Archive for the 'Book Notes' Category

…the Schlichter prophecies, I mean, wherein the good Colonel Kurt S. postulated a political/geographic split of the United States along red-blue lines. In his bleak and blackly humorous vision, (carried out over a five-volume series) the middle portion of the States carried on with fidelity to the Constitution, free-range capitalism, and universal military service as an obligation for full citizenship. Meanwhile the east and west coasts as a so-called “People’s Republic” carried on under a selection of increasingly deranged and erratic progressive principles, turning into a dysfunctional combination of Portland’s CHAZ/CHOP, any PC-addled university you could name, Zimbabwe under Robert Mugabe and Venezuela at this very moment. The series is meant to be grimly entertaining, but I’m beginning to believe that the split has already happened – not in the neat geographic manner (with some violent hiccups) outlined – but in a slower and murkier manner. Read the rest of this entry »

A high-school friend had a father who worked in a factory.  He had a story…it seems there was this guy who got his left arm caught in one of the machines and horribly mangled.  He was out for months, and when he came back, the other workers crowded around him, asking “How did it happen?”

“Like this,” he said, demonstrating with the other arm.

Maybe just a made-up story…but I’m reminded of it a lot, these days.

We have a century of evidence of what happens to a society when it falls into the traps of centralized economic planning, suppression of free speech, and the categorization of people–especially ethnic categorization.  But an awful lot of people, including powerful and influential people, seem to want to go in these directions.

I can have some sympathy for people who became Communists and/or advocates of world government back in the 1920s.  The theory of centralized economic planning is very seductive (see this, for the actual practice), and the slaughter of the First World War led people to grasp at any possible way of avoiding such horrors in the future.

I have a lot less sympathy for people who have refused to learn from a century of experience.

In Walter Miller’s great novel A Canticle for Leibowitz, a global nuclear was has devastated everything.  Over a period of centuries, civilization has been gradually rebuilt…and, once again, nuclear war threatens.  The abbot of a monastery speaks plaintively:

…“Brothers, let us not assume that there is going to be war…We all know what could happen, if there’s war.  The genetic festering is still with us from the last time Man tried to eradicate himself.  Back then, in the Saint Leibowitz’ time, maybe they didn’t know what would happen.  Or perhaps they did know, but could not quite believe it until they tried it—like a child who knows what a loaded pistol is supposed to do but who never pulled a trigger before.  They had not yet seen a billion corpses.  They had not seen the still-born, the monstrous, the dehumanized, the blind.  They had not yet seen the madness and the murder and the blotting out of reason.  Then they did it, and then they saw it.”

“Now—now the princes, the presidents, the praesidiums, not they know—with dead certainty.  They can know it by the children they beget and send to asylums for the deformed.  They know it, and they’ve kept the peace.  Not Christ’s peace, certainly, but peace, until lately—with only two warlike incidents in as many centuries.  Now they have the bitter certainty.  My sons, they cannot do it again.  Only a race of madmen could do it again—”

And we today, know, with what should be dead certainty, where Communist and Fascist approaches to the organization of society lead.  We have seen the hundreds of million corpses, the suppression of spirit, the needless impoverishment.  Surely, only a race of madmen could do it again…

Weirdly enough – and this apparently happens to authors at random – I had a dream about the plot of a new book late this past summer and woke up just in time to remember it all. A novel set in WWII, which is at least half a century or more out of my fictional headspace; I like the 19^th century. Got all the reference books, the books or art, a grasp of the vocab and the look of the whole 19^th century universe and outlook. But – WWII. For me, it is just enough close in time that I knew a lot of people personally involved, from Great-Aunt Nan, who was one of the first-ever women recruited for the WAACs, to any number of high school teachers (some of whom were more forthcoming about their service than others) to the Gentleman With Whom I Kept Company for about a decade, to a neighbor of Mom and Dad’s who had been a prisoner of war in the Far East and fortunate enough to have survived the experience. Read the rest of this entry »

A previous post mentioned trust and the responsibilities of government to keep up their share of their contract to provide safety and the kind of order property rights demand. Such trust comes easily when our respect is internalized. Benjamin Franklin and Jonathan Edwards both spoke of teaching the young “virtuous habits”. In the America in which I grew up that kind of respect was internalized – and not just in towns of 500 in the Great Plains – Thomas Sowell talks of his boyhood in Harlem with such affection. This too, is critical of the broken contract of so many politicians with their citizens surrounded by the rubble of riots.

In Property and Freedom, Richard Pipes examines “property” in terms of land, but also money and goods; what is “proper to man” – including his inalienable rights. I’ve found his journey to follow the historical development of different societies’ definitions of property and man’s relation to it interesting.
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Sometimes, long after first reading a book or watching a movie and enjoying it very much, I have come back to re-reading or watching, and then wondering what I had ever seen in that in the first place. So it was with the original M*A*S*H book and especially with the movie. I originally read the book in college and thought, “Eww, funny but gross and obscene, with their awful practical jokes and nonexistent sexual morals.” Then I re-read after having been in the military myself for a couple of years, and thought, “Yep, my people!”

The movie went through pretty much the same evolution with me, all but one element – and that was when I began honestly wondering why the ostensible heroes had such a hate on for Major Burns and the nurse Major Houlihan. Why did those two deserve such awful, disrespectful treatment? In the movie they seemed competent and agreeable enough initially. In the book it was clear that Major Burns was an incompetent surgeon with delusions of adequacy, and that Major Houlihan was Regular Army; that being the sole reason for the animus. But upon second viewing of the movie, it seemed like Duke Forrest, Hawkeye Pierce and Trapper John McIntyre were just bullying assholes selecting a random target for abuse for the amusement of the audience. Read the rest of this entry »

Lately we’ve become interested in Richard Pipes, the Russian scholar. In an old You Tube Firing Line, we found him discussing his 1990 The Russian Revolution.

The intro by Kinsley concisely sums up Lenin’s “innovations”: to Pipes, the Russian revolution was “arguably the most important event of the 20th century,” because its acts would be copied by later dictators – Hitler, Mao, etc. First, clear the stage for a one party state, then give omnipotent power within the state to the political police, and finally enforce that power with deadly terror and “re-education” camps.

Pipes is not confident about the 90s: a “free” Russia would be difficult; he notes that only 20% of Russians thought the October Revolution was a good thing and only 14% had full trust in government. Purpose, energy, trust are necessary to navigate huge change and certainly found a democracy; razing the past is not a good way to move into the future, but the Russian past is poisonous. Instead of energy and purpose, he saw apathy and immorality (my impression was that a deeply rooted cynicism expressed in humor but felt bitterly characterized communist states). He argues Russia lacked human spirit, morale, and morality. (Perhaps the Gramscian effect on Russia of 70 years of Soviet culture.)

The leap.
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Overload by Arthur Hailey

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Heat! Heat in stifling blanket layers. Heat that enveloped all of California from the arid Mexican border in the south to majestic Klamath Forest, elbowing northward into Oregon. Heat, oppressive and enervating…Throughout cities and suburbs, in factories, offices, stores and homes, six million electric air-conditioners hummed.  On thousands of farms in the fertile Central Valley–the richest agricultural complex in the world–armies of electric pumps gulped water from deep wells, directing it to thirsty cattle and parched crops…California had known other heat waves and survived their consequences.  But in none had the demands for electrical power been so great.

“That’s it, then,” the chief electric dispatcher said unnecessarily.  “There goes the last of our spinning reserve.”

I was reminded of this book by the current electrical crisis in California.  It is quite likely the only novel ever written in which an electrical power utility and its executives and employees are the good guys of the story.

