Institutional Failure

A couple of months ago I saw The Big Short, and it had a powerful effect on me.  Although the heroes of the tale, Steve Eisman (played by Steve Carrell) and Michael Burry (Christian Bale), had personality problems which I hope that I do not share, they were hard-headed guys who didn't trust what anyone else said, and who therefore saw that something was rotten in Denmark when everyone else continued to cut larger and larger slices of cheese.  I envied them, too, not for the money they made, but simply because they were betting on real time events, and the results proved that they had been right--something that can never happen for those of us who write about the past.  I decided to read the book as well, and I finished last week.  It reinforced the lessons of the film, and left me more convinced than ever that virtually all the major institutions of our society share the same rot, which is making it impossible for them to function for the common good, and threatening total collapse on many fronts.  I saw this happening in our colleges and universities during my 37-year career, and it is increasingly clear that what I saw was not exceptional.

I shall not attempt to retell the story of The Big Short, but rather focus on a number of almost random remarks that  pop up here and there through the text.  One such remark came from Charlie Ledley, one of two small-scale traders who had specialized in finding long shots that had a much better chance of paying off than their price seemed to indicate.  He and his partner Jamie Mai, believed "that public financia lmarkets lacked investors with an interest in the big picture.  U.S. stock market guys made decisions within the U.S. stock market; Japanese bond market guys made decisions within the Japanese bond markets, and so on. "There are actually people who do nothing but invest in European mid-cap health care debt,' said Charlie. 'I don't think the problem is specific to finance.  I think that parochialism is common to modern intellectual life. There is no attempt to integrate."  Hmmm.

The tendency towards specialization has wrecked modern intellectual life, especially in the humanities and social sciences.  In my own field of history, and also in literature, there is no expectation that scholars will have any talent for taking a very long view, or understanding how the present actually differs from various periods in the past.   That is why survey courses, which used to be the province of the most distinguished faculty members, are now more likely to be taught by adjuncts.      Because such skills are nearly ruled out of academia, students at elite institutions have no sense of how what is happening today fits into the broader development of western and world civilization.   Economics students, I suspect, learn little about the bubbles and crashes of centuries past, and thus failed to recognize the signs when they recurred.  And that is having consequences potentially as great as the financial crisis of 2007-8.

A second broad point concerns the ways in which the untrammeled free market, the god of our economics departments, business schools, and political parties, has utterly transformed institutions that once served a useful purpose into parasites.  Steve Eisman, one of the main characters in the book, began with the realization that many subprime home loans were going to default at a predictable moment, and found a way to bet against them.  But he followed that insight up the economic food chain, shorting the stock of mortgage originators, home builders, and even the ratings agencies that were certifying bonds based on those mortgages.   And then, reaching the top of the pyramid, he focused on the big banks themselves--Goldman Sachs, Morgan Stanley, Citigroup, and the rest.  "One of the reasons Wall Street had cooked up this new industry called structured finance," Lewis writes almost offhandedly, "was that its old-fashioned business was every day less profitable.  The profits in stockbroking, along with those in the more conventional sorts of bond broking, had been squashed by Internet competition.  The minute the market stopped buying subprime mortgage bonds and CDOs [collateralized debt obligations] backed by subprime mortgage bonds, the investment banks were in trouble."  And because the banks were now traders in their own right, the role of bond salesmen, everyone now understands, isn't to help both sides of a transaction to benefit, but rather "to screw their customers."  The big banks don't want to help industrial and commercial firms establish and maintain their profit streams, they want to build up their own, largely by running a rigged casino.

I could spend a lot of time coming up with analogs for this behavior, but one would suffice: the role of big pharma.  About 150 years ago, Louis Pasteur, Paul Ehrlich, Sir Alexander Fleming and a few others discovered means of preventing or curing often fatal infectious diseases, an extraordinary breakthrough that has saved many millions of lives. The world now desperately needs new antibiotics, but the big drug firms, who have all the money they need to look for them, aren't very interested.  Rather than find drugs, much less vaccines, that would cure or prevent diseases, they prefer developing treatments for chronic conditions like indigestion, or simply pain.  That is how they have managed to hook hundreds of thousands of Americans on powerful opioids.  Hundreds of those Americans, who switched to cheaper, more accessible heroin, are now dying of overdoses every day, but hardly anyone has had the courage to focus on the real cause of this new, often fatal epidemic.   Again, something similar has happened in leading colleges or universities.  They have become gateways into the upper reaches of American society whose endowments have become hedge funds.  Almost none of them have anyone looking seriously at their students' educational experience, much less thinking of ways to improve it.  They are interested, of course, in moving some of their education on line, where they will no longer have to pay live professors to provide it, and they have vastly expanded the role of adjuncts to save money.

