Although there was no smoking gun in the release of today's Fed minutes, I suspect that the more Keynesian members of the board are frightened about the fiscal stimulus that will soon be coming from the Trump administration. With the economy at or very near the natural rate of unemployment, the economy has the very real potential of over heating.
Thus I suspect the the two perma-doves on the FOMC, Yellen and Brainard will soon switch from dove to hawk. Trust me the markets are not ready for this eventuality.
Wednesday, January 4, 2017
Tuesday, January 3, 2017
The Never Ending War
Irish historian Robert Gerwarth certainly proves George Kennan’s notion that World War I was “the seminal catastrophe of this century.” To most of us in the West World War I ended on November 11, 1918. However in the East the war would rage on through 1923 and even today nearly a century later we remain prisoner of the forces it unleashed.
He also confirms the view of Ian Kershaw in his “To Hell and Back…..” that the Russian Revolution, an outgrowth of the war, paved the way for fascism by dividing the Left and hardening the Right. We see that at the outset where communists under the leadership of Rosa Luxemburg and Karl Leibknecht die in their attempt to seize power in 1919 Berlin. Similarly an attempt to form a Munich Soviet fails in that year as well. Put simply the Social Democratic government relied on the rightest Freicorps to put down the rebellion. In its aftermath Munich would become the festering ground for the rise of the Nazis. In Hungary Bela Kuhn, a communist, temporarily takes power only to be put down by a counter action from the Right. All the while the Russian civil war rages and within that there are the Russo-Polish and Russo-Finnish Wars, so much for the end of violence in November 1918.
For the Jews of Eastern Europe and Germany the situation turns from bad to worse. On top of the latent anti-Semitism that already existed we have the conflation of Jews with communism as much of the communist leadership in Russia, Germany, Austria and Hungary are Jewish. Thus the way was paved to broaden the appeal of anti-Semitism to much of the middle-class.
Where I think Gerwarth breaks new ground I think is in his discussion on the role of Mustapha Kemal’s success on Mussolini and Hitler. Kemal defeated the Greeks in Turkey and undid the toughest settlement against the Central Powers in the 1920 Treaty of Sevres which made Turkey a vassal of the Allies. In Kemal both Hitler and Mussolini saw his success in the ethnic cleansing of the Greek population in Eastern Anatolia by force and his willingness to stand up to the allies so much so that the 1923 Treaty of Lausanne completely undid the Treaty of Sevres. By the 1930s those lessons were well learned.
There is much more to Gerwarth’s book. He discusses why Italy ended up on the winning side; it still felt like a loser. And he discusses the chaos in the Balkans that we relived once again in the 1990s. Yes, World War I is still not over. Just look at the Middle East.
The complete Amazon URL is: https://www.amazon.com/review/RH2HKCJZ3RUZS/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv
Wednesday, December 28, 2016
How Two Israeli Psychologists Changed Economics
In March 1979 two Israeli psychologists published an article entitled “Prospect Theory: An Analysis of Decision under Risk” in Econometrica, one of the most prestigious economics journals. That widely cited article established the underpinnings of what became to be known as behavioral economics. Bestselling author Michael Lewis lovingly tells the story of the decades long friendship and intellectual collaboration between Daniel Kahneman and Amos Tversky. Kahneman would go on to win the Noble Prize in economics in 2002 for their joint work; Tversky being ineligible because he died prematurely in 1996 of cancer.
Lewis is at his best when he discusses their distinct personalities. Kahneman is an introvert and a pessimist. Tversky, on the other hand, is an extrovert and optimist, yet they work together. They also go to war together in 1967 and 1973 to defend the Israeli state. In fact it is their experience in Israeli society in both peace and war enable them to see the world more clearly. They did not live as all too many American academics in cloistered cocoons. They are of the world and see the world as it is and not as theory says it should be.
What Khaneman and Tversky do is to convincingly demonstrate that human beings do not always act as rational economic agents as economic theory would suggest and that individual errors do not necessarily cancel out. They suggest that all too many times individuals underestimate uncertainty by using short form rules of thumb, heuristics in their words. Kahneman would later write a bestseller entitled “Thinking, Fast and Slow” based on this premise. In contrast people sometimes overweight low probability events. It is for this reason the same person might by an insurance policy and a lottery ticket on the same day by over-estimating the likelihood of both winning the lottery and their house burning down. Remember the expected value of both the lottery ticket and the insurance policy is negative.
Lewis opens his book by discussing how Daryl Morey, the general manager of the Houston Rockets basketball team uses the principles of behavioral economics in selecting players. This is an obvious follow on from his bestselling book “Moneyball” on the role of data in baseball. Only after writing that book did Lewis realize that what he was really writing about was the work of Khaneman and Tversky making it the genesis of this book. Lewis goes on to discuss, in a very real and personal way, the role of behavioral economics in medicine and government. I know I haven’t done justice to the emotional interplay between Tversky and Khaneman and their families that makes the book more than a history of their work. I will leave that to the reader. “The Undoing Project:….” is well worth the read and I highly recommend it.