The protagonist, Nim Goldman, is VP of Planning for Golden State Power & Light, which in the book is the predominant electrical supplier in California.  The company is wrestling with the problems of accommodating growing electrical demand while facing more and more restrictions from regulators.  To which difficulties are added the impact of an unprecedented heat wave and the threat of terrorist attacks.

GSP&L’s opponents fall into three overlapping circles.  First, there is a mainstream and rather staid environmental organization called the Sequoia club.  Then, there is an activist organization called Power and Light for People. run by an Australian named Davy Birdsong, which wants to replace for-profit utilities with some sort of government entity or collective.  Finally, there is a small but deadly terrorist group which seeks maximum social disruption and sees an attack of GSP&L as the best way to achieve that goal.

The book, published in 1979, is kind of a period piece…the fuels in use are coal and oil, no mention of solar or wind; while there is concern about pollution–especially from coal–no one is talking about climate change; and while there are complaints about high electricity bills and corporate greed, no one is suggesting that Americans be weaned from most of their electricity use and forced to shut down their air conditioners. The story is well-told, although it is kind of a pot-boiler..for one thing, Nim has so much sex, and some of it under such unusual circumstances, that the actual effect is (unintentionally, I’m sure) comic. The technologies of power generation and distribution are portrayed reasonably accurately within the limitations of a popular novel. The fundamental issue of matching supply and demand continuously, in real time, comes across clearly.  One character, Karen Sloan, is a quadriplegic whose very life depends upon electricity–the battery both for her assisted-breathing device and for her powered wheelchair must be periodically recharged, or else…a neat way of illustrating what a serious matter the continuity of electrical service actually is.

Overload would make a great movie, but probably could not be made in the current environment without some switching-around of good guys and villains.

…That I am my own independent publisher, with the Tiny Publishing Bidness, and only wasted a couple of months and a lot of postage, in 2007 or so, trying to get an agent interested in my first two novels. Because that was the way to break into traditional publishing; get an agent, who would present your work to the traditional publishing houses. Another book blogger at the time advised trying it for a year, and then going independent, as there were sufficient small companies doing publish-on-demand, some of them for rather reasonable fees. I did have an interested agent in New York, who was referred to me by another milblogger back then, and although the agent reluctantly declined to offer me his services, he was jolly complimentary and encouraging, and provided some good insights. One of the unspoken insights that I took away from this exchange, and drew from all the other letters saying “Thanks, but no thanks” from various literary agencies was that it was all a terribly insular world, the world of the established agencies and big publishers, all of whom seemed to be based in about half a square mile of real estate in New York. Read the rest of this entry »

As mentioned last night in the Chicagoboyz Zoom meetup, I have started a new novel, this one to be set in WWII. I’m stuck for a title, so any suggestions will be gratefully considered.

The concept for this new project is based on letters between two cousins during the years just prior to and during the war: One is the wife of a civilian internee in Malaya, waiting out the war in Australia, hoping for word that her husband has survived the fall of Singapore and captivity by the Japanese. The other is an Army nurse, eventually sent to North Africa and Italy. (Suggestions for other plot developments will be considered, also.) I am up to four chapters already, and posting excerpts on my book blog.

Introduction – here.

The first letter between the cousins, here.

A bit of narration, here, and here.

The second letter, here.

Ask Mr. Jones

Mr. Jones – the title of a movie released last year now playing on Amazon Prime – discovers that the New York Times’ Moscow Bureau and its Pulitzer writer Walter Duranty is covering up Stalin’s starvation of 4 million Ukrainians (16 million relative to today’s global population) to protect the gloss of socialism, later explaining “You can’t make an omelet without breaking eggs”. All the other journalists except Jones apparently go along for the same reason. The death toll of socialist ideology would reach 100 million (300 today) during the next several decades in the pursuit of Utopia. There were no omelets.

Only a few thousand (almost all black) deaths have as yet resulted from prior Black Lives Matter (BLM) Movement protests, but this is only the beginning. The question is, what is their leaders’ version of Utopia and how many lives are they willing to sacrifice to achieve it?

Socialism, Fascism and Crony Capitalism are Sisters

Over the past several centuries two systems of political economy, socialism and capitalism, have competed. The distinguishing characteristic of all socialist variants is the authoritarian hand of politicians, whether or not “elected.” The distinguishing characteristic of capitalism is the invisible hand guiding the competitive market. Neither system promises “equal” outcomes: capitalism “fair” outcomes based on individual merit without eyesight to discriminate by color or sex, socialism in theory based on need as determined by politicians and bureaucrats.

Jonah Goldberg in Liberal Fascism (2008) argues that fascism is a sister to Soviet socialism. What the U.S. has called “crony capitalism” has different features than the fascism of Hitler and Mussolini, but includes authoritarian control over business and markets. Similarly, the welfare state democratic socialism has different features than Soviet socialism, but shares state control over income. The Progressive Movement in the U.S. has historically used the authoritarian political hand to benefit not just the rent-seeking cronies at the top (politicians, the intellectual elite, etc.) but also the working and under-class. The competitive market system that remained somewhat out of the state’s reach produced most of the income and wealth that funded this progressive largesse.

What is Racial and Social Justice?

Political power – in the hands of the Democratic Party – was indisputably the source of racist oppression from its founding through the Great Society. The black/white wage gap has remained unchanged since for those employed. What has changed is black participation in the labor force. The old generation of eminent Black economists Tom Sowell (90), Walter Williams (84) and Shelby Steele (74) have, in hundreds of books and thousands of articles, many addressing the issue of race in America, argued that the Great Society has been the source of income and wealth disparities by creating dependence on the welfare state, massive penalties for marriage (raising the percent of live births outside of wedlock from 10% to over 70%) and work (a marginal tax rate over 100% on earned income), restrictive policies such as minimum wage, and opposition to charter schools.

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Ladies and Gents,
I am looking for recommendations on books about the history of Jamaica, told from a neutral standpoint if at all possible. If you know of a great history of the Caribbean in general that includes Jamaica that is also fine. I recently read James Michener’s “Caribbean” and very much enjoyed it and it inspired me to learn a bit more about the history of the area. Thanks in advance.

He was being funny, late on last Thursday’s show, and he came up with this.  “My favorite conspiracy theory is that this virus is the work of a bunch of lunatic billionaires who really believe that we are destroying the planet and they have discovered that we can’t get to Mars in time and we can’t colonize the moon so they have come up with a way to get rid of billions of people to make the world have a longer survivability potential.”  I’ve been referring, recently, to Tom Clancy novels, but I had no plans to go anywhere near Rainbow Six.

As the novel involves precisely that kind of lunatic billionaire, as well as some clandestine work to shut down the plan and disappear the plotters, because of the risk of “a global panic when people realize what a biotech company can do if it wants,” though, well, perhaps there’s another story in it.

Regular readers of Tom Clancy know that the likelihood of a secret being blown is proportional to the square of the number of people in on it.  The novel left a number of possible dots to connect to put together yet another story, one with the potential to topple governments.  If I had any sort of novel-writing skills, I might essay such a thing, although it might be more productive to offer some of the dots, as if a mental exercise in quarantine, should anyone wish to essay such an effort.

