Of Models and Living

Photo by John Matychuck on Unsplash

My sons and I are modelers.  We love to build models.  We have spent many a pleasant time, creating very pleasant memories, building models together.  I prefer constructing models of buildings, houses, and bridges.  My sons make those, too, but their preference is for vehicles, especially airplanes.

Building models is beautiful and satisfying.  Models and making them stimulate creativity.  Modeling is a bridge between fantasy and reality.  With enough abstraction, you can model just about anything, real or imagined.

Models are not reality, though.  They are a thin representation of elements of reality, on a scale reduced from reality.

Modeling, by intent and purpose, is always a tremendous simplification from actual things, a focus on certain characteristics.  If we want the fullness of reality, we go to reality itself.  You cannot model life, for example, only aspects of it.  Doing so can help with our understanding of a particular aspect, which new idea we can take back to life to see how it fits.

The model itself, though, is not reality.  You cannot live there.  I am reminded of a story from The Twilight Zone.  As I recall, it goes something like this.  A man finds himself trapped inside of a child’s model village.  At first it looks quite real, until examined more closely.  He looks about him, and with increasing anxiety finds that things do not work, discovering an artificiality in all about him.  In despair he discovers how thin a replication of reality the model village is.  He struggles to make sense of it all, until he hears above him the laughing voice of the child who built the model.  He abandons hope as he finds no way out.

Sometimes we build model environments for fish or other pets or creatures to live in.  They never seem to be quite convinced, always trying to get out.  Even the ants in the ant farm work to get beyond the limits of the glass.

In recent months we have all been placed by our governments—especially by our state and local governments—in a model and forced to live there.  We are assured that, according to the models guiding them and us, this will all be for our own good, or at least for the good of someone even when we can see that it is for our direct harm (such as farmers and business owners and their employees, all put out of work).

With each day we see how far from reality these models are.  They are growing increasingly thin in meeting our social, economic, and health needs.  In this model we are separated from family, friends, and neighbors.  Virtual reality turns out to be very little reality at all, highly artificial and daily less satisfying, the virtue going out of it.  Economic buffers like savings erode.  Government relief plans, based on economic models, do not seem to work anywhere near as well as the real economy did.  Educational substitutes are a joke to the students and frustration to their teachers.  Many valuable healthcare treatments are put aside, postponed to some indefinitely promised day, governed by those who control the model in which we are living.

Back to reality, as a cause for rejoicing, which should be embraced and celebrated by all, the horrific models of the future used as justifications for the models imposed upon us by our governors, are turning out to be very thin, indeed wrong.  That is great!  That means that fewer than predicted are dying, fewer are getting sick.  We are thankfully learning each day that the actual numbers used to measure the extent and effect of the flu disease have been and remain a small portion of the overall population.

Policymakers need to make policy based on facts, with a view of and concern for the whole population.  The gap between the models and reality yawns wide.  Time to let us out.

Of the Great Cessation and Accountability

Photo by Remy Baudouin on Unsplash

The first Friday of the month is “Jobs Day” in the United States, when employment numbers for the previous month are released by the Labor Department.  A bit out of date for events moving quickly, the report—really for the first part of March when the data were collected—is that there was a net loss of 701,000 jobs.  More recent information from the Labor Department, gathered in the last two weeks of March, was that 9.9 million people filed unemployment insurance claims.

Those are firm, real, and disturbing numbers.  Perhaps you personally know someone tested positive for the virus or even made sick by it.  I feel more confident that you know someone who has lost his job, or whose business has closed, or one way or another is out of work.

Those people were not put out of work by the virus.  Up to this point the virus has reached but a small portion, some 240 thousand, of the 330 million Americans.  Those 9.9 million job losses were caused by government order and the fear spawned by government pronouncements and predictions of what may yet happen.

