The Power and the Money

The roots of Argentine street violence

The pension reform passed the lower house yesterday on a vote of 127-117. The legislative process has been fine, notwithstanding the near-fistfight on the floor and a lot of disingenuous rhetoric from the government. In those terms, and those terms alone, Argentine representative democracy looks to be in better shape than American representative democracy.

But the street response has been nothing less than shocking.

Why? Well, there are two hypotheses.

The first hypothesis is that the mobs were organized by the Peronist opposition to discredit the Macri’s Cambiemos coalition. In this view, the pension reform is only a convenient excuse for an opposition facing an existential struggle against its ideological opponents.

The second hypothesis is that the Macri administration miscalculated the meaning of its recent electoral victory. It failed to realize was how little trust it enjoyed. In this view, the violence is an inevitable product of the government’s attempt to offload adjustment onto the middle class in a society even more polarized than the United States.

Which view is correct? Likely both.

There is certainly a history of Argentine political actors orchestrating street violence for political ends. Consider Javier Auyero’s (U.T.-Austin) magisterial study of the 2001 riots. In his words: “Three mechanisms [operated] during the episodes: 1. the creation of opportunities by party brokers and police agents, 2. the validation of looting by state elites, and 3. the signalling spiral carried out by party brokers.” Similarly, soccer fan clubs have employed violence to help politicians. Politicized soccer violence emerged during General Jorge Videla’s dictatorship (1976-83). Videla organized fans to pressure potential opponents; the “barras bravas” also became a convenient venue to channel payoffs to regime supporters. After democracy returned in 1983, the barrabravas began to sell their “services” to various politicians. In short, there is a history of party politicians inciting and using violence; it would be more surprising if nobody abetted the recent riots. The President certainly thinks that somebody did.

But the Macri administration has ] given working or middle class Argentines little reason to trust it. He has made no moves to apply scratchy hairshirts to the richest: the (unavoidable) austerity is going to fall squarely on the middle class. The pension reform came in the wake of a  punishing series of electricity rate hikes with no commensurate increase in service.* It also comes in the wake of Macri’s post-election declaration that he wants to cut taxes on business and investors; no sign of a progressive tax reform here, a la Chile or Uruguay. (More on Uruguay here.) Pain always goes down better when it’s shared.

It is true that some sort of pension reform will be necessary and it is true that the opposition has both the means and the desire to foment street violence. But it’s the reluctance to spread the pain of austerity up the income ladder that lies, I think, at the heart of the problem.

* Electricity reliability is measured via two indices. SAIDI measures the average annual outage time per customer. In the United States, the median utility has a SAIDI around 1.5 hours (NYC is 0.3); in Argentina, it’s 4.5. SAIFI measures the average annual number of outages per customer. In the U.S., it’s about 1.1 (with NYC having 0.1). In Argentina, it’s 16.2. Mexico, for further comparison, is 0.8 and 1.0 in Mexico City and 0.5 and 0.6 in Monterrey. (The World Bank tracks these numbers.) To be fair, one wouldn’t expect electricity provision to improve in a day after a decade of Peronist mismanagement, but that is a reason for Macri to tread lightly.

The mystery of tranquility in Mexico City

We are back in D.C. Time to think about the time in Mexico City, which we intend to repeat every summer that we can.

Crime has gotten worse in the statistics, but not in the feel. The center of the city is as safe (or not) as ever.

But there are some signs of worse to come. Right after our arrival, there was a large-scale shootout between the Marines and a local gang called the Tláhuac Cartel, Tláhuac being a poor borough out on the edges of the city. (The new Line 12 runs there.) 

The short version of the shootout isn’t ominous at all. The gang’s leader, Felipe “The Eyes” de Jesús, was dealing drugs on the UNAM campus. University officials complained to the feds, so the Marines started an investigation. (Yes, it is a problem that the Marines needed to handle the investigation instead of the federal police.) They found him, moved in, and everything went wrong. Tragic and possibly incompetent, but these things sadly can happen anywhere.

No, what’s worrisome are what else the gang was doing and what happened after the shootout. The gang wasn’t just selling drugs on a big college campus. Rather, it was engaged in extensive extortion of Tláhuac’s retail markets and taxi services. That is worrisome. Now, if taking down The Eyes ends that, then we do not have a problem. But right after the shootout that killed him, mototaxis controlled by the Tláhuac cartel blocked off roads and gang members set a large truck and three buses on fire. That does not sound like the organization’s grip on the borough has been broken.

What makes it worse is the mayor’s insistence that everything is fine, cartels don’t operate in Mexico City. Homicides leaped 25% this year. Just a blip? Possible, but unlikely in a city of this size. Now, I understand why Mancera insists on this, for reasons beyond the political. (He wants to run for president in 2018.) First, homicide was not that high (through September 2016) in the affected areas. Consider this map, from the indispensable Diego Valle. In 2015-16 there were only 19 reported killings in the sector where the shootout happened (outlined). That is a rate of 10.3 per 100,000, which is neither low nor high by American standards. The area is far from a no-go zone. And while it is clear from the overall time series (see below) that something happened in CDMX around August 2016, things do not look to be out-of-control. 

So even though a federal report states that cartels do indeed operate in greater Mexico City (you can see a map of their territories here) the situation is not yet scary, at least not to a jaded child of the 1970s and 80s like myself.

I am, however, I think, French at heart. Mexico City may be under control in practice, but I do not fully understand how it stays under control in theory.

It suffers from the same corrupt and ineffectual police as the rest of the country. And it has had the same trouble making the new legal system work as a the rest of the country. So why does violence remain relatively low? After all, CDMX is safer than Washington, D.C., but D.C. has a decent police force and a functioning justice system. (For example, D.C. clears up about 70% of homicides. Mexico City, around half.) What then keeps a lid on the violence?

Until I can explain that, even if only in theory, I will remain nervous about the future.

What is going on in Tamaulipas?

I may have a hypothesis. But that is for later.

For now, consider this private report from June. Roughly 400 businesses in the three rural counties (Güémez, Padilla, and Hidalgo) right north of Ciudad Victoria, the state capital, went on strike for 72 hours to protest rising extortion. The area mostly grows citrus fruits, but nowadays that isn’t too humble. Three separate organizations: the Gulf Cartel, the Northeast Cartel, and the Zetas are trying to muscle into the business. 

Actually, that would be the “Old School” Zetas, the Northeast Cartel being the new school Zetas. They split from the organization after the federal government took out Omar Treviño. It might be sort of ironic, given that the Zetas arose from a split with the Gulf Cartel. 

Extortion and kidnapping (which is what happens if you do not pay the extortion) has caused the value of production in those counties to collapse by 60% ... at least according to scattered reports from producers. Reputable statistics are hard to come by. Abraham González, Tamaulipas state director of the National Federation of Commerce Chambers (Fecanaco) on 21 June said that organised criminal groups were aware of the harvesting season and were attempting to extort businesses all along the agricultural value chain. He also said that they have warned producers to halt the collection and transport of agricultural goods “to reduce their exposure to incidental gunfire.” Which you sort have to love, as a phrasing.

Governor Francisco García (PAN) seems helpless in front of the chaos. The closest he has come to a plan has been to announce that the police will be stepping up highway patrols and surveillance in the three affected counties. Which may come in handy, considering as the main road from Monterrey passes right through Hidalgo and Güémez. But which is also a little sobering, considering as I have got to drive said road in January. I know, I drove through worse areas in 2010. And I was working for Uncle Sam in Afghanistan in 2006-07. But there were some differences:

1. Being in a dangerous area both times was the point of the exercise. I was there because it was dangerous. I had a job to do that maybe just-possibly if-lucky could have resulted in both areas becoming less dangerous;
2. Despite (1) being entirely valid, I also had an excess of machismo back in 2010 that has  recently burned off, perhaps because;
3. I have kids now.

Since I am not going there because I want to study or combat the violence,  the idea of travelling into a violent zone on business is somewhat less attractive than it was seven years ago. And travelling there on business seems to carry a modicum of risk these days. Consider the following bottom-line recommendation to foreign businesses desirous of operating in the state: 

Chronic insecurity is likely to continue posing challenges to the operations of foreign companies in Tamaulipas. Enhanced threats of extortion, kidnapping, vehicle and cargo theft, robbery and incidental exposure to gunfire will persist. Additionally, roadblocks erected by organised criminal groups or security forces can occur on occasion, affecting logistical operations. However, this does not represent an insurmountable obstacle to doing business in the state, providing the requisite security measures have been put in place.

Well, if you are a scholar wanting to drive down from Monterrey to work in some archives, what exactly would be the requisite security measures? 

The unbearable lightness of Mexican law-and-order spending, seven years on

Seven years ago, I drove around Mexico’s most dangerous towns. In January of 2018, I may need to do so again, albeit for different reasons. So the topic of violence is on my mind, even if Coyoacán is still as safe as ever. 

After that trip, I noted that Mexico spent shockingly little on law and order, defined broadly. Total spending on police, courts and defense came to only 1.1% of GDP, less than a third of the level in the United States. Seven years later, as violence once more swings upwards, Mexico spends ... all of 1.4% of GDP on law and order.

Spending data come from page 20 of this new report; figures divided by GDP from here. 

The report digs in a little further with international comparisons. Consider how much Mexico spends on police (seguridad interior, as opposed to justicia or seguridad nacional.) Well, 1.4% of all federal spending goes for that ... compared 4.7% for most OECD nations and 6.2% in Italy ... and Italy, unlike Mexico, is a country which has managed to contain its serious problem with organized crime. 

Since I was not sure how Ethos made its calculations, I dug up the OECD numbers on general government expenditure by function. (General government includes subnational governments.) For comparability, I converted everything into a percentage of GDP. 

What has the money been spent on? The number of federal police has almost quadrupled between 2006 and 2015, to 43,724 from 11,663. Real average salaries only rose 9% between 2010 and 2015. (Page 34, deflated by the INPC.) You might wonder how such a mighty expansion in payroll was sustained on such a small increase in spending, but note that the federal police payroll takes up only 5% of all security spending.

So more cops, but becoming a cop did not become more attractive (quite the reverse, given the rising danger) and the quality of police officers did not rise. Now, to be fair, federal federal police officers are well-paid by Mexican standards; approximately US$15,400 per year. But state and local police are paid much less: US$7,800 on average. The highest paid are in Sinaloa, reaching barely US$10,900. 

And by other measures, the Mexican criminal justice system is a mess. The U.N. Office on Drugs and Crime (UNODC) collects figures on prosecutors and judges. Per 100,000 people, Mexico had 6.8 prosecutors and 4.2 judges in 2013. Call it 11 per 100,000. That same year, crime-ridden Scotland mustered 9.9 prosecutors and 4.9 judges ... 15 per 100,000. And Italy enjoyed only 3.1 prosecutors but 17.1 judges ... 20 per 100,000. (In the Italian system prosecutors are considered judges; it is not clear how UNODC made the distinction.) 

Combine that with badly-trained cops, and you have a mess. 85% of all criminal cases in Mexico were commited en flagrancia; meaning that the cops caught the perp while he or she was committing the crime. And in the rest, most cases have been resolved by beating confessions out of whomever the police pick up. In theory, new reforms have made confessions inadmissible save in the presence of a defense attorney (page 20). In practice, it is not clear that anything has changed, especially given as the ability of the police to investigate crimes is practically nil and bribery still reigns supreme.

