Default Setting II.

Between 1775 and 1825, the revolts against the British and Spanish Empires in the Americas created a host of new nations.  In the minds of European leaders, formal “empire” sold at a deep discount.  However, the “empire of free trade” arose as a far more appealing idea.  If non-European countries would pursue Western economic[1] and legal[2] policies, then you could get the same benefits of empire without the costs and heartbreak.  The Western capital generated by industrialization could then safely flow toward the economic development of the rest of the world.[3]  All would benefit.

The world of international investment brimmed with challenging opportunities in the later Nineteenth Century: Latin America, the United States, the Ottoman Empire, Japan, and China for example.  However, a willingness to fulfill commitments to Western economic and legal doctrines in exchange for Western investment varied from society to society.

Russia came late to industrialization and wanted to hurry the process forward.  Russia possessed rich natural resources, but its primitive agriculture generated little wealth.  Where to find the capital for rapid industrialization?  Two solutions offered themselves.  Either the country could borrow from rich foreign lenders or the peasantry could be squeezed very hard.  Fearful of peasant unrest, Russian leaders sensibly opted for foreign borrowing.

Foreign lenders could discern positive and negative features in Russian borrowers.  On the plus side were two essential factors.  Russia’s gigantic territory housed vast amounts of minerals and other natural resources.  In the middle of the century, the Tsar Alexander II had shoved through a series of “Great Reforms” intended to begin the modernization of Russia.  Those reforms had not yet taken full hold, but they provided a foundation for further progress.  On the negative side the “Great Reforms” had compounded the turmoil inside Russia.  Rapid industrialization would intensify the strains.  Then, Russia remained an absolute monarchy.  After the death of Alexander II, the quality of leadership declined markedly.

Between 1890 and 1920 political considerations, rather than purely economic ones, exerted a growing influence over foreign investments in Russia.  First, seeking escape from the diplomatic isolation into which it had been forced by Bismarck’s diplomacy, the French government encouraged lending to the Tsarist regime.  This lending supported the eventual Franco-Russian alliance that surprised and alarmed German statesmen.  Second, during the First World War, the French and British tried to prop up their tottering ally by ample credit.  Third, the Bolshevik regime repudiated the Russian external debt.[4]  The Bolsheviks understood the Red default as a stroke against global capitalism.  It would—and, in France, did—gravely weaken the middle class savers who formed a vital support for bourgeois democracy.

At the same time, default contributed to making Soviet Russia an international pariah.  Within a decade, the Soviets turned to the alternative strategy of squeezing assets out of the peasantry.  As late Nineteenth Century leaders had foreseen, the human cost would be terrible.

[1] Raise no barriers to imports and exports; pursue “sound” money.

[2] Practice Western notions of the rule of law, especially the sanctity of contracts.

[3] See, David Landes, Bankers and Pashas: International Finance and Economic Imperialism in Egypt (1958).

[4] See: Hassan Malik, Bankers and Bolsheviks: International Finance and the Russian Revolution, 1892-1922 (2018).

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My Weekly Reader 20 June 2019.

If you don’t like the Donald Trump Presidency, then there are some questions you need to address.  First, is Trump what the Brits call a “one off,” or is he the leading edge of a new wave in American politics?[1]  Second, what led to Trump’s election?  No, it wasn’t the Russians.  No, it wasn’t Hillary Clinton’s incompetence as a politician.  Both are real, but the decisive factors lay elsewhere.  On the one hand, Donald Trump decided to target the grievances of white, working-class men.  On the other hand, Donald Trump decided to run as a Republican, rather than in his natural home as a Democrat.  Like “Bud” White, “he’s not as stupid as he seems.”

The grievances of white working-class men are real.  Once upon a time, they were the mainstays of the “New Deal Coalition” that put Democrats into the White House from 1932 to 1952, from 1960 to 1968, and from 1976 to 1980, along with various majorities in Congress.  Unionized working-class jobs gave blue-collar workers middle-class incomes.  Then they fell by the wayside for complex reasons: mostly mechanization, but also the two successive oil “shocks” of the 1970s, organized labor’s attack on struggling employers in the 1970s, foreign competition, and ideological shifts in the two major parties.  Then, in the 1990s, China’s accession to the World Trade Organization (WTO) under favorable terms compounded the problems of American industry.

