Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

26 June 2013

The President’s Climate-Survival Speech: An Adult in a Marvel-Comix Culture


[For a recent post on our species’ practical and moral choice between heaven and hell, click here.]

President Obama’s climate-survival speech at Georgetown University Tuesday was notable in two respects. First and foremost was its timing. Why did he wait until five months into his second term to lay down a marker on the single issue that most gravely threatens the future of our entire species?

The answer has more to do with politics than science or sound policy, i.e., more to do with emotional than analytical intelligence. In that respect it was more like dealing with Kim Jong Un than governing a modern society of educated voters.

Ever since Rush Limbaugh declared making him fail official GOP policy—just a few microseconds after his first inauguration—the President has known, deep down, that his ability to govern would be limited. So, except for health-insurance reform, his first term was largely temporizing.

Sure, he tried to persuade, inform, educate and cajole. He tried reason and compromise.

But the opposition wasn’t having any. It had rightly lost the 2008 election after eight years of what may turn out to have been the most disastrous presidency in US history. Already it has given us two decade-long wars with little or nothing to show for them. But it didn’t want to accept the consequences of its catastrophic national leadership, or of its well-deserved loss. It has yet to acknowledge either in any meaningful way.

Children pass through two stages of mental development in which knowledge and acceptance of practical consequences take a back seat to the raw desire of their immature wills. The first is the “terrible twos.” In that phase, toddlers learn they can say “no.” They then exercise that prerogative with all the enthusiasm of their immaturity.

The second is the teenage years, in which individualistic Americans rebel against their parents’ guidance and forsake it, preferring to go their own way regardless of consequences. Later, at some time in their early to mid-twenties, their parents magically get much smarter, and they rejoin the human race’s collective consciousness, mature judgment, and appreciation of consequences.

It’s hard to know whether our Yankee culture has been going through its terrible twos or its teenage years. But it’s crystal clear that our national culture, at least on the GOP side, has been going through some phase in which practical consequences take a distant back seat to pure ideological will and self-love.

Dubya bespoke the credo of this misguided era, quite inadvertently, when he said, “We make our own reality.” Isn’t that what just what two-year-olds and American teenagers try do do?

You don’t even have to study our politics to recognize the pathology of this current phase of our national culture. Just look at our movies—our culture’s most globally famous (and expensive!) expression.

In our early postwar years, our best movies were deep studies of the human dilemma and the consequences of individual human choices. Casablanca probed the timeless themes of love, loss, loyalty, real patriotism, self-sacrifice and (in the end) friendship against the background of the recently concluded great war.

High Noon told of individual risk, courage and self-sacrifice in bringing law and justice to a lawless world, the semi-mythical Old West. But it was even more notable for its technical realism. It depicted the legendary Colt 45 for what it was (and is): a weapon powerful enough not only to make you jump with its mere retort, but strong enough to blow out your guts or brains and knock you off your feet with a single shot.

The apex of postwar film-making was The Defiant Ones. Using the brilliant metaphor of a leg chain, this film explored the practical consequences of dragging people of a different race here in chains as slaves, from halfway around the world, and then (inevitably) having to support their drive for freedom and nurture their descendants’ social evolution into citizens, voters and free workers.

I have already written a whole post on this great film. Here I will write only how hard it is to imagine Barack Obama as President, or the struggle, life and posthumous success of Martin Luther King, Jr., without that film.

Culture matters. It trumps law, easily, every time. It trumps science even more easily. That much the extreme anti-science phase through which or culture is now passing shows brilliantly.

Only culture can save us. Or it can destroy us. That’s why movies matter. And that’s what the great writers, producers, and directors of our golden age of film well understood.

The best of that era were immigrants or sons of immigrants from war-torn Europe. They loved America, which had offered them refuge from a dark fate, including the Holocaust. So they promoted our best values, including a practical understanding of consequences and a willingness to accept them—something that we Yanks used to call “individual responsibility.”

In different ways, the three great films I’ve mentioned were all variations on that theme. They taught, quite self-consciously, what it means (or once meant) to be American.

How different are our movies today! Now money men control their themes, not artists with human consciences. These self-appointed cultural-gurus-for-profit apparently have concluded that money lies in grand spectacle, the modern equivalent of ancient Roman bread and circuses.

And so our grandest spectacles come from Marvel Comics. They have casts of thousands, with endless credits to match. But the named individuals are neither actors nor musicians, let alone writers. They are computer graphics artists. Producers and directors are middle managers whose primary goal is profit. Writers are mere hired hands, who work from comic books intended for prepubescent readers. The moral message, if any, gets lost in the graphics of exploding planets. No one ever asks why.

Yet there is in fact a moral message, albeit subliminal. It is utterly clear, utterly consistent and utterly un-American. Individuals are powerless. You cannot even make a dent in human affairs, let alone rampant evil, unless you are a superhero like Spiderman, Batman or Superman. So why even try?

If you think I exaggerate, consider the pseudo-normal heroes: Jason Bourne, Bruce Willis in his “die hard” series, or the youthful Captain Kirk in the recent hit Out of Darkness. Each of these heroes succeeds by virtue of uncommon (and hugely expensive) training, abnormal ability to withstand the physical consequences of things that would maim or kill most people, and sheer dumb luck.

The subliminal message: don’t try to change things unless you are very special, willing to risk death or serious injury several times a minute, and inordinately lucky. In other words, if you were born an ordinary Yank, accept what you are given and just be thankful you weren’t born in Syria.

I can’t imagine any message—even a subliminal one—more at odds with the America I grew up in during the 50s, 60s and 70s, or the America that our Greatest Generation defended with untold hardship and suffering. Our chief (and most expensive) cultural art form has abandoned moral leadership and is going for the crowd and big bucks, heedless of moral, social and historical consequences.

In so doing, it teaches a lesson of fatalism and passivity that has never been part of American culture, except in the South. Maybe that’s why Southern culture has survived so long after the Civil War’s loss and now has even captured the House.

This moral abdication brings us to the second notable theme of the President’s speech Tuesday: acceptance of consequences in the real world. Although he didn’t use the term, the second part of his speech was all about “climate survival.”

Like every scientist worthy of the name, the President understands that global warming is already baked in. We now have more carbon dioxide in our atmosphere than our planet has seen in three million years. We got to that high level by burning fossil fuels. There is no credible alternative source that genuine science can see.

So we cannot even think of stopping, let alone reversing, global warming. The warming effect of carbon dioxide as a “greenhouse gas” has been known since our Civil War. For all the time since, it had been uncontroversial, until the GOP and coal-industry propagandists started acting like two-year-olds, denying reality and pretending not to understand.

Every hour of every day, all that carbon dioxide in our atmosphere traps more of the sun’s electromagnetic energy as heat. And it takes decades or centuries for plants, the oceans and land to net absorb it, or for cosmic rays or other extreme radiation to break carbon dioxide down. Now all we can think about, realistically, is slowing the rate of acceleration of global warming and preparing for its worst consequences.

And so the last part of the President’s speech was about climate survival. Not climate-change mitigation; we just don’t know how to do that. The subject was climate-change survival: trying to arrange our human society to avoid the worst effects of climate change. We need to build infrastructure defenses against events like Katrina, Sandy, droughts, torrential rainfalls and hail that destroy crops rather than nourishing them, and freak weather events like the dust storms in Eastern Australia, the deep powder snow in Manhattan and the crippling heat wave and smog near Moscow, and now in Singapore.

As I read the President’s speech, my mind went back to a recent personal vignette. Last week, I found myself trying to explain to a close friend’s three-year-old daughter why she had to hold my hand while walking through the huge parking lot at Disney World.

