Reflections on the Rockwell/Rothbard/Paul Strategy

I really shouldn’t waste any photons or brain cells on refuting the Rockwell/Rothbard/Paul strategy on the merits. It’s about as challenging as shooting fish in a barrel, to say nothing providing irresistible temptation to sarcasm. But hey, who can resist an irresistible temptation?

So I’ll start by indulging in sarcasm. Let’s get this straight. Lew Rockwell wanted to embrace the Birchers, neo-Confederates, white supremacists, Buchananites and even David Duke because he wanted to give libertarians more mainstream appeal?!? He worried that they seemed like a bunch of dirty, stinking hippies who needed a bath and shave, but didn’t realize that bathing in the sewer just makes you smell worse? He worried that libertarians would remain marginalized so long as they were associated with “abhorrent cultural norms”? Uh, yeah, he was right about that.

OK, now that that’s out of my system, let’s take a look at what Rockwell actually said. He said that libertarians should support authority so long as it isn’t the authority of the state. Libertarianism isn’t about liberty in general, but only liberty from the state. This is good to the extent it rejects the oversimplified view of liberty as atomization taken by the Ayn Rand wing of libertarianism. But all it has to offer in exchange is the equally oversimplified view of government bad, private actor good. (Admittedly, Rockwell makes an explicit exception for criminals and kind of sort of hints that unions might be another exception, as well as the Civil Rights movement, and who knows what else).

The claim that private actors (other than criminals) can never infringe on liberty is ridiculous. The neo-Confederate wing of Rockwell's brand of libertarianism take this to extremes, arguing that slavery couldn’t possibly be oppressive, since slave holders were private actors. But even omitting slavery, Rothbard, at least, must have known better. Rothbard wrote an excellent critique of Ayn Rand’s Objectivist movement for its cult-like grip on members, which he compared to the Communist Party (in non-Communist countries, of course). Members dared not deviate from the party line, even on a matter so simple as music (Rachmaninoff was better than Bach) or smoking (a moral duty). Granted, Objectivism did not have the coercive power of the state at its command, and that makes a big difference. And granted, it never descended to some of the types of isolation and coercion seen in real cults.* But Rothbard illustrated very well the iron grip that even a private, non-coercive actor could have.

And speaking of cults, Rockwell also raises the issue of Christianity. Christianity, he says, is responsible for all good things about western culture. "It was the transnational [presumably meaning Catholic] church that battled nationalism, militarism, high taxes, and political oppression, and whose theology proclaimed the right of tyrannicide." The thought of fighting for freedom by battling Catholic orthodoxy outraged Rockwell. He does grant that it is possible to be a libertarian without being a Christian.

In fairness to Rockwell, this was before the pedophilia scandals in the Catholic Church had broken, along with other frightful tales of abuse from Ireland to Mexico. But in Rockwell's time Catholic orthodoxy had still not admitted it had been wrong in saying the sun travels around the earth, and still (to this day, in fact) did not allow the use of artificial contraception. The subsequent pedophilia and other abuse scandals stand as a shocking illustration of the power and abuse a private actor can exercise even without the power of the state behind it. And it is no coincidence that the scandals broke first in the United States, where people were prepared to question churchly authority.

Furthermore, any objective history of Christianity would have to acknowledge not only the fine and noble aspects, but a darker side as well -- Christians waging war on Christians and burning each other at the stake in the name of orthodoxy, a Christian thought police (which Stalin's thought police often used as their model), and so forth. The Wikipedia identifies Rockwell as a Catholic, which no doubt shaped his thinking. Rothbard, by contrast, was a secular Jew. He must have known about the Christian history of anti-Semitism. My point here is not that Christianity is inherently oppressive, but that it is one of many non-state actors that have that potential.

Rockwell then goes on to argue that government programs such as Social Security, Medicare and public schools should be opposed not only because they are taxpayer funded, but because they undermine the authority of family. What he doesn't consider is the awkward possibility that maybe families like that. Maybe children don't want to be burdened with supporting their parents in their old age. Maybe parents not only fear being a burden on their children, but also fear that depending on their children will subject them to their children's authority. Maybe both generations fear that this will lead to conflict and struggles over authority that seem a lot more intrusive than just paying a tax. Von Mises Institute libertarians don't consider the intrusiveness of a tax to matter. They consider all taxation to be theft, morally indistinguishable from jackbooted thugs breaking into your house and robbing your valuables at gunpoint. That a tax is less intrusive does not make it less oppressive, merely more insidious. But maybe people outside the von Mises Institute consider intrusiveness important. Maybe they prefer the minimal intrusiveness of a tax to the greater intrusiveness of supporting elderly parents, or submitting to the authority of one's children.**

And this is to say nothing of the much more concentrated and less predictable medical expenses that elders avoid by having Medicare. Maybe most people consider losing their savings (or even their house) because of an unexpected medical emergency to be more of an intrusion than paying a Medicare tax. Maybe it is the fear of losing these things, and not "abhorrent cultural norms" that limit the appeal of libertarianism.

As for crime, well, Rockwell calls from a crackdown and appears to applaud vigilantism, including by the Mafia, as a way of fighting it. He lamented that many libertarians oppose such things merely because the criminals in question are so often black. Um, no, the problem is that we have this little thing called due process that we require to state to meet precisely because we fear its power and recognize its susceptibility to abuse. Turn vigilantes loose with the power of violence freed from due process and abuses will be rampant. Mafia neighborhoods have less street crime than other neighborhoods. They also have higher and more arbitrary taxes (in the form of protection money), more arbitrary and less economically rational regulations, and so forth. And let Rockwell compare the economic performance of southern Italy where the Mafia rules supreme to northern Italy where the state rules supreme to see which is the better system.

The form the actual Rockwell/Rothbard strategy took soon became clear. "The populist outreach program centered on tax reduction, abolition of welfare, elimination of 'the entire "civil rights" structure, which tramples on the property rights of every American,' and a police crackdown on 'street criminals.'" The flaw of this as a libertarian strategy is obvious. It isn't even that it is not so much libertarian as pseudo-libertarian, seeking to limit government to Essential Core Functions, and to remove all restraints on that. It is that such a strategy is not even based on a blanket opposition to all taxes and (non-core) spending. It's only really opposed to spending when someone else benefits. Instead of actually attacking Social Security and Medicare as threats to family, it ignores then and focuses all the ire on much smaller and less expensive programs that someone else benefits from. In short, it is not so much anti-statist as anti-other.

Which will be the subject of my next post.

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*Rand's organization broke up in a lover's quarrel when it was revealed that, Rand, a married woman, was having an affair with her second in command, a married man. One doesn't have to condone such things to recognize that compared to the sort of sexual exploitation and depravity that takes place in real cults, this looks pretty mild.

**Needless to say, Social Security does not prevent children from supporting elderly parents if the wish to.

Ron Paul: Background to the News Letters

OK, the story behind the Ron Paul and the newsletters is by now old news to anyone who has been following Ron Paul and the newsletters, but I want to go over it anyhow by way of background.

By way of background, libertarians are anything but unitary; they are split up into numerous factions. (David Friedman, son of Milton, is said to have said that there might be two libertarians who agree with each other, but he wasn’t one of them). As a non-libertarian myself, I am not familiar with all their ins and outs, but they roughly group into two major factions – mainstream libertarians (or, as their opponents sneer, Washington libertarians) and the von Mises Institute libertarians.

Mainstream libertarians regard our current government and institutions as not what a libertarian would ideally have chosen, but unlikely to go away anytime soon. Mainstream libertarians therefore seek to reform, rather than abolish, our current system. Von Mises Institute libertarians are not so constrained. Mainstream libertarians range from mainstream individuals who are economically conservative and socially liberal and would prefer a home in one of the two parties to people who favor quite a radical overhaul and diminution of our government. Members (living and dead) include people associated with the Cato Institute, people associated with Reason Magazine, Milton Friedman and the Chicago School of economists, the Koch brothers, New Mexico Governor Gary Johnson, and many others I have neglected to mention.

Lew Rockwell
The von Mises Institute, founded by devotees of Austrian School economics, also tends to attract John Birch Society conspiracists, extreme isolationists (as in opposing U.S. participation in WWII), xenophobes (to the point of opposing free trade agreements) and neo-Confederates, with a smattering of white supremacists, Patriot militias and other such cranks. Its most prominent members have been Lew Rockwell, the late Murray N. Rothbard – and Ron Paul. * If there were a single defining issue that separates mainstream libertarians from the von Mises crowd, it would be Austrian economics, particularly the gold standard.** Mainstream libertarians accept fiat money, central banks, fractional reserve banking, and the modern finance system, not merely as inescapable evils, but necessary in any modern economy. The von Mises crowd wants to abolish fiat money and central banks in favor of a gold standard.

