Once Upon a Dime

Another semester’s worth of reading is done—herewith is the review of the last book I assigned in an economics class this semester.  (I also finished my the book for my tutorial—review forthcoming.)  So, as soon as I get through the assorted articles I assigned (5 left to read) and all the grading (I don’t even want to think about that), it is on to Summer Reading.

But, before the Summer Reading Reviews commence, my money and banking class ends with:

Davies and Green, Banking on the Future

This book is in a class of its own.  At one level, it is a textbook on modern monetary policy.  But, it doesn’t read like a textbook—it is actually well-written and doesn’t have all the annoying features of modern textbooks (high prices, lots of multi-colored graphs and boxes and sidebar notes—it actually reads like a, you know, book).  But, even though it doesn’t look like a textbook, it is one.  It is meticulously organized, with each chapter being a very good overview of the state of the art conventional wisdom on each topic covered.  Curiously, this leaves the book without much of an audience.  I liked it because it is a fantastic reference book.  I am not sure if my students will like it though because it doesn’t have a gripping narrative flow—it is probably better read one chapter at a time than all at once.  And outside the college class market, I am not sure if anyone would want to read it—you’d need someone who thought, “I’d like to take a course on monetary policy, but I am not in college, and I don’t want to read an insipid, overpriced textbook.  I wonder if there is a well-written book that covers all the sorts of topics which would be covered in a class on monetary policy.”  I am not at all sure how large that world is.  And if by some chance you do fit that category, don’t hesitate to buy this book.  If you are looking for a great causal read, though, this book won’t fit the bill.

My favorite chapter, partly because it was material I have never seen before, was the one which examined the efficiency of central banks—how much do they spend relative to their output?  If we treat central banks like firms and look a their costs, how well do they do?  The variance here is surprising, really surprising.  Some central banks are enormously inefficient compared to others—I would have thought they all had some general base level of inefficiency which would have been about the same across countries.  The reality—some countries have central banks whose input measures (costs, employees, etc) are off the charts even compared to other central banks.  Consider, for example, employees per one million inhabitants.  The Bank of England has 31 employees per million inhabitants.  For Japan the number is 40.  The US is at…68, which sounds high, until you look further.  Belgium is at...210.  France has 220, Greece has 279, and Luxembourg has 446.  And the last four countries are part of the European System of Central Banks which has its own staff of 161 per million inhabitants.  The Fed suddenly looks like a model of efficiency.

Also, it is worth noting that the reading for my money and banking class this year was far above average in overall quality—2010 was a good year for  money and banking papers and books.  The only downside is that one of my favorite things to assign is now out of print.  It was published by the Federal Reserve Bank of New York, and given that they aren’t all that efficient anyway (see above), you would think they could have just kept it in print.  You can still read it here, but it loses something not holding the actual book in hand.

The State of First Things, April 2011

Next in the continuing series.

A) Must Read Articles

1) Meilaender, “Thinking About Aging”

A really interesting reflection on the desire to live longer.  The question of aging is increasingly important as the ability to extend life becomes greater and greater.  But, why should we want to live longer?  In part, the desire to live longer is part of the modern desire to deny the reality of death.  So, if we accept that death is an obvious and natural part of life, why should we want to live longer?  And, then, when you think about it, few people would really want to live longer if it meant constantly aging; we desire to live longer with youthful minds and bodies.  So, the real question is not simply how to prolong life, but also how to retard aging.  Is there any good reason to want to live longer, to prolong our time in this world?  Meileander argues that the desire to prolong our love for others is a legitimate aim in desiring a longer life.  I am not so sure his answer works—after all, if we aren’t going to Love even more in Heaven, then Heaven must be a very odd place.  So, if the desire is to maximize Love, surely we should want to die sooner.  An interesting puzzle, this—once my children are old enough to care for themselves, is there any reason I should wish to prolong my life?  I do want to do so (and not simply because I am not sure my children will ever be able to take care of themselves), but why?  If I can’t answer that question, then isn’t my desire to live longer simply a fear of Death, and if it is that, isn’t the desire inherently Wrong.  If I say with Paul “To live is Christ, to die is gain,” then shouldn’t I necessarily be indifferent as to when I die?

