Cultural Capital

David Brooks, I suppose, fancies himself conservative for writing things like:

it is easier to talk about the inequality of stock options than it is to talk about inequalities of family structure, child rearing patterns and educational attainment. But the fact is... it’s not nearly as big a problem as the tens of millions of Americans who have dropped out of high school or college. It’s not nearly as big a problem as the 40 percent of children who are born out of wedlock. It’s not nearly as big a problem as the nation’s stagnant human capital, its stagnant social mobility and the disorganized social fabric for the bottom 50 percent... If your goal is to expand opportunity, then you have a much bigger and different agenda.

He is certainly correct up to a point: cultural capital matters -- big government policies that disregard that are doomed to fail. He, and others, however, imagine that there are other, smarter, big government policies which can, taking cultural capital into account, succeed.

Structurally, these arguments take some factor which is correlated to cultural capital (e.g.: home ownership, college education), latch on to any tenuous rationale arguing the relationship is causal (People take better care of things they own! College graduates have wider social networks!), push expensive government programs with inevitable unintended consequences that, equally inevitably, fail because wishful thinking cannot turn correlation into causation.

Von Hayek taught that the natural, evolutionary, processes of free societies tend to increase cultural capital. More traditional conservative teaching would accentuate the role played by community. In either case: A government which governs least expands opportunity best.

Social Science Bubbles

In his latest column, David Brooks acknowledges that 50 years worth of gigantic policies driven by flawed social science has produced disappointing results. He is, however -- like those perpetually convinced that the latest financial bubble is not a bubble at all -- absolutely convinced that the latest social science, this time, can produce effective policies.

At the center of his argument is research by Eldar Shafir of Princeton and Sendhil Mullainathan of Harvard that finds "scarcity produces its own cognitive traits." For example, if you are poor, you are more likely to know the starting taxi fare or make complicated trade-offs involving milk and orange juice. This imposes enormous cognitive demands, crowding out other cognitive function. He doesn't explain what policies follow from this insight, but the most obvious would be those freeing poor people from these difficult choices. He does re-iterate his belief that "we need to design policies around" the knowledge that "we each have multiple selves" that "emerge or don’t emerge" in specific contexts.

It is worth noting that generations of folk lore would contradict any policy conclusions of scarcity research: Those we celebrate as having lifted themselves from poverty, do so, largely, because, not in spite, of their acute -- even obsessive -- attention to the kind of questions Brooks is convinced are obstacles.

Above all, as previously argued, pre-scientific teachers well understood our complex and divided natures. For that reason, they encouraged beliefs -- in particular: virtue and personal responsibility -- that supported our better angels. There is no evidence that social "science" ever has, or will, improve on what it displaced.

Political Meta-Cognition

Polls that indicate many Americans believe Obama to be a Muslim have the media agitated and self-critiquing, in a way that similar polls indicating larger numbers of Americans believed W Bush complicit in 9/11 never did.

Lapsed conservative, David Brooks, a-historically, sees contemporary culture as the problem:

...[contemporary] culture places less emphasis on the need to struggle against one’s own mental feebleness. Today’s culture is better in most ways, but in this way it is worse.

The ensuing mental flabbiness is most evident in politics. Many conservatives declare that Barack Obama is a Muslim because it feels so good to say so... Issues like tax cuts and the size of government, which should be shaped by circumstances (often it’s good to cut taxes; sometimes it’s necessary to raise them), are now treated as inflexible tests of tribal purity.

To use a fancy word, there’s a metacognition deficit... Of the problems that afflict the country, this is the underlying one.

Strauss taught that there is a natural friction between philosophy (or "metacognition") and -- in particular, but not exclusively, democratic -- politics, ultimately symbolized by the political death of Socrates, the first philosopher. He was skeptical of liberalism on precisely this point: its faith in -- actually, its bet on -- the real possibility, or even the inevitability, of a rational, "enlightened", (democratic) politics. To his critics, this is evidence of his anti-democratic project.