As enormous vans and other cars prowled the parking lot, it wasn’t hard to get her to see how big and powerful they are and how they could easily main or kill her. But she got hung up on the notion of intent, and she started to cry.

Why, she cried, would anyone want to kill a sweet little girl like her? The notion that she (by dancing out into a vehicle lane) and a strange driver (distracted by a cell phone or his own daughter) could do things collectively—totally devoid of malice—that would lead to her injury or death was a conceptual bridge too far, even for a bright and precocious three-year-old.

So I tried, as best I could, to explain that bad things happen without evil intent. If she had been older, I would have described how our bankers didn’t want to destroy the global economy but did so nevertheless.

Unfortunately, negligence and its consequences are hard to explain to law students, let alone three-year-olds. So I was left with a project for future lessons and a talk with her father.

On Tuesday, it touched me deeply to see the President trying to do the same thing for a whole nation of three-year-olds. I admired his choice of words, the simplicity of his speech, and his marshaling all the relevant concepts in terms that folks with a (dimly remembered) junior-high-school education could ken.

But at the same time, I felt a a weird flush of vicarious national self-pity, plus a touch of shame. How could the nation that had invented controlled flight and nuclear weapons, extinguished smallpox and polio, developed the Internet and given it to the world, and put men on the Moon have fallen—in a mere two generations—to the emotional level of the terrible twos?

The President’s climate-survival strategy from here on out is as clear as his speech. He must, and he will, use all the power of his office and its bully pulpit, and all his considerable political skill, to make irreversible changes in national policy before 2015, when the next pathological presidential campaign will begin. And he must bring our nation, however wrenchingly, back from the terrible twos or the testosterone-fueled teens into full adulthood, so that we can lead the world in this, our species’ greatest challenge in history (save only nuclear near-self-extinction).

It would be nice if our movie makers and other constructors of national culture could give him some help and some cover. Myth-making has been big business since ancient Greece and Rome. But even pursuing the almighty dollar hardly precludes making myths that promote adulthood, rather than infantilization.

We need movies (like The Defiant Ones on race) that teach climate survival and accepting personal responsibility for consequences of our actions (including burning fossil fuels) as adults. A comic-book culture of terrible twos or irresponsible teens is not going to lead the world in anything anytime soon, no matter how often we chant “USA! USA! USA!”

The President is in no way responsible for that culture. His own personal character and his consistent political persona have done ceaseless battle with it. But he must work within it and help fix it, if doing so takes a new keynote speech every two weeks for the next four years. “National parent” has not been a traditional part of the presidency’s job description, but that’s what the job now requires.

Footnote: It’s unclear whether this stage of teenage mental development is a universal human phenomenon or a product of our peculiarly individualistic Yankee culture. Our extreme individualism encourages youth to “express themselves” even when they know absolutely nothing—a phenomenon you can observe in great profusion on the comment pages of any online newspaper.

Other, more collective cultures more respectful of adults, like China’s and Japan’s, seem lack this distinct phase of child mental development. At very least, the question is worthy of further research.

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22 June 2013

Alsace, Avatar of Peace and Joy


Introduction
Alsace’s Importance
Alsace’s History
Alsace’s Beauty
Strasbourg’s Beauty and Significance
Conclusion

Introduction

Alsace (“Elsass” in German) is a wine-growing region in the southeast of France. Although today she is a French region, her spirit and culture partake of Germany and extend into Germany. In this sense, she straddles the Rhine river and includes the foothills of the local mountains. Her regional “capital” is Strasbourg—a transcendently beautiful small city, with a center permanently marked by geography: the encircling two branches of the River Il.

But this post is not a travelogue, except perhaps incidentally. It’s another post in my series on human morality. For Alsace and its “capital” Strasbourg are living incarnations of what a wise and effective moral understanding can bring.

Alsace’s Importance

Readers of this blog know my distrust for abstractions. I am no stranger to them. My three careers—physicist/geophysicist, lawyer and law professor—all required them in great profusion.

But abstractions can be slippery and devious, especially in the hands of politicians. Leaders can twist them into the most awful skulduggery. Adolf Hitler did that with two admirable traits of German culture: industry and thrift. He twisted them into a theory of racial superiority and domination that led to the Holocaust and history’s most horrible war.

Stalin did much the same with Communism. It’s a silly and counterfactual economic theory, but it was well-intentioned. It tried to bring a cooperative, communal spirit to economic activity, to reduce the exploitation and suffering of ordinary people that often arise out of unregulated capitalism. Stalin twisted that well-meaning but naïve aspiration into a kleptocracy and collective tyranny that displaced and oppressed minorities, starved and slaughtered millions, left Mother Russia nearly defenseless against Nazi hordes, and built the gulags.

We Yanks are not immune. Fox and our Tea Party have perverted one of the same virtues that Hitler twisted: thrift. This time, the perversion is an excuse for destroying government and the protection that government gives ordinary people from unregulated capitalism and economic misfortune. Some of our right-wing rank-and-file now go so far as to condemn protecting our very air and water from pollution and our workers and workplaces from unnecessary and uneconomic dangers. (The owner of that un-inspected fertilizer plant that recently blew up in Texas probably was nearly as unhappy as the families of the first responders who died trying to save it.)

So, yes, although well versed in abstract thought, I distrust abstractions. Solipsistic abstract thinking too often leads us astray.

I much prefer concrete things that you can see, hear, feel, taste and touch. That’s why I promote a morality based on consequences—cause and effect—not abstract, a priori reasoning like the ancient Greeks’.

Alsace is a concrete place. She must be seen, heard and touched to know her, let alone to appreciate her. You can even taste her, in her multicultural food and wine. Being there and experiencing Alsace—especially knowing her tortured history—is something no one ever mistakes or forgets. For Alsace is no abstraction.

Alsace’s History

Like any notable region of Europe, Alsace has far more history than any non-specialist like me can ever know or explain. But for purposes of this post, a brief outline is sufficient.

Alsace is one of those many regions whose geography is destiny. Her warm climate and lowlands are ideal for growing grapes for wine and speciality foods like asparagus. She straddles the Rhine, one of Europe’s great nautical highways. So she proved a perfect place for residents to get rich by growing things, trading, and transporting their own and others’ products.

They did so, shipping food, wine, and imported goods all over Europe, to as far away as Scandinavia. Strasbourg’s old customs house, now a restaurant-shopping complex, is still one of its most distinctive buildings.

Already by the Middle Ages, Alsace had gotten rich from wine-making, trade and transport. Strasbourg’s quaintest and most attractive buildings date from that era. Their facade vaguely resembles Britain’s Tudor architecture, with angular brown beams protruding through plaster. But the plaster has various colors, instead of just monotonous white.

Alsace has no great mines or factories. Apart from wine-making and agriculture, she is not a center of industry, let alone war production. She has no natural defenses but her rivers, notably the Rhine and Il. But Alsace was and is a commercial prize.

So Alsace became a bit like Helen of Troy. Her beauty and charm offered great attraction but little defense. She therefore ended up being fought over by conquering armies.

I will not recite, nor do I know, all the many times that Strasbourg and/or Alsace changed hands during their formative years, as Europe evolved from a collection of medieval city-states into modern nations and now the EU. But I can note that they changed hands four times in just the last century and half: first (to Germany) as a result of the Franco-Prussian war, second (back to France) as a result of World War I, third (back to Germany) as Nazis occupied France entirely, and finally (back to France) a few years later at the great war’s end.

Fortunately, Alsace is not really a woman like Helen of Troy. Helen changed hands only twice. If Alsace were a woman, she would hardly know where her children and loyalties lie.

Alsace’s transcendent importance lies not in her tortured history. There are many unfortunate places on Earth that can match it. Her importance lies in the stark contrast between that history and what she has become today. Quietly and without fuss, the entire region, and especially her capital,” Strasbourg, have become a major multilingual, multicultural center, a global tourist attraction, and a second seat of government for the European Union.