I still tend to think that Mexico can solve its crime problem. I also tend to think that while throwing money at it is not a sufficient condition for doing so, it is a necessary one. 2.6% of GDP, like Colombia? Five percent, like nowhere? I do not know. But more seems clearly necessary. Am I wrong?

Crime in Mexico is rising

Violence has been ticking back up in Mexico since 2014. We are now back to the levels of the bad old days.

Below you can get an idea of the changes in the national homicide rate over the past quarter-century. For comparison: the U.S. is now around five, nationally. During our bad-old-days in the 1970s and 1980s, it was around 10. 

The distribution of violence in Mexico, however, is very different today than it was during the 2007-12 explosion.

From the indispensible Diego Valle-Jones comes this map. In the first half of this decade, the violence explosion centered on the northeast: Chihuahua, Coahuila, Nuevo León, and Tamaulipas. Violence has declined markedly in the first three of those, although it remains much higher than its pre-2007 level.

In Baja California, however, the much-ballyhooed violence decline has entirely reversed itself. B.C. became a paragon of the mano duro: the idea that the simple use of violence by the state could work to reduce violence by criminals. (This link is to a New Yorker story from 2010 that was very skeptical of the success. Philippine readers, take note.) Colima, a small coastal state, has spiraled up to levels seen only in wartime. The Bajío region is seeing a steady and rapid rise in violence. Elsewhere violence is also generally up. Slowly up, but up.

So what is happening? The best hypothesis is that this is the result of the “kingpin” strategy. Dismantling criminal organizations root-and-branch is hard. Much easier is to go after the leadership. Decapitate the organization. Kill the head and the body will die.

Well, not quite. Sending Shorty to the United States created splits in the Sinaloa Federation organization. That has embolded Jalisco New Generation — made up of former enforcers for Sinaloa — to attack its old bosses in Tijuana, B.C., and Manzanillo, Colima. (Manzanillo is Mexico’s biggest port.) Meanwhile, Sinaloa itself is starting to fracture. Shorty Guzmán’s sons were briefly kidnapped in Puerto Vallarta; outside observers suspect it was a signal from Dámaso “The Graduate” López and his eponymous son. The Graduate was Shorty’s former right-hand man. 

In the northeast, the Zetas have been weakened and (mostly) pushed out of Tamaulipas, but they’re still there and fighting. Including fighting each other as the organization has fractured. The Gulf cartel is still there, but also weakened. In Michoacán, the Knights Templar are gone, having failed in their attempt to become Mexico’s version of the Cosa Nostra, but leaving a chaotic landscape of armed gangs in their wake. 

Recent events in Mexico City have shown just how counterproductive the kingpin strategy is turning out to be, but that is the subject for another post. 

The power of propaganda

We may be in Mexico, but sometimes you get pulled back into discussing home.

Donald Trump just gave two very disturbing speeches. In one, he portrayed Long Island as an embattled paradise turned hellscape by violent Latino immigrants. In the other, he called for more police brutality. It is a continuation of a theme he started during the campaign.

What’s crazy is that Long Island is safer than it’s ever been. If you look at juvenile homicide arrests, you get basically nothing save for three in 2014, another one in 2016 and six this year. It is true that MS-13 recently carried out some horrific crimes in Suffolk. But that is not a crime wave.

So how does Trump get any traction? Sadly, I know the answer. I have family on Long Island and in South Florida.

These places are similar, heavily populated by the descendants of white Ellis Island immigrants, the generation of people who shaped America’s liberal version of itself. Jews, Italians, and Irish all turned into Americans by the melting pot. Yet current segregation, presidential propaganda, and the folk memory of the genuine crime explosion of the 1960s and 1970s, combines to make them all ready to believe things that just ain’t so.

Consider two anecdotes. I was in Broward County with my daughter at an outdoor zoo, where save for the bear and panthers the kiddos can walk around and interact with the animals. At one point, my daughter sprints out of the bathroom after we wash her hands. I’m not worried, not least because I’m there with family: her cousin, uncle and great-uncle are all outside. But this older white guy next to me, he says, “You ought to get one of those child leashes.” I say nah, why? 

“Crime. It’s crazy out there. Worse than ever.”

Me: no, not really, I grew up in New York in the 1970s and it was far more dangerous.

“I’m from New York too! Really, you think it’s safer now?”

Me: I know it. Look at how the city has changed, look at how Miami has changed. And then I show him some graphs (available at the Marshall Project). And he gets sort of quiet, as if he never expected a middle-aged white guy to take issue with what seemed to him to be an anodyne comment about an obvious truth.

Then the same conversation happens with my (very liberal) brother two days later.

With my brother, I showed him news stories from the 1980s when he lived in Miami that drove the point home. He was a little abashed: despite his own experience regularly travelling to neighborhoods that would have given him pause 20 years ago, despite his own daughter living in a formerly n0-go part of Plantation, and despite his knowledge of overall crime trends the incessant propaganda of the past two years had convinced him of something that just was not true.

Maybe the internet really has made the creation of alternate facts easier than in the past, but the alternative fact of “American carnage” has been created by just a presidential soapbox combined with the predilections of white people to believe the worst about their non-white neighbors. 

In short, as long as that predilection exists, demogogues will be able to make hay by making stuff up. The internet has affected American politics for the worse. But this is not one of the ways.

Riots in Mexico

Mexico has been beset by widespread looting and demonstrations over the past five days. So far, there have been 987 arrests and two deaths. The incidents devolved into outright riots in Ixmiquilpan, Hidalgo, and Monterrey, N.L.; but stores have been sacked and roads blockaded all over the country. I heard about the looting from friends living in Ecatepec, Mexico State, a poor suburb of Mexico City, but it has now made its way into American news.

The trigger? The Peña administration decided to raise gasoline prices on January 1st. Prices rose to heretofore unseen levels in real terms. The below figure show the retail price per gallon for Magna gasoline in Mexico and the equivalent blend in the United States, measured in real pesos of November 2016. 

Why the rise? It was essentially a tax hike. As you can see, Mexican retail gasoline prices have been above American ones since the middle of 2014. U.S. prices have risen recently, but Mexican prices remained lower.

The hike was not about raising Mexican prices to equal American prices. Rather, the Mexican government wanted to raise prices now in advance of its plan to fully liberalize prices later this year. The higher prices are in advance of liberalization, the more room the government has to impose a high excise tax. Since the current administration has promised to freeze said tax once it is introduced, it wants to be able to set the initial tax as high as possible.

As policy, none of this is a bad idea. Price liberalization will save the government money and excise taxes should be high. But as politics, it is terrible. A more popular government facing a better economic situation could have gotten away with raising gasoline prices. But the Peña administration is not popular and the economic situation is not good. 

The latest blow to the Peña administration has been the recent re-emergence of the man behind Trump’s visit to Mexico during the presidential campaign. Trump, as you can imagine, is not popular south of the border. Public opinion was horrified that the Peña administration invited him to meet the Mexican president. There was some hope that President Peña intended to lure candidate Trump into a trap, but instead Peña allowed Trump to roll all over him in a joint press conference. (The rules were no questions, but Trump invited them anyway; then Peña neither shut Trump down nor called out the GOP candidate when he contradicted what Peña said had gone down in the meeting.) 

The meeting was such a disaster that President Peña felt he had no choice but to fire Luis Videgaray, the man who had planned it.

But now Videgaray is back as the new foreign minister ... precisely because Peña believes that Videgaray can curry favor with President Trump. So this government brings the man who sold them out to Donald Trump and then turns around to raise gasoline prices? 

The economic situation makes the situation worse for the Administration. The “gasolinazo” happened while Mexican inflation is rising. (See the below chart.) Why is inflation rising? Well, the value of the peso is collapsing, driving up the price of imports. Why is the peso collapsing? Well, in one word, Donald Trump. The fear that he will impose trade barriers on Mexico causes investors to sell pesos, and so drives down the exchange rate.

But Donald Trump is a man whom many Mexicans believe would never have won election had President Peña had the cojones to humiliate him in that press conference way back when.  

But Donald Trump is a man whom many Mexicans believe would never have won election had President Peña had the cojones to humiliate him in that press conference way back when. 

Let us add it up. The Peña administration curries favor with candidate Trump. Trump wins the election, indirectly causing inflation to accelerate in Mexico. The Peña administration then pours fuel on the inflationary fire by hiking gasoline prices while bringing back the sellout who arranged the Trump meeting in order to curry more favor with the U.S. president-elect. 

Result: rioting.

Andrés Manuel López Obrador cannot believe his luck. 

(Filed under “2016 American election” because Donald Trump is not yet president and the roots of the crisis date back to his campaign.)

Fact of the day: Maine drug arrests

 It appears that Governor LePage has gone off the deep end. Among other things, he said this:

“Let me tell you this, explain to you, I made the comment that black people are trafficking in our state, now ever since I said that comment I’ve been collecting every single drug dealer who has been arrested in our state. ... I don’t ask them to come to Maine and sell their poison, but they come and I will tell you that 90-plus percent of those pictures in my book, and it’s a three-ring binder, are black and Hispanic people from Waterbury, Connecticut, the Bronx and Brooklyn.”

Well! The ACLU, among others, has requested Maine’s arrest records. But it is fairly easy to get the records from 2006. So click the link, go to page 8, and read that of the 5,110 drug arrests made that year in the state a full, wait for it, four percent were black. 

So he was right, only with the races reversed! Most readers can stop now, reblog this, tweet it, move on to other things. For the rest:

To be fair (although, why?) the data are from a decade ago. There has been an explosion in heroin use since then. But somehow, well, while it is remotely possible that Mexican cartel agents are involved in wholesaling, it is unlikely in the extreme that they are involved in retail distribution. Moreover, as of 2013, the number of drug arrests in the state had fallen to 4,359. (Page 28.)

Now, Governor LePage is not up for re-election, but because it is happening in this strange environment with a fat crybaby running as the nominee of one of our major political parties, it seems relevant to tag this post with this. 

I really do need to talk about Alabama. Until I do, go here. 

Alt-stupid

Wow, the alt-right sure came out into the open fast. Like cockroaches from under a rock. One minute, invisible, next one, all over the place. Jesus, what an election.

Anyway, I was drawn to one thing from the Vox explainer. Apparently, Curtis Yarvin liked to cite this description of London in 1876, to show how much better things were back then:

There are, of course, in most great cities, some quarters of evil repute in which assault and robbery are now and again committed. … But any man of average stature and strength may wander about on foot and alone, at any hour of the day or the night, through the greatest of all cities and its suburbs, along the high roads, and through unfrequented country lanes, and never have so much as the thought of danger thrust upon him, unless he goes out of his way to court it.

But how is that not a perfect description of America in 2016?

Anyway, here is a picture of someone of above average stature and strength, wandering through the greatest of all cities, also known as the four-eight in the Bronx. Six murders in 2015, down from 137 in 1990. 

I feel sorry for Yarvin, so consumed by fear and detached from reality. What a terrible way to live. And, to my surprise, it appears that he is not alone.

Bad journalism

 Last night I watched with horror as the Dallas massacre unfolded live on television. At first, the coverage was good. But then along came Brian Williams to take over as anchor. We were then treated to headlines proclaiming “Civil War” and a parade of commentators likening a sniper situation to Gulf War 2-like insurgent tactics. They wanted to make it seem like Dallas was at war.