On the other hand, there is no shortage of evidence -- these sorts of polls included -- of the correctness of Strauss' critique. Confronted like this, liberal commitment to democracy wavers:

Churchill said: 'The best argument against Democracy is a five minute conversation with the average voter.' That was England back in the 1940's. Tragically -in the USA of 2010 - that conversation would only need to be 30 seconds.....

Read carefully, Strauss provides an approach towards upholding democracy as it apparently is, and not as one may wish it would be.

Culturalism

The standard, if intellectually lazy, political conservative position on the Civil Rights Act is, as Ross Douthat describes:

No ideology survives the collision with real-world politics perfectly intact. General principles have to bend to accommodate the complexities of history, and justice is sometimes better served by compromise than by zealous intellectual consistency.

This was all that Rand Paul needed to admit...

A more full throated, conservative/libertarian defense is possible: To believe in Freedom is to believe that discrimination, by itself, without government support, cannot stand. If you and I have competing firms and you are unwilling to employ or serve a particular minority, that gives me sustainable competitive advantages -- wider access to talent and markets. In a truly free market, given those advantages, over time, my firm will crush yours. That, in practice, it does not always seem to play out this way, points to market warping Government intervention (today in the form of a failing monopolistic education bureaucracy and regulation-as-barriers-to-entry) sustaining discriminatory inequality, not to the limits of Freedom.

This argument, to me, seems politically viable as it re-frames the question from "Do you support discrimination or not?" (we all here agree not), to "Do you believe in Freedom?" It is naturally resisted by progressives for whom freedom is not found in, rather from, free and fair markets, and by politicians, for whom the sacrifice of principle is second-nature, but should be naturally embraced by, for example, conservative columnists.

That it is not, I think, reflects an increasingly unhealthy infatuation with an overly fixed view of culture. In their heart, I suspect, they believe that racial discrimination will persist even in free and fair markets, because, they believe, disadvantaged minorities posses and perpetuate an inferior culture.

The concept of "culture" is most properly politically employed to trace the limits of anyone's ability to meaningfully understand the deeply complicated webs that structure a society, and by extension, point to the dangers of hubristic government policy. But to believe in Freedom is to see in American history ample evidence of how malleable and ever-changing "culture" can be and how people, left to their own devices, lift themselves up.

Parents and Paternalism

According to the Times report, charter schools have not worked quite as designed:

Some advocates concede that the intellectual premise behind school choice — that in a free market for education, parents will remove students from bad schools in favor of good ones — has not proved true.

For example:

Even though the school did worse on the Ohio math and English exams than the average Cleveland public school, families did not flee Arts and Social Sciences Academy. On the contrary, enrollment has doubled in each of the past two years. It is a phenomenon often seen in academically failing charter schools when parents perceive them as having better discipline than district schools.

To some, this argues that "you need government accreditation to drive quality."

As switching schools is taxing on children, caring parents cannot be expected to do so for marginal improvement (eg: from one bad school to a slightly less bad school). On the other hand, it would be surprising if there really was data indicating that, presented the option between failing and succeeding schools, parents would not choose the latter for their children.

The case for Government paternalism, in the article, insinuates just that. While it finds these "almost all poor minority" parents generally unwilling to return children in floundering charter schools to public schools, they increasingly flee, the article implies, better public schools for charter schools. Parents like this cannot be trusted to make educational decisions for their children without oversight.

In truth, the evidence presented by the article is very questionable. For example, if the average Cleveland public school does better on exams than Arts and Social Sciences Academy, there are certainly still plenty of well below average public schools to drive A&S Academy's increasing enrollment.

More fundamentally, the evidence that parents are making improper decisions rests entirely on standardized tests. But, as educators are quick to remind us when applied to public schools -- standardized tests are flawed, if better than nothing, measures. In this case, there is a reasonable alternative measure: The judgement of parents, who have a deep abiding concern, and 360 view of the product, certainly embeds significant information standardized tests cannot capture.

