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 January 2014

Market Manipulation in the Third Millennium


[For brief comment on the State of the Union Speech and the Republican response, click here.]

The mini-crash
The usual suspects
What’s left
How easy it is

The mini-crash

Equity markets tanked Friday. Worldwide. Millions lost money. I was among them.

What caused the mini-crash? It’s hard to say.

All the fundamental indicators seemed up. Just a few days earlier, the IMF had raised its economic forecast for the whole world together, and for nearly all advanced economies that matter. For some time, the auto industry—including our own once-beleaguered and government-rescued one—has been predicting steadily increasing sales, soon to surpass pre-Crash levels.

Exxon Mobil and First Solar are trading at low price-earnings multiples. At Friday’s close, their P/Es were 12.4 and less than 10.3, respectively.

These are energy companies, with real businesses and real profits. Energy is not an Internet fad. It’s a necessity.

Earlier this year, Warren Buffet had placed his bet on Exxon Mobil, to the tune of $ 3.4 billion, as revealed last November. He’s hardly a day trader. Have people lost their faith in the Sage of Omaha?

Except in Greece and Italy, and some struggling “emerging” markets, interest rates remain near historic lows. Despite the Fed’s “tapering,” they will remain so at least for the rest of this year.

Are investors rushing back into bonds, knowing that interest rates will inevitably rise and principal evaporate? Not hardly. (El-Erian’s departure from PIMCO, over the laments of his co-chief Gross, tells you all you need to know about that.)

Unemployment is down. Economic forecasts are up. China is deflating its credit and real-property bubbles gradually, under an authoritarian government run by some of the smartest leaders in the world.

Even politics appears to be cooperating, for a change. Iran is winding down its nuclear enrichment under an interim international agreement. Providence, in the form of volcanic activity, is building a new island for Japan, suggesting that maybe giving up 69 years of peace and going to war with China over what Japan calls the Senkaku Islands may not be necessary, let alone advisable. The lion, in the form of Assad, is sitting down with the lamb, in the form of some rebels, although early breakthroughs in the talks are not expected.

So why the gloom? The reason that most commentators give is company profits. On a year-to-year basis, they are down.

Of course they are down. For the last four years, since the trough in 2009, they have been rising from historic lows not seen since the early 1930s. So, on a year-to-year basis, they have been anomalously high.

Year-to-year comparisons can’t stay inflated forever. Markets have to adjust to “normal” yearly increases in a slowly but solidly growing economy. Investors didn’t know this, when it’s been coming for half a decade?

So Friday’s mini-crash is not easy to explain, except as a mini-stampede. What might have caused it? Read on.

The usual suspects

Only three possible causes make any sense at all. The first is Yankee politics. We still have some rogues like Ted Cruz, whose minds (if you can call them that) turn to extortion and revenge. There is still low-level murmuring among the GOP’s big extremist wing about using the statutory debt limit to extort political concessions.

That could happen even earlier than February 7. It would have the usual, entirely predictable, negative economic effects. Maybe investors trust the GOP to stay stupid.

That could be, but it doesn’t seem likely. Stolid, Johnny-One-Note (“lower-taxes-more-jobs”) Boehner is not known for his emotional effusiveness. When he screamed “Are you kidding me!?” recently, he said all you need to know about what the GOP’s leadership and business wing thinks about shutting down the government and dancing with default. Maybe the rank and file will get the message soon.

The party is still divided, if not schizophrenic. Its full reform is still years away. But the writing is on the wall. The message is especially clear for folks like Christie and McDonnell. In the long run, extortion doesn’t pay, whether of innocent commuters or hawkers of nutritional supplements seeking political influence and free publicity.

So fear of the GOP once again shooting the economy, or holding it hostage to get its own way, is probably overblown.

The second possibility is legitimate profit taking. Equity markets, and even bond markets, have generated enormous profits during the last few years, at least for investors able to see the signals through the noise. Maybe a whole lot of people decided to take their profits and cash out, all at the same time.

That’s possible. But where would/did they all put their money? In their mattresses? In money-market funds paying fractional-percent interest? In gold, which is down and probably going lower, as people begin to understand that its intrinsic, industrial value is nowhere near its market value, so it differs little from paper investments?

With bonds down and likely to go lower, there are not many other places to park money besides equities. No real-estate bubble appears to be forming, at least not so soon after the big one burst in 2008. Besides the perpetual one in London, the closest thing to a real-estate bubble is now deflating in China.

What’s left

Once you eliminate all the usual suspects, you have to consider the less likely, even the improbable. And so we come to market manipulation.

It’s hard even to discuss the subject rationally here in Yankeeland. Despite the Crash and its self-evident lessons, most of us remain in thrall to a form of politico-economic religion, which I call free-market fundamentalism. (You might also call it Taliban economics.)

Ask the average Yankee investor, and he will tell you the “Invisible Hand” governs market values. As the very name suggests, it’s an ineluctable, irresistible force, against which resistance is futile, especially in the form of regulation. Even prayer won’t do much about it.

But as I have outlined more than once (see 1 and 2), this worldview is utter nonsense as applied to our finance sector. It may have some validity as applied to apps in Apple’s closed garden, of which there are millions and thousands of vendors.

But finance is controlled by around 250 leaders worldwide. They all work in, for or with the world’s biggest banks. All you have to do to see that banks don’t work by “normal” market rules (or the normal rules of capitalism ) is to know that Jamie Dimon just got a 74% raise for presiding over a year when his firm’s profits dropped 16% and it paid over $ 15 billion in settlements and fines.

When you can’t understand something, an old Latin phrase is often helpful. Cui bono? Who benefits?

That question helps us understand the Roman priests who kept the Vestal Virgins. It worked for the Catholic Clergy that ran Western society during the first half of the last millennium. And it works for the international bankers, brokers and traders who now control most of the global economy at the dawn of our Third Millennium.

As any physicist or engineer knows, big crashes produce reverberations. Things oscillate for a while. But friction and inertia eventually damp down repercussions. Wide fluctuations subside, and things return more or less to normal.

That’s about where we are in the aftermath of the Crash of 2008. The reverberations are dying down, along with unemployment, financial insecurity and China’s incipient real-property and credit bubbles—the last ones on the immediate horizon right now.

By all that is normal and holy, the VIX should be subsiding, too. But it’s not. Why?

Because we have a huge “industry,” employing millions of people, whose profits, livelihood and vast employment depends on it staying high. Some of still them tell you to “buy and hold.” But in fact that’s the last thing they want you to do.

If investors buy and hold, commissions plummet. If investors waited to sell for the months and years that it takes real business to show solid signs of success or failure, all the automatic electronic trading algorithms would be useless. If everyone on the planet invested like Warren Buffet, the vast majority of bankers, brokers and traders would be out of jobs. Heaven forfend!

How easy it is

That, of course, can’t happen in a global economy where bankers call the shots. The VIX is Wall Street’s earnings index. So naturally it must stay high.