As a result, men’s industrial employment declined, new jobs shifted to other geographic areas;[2] new jobs required “college” rather than “vocational” education; and the social world of the “left behind” disintegrated (single motherhood, alcohol and drug use, general demoralization).[3]

No one in either party had bothered to address those grievances.  The suburban base of the Republicans lives in blue oxford-cloth shirts and Dockers (or the female equivalent).  The Democrats have embraced “identity politics,” which excludes the identity of the white working class.  These are “post-industrial” societies.

As a result Trump’s campaign could drag into the ranks of the Republicans a bunch of normally Democratic voters or non-voters.  The opened the possibility of a Republican presidential victory that must have seemed far-fetched if any of the other munchkins running for the nomination won in the primaries.  Republicans lined up behind Trump and they will do so again in 2020.  They get to pack the federal courts for the lifetime of the appointees.  They get to stall and roll-back the imperial decrees of Barack Obama.

Are we—as a country—better for it?

[1] That’s a disturbing thought.  In twenty years we could be talking about John Carpenter’s “Trump Tower: Power Outage.”  In 2025, radical environmentalists (but I repeat myself) sabotage the federally-mandated coal-fired generating plants that power New York City.  Suddenly, the nightlight of the city-that-never-sleeps go dark.  The elevators (and escalators) and AC and cable-television stop working.  Chaos breaks out in the streets below, but atop Trump Tower a “celebrity roast” of former members of the Trump Administration is underway.  Comments by Jim Mattis, Reince Priebus, H.R. McMaster, Hope Hicks, Sarah Saunders, Jim Comey, Jeff Sessions, Rex Tillerson, Nancy Pelosi, Mike Pompeo, John Bolton, etc.  I suppose the deranged killer haunting Trump Tower could wear a Robert Mueller hockey mask.

[2] Try selling your house if you live in Erie, PA.

[3] See: Isabel Sawhill, The Forgotten Americans (2019) and Oren Cass, The Once and Future Worker (2019).  If this is what happened to white Americans, then what are we to make of the impact of “liberal paternalism” on African-Americans since the 1960s?

My Weekly Reader C 19 June 2019.

Why does any of this historical background matter?  It matters, first, because—in these contested times—I have to insist that Belief Systems evolve in response to changing conditions.  For two centuries and more now, Liberalism, Conservatism, and Socialism have all had to make their peace with Reality.[1]  It matters, second, because I’m getting fed-up with people who spout off their “smarmy, silly, half-baked opinions”[2] without any historical context.

Nineteenth-Century Liberals didn’t like Democracy.  In their minds, the “common man” wasn’t capable of dealing with the complexities of modern life.  If all men got the vote, then a horde of ignorant, selfish, short-sighted, and grasping voters would be led around by a ring through their nose.  They would vote for stupid people and stupid things in hopes of making their own lives materially better over the short-run.[3]  To a historian, this amounts to the Leninist criticism of labor unions: dumb-ass working people will prefer higher pay and shorter hours to Revolution.[4]  (Historical events have demonstrated that Lenin foresaw things accurately.)

Scholarly investigations by psychologists recently have added to our understanding of democratic choice.  One of the most important of these observers has been Cass Sunstein.[5]  His book Nudge[6] argued that people suffer from cognitive biases and mis-perceptions that inhibit the “rational choice” beloved of economists.  As a result, individuals often make choices that re not in their material best interests.  Moreover, people are effort-economizers.  They will choose the easiest thing at any given moment.[7]  Sunstein and Thaler proposed requiring people to “opt-out,” rather than “opt-in” to things like retirement savings plans, and that people who failed to choose a health plan should be assigned to the best available.  It’s easy to see how such an approach might be generalized.

