Man of Steel II.

As with Adolf Hitler (and everyone else), the question is whether Joseph Stalin’s mature self already existed in his younger self, waiting to emerge when the time was right, or did some conjuncture of experiences turn him down a particular path?[1]  His most recent biographer, Stephen Kotkin of Princeton University, seems to find for the former.[2]

Between the death of Lenin in 1924 and 1929, Stalin had mastered the Communist Party of the Soviet Union.  More than Lenin or any other Bolshevik, Stalin revolutionized Russia.  The fundamental problem facing Bolshevism lay in the vast peasant population.  In a country theoretically committed to the “dictatorship of the proletariat, there existed virtually no proletariat.  For their part, the peasants were deeply committed to their own private property and traditional, inefficient methods.  They were uninterested in industrial labor or city life.  Yet they controlled the food supply (and thus the survival of city people).  Moreover, agriculture had long provided Russia’s main export and source of foreign exchange.  The solution to Bolshevism’s problem lay in “collectivizing” millions of small farms into gigantic state farms (kolkhoz), tractoring the land to free up millions of peasants to become industrial workers, cream-off a surplus of agricultural goods for sale abroad, purchase Western machinery, and build a huge industrial base.  All this had to be done at high speed in a series of bureaucratic Five Year Plans.

The human costs of this transformation stagger the mind.  Peasants resisted both collectivization and the huge food “surplus” defined by Moscow planners by burning their crops and slaughtering their animals.  Stalin’s minions—often young idealists—both fomented strife within villages and slaughtered opponents.  Millions died in famines[3] that many believe to have been deliberately engineered and others believe to have been unintended in origin, but then responded to with cruel indifference.

While this agonizing social and economic revolution drove ahead, Stalin launched a purge of the people on the “commanding heights” of the Soviet Union.  He first slaughtered his fellow “Old Bolsheviks,” who now filled government and party offices, and the men with guns (the armed forces and the security services) who might actually evict him from power.  Then this limited purge spread outward into every aspect of Soviet society.  Ethnic minorities were hammered, but so were all sorts of ethnic Russians. Perhaps 800,000 died and millions were imprisoned in the Gulag.

Deeply suspicious of opponents within the Soviet Union, Stalin also distrusted the capitalist states.  He saw the Anglo-French policy of appeasement as turning German aggression eastward against the Soviet Union.  In August 1939, the Soviets and the Nazis struck a deal to partition Poland and the Baltic countries.  This alliance might well be regarded as adroit “realpolitik.”  Remarkably though, Stalin came to believe that he could trust Hitler.  Birds of a feather?  As a result, he ignored both the effects of German victories in Western Europe in 1940 and abundant evidence that the Germans intended to attack his country in Summer 1941.  He was, apparently, psychologically shattered by the revelation of his own self-deception.

[1] “And therefore think him as a serpent’s egg, Which, hatch’d, would as his kind grow mischievous, And kill him in the shell.”—Julius Caesar, Act II, Scene 1.

[2] Stephen Kotkin, Stalin: Waiting for Hitler, 1929-1941 (New York: Penguin, 2018).

[3] Most famously, 3.5 million in Ukraine, but also another 1.5 million in the North Caucasus and Kazakhstan.

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Annals of the Great Recession XV.

The TARP and the stimulus bill were intended to recover from the financial crisis of 2008-2009.  What about preventing a re-run in the future?  The Dodd-Frank Act required banks to hold larger capital reserves and to submit to “stress tests” to evaluate how well they could deal with a future financial crisis on the scale of 2008.   Curiously, the law also limited the trade in “credit default swaps.”  Admittedly, the wholesale trade in these insurance policies against a collapse of the bubble seems to have been what sunk the AIG insurance group.  On the other hand, they were an investment by people who saw the bubble for what it was rather than blindly believing what they were told.

One effect of the new legislation appears to be that it has encouraged the consolidation of the banking system.  It has been argued that the costs of complying with the new regulations are more than smaller banks can bear, so they have sold out to already big banks that are better able to shoulder the burden.

It is said that generals are always preparing to fight the last war.  Banks and investors are on guard against sub-prime mortgages.  However, “bubbles” can develop in any asset.[1]  So, some kind of new crisis is always possible.  Can the government and the financial system respond effectively to a new crisis?  The answers are not encouraging.

