Friday, May 19, 2017

Russiagate moves ahead

A new post appears here.

Friday, May 12, 2017

The Hedge Fund Economy

This week I read Black Edge by Sheelah Kolhatkar, a reporter, about the battle between the SEC and the New York US Attorney's Office on the one hand, and SAC Capital, the hedge fund run by Steven Cohen, on the other.  Although no one seems to want to talk about it very much (including Terry Gross and Kolhatkar when the author appeared on Fresh Air), the story is obviously the inspiration for the superb HBO series Billions, which just finished its second season.  The book offers extraordinary insight into the world of hedge funds, which have become so important within our whole economy.  Rather than review it in detail, I am going to talk about the biggest lessons that I learned from it.

Although I also read a history of hedge funds by Sebastian Mallaby and blogged about it here, I am still quite unclear as to how this key new financial institution got off the ground and became so powerful.  Kolhatkar indicates that regulators allowed them to operate far more freely than banks, on the assumption that their investors would be wealthy enough to take risks. Many of their investors, of course, hvae turned out to be institutions like pension funds.  In any case, many of the funds--led by SAC Capital--generated extraordinarily, Madoff-like returns for decades.   The returns vastly exceeded the growth rate of the economy, and thus contributed to the growth of inequality in our society.  The question that hangs over the book, and became key to the prosecutions of various hedge fund traders, was exactly how they did it.

It is impossible, sadly, to disaggregate the answer to that question, but it is clear that many of the profits came from inside information.  The old model of investing, represented by Lou, the GI character played by Hal Holbrook in Wall Street, involved identifying a promising company and investing to secure a share of its profits.  That model seems to be moribund, if not dead.  A more common model involves bets on a sudden rise or fall of a stock, based on an event such as the release of an earnings report or the results of a clinical trial of a drug.  It doesn't matter whether the news is bad, what matters is to know what the news will be before it is public, in order to short the company's stock or buy more of it before the news has moved the market.  Traders are gamblers, and all gamblers prefer to bet on sure things.  The problem, of course, is that such trading on inside information has been illegal, for good reason, for more than 80 years.

In a rational world moved by civic virtue, I think, a Congressional committee would long ago have done a multi-year investigation of hedge funds in an effort to find out roughly how much of their profits come from illegal inside information.  I have no idea exactly what it would find, but it could be high enough to suggest that a law making their operation illegal would be in the public interest.  What Kolhatkar does show is that information has become a huge business.  Entire stand-alone firms have formed to become intimate with firms in various industries.  Hedge funds pay them retainers for their information.  They evidently feel that they are getting their money's worth.  I got the impression that these firms, as well as some traders, work more like intelligence agents than anything else, trying to win the confidence, or intimidate, or corrupt sources of valuable information by any available means.  We shall return to this issue in a few minutes, after looking at the ennvironment within the funds

I am increasingly depressed by the lack of institutional loyalty in today's world.  From academia through the financial world and into medical care, politics, and government, fewer and fewer people, it seems to me, seem to care about the long-term future of the institutions they work for, or for their fellow employees.  Most care only about what they can get out of their institution.  I have to admit that I have been a devoted fan of Survivor since it began, even though I am always depressed by the inability of most of the contestants to focus on the interests of their particular tribe, even in the first stage of the game when individuals' fortunes depend largely on the fortunes of their tribe.  And this tendency has if anything gotten worse as Millennials, who were supposed to be team players, replaced Gen Xers in the contestant pool.  This is the way many hedge funds are organized as well.  Cohen at SAC gave individual traders huge leeway and did not oversee their operations closely--but he expected them to provide him with their best information and allow him to profit from it.  That kept him at one remove from the information itself, and that is what in the end saved most of his fortune and his freedom from the US Attorney's office.

What is so maddening about the story of the insider trading prosecutions, to those of us who care about the law and have a reasonably good head for figures, is that insider trading is anything but difficult to detect.  Like large-scale bets on a fixed sporting event, the evidence is unequivocal and obvious.   To cite a related example, in the early 1980s, the Pennsylvania daily lottery was fixed to as to produce the number 666 by infiltrators into the TV studio that drew the number with the help of numbered ping pong balls.  On the afternoon before the drawing law enforcement received numerous calls from illegal numbers brokers predicting the fixed outcome--which was the only possible way to explain the deluge of bets they were receiving on 666.  A sudden, large purchase or short of a stock just days before important information about the stock reaches the public is virtually a confession of guilt.  But the courts do not accept that kind of evidence--it is necessary to show exactly whom the information came from and how it was acquired.  

Cohen was implicated in two trades. The first involved a leak of an earnings report from the computer manufacturer Dell.  An SAC trader named Michael Steinberg was indeed convicted of insider trading in that case.  But in a catastrophic decision in a similar case in December 2014, an appeals court overturned another insider trading case, rebuked Southern District prosecutor Preet Bharara for an overly aggressive strategy, and declared that traders who used inside information that they obtained from a third party, rather than from some one in the firm involved, were not guilty.  That led to the dismissal of Steinberg's case as well.  The Supreme Court has repudiated that decision, but the state of the law remains very unclear.   The second case, which was widely publicized, involved an Alzheimer's drug trial.  An SAC trader named Matthew Martoma had spent years cultivating an elderly University of Michigan Med School professor, Sid Gilman, who was involved in the trial.  (Martoma, it turned out, had previously forged his Harvard Law School transcript to try to get a prestigious clerkship.)  Gilman had collected hundreds of thousands of consulting fees from the financial industry, and eventually provided Martoma with his power point presentation on the disappointing results of a clinical trial.  Martoma had emailed these results to Cohen, who had promptly shorted the drug company's stock on a large scale.