Accusations of racism are too cheaply thrown around by all sides, but one cannot help but wonder if the views+choices of demographically different parents would be so casually disregarded.

Synthetics

One emerging consensus is that congress ban "synthetic" derivatives. As Senator Levin explains it:

As far as I'm concerned, we ought to eliminate the damn synthetics. To me, they don't serve any real purpose at all. They're just betting on something where they don't have a stake, they're not hedging legitimate risk. With other things, there's a limit. There's a finite amount of corn and wheat and mortgages. But these synthetics have no finite limit. So you literally have a gambling hall and the bets are unlimited. I'd get rid of them, and there will be an effort to get rid of them, and I will vote for it

While appealing, this argument is not true in full. Synthetic derivatives served some real purpose as real firms created demand for them. Even if they only served to encourage speculators, in doing so, they may well have served to decrease costs of hedgers of "legitimate risk". On the other hand, its easy to imagine that at some degree of abstraction, the synthetic derivatives do more harm than good and it, therefore, makes sense to have rules which, at least loosely, tie derivative trading to productive economic activity.

It must be said in all this that the idea that if the government doesn't understand the economic value of some activity, that value does not exist, is characteristic of command-, not free-, economies. In more free economies, private economic activity is not proscribed on the basis of perceived social value, rather it is regulated to the degree it threatens others. Trading in synthetic derivatives was only made threatening by the risk it posed to too big to fail/too big to manage firms. If Congress is, in fact, doing away with too big to fail, our traditional economic conceptions would argue for leaving synthetics alone.

Of Wall Street, Casinos and Derivatives

One common way of explaining "what went wrong", involves differentiating the Wall Street Casino, personified by excessive derivative trading, from the "productive economy".

This explanation fundamentally misunderstands the nature of free markets. Properly understood, free markets are Casinos. Every economic choice one makes -- of school, profession, employer, etc... -- is a bet. Above all, entrepreneurial activity -- the engine of a free market economy -- is bet-driven.

Imagine, for example, believing that parents in a particular city will increasingly demand environmentally friendly toys and therefore thinking about opening an environmentally friendly toy store. To do so would bundle a number of bets, first of all on the evolving demand for environmentally friendly toys, but also on demand for toys in general, on the real-estate, demographics and economy of a particular geographic area, on your ability to recruit, retain and motivate a staff, and so forth.

Underneath all the obfuscating mumbo-jumbo, derivatives are tools that allow free market actors to hedge their bets, which, by itself, facilitates economic activity.

To the environmentally friendly toys store example: If you believed strongly that demand for environmentally friendly toys will increase relative to toys in general, but are afraid that the market for toys in general may be about to collapse, you would choose not to open the toy store. On the other hand, if you were able to purchase a derivative that allowed your store to make money even if the market for toys in general collapsed, so long as the market for environmentally friendly toys collapsed less, you might choose to open that store.

Derivatives, like any security, are rendered dangerous when employees of institutions both too big to fail and too big to manage bet the house with them.

While no one, in our political arena, would claim to be opposed to free markets, one can see in various proposals, a frightening ignorance on the part of many, from both parties, who would "regulate" them.

How Dat

Saint coach Sean Payton wanted to win badly enough to take a pay cut to facilitate the hiring of Greg Williams.

Williams preaches aggressiveness, but not mindlessly so. He teaches players not to simply roll the dice, but to take advantage of being prepared -- "believe in what you see". On his game sealing interception -- the Saints' second in two games -- Tracy Porter said: "All week, we watched it on film... They went to it a lot. And when that route came, it was just like I was watching it on film."

This approach rubbed off on Payton. His signature call, the aptly named Ambush, was pure preparation-driven aggression.

Earlier in the season I contrasted one approach -- attributed to Belicheck's supporters -- of making coaching descisions according to a logic deaf to effect on players, with one that is first of all concerned with player and team development.

The former camp would have supported Jim Caldwell's choice to throw the last two games of the season. But that descision sent a clear message to his team that they were good enough to be champions without giving their best through every minute of every game. In some way it was also the message Bill Polian sent the team when he replaced a Hall of Fame coach with an unproven one.