Alsace’s Beauty

In order to see how far Alsace has come from her tortured past, you have to visit her. The best way to do so is to tour the wine country and its quaint villages by bicycle.

If you do, you will at times find yourself on paved winery roads barely wide enough for one car. Ruined castles of medieval feudal lords will adorn the foothills to your right. Rows of grape vines will appear on your left, under the warm French sun, beaming down from a clear blue sky. (France, which gets over three-quarters of its electricity from nuclear plants, not coal, has the cleanest skies in Europe.)

While on the narrow wine roads, you will encounter maybe one car or truck every half hour. The driver will be a local resident or worker. He or she will try hard to stay out of your way on the narrow road, and you will likely see a wave and smile. Alsatians are a friendly lot, justly proud of their beautiful home and conscious of the importance of tourism in their economy.

You will find different delights in Alsace’s tiny villages. There you will see well-maintained chalets, manor houses, gates, churches, and commercial buildings, each attractive, quaint and subtly different from the rest. There were no tract homes or cookie-cutter “developers” when they were built.

As you ride, you will never be more than thirty minutes’ peddling from superb local food and wine. You will delight in the tiny village cafes, with their sidewalk tables, friendly, multilingual staff, and both German and French wines, red and white. If you like, you can follow a dish of coq au vin with the special Alsatian version of German sauerkraut, famous throughout Europe. In springtime, you can add a dish of equally famous new asparagus, white or green. After tasting it, you will never eat canned asparagus again.

But this post is not a travelogue. I mention these things of beauty and joy only to give a concrete flavor of Alsace’s role as avatar. Now it’s now time to move on to Alsace’s center, Strasbourg.

Strasbourg’s Beauty and Significance

Whether you tour by bicycle, car or tour bus, your trip will start or end in Strasbourg. It’s a unique city, justly famous for far more than beauty, food and wine.

The first thing you will not about Strasbourg is its defining geographic feature, the River Il. It’s two branches surround and define the city center, an oblong island.

Modern development has come both inside and outside the center. But Strasburgers have taken extraordinary effort to preserve their historical heritage, especially inside. So entering Strasbourg is a bit like traveling back in time to the Middle Ages, but with modern plumbing, toilets and electricity and (if needed) medical care.

The heart of Strasbourg is its medieval gothic cathedral, refurbished just in the last decade. Its pink sandstone appears iridescent in the light of the afternoon or evening sun. To a non-specialist like me, it looks much like the Cathedral at Rouen, which Claude Monet made famous by painting at different times of the day in different seasons. Strasbourg’s cathedral is smaller, but equally glorious and far less crowded. To have lunch or dinner at one of the sidewalk cafes in its sight is to restore one’s faith in God and Man.

But Strasbourg is not just a pretty face. It has its serious side, too. It’s an administrative center of the European Union, second only to Brussels. The European Court of Human Rights is there, just a short bicycle ride up the River Il from the center. So is the official seat of the European Parliament, plus other administrative centers (although today the Parliament conducts most business in Brussels).

Rest your bicycle on the magnificent lawn in front of the Parliament building. Watch the colorful flags of the EU’s various members flapping in a spring breeze, against an azure sky. All of a sudden, you can believe our species has a future.

There is also a great university. Now called the Université de Strasbourg, it’s a merger of three formerly separate universities on the same physical campus. Former French President Nicholas Sarkozy ordered the merger in an attempt to create ten universities in France that could achieve global prominence. Strasbourg’s university is one of them.

But the most striking thing about Strasbourg is something you can’t see. It’s something you must hear and feel. You may have to spend several days just to believe it, let alone appreciate it. Strasbourg is a truly international city, not just in visitors, but in culture, language(s), cuisine and character.

Most of Strasbourg’s educated people, who are many, speak French and German fluently. Nearly all speak passable English, although a bit less fluently. Even the cafe and tavern staff speak enough English to make a Yank without a relevant second language comfortable. And of course the menus are all trilingual.

Strasbourg’s deeper significance doesn’t appear fully until you enter or leave, coming from or going toward a flight at Germany’s Frankfurt am Main, with the closest major airport. Going toward Frankfurt, you will board a train in Strasbourg and, in minutes, cross the Rhine.

The train will not stop. There will be no fences or barriers, no border guards, no customs inspection, no showing of passports. You will pass over the banks of a river in which countless soldiers fell, over two millennia, attacking or defending. And you won’t even notice. The great flow of water will whip by like a creek. It won’t even seem like the mighty river that once formed the borders of warring empires.

It’s sobering and exhilarating to contemplate this long history of blood, toil, tears and sweat as you ride along in complete comfort, sipping a glass of fine Alsatian wine.

But it’s finer still to understand the significance of Strasbourg and Alsace. Under the EU’s collective government, Europeans and foreigners alike can travel over once disputed borders to partake of the region’s delights. They can come for the day—or even an afternoon—without even taking their passports. They can enjoy a city and region of transcendent beauty and taste, speaking in any one of the three most-used European languages.

In a way, it’s as if they never left home. But, in a way, Strasbourg is their home. It’s like what Mother Earth may be some day, all over, if our species plays its moral cards right.

Right now, the EU, not the US, is the last best hope of Mankind. Every day, quietly, unnoticed, people with different native languages and wildly different cultures get along famously there. They see nothing remarkable in their doing so.

In contrast, we Yanks, who used to be businesslike, scientific and competent, can’t even maintain a civil polity or a viable political system that can act. And all because a powerful private company, Fox, has instilled in weak minds the type of virulent scriptural fundamentalism in political ideology that used to cause pointless wars for religion.

Maybe you have to see the EU from a distance to understand just how marvelous it is. Europeans seem to take it for granted, less than 70 years after history’s most terrible conflict devastated large swatches of their common homeland.

Over the ages, Strasbourg changed hands often, in blood and war. Today it is a true avatar of peace and joy. It teaches a vital lesson in our world of strife. It matters not whose tribe “owns” a place. “Ownership” is just another deadly abstraction. What matters is how well it is managed, and how open it is to all.

Conclusion

If I had my way as an educator, I would require every budding pol worldwide to visit two places before beginning his or her career. I would require these visits during the formative years, preferably no later than the late teens or early twenties.

The two places would be Hiroshima’s Peace Museum, and Alsace, including Strasbourg.

The visits would be free of charge, fully paid for, by corporate donors or government subsidy—a mandatory part of all pols’ early education. The pols would each spend one week in Hiroshima, with at least three days at the Peace Museum, two guided and one for sober, solitary contemplation. Then they would spend at least ten days in Alsace, in springtime, with several days in Strasbourg. The visits would be in that order, from darkness to light.

I have already written about the transcendent importance of Hiroshima’s Peace Museum, and I won’t repeat that discussion here. Suffice it to say that the Museum chronicles the tragedy of that city’s nuclear destruction in a way that leaves an indelible stain on one’s soul.

Eventually, Hiroshima recovered. Today it’s a thriving and bustling small city. It has charms of its own, including the Hondo-ri covered outdoor street market, a special, regional version of okonomiyaki, aka “Japanese pizza,” and a relatively warm climate for Honshu. Its modern city logo is a stylized Phoenix. But its Peace Museum shows us, as nothing besides terrible experience can, the radioactive darkness that will engulf us if we cannot get along in the nuclear age.

Alsace and Strasbourg show the other side of the coin of human nature. In springtime, they are as near to Heaven as you can get on this Earth.

The difference is simple but profound. Peace or war. Thriving plenty or devastation. Trust or suspicion and hate. Cooperation or conflict. Understanding and appreciation of others’ languages and cultures, or tribalism. Tasting strangers’ food and wine or spilling strangers’ blood.

