Wednesday, October 22, 2008

Thoughts on Abortion

Nearly one month ago I opened up our Wise as Serpents blog to discuss abortion ("Blood Cries out from the Ground"). The central purpose for that post was to educate readers on the scope of legalized abortions (at least 50 million since 1973) and to illuminate my perspective on the motivations behind abortions (97% of which are carried out as a form of birth control). Today's post will focus on three threads within the abortion debate

1. Third Trimester Abortions
2. "Positive" Secondary Effects
3. Polished Names

Third Trimester
The earliest a premature baby has ever been kept alive is 21 weeks or a little over four months. Researchers have debated over the quality of life that such a premature baby could experience and some studies have emerged claiming that mothers should seriously consider keeping the baby alive if it is born before 22 weeks old. Moreover, some studies have posited that babies lack emotion and ability to experience pain until 26 weeks. Setting aside the current debate about the future health of the baby if born before 22 weeks and the development of the child’s emotions how is it possible that a child can be born significantly under six months and be kept alive and we still allow third trimester abortions? Third trimester abortions are abortions that occur after six months of pregnancy and they have never been legalized in Great Britain. Abortions in the UK must be performed within 24 weeks of pregnancy and in light of medical advances Parliament is considering moving the time for legalized abortions to earlier stages in the pregnancy. If the child can be born and kept alive by modern medical techniques any abortion performed before the time the child can be kept alive must be considered murder.

”Positive” Consequences
The book Freakonomics by Chicago economist Steven Leavitt I think is terrific. The book has shown many misinformed folks that the essence of economics is not stock picking but the study of how people make decisions. One Levitt study in particular is the study being referenced by a reader in their comment on the earlier abortion post titled “Blood Cries Out from the Ground.” The discussion of the positive secondary effects of lower crime rates being caused by the legalization of abortion is an interesting academic exercise. But, I do not believe that there are many cases in which positive outcomes justify the road taken.

Here are some words of wisdom from FSU's Offensive Line Coach Rick Trickett, "You can't shine a turd." Polishing the dirt from an immoral act however is exactly what many men and women have attempted to achieve; moreover, they have done so with some success. The Steve Levitt study is one example. Other examples of the beautification of an ugly reality are the labels of abortion advocates: Pro-Choice and Planned Parenthood. The fact that any woman has a choice is indisputable, so does anyone with a gun in their hand and anger in their heart. The justification of the act of abortions on the grounds of choice however rarely takes into account the fact that the baby has some free-will that can not currently be exercised because they are living in a state of dependence. Pro-Choice or infanticide? Finally, the location that women who seek an abortion go to in order to have the operation is called Planned Parenthood. The name blooms with warmness. Many parents would prefer preparation over surprise. But, the name implies that if you are not ready to be a parent, and you have not planned accordingly, abortion is okay. At least to my thinking this is another example of beautifying an ugly reality.

Sometimes being a defender of life is agitating and offensive to other people. Jesus knew this well when he said, "If the world hates you keep in mind that it hated me first." Any thoughts you might have are welcome.

Monday, October 20, 2008

Chicken or the Egg?

The Templeton Foundation is currently hosting an open forum topic entitled, "Does the Free Market Corrode Individual Morality?" which seems to be a common indictment even of the study of economics -economics is a culture killer and a soul stealer.

First, let me construct a definition of capitalism:

Capitalism is the system of free trade where all economic actors involved in the trade of goods or services are able to retain the gains from those trades.

From that definition, I presume many people would say, "What's wrong with that?"--people ought to be able to keep the money they earn. After all, the people gained by their own efforts. But people make the system of capitalism into much more than a mere system of free trade. They make it a constant and ever-present incentive to reward man's depravity.

Last week a young woman decided to auction her virginity on a radio show. When asked why she would sell her virginity, she remarked, "We live in a capitalist society. Why shouldn't I be allowed to capitalize on my virginity? . . . I'm using what I have to better myself." Did the ability to sell her virginity corrode her morals or were her morals sufficiently corroded by other influences to the point she would consider such an act? The problem of immoral behavior is not rooted in capitalism but in the depravity of human preferences. There are less outlandish examples as well, like the father who trades time spent with his children for long hours at the office to buy new toys. Did capitalism corrode his moral obligation to be the father of his children? Perhaps capitalism provided an option that, because of his weakness, he did not turn away from.