A third major lessons involves the internal workings of the big banks.  Again and again, Lewis's subjects discover, no one, least of all the CEOs, seems to have any real idea of what the assets their firms are creating are really worth, or even what was behind them.  This is another endemic problem in our society, on related to, but not exactly the same as, the Peter principle, which stated almost half a century ago that in hierarchies, people rise to their level of incompetence.  My variation on this theme is that at some point in any hierarchy--firm, university, hospital, or heaven help us, government--men and women reach a point at which they are no longer paid to think.  University presidents, Wall Street CEOs, and many others, doubtless, are prize animals, led around by their handlers from fair to fair to assure everyone that all is well and maintain friendly relations with other power centers.  Having grasped what was happening with subprimes, Ledley and Mai assumed for a long time that the movers and shakers in the big banks knew what they did and were using these instruments to fleece their customers. Eventually they realized that that was wrong.  "The big Wall Street firms," Lewis writes, "seemingly so shrewd and self-interested, had somehow become the dumb money. The people who ran them did not understand their own businesses, and their regulators obviously knew even less.  Charlie and Jamie had always assumed that there was some grown-up in charge of the financial system, whom they had never met; now, they saw there was not."  Many of us, I think, have had similar fantasies about various key sectors of our society, including the one that we work in ourselves.  Another interesting symptom that emerges repeatedly through the book is the willingness of Wall Street operatives to joke about the absurdity and idiocy of what was happening.  I have seen the same kind of smirking on the faces of relatively traditional historians talking about the work of their newer colleagues many times--but they did not recognize it as a serious problem, until one day they woke up to find themselves intellectually isolated in their profession.  I have also seen that smirk on the faces of doctors talking about some of the new SOPs in their profession.  It's never a good sign.

The depth of the intellectual and moral rot at the upper reaches of our society became even more apparent after the crash.  Although Burry, Eisman and the rest reaped huge financial rewards for having seen it coming, they did not win any respect or admiration from their peers, or even from the investors whose money they managed.  Burry had indeed been battling for two years with his investors over his bet against subprimes, which did not seem to them to be likely to pay off, and only the force of his personality allowed him to stick with it until it paid off.  (That is another scene that I have played regarding the content of some of my books, but that's a story for another time.)  Meanwhile, Bury saw well-connected people who had gone with the flow appearing on television and explaining falsely that they had seen the crash coming.  I have seen the same thing in two pundits--one a journalist, the other an academic--who cheered loudly for the Iraq war but no longer hesitate to pronounce it a disaster without the faintest hint of an apology.  Both, of course, still work at the highest levels of their professions.  "What had happened," Lewis writes of Bury, "was that he had been right, the world had been wrong, and the world hated him for it."

Last but hardly least, as Lewis explains in detail in his last few pages, the consequences of the second-greatest crash in American history have been minimal.  The government, of course, bailed out all the major players in the crisis, and despite Dodd-Frank, the culture of the big banks has not changed.  (I have had occasion to discuss that once or twice here.)  "The reason that American financial culture was so difficult to change--the reason the political process would prove so slow to force change upon it, even after the subprime mortgage catastrophe--was that it had taken so long to create, and its assumptions had become so deeply embedded."  Millions of Americans lost their jobs, their homes, and their net worth, but Wall Street used its power to convince the powers that be--led by Barack Obama--that nothing too fundamental was wrong.  They also took care to put a six-figure sum into the pocket of Hillary Clinton, the heir presumptive to the throne, as soon as she stepped down as Secretary of State.