2) Weigel, “All War, All the Time”

A great account of the conflict between the Communists and the Catholic Church.  This is one of those behind the scenes battles of the Cold War.  Incredible.  I’d ask “Who knew the Communists were so petty and vile?,” but the answer is that everyone who was paying attention knew.  This is a cursory account, just outlining the details of what will be a definitive book sometime.  Weigel concentrates on the conflict in Poland (touching on the conflict elsewhere) since John Paul II was Polish and Weigel wrote The Biography of him.  The anecdote which surprised me the most—the Communists had actually forged a diary of a woman who claimed to have had an affair with Wojtyla (John Paul II before he became Pope)—they had planned to blackmail him, but the plan was ruined when the guy in charge of planting the diary got drunk.

B) Flawed, but worth reading

1) Woodward, Memories of a Catholic Boyhood

A Charming account of growing up Catholic.  But, I am not sure there is a point.  “Catholics are normal people too” seems to be the closest thing to a point, but I am not sure when the last time was that anyone believed differently.

2) McDermott, “Evangelicals Divided”

I wasn’t sure what to make of this article; on the one hand, there isn’t much that surprised me, on the other hand, it is a decent survey of the growing Evangelical Divide.  The Divide is between what McDermott calls the Meliorists, who seek to find a way to make evangelicals more palatable to the general population, and the Traditionalists, who seek to keep the evangelical movement theologically pure.  The Meliorists are ultimately going to drive their wing of evangelicalism into the same irrelevance as the Mainline denominations currently have.  Why do Christians worry so much about being popular?

3) Esolen, “Restoring the Village”

A wandering essay with one interesting point.  Governments tend to think of themselves as the institutions by which society persists over time.  But, families predate governments.  And if you think of the family as an institution that predates the State, where did the State get the authority to interfere with the prerogatives of the family?

Editor update:  The new editor, Reno, still hasn’t taken the helm.  Maybe next issue?  This holding pattern, waiting to see what happens next, is getting old.  This issue like the last few was decent, but since we all know things will be changing within the year, it would be nice to get some idea of how.

Living on the San Andreas

Fault Lines by Raghuram Rajan is one of the more interesting 70 page works of non-fiction I have read in a while.  Unfortunately, the book is actually 229 pages long.  It’s a common problem in the non-fiction book world.  What do you do if you are an author with a thesis that needs between 70 and 100 pages to explain?  The idea is too big for a journal article, because a short version won’t be nearly as compelling.  But, there isn’t, it turns out, a particularly big market for 100 page books—I suspect the market for 100 page books is thin because the fixed costs of publishing means that it costs about the same amount to publish a 100 page book as it does to publish a 250 page book, and if you see two books, one of which is 100 pages and the other is 250 pages, and they cost the same amount, which are you more likely to buy?  And won’t you feel like you are overpaying for a 100 page book when there are those 250 page books which cost the same amount?  And so, a nice 70 page book becomes a 230 page book.

This leads to the next problem—what do you do if you have to triple the length of a book?  Padding the argument isn’t enough—that gets Rajan up to 153 pages.  Still too short.  So, he adds three more chapters of “policy suggestions” which a) have only a slight resemblance to the interesting part of the argument, b) are all really superficial, and c) read like a laundry list of suggestions for things that Rajan clearly likes whether they relate to the argument or not.  In other words, I have a hard time imagining anyone getting much of anything at all out of pages 154 to 229 of this book.

But, enough about the bad.  I liked this book.  The first 150 pages has a really interesting argument, well worth reading.

Rajan’s general thesis is that the 2007-2009 economic problems were fundamentally the result of a series of fault lines (hence the title) in the world economy.  The fault lines analogy is cute (see, we had an economic earthquake!), but despite that, the general argument is thought-provoking.  The major fault lines:

1) The gap between the wealthiest and poorest Americans.  As a result of the wealthy getting wealthier, Washington wanted some means to buy off the poorer members of society (poorer here means the middle and lower classes, by the way).  So, we had a deliberate attempt to make getting credit easier, so people could consume at levels above their income.  In particular, there was a deliberate attempt to make getting a home mortgage easier, so that the poorer members of society will see themselves achieving the American Dream, rather than noticing that their incomes aren’t rising at 10% a year.