Martoma, who refused to cooperate with the government and testify against Cohen, was convicted and received a long sentence.  But after a long conference with Cohen's well-heeled attorneys--essentially, a dry run for a trial, without judge or jury--Bharara's office decided not to risk a trial that they might lose.  Cohen escaped with a fine that, while huge by ordinary standards, represented a fraction of his assets.  He also had to shut down SAC capital but continues to trade on his own behalf.  (This was exactly the deal that "Axe," played by Damian Lewis, turned down during the first season of Billions.)  Martoma had actually sent Cohen an email just before Cohen began shorting the drug company's stock, but the prosecutors were worried that they could not prove that he had read it.  It has become notoriously easy for prosecutors to put any poor person in jail that they choose, by threatening them with draconian sentences if they will not plea.  Black Edge and the history of the Obama Administration and the big banks show that it is nearly impossible to put the superrich behind bars.

I was most struck, in all this, by the ethos--or pathology--that seems to rule the hedge fund world.  Everyone wants a spectacular result, and inside information is the easiest way to get one.  But when you have done it once, it seems, you feel greater pressure to do it again, forcing you to look harder for the next coup.  These traders, who siphon many billions out of our economy every year to inflate the high end housing and art markets, are addicted to large sums of money, which function, for them, like opiates for millions of their fellow citizens.  They are addicted to huge sums of money.  The cure is simple, and it is one that the country tried from about 1940 until 1964: 91% marginal tax rates above a certain amount.  But under current tax law hedge fund traders pay lower taxes than the rest of us, through the carried interest loophole.  We are all feeding their addiction.

And what it means for addicts to have such power was succinctly stated by Gus Fring, played by Giancarlo Esposito, in my favorite moment of Breaking Bad, when Walter White and his partner Jesse came to meet Gus at Pollos Hermanos, but waited all day without making contact.  Jesse eventually left, and Walter took the bull by the horns, went up to the counter, and confronted Gus.

Gus explained why he didn't want to work with Walter. "I don't think you are a cautious man, Mr. White," he said.  "Your partner was late. And he was high. He's often high, isn't he?"

Walter replied that while that was true, his partner was someone that he could trust.

"You can never trust a drug addict, Mr. White," Gus replied.

Saturday, May 06, 2017

Whom is health insurance for?

I was not planning to make another post this weekend, but my New York Times this morning includes an op-ed by a physician and medical school professor named Marc K. Siegel.  [Don't miss the post on Trump and Andrew Jackson, below.]  Dr. Siegel ran into an ambush when his thoughts reached my eyes, because he said something in simple, clear language, which had already occurred to me as the dirty secret of the Republican health care bill in general and the issue of "pre-existing conditions."  This is what he said.

"In addition to limiting the menu of essential benefits, the House bill would let states create high-risk pools for patients with pre-existing conditions who had let their insurance coverage lapse, and who could then be charged premiums more in keeping with their health care needs. This is the only way to make insurance affordable for most consumers; pre-existing conditions will continue to drive up premiums if everyone is compelled to pay the same price."

Now my idea of health insurance is that we all pay into it because we will all become sick from time to time, and we may become very seriously ill.  Many of us will never need extremely expensive treatments, but many will, and we can't tell who they will be. Thus our investment is very bit as reasonable as our investment in fire insurance.  But Dr. Siegel has a very different view.

What, in fewer syllabus, as a "patient with a pre-existing condition?"  Answer: a sick patient, one who needs treatment right now, and may need it for a long time. Alternatively, it may be someone whose medical history substantially increases the likelihood that they will get sick and need treatment in the future.   And I had realized as I read a news story about the House bill last week that this was the key to debate.  The insurance industry, bless their hearts, loves insuring healthy people but hates insuring sick people.  Like just about every other corporation in America they are focused on their bottom line, which healthy people improve and sick people make worse.  Somewhere in the course of his medical career Dr. Siegel seems to have forgotten the point of health insurance: to pay for treatment when people need it.  He doesn't think that healthy people's premiums ought to be high enough to pay for treatment for people who are actually sick. [Incidentally, Dr. Siegel, if this post comes to your attention and you want to reply to it here, you can have all the space you want.)

I have heard other stories over the years about the insurance industry's point of view.  A dear friend of mine who co-owned a thriving small business got cancer many years ago, and needed an expensive procedure.   The procedure was an unqualified success in the short and medium run, and he survived for 8 years of happy and productive life as a result.  But no sooner had he initially gotten well, than the insurance company that provided a group plan for his business (of a couple of dozen employees) hit the company with a tremendous increase in its premium.  Now that he had turned out actually to need the insurance, they wanted him and the company, in effect, to pay the claim.  Fortunately he was able to get insurance through his spouse instead, which solved the company's problem.  

Now, of course, if people waited, as many do, to seek  insurance until they are already sick, that's a problem about which insurers have the right to complain.  One solution is a mandate requiring them to buy it, which Obamacare includes but the new Republican bill does not.  A second solution which the Obama administration did not try to adopt is the Medicare solution in which payroll taxes (or conceivably other taxes) fund the health care system.  But the idea of "high risk pools," even if they work--which they generally have failed to do--is in my opinion a travesty that ignores the whole point of health insurance, by separating those who really need it from the rest of us.

It is quite possible that the Obamacare premium increases over the last couple of years reflected the need to include sick people, as well as the end of some payments to make such coverage more affordable that apparently ended after 2014.  And it is certain that health insurance is too expensive because of problems inherent in American medicine that Dr. Siegel also mentions, such as the cost of new devices.  (He does not mention overdiagnosis and overtreatment, or the enormous amounts spent on end-of-life care.)  Attacking those problems should have come next on our list.  But the fantasy that we can solve the health insurance problem by taking sick people out of the normal health care system needs to be abandoned.  It is unworthy of a civilized society.

Thursday, May 04, 2017

Is Trump really like Andrew Jackson?

Andrew Jackson is getting a lot of attention lately, none of it favorable.  Meanwhile, President Trump, while rather vague on certain details of American history, has expressed admiration for him.  And many commentators have argued that they are, in fact, similar in important ways.  All this is hard for me to assimilate, because when I was growing up, Andrew Jackson was something of a liberal hero, if not quite of the stature of Jefferson or Lincoln or FDR.  He believed in more direct democracy, he hated financial privilege, he was supported by a coalition of workers and farmers, and Arthur Schlesinger Jr. had specifically painted him as a kind of prototype for FDR.  Now, of course, we are paying more attention to Jackson's status as a slave owner, and his involvement in the removal of Indian tribes to the west of the Missisippi.  I decided to spend a few minutes to try to rediscover who Jackson actually was--with particular reference to the question of whether he in fact had anythng in common with Donald Trump.

