It is imperative that China move towards greater flexibility as quickly as possible. US Treasury Secretary, John Snow
The Benefits of victory in Iraq - N.S.C. Victory in Iraq
- economically, by facilitating progressive reform in the region and depriving terrorists control over a hub of the worldÂ’s economy.
Sadly, I agree both with Mr. Snow that it is imperative that China comes back into the Forex Market as international trade relations mediator paradigm and with the National Security Council brief that control over Iraq's oil fields in hands unfriendly to US interests would severely harm the national economy, inter alia.
Wednesday, November 30, 2005
Monday, November 28, 2005
The Forex Fumble
Never forget that it is the spirit with which you endow your work that makes it useful or futile. - Adelaide Hasse
Most readers are likely familiar with the notion, the spirit of the law, as opposed to the letter thereof. In the arena of political campaign finance, the spirit of any reform law almost always aims at the same ideal, one man, one vote-pure representative government. The intent is to stop concentrations of wealth from producing concentrations of votes. As a practical matter, this intent manifests in a series of written laws. Those who, for a variety of reasons, some of which include placing personal over systemic gain, disagree with the spirit of the laws then work diligently to get around the letter of the law. This idea of the spirit can apply, as the opening quote suggests, to all human endeavor. People can either go through the motions or do it like they mean it and eventually those observing your actions will know what drives you and act accordingly.
While the recent unsatisfying, to the extent one aim of elections is the easing of popular tensions, elections in Iraq might be a good example of the distinction between a good faith election and a going through the motions election, I'll stick to a collection of elections with which I had some first hand experience, those in Indonesia in 1997-1998.
On May 29, 1997, Golkar, the Party headed by Suharto, Indonesia's de facto dictator for the preceding three decades, increased their majority in Parliamentary elections. The result was never in doubt to those in the US House of Representatives Committee on International Relations, where, on May 7 of 1997, Rep. Berman of California stated, No one doubts that the ruling Golkar Party will once again win on May 29. Next March, I think it is everyone's expectation that President Suharto will win a seventh 5-year term.
By the end of 1997, the Asian Financial Crisis, which lists as its proximate causes, rising current account deficits and a large stock of external debt which made further debt expansion unlikely, once the hot money crowd got cold feet, was being felt in Indonesia. I was living in the region at the time and used to do quite a bit of island hopping, with Bali, just east of Java, the main island of the Indonesian archipelago, one of my favored destinations. As something of a regular I noted the stark change in attitudes around this time. Even the Balinese, noted for their non violent variant of Hinduism, were depressed and conditions in Jakarta, the capital city in Java, not known for their non-violence, were extremely tense.
In March of 1998, Suharto won election as President (surprise!) for the seventh time. As a result, tensions, which had only occasionally manifested in violence previously, boiled over. The student demonstrations became bigger and bigger, and the riots become more and more violent. By the end of May, after trying a few political tricks, like offering to change his cabinet, Suharto finally stepped down. In October of 1999, Abdurrahman Wahid was elected President in what was billed as Indonesia's "first free presidential election." Although tensions still manifest in Indonesia, that they were increasing while the people felt that they had no other option and were decreasing as people saw that they could affect change seems clear. As President Kennedy opined, Those who make peaceful revolution impossible will make violent revolution inevitable.
As an aside, I sometimes wonder if Paul Wolfowitz, now head of the World Bank but before that one of the architects of the Iraq War and notably one of those who pushed the "they will welcome us as liberators" view, based his sense of things on his experience in Indonesia in particular and SE Asia in general. Prior to his incarnation as Bush II's War Chief, Mr. Wolfowitz was Ambassador to Indonesia during the 80s. As one of the advisors to Suharto, Mr. Wolfowitz pushed a banking sector deregulation plan which set the stage for the currency implosion a decade later. Only a few months before Indonesia's financial sector was thrown into turmoil, the effects of which on the poor I saw first hand, Mr. Wolfowitz spoke to the aforenoted Committee on International Relations, clapping himself on the back for his role helping (quoting from his testimony): to not privatize the Indonesian economy, because that was a bad word, but they used the word deregulate. Does anything this guy touches turn out right? Not so far on the public stage, but then again, Ms. Hasse has perhaps suggested to us why that might be.
How sad that in 1997 you can already see the same bait and switch tactics, oh if the people think privatizing is bad, we will call it deregulation. And this was the guy who wanted to promote "democracy" to the world. What kind of democracy is it when the leaders routinely mislead the led?...a corrupt one. To avoid misunderstanding, I'm not arguing that aristocracies are inherently wrong, or democracies inherently right. What seems wrong to me is calling an aristocracy a democracy...but that, I guess, is what happens as cultures become sophisticated. Anyway, by early 1998, as part of the Project for a New American Century, Wolfowtiz and the rest of the gang, perhaps emboldened by the ease with which long standing governments were falling in SE Asia, began to push for War with Iraq. Now, back to our main program.
I use the election metaphor to allegorically describe what I sense in the forex markets these days. As elections are the theoretical means by which people are able to affect government polices, the foreign exchange markets are the theoretical means by which investors are able to affect change in economic policies. In both cases, these are the means by which the led can give feedback to the leaders.
Lets go over a bit of history to flesh out this point. The currency crises of the early 70s which led to the breakdown of the Bretton Woods system arose in part because the US was unwilling to abide by the rules of the game, and because others correctly bet that they would be unwilling, as seems to be happening now. Although the spirit of the Bretton Woods accord called for member nations to adjust their policies so as to avoid significant trade imbalances before such actions were necessary, the enforcement mechanism of calling gold to settle external debts was the supposed Sword of Damocles. Nixon's closing of the Gold window in 1971 was, in our election metaphor, like telling voters they could vote for whomever they liked so long as it was Nixon. Hit this link to read the opinion from Japan's Ministry of Finance on the topic (go to bottom of linked page)
One of the reasons behind the financial turbulence in the 70s was the lack of a system in which investors felt comfortable to invest over the long term. This isn't to suggest that financial flows ceased but rather that their character changed from longer term real sector investment to hot money, speculative flows. The foreign exchange market, which prior to the point had been a rather minor banking function, was then chosen as the new means by which external adjustments could be signaled and enforced.
By the late 1980s, when I found employment in the Forex market, it was booming. In part the boom was an effect of the profits made during the first US test of the new external account enforcement mechanism, the Plaza Accord. In the frame of this discussion, the Plaza Accord was like a free election in a time of domestic stress, proof that the players in the system could affect change and that the big guys were willing to take a hit. In terms of daily trading volumes, the Forex market has never looked back, rising from US$206 Bil in March 1986 to US$2,408 Bil in April 2004 (BIS).
In the intervening years since the Plaza Accord, many nations have suffered the ill effects of forex market mediated external account adjustments, from Britain and Italy in the early 1990s to the aforementioned SE Asian nations in the late 90s, to Russia right thereafter. Particularly in the case of the SE Asian nations, initial currency weakness led eventually to contractionary policies; higher interest rates, reduced public sector debt, and a much weaker currency. Admittedly, most of the nations in SE Asia initially tried to hide the problems, a choice which eventually left some of the former leaders in jail. Eventually, however, they all took their medicine. Generally, the forex market was proving to be a means to affect change or as Ms. Hasse might put it, people were acting in the spirit of the articles of agreement of the IMF.