2) A number of countries which had staggering economic growth rates in the last 50 years did so by focusing their economies on the rapid rise of exporting industries.,  Such economies became seriously unbalanced.  As a result, the economies need to maintain a big demand for their products outside their borders.  When external demand became weaker, these countries were in serious trouble because they did not have well-developed internal industry.  Rajan notes, “There are no large Japanese banks, for example, that rival HSBC in its global reach, no Japanese retailers that approach Wal-Mart in size or cost competitiveness, and no Japanese restaurant chains that rival McDonald’s in its number of franchises.”  That’s a tough problem to overcome; if your domestic service market is small, and your export industry can’t find buyers, what happens?   A slump that last decades.

3) Many developing countries had weak financial systems, but decent prospects for growth.  As a result, capital flowed in from outside, but always on short term contracts; you want to save in a country with high growth prospects, but you also want to be liquid enough that if things go bad, you can get out.  For a small, poor country, chasing this hot money became a temptation and a trap.

The result of all these fault lines?  The crisis of 2007-2009.  In summary, superficial form:  item 1) gets you the US housing bubble; item 2) gets you a demand to sell goods in the US, which means capital must flow in from aboard (the trade deficit is by definition equal to the inflow of capital from abroad)—that capital provides the funds in the domestic markets which allow for the housing bubble; and item 3) meant that when all that hot money was looking for a home, a stable financial system in a booming economy was really attractive.  Then item 1) hits a wall and the housing bubble bursts, the US goes into a recession meaning it can’t buy as many goods in 2), and the hot money in 3) is left homeless.  Result: worldwide recession.

Is this right?  I’m not sure; I am a bit skeptical that these fault lines are as important as Rajan makes them sound, but there is no doubt the general idea is intriguing.  There is enough there that is true that there is at least a plausibility about the story.  And it leads to a really tough problem—if Rajan is right, what is the solution to the problem?  There really isn’t one.  Rajan tries to offer solutions (as noted above), but his solutions really don’t get anywhere—these are deep, deep problems that are not fixed by some more IMF meet-and-greets.

In the end, this is a book well worth reading if you have the patience to wade through a book that is much longer than it should be.

James Dean gives advice to Ben Bernanke

When did the myth of the uber-competent government official begin?  While there have obviously been good government officials in history, looking over the Sweep of Time is not terribly encouraging.  What percentage of powerful people did a good job? 

That question is interesting when thinking about the current Fed, which is embarking on a Giant Game of Chicken.  The monetary base has soared, and they are promising that they will pull it all back out before inflation hits.  To believe that they will do this is to believe that they are really good at what they do.  Why would we assume this?

Enter Allan Meltzer’s magisterial A History of the Federal Reserve, Volume 1: 1913-1951.  This is The Book on the history of the Fed (well, this and volume 2 to be precise (always a good thing to be)).  I assigned it to my Money and Banking class this semester, mostly to see what they would make of it.  It is, you see, magisterial, which you can read as “long and full of every detail one would possibly want to know.”

The thesis of the book.  In those early years the Fed was populated with well-meaning, smart people who had absolutely no idea what they were doing.  None.  That Great Depression thing you might have heard about?  Their fault.  And why?  Because they had absolutely no idea what they were doing.  We have known this ever since Friedman and Schwartz argued this point, but Meltzer amassed so much evidence on the matter that it is hard to see how anyone could argue anything else.  And, Meltzer also documents something else rather well—there were people around at the time, some of them actually working at the Fed, who did understand the way monetary policy worked and who did suggest doing the right thing.  But, the majority of Fed officials, being clueless, ignored the good advice and journeyed on their merry way taking the economy right over the cliff with them.  This book is amazingly good—but you probably don’t want to read it.  Unless, that is, you are really fascinated with the inner workings of monetary policy before 1951.  There is little in this book that would be gripping to the casual reader.  My students liked the Depression part, but hated the stuff that came before the Depression.  (Economics is like traffic—traffic is boring unless there is a major accident at which point everybody wants to slow down to see if there is a dead body.  Hence, thinking about the 1930s is way more interesting than thinking about the 1920s.  This surely says something about human nature.)

Now, one way to read Meltzer’s book is that it tells us about the Bad Old Days when Fed officials didn’t know what they were doing.  Does it mean anything for today?  That depends entirely on whether you think a) Fed officials learned from the past and now won’t make any big mistakes or b) the economy is every bit as complicated now as it was in the 1930s, Fed officials are every bit as human as they were in the 1930s, and thus there is no reason that they won’t make huge mistakes.  