Neither time nor space permits an exhaustive examination of this question, but it didn't take long to find some interesting excerpts in his lengthy, careful annual messages to Congress.  This one comes from his first, in December 1829--and calls for direct popular election of the President! Here are Jackson's words.

"To the people belongs the right of electing their Chief Magistrate; it was never designed that their choice should in any case be defeated, either by the intervention of electoral colleges or by the agency confided, under certain contingencies, to the House of Representatives. Experience proves that in proportion as agents to execute the will of the people are multiplied there is danger of their wishes being frustrated. Some may be unfaithful; all are liable to err. So far, therefore, as the people can with convenience speak, it is safer for them to express their own will.

"The number of aspirants to the Presidency and the diversity of the interests which may influence their claims leave little reason to expect a choice in the first instance, and in that event the election must devolve on the House of Representatives, where it is obvious the will of the people may not be always ascertained, or, if ascertained, may not be regarded. From the mode of voting by States the choice is to be made by 24 votes, and it may often occur that one of these will be controlled by an individual Representative. Honors and offices are at the disposal of the successful candidate. Repeated ballotings may make it apparent that a single individual holds the cast in his hand. May he not be tempted to name his reward? , , ,

" I would therefore recommend such an amendment of the Constitution as may remove all intermediate agency in the election of the President and Vice-President. The mode may be so regulated as to preserve to each State its present relative weight in the election, and a failure in the first attempt may be provided for by confining the second to a choice between the two highest candidates. In connection with such an amendment it would seem advisable to limit the service of the Chief Magistrate to a single term of either 4 or 6 years. If, however, it should not be adopted, it is worthy of consideration whether a provision disqualifying for office the Representatives in Congress on whom such an election may have devolved would not be proper."

The abolition of the electoral college has become a favorite liberal demand, all the more so because Jackson's proposal, had it been embodied in the Constitution, would have kept both George W. Bush and Donald Trump out of the White House.  I don't have time to find out exactly how and why Jackson's proposal failed of adoption, but it appears to mark him as a genuine champion of the people's rule, albeit, of course, within the framework of his time, in which women were not allowed to vote and slavery still existed in 15 states.  There is, however, another aspect to this proposal, which casts it in a different light.

Jackson was in effect complaining that he was only in his first year in the White House instead of his fifth.  The party system had broken down in 1824 and he had run for President against three other candidates from the Democratic Party: William Crawford, John Quincy Adams, and Henry Clay.  Jackson had won the popular vote handily, but he had not won a majority in the electoral college and the election had gone to the House of Representatives.  There he had been bested by Adams, to whom Clay had thrown his support.  Then Adams made the great political blunder of his career by naming Clay Secretary of States, and cries of "corrupt bargain!" rang through the land.  Rather than tweeting that he had been the real winner, Jackson was more discreetly referring to these events in his address.  He may have been a sincere Democrat--but he could also hold a grudge.  Many years later, in retirement, he reportedly said that he had only two regrets--that he had never been able to shoot Henry Clay, or to hang John C. Calhoun.

A year later, in December 1829, Jackson commented on the quick, nearly bloodless revolution that had replaced the conservative Bourbon monarchy in France with the more liberal and constitutional rule of Louis Philippe.  He put this development in the context of world history, in which the United States was now playing a key role,

"The important modifications of their Government, effected with so much courage and wisdom by the people of France, afford a happy presage of their future course, and have naturally elicited from the kindred feelings of this nation that spontaneous and universal burst of applause in which you have participated. In congratulating you, my fellow citizens, upon an event so auspicious to the dearest interests of man- kind I do no more than respond to the voice of my country, without transcending in the slightest degree that salutary maxim of the illustrious Washington which enjoins an abstinence from all interference with the internal affairs of other nations. From a people exercising in the most unlimited degree the right of self-government, and enjoying, as derived from this proud characteristic, under the favor of Heaven, much of the happiness with which they are blessed; a people who can point in triumph to their free institutions and challenge comparison with the fruits they bear, as well as with the moderation, intelligence, and energy with which they are administered -- from such a people the deepest sympathy was to be expected in a struggle for the sacred principles of liberty, conducted in a spirit every way worthy of the cause, and crowned by a heroic moderation which has disarmed revolution of its terrors. Not withstanding the strong assurances which the man whom we so sincerely love and justly admire [I do not know to whom this referred] has given to the world of the high character of the present King of the French, and which if sustained to the end will secure to him the proud appellation of Patriot King, it is not in his success, but in that of the great principle which has borne him to the throne -- the paramount authority of the public will -- that the American people rejoice."

On the eve of his death only four years earlier, Jefferson had reiterated the hope that liberty, as expressed in the Declaration of Independence, would come to the whole world.  Jackson's remarks, praising the French step down this path, were in this tradition.  Two years later Britain also took a small step towards popular rule, when the Reform Act of 1832 became law.  Today our President is also praising a worldwide political trend--but this time the trend is towards authoritarianism, not towards democracy.  The President's long-standing admiration for Vladimir Putin is well known, but in recent weeks he has congratulated the Turkish President Erdogan on a vote that gave him even more power, invited the murderous President Duterte of the Philippines to Washington, and offered to meet with Kim Jong Un.  His Administration shows signs of becoming the first American administration specifically to endorse a trend towards authoritarianism--the opposite of what Jackson and other 19th century Presidents did

In the same message Jackson mentioned that the government had had to put down a rebellion, or independence movement, among the Choctaw and Chickasaw tribes in Alabama and Mississippi, and endorsed their removal to Indian territory in what is now Oklahoma.  But he made no attempt to conceal the hardship involved in these measures, while trying to put them in historical context.

