Against the Fed

One of the most bizarre things about the economics profession is how much the Federal Reserve is simply taken for granted in the US economy. The ostensible purpose for its creation in the wake of several financial panics was to stabilize the economy. Its track record on that account has not been very good. As I understand it, what stabilization there has been can largely be attributed to other factors, particularly globalization and the maturation/diversification of the US economy. (If you have four sectors and one goes under, you’re hurting. If you have forty and one goes under, it’s not as bad.)

Most economists are of the mind that the Fed can be a useful tool for certain stabilizing purposes, and in any one-off investigation that may be the case. However, on net it seems like a bad bargain to me. The history of central banking worldwide has been one of special interests, favoritism, unfree markets, and government overreach. The Fed continues this inglorious tradition.

The interest rate* is a price. We know that government price-fixing is a fool’s errand in other areas, but in this one somehow they get a pass. Having one central agency determine what the interest rate will be cannot possibly be as efficient as the alternative. How does the Fed know what it should be?

Beyond the Keynesian framework that dominates the economics profession right now, which gives a large role to government policy makers, I suspect the other main reason for widespread support for the Fed is simply that it has existed for a long time. Most economists, like most people, are not very creative. They tend to think of tweaks for systems rather than alternative systems. On top of this, groups with a vested interest in the system as it currently is have a big incentive to shame creative heterodox ideas. These three reasons make it that much more difficult for a real ideological challenge to the Federal Reserve System to circulate widely.


* There is not actually one simple interest rate, but for the purposes of this discussion we can gloss over that.

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The view of history as the unfolding of a grand scheme with its corollary of man’s responsibility to his history, and not the momentariness of the Greeks, has prevailed in Europe. Its unquestioned acceptance was due not only to the Judeo-Christian tradition but also to that of Rome, which had a sense of history and of national destiny like that of the Hebrews and demanded a similar surrender to national aspirations. – Moses Hadas, Hellenistic Culture: Fusion and Diffusion, p. 55

He could easily have added that this view has prevailed in the United States, and for the same reasons that the ancient Romans favored it. The view has strengths and weaknesses, but we only recognize them when we compare it with other views of history.

Overall this is one of the most enlightening books about the ancient world that I have ever read, and I recommend it highly. The basic idea is that after Alexander’s conquests, classical Greek culture radiated eastward where it mixed with local cultures and flowed back into Europe, largely via Rome. The consequences for philosophy, art, literature, and religion were world-changing.

The benefit of studying abroad

One of the more valuable educational experiences of my life was the semester I spent at La Universidad Católica in Montevideo, Uruguay. It was a whole lot of fun, but beyond that it was very educational. In terms of the classes I took, it was so-so. Two of my classes were great, one good, one not so good, but this was not the point. The takeaway overall was learning the worldview of people outside the United States.

I lived in Germany when I was in second grade, but I went to the US school on Bitburg Air Base, and I was too young to really grasp it all anyway. Since then I only lived in the US. Being from the border and having a Mexican stepmother I had some understanding of Mexico, but this too was through the US filter. Only when I was in Uruguay could I really see the world through the eyes of somebody else.

There were a few reasons I picked Uruguay. For one, I had always wanted to study abroad, it seemed like an adventure, but there was always some reason why I couldn’t for the coming semester. After I transferred undergraduate schools I felt like there was no reason not to go. I spoke bad Spanish and wanted to get better, so I decided it would be South America. At the study abroad office they gave me the list of choices. Uruguay was negligibly less expensive than Argentina or Chile, but what captivated me about it was that to me it was just about as far away from home as I could get. I knew nothing about it except that they spoke Spanish. Perfect.

I fell in love with the place. It is a small country with practically no influence on the world scale, and the people have no national mythology about how their country is better than everyone else’s. It is sometimes referred to as the Switzerland of the Americas. It is a very cosmopolitan Latin culture, and really has a lot of the best features of a lot of places.

There’s no one thing that can encapsulate the experience—if there were, I would already have had it before I went. It’s a lot of little things. People there know about the US and are generally sympathetic to it, but it’s just one country among many that interest them, and not the primary one. In Uruguay (and Argentina as well) they consider themselves very European, so European countries are the foreign ones they like the most. To people in the US, it’s all too easy to think of our country as the center of the world. The world is much larger for them.

History is taught there not as a long prelude to the founding of the United States and thereafter as the story of the United States on the world scene, but as a more complicated story with many parts. Even regional history deals with the other countries as full partners. Granted, Uruguay is a small country and interlocked with its neighbors far more than the US did, so it’s not that they consciously chose a better way to teach history. That’s the beauty of it, really: there’s no way somebody from the US could learn history that way unless he or she went abroad.

Since I’ve been back I’ve noticed much more keenly how little international relations in the US is treated as actually international. There is the US, and there are a bunch of tools that can be used for our benefit or against it. As it turns out, foreigners are people too. They have the same concerns and pleasures as we have, and deserve our consideration. It’s easy to agree in the abstract, but it’s in your bones when you’ve lived among them.

I recommend studying abroad for as many undergraduates as possible. It becomes much more difficult to live abroad for a spell once you have a lease, a job to go to, and all these other adult things. It’s possible to get a job abroad, but then your life really transfers there, and you may not want to go abroad for the long haul. Some lucky few can go abroad for work long enough to “live” there without having to move their whole lives, but this is a rarity. For those without the chance to have the experience, well, if you can find a way it will be worth the trouble.

