On Trump and Hitler, from the comments

The commenter writes,

Should Trump win the election, he will take it as proof of his infallible instincts. How does an infallible man behave in a position of power? A bit like Hitler, no?

I never defined authoritarian, but if I had I would come up with something close to that. Let me define an authoritarian as someone who believes that being in a position of power entitles that person to make policy decisions by fiat. Further thoughts:

1. The nature of the Presidency, as an elected office occupied by a single individual, lends itself to authoritarianism. It inspires awe among journalists, worship among citizens, and sycophancy among aides. It selects for narcissists.

2. I think that in the United States, the “Overton Window” has moved mostly in the authoritarian direction over the last century.

3. Woodrow Wilson very much wanted to go in the authoritarian direction, and our entry into World War I gave him a bit of an opportunity to do so. Calvin Coolidge went in the other direction.

4. FDR moved the U.S. in authoritarian direction. Ike tried to go in the other direction.

5. On domestic policy, I believe that Lyndon Johnson was not authoritarian, in that he played by the existing rules. However, with Vietnam, he set a precedent for deception and unilateral warmaking.

6. Richard Nixon unintentionally caused a reversal in authoritarianism. Congress impeached him and also tried to (re-)assert authority over the budget process.

7. Because Barack Obama is convinced of his own absolute moral righteousness, he acts as if his instincts were infallible. Thus, I believe that he meets the commenter’s definition of authoritarian. Of course, those who share Mr. Obama’s outlook woulds say that he has merely responded appropriately to Republican obstruction.

8. By my definition, Mr. Trump speaks like an authoritarian.

9. However, I am more worried that the the country will move in authoritarian direction if Mrs. Clinton wins. Many in Mr. Trump’s own party are opposed to his authoritarianism. Not so with Mrs. Clinton and her party. She is Nixon without anyone to play the role of Howard Baker.

10. Hitler was more than an authoritarian (by my definition). He used murder and physical intimidation to try to eliminate all opposition. I am not worried about either Mr. Trump or Mrs. Clinton doing that.

Larry Ball Gets Pushback

From Stephen G. Cecchetti and Kermit L. Schoenholtz:

There is certainly room for debate, but we see the question of whether Lehman’s net worth was negligible or sharply negative as ancillary to the real issue. In important ways, lending to a bank of doubtful solvency is little different from lending to one that is certainly so. It will continue to put other institutions, and therefore the system, at risk. In this case, central bank lending to Lehman, an institution widely thought to be bankrupt, would have tarnished everyone else.

Pointer from Mark Thoma. My thoughts:

1. For those of us inclined to agree with this point, an implication is that Citigroup should have been allowed to fail. In fact, the whole bailout policy was misguided. Remember how some banks were forced to take bailout funds even if they did not want them? The idea was exactly to “tarnish everyone else” in order to avoid tarnishing the insolvent banks!

2. Regardless of the merits of letting Lehman fail, one of Ball’s main points still stands. That is, Bernanke and others have been lying by claiming that the decision was based on legal considerations. Ball did not find any evidence that the Fed made a judgment based on such considerations. In fact, it appears that it was not the Fed’s judgment at all, and instead Hank Paulson was calling the shots.

The Privatization Opportunity

Chris Edwards writes,

Congress imposes a rigid monopoly on the nation so that we can continue to receive mainly “junk mail” in our mailboxes six days a week — while 205 billion emails blast around the planet every day. Retaining special protections for the government’s old-fashioned paper delivery system makes little sense.

He suggests privatizing the post office, as well as Amtrak, the TVA, government buildings, and many other government “businesses.” He does not even mention communications spectrum, much of which is restricted to government use and is wasted.

I found the paper depressing to read, because the case he makes is so compelling and the likelihood that privatization will take place appears to be so close to nil.

Where are the Servants?

I asked this question five years ago. Recently, on Facebook, Nathan Smith wrote,

Consider the following hypothesis. Once upon a time, there was a notion of “respectability.” Society, represented chiefly by the gossip of housewives, imposed honesty, chastity, and maybe some degree of piety, not so much by force as by public opinion. And I think that mere “respectability” qualified one for certain jobs, such as child care, handling money, personal service, etc. Nowadays, tolerance and the Sexual Revolution have abolished the category of respectability, but there are still a lot of jobs where people don’t need special skills but do need to have good character, so some filter is needed. So education has become the new respectability. . .A whole social stratum finds it hard to get access to jobs they could do, because our nonjudgmental society refuses to circulate the information about people’s characters that potential employers need, and the substitute for respectability, education, can’t be universal because, while everyone could be chaste and honest, many don’t have the academic ability to succeed in college, and/or can’t afford it. So personal service, which almost vanished during the economically egalitarian mid 20th century, but would be well worth reviving today, doesn’t make a comeback for lack of an identifiable class of respectable people whom the rich would allow to be present in their homes. . .

My thoughts.