"Humanity has often wept over the fate of the aborigines of this country, and Philanthropy has been long busily employed in devising means to avert it, but its progress has never for a moment been arrested, and one by one have many powerful tribes disappeared from the earth. To follow to the tomb the last of his race and to tread on the graves of extinct nations excite melancholy reflections. But true philanthropy reconciles the mind to these vicissitudes as it does to the extinction of one generation to make room for another. In the monuments and fortifications of an unknown people, spread over the extensive regions of the West, we behold the memorials of a once powerful race, which was exterminated or has disappeared to make room for the existing savage tribes. [He appears to be referring here to the Mound Builders.] Nor is there any thing in this which, upon a comprehensive view of the general interests of the human race, is to be regretted. Philanthropy could not wish to see this continent restored to the condition in which it was found by our forefathers. What good man would prefer a country covered with forests and ranged by a few thousand savages to our extensive Republic, studded with cities, towns, and prosperous farms, embellished with all the improvements which art can devise or industry execute, occupied by more than 12,000,000 happy people, and filled with all the blessings of liberty, civilization, and religion?

"The present policy of the Government is but a continuation of the same progressive change by a milder process. The tribes which occupied the countries now constituting the Eastern States were annihilated or have melted away to make room for the whites. The waves of population and civilization are rolling to the westward, and we now propose to acquire the countries occupied by the red men of the South and West by a fair exchange, and, at the expense of the United States, to send them to a land where their existence may be prolonged and perhaps made perpetual.
Doubtless it will be painful to leave the graves of their fathers; but what do they more than our ancestors did or than our children are now doing? To better their condition in an unknown land our forefathers left all that was dear in earthly objects. Our children by thousands yearly leave the land of their birth to seek new homes in distant regions. Does Humanity weep at these painful separations from every thing, animate and inanimate, with which the young heart has become entwined? Far from it. It is rather a source of joy that our country affords scope where our young population may range unconstrained in body or in mind, developing the power and faculties of man in their highest perfection."

Today, our universities have for decades been preoccupied with the faults of western civilization and the injuries that has inflicted upon other regions of the world, with the implication that history's course should certainly be held in place, if not reversed.  And a great many Americans have come to regard their nation's founding and growth as a crime.  I would suggest that it was almost impossible for an American of Jackson's age (born in 1767) to hold that view. They had experienced the Declaration of Independence, the Constitution, the Louisiana Purchase, and the formation of many new states.  They saw all this as a great human experiment in which they were the leading actors. And when Jackson pointed out that Indian civilizations had warred against one another even to the point of extinction before the arrival of the Europeans, he was only speaking the truth. I shall let my readers make their own judgments about Jackson's words and actions, and how they fit into the whole history of the United States.  But I do think today's US citizens might ask themselves if they truly repudiate what our ancestors did in creating the United States as it now is--keeping in mind that so many of us, white, black, brown and yellow, would never have existed had they not done so, since our ancestors would have been so unlikely to have met elsewhere.

I turn now to Jackson's most famous state paper, his veto of the renewal of the charter of the Bank of the United States in July 1832.  The Bank enjoyed special privileges under the law that created it which turned it into the equivalent of a European central bank, and Jackson complained that it had used those privileges to accumulate enormous power over the banking system, and enormous wealth at the expense of ordinary Americans.  He continued:

"It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society--the farmers, mechanics, and laborers--who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. In the act before me there seems to be a wide and unnecessary departure from these just principles."

It was this message, more than anything else, that established Jackson as the heir to the tradition of both political and economic democracy that was begun by Jefferson and elaborated upon by Wilson,  Franklin Roosevelt, and Lyndon Johnson in the twentieth century.  Today that tradition survives in Bernie Sanders and Elizabeth Warren--but they represent only one wing of the Democratic Party.  Donald Trump, needless to say, is completely outside that tradition and he and the Republicans in Congress want to destroy it.

It will not have escaped the reader's attention, meanwhile, that Andrew Jackson possessed a command of the English language of which Donald Trump never dreamed, and that he took his duties as President of the world's leading republic with a seriousness of which Trump would never be capable.  It has become fashionable to judge historical figures according to simple, binary moral standards, in which acts that even recognize, much less further, racism or sexism automatically mark men as evil.  I have attempted to suggest that Andrew Jackson is one of many figures from our history to whom these rules do less than justice.  And I have attempted to show clearly that any similarities between Trump and Andrew Jackson are far outweighed by enormous differences of political outlook and goals.

Thursday, April 27, 2017

100 Days

Friday will mark the 100th day of the presidency of Donald Trump, and commentators up to and including the President himself are busily marking that milestone.  The idea that a President should accomplish great things during his first 100 days in office goes back, of course, to Franklin Roosevelt, who was sworn in on March 4, 1933, and whose first hundred days therefore extended into the month of June.  To review exactly what FDR did during that extraordinary spring, I turned to one of my favorite childhood books, The American Past, by Roger Butterfield, a beautifully illustrated survey of the nation's history from the Declaration of Independence through Hiroshima--that is, from the first great crisis of our national life through the third one.  Rather than waste time paraphrasing, I shall simply quote.

"On March 9 Congress met in special session and passed Roosevelt's Emergency Banking Act [declaring a bank holiday to stop a financial collapse] in four hours.  On March 10 he sent up an economy bill to cut federal salaries and veterans' benefits; Congress passed it March 11.  On March 13 Roosevelt asked for legal beer [preliminary to repealing the 18th Amendment], and Congress quickly complied.

"On March 16 Roosevelt proposed the Agricultural Adjustment Act (AAA), to end farm surpluses [and a catastrophic fall in farm prices] by paying farmers to produce less.  On March 21 he offered his relief program, including the Federal Emergency Relief Administration (FERA), to give $500 million to the states for direct relief; the Civilian Conservation Corps (CCC), to put 250,000 jobless young men to work in the forests at $1 day; and the Public Works Administration (PWA), to lend and spend $3,300 million [sic-$3 billion] for building projects. . . .