Bankers make money on the way down, by selling short. They make money in a bull market, on the way up. They make money every which way, through puts, calls, straddles, hedges and buying and selling derivatives. The one thing they can’t stand is placidity. So they follow my grandfather’s old political joke: “Down with what’s up! Up with what’s down! And fluctuate the middle!”

Think I’m joking or insane? Think again. Just days before the recent mini-crash, Barry Ritholtz (a financial columnist in Bloomberg.com) published a sawtooth graph showing time intervals between 10% or greater market corrections. The gist of the graph and its accompanying text was that we are overdue.

The post was utter nonsense in two ways. First, without some theory as to what causes a correction, the graph has absolutely no statistical validity. It’s like betting that the next coin toss will come up tails because a few previous tosses came up heads.

If you doubt this, just read Nate Silver’s excellent recent book, which tries repeatedly to explain this fundamental point for people not fluent in statistics or math. He makes the point with examples from fields as varied as weather, climate, poker and baseball.

But the second point is even more compelling. Ritholtz’ sawtooth graph was and is misleading. It is so misleading that it suggests malice.

The graph depicts each 10% or greater correction as a sawtooth, that is, a plot falling from some presumed market level to zero, or nearby. Thus it made each correction plotted look worse—much worse—than the Crashes of 1929 and 2008, despite the fact that each correction was, in reality and by selection, only 10% or greater.

To someone like me, with math in my blood, the graph and its interpretation were inherently absurd. To more credulous people, maybe not so much.

If you wanted to start a fear stampede, you could hardly do a better job than that misleading sawtooth graph. And you could hardly do a better job than publish it less than five years after the greatest Crash since the Great Depression, when stocks actually did dive some 35%, not just 10%. The disclaimer in the piece itself, which read as if drafted by a lawyer, suggested that Ritholtz and/or the folks at Bloomberg.com saw that risk clearly and didn’t want to be liable for it.

And what better place to start a fear stampede than on Bloomberg.com? Now that the Wall Street Journal, the New York Times, and the Washington Post are all on a subscription basis, Bloomberg.com is the only widely read national financial print medium that’s entirely free.

That point is hard to overemphasize. Mike Boomberg is no longer mayor. So he’s now free to devote all his considerable brains, energy and fortune to making Bloomberg.com a news source to be reckoned with. Since he now has the biggest and best-known free, national print news source on the Internet, he’s well on his way. And you can tell from the increase in content and gross format changes since the end of Mike’s mayoral term that he’s serious about doing just that.

Most people are not likely to subscribe to more than one on-line newspaper. So just as English is everybody’s favorite second language, Bloomberg.com will likely become everybody’s favorite online newspaper, just because it’s not bad and free. And as a deep, deep pocket, Bloomberg has the wherewithal to keep it free.

Mike didn’t get to be a billionaire and a successful mayor of New York City by being stupid. The question is whether he’s willing to let his creation be used for market manipulation.

More fundamentally, the question is whether we as a society want to let bankers and pundits manipulate us for their own purposes in the Third Millennium, just as priests did for centuries in the Second.

We have a First Amendment, which authors of market manipulation will rely on. But we also have laws against fraud, deliberate market manipulation and insider trading. There’s a tension there.

How we balance those two values will determine our global economic health for decades and maybe centuries to come. It will tell whether we have truly free markets or a finance sector controlled by the machinations of self-interested insiders, with the aid of complicit media. So far, there’s little evidence that the insiders are losing their battle to keep the VIX high and their employment opportunities and profits plentiful.

I would give a lot to know whether Ritholtz sold short, or otherwise bet on the downside, before publishing that grossly misleading sawtooth graph (just three days before Friday’s mini-crash). But if human nature is any guide, I think I know the answer.

Should such behavior be criminal? Maybe not. But should we find some other way to discourage and control it? Probably yes. Otherwise, what good is central banking and all our regulatory precautions, when self-interested fools with a pen can start a stampede that keeps their profits high, traders fully employed, our bankers fat, and stock prices with very little correlation to company values or industry prospects?

Footnote: Funny how Boeher keeps repeating this falsehood as if it were Biblical Truth. There’s no definitive study showing that raising taxes cuts even private-sector jobs. There’s just a lot of economic controversy about special conditions and circumstances in the few credible studies that exist.

But no one denies that cutting taxes can cut government jobs, because taxes pay for them. In fact, that’s exactly what the Tea-Party-promoted austerity policy and the Sequester produced, especially at the state level: a loss of government jobs.

When people lose jobs, they have less money to spend on goods and services. That’s true even if they used to work for government. But Boehner and the Tea Party never lament this obvious hit to our economy. They don’t claim to be economic experts, just true believers.

The Sorry State of our Union

I don’t know about you, but the President’s State of the Union speech and its aftermath depressed me deeply.

It wasn’t the speech itself. PBS’ commentators described it lukewarmly as “workmanlike” and “timid.”

But that wasn’t my thought at all. I liked the President’s specific proposals on broadening early childhood education, making college more accessible, fixing and improving our infrastructure, converting to natural gas as a bridge fuel, continuing subsidies for renewable energy (our energy start-up technologies), raising the minimum wage, giving ordinary workers incentive to save for retirement, tax free, through “My-RA” accounts, and giving women equal pay for equal work (at last). I liked his reminding us, gently but firmly, that he has wound down two totally gratuitous and horribly expensive wars (in both money and wasted lives) that his predecessor foisted on us and then kept off our balance sheet.

Throughout the speech, I was thinking how godawful it is that our politics and our nation have marginalized this brilliantly competent man who now sits in our White House.

In both form and substance, the President’s speech was exactly what you would expect of realistic and compassionate leader who can think. Every paragraph began with a fact, usually a statistic. These were not throw-off “gotchas” or “talking points.” They were relevant, important, specific facts, which any competent leader or informed voter would want to know in addressing the problem or opportunity under discussion.

Then, in each paragraph, the speech went on propose a specific change or policy. In several cases, it chided Congress for doing nothing, and then promised executive action to do what can be done.

As I listened to the speech, my mind drifted to the pols of my youth. They were serious, well-educated and well-informed men. (Nearly all pols were men in those days.) They could think. When they spoke, they made sense. Specific sense. They were not big on abstract castles in the air. They were practical leaders.

This pattern continued throughout the President’s speech. But there was more. Lots more. In speaking of minimum wages, health care, and our troops’ horrendous sacrifice in two wars (to which most of us paid no attention at all), he was both emotional and lyrical.

He combined genuine information, succinct statement of a problem, and the proposal of specific solutions with extraordinary understanding of emotional impacts on real people, which no sentient human could mistake.

Seldom have I seen a single speaker weave such a rational, practical and beautiful fabric. And seldom have I seen both his audience and PBS’s commentators so unmoved.

But that was only half the reason for my depression. The other half was the utterly vapid response given by the Republican designee—one Representative Cathy McMorris Rodgers of Washington State.