This unemployment is actual, not a forecast.  Each person of the 9.9 million has a very real story to tell, and it is not a happy one.  Many are tragic.  There are careers that have been disrupted, some only just started and some now ended.  There are businesses closed that will not reopen.  There are painful ongoing worries for people and families over what to do to cope.  None of us dismisses the sorrows involved with those who die, from whatever the cause.  I fear that the real, here and now unemployment wounds are too flippantly disregarded.

At some point, reasonable questions will need to be answered in a calm and deliberative way.  The actions taken and their consequences must be weighed, aside from professed intentions.  And the policies of policymakers will need to be evaluated in light of what they in practice wrought.  Among such questions might be these:

  • Did the realities of the Great Cessation—the sudden orders to stop activity and association, the practicalities of work lost, earnings gone, closed businesses, disrupted human interaction—caused by government decree, do more harm than good?
  • How many of those lost jobs are coming back?  How many of them are career-ending?  How many businesses are closed not to reopen?
  • Which actions ordered are unrelated to the health emergency but rather take opportunistic advantage of public fear and disruption?
  • What scars will remain on the body of our freedoms?

No doubt you also have important questions, calling for some explaining.

Involved officials might respond that the forecasts should not be unnoticed in the review.  Which forecasts?  Certainly good policymaking would rely upon future expectations.  Was a broad picture evaluated of what might likely occur?  How closely did policies applied align with appropriate and realistic forecasts (taken together)?  Which forecasts turned out nearest to what indeed happened?

Shall we go to the current forecasts?  Oxford Economics visualizes the loss of 27.9 million jobs in the U.S.  The most recent government estimates of U.S. virus deaths are between 100 thousand and 240 thousand.  For the full picture, we should include predictions of the fallout from prolonged social disruption and human isolation.  How much harm and how many deaths might those policies cause?  When we tally up the score to see whether it all is worth it, include all of that in the tally.

A deep recession caused by government order has never happened in our history.  Now it has and is part of our story.  Those who ordered it should, with due deference and full fairness, be called upon to justify it.

Of Social Disruption & the Great Cessation

Photo by Tim Mossholder on Unsplash

This is not an alarmist post. It is anti-alarmist.  It is a request for a better way.

Last evening, at the quiet end to a quiet day, I ran the numbers. These are not my numbers, but numbers from oft-quoted sources:  The Johns Hopkins Center for Systems Science and Engineering, the U.S. Census Bureau, and The Wall Street Journal.

I live in a state with 8,500,000 people, not far from the average of 7,000,000 for all 50 states.  As of last night, in our state, just below 300 people were reported infected with the virus, and 9 had died from it.

I ran the numbers.  The percentage of people in my state currently hit by the virus is 0.003%, that is three one-thousandths of a percent.  Very large and very small numbers are hard to visualize.  In visual terms, if you had one hundred people to demonstrate the numbers, have one person step forward.  He would represent the 1%.  If that person weighed 100 pounds, 4.8 ounces of that person would represent the three one-thousandths of a percent.  That is my state, so far.  You can multiply that many times before you get to just 1 person out of the 100.

There is genuine hardship for people infected by disease, and as their neighbors we are concerned for them and wish to help.  Are social disruption—which social distancing has become—and the Great Cessation of business the best way to help?  That is a rational and reasonable question.

What about all the rest of the people in the state?  Unfortunately, our governor has chosen to be alarmist.  Invoking worries fed by extreme scenarios of how bad things could get in the future if this or that happens or does not happen, he has declared that all should be affected today, that 100% social disruption should be applied now.  When you run the numbers, that is truly an abundance of caution.

But it is not an abundance of life. You do not see an abundance in the grocery store, in the churches, in the places of work, on the streets.  You have seen the Great Cessation where you live.  You are recognizing the social consequences of cutting people off from one another, people who are by nature social animals and who need real, genuine social interaction.  You have also seen how our economy rests upon that social interaction, and you are seeing how the Great Cessation is affecting the people—you and me and the millions of people who are that economy.  Ask yourself if this is healthy, personally, and for your neighbors.  It does not feel right, it does not look right, it does not sound right.

