Banking on Trouble: The SVB Collapse and its Impact on Financial Stability.

Gregory Becker.

2015 US Department of Labor.

Public Domain.

via Wikimedia Commons.

In a New York Times article by Rob Copeland, Gregory Becker, former Silicon Valley Bank (SVB) CEO, defended his actions before a Senate Banking Committee hearing regarding the bank's failure. Becker deflected blame onto regulators, the media, and inflation-induced interest rate hikes. SVB's downfall, fueled by large investments in low-yielding government bonds and a high proportion of uninsured accounts, has triggered a debate around banking regulations. Becker, who earned nearly $10 million in 2022, faced questions about his compensation and potential return of bonuses. Senators critiqued his failure to accept personal responsibility.

An Economist article, "The prop-up job", provides an in-depth analysis of SVB's collapse. The authors posit the bank's rapid downfall exposed signs of instability in the U.S. banking system, despite post-financial-crisis regulations. The article highlights the implications of abandoning the "Lombard Street" rule of central banking, leading to potential instability. It also draws parallels to the banking crises of the 1980s under then-Fed chairman, Paul Volcker. According to historian Peter Conti-Brown, rising rates subtly affect interest-rate and credit risk, and can strain borrowers. The authors suggest that the banking system is more vulnerable than previously thought and smaller banks, especially those with uninsured deposits, may need to increase capital soon.

The "Lombard Street rule" or Bagehot's dictum, articulated in Walter Bagehot's "Lombard Street: A Description of the Money Market", argues for the Bank of England's role as a lender of last resort during financial crises to maintain stability. Bagehot proposes that in times of panic, the bank should offer high-rate loans to solvent firms against good collateral, ensuring sufficient reserves to meet demands and deter non-serious borrowers. This approach has significantly influenced modern central banking policy.

The breakdown of Bagehot's dictum has a predictable result, illustrated in Bagehot's other great work, "The English Constitution." There, he details the vital role the House of Commons plays in the British political system. Bagehot positions the Commons, including the Cabinet formed from it, as the power center reflecting the electorate's will, controlling fiscal matters, and determining legislation. Additionally, the Commons facilitates communication between the government and its people, conveying public opinions, desires, and grievances to the state and justifying state actions and decisions to the public.

Becker's congressional hearing underscores the significant role of Congress, the American equivalent of the Commons (Senate and House both being subject to popular elections) in addressing banking sector instability. This step opens a much-needed debate on banking regulations. Although the hearing was marked by partisan disagreements, it offered an opportunity to question actions leading to SVB's failure and to assess executive accountability. As Bagehot stressed, the banking system, along with regulatory bodies like the Federal Reserve and the U.S. Treasury, must ensure financial stability. Therefore, this incident should alert CEOs across the industry to the need for coordinated efforts to strengthen the banking system's integrity, even if Bagehot's dictum, as a practical matter, may apply no longer to any but the smallest of U.S. banks. 

America's Debt Dilemma: Hitting the Ceiling.

"The Republican Elephant."

Thomas Nast, 1874.

Public Domain.

via Wikimedia Commons.

The Economist this week writes about America's continued struggle with the debt ceiling. As Congress and the White House continue to negotiate, America is in danger of defaulting on its debt in a few weeks, with neither Republicans nor Democrats willing to compromise. The Treasury could bypass the debt ceiling by minting a colossal commemorative coin and depositing it into the government's account at the Federal Reserve, which would allow for the payment of government expenses without borrowing from public markets. The Biden administration has a few options including invoking the 14th Amendment and issuing high-coupon low face-value bonds, to bypass the debt ceiling and resume borrowing. 

Despite the risk of litigation and the potential for market disruption, the possibility of brutal austerity as a workaround for Treasury debt payments has pushed policymakers to consider unconventional, yet ingenious plans. Treasury officials are uncertain of their ability to implement prioritization of payments and regularly sell bonds in order to pay off their debt, and if dealers decline to participate, the whole plan could be thrown into jeopardy. Faced with the risk of default, prioritizing payments to bondholders may be necessary to get both sides to reach a deal, but could have big costs. However, as almost every observer has noted, the world's biggest economy should not be managed in this manner. 

I've written previously on this, noting that the Biden administration's exploration of using the 14th Amendment to challenge the current federal borrowing limit has prompted heated debate among economic and legal advisors. Meanwhile, Kevin McCarthy is facing his first major test in leading the House of Representatives in Congress' negotiations to lift the debt ceiling, a controversial issue that requires bipartisan compromise while weighing both fiscal responsibility and the need for austerity. The ripple effects of the rise of the far-right within the Republican Party have left lasting damage to both faith in the political system and the party's overall stability. The rising tensions within the Republican Party over the debt ceiling are making it increasingly difficult to present a unified stance. To move ahead successfully, the Republican Party must find ways to address the factors contributing to its internal divisions and disarray.

Economics and the Mona Lisa Smile.

"Mona Lisa."

Leonardo da Vinci.

Public domain.

via Wikimedia Commons.