As noted above, the economic prescription which follows from the forex market as signal for external adjustment will often lead to political change. Argentina, Brazil, S. Korea, Indonesia, Thailand and Russia all experienced political change in response to the contractionary economic policies of external account adjustment. As an aside, I don't think there is much a nation can do to avoid the pain of the contraction besides acting sooner, under the view that it is easier to lose 5 pounds on a diet than 50.
Following in the footsteps of the late 90s financial turmoil, attention began to turn to the United States, whose external accounts in terms of both stock (net investment position) and flow (current account) were negative and deteriorating. The collapse of the Nasdaq bubble and the election of George W. Bush, who ran on a platform including a return to responsible government that would abide by the rules, in 2000 hinted that the long awaited adjustment might be upon us. The attacks of 9/11 poured cold water on those harboring that hope. The current account deficit reported by the government was US$389B in 2001. By 2004, that deficit had climbed to banana republic status of more than 5% of GDP at US$668B and continues to increase.
Statistics like these and the historical perils to which they allude in part led investors like Warren Buffett to enter the forex markets assuming that they were the preferred vehicle by which such adjustments were instigated. This is to argue that investors, like Mr. Buffett, acted in good faith by accepting that in the new post Bretton Woods order, other currencies within the forex system would be the anti-national currency, not gold or other valued goods.
As I think on it now, keeping the economic players of the world on sides, so to write, within the paradigm they created and managed was a stunning achievement by the financial industry. In accordance with that paradigm, the US$ lost value in a fairly ordered way. By late in 2004, the speculative world was heavily short leveraged US$, perhaps with visions of those Plaza Accord profits in their heads and the financial press was abuzz with demise of the US$ stories. The writing, as they say in Daniel, was on the wall. Then, the fumble, as I see it, although in terms of history, the instant replay judges have obviously yet to rule.
In early 2005, as the USDX (an index value of the US$ vs a basket of different currencies) flirted with multi decade lows while speculators of a contrarian nature were shouting "oversold" and old timers responded with graphs of the US$'s post Plaza Accord descent, a curious thing happened, at least with respect to the forex market as adjustment mechanism paradigm. The US$ failed to break to new lows. Perhaps it was just recalcitrance on the part of the US, intransigence by the Chinese, the inherent flaw in the system which is that you really can't force the guy in charge, he must submit voluntartily, or more likely some combination of those and other factors, including the sense behind this bon mot via Stephen Roach, We all know these imbalances you speak of are unsustainable -- we just can’t afford to focus on the endgame. There's a slice of wisdom for ya, being unable to afford to focus on the end game, which is admitted to be inevitable. Reality, in my view, bites hard for people who live within that paradigm.
By the middle of this year, the US$ had recovered nearly 10% from its nadir. Just recently, I see that the fumble was picked up by the other team, so to write. While a few countries like Argentina, who had earlier thumbed its nose at the IMF, had been buying gold as reserves it was only recently that Russia's Central Bank, which used to speak of, and in fact, implemented the policy of decreasing the percentage of US$ in its reserves by buying Euros, announced they would be doubling the percentage of current reserves they denominate in Gold. I also see that Warren Buffett has begun exiting his US$ shorts, and taking a bit of a loss in the process. This is where I see the true faux pas. Buffett, as far as I know, was not a leveraged speculator but a true asset hedger. His US$ sales were attempts to shield his clients from the inevitable effects of overdue government policy. He, and others who acted within the paradigm put forward by the financial world acted in good faith and got smoked.
One cost of this process is that the commodity inflation that would have been visited on the US has been shared with the rest of the world. That is, the US$ didn't rise over the past 12 months, all the other currencies just lost more ground versus goods and services. This is a sign to me that this resolution is not to be forestalled much longer. Another, and I think more costly error for those hoping to keep the investing world within the current financial paradigm, is the loss of faith, the experience of a rigged election, if you will. If the forex markets are not going to be the vehicle through which external account adjustments are mediated, and given that the effects of the adjustment, by virtue of the US$'s position as reserve currency, will extend far beyond US shores, the political will to take that route seems small, then investors will look for alternatives. That is, if being short US$ in the forex markets is no longer a hedge against a depreciating US$, then Gold, which has been the anti-national currency of choice for millennia, seems the next obvious choice.
Given the decoupling of Gold to the US$ in 2005, perhaps other investors are of like mind. Speculators in 2004 had made great money buying Gold when the Euro rose and vice versa. This year, however, Gold is breaking out in all currencies, while the US$ gains within the forex system. The game laid out in the IMF's articles of agreement seems to be at a crucial point. The desire to divest from the US$ seems strong but like Hotel California, it seems like you can check out any time you like, but you can never leave. Either the US$ begins to decline within the forex exchange system, with US-Asia rates bearing much of the change thus validating the post Bretton Woods paradigm, or this new game of token currencies will end. The good faith, engendered by the decision in 1985 to abide by the spirit of the agreement, will ebb.
In a sense it is kind of ironic, the problem, as I see things, with the old systems of bi-mettalism, gold standard, or gold exchange standard, to name a few, weren't with the systems themselves but rather in finding the will to go along with the rules, to act in accord with the spirit of the agreement, whatever it was. You can build the most high tech scale we want, write the most complex law, and devise the most intricate computer monitoring system, but it won't do any good unless you are willing to change your behavior.
Most readers are likely familiar with the notion, the spirit of the law, as opposed to the letter thereof. In the arena of political campaign finance, the spirit of any reform law almost always aims at the same ideal, one man, one vote-pure representative government. The intent is to stop concentrations of wealth from producing concentrations of votes. As a practical matter, this intent manifests in a series of written laws. Those who, for a variety of reasons, some of which include placing personal over systemic gain, disagree with the spirit of the laws then work diligently to get around the letter of the law. This idea of the spirit can apply, as the opening quote suggests, to all human endeavor. People can either go through the motions or do it like they mean it and eventually those observing your actions will know what drives you and act accordingly.
While the recent unsatisfying, to the extent one aim of elections is the easing of popular tensions, elections in Iraq might be a good example of the distinction between a good faith election and a going through the motions election, I'll stick to a collection of elections with which I had some first hand experience, those in Indonesia in 1997-1998.
On May 29, 1997, Golkar, the Party headed by Suharto, Indonesia's de facto dictator for the preceding three decades, increased their majority in Parliamentary elections. The result was never in doubt to those in the US House of Representatives Committee on International Relations, where, on May 7 of 1997, Rep. Berman of California stated, No one doubts that the ruling Golkar Party will once again win on May 29. Next March, I think it is everyone's expectation that President Suharto will win a seventh 5-year term.
By the end of 1997, the Asian Financial Crisis, which lists as its proximate causes, rising current account deficits and a large stock of external debt which made further debt expansion unlikely, once the hot money crowd got cold feet, was being felt in Indonesia. I was living in the region at the time and used to do quite a bit of island hopping, with Bali, just east of Java, the main island of the Indonesian archipelago, one of my favored destinations. As something of a regular I noted the stark change in attitudes around this time. Even the Balinese, noted for their non violent variant of Hinduism, were depressed and conditions in Jakarta, the capital city in Java, not known for their non-violence, were extremely tense.
In March of 1998, Suharto won election as President (surprise!) for the seventh time. As a result, tensions, which had only occasionally manifested in violence previously, boiled over. The student demonstrations became bigger and bigger, and the riots become more and more violent. By the end of May, after trying a few political tricks, like offering to change his cabinet, Suharto finally stepped down. In October of 1999, Abdurrahman Wahid was elected President in what was billed as Indonesia's "first free presidential election." Although tensions still manifest in Indonesia, that they were increasing while the people felt that they had no other option and were decreasing as people saw that they could affect change seems clear. As President Kennedy opined, Those who make peaceful revolution impossible will make violent revolution inevitable.