Heaven or Hell. We have the power to create either, right here on this Earth, in this life. We don’t have to wait for death. If we choose wrongly, a horrible and early death may come to us unbidden.

Maybe if the next generation of Iranian, Israeli and Palestinian leaders took my two-point trip before their world views hardened into stone, they would make the right moral and practical choices. Ditto the Sunni and Shiite Muslims.

The choices are ours, as a species. All we need to do is adopt a practical morality of real life and consequences—cause and effect. To do that, we must forsake malleable abstractions, the primitive violence in ancient scripture, bumper-sticker political ideologies, and tribalism. We must see, feel, hear and touch the different worlds that different moral choices produce.

Is that so hard to do? Visit the Peace Museum and Alsace, and feel the difference for yourself.

Footnote 1: In this post, I follow the French language in treating Alsace as feminine, for reasons that will become apparent.

Footnote 2: In 2003, the Chinese came out with a thing called the “Shanghai Report,” which ranked universities globally on a scale of six objective factors. It was (and still is) something like our US News and World Report rankings, but global. The French were horrified that only two French universities, both branches of the University of Paris, ranked in the top 100, at places 65 and 72. Their flagship university, the Sorbonne, did not even make the top 100.

So Sarkozy, who was a rare “can do” president of France, decided to do something. He created a program to merge and consolidate existing French universities into ten new “flagships,” which could represent France better in the coming age of global competition. I learned of this effort while lecturing, in two consecutive springtmes, at the intellectual property institute of the Université de Robert Schuman, which was one of three administratively separate universities then oddly operating on the same physical campus in Strasbourg.

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09 June 2013

Financial Stampedes: Positive Feedback inside the “Invisible Hand”


Introduction
Why the “bubble” is a bad analogy
Fear-induced financial stampedes
Greed-induced financial stampedes
Stopping the greed stampede
Today’s interest-rate stampede
Conclusion

Introduction

Not quite three months ago this blog published a post explaining positive feedback in global warming. Because positive feedback is non-linear, it can act far more quickly than anyone expects. It could cause a climate catastrophe that, in the best case, could devastate our global economy. In the worst case, it could devastate our global civilization, in which the vast hordes of humanity are just now pulling themselves out of poverty.

Positive feedback is something that only systems engineers understand well. Why? Because it takes engineering math to get a precise handle on it. Its near-instantaneous spasms are counterintuitive. The only way to understand them, let alone predict them, is with non-linear math.

Systems engineers go to great lengths to avoid positive feedback. Instead, they design negative feedback into their systems to keep them stable. (As a scientist/engineer, I once designed such a system to keep the temperature of a small experimental apparatus constant within 10 microdegrees Centigrade, or 0.000010 ˚C).

To help non-specialists get their minds around positive feedback, my global-warming post offered three examples from everyday life. The first was amplifier screech, in which small sounds get amplified and fed back into a nearby microphone. The second was my own, personal learning-to-drive experience, in which my body’s forward inertia, sans seat belt, caused me to stomp even harder on the brakes than I had intended, producing a panic stop.

But the third example presaged the subject of this essay: positive feedback in finance. The so-called “Flash Crash” of May 2010 was the example. Multiple computer algorithms for stock trading, kept secret from each other but connected together an an automated trading system, had each been designed to beat the others to the trading punch. So a small erroneous order caused a major cascade of positive feedback. It was just like a small sound that gets amplified, fed back into the amplifier, and re-amplified again, to produce an ear-splitting amplifier screech.

The result? A precipitous “market” drop [search for “flash crash”], in which the Dow lost 1,000 points and stocks like Apple’s dropped 90%, in less than an hour. I put the word “market” in quotes because there was no active human intelligence behind the Flash Crash. It was a case of automated electronic systems badly programmed to permit, if not encourage, positive feedback.

The Flash Crash of 2010 is far from the only example of positive feedback in finance. In fact, most financial crashes in human history are examples. They include the Crash of 1929 that triggered the Great Depression and the Crash of 2008, which started our recent Great Recession. So, I think, is the precipitous rise in mortgage interest rates from around 2.5% to nearly 4% in just the last two weeks.

You can call it “mob psychology.” Or you can call it positive feedback in financial systems involving people. But in either case the result is the same. Small market fluctuations—or mere perceptions or expectations—cause the system to go unstable because human nature, namely, greed and fear, magnify and remagnify them, just like sound passing through a speaker and back into a microphone. The result is nonlinear and sudden—an unexpected spasm.

Why the “bubble” is a bad analogy

Today the most popular metaphor for financial crashes is a bursting bubble. But that’s a poor analogy. A bursting bubble is a well-understood phenomenon, at least in physics. When the pressure inside overcomes the surface tension of the liquid, the bubble bursts.

The molecules of liquid have some random motion, in accordance with the laws of thermodynamics. So predicting precisely where and how the bubble will burst is a bit of a challenge. But if you can measure the pressure inside it and know precisely the composition of the surface, you can predict precisely when the bubble will burst with relative ease.

Not so financial crashes. The hardest thing to predict is when they occur. If any of us could do that, he or she would be obscenely rich. If our regulators could, we might make a dent in the so-far-infinite series of financial panics and crashes that have plagued modern economies since the Dutch tulip craze of the seventeenth century. So far, no such luck.

In fact, financial crashes have much more in common with stampedes. When people begin to smell smoke in a crowded theater, they all react at different rates. Some think, “It’s just some bastard breaking the rules and lighting up.” The more high-strung ones say to themselves, “I’ve got to get out of here!” As more and more people notice the smell of smoke and react to it, human communication—both verbal and nonverbal—accelerates the perception of danger.

The result is a stampede to the exits. That kind of stampede can trample people to death. It can do so even if the exits and time are adequate for escape, and even if the fire turns out to be easily controlled and hardly dangerous in retrospect.

The key phenomena here are perception and communication. Reality takes a back seat. The fire may not be a real danger: the smoldering curtain may actually be fireproof and in the process of self-extinguishing. But the smoke and small flames can motivate a deadly stampede nevertheless.

Like those caused by fire in crowded spaces, financial stampedes are collective phenomena. And lest we aggrandize our own species unjustly yet again, I should note that animals have them, too. The reaction of horses or cows trapped in a burning barn is much the same as ours. They seem to survive stampedes better than we—whether because they are more durable or more intelligent science has yet to say.

Our stampedes do differ from animals’ in one important respect. We have much greater imagination. So much more than reality can influence our perceptions and expectations, which can lead to stampedes. Ideology can be a powerful goad for stampedes, especially today.

Fear-induced financial stampedes

Now that we have a better analogy than a “bubble,” we can apply it to real financial panics. As we will see, they fit the fire-in-crowded-theater model quite well.

a. Runs on banks. Our first example is runs on banks. They don’t happen much anymore because federal deposit insurance removes the perception of danger. But runs on banks were a major cause of the Great Depression.

A few banks failed, and depositors began lining up (literally) outside banks to withdraw their money. Some lined up outside shaky banks. Some lined up outside sound banks. The state of the banks’ actual financial health didn’t much matter.

Depositors all knew a basic fact of life: banks don’t keep your deposited money in a vault somewhere. They lend it out, keeping only a small fraction as “capital reserves,” as required by regulators. Knowing this made depositors ever more anxious. If their bank failed, its reserves might suffice only to return the capital of just the first few claimants. So you had to be early in line, just like the theater goers escaping a fire.

b. The Crash of 1929. The Crash of 1929, which triggered the Great Depression, was depressingly similar. There the cause was buying stock on margin.

“Margin” is just a financial term for buying stock with borrowed money. If you think a stock will rise, you can borrow money (usually from your broker) to buy it and sell it later at a leveraged profit.