The Economist this morning observes that economic forecasting has become increasingly unpredictable, with analysts struggling to accurately forecast many key international measures. Contributing to the confusion are challenges in data collection and interpretation due to Covid-19 disruptions and declining response rates to official surveys. The pandemic caused significant fluctuations in growth, complicating seasonal adjustments in economic numbers. Also, reduced response rates to surveys may have led to increased data volatility and potential bias, as non-respondents tend to be less prosperous, which could distort income statistics. The article uses the ambiguous "smile" of Mona Lisa, painted by Leonardo da Vinci via the sfumato technique, as a metaphor for the difficulty of discerning the true state of the economic environment given this unpredictable data. 

One source of confusion arises from the discrepancy between "hard" and "soft" data—objective indicators such as unemployment rates, and subjective variables like individuals' future expectations. Typically, these two classifications of data are congruent. However, at present, they exhibit a stark contrast. "Soft" measures indicate a recessionary trend, while "hard" measures suggest a reasonable economic expansion. This divergence may be attributed to the public's discontent with inflation. In affluent nations, prices continue to escalate at an annual rate of 9%.

Economic measures really matter for government budgeting, as California's Legislative Analyst's office (LAO) relies upon that data in planning future budgets. Necessarily, many of the points the Economist makes about uncertainty get resolved by the LAO in the "negative" (that is, they accept the more dire forecast). As the LAO (accurately) writes in their 23-24 budget analysis, the U.S. economy experienced rapid expansion from summer 2020 through 2021 due to pandemic-related federal stimulus. However, this growth was (as far as the LAO is concerned, and many others) unsustainable, leading to record low unemployment and supply chain challenges, causing consumer prices to rise 8% year-on-year. To combat inflation, the LAO points out that the Federal Reserve has enacted large interest rate increases throughout 2022. The LAO interprets the hard data it sees, that California is experiencing decreased home and car sales and falling stock prices, as well as weaker state tax collections, and concludes there is a slowdown in the economy. 

The LAO, though, is looking at some of the same data as the writers of the Economist, and thus notes that while overly optimistic projections could result in future shortfalls, an excessively pessimistic projection could lead to premature cuts to public services. Further, despite all the foregoing, the LAO points out that "the state can afford to maintain its existing school and community college programs and provide a cost-of-living adjustment of up to 8.38 percent in 2023-24," which would essentially meet the rate of inflation for educational funding in California. Despite the economy's sfumato, at least that is clear. 

Red States, Blue Cities, Dynamic America.

     

     

"President Barack Obama and Cabinet."

White House East Room, September 10, 2009.

Public Domain.

via Wikimedia Commons.

In today's New York Times, David Brooks discusses the trend of people migrating from blue states to red states in the US. Between 2010 and 2020, the fastest-growing states were mostly red, such as Texas, Georgia, Florida, Tennessee, and South Carolina. This growth is attributed to lower taxes, fewer restrictions on home construction, lower housing prices, and more pro-business policies. However, the growth in red states is concentrated in metro areas, often blue cities in red states. The dynamic success stories are a result of a red-blue policy mix where Republicans provide a business-friendly climate and Democrats influence education, social services, and civic atmosphere. The column argues that no political party is currently embracing this policy blend, which has proven effective in creating a dynamic and cosmopolitan society. The author suggests that the Democratic Party's growing strength in Southwestern states could potentially give rise to a new kind of Democrat that promotes this policy mix.

David Brook's career began as a police reporter in Chicago, and he recognizes the significant impact it had on his perspectives. His experiences on the crime beat shifted his views from a more liberal standpoint to a more conservative one. Brooks seems to be highly conscious of the concept of black-and-white morality, which leads him to seek a balanced approach where both sides of an argument have valid points. In essence, Brooks proposes that a third option, which incorporates ideas from both sides, is often attainable.

Here, I think Brooks misses some of the essential characteristics of how cabinet-style dynamics function, which I generally accept as a starting point for analysis of most government decisionmaking. In "The English Constitution," Walter Bagehot highlights the significance of blending old and new minds in the British parliamentary cabinet system for effective governance, emphasizing the importance of secrecy and trust in maintaining unity and functionality. By combining experienced ministers' continuity and institutional knowledge with new ministers' fresh ideas and energy, the cabinet can adapt to changing circumstances and address contemporary issues. Secrecy ensures confidential cabinet discussions and disagreements, fostering open dialogue and consensus-based decisions. Trust among cabinet members is essential for upholding collective responsibility and loyalty, even when personal disagreements occur. Ultimately, Bagehot argues that the balance of experience and innovation, combined with secrecy and trust, contributes to the effective functioning of the government.

Bagehot argues that the most dangerous person to a cabinet government is the disloyal insider. A disloyal insider can undermine the collective responsibility principle, where all ministers must publicly support cabinet decisions, even if they personally disagreed during internal discussions. By breaking this trust and revealing confidential information or dissenting opinions, the disloyal insider can weaken the solidarity and unity of the cabinet, disrupt its decision-making process, and potentially harm the government's credibility and stability. Thus, Bagehot emphasizes that disloyal insiders pose a significant threat to the cabinet government's effectiveness and overall political structure.