There are almost enough dots to make a post as long as a Tom Clancy novel.  They’re below the jump.
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Frequent commenter at my site, Grimbeorn of Grim’s Hall, has had his novel come out, Arms and White Samite. We have both the Kindle and paperback versions in our cart, debating which we shall order. He is an interesting cat, for those who like variety: Army Ranger in both Iraq Wars who used his GI benefits to get a degree in philosophy. Long-bearded motorcyclist and Catholic convert. Georgia Democrat who eventually had to resign as they left him (echoing Reagan), between the last hurrahs of Zell Miller, then Jim Webb. Arthurian stories seem to be his first love.

The first macroeconomic model of the U.S. economy consisted of 20 boxes of punched cards at 2000 cards per box that I would wheel on a dolly stacked five feet high to the main frame computer center where it took about three days to get results back.

Mathematics is the language of physics. Graduating with a BS in mathematics in the 1960’s, I faced a choice between my two minors, physics or economics. Some famous physicists had already declared that the quest for a unified mathematical explanation of the cosmos and its smallest building blocks was at hand. In economics, the attempt to build a mathematical macro model of the U.S. economy and fully integrate it with the micro economic mathematical models of human behavior represented a new frontier. I chose economics.

In retrospect, physicists are still searching for a Grand Unified Theory (GUT) of the universe. In economics, mathematics and statistics have widened the disagreement about how the economy works and the proper role of government in economic management.

God and Physics: from Aristotle to Hawking

Aristotle (382-324 BC) described the cosmos of round bodies in motion circling around the earth. It took almost two millennia until the sun-centric Copernican model was popularized by Galileo, who was imprisoned by the Pope, the political enforcer of orthodoxy at the time, in 1633 for heresy, forcing him to recant. But only a half century later, Newton described the mechanics of the universe and sun-centric solar system in Principia Mathematica (1687), which remains the cornerstone of basic physics.

In Newtonian physics, motion and speed are calculated relative to what you are moving away from. Maxwell’s discovery in the mid-1800’s that the speed of light was “absolute” required an explanation that stumped many physicists until the young patent office clerk Albert Einstein, unaware of these efforts, provided the novel Special Theory of Relativity (1905) that if light speed was constant space and time must be relative.

His mathematical model proved over time to provide a more precise description of the movement of heavenly bodies, but the implication of his equations that the universe was expanding violated his belief in a master plan of a “creator,” so he inserted a mathematical cosmological constant (what economic model builders would subsequently call a “dummy variable”) to stagnate it. But other physicists confirmed his original model, which in reverse required a mathematical ”singularity” – a beginning of time with a “big bang” from an infinitely small spec. The Catholic Church approved this model in 1952 as consistent with its orthodox views of a creator.

In 1970 Stephen Hawking proved that the big bang theory was the only one consistent with the existing models of the universe, but he later challenged those models. First, the violent path of destruction and creation over billions of years subsequent to the big bang that ultimately produced the building blocks of life was a “million to one shot”- is ours just one of millions of universes? Second, macro models of the universe broke down at the mathematical singularity, which remains inconsistent with micro models of the very small – in my youth molecules then atoms made up of protons, neutrons and electrons, now subatomic “quarks” and more recently sub-quark vibrating strings.

The scientific method is a slog: to understand the universe, the models must not only be tested empirically but compared to all the potential alternative explanations. Pre-conceived orthodox ideology has at times set the investigation back centuries.

The Progressive Orthodoxy of Mathematical Models in Economics

Macro economics, the desire to understand and control the workings of the economy at large, developed in response to the Great Depression. The roots of the mathematical approach to economic management trace to the founding of the Econometrics Society in 1930. John Maynard Keynes published his General Theory of Employment, Interest and Money in 1935, the title invoking the universality and finality of Einstein’s General Theory of Relativity published two decades prior.

Paul Samuelson’s Foundations of Economic Analysis (1947) provided a mathematical model of micro economic consumer and business behavior. I was a regular reader of Samuelson’s Newsweek columns in high school and used his undergraduate economics text at UMass, where I worked on the first macro economic model of the U.S. economy developed at the University of Pennsylvania by Samuelson’s first PhD student Lawrence Klein.

As a student of former Federal Reserve Board economist Pat Hendershott, I worked on the first Flow of Funds model of the U.S. financial sector. The main frame computer at Purdue University would run the punch cards of a professor’s research overnight, a big improvement. Such macro economic models are “Keynesian” central government centric by design: fiscal and monetary policies are modeled to control the economy, mitigating recessions and unemployment.

But other models haven’t been ruled out. In The Forgotten Depression (2014) James Grant argues that the Depression of 1921 – there was no official designating body at the time – following the end of the Great War cured itself in 18 months due to official benign neglect. In Grant’s view (and many others, including economists living through it) what made the subsequent Depression “Great” was massive political intervention that prevented the required adjustments.

While the merits and long term effectiveness of “small scale” and “counter-cyclical” measures remain debatable, the merits of the socialist centrally planned economies are not: hundreds of millions died and the remainder suffered economic stagnation while the capitalist world prospered. Only self described democratic socialist Bernie Sanders openly touts the performance of the centrally planned economies, but there isn’t much difference in the government centric policy approach of progressive politicians.

This macro narrative is generally consistent with anti-capitalist progressive ideology of business, workers and consumers dating back to Marx that is accepted by the majority of more recent college graduates. Economic statistical research across a wide spectrum from discrimination and labor exploitation to income inequality and market failure is offered in support, albeit inconsistent with a competitive market system. The competitiveness of the U.S. economy implies that correlation is too often assumed to imply causation without rigorously considering alternative explanations.

Creative Destruction Produces Economic Expansion

Humans owe their very existence to the massive creative destruction of the Cosmos (whether or not by the grace of God) for we are all made from the dust of exploding stars. In the economic sphere, virtually all human economic progress is attributable to capitalist competition and creative destruction, favoring the adaptive over the sluggish. Mathematical models haven’t adequately described entrepreneurial innovation. Progressive intervention to mitigate downside risk of creative destruction, broadly or to specific political constituencies, is highly correlated with stagnation.

Historically, even natural disasters including pandemics such as the corona virus (I assume it was “natural”) have provided opportunities for creative destruction. Consider, for example, the requirement that university students study online during the pandemic. While traditional colleges aren’t yet offering rebates, we know from experience that without the room, board and administrative costs and with increased productivity of fewer professors, online degrees can be provided for as little as one tenth the cost of the traditional approach.

Progressive proposals for taxpayers to foot the entire bill for the high cost model may be called democratic socialism but are indistinguishable from democratic crony capitalism for the political elite.

Kevin Villani

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Kevin Villani was chief economist at Freddie Mac from 1982 to 1985. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on how politicians and bureaucrats with no skin in the game caused the sub-prime lending bubble and systemic financial system failure.

The Year of the French, by Thomas Flanagan

… whom the woke-mob bays for; it bayeth for thee… to paraphrase John Dunne. As no less than Woody Allan may testify at this point, as the article linked here outlines. So the woke mob claims another scalp; yay, wokesters of New York City Mainstream Publishing Division! Take a bow, having thrown a glorious temper tantrum and bent your employer to your will! Today, Woody Allen – tomorrow? Who knows?! N.K. Jemison, a notoriously woke science fiction writer and beneficiary of the current system, weighed in on behalf of the mob, which is … not a good look for someone dealing in speculative fiction. She is supposed to possess some talent, but again – encouraging the mob, even joining in – not something which a thoughtful person with a sense of events and historical recall ought to do. But never mind.

Frankly, as far as I am concerned the mainstream publishing establishment, which is centered in New York (as if that wasn’t sufficient punishment) may ride off into the sunset any time now. Words like “incestuous” and “culturally-blind” come to mind, as well as “arrogant” and “exploitative.” Read the rest of this entry »

So it took a link on Powerline last week to bring to my attention that George McDonald Fraser’s first Flashman book came out fifty years ago.