Why should support for a gold standard correlate with support for the Confederacy, secession, xenophobia, conspiracy theories and bigotry? No reason, so far as I can tell, but there it is. One possible explanation is that the John Birch Society favors a gold standard, so paranoid Birchers tended to flock to and other gold standard group. Another is that some people just tend to support crank theories, and if they’ll support one, why not another.

The official break apparently took place in January, 1990, when Rockwell submitted an article to Liberty Magazine advocating "paleolibertarianism." The article laments that libertarians remain a marginalized movement, far outside the mainstream and attributes this to their "Woodstockian flavor" and rejection of accepted cultural norms. Libertarians should not oppose authority, he argues, but only the authority of the state. Hence he argues that libertarians should uphold the authority of family, church, employer and community (though not, of course, unions) because, not being governments, these are inherently non-coercive. Christianity should be upheld as the basis of all libertarian values. Medicare, Social Security and public schools should be attacked as threats to the authority of the family. Degeneracy in culture and the arts should be opposed, as should any government action on behalf of racial or ethnic equality. Environmentalism should be opposed as anti-human, animals, plants and nature in general dismissed as of no moral worth. But the state is not the only threat to liberty. Private criminal actors are also such a threat. He therefore appears to defend vigilantism and even the Mafia as effective at crime fighting. He ends with the clarion call, warning that "If the American people continue to connect libertarianism with repellent cultural norms, we will fail."

Taken by itself, it is hard to know what to make of this. Certainly libertarians (Ayn Rand, say) who equate freedom with atomization are mistaken; people really do need the structure, protection, and guidance of family, church, employment and community. But anyone who thinks none of these institutions can oppress simply because they are not governments is sorely mistaken. Crime is a threat to freedom and fighting it is government's most essential core function. Crime rates were much higher at the time this was written, and many black youth had embraced a sort of cult of nihilistic violence worship as black authenticity. But then again, we also have little niceties called due process of law imposed on government precisely because government is dangerous. And vigilantes are no less dangerous simply because they are not government. And it is hard to tell whether Rockwell is condemning merely the excesses of environmentalism (an easy target) or denying that any environmental concerns were legitimate. So it is not easy simply by reading the article to tell what Rockwell is getting at.

What he had in mind soon became apparent in Rockwell and Rothbard's writings. They worked constantly to stoke fears of black crime, and to encourage vigilante response. If they opposed all government services, they were all for stepping up its essential core functions of hurting and punishing people who are not like us.

"Cops must be unleashed," Rothbard wrote, "and allowed to administer instant punishment, subject of course to liability when they are in error." While they're at it, they should "clear the streets of bums and vagrants. Where will they go? Who cares?"

Rockwell, in turn applauded the Rodney King beating, regretted the decline in police brutality, and only thought it unfortunate that the police were caught. He also supported Pat Buchanan for President, eagerly looking forward to the day when the only alternative was David Duke.

Lew Rockwell worked for Ron Paul at this time and is widely understood in libertarian circles to have been the real author of the newsletters.*** They took the same nasty tone, warning of a coming race war, calling black people "animals," urging readers to stockpile arms, applauding the anti-government militia movement, and so forth.

Links to an extended series of such letters are here and here. The contents as well as the dates are significant. These were not just a handful of stray remarks. The nastiness continued quite consistently roughly from 1989 to 1993, with occasional stray articles for several more years.

Rockwell's words proved more prophetic than he could have imagined. As long as the American people associated libertarians with "repellent cultural norms," they did, indeed fail.

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*Where does Ayn Rand, probably the most notorious of American libertarians, fit in this taxonomy? Well, it is my understanding she died before the split, so we will never know.
**Friedrich Hayek, author of The Road to Serfdom, was probably the best-known Austrian economist in the U.S., but appears to have belonged to the mainstream faction and believes there might sometimes be some legitimate role for government services.
***People outside libertarian circles don't know Rockwell from Rothbard and assume that either could have written the letters. But given that Rockwell worked for Paul and Rothbard didn't, it seems a good bet that it was Rockwell.

Ron Paul: An Intro (Economics)

I wanted to do a post on Ron Paul and the newsletters, but after doing further research, it is going to take several. Let me start off with a post on Ron Paul in general. Aside from the newsletters, should I vote for him?

The case for him: he opposes any further wars or extensions of executive power, secret drone wars, indefinite detention, military commissions, and all the other violations of civil rights and human rights accompanying the War on Terror and War on Drugs. The case against him: his flaky economic theories. Ron Paul has proposed an immediate $1 trillion spending cut in one year, and the adoption of a gold standard, although he admits the gold standard will have to be phased in more gradually. Ron Paul's more reasonable supporters may see these as a mistake, but not a very serious one, or no worse than anyone else's, or politically unfeasible, or not as important as foreign policy, national security, and civil liberties.

Addressing these one by one, first, yes, what Paul is proposing economically is a very serious mistake that could be devastating. In the middle of a deep economic slump, he is proposing to cut our $3.5 trillion budget by $1 trillion. That is about 28% of the budget, or more than total discretionary non-defense spending. It is between 6% and 7% of our total economy (depending on whether you estimate our total economy at $14 trillion or $15 trillion). By contrast the downturn to the present has been closer to 4%. Paul is, in effect, proposing to shrink our economy by another 6-7%. A gold standard would be a severe constraint on the money supply, putting an even further squeeze on the economy. These proposals are a recipe for economic disaster.

Are these worse than other Republicans' economic proposals? Other Republicans' proposals go in the same direction but not as far. It must also be added that, while it is hard to tell if other Republicans' proposals are sincere or sabotage, there is no such doubt in case of Ron Paul. Paul has put his money where his mouth is. His investments consist of 14% cash, 21% land -- and 64% gold and silver mining companies. A professional investment manager described Paul's portfolio as "a half-step away from a cellar-full of canned goods and nine-millimeter rounds.” Another commentator suggests this bet on disaster means that either Paul does not expect to be elected, or thinks he will be unable to rescue the economy even if he is. I am not so sure. Maybe he hopes, if elected, to institute a gold standard and see his gold and silver investments go through the roof.

Are Paul's plans politically feasible? My guess is no. Paul proposes to cut the budget by $1 trillion, but he is as coy as anyone else on what he intends to cut. My guess is any cuts he makes will be considerably less. But I would also guess that any Republican who comes to power (and quite possibly any Democrat as well) will genuinely try for big cuts. My reason for this belief is the urge to cut is by no means limited to the United States. European countries are cutting away with great abandon. And while I doubt that Paul would get very far on imposing a gold standard, he might begin by appointing extreme hard money types to the Federal Reserve who will begin a squeeze that, though not as bad as a gold standard, would be bad enough.

Of course, one might argue that Ron Paul will come to his senses on the economy if elected. But if he comes to his senses on the economy, why not on the War on Terror, just like Obama did? One might say that is different, Obama's promises to reverse Bush's policies were merely lies told to fire up the base, while Paul is sincere. But then again, one of the big "defenses" of Ron Paul's newsletters was that he didn't mean it, he was just lying to fire up the base. So if we couldn't believe him then, why believe him now? (More on that in a later post). Or one might argue that Obama, as a Democrat, was thwarted by Republicans demogoguing the issue, while Paul, as a Republican, will face no such constraints. But I am not so sure. Republicans by now have associated their brand so strongly with national security maximalism that it will be hard to back down just because one of their own is in office. And even if they do, chances are good that the Democrats will seize the chance to burnish their national security credentials by painting Ron Paul as soft on terror if he suggests Arabs have human rights.

So ultimately, assuming you take Paul at his word on both economic and national security issues is whether you are willing to let him trash the economy in exchange for undoing the worst abuses of the War on Terror. Maybe I should. But somehow I just can't find the stomach for it. And this is without (mostly) considering the newsletters. Those will be addressed in my next posts.

Improvements on Dickens

Apparently Hollywood agrees with at least some of my criticisms of A Christmas Carol, because among the many variations on this done-to-death movie are two that (to my mind) significantly improve on its shortcomings. One is Ms. Scrooge, starring Cicely Tyson. The other is Scrooged, starring Bill Murray. Both have modern-day settings.

Aside from the novelty of a black, female Scrooge (Ebenita instead of Ebeneezer), Ms. Scrooge vastly improves on showing the title character's past and how she became what she is today. (It also avoids the foolish conceit of pretending all important events in her past took place on Christmas and simply shows her past in general). She begins as a poor black girl growing up in the South. Her father gives her a puppy for Christmas and she thinks she is the luckiest girl in the world. He is a veteran of WWII and hopes between his savings and a GI loan to start a gas station. Benita (short for Ebenita) innocently offers all her allowance she has been saving up. Thus we learn she was attached to money from a very young age, though not yet pathologically so. We see him boycotted, harassed and threatened by white neighbors who don't want a black man to succeed, and then Ebenita says, "No, spirit, don't make me see this." The spirit shows her the day her father's gas station was fire bombed and he was killed.

