Modern Society Archives - Page 19 of 21

Can the Fed Make a Decision?

“What is the Fed doing?”

Lately, I get asked that question rather frequently.

My response is invariably, “I have no idea. I don’t think even the Fed knows what it is doing.”

And, therein lies an interesting problem, both economic and philosophical.

The economic background. In 2008, faced with that Financial Crisis you probably heard something about, the Fed did the right thing in flooding the markets with liquidity. What we now know was happening was an old-fashioned bank run. But the run was happening in the Shadow Banking System.

The Shadow Banking System sounds ominous and mysterious, but it isn’t. And that too requires a bit of background.

In the Great Depression, the United States separated commercial and investment banking because Congress was completely confused about what caused the Great Depression. Commercial Banks could have checking accounts, which are money, so that is where all the subsequent attention went.

Over time, investment banks developed things that looked like checking accounts for large depositors, but technically were not checking accounts. (These accounts were called repo accounts.)

In 2008, there was a run on the repo accounts. (Gary Gorton deserves much credit for figuring this out.) That bank run was the reason the financial crisis turned into a recession.

(It is worth noting: financial crises are quite common. Most do not turn into recessions.)

So, when in 2008, the Fed flooded the system with reserves, it did a good thing. They were literally following the textbook on how to deal with a bank run: Walter Bagehot’s Lombard Street. (Trivia: the last name is pronounced Badge-It).

So far, so good.

Then the Recession started. The Fed, still reeling from the trauma of the financial crisis, decided to get in the game of trying to help end the recession. It added more and more reserves to the system, thereby driving interest rates lower and lower.

It didn’t work, so they added more reserves and interest rates went even lower. It still didn’t work. So, they did it again. And again. (By the way, this is all Quantitative Easing was, another phrase which sounds mysterious, but isn’t.)

Now, to return to the original question, the Fed is currently stuck. They have kept short term interest rates near zero for over a decade. Think about that. If you graduated from college in 2009 and went to work in the financial sector, you are now 32 and you have never seen a world with short-term interest rates at anything other than functionally zero.

Now look at the Fed. What is the job of the central bank? The Fed has two goals mandated by Congress: keep unemployment low (check) and keep inflation low (check). Why aren’t Fed officials dancing in the streets or spending their lives at the opera?

The tools of monetary policy are slow acting. If the Fed responds to current conditions, it will always be too late. So, the Fed has to base its decisions today on what it thinks economic conditions will be in the future. That is hard even in the best of times.

But, what do you do when the economy is in this weird artificial state where interest rates have been kept so low for so long that you really can’t lower them much even if you wanted to do so? At the same time, bank reserves are so incredibly high that if financial institutions ever start loaning out the excess reserves, we are looking at double digit inflation.

The Fed is paralyzed. If they ever decide to allow short term interest rates to rise, then two things happen simultaneously.

First, the higher interest rates could cause a slowdown in economic activity, and maybe even a recession. That is not good.

Second, if interest rates rise, then banks may stop holding onto all the excess reserves. When they start lending them out, there could be inflation. That is also not good.

There is an even worse possibility. Because of the staggering volume of excess reserves, it is possible for an increase in short term rates to simultaneously cause a slowdown in economic activity and induce banks to reduce excess reserves by lending more. Then we would have more money and less economic activity. Higher unemployment and higher inflation. That is really, really not good.

It is, of course technically possible that the Fed could manage things just right and everything would be perfect and wonderful. That is the Goldilocks Outcome.

(Alas, Goldilocks at the Fed is a fairy tale. Someone really ought to write that book, by the way.)

So, which of these things happens in the economy if the Fed goes down this route? Nobody has any idea. We have never done this before.

So, should the Fed just keep interest rates low, trying to make sure we don’t find out what happens if interest rates rise? That just leaves a bigger problem for the next set of Fed officials, which seems to have been the plan for the last decade.

It’s even harder though. As economic conditions change, the current level of interest rates could end up being high enough to start the unknowable process above. So, the Fed has to keep talking about its willingness to lower interest rates. They can’t really lower them very much, but they do have to keep people thinking that interest rates aren’t going to increase.

That is why the Fed kept saying “be patient” and then suddenly changed its tune. They are panicking. They have no idea where “neutral” is any more.

The worst thing for the Fed is a recession in a Presidential election year. The second worst thing—finding out that when whatever exactly it is that has kept inflation so low gets relaxed, inflation doesn’t calmly rise to 2%; it shoots up much higher.