My, I don’t know how the time flies – but it does. I must have read the first couple of Flashy’s adventures sometime in college, shortly thereafter, and being quite the history nerd even then, they were rowdy enough, and amusing enough that I read most of the rest of them when they came out, even if I had to order them from an English book catalog when I was stationed overseas. I do remember very well reading The General Danced at Dawn, in the back of one of my more boring lecture classes at CSUN and nearly self-strangulating in trying to not laugh uproariously out loud. The professor lecturer would not have been amused – he was a medieval history expert with a thoroughly tedious interest in the most comprehensively boring of early dark age church confabulations and absent any detectable sense of humor.

My main regret as far as the Flashman series goes is that GMF never wrote of Flashy’s adventures in our own Civil War, which sounded from references in other books, as if Flashman conducted himself in the manner which we came to expect of him – that is, purely and basely devoted to the preservation of his own skin, while dodging, lying, fornicating and back-stabbing on battlefields spread across three continents, as well as hob-nobbing socially or sexually with all sorts of likely participants. As one early reviewer put it, Flashy saw 19th century history briefly over his shoulder as he fled down the corridors of power at high speed. His adventures in our very own Civil War would have been … interesting, although when I touched on this matter before, a reader pointed out that a) Flashy was a British officer and hardly gave a toss as to what we recalcitrant ex-Colonials got up to, and that b) that all our native ACW experts, amateur and professional alike would have made passionate objection to any error or omission, fancied or with historical backing that GMF might have worked into the plot. So, the effort wouldn’t have been worth the candle to him … although I and most of his fans would have loved to read it anyway. Just to see the process by how Flashy got suckered into participation by Abraham Lincoln, fought on both sides, and wound up being pals with George Armstrong Custer and well-acquainted with General Grant, and how many other Civil War notables.

I myself would have loved to see Flashy entangled in some kind of partnership with Elizabeth Van Lew, the Richmond spy queen, or perhaps a much deeper entanglement with Allan Pinkerton, of the national detective agency … it all would have been great reading, no matter how contentious the fallout might have been with Civil War historians. His take on Robert E. Lee and other Confederate generals would have been interesting, as well. Because GMF had the eye, an absolute gift for writing 19th century dialog, and loved history enough to go into the deep weeds about it all … and most of all, make it interesting to the reader. Pop media is not downhill from culture, it’s in a symbiotic relationship with it. One shapes the other, mutually.
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Are greedy racist “Wall Street” bank lenders responsible, or progressive politicians?

The housing finance systems of some developed countries have failed, but only the U.S. federally dominated system failed systemically twice in two decades, the second time in 2008 with global repercussions. Then Republican Mayor of New York now 2020 Democratic presidential candidate Michael Bloomberg blamed politicians for pushing lenders to make loans to “poor people” in low income neighborhoods that they couldn’t afford. 2020 progressive Democratic presidential candidate Warren, apparently reflecting the views of the Party, responded to Bloomberg: “That crisis would not have been averted if the banks had been able to be bigger racists.” 

The Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010 creating Warren’s proposed Consumer Financial Protection Bureau and the Financial Stability Oversight Council (FSOC) to Monitor and Mitigate Systemic Risk made up of the various financial regulators reflects the Warren/Democratic narrative. This narrative is the foundation of not just housing and financial sector policy proposals, but the entire progressive agenda.

I’m from the federal government and I’m here to help you.

That’s the punch line to the joke about the three biggest lies Pres Martin used to tell about a half century ago as past Chairman of the Federal Home Loan Bank Board (FHLBB) (hence Freddie Mac’s first Chairman) and Vice Chairman of the Federal Reserve System.

The first wave of “help” came after the repeated waves of bank failures with the creation of the Federal Reserve System in 1913. The second wave came during the Great Depression with deposit insurance and associated regulation of the banking and savings and loan industries. This was followed by the creation of FHA mortgage insurance: to stimulate FHA demand, Fannie Mae was created make a market for which there were few buyers or sellers. By the late 60’s, rather than end a failed experiment Fannie Mae was “privatized” and the public monopoly was subsequently expanded to a tri-poly with the addition of Freddie Mac and Ginnie Mae, all funding fixed rate mortgages (FRMs) first introduced by FHA. As Milton Friedman famously said, “there is nothing so permanent as a temporary government program.”

It didn’t help potential borrowers much. The resulting federally dominated U.S. Housing Finance System had been touted as the best in the world, a model to emulate for developed, developing and transitioning economies alike during the three decades prior to the 2004-2007 sub-prime mortgage lending debacle and globally systemic financial crisis of 2008. But the benefits are hard to identify: the U.S. homeownership rate is about the same as in the mid 1960’s under the prior savings and loan system in spite of a 50% increase in female labor force participation, a historically low real interest rate and a dramatic shift from detached single family to condo apartments.

Civil rights legislation culminating in the Fair Housing Act of 1968 made racial discrimination in home sales a federal crime. The black homeownership rate which rose more than that for whites during the 2004-2007 sub-prime lending spree has returned to about where it was during the 1960’s.

Market Discipline versus Public Regulation

It didn’t help existing lenders much either. In the 1970’s federally sponsored agencies competed directly with federally chartered savings and loans whose investments were limited by regulators hamstrung by politicians to FRMs, forcing them to borrow short and lend long with callable insured deposits. Systemic failure was assured when interest rates rose as they did in the late 1970’s, with failures strung out over the 1980’s as regulators seized but often didn’t close zombie institutions, often run by academics.

Systemic risk, the simultaneous failure of many or all firms (and households) in an industry or across industries, primarily afflicts mixed progressive financial systems, i.e., those with privately owned but publicly regulated financial institutions. Firms in an un-or-less regulated market economy may be fragile but “Wall Street” traders mitigate systemic risk by betting against weak firms and industries, either forcing corrective action or failure– hence the derogatory political reference to “speculators.” At the other extreme, state owned financial firms generally fail financially but face only a political bankruptcy constraint.

Two types of progressive policies created systemic risk. First those intended to mitigate the failure of individual firms with public insurance and prudential regulation, making failure less frequent but more systemic. Regulators prevent commercial bank failures purportedly to protect public confidence in the payments mechanism. Second are those policies intended to universally favor borrowers and/or creditors – like requiring mortgages to have a fixed rate – making systemic failure more likely and more costly.

Underwriting Mortgage Credit Risk: Discrimination and “Disparate Impact”

With the exception of the Great Depression and 2008 financial crisis, home mortgage credit losses had been “Gaussian (normally distributed),” that is, they followed a predictable pattern that allowed them to be insured according to the law of large numbers, for all practical purposes eliminating uncertainty, hence risk.

Loan data during the sub-prime lending debacle unambiguously supports Bloomberg as minority lending skyrocketed. Progressives imputed racist motives to excessive minority lending, arguing that “predatory” lenders “tricked” minorities into accepting loans they couldn’t afford so they could later foreclose. There is some truth to the first part, as banks solicited minority borrowers with loans they had to know were risky. But they had little incentive to foreclose, as that always resulted in a deep loss. What did motivate lenders?

Homeownership was no more affordable for black households during the 2004-2007 sub-prime lending bubble than it was in the 1960’s for a variety of reasons. But current Democratic presidential candidate Deval Patrick argued in 1994 as Deputy Attorney General of the Department of Justice that any final lending distribution that contained racial disparities—disparate impact—relative to population was a violation of federal law unless the lender could prove otherwise. Such “proof” of non-discrimination would be difficult to produce at best, since the disparity itself was considered proof of racial prejudice, and the cost of a legal defense is generally crippling. This was called “confiscation by consent decree” at the time and later “extortion by consent decree” for which Gaussian credit risk models didn’t apply.