The US criminal justice system, evidence of a massive societal failure

The country I live in has a criminal justice problem. A big one. In 2009, 7,225,800 people were in jail or prison or on probation or parole. That’s 3.1% of the population. Rates of incarceration have been sharply rising for a generation. To put it in perspective, the US has the highest rate of incarceration in the world. Higher than those of Russia, Cuba, China, Iran, higher than any other country’s. It’s so high that more people are incarcerated in the US than in China, even though China has four times the population of the US.

This represents a massive societal failure. It could be that people in the US are so highly criminal that this is what we could call the “natural” rate of incarceration, but I doubt it. There’s no reason for the rate of incarceration to start shooting upward in 1980 if we are simply more criminal.

If the underlying culture of the United States did not make the country more criminal on the supply side, the only other explanation is that there was more criminality on the demand side. Who are these people demanding increased criminality? There are a few culprits, but in my estimation almost all of it is due to US government policy.

However, it’s not simply Congress, the prison lobby, the prison guard lobby, the prosecutors lobby, the police lobby, and all the other usual suspects behind the growth of government. The segment of society that deals with criminals and criminal behavior is larger than the sum of these lobbies, and this segment as a whole started to use imprisonment as a solution to problems at a far higher rate. Ultimately, ordinary citizens in their capacity as voters were part of this group as well.

I don’t have the whole solution. I’m not a criminal justice expert. But surely it contains at least some combination of these elements:

1. Ending the second prohibition. This is bound to happen some day, and it’s a terrible thing, so let’s cut it out right now. Overnight millions of criminals can become productive members of society merely by undoing a stupid and destructive legal classification.
2. Thinking about the people we trust to run the criminal justice system. What incentives and constraints do they face? Why should we believe that their interests always run in the same direction as the public’s?
3. Thinking about the conditions that lead people into the criminal justice system. A large part of this is contained in point 1, but not all of it. What led to the conditions that now lead so many people into the criminal justice system? This line of inquiry is wide and deep. If part of the problem is conditions in the “ghetto”, how did city planners do harm? How and why is the public education system failing people? How do the thousand-and-one economic regulations at all levels cut off opportunity for the poor?
4. Considering the racial impact. People already focus on this, but not enough if you ask me. Blacks and Hispanics are hit all out of proportion by current practices in the criminal justice system. If I were a community leader in either group I would be agitating all the time.
5. Assessing the values we express by these practices. As I write this, Jon Corzine is implicated in “reassigning” $1.6 billion from a failing enterprise into a safe account. He’s a free man. Shoplifting and bad check writing pale in comparison to this kind of crime, yet people are given over to the criminal justice system every day for these activities and punished much more harshly than it looks like Corzine will be.

The JFK Assassination, pt. 10: Keeping secrets

One of the mental blocks people have when thinking about JFK conspiracies is the fact that a great many conspiracy theories are patently absurd. Not just about the JFK assassination, but in general. There is always the risk in this line of thinking of running astray into nonsense. However, for reasons detailed in previous posts, I think there is ample evidence of conspiracy surrounding the JFK assassination, so it’s very different from aliens building the pyramids or similar things. For instance, it’s a fact that the CIA has been involved in overthrowing governments, assassinating people all over the world, and other related operations. We’d be foolish to think to that conspiracies never happen.

In the particular case of the Kennedy assassination, we have to keep in mind that when we study it now we are building on two generations’ worth of research. At the time of the assassination many different witnesses saw, heard, and did many different things, but there was no way at the time for them to all form a narrative together. This had to be constructed slowly, piece by piece, over many years. It would have been too obvious at the time if all this were known—but it was not even knowable at the time.

Whoever the conspirators were, they were operating in the assumptions of their time. Nobody could have predicted the ways in which conditions would change. The conspirators—before and after the fact—had no way of knowing that one day there would be this thing called the internet by which people could assemble a bird’s eye view of the entire sequence of events. They had no way of knowing that Jim Garrison would launch an inquiry into the plot and bring it into public focus. They had no way of knowing that there would ever be a House Select Committee on Assassinations which would release a lot of secret government information about the assassination, autopsy, and investigation to the public. Even the old-fashioned ways of disseminating information available at the time (books, newspapers, magazines, and film) relied on information that was hard to come by. The Zapruder film wasn’t seen by mass audiences until 1975. The government clearly took as many precautions as it could get away with at the time to prevent people from talking. The shooters likewise had methods of keeping things secret; even after all this time, it’s still not conclusively known who they were. If these two groups were related, well, all the more reason to take whatever precautions they could.

On top of it all, there are many people are are faithful enough to the system and who lack creativity enough to ever question the official version. There are people and institutions whose very mission is to scoff at those who question official versions of anything. Even after all that’s been published on the subject, even after the HSCA’s investigation, you’d be hard pressed to find a serious treatment of the evidence for conspiracy in the JFK assassination in a major media outlet.

Many people hear some of the evidence and think it’s not possible that all this information could have been around right after the assassination without alerting the public to a conspiracy. All this information existed somewhere, but none of it existed everywhere.