Reading NYT Today: Sunday July 25, 2010

Several interesting pieces in the paper today, so for a bit of a pourpouri (and you thought only Jepordy! Used that word), here goes:

1. A fun but worthwhile piece by UC economist Richard Thaler comparing soccer officiating to financial regulation. A fine demonstration of the use of economic logic and thinking that applies well to two completely different fields.
   
2. Pankraj Mishra, whose book on the Buddha, Buddhism, and his own life provides an outstanding read, reviews two new books on the history of yoga. For yogi readers, the review is a must, and the books look promising as well.
   
3. Also for yogis, a very interesting article in the NYT Magazine profiling yoga practitioner John Friend, the developer of Anusara yoga. For our crew in Santa Fe, who attended two Anusara classes, it should prove especially interesting. I really enjoyed the yoga, so I looked forward to the article. I found the article well written and informative. The issue that always arises with yoga, and most any religion (not to say that yoga, as practiced by most, is a religion!), is whether the practice should remain pure and connected to its roots (the traditionalists) or whether it should adopt to new times and cultures (the adaptationists). In fact, I'd argue that the adaptationists always win. Christianity, whenever we say it began (with Jesus? with Paul?) has been repeatedly altered through the centuries, first and foremost by Greek philosophy, to mention only one example. Buddhism came to China and immediately changed, and then it moved to Japan, where one manifestation became Zen Buddhism. Going back to the question of yoga, it's hard to say in a prima facie way what is a bastardization and what is an adaptation. Certainly, yoga is intended, or we may say allows, more than just exercise. In the end, like most things, it's what we want and make of it. Friend's enterprise seems genuine and not too carried away with guru worship, which he apparently eschews. Anyway, worth a read. (I wish they'd said more about he altered his predecessors, such as Iyengar, but that's probably too technical.)
   
4. Psychologist Daniel Gilbert reviews Kathryn Schulz's Being Wrong: Adventures in the Margin of Error (2010). The book looks promising, and I include it because of professional interests (either my client or the other party was somehow "wrong"). The issue arises everywhere, so it certainly must address the issue of human foibles, which provides an endlessly fascinating subject.
   
5. Tom Friedman writes today that Senate Democrats are dropping any effort to pass a climate and energy bill this session. I agree with Friedman: foolish and disheartening, if not downright depressing. However, beyond that, he wrote about China, and I'll quote what he wrote:
   

   Just as the U.S. Senate was abandoning plans for a U.S. cap-and-trade system, this article ran in The China Daily: "BEIJING — The country is set to begin domestic carbon trading programs during its 12th Five-Year Plan period (2011-2015) to help it meet its 2020 carbon intensity target. The decision was made at a closed-door meeting chaired by Xie Zhenhua, deputy director of the National Development and Reform Commission ... Putting a price on carbon is a crucial step for the country to employ the market to reduce its carbon emissions and genuinely shift to a low-carbon economy, industry analysts said."
   

    Here we have China, hell bent on development and a "communist" country, out in front of us on using the market to control carbon emissions and showing some recognition of the need to limit carbon output. Now, I understand that there may be a yawning chasm between the word and the deed; but still, how can this be? It certainly makes the U.S. political system seem further out of sync with current realities.

1. I haven't read the front page yet, but the cover story appears to be that the Roberts court is very conservative. Duh. I thought that this was a newspaper!
   
2. On the online edition that I've just read headlines suggesting that the war in Afghanistan isn't going as well as officially portrayed. Perhaps a hint of the Pentagon Papers for the Afghanistan war? As one who has listened to original tapes of Lyndon Johnson speaking about the war to his advisors and friends, as well as having seen The Fog of War, none of this comes at a surprise. Perhaps paragraph 4 above could provide us some insights. Bummer.

Matt Ridley: Rational—or Irrational?--Optimist

I normally like to wait until I've completed a book before writing a review of it; however, in this case, I feel compelled to make an exception. The book, Matt Ridley's The Rational Optimist: How Prosperity Evolves (2010 448p.) is at once convincing and irritating. On the convincing side, Ridley provides a convincing summary of the gains of humankind over the centuries, a tale of economic progress when we view humanity as a whole. His premise is relatively simple: that exchange, of goods and ideas has benefited humans over the millennia. Indeed, ideas, intangible but crucial knowledge about how things work or can be done, are like the flame of a candle: they can be shared without diminishing the value held by the original holder. (Ridley, however, does talk about patents and licensing of ideas, so take that last statement with a great big asterisk.) Nonetheless, in his cute term, "ideas have sex"; that is, the interchange of ideas, mixing and matching, much like the pool of genes in sexual reproduction, generates new and novel outcomes. Ingenuity and innovation become the drivers of progress. In all of this, I find Ridley's examples persuasive and well taken. I agree with him, and he provides a sound summary. But then he goes too far.

