Why Isn’t the Fed Tougher on Banks?

By Kindred Winecoff

I am live at The Washington Post‘s political science blog The Monkey Cage, writing about some of my recent research on the global financial system. One key bit:

[T]his result conforms to a simple logic: if you task central banks with financial stability, they will partially tailor monetary policy to make it so. If banks know that their central bankers have their interests in mind, they will behave with less prudence. It makes perfect sense why this would be the case. So long as banks do not violate their statutory capital requirements there is little that central banks can do to prevent this behavior even if they wished to do so. Economists refer to situations in which actors are able to shift the risk generated by their actions onto others as “moral hazard.” It is one of the greatest economic problems, which can cause entire markets to fail. Isn’t that what’s happening in this situation?

Read the rest here. The underlying research is available on my website here.

Remind Me: How is Putin Winning?

By Seth Studer


Last week, the Washington Post ran a headline that captures everything wrong about how Russian president Vladimir Putin’s political and military maneuvers in eastern Europe have been covered in the West: “Ukraine ratifies associations with E.U., grants concessions to rebels.” The newly strengthened relationship between Kiev and the E.U. is rightly emphasized, but the small concessions to Russophone rebels in eastern Ukraine is added as an apparently obligatory counterbalance – common throughout what we in America cloyingly call “the mainstream media” – to reinforce the narrative that Russia is somehow on the move. I say “cloyingly” because the sentiment reflects an American Cold War nostalgia that never quite collapsed under the Berlin Wall or the disintegration of the Soviet Union, a nostalgia for three networks, two newspapers, and one Bad Guy. “See! Concessions! This is why Obama is weak and Putin is strong! The West is in retreat and the rebels are getting concessions! Right?! Right?!”

Mr. President, build up that wall!
Mr. President, build up that wall!

Here’s a different perspective:

At this time last year – September 24, 2013 – Ukraine’s president was little more than Putin’s stooge, Moscow’s man in Kiev, a corrupt thug who lived in a Eurotrash mansion (“Opulence: I has it”) and kept two bells on his nightstand: one for vodka, the other for prostitutes. Viktor Yanukovych had spent his political life advocating and advancing close ties to Russia. He became president after his predecessor, a reformer who was poisoned and disfigured in what amounts to hilarious retro-Cold War shenanigans gone terribly wrong, failed to win reelection. Ukraine was leaning toward Russia, and through Yanukovych, Putin effectively determined Ukrainian foreign policy. You might say that Putin was co-president of Ukraine.

Flash forward one year: Yanukovych is gone, ousted by his own people. Instead of enjoying considerable power over Ukrainian policy, Putin now owns Crimea (which has only been Ukrainian since 1954), exerts direct influence over some parts of eastern Ukraine (instead of the whole thing), and finances (though denies any ties to) a ragtag bunch of crypto-fascist Russophones who can’t distinguish between a Ukrainian fighter jet and a passenger plane full of innocent Europeans (they can’t even control their Twitter accounts; at least ISIS has decent PR guys).

Meanwhile, Kiev has never been closer to Europe, and its fate has never seem more intertwined with the EU’s. As a bonus, the Baltic states just got reassurance that NATO benefits will be honored, and Russia is facing several not-insiginificant economic sanctions from many of its ostensible allies.

Am I the only one who sees Putin as the net-loser here? And Obama? He barely had to do a thing to achieve this outcome.

But...but...Obama has a pink backpack and Putin doesn't wear a shirt!
But…but…Obama has a pink backpack and Putin doesn’t wear a shirt!

Twenty-five years ago, Berlin was the primary political border of Europe, where East and West faced off. Today, the border has shifted eastward…all the way to Kiev. Putin (shirtless) is in a helluva fix, and all Obama (mom jeans) had to do was make a couple phone calls. The West is kind of kicking ass, and we’re not even trying that hard. Because while Russian hardliners project a lot of strength, they tend to exert it by beating dogs, shooting tigers, and undermining themselves.

