November 2015

In my last post on private infrastructure finance and secular stagnation, I suggested a bigger argument that

The financialization of the global economy has produced a hugely costly financial sector, extracting returns that must, in the end, be taken out of the returns to investment of all kinds. The costs were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential investors. So, even massively expansionary monetary policy doesn’t produce much in the way of new private investment.

This isn’t an original idea. The Bank of International Settlements put out a paper earlier this year arguing that financial sector growth crowds out real growth. But how does this work and what can be done about it?

The financial sector is an intermediary between savers and borrowers (for investment or consumption). So, the costs of running the financial sector and the profits generated in that sector must be included in the margin between the rates of return by savers and those paid by borrowers, or else they must be shifted on to society at large (for example, through bailouts or tax subsidies).

I’m still organizing my thoughts on this, so what I have are some ideas rather than a fully formed argument.

First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?

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I’m not going to feed all that Black Friday madness, but X-Mas is a time for giving nice illustrated books. One that just came out, which I’m looking forward to getting my hands on, is Shaun Tan‘s The Singing Bones. It consists of photographs of sculptures, and some text, originally just illustrating Grimm’s Fairy Tales, but I gather he branches out from there. Like this. At this point I think you can only get it from the publisher. Anyway, looks great. And if you didn’t catch his award-winning animated short, few years back, here it is. Or watch a lo-quality version on YouTube. Of course, The Arrival is his best book. I assume you’ve read it already.

The older daughter has a Holiday TV Special thought: “Isn’t it ironic that Bill Watterson wouldn’t commercialize his stuff, but Calvin would have loved to have his face plastered on everything. Charles Schulz licensed everything about “Peanuts” to go on everything, and Charlie Brown would have hated that.”

Happy Thanksgiving, everyone!

Obituary here (via Tyler Cowen). He was a fascinating and very important writer and thinker, although his final two books were not as strong as his earlier work. The politics of his ideas are complicated – on the one hand moving away from the efficiency arguments of markets towards political processes of institutional formation, but on the other never precisely able to decide whether and when these political institutions were guided by a logic of lowering transaction costs or by the desire of powerful actors to reap distributional benefits. Path dependence in his work serves more as a stand-in for an explanation than an explanation in its own right, especially given the continuing question (not really resolved in his work or the work of those he influenced) as to why some economies (by his account) changed and began to develop towards the rule of law while others did not. Still, even if he didn’t explain this, no-one else has done an especially good job either. One thing that is likely to get overlooked in his work is his continued engagement with the left. The first time I had had a serious conversation with him, he described himself as a “Marxist of the right,” which seems correct to me (I’m pretty sure I’m not the only person he used this self-description with). There’s a good essay to be written on his encounter with Karl Polanyi – this essay (PDF) disagreeing with Polanyi contains the seeds of some of his most crucial arguments. He will be missed.

Ok, here’s the second in my series on new-ish crime writers. This one might well already have hung up her boots – if so, it’s tragic. I twice tried to read that Behind the Scenes in the Museum book, and just couldn’t get anywhere with it. Then, in response to a much earlier thread, Jerry Dworkin suggested Case Histories, and then someone else did, and then my Monkees-appreciating neighbor did, but he actually had the book so… Well, that was it for several weeks. Kate Atkinson’s 4 Jackson Brodie books are, taken together, a single masterpiece of the genre. Each book weaves together two or more crimes, the connections between which are far from obvious, and in some cases just a matter of them crossing Brodie’s path. She is Hardyesque in both her complete lack of fear of, and her mastery of the art of, coincidence and her willingness –indeed her determinedness – to strain credulity, and Brodie is tough, lovable, screwed up, a little bit hard to take. Her writing is sublime – I can’t think of any crime writer who is better able to sustain suspense by taking you down an alleyway that you cannot imagine the point of – and which is far longer than seems appropriate – just where you are dying to see the next plot twist. She adores Brodie, but she also adores and crafts her other characters – Gloria in One Good Turn, and Reggie in When Will There Be Good News? are both brilliant inventions. As unafraid as she is of coincidence, she’s even less afraid of long digressive sentences, paragraphs, pages, even chapters. She’s a genius. Maybe we should have a ‘Kate Atkinson paragraph” competition closer to Christmas – if so, CB’s assignment is to do Kate Atkinson in the style of Molesworth.