I was disgusted.

Shame on the New York Post but more shame on Brian Williams and whoever the “expert” was he had on his show. What happened to the actual ex-cops providing actual wisdom who’d been on earlier? Too boring for Williams?

Orlando is horrifying

 I am in Florida. What happened this weekend horrifies me. I hope all the friends and relatives of the victims can put their lives back together as best as they can. And I hope the State of Florida and the United States of America will take the necessary actions to make it harder for homicidal maniacs to get their hands on the weapons that make such attacks possible. 

The statements of certain politicians have also been (albeit far less) horrifying. (At least as long as said politicians lack power.) All I can add to the debate being conducted in living rooms, bars, social media, television, and among politicians is that America has seen similar cries before ... and we have reacted far worse. Admittedly, the threat during the first Red Scare and World War 2 was far greater. But while one particular fearmongering crybaby has not been earning any respect ... in general, thus far, the reaction of the American public has been good. Even if not all their elected leaders have been profiles in courage, few have openly piled on.

I pray that continues.

Why the cartel wars do not cross into America, version 6,493

 Donald Trump has managed to resurrect the fear that Mexican cartels are just waiting, any second now, to extend their murderous rampage into the United States.

Except these guys can’t even carry out a simple hit in Texas without getting caught. And after two years of planning! John Gotti is grave-spinning. 

Sadly, the headline gets the attention; how American law enforcement wrapped it all up rather less. I do wish The Bridge had gone another season.

Mad Max is bullshit, people; disasters do in fact bring us together

 We have some unfinished posts fisking the World War Three novel Ghost Fleet. We are not fans of the book. And now one of the authors, August Cole, has posted this. 

“This” is a paean to Tom Clancy wargame in which there is a smallpox outbreak in New York City, after which society collapses and warlords take over. Or something. You can watch a trailer. 

Now, to be fair, Cole has nothing to say about whether a smallpox outbreak in New York would suddenly cause civilization to collapse into dog-eat-dog violence. He just thinks it’s useful to depict scenes of mass human suffering in video games because it will better prepare future soldiers for urban operations: 

“But scavenging in the confines of the New York subway system or winding up in a shootout with a local gang reinforces that your own worst enemy is all too familiar: fellow humans. The game lays bare how the odds are stacked against the survivors of such a calamity, and how even functional complex urban environments teeter and sway between chaos and order each day. Just as the novel World War Z by Atlantic Council senior fellow Max Brooks presents this uncomfortable truth through the premise of a zombie outbreak, this video game does so with close-quarters anarchy caused by catastrophic bio-terrorism ... The Division will appeal more broadly to gamers, given its formulaic progression of acquiring skills, weapons, and powers, which big studio games must incorporate in order to entice millions of players. That is also one of its strengths and perhaps greatest forms of utility in the defense realm: broad appeal. Megacity operations, be it relief or combat, will no longer be an abstract concept to young corporals or privates — or their commanding officers.”

I would like to point out here that there is remarkably little evidence that looting and unrest spike in disaster situations. The first paper of which I am aware pointed that out in 1968. A 2004 paper from the CDC reinforced the argument, showing that most looting involved necessary supplies rather than egregious attacks on other people or their property. “In contrast, researchers have found — at least in the immediate aftermath of disasters — that community resilience and unity, strengthening of social ties, selfhelp, heightened initiative, altruism, and prosocial behavior more often prevail. In short, when things are at their worst, disaster-stricken communities tend to rise to the occasion.”

This issue came up again in 2010, when preliminary reports of widespread disorder after the Chilean earthquake proved unfounded. The looting that did occur was easily controlled. No roving gangs taking over whole neighborhoods; for some numbers, we are talking about an increase in armed robberies from 52 in 2009 to 102 in the year of the earthquake. No houses were hit. It was not Mad Max. 

And again in the Philippines in 2013. Same general story.

In other words, I think our military would be very ill served if it were to promote training tools that gave soldiers the impression that organized violent gangs were going to be their main problem in post-disaster situations. 

How Mexico might defend against a Drumpf administration

 A strategy is a set of moves that takes into account the likely moves of various other players. One of the hallmarks of a bad strategist is that they fail to realize how an opponent will respond to their moves.

Alejandro Hope has already pointed out how a Drumpf Administration would adversely affect Mexican security. Now, he lays out some Mexican countermoves to mitigate those impacts:

1. Reinforced security measures in border communities:
   1. Deploy more personnel to border communities;
   2. Provide additional funding to local and state law enforcement agencies;
   3. Focus on particularly violent gangs.
2. Enhanced orderly repatriation programs: “The worst possible scenario for Mexico would be to have a large population of returnees stranded along the border. To prevent it in the face of massive deportation, it will be necessary to increase the financial and human resources of existing orderly repatriation programs (i.e., assistance to returning migrants to get back to their home communities) and probably support other similar initiatives.”
3. Focused subsidies to selected communities: “Some localities, either along the border or inland, could be overwhelmed by a large influx of returning migrants. There might be a need for temporary and targeted assistance for those communities, including everything from housing to jobs programs. Otherwise, they could turn into a recruitment fair for criminal gangs.”
4. Strengthened agency-to-agency ties: “Cooperation between US and Mexican security agencies will not stop, even under a Trump presidency. But it could become far more contingent on personal relationships and ad hoc arrangements. Those ties should be fostered beforehand, even if that means getting rid of the so-called ‘single window’ policy (i.e., the practice whereby all security-related dealings between US and Mexican agencies have to go through the Interior Secretariat).”

These are good measures, but there is a problem. (1) has been tried before; its results were questionable. (2) and (3) will require money that the Mexican government may not have, especially if oil prices remain low. And (4) requires some important flexibility on the Mexican side. I have some doubts that the first three measures will accomplish much.

And Hope realizes this! As he writes, “If Donald Trump really means what he is saying, a containment policy would not be enough. In a scenario of mass deportation, trade war, and a tightening border, the resources of the Mexican government would be overwhelmed rather quickly. That is why Mexico would need to play offense.”

And what would playing offense consist of? Watch this space. But before we discuss Hope’s ideas, your suggestions are welcome! How should Mexico respond to Donald Tru ... Drumpf?

What a Drumpf Administration means for Mexican security

 Sadly, serious analysts are having to contemplate a Drumpf administration. Alejandro Hope is one of Mexico’s premier security analysts. Here’s a summation of his take:

1. Border security: The wall won’t happen, not least because it would be logistical nightmare. But the border will be tightened. As the number of smuggling routes to the U.S. goes down, fighting for those routes on the Mexican side will go up. Much of the security gains of the last five years will be lost;
2. Deportation: Right now, deportees go back to their hometowns. But that involves cooperation with Mexico, which will grind to a halt. So border communities will have to deal with a large inflow of deportees, more of whom will have a criminal record than previously. See point 1, above;
3. Gun trafficking: Worse;
4. General security cooperation: Done for. The money the U.S. currently gives for the Merida Initiative will go away. That is small beans, but it will create mistrust. Moreover, no Mexican politicians will be able to support cooperating with the U.S. “Of course, there would still be cooperation on an agency-to-agency basis (e.g., the DEA would probably continue to work with the Mexican Navy on kingpin takedowns), but it would be far more ad-hoc and far more dependent on personal relationships than at present.”

An unpleasant prospect.

Murder in Mexico City

 Organized crime is the major plague on Mexican society right now. One of the great fears of the middle class is that gang warfare might spread to the capital city. There are reasons to fear that, of course. The D.F. suffers from the same weak institutions as elsewhere ... and it provides a rich market for drugs and a lucrative source of protection money. 

Moreover, homicide was up some 14% in the D.F. last year. Should we be worried?

Consejo Ciudadano went over the statistics (such as they can be trusted) and found that most of the increase appears to have been driven by interpersonal disputes. That is, there were 109 more homicides in 2015 than in 2014. The number of murders between parties that knew each other went up by 81. So interpersonal disputes made up 76% of the increase. 

So that’s all right then? Not quite. One red flag is that homicides associated with robbery went down by 20 (a 14% fall) whereas those associated with brawls or firefights went up by 51 (21%). Now, 99% of all gun-related homicides used pistols, so these are not the sorts of firefights that have plagued other regions of the country. But it is worrisome.

Second, do you trust the Mexican police reports? Mexico City may be avoiding open gang warfare, but it quite likely that many of those interpersonal disputes and public brawls were related to turf wars among organized crime rings. 

Will Mexico be nonviolent in 25 years?

 I just got back from a short and ridiculously busy trip to Mexico. (Next time, I want to make more unprogrammed time.) On the trip, of course, I spent some time thinking about the country’s future. Alejandro Hope thinks that by 2040, the place will have remarkably low crime rates. His reasons come down to three:

1. Mexico is aging;
2. Technology is disintermediating criminal markets;
3. The rising middle class will demand better public policies.

I agree with the third point, although the cynic in me has to admit that Mexico has spent many years failing to live up to the demands of its electorate.

The second point rather confuses me. It is true that the opportunities for nonviolent crime are increasing. It is also true that the internet makes it possible to sell narcotics retail in new ways ... but so did the beeper. (I remember New York in the 1990s.) Moreover, the wholesale shipments will still have to move, and in Mexico it is the wholesale trade that attracts the violence. So I am not sure why technology should reduce crime in this way. (As opposed to reducing crime by letting the authorities surveille much more. I am not sure, however, that crime-reductions engendered in that way will increase human happiness.)

As for the first argument, well, Mexico is aging, but it is not aging that fast. For example, in 2050, Mexico will have 27.9 million people aged 15-29. That will be down only a bit from 30.7 million today. Given that most violent crime is committed by and upon members of that age cohort, the incidence of violent crime will decline as young people decline as a percentage of the population ... but the absolute amount of mayhem will not fall by much as a result of population aging.

In addition, aging is not as good predictor as people might think, since age-specific violence rates rarely remain the same. Venezuela, for example, has become one of the most violent societies in the world over the past 30 years as the population in the 15-29 age group fell from 28% to 27%. That is admittedly a less dramatic proportional fall than the drop from 26% to 19% that Mexico will experience in 2015-50, but it should make us doubt predictions that demography is destiny.

Finally, Diego Valle did a great look at levels of cohort violence in Mexico. He found, as you might expect, that violence decline with age and by cohort: i.e., each group of (say) 25-years-olds was less violent than the one before. Until you reached the group born in 1985-89, the proportionately-smallest group in Mexico’s modern population history. At which point their propensity to violence exploded. In other words, levels of cohort violence are not driven by the relative size of the cohort.

In short, I think Mexico will likely be less violent in 2040 than in 2016. But I do not think that it will be due to technological changes in illicit supply chain management or population aging. 

New Post: Desperate Chris Christie stoops to racist dog-whistling

 The debate that ended 45 minutes ago is why I dug up that old post from my unpublished archives. (I dunno why I failed to publish it.)

I have gotten some pushback from my declared like for Chris Christie. Oh, I never liked his policies as governor. But I liked him. I liked him because he was a jerk in such a Tristate Area way. It was a visceral like, the kind of like you have from someone who shares your folkways.

JKR pushed back on that, but hey, nobody in their right mind thinks that the kind of demeanor that goes over well at a Maurer family reunion would do for President of the United States! 