The Fed gave indication earlier this week that it does not plan to reign in the massive QE2 program anytime soon.  That cliff is getting nearer and nearer.

Gone West

I have returned.  Well, to be precise, I left and returned and left and returned again.

Trip #1:  Dallas, Texas, for the Philadelphia Society meetings

            This year, like every year, this was a rather good conference.  The theme was Progressivism—a hot topic these days as the Left rebrands itself as Progressive.  Apparently calling oneself a “Liberal” has become unpopular as people figured out that Liberals wanted to do all sorts of things that said People didn’t like.  So, what do you do when your political philosophy is unpopular?  Change the name.  Ah, but this isn’t your Father’s Progressivism.  It turns out, being a Progressive means never having to say you are sorry.

            The conference had a bit of  a schizophrenic feel.  On the one hand, the old early 20^th century progressives were a rather totalitarian bunch.  Jonah Goldberg’s (the keynote speaker) Liberal Fascism has the details.  Truth be told, I haven’t read Goldberg’s book—Goldberg is a really good columnist, always clever and amusing.  Then he wrote the Big Book which shows he is a Serious Thinker.  My experience with books of this type is that they are horribly tedious.  Horribly tedious.  Just because someone can write a fantastic magazine article does not mean the same person can write a great 200+ page book.  So, I have refrained from reading Goldberg’s book because as long as I haven’t read it, I can think very well of it, but I am afraid, very afraid, that if I read it, I’ll end up not liking it.  But I digress.  (Please contain your expression of shock.)  Goldberg’s thesis is that the old Progressives were, well, fascists.  He thinks this because, well, they were. 

            But, on the other hand, the crucial question is not the history of Progressives, but rather, if there is any link between Modern Progressives and Historical Progressives.  And after a weekend of hearing people talk about historical and modern Progressives, I am not so sure.  On  the one hand, what modern Progressives want is, in fact, a lot like, if not identical to, what those early 20^th century progressives wanted.  On the other hand, conservatives are by nature inclined to root their ideas in some historical development; Progressives like to imagine they are reinventing the world anew every 16 months or so.  Meet the New Progressives, Same as the Old Progressives.  But, at least they are New, right?  (Insert obvious music video.) 

Trip #2: Idaho, for my Grandfather’s funeral

            He was buried in May, Idaho, where his grandfather had a homestead.  If you haven’t heard of May, Idaho, don’t be alarmed.  It is a small town.  A very small town.  The population is under 200, but even that number is high.  It is ranching country.  There is a downtown strip with one main road, maybe two dozen buildings of which about a third are uninhabitable.  It was interesting driving out there—this is one remote area.  Standing in the windswept desert, it is hard not to dream of a life living out there—peaceful to say the least. 

Well except for the Boeing guy.  Some President or Vice-President of Boeing bought some land out there on which he has built a large house and a couple of guest houses.  (I didn’t drive out to see the houses, we just heard about them.)  He also built a private airstrip so he can fly there.  Being a Boeing executive, though, means that you don’t just build a small airstrip.  His private airstrip is big enough to land a 727.  But, don’t worry about the size—he is expanding it so that he can land a 747 on it.  Now why would you want to land a 747 in the middle of nowhere?  I assume it is simply so that he can fly 300 of his closest friends out from Seattle for a big party in the middle of Idaho.

            You can imagine how the Idaho ranchers feel about having a 747 land in the middle of their otherwise peaceful land.

            I can fancy myself living on a ranch reading books as the sun slowly sets over the desert.  But, then I’d have to get a satellite dish so I could watch the Raiders.  (Assuming they ever play football again (now this is getting depressing).)

Observation #1 on my trips.

It’s official:  I hate flying.  Between the two trips, I had four sets of flights.  On only one of them was there no problem.  And can I say that the customer service of airlines when there are problems with flights is seriously lacking?  I was thoroughly unimpressed with both Southwest and Delta.

Observation #2 on my trips.

It’s good to be home.

Man of Steel

I recently finished Grant Morrison’s All-Star Superman; it was a 12 volume comic book run that is now collected into two trade paperbacks.

Superman is very awkward as a superhero.  On the one hand, his boyish, all-American charm is great, the Clark Kent disguise is amusing, and his superpowers are, well, rather powerful.  And it’s that last one that’s the problem; he is way too powerful.  Without a limitation, there isn’t much drama.  So, along come kryptonite, which renders him utterly powerless.  With no kryptonite around, he is indestructible; with kryptonite around, Elmer Fudd could beat him.  So, how do you write a comic book about him?  Who’s he going to fight?