Building a Better Middlebrow: the Case of Ken Burns’s “The Roosevelts,” Pt. 1

By Seth Studer

Ken Burns

Preface: No spoilers, please…

I am not yet finished watching Ken Burns’s fourteen-hour long saga The Roosevelts: An Intimate History. Nevertheless, I can already reflect on what Burns’s latest contribution tells us about the much-touted “Golden Age of Television.” An historical documentary on PBS spanning fourteen hours, most of it comprised of black-and-white archival footage and Baby Boomer talking heads (e.g., George Will, Doris Kearns Goodwin, and one or two real historians), is being sold to the American public as “intimate.” And the series is intimate; Burns’s focus almost never turns from Roosevelts Teddy, Franklin, or Eleanor. The Roosevelts is easily his most intimate portrayal of a Great American (or, in this case, a Great American Family), and it reflects his growth as a filmmaker over the last half-decade, beginning with The National Parks: America’s Best Idea (a hot mess, to be sure, but a beautiful hot mess) and Prohibition (a tight little policy pic – his best film). In many ways, The Roosevelts is a return to the Burns I knew and hated in The Civil War and Jazz. But he’s returned wiser, sharper. His obnoxious Great Man, Big Battles gloss on the byzantine complexities of American social and political history has never, ever looked so good and contained so much substance. We can learn a lot from Burns’s most recent hybrid success-failure. Specifically, how to build a better middlebrow within American mass culture: a middlebrow it deserves and, I think, a middlebrow it wants.

The Roosevelts’ final episode aired last Saturday, but I’m not worried about catching up. Since the middle of last week, PBS has posted the following message to my Facebook feed at least twelve times: “Remember: you can binge watch the ENTIRE series – until Sept 28th – on your local PBS station’s website or Roku.” Today, the most consistent and interesting purveyor of American middlebrow culture is AMC. Mad Men, Breaking Bad, The Walking Dead: the pretensions of HBO with half of the budget and twice the accessibility. And AMC uses the exact same language to sell me Mad Men that PBS is using to sell me The Roosevelts.

"Binge all over me," says Betty Draper.
“Binge all over me,” says Betty Draper.

Much like Netflix, which has built a business model premised on its customer’s desire to “binge” on original content (we all finish House of Cards and Orange is the New Black knowing full well it will be an entire year before we get new episodes), AMC is encouraging its audiences to consume its products in the manner of a frat boy seeking to increase his blood alcoholic content as quickly as possible, or in the manner of a psychologically distressed person for whom food is a dangerous psycho-physiological outlet. Given the well-established link between consumption, consumerism, and sex (“INDULGE” is the word they coupled with Christina Hendrick’s Joan Harris), no one is really surprised by AMC’s ad campaign. But when the same tactics are applied to a 14-hour documentary about Eleanor Roosevelt, the time has come to ask some interesting questions.

Part One: Ken Burns – not a Historian, but he plays one on TV!

Throughout the 1980s, Ken Burns directed small documentaries on topics ranging from the Shakers to Huey Long and the Statue of Liberty. In 1990, he earned national fame for his seventh documentary, The Civil War, a nearly twelve-hour documentary about the Conflagration Between the States that, amazingly, managed to say very little about the causes – social, political, and cultural – of the war itself. A viewer could watch all 690 minutes of Ken Burns’s Civil War and learn nothing about the Civil War. Besides the battles, of course. Burns spends as much time on the Battle of Chattanooga (the third most important battle fought in Tennessee, the second or third least important state in the Confederacy) as he spends on the policy battles that raged between Lincoln, his advisors, and the Congress; or the internal divisions and resentments within the Confederacy itself, which did as much to weaken their cause as the Union juggernaut. Slavery is discussed, obviously, but as a fact and not a consequence of U.S. policy; the impact of its demise on U.S. politics is minimized. Every single black character is voiced by Morgan Freeman, who gravely intones the words of Frederick Douglass and then hams it up, step ‘n’ fetch it-style, when reading the words of perfectly literate enslaved (or merely working class) black men.

If Burns’s later films would suffer from an overemphasis on personalities, his Civil War underplays them in favor of events. Lincoln’s political acumen; Grant and Sherman’s brutal tactical genius; the stubborn dignity of black leaders who, receiving emancipation, refused to prostrate themselves before Northern whites; the grace with which many Confederate leaders, Lee among them, accepted defeat; all of these Great Persons are overshadowed by Great Battles, so that viewers in every media market from Picacho Pass to Pennsylvania could look out across their amber waves of telephone wire and pavement and intone, “It happened here.”