While the President’s speech was full of facts and specifics, Rodgers’s speech was completely devoid of them. David Brooks’ old phrase, “a relentless march of vapid abstractions” came to mind. So did my high-school cheerleader, but only briefly. I’m sure that most cheerleaders in my high school could have penned a better speech as a routine homework assignment. So could any marketer in a small business with more that 30 employees.

I hoped that the substanceless cheerleading would eventually fade into a little substance. I hoped in vain. With every fiber of my being screaming “turn off the TV and end the nausea,” I listened through the whole ten minutes.

Not once did I hear a single fact or specific proposal. Not once did I hear even a good turn of phrase. The relentless march of cliches numbed me to my soul. I kept wondering how any sentient creature could really believe the absurd fantasy that downsizing government would instantly solve all our problems.

When the empty speech and my agony finally ended, depression overwhelmed me. This, I thought, is the highest ranking female Republican member of the House. This, apparently, is what our GOP thinks of women: creatures dominated by vague emotions, unable even to recognize a fact, let alone connect it to consequences or policies.

At the dawn of the twenty-first century, this is the best one of our two great political parties can come up with to reply to the speech of a brilliant President whom it has stymied now for five years.

I have trouble believing that Rodgers is a moron. No one who has achieved her office could be. More likely, she thinks her constituents are morons, or the people who wrote her speech for her think women are morons. Even more likely, Republican men like them that way. God help us all.

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20 January 2014

Is Christie Toast?


[I apologize for publishing the following essay on one of our nation’s most sacred days: the one dedicated to the memory of the Reverend Doctor Martin Luther King, Jr. But contrasts are as legitimate as praise. It’s impossible to imagine Dr. King or any of his staff shutting down traffic from Fort Lee, let alone shutting down our government or threatening a national default.

As we honor Dr. King’s memory today, it’s appropriate to consider how far we and our pols have fallen from his ideals, and what we can do to regain them. Neither vengeance nor extortion was ever in Dr. King’s heart, and the best way to remember him is to emulate him.
]

Introduction
Christie’s Persona
Total War
The GOP Persona
Conclusion
Coda: let’s have no more governors, please!

Introduction

Last September, Chris Christie’s staff shut down Fort Lee’s access to the George Washington Bridge in an act of political retribution. Now the hubbub about the bullying is starting to die down.

But the story has legs. Its legs are as long and as strong as Christie’s presidential ambitions. They’re resting now. But like the Terminator, they’ll be back.

They’ll be back not just because keeping the story alive is good politics for Dems and will work poetic justice. They’ll be back because the whole sordid tale exemplifies what’s wrong with American politics today.

Christie’s Persona

There are three good reasons why Christie may be toast, so far as concerns his presidential ambitions. The first is his own political persona.

Wasn’t he supposed to be Mr. Nice Guy? Wasn’t he the guy who hugged the President of the United States for getting aid to battered New Jersey quickly after Hurricane Sandy? Didn’t he do so at a time when just being seen in a photograph with the President was grounds for being “primaried”?

Back then, no one knew that the Tea Party was just a Southern invention, a hail-Mary pass to refight the Civil War in the twenty-first century. Most Republicans, and many others, thought the Tea Party was the GOP’s future. Yet Christie seemed to take the extremists on.

So he got points for being brave and being human. People of both parties began to think that we Yanks might have a future, and that he might be part of it.

Then came the traffic-stall vendetta. Fort Lee’s democratic mayor, Mark Sokolich, refused to endorse Christie’s 2013 re-election campaign. So thousands of Fort Lee’s people had to spend an hour or more of gridlock getting into Manhattan, in an act of pure political vengeance.

You can bet that Christie’s minion’s e-mail words, “Time for some traffic problems in Fort Lee,” will follow him wherever he goes, especially in national politics.

It doesn’t matter that he claims he didn’t know. Only morons ignore the strategy of plausible deniability. Christie’s Academy-Award-winning apology doesn’t matter either, because what his team did was so starkly different from what he claimed to be. No one who thinks about it for a moment will be able to reconcile his two public personas, Jekyll and Hyde.

So the bloom is off the rose. Christie kissed the President’s ring because the President could help him and his state at a time of dire need. Then his team tried to crush Fort Lee’s Mayor, who is much less powerful, just because it could.

Isn’t that what Mafia do: kiss the capo’s ring and rough up unruly minions? And isn’t that precisely how most outsiders think of New Jersey?

The political ad makers will have a field day. They’ll portray Christie as a Mafia hit man. And they’ll do it at a gut level, beyond and below reason.

There will be poetic justice in that. The GOP’s propagandists invented the technique. Remember Willie Horton and the blonde saying “Call me, Harold” to defeat Congressman Harold E. Ford, Jr., as a candidate for senator from Tennessee?

Total War

But there’s a much more important reason why Christie should, and probably will, be toast. It’s the notion of total political war.

Who got hurt by the retribution? It wasn’t the mayor of Fort Lee. He emerged an innocent bystander, a minor and accidental hero. The actual victims were thousands of Fort Lee commuters to Manhattan, who struggled with godawful traffic for several days.

Last time I looked, Fort Lee was in New Jersey. So Christie’s office retaliated against his own constituents for having the effrontery to elect a mayor from another party and not forcing that mayor to endorse Christie’s campaign. His team’s vengeance made innocent citizens suffer, not pols.

The notion of “total war” appears to have been a German invention. Just this week, the PBS program “Nova” explained its birth. During the First World War, one Fregattenkapitän Peter Strasser turned Zeppelins into terror weapons, ordering them to bomb civilian targets in London.

His “logic” was simple. The British were the enemy. Some of the dead or injured civilians might have been working in munitions factories or otherwise supporting the British war effort. And anyway, terrorizing innocent civilians would hurt Britain’s morale and maybe bring the awful war to an earlier end.

Strasser’s airborne terror prefigured the Second World War. From Nazi V-2 raids on London (infinitely more destructive than the Zeppelins’), to our own fire bombing of Dresden and Tokyo and nuclear destruction of Hiroshima and Nagasaki, the idea of total war gained converts. Innocent civilians became targets, big time.

The high water mark came in October 1962. We Yanks and the Soviet Union got within hours, maybe minutes, of extinguishing large portions of our civilian populations—and maybe our entire species—in nuclear fire. The “logical” conclusion of total war was species self-extinction.

Fortunately for our species, we are in the process of abandoning that absurd and horrendous idea. Drones and ninjas may be ugly. They may create unnecessary “collateral damage” and kill people without due process. But they are a whole lot better than extinguishing huge swaths of our civilian population, let alone or our entire species, just to make a military/political point.

Like Fregattenkapitän Strasser, Christie’s minion Kelly wreaked retribution on innocent civilians. She waged total political war. And just like the Kaiser, who may or may not have fully approved of Strasser’s terror attacks, Christie will get the blame for not intervening in time.

As Harry Truman said, the buck stops at the top. Few will believe that something so ugly did not have at least tacit approval, or at least “cultural” validity, within Christie’s office. And whoever is actually at fault, no one will believe that what happened is consistent with his “Mr. Nice Guy” image.