But tonight Christie flipped me to total disrespect. Because Chris Christie took a question about law enforcement and used it to push every fucking racial button that he could. It was an answer aimed at a white 65-year-old suburbanite who graduated high school in East Flatbush the year of the MLK assassination riots and never got over it. It was disgusting to watch. ADDENDUM: Do a word search on the transcript for “Great Beer Summit.”

He was followed by John Kasich giving an honorable answer. Not all desperate GOP candidates have decided to stoop so low.

So screw Christie. Yeah, he did well among black (relatively) and Latino (absolutely) voters in Jersey. That was old Christie, the dude I liked, even if I disagreed with him. This new one is worth nothing. 

LANGUAGE DELETED

I am disgusted.

Shorty’s investment wisdom

 From the Rolling Stone article by Sean Penn: “He is interested in the movie business and how it works. He’s unimpressed with its financial yield. The P&L high side doesn’t add up to the downside risk for him. He suggests to us that we consider switching our career paths to the oil business. He says he would aspire to the energy sector, but that his funds, being illicit, restrict his investment opportunities.”

This is fascinating for two reasons.

1. It jibes with Alejandro Hope’s hypothesis that cartels pile up lot of their money in cash. It also jibes with my hypothesis that high costs mean that they overinvest in criminal activities: on the margin, they will accept a negative return from violent enterprises as long as the negative return is less than the cost of laundering money.   
2. Shorty clearly knows very little about the energy business (in blue, versus the overal S&P in red):

The energy business isn’t quite as profitable as Shorty Guzmán thinks it is. Nor are movies as bad. Starting in 2012 the S&P added a Movies & Entertainment subindex (in yellow below, compared to blue for energy and red for the overall S&P 500). When you do the comparison ...

... movies look pretty good!

Moral: don’t take investment advice from a capo.

Got Shorty!

 Looks like the Marines caught him in Los Mochis.

Good work! Now this time, send him to America.

Higher penalties will not stop oil theft

 Hydrocarbon theft is a huge and growing problem in Mexico. Pemex recognized accounting losses from theft reached $1.3 billion in 2014. That is not a huge factor for a company that enjoyed sales of $108 billion (page 18), but it made up a big part of the company’s net loss of $18 billion. In the past, the main thefts were of natural gas condensate taken from the Burgos fields. Pemex shut that down by suing American refineries who bought the stuff. (See this blog from 2012 and this law review article from May 2014.) Victory!

Except, well, the thieves turned to stealing natural gas and refined products, which can be flogged directly on retail markets. So now we have a new law (the link goes to the text, courtesy of Dwight Dyer) that ups the penalties for stealing oil. Prison terms will rise as a function of the amount stolen. Moreover, anyone abetting theft by revealing operational details of midstream operations will be punished ... as will anyone owning land upon which theft takes place or anyone failing to report criminal activity. Hell, the new law punishes underinvoicing.

Awesome. But as Dwight Dyer points out, the law is only as good as enforcement. Only 33 Pemex employees have been arrested in the past three years of the Peña administration ... as compared to 66 arrests during the six years of the Calderón administration. So Dyer is skeptical.

And I would like to add an additional problem with relying on a new law. Criminal organizations in Mexico have a way of making people offers that they can’t refuse. Unless (say) the Zetas are rendered unable to credibly threaten Pemex employees and local landowners, then harsh new penalties on the people they are threatening won’t accomplish a whole lot. 

Color me skeptical.

Wealth management for capos revisited: maybe there is no wealth

 The always-brilliant Alejandro Hope reads my mind! Go read his latest piece. Or, to prevent link rot:

El Chapo’s millions. Over at El Universal, a big piece on companies allegedly connected to fugitive kingpin Joaquín El Chapo Guzmán. Apparently, the US Treasury Department has identified 288 firms connected to the capo, out of which 95 are Mexican and may have even received government contracts. The surprise? How small and unimpressive some of these ventures are. Case in point (translation mine): “The day care center Niño Feliz was one of the first companies identified by OFAC (Office of Foreign Assets Control) as connected to the Sinaloa Cartel. The main reason was that María Teresa Zambada Niebla, daughter of drug kingpin Ismael “El Mayo” Zambada, was one of the firm’s founding partners … The day care center provides service for 209 children and charges 3042 pesos per month for each children. In total, the federal government pays the center almost 8 million pesos (500,000 USD) every year.” A day care center? Really? (The business “empire” also includes, allegedly, eight service stations and one moving company, among other equally exciting activities.)

No boom town. So if El Chapo is not using his wealth to create world-beating companies, where is he parking his money? Certainly not in his home town, Badiraguato. The legendary largesse of the capo is nowhere to be seen in the streets he roamed as a child. Mark Stevenson, from the Associated Press, reports: “The roads to La Tuna are still washed-out dirt tracks, and Badiraguato itself has none of the flashy accoutrements of money — luxury car dealerships, palatial mausoleums, acres of fancy, gated communities of new homes, or dozens of street money-changers offering cheap dollars — that are abundant in Culiacán, the state capital, 1½ hours away. The town’s big projects include a new balcony for the town hall that looks out over the sleepy square dominated by a 19th-century church, where residents seek shade from the punishing Sinaloa sun.”

So where’s the dough? What if most of the drug money was actually reinvested in the illegal economy. This is something I wrote some years back:

“Imagine you’re a drug dealer. Even if you’re Chapo Guzman, you cannot be considered a good credit risk: you might be killed or arrested tomorrow, and then who will pay the debt? You will not be able to obtain a revolving line of credit, and your suppliers will probably not give you marijuana or cocaine on credit. Nor can you leverage yourself using your employees’ salaries: it is not a good idea to stop attending to the payroll when your staff is armed to the teeth and knows too much. Factoring is not an option, for the obvious reason that there are no receipts. Furthermore, nobody is going to sell you an insurance policy to protect the product; therefore you have to have a financial reserve in case goods are seized, stolen or lost (planes fall and boats sink).

“The only real option is to finance your operations with the profits of previous deals. But you do have this; if the product meets a good fate, you will get back more (perhaps a hell of a lot more) of what you invested. Given that, where you would put your money: in bonds, on the stock market, into the production of serrano peppers, in real estate development, or in the smuggling of illegal drugs? Perhaps you would try to diversify a bit, but in all likelihood the most important part of your portfolio will be in the most profitable activity. And how will you preserve your working capital? Most likely, you will want to keep it in cold, hard cash, guarded by some unfriendly thugs: In addition to known risks, you do not want to worry about your bank account being frozen, do you?”

My (somewhat depressing) conclusion: “If the majority of the profits of crime are reinvested in crime, no amount of financial intelligence can help: the only way to seize the money is by physically finding it (as in the case of Zhenli Ye Gon).”

There is another implication to Hope’s idea. No enterprise can expand forever. At some point, you hit diminishing returns. But if narcos prefer to reinvest their profits in more narcotrafficking, then they will tend to expand their businesses well past that point. The enterprises will start to resemble ‘70s-era conglomerates or Japanese keiretsu: too big, basically unprofitable shambolic zombie organizations overextended in the product lines they do best and muscling into all sorts of markets where no rational profit-maximizer would go. In the end, there might not be any profits the way we think of them; everything would get reinvested for an overall return of zero, if properly accounted for ... hell, given the margins, returns could even be persistently negative.

Which does sort of resemble Mexican organized crime, no? One mystery has always been the scale of the violence. It just doesn’t seem profitable to spend that much trying to monopolize drug routes, not given the scale of the U.S. market and the porousness of the border. Live and let live. But if all you can do with the returns is plonk them back into the organization, then the creation of a giant metastasizing enforcement arm might be just the ticket. What the hell else are you going to do with the money? 

It would also explain the relentless push into new businesses. For crying out loud, the Knights Templar went after iron mines and took over avocado farms. The Zetas took to kidnapping impoverished Central Americans. To be honest, I suspect my family earns higher percentage returns on some Miami real estate that we own, or hell, our house here in D.C. (It’s a highly-leveraged investment.)

And low profitability (caused by overexpansion) might also explain cartel fragmentation. They start to lose money, can’t keep their enforcement arms happy (or pay enough bribes), spin apart.

In this view, Sicilianization happens when organized crime can reinvest its profits in things other than organized crime without getting caught. Like construction. Or waste management. Then violence declines and things become stable. But if that doesn’t happen — and the state can’t get its act together sufficiently to impose order — then you get cartels that resemble ... Beatrice.

At least until they spin apart. Like Beatrice. Only with more blood. The scary clown seems appropriate. 

And the implications of Hope’s insight seem worth exploring further. Some fascinating testable hypotheses may emerge. 

A new research fail, previewed!

 I have not had too much luck over the past few years with big new research projects aimed at Mexico. In part, that has been because I ratcheted back slightly over the past two years, after finishing The Empire Trap, for psychological reasons. Also in part, it has been because I have been taking on a bit more paid work than I used to. Thus, the posts on Albanian electricity, Colombian coal, Ecuadorean foreign relations and Puerto Rican finance that you have not seen. I assure you, they were brilliant. But mostly it has been because I either been unable to find the data I needed or failed to get it released. Or in one case, have not been able to figure out how to operationalize the hypothesis.

So here is my next research fail, previewed for you before I even begin! There is a long-standing argument in political science that the best way to combat corruption is raise civil service salaries. Two papers make the case more generally. In Brazil, Claudio Ferraz (PUC-Rio) and Frederico Finan (Berkeley) found that higher wages for legislators attracts better-educated people into politics and increases political competition. A follow-up paper by Finan along with Ernesto Dal Bó (Berkeley) and Martín Rossi (San Andrés) found that higher wages in Mexico attracted better candidates, although the effect on outcomes was not really measured.

It turns out, however, that corruption also varies a lot across Mexico. 

More interestingly, and to my surprise, so do police salaries! And not by a little bit. A lot. In 2011, Querétaro paid cops 18,173 pesos per month ... That was around US$19,000 per year (at 13 months pay). Not riches by American standards ... but rather higher than the US$7,930 per year average. On the other hand, the state police in Tamaulipas earned just 3,618 pesos per month, a miserly US$3,784.

But just to mess you up, Nuevo Laredo, a city in Tamaulipas, had the highest salary for its municipal police in 2010: roughly US$14,100 per year.

The problem, of course, is that the federal government only conducted the survey once, to check and see if local police forces were complying with new laws aimed at professionalizing the police. So there is no time series. That I know of.

But if there is, and a follow-up, then you have an experiment ...

Wish me luck. Sigh. I have not had luck with this lately.

What is wrong with Tamaulipas?

 Tamaulipas is right up at Mexico’s northeastern border with the United States. The state is, to put it mildly, a mess. It may be in fact the only part of the country where I am afraid to go, and I just got back from rural Guerrero. Buses get stopped and the passengers kidnapped. Gun battles envelop entire towns, others are emptied of their populations. Tampico’s population is holding up, but fleeing businesses have given much of the city a postapocalyptic Detroit-like feel. (Caveat: that particular Guardian article is not to be trusted. Click the link only for the pictures. For facts, go to this Universal infographic.) So what is going on?

Here are some hypotheses, two from me, the rest from the indispensable Alejandro Hope.

