Too Big To Fail?

My friend from Fordham University, Prof. Duncan James, sent me this link on this issue of banks that are too big to fail. I wrote some comments in the e-mail that he thought would fit well in the blog, so here goes.

I think that the argument for breaking up the largest bank is, although not something I would do in a perfect world, something I think is a good idea for today. (The best thing would be an absolutely credible commitment against the 'too big to fail' concept, but that horse left the barn a long time ago.) I think the argument for breaking up the largest banks is different than and much stronger than the old Teddy Roosevelt/Woodrow Wilson trust busting argument. People didn't appreciate back in that period how powerful a discipline against dominant firms the process of creative destruction can be. When I show the movie Pirates of Silicon Valley in my class, my students can scarcely appreciate how daunting the market power of firms such as IBM and Xerox seemed to be at that time. And, as industrial giants have fallen, we have concrete evidence that we as a society can survive. (Which is why I don't understand the point of Government Motors, but that's for another blog).

If it is indeed the case that we are stuck with a "too big to fail" scenario with large banks, I would much prefer that they be broken up into a size that would let them fail, as opposed to leaving them big and regulating them with ever more layers of "managed competition" (which is an oxymoron as far as I am concerned). A firm embedded in a massive web of federal regulations realizes that its survival depends less on what it can do in the marketplace and more of what its lobbyists can achieve in rent-seeking activities in Washington, D.C.. This is bad for the businesses and bad for consumers, but it's great for the real-estate owners and Neiman-Marcus stores in Bethesda and Fairfax County. I challenge anybody to deny the following prediction: one of the side effects of hiring more federal financial regulators or the layers of bureaucrats enforcing ObamaCare will be an even further concentration of wealth and power in the Washington, D.C. metropolitan area. (It's almost as though that were part of a master plan, no? Why else would the people who wrote ObamaCare insert a passage that exempts themselves [virtually all of whom most likely live in D.C. and environs] from their own requirements?)

Movie Musing

Sue and I recently watched The Bicycle Thief. What a powerful movie. What is instructive about it is that it demonstrates the poverty that Europe (in this case Italy) suffered in the couple of years immediately after World War II. This can be immediately contrasted with another picture of post-war Italy, only about a dozen years later, La Dolce Vita, where Italy is portrayed as a land of sports cars, glamour, and partying.

There are two things that I take away from this comparison. First, it is truly remarkable how quickly Europe was able to recover economically. The downside of this miracle is that we in the West believed that something like the same model of external aid and intensive capital re-development was also the way to bring the rest of the world out of poverty. As William Easterly points out, this was a false analogy, one that has proven to have tragic consequences. Economic "recovery" for a developed country from a war is not the same thing as economic "development."

Secondly, in comparing the two movies we see that the return of material prosperity, if anything, has led to a society that is less spiritually mature. Which of these people do you believe are closer to the Kingdom of God?

Good Intentions v. Outcomes: What do you think?

We frequently separate good intentions from outcomes in our personal lives. For example, if the house is dirty and one person picks up the trash, but, unknown to them is the important document they threw away we could say their intentions were a clean living space but the outcome also included tossing an important document (not a true story . . . but I couldn't think of another example off the top of my head).

Should we also evaluate good intentions when it comes to policy? Or, should we say, "Regardless of the intentions I only want to evaluate outcomes."?

Subsidies without Education = Disaster in India

Here is an article from the Wall Street Journal that documents the sad circumstance Indian farmers find themselves in after massive use of the fertilizer urea has killed the soil and reduced crop yields. Why the overuse of this fertilizer? Subsidies that made costs much lower for urea compared to other alternatives (which were also previously subsidized before urea received preferential treatment under a legislative compromise). In addition to the subsidies, lack of knowledge by farmers led to a bad interpretation about how to fix lower crop yields.

The Farmers Fertilizer Cooperative Ltd. produces the fertilizer urea and because the cooperative represents 50 million farmers in India they are also a powerful special interest lobby. But, unlike other fertilizers which did not have subsidies, urea is not just inexpensive (thanks to the subsidies) but because it is nitrogen based without phosphorus, potassium or other important nutrients it does not do the complete job.

The second part of the disaster came from two sub-parts. First, farmers observed lower crop yields (due in part to the lacking necessary nutrients in the soil). Second, the farmers desperate to increase crop yields believed that it must be a quantity issue, not a quality issue with the fertilizer. So, they dumped more and more urea on the soil.