"On March 29 he recommended a Securities and Exchange Commission (SEC) to protect investors against dishonest stock fluctuations.  On April 10 he proposed the Tennessee Valley Authority (TVA).  On April 13 he called for the Home Owners' Loan Corporation (HOLC) to slow down mortgage foreclosures.  On April 20 he took the United States off the gold standard [effectively devaluing the dollar, as the French franc and British pound had already been devalued.]  On May 17 he asked Congress for the biggest New Deal agency of all--the National Recovery Administration (NRA)--to put industry under self-imposed 'codes of fair competition' [and recognize the right of labor to organize for the first time.\ In June he accepted a Congressional plan for the Federal Deposit Insurance Corporation (FDIC) to insure all bank deposits up to $5,000 [the Glass-Steagall Act.] On June 16, exactly 100 days after Congress convened, all of these measures (and many more) had been enacted."


The GI generation ranged in age from 8 to 29 during this frenzy of activity, much of which was designed either to give them immediate help in the form of a job or public assistance (the PWA, the CCC, and the FERA), or to protect them against the financial catastrophes that had struck their parents (the FDIC, the AAA, and the SEC.)  This was only the beginning of the most extraordinary period in the history of American government, which extended all the way through the Second World War.  By the time that war was over the GIs ranged in age from 21 to 41, and it is no accident, obviously, that for the rest of their lives they respected what the federal government could do and looked to it for security and, when necessary, assistance.  Today, the GIs range in age from 92 on up, and their influence, sadly, is at an end.

This unbelievable flurry of activity had short- and long-term roots. In the short run, the economic catastrophe of the Great Depression had left 25% of the population unemployed and was now collapsing the entire banking system.  As a result, Roosevelt had won the 1932 election by a landslide and disposed of majorities of  313 to 117 in the House and 60-36 in the Senate.  Moreover, more than a few of the Republican members belonged to that now-extinct species, Republicanus Liberalis, and voted for much of the New Deal legislation.  But one reason so much far-reaching legislation could pass so quickly was that the ideas behind it had been percolating among progressives for decades.  Roosevelt's own Missionary Generation (born 1863-1883) deeply believed in the idea that reason and science could moderate economic injustice, help to plan the economy, and secure a better world.  This was their chance and they took it.  Another reason, as I discovered writing No End Save Victory, was that the Missionary generation had been educated (and educated their juniors) in the economical use of the English language, and these laws were, by contemporary standards, extraordinarily short, simple, and clear.

Turning to the present, I suspect that many other readers will not have been able to read that list of legislation without noticing how much of it has become a dead letter.  The most notable casualty of our time was the Glass-Steagall Act, which unleashed financial institutions and allowed them to create a new financial catastrophe in 2008.  It has not been restored.  No effective mortgage relief was passed for those who lost their homes in that crisis.  Labor's right to organize has been under attack for decades and the percentage of unionized workers has been cut more than in half.  The family farmers whom the AAA was passed to help have become a politically insignificant fragment of the population.  We no longer seem to want more of the public power that the TVA provided.  We have nothing like the PWA, and eight years ago, at the height of the new economic crisis, Governor Chris Christie of New Jersey blocked  a third rail tunnel under the Hudson River--a decision that is now having catastrophic consequences for New York commuters.  Nor do we have any national service program comparable to the CCC--instead we force young people to mortgage their futures by taking out student loans.   (My GI parents, by the way, received superb educations at the University of Wisconsin  during the 1930s for about $1000 a year in today's dollars.)

These changes are not accidental.  The Republican Party has been eagerly unwinding the New Deal since the Reagan era, and the Democratic Party has done very little to stand in the way.  The question before Donald Trump, in fact, is how quickly and exactly how he can finish the job and return us to the free-market economy and concentration of wealth that the nation experienced in the late 19th century.  (Just this morning, a professor at Claremont McKenna University praised the President for trying to take the Republican Party down this path on the op-ed page of the New York Times.)   What has held him back, it seems to me, are two things.  The first is a debate within the Republican Party about how far to go in that direction, which is in turn related to a debate on fiscal responsibility.  A significant number of House Republicans really do not want to increase the federal deficit, which has been a check on plans for new tax cuts.  But yesterday, the Administration marked its first hundred days by unveiling sweeping new tax cuts will balloon the deficit again (as under Nixon, Reagan, and Bush II), claiming that economic growth will provide the lost revenue (as it never does.)  Several prominent Re[publicans immediately fell into line, and Grover Norquist of Americans for Tax Reform--one of the architechts of our new gilded age--went into ecstasy.

The second obstacle is a different debate about how much crueler it is possible to be to the lower half of the population, much of which voted for Trump.  Because the Administration was unwilling to deprive as many Americans of health care as the Freedom Caucus wanted, they could not repeal the ACA at all.  But the momentum for repeal is far from halted, and that caucus has now produced a version of repeal that they can accept.  This will in any case be less important to our future than the tax plan.

We live in a destructive rather than a creative period in the history of American government.  Among my own Boom generation who grew up in the world the New Deal created, right wingers have eagerly dismantled it while left wingers, with very rare exceptions, haven't cared.  We have lost the belief in a national mission to plan and create a fair and robust economy.  We have not been able to reach a consensus on immigration, which had already been achieved by essentially blocking itt 1924.  Income inequality has reached the levels of the1920s and our political campaigns are now so expensive that it is easier for the wealthy to control our politicians. The question before us is not whether we can reverse course, but whether the situation can stabilize before even greater inequality and another economic crash make things much worse.  The damage has been done, our legacy has been squandered.  As I argued back in July 2010, Barack Obama lost the last chance to reverse course in the first year of his Administration.  (As if to ram the point home, the press is now reporting that ex-President Obama is about to accept a $400,000 fee for an address on Wall Street.)  A conservative majority now controls the Supreme Court, and is likely to get bigger during the next four years.