Avoiding Black Swans

Former trader –now internationally recognized risk expert – Nicholas Nassim Taleb describes in his 2007 book The Black Swan “how high impact but rare events dominate history, how we retrospectively give ourselves the illusion of understanding them thanks to narratives, how they are impossible to estimate scientifically, how this makes some areas – but not others – totally unpredictable and unforecastable, how confirmatory methods of knowledge don’t work, and how thanks to Black Swan-blind “faux experts” we are prone to building systems increasingly fragile to extreme events.”

Was the 2008 systemic failure an unpredictable Black Swan event? Politicians and their regulators who push the “Wall Street greed” narrative argued that nobody could have foreseen it, but Taleb exempts only economist Nouriel Roubini Crisis Economics (2010) from that delusion, who (pg. 16) concludes “it was probable. It was even predictable…” based on the failure of prudential regulation. But how did that fail? Systemic failure had long been predicted (by me and others, including the Federal Reserve) based on the progressive policies that attributed illegal racial discrimination motives to traditional income and appraisal underwriting.

No Skin in the Game

The sub-prime lending bubble of 1995 through 1998 financed with opaque securities issued by independent finance companies that following SEC rules reported phantom profits burst with no systemic consequences. By 2000 many of these former sub-prime lenders and securitization practices had migrated to the federally insured commercial banks in part to finance Community Reinvestment Act (CRA) lending commitments. These increased 500 fold after the deregulation of interstate Banking in 1994 when discretionary regulatory permission for M&A activity was held hostage to a favorable public CRA Report. Pushed by regulators and pulled by the big potential M&A payoff, borrower down payment requirements were virtually eliminated and bank “regulatory arbitrage” minimized capital requirements, virtually eliminating any Skin in the Game (Taleb, 2018). This asymmetric “trade” was irresistible.

The Perfect Storm

The Big Short by Michael Lewis presents the progressive narrative of “greedy” speculators who were shorting the housing market but doesn’t explain why they failed to prevent the bubble from inflating to systemic proportions by bankrupting lenders. The reason is that the cheap Federal Reserve credit continued to be channeled to the housing bubble by Fannie and Freddie. Historically conservative, they were now led by politically anointed CEO’s who, facing no bankruptcy constraint, willingly followed the path to perdition. This path was paved by HUD’s “Mission Regulator” who not only ratcheted up the lending goals well beyond prudent limits but in 2005 imposed a new goal that they maintain a 50% market share with these private lenders. Propped up by the federal government, all the big players were going for broke simultaneously.

This was guaranteed to fail. Financial institutions reported several trillion dollars (pgs. 157-158) of home mortgage credit losses after the bubble burst and 10 million homeowners lost their homes over the next six years in spite of massive government efforts to avoid or delay foreclosure. Like the lending bubble, the foreclosure bubble was much bigger for minorities. Yet The Financial Crisis Inquiry Commission Democrat Majority Report (2010) spun the narrative that the systemic “risk” was due mainly to traditional liquidity concerns.

I’m from the federal government and I’m here to blame you.

That’s no joke. During the Obama Administration Patrick, then Governor of Massachusetts led the multi-state suit against lenders alleging discrimination in foreclosures based on disparate impact. At the same time, current DNC Chairman Tom Perez was pursuing “disparate impact” cases against lenders under the Fair Housing Act as Attorney General Eric Holder’s Deputy.

In a 2009 Financial Times editorial Taleb proposed ten principles to avoid a repeat of 2008:

What is fragile should break early, while it’s still small.

No socialization of losses and privatization of gains.

People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.

Don’t let somebody making an incentive bonus manage a nuclear plant – or your financial risks.

Compensate complexity with simplicity.

Do not give children dynamite sticks, even if they come with a warning label.

Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence.”

Do not give an addict more drugs if he has withdrawal pains.

Citizens should not depend on financial assets as a repository of value, and should not rely on fallible “expert” advice for their retirement.

Make an omelet with the broken eggs.

All good advice, all ignored by politicians and regulators who created the Rube Goldberg dystopia they rail against.

—-

Kevin Villani

Kevin Villani was Chief Economist at Freddie Mac from 1982 to 1985 and HUD from 1979-1982. He has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.

Amanda at Mad Genius Club posted last week with some musings on the current publishing scene – er, that is what I took to calling the Literary Industrial Complex, back when I first went indy around 2008 – Indy Publishing that is. When people ask me who my publisher is, I look at them loftily, and reply, “I own the publishing company!” Which I do – a nice little small enterprise that I came into as junior partner, and which the original founder sold to me when she regretfully concluded that she could no longer carry on. We do other authors’ books, as well as my own; regional and small-press stuff, nothing which would ever excite the interest of the Literary Industrial Complex or the minions thereof. No point to it at this late date; as one of the other indy authors I associated with at the time often repeated – “If readers love-love-love the book, they don’t really care who published it.”
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The hysteria that began when Donald Trump won the 2016 election has labored and brought forth a mouse that was dealt with today in the Senate. There are still a few blows to administer, as the State of the Union speech Tuesday before a humiliated Democrat Congress, and the final vote to end the farce Wednesday. The Mueller “Investigation” which ended the Russia Hoax, was anticlimax. Then came the Ukraine manufactured crisis.

The level of corruption by the Biden family, is explored in Peter Schweizer’s book, Profiles in Corruption. All the Bidens, not just Hunter the coke addled son, but the brothers and even the sister, are riddled with corruption. The Ukraine matter is just one of the tales in the book.

The Russia collusion was largely based on a “dossier” paid for by the Clinton campaign and probably the product of Russian disinformation. Thus, the political campaign that colluded with Russia was that of Hillary Clinton, not Trump.

I had my doubts about Trump in the beginning.

I am not a Trump supporter but I am intrigued at the steady progress he is making toward success. I have been a fan of Angelo Codevilla’s characterization of America’s Ruling Class.

Ryan went on Bill Bennett’s radio show on Tuesday to tell his side of the story, which involves the fact that he inherited from outgoing Speaker John Boehner an unfavorable budget framework, as well as some of the tradeoffs involved (especially defense spending). He also laid out the argument I’ve heard elsewhere, which is that he needed to “clear the decks” so that a real return to “regular order” budgeting next year will be possible. You may or may not be persuaded, but the contrast with Boehner is fairly plain, I think.

Ryan, after the election, was a disgrace.

In spite of Democrat and some Republican hysteria, Trump has moved along, cancelling crippling regulation and negotiating trade reforms with Mexico, Canada and China. Meanwhile the hysteria grew.

Then Mueller flamed out with no payoff for the millions spent.

Mueller’s anti-Trump staffers knew they were never going to be able to drive Trump from office by indicting him. The only plausible way to drive him from office was to prioritize, over all else, making the report public. Then, perhaps Congress would use it to impeach. At the very least, the 448 pages of uncharged conduct would wound Trump politically, helping lead to his defeat in 2020 — an enticing thought for someone who had, say, attended the Hillary Clinton “victory” party and expressed adulatory “awe” for acting AG (and fellow Obama holdover) Sally Yates when she insubordinately refused to enforce Trump’s border security order.

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That’s the view of Nassim Nicholas Taleb, Wharton MBA, mathematical finance PhD and author of Skin in the Game and The Black Swan.