What if the duty of the liberal state today is to liberate people from making errors?  People often do stupid things, either out of a lack of information, or bias, or lacking the time to study complex issues, or stupidity (d’uh).  Should the liberal state seek to “guide” choices in critical areas?

If the answer is yes, then who determines the “best” choice?  Bureaucratic and academic experts?  Once upon a time, eugenics had wide support upon educated people.  Today, the majority of Alabama voters oppose abortion on virtually any grounds.  Today the New York State legislature has approved a plan to oppose climate change.  All are examples of experts going nuts.  Then, what happens if people defy the approved “best” choice?

If the answer is yes, then where do we draw the line?   Donald Trump is, to my mind, plainly unfit to be president of the United States.  However, he won enough votes in the Electoral College to become president.  Should expert opinion over-ride the constitutional system?  If so, who controls entry into ranks of “expert opinion”?

[1] Whereas, Soviet Communism did not.  RIP.  Well, actually, Roast in Hell.

[2] See: https://www.youtube.com/watch?v=s9hkhKVq5rM&t=10s

[3] See: anything at all in the NYT since November 2016.

[4] See: https://www.youtube.com/watch?v=o_5bH-MLblE

[5] On Sunstein, see: https://en.wikipedia.org/wiki/Cass_Sunstein  See also: https://en.wikipedia.org/wiki/Daniel_Kahneman on the underlying research in psychology.

[6] Cass Sunstein and Richard Thaler, Nudge: Improving Decisions about Health, Wealth, and Happiness (2008).

[7] For example, racial prejudice is what might be called a “heuristic device.”  Saves time and thought.  Alas.

My Weekly Reader B 19 June 2019.

What “gave” first was Nineteenth Century Liberalism.  First, the sudden advance of modern science and medicine after 1850 explained a host of public health problems in a new way.  These discoveries compelled liberals to accept a huge—for them—expansion in the role of government to address the problems of cities: sewers, clean water supplies, public baths, street cleaning, streetlights, mass transportation, and a police force.  Then came interference in the labor market through the regulation of hours and working conditions.  Then they accepted democracy in the form of votes for adult males.  Then they accepted universal, compulsory, and free primary education.  Then came higher taxes, focused at first on the very wealthy to pay for these new services and functions—and for the public employees who made them work.  The goal here lay not in expanding government power for its own sake, but in using government in a positive way to create environments in which the Individual could fully achieve his/her potential.[1]  This wasn’t just a Liberalism that broke down previous barriers to Individual achievement.  It was an adaptive Liberalism that broke down the established barriers to Individual achievement created by the effects of previous Liberal reforms and difficult social changes.[2]

Then came the immense crisis of the first half of the Twentieth Century: two world wars and the Great Depression.  The First World War introduced economic planning, conscription both for the military and for industrial work, an end to free trade, the beginning of “managing” the money supply, and passports to control the movements of individuals.  The Twenties saw capitalist experiments with a managed and planned economy.  The Great Depression made governmental control of macro-economic processes a “normal” thing.[3]  How to maintain full employment amidst price stability?  Keynesian “demand management,” that’s how.  Government spends to take up the slack in business-cycle capitalism.[4]  The Second World War’s financing showed how to do this in peacetime as well.

It didn’t stop there.  Liberalism shifted it gaze to breaking down the barriers—Beliefs and Behaviors–that stopped Individuals in marginalized groups from reaching their potential.  The “Warren Court” attacked the oppression of Individuals by government at all levels and in all forms: racial discrimination and “Jim Crow” laws; sexism and “privacy” (contraception); censorship; policing (Miranda, etc.); housing conventions that barred property sales to African-Americans and Jews; and abortion.

Did “Liberalism” over-reach?  Perhaps.  Only time will tell and all political prognostications (i.e. consulting the gizzards of dead animals) are without value.  (Sad day for the op-ed writers, No?)  The current anti-liberal argument would be that modern Liberalism has embraced “identity politics” (i.e. privilege), “statism” (i.e. executive branch decrees and rule making), and the suppression of free speech (i.e. “name and shame” campaigns).  “Ah dunno.”