But if it goes down, your lending broker won’t want to take the risk. So as your stock goes down, she will ask you to pledge additional collateral: money or other stock to cover the shortfall. When you can no longer provide additional collateral, the broker will sell the margined stock and all your additional collateral to reduce her lender’s risk and/or losses. If the stock falls far enough and fast enough, you may lose everything and still be liable for the balance on the loan.

It doesn’t take much imagination to see how a system like that can produce positive fear feedback and trigger a stampede. A few people start to sell. The market goes down. The “first responders” sell their leveraged stock, too, in order to cut their losses. If they are quick and lucky, they might still retain some of the capital they put up to get the margin loan and buy leveraged stock. (They would be like the early withdrawing depositors, who tap into the failing bank’s reserves.)

But once they sell, the stock drops further. Other margin players see their stake and their capital evaporating, so they sell out in an increasing panic. You then have a true crash.

That’s precisely what happened in October 1929. The result was the worst stock-market crash in history, an unprecedented and never-repeated (yet!) stampede toward the bottom.

In this case, there was little the government could have done. As is usually the case in financial panics caused by positive feedback, the whole thing happened far too fast for government action, let alone in today’s gridlock.

More important, the government could hardly have guaranteed investors against their margin losses, even in theory. To do so would only have encouraged more gambling and speculation. It’s one thing to guarantee depositors getting their own money back. It’s quite another to guarantee that speculators (aka gamblers) will win, or at least not lose.

So the “fix” for 1929 could only come after the fact. Today we have strict limits on margin that brokers can offer or investors accept. We limit the risk by limiting the leverage.

c. The Great Recession. Today everyone knows the trigger for the Great Recession, from which we are just now slowly emerging. It was the Crash of 2008, in which highly leveraged financial professionals stopped trusting each other and the financial system. The whole system nearly froze, depriving real businesses and ordinary people of credit and liquidity for their day-to-day needs. Credit is so vital a medium of exchange today that it was almost as if money itself had become worthless overnight. Hence the extraordinary bailout, still ongoing.

What set up this awful house of cards was a case of positive feedback of another sort, which we’ll get to later. But what brought it down was a fear-induced financial stampede, pure and simple. The only thing notable about it was that the stampede occurred among the professionals, who should know better, rather than among the rubes like the depositors lining up outside their banks in the early 1930s.

The mechanism was easy to state. Banks and mortgage brokers had made innumerable worthless “liars’ loans.” They knew or should have known that the loans were worthless because they massively violated their own credit standards in making them. But they sold them off to investment banks, which packaged them as “mortgage-backed securities,”—still just as worthless as the underlying liars’ loans—and sold them to innocent and clueless investors.

This sophisticated Ponzi scheme went sailing along until a few investment houses, caught up in their own promotional rhetoric, began to take positions in this trash. When Lehman Brothers failed, all the banks started looking suspiciously at each other and doubting. They began to wonder whether the CDOs and swaps they had bought to cover their own losses would be worth anything. They all smelled smoke, and they all started rushing for the exits. That’s when credit and our economy froze up.

Here again, as in 1929, once the house of cards had been built, there wasn’t much the government could have done to prevent the stampede. The network of derivatives was then in the tens or hundreds of trillions in face value (the Fed has not yet disclosed the sum, even if it knows). Today it is reportedly some $700 trillion. Not even the government has, or can print, that much money.

Moreover, the moral hazard problem was the same as in the margin crisis of 1929. The government couldn’t step in and guarantee the mortgage-backed securities or their derivatives or swap “insurance,” because it would thereby encourage the very kind of gambling and speculation that had motivated the Ponzi scheme in the first place.

All that government could do was to pick up the pieces after the stampede. That the Fed did, at great cost but with considerable success so far.

Greed-induced financial stampedes

For most, but not all, fear-induced financial stampedes, there is a precursor: a greed-induced financial stampede whose reversal induces the fear. Greed builds the house of cards and fear blows it down. They work in tandem to produce the crashes and panics that periodically destroy an otherwise well functioning real economy. Here are three examples:

a. The Crash of 1929. The Crash of 1929 is easy to diagnose. Fear of “margin calls” (to sell margined stock or demand more collateral) caused the fear-induced stampede that triggered the Depression.

But what built the mountain of margin whose avalanche caused the Crash? A greed-induced orgy of buying stock on margin, in the hope of getting rich in a bull market that would never end. Sound familiar?

The orgy of leverage through margin started, as it always does, with professionals. But it quickly spread to semi-pro stock punters and eventually to ordinary people and workers. The great financier Bernard Baruch was smart enough to sell out and save his fortune after his cab drivers started offering him stock tips.

The orgy of leveraging through margin to buy stocks was a stampede induced by greed. It took several years to build to the breaking point. So it offered a tempting target for regulators and pols, if they had had the courage to get ahead of events.

But in that twilight of the Guilded Age, no one wanted to spoil the party. The result was the biggest global hangover in human economic history, whose consequences included World War II and the first use of nuclear weapons.

b. The savings-and-loan crisis. The savings-and-loan crisis of the 1980s and 1990s was a rare bird. It was a crash caused almost entirely by greed, not fear. Ideology also played an important role.

The essential facts are simple and easy to state. Congress created savings-and-loan associations as a separate class of financial institutions for a single purpose. They were to serve as collectors of deposits to be lent out as mortgage loans so that ever more people could own their own homes. They were to be “local” institutions which, unlike the big banks, would understand and serve their local communities’ needs.

Congress created these financial institutions in 1932, during the Great Depression. At that time and for decades afterward, a regime of strong government regulation was in force. The prevailing ideology was far different from today’s.

Price regulation then prevailed not only in finance but in the airline industry as well. The Civil Aeronautics Board treated airlines like public utilities and set airline fares (called “tariffs”). The Federal Home Loan Bank Board (now defunct) governed savings-and-loans and fixed their interest rates. Both regulators set rates so that the institutions they regulated could make a good and reliable profit, thereby insuring their stability, continuity and growth.

Then, in 1980, Ronald Reagan got elected president, and the era of deregulation began. By the end of his sleepy reign, the airlines and savings and loans had been deregulated, and the latter had nearly died.

I will not even attempt to characterize the consequences of deregulating airlines. They were and are extremely complex and various, some good, some bad. But the consequences of deregulating savings-and-load institutions were immediate and bad.

The primary consequence was an orgy of greed among savings-and-loan managers, who previously had been focused on serving their communities within a narrow range of regulated options. Direct regulation had put a ceiling on rates that they could pay depositors. It had also influenced, if not controlled, the rates that they could charge homeowners for home loans.

These two rates determined (and still determine) the institutions’ profit. Take the rate earned on home loans, subtract the rate paid on deposits (for the same tranche of money), and further subtract administrative and other expenses. That’s earnings. If the result is positive, you make money. If it’s negative, you lose money.

This is hardly rocket science. But the managers of savings-and-loans were a bunch of less-than-brilliant local ol’ boys, who had cut their teeth in a strictly regulated environment. Now they were told, with all the enthusiasm of a football cheerleader, that their mission in life was to go out, compete for customers, expand, and get rich. Unfortunately, the were told this in an era when prevailing interest rates and inflation were at historic highs.

So like the Japanese car makers in the eighties, they went straight for market share. They raised the interest rates they paid depositors, in order to attract new deposits. Then they lowered the rates they demanded from home borrowers, in order to attract new business. (They couldn’t lower them much because of the extraordinarily high general interest rates then prevailing, at times well over 10%.) They attracted a lot of new business, but they lost money.

They lost money in droves, and quite rapidly. By 1996, they had collectively lost over $160 billion, and many had been through or were facing bankruptcy. So our government bailed them out.