Taleb, a libertarian, aims his critique of intellectuals yet idiots (IYI) broadly but particularly at the contemporary economics profession. His targets are those described by the Mises Institute:

“The professional economist is the specialist who is instrumental in designing various measures of government interference with business.”

The economics profession in the U.S. today is mostly involved in research and education that broadly investigates “market failures” or is directly engaged in public action – regulation, tax, expenditure and off budget guarantees – to manage industries and the macro-economy purportedly in the public interest. This is the opposite of laissez faire economics, political advice to a 17^th century French minister to “let it be” later developed into an economic theory by the 18^th century philosopher Adam Smith and popularized by 20^TH century economist Milton Friedman, a libertarian and cofounder of FFE (and my advisor, twice removed). How and to what end did the economics profession evolve from a philosophy of leaving economic decisions to individuals in the marketplace with few exceptions to public economic management of the United States and global economy?

From Individual to Collective Economic Decision-making

Benjamin Franklin, considered the leading intellectual and inventor of the 18^th century whose inventions are still in use today, admitted to Harvard at age 12, but instead indentured to his brother’s tannery, advised

“Tell me and I forget, teach me and I may remember, involve me and I learn”

That’s his rendering of a Confucian saying dating back thousands of years. Taleb, a Wall Street trader prior to his writing and academic career, echoes Franklin’s emphasis on direct experience, arguing that capitalism isn’t an ideology or system but a set of mutually agreeable arrangements worked out over the centuries through trial and error by market participants who bear the full consequences of their decisions.

Exiting the Constitutional Convention, Franklin, a great political theorist, when asked whether the Constitution had created a monarchy or republic replied

“a republic, if you can keep it.”

Taleb argues that if given the choice Franklin would have more accurately described the Constitution as a federation with powers over economic activity limited to promoting free trade among states. But these limits were lost more than a century later when progressive President Woodrow Wilson first created the Federal Reserve System then used entry into the war to “make the world safe for democracy” as the means to create the “modern state” managed on scientific economic principles. A half century later, focusing on the “principal –agent” problem of the modern corporation run by managers who had no “skin in the game” John Kenneth Galbraith in The New Industrial State (1967) argued for public management by an intellectual elite, replacing business experience with academic success.

From Competitive to Crony Market Capitalism and Rent-Seeking

Franklin had warned the Convention delegates that

“We must all hang together or most assuredly we will all hang separately.”

The libertarian U.S. Constitution never mentioned democracy, and principal-agent conflicts are orders of magnitude worse in the public sector. As public choice theorists have since noted, we neither hang deep state managers nor otherwise hold them accountable. Democracy may depend on the deep state as political theorist Francis Fukuyama argued in a recent Wall Street Journal article (12/20/2019), but it can’t hold it accountable, as Michael Lind argued in a subsequent Journal article. Accountability erodes with each additional layer of government as decisions are elevated from “at risk” individuals in the marketplace to private, local, state, and federal governing bodies and is virtually eliminated at international entities (e.g., the IMF and World Bank). In no case is democracy a substitute for markets because the most intolerant minority with the most to gain or lose inevitably dominates.

Market capitalism is the source of all human economic progress. Is there a sufficiently good reason for collective economic management? Adam Smith never argued in his Theory of Moral Sentiments (1759) that the invisible hand was perfect: the actual full quote favored nationalism over globalism. In The Wealth of Nations (1776) he did say:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”

same paragraph
but in the same paragraph admonished government from any attempt to do anything about it. Britain had long been what we now call a crony capitalist economy that heavily favored the political elite, which in Smith’s view further government intervention would only exacerbate.

Taleb’s “idiots” are Galbraith’s inexperienced intellectual elite economic managers and advisors who have no skin in the game. Professional economists are generally smart, rational (many ideologically dedicated ”virtue merchants”) exploiting a one sided trade, in economic jargon crony “rent seekers” – redistributing income (rents) from the generally lower income non-politically connected. (I would argue there is a minority in resistance, primarily in business schools and conservative think tanks.) It’s their statistical analysis and reasoning to justify rent seeking opportunities he often finds idiotic, faux science or scientism.

Public intervention to mitigate downside risk (as do e.g., public pension and retirement systems, housing, school and other entitlements, loan and deposit guarantees and other forms of insurance (e.g., flood) that can supposedly be financed without pain by taxing the idle rich or unlimited debt financed by money printing (Modern Monetary Theory) is a religion promising heaven without the threat of hell. Come Judgment Day when the system fails systemically, well insulated politicians and bureaucrats will subsequently label it “an extremely rare and random “Black Swan” event that nobody could have seen coming” and professional economists will join the chorus. The general public gets fleeced and market capitalism gets blamed.

Name any of sixty economic issues and presidential candidate Elizabeth Warren has a plan. The lyrics to the Beatles swan song album of a half century ago concludes “whisper words of wisdom, let it be.”

Kevin Villani

—-

Kevin Villani was chief economist at Freddie Mac from 1982 to 1985. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on how politicians and bureaucrats with no skin in the game caused the sub-prime lending bubble and systemic financial system failure.

Retail businesses are associated with low pay and high employee turnover–especially in the case of those retailers who offer low prices–and the same is largely true of customer-service call centers.  It has been generally assumed that low wages in these operations are a necessary concomitant of low prices for consumers, and that only businesses serving a premium-price customer base can afford to pay high wages.

Comes now Zeynep Ton, arguing that the low-wage strategy is not the only one available to retailers and other customer-service businesses that need to offer low prices, and that indeed often–usually–it is not the best strategy.  She draws connections between the pay and hiring strategy of a business and the operational basis on which it is managed.  To wit:

Low pay and high turnover implies minimal employee training, because you can’t afford extensive training for employees who are going to leave in a matter of months.  Minimal training implies less operational flexibility, because employees will not be cross-trained for other functions.  An environment of high turnover and not-well-trained employees implies that employee functions must be strictly proceduralized, often to the point of excessive rigidity.  And the lack of flexibility driven by minimal training and experience makes it harder to build in appropriate staffing “slack” to handle peak demand situations.  The lack of slack and flexibility leads to endless emergency rescheduling of personnel, reducing morale and further increasing turnover.  (She provides some vivid examples of what this endless and short-notice rescheduling can mean to the personal lives of employees.)

On the opposite site, higher pay can contribute to lower turnover, making more-extensive training economically viable.  Better-trained employees can more easily perform multiple functions, so that absences or staffing imbalances have a less-harmful effect.  Better-trained and more highly-motivated employees don’t need micromanagement, either by human managers or by systems and procedures.

Ho, hum, you say, what’s new?…people, especially consultants and professors, have been writing for years about why employees should be treated well and how it pays off to do so.  How is this book different from a million of others?

The Good Jobs Strategy is, in my view, something quite different from the typical “just treat ’em right” sort of soft, warm, and cuddly advice often found in books and LinkedIn posts.  The author ties the feasibility of the high-pay / high-expectations strategy to effective operational management, with the right systems, procedures, and incentives to enable such operational excellence.