That we can be rewarded for distortions that we are willing to make to our own morality does not mean that capitalism corrodes our morals. Maybe capitalism is an ever-present incentive for some people to engage in questionable behavior. But temptation and compromise of character lurk around every corner in non-capitalist institutions as well (relationships and politics). There is a common indictment that markets are evil and create evil. But evil does not need the free market--it just uses it as a vessel sometimes.

Friday, October 17, 2008

"Who Will Guard The Guardians?" 2: Revenge of the Mule

In previous posts I discussed the “good intentions” that can sometimes have bad unintended consequences, such as the drive to make home ownership more available to low income Americans (in respect to the current financial crisis). In the last post, I indicated that I will be discussing other activities in this disaster that seem dodgy on their face (in the specific context of the rating of the sub-prime-mortgaged backed securities). What I’d like to discuss, as a bridge, is the idea of making mistakes and the Biblical injunction to humility.It’s clear even if you separate out people with good intentions, and even if you also separate out clearly venal behavior, that a lot of what went wrong in the subprime disaster can still be classified as many people being seriously, magnificently wrong … wrong specifically about the valuations and riskiness of many of these securities. I will discuss later some of the evidence as to whether any of this was deliberately misleading, but assume for a moment it wasn’t. The fundamental toxins that crept into the financial system were mortgage-backed securities that were a lot riskier (and hence worth a lot less) than people thought they were. This meant that many other financial transactions, including things like the credit default swaps, were based on fundamental bad information.

Economists looking at this wreckage might be tempted to say “I told you so” because of the highly publicized role played by “quants” whose mathematical models were behind the bad valuations --- "quants" are people with backgrounds in things like mathematics or physics or specialized finance who believed that the price of the securities could be valued almost without any reference to the economics of the actual markets supporting them. One incredible story from the Bloomberg series I referenced in my last post is of a West-cost banker, skeptical of these securities, who tried unsuccessfully to get securities industry analysts to take a “bus tour” of the actual neighborhoods and homes supporting the securities. He apparently got no takers.

However, it is incorrect to suggest that economists can shift all of the blame to the quants, because the statistical modeling of future economic valuations is our sandbox. Some of these folks had to have had some economics training along the way. And, it was a Nobel prize-winning economist who co-authored a report (appearing in “Fannie Mae Papers”) which predicted:

“The paper concludes that the risk of default of the GSEs [Fannie Mar and Freddie Mac] is extremely small.”

Or, in historical context:

“As far as it is possible to do, these two ships [the Olympic and the Titanic] are designed to be unsinkable.” ---- a White Star promotion quoted in

“An absurd delusion” ---- Meteorologist Isaac Cline about the possibility of a major hurricane devastating Galveston, Texas, quoted by biographer Erik Larson.

So what does the Bible say about this? Is it a sin to be wrong? I don’t think so, but there’s no doubt that anything that sets up false gods is a sin, and a pride or arrogance in which we worship our own knowledge certainly fits the bill.

The Old Testament clearly distinguishes between knowledge and wisdom (Proverbs being the most obvious, but not only, example). There was a lot of knowledge in the sub-prime mortgage industry that was not backed up by wisdom. I strongly suspect, from his many teachings about the “last” and the “least among you”, that Jesus would have not spoken kindly of anyone in love with their own intellect, particularly if they (using a very apt idiom) “lorded it over” other people. And Paul warns (in the letter to the Philippians) against vanity and conceit. Doug has always been quick to point out that these warnings are particularly important to those of us whose vocation is one in which knowledge and prediction are our stock-in-trade.

If an engineer can be wrong about a ship or a bridge, or a meteorologist can be wrong about the path or severity of a storm, how much more humble should we economists be when what we are attempting to model are not physical forces but the behavior of human beings. I’m not saying we can’t try, and I’ll be happy to stand by my predictions about what would happen if the government imposed a $1.25 price ceiling on gasoline. But I always recall my favorite part of Asimov’s Foundation series when the spectacular scientific success of the Seldon model was upended by the behavior of a single person, the aberrant Mule.