As an aside, I sometimes wonder if Paul Wolfowitz, now head of the World Bank but before that one of the architects of the Iraq War and notably one of those who pushed the "they will welcome us as liberators" view, based his sense of things on his experience in Indonesia in particular and SE Asia in general. Prior to his incarnation as Bush II's War Chief, Mr. Wolfowitz was Ambassador to Indonesia during the 80s. As one of the advisors to Suharto, Mr. Wolfowitz pushed a banking sector deregulation plan which set the stage for the currency implosion a decade later. Only a few months before Indonesia's financial sector was thrown into turmoil, the effects of which on the poor I saw first hand, Mr. Wolfowitz spoke to the aforenoted Committee on International Relations, clapping himself on the back for his role helping (quoting from his testimony): to not privatize the Indonesian economy, because that was a bad word, but they used the word deregulate. Does anything this guy touches turn out right? Not so far on the public stage, but then again, Ms. Hasse has perhaps suggested to us why that might be.
How sad that in 1997 you can already see the same bait and switch tactics, oh if the people think privatizing is bad, we will call it deregulation. And this was the guy who wanted to promote "democracy" to the world. What kind of democracy is it when the leaders routinely mislead the led?...a corrupt one. To avoid misunderstanding, I'm not arguing that aristocracies are inherently wrong, or democracies inherently right. What seems wrong to me is calling an aristocracy a democracy...but that, I guess, is what happens as cultures become sophisticated. Anyway, by early 1998, as part of the Project for a New American Century, Wolfowtiz and the rest of the gang, perhaps emboldened by the ease with which long standing governments were falling in SE Asia, began to push for War with Iraq. Now, back to our main program.
I use the election metaphor to allegorically describe what I sense in the forex markets these days. As elections are the theoretical means by which people are able to affect government polices, the foreign exchange markets are the theoretical means by which investors are able to affect change in economic policies. In both cases, these are the means by which the led can give feedback to the leaders.
Lets go over a bit of history to flesh out this point. The currency crises of the early 70s which led to the breakdown of the Bretton Woods system arose in part because the US was unwilling to abide by the rules of the game, and because others correctly bet that they would be unwilling, as seems to be happening now. Although the spirit of the Bretton Woods accord called for member nations to adjust their policies so as to avoid significant trade imbalances before such actions were necessary, the enforcement mechanism of calling gold to settle external debts was the supposed Sword of Damocles. Nixon's closing of the Gold window in 1971 was, in our election metaphor, like telling voters they could vote for whomever they liked so long as it was Nixon. Hit this link to read the opinion from Japan's Ministry of Finance on the topic (go to bottom of linked page)
One of the reasons behind the financial turbulence in the 70s was the lack of a system in which investors felt comfortable to invest over the long term. This isn't to suggest that financial flows ceased but rather that their character changed from longer term real sector investment to hot money, speculative flows. The foreign exchange market, which prior to the point had been a rather minor banking function, was then chosen as the new means by which external adjustments could be signaled and enforced.
By the late 1980s, when I found employment in the Forex market, it was booming. In part the boom was an effect of the profits made during the first US test of the new external account enforcement mechanism, the Plaza Accord. In the frame of this discussion, the Plaza Accord was like a free election in a time of domestic stress, proof that the players in the system could affect change and that the big guys were willing to take a hit. In terms of daily trading volumes, the Forex market has never looked back, rising from US$206 Bil in March 1986 to US$2,408 Bil in April 2004 (BIS).
In the intervening years since the Plaza Accord, many nations have suffered the ill effects of forex market mediated external account adjustments, from Britain and Italy in the early 1990s to the aforementioned SE Asian nations in the late 90s, to Russia right thereafter. Particularly in the case of the SE Asian nations, initial currency weakness led eventually to contractionary policies; higher interest rates, reduced public sector debt, and a much weaker currency. Admittedly, most of the nations in SE Asia initially tried to hide the problems, a choice which eventually left some of the former leaders in jail. Eventually, however, they all took their medicine. Generally, the forex market was proving to be a means to affect change or as Ms. Hasse might put it, people were acting in the spirit of the articles of agreement of the IMF.
As noted above, the economic prescription which follows from the forex market as signal for external adjustment will often lead to political change. Argentina, Brazil, S. Korea, Indonesia, Thailand and Russia all experienced political change in response to the contractionary economic policies of external account adjustment. As an aside, I don't think there is much a nation can do to avoid the pain of the contraction besides acting sooner, under the view that it is easier to lose 5 pounds on a diet than 50.
Following in the footsteps of the late 90s financial turmoil, attention began to turn to the United States, whose external accounts in terms of both stock (net investment position) and flow (current account) were negative and deteriorating. The collapse of the Nasdaq bubble and the election of George W. Bush, who ran on a platform including a return to responsible government that would abide by the rules, in 2000 hinted that the long awaited adjustment might be upon us. The attacks of 9/11 poured cold water on those harboring that hope. The current account deficit reported by the government was US$389B in 2001. By 2004, that deficit had climbed to banana republic status of more than 5% of GDP at US$668B and continues to increase.
Statistics like these and the historical perils to which they allude in part led investors like Warren Buffett to enter the forex markets assuming that they were the preferred vehicle by which such adjustments were instigated. This is to argue that investors, like Mr. Buffett, acted in good faith by accepting that in the new post Bretton Woods order, other currencies within the forex system would be the anti-national currency, not gold or other valued goods.
As I think on it now, keeping the economic players of the world on sides, so to write, within the paradigm they created and managed was a stunning achievement by the financial industry. In accordance with that paradigm, the US$ lost value in a fairly ordered way. By late in 2004, the speculative world was heavily short leveraged US$, perhaps with visions of those Plaza Accord profits in their heads and the financial press was abuzz with demise of the US$ stories. The writing, as they say in Daniel, was on the wall. Then, the fumble, as I see it, although in terms of history, the instant replay judges have obviously yet to rule.
In early 2005, as the USDX (an index value of the US$ vs a basket of different currencies) flirted with multi decade lows while speculators of a contrarian nature were shouting "oversold" and old timers responded with graphs of the US$'s post Plaza Accord descent, a curious thing happened, at least with respect to the forex market as adjustment mechanism paradigm. The US$ failed to break to new lows. Perhaps it was just recalcitrance on the part of the US, intransigence by the Chinese, the inherent flaw in the system which is that you really can't force the guy in charge, he must submit voluntartily, or more likely some combination of those and other factors, including the sense behind this bon mot via Stephen Roach, We all know these imbalances you speak of are unsustainable -- we just can’t afford to focus on the endgame. There's a slice of wisdom for ya, being unable to afford to focus on the end game, which is admitted to be inevitable. Reality, in my view, bites hard for people who live within that paradigm.
By the middle of this year, the US$ had recovered nearly 10% from its nadir. Just recently, I see that the fumble was picked up by the other team, so to write. While a few countries like Argentina, who had earlier thumbed its nose at the IMF, had been buying gold as reserves it was only recently that Russia's Central Bank, which used to speak of, and in fact, implemented the policy of decreasing the percentage of US$ in its reserves by buying Euros, announced they would be doubling the percentage of current reserves they denominate in Gold. I also see that Warren Buffett has begun exiting his US$ shorts, and taking a bit of a loss in the process. This is where I see the true faux pas. Buffett, as far as I know, was not a leveraged speculator but a true asset hedger. His US$ sales were attempts to shield his clients from the inevitable effects of overdue government policy. He, and others who acted within the paradigm put forward by the financial world acted in good faith and got smoked.