The aspect of Ridley's book that I find disconcerting comes from those portions of the book where he thinks like a turkey. Not any turkey mind you, a Nassim Taleb turkey (and before him, Bertrand Russell's chicken). While Taleb is most readily identified with the Black Swan, the intriguing fowl and metaphor, he's also written extensively and with great persuasion about turkeys. Taleb writes about the turkey that grows up in the habit of receiving food each day from the kind man, believing that this routine will continue without end—until the day before Thanksgiving. The turkey surrendered to the fallacy of induction.

Ridley writes a great deal about pessimists who have doubted the human future—how wrong they've been. And within certain parameters, he's right; many a prediction of woe and disaster has come and gone, and nothing happened. Thus, Ridley ridicules (with only a minor nod to the contrary) those who predict problems in the human future. "We've been fed and watered by the nice man every day so far, so certainly it will continue tomorrow", he seems to be saying. Well, maybe. We haven't suffered a nuclear holocaust; we haven't seen starvation for lack of adequate food supplies (worldwide); we haven't seen the polar ice melt, and so on. But if you're like me, to take the last example as a point of consideration, how do we know that we won't soon see the melting of the polar ice caps? How do we know that we can feed another couple of billion people, the current population projection even considering the continuing drop in human fertility rates? How can we be sure, even given the end of the Cold War, that we won't see some type of nuclear exchange in the future? In fact, we don't know, and we'd be wise indeed to take affirmative steps to avoid such catastrophes.

What Ridley fails to distinguish is the difference between prophecy and prediction. Predictions are often wrong. As Yogi said, "the future just ain't what it used to be". The farther out we try to look in the crystal ball, the hazier it all becomes. This is true for predictions of utopia as well as predictions of doom. Ridley provides numerous examples of predictions of gloom and pessimism that have not born out; he curiously ignores the batting average of predictions of utopia. Contrary to some predictions, we are not living the lives of the Jetsons. (Sorry, younger readers, ask your parents or Google it.) As opposed to prediction, prophecy includes an implicit "if . . . then" clause. If we do not change our ways, then something bad will happen. Although I cannot speak with certainty, I think that this was the mode of the Old Testament prophets: "if you don't shape-up Israel, then you will suffer bad consequences". (Israel seemed to have regularly ignored these warnings.) Prophecies, in my definition, don't try to predict a deus ex machina (Black Swan) for good or ill, but they do follow the path straight into the future. Thus, when warnings of chlorofluorocarbons did not continue to burn a whole in the Earth's ozone layer, should we say that such predictions were mistaken, or should we say more accurately that we heeded the prophecy? I think the latter. The same goes for limiting the possibility of a nuclear exchange: were such predictions mere doom and gloom, or were we lucky in part and wise in part. As someone who witnessed the Cuban missile crisis (from my grandmother and her television) and has since read and seen a good deal about it, I think we were lucky and wise, and with a little less of either, we might not be here now. Prophecies of gloom have an important role to play if they move us toward repentance or a change of course. Ridley really undervalues this, almost ridicules it, and I think that he really misses some subtle but crucial distinctions.

I also must comment that Babylonians, Jews, Athenians, Romans, Mayans, Incas, Aztecs, Chinese (in the past), and on and on and on, have experienced catastrophic decline. Humanity has progressed over the ages, but not all persons in all places and in all times. Ridley is correct in singing the praises of the improvements in the world since the advent of the Industrial Revolution. He is right in describing even the "dark Satanic mills" as a better life than rural poverty and destitution. I make no bones about the fact that I was born at a time and place and into a family that gave me a life that billions of humans before me would have envied beyond their wildest dreams, and I'm nothing special in my cohort. However, it can all go to hell in a hand basket, quickly. Caboose's article citing the perils of a solar electrical storm is a threat that I've never heard of before, while on the other hand, global climate change or economic disaster (too much debt or too much austerity) are well known threats. We cannot, as Ridley seems to suggest, simply innovate our way out of every problem. If we're so great at innovation, why did we allow millions of gallons of oil spew into the Gulf this summer, causing untold damage? No, we are in some ways smart creatures, but we're not living in an Indiana Jones universe where every peril is resolved by the hero's pluck and ingenuity. We'd do better to avoid as many perils as possible, and to this end, a prudent and considered caution—not fatalistic pessimism—should govern.

I'd like to suggest two works by Canadian political scientist Thomas Homer-Dixon to you and Matt Ridley: First, The Ingenuity Gap: Facing the Economic, Environmental, and Other Challenges of an Increasingly Complex and Unpredictably Future (2002). I think that the long title gives you a pretty good sense of the author's take. Complexity, especially, allows small changes of input into a system to create unpredictable and quite variable outcomes. We live in a world that is more complex, like the weather, and less predictable, as opposed the linear world of a car engine. The other Homer-Dixon book to consult is The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization (2008). Again, the title tells you a lot; Homer-Dixon isn't a wild-eyed Cassandra, but an MIT-trained political scientist who carefully considers the many possibilities and challenges. Finally, I recommend Taleb's The Black Swan, about how collapse can come suddenly and unexpectedly—the negative Black Swan.

I recommend this book because it contains a lot that is good and accurate, and even where I find it irritating, at least it's quite thought provoking.

Austerity vs. Stimulus: Another Round

Well, a great weekend for economic debate:

1. In an almost head-to-head matchup, both Paul Krugman and Niall Ferguson appeared on Fareed Zakaria's Global GPS (the best public affairs show on TV for my money). They appeared separately, but Zakaria is a capable questioner and understands the issues, so I think that the issues were well joined. I haven't seen it to the end, so I don't know where Zakaria comes down between the two (and perhaps it really is between them).
   
2. Dave Brooks weighed in today, and Paul Krugman promptly blogged a response (he's quick with that blog!). It seems to me that all of Brooks' doubts could be laid on the austerity folks, so his uncertainty about theories on one side (the demand side/Keynesians) applies equally, if not more so, to the austerity crowd. Brooks quotes Keynes, but I find that a bit ironic, for the Demand Side theorists (as he refers to the Krugman crowd) are really looking to Keynes and the problem of a liquidity trap that monetary policy can't address. By the end, Brooks does make some concessions, such as unemployment benefits and the need for the states to receive some help in providing basic services.
   
3. Robert Frank weighed in yesterday in the NYT with his usual good sense, recommending targeted fiscal policies to stimulate the economy. We don't want something like WWII, which helped pull us out of the Depression, and long-term debt is a bad thing, but Frank recognizes the need for further stimulus, which if wisely appropriated, will provide many benefits, including long-term debt reduction. Of course, the likelihood of Congress acting appropriately is slim. Here's what Frank writes:
   

   [A]s the nation struggles to emerge from the most severe downturn since the Great Depression, such cuts are the last thing we need. There is no conflict — absolutely none — between our twin goals of putting the economy back on its feet and reducing long-term deficits. On the contrary, government could take many steps that would serve both goals simultaneously.
   

4. Someone out to be shouting off the rooftops, screaming bloody murder, about cuts to education. My personal connections with many educators aside, isn't it as clear as the hand in front of your face we need to spend more money on education?. Why are we laying off teachers? Because we don't have enough money? No! We don't want to spend the money. It's a choice; it's not something forced upon us. It's shameful and stupid.

For the Fourth: Beinart’s The Icarus Syndrome

It's my custom to read a work of American history in celebration of Independence Day. Normally, I pick up a classic work or something relating directly to the founding of the Republic. However, this year I chose a recent publication, Peter Beinart's The Icarus Syndrome: A History of American Hubris (2010, 465p.). I normally wait to write about a book until after I've completed it, but I'm enthusiastic about this book, and I have a lot to share already, so I'll set aside precedent for this occasion. In this book Beinart, smarting from his early support of the Iraq War, meditates on three occasions on the 20^th century where he finds that American policy makers reached too far based upon hubris. The first occasion comes from Woodrow Wilson's actions in taking the U.S. into the First World War. Beinart doesn't argue that the U.S. shouldn't have joined the effort on the side of the Allies, only that Wilson provided the wrong motives for prosecuting the war and the wrong principles for establishing a post-war peace. Henry Cabot Lodge and Theodore Roosevelt (who died before the armistice) provided a realist, balance-of-power rationale for American involvement, and Lodge, in the Senate, offered terms of the League of Nations that would have represented a more realist basis for that institution, and thereby, American membership. Another interesting aspect of this conflict came from the effect that it had on the American intellectual elite. John Dewey, Charles Beard, and Walter Lippmann began as supporters of the war, but by the end, and even as WWII approached, they became pacifist, isolationist, and realist, respectively. Randolph Bourne saw the tragedies that the war would bring the American polity, but he died young and rejected by the end of the war.

Beinart continues his narrative through the interwar years, including discussions of diplomatic history (France, much more that Germany, was seen as a belligerent power in the 1920's). He also keeps abreast of foreign policy thinking, for instance, he notes the rise of Reinhold Niebuhr as a critic (not always fairly so) of Dewey's approach, which still posited some degree of human perfectibility. Of course, Wilson comes into contrast with FDR, who, while using some Wilsonian rhetoric, nevertheless maintained a quiet realpolitik perspective on the postwar world.

After the WWII, American policy makers faced new threats. In dealing with this era, Beinart discusses the work and perspective of George Kennan, among others. Beinart provides an informative and insightful introduction to Kennan the man, a mixed bag of knowledge, insight, hypochondria, and prickliness, as well as Kennan's influential work at the beginning of the Cold War. Beinart relates a history of Kennan's work and influence that I find similar to the perspective provided by Garry Wills in Bomb Power earlier this year. Kennan, perhaps wanting a bit too much to curry favor with his patron, James Forrestal, failed to adequately define and limit his idea of containment in his famous "X" article in Foreign Affairs, thereby creating a military monster when in fact Kennan intended a much more political, diplomatic, and economic perspective for the concept. Kennan, when he tried to get the genie back into the bottle, was marginalized and quickly shunted aside. After Wilson's the "hubris of reason", the U.S. moved into the "hubris of toughness". Ike kept a lid on this through his low key style (shall we say "no drama Ike"?), but with the election of JFK, the cult of toughness hit full stride—and marched us right into Viet Nam.

This is as far as I've gotten in the book, but I think you get the gist of Beinart's thesis. To give a bit away, part three, which addresses the Iraq War, becomes the "hubris of dominance". Beinart is writing history in the manner of Garry Wills' Bomb Power and the works of John Patrick Diggins: as a reflection and assessment through which we can view the present. It's not original historiography, but a historical essay from which we can greatly benefit.

For those of you who might like a fuller review, George Packer has provided a very useful and well-considered review in the New Yorker. You can also get a sense of Beinart's work in a part of the book that I haven't gotten to yet: an essay on Ronald Reagan in Foreign Policy. In this essay (adopted from the book), Beinart takes a position on Reagan very similar the description that I received from reading Jack Matlock's Superpower Illusions, with its extensive discussion of the end of the Cold War under Reagan. Both authors provide an account of Reagan that differs from both conservative and liberal myths of the man. Finally, Leslie Gelb reviewed the book in the NYT. (Packer's review, however, is the more useful.)

Matlock on Superpower Illusions

I just finished Superpower Illusions: How Myths and False Ideologies Led America Astray—And How to Return to Reality by Jack Matlock (2010, 368 p.). Ambassador Matlock served a number of years in the U.S. Foreign Service, including a stint as ambassador the Soviet Union at the time of Gorbachev, Reagan, and the end of the Cold War. Matlock has written almost two books here: one on the history of the Cold War, or rather, the end of the Cold War, which he emphasizes occurred before the disintegration of the Soviet Union. The second part of the book addresses the foolish hubris reflected in U.S. policy that followed the end of the Cold War and Soviet Union. Matlock makes clear that we did not "win" the Cold War; it stopped by mutual agreement. Matlock has almost unstinting praise for Ronald Reagan and the attitude he took toward Gorbachev and change in Soviet leadership that Gorbachev represented. Unfortunately, so Matlock thinks, we took our supposed victory too far in extending NATO into former Warsaw Pact nations and thereby threatening Russia. We also have gotten ourselves into some very difficult situations since then. Matlock has plenty to say that is critical of Clinton administration attitudes and actions, although his harshest criticisms go toward the George W. Bush administration.