And that leads me, at long last, to the institution that seems closest to complete failure, our political system.  The pretense that it serves the needs of the public, obviously, has worn very thin among the people of the United States, which is why Donald Trump leads the Republican field and Bernie Sanders has fought his way to rough parity with Hillary Clinton.  The establishment in both parties is peddling subprime bonds.  The Republicans claim that making the rich yet richer will help the rest of us, while Clinton argues that prejudice against women, minorities and gays is more important than economic inequality.  Bernie Sanders--truly a man from another era--has proclaimed that the establishment has no clothes, and the message is resonating, particularly among the young, who are being left out of our economic growth.   Yet how well he can do in the campaign--or, for that matter, in the White House--remains a very open question.  The intellectual rot throughout our society is very, very deep, and needs to be cleared away to allow healthy plants to flourish.  That will take a long time.

My own profession must take a huge part of the blame for this.  The men and women who are paid to research, think, and teach have a unique responsibility to our society: to use that time well for themselves, their students, and the world at large.  A few still do, but the leaders in the humanities and social sciences have taken a different path.  Their work, basically, feeds their own egos, helps to create an alternative universe on campuses, and often serves the needs of powerful interests.   That leaves a gap which no other institution can fill.  For several decades I kept an older tradition alive in my books and classes, and for a dozen years I've tried to do the same here.  I am not alone, but it will be a very long time before the Enlightenment tradition can really be revived.

Doctored photos, 1950-2016

My latest post appears here.

What the old-line feminists are angry about

Two distinguished members of the Silent generation, Madeleine Albright and Gloria Steinem, created a sensation on the eve of the New Hampshire primary with appeals to feminism.  (For the record, I just discovered sexism in the blogger spellchecker: it recognizes Acheson, Seward and Dulles--all former secretaries of state--but not Albright.) Albright told women a special place in hell awaited them if they did not vote for Hillary Clinton, and Steinem accused Millennial women of campaigning for Bernie Sanders because that is where the boys were.  (Steinem recanted the next day; Albright has not.)  Their statements were certainly extreme, but they represented a widespread view in some feminist circles that Hillary Clinton, to some extent at least, deserves to be elected simply because she is a woman.  The candidate herself has also expressed this view with applause lines about the possibility of becoming the first woman President.  This is a sensitive subject which I have hesitated to raise head on, but to paraphrase the great Edward R. Murrow, this is no time for Americans--or Democrats--to remain silent.  This is one of the crucial elections of our entire history.

In my opinion, one must understand two things about American feminism as it emerge din the 1970s.  First of all, despite Vietnam, Watergate, and civil rights strife, the United States at that time was still a relatively egalitarian society with a highly functional government in which people at different levels of the occupational scale could afford houses, higher education, and a generally decent life.  Urban poverty had become a national issue--although little was being done about it--and the stagnation of workers' wages was beginning to set in, but we had a much sounder economic foundation than we do today.  The problem, to feminists like Steinem, was the definition of accepted roles for women within that society, not the transformation of that society.  She and her allies wanted abortion rights, greater freedom from abusive relationships,and greater job opportunities for women.  They also wanted  a society in which women could live without men.  And it became axiomatic among feminists that any disparity in numbers of men and women at any level of our society--particularly the highest ones--was an injustice that had to be corrected as soon as possible.  These views have spread over the decades, and they now dominate academia, the media, and the Democratic party establishment--in part because there was a good deal of truth in them.

Something, however, was lost in all this--something very important.  The corollary view of American history was that men had succeeded because they were men--and this has never been the case.  Yes, it was necessary to be a man to aspire to high office for most of American history, but it obviously was not sufficient to be a man to guarantee success.    The male population divided on economic, ideological, religious, regional, and a host of other lines that in different eras defined the contours of American politics.  The same was true in every other field: to succeed, a man had to outdo other men.  Neither American politics nor American economic life were pure meritocracies among males (or, if you prefer, white males), but competition within those groups, not entitlement, determined success or failure. That, to millions of Americans in the 19th and 20th centuries, was what American exceptionalism meant.