Among the talking heads, the thickly accented Shelby Foote utterly consumes Burns’s Civil War. He appears at least ten times more frequently than any other historian or author. Foote is a documentarian’s dream: folksy, charismatic, intellectual, and a born storyteller. But Foote is also kind of an idiot. When he volunteers to name “two authentic geniuses” produced by a war that gave America seven presidents, he identifies Abraham Lincoln (one of the great statesmen of the nineteenth century, along with Benjamin Disraeli and Otto von Bismarck) and Nathan Bedford Forrest (a lieutenant general in the Confederate army and founder of the terroristic Ku Klux Klan’s first iteration). This declaration had, apparently, once placed Foote in hot water once with a Southern relative, who grimly intoned, We never thought much of Mr. Lincoln down here. Foote chuckles in response to his anecdote. Southerners have strange feelings about that war, he observes.

Ya think?

Foote is not a Confederate partisan. He is simply a Civil War buff. But a buff is the most dangerous kind of historian. I am a Nixon/Watergate buff, which is why I am reluctant to make major claims about the man or the event. Foote has made a career buffing up the Civil War, giving it sheen but no shine, clearing away dirt but revealing nothing. Burns is in awe of Foote, whose volumes on the Civil War constitute the kind of history most popular with “buffs”: battles, more battles, personalities on the field, more battles, blood, guts, glory. We remember the names of colonels and privates but none of the congressmen. We learn more about Forrest than we learn about William Seward, Charles Sumner, Thaddeus Stevens, Alexander Stephens, or Judah P. Benjamin.

Here’s a tip: any middlebrow history of the American Civil War that does not begin – begin – with transatlantic trade, not merely of slaves but of all goods, is lying to you. Period.

Between The Civil War and The Roosevelts, Ken Burns’s style underwent significant improvement. He produced two “event” histories of Baseball and Jazz, widely praised except by hardcore fans of baseball and jazz, alongside shorter treatments of subjects we portray on banknotes and passports: Lewis and Clark, Thomas Jefferson, Mark Twain, and westward expansion. In 2007, he attempted to catch the White Whale of all American historical narratives, World War II, but took such a circumspect route – no straightforward, consensus-minded historical narrative; firsthand accounts from veterans; a “bottom-up” approach to major events – that he confused most of his viewers, who came expecting “the Burns treatment” (letters from Eisenhower, Tom Hanks as Patton, David McCullough’s eyebrows, etc.). The War was a failure.

By the end of The War, Burns seemed finally to grasp his own unique strengths and limitations. On the one hand, he could spew middlebrow schlock about the United States of America better than anyone. On the other hand, he had a tendency to attach himself to Great White Dudes (Shelby Foote, Thomas Jefferson) and no capacity to represent the subtle movements upon which history progresses. Why not, then, spew schlock and attach himself to lesser-known, more interesting Great White Dudes? And why not cast these Dudes in a story less obvious than, say, THE CIVIL WAR or THE WEST?

What followed were the best documentaries Ken Burns has yet made.

In my next post: The National Parks, Prohibition, The Rooseveltsand Burns in TV’s “Golden Age”

8 Hours in a Struggling School

By Amanda Grigg

Disclaimer: While I have an interest in education policy I am by no means an expert. My experience in this school probably won’t be shocking to anyone working in public education or studying education policy, and probably shouldn’t have come as as much of a shock to me as it did. I’ve read about failing schools, I’ve heard war stories from friends who teach in underfunded schools, but experiencing it firsthand was another matter entirely.

In search of a way to earn a bit of extra money while finishing my dissertation (without suffering the soul-crushing world of retail) I decided to try substitute teaching. In Michigan, the majority of K-12 institutions have outsourced their substitute hiring to staffing companies, so I signed on with one of the two in the area.

In order to substitute teach I had to send in official copies of my transcript, authorize a background check, go to the police department to have my fingerprints done (who knew they charged for that?), fill out a mountain of forms, go through several hours of online tutorials followed by quizzes that weren’t scored, and attend a torturously long in-person meeting. We spent approximately half of the meeting filling out forms together and another half hour being warned not to touch the children or use school computers.  The one interesting thing I learned in the meeting was that by the time students graduate, they have spent an entire year with a substitute teacher.

Classroom_desks_chairs_and_chalkboardI took this to heart, and was ready to lay down some serious knowledge at my first substitute teaching gig, filling in for a high school english teacher. It was the Friday of the first week of school. As recommended, I prepared a backup lesson plan, forced myself into dress pants for the first time since my last academic conference, and arrived at the school a full hour early to make sure I had time to find my classroom and prepare for the students’ arrival. It was still dark when I got to the school. The secretary at the front desk looked at me curiously then laughed when I told her I was a sub. She said I wouldn’t be able to get into my room for another 30 minutes at least.