First, a flight from Keynesian demand-management policies followed quickly on the financial crisis.  President Bush encountered considerable difficulty in getting Republicans to accept the TARP.  President Obama opted for a stimulus bill that Paul Krugman warned was half as big as it needed to be, spread over two years instead of front-loaded into one year, and contained a bunch of tax cuts that would be used to reduce debt instead of engaging in new spending.  Both Republicans and Democrats have proved critical of deficit spending plans.

Second, in the absence of a Keynesian policy on the part of the Congress and President, the Federal Reserve Bank launched a long program of “quantitative easing.”  It bought huge amounts of both MBSs and U.S. treasury debt as a way of pumping money into a slow-recovering economy.  It has only recently begun to unwind this position and to raise interest rates.  That means that it would be difficult to counter a new recession by cutting interest rates.

There may also be a deep hostility to government intervention on the part of many voters.  The policies that saved the American—and world—economy from a new Depression looked very much like a privatization of gains and a socialization of losses.[2]  Thus, in 2007, the top 10 percent of income-earners held 71 percent of the nation’s wealth; now the top 10 percent hold 77 percent.  That is about an 8 percent increase.  The Fed’s quantitative easing pushed up asset prices when ownership of stocks and bonds is concentrated in the upper income groups.

In 2007, the bottom 90 percent of earners held 29 percent of the nation’s wealth; today the bottom 90 percent hold 23 percent.  That is an average 20 percent drop in assets for the vast majority of Americans.  Even so, it is worse for some than for others.  Back in 2007, the median lower-income family had about $18,000 in assets.  Today they have about $11,000 in assets.  Doubtless that fall largely represents the loss of the houses they bought without being able to pay for them.  Would Congress tolerate a new TARP or a new stimulus bill?

Maybe.  The combination of the recent tax revisions and the huge spending bill that enjoyed bipartisan support seem likely to massively expand the deficit.  Maybe stimulus is back in style if you put in enough treats for everyone.  Locking up a bunch of bankers might have to be one of those treats.

[1] See: Alexandre Dumas, The Black Tulip (1850).

[2] President Obama may have contributed to this with his denunciation of the rich as “the people who tanked the economy.”  Bill Gates and Warren Buffett tanked the economy?

Annals of the Great Recession XIV.

To review, the presidents from 1981 to 2017 were Ronald Reagan (1981-1989), George H.W. Bush (1989-1993), Bill Clinton (1993-2001), George W. Bush (2001-1009), and Barack Obama (2007-2017).  The chair-people of the Federal Reserve Bank were Alan Greenspan (1987-2006), Ben Bernanke (2006-2014), and Janet Yellin (2014-2018).  So, those are the people upon whose watch various things happened.[1]

Between 1997 and 2006 the government eased regulations on lending and encouraged home-ownership among new groups.[2]  Mortgage originators—banks or mortgage companies—did what they were allowed and even encouraged to do: they issued mortgages (loans) to “sub-prime” borrowers.[3]  These amounted to hundreds of billions of dollars of risky loans.  Rather than hold these dangerous loans on their own books, the loan originators re-packaged the mortgages as collateralized debt obligations (CDOs) and mortgage-backed securities (MBS), then sold these packages to investors.[4]  With many previously-excluded buyers seeking a limited stock of housing, housing prices rose by a national average of 124 percent.  The value of the CDOs and MBSs also rose.  Prices for both exceeded their real value.[5]

Then, in 2007 and 2008, it became apparent why sub-prime borrowers had previously had trouble getting loans.  The number of defaults started to rise sharply.  The MBSs and CDOs dropped toward their real value.  Financial institutions that had purchased these “instruments” suddenly found immense sums wiped off the asset side of their ledgers without their liabilities (what they owed other people) being reduced.  Bankruptcy loomed for the banks unless they could get rid of these dogs in a hurry and replace them with more valuable assets.  First Bear, Sterns, and then Lehman Brothers failed.  Seeking to stop the bleeding, banks pulled in the reins on all lending, including for productive investment.  The whole economy rapidly slowed during 2008.  The Dow Jones Industrial Average fell by 50 percent.  This reduced the values of many assets held by the upper and middle-classes, causing them to cut spending in order to reduce their own debts.  With consumption spending and investment both falling, the unemployment rate jumped to 10 percent by late 2009.