The GOP Persona

As well all know from watching “West Wing,” retribution is part of our Yankee political culture. We live in the twenty-first century, but our pols still follow the Code of Hammurabi.

That anachronism does have a rationale. In a democratic society as populous and diverse as ours, politics must involve compromise. There is simply no other way. And sometimes compromise requires arm twisting.

Half a century ago, Lyndon Johnson knew how to twist arms. He had been Senate minority whip, minority leader, and majority leader for a total of nine years before becoming vice president and (on JFK’s murder) president. He had something on every member of Congress.

So as president, Johnson was able to work a political miracle. He got the Civil Rights Act of 1964 passed with the votes of Southern Democrats, nearly all of whom were racists, at least politically. Less than two years earlier, Alabama’s Democratic Governor George Wallace had declared “segregation today, segregation tomorrow . . . segregation forever.”

Johnson was a big, crude and vulgar man. He used to boast that he had legislators’ “peckers in mah pocket.” (Senators were all men in those days.) He used carrots, and he used sticks. He threatened to reveal the secrets he knew. He offered favors and threatened retaliation. When he had to, he followed through.

But even Lyndon Johnson never said anything about ordinary citizens’ peckers. Whatever member he twisted, he kept the twisting within Congress. He didn’t wreak vengeance against innocent civilians. He didn’t make total war.

The GOP has, repeatedly, and not just in New Jersey. It has twice shut down our government, and it has repeatedly threatened default or near default. That would destroy our nation’s single most important asset: our sky-high national credit rating that has allowed us to extricate ourselves from the Crash that our own bankers caused with the lowest interest rates in modern history.

Ted Cruz may think he’s a smart guy. He may think he catapulted himself into national prominence, making an end run around the Senate’s stodgy rules of seniority. But what he really did was become a GOP symbol of total war on our innocent population. Don’t Republicans use national parks, too? Don’t they take loans?

Now Chris Christie, too, has become a symbol of total political war. He’s not as bad as Ted Cruz. He doesn’t have an evil smirk that recalls Demagogue Joe McCarthy to anyone old enough to remember. And he’s certainly not as extreme.

But Christie let his senior staff wage total war on civilians at time when our people are sick and tired of inaction, recalcitrance and getting even. And you can bet that, fair or not, political ads will liken Christie to Cruz, if not to Fregattenkapitän Strasser. In both parties, we Yanks are fed up to the teeth with the politics of spite.

Conclusion

We live in a complex world. Health insurance alone involves a uniquely intricate mix of insurance lore, economics and politics. No one, including our brilliant President, appears to have mastered it fully.

If the supposed experts lack complete understanding and therefore can’t agree, what hope is there for the average voter, let along the “independents” or “undecided”? Aren’t these words just euphemisms for tuned-out, turned off, ignorant and uninformed people, who make up their minds by starting to pay attention to TV ads (and maybe even news) a few days before each election?

For some pols, it’s tempting to treat these people like cattle, forcing them to move with prods, or to stay put with barbed wire. But that’s not democracy, let alone the American way.

For some decades now, our GOP propagandists have tried to cut this Gordian knot of demagoguery with “hot-button” issues like abortion and gay marriage. That strategy enjoyed some political success. But its time, like the era of total war, is coming to an end.

Slowly but surely, people without jobs and homes and hope for the future are beginning to understand that abortions and gays’ marital happiness are not central to their lives. And some of them are even beginning to understand that these issues, too, are hardly black and white.

So what’s left? How can the ad makers—financed by the abomination of Citizens United—sway ordinary, uninformed and disinterested people who can’t begin to understand the real issues and won’t take the time to do so?

Persona matters. John McCain lost because he came across as an angry, erratic and economically clueless bully who ran one of the ugliest and most racist campaigns in American history. Mitt Romney lost because he came across as an arrogant know-it-all, who grossly inflated his relevant experience, and who didn’t give a damn about 47% of us.

Barack Obama was elected President, twice. Why? Because he seemed calm, patient, hopeful, thoughtful, modest, moderate, empathetic and kind. He left nobody out. Next to those big differences, which any human can understand, his skin color didn’t matter much. People still like him, by huge margins, even as they ding his performance in office. For those of us from dysfunctional families (who are a lot of us) he was the kind, patient, thoughtful father we all wish we had had.

It’s character, stupid.

In the final analysis, what about Christie might make him president? His biography reveals absolutely zero experience in military or foreign affairs. He knows nothing about economics or banking; New Jersey is hardly a banking center.

The 2016 campaign is only two years away. Can he make up a lifelong lack of relevant experience in just two years? Not hardly.

So what’s he got? Just a reputation for character.

Whether the Fort Lee incident has tarnished it irrevocably remains to be seen. Two years are an eternity in politics. But if you want a New Jersey pol with real character, keep your eye on Cory Booker.

As far was we know, Booker’s minions never wreaked pain or havoc on innocent people in an act of political vengeance. But he did run into a burning building to save a woman. And he’s now in the US Senate, where presumably he’ll learn something about military and foreign affairs, and maybe even macroeconomics. Think a president might need some of that?

Coda: let’s have no more governors, please!

The conventional wisdom that state governors are ready to become president is greatly exaggerated. A state governor is clueless in Washington for at least two or three years. After that, little time remains before the president leaves office or (if re-elected) becomes a lame duck.

Working with a state bureaucracy or state legislature is absolutely nothing like working with the federal bureaucracy or with Congress, let alone the Joint Chiefs. Few, if any, single states have anything like the wildly different geographies and cultures of, say, California, Florida, New York, and Texas, let alone the diversity, scope and self-obsession of our whole nation. To my knowledge, no state legislature has filibusters or senate holds. And not a single state has five enormous uniformed services, all bickering over priorities, prestige and budgets.

For a state governor, foreign and military policy are whole new worlds, literally. Even international trade turns out to have more to it than pandering to multinational corporations to create jobs in one’s state.

If you want to know just how much federal experience matters, compare the two Bushes’ records. The Senior Bush had a year of experience running the CIA, plus eight years as vice president. During his last few years as vice, his president (Reagan) was in his mid seventies and falling asleep in Cabinet meetings. So the Senior Bush had to pay attention.

He did. As president, he managed our shortest and most successful major war: Gulf I. And he was smart enough to heed Colin Powell’s advice to stay out of Baghdad.

In contrast, his Prodigal Son was the least experienced president in our history. Dubya got his scant knowledge of foreign policy in a crash course from Saudi Prince Bandar during his presidential campaign. The results of his greenness lie in shambles all around the globe: in Afghanistan, Iraq, North Korea and Syria.

Even Bill Clinton, for all his surpluses and job creation, had little success abroad. He got away with being green by basking in the reflected glory of our supposed “win” in the Cold War, the Soviet Union’s dissolution, and Francis Fukuyama’s laughable “end of history.”