We hear that essential businesses and jobs may continue.  Which businesses and jobs are to be labeled “essential” and who decides?  That is another reasonable, rational question.  The answers so far have not been reasonable or rational.  In practice an unflawed answer proves impossible, yet the force of law is being applied anyway.  You have to look away to argue that some jobs are essential and others are non-essential, ignoring the many job roots of each designated “essential” job.  It is a fool’s errand—no matter how well educated or official—to make up such a list.

Tell the man and woman put out of work that their jobs are “non-essential”, and include their children in the discussion.  Tell the small businessman who has been forced to close his doors and receive no revenues to pay his rent, keep his infrastructure, and meet his payroll, that his business is non-essential.  On Monday we went out to eat, the last day that the governor’s edict would allow in-restaurant dining.  I was troubled by the fear that I saw in the eyes of the employees, which their gratitude for our business could not hide.  That is the human perspective, which the officials show little signs of considering in their orders.

As President Trump said this week, in the midst of the national social disruption/Great Cessation experiment, the cure must not be made worse than the problem.  Let cool, rational, and reasonable consideration prevail.  I recommend a Wall Street Journal editorial, “From Shutdown to Coronavirus Phase Two.”  It is a rational and reasonable call for a better way forward.  What we have now is hurting everyone.  There must be a better way.

Of Bears and Working

Photo by Sandy Millar on Unsplash

I can support a cute idea like this.  One of our neighbor dads plans to take his children “on a bear hunt.”  Dad has planned ahead.  He asked neighbors who have them, to put a teddy bear in the window to be spotted by his children as they walk around the block.

Being empty nesters, our home is more often host to grandchildren; few of many bears remain in our house.  Once we had dozens—of teddy bears.  We now have more than a dozen grandchildren, and I am fine with the trade.

Speaking of trading, I suppose that we could put in the window a print out of today’s stock market, sliding deeper into bear market territory, responding to yet another attempt by the Federal Reserve to stimulate market confidence.  A more than casual observation might be that these government intervention moves can do more to spook investors than reassure them.  Usually declared while the markets are closed, the moves appear lately to be followed by a sharp market sell-off.  No criticism of their intentions, but when the 5 governors at the Federal Reserve (Fed for short) are pitted against the billions of people who make trillions of economic decisions each day, the Fed is frequently worsted.  No matter how good computers are, the economy is too complex for any of the models upon which any team of experts relies.

So, no picture of the bear market for the window.  We do not wish to scare the children or their dad.

Fortunately, we did find a teddy bear in the house, left by our youngest (who still has lots of his stuff here).  The bear now sits on our front porch, awaiting discovery.  On his lap he holds a sign, one that our daughter gave us some years ago to announce the pending arrival of her first child.  The sign reads, “Grandkids welcome.  Parents by appointment.”

No, the sign was not mandated by the CDC or the governor.  Humans need social interaction.  That fact is not apparent in the government orders to isolate people indefinitely.  Dad may not go to work, children may not go to school, so it is great to see fathers and sons and daughters taking pleasant walks.  At some point, someone is going to need to pay bills to buy things produced by somebody somewhere.  I wonder whether the complex models on which the governors rely are a match for the billions of human interactions in which their millions of citizens need to engage in order to live and be happy.

Of Introvert Heaven and What to Do with Extroverts

Photo by Anthony Tran on Unsplash

The Introverts must be taking over the world.  Utterance from official sources is that gatherings—if they must take place at all—should be narrowly restrained.  The new limit is to be 50, tops.  Governors in states from New York to California are ordering these social curbs or yet stricter limitations.