1. Nothing. Look at the figures for homicide per 100,000, taken from the reports filed by state prosecutors. Tamaulipas (the green line) suffers a big spike around 2010-12, but falls back to something close to the national average afterwards. And while a homicide rate of 18.1 per 100,000 is not low, it is not a whole lot higher than Texas in 1979-83, when it went above 16 for four straight years ... let alone Georgia, which hit 18.5 in 1972, or Louisiana, which peaked at 20.3 in 1993. In this view, Tamaulipas is just another place with a crime problem and some bad press.
2. Bad luck. Sure, maybe the gross homicide numbers for the state are not that high, but anyone who has been there will tell you that it feels out of control in a way that even Louisiana did not in 1993. Tamaulipas, however, happens to the be home base of the Zetas, who have chosen a particularly violent revenue model. That is, the Zetas do not necessarily attempt to run all crime in their territory directly. Rather, they collect taxes on anyone who wants to the right to engage in criminal activity in their territory. That means terrifying people into paying and killing those who don’t. Moreover, it gives the Zetas every incentive to use their comparative advantage in violence to branch out into extorting other parts of society, from small businesses to Pemex. If the state had happened to be the home base of, say, the Sinaloa Federation, then it would be far more civilized. 
3. Bad geography. (This is a take on Alejandro Hope’s suggestions numbers 1, 2 and 3.) Tamaulipas sits on a prime transport route to the eastern United States. Smuggling has been a big part of the state economy since forever. Moreover, inasmuch as there has been a licit economy in the state, it has been based on factories exporting to the U.S. or oil. Manufacturing is concentrated on the border and oil is the purview of the national government. Upshot? A long history of corrupt government, abetted by an economic elite that could not care less what happens outside their factory gates or the short run between those gates and the border. Plus real reasons for cartels to fight over the place.
4. Bad incentives. The Feds have been running the law enforcement show since 2007, sapping any incentive state leaders might have to develop a competent police force.

I suspect that the big problem is (2), with a lot of (3). The implication is that with the Zetas in disarray (but still along with the Gulf cartel very much a force, regardless of the nonsense coming out of the Peña administration) then a concerted effort could bring down the remaining violence, much as has been done in next door Nuevo León (see graph). But for that to happen either Hope has to be wrong about the effect of federal intervention or we both need to be wrong about the trustworthiness of the Peña administration.

Good luck with that. 

Wealth management for capos

 So, that tunnel appears to have been a pricey, gold-plated, Second-Avenue-Subway of escape tunnels. 

Which begs an interesting question. How did Shorty pay for it? He couldn’t just write a personal check, for obvious reasons. So what did he do? Note I am not asking how he launders the proceeds. I am asking how he keeps control of the money after he launders it.

We know how Michael Corleone did it. He stayed personally untouchable, so his legal control of the enterprises into which he channeled illicit gains was not questioned. He could (and did) write personal checks. If a fictional reference does not satisfy, then this was also the strategy employed by Al Capone and Meyer Lansky. My father briefly worked for the latter in the late 1940s, in a completely legal racket to extort the clients of high-class Miami prostitutes. Those two guys, they could (and did) write personal checks. The challenge was in laundering the money, not controlling it once cleaned.

Shorty, then, would have a few options.

1. False identities. This would be an entirely fake persona controlled only by El Chapo. Hard to maintain, relatively high risk of detection, but cheap and secure.
2. Trusted compatriots. Emma Coronel, for example, is not openly wanted. But she would not be a good choice, since she is linked to Shorty. (For those of you who do not recognize the name, she’s Shorty’s wife.) But there is little doubt that our man has other trusted people willing to act as his financial sock puppets. That said, loyalty can be bought; I have trouble believing that the Sinaloa Federation is run solely on the basis of trust. Too much risk of betrayal.
3. Interlocking monitors. Here you have multiple sockpuppets. Each one controls a chunk of your wealth, but each one is also monitored by potential assassins who are paid from a different source. This will involve high overhead costs, especially the smaller the chunks into which the overall kitty is divided. But it is likely the best way to go. Except it also opens up oversight problems: where do you keep the centralized double-entry accounts to monitor the operation? We know the Zetas did that (I have seen such accounts but have no permission to use them) and that such accounts were one of the ways in which the authorities finally brought down their leadership.

In addition, there is another dilemma: keep laundered wealth in cash or invest in other assets? One popular, hard-to-detect and easy-to-control asset would be loan-sharking. People will owe you money on pain of death and dismemberment; the killers and dismemberers will depend on the continuing health of your operation for their salaries. The problem here is twofold: you will need to invest in a very large portfolio of sharked loans if you want to put any sizeable sum into such schemes ... and the resulting wealth will not be particularly liquid. (I guess you could sell your debtors’ organs in extremis, but that would seem to incur heavy losses. Not a great solution to the liquidity problem.)

It is an interesting problem. At least from a distance.

How to not get Shorty

 So I got to Mexico right when Shorty made his big escape. They closed the Toluca airport. Mexico City was a mess, with all documents being checked and short men with large guns in digicam manning all the entry and exit points.

This is, of course, theater ... but necessary theater. After all, if the government didn’t lock down the airports, then Shorty could potentially waltz off through them. So don’t be too harsh on them for that.

Be harsh on them for letting Shorty go in the first place. President Calderón’s decision to assault organized crime head on is questionable, although I will admit that I supported it at the time and probably would again with the information available. But his decision to ramp up law-enforcement  cooperation with the United States is not. It was an excellent decision, long overdue. 

The problem is that there was no institutional meet on the cooperation policy’s bones. OPBAT this was not. The cooperation could be overturned on a dime, and with the inauguration of the Peña administration, it was.

And so, Shorty was not extradited to the United States. 

Now, a Martian observer might have assumed that this was a reasonable sop to Mexican nationalism. After all, Canada and the U.S. have extremely deep law-enforcement linkages, but neither country regularly extradites its criminals to the other if they are wanted in both places. 

The problem is that there is another interpretation: Mexico is corrupt. Extradition would have removed the ability of Mexican officials to extract bribes. In this view, even if the highest levels of government were not directly complicit, they (read: the Peña administration) did not want to end the gravy train for those lower on the food chain. Nationalism was just an excuse.

And that is the significance of Shorty’s escape. Boz is 100% correct that in isolation the escape means little. But with each new data point, the position that the Peña administration is no more corrupt than the Calderón and Fox administrations before it becomes more difficult to sustain. At some point, the camel’s back will break ... and we just came a lot closer to that point.

But to return to the main point, without full cooperation with the United States, Washington-Ottawa style, Shorty will never be re-got.

Get Shorty?

 Well, he did it again. El Chapo Guzmán managed to escape from a Mexican federal prison for the second time. Last time, compatriots smuggled him out. This time, someone dug a goddamned mile-long tunnel under the prison right into the shower area. Now, Guzmán was supposedly under constant video observation, but the guards let him shower in privacy. As they announced:

“At 8:52pm today (Saturday, July 11th), the permanent video system at the Altiplano I federal penitentiary observed Joaquín Guzmán Loera entering the shower area inside Room 20, Corridor 2, where he usually, in addition to taking care of his personal hygiene, washed his private parts.”

The Tierra Caliente did not become the Mezzogiornio

 Back in 2010, La Familia Michoacana (aka, the Caballeros Templarios, or Knights Templar) was attracting a lot of attention. The reason was fairly silly. The Templarios used a lot of religious imagery and violent initiation ceremonies. This freaked out some American observers. It should not have. La Familia was trying to build internal cohesion. Moreover, it was also trying to gain the support of the communities in which they operated. Such support would let them branch out from narcotics trafficking into all sorts of protection rackets. In short, they were trying to replicate the Sicilian Mafia in western Mexico. As late as 2013, some observers thought that they were succeeding. The link goes to an article in the Financial Times, but Rodrigo Canales (Yale) made the argument more dramatically in this TED talk:

The Knights Templar realized very quickly that they couldn't face the Zetas on violence alone, and so they developed a strategy as a social enterprise. They brand themselves as representative of and protecting of the citizens of Michoacán against organized crime.Their brand of social enterprise means that they require a lot of civic engagement, so they invest heavily in providing local services, like dealing with home violence, going after petty criminals, treating addicts, and keeping drugs out of the local markets where they are, and, of course, protecting peoplefrom other criminal organizations. Now, they kill a lot of people too, but when they kill them, they provide very careful narratives and descriptions for why they did them, through newspaper insertions, YouTube videos, and billboards that explain that the people who were killed were killed because they represented a threat not to us, as an organization, of course, but to you, as citizens. And so we're actually here to protect you. They, as social enterprises do, have created a moral and ethical code that they advertise around, and they have very strict recruiting practices. And here you have the types of explanations that they provide for some of their actions. They have actually retained access to the profitable drug trade, but the way they do it is, because they control all of Michoacán, and they control the Port of Lázaro Cárdenas, they leverage that to, for example, trade copper from Michoacán that is legally created and legally extracted with illegal ephedrine from China which is a critical precursor for methamphetamines that they produce.

Professor Canales analysis of the Templarios was correct inasmuch as that was what the leadership was trying to do. We called that “Sicilianization” in back in 2010; the idea being that organized crime would move to extortion as a prime revenue source and become so integrated into the economic life of a region that it would be impossible to extirpate.

The problem was that they botched the execution. Dudley Althaus and Steven Dudley explained why in a great paper. Short version: The Knights Templar used “social enterprise” to ingratiate themselves with the locals. But for all their mythologizing, they couldn’t control their own members. Violence continued, not only between cartels, but among the Knights and between Knights and locals. Gang members committed several mass rapes and credible rumors emerged of organ trafficking. You can guess whose organs were trafficked. 

Nor could the Knights calibrate the amount they extorted to something that the locals would accept. They imposed taxes on everything from avocado orchards to the square footage of buildings; when locals failed to pay, the organization simply took over their businesses. The overtaxation and inability to prevent violence kept the organization from becoming a parallel state in the manner of the Sicilian mafia. 

The locals, therefore, saw resistance as preferable to cooperation. 

The result was a militia movement. That movement is the subject of a simply awesome new documentary called Cartel Land, reviewed here by Alejandro Hope. (Read the article; better still, see the movie.) The militia defeated the Knights ... but they have also turned to fighting among themselves and their leadership is rumored to be linked to a new organization: the New Generation Jalisco Cartel (CJNG, for its initials in Spanish). Now violence has erupted among militias in the neighboring state of Guerrero. 

The Mexican government has claimed that the Sinaloa Federation and the CJNG are the only two cartels left in Mexico, what with the government finally taking down the Zetas and the militia defeating the Caballeros. And it is true that violence is down. (Diego Valle is a national treasure.) But ... you knew there was a but ... the smaller surviving organizations can still wreak havoc and the CJNG shows every sign of becoming as powerful as the organizations that it replaced. Considering the continuing weakness of the Mexican state, the country as yet shows no sign of becoming a place where crime exists only on the margins, like, say, Canada or Chile. 

The good news is that the cartels, new or old, big or small, are utterly incapable of spreading their violence into the United States. Which makes the other half of Cartel Land, the one about the idiots in the American southwest dressing up and playing soldier, even sadder.

Briefly back again to the D.F. next week! 

Has the crackdown on money-laundering hit the average Mexican?

 In 2012, we reported about the scandal involving U.S. banks laundering narcotics money going back to Mexico. The scandal caused bankers to get scared. And so, they claim to be pulling back from their cross-border services, hurting everyday Mexicans. 