But all these things had been wrought by wiser, much more experienced men than he, hewing consistently to smart policy for decades before. Bill Clinton accomplished nothing in the Middle East. Like Dubya, he missed a chance to kill bin Laden, for fear of “collateral damage.” He also helped set the precedent of appeasing the Kims, rather than managing them with China’s expert advice and immense leverage. If he had had just a year at the helm of the CIA, he might have done better.

Speaking of China, recall that its top leaders all serve at least a five-year “apprenticeship” on the national ruling committee before taking the reins. If we’re going to compete with leaders like that, we’re going to have to give our presidents some experience in the wider world.

That’s why we Dems need to nurture our “comers”—Cory Booker and Elizabeth Warren—with real, solid federal posts, not just political platforms. As a senior senator, Republican Dick Lugar was kind enough to nurture President Obama, while in the Senate, with a seat on the Foreign Affairs Committee and multiple trips to Russia. We as a people need to maintain and strengthen that brief tradition, big time.

I hope we never see another person leap straight from a governor’s mansion to the White House, let alone with Dubya’s mere six years of total political experience. Except for our general-presidents (including Grant and Eisenhower), Dubya and (with eight years as governor) Ronald Reagan were the least experienced presidents in our history. And generals don’t need instruction in how to handle the military.

We Yanks have got to stop treating the most important job on Earth like an episode of American Idol. Chinese leaders take decades climbing their agonizing ways up a huge 80-million-strong party apparatus. Then they serve at least a five-year apprenticeship. If we don’t do something similar, they’ll make short work of us.

We need to groom our presidents for office, deliberately and systematically, like the Chinese. And we need to start now.

A governorship is a political beginning. By itself, it’s no training for the top job. If Christie wants to be president, he should spend some serious time working with the world outside New Jersey, preferably with more than vengeance on his mind.

Footnote 1:

The table below, adapted from an earlier version published in 2007, shows just how light our presidents’ experience has been. Note how scant the national and international experience has been since Kennedy.

Pre-Presidential Experience of Selected Presidents: Total Years in State Legislature
or Higher Elected Office Prior to Assuming Presidency
PresidentState
Legislature
GovernorshipU.S. HouseU.S. SenateInaugural AgeInaugural Year
Abraham Lincoln8020511861
John F. Kennedy0068431961
Jimmy Carter4600521977
Ronald Reagan0800701981
Bill Clinton01200461993
George W. Bush0600542001
Barack Obama8004472009

Footnote 2:

Yitzhak Rabin was the best hope for peace between Israel and Palestine in 66 years. He was assassinated by a Jewish extremist in 1995, on Bill Clinton’s watch.

That certainly wasn’t President Clinton’s fault. But might a president with more experience and interest in foreign affairs, who might have been more engaged in them earlier in his tenure—before L’affaire Lewinski neutered him domestically—have made a difference? We’ll never know.

History is not an experiment: you don’t get to rerun it under better conditions. That’s why we really do need presidents who, as Hillary said in 2008 (a bit prematurely) are “ready on day one.” Only one of our last five (the Senior Bush) has been, although Senator Lugar’s mentoring of our current President helped. You, gentle reader, can judge the results of Prince Bandar’s tutoring Dubya for yourself.

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14 January 2014

The Awful Arithmetic of Citizens United


Let’s be frank. I’m not a mover or a shaker. I’m a blogger and a reclusive, retired law professor with an upper-middle-class lifestyle. Our nation has millions of people much like me.

Yet two United States senators have called me personally. One went so far as to start leaving a message on our answering machine. We have caller ID, and we screen all our calls. When I heard the words “this is Senator Jeff Merkley” over the loudspeaker, I picked up.

Senator Merkley hails from Oregon. I’ve never lived there. Although I admire him, I’m not his constituent. Yet he called me personally and spent about seven minutes on the phone with me.

Why? His call wasn’t to discuss this blog or to ask my opinion. It was to ask for money.

The reason for personal calls is obvious. As a recent and sometimes enthusiastic political donor, I get ten to twenty e-mails per day asking for money.

So if a pol wants to rise above the noise level in my life, nothing beats a personal phone call. If I pick up the phone and talk with a United States senator in whose work and mission I believe, I can hardly put the phone down without ponying up, unless I’m flat broke.

The other senator to call me personally was Sherrod Brown of Ohio. I was then a resident of his state. He spoke to me for about ten minutes, while I told him some of my ideas about energy.

He listened patiently. How could he not, while asking for money? Good pols are people people and have lots of patience. Both Brown and Merkley are good pols. I did my best not to try their patience, but their calls still took time.

Now let’s do some numbers. Ohio’s population is about eleven million. Let’s say Senator Brown wanted to contact just 2% of it. That’s 220,0000 people. At ten minutes a shot, that’s 2,200,000 minutes.

It may surprise you to know that there are only 60 x 24 x 365 = 525,600 minutes in a year. So Senator Brown would have to spend over four full years on the phone just to reach his 2% contact goal. He would have to spend two-thirds of a full Senate term doing nothing but begging for bucks to finance propaganda. And that’s without sleeping, eating or even stopping to pee.

I won’t do the numbers for Senator Merkley. Oregon has a smaller population than Ohio, but Senator Merkley was calling me in New Mexico. His audience for solicitation was obviously a lot bigger than his constituency.

I suspect that Senator Merkley’s audience, like Senator Brown’s, is limited only by his endurance. When Senator Brown spoke with me, his voice was already hoarse.

What does all this mean for life in America? Four things.

First of all, there is time management. Pols are gregarious people, and they are constantly sought after. They are virtually never alone, at least during waking hours. When do they have time to think?

My impression is virtually never. Citizens United has made personal fund raising not just the first priority, but a matter of political survival. Next come meetings with staff and consultants. Third comes plotting and planning with one’s own caucus and party leaders. Thinking about policy and making deals with the opposition come dead last.

No wonder political posturing has replaced deal making! It takes a lot less time.

The second effect of Citizens United on American politics is to obsess about a single issue. People like me can give a few hundred dollars to candidates for Congress, more in presidential races. People like Sheldon Adelson and the Koch brothers can give millions, or ten thousand times as much.

There’s some arithmetic there, too. If pols spend minutes with me, they can spend days with the big donors and not bust their fund-raising schedule.

In practice, they probably don’t. They don’t have to. According to people who have studied the matter, most big donors from the business world don’t care much for the Tea Party or its extreme right-wing agenda. How could they? They are smart people, or they wouldn’t be rich (or stay rich); and they aren’t all from the South.

What they care about is taxes. The money they donate to pols is not, in their minds, a political contribution. It’s a business investment. If their donation helps cut taxes (or regulation), it can save them millions or billions. And it can save big bucks not just once, but every year, year after year.

Big donations are smart investments in their businesses and their personal wealth, almost as smart as R & D. And for businesses like casinos (Adelson’s) or oil (the Koch brothers’), in which R & D plays a minor role, it’s even smarter. For those businesses, it might be hard to find a better return on investment. Acquiring a competitor costs much more.