Saturday, October 11, 2008

Who Will Guard the Guardians? "Darth Rater" Part I.

I've been doing a lot of reading on our economy's financial institutions in preparation for a public forum sponsored by our undergraduate majors' club on the financial markets meltdown. I've been prepping to speak on the ethics involved, and I've obviously been working from my previous two posts.

In my second post, I mentioned that there many actions in this whole crisis that admitted of significant self-justification, the "good intentions" of the road-paving variety. I also mentioned there would possibly be some things discovered that, to reuse my favorite metaphor, could only be described as coming from the Death Star. I've been doing some reading on a highly technical and little known part of the crisis that is so disgusting that I'm calling it "Darth Rater". This is the saga of the companies (primarily S&P and Moody's) who provided ratings for the toxic waste securities. In case you didn't guess, the outrage is that these securities at least initially received very favorable ratings from the two companies.*

These "ratings" probably haven't received the notice they deserved. At one level they're not that complicated: These two organizations rate debt securities in a way that is not all that much different than two of my favorite non-profit organizations: Consumers' Union (at least their non-political arm, the magazine "Consumer Reports") and "Wall-Watchers" which rates Christian charitable agencies. Beyond these two examples, our society is full of ratings of everything from movies to software to football players for fantasy leagues. Often we treat these ratings game as a kind of parlor entertainment, with the fun of pitting our own opinions against those of the pros, and with very small long term consequences. I mean, I always check Consumer Reports, but what is the actual long term cost, if they are wrong, of getting the second best buy on a washing machine? However, the cases of S&P and Moody's have serious differences, as follows:

1 ) My reliance on Consumer Reports is a private transaction. However, the ratings of the financial instruments has been incorporated into the structure of public regulation. For example, according to Bloomberg and the Wall Street Journal, regulation on bank reserves, insurance companies and so-forth is sometimes keyed to the ranking of the securities by the two agencies. Consider the following: I can read Consumer Reports and choose to heed or ignore their ratings of new cars.... that's a purely private transaction. But if I were appointed as a trustee of the investments of a church, and the by-laws required that I only invest in securiteis of a specific quality as rated by S&P or Moody's, then I am not free to ignore that requirement. If I am a banker, and government regulations make a similar requirement, then the decision to rely on the ratings becomes explicitly a matter of public policy.

2 ) Requirements about trustees and bankers that I mentioned above are another example of my "... Good Intentions" thread. We want church trustees and banks to make wise decisions. But when put that expectation in terms of structured regulations, there is a huge incentive for CYA activity of relying solely on the outside raters and not on one's own independent investigations. But, according to the Wall Street Journal, these professional opinions may be less informed than what an informed layperson could "read in a newspaper." Playing if safe by relying on Moody's or S&P rather than on one's own judgment is another example of Moral Hazard.

3 ) Private reliance on raters is subject to market discipline. My wife and I once invited friends over for dinner and a DVD which a movie reviewer had labeled something like "a light-hearterd comedy". The movie turned out to be full of graphic sexual references and cannibalism. That was the last time I paid any attention to that reviewer. If Consumer Reports or movie reviewers persistently make bad recommendations, presumably they will suffer in the market place for opinions. But governments, specifically the federal government, have enshrined Moody's and S&P as a part of a tight, government sponsored oligopoly so that they are not subject to as much market discipline. If you want your securities rated, you have very little choice but to play ball with Moody's and S&P.

4 ) Consumer Reports and Wall Watchers get their money from the consumers of the rated good and organizations, in the form of donations and (for Consumer Reports) subscriptions and sales. Consumer Reports will not carry advertising. Obviously, issues of popularity factor into their decisions as to which goods and organizations to rate. There are some obscure appliances or tiny non-profits that simply can not be handled. However, securities issuers are put in a position (because of the regulatory requirements mentioned above) that their products must be rated. Therefore, it is the securities issuers who pay for the rating services. Or, to say the same thing another way, the ratings companies make their money from the issuers of the securities they are rating. I can imagine that you can see where this is going.... To Be Continued.

* See especially a two-part September series in Bloomberg and an article in the Wall Street Journal.