As soon as she is old enough Ebenita flees as far from the South as she can -- to Minneapolis in her case. She arrives flat broke with no family or friends in town, desperate for any job and walks into the clutches of Maude Marley. This is the only version of the story I have seen that really explores Scrooge's relationship with Marley. Its take is revealing. Marley is a predatory lender who squeezes the poor. At first she is going to turn Scrooge away, but Benita begs for a job and says she is good with money, why her father used to call her "stingy Bingy." That interests Marley. Besides, Marley sees how desperate Scrooge is an squeezes her as ruthlessly as she squeezes her clients. Scrooge hates her. And we get to see the old Scrooge watching her young self, remembering for the first time in years just how shabbily Marley treated her and just how much she hated her -- and now she has become just like her.

And we actually get to see Scrooge becoming like Marley over time. She squeezes the poor, at first because she has no choice if she wants a paycheck, but over time she starts putting more conviction in it. Marley notices, recognizes Scrooge might take her talents elsewhere, and starts giving her promotions. Scrooge starts liking her promotions, even if she still hates Marley. Her boyfriend begins to be concerned, doesn't like what she is becoming, asks her to marry him and move with him to Atlanta. And we see this really is the turning point in Scrooge's life when she gives up love for money, and when she chooses to be just like Marley.

The present and future are not significantly different than the original and add nothing to our insight. But actually seeing Scrooge become Scrooge and watching her relive the process, realize how much she once hated what she has become, and recognize what she has missed -- all this makes her conversion much more believable than Dickens' version.

Bill Murray's version focuses less on generosity to the poor than on putting one's loved ones and relationships ahead of money, but the story works reasonably well on that level. Bill Murray is a cold, hard-fisted TV executive put in charge of broadcasting a live version of A Christmas Carol. The live broadcast is wildly implausible, but is a necessary excuse why the studio can't cut him off when he interrupts the show at the end to give his maudlin lecture on the real meaning of Christmas. It does a much better job than the original of integrating past, present and future into one continuing stream.

For one thing, the present is not just something Scrooge goes on a tour of; it is something he is living right here and now. That is to some degree the case in the original; we have to see Scrooge in action to know what he is like, after all. But in Scrooged, the tours the spirits offer take up only part of our protagonist's time; in between he is busy with the business of everyday life. And we see a man who is hard-hearted and greedy, but not totally lost to human feeling. His younger brother is trying to stay in touch, but he is making that difficult. And Bill Murray himself looks up his old girlfriend Claire, who has not married someone else, and who now works at the homeless shelter, and finds that she still thinks of him as an old friend. So even without the intervention of the Spirits, Scrooge is not altogether dead to feeling; there are still two people who he loves.

In our tour of the past, we see his past with the two. We see his childhood, how he protected his younger brother from their tyrannical father, how his brother called him, "the best brother a kid ever had." We see how he met Claire, how they met, how they were happy together for a time, and how he lost her, as well as that she is still fond of him. We see that in the present, he is really poised on a knife's edge. What he does may determine whether he and his brother drift apart altogether, and whether he can get back with Claire. And in the future -- well, we see Dickens' old routine about dying alone and unmourned. And we see him drifting apart from the people he still loves. But we also see something worse, and the more powerful because it is unexpected. We see that Scrooge's worst fate isn't losing Claire -- it's corrupting her and making her as cold and uncaring as he is. Now there's a horror that he is truly ready to go to any length to prevent. And seeing his reformation come from the fear of losing -- or worse, corrupting -- the two people he still loves gives it a continuity or character, and a plausibility utterly lacking in the original.

When we get close to the end of January, I will have to do a post on Groundhog Day as A Christmas Carol done right.

Why I Hate A Christmas Carol

The most done to death movie in all Hollywood must be Charles Dickens' A Christmas Carol. A new version comes out every Christmas season, so done to death that producers desperately look for some new twist to give it some hint of originality. The reason it is so done to death is obvious -- its seasonal nature makes it a natural to keep redoing. But if Hollywood has to do a movie to death, couldn't they start out with one that had some life to begin with?

So what's the problem with A Christmas Carol? More than anything else, every time I see it, I come away with the feeling that Dickens has done poor old Scrooge a great wrong – he’s violated his character. Every time the latest version ends up with the cuddly, lovable Scrooge at the end, I keep missing the mean guy at the beginning. Flat and cardboard cutout as he was, the mean Scrooge at least seemed more genuine than that awful impostor. The mean Scrooge was at least himself.

This may seem like an odd criticism. After all, aren’t some of the best works of literature about people undergoing character development and becoming someone better and more human at the end than they were at the beginning? Yes, but that’s not what happened to Scrooge. To undergo character development, you have to have some depth and texture of character to begin with. Now, granted, some fictitious characters who undergo development initially seem as cardboard as Scrooge. Part of their character development is discovering that the cardboard cutout is just a facade, that they are a lot more complex than they appear on the surface. This, in turn, leads to an exploration of why they have chosen to present such a two-dimensional front to the rest of the world, to rediscovery, in many cases, what they have hidden even from themselves. It means breaking through their defense mechanisms, and discovering why the rewards of their three-dimensional self outweigh whatever advantage they saw in presenting only two dimensions to the world.

This is precisely what does not happen with Scrooge. He does not develop any depth or texture; he simply flips over from a cardboard cutout curmudgeon to a cardboard cutout saint. There is nothing really wrong with having cardboard cutout characters; there simply is not enough room in fiction to give most characters the complexity of a real person, after all. But if you are going to draw characters as cardboard cutouts, then they have to stay fixed and unchanging. To flip them over into a new cardboard cutout is not character development at all, just character violation.

Furthermore, really convincing character development necessarily takes place slowly over time, with the character taking an active role in his or her redemption. Scrooge does nothing of the kind. He starts out as a simple caricature of a mean old miser. When the three Spirits come along, he sits as essentially a passive audience to their Christmas pageant, and then emerges as a totally different character. In fairness to Dickens, Scrooge is allowed some minimal reaction to what he is seeing, and we do see his turning point. He greets Marley’s ghost and the Spirit of Christmas Past with hostility, but after seeing his past, he is duly stricken with remorse. From then on, he humbly approaches the other spirits, eager to learn whatever lesson they may have for him.

Most productions of A Christmas Carol therefore give more attention to Christmas Past than Christmas Present and Christmas Yet to Come, and rightly so. It is by understanding Scrooge’s past that we can understand how he got to be what he is today and how he can change. Only Dickens does nothing of the kind. Instead of allowing us to understand how Scrooge became what he is today, which would have given him some depth and texture and made his conversion more plausible, Dickens simply shows us four set-pieces, each with its neat little moral for Scrooge to learn. First we see him as a poor boy. (Moral: The poor are people too). Second, we see good master Fezziwig throw a real Christmas party. (Moral: This is what you should have done). Third, we see Scrooge's girlfriend leave him over his greed. (Moral: This is what you lost because of your greed). Finally, we see her happily married with many children the night Marley died. (Moral: This is what you could have had if you had made other decisions). What we don’t see is any indication how Scrooge really got to be Scrooge.

Furthermore, Scrooge’s past shows no apparently connection with his present.* His present admittedly does logically lead to his future. But what future is he supposed to fear? When we first meet Marley's ghost, the implication is damnation, being doomed to wander the earth as a ghost in chains. Later on, we see a more secular doom -- the prospect of dying alone and unmourned.** That's all right so far as it goes, but it is, after all, just a more secularized version of warning Scrooge to mend his ways or face the hellfire. Either way, he is being brought to change by threats, the most superficial form of character development. Real character development would come not from the threat of some terrible future, but from Scrooge looking at his present and seeing just how empty it really is -- and realizing that the future holds nothing but more of the same. Once a character realized that, we can say he has experienced real development.

In short, we are shown a cardboard cutout caricature of a miser and misanthrope, shown four neat little skits of his past, each with a lesson, and threatened with dying alone and unmourned unless he mends his ways. He then flips over into a totally different, but less convincing, cardboard cutout and they all live happily ever after. No wonder Hollywood gets tired of that same story each year! In my next post, I will discuss two modified versions that (I think) significantly improve on the original, and have no doubt much influenced the above post.

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*The one exception is his nephew, who is the son of Scrooge's sister, now deceased, who we met in the first skit of his past.

**Scrooge is rather annoyingly obtuse about the unnamed man who has just died alone and unmourned. On the other hand, denial can be a powerful thing, so maybe that part is more plausible than I give it credit for.

Has Goldwater Been Vindicated?

It’s an honest question because, not being old enough to remember Goldwater’s run for President, I really don’t know. Conventional conservative wisdom is that, sure, Goldwater lost by a landslide to Lyndon B. Johnson, but he has since been vindicated as his social vision of limited government and foreign policy belligerence (anybody see a contradiction there?) was later adopted under Ronald Reagan and now stands triumphant everywhere. Conventional liberal wisdom isn't all that different. But is it true?