Acting quickly, the George W. Bush administration pushed through a Troubled Asset Relief Program (TARP) that bought $700 billion worth of bad debt from the banks.  The Obama administration launched a mini-Keynes stimulus program of $757 billion.  The Federal Reserve Bank cut interest rates to near zero and held them there for a long time.

[1] “The long shadow of the financial crisis,” The Week, 13 April 2018, p. 11.

[2] In part, this seems to have had a worthy purpose.  Houses are a key middle-class asset, but “red-lining” by banks had long restricted access to home purchases by African-Americans and other groups.  See: https://en.wikipedia.org/wiki/Redlining

[3] Sub-prime borrowers are ones with poor credit-worthiness.  For an explanation of how credit-worthiness is determined, see: https://www.investopedia.com/terms/f/ficoscore.asp  Very often, these are referred to in public discourse as “sub-prime loans,” as if the problem existed only with “predatory” lenders.  This seems to me to resemble referring to illegal immigrants as “un-documented immigrants,” as if the only problem is a bureaucratic foul-up with issuing them some documents.

[4] Apparently, it was possible for the purchasers to discern that the CDOs and MBSs were very risky—and possibly worthless—investments.  Most people did not do so.  A few did.  See: Gregory Zuckerman, The Greatest Trade Ever (2009) and Michael Lewis, The Big Short (2010).  The bets against the housing buble were called credit default swaps.

[5] This is called a “bubble.”

“Degaev steals the ball!”

“Talk is cheap” and “actions speak louder than words.”  It is an old belief[1] and one that discomfits intellectuals.

From the later 18th through the later 19th Century, European societies faced immense turmoil unleashed by rapid population growth, industrialization, urbanization, and the ideas of popular sovereignty and civil rights.  Terrified by repeated revolutions that might one day finally succeed, conservatives shanghaied[2] the cause of nationalism from the left in a desperate effort to retain control of key aspects of their power by adapting to modern times in other regards.[3]  Subsequently, the nation-states had expanded government responsibilities and powers in a host of new areas.  They also expanded the instruments of social control: soldiers, policemen, civil “servants,” charity officials, and school teachers.  This combined with the power of rising business and industry and an often smug and heartless attitude toward the working classes on the part of the middle classes.

For some critics of the new order, slow progress within the established order appeared a delusion.  Johann Most (1846-1906) figures as one of the most influential alt-left thinkers.  “The existing system will be quickest and most radically overthrown by the annihilation of its exponents.  Therefore, massacres of the enemies of the people must be set in motion,” wrote Most.  This doctrine came to be called the “Propaganda of the Deed.”

Between 1878 and 1932, propagandists of the deed attempted to kill the emperor of Germany, two kings of Italy, the tsar of Russia (twice), the king of Belgium, the king of Spain, the president of France, the Italian dictator Mussolini, an American senator, the attorney-general of the United States, John D. Rockefeller, the chairman of the Carnegie Steel Company, the judge in the Sacco and Vanzetti case, and the mayor of Seattle, Washington.  They actually did kill several tsarist officers of the secret police, Tsar Alexander II of Russia (after two failed attempts), the empress of Austria, the king of Italy, the king of Portugal, the king of Greece, the president of France, three prime ministers of Spain, the president of the United States, the prime minister of Russia, the chief of police of Buenos Aires, about sixty ordinary people killed in a wave of anarchist bombings in the United States between 1916 and 1920, and twenty Catalan Rossini enthusiasts.[4]

Most of the attacks took place in Russia or in Mediterranean Europe.  In these places, neither political liberty nor economic progress had advanced even as Western Europe and the United States had surged ahead.  Most of the attackers were people already unhinged who were driven over the edge by poverty and government brutality.  However, the chief effect of the attacks came in the expansion and intensification of government powers to combat dissidence.

It is worth asking whether this half-century-long wave of terrorism offers lessons for understanding and dealing with contemporary “jihadist” terrorism.  Both waves pose(d) a serious threat to lives, but neither pose(d) a threat to the existence of societies founded on “Western” values.  Of course, the earlier wave targeted societies with the means and the will to respond.