[1] For English Liberalism, one key author here is T.H. Green (1836-1882).  I read one of his books in Matt Temmel’s class on English history at the University of Washington.  Didn’t understand a word of it.  Rediscovered Green later.

[2] OK, “a fighting priest who can talk to the young.”

[3] See: Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War (1995).  Really good book.

[4] Great idea in a large sense, but—JMO—does that mean that capitalism loses some of the purgative effects that come with normal business slumps?  Do wages stay too high, do marginal businesses survive, do over-investment and poor choices go un-punished?

My Weekly Reader A 19 June 2019.

In traditional societies, people found their identity within and as members of groups.  In the Medieval and Early Modern West, for example, the Christian churches taught morality and sponsored religious confraternities.  The peasant agricultural societies portrayed by Pieter Breughel involved much group labor and existed within the framework of village life.  European cities were governed by professional groups (guilds) and had purchased various group “privileges” from local lords or more distant kings.  People belonged to hereditary “orders” like Commoners and Aristocrats.  These societies existed within belief systems and economic systems that offered little individual choice.

Then things changed.  It took hundreds of years, but intellectual, political, and economic systems all changed.  The Scientific Revolution and the Enlightenment created a skepticism about all received wisdom.  The Voyages of Discovery and the Agricultural Revolution began an economic revolution that spurred rapid growth in both population and wealth.  Rising distrust of received beliefs, an absolute confidence in the power of human Reason,[1] and the growth of a complex middle class then rocked the political system with an Age of Revolutions.[2]

A central feature of all these changes was the rise of Individualism.  Essentially, people aren’t Lego blocks.  Each person is different—if only in subtle and minor ways–from every other person.  Only the Individual person knows what is best for that person: strength and weaknesses, and hopes and fears.  Hence, society and government should seek to maximize the opportunity for Individual fulfillment.  This Individual freedom should be limited only by the requirement that one Individual’s freedom do no harm to the freedom of other Individuals.

This belief system gave rise to Nineteenth Century Liberalism and, by way of reaction, to Nineteenth Century Socialism.  Political Liberalism espoused individual equality before the law, individual rights guaranteed by law, governments answering to elected legislature, and freedom of the press and of thought.  Economic Liberalism espoused economic individualism, free markets, competition, free trade within and between nations, and a small government that concentrated on the essential functions of law and order and national defense.  What Liberals didn’t believe in was either equality or democracy.  Competition—between producers, political parties, and ideas—produced both winners and losers according to the informed choices of consumers.  The whole of society benefitted from competition even when individuals lost.  Similarly, people without the education necessary to understand the competition of ideas and parties, and people with no material stake (property) in the outcome of the debates should have no voice (vote) in the outcome.

Reacting against this position, Nineteenth Century Socialism called for co-operation over competition, planning instead of the market, collective ownership of the “means of production” in place of private property, and democracy with vote for all adult males.  After a while, revolutionary Marxism dominated Socialist thought.

The success of industrialization created immense wealth and immense numbers of industrial workers who were excluded from the political system while living in misery.  Something had to give.  Beginning in the late Nineteenth Century, it did.

[1] See Carl Becker, The Heavenly City of the Eighteenth Century Philosophers (1932).  Hilarious.

[2] I stole that from Eric Hobsbawm, Age of Revolutions: Europe, 1789-1848 (1962).  Remarkable.

The New Russia Investigation The Usual Suspects 13 June 2019.

Paul Manafort.

During the Cold War, the United States applied the Roosevelt Standard to foreign rulers: “He may be a son-of-a-bitch, but he’s our son-of-a-bitch.”  Paul Manafort made a very good living by helping improve the image of some very bad people.  He represented Jonas Savimbi, Ferdinand Marcos, and Joseph Mobutu in the corridors of power.  All of this activity aligned with American foreign policy.  Then the Cold War ended.  Suddenly, the “sons-of-bitches” had to swim for it.  So did Manafort.  He found an apparent new gold-mine in working with the post-Soviet Russian oligarch Oleg Deripaska.  Much of this work focused on Ukraine.