Here is where I could use some perspective from people who remember Goldwater. My impression is that what alarmed people so much about Goldwater was three things, (1) he opposed Civil Rights legislation, (2) he thought we were too squeamish about using nuclear weapons, and (3) he wanted to escalate the war in Vietnam. So, has he been vindicated? Well, on civil rights, definitely not. There seems to be a general consensus that, whatever his merits on other issues, Goldwater was dead wrong about civil rights. On nuclear weapons, given that we have not used them since, and that we nonetheless managed to win the Cold War, I don’t think anyone could say he was vindicated.* On Vietnam, we ended up taking Goldwater’s advice and escalating, and it didn’t go so well. To this day, people dispute whether that means that escalation was a mistake in the first place, or whether it just shows we didn’t escalate enough, and Goldwater would have done it right. So if these were Goldwater’s three big issues, he got two wrong, while one remains controversial. That hardly seems like vindication.

But what about limited government? Well, our top tax rates have gone down since 1964, but government revenue and spending as a share of the economy has not. I don’t honestly know if Goldwater promised to roll back the New Deal, but I do know that both Ronald Reagan and Newt Gingrich essentially promised that and neither got very far. Those New Deal Era programs like Social Security, deposit insurance, farm subsidies, the SEC and so forth are still there, and most of them remain popular, even among people who hate “government.” Nor did Goldwater triumph even over Johnson’s Great Society enacted in the wake of his victory. After all, Medicare, Medicaid, Food Stamps were Great Society programs, and neither Reagan nor Gingrich succeeded in rolling them back, either.** One possible triumph Goldwater may claim was in the rollback of much “economic” regulation, in the sense of regulations of routine economic decisions like hauling rates for trains or trucks and fares for planes. But there had been a parallel increase in environmental and consumer protection regulation, so ultimately our economy is neither more nor less regulated than in 1964, but merely differently regulated.

So I don’t really see Goldwater as being vindicated in the sense that any of his policy preferences as of 1964 being enacted. I will concede he has been vindicated in the sense of being an early signal of a change in mood. “Liberal” has become a dirty word. “Government spending” is considered the ultimate evil to be massively cut, even if no one has yet figured out how to make any actual cuts palatable. And boasting how much you will hurt and punish everyone who is not like us has shown itself to be a highly successful electoral strategy. But how much of that is really a vindication of Goldwater?

So far as I can tell, two main factors have been at work in creating our more conservative mood. One is a reaction against the excesses of the ‘60’s. Opponents of the Vietnam War really did engage in a lot of unpatriotic behavior that offended a lot of people’s deep seated values and created a serious backlash. (Are you listening, Occupy Wall Street?) The other was the rise of the Religious Right. And few people were so sharply critical of the Religious Right than Goldwater. Goldwater strongly disapproved legislating religious views. He said all good Christians should kick Jerry Falwell in the ass. He saw no reason to deny gays equal rights to serve in the military. He favored medical marijuana. He even opposed restrictions on abortion. Today's conservatism quite simply means strong leanings toward theocracy. Goldwater's conservatism meant nothing of the kind.

Ultimately, therefore, it seems a stretch to me to say that Goldwater has been vindicated. But I am open to opposing arguments.

Are Professors Humble or Arrogant?

A large part of Newt Gingrich's appeal among the anti-intellectual wing of the Republican Party appears to be (surprisingly) that he's an intellectual, or at least can play one on TV. They eagerly look forward to him beating Obama at his know-it-all game. This raises two obvious questions -- Why to right wingers hate intellectuals so much? And, given that they do, why do they want an intellectual as their champion. This commentator thinks it is a failure to understand the humility of real intellectuals. "In fact, anyone who actually has met (say) a college professor knows that most are earnest, deeply knowledgeable in their field while cautious about the inherent limits of human knowledge, open to differing opinions while instinctively skeptical toward crackpot ideas. Of course there are exceptions but as a rule true scholarship leads to humility, not arrogance."

With all due respect, that shows a certain lack of reality about how ordinary citizens encounter college professors and other experts. Ordinary citizens don't see someone being humble about their knowledge outside their field, or humbly and painstakingly peer reviewing with professional colleagues. Ordinary citizens claiming the mantle of expertise in their given field and dismissing the views of non-experts as worthless. Ordinary citizens see their gut-level intuition distained as lacking rigor. Ordinary citizens see experts saying I am right and you are wrong as a matter of scientific fact. They don't see the humble process of investigation and research in reaching these conclusions. only the final outcome, and the contempt experts have for people who haven't put in the work they did in reaching their conclusions. And, yes, it does come across as arrogant.

A fine example of this sort of arrogance might be:

An argument that judgment matters but knowledge does not is profoundly anti-intellectual. It implies that we do not need ever to learn anything in order make mature decisions. We can just proceed off some simple ideological template and apply it to everything. This sort of thinking is part of what is wrong with this country. We wouldn’t call a man in to fix our plumbing who knew nothing about plumbing, but we call pundits to address millions of people on subjects about which they know nothing of substance.

Or, to take a milder version, consider Jon Stewart's remark, "Is that not the purpose of education vis a vis belief structures? To replace your belief structure with facts?"

Yet at the same time, the Republican base is very eager to have one of these arrogant know-it-alls as their standard bearer. This leads me to believe the right wingers' real objection to intellectuals is not their offensive sense of intellectual superiority, but the fact that that offensive sense of intellectual superiority is always employed against conservatives and never for them. Obviously right wingers do respect scientific expertise (hence the constant attempt to dress, say, creationism, up in scientific garb). And they eagerly look forward to having it in their corner for a change.

Which does lead me to one suggestion about how to soften right wing hostility toward intellectuals. As we all know, conservatives greatly value hard work and achievement. That is why they are great champions of wealth -- the rich earned their wealth; they deserve to keep it. Well, then, why not pitch knowledge and expertise as a form of wealth. After all, some people are born into wealth, but everyone is born with a knowledge base of zero.* Experts worked hard for their knowledge and deserve to be respected for it. Don't just stand on your credentials; explain the sort of work that went into them. And not just studying so many years at such and such a university; explain the lab experiments you did, the archives you investigated, or whatever. And if you are offering an expert opinion on a subject, explain all the work you did to reach it. Claims to expert knowledge will be less resented if you can prove they are earned.
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*I know, it's not that simple. Being born into an intellectual family and community that encourages learning is a major head start. But we're talking about people who can't acknowledge that wealth might be anything other than a reflection of merit. Is it so much to ask the same respect for knowledge?

How Much Do Debates Tell Us?

Clearly we have gotten to the point where election campaigns are defined largely by debates. This is a venerable American tradition, going back to Lincoln-Douglas. It also has the advantage of at least being better than 30-second ads. Other than that, how much are debates worth? Are they simply demonstrations of verbal facility, or do they show something more substantive?

I suppose my answer would be both. Skill at public speaking has not always been an essential trait in a President. Thomas Jefferson was both brilliant and a master of language (as his writings show), but he was shy about public speaking. During two terms, he gave two public speeches -- his first and second inaugural addresses. Nor did he address Congress directly or hold formal public receptions. He tried as much as possible to stay out of the public eye, considering it un-republican for an executive to make a display of himself. Yet he was quite probably our strongest and most influential President ever because he had extraordinary moral authority with his party and could count on it to do whatever he suggested. No modern-day President could possibly govern in this fashion. Giving public speeches, offering symbolic leadership, and using the bully pulpit have been part of the President's job since Teddy Roosevelt's day. Any modern day President who behaved like Jefferson would be considered derelict in his duties. So some public speaking ability is essential to a modern-day President.

But, as Republicans love to point out, any idiot can read off the teleprompter. Debate is more spontaneous than giving a formal public speech. How important is it? To take a far less grandiose example than Jefferson, the senior Bush was every bit as inarticulate as his son, but no one ever thought he was stupid. So what is it we are testing in a debate? And how important is it?

I believe the answer is that we want a President who understands the foremost public issues of the day (at least in their broad outline) and can formulate intelligent policy responses to them. The debates are based on the assumption that anyone who understands the foremost issues and can develop intelligent policy responses should be able to articulate that understanding and response. Furthermore, to show that the candidate is not just reciting someone else's canned phrases, we put them into a not-entirely-rehearsed format and ask the candidate to respond to challenges.

Now I will grant, there may be flaws to this approach. It is at least theoretically possible for a candidate to have a good grasp of policy but be poor at putting it into words. Although in that case, we might worry, not just about how such a President would communicate with the public, but also with subordinates. And more importantly, a candidate might have a good policy understanding and just not be good at thinking fast on his (or her) feet. It is by no means clear to me that thinking fast on your feet is an important quality in a President. But just as asking candidates to articulate their understanding of policy is the best test we have of whether they have it, asking them to think on their feet is the best test we have for weeding out candidates who are just reading the teleprompter.

There may be a better format for this than debates. If so, I would love to hear it.

A Stroll Down Memory Lane

At the risk of dating myself, this post will be about my economics text book my freshman year of college. The copyright dates are 1979 and 1982. What it says about macroeconomics is interesting.