When the secretary eventually handed me my assignment and asked me to sign in I noticed that I had been assigned to substitute for a Spanish class. I don’t speak a word of Spanish. I told the secretary as much, but she waved me off and picked up a walkie talkie, requesting a security guard to unlock my room for me. We had been warned at the sub meeting that we might be asked to fill in for another position occasionally, and that the staffing company recommended that in these cases we just “pitch in” and help out (and implicitly that we do so regardless of whether we’re equipped to teach in the subject area).

Following the directions of the secretary I made my way through the building, past the cafeteria and several banks of lockers. I paused at a bulletin board listing colleges students might want to apply to. Several were historically black colleges, the rest I had never heard of. Few if any had average ACT scores above 20. None of the major public universities in Michigan were listed.

I found my way to my classroom where I was welcomed by the other Spanish teacher, and then promptly joined by another substitute. Neither she nor the administrator who had ushered her into the room explained why they were placing a second substitute in the class. It turned out that she had subbed in the class earlier in the week, and wasn’t needed in the job she had signed up for for the day. She began filling me in on what they had worked on, and on what was going with this class.

BudgetCutCartoonMiamiHerald1According to my fellow sub, I was about to be the third substitute the students had had in their first week of school because the school had yet to hire a new Spanish teacher. She said that the school had had such low test scores in previous years that they were being looked at closely by the state (this turned out to be mostly true). As a result, they had fired about half of their teachers at the end of last year and had yet to replace them all. In their first week of class, the Spanish I students had learned to count to 10 in Spanish. They had no textbooks or workbooks, because only full-time teachers can request textbooks from the school. There wasn’t a notebook, piece of scrap paper or pencil to be found. When students asked to borrow a pencil we had to ask other students to lend them one. Most of the technology in the room didn’t work. The Spanish II teacher offered us a binder full of worksheets for the students but the school’s copy machine was broken. Earlier in the week they had used the projector to project worksheets about the numbers 1-10 onto a screen, but now the projector was broken and regardless, the remaining worksheets required the students to speak basic spanish. And they couldn’t cancel the class and move the students into classes with full-time teachers because they were required by the state to offer two years of Spanish.

As soon as students began filtering in I realized that the vast majority of the students were black. This might not be surprising in a school district that’s predominantly black (or if you, unlike me, hadn’t forgotten how segregated Michigan is) but the population of the school district this school is in is only 20% black. According to schooldigger.com the student body is 77% black.

We spent the first two periods of the day doing as much as we could with uno-diez. By the third period an administrator brought what they thought was a dvd for us to play for the students. But that turned out to be a software disc. Eventually they brought in a set of beginner’s spanish dvds.

At the start of every period the students, without fail, asked if I was their teacher. At first I said yes until I realized what they meant, “No, are you our real teacher?” When I said no I could see the (completely justified) frustration on their faces. Early in each period the students humored us. They knew their work was meaningless because there wasn’t even a “real” teacher for it to be turned into, though the second sub assured them several times that it would be carefully guarded and passed on once they had a real teacher. Their patience didn’t last long. They asked us whether we spoke Spanish, how they were supposed to learn anything if we weren’t actually Spanish teachers (fair points), complained that the first week of school had passed without them getting a real teacher, and joked that they were going to call the “Problem Solvers” (our local news station’s investigative team).

Throughout the day students regularly left the room without saying a word and returned halfway through the period or not at all. Students from other classes wandered in to visit with friends (greatschools.org reviews of the school suggest that this is the norm). When I followed a couple of students into the hallway to ask them to come back they ignored me and continued walking. The school has their own security but neither they nor administration ever ushered a student back into my class. A young woman interrupted class to ask where she could charge her cell phone. Several students got into a mostly playful yelling match, standing up in the middle of class to shout at one another.

There were also students who dutifully filled out the meaningless worksheets, asked questions, had us check their work. Students who volunteered to write on the board or share their answers with the class. And there were students who ignored the work who were clever and funny enough that I had a hard time not laughing at their jokes, students who walked out of class but returned to offer to help us fix the broken projector, students who I was sure would have been engaged if they trusted that their work was meaningful and their teacher was qualified. The students who spoke fluent spanish corrected the videos where they were dated – explaining that no, they don’t refer to e-mail as the spanish equivalent of “electronic mail.”