Private sector organizations are closing their doors entirely, some with a mentioned end date, others indefinitely.  Sporting events—professional, amateur, scholastic, even clubs—have been shuttered.  The local rec center has closed its doors.  Movie theaters are locking up, voluntarily or by official order.  New movies are rescheduling their start dates or being offered on-line.  Schools, government and private, are sealed (home schoolers remain unaffected, no reports on what home scholars think of that).  The list grows by the hour.

In short, it all sounds like Introvert Heaven.  Stay home, keep inside, work on the computer, read a book, watch a cable movie, play a video game, take a walk, go for a drive, do a puzzle.  As an introvert myself, I recognize that while I would soon tire of it, the thought of solitary confinement has never held terror for me.

I ask, but what of the Extroverts?  No allowance seems to be made for them.  Being the father of both, I know that the sense of being “cooped up” comes quickly to extroverts, who draw personal energy from human interaction, the bigger the group, the better.  Sustained restrictions on access to people are not easily tolerable.  Social media can be a temporary substitute, but a poor substitute, clearly suboptimal for an extrovert, who craves face-to-face association, the more the merrier.  Suppressed long enough, they will revolt—no hyperbole.

Sporting events, theater, parties and such like were invented by and for extroverts.  Since they may make up half or more of the population (the Internet hosts a mildly interesting debate on the exact proportion), the broad assault on extroverts surely will have societal consequences, ones for which the introverts who seem to be making the rules (or who fancy themselves exempt) manifest little recognition.  Promising that the restrictions are probably for no longer than eight weeks offers little comfort to extroverts.  Neither should introverts who must live with them find therein any comfort.

Of Free Speech and Insensitivity Training

There is a poignant scene in “Lawrence of Arabia”, a movie with many poignant scenes, in which Lawrence demonstrates to a fellow officer how to snuff out a candle. He pinches the flame with his fingers. The other officer gives it a try but jerks back his hand when his fingers are scorched.

“That hurts,” the officer complains. Lawrence replies, “Certainly it hurts. The trick is not minding that it hurts.”

There is a lesson there, particularly important for a society that has become hypersensitive to injury, real or imagined. Hurt may come from something as small as a look—or failure to look. It may come from an article of clothing, either worn or neglected. Lately flags have been targeted as sources of personal and even societal pain. Hurt may come from something as small as a word. Indeed, I think that most often today and in our society, both words and our sensitivity to words have become sharpened.

If we are to preserve freedom of speech—in all its important varieties—we need to develop some insensitivity, as in not minding when it hurts. Freedom of speech only matters when someone hears something he does not like. The choice then is intolerance and silence or freedom and not minding the hurt.

Another way to look at it is that we most desire freedom of speech when we are the speaker. From the point of view of listener, we may have mixed emotions. We may like what we say, but when we do not like what we hear do we wish to silence the speaker, or do we accept the options of free speech, to turn away or to endure another’s unpleasant rodomontade?

Freedom of speech was made part of the First Amendment, because rulers and monarchs were at pains to inflict genuine physical hurt whenever they took offense at the words of their subjects. The First Amendment’s protection of free speech was needed to protect people using words that hurt people in government, that offended people in power.

Even though enshrined in the Constitution, freedom of speech has to be won by each generation, because it is constantly in jeopardy. Americans are nearly unanimous in their support of freedom of speech when it is speech that they like, speech that reinforces their own views, and especially speech that praises and flatters. We do not particularly need the Constitution to protect that kind of speech. Speech that is unpopular, speech that goes against the grain, speech that is obnoxious to our opinions, speech that challenges our beliefs, that is the speech the Founders fought to protect. Most of human progress has come from that kind of speech. It is speech that is worth protecting today and that many try to silence.

President Obama and his political friends are fond of declaring that “the debate is over,” whether referring to Obamacare, the Dodd-Frank Act, climate change, same-sex marriage, or other important issues of significant disagreement. I expect that soon we will hear President Obama, Secretary of State Kerry, and other administration spokesmen insist that the debate is over with regard to the nuclear deal with Iran. In a free republic, can the debate ever really be over?