Now the feminist revolution has had an enormous impact upon American life.  It certainly has not created complete equality at the upper reaches of our society by any means.  The gap between men's and women's pay even in the professions has only shrunk very slightly.  But there are far more women doctors, lawyers, professors, and politicians than there were half a century ago--not to mention military officers and enlisted personnel, firefighters, and police officers.  Women certainly do not need to marry men to gain economic security, or remain in abusive relationships.  And in certain fields, though not all of them by any means, the idea that women's participation must be increased has become institutionalized.   The question that is now arising is whether we should extend that view to our selection of our next President, and elect Hillary Clinton in significant part because she is a woman.  And that is what I want to address.

It is a sign of how far we have come that I haven't seen any mainstream press commentator discuss the irony of this situation.  Does it really constitute a triumph for feminism that the first serious female candidate became a national figure because her husband was elected President of the United States?  I know that many of Hillary's friends and supporters believe deeply that if she had not married Bill and moved to Arkansas, she would have risen through the political ranks of New York or some other state on her own and gotten to where she is now anyway.  I will certainly concede that that is possible but not that it was ever likely.  For every Richard Nixon, John F. Kennedy, or Bill Clinton, there are a hundred men of equal ambition and ability who never got anywhere near the White House.  Nancy Pelosi, Barbara Boxer, Diane Feinstein,  and numerous other women had longer and at least equally distinguished careers in public life than Hillary Clinton without getting anywhere near the White House either.  The real question--and it turns out to be a very interesting one--is exactly how, both in 2007 and in 2015, Hillary Clinton seemed to be on the threshold of nomination and election as President.

Well, it is not, in my opinion, because of any overwhelming accomplishments as a public servant.  In her eight years in the Senate Clinton made no waves and authored no particularly important legislation.  In 2009, when the Democrats had just won complete control of the government and she might have helped do just that, she became Secretary of State instead.  In that office, she set a goal, apparently, of visiting as many countries as possible; emerged as one of the Obama Administration's foremost advocates of the use or threat of force in various conflicts; and undertook no major diplomatic initiatives, least of all towards America's enemies.  The contrast with John Kerry, who has restored relations with Cuba and reached a nuclear deal with Iran, is rather striking in that regard.  Some months ago, on the NPR program Radio Open Source, journalist and historian Stephen Kinzer, discussing the Iran agreement, stated that none of the then-visible presidential candidates would continue Obama's policy of seeking accommodation with America's enemies.  Queried by a surprised host Christopher Lydon whether that included Hillary Clinton, he replied that she was probably one of  the least likely to do so.  As Senator and Secretary of State, it is fair to say, Clinton played it safe.

Clinton got where she is today in the presidential race by carefully cultivating major donors, both among Democrats and powerful institutions like the Wall Street banks.  She took advantage of the connections she and her husband built up when he was in the White House, and also built strong relationships with leading figures in minority communities.  Now let me be frank: that is exactly how every major candidate in recent political elections, both Democrats and Republicans, have done it as well.  Clinton is not the only candidate to get where she is thanks to family connections: see Bush, George W., and Jeb.  A number of other leading candidates, such as George H. W. Bush and Al Gore, secured the same connections in the Vice Presidency.  That is how our system now works.

That, however, has turned out to be Clinton's Achilles heel in the year 2016, because the American people are genuinely sick of that system.  They no longer want candidates who got where they are by cultivating the 1%.  And this is not sexism.  The Republican candidate who most resembles Hillary, clearly, is Jeb Bush, a moderate (by the current standards of his party) who rose in politics with the help of family connections and who had preferred access to the movers and shakers of his party.  Bush is doing much worse than Clinton is--and the last time I looked, he was a man.

And what of Clinton's claim that she has been fighting for those less well off--particularly children--all her life?  Well, at one time, men and women who had spent their whole professional lives in what was then called social work--people like Harold Ickes, Frances Perkins, and Harry Hopkins--rose to high positions in government.  Those three all belonged to Franklin Roosevelt's cabinet.  Those days, however, are long gone, and the many thousands of men and women who do work among the less well off are cut off from the political system.  Clinton's work for the Children's Defense Fund and her civil rights work in Alabama, which she is so fond of citing, seems to have occupied parts of two years of life, before and after her graduation from Law School in 1973.  After marrying Bill Clinton and moving to Arkansas, she joined a local corporate firm. Her role as an activist is rather parallel to Barack Obama's two years as a community organizer in Chicago--a stint which does not seem to have led him to question the essential structure of the system through which he was rising, any more than Clinton has.   As First Lady, of course, she helped design the Clinton Administration's health care plan--one which, like Obamacare, did not directly threaten the economic role of private insurance.  It failed to pass.  Later, objective accounts confirm, she got, and kept, the White House engaged on behalf of the SCHIP program to provide health insurance to children, but it was Senator Edward Kennedy who was primarily responsible for it.    None of this differentiates her from the average mainstream Democratic politician.  