Donald Trump still faces the nation with a crisis because of his manifest incapacity for the biggest job on earth.  The interview he did last week with the Associated Press has gotten remarkably little attention, perhaps because no one wants to face the implications of his incoherent ramblings and unprecedented grandiosity.  He and his team are also threatening us with major wars.  But there have been no 100 days comparable to those of the New Deal because he is not reversing course on economic issues, but rather continuing down the path the country has been on for most of the last 40 years.  Our politics aredominated by corporate power, while the lower economic half of the population has no confidence in the leadership class and has been divided on racial lines.  Yet history suggests that it may still last, in broad lines at least, for many years to come.

Friday, April 21, 2017

Trouble on the left

Just as it is the duty of every patriotic historian to be harder on his own country than any other--a tradition that began with Thucydides the Athenian--it behooves every politically active person to be critical of his own side.  This is not especially difficult for me today, since the academic left and the ideology it has espoused for at least 30 years is so foreign to my own beliefs, but some may wonder why I am taking the trouble to do it.  One reason is the increasing evidence that that ideology is now firmly established in the nation's newsrooms and plays in important role within the Democratic Party.  Yet it has been politically disastrous and is increasingly at odds with the fundamentals of our civilization as I have always understood them.  If there is not a change on the Left, the Democrats will have great difficulty ever returning to power and will not be able to do much good if they do.

As David Brooks reminded us all this morning, the tradition of western civilization included universal principles of law, justice, and increasingly since the 18th century, of equality.  (To paraphrase Orwell, since I seldom agree with David Brooks, it gives me all the greater pleasure to record my agreement with him on this occasion. It believed that both natural and human science could improve life on earth.  Here in the United States, western civilization, having corrupted itself by importing African slavery, fought a huge civil war in the 19th century to abolish it and established legal equality among the races--even though it took a century to make legal equality a reality.  Women also received political rights in the first half of the twentieth century.  In the middle of the century the world fought a titanic ideological war among liberalism, Communism, and Fascism. The imperial powers retreated from colonialism in the second half of the century.  By then, aspects of western civilization--the rule of law, equal rights for citizens, and attempts to raise the general standard of living--had become a model for virtually the entire world.  The initial post-independence regimes in previously colonial territories were based on some form of western ideology, from liberalism through communism.

The new ideology that now dominates academia was developed by men and women who were children during the great crisis of the 1940s, but spread more widely by my own generation.  It denies the autonomy of ideas and really denies their importance as a motive force in civilization.  Instead, it sees civilization--and ideas--as nothing but a power struggle among different groups, defined by race, by gender, and by sexual preference.  And thus--to get immediately to the heart of the matter--rather than portray western civilization as a triumph of certain ideas that was, to be sure, mostly invented by white men, it portrays western civilization as an instrument used by white men to establish and maintain their domination over other groups--and which, therefore, has to be undone, in fundamental respects, to create real justice.

Let me take another paragraphs to introduce my own perspective.  I became a comparative historian at an early age, not only comparing different countries in the same period of history, but comparing different periods of modern European history.  A comparative perspective, it seem to me, is a good antidote to overly positive or negative views of human nature, since its judgments can be based upon reality.  Now unless one returns to the most primitive hunter-gatherer societies, there seems to be little doubt that western civilization has been less oppressive, on the whole, than any other developed civilization.  That is why movements for racial equality, equality between men and women, and, most recently, gay rights, originated in western civilization, and why such ideas have advanced the most in the most westernized countries.

Now let us go to the new orthodoxy.

The new orthodoxy holds that any attempt to see ourselves as equal citizens in a civic realm is at bottom a fiction designed to preserve the hegemony of white males.  It argues that every one of us is defined by our membership in either a dominant group (straight white males), or an oppressed or "marginalized" one (including all white women, all gays, and all nonwhites.)  Not only that, but everyone of us is morally and emotionally linked to the perceived historical role of those groups. Every straight white male, bears the guilt for the oppression of all other groups, whatever his personal history may be, and every woman and every nonwhite actively suffers from the scars of oppression.  And such oppression is expressed not only, and not merely, through specific, identifiable disadvantages in wealth, income, and opportunity, but through language and culture.

Last week, students a Claremont McKenna University in southern California successfully blocked the audience from hearing a talk by the conservative commentator Heather MacDonald, who is a critic of the Black Lives Matter.  The letter a black students' group wrote to the President of Claremont McKenna moved me to do this post, because it stemmed logically from the ideology whose origins I have just described   The letter replied to a critical statement by the President of Claremont McKenna, arguing that however one felt about Heather MacDonald's views (and I personally disagree very strongly with some of them myself), the Enlightenment value of free speech had to respected.  Here are a few excerpts from that letter.

"Your statement contains unnuanced views surrounding the academy and a belief in searching for some venerated truth. Historically, white supremacy has venerated the idea of objectivity, and wielded a dichotomy of ‘subjectivity vs. objectivity’ as a means of silencing oppressed peoples. The idea that there is a single truth--’the Truth’--is a construct of the Euro-West that is deeply rooted in the Enlightenment, which was a movement that also described Black and Brown people as both subhuman and impervious to pain. This construction is a myth and white supremacy, imperialism, colonization, capitalism, and the United States of America are all of its progeny. The idea that the truth is an entity for which we must search, in matters that endanger our abilities to exist in open spaces, is an attempt to silence oppressed peoples. We, Black students, exist with a myriad of different identities. We are queer, trans, differently-abled, poor/low-income, undocumented, Muslim, first-generation and/or immigrant, and positioned in different spaces across Africa and the African diaspora. The idea that we must subject ourselves routinely to the hate speech of fascists who want for us not to exist plays on the same Eurocentric constructs that believed Black people to be impervious to pain and apathetic to the brutal and violent conditions of white supremacy.

"The idea that the search for this truth involves entertaining Heather Mac Donald’s hate speech is illogical. If engaged, Heather Mac Donald would not be debating on mere difference of opinion, but the right of Black people to exist. Heather Mac Donald is a fascist, a white supremacist, a warhawk, a transphobe, a queerphobe, a classist, and ignorant of interlocking systems of domination that produce the lethal conditions under which oppressed peoples are forced to live. Why are you, and other persons in positions of power at these institutions, protecting a fascist and her hate speech and not students that are directly affected by her presence?