This is nothing new; it is a continuation of a very old struggle. Despots great and petty since early ages have exercised what power they might to silence ideas and expressions they did not want to hear, or did not want others to hear. The gallows, flames, and torture chambers of yesteryear are matched today by bullets, bombs, and bayonets from radical Islam and totalitarian governments. In the West, where constitutions solemnly embrace free speech, voices are silenced by public ridicule, elaborate and intrusive regulations on what can and cannot be said and when and where—reinforced by government fines, restrictions, confiscations, and jail time.

I recently visited my son at his new job at a large factory. He was very careful to spell out to me a lengthy list of subjects I should not bring up, whether from fear of his colleagues, company policies, or federal, state, and local regulations. I have been given similar training at my place of work.

When I was young I was taught to be courteous and not seek to offend. I was also taught to be slow to take offence. Do children today repeat the rhyme I heard as a child? “Sticks and stones may break my bones, but names can never hurt me.” I wonder. Or are our children taught today that there is great reward in being the sensitized “victim” of someone else’s “offensive” words? Where do we find freedom in that?

Of Warming Planets and Cooling Economies

Did you notice when the Obama Administration paused in its ballyhooing about global warming? President Obama and his officials had been busily hustling the warming of the planet and its attendant disasters—which they insist can only be fixed by increasing government control of our lives, from birthing to breathing. The President was in Florida, blaming the future hurricane season—which has not yet happened—on global warming. “The best climate scientists in the world are telling us that extreme weather events like hurricanes are likely to become more powerful.” What President Obama did not mention—anywhere in his speech at the National Hurricane Center in Miami—was that the scientists predicted a “below-normal” hurricane season for 2015. Was that mercy because of or in spite of global warming?

Perhaps we should not blame the President for leaving that little item of information out, since for each of the last several years the cited “best climate scientists” (whoever they are) had predicted extraordinarily active and destructive hurricane seasons. Since each season turned out to be unusually mild, the official forecasters have now changed their tune, putting themselves solidly in-sync with recent trends. Do not put yourself at risk with a long investment on it either way.

As for global warming, however, the President and those who say they agree with him insist that the debate is over (in either science or a free nation can the debate ever really be over?), meaning that it is unacceptable to disagree with them. If you can’t say something calamitous, then don’t say anything at all.

Then, suddenly and quite unexpectedly, the global warming talk stopped. There was a mercifully, if brief, moratorium on warming warnings. Instead of predicted calamity, a real calamity was at hand that required some ‘splaining. The most recent report on the nation’s economic growth was announced. Not only had growth slowed, as measured by government number crunchers, the economy had actually declined in the first 3 months of 2015. That seemed to come as a surprise to no one who is either without a job or working in a job that is something less than the job held before 2009. But it was unwelcome news to the Administration that has been working on economic revival for going on seven years.

Instead of global warming, the Administration needed cold weather to blame for the decline in economic activity during January, February, and March. The lead official White House explanative was, “harsh winter weather”. I did not make this up, and you are not supposed to notice how convenient White House excuses are. It was better that global warming talk was cooled for a moment lest people recognize the contradictions in the official propaganda and begin to wonder whether White House policies were working.

Winter weather is not a novel excuse for failed government programs. The old Soviet Union blamed repeated crop failures on harsh winters (in Russia? Who knew?). The similarity in excuses used by the Obama White House and the Soviet Politburo is not accidental. Central planners can survive only if they have at the ready a list of excuses of things beyond their control. The list could be a long one, since in the end there is not very much about the economy that central planners can control, if control means making things go they way intended. To quote the character Jayne Cobb, in Serenity, “what you plan and what takes place ain’t ever been exactly similar.”