1. There are a lot of jobs that involve personal care. Elder care and child care are what I have in mind.

2. What Smith calls “character” might be described as conscientiousness.

3. I do not get the impression that the personal care market fails in any dramatic sense. That is, I do not get the impression that there are many conscientious people willing to take jobs in personal care who are unable to find such jobs. If such a market failure were to present itself, it could be solved by entrepreneurs forming companies to vet and guarantee the quality of individual providers of elder care and child care.

4. Not that Smith was responding to my original post, but there I was suggesting that the high concentration of wealth would imply not so much that every middle class family should have personal servants but that rich people should have hundreds or thousands of personal servants. I think it is an instructive issue to ponder, but I have not come up with any new theories in the past five years, although I would add that the “supply problem” might include the fact that there are many people who are not conscientious.

How Authoritarian is Donald Trump?

Reviewing the written version of Donald Trump’s acceptance speech, Matt Welch writes,

here are seven* lines that drip with alarming levels of authoritarianism: [Welch proceeds to list the lines]

My question is, compared to who?

Compared to some mythical libertarian ideal, Trump is an authoritarian, but so is every politician in the two major parties. In fact, I am pretty sure that you could find a speech by President Obama with more alarmingly statist rhetoric and even more of what Welch calls Great Man rhetoric (it is not as if Mr. Obama is shy about using the word “I”).

My Facebook feed is filled with comparisons of Trump with Hitler, which I find unconvincing. Hitler was the leader of a very large paramilitary organization. When Hitler was appointed chancellor (he was not elected), his paramilitary organization went about killing and intimidating men, including other Nazis, that Hitler wanted removed as threats. The Nazis in the Reichstag (Germany’s parliament) physically intimidated their colleagues into approving a law that essentially gave Hitler dictatorial powers.

Donald Trump has fervent supporters, but they are not an organized paramilitary. He has neither the plans nor the means to carry out any plans to alter the Constitution to establish a dictatorship.

Many of us believe that Mr. Obama violated the spirit of the Constitution and took Presidential power too far. For example, waivers and subsidies under the Affordable Care Act were created administratively rather than by Congress. Another example would be his decision to not enforce immigration deportation.

Some of us believe that the appropriate response to Mr. Obama is to return to the spirit of the Constitution. That view appeared to be represented in the Presidential race by Rand Paul and Ted Cruz. Instead, Trump supporters seem to be saying that they want to respond with a power-aggrandizing President of their own. I enjoyed Jay Nordlinger’s quip that what Trump’s acceptance speech needed was a Republican response. I still plan to vote for Gary Johnson.

It is fair to say that Mr. Trump is further from libertarianism than the other contenders for the Republican nomination, but I think to go beyond that is hysterical. I am yet to be convinced that he is more of an authoritarian threat than what we have already experienced, or even that he is a more authoritarian threat than his opponent.

As Reihan Salam points out, Trump’s language fits my model of the conservative civilization-barbarism axis, even though his platform has little in common with recent conservative policy positions. I think it is that intense civilization vs. barbarism tone that leads people to see him as authoritarian. But to a libertarian, an intense oppressor-oppressed tone also comes across as authoritarian.

Paulson, Bernanke, and Lehman, continued

James B. Stewart writes,

One of the more intriguing questions Professor Ball tackles is why Mr. Paulson, rather than Mr. Bernanke, appears to have been the primary decision maker, when sole authority to lend to an institution in distress rests with the Fed. The answer, he suggests, is to be found more in psychology than data.

“By many accounts, Paulson was a highly assertive person who often told others what to do, and Bernanke was not,” Professor Ball writes. “Based on these traits, we would expect Paulson to take charge in a crisis.”

Pointer from Mark Thoma.

Stewart, who did his own reporting on the events, supports Professor Ball’s view. My reading of Paulson is that he is a high-testosterone guy. My reading of Bernanke is that he isn’t. I have always viewed Paulson as the great villain of the financial crisis response. I do not believe that any of the bailouts were justified, and I view him as the driver of the bailouts.

Suppose you take a Bagehot view, which is that in a crisis the central bank should lend freely, on good collateral, at a penalty rate. In the case of Bear Stearns, my recollection is that the Fed took on crummy collateral. Ball claims that Lehman had good collateral that the Fed could have lent against.

Finance, Fragile, and Anti-Fragile

Tyler Cowen writes,

The first factor driving high returns is sometimes called by practitioners “going short on volatility.” Sometimes it is called “negative skewness.” In plain English, this means that some investors opt for a strategy of betting against big, unexpected moves in market prices. Most of the time investors will do well by this strategy, since big, unexpected moves are outliers by definition. Traders will earn above-average returns in good times. In bad times they won’t suffer fully when catastrophic returns come in, as sooner or later is bound to happen, because the downside of these bets is partly socialized onto the Treasury, the Federal Reserve and, of course, the taxpayers and the unemployed.