During lunch the second sub and I went to the teachers’ lounge, where she told me a bit more about the school. She predicted that at least half of the new teachers wouldn’t stay on past their first year, “the kids will break them.” Thinking back to the staffing meeting I worried aloud that we hadn’t taught anyone much thus far and she said “Don’t worry, they don’t expect you to teach them anything here. As long as they don’t hurt each other they’re happy. When I go to [a predominantly white school] I’m expected to teach but here, no.”

In 2012 just 1.3% of the school's students met standards for math proficiency. As of 2014 this number had reached 3%.
In 2012 just 1.3% of the school’s students met standards for math proficiency. As of 2014 this number had reached 3%.

I met a handful of other teachers, including two of the new teachers. When I mentioned the difficulties we were having they conspiratorially admitted that they didn’t have anywhere near the support or materials they needed. A new math teacher told us that she had been hired late in the summer and told to take the first week of school off as a professional development week, to get to know the school, prepare her materials, etc. She stopped into her classroom halfway through the first week and asked the substitute what her students had been working on. The sub said “Oh, I’m a health teacher, we haven’t been doing any math.” She came to work the next day. Several teachers came in to use the copy machine only to find that it was (still) broken. One mentioned that things might be easier once the students received the Nook tablets the school would be handing out soon. I assumed that they were part of some company promotion or technology grant, otherwise why in the world would the school invest their limited funds on tablets when they can’t keep teachers in the classrooms or maintain their existing technology?

By the end of the day the students were restless. A young man on one of the athletic teams (easily identified by his dress shirt and school-color striped tie) spoke Spanish and was clearly fed up with the week of sub-par Spanish. He rushed his fellow classmates through the work, chastising them when they couldn’t copy down the vocabulary words quickly enough. A student came in late with a sucker, then asked to leave class to go back to the cantine for more candy. His classmates made fun of him for eating so much, and he managed to look both hurt and humored by them. He later began yelling that a fellow student’s purse had been stolen. The young woman in question seemed unworried, and when I asked her what was going on she smiled and pointed to the boy who had hidden it, who quickly returned it to her.

I turned to look at my own purse perched on the teacher’s desk and realized that my cell phone wasn’t where I had left it (in a pocket of the purse). I had taken it out earlier to check the time because, of course, the clock in the room wasn’t working. I looked for it behind the desk, in the depths of the bag, in my lunch bag, to no avail. The other substitute walked over and I said, “I can’t find my phone,” and (not wanting it to be true) said, “no one would have taken it would they?” This time it was her looking at me in disbelief. “Of course they would.” The next 30 minutes sped by. The second substitute announced that my phone was missing and asked if anyone had seen it. The students let out a collective “oooooh someone’s in trouble” noise. An administrator and a security guard were quickly summoned to the room. They demanded that the phone be returned. The security guard asked me to call my phone, it went straight to voicemail. He announced to the students that he was leaving to review the video of the hallway outside of our room to see who might have left with the phone during the hour (you might not be surprised to learn that the cameras weren’t actually on at the time). Two of the students who were dressed for game day stood at the door, telling the administrator (their coach) that they were making sure no one left the room. The student with the candy stood up and began yelling that he had to leave the room to make it to his community service on time, “Lady, you better let me out of here!” The administrator came back and a security guard escorted the student to the main office. The security guard asked me to show him where my purse had been, what kind of phone I had, when I had last seen it. He explained that cell phones “unfortunately” go missing pretty regularly in the school. A few students stood in the hallway talking to their coach. Later the student athlete who had been frustrated with his classmates (and guarding the door) came into the room, took me aside, and explained what was going on. At this point it felt a bit like the students were taking care of me, shaking their heads and explaining that this happens all the time, offering to let me use their phones to call my cellphone company, asking whether I had Find My Phone turned on. The student athlete told me that a friend had seen the person who took my phone, and that they were in the process of searching him. He didn’t have the phone on him, so they let him go, and I left a number with the security guard and headed home.

School-to-Prison-IllustrationI didn’t hear from the school again until Monday afternoon. During the final period of the day they got a written statement from the student witness, which they said allowed them to call the parents of the student they now referred to as “a credible suspect.” Though I was still working exclusively with school officials, the language was entirely that of the criminal justice system.

Sidenote: they told me that the student had probably sold the phone for $30, which is apparently the going rate for stolen iPhones.