Bagehot's central argument highlights the importance of consensus in a government composed of both cautious old minds and and fresh energetic ones. Brooks fails to consider that a political party's drive to act stems from their shared values and the aspiration to advance them. Brooks appears to suggest that experienced and fresh minds together would embrace a logical compromise on the very shared values that unite them. However, it is more probable that both groups would view this approach as flawed and dismiss those promoting it.

Brooks doesn't offer realistic solutions for a feasible third way, and his argument appears at odds with the realities of media influence and political communication. Rather than individuals blending positions, a stronger argument would recognize that blue cities in red states play a vital role in holding their governments accountable, encouraging debate, and preventing complacency in the ruling red-state governments. By remaining committed to the nation and their democratic values, these blue cities enhance the political system's stability and effectiveness while pushing the red-state governments to improve and refine their policies. Ultimately a stronger America emerges from that dynamism, as has been noted in the Economist recently. 

The Nature of the Firm and the limits of Economics.

     

Ronald Coase

University of Chicago Law School

via Wikimedia Commons

https://tinyurl.com/26ffzfkp

This week's Economist includes an article by their Free Exchange columnist, regarding the "The Nature of the Firm," Ronald Coase's classic 1937 work. Despite the belief in the 1990s that economics could command a unified science of business, three decades later, it has not progressed in understanding the inner workings of firms. Neoclassical economic theory primarily focuses on markets and the allocation of scarce resources, but it does not account for the fact that much of the allocation of resources in economies occurs within firms, where employees are directed by administrative fiat rather than price signals. The theory that firms are profit-maximizers is also challenged by the reality of "bounded rationality," as no business could process all the information needed to extract maximum profit.

Economists have made strides in understanding firms through concepts such as team production, incomplete contracts, and the principal-agent problem. However, these theories still fall short of providing practical advice on corporate strategy. Economics often fails to capture the importance of corporate culture, shared values, and pride in the workplace, which are essential to a flourishing business. Moreover, economics is limited in its ability to address the specificity of business problems, as they require detailed knowledge of various fields outside the discipline. While economic ideas can offer some insights, the study of business remains an outpost that economics is unlikely to conquer fully.

It was beyond the scope of the article, but a government agency (or, as a shorthand, an "agency") can also be viewed as a firm responsible for providing public goods or services and implementing policies. Like traditional firms, government agencies coordinate resources and make decisions under the principle of "bounded rationality." The major difference is that these agencies differ in their objectives, as they aim to maximize social welfare and address market failures, rather than seeking profit maximization, but which I would note, makes the insights of the Free Exchange column even more trenchant. Further, because government agencies also face unique challenges in terms of bureaucracy, political influences, and accountability, their efficiency and decision-making processes are even less susceptible to an economics-based analysis. 

While apocryphally attributed to Twain, William S. Burroughs' advice to "write about what you know" leads me to look at my home in light of this. I note, over and over, that the critical issues my community encounters are almost always decided in an interchange and an interplay between firms and agencies. If anything, economics is something of a base meridian used to calibrate during the continuing conversations with multiple actors that are directed by fiat using bounded rationality to either pursue profit or improve social welfare, a problem only marginally susceptible to economics-based analysis. 

Almost all of the important questions instead require detailed knowledge of various fields outside of economics. Indeed, to the extent that economics is used after the point-of-reference stage, it is of limited utility by itself. The dozen other factors noted above, including but not limited to corporate culture, shared values, pride in a workplace, bounded rationality, team production, incomplete contracts, the principal-agent problem, political influence, bureaucracy, accountability, market failure, and social welfare, are generally the factors to address in any analysis of the (for lack of a better phrase) political economy of most local decision-making that I have encountered -- a nice checklist for future reference. 

The Sullivan Doctrine.

"Harbour Scene"
Dutch marine painter Abraham Storck (1644-1708).
Image source: Wikimedia Commons, Public Domain.

This week's briefing from The Economist concerns the ongoing US-China trade war, focusing on the US ban on certain semiconductor sales, that severely impacted Chinese chipmakers like Yangtze Memory Technologies Corp (YMTC), causing delays in business plans and construction of new facilities. The resulting shortage has disrupted supply chains and forced Chinese firms to become more reliant on domestic production, lowering the forecast of Chinese companies producing over half of the country's needed chips by 2030 to just 33%. The US government's "Sullivan doctrine," named after National Security Advisor Jake Sullivan, aims to maintain an American edge in foundational technologies like AI, biotech, and clean energy by restricting China's access to advanced chips involved in these areas through export controls using "foreign direct product rules" (FDPRs).

This escalating tech war has the potential to reorganize global supply chains and spill into other industries like clean technology, biotech, and agriculture. The conflict may create two mutually exclusive blocs for many products, undoing gains from globalization and harming companies and countries caught between the two rivals. The US may target additional industries with FDPRs, further intensifying the situation and prompting China to retaliate.