The primary viewpoint is simple Keynesian. There is a tradeoff between inflation and unemployment. We can choose what we want that tradeoff to be. The best way to counteract the business cycle is by increasing or decreasing government spending. (On what gets little emphasis). The tradeoff between inflation and unemployment is on the demand side. It does acknowledge the possibility (at the time, the reality) of stagflation from supply side shocks, specifically increases in oil prices.

As a sort of counterpoint, it also introduced the monetarist theories of Milton Friedman. Friedman emphasized nominal, rather than real, GNP (that’s gross national product; gross domestic product was not generally accepted at the time), which was determined by money supply times velocity. It also ended up sort of walking back the tradeoff between inflation and unemployment. There is a natural level of unemployment. Measures to bring unemployment to that level cause very little inflation. Any attempt to lower beyond that does no good and just causes inflation.

The book focuses a lot on inflation. This was at the end of the ‘70’s, after all, and inflation was a big problem. It ends up concluding that high inflation is here to stay, that there is not much we can do about it, and discusses strategies for coping. As interesting as what my text discusses is what it does not discuss. Its entire discussion of deflation is a single paragraph saying that deflation no longer happens and it is not sure why. There is no discussion of asset bubbles or credit bubbles. In the 1970’s stock prices were stagnant and bubbles were the last thing on people’s minds. Besides, at the time most people held the illusion that bubbles (at least serious ones) were a thing of the past, and that we had conquered them by tough financial regulation.

I will also recount my reaction to all of it. By and large, it was very enlightening because I didn’t have most of these concepts before. In particular, I did not have the concept that a recession or depression is an economy falling below capacity, or even shrinking. I knew that everyone was getting poorer, but was utterly stumped where the wealth was going. Nor did I have the concept that inflation results when an economy strains against its capacity. I certainly did not have the concept that constraint on money could hurt the real economy.

Interestingly enough, the one concept I did sort of have was velocity. In puzzling over the Great Depression and wondering where all the money went, one thought that did occur to me was that it just was still there, just not circulating so fast. Basically true. It did also confirm two things I knew anyhow from high school economics. One was that the economy suffers if people stash their money under the mattress instead of putting it in a bank where it can be loaned out and invested. The other was one I figured out in response to teachers who said Germany and Japan had the “advantage” over us of having their industrial base blown up in WWII, so they could start out with newer plant. My thought was, couldn’t you get equally good results by less drastic methods, like regularly investing in upgrades. The answer, of course, was yes.

Given the choice between Keynes and monetarism, I preferred Keynes. The most obvious reason was because that was what we had learned and it was uncomfortable rearranging the furniture in my head. Another reason was that I really didn’t understand money and finance; the workings of the real economy just seemed more, well, real. Also, Keynes focused on real GNP and Friedman on nominal GNP. I couldn’t understand why anyone cared about nominal GNP; wasn’t it what was really produced that mattered? Friedman said the central bank could always expand the nominal GNP by printing more money. But everyone knew that. What good was nominal GNP expansion if it just consisted of inflation?

We were expected to write a term paper about a macroeconomic subject. I wrote about the causes of the Great Depression because it was a subject that had long baffled me. In researching the subject, I read four works representing two outlooks. One was a left wing outlook that the Depression was caused by income inequality. Economic growth was concentrated too heavily at the top and therefore went disproportionately into investment instead of consumption. This led to lots of stuff being produced and not enough people who could afford it. The speculative bubble arose when productive investment stopped paying off, and was not a sign of economic health, but a symptom of illness. (I do not remember the names of the authors or the publications).

The other two were far right views. I read Murray N. Rothbard’s America's Great Depression. Rothbard was an Austrian school economist and (I would later learn) an extreme one at that. The other was by British economist Lionel Robbins, who was not an Austrian, but shared their general outlook. Their viewpoint was that too-easy credit led to a lot of bad investments that had to be shaken out, and that any attempt to counter the process merely prolonged it. Like the lefties, they regarded the stock bubble as a symptom that the underlying economy was in trouble. Indeed, they did not see the bust as pathological at all. The boom was the pathology; the bust was merely recovery.

In the clear light of hindsight, I regret not reading the views of two more mainstream economists, although they may not have been seen that way at the time. One was our friend Milton Friedman's The Great Contraction. Friedman's theory was that the Great Depression was caused by monetary constraint, and that the proper remedy was monetary expansion (Ben Bernanke's much-mocked comment about dropping money from a helicopter originated with Friedman).

The other was the debt deflation theory of Irving Fisher. Fisher believed that depressions were caused by too much debt building up in the system and then all being called in at once. When everyone tries to pay down debt at once, it causes the economy to become deflationary, which makes the debt burden worse than ever. His remedy was “reflation.” This, by the way, clears up the mystery of why Milton Friedman should care about the nominal economy. Debt burden cannot exist relative to the real economy, only to the nominal economy. Nominal growth that consists mostly of inflation is beneficial in an over-indebted economy because it shrinks the debt burden.

Friedman, as I mentioned, was mentioned in our text, but mostly as an afterthought and a challenge to the accepted view. Neither Fisher nor his debt deflation theory were ever mentioned in our economics text at all. They may not have seemed as mainstream then as they do now. But Friedman's ideas were gaining ascendance, especially as they were being successfully used to tame the doubt digit inflation that seemed unstoppable. And Fisher is only now becoming fully appreciated.

Clueless, but Not Stupid

Paul Krugman has a column on why the Republican field is such a mess. Of course, we all know the answer. The Republican base holds a large number of counter-factual beliefs and makes a large number of contradictory demands on its candidates. And, as Krugman says, "There are only two ways to make the cut: to be totally cynical or totally clueless."

Romney has taken the totally cynical option. He just tells the base whatever lies they want to hear without believing a word of it. Or, as Krugman says, " He isn’t a stupid man — but he seems to play one on TV. Unfortunately from his point of view, however, his acting skills leave something to be desired, and his insincerity shines through." I prefer to believe that the base, though ill-informed or even clueless, is not stupid. They know when they are being played for suckers. And there are few political sins so unforgiveable as playing your constituents for suckers.

So, the Republican base seeks out sincere candidates in the form of Bachman, Perry and Cain, all of whom are clueless. But, remember, the Republican base, although clueless, is not stupid. They know cluelessness when they see it (except in the mirror), and they don't want it in a President.

Krugman, like most people, has dropped Donald Trump's short-lived front runner status down memory hole. Trump, I have no doubt, was cynical, even more cynical than Romney. (He may also be pulling a two-fer by being clueless too). He played the birther card because he thought it would be a winning one with the base. However, it quickly transpired that Trump was seeking to play the base for suckers and really didn't understand them at all. The base abandoned him as soon as that became apparent.

That leaves Gingrich. Is he cynical or clueless? Given that he has endorsed single payer, proposed action against global warming, and taken other positions anathema to the Republican base, I am inclined to say he is cynical. But he is much better at it than either Romney or Trump. Or, as Krugman says, "[E]ven when he knows what he’s saying isn’t true, he manages to believe it while he’s saying it." In other words, he's so cynical he may successfully fool the base because he even fools himself. And, because he really isn't clueless even if he convinces himself of some clueless things, the base will not abandon him for his cluelessness. Of course, this is a very hard tightrope to walk, and he may yet fall off.

The point, though, is that the reason the Republican primary has become such a circus is not that they are appealing to a clueless base. They are appealing to a base that is clueless but not stupid.

Paranoia

My favorite episode of Star Trek: Voyager is Voyager Conspiracy. It is the best portrayal of paranoia I know of. After watching it over Thanksgiving weekend with family members, however, it became clear that the episode is really only fully appreciated by the initiated.

A few explanations of the premises are necessary here. The Voyager, under the command of Captain Kathryn Janeway, is a Star Fleet vessel pursuing a ship from an unauthorized resistance movement. Both ships are drawn into a far distant part of the galaxy by the Caretaker, an immensely powerful alien running an immensely powerful space station run by tetrion emissions (don’t ask). The Caretaker is using his station to protect the helpless and peaceful Ocampa from the evil Kazons. Now he is dying and begs Janeway to destroy the station to keep it from falling into the hands of the Kazon, who will use it to destroy the Ocampa. Janeway agrees, even though the station has the power to send them home. The rest of the series is about their long journey home, how the Star Fleet officers and illegal resistance learn to get along, the adventures they have alone in a strange and hostile region, and the moral compromises they are forced to make along the way.

Conspiracy centers around Seven of Nine (don’t ask) a Borg. Borg is short for cyborg and refers to creatures who are a combination of machine and organic life form. Most relevant to our story here, Borg have computer parts implanted into their cerebral cortex, and instead of sleeping, they plug into a regeneration pod. Seven decides while she regenerates to plug her cortical implants into the ship’s computer and upload data which she can process much more efficiently than the whole crew combined. At first it works. Assembling seemingly random and unrelated bits of data, she figures out that censor malfunctions are cause by an infestation of “photovoltaic fleas” (don’t ask) that arrived with a food shipment. When a strange being has developed a slingshot device that will allow space ships to travel at accelerated speeds but says it is too dangerous for them to see, Seven combines assorted date to recognize it as tetrion powered.