There is justice, then, in the Saints victory. The tragedy is that Peyton Manning, who unlike the organization he plays for, takes nothing for granted, was not able to impose his values on his team.

Boston Tea Party

Watching her concession speech, there is certainly some truth to the Democratic spin that Coakley was a horrible candidate. Watching Brown's acceptance speech, he is certainly a talented politician.

On the other hand, Democrats are certainly fooling themselves when they proclaim that results, not process matter to the American people. To blame Coakley for over-confidently taking Christmas off when up by 20 points, is to blissfully ignore what else hit the news then.

While it does seem, from the exit polls, that health care was important to voters, it did not seem central to Brown's messaging. More central was the appeal to Reagan Republicans: "our tax dollars should pay for weapons to stop them and not lawyers to defend them". Brown was even supportive of waterboarding. His competitiveness amongst union members is a big part of the story.

That said, in the end, those who disregard the nationalization of the race, argue Coakley lost because the campaign was slow to respond to Brown's increasing competitiveness. Politico reports, that the DSCC Chairman "learned that the race was tightening... when independent pollsters returned results showing the race much tighter than Democratic polls had been portraying." In other words, the Democrat lost largely because Democratic pollsters saw their job as framing perceptions instead of providing timely and reliable information to their team.

The notion of professional politicians being fooled by their own spin, is off-putting if entirely consistent with the self-destructive path the Congressional majorities have chosen for themselves.

The Consequence of Mary Poppins

I was dragged, last night, to the Broadway production of Mary Poppins. While I can't complain too much -- it was all, or rather mostly, good, nostalgic, fun -- its financial/economic teachings are insipid.

The financial/economic teaching, of the classic movie appear mostly harmless. Bankers extolling the virtues of disciplined long term investing, and responsibly building credit, are mocked, but not central to the plot -- Mr Banks loses his job because he puts it before his family, and regains it when he shifts priorities.

The musical attempts to be sharper in its financial commentary. The central plot element illustrates that smart investing stems from focus on the human aspect and not the strength of the idea, or plan. The character of "the Holy Terror" is introduced (or rather resurrected from the books) to cast rigor and discipline as a traditional Disney villain.

The musical is consistent with the under-informed liberal narrative of the current financial crisis caused, to this view, by a self-involved financial world, wrapped in paper profits and complex derivatives, that lost touch with the real, "human" world around it.

The reality, of course, is that the most direct cause -- government policies promoting the illusion of home ownership by encouraging loose lending -- was a focus on the narrow human aspect at the expense of the rigor of the plan.

More fundamentally, I have previously posted my view:

In the end, the strength of an economy boils down to the aggregate willingness and ability of people to do things valued by other people. And underneath all the awful decisions made by all sorts of economic actors, lies a culture that increasingly devalues the painstaking work that goes with ordinary productivity.

This devaluation is something the writers of musical -- and to a somewhat lesser degree the movie -- strangely sought to encourage.

The good news is that there does appear to be some growing recognition, that parents hurt their children when they withhold discipline.

Opposite Marriage on Trial

In his opening statement, Ted Olson promised to prove:

1. The importance of marriage.
2. The "grievous harm" worked by denying the right to marry.
3. There is "no good reason" to deny homosexuals this right.

The first two items are red herrings. Whatever the tangible benefits of marriage, they certainly come far more from the commitment of the couple than the tax implications. The notion -- suggested by Olson -- that a couple cannot fully "share their dreams" with each other without state sanction is silly (and mildly ironic given his backers).

The true injury caused by Prop 8 is symbolic. As well described by Olson:

All it does is label gay and lesbian persons as different, inferior, unequal, and disfavored. And it brands their relationships as not the same, and less-approved than those enjoyed by opposite sex couples. It stigmatizes gays and lesbians, classifies them as outcasts, and causes needless pain, isolation and humiliation.