Despite the adverse consequences of the tech war, the international rules-based order aims to establish a free world by promoting free trade as a public good. By fostering a cooperative environment for innovation and ensuring access to resources, this encourages global economic growth and benefits all nations involved. In the long run, the rules-based order is designed to promote stability, prevent conflicts, and create a more prosperous and interconnected world. I cannot see how that system can continue without a US willingness to defend it, as today's international trade is a legacy of America's position at the conclusion of the Second World War, and its continuing and enduring commitment to the same.

Disruption versus Destruction.

Today's edition of the New York Times caught my eye with an article by Cade Metz regarding Sam Altman, the CEO of OpenAI, and their chatbot, ChatGPT. The article weaves between Altman's biography, the product, and the nature of the firm. The article references Altman's belief in "effective altruism," a rational approach to maximizing global impact through evidence-based decision-making. The article's almost treats the life story of a CEO as a political biography, as a source to establish the legitimacy of the company and the technology.

A tech firm CEO, much like a head of state, serves as a unifying force that seeks to transcend divisions and foster a sense of identity and shared values around the company. Sam Altman's "effective altruism" is here like the "dignified" aspect of a monarchy, providing reassurance to the public and calming concerns about the impact of AI. Meanwhile, the "efficient" aspect of a tech firm, responsible for developing and implementing technology, operates on business principles necessarily different from the legitimizing elements of the firm's leadership.

While the New York Times article illustrates the role of a technology CEO in shaping public perception, it is crucial to remember that the efficient aspect of OpenAI is far different than the personality of Sam Altman. Effective altruism has little to do with the actual impact of the technology. It is vital to focus on the potential risks of disruptive new technologies, as their misuse in authoritarian hands has been destructive. "Effective altruism" could very well be serving as a distraction here, rather than a guarantee of responsible AI development.

Space Rendezvous.

 One of the most technically difficult and impressive acts humanity has ever achieved is the rendezvous of spacecraft in orbit. Interestingly, the American and Soviet approaches to the problem were different; while astronauts until quite recently controlled the process manually (Buzz Aldrin's Ph.D thesis concerned how to do so), since 1967 the Soyuz spacecraft have been able to do so autonomously. The Igla system, followed by Kurs, paved the way for autonomous resupply of Mir space stations at a fraction of the cost of manned spaceflight, a feat only matched by the Dragon capsules of SpaceX as recently as 2012. 

From the Economist.

This American tendency to rely upon a skilled human operator also found its way into the distinction between earlier Airbus and Boeing aircraft, with the European consortium leaning towards fly-by-wire, systems with the then-Seattle based manufacturer only following later. 

I mention this point today in light of the rapid perceived advances in AI (artificial intelligence) and ML (machine learning). Much ink has been spilled regarding recent advances in language processing and image creation (this article is a nice example from the Economist). 

But such technologies have long existed in some of the most challenging engineering spaces faced by humankind. Is the current surprise regarding AI/ML more due to the fact that it is now able to address the routine activities formerly used to sideline (if not belittle) the technology, when the practical application of the same has long since progressed past triviality to indispensability? 

Previous posts on Economist issues:

1. Nordic Success.
2.  @TheEconomist (Ann Wroe?) on Dr. Robert McClelland and #JFK.
3. Further Reading.
4. Where Newspapers Are Headed ...
5. @TheEconomist on a hybrid #VirtualParliament.
6. @TheEconomist on #Homelessness in @SFGov.
7. The Life Pressed Out.
8. Why Travel Matters.
9. @econbartleby and @billswindell at @TheEconomist and @NorthBayNews, respectively.
10. @AmExperiencePBS @RobertKenner-- the 1918 Pandemic.
11. The Return of #Cash.
12. California, where Malala Yousafzai becomes Janet Yellen.
13. The Plutonium Standard.
14. Beikoku and Eikoku.
15. Secession is a bad idea, full stop.
16. QE4.
17. Brown, Budgets, Prisons, and Contempt.
18. Executive Orders.
19. #rebeccapurple.
20. The Streets Should Fit the Trees.
21. @TheEconomist on Alcohol and Health.
22. What Do Bubbles Look Like, Pt. 2.
23. "Bringing Up Baby Bilingual"
24. Freshman Teams, Student Performance, and the Case For SVUSD's Master Plan.
25. Dual Immersion Enhances Attention.
26. Trust Levels of News Sources.
27. Slouching Towards Utopia.

Slouching Towards Utopia.

Brad DeLong 

One thing I like to do from time to time, is recommend a good book. Brad DeLong has been an economics and history professor at UC Berkeley for a long time, and I have enjoyed reading his posts. He has recently put together many of his thoughts in a book, Slouching Towards Utopia, which I am reading and recommend to anyone interested in the history of the "Long 20th Century" from 1870-2010. The Economist's very positive review of the book is here.

Brad DeLong has come up on this blog before -- here's a list of the times I've mentioned him previously:

1. Paul Krugman: "Brad, Don't Get Too Excited."
2. QE4.
3. Brooks and Krugman.
4. Nothing So Dear as #cheapmoney 
5. Le Mieux est l'ennemi du Bien.
6. @RobertJShiller and the #EMRATIO.
   