Ukraine had escaped from the Soviet Union upon the collapse of the evil empire.  However, old antipathies and affinities survived in the new country.  Basically, the farther west you go, the more Russophobe the people become[1] and the farther east you go the more Russophile the people become.  From 2004 to 2010, Manafort found work trying to improve the political chances of the Russophile presidential candidate Viktor Yanukovitch.  It should have been obvious that this work aligned with post-Soviet Russian foreign policy.  Reportedly, sometime between 2006 and 2009, the American Ambassador to Ukraine, William Taylor, told Manafort that he was working against the interests of the United States.  Apparently, Manafort did not heed this warning.[2]  In 2010, Yanukovitch won the presidency in an election judged fair by international observers.[3]  In 2014 he aroused massive opposition among the Russophobes by reversing course on an application to join the European Union.  He certainly did this at the behest of Vladimir Putin.  Soon, Yanukovitch was both out of office and out of Ukraine.  According to one account, the FBI then opened a criminal investigation of Paul Manafort.[4]  It was still running when the FBI began its investigation of suspected conspiracy between the Russians and the Trump campaign in Summer 2016.

What did the FBI investigation launched in 2014 discover?  Did it discover that Manafort had scored big-time, but hadn’t reported his earnings to the IRS?[5]

Michael Flynn.

Michael Flynn had an impressive career in military intelligence during the “Global War on Terror.”  In April 2012, his ascent peaked when President Obama nominated him to lead the Defense Intelligence Agency.  Two years later, Flynn announced his retirement.   Normally, it seems, people get three years in that position, so he was leaving early.  Why?

On the one hand, there’s the whispering campaign.  It was “leaked” to the press that Flynn had a chaotic management style; he didn’t play well with others; he abused his staff; he wasn’t a team-player; and he had a loose grip on facts.  These seem like personality traits.  Nobody noticed them before while promoting him from Lieutenant to Lieutenant-General?  So I don’t think this is very credible.

On the other hand, there’s the counter-whispering campaign.  It has been suggested that Flynn repeatedly told the Obama White House that much of the opposition to Bashir al-Assad came from conservative-to-radical Muslims.  The “moderates” weren’t much present on the battlefield.  This seems to have contradicted the “narrative” preferred by the White House.  Eventually, the White House got fed up.

Then there’s this.  In February 2014, Flynn attended the “Cambridge Intelligence Seminar,”[6] run—in part–by Stefan Halper.  Reportedly, Halper found it alarming that Flynn seemed very close to a Russian woman who also attended the seminar.  Someone else shared these concerns with American “authorities.”[7]  The woman involved was Svetlana Lokhova.[8]  She denies that she spoke with Flynn for any extended period or that they had a personal relationship.  Did American authorities believe that Flynn had been caught in what John Le Carre novels call a “honey trap”?  The Director of the CIA at the time was John Brennan, subsequently an engaged participant in countering President Donald Trump’s allegations about the intelligence community.

[1] See: https://en.wikipedia.org/wiki/Holodomor

[2] Why not?  Perhaps because he was making a lot of money and the American government wasn’t offering him an alternative income.  Perhaps because he was trying to get his guy elected president of a new democracy.  America is all about exporting democracy.  What’s more important, democracy or getting the American candidate elected?

[3] See: https://www.theguardian.com/world/2010/feb/08/viktor-yanukovych-ukraine-president-election

[4] See: https://www.newsweek.com/donald-trump-paul-manafort-michael-flynn-russia-robert-mueller-turkey-620215  One might be forgiven for wondering if the investigation was pay-back for Manafort having ignored Ambassador Taylor’s warning.  If it was pay-back, it soon hit pay-dirt.

[5] If so, then what—exactly—was Robert Mueller doing with his time for two years?  The Russian hacking information came from the NSA and pretty damn quick at that.  Carter Page and George Papadopoulos were low-hanging fruit easily plucked.