America’s mortgages are structured so that the lender-investor is going short on volatility. If interest rates do not move much, the lender does well. If home prices do not move much, the lender does well. But if interest rates rise, the lender is stuck with a below-market asset. And if home prices fall, the lender gets stuck with a house with a value below the amount of the loan.

Tyler is saying that for the typical financial market player, going short on volatility is a great personal strategy. When it works, you get a nice salary and bonus. When it fails, someone else–a shareholder, a taxpayer–bears much of the cost.

If you know your Nassim Taleb, you will recognize going short volatility as “fragile,” with the opposite strategy as “anti-fragile.”

I wonder if stock market investment is one of those fragile strategies nowadays. You can make money year after year going long the market–until it stops.

Anyway, Tyler argues that the changes in the income distribution of recent decades

a) have been focused at the top 1 percent, not between the 99th percentile and the lowest percentile

b) been driven by finance

c) and within finance have been driven by these short-volatility, fragile strategies.

He is pessimistic about regulators’ ability to stop the short-volatility strategies. I think he is wise in that regard.

Religious Fervor and Demography

Jason Collins reviews Eric Kaufmann’s Shall the Religious Inherit the Earth?: Demography and Politics in the Twenty-First Century.

To give a sense of the power of this higher fertility, the Old Order Amish in the United States have increased from 5,000 people in 1900 to almost a quarter of a million members. In the United Kingdom, Orthodox Jews make up 17 per cent of the Jewish population but three-quarters of Jewish births.

…Kaufmann’s case worries me more than tales of government deficits due to demographic change. Even if you assign a low probability to Kaufmann’s projections, it provides another strand to the case that low fertility in the secular West is not without costs.

The numbers cited about Orthodox Jews in the UK struck me as fishy, based on what I know about the U.S. Suppose that there are 80 non-Orthodox Jewish women and they each have one child (a really low fertility rate), for a total of 80 non-Orthodox Jewish births. Then suppose you have 20 Orthodox Jewish women, and they have to account for 3/4 of all Jewish births, which means that they need to give birth to 240 children, or an average of 12 children each. There are in fact several sub-groups within Orthodox Judaism, and there are some sects in which families of that size are common, but there is no way that the average family size of all Orthodox Jews is 12 children.

There is a larger objection that I have, which is that the high growth of the fervently religious starts from a low base. Assume that non-fervent women have one child each, and fervent women have ten children each. If you start with 999 non-fervent women for every fervent woman, it is going to take quite a few generations for the fervent to “inherit the earth.” Meanwhile, much else will change.

[UPDATE: In a comment, Megan McArdle points out that the arithmetic in the above example leads to the fervent reaching parity in 3 generations, and then soaring to dominance thereafter. But as she points out, the discrepancy in fertility between the fervent and non-fervent is not as wide as in the examle. And if nothing else, I can fall back on “much else will change.” By the end of this century, we could very well see dramatic changes in medical science, including reversal of aging and cloning.

Daniel Yergin on The Great Regulation

He writes,

Voters under 30 were either very small or not yet born when the Berlin Wall came tumbling down in 1989. They have no memory of communism—what it meant in terms of poverty, thwarted opportunity and political repression. Closer to home, few Americans recall the likes of the now-defunct Civil Aeronautics Board, which not only set the price of an airline ticket but regulated the size of the in-flight sandwiches. What millennials do know is what happened in 2008—and for many it serves as an indictment of the market system.

The people want regulation and they are getting it–good and hard, as Mencken would say. The result?

if you want lifetime employment, go into compliance.

Thanks to a reader for the pointer. I used to say that if you want to start an automobile company in this country you need a handful of engineers–and at least 1000 lawyers. Starting an independent medical practice is getting to that point.

There may be natural forces at work that cause industries to become dominated by a few large players. But there is also the unnatural force of regulation.

The Great Regulation

Guy Rolnik writes,

Looking at both intangible investments and political activities to explain the 20% rise in Tobin’s q in the U.S. since 1970, a new working paper by James Bessen from Boston University concludes that activity associated with increased Federal regulation is the most important explanatory factor, especially after 2000. In fact, spending on R&D and other intangibles has fallen relative to conventional assets since 2000.

Noting that operating margins for these firms have also risen since 1990 by over 2% in aggregate, Bessen’s study also found that variables associated with regulation and corporate campaign contributions account for about half of this increase.

Pointer from Mark Thoma. The article is a long interview with Bessen, interesting throughout. For example,

In 2011 a new patent law passed, the Leahy-Smith America Invents Act. This patent law was essentially negotiated between a small number of large pharma companies and a small number of large tech companies.

…all of a sudden you have a whole lot of small businesses in every state in the country who are now upset about getting sued for patent infringement over these very ridiculous claims.

Once again, I wonder how much of the trend toward industry consolidation and loss of dynamism in the past twenty years is due to regulation and rent-seeking.