The Life Pressed Out.

 George Floyd was murdered May 25th, aged 46. Suffocated by a Minneapolis police officer over the course of 8 minutes and 46 seconds, his death has rightfully become a rallying moment for Black Lives Matter. Many (but not all) are astonished that three police officers stood watch as he was asphyxiated. Protests against police brutality and police killings of black people, and broader issues such as racial profiling, and racial inequality in the United States criminal justice system, continue with cause. 

"The Life Pressed Out"

Obituary, George Floyd

The Economist, June 4, 2020

available at https://tinyurl.com/yagm25jm

 In this kaleidoscope of horror, though, one fact in particular stunned and shocked me. For George Floyd knew Derek Chauvin, the police officer that killed him. They were coworkers.  Both were employed by the El Nuevo Rodeo club, a Latinx music venue in Minneapolis. George was known in the workplace for his calm manner, big smile, and physical presence. Chauvin, who had done the job for 17 years, was described by Ann Wroe of the Economist as "an off-duty white police officer with jittery eyes, who would reach for his pepper spray as soon as a fight broke out and fire it over everyone."  More than mere corruption, worse than the principal-agent problem, did Chauvin strike to settle a grudge, believing in protection from the Thin Blue Line? 

 The use of government authority and power for personal ends is the genesis of so much that is disquieting about the past two decades of American public life. But the events of May 25th must not recur.  An officer sworn to protect the public "dragged [George] aside, threw him to the ground helpless and then, for almost nine minutes, knelt on his neck, pressing, pressing as [George] cried out for his mother and his breath and his life. [George] possibly never knew that this was the same white guy with jittery eyes who had worked El Nuevo Rodeo, the one so ready with the pepper spray to keep the blacks in line." 

 But we know. And we can act. But it requires the efforts of all. As former President Obama noted, "the elected officials who matter most in reforming police departments and the criminal justice system work at the state and local levels[.] Review your use of force policies with members of your community and commit to report on planned reforms[.] Change America and make it live up to its highest ideals."

 One of the 13 guiding principles of the Black Lives Matter movement is a commitment to restorative justice, a vehicle for decarceration in the United States. In criminal cases, victims can testify about the crime's impact upon their lives, receive answers to questions about the incident, and participate in holding the offender accountable. Meanwhile, offenders can tell their story of why the crime occurred and how it has affected their lives. It's not a panacea, and real limitations exist in the context of domestic violence and racism. But it many cases, the conflict in the community calms.  

Sonoma Valley Equity & Inclusion Task Force, 2016

Report available at https://tinyurl.com/ybo9tyg6

 As Sonoma Valley Unified's Equity & Inclusion Task Force pointed out in 2018, "recent best practice for discipline in schools has included a movement toward incorporating restorative justice practices. Restorative justice has been shown to be an effective alternative to punitive responses to wrongdoing. Inspired by indigenous traditions, it brings together persons harmed with persons responsible for harm in a safe and respectful space, promoting dialogue, accountability, and a stronger sense of community." The Task Force noted some past attempts by SVUSD to implement restorative justice practices.  "However none of these attempts resulted in across-the-board implementation of the practice. While there has been some training for staff, without full implementation of the practice that includes appropriate allocation of staff, policy development, and training, change has not occurred."

 It's time for full implementation. Restorative justice practices, such as the one utilized by the Los Angeles School District, show significant decreases in suspensions. The LAUSD posted a 92 percent decrease in the number of days lost to suspensions as a result of its restorative justice program. As our Task Force noted, "[t]hese statistics are especially relevant to this [D]istrict that has a disproportionately high level of low [socio-economic status] students who are suspended and/or expelled.”

 We have the power in our Valley to make this change, and democratic self-governance starts with each one of us participating in bringing about a better shared future.  The way has been shown and the report of the Task Force is ready for implementation. Let’s make it happen. After all, it’s the least we can do to honor George Floyd's life. 

@TheEconomist on a hybrid #VirtualParliament.

"Back to Abnormal"

Bagehot, The Economist, April 25, 2020

available at https://tinyurl.com/y8xn8dyb

This past week the Economist's Bagehot columnist wrote about the implementation of what are Zoom meetings for the United Kingdom's House of Commons, and some of the practical consequences. Adrian Wooldridge writes the column at this time. It is named after Walter Bagehot, a former editor of the Economist and author of "The English Constitution" (one of the books I kept from undergrad). He's also known for his rule for central bankers in a panic from "Lombard Street ("lend freely and at a penalty rate"). Both have been very practical of late, given COVID-19.

I wonder how we will regard the hybrid approach described herein in a few years.  While change has come for everyone, not least the "Mother of Parliaments" (churches were closed in the UK this year for Easter for the first time since apparently 1218), the piece makes clear the essential work that elected officials must do to support newspapers in their efforts to scrutinize the government. In the UK it is essentially only MPs that possess the combination of three critical tools -- they may ask written questions that the relevant ministers are obliged to answer, they have detailed knowledge of their own local constituencies, and they have the ability to speak on behalf of the voters.