As a result, I’ve never been all that interested in Superman comics; as a Superhero, I like the idea of him, but it’s hard to get excited about him.  Similarly, all the Superman movies are pretty lame.  (I know it is heretical in some circles to say that Christopher Reeve’s original Superman movie was bad, but really, have you watched since you were a kid?—it is painfully bad.  And the franchise which started bad got progressively worse.)  The only Superman portrayal I really enjoyed was Alan Moore’s great two issue story “Whatever Happened to the Man of Tomorrow?” which, set in a future in which Superman has vanished, asked what happened.  All-Star Superman tries to capture the same feeling as Moore’s story.

The idea behind the All-Star series is that it doesn’t have to fit into the DC Universe continuity—so the author is free to start and end anywhere.  That gives a bit of freedom to Morrison, and he uses it in an interesting way.  What is one enemy that Superman could fight in which the outcome is not a foregone conclusion?  How about his own mortality?  The basic story: Lex Luthor comes up with an evil (obviously) plan—if Superman has to fly into the sun to save some people, he’ll get exposed to so much of the quality of the sun which gives him his superpowers that his body will overdose on the sun and he will die.  The plan works.  Superman finds out he has suddenly become mortal.  So, he sets out to perform 12 heroic deeds before the end.  The best part about the story not being tied to the DC universe is that it is possible that Superman can actually die here.  (Superheroes can’t die in the real fake DC universe because there is a need for more comic books, so you have to have a fake fake universe if you want even the possibility of death.  Such is the reality of the comic world.  (One Christmas, my family gave me The Marvel Encyclopedia; my father-in-law, upon seeing it, commented, “Hmmm.  An Encyclopedia about things that aren’t real?”  My father-in-law probably won’t be reading All-Star Superman anytime soon.  (Fortunately I read non-comic books too, so that he doesn’t think I read only absurd things.)))

Does All-Star Superman work?  A little.  It’s OK.  Part of the problem may be Morrison; the only other thing of his I have read is Arkham Asylum (a Batman story) which is pretty good.  But both of his books I have read have a very jerky, episodic feel.  He jumps over parts of the story and then you have to fill in what just happened; it isn’t hard to fill in the blanks, but the stories don’t feel like they develop; instead, they simply lurch forward.  (It’s sort of like watching Frankenstein’s monster walk.)  Some of the parts of All-Star Superman are clever and well done, but other parts are tired.

The Bizarro World section runs on way too long; there is a really interesting character in it, so the episode is actually good, but too much Bizarro talk gets old.  (By the way, in one of my lectures not too long ago, I mentioned Bizarro world, and met with a sea of blank faces, I asked if anyone knew about Bizarro world.  Nobody did.  Not a single student knew about it.  Sigh—kids don’t read enough comic books these days. (And, incidentally, Bizarro world is discussed in an episode of Seinfeld—doesn’t anyone watch Seinfeld anymore?))

What do we learn from this story (All-Star Superman, not the Seinfeld episode)?  It’s an extended reflection of our own mortality.  Superman, suddenly faced with mortality, has to decide how he wants to live the rest of his life.  We, constantly faced with our own mortality, don’t think about it all that much.  Superman has a year to accomplish his 12 tasks.  He picks an odd set of tasks.  Suppose you had the rest of your life to accomplish 12 things—what 12 things would you pick?  Seriously, try to make a list of the 12 Labors of You.  It’s an odd Thought Experiment.  And why do we rarely ask ourselves that question?

One other interesting Superman note:  I can't remember where I read it, but recently I saw someone note that Superman’s alter-ego, Clark Kent, is unique.  Every other superhero’s alter-ego is the real person.  Bruce Wayne is the real person, then he puts on a mask and becomes Batman.  Peter Parker is the real person and becomes Spider-Man (note correct spelling of "Spider-Man").  But Superman is the real person and the mask he puts on is Clark Kent.  I wish I remember where I read that tidbit.  I know I read it recently, but I cannot remember reading anything recently which would have had an observation of that nature in it. Come to think of it, it was probably in Wired magazine—they always have geeky observations like that.

The obvious Music Video.  I love the song; but hate the original music video (it’s terribly lame), so this one gets some good video to go with the song.