On the other hand, state sanctioning of gay marriage causes similar symbolic injury (stigmatization) to adherents of traditional religion. Decision via judicial rather than political process aggravates the injury as one's voice is, at least, more fully heard in a political process.

Reading Olson's statement more carefully, the injury he describes is inflicted less by the denial of state sanction as much as by the societal mores that support the status quo. The majority of Americans, as expressed by their votes, consider homosexual "relationships inferior and less-deserving of respect and dignity," a view that, if Roe v Wade is any guide, judicial interference will only harden. In the end, then, what plaintiffs seek is not to remedy their injury as much as the compensatory satisfaction of asserting their political power over the majority that dis-respect them.

In a prior post, I expressed agreement in principle with the third item. Or rather, that there appears no rational reason to oppose sanctioning gay marriage. Opposition is rooted in accepted tradition.

What is on trial, then, appears to be whether or not, in the eyes of the law, traditional values constitute a "good reason".

The Ladies and the Tiger

Tiger "mistress", Jaimee Grubbs is not without a conscience. In a conversation with extra TV, she "couldn't describe how remorseful" she was to have hurt Elin the children. None-the-less, she does not feel all that bad as, she says, "If it wasn't me, it was going to be other girls."

Traditional teachers advanced standards of behavior -- classical virtue, religious righteousness -- to be adhered to for their own sake. Von Hayek observes that this traditionally morality is everywhere being replaced by "social conscience" -- being guided by awareness of the effect of our actions on others.

Von Hayek critiques this new thinking on its own terms. He argues that traditional moral rules are, themselves, social phenomenon -- evolving societal understandings, required as people cannot possibly fully understand the complex consequences flowing from their own actions. To Von Hayek, true social conscience demands respect for traditional rules.

Pragmatically -- as illustrated by the Prisoner's Dilemma -- any consequence-driven social morality seems unlikely to be ultimately upheld. In the end, whatever we do, other people will pollute, deal arms, sell predatory mortgages, mislead on their mortgage applications, separate fools and their money, sleep with married billionaires, etc, so why should we abstain? The Obama Administration has, in fact, played to this lesser angel, in the stimulus debate, suggesting critics opt out.

Tiger, of course, has no similar excuse for his choices. He has, thankfully, not yet attempted to justify them. That said, it is hard for us to simply condemn him, knowing that few men could withstand the temptations he faced. By some measure, his sin, so to speak, was not being a saint. Or, perhaps, his true mistake, given his place in life, was aspiring to-, thinking he could-, be a father and a husband.

Fourth and Two

Bill Belichek widely admired (or, depending on one’s perspective, reviled) as a cold-hearted football coaching genius, was widely attacked for, against conventional wisdom, choosing to go for a fourth and two from his own 29 and losing the game. Two New York Times blogs (here and here) defend the decision, calculating that he made the statistically correct decision for the team, if not for his career. Bill Simmons undermines that statistical argument by noting that the assumed odds of making a fourth and two are meaningfully different than converting a two point conversion.

Given the ultimate fuzziness of the statistical argument, whether one condemns or defends Belichek’s choice would seem to reduce, more or less, to whether one prefers to defer to, or align with, the genius coach or the accepted practice.

It is worth understanding that beneath the presented alternatives lie divergent sets of values. The accepted practice, in the end, argues that the Patriots should not have beaten themselves. If Indy was able to drive seventy yards in two minutes for the touchdown, they deserved the win. To this way of thinking, the job of a coach is not as much to directly give his team the best chance of winning, as it is to put the best team on the field. Belichek supporters disregard the testimony of former players – since, to some degree, supported by the Patriots subsequent performance -- that Belichek’s choice came at the expense of the product-on-the-field.

In the end, Belicheck likely did not have finely tuned statistical analysis on hand. The call more likely came from his gut. As he described it, he saw a chance to win and took it.