One cost of this process is that the commodity inflation that would have been visited on the US has been shared with the rest of the world. That is, the US$ didn't rise over the past 12 months, all the other currencies just lost more ground versus goods and services. This is a sign to me that this resolution is not to be forestalled much longer. Another, and I think more costly error for those hoping to keep the investing world within the current financial paradigm, is the loss of faith, the experience of a rigged election, if you will. If the forex markets are not going to be the vehicle through which external account adjustments are mediated, and given that the effects of the adjustment, by virtue of the US$'s position as reserve currency, will extend far beyond US shores, the political will to take that route seems small, then investors will look for alternatives. That is, if being short US$ in the forex markets is no longer a hedge against a depreciating US$, then Gold, which has been the anti-national currency of choice for millennia, seems the next obvious choice.
Given the decoupling of Gold to the US$ in 2005, perhaps other investors are of like mind. Speculators in 2004 had made great money buying Gold when the Euro rose and vice versa. This year, however, Gold is breaking out in all currencies, while the US$ gains within the forex system. The game laid out in the IMF's articles of agreement seems to be at a crucial point. The desire to divest from the US$ seems strong but like Hotel California, it seems like you can check out any time you like, but you can never leave. Either the US$ begins to decline within the forex exchange system, with US-Asia rates bearing much of the change thus validating the post Bretton Woods paradigm, or this new game of token currencies will end. The good faith, engendered by the decision in 1985 to abide by the spirit of the agreement, will ebb.
In a sense it is kind of ironic, the problem, as I see things, with the old systems of bi-mettalism, gold standard, or gold exchange standard, to name a few, weren't with the systems themselves but rather in finding the will to go along with the rules, to act in accord with the spirit of the agreement, whatever it was. You can build the most high tech scale we want, write the most complex law, and devise the most intricate computer monitoring system, but it won't do any good unless you are willing to change your behavior.
Thursday, November 24, 2005
The benign metaphysics of Ms. Baum
While reading Ms. Baum's latest views, which strike me more as demagoguery than argument, it becomes quite clear that one of us will look the fool in the medium term. I think the key distinction in the articulation of the opposing views, rather than the substance of the arguments, is that I am aware of this possibility. One of the reasons I am so dogmatic about inserting "in my view" or "as I see things" in my writing is to remind both myself and all 3 of my readers that my views are just views. Views are much easier to change when new facts come to one's awareness or old facts are seen in a new light than an accepted metaphysics. As Aristotle noted, it is the mark of an educated mind to be able to entertain an idea without accepting it.
To which elements do I refer when I sense more demagoguery than argument? Take her description of Safehaven website, a site I've enjoyed for many years, as a place "where fantasy and reality mix" or the liberal peppering of "conspiracy theory" throughout the essay as examples. Methinks she reads the site with closed mind. Intriguingly, she holds up as as "far-out" a view which is as unfounded as hers, that of Robert McHugh. This isn't to dispute his view, but merely to suggest that ultimately, "why" the Fed chose to drop M3 reporting will be seen in light of their future actions. Mr. McHugh may be correct or Ms. Baum may prove correct, but neither is correct now, the experiment has yet to run its course.
I chuckled a bit reading her newest essay in light of my last post. While in my chosen world view, exposed in my last post, judgments about events can change as their effects become clearer, in my read of Ms. Baum's world, judgments quickly become unalterable truth. Notice how quickly she concludes; "So while the discontinuation of a series [M3] very few people pay attention to may have been a surprise, it was not nefarious. Nor was it a prelude to a massive, secretive money-printing operation on the part of the Fed, which is how the hard-core conspiracy theorists are playing it. " Perhaps that will prove to be true and perhaps not. I'll wait to see what happens in the first year of no M3 data before jumping to any conclusions.
As a general proposition, it seems to me that the more data presented to investors, the more likely can those investors draw reasoned conclusions about the corporation in question, be that corporation the Fed, GE or Enron. By the same token, the less data presented the less likely can investors draw reasoned conclusions. I wouldn't go so far as to argue that less data always means something is being hidden but rather that something might be being hidden. The Bank of Thailand spent the first half of 1997 delaying the release of current account data, a choice which later came to be seen, in the aftermath of the Asian Crisis, as nefarious. Who knows, maybe the Fed is earnest about their reasons for terminating the series. Of course, if the US finds it harder to finance its deficits and resorts to monetizing debt, the resultant inflation will likely lead people to view that policy choice as a poor one. The intent of the Fed won't matter in the post hoc analysis, only the effects.
To which elements do I refer when I sense more demagoguery than argument? Take her description of Safehaven website, a site I've enjoyed for many years, as a place "where fantasy and reality mix" or the liberal peppering of "conspiracy theory" throughout the essay as examples. Methinks she reads the site with closed mind. Intriguingly, she holds up as as "far-out" a view which is as unfounded as hers, that of Robert McHugh. This isn't to dispute his view, but merely to suggest that ultimately, "why" the Fed chose to drop M3 reporting will be seen in light of their future actions. Mr. McHugh may be correct or Ms. Baum may prove correct, but neither is correct now, the experiment has yet to run its course.
I chuckled a bit reading her newest essay in light of my last post. While in my chosen world view, exposed in my last post, judgments about events can change as their effects become clearer, in my read of Ms. Baum's world, judgments quickly become unalterable truth. Notice how quickly she concludes; "So while the discontinuation of a series [M3] very few people pay attention to may have been a surprise, it was not nefarious. Nor was it a prelude to a massive, secretive money-printing operation on the part of the Fed, which is how the hard-core conspiracy theorists are playing it. " Perhaps that will prove to be true and perhaps not. I'll wait to see what happens in the first year of no M3 data before jumping to any conclusions.
As a general proposition, it seems to me that the more data presented to investors, the more likely can those investors draw reasoned conclusions about the corporation in question, be that corporation the Fed, GE or Enron. By the same token, the less data presented the less likely can investors draw reasoned conclusions. I wouldn't go so far as to argue that less data always means something is being hidden but rather that something might be being hidden. The Bank of Thailand spent the first half of 1997 delaying the release of current account data, a choice which later came to be seen, in the aftermath of the Asian Crisis, as nefarious. Who knows, maybe the Fed is earnest about their reasons for terminating the series. Of course, if the US finds it harder to finance its deficits and resorts to monetizing debt, the resultant inflation will likely lead people to view that policy choice as a poor one. The intent of the Fed won't matter in the post hoc analysis, only the effects.
Wednesday, November 23, 2005
Woodward as Rorschach
In every object there is inexhaustible meaning; the eye sees in it what the eye brings means of seeing. Thomas Carlyle
In these days when institutional education is more and more devoted to getting the "right" answer on multiple choice tests, some people are, perhaps unintentionally, taught that regurgitating a common answer is thinking. As the philosophically minded might put it, the art of discerning your own truth has been replaced by the acceptance of a common metaphysics, an oft recurring phenomena of human consciousness through time. The idea of soul as something to be fed and nurtured gets replaced by a more materialist notion of brain, in the current variation, a brain that naturally evolves and thus needs little maintenance. Afflictions of the soul from a century ago are now thought of as mental illnesses.