Hmm. The story at the link does show big U.S. banks pulling back, and goes deep into the hassles faced by Columbia professor when they found their accounts had to be shut down. But is it really affecting everyday people?

There do not seem to be any signs that people in the U.S. need to queue up in order to send money to Mexico. Absent a shortage of cross-border money-transfer services, then, one would expect restrictions on money transfers to show up in higher prices. Fortunately, the World Bank records the price of transferring money to Mexico. And they report (as a % of the sum transferred):

There is seasonality, which does make it seem that prices have recently ticked up ... but in context they have not. Moreover, the cost of moving money via non-banks has gone down monotonically, with only a recent bump. This is not surprising, since it would seem weird for a 2012 scandal to cause prices to rise in 2015.

An article from the New York Times says, “While immigrants say they have not noticed broad price increases from companies like Western Union, industry experts say higher costs are inevitable with fewer banks acting as middlemen for money transmitters.” Meaning that maybe costs will rise in the future, perhaps, but they have not yet.

So maybe the new regulations will impact everyday Mexicans. But not yet. And to be honest, probably not ever.

Venzuela keeps shooting down Mexican planes

 When I was in Mexico a few weeks ago, one of the big stories was a Venezuelan shoot-down of a Mexican plane. In fact, this was at least the third time that the Bolivarian armed forces had shot down a Mexican-origin plane in the last year.

What is going on? In 2011, we published some maps showing that since at least 2008 large numbers of unidentified aircraft took off on the Colombia-Venezuela border and flew over Venezuela before landing in eastern Honduras. The route makes it clear what most of them were doing.

President Chávez was less-than-thrilled with the implication that his country was complicit in the cocaine trade. “It’s hard to think about it but, look at what’s going on here. Planes from neighboring countries come here and our Sukhoi or F-16 airplanes try to make them land, but they make some maneuvers and at times get away. … They mock our pilots.” So he sent a bill to the National Assembly allowing the military to shoot down unidentified air traffic. Chávez’s illness and death slowed things down, but President Maduro pushed the bill through in 2013.

And since then some unknown number of aircraft have gone down over the Bolivarian Republic. It should come as no great shock that there are a lot of worries that these planes may not have been all carrying narcotics. 

I have a friend who works for the Air Force. There may be unclassified data that will let us see if the hair-trigger Venezuelans have had an effect. He knows who he is.

Peer pressure and the police

 My wife and I have relatives in the NYPD. (This should not be a surprise.) So we called a couple to ask about the cops turning their back on Mayor De Blasio during the funeral service. We were told that the protests were unplanned, word just went out in the crowd. We were also told that the police were mad because the mayor “took sides.” We asked what that meant. “He took sides. That was horrible what happened in Staten Island, but a jury found him innocent, but the mayor didn’t accept that.” Our relative went on to say that the mayor would not win re-election with the police against him.

For what it’s worth, since I’m not in NYC, the police seem to have taken leave of their senses. To the point that when I first learned of the statement put out by the retired cops who flew the above banner over the city, I thought it was a satire:

It is our opinion that Mayor deBlasio’s dangerous and irresponsible comments about his and his wife’s concern for their son’s safety at the hands of the NYPD fueled the flames that led to civil unrest, and potentially to the deaths of PO Wenjian Liu and PO Rafael Ramos, as well as the continued threats against NYPD personnel.

My take? Three things. First, I got the impression that the ire against the Mayor, as related by my cousin, comes more from peer pressure than deep-felt grievances. He did not mention the “irresponsible comments” listed in the above statement. I can imagine how hard it would be to not turn your back in a situation like the funeral when all your friends and colleagues are doing so.

Second, it really amazes me how joining an organization can make people have selective memories. Someone ask my cousin about the bicycle-ticket incident with his friends in Queens, over a decade ago. It really is better to be a young white person, even in New York City.

Third, the mayor may lose re-election, but it will not be because of his relationship with the NYPD.

I am glad that I am not Mayor De Blasio, because at this point I would be going to war with the department, and that is certainly not a wise thing to do. 

Two cool links

I wish that Typepad had a “blogroll” function that I could put on the sidebar. Because you all should check into the Dragon’s Tales ever so often.

Two cool links today. Link #1: proof that I am not complete Luddite. Yeah, I worry about the robots. And I worry about the panopticon. But I do not worry about the flying cars and it is serious awesome that Advanced Tactics of El Segundo, California, is trying to build one for the U.S. armed forces.

Link #2: By age 23, 49% of black, 44 % of Hispanic & 38 % of white males have been arrested. That is fucking amazing. I came close to being arrested on two occasions, but it did not happen. My friend Guy can say the same, only more so. It is a good thing to be white in this country ... so I am surprised that the disparity in arrest records is as small as eleven percentage points.

What I am curious about is the result of the arrests. My null hypothesis would be that the consequences are far more serious for black arrestees than for white ones, but I do not know that for certain. Does anyone know of research?

I would also like to know if anyone has looked into how cumulative cohort arrest rates have varied over time. Were men who turned 23 in 1953 or 1973 or 1993 as likely to have been arrested as those who turned 23 in 2013?

I think a good social science history of crime in America is sorely needed.

Prohibition and violence in Chicago

I was watching Boardwalk Empire, and I idly wondered to myself if the Prohibition era was really all that violent. So I dug up a paper by Leigh Bienen and Brandon Rottinghaus on homicide in Chicago. (We all know that the Atlantic City of the series is fictionalized, so I didn’t bother.)

Answer: a first amateur glance the data says maybe.

Chicago was violent even by modern American standards. The below chart shows homicide rates for the whole city hitting 20 per 100,000 by 1928. That is high. For context, homicide peaked in Chicago in 1991 around 32 per 100,000, declined to around 16 by 2011 and jumped back to 20 last year.

If you look at the red line (for total homicides) it seems to have increased a bit faster after Prohibition starts in 1920 than it had been earlier. But the jump is not that dramatic.

Except it is! Just not for the population as a whole. The blue line shows the homicide rate per 100,000 for white victims only. It continues to increase, but at the same rate as before Prohibition.

The implication is that the victimization rate for non-white Chicagoans must have skyrocketed.

And it did. Right after Prohibition.

In short, violence rose under Prohibition. But it rose more and more-suddenly among a racially marginalized population than in the city as a whole.

What about New York? Homicide rates were generally lower than in Chicago. They were also, unlike Chicago, generally stable in the decades before Prohibition. Homicide rates rise after Prohibition, but later than in Chicago: non-white victimization rates do not jump until rather late in the decade.

I would not ascribe causality; this is all amateur hour.

But there is a sad familiarity to this story, much the same our modern prohibition has destabilized black communities much more than white ones.

The non-scandal that you did not even know was a scandal turns out to be not at all scandalous

Every so often, on a visit to Mexico, my more left-wing friends and relatives will ask me about some sort of American perfidity. Most of the time I know nothing, say I will do a little research, and report back that there is nothing to know.

This particular scandal is no different, other than that I thought it interesting enough to blog about. Also, it was brought to my attention at a pulque bar in the northern exurbs of Mexico City. I do not recommend pulque to anyone for any reason.

We know that the old core of the Zetas organization was formed from former Mexican military personnel, particularly Army special forces. We also know that the United States trained (and trains!) a lot of Mexican soldiers.

So ... did the United States train the founders of Mexico’s most violent criminal organization? Did we train its later recruits? It very well could be. After all, the U.S. trained 4,954 Mexican military personnel between 1996 and 2009. Between 1996 and 1998, it trained 422 members of the Special Forces unit that provided the founders of the Zetas.

The DEA maintains a database with the names of all Zetas arrested, killed or credibly believed to be members of the organization. (If you don’t believe that last category to be accurate, don’t worry: it makes the case this post about to make stronger.) Of course, the latter is classified. [Slaps forehead for reasons tangential to this post.]

Wikileaks to the rescue! In August 2009, the U.S. Embassy in a document incomprehensibly classifed Secret decided to do the obvious crosscheck between the DOD list of all Mexicans trained in U.S. programs and the DEA list of all confirmed or suspected Zetas. And ... no match.

There was one remote possibility. When he was arrested in January 2008, former Lt. Rogelio López Villafana was listed as having received counter-narcotics training at Fort Bragg. His name, however, was not on record.

Bragg’s records only went back to January 1997, whereas Lt. López enlisted in December 1996. So it is remotely possible that he received training there ... but it is not likely. 

So, no, it does not look like the United States trained any of the Zetas. At least not the ones in Mexico. The Kaibiles in Guatemala could very well be a different story ...

When the facts change ... and what Assad could learn from the Zetas

It seems as though the United States has some evidence that the chemical attack in Syria was not ordered at the highest levels of the government. Rather, U.S. intelligence intercepted the following last Wednesday, August 21: “In the hours after a horrific chemical attack east of Damascus, an official at the Syrian Ministry of Defense exchanged panicked phone calls with a leader of a chemical weapons unit, demanding answers for a nerve agent strike that killed more than 1,000 people.”

Now, it would be a screw-up of unprecedented proportions for a regime to use chemical weapons by order of a low-ranking Army officer. One might imagine how it could happen in the midst of an invasion from another state, during which all sorts of authority would be pushed down the chain of command. Letting it happen during a civil war when your side is gaining the initiative and against civilians is criminal stupidity.

If correct, however, it changes my calculus regarding a punitive strike ... but only a little. Criminal stupidity deserves punishment to make sure that it does not happen again. I think. (Counterarguments welcome!)

But if lower-downs were responsible, it opens a way for the Syrian government to avoid a strike. Consider that when the Zetas accidently ambushed USDA vehicles in Tamaulipas, they released the Americans and apologized. When the Zetas idiotically shot and killed an ICE agent in San Luis Potosí, the Zetas practically handed the man responsible over to American authorities. That is, in fact, Zetas SOP for anything that might bring down the heat from either the United States or the Mexican industrial elite. (See page 5.) If your people do something stupid that could cause trouble for the organization, kill them or turn them in.

If it is true that low-level Syrian officers ordered the use of sarin without higher approval, then Assad could take a page from the Zetas’ book and turn those officers over to the International Criminal Court. It would be strongly in his interest both in terms of winning propaganda points and heading off intervention. Moreover, the ICC might refuse to take them, in which case it is win-win-win for Mr. Assad.

He won’t do the above, of course, because that would mean conceding that the Syrian state has no right to use chemical weapons despite having refused to sign any of the international conventions on the subject. He should, the weapons serve no real purpose, but he won’t.

Miguel Angel Treviño may have been a better student of the dictator’s handbook than Bashir Assad. Which is somewhat sad.

I support the revelation of the NSA programs; I do not support Edward Snowden

The Edward Snowden saga has confused me. He decided to reveal information about NSA surveillance. He revealed that information in a piecemeal and confusing way. He decided to surface in Hong Kong. Hong Kong is sovereign Chinese territory: we are supposed to believe that Chinese intelligence did not get any information from him while he was there. He then travelled to the Russian Federation. Once the U.S. began extradition proceedings in Hong Kong he might not have had any other options but Russia ... but nonetheless that is where he wound up.

Glenn Greenwald just told me on national television that Russian agents have not had any interactions with Mr. Snowden (or copied his data by other means) because they “want him gone.” I have immense trouble believing that.