[1] “Let them show their love by the works they do for each other, according as the Apostle says: ‘let us not love in word or in tongue, but in deed and in truth.'”—St. Francis of Assisi.  Also, the Tsarina Catherine the Great instructed the “philosophe” Denis Diderot that “you write in paper while I must write on flesh.”

[2] https://www.youtube.com/watch?v=kGIQgjPklLw

[3] There is a useful analogy in Japan’s Meiji Restoration.

[4] For some serious books on this lurid subject, see Richard Pipes, The Degaev Affair (2005); John Merriman, The Dynamite Club (2009) and Ballad of the Anarchist Bandits (2017); and Beverly Gage, The Day Wall Street Exploded (2010).

Head on Collusion

Adam Schiff says “collusion” and “conspiracy” are the same thing.  Apparently the law says different.  “Conspiracy” is “secret co-operation” of two more parties to commit a crime.  So, to prove a “conspiracy,” prosecutor Robert Mueller will need to show that the Trump campaign received something of “value” from the Russians.[1]  Those things of value might have included covertly-supplied (i.e. “laundered”) campaign contributions.   The “conspiracy” element also could include things like co-ordination of the release of the hacked Democratic National Committee (DNC) e-mails or guiding the Russian social media campaign.[2]

Beyond that, Mueller probably is trying to discover if an understanding existed in which the Russians helped candidate Donald Trump in return for a promise to pursue a policy more friendly to Russia by President if Donald Trump.  One key question appears to be whether anyone in the Trump campaign engaged in “intentional solicitation” for help or co-operation.

In July 2016, Trump publicly urged the Russians to “find” the 30,000 e-mails that Hillary Clinton had deleted from her personal e-mail server.  It seems clear from the story of George Papadopolous and from accounts of the June 2016 meeting between Russians and leaders of the Trump campaign (Donald Trump, Jr., Jared Kushner, Paul Manafort) that the Russians had claimed that they had “dirt” on Hillary Clinton.[3]  In August 2016, Roger Stone, a Trump adviser, told someone that he had met with Julian Assange, of Wikileaks.  He predicted that DNC official John Podesta soon would be in for a hard time.  Is having knowledge of something the same as participating in a conspiracy?

Michael Flynn, briefly Trump’s national security adviser, discussed economic sanctions with Russian ambassador Sergei Kislyak, then lied about the discussions to Vice-President Pence.  Michael Cohen, one of Trump’s personal attorneys and commonly described as a “fixer,” is alleged to have lied about a visit to Prague to confer with Russians.  Did he lie under oath or only to journalists?

It has been reported that Deputy Attorney General Rod Rosenstein told Trump in late April 2018 that he is a target neither of the Mueller investigation nor of the Michael Cohen investigation.[4]  Mueller has been at this for quite a while.  He has indicted George Papodopolous, Paul Manafort, Rick Gates, and Michael Flynn, while Michael Cohen has had his home and offices searched.  Is it really possible that he has found no proof of a crime by the president?  Found no one who will “flip” on the president?  Found nothing worth knowing from anyone who is willing to “flip” under the pressure of transgressions unrelated to the campaign?  Or is he just biding his time?

Liberals countered by arguing that “the opera ain’t over till the fat lady sings”: Trump could still become a target at any moment.  Many of their hopes seem to rest on a charge of obstruction of justice related to the firing of FBI Director James Comey.  Comey’s evident loathing of the President he was charged to investigate and a failure by Mueller to discover proof of a “conspiracy” could under-cut the validity of an obstruction charge.  In the court of public opinion, if not in the law courts.

[1] It seems apparent that the “Steele dossier” came from the Russian intelligence service with the intention of helping Hillary Clinton.  So why isn’t the Clinton campaign also under investigation?

[2] “The collusion question,” The Week, 4 May 2018, p. 11.

[3] Clearly they did have some embarrassing materials.  These were released through Wikileaks in August 2016.  Did they have more and “even better” stuff that they held back to use as leverage if Clinton managed to win?

[4] “Giuliani seeks end to Russia probe,” The Week, 4 May 2018, p. 5.