But then her deductive leaps start getting out of hand. Replaying the destruction of the Caretaker’s station, she recognizes that the explosion was so powerful as to tear a whole in subspace (don’t ask) that the tetrion emitter disappeared into. She suspects a cloaked ship with a tractor beam pushed it in. From there she suspects a series of ships transported it here. She then begins weaving increasingly elaborate conspiracy theories, all based on real events from previous episodes. One theory, which she relays to Captain Janeway, is an elaborate resistance plot. Another, which she relays to the resistance first officer, is a Star Fleet plot to invade and colonize the sector. She has compelling evidence for all her conspiracies, constructed out of genuinely odd loose ends from previous episodes and some of the disturbing moral compromises they have made along the way. Soon Star Fleet and resistance are sneaking around, armed and distrustful, suspecting the worst in each other and a general wave a paranoia sweeps over Voyager. Eventually they recognize what is happening and realize that Seven has been downloading more data into her circuits than she can process and that her growing paranoia is a desperate attempt to make sense of it all.

I liked this episode on several levels. One came from a psychiatrist in one of our cases who explained that anyone bombarded with data he or she cannot process starts becoming suspicious and distrustful. At the most mundane level, it includes people with hearing loss (seeing people talking and laughing, wondering if they are talking and laughing about him), people hearing others speak a foreign language (same concerns), to say nothing of observing others whisper. Paranoia, he said, is just an inability to process data normally that lead to suspicion. If this is so, then the episode is essentially accurate in showing what paranoia is and how it works.

Another beauty of the episode is how well it debunks conspiracy theories – all conspiracy theories. Conspiracy theories are not true, clinical paranoia, of course, but the same phenomenon is at work. Confronted by a complex and confusing world with indigestible quantities of data, some people seek to make sense of it all by organizing it into a recognizable conspiracy. Given the quantity of data out there, they will almost always find evidence to support the theory. An obvious example are 9-11 conspiracy theorists. Reading through the voluminous compilation of eye witness accounts and initial, often confused, journalistic reports, they invariably find a few that will support their theories, especially when taken out of context. Indeed, one anti-9-11 conspiracy website showed how easy it is to comb through the mounds of data and find evidence to support any conspiracy theory. (They chose one blaming the Irish). Anyone who actually bothered to read through all the interviews and news reports (to say nothing of all the other evidence) would recognize how unrepresentative these sample are, how minor they are in the total scheme of things, and how they have been taken out of context. But very, very few people have either the time or the inclination to read through all that and are therefore unable to respond.

That is the beauty of Voyager Conspiracy, but also the reason it is only for the initiated. The vast, indigestible mound of data in this case is the Voyager series, all six seasons up to this point. True fans of the series are familiar with all the evidence and are therefore well equipped to see through the conspiracy theory. They recognize how Seven has taken a few unconnected incidents unrepresentative of the whole and pasted them together. They recognize the true context of these (sometimes troubling) incidents and how they have been distorted. They even recognize that there may be a few loose ends here and there that are never accounted for and mean nothing. And they know the characters and how out of character her accusations are. People who are not fans of the series may hear here evidence and think it is compelling without recognizing the larger context and the distortions.

Finally, the episode accurately shows another trait about paranoia (in the popular, not the clinical, sense). It is highly contagious. Seven nearly has the crew at each other's throats with her unfounded suspicions. Parallels from real life (I have experienced them myself) are all too common.

Margin Call

There has been a lot of commentary on the movie Margin Call, so I might as well add my two bits worth (and a new category called Arts and Entertainment).

A margin call is what happens when a company invests with borrowed money and finds its investments losing value. It has pledged to maintain a certain “margin,” meaning a certain ratio of its own money to borrowed money. When its investments lose value, lenders make a margin call, telling it to put up more of its own money. The company is forced to sell assets to meet the margin. If it has to sell its assets at fire sale prices and cannot raise enough money, it is toast. There are no margin calls in Margin Call, or even mention of a margin call, but it is presumably the fear of a margin call that leads the characters to do what they are doing.

An unnamed financial company in New York in 2008 is clearly in trouble from the very start. A major downsizing is underway, with the comment, “These are extraordinary times.” The senior risk manager on the floor is called away from his urgent research, offered their severance packet, and told all his access is cut off as of now, and their security guard will escort him out; we hope you understand you recognize this is not punitive. He says he is working on something important and can he finish it? The answer is no. Asking who is behind this, his higher-ups deny everyone, but hesitate at Sarah Robertson. Despite the security guard leaning over his shoulder, he manages to download his important research onto a USB key and hand it off to a young floor level analyst on the way out. Once out the door, he picks up his cell phone to call the analyst, only to find he has already been cut off.

All of this, of course, is a well-worn movie trope and raises the suspicion that he was fired because he Knew Too Much. The suspicion is strengthened when the young floor-level employee sticks around after everyone else leaves and discovers that the company has invested in a huge pile of crap (in the form of mortgage backed securities, although that gets relatively little emphasis) at extreme leverage. If it falls below a certain value, it will wipe out their entire assets several times over – and it already has several times, but no one has noticed so far. No one mentions margin calls, but if they get one, they are toast.

He calls his colleague and their superior (who speaks with a British accent) from their favorite strip club. They call in their boss (played by Kevin Spacey, who is older than when I last saw him). They take this to Robertson, the head of risk management who fired the senior risk manager who found this out. Robertson and her team then proceed to allay our suspicion that he was fired because he Knew Too Much by appearing to be surprised and caught off guard. They need some time to confirm, but it does, indeed, turn out to be true, so they call in the CEO, John Tuld (accent I can’t place), who arrives by helicopter. Tuld says he sees only one option – dump (or, as they say in the financial world, unwind) this load of crap* before anyone else figures out it is crap. Kevin Spacey objects. If they are only selling and not buying, how long can it be before everyone else figures out what is going on. And if they trick other companies into buying a load of crap, no one will ever trust them or do business with them again. But Tuld is firm, and Spacey yields.

All the higher-ups seem shocked by this development, and we are just about to conclude that the senior risk manager really wasn’t fired because he Knew Too Much. But as soon as Robertson and Tuld are alone, she says she warned him but he didn’t listen. The risk manager had been warning her for some time, so we get definite confirmation that he was, indeed, fired because he Knew Too Much. And Tuld tells Robertson someone has to get the ax for this, and she has been chosen.

The next morning, Spacey tells his floor traders, in effect, that he is asking them to destroy their careers forever for the sake of the company by dumping a load of crap on unsuspecting buyers who will never forgive them for it. He offers special bonuses if they succeed – they will need them, given that they are being asked to kill their careers. So they start making calls, pretending they are offering a great deal. The day goes buy and we see them sitting in front of their computer screens, watching returns go down and down as buyers figure out what is going on. Apparently all-out market panic looks a lot different than it used to. The senior risk manager is paid an outrageous bribe to sit in a closed room and not tell anyone. After the successful unload, Tuld comforts Spacey by telling him that crashes like this are normal and happen quite regularly.

The movie ends up feeling unsatisfactory for at least two reasons. One is that ultimately Man Who Knew Too Much movies don’t work so well on Wall Street. Traditionally the Man Who Knew Too Much and manages to hand it off to someone else usually turns up dead shortly afterward and the recipient is soon on the run for his life. By contrast, the worst Wall Street can do is threaten to withhold money. The effect is rather like what I had watching The Lives of Others, about the soul-destroying totalitarian regime of Communist East Germany. Except it was a soul-destroying totalitarian regime that no longer tortured or killed, and that only imprisoned if there was sufficient evidence of an actual crime. Granted, publishing embarrassing stories about the skyrocketing suicide rate was a crime that carried a prison sentence, but the usual threat to a dissenter was no more than a ruined career. And likewise money means a lot to people on Wall Street, especially if they have debts. We even fear for characters’ lives, though always at their own hand, and never with justification. And it can be telling that a threat to career or money can be as intimidating in the end as the threat of something more dire. But somehow it takes a lot of the dramatic tension out of a Man Who Knew Too Much movie to know that only money is at stake.**

The other unsatisfying thing about the movie was that it doesn’t correspond to any real event. Although the CEO is named for Lehman Brothers CEO Dick Fuld, the company can’t possibly be Lehman. After all the movie appears to end with the company dumping its load of crap and thereby dodging the bullet. Lehman famously did not dodge the bullet. More realistically, it might be equated to Goldman-Sachs, which did survive (and is much resented for it). Except the movie not only ends with the company dumping its crap first and surviving, it certainly implies that this was the catalyst that brought the whole house of cards crashing down. Except that neither Goldman Sachs nor any other finance company (so far as I know) survived by dumping its crap first. Nor was the catalyst that turned growing anxiety into all-out panic anyone unloading its toxic waste on everyone else. It was the failure of Lehman Brothers.