There is no reason to think, as I have blogged here before, that electing Clinton would do anything to change the fundamental direction of American society and foreign policy of the last couple of decades in general, or halt our movement into a new Gilded Age in particular.  It would "shatter the glass ceiling" and put a woman in the White House.  That, in turn, leads to another question--has the greater presence of women at the upper reaches of American society done anything for women in the lower half?  In my opinion, the answer is, not very much.

The plight of women in the lower half of our economy is similar to the plight of men--not surprisingly, since both reflect the rise of income inequality, our horrifying criminal justice system, the decline of government as a force for good, the decline of organized labor, and the cost of higher education.  There are far more single mothers than there were in the 1970s, and I cannot believe that is a good thing for women, children, or men.  There are far more women addicted to drugs and far more women in prison.  They have fewer protections as workers and many cannot acquire higher education without assuming enormous debts.  I feel quite sure that it is because Millennial women know some or all of this first hand that they do not see any reason to vote for Clinton, rather than Bernie Sanders, simply because she is a woman.

In her concession speech Tuesday night, Clinton claimed the mantle of the representative of oppressed Americans, including minorities, women, and LGBTs.  That is how both the feminist movement and two generations of civil rights activists have trained us all to see the problem of oppression and injustice.  In my opinion that has not worked--least of all for those groups themselves.  That approach, let us face it, has also driven significant numbers of poor white voters--men and women--into the arms of Donald Trump.  Bernie Sanders stands for something different: for the rights of all Americans--particularly their economic rights--regardless of their race, gender, or sexual orientation.  That was the approach that led to real progress for all Americans in the middle third of the twentieth century and I still think it is the only approach that can work.  And I am very deeply moved that so many younger Americans seem to agree.

Why not a female public servant on the $10 bill?

 

The Treasury Department is struggling to agree on a woman whose face might replace that of Alexander Hamilton on the $10 bill.   The leading contenders for the place of honor, evidently are Harriet Tubman, the 19^th-century black abolitionist and leader of the Underground Railroad; Susan B. Anthony, the suffragette; Rosa Parks, the Montgomery woman whose act of defiance kicked off the bus boycott in that city in 1955; and first lady, political activist, and U.N. delegate Eleanor Roosevelt.  The selection of any of those, I would like to suggest, would reflect changes in our view of history that have nothing to do with feminism—and that would contribute to one of the most serious national problems we face today namely, our general contempt for politics and political leadership.  The reason is that none of those worthy women made their name mainly as public servants.

Until the late 1960s, I would argue, Americans, while differing on specifics, were generally united in their respect for their nation’s democratic experiment and the leaders who had begun, continued and extended it.  The generations that made the American Revolution and wrote the Constitution were keenly aware that they were introducing a new form of government into the modern world and desperately wanted it to succeed.  Lincoln cast the Civil War as an attempt to preserve that new form of government—to insure “that government of the people, by the people, and for the people, shall not perish from the earth.”   Theodore Roosevelt and Woodrow Wilson attempted to make democracy work in the industrial age, and Franklin Roosevelt during the Second World War cast the United States as the defender of democracy on the world stage.  Until the Vietnam War, most Americans saw their role in that light as well.  Thus, Americans found it completely natural to put Presidents and a few other political leaders on their currency.  Neither women nor black Americans, of course, enjoyed full citizenship until the twentieth century, but for the most part, this did not make them reject the premises of the United States as such.  Instead, it simply made them eager to become full and equal participants in the democratic experiment, as indeed, eventually, they did.

