Thursday, October 30, 2008

Just Another Country Now

Fouad Ajami writes in "Obama and the Politics of Crowds" about something that has been on my mind for some while now, but which I cannot express as gracefully as he. He writes of his sadness, the sort of sadness only an immigrant liberated by America's (small-r) republicanism can possess, of what the success of the Obama candidacy means. It means we are becoming European in our mediocrity, and in our pessimism:

Daniel Patrick Moynihan, the late Democratic senator from New York, once set the difference between American capitalism and the older European version by observing that America was the party of liberty, whereas Europe was the party of equality. Just in the nick of time for the Obama candidacy, the American faith in liberty began to crack. The preachers of America's decline in the global pecking order had added to the panic. Our best days were behind us, the declinists prophesied. The sun was setting on our imperium, and rising in other lands.

And we are becoming like every troubled land in placing our faith in men and not laws:

My boyhood, and the Arab political culture I have been chronicling for well over three decades, are anchored in the Arab world. And the tragedy of Arab political culture has been the unending expectation of the crowd -- the street, we call it -- in the redeemer who will put an end to the decline, who will restore faded splendor and greatness. When I came into my own, in the late 1950s and '60s, those hopes were invested in the Egyptian Gamal Abdul Nasser. He faltered, and broke the hearts of generations of Arabs. But the faith in the Awaited One lives on, and it would forever circle the Arab world looking for the next redeemer.

A few months back I had a discussion with one of my colleagues. I had said that one of the reasons I objected to Sen. Obama was that he did not believe in American exceptionalism - the idea that we are different, in ways that are profoundly good and important. Instead, he believes that America is out of control and behind the times in terms of "progress" - the welfare state, signing on to the carbon-hysteria agenda, etc. America, in his view, needs to be restrained by philosophically loathsome treaties in the name of the global good, and its people have to sacrifice their dreams so the state can do good. Just like they do in other countries.

My colleague didn't really believe my criticism of Sen. Obama, and I think perhaps did not understand so well the point I was making (which was probably my fault for explaining it so poorly). Indeed I asked him if he believed in American exceptionalism, and he said he did, but couldn't really explain why.

The reason, of course, is that America is the only nation in history to be founded on the individualist creed. (To be sure, we inherited much from Britain, and from Rome and the German tribes before them, that made this possible.) But it is possible we are headed as a nation to being just like everybody else. We believe in the necessity (forgetting our own unique and priceless heritage) of "change," even though we are not sure what we mean when we approve of it. We give little thought to the need for an America devoted to individual sovereignty, as the last refuge of those in danger of being crushed by collectivism. All we need is the brave leader with the magical powers to change human nature to get us to the promised land, free of poverty, depression and rancor - our Peron, our Nasser.

Of course, one of the reasons the Nassers, Perons, and assorted other corrupt parasites and demagogues who rule their benighted lands cannot do too much damage is that America is always there, as the land where the individual can control his own destiny without being absorbed into the collective. But what if we wake up one day and it isn't?


Monday, October 27, 2008

How Not to Solve the Global Financial Crisis

Next month there will be a summit involving something called the G20 on the global financial crisis, says Pres. Bush, according to The Chicago Tribune:

"This summit will be the first in a series of meetings aimed at addressing this crisis. The summit will bring together leaders of the G20 nations -- countries that represent both the developed and the developing world. And the summit will also include the heads of the International Monetary Fund, the World Bank, and the Financial Stability Forum, as well as the Secretary General of the United Nations.

"During this summit, we will discuss the causes of the problems in our financial systems, review the progress being made to address the current crisis, and begin developing principles of reform for regulatory bodies and institutions related to our financial sectors. While the specific solutions pursued by every country may not be the same, agreeing on a common set of principles will be an essential step towards preventing similar crises in the future.

The idea that a bunch of heads of state, joined by a bunch of bureaucratic micromanagers of the sort who tend to populate the World Bank, the UN and particularly the IMF, can hold a meeting in the de facto capital of the world, Washington, and fix what ails the world economically is misplaced. We got into this mess because of years of accumulated mistakes that inevitably arise during a a great boom, which must be cleaned out. In this case the problem is worse because of the extra noise in housing markets introduced by Washington’s social engineering, which, combined with the global securitization of mortgages, has allowed everyone else to first enjoy our bubble and now imbibe our bitter medicine.