"Advocating for white supremacy and giving white supremacists platforms wherefrom their toxic and deadly illogic may be disseminated is condoning violence against Black people. Heather Mac Donald does not have the right to an audience at the Athenaeum, a private venue wherefrom she received compensation. Dictating and condemning non-respectable forms of protest while parroting the phrase that “protest has a celebrated” place on campus is contradictory at best and anti-Black at worst."

Now I am not suggesting--as the authors of this letter probably would--that this letter expressed the views of most black students at Claremont McKenna, much less elsewhere.  While few black people (and few white people) regard the United States as perfect, many of us are still proud to be Americans.  What makes this letter important is that it expresses an extreme version of what has become mainstream ideology on campus.  Humanity, according to this ideology, is divided into oppressors and oppressed who are defined by race, gender and sexual orientation.  (Class occasionally gets a reference, but economic status is not treated as equally important to these three.)  The oppressors are constantly inflicting great emotional pain on the oppressed, and this must stop.  "Eurocentric values"--that is, the values of western civilization--have always been, and remain, oppressive and suspect.  And those ideas are either the implicit or explicit premise of many thousands of pages of academic writing about "oppressed" or "marginalized" groups that has appeared over the last few decades.

This post is already too long, and I will confine myself to a few fundamental counterpropositions.

1.  The new ideology has sprouted in universities because they are safe spaces whose white male administrators adopted diversity and inclusion as their mission 20-30 years ago.  That mission has become more important than any purely intellectual function, certainly in the humanities and social sciences.  University administrations spend a great deal of time worrying about their facilities (which will affect their U.S. News ranking), their diversity, and the happiness of their minority students.  They spent almost no time trying to develop the best humanities curriculum, and they have given up preserving the heritage of western civilization as a major goal.  

2.   The new ideology has, as I have said, become very powerful in the mainstream media, which accepts the idea, in practice if not in theory, that the problems of "marginalized" groups are more important than anyone else's.  But it has obviously alienated more than 100 million Americans who do not live on the East and West Coasts (and a non-trivial number of those who do.)  After 30 years of political correctness in the universities, we have a self-identified sexual harasser as President and a very traditional white southerner as Attorney General.  Hillary Rodham Clinton in her campaign took pains to make clear that she took the concerns of marginalized groups more seriously than anyone else's.  Quite a few Democratic consultants and commentators look forward eagerly to the day when whites will constitute a minority of the electorate.  The reaction against all of this has been devastating and it was inevitable.

3.  The constant emphasis on the thoughts and feelings of "maringalized" groups--again, everyone but straight white males--is, among other things, a denial of any common value system that unites us all.  When I appeared on a couple of weeks ago, I was immediately followed by a female historian named Arianne Chernok. As you can here, she peremptorily dismissed everything I had to say about Strauss, Howe, and the crisis that the US is obviously going through on the grounds that "there were no women" in the story I had told. This was, to begin with, false:  Hillary Clinton had not only come up in my conversation with host Chris Lydon, but he had played a clip from her famous 1969 commencement speech.  Professor Chernok was repeating the most common claim of postmodernist historians: that traditional "narratives" of history left out women and nonwhites because they focused on political leaders, who were (in the Atlantic world, anyway) white men.  But whether or not that is true, it remains true that we are ALL political beings who live subject to laws and must inevitably be affected by the great political changes that occur every eighty years. Yes, some will in some ways be affected differently than others, but all of us will be affected in the same way by some of the changes that took place.  We do share a common experience that is very important to us all.

And that leaves me to a last, more tentative point.  The emphasis not only on marginalized groups and identities also denies that there is such a thing as "normal" human behavior.  The concept of "heteronormativity" was originally defined as the idea that heterosexuality was the only proper form of human sexual behavior.  I certainly join in rejecting that idea.  But in many instances, I believe, the concept has gone further, so as to deny that there is any biological or other significance to the heterosexuality of most human beings.  15 or 20 years ago, the American Historical Association cautioned teachers not to assume that their students with either heterosexual or homosexual.  This is connected to the postmodern idea that the heterosexuality of most human beings (a statistical fact) is not biologically determined, but culturally imposed.  Now to repeat, it is vitally important to respect the feelings and rights of those whose sexual orientation is different from that of the majority of their fellow human beings.  But I honestly wonder whether a society can hold together, in the long run, if it does not include some ideas of what constitutes normal behavior, in  a statistical rather than a moral sense, even if we recognize that there will always be people who behave differently and whom we must respect all the same.  One of the biggest functions of crises or fourth turnings as identified by Strauss and Howe is indeed to create or reaffirm a value system, both politically and personally, according to which most of us--never all--will live.  And historically, when societies cannot do this by consensus, some one does it by force.

In my opinion, the constant encouragement of young people in particular to define themselves by race, gender and sexual preference is making it much harder not only to find common ground across these barriers--which I regard as essential to our national survival--but also much harder for them to discover the most important thing about themselves.  Many of us have become obsessed with electing a female President--but no one was ever obsessed with electing a male President, because that was a given.  Because it was a given, the citizenry (male and female) could focus on the difference between the men they might elect, a difference defined by their party affiliation, their views, and what they might accomplish.  The emphasis on race and gender as qualifications for anything implies that there is nothing wrong with our institutions that could not be fixed by redistributing the rewards they offer along gender and racial lines. But there is, in fact, a great deal wrong with all our institutions that cannot be cured that way, but will require leadership that sees things more broadly.  And there is very little evidence indeed that simply increasing diversity at or near the top of powerful institutions actually changes the behavior of those institutions.

Great historians, I like to say, do not argue with history.  What has happened over the last few decades ot left wing thought must have been in some sense inevitable--but that does not make it right.  We need a rebirth of a vital center that can call on everyone.  Events, I think, will eventually force us to move in that direction.  The question is when.