The result? The WSJ article discusses briefly the fact that the damage to the soil will be difficult to overcome in a short time horizon. And, there are other articles prior to the WSJ that discussed soil damage stemming from urea. Now, the Indian government is discussing the removal of subsidies from urea and potentially adopting a nutrient based subsidy program. Hopefully, this is sorted out soon because the crop yield matters tremendously in a country with so many mouths to feed.

Unfortunately, this is one more tragic case of unintended consequences.

Modern American Idols III: Trendies Vs. Fundies

The title is a tribute to Os Guinness, author of the classic “Gravedigger File,” which points Christians to the ease which we absorb the culture around us into our faith and worship. This series of posts is designed to reflect on how much of what 21st century American Christians think and do has been shaped by the forces of rationalism and modernism that swept all of Western civilization in the 19th and 20th century. Guinness called those whose instincts are to merge constantly with contemporary culture “Trendies.” He called those whose instincts are to resist “Fundies.” But Guinness argues that everyone reacts intuitively from their contemporary culture, and I think he would agree that all of Christianity in America today is shaped, in ways we might not even recognize, by the emergence of Modernism, and by the so-called Modernist vs. Fundamentalist controversy in the 1920s.

What, then, is a “fundamentalist”? Most American today would probably think that the best description was one of Frederick March denouncing evolution in the (historically very inaccurate) movie Inherit the Wind. Or, they might picture a small town preacher railing against alcohol, tobacco, and dancing. Words can change meaning across time, but at the dawn of the 20th century, things were more complicated than that.

There is an old joke that Presbyterians believe in moderation in everything except moderation, and there is good historical truth to that. We are neither a hierarchical nor a congregational denomination (indeed the federal system of the United States was modeled in some ways upon colonial Presbyterianism). And, being descendants of John Calvin, we embrace the tension of both the liberty of an individual Christian’s conscience and the responsibility of the Body of Christ to reveal a true faith to the community and to future generations.

For centuries the ordination of Presbyterian elders (pastors and “ruling” elders of the church) was based upon the Westminster Confession of Faith in Britain from the 1600s (that’s the “true faith” part). However, candidates were allowed to announce a “scruple” if their conscience led then to reject a part of the confession (that’s the “liberty” part). The examining body would then decide whether the scruple was so significant that it posed a barrier to ordination.

What was happening in the early years of the 20th century was that a new wave of Presbyterian ministers, trained in the rationalism and skepticism radiating from German theologians, were announcing scruples on what seemed to many Presbyterians as “essential” (or “fundamental”) elements of the faith. And, as the modernists gained power in the Presbyteries (local governing bodes) their scruples were being upheld. A group within the national denomination attempted to formulate a list of core “essentials” to become a Presbyterian elder: the inerrancy of the Bible, the Virgin Birth, Jesus’ atonement for sins, his bodily resurrection, and the realty of his miracles. These “essentialists” (or “fundamentalists” if you will) prevailed for a few years, but eventually the main governing body of Northern Presbyterians rejected “essentialism” and decided that there could be no required list of essential points of the Christian faith binding on the Presbyteries. Quite literally, a successful candidate for ordination in the Presbyterian Church (and, with similar stories, in many other American Protestant denominations) could --- and many quite undoubtedly did --- believe the following:

The Bible is a flawed set of human documents – as decades of German theologians have proved – which may or may not tell an accurate story of a wonderful teacher named Jesus, whose death was a political fiasco that had nothing to do with atonement for what some people call “sins”. He was killed and died in the normal fashion, which sent his followers into a prolonged funk. However, a few weeks after his death his followers had an emotional, Kumbaya revelation that if they carried on his teachings, they could make the world a better place, just as if this rabbi were still with them. After this, they embellished their oral traditions of his life, as did those unknown people, decades and decades later, who collected and further modified those legends into what we call the New Testament. What this means is that modern, progressive Christians are called to set aside Biblical superstitions and work with other like minded individuals to harness the good that can come from rational, scientific, progressive thought and remake society along our best guess of what Jesus would be fighting for were he with us today: minimum wages; legal prohibitions against gambling, smoking, or drinking alcohol; creating a federal trade commission to promote fair competition among firm; and the alleviation of other “social sins.”

Lest you think I am exaggerating, Richard Niebuhr later summarized modernist, Social Gospel Christianity as “A God without wrath brought men without sin into a Kingdom without judgment through the ministrations of a Christ without a cross.” Or go online and read "Shall the Fundamentalists Win?" or, (on Google Books) Christianity and Progress by Harry Emerson Fosdick, the (Baptist) leader of the forces of “Progressive Christianity” and one of the most famous American pastors of the early 20th century.

Next up, what did the “Fundies” actually believe?