The only way out is the same approach that Andrew Mellon, President Hoover’s Treasury Secretary, was said (by Hoover) to have recommended: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." Once the mistakes are out of the system, growth resumes. The mistakes have piled up because of combined dramatic growth-driven economic uncertainty and political uncertainty. Recent evidence – stock markets continuing to decline around the world despite one Keynesian/FDR remedy (stimulus, bank bailouts) after another – suggests that we cannot use macroeconomic management to get us out of this mess. There is nothing that a bunch of leaders can do from on high to fix a problem that is fundamentally, like all economic phenomena, an individual one – this individual decision now seen to be a mistake, that one not, that one over there a wonderful opportunity yet to be exploited.

What the summit does represent is risk – political risk in particular. This is because politicians and bureaucrats will want to do what they like to do - enhance their control, try to be seen as doing something right now instead of telling their constituents that it will be necessary to wait a bit. The combination of a lame-duck U.S. President, a more micromanagingly interventionist Administration and Congress in the wings, and Asian nations looking to reengineer global economic management for their own political interest while European nations look to increase state control for philosophical ones, is an explosive one. A quarter century of economic progress is at risk. If we take the 1930s way – control, management, administration, regulation – and forget Mr. Mellon’s advice, the results will be the same.

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Monday, October 20, 2008

Living in a Union Age

Claire Berlinski, whose previous book I reviewed as part of a larger group of Euro-doom tomes here, has a striking piece in City Journal about how the Democratic Party proposes to do in the U.S. the sorts of things that caused so much damage in 1970s Britain, until Margaret Thatcher, facing a country teetering on the edge of ruin, undid them:

When Thatcher was elected in 1979, Britain had just endured a winter of discontent—a season of strikes and trade union agitation so severe that the nation stood effectively paralyzed. Food supplies were interrupted, whole industries choked, and exports fell. “We don’t want to increase our trade with you,” said the Soviet trade minister to his British counterpart. “You’re always on strike.” Rubbish piled up on the streets that winter; at one point, so did human corpses. This was what had become of a nation that was once the world’s greatest trading power.

For obvious reasons, Thatcher put reform of the trade union law at the top of her agenda. Among the key provisions of Britain’s 1980 Employment Act was a change in the way government would recognize unions. At the time, workers voted to join unions—or not—in public, by voice vote. Dissenters suffered harassment and physical intimidation. Henceforth, Thatcher decided, new union membership agreements would require approval by means of a secret ballot in order to protect rank-and-file workers from bullying by union organizers.

(The article is presumably a part of the promotion by Ms Berlinski of her new book about Mrs. Thatcher.)

The so-called Employee Free Choice Act would require that unions be recognized as a bargaining agent when a majority of employees publicly declare for one. Under current law, a majority must vote in secret for the union as their collective-bargaining agent.

Any privileging of collective bargaining in the law - requiring, for example, that employers even recognize a union if they do not wish to - is a violation of individual rights. It is also a disaster for productivity, turning the workplace into a place of zero-sum struggle (with customers conspicuously excluded from the conversation) instead of an effort of mutual cooperation for mutual gain. In a unionized workplace, fingers are pointed, pay is detached from productivity, and productivity consequently falls, with consequences for the rest of the society (which gets no say, although arguably it should, in whether a union is recognized).

But the issue of the moment here is what this means for people who do not wish to join unions. I know from personal experience (at a university I have worked at) that unions react badly to dissenters, and there are bad consequences to refusing their very untoward advances. When workers generally speaking are identified in public as union opponents, bad things may happen to them. Is it too much to suppose, therefore, that threats or fear of backlash might motivate them to vote for a union that they otherwise dislike? This is why political elections employ secret ballots in open societies, and public ballots in totalitarian ones.

There is nothing particular about labor unions in this regard. Any group so privileged in the law behaves the same way. (The ABA and the Recording Industry Association of America use their legal monopoly privileges to behave with equal thuggishness towards paralegals and copyright violators, respectively.) This is why equality before the law - allowing each individual to pursue his interests under the same rules as other individuals - is so important. But these are increasingly collectivist times. And Americans may soon be about to learn what it took the British a decade of pain to realize. That it is happening here, in the land Mrs. Thatcher admired so much for its devotion to the ideal of individual equality, is all the more unfortunate.

Union membership in the U.S., outside of the public sector (which is not subject to the realities of the private one), has been in decline for decades. Economically and philosophically this has been wonderful for the people of the United States of America. But it may be coming to an end.

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Monday, October 13, 2008

The Bright Side of the Financial Crisis

The BBC laments that the fight, such as it is, against climate change is going to be a casualty of the global financial problems:

The global economy is losing more money from the disappearance of forests than through the current banking crisis, according to an EU-commissioned study.