Thomas Szasz argues that mental illness, absent some organic dysfunction, is a myth. Insanity, in his way of thinking, with which I agree, is just a term man uses for, at best, non-normative thoughts or radically unique perspectives. Sanity then, in popular usage, would be evidenced by "normal" thoughts. In the US this might include some sense of the date, season, President, and perhaps sports teams. As late night comedians are wont to point out, these "normal" thoughts would probably not include, say, the names of the two sides who fought in the Civil War.
I sometimes wonder if the idea of "mental illness" springs from the view that "truth" is this thing which naturally just finds its way into your head, perhaps with a little help from public education, or the great god TV, rather than Truth, into which the totality of human experience fits easily- a totality comprised of each individual perspective through time, obviously far too much data for any human to even remotely grasp. When "truth" with a small "t" is missing from someone's head, in the "parlance of our times", they must be mentally ill. The risk, as I see things, in this view of truth is that it will, over time, prove confusing. For in this simple ideal version of truth, governments and other institutions are virtuous, natural disasters can be avoided and the good guys always win in the short run. This view of the truth can be found in the most curious of places.
Contra this small notion of truth, Ralph Waldo Emerson argues, man is explicable by nothing less than all his history...epoch after epoch, camp, kingdom, empire, republic, democracy, are merely the application of this manifold spirit to the manifold world. The notion of one soul's "portion" or slice of that totality of human experience seems clear in Emerson's world view.
The world views of Emerson, Carlyle and Szasz share a sense of humble perspective. Life, in that frame of mind is a kind of rorschach or ink blot test for everyone. What you "see" is at least as much evidence of your mind than the objects to which you refer. As it takes practice to hit a golf ball, hockey puck or soccer ball with any proficiency, I contend it takes practice to develop a sense of a durable truth of the times relevant to one's own self rather than acceptance of a popular mythology which fails. To cast the notion in current economic lingo, thinking is not something one should ever "outsource."
These thoughts were inspired in contemplation of Bob Woodward's admission that, in the course of interviews for a book on the Iraq War, he was one of the first journalists to whom Valerie Plame's identity as CIA agent was revealed. During my recent trip out to the mid-west I read Sy Hersh's, Chain of Command. Upon my return I read most of Woodward's Plan of Attack and the notion of life as Rorschach test popped into my head. I wondered, if Sy Hersch had the same access to those in power, what kind of book would he write? If Bob Woodward didn't have that access, what kind of book would he write? These are, in some sense, silly questions as the access or lack thereof is at least a function of a lifetime of choices. Woodward seems to me to be as unlikely to endanger his access as Hersh would be to court it.
As an aside, I'm not arguing that one perspective is better than the other. Read them both. I found the synthesis of Woodward's view of the inner sanctum and Hersh's view of the practical effects thereof fascinating. Better yet, let Woodward go through the ringer and read the next book he writes, I'll bet it will be a doozy.
I was also intrigued to see that the "few bad apples" defense seems just about as useful now with respect to Abu Ghraib as it was 9 centuries ago when Henry II's wondering aloud, will no one rid me of this troublesome priest led to Thomas Becket's murder. In the 12th Century English version, Henry avoids the excommunication imposed on the 4 Knights who acted on his words. Who could have suspected (asked with tongue firmly placed in cheek) that some might zealously carry out the expressed wishes of those in power.
These thoughts also led me to revisit my argument with Ms. Baum's (et. al.) notion that if there was some collusion between public and private sector financial institutions to enforce price levels, that there would be evidence and it would be revealed. Well, not if the financial equivalents of Bob Woodward are the only people with access, there wouldn't. And, I think that is the case. Those with access to "smoking guns" rarely spill the beans because they don't think there are any beans to spill. Those who think there are beans to spill are usually on the outside peering at the effects of inscrutable policy.
Judging by Woodward's public comments on the Plame matter, he certainly didn't think there were any beans to spill. "No crime here," just a bit of "chatter," according to this half of the Watergate gadfly duo. Perhaps underneath these public comments is the sense acquired from years of observation that similar things happen all the time in Washington and it isn't a big deal. While this may be true, it is immaterial. As many people are about to learn, "crime" is whatever a prosecutor can prove to a jury. When the mandate of heaven vanishes as it is wont to do from time to time, the action thought to have been committed with the best of intentions becomes a malicious deed. This is the peril of using ends to justify means, if the ends aren't seen to materialize you're already in trouble over the means.
There are many means by which "economic stability is ensured", "the homeland is protected", and "the common good promoted" among other lofty ends. Usually, at least as I understand history, it isn't until it is blindingly obvious that economic stability has been lost, the homeland is under attack and the common good is not even a concern for the ruling class that the means by which these goals were meant to be achieved come under scrutiny. As George Washington put it, according to Ellis' His Excellency, the people must feel before they can see. Falling back on the lost language of the soul, revelation is that change of spirit when one feels sufficiently to begin to see things in a new light.
That the American Revolution is generally seen as a virtuous exercise in the US, according to the Pragmatist frame of mind, is a function of its effects-good fruit coming from good trees. Had Gulf War II produced the effects of Gulf War I, Woodward's sense of "no crime here" might prove accurate. The same behind the scenes debates that filled The Commanders fills Plan of Attack. It is only that with the virtue of hindsight, those who forced their view into action are seen in light of the effects of those actions. Washington lost quite a few battles and, according to Ellis made some poor military decisions. Had Britain won, his fate would have been far different, such are the ways of men. Returning to the present, I would not be surprised to find that equally nasty affairs attended the implementation of Gulf War I, but with the ends so fruitful, the means were not questioned. That is the risk you run when you play in the big sand box, whether that sand box is the Vatican, the court of Charlemagne, the board room of the Dutch East India Company or the court of Kublai Khan.
All of which brings me back to hidden nasties I believe lurk in the global derivatives markets. As a general proposition, in our truth with a small "t", the past 2 decades have been very good for financial institutions, their share of global corporate profits has gained substantially under the Greenspan Fed. They are the protected industry. Yet as even Greenspan noted, that success breeds it own risks. Just as it takes a War gone bad, and likely needing to get worse still before real political reform occurs, it will take a big default to lead the elite to look under the hood of the derivative machine. Refco and the copper default out of China might just be warning signs of an impending big default, perhaps one of the London or NY commodity markets or more dire still, perhaps the new oil industry contracts being signed under the aegis of the newly imposed Iraqi constitution will prove, in the end, to be in default. In a sense it all ties together. An out of control financial industry leading to out of control dreams of world dominance. Each myth needs the other to survive.
In these days when institutional education is more and more devoted to getting the "right" answer on multiple choice tests, some people are, perhaps unintentionally, taught that regurgitating a common answer is thinking. As the philosophically minded might put it, the art of discerning your own truth has been replaced by the acceptance of a common metaphysics, an oft recurring phenomena of human consciousness through time. The idea of soul as something to be fed and nurtured gets replaced by a more materialist notion of brain, in the current variation, a brain that naturally evolves and thus needs little maintenance. Afflictions of the soul from a century ago are now thought of as mental illnesses.
Thomas Szasz argues that mental illness, absent some organic dysfunction, is a myth. Insanity, in his way of thinking, with which I agree, is just a term man uses for, at best, non-normative thoughts or radically unique perspectives. Sanity then, in popular usage, would be evidenced by "normal" thoughts. In the US this might include some sense of the date, season, President, and perhaps sports teams. As late night comedians are wont to point out, these "normal" thoughts would probably not include, say, the names of the two sides who fought in the Civil War.