Granted, Margin Call is a work of fiction and is going to heavily fictionalize what happened. But fictionalizing characters and companies is one thing; fictionalizing events that brought down the system is quite another. In effect, the movie portraying as history events a mere three years old, events that still have major repercussions today. Presumably the audience has a fair idea what actually happened. This makes historical accuracy especially important. More than anything else, I left the movie uneasy because I could not place it in real time.
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*Tuld calls it "a bag of the most odorous excrement ever assembled in the history of capitalism."
**This is not to deny that you can make a good movie with lots of dramatic tension about Wall Street. You just have to find some other way to go about it.

Damning With Faint Praise

I will say this much for the parade of Republican front runners. I prefer Gingrich to Cain. I prefer Cain to Bachman. I prefer even Bachman to Donald Trump. So I guess the Republicans are trending in the right direction.

After a couple of hundred more that way, they might come up with a decent candidate.

What do Trump, Bachman, Cain and Gingrich Have in Common?

Aside from all being some-time Republican front runners, what do Donald Trump, Michelle Bachman, Herman Cain and Newt Gingrich all have in common? Answer: None of them has ever been governor of a state. Mitt Romney, by contrast, has been a state governor. So have other promising-looking Republicans who either went nowhere or decided not to even try -- Chris Christie, Haley Barbour, Mitch Pawlenty and Jon Huntsman. After fielding a set of candidates top-heavy with governors, Republicans just don't seem to like any of them. (Rick Perry is the anomaly, but I will get to that soon).

The reason is easy to see. Members of Congress are free to be as nutty as they want, confident that their colleagues will outvote them. CEO's have to run a company, but most of their decisions are non-ideological and irrelevant to national politics, which leaves them free to say whatever they want. Even Speakers of the House can get dangerous but ideologically pleasing legislation through, confident that either it will fail in the Senate or the President will veto it.

Governors do not have these options. Their options are essentially two.

The first is to take the business of governing seriously. This will make them popular in their states and therefore seem like likely candidates. But inevitably it will mean deviating from ideological purity and making concessions to reality, objective and political. This is unacceptable to the Republican base these days. Rick Perry is the anomaly, the one governor who did manage to be a front runner with the Republican base. But he joined the race late and flamed out almost at once, as soon as people started scrutinizing his record and finding out that he made the sort of ideological compromises that are inevitable in successful governing.

The second is to maintain rigid ideological purity, make no compromises and give no ground. This fires up the base for a while, but invariably it is a disasterous way to govern. And invariably governors who are unable to govern become unpopular fast. And unpopular governors just don't look like promising candidates, no matter how ideologically pure they are.

Trump, Bachman, (Perry) and Cain have all enjoyed a brief burst of popularity, only to burn out as they proved not fit for the job. Now it is Gingrich's turn in the sun. But fear not, my friends. If Gingrich flames out, that still leaves Rick Santorum. He's never been a governor either.

Cain and Foreign Policy

To be fair to Herman Cain, though, I don't think he is as clueless about foreign policy as some people do. Granted, saying that China is “developing” nuclear weapons would be clearly disqualifying if it meant he actually didn’t know China was a nuclear power. But given that Cain served as a Navy consultant, possibly specializing in Chinese military capacity, I am inclined to give him the benefit of the doubt and assume he misspoke.

Likewise, when asked if Pakistan was friend or foe, his much-maligned answer was basically correct – no one knows. Pakistan is playing a dangerous double game and we can only guess the outcome. Anyone who claims to have a simple answer whether Pakistan is friend or foe is a whole lot less qualified than someone who says it is impossible to tell.

Nor do I agree with people who mock his interview about Libya. Granted, it takes him some time to scan his memory banks, access the subject, and process an answer. But when he does, he makes three perfectly reasonable points: (1) Qaddafi was a really bad guy; (2) it does not logically follow that his successor will be any better; (3) we should therefore proceed with extreme caution before supporting the rebels against him. These are, after all, exactly the arguments opponents of invading Iraq made, and they were right. Cain is also on solid ground saying he can't answer whether he would have intervened if he were President because his decision would depend on intelligence about the rebels that he does not have access to.

Cain’s comments may sometimes lack polish, but they show significant nuance and awareness of subtlety. His real problem is that he is appealing to an audience that opposes nuance and subtelty on moral and religious grounds, and quite possible shares their views. So all nuance and subtelty must be eschewed in favor of an approach to foreign policy that would separate our friends (presumably Israel and everyone who toes Israel’s line) from our enemies (presumably everyone who ever disagrees with Israel) and to give absolute support to our friends and
absolute opposition to our enemies. Yet his answers on Pakistan and Libya sound very much like acknowledgements that the real world isn’t that simple.

If those answers sound a bit awkward, I suspect comes not just from lack of knowledge about foreign policy, but from wanting to impose a simple friend vs. foe framework on the real world and being constantly confronted with evidence that it isn’t that simple. In effect, a man who sees the world in black and white is attempting to process Technicolor and having difficulty. Depending on one's viewpoint, this could be disqualifying -- or it could mean that his foreign policy wouldn't be as bad as his opponents may fear.

More Things I Don't Understand About the Economy

In the recent past, why did pump prices keep rising, even as oil prices were falling?

And now, why do pump prices keep falling, even as oil prices are rising?

Will the Chief Executive of Godfather's Make a Good Chief Executive of the US?

I wanted to post about Herman Cain for some time, but the “R” key on my keyboard stopped working, and how can you write about HeRman without an “R”?

I have been wanting to post about Cain since he gave his response to allegations of sexual harassment. Cain said:

Our nation has very serious problems, particularly of an economic nature, and Barack Obama does not have the skill, knowledge or will to solve them.

I do.

Unfortunately, the media-driven process by which one must seek this opportunity is fundamentally unserious. I have touched on this before - the emphasis on "gaffes," gotcha questions and time devoted to trivial nonsense - and everyone knows the process only became further detached from relevance this week as the media published anonymous, ancient, vague personal allegations against me.

Once this kind of nonsense starts, the media's rules say you have to act in a certain way. I am well aware of these rules. And I refuse to play by them. . . . These rules stink. Can the process by which we pick the leader of our nation be any more absurd?
......

The nation needs its tax structure reformed, its spending brought under control, its debt reduced and its overall governing structure made far more responsive to the needs of the people. The nation needs many other problems addressed. If it's OK with the American people, I would like to address them.

In theory, this is well-spoken, even eloquent. Cain is certainly right to complain about our dysfunctional media and its fascination with the pettiest and most inconsequential aspects of the candidates at the expense of more serious, substantive issues.* He is also right to refuse to play that game. Not so certain is his claim that the sexual harassment allegations petty and inconsequential. This remark happened, after all, right after a woman accused Cain of reaching under her skirt and pulling her head into his lap. Still, let’s assume Cain’s point, that these are trivial allegations, much less important than the substantive questions of who has the answers to our problems. The statement ultimately only works if Cain really does have the answers. Color me unconvinced.

For starters, he doesn’t have a clue about foreign policy, and he’s proud of it. But at least Cain understands foreign policy is not his strong suit. Maybe he can find a really good Secretary of State (George Schultz, will you come out of retirement?) and delegate foreign policy to him (or her). What Cain does see has is area of expertise is the economy. He is confident that, as a businessman, he is better qualified to deal with the economy that any politician and that, by applying business principles to the government, he can turn the national economy around. Is he right about that?

I will touch only briefly on his 9-9-9 plan. It has been dissected enough in other places. First, the 9% corporate tax is on gross earnings, i.e., total revenue minus raw materials and does not allow businesses to deduct wages as an expense. This will make hiring much more expensive and tend to discourage it, exactly what we do not want under conditions of high unemployment. Second, its regressive nature will tend to depress consumer spending in lower income groups and, by extension, depress the economy. Passing such a regressive plan may also be more difficult than Cain thinks.

Besides making taxes simpler and more regressive, the other half of Cain's program is cutting spending. Cain likes to boast that turned around, first a troubled regional section of Burger King and later the entire company of Godfather's Pizza, and that he can therefore turn around the economy. One of the ways he did this was by cutting expenses and shutting down less profitable restaurants in the chain. By cutting off its weaker branches, he was able to restore the company as a whole to profitability. The implication is that he will do the same to government and, by extension, turn around the whole economy.

This is, after all, a fairly typical business mindset, but it doesn't translate so well to government. For one thing, although shutting down an unprofitable restaurant is painful and throws people out of work, it doesn't compare to shutting down large portions of government, which means eliminating important services. For another, businessmen sometimes forget that the object of government is not to make a profit, but to govern. But most of all, although businessmen are no doubt good with the micro aspects of economics, what works best at the micro level does not necessarily add up at the macro level, and businessmen often do not understand that.