An interesting example the author mentions is that of Home Depot. She credits much of the chain’s early success to its high-quality associates–“knowledgeable and helpful and willing to do whatever it took to help you, even if that meant explaining to you that you didn’t actually need what you came to buy.”  The associates tended to be former plumbers, electricians, etc–and they were employed full-time.  HD grew very rapidly–“customers were driving two hours to go to its stores and, once they experienced the service and great prices, they kept coming back”

But, with the growth came problems.  There was a lack of discipline in the stores, in how the stores communicated with headquarters, how the company selected its products, and how it communicated with suppliers.  “In 2000, bills and invoices were still processed by hand, and headquarters communicated to 1134 stores via fax because there was no companywide email.”  In 2008, two senior IT executives (newly hired from Walmart) concluded that Home Depot’s IT systems were about where Walmart’s had been in 1991.  In summary, HD had become “a classic example of a service company that did not fully appreciate the role of operations in making customers and investors happy…Operations are all those factory-like activities that a business has to carry out in order to provide whatever it is that it sells. ..In a retail store, for example, operations involves things like having the right product in the right place, having a fast checkout, and having a clean store.” Zeynep Ton says that internal measurement systems often don’t focus on such matters–at one retailer she worked with, “Twenty percent of the (store manager’s) score had to do with the store’s customer interactions.” In this chain, “mystery shoppers” would score the store on things like how the employees greeted customers and made eye contact.  But, she notes, “kindness or friendliness won’t make up for operational incompetence. ..It is hard for your dry cleaner to make you happy if you can’t wear your favorite suit to an important interview because they didn’t get it cleaned on time.”

When Robert Nardelli became HD’s CEO in 2000, the systems and procedures problems were rapidly addressed.  Gross margins and net profit margins increased substantially.

BUT, “the culture of cost-cutting was soon felt at the local level, where store employees, who were once at the center of Home Depot’s success and at the top of Home Depot’s inverted pyramid, became a cost to be minimized.”  The company started hiring part-timers, in the name of both staffing flexibility and cost…the knowledge level of the typical employee encountered by a customer fell noticeably.  By 2005, HD was ranked lower in customer satisfaction than was K-mart.  Same-store sales growth fell and even became negative.  Nardelli left the company in 2007.

Zeynep Ton summarizes:  Operational designs don’t execute themselves.  They depend on having the right people, and having those people motivated to do the right things.

The book discusses the actual complexity that exists in many seemingly-simple businesses, and the fact that individual employee decisions do make a difference. “If you are a supermarket employee shelving a case of toothpaste and all but two of the tubes fit on the shelf, should you take the two extras back to storage or would it be better to squeeze them onto the the shelf, even if it doesn’t look so good?  If a tomato looks just a little soft, should you take it to the back room now or wait until it looks worse?  Maybe it will be just fine for a customer who wants to make tomato sauce…it is hard, if not impossible, to make such work so simple and simple and standardized that anyone can do it without exercising judgment.  Things happen in real time at retail stores, and employees have to learn to react.”

(It is incredibly refreshing to see a B-school professor thinking and writing at this level of detail and specificity)

One interesting company discussed in the book is QuikTrip, a large chain of convenience stores combined with gas stations.  The company is very selective in its hiring….the author compares getting hired there with the difficulty of getting into an Ivy League college.  In the Atlanta area, 90% of applicants don’t even quality for an interview, and of those who do, only one out of five is selected.  Turnover rate among QuikTrip employees is only 13%, far lower than the industry as a whole.  The chain emphasizes speed and flexibility…”QuikTrip’s fast checkout is a site to behold.  One thing that makes it so fast is that any employee can use any register at any time without making the customer wait.  If you regularly shop at a supermarket, you know it’s no fun waiting for the cashier do a changeover.  The other thing that makes QuikTrip so fast is that employees have been trained to ring up three customer per minute.”  She says that the employees can even calculate change in their heads!

Other examples discussed include Costco, Trader Joe’s, In-N-Out Burger, and the Spanish supermarket chain Mercadona.

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Presidential candidates are talking about every issue except the one that matters most for America’s future: “American Exceptionalism.”

President Obama, a former professor of constitutional law, rejected the notion of American exceptionalism. Conservative writer Jonah Goldberg in Suicide of the West (2018) argues that the political abandonment of American Exceptionalism is eroding liberty, society and prosperity. Parenthetically, Taleb, Skin in the Game (2018) concludes (pg. 86) ”the west is currently in the process of committing suicide” by tolerating the intolerant. The “mass suicide” metaphor became a reality when religious cult leader Jim Jones told his followers in 1975  “I love socialism, and I’m willing to die to bring it about, but if I did, I’d take a thousand with me” which he did in Jamestown, Guyana three years later. “He wanted the world to think this was some uniform decision, that they willingly killed themselves for socialism to protest the inhumanity of capitalism” but armed guards made sure the reluctant chose the Kool Aid and exited the Johnstown dystopia for the promised socialist utopia in the next life.

Suicide of the West

Goldberg’s history of politics and human nature begins with humans first walking upright, concluding in 2017 with U.S. domestic political choices. Ideas promoted by John Locke and bequeathed by the British that the state is the servant of the people, are the core of American exceptionalism as opposed to the opposite ideas of the Frenchman Rousseau that individuals are the servant of the state, the governing principle of authoritarian socialist economies and in practice social democracies as well. What’s exceptional in the U.S. political system bequeathed by the Founders are the strict limits on federal powers in the two written documents, the Declaration of Independence and the U.S. Constitution. This is the cornerstone that allowed the many secular and religious institutions of civil society to deepen as a pre-requisite for and complement to entrepreneurial market capitalism, the source of virtually all human economic progress.

In the American version the state guarantees “life, liberty and the pursuit of happiness,” whereas the French national motto “liberty, equality, and fraternity” is an oxymoron. Individual liberty erodes at each stage as decisions are elevated from the marketplace to private, local, state, federal and ultimately international governing bodies. Competitive market capitalism’s “creative destruction” and entrepreneurial innovation produces relative winners but benefits all, whereas political favoritism comes at the expense of the typically poorer less politically favored.

The Deep State is Sovereign in a Democracy

In a recent Wall Street Journal article, political theorist Francis Fukuyama argues that “American Democracy Depends on the ‘Deep State’” run by professionals protected from politicians. Progressive President Wilson used entry into the war as the means to create the “modern” sovereign state” to which Fukuyama refers under the motto to “make the world safe for democracy,” never mentioned in the Founding documents. What took a Revolution to produce was protected only by the willingness to adhere to paper documents that Wilson basically ignored.

Individual dependence on the modern pater welfare state corrodes the institutions of civil society and inevitably leads to identity politics, tribalism and cronyism. With the state the master, many democracies evolve into one party rule, e.g., the communist “peoples’ democracy” of China, North Korea, East Germany or in capitalist countries the PRI in Mexico (in spite of a Constitution modeled after that in the U.S.) and Peronism in Argentina where the party is the master of the state. The rightist regime in Chile brought in the Chicago Boys to help implement free market reforms that produced a growth miracle, but that proved difficult to sustain as subsequent socialist governments burst that bubble.

The 2016 Presidential Election

In 2016 candidate Trump promised to drain the swamp and “end America’s endless wars” – both direct attacks on the deep state, particularly the military-industrial-congressional complex (Eisenhower’s original censored version) that manages the economy as well as foreign policy and military adventure. Reagan promised to roll back the deep state but failed. Clinton declared “the era of big government is over” but it barely paused. The Tea Party, composed of older more conservative voters tired of Republican false promises of limited government, launched a grass roots political campaign to limit government, which also failed. Once the state (or the Party of the state) is sovereign, the process has proven irreversible through political means.

That leaves the Supreme Court. Candidate Trump committed to nominating conservative Supreme Court Justices who would stay within the original intent of constitutional limits, the primary issue cited by his supporters. The abortion issue is a ruse, a litmus test for progressive precedents to trump constitutional intent.