Of Signs and Deception

It may seem immodest of me to point out how “insightful” was my posting, published at the very doorstep of the 2008 election of Barack Obama as President of the United States. I think I am in no danger, however, as the predictions were all too easy to make, the signs too clear then to justify special credit now. More significant, I believe, are how the lessons taught then apply as we enter another presidential election season. Give the greatest weight to what candidates do and what they have done, particularly when such evidence is distinctly at variance with what they say.

 

A well-known principle of propaganda is that if you are going to tell a lie, the bigger the lie the more believable it will be. Most people are so trusting that they do not want to believe in the enormity of a big lie. They do not want to believe that someone can intentionally say something appallingly false. Rather than disbelieve the liar, they will want to disbelieve the person who exposes the lie.

One of the biggest of lies is asserting something to be exactly the opposite of what it is. Such is the warmonger who claims to be the leading pacifist, the thief who claims to be the victim of theft—and accuses the real victim of being the criminal—or the bigoted radical who accuses opponents of intolerance.

In recent travels on the streets, roads, and highways I notice at this time of the year the beautiful Fall foliage—and the many political campaign signs. While for some there might be a distaste for seeing these, I feel to rejoice in the signs as evidence of a vigorous system of subjecting our political leaders to public vote.

Having said that, I do draw the line at the steady growth of the mega-yard and curb signs, the five-foot by eight-foot broadsides. So, already inclined to dislike such construction-size boards, I have been particularly disturbed to see what appears to be a planned series of Obama-Biden signs advocating policies that these two Washington insiders have long worked hard to oppose.

I have noticed three in this series. There may be others. The ones that I have seen show the names of the two candidates, followed by a motto reading something like, “Better Schools,” “Lower Taxes,” and “Energy Independence.”

If facts matter, and I believe that they still do (even if they are optional in the mass media), such messages on the signs of these two politicians should be jarring to the honest in heart. The political record of Obama and Biden are unequivocal on these three issues. They both have strongly and consistently opposed school reform, supporting doing more of the same old stuff that has been steadily undermining the quality of government-run schools since the 1960s.

Both have been leading advocates for raising taxes and opposing tax cuts. Even in the current campaign they advocate new tax hikes. They try to disguise their intentions with the assertion that their proposals supposedly would reduce taxes on 95% of Americans (including the 40% who pay little or no income taxes), while raising them on the rest. Either they failed with the simple math, or they hope that voters cannot or will not be able to apply simple math, but you cannot get enough taxes out of 5% to pay for genuine tax cuts for 95%. In fact, their proposals are just another camouflage for the old tried and failed policies of tax and spend. Not only does that always put more power into the hands of the politicos who take and then redistribute, but it is a highly dangerous thing to do in the teeth of an economic downturn. Taxes fall on income and investment, and whatever you tax you get less of. Now is not the time for less income and investment.

And as for energy independence, both Obama and Biden support programs that will yield little and have yielded very little new energy—at very high expense in government subsidies—while staunchly opposing expanded use of the energy resources that are abundant in the United States, particularly oil, coal, and nuclear energy. Independence seems to me to increase reliance on your own resources. Obama and Biden are consistent supporters of policies that keep U.S. energy resources under lock and key.

This should not be surprising from two candidates who campaign on change while advocating the oldest political formula in the history of government, that government knows best, that decisions about spending, whether for health, education, or job creation, are best made by power brokers in the halls of Washington power centers, rather than by families in their homes. Calling that change may be the biggest lie of all.

(First published November 2, 2008)

Of the Federal Reserve and Taking from Savers

Ben Bernanke has a blog. You can find it here, courtesy of the Brookings Institution. Of course, what would the former Chairman of the Federal Reserve Board write about, other than decisions he made as Chairman, and why people who take issue with them are wrong? One would expect no less, and reading the light he sheds on previous decisions—offered in Fedspspeak at the time that they were made—is surely the chief lure of Ben Bernanke’s blog. Allowed to communicate in regular English, not worried about how Fed Watchers might construe or misconstrue everything he says and does not say, Ben is more able to speak his mind clearly.