Perhaps the "hybrid" we should be watching is not online versus in person meetings of Parliament. Instead it may be that recognizing that government accountability in the United Kingdom increasingly depends upon cooperative joint scrutiny by MPs and the press. Perhaps it would be best to call this the era of the dual hybrid Parliament ...

@TheEconomist on Alcohol and Health.

"A Sober Brawl," available at https://shrtm.nu/8Jwl
Sources: “Drug harms in the UK: a multicriteria
 decision analysis”, by D. Nutt et al., The Lancet;
 “How dependent is the alcohol industry on heavy
drinking in England?” by A. Bhattacharya et al.,
Addiction; Centre for Responsive Politics; NHS

A brief piece this week, on the Economist's "graphic detail" item.  "Vaping" has been in the news, with ancillary reporting relating to tobacco and smoking. The newspaper points out, however, that it is alcohol that causes far more harm, and further illustrates (troublingly) that industry profits are based on the dependency of problem drinkers.  Should all who drink at hazardous or harmful levels moderate, the price rises necessary to maintain profits would be significant.

True, firms engage in public messaging to the contrary. But it appears public health officials question their commitment.  The article points out that the National Institutes of Health recently stopped working with the industry as a consequence, as did the World Health Organization. Perhaps sensing the danger, lobbying spending by alcohol firms has been on the rise. It now exceeds that of the tobacco industry by 31%.

image available at http://tinyurl.com/qh8ww2f

It's not the way we think about these things in the northern part of the San Francisco Bay Area, where so many wineries (and increasingly distilleries and breweries) find their homes. We think of the beauty of the orderly rows of vines. "Living on a vineyard" evokes a mental flash of magic and starlight, hopefully in some way both natural and sustainable. Further, such vistas are reminiscent of James Scott's legible forests -- suggesting, to borrow from David Brooks, that our desire for ordered rationality has found symmetry in our cultivation of the natural environment where we reside.

Yet the industry those rows of vines serve has its problems. To paraphrase Brooks, the highest form of wisdom is balancing the networks that shape our reality by perceiving, evaluating, and acting upon evidence.  Doing so means recognizing that the beauty of Napa and Sonoma, as ever, can come with an uncomfortable cost. Per the bard, roses have thorns, and silver fountains, mud, while clouds and eclipses stain both moon and sun. Sobering thoughts indeed.

@econbartleby and @billswindell at @TheEconomist and @NorthBayNews, respectively.

As I lamented the result from St James' Park this morning, I looked for an insightful article from The Economist. A nice part of focusing on one piece is the chance to learn about the writer. Knowing these journalists grow up and live in a certain context humanizes them. For example, I ran across a piece by Motoko Rich of the New York Times a few years ago, and was surprised to find she grew up in the small town literally next door in Sonoma County.

Philip Coggan

available at https://shrtm.nu/EYpO

So, today, it's the Bartleby columnist, Philip Coggan. He's a graduate of Sidney Sussex College, one of the constituent colleges at Cambridge University. His work at the Financial Times, authorship of several books, and awards won belies his skill, but details on his person are scarce. He has a feed at Medium, though, where his words on the loss of a pet say much. It recounts how he, his daughter, and his wife said goodbye, recalling Philip's loss of his own father as a child:

"We take small pleasures from our pets. The purr of a cat as it is stroked; the excitement of a dog as it chases a ball; the occasional bursts of madness as a cat attacks a piece of string or a dog chases its own tail. They create a rhythm to the day; the morning feed, the afternoon walk, the night-time arrival of cat on bed, eager for shared bodily warmth. And there is satisfaction from a relationship that is so uncomplicated; in return for food and affection, the dog or cat will stay around. There are no arguments; no sudden estrangements. These small joys help us through the long days and nights. My cat will no longer be the first to greet me when I open the front door. How can I not be sad that he’s gone?"

Julian Richer

available at https://shrtm.nu/o5fQ

Perhaps fitting for a financial journalist with such a sense of the personal, the piece this week is his writing on the appropriately-surnamed Julian Richer.  Richer made his fortune in peddling high-end audio equipment in the UK, from stores cheekily named "Richer Sounds." Richer's parents had both worked for Marks & Spencer (for an American, think maybe Macy's), and he entered the business at fourteen.  Coggan draws attention to Richer for the unusual fact that Richer has planned to give away much of his wealth to his employees.

When asked why, Coggan writes that Richer claims inspiration from the nearly 40-year-old book "In Search of Excellence." Richer maintains (and Coggan appears to agree) that the case studies therein illustrate that top performing companies treat both customers and employees well. "Organizations that create a culture based on fairness, honesty, and respect reap the rewards ... [t]hey attract motivated staff who are there for the long haul."

Coggan does not concede that Richer's arguments are ones for general application. He notes that Richer Sounds' turnover is a mere $157 million. That about matches the four supermarkets in the little City of Sonoma. However, he points out that the UK's high street retailers and supermarkets (M&S, Asda) have sought Richer out for his insight, suggesting lessons for the business community as a whole.

The point Coggan doesn't quite tease out (and I give him the benefit of the doubt here, for the column is a brief one), is that Richer, while not running a family business, is definitely in the family business.  His folks were retailers.  His approach to employees mirrors many family businesses in my part of semi-rural California. Bill Swindell of the Santa Rosa Press Democrat made this point five years ago, with his article "All in the Family." Swindell's quote from Marcus Benedetti (Clover-Sonoma) sums it up, as the CEO of the longtime dairy said "I look at myself as a temporary steward of something I can pass on to my children."

Over the past months and years, increasingly, navel-gazing about the raison d'être of companies has been a recurrent theme in the business press. The Economist has been no different. Contemporary capitalism often feels simultaneously disconnected from place while focused on individual cults of personality, provoking something of a crisis. It has not always been thus. When so many large business organizations in the United States came into existence in the Gilded Age, the personalities involved were known to one another, and the ownership thereof was often family-based, if dysfunctional.  Discomfort with family-type structures may therefore be present for good reasons -- embarrassing, emotional strife was and is common, messy details are inevitable, and nothing saps a meritocracy like nepotism.

Business is replete with family fortunes won-and-lost, the proverbial "shirtsleeves to shirtsleeves in three generations." It is understandable then, that with family life often resembling nothing so much as a blooper reel, that businesses would have a long-deep discomfort with management principles that may very well be family-derived. What irony there is, then, in the unstated suggestion of Mr. Coggan's piece — that at the core of successful businesses, those impersonal machines of prosperity, is the resiliency, reciprocity, and, yes, care for one another upon which family depends?

@TheEconomist (Ann Wroe?) on Dr. Robert McClelland and #JFK.

Wikipedia, "John F. Kennedy"

image available at https://shrtm.nu/8I21

Like many, I take Sunday afternoon and evening as an opportunity to review The Economist in print. While I scan its articles Thursday morning Pacific Time as they go live in London, I'm looking at the leaders in the throes of a workday. My review of the more detailed discussions and analysis of the newspaper takes place later, as the sun sets, children go to bed, and quiet descends on Sunday. I try to pick out at least one article to save: I don't have a formula for it, but I usually know the piece when I see it.

This week it was the obituary, and I suspect it was written by Ann Wroe (The Economist eschews bylines). She took a first in History and a doctorate in medieval history (Oxford, 1975), then worked for the BBC before joining The Economist in 1976 to cover American politics. She eventually became the Books and Arts editor (1988-1992) and US editor (1992-2000). She has edited the Obituaries page, usually writing the obituaries herself, since October 2003. I personally started reading the Economist in 1991 or 1992, so I've been reading her work for nearly 30 years, although usually unaware of the fact when I'm doing so.

Ann Wroe

Obituaries Editor

The Economist

available at https://shrtm.nu/k5r8 

The obituary this week regards Dr. Robert McClelland, a remarkable surgeon from Dallas in his own right. For nearly 30 years starting in the 1970s, he self-published “Selected Readings in General Surgery,” a regular compendium of journal articles — accompanied by his critiques. As the article notes, at one point, nearly 60% of America's general surgery residents subscribed, as the journal was a collection of the most useful new articles regarding first-hand surgical experience. That alone makes Dr. McClelland noteworthy, but it was the events of one week more than a half century ago that brings his passing to the attention of an English magazine in the 21st century. For Dr. McClelland was called to operate in an emergency on both President John F. Kennedy, and Lee Harvey Oswald, in the space of nearly 48 hours in November 1963.

The maelstrom of theories regarding the Kennedy assassination has never held my interest, despite the fact that the man has always been a hero for me. That he died for his country, rather than how, has always loomed far larger in my psyche. As Mark Shields, the longtime PBS Newshour commentator notes, Americans form individual relationships with the presidents.  Kennedy has always been the figure that comes to mind for me when I consider the office; as a near-mythical figure, and as the only Irish-Catholic (like me) to occupy the Oval Office, that is perhaps natural.

"To save a life"
"Robert McClelland died on September 10th, 2019"
The Economist
available at https://shrtm.nu/QNHI

However, the obituary of Dr. McClelland noted that, unlike the other surgeons in the room operating on President Kennedy, he disagreed with the conclusion of the Warren Report. His significant experience in dealing with the consequences of gunshots, and his position at the head of the table, caused him to examine both of the wounds of the stricken President. While the wound to the neck appeared to come from the back, the injury to Kennedy's head, in the opinion of Dr. McClelland, clearly came from the front -- indicating that more than one assassin participated.  After witnessing the Zapruder film years later, Dr. McClelland felt that the theory was validated, as the New York Times wrote in its obituary.

The tone and tenor of the obituary treats Dr. McClelland as a faithful and reliable witness. My sense is that the author thought Dr. McClelland's theory was right. If indeed Wroe is the author, she is unquestionably an individual with a great degree of reporting skill. She has borne witness to the reality of American presidential politics at the highest level for nearly fifty years.  What other discussions Ms. Wroe has had over the decades that informed her opinion, I and perhaps no one else can say.

But that she chose to draw attention to this careful, methodical, dedicated surgeon was no accident.  Both she and he fully appreciated the importance of what happened on November 22, 1963. Dr. McClelland preserved the blood stained shirt in which he operated that day for the rest of his life. He had fought that afternoon to save the life of a 46-year-old father of two, who happened to also be the leader of the free world. He would fight every bit as hard two days later to save the life of the accused assassin. There are fewer higher tributes to the medical profession than the sense of duty that compelled this surgeon to render aid under both circumstances. For that, the McClelland family has much to be proud.

@TheEconomist on #Homelessness in @SFGov.

I blog from time to time on the trustworthiness of news sources, and in general in the United States, the Economist is often considered the most reliable when surveys of the public are conducted. Before the June 5, 2018 primary in California, they took a look at San Francisco's Mayor's race. Their article touched the twin problems of the cost of housing and of homelessness, and I recommend the piece (available online here).

It's disturbing reading.  The author (The Economist eschews bylines) confronts the lived reality in terms that the reader can almost smell.  But the striking sentence to me was "[t]o voters, though, the problem seems to be getting worse ... '[but t]here’s not more homelessness than before. It’s just a lot more visible,” says [Jeff] Kositsky [San Francisco's Director of Homelessness Services]."

We all struggle in the San Francisco Bay Area to understand how wealth disparities in the nine county area can rival those on display in what the article characterizes as "poor-world entrepôts." But that the situation has become clear to so many is not in dispute, and perhaps that is the silver lining -- for we must have awareness before we can take action together.

The Return of #Cash.

Image available at http://tinyurl.com/yaxw3y5g

Just a brief note today, regarding reporters who are pointing to an economic and financial shift.  Extraordinarily low interest rates have had a significant impact on asset prices in Sonoma Valley (as I blogged about here, here, and here).  In 2015, Robert Shiller pointed out that in the San Francisco Bay Area, that most people expected annual home price increases over the next decade of 5%. However, more than a quarter of respondents thought prices would increase each year by 10% or more. Many of the second group leveraged (and profited impressively) as real property prices have continued to rise over the intervening 36 months.

S&P 500 dividend yield v. 3-month T-bill yield

courtesy the Board of Governors of the Federal

Reserve System (US), retrieved from the Federal 

Reserve Bank of St. Louis [FRED] May 15. 2018. 

S&P 500 dividend yield courtesy mutlpl.com,

 May 15, 2018. Excel data and graph available here.

Today, though, there is evidence that change is afoot, as the yield on "cash" (short term Treasuries) now exceeds the dividends on a broad range of stocks (the S&P 500).  The Financial Times' graph, courtesy of John Authers, is on the right.  I extended the graph back a bit (to 1933) just to get a longer perspective, via FRED and multpl. For about a thirty year period, dividends were generally always higher, until some point in June of 1963, when the rule flipped. Cash was king, more or less constantly, for the following ~2,335 weeks, until February of 2008. There are periods where these two measures briefly "invert" from the norm in both eras (e.g. 1959 for dividends, 2002 for cash), but it's unusual.

What does it mean? Stanford economist Bob Hall (who continues as chairman of the academic panel that dates American business cycles) notes that, economic syncopation being what it is, “[t]he next recession will come out of the blue ... just like all of its predecessors.” However, the Economist has pointed out previously that this economic cycle is already running exceptionally long at ~105 months, and it is now more than a year past the average of the last three (the longest ever, March of 91-March 01, was 120 months).  Meanwhile, valuations continue to be particularly rich (the Shiller PE is at 32.33, in excess of the '29 crash and only matched by the dot-com bubble). My sense is that the financial columnists pointing to this data are wondering how "out of the blue" a contraction could be at this point. Which is an interesting point to consider, when one reflects on the power of narratives in financial markets.

Trust Levels of News Sources.

I caught this on Twitter yesterday, and found it revealing. The Pew Research Center (previously came up here and here) conducted a survey across the United States to determine which media sources are the most trusted.  However, the researchers introduced nuance into their model, by investigating the ideological identification of the respondents.

One irony of the survey is that the sources that Americans trust the most are the Economist (a British newspaper masquerading as a magazine) and the BBC (the British Broadcasting Corporation).   The most trusted American sources are NPR and PBS, followed by the Wall Street Journal (which happens to be the only publication more trusted than not across the spectrum).

One interesting feature is the "hard shift" in this table, where the spectrum doesn't gradually adjust from one side to the other through the "equally trusted and distrusted" data point, and instead goes right to "distrusted" -- and where the "mixed" group also distrusts the source.  There are only three -- The Daily Show, Sean Hannity, and Glenn Beck.

I also note (without comment) that even those who identify as "mostly conservative" express skepticism towards Rush Limbaugh, who is the least trusted generally known figure in the table ...