It’s a mess. Maybe the Fed figures a way out of this mess. But, it isn’t entirely clear that it is even possible to painlessly get out of this mess.

The philosophical problem. What do you do if you are in charge of making a decision which will literally affect hundreds of millions of people and there are no good options? Imagine that there is no way out, that you have spent a decade looking for a way out and are now convinced there is no way out. No matter what you decide, a half a billion people or more will be negatively affected in some way.

Could you make that decision?

Media Madness

If you want to understand the Presidential Election of 2020, you really ought to read a book published in 2008. James Bowman, Media Madness The Corruption of Our Political Culture.

(Bowman writes a monthly column on the media for the New Criterion, which is also always well worth reading.)

The thesis is in the title: The Media are Mad, not angry mad, but the type of madness that produces “the real arrogance of assuming that no other belief is possible without the assumption of the believer’s lunacy, imbecility, viciousness, corruption, or some combination of all four to explain it.”

Start with the myth of objectivity: “You speak, as it were, from no point of view….In other words, you speak with the voice of God. To believe this is the very essence of media madness, and it is to eliminate the need for fairness. It is only when bias is acknowledged that fairness becomes a consideration.”

Add to that the Culture of Emotionalism, which puts feelings at the center of attention. “The perfection of the passio-centric universe is our celebrity culture, so it is not surprising that the media’s coverage of everything more and more tends to resemble their coverage of celebrities.”

Remember: this was written in 2008.

Move on to the manufacturing of reality: “You might almost say that reality, as the media-mad are accustomed to using the term, can be defined as what the administration does not (officially, at any rate) believe. Therefore, when the media say that the administration…is out of touch with reality, it is a tautology. This is to say that by the terms under which the media culture has become established, it is the administration’s job to be out of touch with reality just as it is the media’s job to point the fact out to us.”

It just gets better from there. Once we have established the nature of the media’s madness, what follows all fits into a whole. Why the obsession with scandal? “The media’s assumption that it is the job of government to hide things and their job to find them out thus allows them to cooperate in the charade by which even those things supposedly creditable to the government are hidden from the public so that the media can triumphantly expose them to the world like a magician displaying the rabbit or the quarter or the hard-boiled egg that he himself has hidden. Scandal and hype therefore become much more than any individual case of wrongdoing or the hyperbole with which it is blown out of proportion. They become a way of media life.”

The same with the endless obsession with finding the root causes and the use of celebrities as experts. It is all just a part of this bizarre self-made world in which members of the media know the truth and there is no possibility that a rational, thoughtful person disagrees with that truth. In that world, the job of the media is no longer to report or analyze or whatever. The job of the media is to endlessly preen.

And that is undoubtedly part of the reason why over the years I lost interest in The News. I can no longer stand TV news. My wife still occasionally watches it, and I sometimes make it for a whole 5 minutes before wandering off to TV-less parts of the house. It is also why I no longer care about the immediate News Cycle—it is amazing how much of what is reported as “news” is totally irrelevant two days after the fact. If it doesn’t matter in 48 hours, did it ever really matter? In that case, why did it get so much attention at the time?

What does the future hold for the media? If you like calm, reasoned debate between people who disagree but still respect one another, then it is not going to be pretty. FOX and MSNBC are the future of News. Pick your view and then pick your media outlets which will dutifully confirm your view.

Media Madness is no longer a unique thing—we’ll just have to start calling it Human Madness.

How to Teach About the Greeks

The non-controversial claim: The Greeks (ancient, not modern) are extremely interesting. (The modern Greek economy is just a mess; it’s hard to believe that country was once a mighty empire.) The Greeks are not just interesting in some specific narrow way—across the board, there are endlessly fascinating things going on between 1000 BC and 30 BC in Greece.

The Puzzle: Why did nothing in my education ever teach me that fact?

When I think back to high school, I had two classes which had Greeks. I had an English class in which we read Aeschylus and Euripides. And I had a history class which had a section on the Greeks. The combination of those two things left me a) having absolutely no idea why the Greeks were important, and b) having no idea about how Greek history related to anything else. I had absolutely zero encounter with the Greeks in College.

Since then, I have read a lot of Greek authors. I’ve taught all sorts of books written in those days. There is much in that vast literature which I love. But, a few years back, when I was putting the final touches on a Great Books course, I realized that even though I have read all these authors and even though I was about to teach them again, I really had a very sketchy idea about how they all fit together. I know Homer and Plato/Aristotle and Aeschylus/Sophocles/Euripides/Aristophanes and Euclid and Herodotus/Thucydides/Plutarch, but in they were all just isolated books out there, talking to one another to be sure, but just books and not a story unto themselves. So, I decided to fill in that hole.