On Tuesday the student’s mother told the Dean of Students that she hadn’t seen him in two weeks, and that she had just reported him as a runaway. The Dean had already suspended the student for stealing the phone – a punishment thatI have never understood and which seemed particularly counterintuitive in the case of a runaway. He hadn’t turned up in school on Monday anyway, probably waiting “until the heat died down” about the phone. According to the Dean of Students, the student’s mother said that she was fed up with him and hoped that I would press charges. I told him that I wasn’t planning on doing so, that I was only interested in getting my phone back and saw no point in tying this kid up in the criminal justice system when he clearly needed help that it couldn’t and wouldn’t provide. He said he understood but urged me to press charges, saying that this wasn’t the first time the student had been in trouble, he’s done things like this before etc. He told me that if the student returned to the school they would hold him there because he’s been reported as a runaway, and that they would contact me if and when he does. I haven’t heard from them in two weeks.

I’ve done some research on the school since I left. I learned that enrollment has been declining over the past seven years and that white students are leaving the school in droves. Between 2000 and 2012, the number of students declined from 1357 to 651 and the percentage of white students went from 23% to just 5.8%. Meanwhile the number of students eligible for free lunch has skyrocketed – up from 29% of students in 1999 and 56% in 2002, it’s held steady above 80% since 2006. On the upside, graduation rates increased from 54.9% in 2012 to 67.6% in 2014.

Test scores are certainly poor enough to warrant attention from the state. In 2014 the school’s test scores ranked worse than 82% of schools in Michigan. In the 2009 Michigan Merit Examination (MME)  only 14.5% of students met the state standard for english language arts proficiency, compared to 28.4% in the district and 52.1% in the state. In 2014, 29% of students were MME proficient in reading (compared to 39% in the district and 59% in the state). In the same year, just 3% of students met the state standard for proficiency in math and science (compared to 14% in the district and 28% in the state).

In 2010 the school was one of 28 Michigan schools awarded a federal School Improvement Grant (SIG) as part of a recovery act program targeting low-performing schools. Only the bottom 5% of schools in each state were eligible. Michigan received $115 million in funds in the first round of SIG funding, $5.3 million of which went to this school. The school district opted to implement the SIG “transformation plan” which is likely what my fellow substitute referred to when explaining the recent changes in staff.  According to the technology associate at the school, they spent roughly $1.5 million – a fifth of their grant – purchasing a nook tablet and ebooks/subscriptions for every student in the school. The Nooks arrived at the school last year and will, as another teacher mentioned, be handed out to students later this month.

Reviews on greatschools.org offer more examples of the day to day life at the school. A parent explains that “everyone is frustrated and burned out.” Another sub says they were “shocked by the behaviors of students. Each class had only 4-8 dedicated students while the rest of the class kicked chairs down, called me names, ripped up assignments and threw the remnants on the ground. I called security, and no one came.” Another parent says “in my opinion this is a terrible school for your students to go to.”

Three of the six student reviews call for greater parental involvement. One review is particularly heartbreaking  “For the adults who claim that there is no hope for our school, this shows how much support we have. I am a student who has earned my 4.0 gpa and I don’t believe that because there are bad apples in the bunch we should all be classified as hopeless children.”

I finished writing this from the Starbucks I frequent. It’s coincidentally next to a high school that’s less than 3 miles from the school where I subbed. This high school ranks in the 98th percentile of schools in Michigan, fewer than 10% of students qualify for free lunch, and the student body is 90% white. In 2014, 68% of students met standards for MME math scores and 60% met the standard for science (compared to 3% each in my sub school). Students regularly stop in Starbucks after school or during their free hours toting Macbooks, the girls outfitted in Ugg boots and NorthFace jackets. I’ve seen their mothers replicate a J Crew catalog outfit down to the bracelet. The girls next to me at the moment are reviewing for a quiz – “Who was John Winthrop? He was the city on a hill guy, the Puritan leader. Who was Montezuma? Umm. Who were the Aztecs? Why are we learning about this?” I ask them if they know anything about the school where I subbed, “I have no clue, I’ve never been anywhere near it…but I’ve heard it’s really different.” That’s one way to put it.


If you need to laugh after this (I know I did) here’s Key & Peele’s “substitute teacher” sketch












The Wizard of Oz Is an Anti-Finance Manifesto

By Kindred Winecoff

Somewhat apropos of my previous post is the following anecdote, which I’ve read a number of times and have always forgotten. I’m pasting it here for posterity’s sake. It is from Daniel Little’s review of David Graeber’s Debt: The First 5,000 Years:

There are many startling facts and descriptions that Graeber produces as he tells his story of the development of the ideologies of money, credit, and debt.  One of the most interesting to me has to do with The Wonderful Wizard of Oz.