Shared Intentionality

From the Science Times: We May Be Born With an Urge to Help

The article opens by claiming biologists are overturning dour traditional -- that of philosophers, theologians, and parents -- notions of human nature. They have found that human children are naturally more helpful, co-operative and social than chimpanzees.

The article centers on a book by a Dr Tomasello who teaches that children develop "shared intentionality", described as the propensity to abide by, and enforce, social norms, which he believes parents ought reinforce. To Dr Tomasello -- a co-director of an institute for evolutionary anthropology -- shared intentionality evolved very early on -- it is handy when hunting -- and is a foundation of human culture.

The article then quotes one Dr. de Waal, a primatologist, who teaches that humans are naturally empathetic -- only psychopaths are not -- and therefore the humaneness of societies is, thankfully, ground in biology, not "the whims of politics, culture or religion."

The article notes (in an apparent non sequitur) that "experiments have shown that people will reject unfair distributions of money even it means they receive nothing" and, more relevantly, is fair enough to acknowledge that social norms may, in part, be enforced negatively and that warfare is also an expression of this human capacity for co-operation. It concludes with one final lesson from Dr. Tomasello that "we are both selfish and altruistic at the same time."

This final lesson is, of course, very consistent with the traditional teachings that the article claimed biologists were overturning.

Above all, the article is wonderfully self-referencing. Enforced social norms apply as much to thought as to behavior. Without them, those who easily imagine the roots of human nature as adapted to prehistoric lifestyles would have less difficulty understating how our traditional political, cultural and religious structures might be adapted to human nature (and, in turn, human nature to them). More-over, if there is, here, a new way of thinking upending previously established norms, it is brought about by people raised to rebel against any naturally developed shared intentionality.

Monoculture

One recurring trope on this blog is Von Hayek's teaching that government ought to garden more and sculpt less.

I was watching The Botany of Desire on PBS, based on the book by Michael Pollan. The film argues against monoculture. According to the film, people want, for example, their french fries, to always taste in a similar manner, what Pollan labels "monoculture-on-the-plate". The film faults free markets for too efficiently meeting this desire via "monoculture-on-the-farm". In a state of nature, crops evolve immunities to pests. In monoculture agriculture, where biological diversity, and so natural adaptation, is suppressed, pesticide is required in increasing quantity. This is expensive, creating demand for genetically engineered crops. As pests, unrestricted by monoculture, continue to adapt, a little genetic engineering creates the need for ever more genetic engineering. All to replace, but not really improve, a function that nature more respected well serves.

It is worth noting that diners tend to choose diversity-on-the-plate. The closer the food people eat is to the farm, the greater the economic pressure for diversity-on-the-farm. The economic pressure toward monoculture stems, in part, from consumer preference for the bounty of technology and, in part, from monoculture in the markets.

The analogue between all this and economic/financial-services regulation is self-evident, if likely missed by folks like Pollan given that, within our politics, evolution and free markets are placed in opposing corners. Von Hayek teaches that Darwin actually liberally applied ideas from Smith. Conceptually and historically, Von Hayek would seem right. The competing political alignment points to the limit of his otherwise brilliant work.

SuperFreakonomics

The authors of SuperFreakonomics, Steven Levitt and Stephen Dubner, make what is, at face, a straightforward economic claim: Faced with a serious problem (global warming) and given the option of two sorts of solutions, one (geoengineering) which costs an order of magnitude less then the other (carbon emission reduction), why spend more?

Some argue that there are not really two sorts of solutions, that geoengineering is unlikely to practically work. With admitted ignorance of the technology, I think -- at this point -- its fair to observe that changing the behavior of billions of people, and against many of their narrow, short-term, interests is not entirely practical itself.

The scientist most relied on by L&D, Ken Caldeira, doesn't share their conclusion, in part, for a different reason: he apparently believes carbon emission is "essentially immoral" just like "mugging little old ladies". L&D view this moralistic, as opposed to analytical, approach to be, in some form, religious.

