everyone, you will make gains that are bigger than all the others. And you will have accomplished this feat because you had the financial clout to lead the market in the first place. As for the medium sized entities that lag behind you, the narrower they make the gap between them and you, the more they will buy and sell at prices closer to yours and thus benefit the most. But they will also contribute considerably more to the amplitude of the wave and to the swing in the economy.

As can be seen, the interface between the various entities in this game is a complex one, and the possibilities offered to those of medium size to make decisions independent of the leader are limited. There is no doubt, however, that most of the entities will want to remain as independent as they can not only from the leaders but also the vagaries of the marketplace. Consequently, they will take a realistic approach when doing business and will make the decisions that will help them stay alive and avoid ruin. For as long as they can, they will walk a tightrope between the need to avoid doing the things that can bring them into conflict with the leader and doing the things that are called for by sound business practices.

But because the first imperative of human nature is to stay alive, most people will in the end synchronize their activities with the rhythm of life that rhymes with success. If this means they must follow the leader and narrow the phase gap with him or her, they will do so and will knowingly exaggerate the amplitude of the wave which they realize may turn the cycle into violent booms and busts. And if the whole thing turns into a bubble and then burst, so be it. If they can, they will jump ship before the disaster strikes or will stay put and go down with everyone else. To most people, this is a better outcome than to stand for principle and go down alone.

The discussion continues in part 4 of the series.