Notwithstanding this bailout, some refugees of the industry still blame government for the crisis. They claim the Fed Chief Paul Volcker was at fault for raising Fed interest rates to control inflation, forcing the savings-and-loans to fund current operations from long-term mortgage loans made previously at much lower rates.

This claim makes little sense on analysis. As long as previous loans did not default, they provided a steady stream of positive income, albeit perhaps less than the lenders might have desired. And new loans would of course be at the much higher prevailing rates. So losses had to come from setting rates paid on deposits too high, or from incurring expenses higher than before.

Rising general interest rates did not kill the savings-and-loans, any more than they killed the banks with which they competed. Bad management and ideology-inspired greed did.

So the direct cause of the savings-and-loan crisis was not government. It was greed-induced stampede of sleepy, once highly regulated managers, who saw a release from regulation as a chance to compete against banks, for which fixed-rate mortgage loans were a smaller fraction of their portfolios. In their rush toward this illusory pot of gold, they forgot the most basic principle of business: if your expenses (interest on deposits plus administrative expenses) exceed your income (interest earned on home loans), you will lose money. The taxpayers paid for their forgetting that simple lesson.

c. The Crash of 2008.

This segue brings us quite naturally to our current predicament. What cocked the trigger for the Great Recession from which we are just now emerging? A similar orgy of greed, but with a difference.

The similarity is the greed stampede, this time toward profits from selling securities backed by liars’ loans. The difference is a dearth of simplicity.

The touchstone of the latest crash was risk, not the simple profit-and-loss or competitive miscalculation that triggered the savings-and-loan crisis. And there was another difference: the perpetrators of the Crash of 2008 were not a class of local ol’ boys emerging sleepily from a highly regulated environment. They were the nation’s most sophisticated financial professionals, operating in an environment (derivatives) that they themselves had created, and in which there was no financial regulation at all, and never had been. (The whole field was far too new to be regulated.)

But despite these important differences, the consequences were much the same. The savings-and-loans’ ol’ boys damned the losses and went full speed ahead. The nation’s finance big boys damned the risks and went full speed ahead. Some of them knew they were massively violating their very own credit standards. But everyone else in the “industry” was doing the same thing, and the rating agencies that they all paid to judge them said it was OK. More to the point, the risk would cease to be theirs once they got the toxic mortgage-backed securities off their books, or so it seemed.

The important point in all this is not bankers’ obvious fault. So far, they have managed to avoid any criminal sanctions, and they are in the process of watering down regulations not to their liking.

No one in government has even seriously proposed breaking the big banks up. There may be some room for private corporate raiders to perform that function, quite profitably, but so far no one has stepped up. Perhaps finance is such an obscure and esoteric field, dominated by such a close-knit clique, that even the boldest corporate raiders fear to take it on.

But the most important point is timing. A fear-induced stampede is, on a human and historic scale, nearly instantaneous. Fear is highly communicable, and (for evolutionary reasons) our strongest emotion. So it acts quickly, like a fire in a theater.

But greed is a slower seducer. It takes time. It took several years for the savings-and-loan managers’ greed to get their institutions in deep financial trouble. Likewise the bankers in the Crash of 2008. It took several years for liars’ loans and securities that packaged them with more traditional (and sounder) investments to gather steam and become a stampede.

Stopping the greed stampede

This timing point is pretty significant. Trying to stop a fear stampede in mid flight is nearly impossible. Whether you’re a horse or a human, if you stand in the path of a stampede, you are likely to get hurt.

But greed-induced stampedes are slower to develop. They often allow time to make corrections, as long as regulators and private market “correctors” are pro-active.

If you will permit me a highly mixed metaphor, financial stampedes are a bit like ballistic missiles. They are much easier to stop in their “boost” phase, when the conditions for the eventual fear stampede are just being established. They are much harder to stop in the “descent” or “ballistic” phase, when they move faster and faster as they approach impact and explosion.

So it behooves us to pay more attention to obvious preconditions for financial stampedes, like the margin orgy before 1929, or the dross of liars’ loans turned into the “gold” of mortgage-backed securities during the period 2005-2008. As it turns out, events like that are easily identified as stampedes, too. They are just stampedes of a different sort, motivated by greed, not fear.

Here I propose a new principle of economics, which I modestly call “Dratler’s Law.” Every greed-induced stampede has the potential to turn into a fear-induced stampede and thus to cause a serious panic or crash. But like ballistic missiles in their “boost” phase, greed-induced stampedes are much easier to stop than panic-induced stampedes.

So pols and regulators ought to focus more on the orgy of greed than on the stampede of fear. That’s hard, of course. Pols don’t like spoiling a party. But the public and history will appreciate them if they can avoid a hangover like the Great Depression and its cataclysmic aftermath.

Today’s interest-rate stampede

This brings us right up to the present time. We are in the midst of an interest-rate stampede, in which mortgage interest rates have risen about 1.5% (150 basis points) in about two weeks. These rates track interest rates on bonds, including the notes and bonds from our Treasury. So what is really driving the change is a greed stampede among bond buyers.

To say that this precipitous rise is anomalous would be an understatement of Obamanian proportions. Nothing real has happened in the last two weeks to justify such an astounding rise in mortgage rates—an increment equivalent to 60% of the starting rate two weeks ago. The Fed has not changed its accommodative monetary policy. Fed Chief Bernanke has only said he might start thinking harder about a change some time soon.

Nor has much changed in our real economy. We are continuing on the slow, steady, hard climb out of post-recession unemployment and stagnation that started four years ago. Our angle of attack has not changed noticeably in the last two weeks. Instead, there have been some ambiguous reports on jobs and retail sales, although housing is definitely on the rise.

But perceptions are a different matter entirely. For several years, a vast right-wing echo chamber has predicted massive inflation and economic angst as the inevitable consequence of the Fed’s accommodative monetary policy. Fox is the chief culprit here, but it is hardly alone. Lots of people who ought to know better have made the same prediction.

The people making these predictions are not economists. They are people with no special training. They apply the simplistic rule “more money, more inflation,” without the slightest understanding of macroeconomics, let alone at a quantitive level. They are not even particularly bright or observant. But they have a big megaphone and the protection of our First Amendment.

If the financial professionals really believed these self-appointed pundits, you might call this a fear stampede. But it’s hard to see the professionals themselves as true believers. They know what the cost of insuring debt through CDOs and “swaps” is. They see it every day on their computer screens. And they know that the price of this insurance has budged only a smidge (a few basis points) in the last few weeks.

So why are they jacking the prices of bonds up so that mortgage rates have risen 60%?

The answer has to be greed. The buyers have the money, and they know that many people (rightly or wrongly) expect rampant inflation. So they are using their financial power (and cultivating public perception) to demand that bond sellers, especially corporations, pay more rent. They are the theater goers sitting quietly in their seats, saying “That smoke sure smells strong!” and watching the others stampede. But unlike the theater goers, they get a direct financial benefit: more interest, plus their usual commissions.

Conclusion

The current greed-induced interest-rate stampede could have some pretty nasty consequences. By raising the cost of money and reducing liquidity, it could choke off our slow recovery. It could even send us back into recession—something the much-feared Sequester hasn’t done yet.

By increasing the interest rates on government debt, the stampede could widen the deficit. In the worst case, it could bring back that old horror from the seventies and eighties: stagflation. In other words, this greed stampede could upset our whole real economy and hobble our government, just as did the Crash of 2008.

The bond traders who will profit from this misery comprise a tiny, close knit clique of probably no more than 250 individuals worldwide. (I write, of course of the managers and decision makers, not the dispensable peons in the trading pits.)

So why are we prostrating ourselves, once again, before the Masters of the Universe, to use or abuse us and all our economic effort at their will and whim? Do we never learn?