Thursday, April 13, 2017

Did General McMaster Pass his own Test?

When General  H.R. McMaster replaced General Ray Flynn as National Security Adviser just a few weeks into the Trump Administration, commentators made much of the book he had written as a doctoral candidate 20 years ago, Dereliction of Duty, and what it boded for his tenure.  Published in 1998, that book argued that the Joint Chiefs of Staff in the mid-1960s had failed to give Lyndon Johnson their honest opinion of what was needed to win the Vietnam War, and that that had led to catastrophe.  As it happens, I was finishing my own book on the origins of the Vietnam War, American Tragedy, at that very moment, and I did not see what McMaster had in the same sources.  The problem, I thought, was not that the Generals didn’t tell President Johnson what they thought, it was that neither the military nor the civilians had a realistic idea of how to win the war.  No one, however, could argue with the principle that he was advocating: that it was essential for military leaders to give their civilian superiors honest and sound military advice.

Unfortunately, it is not clear that General McMaster, Secretary of Defense (and retired general) James Mattis, and Joint Chiefs’ Chairman General Joseph Dunford—by law the President’s principal military adviser—managed to pass that test during the crisis over chemical weapons in Syria.  Ironically, their retaliatory strike and the ways in which they have defended it are extremely reminiscent of one of the most unfortunate episodes of the Vietnam era, the first major air strike on North Vietnam in the wake of the Tonkin Gulf incident in early August 1964.

On August 2, 1964, American destroyers in the Tonkin Gulf were attacked by North Vietnamese p. t. boats, who it turned out were acting without authorization from higher authority.  Officially the destroyers were making a routine patrol; in actual fact they were coordinating with a South Vietnamese paramilitary strike against the North, partly to test North Vietnamese radar.  Such attacks had been taking place since early that year, and the Joint Chiefs had anticipated that they might lead to North Vietnamese retaliation and full-scale American involvement in the Vietnam War. Johnson was now preparing for his re-election campaign against hawkish Barry Goldwater, who had already been nominated, and his National Security team had already been waiting for some time for a pretext to introduce a Congressional resolution authorizing the use of military force in Southeast Asia.  In the days after the attack Johnson authorized another South Vietnamese operation against the North and another patrol for August 4, and on the morning of that day, he discussed possible retaliation against the North with Secretary of Defense Robert McNamara.

The patrol on the evening of August 4, it was later established, did not encounter any North Vietnamese opposition, but at least one destroyer initially reported sonar contacts suggesting that it had.  McNamara and Johnson swung into action without waiting to make sure what had happened, sending an air strike against the base from which the August 2 PT boats had come.  Johnson asked for his resolution authorizing war, and received nearly unanimous support from the House and Senate.  The US took a giant step towards the war that Johnson and McNamara had already anticipated after the election.  In the first week of March 1965 it began in earnest.

We must now face the possibility that the Syrian crisis, like the Tonkin Gulf strike, is based upon misinformation.  Professor Ted Postol of MIT, a hard boiled skeptic for whom I have great respect, has gone on record that the photographic evidence we have does not support the idea that the gas was dropped from a plane. It does not seem at this point at least that the Administration’s leaders see the strike as a step towards a larger war.  But what is most striking is the very similar way that the two strikes have been justified: as “signals” designed to intimidate and deter the enemy from undertaking further hostile acts.  

The idea of using military force to signal one’s intentions, and thereby to affect the behavior of adversaries without resorting to full-scale war, was elaborated by an economist, Thomas Schelling, in his book Arms and Influence, which appeared less than two years after the Tonkin Gulf incidents.  This was the era of the Cold War, when American strategists were searching for alternative strategies to an all-out nuclear exchange, and Schelling claimed to have found one. Both the Cuban missile crisis and that retaliatory attack after the Tonkin Gulf incidents, he argued, were “signals” that had persuaded, and might persuade, adversaries not to challenge American power.  He praised the quarantine of Cuba in 1962 and the 1964 bombing as “proportional” moves that would allow an adversary to rethink his strategy without risking all-out war.  That was music to the ears of American policymakers—but unfortunately, we now know, it did not reflect the facts of those cases.

The reason that Nikita Khrushchev decided to remove his missiles from Cuba, we now know, was that he could not stop the American invasion of Cuba that would have begun within just a few days if he did not—nor could he risk nuclear war against an overwhelmingly superior United States.  We have also learned that the effect of the Tonkin Gulf strike on the North Vietnamese was disastrous.  Until it occurred, Ho Chi Minh—the most diplomatic of all the Communist leaders of the twentieth century—had hoped to work out a deal with Washington that would have avoided war.  But Ho and his government knew what the American people did not—that the second attack for which we had retaliated had not taken place—and he decided, correctly, that the Americans were determined upon war, and that he would therefore give it to him.  The strike did not in the least deter Ho: it encouraged him.  With the help of Chinese and Russian allies, he eventually prevailed.

It now turns out that the Trump Administration’s decision to warn the Russian government about our impending strike turned it into a completely symbolic act.  The Russians in turn warned the Syrians, who evacuated the airfield, from which they have now resumed conventional attacks.  The Russians have also reaffirmed their solidarity with the Assad regime and stopped the exchange of information with the US government about military moves.  Although Assad may avoid further chemical attacks, the incident will do nothing to change the basic course of the conflict in Syria.  It will only put more pressure on the Administration to take further action as Assad continues to consolidate his power against the rebels.  And indeed, high officials are already talking as if Assad must be removed--something they lack the means to make happen.

In 2017 as in 1964, the foreign policy establishment has applauded the Administration’s use of force to show American resolve.  This in my opinion is the kind of illusory gain that military leaders should warn civilians against.  President Obama refused to take similar action against Syria because he did not believe American military power could affect the situation for the better.  With Russia firmly behind Syria, that situation remains unchanged.  Symbolic attacks only foster the illusion of American power—the illusion that led us to the greatest foreign policy tragedy of the twentieth century in Vietnam.