The U.S. deep state is immune to accountability. A recent docudrama The Report tells the story of CIA torture after 911. The Agency lied to two Presidents, lied and stonewalled Congress over 8 years, violated the separation of powers and squashed the biggest seven thousand page Congressional oversight investigation in history. Only the stature of Senators Feinstein and McCain eventually got the Report released, but no one was held accountable, sending a clear signal that the deep state was immune. When President Trump alleged (later proven by the Mueller and Inspector General Reports – in spite of deep state resistance) that the intelligence community was involved in election rigging in 2016 and a subsequent coup attempt to remove him from office when that failed, Senator Schumer warned him: “Let me tell you, you take on the intelligence community, they have six ways from Sunday at getting back at you.” Impeachment is (only) one way.

The 2020 Presidential Election

On domestic policy, progressives arguably fared better under the Trump Administration than they would have from any of the other Republican candidate (e.g., victories on the budget and trade protectionism) and better than conservatives during the Obama Administration. Many conservatives (including Goldberg) join progressives in abhorring Trump’s personality and attacking his character (questionable, as is that of his political antagonists, e.g., Congressman Schiff). His lies and exaggerations may stretch the limits of political discourse, but the main stream media has regressed to Infamous Scribblers. The biggest cause of Trump derangement syndrome – and his source of political support – is likely his politically incorrect speech.

But Supreme Court appointments remain the existential issue for progressives and conservatives alike (as the Kavanaugh Hearings demonstrated), although limiting the power of federal government leaves progressives with free reign at the state and local level where they have had substantial success. Even “popular democracy” in big states like California is rigged by the state, forcing the oppressed to ‘vote with their feet’ leaving progressive states like California and New York with deficits, which then seek federal bailouts.

The electorate is divided along generational lines, with democrats appealing to younger liberal voters and republicans to older conservative voters. Lowering the voting age to 18 dramatically increased this demographic (why Democratic Speaker of the House Nancy Pelosi proposed lowering it to 16). Yet current Democratic candidates are divided among the ”electable”“moderate” 78 year old (by inauguration) Joe Biden campaigning as the former VP of a decidedly immoderate administration, authoritarian Michael Bloomberg who is almost a year older that Biden, socialist Bernie Sanders who is more than a year older than Biden, and Progressive Elizabeth Warren who would be 70 by inauguration. The young intolerant radical anti-capitalist progressives/socialists will undoubtedly be in control should victory be achieved by any of these elders following Taleb’s thesis (pg 69) that in a democracy the intolerant dominate.

What explains the strong Democratic appeal of 18-29 year old voters? Goldberg (pg. 340) quotes theologian Eugene Peterson: “humans try to find transcendence-apart from God – through the ecstasy of alcohol and drugs, recreational sex, or … crowds (i.e., mobs or cults).” Millenials are less religious than older voters and sex has declined relative to past generations. Non-college graduates have turned to drugs – 70,000 deaths annually.

Promises of debt forgiveness and free stuff by Socialist Sanders – and Warren – obviously appeal to the typically deeply indebted college educated. But so does their attack on business. Once taboo, socialism is now chic on college campuses as anti-business progressive ideas pervade college professorial ranks, particularly among historians and economists. This goes back to the early days of progressivism as socialist/communist historical myth makers accused business leaders of being “Robber Barons,” vastly over-stating the extent of American cronyism. Economists have generally under-appreciate the fragility and benefits of capitalism focusing instead on “market failures” real or imagined requiring government intervention, to be expected by a profession started by a German educated progressive to train Americans in the visible hand (fist) of state economic management

So millenials may be lured to join the cult and drink the Kool Aid: as an aging baby boomer, I’ll cling to religion and, Inshallah, sex and alcohol (bourbon, of course).

Kevin Villani

—-

Kevin Villani was chief economist at Freddie Mac from 1982 to 1985. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.

We’ve talked before here about the point that most fiction seems to be about people who are lawyers, policemen, criminals, soldiers, spies, students, politicians, and noble but struggling writers. But there are indeed some works of fiction, and some vivid personal memoirs, in which business plays a central role without being portrayed simplistically or as stereotypically evil. Here are some that I like…please add your own favorites in the comments.  (I posted this at Ricochet, in slightly different form, about a week ago)

The Current War, a recent movie about the late-1800s power struggle to determine which technology…AC or DC…will dominate America’s electrical distribution system. Edison, Westinghouse, and Tesla are the key characters, played by Benedict Cumberbatch, Michael Shannon, and Nicholas Hoult respectively. My review is here.

The Big Short, a 2015 film about the 2007-2008 financial crisis, based on Michael Lewis’s book. A hedge fund manager concludes that the subprime-loan market is not sustainable, and makes a billion-dollar bet against the relevant mortgage-backed securities. Based on real events. I thought it was very well done.

God is an Englishman, R F Delderfield. Following his return to England from the Crimean War, Adam Swann identifies a business opportunity: although railroads are being built throughout the country, there will always be sources and destinations of freight which are not on the tracks. Hence, the potential for a nationwide gap-filling road haulage business based on the systematic use of horse-drawn wagons. (This is the first book of a three-book series called the Swann Family Saga.)  Reviewed here.

Oil for the Lamps of China, Alice Tisdale Hobart. This 1933 novel is about a young American working as a sales rep in China, focused on selling oil for his employer (unnamed, but clearly based on Standard Oil) and increasing volumes by promoting the kerosene lamp as a better alternative to traditional lighting methods. The book was the basis for a 1935 movie of the same name…the film has its moments, but overall is not worthy of the book.

Father, Son, and Company, by Thomas Watson Jr. This is the best business autobiography I’ve read. It’s about Watson Jr (the long-time CEO of IBM), his difficult relationship with his father, the company they built, and the emergence of the computing industry. It is an emotional, reflective, and self-critical book, without the kind of “here’s how brilliant I was” tone that afflicts too many executive autobiographies. I reviewed it here.

A Man in Full, by Tom Wolfe. The central character of this 1988 novel is Charlie Croker, an Atlanta real-estate developer who has gotten himself into way too much debt. Other characters include Charlie’s current and former wives, the Black mayor of Atlanta, the bankers who must deal with the debt problem, and a warehouse worker at one of the Croker enterprises. The book also casts a not-very-complimentary light on the Atlanta society/arts scene.

Trial by Fire, Stephen Buck. The adventures of a Honeywell field engineer in the early days of process-control computing. The book’s title reflects the point that the industrial processes being controlled frequently involved combustion, sometimes in scary circumstances. Much of the author’s work took place outside the US, in countries ranging from Poland to Brazil.

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For as long as I can remember I have had a pretty decently sized anti-library. Probably not as massive as some who read here, but still enough to be a pain in the butt when moving. I decided a year or two ago not to buy any books until I read what I had. This worked in principle, however relatives piled on with gifts of books, so I had to issue an edict that they please not buy me any more books as well.

When I finish reading books (yes, real books, the kindle and other electronic formats don’t work well with me) I send them to Carl for his perusal and subsequent disposal in one way or another into the Portland, Oregon ecosystem. He returns the favor, so we are carbon neutral, at least in that aspect.

I have two left to read, and my anti-library will be no more. I plan on reading those on an upcoming beach vacation. They are:

Stephan Zweig – Beware of Pity – the only novel he wrote, and I am looking forward to is as I don’t read a lot of fiction.

The Wars of the Roosevelts – The Ruthless Rise of America’s Greatest Political Family – this was a gift as it isn’t my typical wheelhouse for history, but I should learn some interesting stuff.

Here is what I read this year, with a short description of each:
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