The former Fed Head chose for his first blog post a vigorous defense of price controls on interest rates. In the process Bernanke demonstrates the assumption that we are safe letting government economists control the economy—an assumption continually disproven by real-world experience.

In fact, as a result of entrusting much of our economic freedom in the United States to government economists, we do not have a free market for interest rates, at least not short term rates, and we pay for that every day. The Federal Reserve sets short term rates in this country, and so far the market has had zero success in moving rates from the near zero interest rate range that the Federal Reserve has decreed and maintained for some years. Keep that in mind the next time you wonder why you earned $1.73 in interest on your savings account last year.

If you borrow money—when you can get a loan—then you might consider yourself lucky. The biggest borrower of all, in the whole world, is the United States Government. Uncle Sam must be feeling very lucky, because he is paying comparatively little on the $18 trillion of U.S. Government debt, increased by another half trillion dollars last year.

If you save money, though, especially for your retirement—and if you have to live off of those savings in retirement—you might not feel so fortunate. By keeping interest rates lower than the market would set them, the Federal Reserve is daily transferring many billions of dollars from savers to the Federal Government. And you thought that only the IRS takes your money.

Let me illustrate with an example. For the last three months of 2014, all of the banks in the United States, all of them together, paid no more than $11 billion to people who had their money in banks. Is that a lot of money? It depends. When that is the interest paid on nearly $12 trillion in deposits, the answer is, no, that is not very much money at all.

Do not blame the banks, though. They are in the saving and lending business, too. Try as they might, with the Federal Reserve controlling interest rates, banks could not pay any more interest to depositors. If a bank did, it would have more money than it could lend as people shifted their deposits where they could get a better return. To pay interest on deposits, banks cannot get much more interest from the loans they make than the Federal Reserve price controls allow, and many relatively good loans present more repayment risk (banks do need to be paid back) than those low interest rates would cover. Low interest earned means low interest paid.

All the banks in the nation have a little over $15 trillion in loans and other assets, on which they earned last year about the same amount as they did five years ago, when they had $2 trillion less in loans and other assets. In an environment of low interest rates, banks have to concentrate their lending on the safest borrowers.

That is how the low interest rates controlled by the Federal Reserve are oppressing the economy. When savers and lenders can only get a few cents on a hundred dollars lent, they place their money with the very safest of borrowers, since they cannot afford to take any losses. Someone who has a really good idea—which like all good ideas may or may not succeed the first time—has trouble getting the money to give his idea a go and hire people to help him try.

Ben Bernanke claims that the Federal Reserve’s near zero interest rate policy—called ZIRP—has been stimulating the economy. If so, where is the stimulation? Why has the recovery been so weak? There has been stimulus, but it has gone primarily to support Federal Government spending and to pay down the debt of the largest and healthiest businesses that can trade in their higher cost loans for the Federal Reserve’s lending bargains. The biggest increases in bank loans have been in Treasury debt and deposits at the Federal Reserve.

Ben Bernanke, in his blog, reminds me of the story of the lawyer representing a client charged with stealing a car and returning it damaged. The lawyer says, first, that his client never had the car; second, that he returned it in perfect condition; and, third, that it was already irreparably damaged when his client took it.

Bernanke begins by explaining that the Federal Reserve does not set interest rates, or that at most its ability to do so is only “transitory and limited.” He pleads that the Fed can only affect short term rates “in the short run.” He does not explain how seven years of ZIRP can be considered the short run. Then he progresses in his blog to describe how the Federal Reserve “influences” interest rates and then how the “Fed’s actions determine” interest rates. His argument, after denying that the Fed can set rates, is that the economy has been so weak that the Fed has had to lower interest rates for the nation’s own good. Bernanke next argues that the economy has remained so troubled (he does not say, despite ZIRP) that the Federal Reserve has had no choice but to continue with ZIRP, concluding that it is the economy after all the forces the Fed to do what it does. Do not blame the Fed Governors, they had no choice but to continue doing what they cannot do because it has not done any good so far. I think you need to have a Ph.D. in economics to make such an argument.