I sometimes wonder if the idea of "mental illness" springs from the view that "truth" is this thing which naturally just finds its way into your head, perhaps with a little help from public education, or the great god TV, rather than Truth, into which the totality of human experience fits easily- a totality comprised of each individual perspective through time, obviously far too much data for any human to even remotely grasp. When "truth" with a small "t" is missing from someone's head, in the "parlance of our times", they must be mentally ill. The risk, as I see things, in this view of truth is that it will, over time, prove confusing. For in this simple ideal version of truth, governments and other institutions are virtuous, natural disasters can be avoided and the good guys always win in the short run. This view of the truth can be found in the most curious of places.
Contra this small notion of truth, Ralph Waldo Emerson argues, man is explicable by nothing less than all his history...epoch after epoch, camp, kingdom, empire, republic, democracy, are merely the application of this manifold spirit to the manifold world. The notion of one soul's "portion" or slice of that totality of human experience seems clear in Emerson's world view.
The world views of Emerson, Carlyle and Szasz share a sense of humble perspective. Life, in that frame of mind is a kind of rorschach or ink blot test for everyone. What you "see" is at least as much evidence of your mind than the objects to which you refer. As it takes practice to hit a golf ball, hockey puck or soccer ball with any proficiency, I contend it takes practice to develop a sense of a durable truth of the times relevant to one's own self rather than acceptance of a popular mythology which fails. To cast the notion in current economic lingo, thinking is not something one should ever "outsource."
These thoughts were inspired in contemplation of Bob Woodward's admission that, in the course of interviews for a book on the Iraq War, he was one of the first journalists to whom Valerie Plame's identity as CIA agent was revealed. During my recent trip out to the mid-west I read Sy Hersh's, Chain of Command. Upon my return I read most of Woodward's Plan of Attack and the notion of life as Rorschach test popped into my head. I wondered, if Sy Hersch had the same access to those in power, what kind of book would he write? If Bob Woodward didn't have that access, what kind of book would he write? These are, in some sense, silly questions as the access or lack thereof is at least a function of a lifetime of choices. Woodward seems to me to be as unlikely to endanger his access as Hersh would be to court it.
As an aside, I'm not arguing that one perspective is better than the other. Read them both. I found the synthesis of Woodward's view of the inner sanctum and Hersh's view of the practical effects thereof fascinating. Better yet, let Woodward go through the ringer and read the next book he writes, I'll bet it will be a doozy.
I was also intrigued to see that the "few bad apples" defense seems just about as useful now with respect to Abu Ghraib as it was 9 centuries ago when Henry II's wondering aloud, will no one rid me of this troublesome priest led to Thomas Becket's murder. In the 12th Century English version, Henry avoids the excommunication imposed on the 4 Knights who acted on his words. Who could have suspected (asked with tongue firmly placed in cheek) that some might zealously carry out the expressed wishes of those in power.
These thoughts also led me to revisit my argument with Ms. Baum's (et. al.) notion that if there was some collusion between public and private sector financial institutions to enforce price levels, that there would be evidence and it would be revealed. Well, not if the financial equivalents of Bob Woodward are the only people with access, there wouldn't. And, I think that is the case. Those with access to "smoking guns" rarely spill the beans because they don't think there are any beans to spill. Those who think there are beans to spill are usually on the outside peering at the effects of inscrutable policy.
Judging by Woodward's public comments on the Plame matter, he certainly didn't think there were any beans to spill. "No crime here," just a bit of "chatter," according to this half of the Watergate gadfly duo. Perhaps underneath these public comments is the sense acquired from years of observation that similar things happen all the time in Washington and it isn't a big deal. While this may be true, it is immaterial. As many people are about to learn, "crime" is whatever a prosecutor can prove to a jury. When the mandate of heaven vanishes as it is wont to do from time to time, the action thought to have been committed with the best of intentions becomes a malicious deed. This is the peril of using ends to justify means, if the ends aren't seen to materialize you're already in trouble over the means.
There are many means by which "economic stability is ensured", "the homeland is protected", and "the common good promoted" among other lofty ends. Usually, at least as I understand history, it isn't until it is blindingly obvious that economic stability has been lost, the homeland is under attack and the common good is not even a concern for the ruling class that the means by which these goals were meant to be achieved come under scrutiny. As George Washington put it, according to Ellis' His Excellency, the people must feel before they can see. Falling back on the lost language of the soul, revelation is that change of spirit when one feels sufficiently to begin to see things in a new light.
That the American Revolution is generally seen as a virtuous exercise in the US, according to the Pragmatist frame of mind, is a function of its effects-good fruit coming from good trees. Had Gulf War II produced the effects of Gulf War I, Woodward's sense of "no crime here" might prove accurate. The same behind the scenes debates that filled The Commanders fills Plan of Attack. It is only that with the virtue of hindsight, those who forced their view into action are seen in light of the effects of those actions. Washington lost quite a few battles and, according to Ellis made some poor military decisions. Had Britain won, his fate would have been far different, such are the ways of men. Returning to the present, I would not be surprised to find that equally nasty affairs attended the implementation of Gulf War I, but with the ends so fruitful, the means were not questioned. That is the risk you run when you play in the big sand box, whether that sand box is the Vatican, the court of Charlemagne, the board room of the Dutch East India Company or the court of Kublai Khan.
All of which brings me back to hidden nasties I believe lurk in the global derivatives markets. As a general proposition, in our truth with a small "t", the past 2 decades have been very good for financial institutions, their share of global corporate profits has gained substantially under the Greenspan Fed. They are the protected industry. Yet as even Greenspan noted, that success breeds it own risks. Just as it takes a War gone bad, and likely needing to get worse still before real political reform occurs, it will take a big default to lead the elite to look under the hood of the derivative machine. Refco and the copper default out of China might just be warning signs of an impending big default, perhaps one of the London or NY commodity markets or more dire still, perhaps the new oil industry contracts being signed under the aegis of the newly imposed Iraqi constitution will prove, in the end, to be in default. In a sense it all ties together. An out of control financial industry leading to out of control dreams of world dominance. Each myth needs the other to survive.
Wednesday, November 09, 2005
Beyond Good and Evil
There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. - Niccolo Machiavelli
The boy, ever curious and attracted by the increasing redness extends his arm with finger pointed at the stove top. "Don't touch that!," his mother exclaims, "you'll burn yourself." The boy's arm recoils, a look of disappointment replaces the gleeful gaze of discovery but the eyes, after a quick glance at Mom, return to the red circle. "You know you're not supposed to play with the stove top, right?" the mother asks. "Yes," the boy exhales. "Good," says the mother as she leaves the room, "now get down off that chair." She glances back and sees the child begin to climb down from his perch before she passes from sight. Once Mom can no longer be seen, the child pops right back up on the chair and extends his finger towards the red glow.
Tolkien wrote, "the burned hand teaches best." While I agree, it seems to me a daunting task to have every individual, generation after generation, personally experience every nasty effect in order to learn how to live in this universe. Imagine the new schools teaching this method: Empirical Education 102: Today's lesson - Don't stand in front of a moving car. Dick, you're first. Yes, stand right there and wait for the car to hit you.
While humorous when pushed ad absurdum, the general notion so illustrated is, to my mind, of deadly seriousness. How can one impart a sense of the risks and rewards in the world to another who has not experienced enough of that world to know. To wax philosophical, what leads people to accept a view, a priori, before experience?
The answer, at least as I consider things, is faith. We believe, or at least those of us who opt not to touch the stove, believe, that touching this stove will hurt as much as the other one we touched, as it hurt the other guy who touched another stove, or as much as our mother told us it would. Thus our sense of the external world expands, by, individually and collectively, direct experience, witnessed experience and faith in communicated experience.