Fortunately, I had a book at hand. A few years earlier, I was at a conference with Thomas Martin, a Classicist at Holy Cross. A very smart and very interesting guy. I learned a lot talking with him. So, after my return from said conference (on Adam Smith), I read a book he wrote back in the 90’s: Ancient Greece: From Prehistoric to Hellenistic Times. It is a quick history of Greece: 220 pages covering the whole range, touching on the history and books and civilization.

I think the audience was college students in some class or other who need a brief history of Greece. It reads like a textbook—which is not really a compliment. That being said, I enjoyed reading it and I learned a lot—which really is a compliment. If you, like me, feel a lack of understanding of how the whole Greek thing fits together, I’d recommend it.

But, the book creates a giant puzzle for me. While I enjoyed reading this book, if I had read it in high school or college, I would have hated it. That is not a statement about this book in particular; I would have hated any book like this. Presumably we read a book like this in my high school class and presumably I learned nothing from it.

What is the difference? Reading a book like this now is filling in details. I love Homer and Plato and so on. I find the Greeks to be fascinating. So, the history here is connecting some dots. But, if I imagine going the other way, it would never work. I can’t imagine reading a brief history of Greece and then thinking that Homer and Plato and so on are things I really should read.

This is a rather disturbing realization. Learning history is really important. I enjoy history. But, how do you teach history? If my experience generalizes, then we are going about it all wrong. We start when young by forcing students through the series of dates and cultural explorations. But, that is not the stuff on which dreams are made.

Why don’t we go the other way? Why don’t we start with the books? Why don’t we get students to fall in love with Homer and leave the discovery of history for a later point in life? Why don’t we just teach the Great Books of History—instead of some brief history of Greece, read Herodotus or Thucydides or Plutarch and that’s it? Don’t teach those books as History books with an emphasis on who did what to whom and when, but teach them as living arguments for how to lead a better life. I think, in other words, we may have the teaching of history all wrong.

But, I am not sure the preceding paragraph is right. Maybe reversing the discovery process won’t work at all. Maybe if I had read Herodotus in high school, I would have had exactly the same total lack of interest I had when we read whatever it was we read.

Even more troubling: in high school, I would have enjoyed Frank Miller’s 300. It might have prompted me to want to learn even more about Sparta. I start creating the curriculum: 300, then Plutarch, then The Iliad, then Herodotus. That might have worked wonders.

Is the fact that it would have worked enough? I suspect professors of Greek, for example, are less than enamored with Miller’s take on the Hot Gates. Is it acceptable to try to cultivate a love of history with a book of fake history?

Imagine I had a class with the goal of taking a set of students who know nothing about Greece and convince them to fall in love with Greece. How would I do it? Great Books, obviously. But in what order? How much historical information added along the way? I am still not sure.

Reading Native Son in the 21st Century

Some books get better with age. Native Son is a book like that.

The story, originally published in 1940: Bigger, a young black delinquent, gets a job as a chauffeur to wealthy white family, murders the daughter on his first night on the job, does a terrible job trying to cover up the crime, is discovered, flees, murders another girl, is caught, and is put on trial.

The book highlights two great divides in American society.

First, the Black-White divide. As a historical matter, Wright’s book is enormously influential in highlighting this divide.

No doubt about it: in 1940, three quarters of a century after the Civil War, the divide between Blacks and Whites was large and in desperate need of being corrected. Wright does a fantastic job illustrating the divide and the effects of the divide.

On this level, Wright’s book is an amazing piece of American history. But, on this level, it is comparable to Uncle Tom’s Cabin, an enormously important and influential novel that is dated and not really all that engrossing.

The second divide, and it is well worth noting that it is not obvious whether the first or second divide is the more significant one in the novel, is the difference between the wealthy and the poor. Communists loom large in this book.

In other words, the explanation for the actions of Bigger are overdetermined—does he act the way he acts because he is black in a society which relegates blacks to being second-class citizens or because he is poor in a society which relegates the poor to being second class citizens? Presumably, some teacher somewhere, desperate to find an essay topic in which students could analyze or review Native Son, has assigned that question.

But, and here is where the novel reaches Greatness, there is a third possibility.