It puts the annual cost of forest loss at between $2 trillion and $5 trillion.
The figure comes from adding the value of the various services that forests perform, such as providing clean water and absorbing carbon dioxide.

Good thing, too. Here are some recent items from what climate-change hysterics think we as a species have to give up, under the iron fist of as many scientist totalitarians as it takes, to save the planet:

We have to give up much of modern medicine:

Dr. Richard Nicholson, editor of the Bulletin of Medical Ethics, told the assembled bioethicists they had to look beyond their usual issues to consider the far larger ecological threat he said could soon end up destroying mankind.

The issue is urgent for bioethicists, he said, because the healthcare industry in the rich OECD countries is a major source of carbon dioxide emissions. It also spends vast amounts to prolong patients’ lives, about half of it in the final months before death. “The more effort we put into saving individual lives, the more likely we are to doom the human race to extinction,” he said.

“Just being a little bit more green isn’t the answer,” he insisted. Rich countries will have to find ways to cut their carbon emissions almost completely within the next few years. His outlook for the healthcare industry was summarised in a bleak PowerPoint slide:

Possible changes in medicine
• close most hospitals and concentrate on good-quality primary care
• reverse the brain drain and send redundant health workers to developing countries
• outlaw assisted reproduction
• stop medical research undertaken for utopian or financial reasons.

If western countries closed all their hospitals, he said, life expectancy there would drop by only eight months.

“What is more important,” he asked, “maintaining our wealth and economies for 20-30 years until climate change wipes them out, or trying to ensure that as much as possible of the human race survives?”

(Emphasis in original.) All medical research is conducted for financial reasons (or at least self-interest) of one sort or another, but leave that aside. Air travel too will be a foregone luxury we wistfully tell our grandchildren about:

The study concludes: "The notion that we can treat what we do in the home differently from what we do on holiday denies the existence of clearly related and complex lifestyle choices and practices. Yet even a focus on lifestyle groups who may be most likely to change their views will require both time and political will. The addiction to cheap flights and holidays will be very difficult to break."

(The study was led by Stewart Barr, who found that environmental hysterics were the most likely to take long-distance flights, with one cited, delusionally, saying he could offset his in-the-air carbon emissions by recycling. Climate sacrifice for thee and not for me.)

Finally, here is climate-change hysteria in a nutshell:

"It is time for civil society and environmental organisations to take the world," Pavan Sukhdev, an Indian economist and co-author of 'The Economics of Ecosystems and Sustainability' told IPS.

What if “the world,” or more accurately the free men and women who make it up, the Third Worlders hoping for something better for their children than cholera, malaria and being at the utter mercy of beloved "nature," the hard-charging entrepreneurs who want to use some CO2 to improve human possibilities, the adventurous young people who want to get in a car or plane and try live in a different place, don’t wish to be taken? Ultimately, hard green is about control over you and yours, and that is what makes it so dangerous. Despite the “losses” referenced in the BBC story, people somehow manage to get up in the morning, go to work, live ever-more autonomous lives, pass on a better standard of living to their children, and otherwise make the doomsdayers look silly. This – civilization and what it has meant for humanity – is what is at risk from modern environmentalism.


Monday, October 06, 2008

Dead Man's Hill

What caused the housing bubble? Greed, lack of regulation, or too much regulation?

Below (a little fuzzy, unfortunately, but I think the story is clear) is a plot of home ownership rates in the U.S. from 1965-2008, from the Bureau of the Census (Table 14).

You can see that historically ownership rates fluctuated between 63-65%. But beginning in roughly 1994 they began a rise to historically unprecedented levels. What happened? Between 1993-7, particularly in 1994 (the Wikipedia history is a little fuzzy) the government increased pressure on banks in a variety of ways to lend to those who didn't get loans, particularly the poor and those in inner-city neighborhoods. This was a shock to the financial system - a changing of the rules that required lenders to reevaluate their risk exposure. Against traditional risks of nonpayment on one side had to be weighed new, unclear risks concerning the risk of government punishment for not meeting government targets about loans to politically favored but financially troubling borrowers.

Added into the mix was the decision by the Federal Reserve after Sept. 11 to loosen monetary policy dramatically. (We all remember how nervous everyone was about the economy after the attacks, with Wall Street falling badly on the day the markets reopened.) As much as economists like to think no one with rational expectations would fall for it, politicians know through their repeated use of the tactic that they can rely on money illusion to give the economy a short-term boost. And so easy credit followed easy money, and this combined poisonously with the CRA reforms to generate the pattern above. All financial bubbles have their roots in a combination of new developments and broad uncertainty, and that is what the CRA reforms, in combination with the new subprime mortgage-security instruments the financial industry developed to help companies navigate them, did. In hindsight it is clear that the bubble popped in 2006, and took much of the global economy (how much remains to be seen) with it.