This analysis explains why the GOP has, for the past decade or so, become a one-pony show. It’s the big-donor party, the one that has the ear and handouts of the very rich. Nearly all of them are in business of some sort, or got their wealth from business.

Have you ever noticed GOP pols, let alone John Boehner, getting passionate about anything other than taxes, spending, debt and deficit? That’s all (in politics) that their big donors really care about, so that’s all they really care about, too. Maybe the GOP is becoming a permanent minority party just because there’s more to national life than taxes.

The third consequence of Citizens United’s terrible arithmetic may surprise you. Tom Sawyer’s America is becoming an aristocracy.

Not only are our aristocrats increasingly living in separate communities, behind gates and guards. With their well funded and well equipped private schools, they are becoming a self-perpetuating educational elite. They simply can’t understand why the Johnny who takes an empty stomach to a dilapidated school with no IT and poorly paid, harassed teachers can’t learn. And when they want to influence the government, they have ten thousand times the individual leverage of even well educated, well informed, upper-middle-class people like me.

This is democracy? Our Constitution outlaws royalty and titles of nobility, but we’ve started down the path of creating a unique Yankee aristocracy of our own. It lacks the titles, but it has wealth and power of which the dukes and lords of yore couldn’t even dream.

The mightiest duke in all of monarchial England never had a private plane, or leisure homes on several continents to fly it to. Nor could he retain the smartest professional demagogues in human history, who can broadcast brilliantly effective propaganda to millions over TV or the Internet, multiple times a day.

The fourth and final consequence of Citizens United’s terrible arithmetic is the most subtle. But, in the long run, it may do the most damage.

Although a progressive, I am, in general, an admirer of corporations. Why not be? They make the cars we drive, the planes we fly in, the drugs that keep us healthy, and the computer I’m typing this essay on. And when they stick to their knitting they do a damn fine job.

Even more important (and a condition of all the rest), they separate economic activity—business—from both politics and religion. Or at least they once did.

A good business answers only one question: will its products or services sell? In our mass consumer economy, the ordinary person is our chief arbiter of sales. So our consumer market society is inherently democratic.

That simple principle—market democracy—has made us the strongest, the richest and (once) the most egalitarian society in history. It’s what motived industrial autocrat Henry Ford to raise his workers’ wages to $5 a day, so they could afford to buy the cars they made.

Ford did that almost exactly a century ago. Our industrial democracy never looked back, at least until recently, during our new Gilded Age.

Now, under Citizens United, business is getting entangled in politics again, just as it was when Christopher Columbus had to seek Queen Isabella’s patronage to secure ships and supplies to explore the “New World.” Latin societies, which never adopted the corporate model with Northern Europe’s enthusiasm, have fared poorly in competition ever since. Soviet Russia and Communist China failed because, in essence, they tried to weld business and politics together permanently.

When politics wraps its octopus arms around business, and vice versa, can religion be far behind? We now have the spectacle of major corporations donating to campaigns for and against abortion, gay marriage, and subsidies to religion. None of these things has much to do with business or economic policy.

Business people don’t finance these campaigns because they are religious fanatics. By and large, they keep their religious views to themselves for fear of alienating customers. They finance these campaigns, with all their accompanying divisive propaganda, in order to motivate people who favor lower taxes to vote, and to discourage others from voting. But the effect of their doing so is to entangle business not only with government, but with religion, too.

This week’s principal report in The Economist urges governments worldwide to sell off their assets—not just state-owned enterprises, but also minority stakes in private firms and buildings, land, and natural resources. Their doing so might help balance budgets, and private owners might manage these assets more efficiently and with less political meddling.

But governments still do many things that private businesses don’t or can’t do. These things include preserving wilderness and Nature for posterity, defending the nation (against invaders, terrorists and pandemics), arresting, prosecuting and incarcerating criminals, promoting public health, sponsoring basic research, building and maintaining national and regional infrastructure (especially big projects), controlling traffic on land and sea and in the air, protecting the poor, unlucky and aged from poverty and abuse, and educating the vast majority of the population, which nowhere goes to private schools (except in Britain, where the meanings of “private” and “public” for schools are reversed).

Should private business, which is seldom eager to pay for all this useful work through taxes, refrain from trying to govern or control it by buying pols and elections with its business profits? Should government and private business remain separate and distinct spheres of human activity, even while their mutual boundaries are under perpetual renegotiation?

Our species’ meteoric rise since we got serious about division of labor and specialization a few centuries ago suggests an affirmative answer. So do the different skills that pols and business people require. Even the largest private firms are flyspecks compared to the population, geographic breadth, and human diversity of the smallest developed nation. To believe that a manager of a highly specialized private business, with minimal political experience, could run a nation whose substantive, geographic and human scope were incomparably larger than his firm’s would be the height of hubris, wouldn’t it?

No sane business person would think of letting even a highly successful dairy farmer run a software company, or a software magnate run a car company. So why should we think that letting business people run our government by buying pols or elections with their business profits is a good idea, even without considering their conflict of interest in ever-lower taxes?

If you were cynical, you might think our Supreme Court yearns for days of yore. In the age of monarchy, politics, religion and business all were one, united in the person of the Monarch. “L’etat c’est moi! Tout c’est moi!”

When the King or Queen switched sides, legions died in combat, for little or nothing real. Legions more were put to the Inquisition. If the Monarch didn’t patronize a commercial project, it didn’t go. The great exploratory voyages of Columbus and the Chinese eunuch admiral Zheng He (formerly Romanized as Cheng Ho) went only because of their respective monarch’s support.

One would have thought our species had made some social progress since those days.

Some day, if our Yankee Republic survives, historians will classify Citizens United with the biggest mistakes in our unique judicial history. It will go down with Dred Scott (1857), which continued African-Americans’ status as non-citizens capable of being “property,” and Plessy v. Ferguson (1896), which validated Apartheid in America, long before South Africa’s.

While reaching back to aristocracy and monarchy, Citizens United puts our good pols under impossible time pressure. It contributes mightily to partisanship and gridlock. It gives our rich a dominant voice in public life, often well beyond their contribution to it. (Casinos in Macao?) It confuses business, politics and religion, as in the days of monarchy. And it allows those who control our nation’s production to use its profits to propagandize us and subvert our elections and our leaders, all in a perverse—but oft remunerative—monomaniacal effort to increase their private gain.

What, if anything, were our Supremes thinking? Speech isn’t money, nor money speech. Every bum on a soapbox in Hyde Park or Union Square knows that. Corporations aren’t people, but legal fictions, as every first-year law student learns. Only the most egregiously blind sophistry could have convinced our good justices otherwise.

Already the consequences of their simplistic and erroneous abstractions are horrendous. Unless corrected, they will become catastrophic. They could easily wrest our Republic from us, in everything but name.

P.S. Al Franken’s Petition. You can do something about all this, and in less than a minute. You can sign Al Franken’s online petition.