Imagine for a second that Bigger is a person. Not a black person. Not a poor person. Just a person.

Everyone around Bigger wants to label him. They want to tell him he is black or poor. (Just like everyone reading the novel wants to label him as black or poor.) So, Bigger grows up learning to act like he is just a walking label.

But, imagine the sudden realization that Bigger has sitting in his jail cell that he is not just a label. He is a complete and full person. Imagine the shock. He has a hard time wrapping his mind around it all. But, he begins to see the possibilities:

Another impulse rose in him, born of desperate need, and his mind clothed it in an image of a strong blinding sun sending hot rays down and he was standing in the midst of a vast crowd of men, white men and black men and all men, and the sun’s rays melted away the many differences, the colors, the clothes, and drew what was common and good upward toward the sun…

I have this strange dream where one day people will read Native Son and notice that Bigger is not a poor, black man, but that he is a man and they will treat him like a man and ask him what he feels not as a part of a larger class, but what he feels himself.

I have this strange dream that one day we will all talk to each other like that, that we will all treat each other like individuals unique and three-dimensional.

I have this strange dream that one day the idea of assigning Richard Wright in an “African-American Literature” course will seem insulting and old-fashioned because Richard Wright is not an African-American author, but he is an author, a man who wrote a Great Book.

(The Library of America volume adds some really interesting details about the publication history of the book. Indeed, this is the first time the book was published in its original form. If you haven’t read it, and even if you have, get the LOA edition.)

In reflecting on his fear that the Communist party might condemn the book because of its “individualist and dangerous element,” Wright realizes, “I felt that a right more immediately deeper than that of politics or race was at stake; that is, a human right, the right of a man to think and feel honestly.”

This book is a beautiful testament to the problems inherent in thinking of people only as a member of a class of people.

Bigger deserves more. He deserves to be seen as an individual, not as a member of a class.

It is a tragedy, a true tragedy, that three quarters of a century after Native Son, Bigger is still not accorded his full measure of humanity.

Leadership in a Democracy

Why is is so hard to get a Great leader in a Democracy?

The answer may lie in the First History of Leadership, the origin not only of something recognizable as a history book, but the first historical textbook on leadership: Thucydides, The Peloponnesian War.

A note on editions: if you want to read this book, there is no contest about which version to read. The Landmark Thucydides, edited by Robert Strassler, is really the only choice.

An amazingly edited volume. The maps alone make it worth the price—instead of one or two maps at the outset, there are maps on every single page in which the action changes venue; you never have to flip a page to get a sense of where you are in the world at the present moment. Who knew that a surfeit of maps could make a book so enjoyable?

The footnotes are also amazing. The side notes indicating what is going on in every paragraph are invaluable for finding things again. The typeset is incredible.

I so want to say that I am totally in love with The Landmark Thucydides, but I am afraid that if I said that I would be committing biblioadultery—having given my heart to the Library of America, I am not sure I can be unfaithful to my other love. But, if I was the adulterous type, The Landmark Thucydides would be my new bibliomistress. But, please don’t tell the Library of America—I am not sure how jealous she is.

The beauty of the volume aside, the book itself is fantastic.

[An aside: I first read The Peloponnesian War when I was interviewing for a job at Mount Holyoke. I even talked about the book during my interview with the Dean of Faculty. (And I got a job offer. Coincidence?)]

As a manual of leadership it raises an incredibly provocative question. Thucydides is telling the story of the Death of Athenian Democracy. The cause of Death: Suicide.

Thucydides places great emphasis on the speeches given by assorted figures. At the outset we get Pericles and the marvelous Funeral Oration extolling the virtues of Athenian democracy. Over time, the speechmakers devolve more and more into demagoguery.

One way to read this book: democracy generates leaders who make the best speeches. But, the ability to make a great speech is not the same as the ability to be a wise and good leader. So, what happens when the best speechmakers are unwise or downright self-serving? Well, you end up with pointless wars which hollow out and eventually destroy the country.

The application is pretty immediate, and hard to dispute. In modern America, Rock Stars win. Think about it; when was the last presidential election which was not won by the person with greater Star Power? Coolidge or Harding??

At a minimum, in the entire time I have been politically aware (since I was 10 and Carter beat Ford), the candidate who was more like a Rock Star won. (Even the totally uncharismatic George Bush Sr fits that rule—he drew Dukakis as an opponent.)

But, do Rock Stars make great presidents? Sometimes. Sometimes…not.