Of course, this process works in fits and starts, and sometimes leads the mind astray. Consider a child who dips his toe in a pool of water through which a mild electrical current passes. He will recoil, much as our stove toucher did, but the conclusion he draws, that one should never touch pools of water, is false. Such early life traumas can affect us throughout our lives.
Equally confusing, the communicated experience might be exaggerated or even plain false; "don't forget to brush your teeth or they will fall out," "don't masturbate or hair will grow in your palms and you will go blind," or, "Iraq has WMD, is allied with al-Qaeda, is seeking uranium and intends to attack the US." Voltaire's dictum comes to mind, "those who can make you believe absurdities, can make you commit atrocities."
While I believe Bishop Berkeley was a bit overzealous in selling his view, I agree that man acts based on his sense of the world and not on the world itself, although in many instances the sense of the world comports with the experience. When Biblical scholars write of creation, it is to this sense of the world that they refer, not to the material plane itself. To wit, many people who've never been to Iraq, nor met an Iraqi, nor read any book on the topic, nevertheless have some sense of the place and its people, however accurate.
In this context, the fall of man story might become clearer. The garden of the mind in which we all walk can become confused by falsehoods, indeed, it almost certainly will.
The opening, stove touching metaphor uses a simple cause and effect relationship, touch the stove, burn your finger. Unfortunately, not all effects are so explicit nor quick to surface. Today's cheesecake and lack of exercise will not make me fat today but a month of repetition surely will. Today's deceit, theft or murder may well leave me wealthier and happier only to set the stage for despair later on, a despair that might be visited on others as well as myself. If a child driven solely by curiosity will disregard his mother's warnings surely others driven by baser desires will venture outside the bounds of virtue in search of the immediate reward. Thus does vice become virtue.
While this process is individual, the "map" of the world, language, is shared. Just as one can learn by listening to one's parents that stoves burn, one can learn, perhaps by speaking with friends, that theft is profitable and thus "good". In most minds in most cultures a good deal of mental gymnastics is required to arrive at the view, "this guy is so rich that...", or "it's just money, they'll just print more" but the effect is the same.
With these thoughts as background perhaps you can see why philosophers at least since Plato have been very concerned with the general conceptions of "good" and "bad." Plato's Republic centers on the notion of justice as transcendent good and its misapprehension by the general citizenry, i.e. people sometimes see injustice as justice and vice versa yet the effects of justice and injustice eventually manifest. Plato blamed this confusion in part on people's faith in the Homeric mythos. Nietzsche more than 2000 years later, blamed the very same problem on people's faith in the Christian mythos. In both cases, the prescription was the same, replace the old mythos inspiring action in people with a new mythos.
Of course, as the opening quote by Machiavelli asserts, this is easier said than done. Consider how one might stop thinking about the world as round to get a sense of how difficult it might be for just one person to change a long held faith, let alone a group of people. Machiavelli knew whereof he wrote, for he had a large part in one such effort which was itself one of a sequence of such efforts in Florence during the time of the Medici.
In a sense, the Italian Renaissance can be thought of as a break with certain aspects of Church orthodoxy, a decision to move beyond the then current conceptions of good and evil. The wealth of the Medici, who were then known as God's bankers, by virtue of their financial relationship with the Vatican, was directed in part towards changing people's minds. The art and artists of the period are well known, thanks in no small part to Vasari. Michelangelo, Donatello, Botticelli, and Da Vinci, to name a few, all worked under Medici patronage.
In 15th century Italy, Florence was on the ascendant as the profits from the financial relationship between the Medici and the Vatican flowed into the city. Under Medici patronage, Florentine artists broke with the Gothic tradition espoused by the Vatican. This break can be seen in both the art forms and the subject matter. Botticelli's "The Birth of Venus" and "La Primavera" refer to the Homeric Mythos of the Greek Pantheon of Gods and do so in what must have been at the time a fairly provocative way. It was a sign of the times, for as the good financial conditions persisted, new ideas and behaviors were embraced, sometimes, but not always, to ill effect. The Medici were leading the charge to change the accepted order of things.
For every movement, such as Industrialization, there are counter movements, like the Luddites. In the case of Florence, the counter movement to the Medici financed Renaissance was led by a monk named Savonarola. Although he had been preaching the evils of Medici rule for years, it wasn't until economic conditions deteriorated and Lorenzo Medici died that the people embraced his views. As Warren Buffett might put it, the tide went out in Florence. Artists and merchants who a few months before had been painting nudes and sporting expensive clothes now built "bonfires of the vanities" and burnt their works, clothes, books and jewels, Botticelli included. It was in the aftermath of Savonarola's ouster of the Medici that Machiavelli rose to power in the new Florentine Republic, the symbol of which was Michelangelo's David.
Machiavelli's turn at the wheel of power was shortened, and he learned, by touching the stove, how hard it is to change the accepted order of things, when Giovanni de' Medici, son of Lorenzo, with help from the Vatican, recaptured Florence for the Medici in 1512. The next year, Giovanni de' Medici became Pope Leo X. For whatever reason the financial shrewdness which had characterized his ancestors was absent in Pope Leo who exhausted the Vatican Treasury and then turned to, among other things, massive printing of indulgences, one of the proximate causes of Luther's Protestant Revolution. Talk about unintended consequences.
I dwell on the period to make a few observations. Economic prosperity can lead people to forget old lessons and embrace what they used to think of as vice. Consider this recent article from USA Today, which made me cringe but which might not elicit much surprise in certain quarters, at least not yet, not until that finger touches the bankruptcy stove. When the prominent institutions of a culture inevitably become corrupt there will be a general desire to embrace something new, a sense which can have positive or negative effects depending on the new mix of embraced and discarded beliefs. During these periods of spiritual decline revolutionaries often appear hoping to change the minds of the people en masse, in almost all cases by coercion. If the revolutionaries can grab the levers of power, this new reality is conditioned in the minds of the people but only so long as the good times keep rolling, once that stops, a counter movement emerges, sometimes violently as coercion begets coercion.
In the present day the counter movement to the Neo-Con's Pax Americana, which to my mind was a last ditch effort to preserve the post WWII financial hegemony of the US, is manifesting. The promised good times have not emerged and thus the utopian visions of imposed democracy transforming the Middle East are giving way to the old realist views. Hopefully we will avoid our own bonfires of the vanities.
The other comparison I'd like to draw between the terminal stages of the pre-Reformation Vatican and today lies in the power of the institution and the people that power attracts. In a sense, the US government is like the Vatican in the 15th century, the preeminent institution under which authority all others theoretically operate....
oops, I'm off for a long weekend away.
Upon my return, assuming I don't decide that I can't get to my point from here, which is quite possible, I'll finish this and fill in the missing links.
The boy, ever curious and attracted by the increasing redness extends his arm with finger pointed at the stove top. "Don't touch that!," his mother exclaims, "you'll burn yourself." The boy's arm recoils, a look of disappointment replaces the gleeful gaze of discovery but the eyes, after a quick glance at Mom, return to the red circle. "You know you're not supposed to play with the stove top, right?" the mother asks. "Yes," the boy exhales. "Good," says the mother as she leaves the room, "now get down off that chair." She glances back and sees the child begin to climb down from his perch before she passes from sight. Once Mom can no longer be seen, the child pops right back up on the chair and extends his finger towards the red glow.
Tolkien wrote, "the burned hand teaches best." While I agree, it seems to me a daunting task to have every individual, generation after generation, personally experience every nasty effect in order to learn how to live in this universe. Imagine the new schools teaching this method: Empirical Education 102: Today's lesson - Don't stand in front of a moving car. Dick, you're first. Yes, stand right there and wait for the car to hit you.