Unfortunately, two thirds of the way through the twentieth century, at the moment that this process seemed on the verge of completion, entirely different views took hold on both sides of the political spectrum.  The right, initially represented by Barry Goldwater, began to view the federal government as the enemy of liberty.  The left, represented initially by student movements, saw both the whole government and American society as evil from the beginning, an oppressor of nonwhites, women, and poorer Americans.  Their views widely popularized by the historian Howard Zinn, whose People’s History of the United States argued that all change from the better had come from the bottom of society, not from political elites.  The left’s only heroes, from that day forward, were activist members of oppressed groups—people such as Martin Luther King, Jr., Harriet Tubman, Susan B. Anthony, and Rosa Parks.  The left for the past five decades has been obsessed with moral purity, and that is indeed easier to find among activists devoted solely to the pursuit of justice than among the men and woman who have the largely thankless but absolutely necessary job of governing us all.  The profound results of these opinion shifts now stand out in bold relief: a general contempt for our political leadership and our political parties, especially among young people.  That is one of the major reasons for the rather shocking turn that this year’s Republican presidential nominating contest has already taken.

Thus I would like to suggest that Hamilton be replaced, not by any of the four leading candidates, but by a female public servant.  It is true that Eleanor Roosevelt did hold an important government position after her husband’s death, as chief delegate to the new United Nations, but it is also true that she became a national figure because of her husband’s election, which she very cleverly exploited for her own political purposes.  The selection of such a woman is complicated by a provision in law: no living person can have their portrait on our currency.  Strong candidates such as Sandra Day O’Connor, who wrote some very important opinions in a long career as our first female Supreme Court Justice, and Nancy Pelosi, who occupied the chair of Speaker of the House for four critical years and was ultimately perhaps the person most responsible for the passage of the Affordable Health Care Act, cannot be selected because they are both very much alive.  We must look further back in our history.

My first eligible candidate, then, would be Frances Perkins, the first woman appointed to the cabinet.  Ms. Perkins was far more than the woman who broke that particular barrier.  A long-time political activist in New York State, she was appointed Secretary of Labor by Franklin Roosevelt, and served in that position for the whole of his presidency.  At no time in our nation’s history was that job more important.  The Depression and the New Deal led to the most rapid growth in unions in our history, and the Labor Department was expanded to include the National Labor Relations Board, which set up procedures to decide whether, and by whom, workers in specific firms or industries would be unionized.  Of course, very few people today would be able to identify Frances Perkins—but one could argue that that is an argument for, rather than against, making her a presence in our daily lives once again.

A second candidate would be Margaret Chase Smith, a Republican, born in 1897, who represented Maine as a Congresswoman from 1940 through 1949, and in the Senate for the next 24 years.  During the Second World War she took a keen interest in promoting the role of women in the military, helping to start the WAVES, the women’s branch of the Navy, but also emerged more generally as an expert in naval affairs.  A moderate Republican, she was not opposed to much of the New Deal, and fought the existence of the House Un-American Activities Committee.  After her election to the Senate, she became one of the first members of that body to speak out boldly and frankly against the wild accusations of another Republican, Senator Joseph McCarthy of Wisconsin.  She was, in short, exactly the kind of courageous, independent-minded public servant, devoted to the public good and to the rights of her fellow Americans, that we desperately need more of today.  In 1964, she ran for the Republican nomination for President and was the first woman ever to be placed in nomination at a major party convention.  A maverick to the end, she supported the Vietnam War, but voted against President Nixon’s nominations of two white southerners, Clement Haynesworth and Harold Carswell, to the Supreme Court. Both nominations failed.

The selection of Perkins, an important cabinet member in a critical period, would be somewhat parallel to the man she would replace, Hamilton, who never rose above Secretary of the Treasury.  The selection of Smith, a legislator, would be a new departure, but a very welcome one, helping put more attention on the possibilities for doing good and defending the rights of Americans within the legislative branch.  Already, as I have noted, we have other good living female candidates, and in the next few decades many more will emerge.  But the choice of Perkins or Smith would remind us all of an increasingly inconvenient truth.  While activists may inspire us, we ultimately must depend on the men and women with the fortitude to secure election or accept appointment to high office, where they and they alone will make great decisions that shape our lives.