That leads to the fascinating dilemma. Suppose that by having a democratic government, you are doomed to end up with poor leaders who have nothing other than fine oratory skills. Does that make democracy bad?

I am more ambivalent about this matter than I would like to be. From time to time, I have toyed with being a closet monarchist. One virtue of monarchy is that you don’t have to lament the sad state of the public when you see bad leaders. If a king is a bad king, that’s just the fault of heredity. If an elected president is a bad President, then that is the fault of the electorate. Somehow, blaming a bad gene pool is more comforting than blaming a few hundred million people for not choosing wisely. Hence my monarchist tendencies.

Then again, if I could really switch the country over to a monarchy, I am not sure I would.

One of the virtues of being a college professor is that you can have opinions and not have to worry that anyone is ever actually listening to you and might do what you suggest.

In the end: the lesson from Thucydides for leadership: Leadership is giving a Great Speech. If you want to be a leader, learn the art of rhetoric.

The Beauty of Appalachia

Barbara Kingsolver, Prodigal Summer

The book is set in Appalachia.

That is the most important fact about the book.

This is a book about Appalachia. Sure, there are people and animals and plants, but the book is really about the place.

It is a place which is rooted, deeply rooted, in the soil, in history, in tradition, in everything which creates Culture.

An outsider to Appalachia has no hope of understanding Appalachia. An outsider to Appalachia reading this book will discover that Appalachia is a beautiful place which no outsider, including the outsider reading this book, will ever understand.

Understanding is not the same thing as knowing the facts about a place. Understanding is something which happens in the bones, in the roots of the soul. At best, the outsider reading this book can only stare at the beauty of Appalachia.

And Appalachia is surely a beautiful place, even if the outsider will never understand it.

I was recently having a conversation with an Easterner. It came up that I was from California, so the conversation turned to being a Californian in the East. I noted that it was just different out here, that California was a different (and better) place, that whenever I am back in California, it feels like home, and that no place else feels like that.

The person to whom I was talking was recently married; his wife was from California. He looked a bit surprised when I was talking about California. He said that his wife also talks about how California is different than the East, but every time he asks her how, she can never really articulate it. So he asked me. I tried to articulate it. I failed miserably. I cannot explain California. It is just different, Other. And if you aren’t from California, I don’t think you will ever understand.

Appalachia is like that. Prodigal Summer makes that clear.

After reading this novel, I am a bit in awe of Appalachia. I can understand why someone from there would be in love with the place.

But, if this novel is any indication, such love can be a bit of a love/hate relationship. What if you are from Appalachia, deeply in love with Appalachia, but don’t feel quite at home in Appalachia because you aren’t just like the rest of the Natives. What if you love Appalachia, but think Appalachia is just too small, too narrow, a stage on which to play? You want Appalachia to change, to become modern, but then again, the idea of Appalachia changing, become more modern, would destroy everything that you love about Appalachia, everything that makes Appalachia Appalachia.

There is no solution to this problem. And an outsider, someone from, say, California, has no hope of ever really understanding the conflict. But, nonetheless, said person from California can say that Appalachia sure is a beautiful place. I learned that in Prodigal Summer.

Prodigal Summer, the novel, is really three separate interwoven stories. The stories don’t meet much—characters from one story occasionally show up as minor background characters in other stories—until the end at which point the three stories become somewhat one. The meeting at the end isn’t terribly important, however. The stories can be taken on their own.

First, there is the story of a Park ranger and an itinerant hunter (“Predators”); second there is the story of a young widow who has just inherited the family farm which her husband had inherited (“Moth Love”); third there is the story of an Old Timer and his interaction with his neighbor who has strange new ideas (“Old Chestnuts”). None of those description, by the way, really describes the stories—but, it would take too long in an already too long blog post to elaborate.

The honest review of the novel: the three stories are not equally good. I really liked “Old Chestnuts”—charming and witty. “Moth Love” was pretty good. “Predators” was tedious, very tedious. I found myself stopping every time I got to a “Predators” section. Picking up the book again, I would plow through that chapter, looking forward to the other two stories.

Kingsolver writes well when she isn’t preaching—she preaches too much—yeah, yeah, I get it: hunting wolves is bad. Killing things at the top of the food chain is bad. Can we please just get back to the part which make me think Appalachia is a beautiful place?

And, that in the end is what makes this book worth reading. The stories aren’t really the point. The point is the location is a wonderful, enchanting, and somewhat maddening place.