[6] On the larger framework of the Seminar, see: https://thecsi.org.uk/  NB: The reported views of Sir Richard Dearlove are interesting.  For a recent iteration of the Seminar, see: https://www.hist.cam.ac.uk/seminars/intelligence

[7] See: https://www.nytimes.com/2018/05/18/us/politics/trump-fbi-informant-russia-investigation.html

[8] Her version of the encounter can be found at https://www.bbc.com/news/magazine-39863781  See also: https://thefederalist.com/2019/05/28/lawsuit-suggests-spying-trump-campaign-started-early-2016/

Just typing out loud here 12 June 2019.

You challenged me on my enthusiasm for Joe Hill’s “Rebel Girl.”  https://www.youtube.com/watch?v=e_tz3wPgLUw  Didn’t have a good response at the moment, but it got me thinking.  My mind works slower than do those of most people.  Hence the delay.

To my mind, the Democrats are generically anti-business.  Sure, they talk about income inequality and anti-monopoly and this, that, and another New Deals.  But what they mean to apply is an anti-business policy that will fall on all businesses, great and small.  Taxes.  Regulations by decree.  You never see Democrat candidates who have ever worked in/for a business.  You never see ones who have had their own business.  Barack Obama was a “community organizer.”   (George McGovern’s post-presidential experience is instructive here.)  They’ve all spent their lives as lawyers or “in public service.”  Public service is just another way of saying “public employment.”  You don’t get laid off in a recession and you get good benefits.  For following an elaborate set of rules.

They have a fantasy of returning to the Fifties: a few big industries that don’t have any global competition; high wages and good benefits achieved through government-sponsored union-bargaining; owners who inherited their wealth from their rough-and-ready ancestors who actually created it; and a horde of professional managers who deploy B-School-certified skills in return for a generous, but socially-acceptable, salary.  That—at best—is what the Democrats want to recreate.  Basically, Rudolf Hilferding seventy years on.   (See: https://en.wikipedia.org/wiki/Rudolf_Hilferding )

None of this has anything to do with contemporary reality.  It has been one, but only one, of the factors that have driven the American economy—and society—into the ground over the last fifty years.

Yes, there is a lot to criticize in Republican policies.  Mostly, to my mind, it is the starving/shrinking of the necessary regulatory functions of the Federal bureaucracy.  To take some examples: the IRS can’t audit; the FAA has shifted airline safety to the plane manufacturer (singular); the FDA can’t keep up with the companies trying to poison us for fun and profit.  Theodore Roosevelt theorized that only a strong government could mediate the conflicting demands of Capital and Labor.  Republicans are gutting the system projected by their second-greatest president.  The reduction of the corporation tax to international (i.e. Canada) norms seems to me a good idea.  All the tax cut-spend-elect stuff to counter Democrats’ tax-spend-elect stuff is wrong, but wrong for both parties.  And wrong for the American voters who gobbled it up.   Maybe “snorted” would be better?

As for “bigness,” see Ellis Hawley, The New Deal and the Problem of Monopoly.  Yes, we’ve been down this road before.

In the end, what I’m fighting for is my Dad and all the people like him.  He didn’t want to work for the government and he didn’t want to work for a giant business.  He had done both (Army, Shell Oil).  He just wanted his own show.  Win or lose, it was on him.   What’s wrong with that?  He provided a service that people wanted.  He paid his employees the best he could.  Wasn’t great money, but it was the same deal for them that he made.  They weren’t working for the government or big business.  There weren’t procedures to deal with.  Just people.  He and my Mom did a lot of unpaid work to make the business run.  I guess I don’t see much difference between my Dad and an artist: they’re both self-actualizing and creative.  Along the way, he put a roof over our head and food in our mouths and paid his taxes.  Some of those taxes went to pay for public competition with his private business.  Why?  Because not all high-school teachers wanted to coach, so some of them would rather work extra as driving instructors.  Teachers had a union, but private business did not.