So: two warnings and a tip.

Warning 1: I nearly put down Case Histories after a couple of chapters. One of the cases is so harrowing and gross that if you don’t trust her (I didn’t) you think she is coldly misanthropic. Trust me, you can trust her, she’s not.

Warning 2: once you are 1/3 of the way into Case Histories you won’t want to read anything else till you’ve finished all 4.

Tip: as with all good series you should read these in order. But, if for some reason you can’t, you can get away with starting with One Good Turn, as long as you then go straight back to Case Histories, and only then onto When Will there Be Good News (I know because my daughter ran out of reading during the trip in which I finished When will There be Good News?; I happened to have One Good Turn with me so she read that first, and it was, just about, ok).

Fifteen years ago, NYU announced a plan to expand its law school by tearing down Edgar Allan Poe’s home on West Third Street, where Poe wrote “The Cask of Amontillado,” revised “The Raven,” and acquired his own literary magazine. The announcement provoked some resistance; 70 scholars signed a letter in protest. They lost. Four years later, a nine-story, 170,000 square-foot Furman Hall was formerly opened. The Poe House was completely gone; a version of its facade was reconstructed a half-block away. According to a historical preservationist:

Walking by, you would never know this was supposed to be the actual remnant of a 19th-century house. It looks tacked on. It’s a facade, literally and figuratively.

Like the capitalist society they serve, universities erase the past all the time. Most of the time we don’t care. For the sake of progress or real estate values, we live with it. Or embrace it.

When politicized university students ask that we revisit the nation’s racial past, however, that we rename buildings not to remove memory but to revise it, we become the most ardent preservationists. Even law professors who said not a word about the destruction of the Poe House.

If the revision in question is for the sake of capitalism, we sigh, whisper an All That’s Solid Melts Into Air, and move on. If it is for the sake of knowledge and anti-racism, we say no, in thunder.

As a followup to Corey’s post on Princeton, here’s something I wrote about Wilson in 2011. It’s striking how much the debate has moved on from where (in my perception, at least) it was in 2011.

As a very amateur analysis, I’d say that a triumphalist narrative of US history as Manifest Destiny (marred by some unfortunate episodes, best forgotten) is being replaced by one of struggles over slavery and war. In the process, lots of heroes become villains, while those who sought neutrality in the great struggles in order to pursue domestic policies, however laudable, shrink from giants to dwarfs.

Reappraisals

As an Australian, I’m not much accustomed to think of political leaders in heroic terms[^1], something that reflects the fact that nothing our political leaders do matters that much to anybody except us, and even then most of the decisions that really mattered have always been made elsewhere. So, I’m fascinated by the US activity of ranking presidents and other political leaders, and eager to try my hand.

What has brought this to mind is running across George Will’s campaign against Woodrow Wilson, who always seemed to be presented in hagiographic terms until relatively recently. Much as it goes against the grain to agree with Will on anything, he surely has the goods on Wilson: a consistent racist, who lied America into the Great War, and used Sedition acts and similar devices to suppress opposition. His positive record appears to consist of a variety of “Progressive” measures (in the early C20 sense of the term) many of which were inherited from Teddy Roosevelt, and few of which were particularly progressive from a left viewpoint[^2], along with his proposal for the League of Nations, where he comprehensively screwed up the domestic politics, leading the US to stay out of the League.

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On Wednesday, students at Princeton University occupied the president’s office. They had a list of demands regarding the status of students of color at Princeton. One of them was that Princeton remove Woodrow Wilson’s name from all campus buildings and programs because of Wilson’s enthusiasm, expressed in word and deed, for white supremacy.