L. Frank Baum’s book The Wonderful Wizard of Oz, which appeared in 1900, is widely recognized to be a parable for the Populist campaign of William Jennings Bryan, who twice ran for president on the Free Silver platform — vowing to replace the gold standard with a bimetallic system that would allow the free creation of silver money alongside gold. … According to the Populist reading, the Wicked Witches of the East and West represent the East and West Coast bankers (promoters of and benefactors from the tight money supply), the Scarecrow represented the farmers (who didn’t have the brains to avoid the debt trap), the Tin Woodsman was the industrial proletariat (who didn’t have the heart to act in solidarity with the farmers), the Cowardly Lion represented the political class (who didn’t have the courage to intervene). … “Oz” is of course the standard abbreviation for “ounce.” (52)

The symbolism of the “yellow brick road” needs no elaboration.

UPDATE: As was been pointed out by Thomas in the comments, this was discussed long ago in the Journal of Political Economy.

Understanding the Preferences of Finance

By Kindred Winecoff

Paul Krugman [1, 2] and Steve Randy Waldman are having an interesting exchange on why the wealthy support tighter monetary policy despite the fact that expansionary economic policy is good for them. This is often expressed as an aversion to lower central bank interest rates, quantitative easing programs, or other activist monetary actions. Krugman sums up the puzzle nicely:

I get why creditors should hate inflation, but aggressive monetary responses to the Lesser Depression have been good for asset prices, and hence for the wealthy. Why, then, the vociferous protests?

Krugman believes that this is false consciousness: “rentiers” oppose policies that benefit them because they adhere to a model of the world — in which loose monetary policy will lead to runaway inflation that will erode the value of their capital — that does not apply in our current circumstances. (Krugman does not mention that one reason why rentiers might believe this is because Keynesians like Krugman have been advocating for higher inflation partially for this reason for some time.) Waldman portrays this as simple risk-aversion: expansionary monetary policy will change something, and because recent circumstances have been favorable to rentiers that something is likely to negatively impact their station.

I prefer Kaleckian accounts that emphasize the general relationship between capital and labor. In Kalecki’s world, full employment gives bargaining power to workers because they have easy exit options. Conversely, underemployment gives bargaining power to capital. I believe that both Krugman and Waldman are sympathetic to this framework as well.

But I want to highlight another possibility that situates the U.S. macroeconomy within the context of the world economy. The simple Mundell-Fleming macroeconomic model, when combined with a Ricardo-Viner sectoral approach, tells us that when international capital mobility is high (as it is today) financial capital benefits from an exchange rate that is high and stable, while fixed capital and labor benefit from monetary policy flexibility and (often) a lower exchange rate. This relationship is discussed in detail in Jeffry Frieden’s 1991 International Organization article “Invested interests: the politics of national economic policies in a world of global finance”, from which the table below is taken:



The section of the article that begins on pg. 442 is especially relevant. There are several things to note. First, the preferences of financial capital diverge from those of fixed capital, which are divided in turn by whether it is engaged in export-oriented, import-competing, or nontradeable production. Second, the preferences of labor within these sectors will tend to side with capital within the same sector, and oppose capital (and labor) in other sectors. Third, the interests of financial capital will diverge from everyone else.

Why is this? Frieden notes that the interests of capital depend on how strongly tied that capital is for its specific current use. Financial capital is much more liquid and adaptable than an industrial plant. It can be deployed globally while fixed capital is must remain local. For this reason, exchange rate movements create an additional source of risk: a depreciation will negatively impact the value of local assets vis a vis foreign assets, while an appreciation will negatively impact the value of foreign assets vis a vis local assets. The point is that any exchange rate movement from the status quo will benefit some and negatively impact other status quo investments, which is why the interests of fixed capital are divided. But for financial capital, exchange rate movements are always bad for their status quo portfolio, at least inasmuch as an alternative portfolio created that anticipated the future exchange rate movement could have been constructed.

Why should finance support a higher exchange rate level in addition to low volatility when capital is mobile globally? Because, all else equal, a higher value in the local currency will increase purchasing power globally. This is particularly true if you have easy access to that currency via one’s central bank. It is probably true that U.S. banks have had greater access to dollar liquidity over the past five years than at any point in economic history; given that, they would prefer those dollars to be more valuable in exchange rather than less.