The NSA surveillance programs are complicated things that deserve to be brought to light and debated. I am glad that Snowden revealed what he revealed. We now need to debate them. An American court of law seems not a bad place to have that debate. A braver man than Mr. Snowden would have risked going to court, as did Daniel Ellsberg. No?

Still, one can imagine why he would want to remain outside the American criminal justice system. But why then did he not surface in one of the Bolivarian nations in Latin America? Going to Hong Kong seems entirely mysterious unless Mr. Snowden intended to pass information to the Chinese government. And it was not hard to know that Hong Kong has an extradition agreement with the United States.

It is possible that Snowden wants to end up in Russia. It is not unreasonable to think that in Latin America he would not be safe from be vulnerable to apprehension by U.S. agents. But going to Russia, I would think, means giving Vladimir Putin all the information that he has. Am I wrong to assume that?

I am glad that Mr. Snowden revealed what he revealed. And I am gratified that the revelations have moved American public opinion despite Mr. Snowden’s odd decisions. But until new information is revealed, the man himself has not got my sympathy.

Smart move, Mr. Snowden

So, it’s Ecuador. Good move.

First and foremost, while Ecuador has an extradition treaty with the United States, it covers only murder, rape, piracy (as in, of actual physical seagoing vessels), mutiny, burglary, robbery, forgery, and embezzlement of public property. A supplemental treaty (scroll down to page 5 at the link) added other crimes, but not espionage or treason. Moreover, Article 3 explicitly states, “The stipulations of this treaty shall not be applicable to crimes of a political character.”

Second, President Correa is already on-record as supporting Julian Assange. In theory, if the U.S. really wanted to, it could squeeze Ecuador’s economy until the pips squeak. (Ecuador refines most of its consumption of fuel in the United States.) In practice, that isn’t going to happen. Ecuador would likely resist, the attempt would generate outrage across Latin America (and be of dubious legality) and at best the U.S. would simply get custody of a man who no longer poses any national security threat.

Finally, he can get a pretty good quality-of-life. Cuba is ... well, Cuba. Venezuela has out-of-control crime, an economy careening towards collapse, and a burgeoning political crisis. Ecuador has none of the above. There is some (weak) doubt about the recent decline in the homicide rate, but in general crime is, if not quite low, then well within the American experience and not something that would seriously affect day-to-day life. President Correa looks pretty secure and has not generated the kind of opposition that would throw Snowden to the United States just to tweak their Bolivarian predecessor. Finally, the economy is doing okay ... besides which I suspect that Snowden will find some way to monetize his notoriety.

Like I said, smart move.

Oh, Miami, and an arrest in New York

You are probably aware that a woman in Miami named Filomena Tobias flipped off Joakim Noah after last night’s game against Chicago. Ah, Miami. You may not, however, be aware that ... oh, just click the link. It’s fun, trust me.

In other news, the NYPD arrested a man in Astoria, Queens, for firing a plastic pellet gun and then handing it off to his kids.

The law against realistic toy guns is a good one and it should be enforced. When I was a boy, we would shoot BB guns down by what  is now called Dumbo or across the bridge on Wards Island. We would also sometimes take them into buildings or on city streets in Brooklyn or, even more stupidly, Stanley Isaacs and 1199 Plaza in Manhattan. In 1994, that very game resulted in death when a police officer shot a boy holding a toy gun. 

I strongly support the law banning realistic toy guns.

And I double-support keeping BB guns out of parks: they can hurt people! This guy was letting his three year son and five-year-old daughter point a loaded pellet gun at other people. That is a recipe to blind somebody. (I have every intention of going target shooting with my boy and letting him learn all about firearms. I have no intention of letting him fire even low-velocity projectiles in crowded areas.) I am glad that other parents stopped this moron before anyone got hurt.

There is, however, something confusing. The story says that the other parents quickly realized that it was a toy. One went up to the guy and told him to stop. According to the news, he did so and left the park.

Why then did they call the police? Or did somebody else call the police?

Anyway, this guy was pretty damn stupid. I will cut 10-year-olds in 1980 some slack. A 54-year-old in 2013, not so much.

Shots and sirens in Cambridge

Somebody robbed the 7-Eleven near our house last night. (Near as in only two small streets need to be crossed to get there.) Exciting, but not blogworthy ... except it turns out that the robbers were the perpetrators of the Marathon bombing.

Right now the subway and busses are shut down. We first got word with an automated phone call from the State Police to our house; that was followed by a flurry of texts and emails advising everyone to stay inside.

Sirens are continuous in the background. My boy is happily pulling himself into a standing position on chairs and bookshelves. My wife is talking to relatives on the pheone. We just got a redundant email announcing that Zipcar is shut down.

I note that the cell networks are still on; shutting them down would not help with the manhunt and would in fact remove some potentially useful tracking tools.

This is just a short personal update; there is no news available here at Franklin Street that you cannot get from the newspapers. I would, however, advise all of you to stick to reading the papers and cut it out with the rumor-mongering. They get things wrong and some are irresponsible (like the New York Post) but they are far far far better than the alternatives.

UPDATE: As of 8:12, the sirens have stopped.

Is the U.S. serious about fighting organized crime in Mexico?

I recently met with a high-level PAN official from the Calderón administration. The official said some things which were very interesting. (I cannot identify the official.) First, the Calderónistas do not see much (if any) substantive policy space between them and the new Peña administration. This is in line with the common feeling that the outgoing PAN president supported the PRI candidate over the candidate of his own party.

Second, the official (do note that I am not even using a pronoun) admitted that Mexican officials do not care how many illegal narcotics cross the border heading north. They do, however, care when the people who earn profits from that traffic suborn justice and bribe officials in Mexico, and they really care when they use violence. That said, they believe that much (in fact, the official intimated it was most) of the violence comes from fighting over the rights to sell drugs within Mexico. This was said in surprisingly blunt terms, but it was not surprising: the administration openly suggested that legalization might be a good idea as early as 2010.

Finally, the official said that they had great cooperation from the United States on everything except ... stopping money from flowing back to Mexico. On that, neither the Bush nor Obama administrations wanted to do much. There was no appetite on the low end to search southbound vehicles for cash in trunks, and there was no appetite on the high end for ... well, click this link and then this one.

The second link will take you the first stories about HSBC’s laundering of narcotics profits going from the U.S. to Mexico. What happened? Well, the United States eventually reached a $1.92 billion settlement against the bank. $1.92 billion! That’s a lot of money! HSBC profits fell 17%!

Only ... well ... the Mexican ex-official was not satisfied. Consider. HSBC earnings went from $16.2 billion to ... $13.5 billion. The CEO’s take home pay declined ... from $8 million to $7.4 million. The number of employees who earned bonuses above £1 million went from 192 ... to 204. 

It is true that the fine wiped out any HSBC profits from moving illicit earnings. The problem is twofold. First, you have let people move blood money, an action that actually carries criminal penalties, but you imposed no criminal penalties! It is easy to agree with Senator Warren (D-Massachusetts) that this is an outrage.

But there is another problem. There is, right now, if you are a bank moving illicit funds, there is a low chance of getting caught. So if the idea is to disincentivize money-laundering, you need to do a lot more than just wipe out the potential profits. You need to wipe-out the risk-adjusted potential profits.

And that the United States did not do.

Which brings us back to the title of this post. Are we? Really?

Chicago is not Ciudad Juárez and never will be

The answer to this question is no.

To be brutally frank, even raising the comparison destroys the author’s credibility. I understand the point that she is trying to raise. Comparing the two cities utterly obscures it.

More on the legalization of marihuana in Uruguay

It seems that the Uruguayan government has decided to send a new legalization proposal to Parliament. It is considerably more detailed than the original, and its text can be found at this link.

The new bill establishes a National Cannabis Institute to regulate the drug (including sales) and allows for the creation of “membership clubs” of up to 15 people licensed to grow 7,200 grams per year for the use of the members. The institute will be able to fix the price of its licenses to grow or sell cannabis. I presume that the Parliament will also be able to impose taxes in excess of the license fees. I am a little surprised as to the budgetary autonomy that the legislation seems to grant the Institute.

It appears that the Broad Front legislators have abandoned the idea of having the state control the entire value chain in favor of a more ordinary regulatory approach.

The experiment will bear watching.

Legalizing marijuana in Uruguay

So Colorado and Washington have legalized marijuana! This is a big step, although it is going to be a problem that the federal government still bans the substance.

Now, it looks like Uruguay might be the first country on Earth to fully legalize marijuana. (Or “marihuana,” as they spell it.) The Netherlands tolerates it, but it is not fully legal.

It is pretty neat that a serious country may legalize marijuana, but to give away the punchline, I doubt very much that it will be a harbinger of much until the American or Canadian federal government moves. There is a lot of opposition to legalization in Latin America, and Uruguay is not considered a bellweather. (It is one in practice, but that is more because Uruguay gets to the future first and less because other nations deliberately emulate the Eastern Republic.)

The bill is pretty vague. Here is the complete text:

“The State will assume control and regulation over the importation, production, acquisition in any form, storage, commercialization and distribution of marihuana and its derivatives, under such terms and conditions as fixed by regulation.

“Likewise, the State will undertake such material activities as are necessary before, during and after to carry out the activities referred to in the previous paragraph, under such terms and conditions as fixed by regulation.

“The activities referred to in the previous paragraphs shall be realized exclusively under a policy of damage reduction that shall, therefore, alert the population to the consequences and adverse effects of marihuana consumption, as well as the effects of minimizing the risks and damages to the population of potential consumers under such conditions as fixed by regulation.”

It is worth noting here that the Uruguayan president is quite a bit more powerful than the American president. (At least inside the country. Outside Uruguay, I do not believe that Mr. Mujica has the ability to order flying robots to kill anyone.) As long as his cabinet concurs, the Uruguayan president can send bills directly to Parliament. (Officially, the “General Assembly,” but everyone calls it Parliament.) In fact, under Article 168 the president can designate bills as urgent. “Urgent” bills must be approved or disapproved with 85 days or they automatically become law. The catch is that the president can only submit one urgent bill at a time.

The marihuana bill is not urgent.

So it is taking its own sweet time through Parliament. Of the six security measures proposed by the President (the marihuana deal is considered a security measure) the legislature has approved only one, which reduced sentences for low-level drug dealing while increasing the penalties for corruption. Right now, the marihuana bill is in a dicey spot. It can pass, but only with support from the President’s Broad Front. So far, only one opposition legislator has come out in support.  President Mujica seems reluctant to pass such a significant bill on a party-line vote.

In order to get support, the administration has announced what the regulations might look like after the bill is passed. The drug will cost ₱700 per gram, around US$36. That is higher than the U.S. price of $14 per gram, but roughly the price in Uruguay. (Since marijuana is still illegal, it is hard to come up with a standardized price, even for tolerated medical marijuana.) If the law passes, Uruguayan consumers will receive a photo ID armed with a photo and bar code (that is high tech?) and be limited to 40 grams a month.

To sum, the bill looks likely to pass, but it is still generating controversy.

But I would also bet that the Mexican government is going to consider legalization but do nothing until the U.S. federal government moves. There is a great deal of conservative opposition in Mexico, deeper and wider than in Uruguay, and with a weaker president and a divided Congress everything is tougher.

In fact, contrary to popular belief, a great book by Isaac Campos shows that opposition to marijuana actually originated inside Mexico; it was not imposed by international norms. The reverse actually: had Mexicans been less anti-marijuana, then the world might not have gone prohibitionist.*

I never did think that the border wall would work but ...