Franken is a senator from Minnesota, where I’ve never lived. He used to be a writer for the TV show Saturday Night Live. He’s obviously a smart guy: his petition is short, sweet and simple. It just advocates a constitutional amendment to get rid of Citizens United, without saying exactly how.

There are other petitions for the same purpose. But it seems to me that one sponsored by a sitting United States senator, and one so simply and superbly written, will have the most impact. (Maybe Senator Franken would prefer to do something useful, instead of begging for money to finance propaganda, before giving up and going back to writing for TV. At least that sort of writing gives people a laugh, not heartburn.)

If just half this post strikes a cord in you, you should add your name to the long list of signatories, whether or not you signed an earlier, similar petition. I already have.

Footnote: As for hot-button issues like abortion, I’ve said about all I can on their distraction from real issues that matter to most of us here. The only accomplishment of politicizing the issue was winning some elections for the right wing. Its greatest triumph was helping put into office one of our worst presidents ever, whose own party didn’t invite him to its last national convention and would prefer that he just quietly fade away.

Do you think that focusing on substantive, non-religious policy might do better? It could hardly do worse.

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08 January 2014

Janet Yellen: Yankee Philosopher Queen


[For reasons why Janet Yellen is more like our Founders than her predecessors in her approach to human and societal perfectibility, click here.]

Three important things happened in finance yesterday.

First, the once-great bank JP Morgan Chase agreed to pay over $2 billion for failing to do anything about years of “red flags” from Bernie Madoff’s Ponzi scheme—that is, anything besides getting its own money out just before the scheme went bust. Second, PBS’ Frontline feature showed us all, up close and personal, just how little Wall Street hedge funds really cared about the rules—our own laws and regulations—that are supposed to govern their businesses.

In so doing, it showed us how easily perverse incentives can produce perverse people. No surprise there.

Finally, and most important, our Senate confirmed Janet Yellen as the first-ever female Chairman of our Federal Reserve Board.

These three events are not unrelated. The first two remind us just what caused the Crash of 2008, from which we are still struggling to emerge.

It wasn’t just an utterly rotten bankers’ culture, in which integrity, prudence, right and wrong, and even loyal clients got trampled in a headlong rush for big bucks. It wasn’t just a lax regulatory environment, in which even Democrats believed that foxes can run henhouses in the interest of the hens. And it wasn’t just a false and wishful ideology, under which even Alan Greenspan, then Fed Chief, believed that sick markets cure themselves.

No, it wasn’t just any one of these things. It was a perfect storm of all three. The extraordinary confluence of greed and stupidity in all concerned made the Polar Vortex, which has chilled our nation, look like a child’s practical joke.

Madoff’s Ponzi scheme was not, of course, a cause of the Crash. Nor was hedge funds’ assiduous flouting of the spirit of our insider-trading laws (while trying, often unsuccessfully, to follow their letter to avoid lawsuits and stay out of jail). These events were but minor symptoms, mere buboes on a victim of the Black Plague. But they remind us just how close we came to economic death.

Every cloud has a silver lining. Without all this, Janet Yellen would not be Fed Chief. We would have another in the so-far endless succession of brilliant, self-interested rationalizers from the Wall Street Boys’ Club. We would have boys like Tim Geithner or Larry Summers, whose primary concern was preserving the “system” and saving their cronies and members of their social class—taxpayers, ordinary people and our long-term economic future be damned. We might have someone like Lloyd Blankfein, who joked that destroying the global economy was “God’s work.” Or we might have another Alan Greenspan, whose presumed mathematical intuition and oracular utterances vanished like a fog of lies under the solar glare of his real motivation: simple, naïve faith in conservative dogma.

Fortunately for those of us who are not bankers, Yellen is not one of this crew. She appears to favor regulating people entrusted with astronomical sums of money who, throughout human history, have consistently used that money to enrich themselves without regard to consequences. She is a Keynesian. That means she sees the purpose of government—and government debt—not as fine-tuning some grand, abstract machine called “The Economy,” or subserving some abstract political dogma, but making real people’s lives better. And she’s a woman, a member of the gender that has always had to pick up the pieces and feed the kids when men’s grandiose schemes run amok.

We are in uncharted territory here. Congress created the Fed to tame the endless boom-and-bust cycle of (mostly) financial panics that have tortured capitalism and its subjects at regular intervals like recurring bouts of malaria. For most of a century, the Fed did just that. But then the Wall Street Boys’ Club, which has often been the disease’s principal vector, captured the Fed.

Now we have a new kind of leader, whose goal is to do what the Fed was set up to do. Yellen wants to damp the punishing cycles and realize the Fed’s initial promise. She wants to confine banking to what it was, in theory, always supposed to be: an instrument of capital formation and recycling for the benefit of real industry and ordinary people. And she wants to use her dual full-employment and inflation-fighting mandate to give ordinary people more and better jobs and better lives.

I won’t dwell on Yellen’s economic credentials, which are superb. I won’t mention her Yale Ph.D., her professorships at Harvard and Berkeley, her two years on the White House Council of Economic Advisors, her six years as CEO of a Federal Reserve Bank, or her three years as Vice Chairman of the Fed. She is qualified for her new job as few men in our history have ever been.

But in the end, expertise alone is not enough, as we saw so clearly with Greenspan. Although not as dismal as when John Maynard Keynes coined the phrase, the “dismal science” of economics is still in its infancy. It’s just now emerging from its physics-envy phase, in which it fancied itself a branch of thermodynamics, governing little atoms of perfect information, knowledge and reason.

Now we know better. People are not atoms, all the same and all responding rationally and predictably to external stimuli. We are incredibly complex biological and psychological organisms, prone to stampedes of greed and fear, and acting together in even more complex organizations known as “societies,” “firms” and “markets.”

The new field of “behavioral” economics is just now beginning to come to grips with these basic facts. It’s exploring what happens when people, in large numbers, are subject to greed, fear, doubt and uncertainty, which most of us are most of the time.

Economics will never be the same again. Nor will its practitioners ever again be quite so disastrously cocksure as Greenspan was about the perfection of markets or Summers apparently is about everything, including women’s alleged difficulties with science.

It goes without saying that, when you base your theory on a completely asinine view of the world, you get odd results. And so we had the spectacle of our highest expert, charged with damping market cycles and preventing crashes, telling us—and then recanting—that they would cure themselves.

If so, why even have a Fed? Logically, Greenspan’s own dogma should have put him out of his job. But he, like the bankers he was supposed to supervise, loved the power and the spotlight.

Yellen is not like that. She’s not gunning for a Nobel Prize by forcing our fragile lives into some grand abstract theory. She’s no devotee of simplistic ideology. She knows what the Fed is for. She’s a practical person, focused on human and societal needs.

We ought to thank Providence that she’s now safely in office, where nobody but Providence can remove her for four years. We ought to thank the President, who finally saw the light and dumped Summers, with some encouragement from his best and most loyal constituency, women.