After Matlock retired from the Foreign Service he has taught, including a stint at Princeton in the George Kennan chair, and I certainly get the impression from this book that Matlock merited such a prestigious honor (or at least I think that it should a very prestigious honor!). I highly recommend this book to anyone interested in the perspectives of a person who has represented the U.S. in the front lines of diplomatic engagement and who has learned a great deal from his experiences. An excellent book.

Feguson: An Evolutionary Approach to Financial History

I watched a very interesting presentation made this spring @ Grisham College in London by Niall Ferguson. Entitled "An Evolutionary Approach to Financial History", it proved quite interesting. Financial history is where Ferguson cut his teeth, including a study of the House of Rothschild (in two volumes) and most recently, a biography of German-born, London-based financier Siegmund Warburg. In this talk, Ferguson compares the financial world to the natural world, invoking impressive precedents from the likes of Thorstein Veblen and Joseph Schumpeter, among others. I think his argument and comparisons quite sound; in fact, I've seen more and more comparisons of economic life to the world of evolutionary nature. Ferguson notes that there certainly are differences, such as (the effort, at least) of intelligent design of financial systems and the existence of Lamarckian (inherited traits) evolution (thanks to culture), between the natural world and the man-made world of finances. However, the similarities are even greater. In all, an excellent and thoughtful consideration of a model for considering finance and financial history. I think that Ferguson is on the something here.

Stimulus v. Austerity & Debt Reduction

We have a really interesting public policy debate ongoing about stimulus vs. debt reduction. One part of me thinks debt reduction very good (score Taleb, Ferguson, Sachs, Merkel, and Cameron), but maybe not now (score Keynes, Krugman, DeLong, and the Obama Administration). Following are a number of sites that have discussed the issue and reported about the positions of the various parties. It's really an intelligent policy debate, and one that can have real consequences for our daily lives.

1. http://www.emerginvest.com/Source/EconomicForecastsOpinions/2010/6/30/ferguson-roubini-vs-krugman-slowdown-or-depression-for-the-u.s.html
   
2. http://www.businessinsider.com/niall-ferguson-europe-banks-2010-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29
   
3. http://www.businessinsider.com/niall-ferguson-sovereign-debt-2010-5#-1
   
4. http://www.pbs.org/newshour/businessdesk/2010/06/nassim-taleb-answers-viewer-qu.html. Here I must say that Taleb, going with his enigmatic persona, is too brief and really dodges a good, direct question challenging his position vis a vis Krugman's arguments. It seems to me that a lack of growth can create instability: consider the the Depression era politics of Europe, and more specifically, Germany.
   
5. http://www.businessinsider.com/if-youre-not-bored-youre-not-paying-attention-to-the-stimulus-vs-austerity-debate-2010-6. I think that this writer has a valid point: it's probably not an all-or-nothing perspective that we should take on the austerity vs. stimulus argument, and many other factors should receive consideration as well.
   
6. http://www.businessinsider.com/my-question-for-paul-krugman-and-brad-delong-2010-6. Another good perspective considering both arguments. The real problem: we (the U.S. specifically) carried way too much debt coming into this crisis. Without this prior debt load, the Keynesian perspective makes sense without question (freshwater economists not withstanding). But that's not where we're at. Are we in damned if we do and damned if we don't?
   
7. http://www.onpointradio.org/2010/06/the-historian-vs-the-economist. From Tom Ashbrook's radio program "On Point".
   
8. http://www.onpointradio.org/2010/06/niall-ferguson-a-checkup-on-global-financial. Here you can listen to the program and see the great video of rapping Keynes vs. rapping Hayek. Great economics teaching tool!
   

   
    

   Okay, this has been quite a collection. It does show that economic policy decisions are not an easy matter, yet they can greatly affect our daily lives. Thanks for reading.

Nussbaum on Education in China & Singapore

UC philosopher Martha Nussbaum criticizes the Chinese and Singapore education systems that some—including President Obama—have praised. As she's on a most favored writer list, her article in TNR is worth sharing. Also, she thinks that pluralistic democracy is a good thing, and so do I.

Jeff Rosen On Kagan Hearing

Jeff Rosen, the very perceptive (means that I often agree with him) legal commentator for TNR offers this assessment of some of the perceptive questions asked by senators (a couple anyway) at the confirmation hearings. I haven't watched these hearings, but some I've watched have made me want to scream at the idiocy and preening that went on. Well, at least we know that some intelligent questions have been asked, which provides some mild reassurance.