While humorous when pushed ad absurdum, the general notion so illustrated is, to my mind, of deadly seriousness. How can one impart a sense of the risks and rewards in the world to another who has not experienced enough of that world to know. To wax philosophical, what leads people to accept a view, a priori, before experience?
The answer, at least as I consider things, is faith. We believe, or at least those of us who opt not to touch the stove, believe, that touching this stove will hurt as much as the other one we touched, as it hurt the other guy who touched another stove, or as much as our mother told us it would. Thus our sense of the external world expands, by, individually and collectively, direct experience, witnessed experience and faith in communicated experience.
Of course, this process works in fits and starts, and sometimes leads the mind astray. Consider a child who dips his toe in a pool of water through which a mild electrical current passes. He will recoil, much as our stove toucher did, but the conclusion he draws, that one should never touch pools of water, is false. Such early life traumas can affect us throughout our lives.
Equally confusing, the communicated experience might be exaggerated or even plain false; "don't forget to brush your teeth or they will fall out," "don't masturbate or hair will grow in your palms and you will go blind," or, "Iraq has WMD, is allied with al-Qaeda, is seeking uranium and intends to attack the US." Voltaire's dictum comes to mind, "those who can make you believe absurdities, can make you commit atrocities."
While I believe Bishop Berkeley was a bit overzealous in selling his view, I agree that man acts based on his sense of the world and not on the world itself, although in many instances the sense of the world comports with the experience. When Biblical scholars write of creation, it is to this sense of the world that they refer, not to the material plane itself. To wit, many people who've never been to Iraq, nor met an Iraqi, nor read any book on the topic, nevertheless have some sense of the place and its people, however accurate.
In this context, the fall of man story might become clearer. The garden of the mind in which we all walk can become confused by falsehoods, indeed, it almost certainly will.
The opening, stove touching metaphor uses a simple cause and effect relationship, touch the stove, burn your finger. Unfortunately, not all effects are so explicit nor quick to surface. Today's cheesecake and lack of exercise will not make me fat today but a month of repetition surely will. Today's deceit, theft or murder may well leave me wealthier and happier only to set the stage for despair later on, a despair that might be visited on others as well as myself. If a child driven solely by curiosity will disregard his mother's warnings surely others driven by baser desires will venture outside the bounds of virtue in search of the immediate reward. Thus does vice become virtue.
While this process is individual, the "map" of the world, language, is shared. Just as one can learn by listening to one's parents that stoves burn, one can learn, perhaps by speaking with friends, that theft is profitable and thus "good". In most minds in most cultures a good deal of mental gymnastics is required to arrive at the view, "this guy is so rich that...", or "it's just money, they'll just print more" but the effect is the same.
With these thoughts as background perhaps you can see why philosophers at least since Plato have been very concerned with the general conceptions of "good" and "bad." Plato's Republic centers on the notion of justice as transcendent good and its misapprehension by the general citizenry, i.e. people sometimes see injustice as justice and vice versa yet the effects of justice and injustice eventually manifest. Plato blamed this confusion in part on people's faith in the Homeric mythos. Nietzsche more than 2000 years later, blamed the very same problem on people's faith in the Christian mythos. In both cases, the prescription was the same, replace the old mythos inspiring action in people with a new mythos.
Of course, as the opening quote by Machiavelli asserts, this is easier said than done. Consider how one might stop thinking about the world as round to get a sense of how difficult it might be for just one person to change a long held faith, let alone a group of people. Machiavelli knew whereof he wrote, for he had a large part in one such effort which was itself one of a sequence of such efforts in Florence during the time of the Medici.
In a sense, the Italian Renaissance can be thought of as a break with certain aspects of Church orthodoxy, a decision to move beyond the then current conceptions of good and evil. The wealth of the Medici, who were then known as God's bankers, by virtue of their financial relationship with the Vatican, was directed in part towards changing people's minds. The art and artists of the period are well known, thanks in no small part to Vasari. Michelangelo, Donatello, Botticelli, and Da Vinci, to name a few, all worked under Medici patronage.
In 15th century Italy, Florence was on the ascendant as the profits from the financial relationship between the Medici and the Vatican flowed into the city. Under Medici patronage, Florentine artists broke with the Gothic tradition espoused by the Vatican. This break can be seen in both the art forms and the subject matter. Botticelli's "The Birth of Venus" and "La Primavera" refer to the Homeric Mythos of the Greek Pantheon of Gods and do so in what must have been at the time a fairly provocative way. It was a sign of the times, for as the good financial conditions persisted, new ideas and behaviors were embraced, sometimes, but not always, to ill effect. The Medici were leading the charge to change the accepted order of things.
For every movement, such as Industrialization, there are counter movements, like the Luddites. In the case of Florence, the counter movement to the Medici financed Renaissance was led by a monk named Savonarola. Although he had been preaching the evils of Medici rule for years, it wasn't until economic conditions deteriorated and Lorenzo Medici died that the people embraced his views. As Warren Buffett might put it, the tide went out in Florence. Artists and merchants who a few months before had been painting nudes and sporting expensive clothes now built "bonfires of the vanities" and burnt their works, clothes, books and jewels, Botticelli included. It was in the aftermath of Savonarola's ouster of the Medici that Machiavelli rose to power in the new Florentine Republic, the symbol of which was Michelangelo's David.
Machiavelli's turn at the wheel of power was shortened, and he learned, by touching the stove, how hard it is to change the accepted order of things, when Giovanni de' Medici, son of Lorenzo, with help from the Vatican, recaptured Florence for the Medici in 1512. The next year, Giovanni de' Medici became Pope Leo X. For whatever reason the financial shrewdness which had characterized his ancestors was absent in Pope Leo who exhausted the Vatican Treasury and then turned to, among other things, massive printing of indulgences, one of the proximate causes of Luther's Protestant Revolution. Talk about unintended consequences.
I dwell on the period to make a few observations. Economic prosperity can lead people to forget old lessons and embrace what they used to think of as vice. Consider this recent article from USA Today, which made me cringe but which might not elicit much surprise in certain quarters, at least not yet, not until that finger touches the bankruptcy stove. When the prominent institutions of a culture inevitably become corrupt there will be a general desire to embrace something new, a sense which can have positive or negative effects depending on the new mix of embraced and discarded beliefs. During these periods of spiritual decline revolutionaries often appear hoping to change the minds of the people en masse, in almost all cases by coercion. If the revolutionaries can grab the levers of power, this new reality is conditioned in the minds of the people but only so long as the good times keep rolling, once that stops, a counter movement emerges, sometimes violently as coercion begets coercion.
In the present day the counter movement to the Neo-Con's Pax Americana, which to my mind was a last ditch effort to preserve the post WWII financial hegemony of the US, is manifesting. The promised good times have not emerged and thus the utopian visions of imposed democracy transforming the Middle East are giving way to the old realist views. Hopefully we will avoid our own bonfires of the vanities.
The other comparison I'd like to draw between the terminal stages of the pre-Reformation Vatican and today lies in the power of the institution and the people that power attracts. In a sense, the US government is like the Vatican in the 15th century, the preeminent institution under which authority all others theoretically operate....
oops, I'm off for a long weekend away.
Upon my return, assuming I don't decide that I can't get to my point from here, which is quite possible, I'll finish this and fill in the missing links.
Subscribe to:
Posts (Atom)