The numbers do not lie. Markets correctly solve the problem of who should and shouldn't own a home, once we take cognizance of the fact that for some people to have a home will impose very large costs on others. This is a disaster made in Washington, by politicians for their short-term interests at the expense of the rest of us.

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The Bill Comes Due

Here is The Financial Times on Arnold Schwarzenegger’s request from the federal government of the United States for money:

Arnold Schwarzenegger, California’s governor, has told the federal government that upheaval in the credit markets could leave his state in need of an emergency $7bn loan to pay for public services such as law enforcement, hospitals and firefighting.

California taps the credit markets around this time every year to raise “revenue anticipation notes”, which tide it over until tax revenues arrive in spring. But with credit markets frozen, it does not expect to raise sufficient funds from investors this year, leaving it short of cash. It needs the money by the end of October.

In a letter, Mr Schwarzenegger said: “Absent a clear resolution to this financial crisis” the state “may be forced to turn to the Federal Treasury for short-term financing”.

Note first that it is a measure of California’s desperation that it is going to Washington for money. If it were forced to raise money in normal universe (although it doesn’t), the federal government would know that it has no money.

California is not alone. Massachusetts is contemplating the same strategy. These of course are two of America’s most, um, “generous” states, who dole out money liberally to prison guards, for health care, etc. This mess demonstrates a critical difference between public- and private-sector decision-making. Businesses are constrained by the market right now, and the market is ruthless. Those who must acquire their resources only by consent have to take account of the costs, not just now but well into the future, of their decisions. For politicians, who have the power to change the rules to extract new sources of revenue, at least until the well runs dry, the relevant time horizon is much shorter – the next election at the latest. And so costs can be kicked down the road to some future politician.

Despite my admonitions, the bailout bill is now law. If there is any silver lining here, it is that the immense sacrifice required of taxpayers will at least temper the demand for ever more spending on ever more “programs.” That, according to this account in the LA Times from 2004, is what happened in Orange County, CA after its bankruptcy in 1994. If we are lucky (and we will have to be), the huge burden about to be imposed on future taxpayers will make clear to Americans that government spending has consequences. But I am not optimistic. I suspect, particularly if the Democrats control the White House and Congress after November, that Govs. Schwarzenegger and Patrick (and who knows how many others) are going to get their money. From you, and me.


Wednesday, October 01, 2008

Two Bracelets

Anyone who saw the first presidential debate, and many (including me) who didn’t, is familiar with the two candidates’ exchange of views over the Iraq war through reference to bracelets they wore that came from the mothers of soldiers who died in Iraq. The most notorious moment in this exchange occurred when Sen. Obama, who looked like he was ready to pounce, nonetheless appeared to momentarily forget the name of the soldier and the mother who were so much in his thoughts.

But to me the most interesting thing about this exchange is the way it indicates the growing problem of the role of a voluntary military at a time of seemingly endless and costly war. The problem, in short, is that the military becomes just another undecided pressure group whose sacrifices must, in the jargon, be spun by ambitious politicians. To the anti-war groups, the deaths of soldiers must be portrayed in a way that increases support for ending the war, and to those who support the Iraq and Afghanistan campaigns the very same deaths must be used to persuade the Americans to support victory.

We live in an odd time. As a cynic put it recently, the American military is at war, but America is at the mall. We have seldom had such a great disconnect between what military people go through and what happens to civilians during a typical day. During World War II the military did the dying as usual but the lives of civilian Americans were tightly woven into the war effort in every respect. That is clearly not the case now, as any stroll down an American city street during a busy workday, chock full as it is of people doing perfectly ordinary and pleasant things with little thought given to the geopolitical decisions their government has made on their behalf. That the military would be politicized now was perhaps inevitable, and I think this is a trend that will get worse. We will soon enough see politicians explicitly charging the other politicians, who of course are the bad guys we all must fear, with actually betraying the military. And where does this lead?

The military as far as I know takes its oath, which requires them to defend the Constitution rather than a particular man, very seriously. But how long could it go on like this – the military at war, the people not, and politicians increasingly using the fate of the military to scour up votes? Down this road lies the path to the increasing militarization of our domestic politics. If the military is asked to support one side or another, eventually it will. Perhaps it is inevitable with an all-volunteer force and the United States playing, depending on your predilections, global cap or imperial master. But either way, there are precedents, some of them none too reassuring.