... this is ridiculous.

It looks like some smugglers were trying to use makeshift ramps to move marijuana from Baja into the Imperial Sand Dunes Recreation Area near the Arizona state line. The Jeep Cherokee got stuck on top. The smugglers ran south as the Border Patrol agents rolled up: seems as though they got away with the marijuana.

I guess it’s worth pointing out that the fence is not really built on the border, but about 30 feet north of it. So it’s impressive that they not only got away, but got away with their cargo.

I guess it isn’t quite a Darwin Award moment, but really. A Cherokee over a fence? Caray.

Prescient, or coincidence? Well, obviously the latter, but I’ll post anyway

What do you know? I post a picture of the HSBC building in Mexico City to illustrate a post about money-laundering, and suddenly a Senate committee accuses HSBC of money laundering!

But as Gancho warns, be careful about the significance of these reports. The fact the HSBC was lax does not translate into all of its business consisting of money-laundering. This is not exonerate HSBC. Nor is it to say that we should not combat money-laundering. It is simply to say that we have to be careful when estimating the size of illicit flows. Jumping to conclusions is just another way of making the cartels seem like unbeatable superorganizations, when they are not.

Money-laundering 101: Wachovia and the casas de cambio

Mónica in comments is gobsmacked by the amount of money that Wachovia handled in wire transfers from Mexico without “applying the proper anti-laundering strictures.” $373.6 billion over three years, reported the Guardian last April. What does that number mean?

Well, as Mónica surmised, it means less than one might think. What happens when somebody in Mexico goes to a casa de cambio and gives it a dollar to wire to the United States? The casa de cambio acquires the dollar bill. The casa de cambio has an asset: the dollar. Double-entry accounting means that it creates a corresponding liability: it owes $1 to whomever gave it that dollar to send. 

Now it wires the dollar to Wachovia. It gets an asset: a $1 deposit at Wachovia. It also gets a liability: Wachovia will at some point want that dollar bill, or some corresponding dollar-denominated liability. (The deposit at Wachovia then cancels the $1 owed to the customer, since the customer receives the deposit account. But the other asset and liability generated by the transaction remain.) In other words, that $373.6 billion is a gross flow: the change in the casas’ liabilities generated by wire transfers to the U.S.

Is that gross flow big or small? Clearly a lot of money sloshes back and forth between the U.S. and Mexico. But even more money sloshes around within Mexico. For example, in the first quarter of 2012 the Mexican payments system processed about $193 billion in checks and $1.2 trillion in other transactions. Over three years, that would be almost $15 trillion. (Wow!) Given that baseline, the cross-border figures do not seem out of line. Rather, what is surprising is the implication that Wachovia (and its 22 correspondents in Mexico) appear to have captured so much of the business. Even so, there is an explanation for that: the DOJ indictment against Wachovia mentions that other banks were getting out of dealings with the casas de cambio precisely to avoid problems with illicit transfers.

The indictment also says that these transfers occured on behalf of the customers of the casas de cambio, but I suspect that much the flow consisted of the casas’ own accounts. After all, they probably wanted to earn interest on their dollar balances, and this was a way to do it.

What was the net flow, then? After all, whenever the casas needed dollars the process would go into reverse. Fortunately for us, Wachovia offered two services to the casas de cambio to help them net things out when the time came for them to make good on the claims against their dollars. First, it helped them physically move dollar bills to the U.S. That came to $4.7 billion over the period. (See page 5 of the indictment.) Second, it allowed the casas to accept checks, travellers checks, and other dollar-denominated liabilities, digitize them, and use the digitized documents to effect settlement in the United States. Those transfers came to $47 billion.

In other words, the net flows were a lot smaller. $52 billion over three years is still a lot of money, but remember that is only a net flows from the point of view of the casas de cambio. From the point of view of Mexico as a whole, they are still gross flows. The Department of Justice, in fact, found that only $110 million of the flows were clearly crime-related. (The link goes to the settlement agreement.) Wachovia failed to monitor its activity, but the bank retroactively analyzed its transaction: little suspiscious was found.

The amount Wachovia processed is staggering. And the bank did a lousy job of real-time checking. But the amounts are not out of line for two adjacent countries with economies as large as the U.S. and Mexico. And neither the amount nor the malfeasance implies that most, or even 99.9% of it, is illicit or criminal. After all, how much money to you think Mexican drug cartels want to transfer into the United States?

Oliver stoned

 In a recent interview on “Piers Morgan Tonight,” Stone used a series of unfounded statistical assertions to justify his opposition to the war on drugs, the theme of his movie “Savages” which opened in the U.S. earlier this month. Among his comments, as compiled by the Los Angeles Times:

The Mexican economy would die without [drugs] because they need the money. It goes into their legitimate economy. It’s bigger than tourism. It’s bigger than oil. It’s bigger than remissions from their Mexican emigrants back to their country ... Fifty percent of our prison system is victimless crimes. People who’ve never hurt anybody, they’re in for marijuana and it has nothing to do with punishment. It’s a medical issue, and I think we have to move to decriminalization and legalization.

Stone is right to point out that the mass incarceration of drug offenders is demonstrably inefficient and in many senses immoral, but his facts are incorrect. Drug offenders do not constitute 50 percent of the US prison system’s inmates, but just over 20 percent. There are certainly more effective and humane ways to deal with the issue than tossing these people behind bars, but the opponents of the largely mindless approach to drug policy that has dominated in the last 40 years only hurt their case by casually tossing out falsehoods.

The problem continues with Stone’s statement that flows of drug money in Mexico are larger than those from tourism, oil, or remittances. Estimates for the value of the Mexican drug trade are all over the map, but the most rigorous analyses have concluded that export revenue from the drug trade is far lower than Stone suggests. Alejandro Hope, for instance, places the figure somewhere between $4.7 to $8.1 billion, while the RAND Corporation estimates that Mexican traffickers earn roughly $6.6 billion per year from sending drugs to the US.

In contrast, remittances sent by Mexicans living abroad in 2011 amounted to $22.7 billion. Mexico’s tourist trade, notwithstanding the nation’s unfortunate image in the international press, still managed to generate $11.9 billion in 2010. Stone’s claim is even further from the mark with regard to oil: the revenues for Pemex, the national oil company, amounted to $125 billion in 2011.

Consequently, Stone’s statement that the Mexican economy “would die” without drug money drifts into the terrain of the indefensible. Unfortunately, Stone is not alone in this exaggerated view of drug money’s role in the Mexican economy. One story, put forward by authors like Richard Grant and Charles Bowden, holds that a 2001 study by CISEN, Mexico’s intelligence agency, found that an end to the drug trade would result in a 63 percent contraction of the Mexican economy.

The study is not public — citing a story from El Diario de Juarez, Bowden wrote that it was leaked to the media in 2001, though InSight Crime’s online search for the original study turned up nothing. It is difficult to know, therefore, if its authors were perhaps making a more nuanced point that was lost in subsequent references to it. However, the scenario posited by Grant and Bowden, and the implicit idea that the Mexican economy would “die” without drug money, is simply absurd. [Note: Alejandro Hope and Jaime López-Aranda do not believe that the study exists.]

The most obvious flaw is the very idea that drug trafficking could disappear entirely. Though the size and composition of proceeds from the illicit trade may vary, longstanding industries, especially those that feed upon deep-seated human desires, don’t simply disappear from one year to the next.

Moreover, as demonstrated above, the total revenue generated by the drug trade is relatively small. Even using a methodologically suspect high-end estimate, such as the $39 billion cited by the US National Drug Intelligence Center, the figure amounts to less than 4 percent of total Mexican output. Using the more rigorous calculations of the industry’s size, drug trafficking probably accounts for roughly 0.5 percent of the nation’s economy. Eliminating the proceeds of drug smuggling would certainly have a significant impact on the GDP, but such an event, aside from being virtually impossible, would be nothing like the economic apocalypse posited by Stone.

Beyond simply being incorrect, Stone’s comments fuel a dystopian narrative of Mexico that has done the nation a great disservice over the past few years. They also help feed a belief that Mexico’s criminals are invincible supermen, against whom capitulation is the only solution. This is wrong, just like Stone’s facts.

A bad person did something bad and bragged about it in the New York Times

 Imagine the following. You are sitting at the Port Authority Bus Terminal in Manhattan. While you are there, you see someone get punched in the face a few feet away. The victim staggers and collapses, bleeding, in front of you. Do you:

1. Take a good look at the perpetrator, move away quickly (for fear of a weapon), and immediately call the police;
2. Run to the victim (realizing that he is concussed and may not recover) and make sure that he is still breathing and responsive;
3. Run in front of the perpetrator and yell “Basta!” or something along those lines, while blocking him with your body.

All three reactions would be honorable. A fourth would be a completely understandable variant on (1): move away and call 911 on your cellphone (within seconds, obviously) without memorizing any identifiable characteristics of the perpetrator.

What you do not do is what Christine Quinter and her father did, and then bragged about doing in a letter to the New York Times Metropolitan Diary column. I reproduce the letter for you below.

Dear Diary:

My father and I recently spent a lovely day in Manhattan. We saw a matinee performance by the New York City Ballet and met good friends for an early dinner on the Upper West Side.

While passing the time before our bus came in the Port Authority’s Deli Plus, we witnessed a fight. One of the young men was punched in the face and collapsed on the floor just a few feet away from us.

I think my father and I handled the situation like true New Yorkers. We didn’t panic or run for safety. We merely moved our $22 bag of cupcakes from the Magnolia Bakery out of the way to avoid having it splattered with blood and went on with our conversation.

Christine Quinter

Sweet Mary mother of God. Somebody please tell me that this letter is fake, or otherwise lacking in context, because the above is just unforgiveable.

Do U.S. agents really drive black Suburbans in northern Mexico?

 When I last tooled around the violent areas of northern Mexico, I did so in a green Infiniti. Before that, a bright red 2002 Ford Focus SVT. Why those cars? Well, they were the ones we had on hand ... but we could also be pretty sure that nobody would be gunning for us, even with Texas and California plates.

So I read this post with some incredulity. Not the story. I completely believe that the Zetas would apologetically release USDA officials that they had accidentally detained on suspiscion of being narcos. What I do not believe is that the U.S. government would actually be dumb enough to put its officials in black suburbans. Caray.

This is not to say that it is impossible to travel incognito through cartel territory. It is not hard to project the impression that you are not involved in organized crime. In fact, it is rather easy. The secret, as you can see above, is to not try to hide ... while avoiding the obvious markets of a sicario or cartel honcho. Dress like a gringo sartorially aware Argentine or Spaniard normal person and you will likely be fine.

A map of violence

 This interactive map of the violence in Mexico is amazing and incredibly useful. You can even download the data! Thank you, Mr. Del Valle.

Now if only I can find the equivalent data for the decades before 1990. That would be something. I still find myself astounded that nobody in Mexico seems to have bothered to compile mortality data at the county level before then.

Here is a short and useful summary of what we know about the MOCOs, although its recommendations are so vague as to be nearly useless. The most important piece of information is that serious attempts to estimate the export revenues earned by the cartels in 2011 ranges between $4.7 and $8.1 billion. The U.S. government, on the other hand, makes estimates between $13.8 and $29 billion. The U.S. government appears to be wrong.