While L&D do take perverse joy in challenging traditional moral assumptions -- eg: pimps up -- their analysis is not simply amoral. Their claim is ultimately Machiavellian: better, more moral, outcomes, can be realized through cold-hearted, amoral, analysis than by adherence to pious orthodoxies.

The traditional, religious, understanding, shunned by all sides in this debate, is that people generally act moral less out of analytical, or empathetic, judgments of right and wrong, than out of force of habit guided by the weight of culture and tradition. Where this weight is removed, people have a frightening tendency to, for example, murder little old ladies and mug defenseless children.

It is hard, then, to imagine that the behavior of billions of people will be peacefully changed to meaningfully reduce their carbon footprint without harnessing the weight of culture and tradition to attach a notion of something like sin to carbon emission.

Behind the Numbers

Of all the numbers trending in the GOP's favor perhaps the most signifigant this: In April 2008, 75% of Independents believed there was solid evidence for Global Warming. Today only 53% do.

One of the important emerging political trends is increasing Democratic competitiveness in the Mountain West: Three 2004 Mountain Red States turned Blue for Obama, and a fourth was friggin close. In April 2008, the region polled 75%-21% believing in global warming. Today the region -- at 44% - 42% -- is the most skeptical in the nation.

Another, similar trend involved college graduates. In 2004, their vote was split, in 2008 they went 53% - 45% for Obama. In April 2008, 75% of Independent college graduates believed in Global Warming, today only 56% do.

In both cases, a strong contributor to increasing Democratic support was the perception that the Republican Party, personified by W & Sarah Palin, stood, blinded by, or hostage to, ideology and theology, increasingly anti-science and even anti-thought. The Democrats with increasing success portrayed themselves as the thinking person's alternative. The success of this perception was reflected in the public trust for Global Warming science vouched strongly for by Democrats and questioned, with equal fervor, by Republicans.

Republicans have done precious little in the past year and a half to counter the perception that they couldn't think less. In these numbers lies rapidly falling public faith in the reasonableness of Democrats.

Kwame Anthony Appiah

In his most recent column, David Brooks quotes Princeton professor Kwame Anthony Appiah (leaving some ambiguity as to whether he shares the opinion) as distinguishing between the "philosopher's" view of possessing character and virtue and the "psychologist's" view of being a "community of competing selves" which "are continually popping in and out of existence... have different desires, and they fight for control - bargaining with, deceiving, and plotting against one another." This latter view is propped up by "a century's worth of experiments" which show people often behave differently in different contexts.

Arguing against a straw man is one tell tale sign of a weak claim. Classical thinkers, of course, even without the benefit of psychological "experiments", understood well our divided and competing natures (after all, they were people too!). They taught stories of heroes with character and virtue, not to raise awareness of our true, or fixed, nature but to encourage our better angels. Their central insight was that behavior is largely habitual and habits can, largely, be developed.


Stripped, then, of its scientific pretense, this "psychologist" critique is merely functional. It offers -- actually, sells -- greater self-satisfaction. The traditional teaching promotes better behavior.

From a societal perspective, the classical view is obviously more beneficial. Which is, in the end, to be expected of a teaching that has passed the test of time.

A Radical Proposal

As noted here previously, one of the true causes of systemic risk in our financial system is the FDIC. A bank account is, simply, an unsecured loan to the bank. Because accounts are "insured" by the FDIC, account holders are not as concerned about banks engaging in risky behavior as unsecured lenders would otherwise be. In theory, the FDIC should be so concerned and could set appropriate terms. In practice, of course, well, here we are.

On the other hand, without FDIC insurance we face an increase risk of bank runs, which can cause liquidity crises, and so threaten the economy. Even without FDIC insurance people seeking return on their savings would still put their money in banks, it would simply be less "sticky" and therefore more systemic-ly risky.

Finally, our Government is a massive borrower, largely from foreign sources. At this point, realistically, we carry debt that can only be rolled, not -- ever -- be payed back.