Underlying all this willing economic subjugation is a key error of thought. We worship a false god. Not only is he a harsh god. He is in fact rather transparently controlled by self-interested people, like most of the gods throughout human history. These people speak for him, and when it serves their interests they manipulate him. The wonder is that we continue to worship him while his avatars on Earth steal our substance from right under our noses.

This false god is of course “The Markets” and their so-called “Invisible Hand.”

As I have reasoned in another post, the effect of these phrases upon most pols, let alone ordinary people, is a sense of godlike reverence, a surrender of control, and an abdication of skepticism. To them, “The Markets” are ineluctable, powerful, unfathomable forces, like the weather. That is precisely the impression that the self-interested bond traders want them to have.

In reality, when Adam Smith wrote that famous phrase, he had nothing in mind even remotely like our present-day financial markets. He observed (and sometimes assumed) markets in manufactures and tangible commodities that were so large that no producer, seller or buyer had any individual power to influence prices or output.

That is indeed a fundamental assumption of classical free-market microeconomics. A competitive, free market only exists when no individual or group of individuals acting collectively has the power to force or manipulate it. In other words, the “Invisible Hand” only works when individuals’ real hands are powerless. If you doubt this point, then open up any undergraduate textbook on fundamental microeconomics, where you will find this assumption laid out explicitly and explained at length.

By this measure, nothing in our finance sector even remotely resembles a market that Adam Smith would recognize as such. Nor does it fit the definition of classical microeconomics. Why?

Because so called financial “markets” are all operated and controlled by small cliques of highly specialized, self-interested individuals. They communicate with each other every day, through their e-mails, their trades, their computer screens, and the algorithms they set up. They live in a different world from the rest of us, and one much richer.

The bond buyers, underwriters and traders who control today’s bond interest rates are likely a group of less than 250 people. They are concentrated in four cities worldwide: New York, London, Hong Kong and Shanghai. Do they explicitly conspire? Probably not.

They don’t have to conspire because they all think alike. Under normal circumstances they compete. They try to outdo and outthink each other for the special “win” or profit, while everyone makes a normally abundant profit. (Have you ever heard of a bond buyer or trader on skid row?)

But when they collectively see an opportunity to make extraordinary profit, by exploiting a rare coincidence of changing economic circumstances and misguided public perception, what do you think they’ll do? What would you do in their position, leave money on the table?

And who or what can stop them from exploiting economic and political conditions that favor their extraordinary profit, in a free-market economy that believes fervently in the God of the Invisible Hand? No one and nothing.

Not even Bernanke or the Fed can act. The Fed’s purview is economics, not public perception. It has no power to control or fix interest rates at which private bond buyers buy government or corporate bonds.

More generally, our species so far has discovered only three means to control bankers for the good of the rest of us: (1) regulation, (2) criminal sanctions, and (3) breaking the big banks up. So far, none of them has been much good in controlling modern bankers’ abuses of economic power.

You can’t regulate interest rates if you want to have a free market in them, and you certainly can’t do so in a single country in our global economy. Criminal sanctions have failed utterly to constrain bankers’ self-interested conduct, for reasons of law and practice that I have explained elsewhere in some depth. (In essence, criminal sanctions require hard-to-get evidence of criminal intent; the crime of negligence doesn’t yet extend to economic activity.)

So that leaves breaking the big banks up. Doing that might improve the current interest-rate situation somewhat. With more smaller players, the bond market might be more competitive on the buyers’ side, and there might be less chance for coordination and tacit collusion. But those salubrious effects would depend on a lot of other variables, and in any event it’s now far too late. By the time we unwound the current megabanks, interest rates could be in stagflation territory.

The problem is a fundamental one: the nature of banking. It’s an obscure speciality much like accounting. But accounting attracts people who like precision, order and control. In contrast, banking attracts people who like lots of money. Today it attracts smart people who want to get rich quick by any means that won’t land them in jail.

When you allow banks to get so big that they, in effect, control the economy more than any other force, including government, you put the fate of your society in the hands of people like that. And you put it in their hands so far that, when they screw up and cause widespread misery, the first thing you think you have to do, in order to save everyone else, is to bail them out. That’s where we are today.

This is a basic flaw in the structure of our society, what engineers call a fundamental design flaw. Next to it, Boeing’s smoking batteries were mere peccadillo.

We won’t cure it overnight, and we certainly won’t cure it before the current surge in interest rates reaches its conclusion. Unlike banks massively violating their own credit standards in the run-up to 2008, setting the price that bond traders voluntarily pay for bonds is not even arguably illegal. In a capitalist society, it’s not even immoral. Doesn’t every buyer or seller try for the best price he can get?

So we have several basic contradictions in our national values. We believe fervently in markets, but banking is nothing like any market that Adam Smith or classical microeconomics would recognize. Our economics assumes rational actors working with complete knowledge of events, while our banks exploit ignorant peoples’ misguided perceptions. They do so quite skillfully, in their own self-interest, to enhance their own profits.

We profess to believe in democracy. But we put the helm of global economic power, and the fates of our individual national economies, in the hands of a tiny global clique of bankers responsible to no one and nothing but their own profit (and desultory and occasional shareholder and board oversight), with the rare intrusion of diffident and much-derided regulators.

These are not easy flaws to correct. They are deeply entrenched in our national ideology and the way we do business. We might renationalize all the major banks, as many nations did in the last century. That might help the self-interest problem a bit. But it would bring politics back into economic activity—a bad idea that the rise of corporations ameliorated [search for “corporations are”].

And even if nationalization brought all these benefits (itself an uncertain proposition), it still wouldn’t solve the bond interest problem. If the government is to borrow money, it must do so from private investors, not from itself (at least not forever). And if it does so, those investors must at least have some say in the terms, including interest rates.

The best solution that I can think of right now is that smaller is better. Break the big banks up, and keep breaking them up as necessary to create a nationally and regionally distributed and therefore competitive market in finance. In Schumpeter’s words, generate a continual “gale of creative destruction.”

There might be other solutions as well. Imagine, for example, a rule that allowed only individuals, not legal entities, to buy corporate or government bonds. When a business or the government wanted to borrow money, it would have an auction on the Internet. If not enough people bought, it would have to lower the price or raise the interest offered. If the sale was oversubscribed, it could lower the interest rate for the next auction (which might be just a day later).

That would be a real market. The government and businesses could get all the money needed, at the lowest rate the market would bear. No one could control the market, and our economy and national future would not be placed in the hands of a tiny clique of bond dealers.

Such a system would mark a fairly substantial change from the one we have now. But that’s precisely the point. If we keep the system we have now, our nation’s and the global economy will remain in thrall to a tiny clique of probably no more than 250 people worldwide. In all but military matters (which are growing less significant in the nuclear age) our much-vaunted Third Millennium would resemble our Second. We again would be ruled by a small coterie of priests operating out of isolated institutions of immense real power, based on little more than blind faith in the God of the Invisible Hand.



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04 June 2013

Syria: Jihadi Armageddon?


[For a post on Russia’s and Iran’s roles and interests in the Syrian civil war, click here.]
    “Blessed are the meek; for they shall inherit the Earth . . .” The Bible (Matthew 5:5)
What’s really going on in Syria? At first glance, the answer seems simple. An increasingly cruel dictator, Bashar al-Assad, is using modern aircraft and heavy weaponry to put down a popular rebellion led by foot soldiers.

The means and methods are primitive. They recall ancient Rome’s “final solution” to its commercial dispute with Carthage. There the Romans slaughtered every man, woman and child, burned the city to the ground, pulled the city’s walls down, and sowed its fields with salt. That was a sordid example of successful genocide, which our history books unfortunately fail to designate as such. (The moral nastiness usually gets lost in awe for ancient Rome’s “strength.”)