The Complete Amazon URL can be found at: https://www.amazon.com/gp/customer-reviews/R25ETXKDJ0NDTU/ref=cm_cr_getr_d_rvw_ttl?ie=UTF8&ASIN=B01GI6S7EK
Friday, December 23, 2016
While sitting idly by watching the slaughter in Aleppo President Obama decided to slap Israel in the face on his way out the door. By abstaining instead of vetoing, a U.N. resolution condemning Israel's settlement policies he ratified his overall policy of appeasement in the Middle-East. He fails to understand that peace will only come when the Palestinians recognize Israel as a Jewish state. The settlements are not the core issue and it seems that Obama is far more cozy with the Mullahs of Iran than our one true friend in the region. It is so pathetic.
Tuesday, December 20, 2016
The Impossible Dream
After reading Daniel Gordis’ magnificent biography of Menachem Begin, I looked forward to his history of Israel. Although I liked his new book, I was somewhat disappointed in that I don’t think it is as good as Ari Shavit’s , “My Promised Land.”
Nevertheless Gordis brings to life the idea of a national homeland for the Jews from the proto-Zionists of the mid-1800s to Zionism becoming a mass movement under the leadership of Theodor Herzl after the first Zionist Congress in 1897. To dream of a state after nearly 2000 years of statelessness was truly an impossible dream, but it came true 50 years later after the horror of the holocaust that befell European Jewry.
What Zionism did was that it transformed the cowering Jew of the shtetl to the muscular member of the Israel Defense Forces of today. This is truly a major accomplishment. However early Zionism was secular and socialist and along the way it lost some of its Jewish soul which it is now returning to.
Gordis highlights the role of David Ben Gurion and his labor socialism in building the institutions necessary for statehood. After all, a state cannot be created out of thin air. The stat he built was dominated by the Ashkenazi Jews of northern Europe to the detriment of the Sephardi Jews of Africa and the Middle East. This would come home to roost with Begin’s surprise victory of 1977 giving power to the Israeli right.
As with most histories of Israel Gordis discusses the Balfour Declaration, the White Paper, the war for independence, the 6-day war of 1956, the 1967 war and the 1973 war. Truly it is a history of conflict with the native Palestinian population and the neighboring Arab states. A conflict that continues to this day and in all likelihood it will not be resolved until the Palestinians accept the existence of Israel as a Jewish State.
What I found lacking in the book was the absence of any real discussion about the economy. To be sure you need institutions to have a state, but you also need an economy. There should have been more discussion on the role of agriculture in the early days and the shift to a modern high-tech economy. He also neglects the importance of German Reparations in the 1950s, contributions form worldwide Jewry and foreign aid from the United States. While few in 1900 would have predicted the arrival of a Jewish state, even fewer would have predicted the modern economy that Israel has created. That is an important story worth telling. That said Gordis’ work puts in one volume a very readable history of Israel.
For the complete Amazon URL see:
Saturday, December 10, 2016
The Will to Power
German historian Volker Ullrich has written a long (1008 pages in the print edition) and at times dense book about the first 50 years in the life of Adolf Hitler. He tells the story of how a draft dodging (failure to timely register for the Austrian draft), vegetarian, art-loving, ballet loving, cinema-loving and music loving bohemian of Vienna and Munich became the mass-murderer of Europe and defined the evil of anti-Semitism. So much for stereotyping characteristics that are usually associated with the Left. It is quite a story and it is more about the how, not the why, this World War I corporal seized power over all of Germany.
In Ullrich’s view Hitler’s success was due not only to his ability as an orator, especially for radio, but also due to his photographic memory, his ability to read people and audiences and above all he was a great actor. He really knew how to fool people and fool them he did. He fooled the German aristocracy, the German general staff, the leading industrialists, the leadership of the conservative parties, British Prime minister Neville Chamberlain and above all the German people. At the time of Munich the Germans were just as pro-peace as were the British and were not prepared for war to Hitler’s chagrin. He so convinced the populace that he was a man of peace and he thus had run a propaganda campaign to prepare for the war to come.
Ullrich goes into great detail in what I characterize as “the game of thrones” in Hitler’s move for power in January 1933. After being almost written off in late 1932 after a major electoral defeat, Hitler regroups by magnificently playing the German political chessboard in merely a month. By July of 1933 he nearly has full power over Germany and he consolidates his seizure of power with the Night of the Long Knives in June 1934 when he purges the S.A. power structure from the Nazi party.
The book end in April 1939 at the celebration of Hitler’s 50th birthday and after he peaceably reoccupied the Rhineland, annexed Austria, took over Czechoslovakia and had Lithuania cede Memel to Germany. From then on additional territory would come through war with Poland being the next stop.
My rating of four stars is that the book is difficult for the lay reader, but for the professional historian and I would give “Hitler: Ascent” five stars.
Friday, December 9, 2016
This article is a different version of the previous post on Trumponomics. Although shorter, many of the charts are available to view. You can access the article at the link below: