Jonathan B. Wight

The campaign for next Fed chair is on. In this corner is Larry Summers, wonder boy, consummate insider and policy wonk.  In that corner is Janet Yellen, academic star, long time Fed official (various capacities) and now the vice-chair. 

The choice should not be even close.  Larry Summers doesn’t work nice with other people.  While President of Harvard he swept under the rug a huge ethics scandal involving his protégé, Andre Schleifer.  He is unfit for office by that measure alone; that is the subtext for why he was forced out of that job.  As an economic insider he has constantly sided with Wall Street over Main Street (strike two).   

UPDATE: It now appears that Yellen’s gender will be held against her.  She is not masculine enough, it is alleged, to work well within the male-dominated financial world.  Tell that to Maggie Thatcher, Indira Gandhi, and Golda Meir.  

Jonathan B. Wight

Pope Francis, on the heels of his successful trip to Brazil, hints that celibate gay priests may be allowed.  In America we have already experienced “Don’t Ask, Don’t Tell.”  At best, it is a stopgap measure.  Eventually it will have to be loosened further, along with removing the ban on married priests.

But the Pope categorically denies any loosening of rules for women priests.  Argh!   It is blasphemy, not to mention morally repulsive, to categorically degrade women and their spiritual resources in this way.  

Jonathan B. Wight

Leadership is rarely taught via a textbook.  Rather, it is experienced through the life and story of an individual who struggles to create meaning and change, particularly for those at the bottom of life’s power barrel. Great stories are the stuff of powerful learning.

Phyllis Theroux’s new biography of Bishop Walter F. Sullivan (1928-2012) is that type of compelling reading. The book centers on the three decades (1974-2003) that Sullivan led the Catholic diocese of Richmond.  This encompassed diverse geographic areas including the state’s poorest areas in Appalachia, the heavily military areas of Hampton Roads, and the tradition-bound central region. 

The Good Bishop: The Life of Walter F. Sullivan (2013) is hard to put down, if you like reading about social history and social justice.  During his time in office Sullivan tangled with orthodoxy and status quo in their various dimensions.  Most notably:

In the military-rich state of Virginia (with the Pentagon and much, much more), Sullivan preached that nuclear weapons (and the doctrines of nuclear retaliation or first strike) were abominations in the sight of God. 

Jonathan B. Wight

Amidst a summer of political scandals in New York, Virginia, and elsewhere, it might be good to clear the air.

The Chinese philosopher Confucius (551–478 BC) taught a philosophy of ren (benevolence) and yi (righteousness).  Personal moral development was the foundation of a good society.  Hence we could start each day by acknowledging:

[Those] who desire to have a clear moral harmony in the world would first order their national life; those who desire to order their national life would first regulate their home life; those who desire to regulate their home life would first cultivate their personal lives; those who desire to cultivate their personal lives would first set their hearts right; those who desire to set their hearts right, would first make their wills sincere; those who desire to make their wills sincere would first arrive at understanding.... From the Emperor down to the common man, the cultivation of a personal life is the foundation for all.

Quoted in Lin Yutang, The Importance of Living (NY: Reynal & Hitchcock 1937), p. 94.

Jonathan B. Wight

This has been a summer of elephants.  First, I stumbled across Water for Elephants, an engaging story of a Depression-era circus and its bizarre characters, including Rosie the Elephant who experiences a metamorphosis of sorts.  This was made into an interesting movie with Reese Witherspoon. 

Then yesterday a wonderful and moving article appeared, courtesy of the Ethics and Public Policy Center’s journal New Atlantis journal.  In “Do Elephants Have Souls?” Caitrin Nicol explores the moral relationship between humans and large mammals. 

Elephants prove to be a particularly troubling case, because on the surface they experience emotions—they cry tears in stressful situations, they hug, they do artwork, and females bond with other female family and friends for life.  Particularly moving is the story of two elephants reunited, having last been in a circus together two decades earlier. 

Nicol’s article deals with the problem of anthropomorphism, transferring onto animals human traits.  Biologists can come up with alternative evolutionary explanations for behavior that make everything instinctual, without conscious choice or mind.  Sometimes, Nicol argues, the simplest explanation for elephant behavior is the best: they really do feel emotions of fear, love, and so on that humans can also experience. 

Over the next century years we will continue to discover that humans have been telling themselves lies about animals.  It’s much easier that way to control and butcher them.  But lies eventually catch up with you.

Jonathan B. Wight

We all like it when private interests have an incentive to produce social benefits.  That is generally the case in markets. 

When do markets fail?  When externalities and asymmetric information are large enough problems to cause significant social ramifications that are not included in the price. 

Bacon’s Rebellion reports on the problems with for-profit universities.  The incentives of a for-profit institution align with taking in as many students as they can, as long as those students don’t really care about quality. 

The article cites the University of Northern Virginia as being unable to get accreditation because it had no standards for faculty or admissions.  Allegedly it was operating as a “visa factory” for foreign students wanting to get into the United States.  It made a lot of money.  Although the school is now defunct, it was able to earn a profit for 15 years sailing under the radar. 

Regulations can be a bad thing, stifling creativity and operating as a sham to prevent competition.  But the flip side is a world of no regulation.  One’s instinct is to say, “Let the students and potential employers of students be the gatekeepers for quality in education.”  Let a thousand flowers bloom and let’s see what works!  Except that along the way significant external costs can be imposed on the rest of society, as apparently were in this case. 

Jonathan B. Wight

America’s commitment to a meritocratic society is questioned in a New York Times article yesterday. 

The color chart (click to enlarge) shows the chance that a child raised in the bottom fifth of the income scale can make it to the top fifth.  The dark red that dominates the Southeast of the United States shows a 4% or less chance.

The reason is less about class discrimination and more about two-parent families, transportation access, and probably spiritual capital (discussed yesterday).  

Jonathan B. Wight

Robert Fogel wrote a book more than 10 years ago that I have recently found time to read. 

In The Fourth Great Awakening and the Future of Egalitarianism (Chicago: The University Of Chicago Press, 2000), Fogel argues that spiritual capital is the defining resource inequality of the 21st century:

“The problem of self-realization … is the hallmark of our age and the greatest threat to the survival of our society. To achieve self-realization, each individual must have an understanding of life's opportunities, a sense of which of these opportunities are most attractive to him or her at each stage of life, and the requisite educational, material, and spiritual resources to pursue these opportunities. In the era that is unfolding, fair access to spiritual resources will be as much a touchstone of egalitarianism as access to material resources was in the past.” (Page 178)

“Spiritual resources are not limited to those found in the sacred realm but include the whole range of immaterial commodities that are needed to cope with emotional trauma and that, more often than not, are transferred between individuals privately, rather than through the market. Such resources include a sense of purpose, a sense of opportunity, a sense of community, strong family ethic, strong work ethic, and high self-esteem." (Page 178)

It is interesting that Adam Smith, at the dawn of the Industrial Revolution, also worried about the deadening of the moral imagination of the poor, who were consigned in factory work to repetitive tasks that allowed for no exercise of the mind or creativity.

As noted in a previous blog, the concept of spiritual capital has been the subject of a major Templeton foundation grant and various conferences around the world.

Jonathan B. Wight

The New York Times reported on Saturday that big Wall Street banks are finally using their billions in excess reserves—but not in the way that we normally think financial intermediation ought to work (“A Shuffle of Aluminum, but to Banks, Pure Gold”).

Instead of using excess reserves to make company loans for investments that create jobs, Goldman Sachs and others are using funds to corner the market in commodities, such as aluminum and copper.  Commodity prices and bank profits rise while job creation falls. This is good old-fashioned mercantilism in its modern reincarnation of crony capitalism.  Many people who promoted financial market deregulation also benefited directly (see the movie Inside Job for details).

As Adam Smith noted, there are very good reasons for having “fire walls” in financial market even if that violates some amount of freedom.  Rather than a multitude of lawyers and a regulation book a foot thick, it is simpler to simply ban the co-mingling of certain financial activities as a way to avoid excessive risk and the creation of moral hazards.

[Thanks to David Warsh for this link.]

Jonathan B. Wight

A decade ago I published my novel Saving Adam Smith: A Tale of Wealth, Transformation, and Virtue (2002).  I am happy to say it is done reasonably well and continues on in print and use in classrooms.

Last week I discovered a more recent novel on Smith by Frank Werner, Professor of Finance at Fordham University.    

 The Amazing Journey of Adam Smith (2010) tells the story of Adam Smith venturing into modern life to encounter some of the negative downsides of market activity – most particularly, global warming. 

 A graduate MBA student wonders out loud to his professors how self-interested profit maximization can lead to the greater benefit for all of society when negative externalities are not simply minor (as they were during Smith's time of small businesses, before the dawn of the Industrial Revolution) but are so massive as to cause dramatic climate change.

 According to the dogmatic (and incorrect) view of Smith's model, the invisible hand magically aligns individual and social objectives.  Of course, this cannot work when there are important negative externalities. Thus, Frank Werner is an advocate of the triple bottom line: people, planet, and profit. 

It is not a stretch to say that Adam Smith was very concerned with people, and he most certainly would have worried about the concept of negative externalities.

 The Amazing Journey of Adam Smith makes for fun and educational reading, particularly in finance classes where students are overwhelmed with mind-numbing formulas for profit maximization.  Go Frank!

 [Thanks to Jim Stoner for introducing me to this book.]