Given all this, the sensible thing -- to me -- would seem to be the Government acting, itself, as a retail bank. Instead of holding accounts that are, in effect, loans to Chase, subsidized by the government, individuals should be able to open accounts that are, in effect, loans to the Government. Private banks could play a customer-facing/administrative role as a DMV-style customer interface would kill the project. Better, I think, to finance as much of our debt in this manner as possible, than borrowing more from abroad. Once this system is set up, FDIC insurance could be wound down in a reasonable manner (eg: lowering the amount covered by a certain percentage annually).

The main public-interest negative I can see in this is that it in its structure acknowledges the permanence of our national debt. But that is simply facing reality.

Facing a different sort of reality: Too many vested interests make too much money off of FDIC insured accounts for this sort of reform to ever have a chance.

Serving the FDIC's Interest

In a recent speech, FDIC chair, Sheila Bair laid our her vision for financial services regulatory reform.

She starts from the common-sense premise that "we need an end to the too big to fail doctrine". She proposes a "mechanism for the orderly resolution of these institutions similar to that used for FDIC-insured banks." She argues for extending this mechanism beyond the large bank holding companies to smaller bank holding companies, hedge funds and insurance companies. She expressed support for the international initiative towards the development of wind down plans providing they "be developed in cooperation with the resolution authority". Finally, she also proposes considering "limiting the claims of secured creditors to encourage them to monitor the riskiness of the financial firm." She believes that short term secured borrowing "may encourage greater fragility in the financial markets" and that taking money from secured creditors and giving it to general creditors would serve "to stem any systemic risks."

The most striking feature of her analysis is that, to her, the "too big to fail doctrine" is false. That with a structured resolution process no firm is too big to fail. As noted previously, an FDIC-style resolution process works well when disposing a relatively tiny amount of assets into a large market. It can not be reasonably expected to work as well disposing a more meaningful proportion of assets in market.

That large and/or interconnected companies should maintain "living wills" is an almost inescapable take-away from the Lehman bankruptcy. Mandating that any such company (including non-financials) maintain active shareholder and creditor approved pre-packaged bankrupcy plans appears a no-brainer. Bair, rightfully, notes that such plans can improve systematic resilience by highlighting risks and dependencies. More questionable is her insistence on regulatory agency participation in, or rather -- let's not kid ourselves -- control of, developing these plans. Without regulator intervention, this sort of rule would create structural pressure against firms too big or complex to fail. The bigger and more complex a firm is, the more difficult it will be for shareholders and creditors, by themselves, to reach agreement.

Demanding that smaller firms that could be otherwise be reasonably wound down through existing mechanisms maintain "living wills", as Bair appears to support, is the sort of regulation-as-barrier-to-entry that larger firms love.

At first glance, her argument to mandate haircuts for secured creditors is unequivocally idiotic. If shareholders, regulators and unsecured creditors cannot together adequately monitor the riskiness of a firm, how could secured creditors? How does taking money from secured creditors and giving it to unsecured creditors stem any systemic risk?

Most risible is the suggestion that secured lending "encourages more risky behavior." Bair surely knows this is false: Systemic risk is primarily caused by unsecured rather than secured lending; A firm's secured borrowing cannot get out of hand, as a firm has finite assets to borrow against. If one only lends securely, one is not put at risk by a borrower defaulting. In truth, unsecured borrowing is also, generally, a check on excessively risky behavior as lenders demand higher rates from firms perceived as more risky. The financial system did not work this way because the government subsidized unsecured lending: In the first instance via the implicit "too-big-to-fail" guarantee, but also via the FDIC itself -- a bank account is nothing more then a unsecured loan to the bank.

Her true motivation appears clearer when one considers that the FDIC is running out of money. It would sure benefit from being able to seize 20% from secured creditors of banks it takes over. Similarly, to argue for an FDIC-like resolution process to be expansively applied is, between the lines, to argue for a dramatic expansion of FDIC authority. It should be no surprise that Bair argues as forcefully for regulation in her agency's interest as she opposed regulation against her agencies interest. It is unfortunate that the regulator cannot be relied on to, instead, defend the public interest.