And we ought also to thank our intelligently designed system, a product of continuing social engineering. We should thank it for putting an expert of Yellen’s caliber, empathy and vision in the second most important job on Earth.

And we should thank it doubly for doing so at a time when Congress is still mired in mud-wrestling, and people like Sarah Palin can credibly strive to be a heartbeat away from the top job. Sometimes Providence does indeed work in mysterious ways.

Human Perfectibility and Social Engineering: Candide, Yellen and the Pope

The tragicomedy of our species’ undeserved self-regard, and of the inevitable Fall that follows, would be hilarious if its consequences weren’t so terrible. Despite our best efforts to enlighten ourselves, our flights of vanity and ensuing catastrophes recur regularly, like clockwork.

In 1759, the French author and philosopher Voltaire described the phenomenon in his famous comedy, Candide, ou l’Optimisme. He debunked the notion, then current among Europe’s elite, that this is the best of all possible worlds because we are the best of all possible species.

When we humans lose ourselves in orgies of undeserved self-congratulation, the best antidote is humor. Sometimes it’s the only effective one. Voltaire used humor to great effect, but not enough to stave off the bloody French Revolution. Marie Antoinette lost her head for announcing the logical conclusion of that absurd “best” philosophy: if the people can’t find bread, then “let them eat cake!”

Candide offers a great many laughs. But the best comes near the conclusion, as the credulous, naïve heroine recalls her narrow escapes from many trials, tribulations and tortures. Referring to her mentor and teacher, who inculcated in her the then-current rage of self-congratulation, Candide declares:
“Oh Pangloss, Pangloss! How happy you would be if you had not been hanged!”
When I first read that line, at the age of 17, I fell into spasms of laughter that lasted minutes. It is still the single most cogent comment I know on abstract theories of human perfection and perfectibility, and on the inevitable divergence of theory from practice.

By the skin of our teeth, we Yanks have just (nearly) come through a financial catastrophe of our own making caused, in essence, by an equally absurd philosophy. Is there any real difference between the ideas that our world is perfect and that our markets are perfect and self-correcting? Voltaire could have told us, long before any banker, regulator or hapless consumer, how stupid was (and still is, for some) that “conservative” dogma.

Our Founders knew better. They had no illusions about the perfection or easy perfectibility of us or our society. They knew that even approaching perfection would require unrelenting discipline, vigilance and effort. That’s why they bequeathed us checks and balances and a Bill of Rights.

Our Founders saw us as flawed creatures, driven from the Garden for our imperfections and having to work hard to correct them. Today, a better analogy might be spouses working hard, every day, to save their marriage. It takes effort, humility and diligence, every hour of every day.

When we coast on our presumed laurels, we should know we are headed for a cliff. And so it was with the Great Depression, the Great War, and (more recently) the Crash of 2008.

So-called “conservatives” claim to revere our Founders, our Constitution, and our traditional culture more than others. But they often forget the clear message all these left to us. From its inception, our Yankee society has been an unabashed and deliberate experiment in social engineering. It still is.

Every aspect of our government and our lives has been deliberately engineered. Our checks and balances force us to work together. Our Bill of Rights keeps us free. Our national banks, which Alexander Hamilton fought so hard for, support the muscular and flexible capitalism which has made us the world’s strongest and richest society. Our Federal Reserve system and other regulators keep those banks and their immense financial power in check, working for the good of all.

“Our Federalism” devolves much power to our states and their municipalities. It lets localities manage their own affairs. It also urges our states to serve as experimental laboratories. Through them, we can seek perfection not with any grand, overarching abstract theory, but step by step, with practice, patience and hard work, through trial and error. At the same time, our federal government and our federal Constitution keep our gazed fixed on our lode star: the values of Western Enlightenment that once made us unique among nations, until the advent of the EU.

None of this is an accident. None of it relies on absurd notions of inherent perfection or perfectability. All of it involved engineering, self-conscious and deliberate, by the more far-sighted among us.

All of it is also much like modern science. It finds what works in practice, step by patient step, based not on abstract reasoning, but on facts, evidence and data derived from practice, careful observation and experience.

It is no accident that, while Congress is hog-tied by disputes over perfect abstractions, our state governors are making progress in practice, step by step. They are innovating with social engineering, in feeding and housing our poor, in creating jobs, in insuring health, in exploiting solar and other renewable energy, and in improving criminal justice.

This is where Janet Yellen comes in. Although superbly educated in all the most current economic theory, she is no Candide. She knows why we have the Fed: because private bankers, acting in their own self-interest, have caused regular financial panics throughout the history of capitalism. So they must be managed, regulated and, when necessary, controlled.

In this respect, she is not much different from Ben Bernanke, who saved our economy with a brilliant experiment in “quantitative easing.” A practical man, he used the power he already had as Fed Cheif, rather than asking a feckless, divided and dysfunctional Congress for more. Bernanke also used his regulatory power to rein in bankers’ continuing excesses with stricter and stricter capital-reserve requirements. Our Founders, including Alexander Hamilton, would be proud.

Yellen is similar but different, and not just because she is female. From all reports, she has more empathy for those who fell to absurd abstractions than any previous Fed Chief. She has less credulity for theory, and more respect for data and practice. And she has among the best, if not the best, education and practical training of any Fed Chief so far. So she is perfectly situated to continue the tradition of careful social engineering that our Founders began and that has made us supreme among nations, despite having less than 5% of the world’s population.

So where does the Pope come in? To the delight of enlightened Catholics and the immense respect of all others, Pope Francis has reminded all of us of the power of humility.

With his humbly human, “Who am I to judge?,” he put the trials of homosexuals in proper perspective. They are not some abstraction, to be dealt with according to some abstract theory, whether from the Bible or from an all-too-human fear of the other.

They are people, and they are here among us, in large numbers. So we must deal with them humbly, tenderly and lovingly, as Jesus advised. If the Pope can try hard to do that despite being bound by two millennium of hardened Church doctrine, surely the rest of us, not so burdened, can permit and even celebrate gay marriage.

More broadly, the Pope’s humility is just the antidote to our recent orgy of self-regard and self-regarding abstractions.

We Yanks thought we “won” the Cold War. We thought we did so because our abstraction (capitalism) was better than the Russians’ (Communism). Our God was stronger than their God.

What bunk! No one “won” the Cold War. Both sides lost.

Our self-delusion with simplistic abstract ideology just followed the Russians’. We are slowly emerging from it right now. The notion that sick markets cure themselves is no less absurd than the contradictions of Communism or the “best of all possible worlds” philosophy of Europe’s bloody eighteenth century.

We Yanks are the beneficiaries of a society founded on the the values of the Western Enlightenment and built upon two centuries of self-conscious and deliberate social engineering. We should have known that simplistic abstractions are neither our heritage nor our future.

Pope Francis’ humility reminds us of that basic truth. Janet Yellen knows it. Now we Yanks can return to what made us great as a people: engineering our own betterment, step by patient step, with a humble heart and an eye on current data.

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