A business has to maintain a positive cash flow or it will fail. A government is under no such obligation. People sometimes try to argue to a businessman that the same rules don't apply to a government as to a business because government can print its own money. But I don't think the problem is that businessmen don't understand that. I think they understand it very well. (Cain certainly does; he served on the Kansas City Federal Reserve Bank). The problem is not that businessmen don't understand that; it's that they are mad as hell about it. They don't want the government to have its own set of rules; they want government to be held to the same set of rules they are.

On the other hand, it may well be that businessmen don't understand the implications of the different rules that apply to government. When a business runs into economic trouble, its best survival strategy is often to downsize, as Cain did. But, of course, when all businesses are downsizing at the same time, the result is that the overall economy gets downsized. We call that a recession. Another is that government is so big that when it downsizes, the result is a downsizing of the whole economy. Perhaps some businessmen would say they know that; that's why they want to shrink to government to the size where it won't matter so much. The problem with that, of course, is the time to do that is when the private sector is expanding fast enough to make up for the shrinking government. When the private sector is doing the downsizing (or hasn't grown enough to make up for the last downsizing), the government can use its advantage in borrowing to offset the shrinking private sector and limit how much the overall economy shrinks.**

In short, I would expect a President Herman Cain to seek to respond to our economic problems the way CEO Cain responded to the problems at his restaurant chains -- to downsize and eliminate the less profitable operations in order to a restore a positive cash flow. I would expect him to assume that is the key to good macro-, as well as micro-, economic health. I would expect him and the country to learn the hard way that he was wrong.

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*To take a few examples from the last election: Is Hillary’s high-pitched laugh too grating? Do Obama’s bowling scores make him out of touch? McCain looks hideous against a green background!

** Some link I no longer remember quotes a small businessman who is mad as hell that the government doesn't have to cut back when he does. When asked what he thinks Obama can do to improve the economy, his answer is two words: "Cut spending." The columnist then points out how many of the business's orders are from government these days, and won't cutting spending mean less orders? The businessman admits he never thought of that. I am guessing Herman Cain's mindset is much the same.

An Analogy

Whenever I see conservatives expressing alarm over budget deficits and falling currencies and insisting that our first priority should be to balance the budget and maintain currency value, I keep thinking of an analogy.

Imagine (and I know it seems far-fetched, but imagine) a society that has our technology in microscopes and bloodwork but for some reason never developed the germ theory of disease. People in this society discover that when people are sick, their white blood count goes up. Furthermore, the sicker people are, the higher their white count. And one sure sign a sick person is getting well is the white count returns to normal. What would the obvious conclusion from all this be? Well, obviously, elevated white counts make people sick! Disease should be treated by lowering the white blood count to normal.

So doctors and scientists would develop all sort of medicines to suppress white blood cell production. The first thing they would learn was that it took more of it than they expected because attempts to suppress white blood cell production meet with resistance. And no doubt these medicines would have unpleasant or even dangerous side effects. But no matter, the important thing is to suppress those dangerous white blood cells that are making people sick. And ultimately they would succeed. With much trial and error, they would come up with a treatment that got people's white blood cells back down to normal, no matter how sick they were.

And then an awkward little fact would come up. People undergoing such treatment always seemed to get sicker. But this would be brushed aside as secondary. So what if they keep getting sicker, that just shows how sick they really were. The important thing is that we got the white count back to normal, the most essential ingredient of good health.

And then someone would come up with an even more awkward fact. People whose white cells get brought down to normal seem to die more often and take longer to get well than untreated people. That would be really awkward. But in the absence of a theory to explain it, it would be brushed aside as secondary and unimportant. Obviously white blood cells are what is making people sick. Why else would white count so perfectly correlate with severity of illness?

More charitably, I might make the comparison with fever. Fever really is unpleasant to experience, and if it goes to high, it can be as harmful as the underlying infection. But ultimately, moderate fever helps fight disease, and fighting it only delays recovery. Perhaps this is the better analogy.

But either way, the difference is that we have a theory to explain why rising deficits and falling exchange rates are not the problem, but an essentially therapeutic response to the underlying pathology. And we have plenty of evidence that countries that allow deficits to rise and exchange rates to fall do better than countries that fight these trends. Heck, we even have an ideology that can explain these things as proper self-correcting mechanisms of the free market.

So why the urge to fight economic illness with fever reduction and white cell suppression?

Should I Believe in SSA?

What is the matter with our economy? Keynesians say aggregate demand is insufficient and should be boosted by fiscal stimulus. Monetarists say monetary policy is too tight and we need an expansion. Debt deflationists say too much debt built up backed by inflated assets, and now that asset prices have fallen, we need to reduce debt as well. Austrians say easy credit led to bad investments that have to be shaken out, and that any attempt to soften the impact simply prolongs the pain. It is not necessary to choose between these theories; all may be seen as different ways of looking at the same thing. But they have another thing in common. All assume that the current economic downturn is not an isolated event -- the details of each crisis are unique of course, but all such crises follow the same general pattern and all have the same basic remedy. (This big disagreement is over what that remedy should be).

But there is another economic theory I learned in college, the radical economic theory of the Social Structure of Accumulation (SSA). The Social Structure of Accumulation is not specific technology, but a set of business organizations, labor relations, government regulations and services, banking structures and the like that form the social context in which technologies are used. This theory hold that industrial capitalism is inherently prone to crises, that such crises occur about once every 40 years, that each such crisis is unique, and the each such crisis means that the old SSA has worn out that that a new one must be adopted. It also holds that what goes wrong with each SSA is unique, and that any number of new SSA's are possible to replace the old one.

The class went on to describe such crises and their 40-year intervals. One took place during the bad depression of the 1890's. Another took place in the Great Depression of the 1930's. Another took place in the stagflation of the 1970's. In all cases, the economic crisis led to a political crisis and completing visions of what SSA should follow (the 1890's were the time of Williams Jennings Bryan, who was rejected; the 1930's saw serious Communist and fascist movements arise as possible alternatives) and one -- but not the only possible one -- wins out. Someone in the class, after hearing what causes each particular crisis, asked what caused such crises in general. The professor said, "Contradictions inherent in the system," not a very satisfactory answer. A better answer, I think, might be that just as the system outgrows old technologies, it outgrows old social forms. This no more proves the old social form was wrong than outgrowing a technology was wrong in its time. Its time has simply passed.

So, should I take this theory seriously? I will say this much for it; here we are, about 40 years out from the last crisis, and the next one has arrived right on schedule. If the theory of SSA is right, what matters is not whether we take a Keynesian, monetarist, debt deflation or Austrian approach; the important thing is what SSA we adopt.

And I will say this too, the Republicans have clearly taken the lead here. They propose that the problem with our economy is regulatory uncertainty, and that what we need to recover is a regulatory freeze, followed by massive rollback and huge tax cuts at the top. Less emphasized, they also appear to favor lower wages, less job-related benefits, much fewer government services, a more regressive tax system, and an economy and policy geared toward promoting the interests of the people at the top (job creators!) on the theory that what benefits them will benefit all. And what have Democrats offered as their alternative? Well, some expansion in access to health care and tighter banking regulations to prevent an recurrence, but otherwise not much. Occupy Wall Street clearly rejects the Republican view, but does not have much to offer as an alternative.

Whether SSA is valid makes a difference. Without it, people like me could take cold comfort in the though that even if the Republicans took power and implemented their apparent program of immediate, deep spending cuts, monetary tightening, and reducing the debt burden by stepping up foreclosures, the harm to the economy would cause equal harm to their political fortunes and thereby bring about a reversal. This would be so even if you believe (and I do) that Austrian squeezing out works, that once the economy hits its bottom, it will begin to recover. The Baltics and now Ireland are examples of successful bottoming-out and recovery, but the bottom has been painfully low and recovery can be painfully slow. Few countries have the patience for such things -- we certainly don't. But if the theory of SSA is true, then it doesn't matter. Any SSA, if successfully adopted, will work, including what the Republicans have to offer.

Just as I believe these different macroeconomic theories are best seen not as mutually exclusive explanations, but as different ways of looking at the same thing (even the the Austrian remedies are mutually exclusive from the others), perhaps standard macroeconomic theory and SSA can also be integrated. Paul Krugman has offered a possible answer by equating "structural reforms" in Greece with "microeconomic reforms." In other words, Keynesian, monetarist, debt deflation and Austrian theories of the business cycle are macroeconomics. The various business organizations, labor relations, government regulations and services, banking structures and the like that make up an SSA are microeconomics. The macro policies best suited to pulling an economy out of its immediate slump and the micro policies best suited to long-term growth are two separate issues. It is even possible for a single set of macro policies always to be the best for such a crisis* but micro policies to offer many alternatives, and to vary with unique circumstances. But this much is clear. Whoever offers the best short-term macroeconomic recovery in the short term will be best placed to bring about micro reforms over the long term. Time will tell.
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*By this I mean a single set of macro policies being best in the wake of all bursting of credit bubbles. Obviously an inflationary crisis, such as we had in the 1970's calls for entirely different policies.