Frieden notes in his article that the distributional implications of the battle over exchange rate stability and interest rate levels would be especially severe among the European countries that were then debating joining a common currency, with finance preferring a high and stable exchange rate and low monetary policy flexibility. I would suggest that this expectation has been borne out exceptionally well, as the ECB has engaged in quite restrictive monetary actions despite suffering from a regional economic collapse that has few historical parallels. The story is a bit different for the U.S. because of its n-1 privileges, but it is unclear whether anyone in the U.S. — financial firms or even the Federal Reserve — really understands this. Even still the basic story works: high and stable exchange rates are better for finance capital than low and volatile exchange rates.

So from the perspective of financial capital the great risk of expansionary monetary policy is that it will impact exchange rates rather than interest rates, growth, employment, or even asset prices. Thus the Krugman-Waldman puzzle is not a puzzle at all. Financial capital wants restrictive monetary policy because it benefits them more than the alternatives.

Uber Is A Gift From God

By Graham Peterson

There is a dust up right now about whether or not Uber, the cab company that isn’t actually a cab company (it’s more like craigslist), should be investigated for anti-trust.  People are afraid that because the company has been so successful, it will eventually become a monopolist.  “What happens when the local taxi companies are destroyed and Lyft is crushed? . . . . What happens to labor — the Uber drivers — when they have no alternative but Uber?” says Andrew Leonard at Salon.

You’ve heard that argument before: “what happens when you only have one choice?” but was from critics of communism,, not anti-capitalists.

If you have Netflix (who also introduced a new technology, like Uber, and “unfairly competed away” the business from your local video store) fire up a copy of the old documentary The Corporation.  If you don’t have Netflix, used copies start at $5.00 (versus $19.00 new) on Amazon’s peer-to-peer marketplace, another service just like Uber.

There is a scene about a small town that effectively banned McDonald’s from setting up shop.  In the town hall meeting, there is a clip of someone’s Craggy Old Conservative Uncle indignantly warning everyone about what life will be like when there’s only one business to get your products from — the state.  I am nobody’s uncle, and I’m not a conservative, but I’m here to make the same argument.

Restricting Uber and other peer-to-peer services like Airbnb will not eventually lead to communist dystopia.  We’ve been there for decades.  Cabs and hotels are two extremely regulated industries for which competition has always been restricted.  That’s why prices are high, why cabs are mostly shitty revamped police cars, and why service is so poor that your cabbie will likely yell at you for not paying in cash.  Cities hand out a limited number of medallions (cabby licenses that get stamped on the cars), and a handful of oligopolists are able to purchase the majority of them.  Cab companies fix prices, and there is no competition among drivers.

Cab medallions are such a classic case of government monopoly that they’ve been a feature of introductory economics textbooks for decades.  So it just blows my mind that the frenzy over Uber has resulted in the injunction that Uber is the unfair monopolist.

Cab drivers rejoiced when Uber hit the scene because it gave them autonomy they had never had.  I talked to drivers who were glad to not have to argue with dispatch over when and where to pick up fares, drivers who were making a bigger cut on Uber rides.  That’s what’s happening to labor.  The drivers are now upset that UberX (where Joe Blow picks you up in his sedan) is competing away business from them.  But that’s life.  That’s competition.

Here’s the rub.  Whenever there’s new competition in marketplaces, the same arguments come out.  Customers aren’t going to be protected.  The new businesses will monopolize the market and destroy legacy businesses.  You heard the same about Aribnb, and if you go further back, about internet commerce period.

The intuition is that people (cabbies) are essentially knavish, and if not working for large firms, who are again regulated and reigned by large governments, people (cabbies) will screw each other and customers.  But the argument is also, often, that large firms and governments screw the people they’re supposed to represent and protect.  Herein lays the insanity in believing that both governments and markets are awful for people — in order to fight one evil, one must invoke another.

When new technologies appear, competition improves, wages go up, prices go down, and services improve.  You will hear legacy businesses like Hilton Hotels and local cab companies start to invoke anti-communist rhetoric about monopoly and unfair competition.  To wit, you hear monopolists — big business and big government — raise a finger against monopoly.  But the argument is not being made to protect your interests.  It is being made to protect the interests of the state agencies and legacy businesses who benefit from restricted competition.  It keeps cash rolling towards them, and prices high for you.  And it hurts regular folks who want to enter markets to try to improve their lot.