You can now see a similar “final solution” taking shape in the ashes and rubble of Syria’s increasingly empty cities. It’s not a pretty picture. The salient difference—an important one—is that many Syrian refugees are getting away.

Where they manage to emigrate the war zone, they enrich the countries they bless with their presence. Steve Jobs (the offspring of a Syrian immigrant) and an unnamed baba-ghanouj chef did so here. But where Syrian refugees squat in squalid camps, they become a sordid waste of lives and “human capital,” a reproach to the entire world.

Dig deeper into the Syrian conflict, and it no longer looks so simple. Vast historical forces lurk just under the surface. Besides a burning desire of modern people to be free of a medieval despot with jet fighters, the drivers of the conflict are the same they have always been for our species. Tribalism rules.

Two types of tribalism matter in Syria. First, the Alewites (Assad’s tribe, a subsect of Shiites) are fighting the Sunni Muslims, who are the vast majority of Syrians. But now there is a new development (new to Syria but age old). As Shiite fighters from Hezbollah in Lebanon pour into Qusayr, the great schism in Islam is becoming a ground war.

Who are the best foot soldiers in the war? The jihadis, on both sides. Syria may now be in the process of becoming the Jihadi Armageddon: Al Qaeda against Hezbollah, Sunni jihadi versus Shiite jihadi. The Alewites and their fellow travelers pound from the air, but the real fighting is becoming jihadi on jihadi, on the ground.

What does this new development mean? To answer that question, you have to ask another one, seemingly unrelated. What was the most pointless war in human history?

Consider a “pointlessness coefficient.” Multiply the senselessness of the motivation for war by the magnitude of its slaughter. By that measure, World War I wins hands down.

Next to World War II, the first Great War caused the greatest slaughter in human history. Over 8.5 million soldiers died, not to mention civilians. They died in the trenches, in the defenseless “no man’s land” between them, and from massive use of mustard gas, which has now been outlawed.

In World War II, the global slaughter was about seven times greater. But it had its reasons. The Axis attacked the Allies, en masse. The Allies had to respond or be overrun. It was a simple matter of survival. And the Axis attacked the Allies for economic reasons, including a dearth of oil resources, the exclusion of Japan from trade, and the collective punishment of the German people after World War I.

So World War II is easy to explain. I just did it, in a nutshell, in a single short paragraph.

Not so the first Great War. There the causes were so obscure that only historians know them.

Sure, we all know the trigger: the assassination of Archduke Ferdinand and his wife by a Bosnian Serb nationalist in Sarajevo in 1914. But why did the nth in a seemingly infinite series of Balkan conflicts draw the whole of Europe into a vast conflagration? Why did nations as far away from the Balkans as England, France, and Russia throw millions of promising young men into a meat grinder, destroying the flower of European youth for a whole generation?

Only historians of the conflict know for sure. And why don’t the rest of us know? Because the reasons are meaningless today. In fact, they were meaningless by 1945. They were a combination of imperial family feuds, imperialist leaders’ territorial ambition, and the age-old tribal goads: “duty” and “honor.” They were simple products of imperialism’s hubris and deadly irrational exuberance.

So what does this have to do with Syria today? Stay with me.

Focus on the words “duty” and “honor.” Those are the words that old men use—while mostly sitting comfortably far behind the lines of battle—to get young men (and today, women) to throw their lives away in useless conflict that has no justification but tribalism.

And those are precisely the words used by misguided imams and sheikhs to propel jihadis into the Syrian conflict on both sides today.

We all know about bin Laden’s famous so-called “fatwa,” advising Muslims (mostly Sunnis) to kill Americans world wide. That was a call to a tiny band of Islamic extremists to fight the greatest empire in human history, 300 million strong, which had enough nuclear weapons to extinguish our species, and enough submarines carrying them to extinguish any nation in the Middle East in about fifteen minutes. Talk about a suicide mission!

Bin Laden was the guru of Sunni jihadis, and the most extreme. This Monday, we got a view of both Shiite jihadis (Hezbollah) and Sunni jihadis, courtesy of courageous reporter Margaret Warner on site in Lebanon. Watch carefully the clip of the Sunni jihadi acknowledging sending his disciples into a meat grinder, but nevertheless declaring it their “duty.” The ghosts of World War I’s imperialists were nodding their heads in silent assent.

There are people who live and build. There are people who kill, destroy and die. And there are leaders who encourage each kind of behavior.

It would be nice if we could hold the evil leaders individually responsible, as we did at Nuremburg. It would be nice if we could snatch Assad and both sides’ jihadi inciters and put them on trial before something like the International Criminal Court. Then we could all assemble in cyberspace and cheer as they were hanged.

But to do that, we would have to catch them first. When the society that surrounds them protects and nurtures them, if only by inertia or default, we would have to make war to get them. We would have to become like them to stop them. Somehow, that doesn’t seem like such a good idea. (We tried doing that in Iraq, and it didn’t work out so well, either for us or for the Iraqis.)

An alternative is learning through history. That’s how Europe did it. Pointless World War I followed centuries of pointless religious wars between Protestants and Catholics and pointless imperial feuds. Then the echo of World War I turned out to be the greatest war of all. But finally, Europe and (at least for now) Asia is at peace. (The Pax Atomica is one reason, but better government is another. Free trade is a third.)

Maybe it takes a history like that for the builders to prevail over the killers. Maybe vast suffering and devastation are the best (or the only effective) teachers of our species.

But suppose we could attract all the killers into a single arena. Suppose we could have them fight each other to the death, or until their own suffering and exhaustion burned out their jihadist spirit. Suppose we could confine the conflict to a single nation, and predate the entry of nuclear weapons to avoid radioactive carnage. Might that arena be Syria today?

After the devastation of civil war, moral objections are less acute. The long war already has destroyed most of Syrian society. Syria today is more a battlefield than a nation.

More telling is the question whether such a localized meat grinder will have the desired effect. Maybe it takes a full-scale invasion, massive civilian casualties, rape of women, slaughter of children, and cities turned into rubble to teach the lessons of World War II.

But maybe today, with the Internet and greater enlightenment, World War I is a fitting model for what not to do. There, unlike in World War II, most cities were spared. The young men just went away to the trenches in the countryside and never returned. Or they returned blinded or maimed, living evidence of the folly of war.

Maybe seeing many sons, brothers and husbands just go away into the black hole of Syria and never return—or return as corpses and “martyrs”—will be enough to teach the lesson throughout Greater Arabia and even Iran. Maybe it will elevate “jihad” to an internal spiritual struggle and away from real-life mayhem. Maybe it won’t. But as nuclear weapons come ever closer to the most volatile region on Earth—with the most pointless and abstract “reasons” for ceaseless carnage—it’s worth a try.

Footnote 1: Cato the Elder almost singlehandedly triggered this Roman genocide. He made a practice of declaiming, in every session of the Roman Senate, “Carthago delenda est!” (Carthage must be destroyed!). His motives for the genocide were mainly economic, involving competition in Mediterranean trade. (He should not be confused with his great-grandson Cato the Younger, whose republican views were the inspiration for a series of much later English letters. Our conservative think tank, the Cato Institute, takes its name from these letters and hence the later and less barbaric Cato.)

Footnote 2: To see this part of the clip, from an interview with Sheikh Ahmad Al-Assir, set the timer to about half way. Sheikh Assir said, “They [Hezbollah fighters] have more military experience and they have much more developed weapons. We know that our people are not going to make a difference, but it is our duty to send them.” Kaiser Wilhelm, Czar Nicholas II, and Prime Ministers Georges Clemenceau and David Lloyd George would heartily agree.

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