Having been an undergraduate at Princeton in the late 1980s, I knew this demand would generate a lot of heat. Unlike John C. Calhoun, whose name adorns one of Yale’s residential colleges, Wilson is Princeton. He was an undergraduate there, a professor there, and the university’s president. It was from Princeton that he launched his national political career, first as governor of New Jersey, then as president of the United States. I thought to myself: no matter what your position is on the politics of naming, campus protests, discussions around race today, this is going to be interesting.

On Thursday, after a 32-hour standoff, the students’ occupation ended with, among other things, Princeton committing to opening a dialogue about possibly removing Wilson’s name from some parts of the campus. While the agreement brought the occupation to an end, I suspect the controversy has only just begun. Yale can easily get rid of Calhoun; his name was only attached to Calhoun College in 1932. Wilson is different: in part because of his national stature, in part because of his embeddedness at Princeton, in part because Princeton is, in some ways, still a Southern university.

Wilson’s past is Princeton’s present. Not just in terms of race—one need only eat at the university’s Prospect House, where many of the servers are black, to get a sense of just how many buttons are now being pushed—but in terms of how Princeton conceives itself politically. Princeton’s motto, “In the Nation’s Service,” originated with Wilson, and is fundamental to Princeton’s sense of itself as a training ground for the country’s ruling class, particularly in government. There’s simply no way Princeton can extricate itself from its entanglements with race without revisiting its entanglement with national power. Not just domestically but also internationally: Wilson did not leave his race politics behind when he headed for Versailles; they went there with him. Likewise American power and its Princeton servants.

How far Princeton is willing to bend on this issue, in other words, will tell us something about the outer boundaries of a leading university’s willingness to confront its racial past.

I dedicated my Salon column to the controversy and its resolution. I focused less on these issues I’ve discussed here, than the politics of free speech and memorialization on campus, and the contributions these students have made to our national consciousness.

And that’s why we owe these students at Princeton a debt. Universities are supposed to be educational institutions: Their first educational constituency is their students, of course, but their second is the nation. Most of us are fairly ignorant about how central race and racism were to Wilson’s politics. By forcing this question, not only on Princeton’s campus but throughout the country, Princeton’s students are actually doing the job that Princeton itself is supposed to be doing: they’re educating all of us.

…

Too often in our debates about freedom of speech, we assume that it already exists and that it is campus activists, particularly over questions of race, who threaten it. But what Princeton’s students have shown is that, before they came along, there was in fact precious little speech about figures like Wilson, and what speech there was, was mostly bland PR for tourists and prospective students. Even more important, Princeton’s students have shown us that it is precisely the kinds of actions they have taken — which are uncivil, frequently illegal and always unruly — that produce speech. Not just yelling and shouting, but also informed, deliberative, reasoned speech.

…

Besides, there’s any number of ways to take Wilson’s name off a campus building — without erasing the past. Princeton could put up a plaque that says, “This building was once named after Woodrow Wilson in honor of his achievements as president of Princeton, governor of New Jersey and president of the United States. In 2015, after lengthy campus discussions of Wilson’s racial policies — including his decision to segregate the federal bureaucracy — the university decided to remove his name from this building and to rename it the W.E.B. DuBois School of Public and International Affairs, in honor of Wilson’s most formidable critic on matters of race.”

And then we could have another debate: about how DuBois would have been appalled to see his name adorn a building on a campus where dining hall workers, many of whom are black (it’s telling that the demographic on campus that has the highest percentage of African Americans is “all other staff”), make less than a living wage if they are parents and are often treated as if they were servants.