We cannot do it, we did what we had to do, and since it has not helped we cannot stop. I wonder how he reacted to those kind of explanations from his teenagers. Any responsible parent would reply, no, you cannot have the car, give me back the keys.

Of Banks and Over Taxed Regulators

Banks, who needs them? A quick question and a quick answer: a thriving, prospering banking system is essential for a thriving, prospering modern economy. Banks bring together the resources of savers and the needs of borrowers, particularly borrowers who seek funds to establish or expand businesses or families and individuals who use occasional borrowing to smooth out their income (good banking principles penalize people who would borrow in order to live beyond their means, but more on that at another time).

Banks also created and maintain the payments system, the means by which money is transferred quickly and accurately throughout the nation and even internationally. Bank services include as well a variety of wealth management tools by which individuals, families, businesses, and governments can store, grow, and make best use of their financial wealth.

Without banks, almost none of these services would be available. Many non-banks provide bank-like services, but they all come to find the need to rest their own services at some point on a bank.

Banking in the United States has grown with the nation, from very simple institutions in the eighteenth and early nineteenth centuries, to a wide variety of bank types, charters, and business models, as diverse as the financial demands of the customers of the largest and most diverse economy in the world. I once presented at a meeting in Chicago a list of about two-dozen different types of banks in the United States. We have national banks, state chartered banks, small community banks, larger regional banks, and very large banks with extensive national and international business products and services. All of these operate and compete together, with a body of customers behind each one who think that their bank offers the best available choice of services that they want. No other nation in the world has a banking industry like ours.

The recent recession and financial panic—and the inevitable politicizing of finance that came in its wake—have thrown much into confusion and imposed upon sound and prudent bank supervision harmful ideas born of reckless sloganeering and hubristic financial engineering. The complexity of banking—no more complex than information technology, communications systems, or modern manufacturing—has been superseded by even more complex bank regulation.

The rules governing banking are too much and too many to function reasonably. They have become more than the very human people in the multitude of bank regulatory agencies can manage. The disciplining role of markets and the valuable service of banker judgment have in large measure been replaced by bureaucratic procedures and the judgments of government officials. These officials have had little if any practical experience making loans, taking deposits and putting them to work, building financial wealth, or otherwise providing products to customers. Government officials cannot run businesses. Now, their government jobs have become so demanding and complex, that they will not be able to do their own jobs, either. Too much has been placed upon them.

Those most harmed by all of this are bank customers. For the moment, bank profits are up, but that is because their losses are down as they recover from the recession, not because services to customers are expanding. As a result of government interest rate policies, depositors earn almost nothing on the money that they place in banks. The expanding oversight involvement of bank regulators makes it dangerous for banks to offer new services to customers; the risk of breaking any of thousands of pages of regulations has become too great. It takes almost half an hour to open a new bank account, something that used to take minutes. Fewer credit-worthy borrowers today qualify for mortgages than just a year ago, before new regulations went into effect. The number of banks has been declining in recent years, dropping at the rate of nearly one for every business day, week in and week out. Only one new bank has been opened since 2010. We have fewer banks today than the nation had in 1893. A stagnant industry is less able to evolve to meet changing customer needs and preferences.

For the good of all of us who rely upon banking services, and for the sanity of financial regulators, we need to return to the principles of good banking. We need to restore a system of supervision that is measured, not by how much banker judgment it takes over, but by how it adds value to the ability of banks to serve customers. Government agencies—and the laws that they administer—that are derived from a founding document that begins with the words, “We the People,” should do nothing less, and nothing more.

On another day I would like to share some thoughts about how banks are being goaded to become their own enemies.

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