(co-written with Sarah Fine, Lecturer in Philosophy at King’s College London)

Only two months ago Europeans were shocked by the picture of Aylan Kurdi, the three-year-old Syrian refugee lying dead on a Turkish beach. Then, there was a profound sense that more should be done to help people fleeing Syria’s civil war. Now, in the immediate aftermath of the ISIS murders in Paris and with unconfirmed reports that at least one perpetrator may have travelled through Europe disguised as a Syrian refugee, there are loud calls to close our doors. For some of Europe’s politicians, such as UKIP’s Nigel Farage, Marine Le Pen of France’s Front National, and the new right-wing Polish government, enough is enough: refugees trying to get to Europe should be stopped and nobody should be resettled here. There are demands for Schengen to be abandoned, together with current rules about freedom of movement within the European Union. In the United States, a similar debate is playing out, as a number of Republican governors, Presidential candidates and members of Congress push back against President Obama’s plans to welcome thousands of Syrian refugees. With so many in Europe and across the world outraged at the atrocities in Paris, these voices will be seductive, but if heeded they will lead us towards policies that would be profoundly mistaken and counterproductive.

Clamping down on refugees fleeing the region will not prevent acts of terror. In the European case, if ISIS and similar organisations wish to engage in further attacks, they do not need to bring anyone in from Syria to do so. The perpetrators who have been positively identified turn out to have been lawful residents of France and Belgium.
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For most of my academic career, I’ve been working on (more precisely, trying to demolish) the idea of private investment in public infrastructure, exemplified by the Private Finance Initiative in the UK and the Public Private Partnerships program in Australia. Here’s my first published article on the subject, from 1996. I conclude that

The current enthusiasm for private infrastructure, like the enthusiasm for public ownership which it replaced, has been based more on ideological beliefs in the virtues of one sector and the vices of the other than on any systematic economic analysis …Analysis of the relative performance of the private and public sector in different phases of infrastructure provision suggests that, in most cases, the private sector will be most efficient in the construction phase but the public sector will be best equipped to handle the risks associated with ownership.

Twenty years later, this analysis seems finally to have been validated. The UK Auditor-General recently reported that

Analysis of the 2012-13 Whole of Government Accounts (WGA) implies that the effective interest rate of all private finance deals (7%–8%) is double that of all government borrowing (3%–4%)

As a result of the excess costs, and some spectacular failures, bipartisan enthusiasm for the PFI has finally turned to disillusionment. Here’s the Telegraph, correctly putting much of the blame on New Labour. And, for balance, here’s the Guardian. There hasn’t been a similar admission of failure in Australia, but the flow of PPP projects has greatly diminished, and most new ones rely on a substantial component of public capital.

Unfortunately, the failure of private finance hasn’t led governments to resume the high levels of public investment that prevailed in the Keynesian era of the 1950s and 1960s. So, even with central bank lending rates at zero, there has been no real recovery in infrastructure investment. Apart from the direct effect of lower investment, there’s a strong case that infrastructure investment increases the returns from private investment in general and therefore stimulates growth.

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I haven’t posted on the recent terror attacks, or the various responses, because I have nothing new to say, and nothing old to repeat that hasn’t been said, or repeated, better by others. It appears that no one has learned anything in the decade or so since the Iraq war began. This 2003 post from the Onion just needs the dates changed to be applicable (or not, for those who support the side being satirised here) to the current debate.

Having said all this, have I learned anything myself? The Iraq war turned me from being a liberal interventionist (though opposed in the case of Iraq) to a strongly anti-war viewpoint.

By December 2005, I had this to say[^1]

It would be a salutory effort to look over the wars, revolutions and civil strife of the last sixty years and see how many of the participants got an outcome (taking account of war casualties and so on) better than the worst they could conceivably have obtained through negotiation and peaceful agitation. Given the massively negative-sum nature of war, I suspect the answer is “Few, if any”.

The ten years since 2005 have confirmed me in the rightness of my views[^2]. But since the same is true of nearly everyone on all sides, that’s not very helpful.
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My last Nietzsche post got some folks hot and bothered. [click to continue…]