The Science of Evil

Psychologist Simon Baron-Cohen’s The Science of Evil: On Empathy and the Origins of Cruelty is a fascinating, clear, short excursion into the current science of empathy, autism and their implications. (And if the name seems vaguely familiar, yes, he is Borat’s cousin.)

The book starts with a discussion of human evil and cruelty, using some salient examples, suggesting that while ‘evil’ as a concept has little explanatory value, and is not amenable to scientific study, empathy has both. That human evil and cruelty are the result of a lack, or erosion of, empathy. Empathy being defined as:

our ability to identify what someone else is thinking or feeling and to respond to their thoughts and feelings with an appropriate emotion (p.16).

Using the word ‘appropriate’ in a definition is troublesome unless you “cash it out” later, but we get the point. If someone lacks empathy entirely, then they are “trapped in their single focus” on themselves (p.18): such people being the subject of the book.

About empathy
Before we get there, Baron-Cohen covers how empathy can be measured, and how people (permanently or temporarily) vary in empathy according to, as is so common in human traits, a Bell-curve distribution (Pp19ff). Even though empathy is a continuous dimension, as a useful heuristic, he divides people into various levels of empathy from level 0 (none) to level 6 (very high levels) according to their EQ (Emotional Quotient), a scale he and his fellow researchers devised based on questionnaires (Pp23ff).

Baron-Cohen notes the problems of self-reporting but argues these “occasional inaccuracies” are cancelled out in sufficiently large samples (p.22). His discussion covers current findings in neuroscience about relevant areas of the brain to empathy (Pp27ff). One of the things that impresses me about the book is that Baron-Cohen is careful not to over-claim, either in his discussion of the neuroscience or his later discussion of genetic connections. He does not fall foul of this critique of connecting neuroscience to psychology: his point is the more basic one of establishing that there is a biological basis for the psychology he is outlining.

When it is all about them
We then move to discussing Zero-Negative empathy; that is, people with zero empathy who behave in ways dangerous to others. Throughout the book, he uses revealing examples: in this section, of people with Borderline, Psychopathic and Narcissistic personality disorders (Type B, Type P and Type N). A weakness in this use of examples is that Baron-Cohen naturally uses particularly intense examples: one needs to pay careful attention to the discussion of general characteristics and not take his examples as templates.

It is nasty to be around a borderline, but it is not good to be one either: they are about 2% of the population but about 15% of those who turn up for counselling or psychiatric help, about 33% of those who commit suicide, and may be as many of half of those seeking clinical help for eating disorders, alcoholism and/or eating disorders; with a high propensity to commit, attempt or threaten suicide (p.55). Borderlines:

rage at those they love. … Despite all this rage, they describe themselves as “empty” inside (p.56).

An emptiness they attempt to fill with impulsive behaviour and which leaves them with a lack of core identity. Marilyn Monroe was a borderline personality (Pp57ff).

So, what causes it? There is a great deal of evidence that childhood deprivation affects brain development and helps generate personality disorders. The causal connection is complicated: 80% of those who suffer childhood sexual abuse do not grow up to be borderline personalities, but 40-70% of borderline personalities report childhood sexual abuse, 60-80% report a history of physical abuse, early separation through divorce, emotional neglect, indifference, deprivation and rejection (p.62). So childhood abuse and neglect creates a strong propensity to being borderline, but is not of itself determinative. Borderline brains show distinctive patterns that include abnormalities in the brain’s “empathy circuit” (Pp62-4).

Next are the psychopaths, or Type P. These are the classic “evil individuals”. They also lack empathy, but are willing to do whatever will satisfy their desires (p.64). About 3 percent of males and 1 percent of females have antisocial personality disorder (which includes psychopaths), but about half of all male prison inmates and a quarter of female prison inmates have antisocial personality disorder (p.67). The classic identified symptoms of psychopaths are:

superficial charm
lack of anxiety or guilt
undependability and dishonesty
egocentricity
inability to form lasting intimate relationships
failure to learn from punishment
poverty of emotions
lack of insight into the impact of their behaviour
failure to plan ahead (p.68).

Economics predicts that criminals will tend to be people with short time horizons, which fits. Baron-Cohen is more specifically interested in the lack of empathy involved in so many of the above symptoms. Part of the danger of the psychopaths is that they may not be physically aggressive, but can be more subtly so. Baron-Cohen accepts that the cliché “snakes in suits” is an apt description of how they can be camouflaged.

Psychopaths respond to parental rejection with rage. Blocked from being expressed towards their parents, the rage builds up, to be vented later in life, unchecked by any empathy (Pp69ff).

Baron-Cohen briefly sets out child psychiatrist John Bowlby’s attachment theory, which generates predictions that are supported by considerable evidence. The theory holds that an infant uses the primary care-giver as a “secure base” from which to explore the world:

By giving praise, reassurance, and a feeling of safety, the caregiver’s affections helps the child manage his or her anxiety, develop self-confidence, and trust in the security of their relationship (p.71).

Baron-Cohen paraphrases this as successful parenting gives a child an “internal pot of gold” that fills the child up with positive emotions. Psychopaths typically have a higher rate of what Bowlby (who developed his theory from work with juvenile delinquents) called “insecure attachment” (Pp 71ff).

Psychologist Jeffrey Gray developed the theory that psychopaths have an under-active “Behavioural Inhibition System” (BIS), the structure that allows learning about the emotional consequences of actions, while anxious people have an over-active BIS. Hence psychopaths do not learn to fear punishment: with clear consequences. Psychopaths also show brain abnormalities in their “empathy circuit” (Pp79ff).

Then it is on to narcissists (Type N), the least studied of the three main types of personality disorders. They lack empathy or humility, think themself much better than other people, typically tending to monologues rather than conversations; though narcissists can vary greatly in their mode of social interaction from outgoing to shy and withdraw. A massive sense of entitlement is a common feature, however. It is speculated that excessive parental admiration, praise or indulgence is a factor in the creation of narcissists. They are about 1 percent of the population but about 16% of those attending clinics for mental health issues while a half to three-quarters are male (Pp88ff).

Baron-Cohen discusses how empathy can be temporarily or permanently depressed (Pp 93-4). This is of particular interest to me, because I have come to the conclusion that bigotry works by exempting people from being objects of empathy. Putting them outside the ambit of empathy.

Clearly, emptiness, rage and entitlement can occur in response to seriously unbalanced parenting and yet not create borderlines, psychopaths or narcissists. The essence of Baron-Cohen’s theory is that it is those things plus zero-empathy which makes Type B, P or N personality disorders.

All about patterns
Then it is on to an even more enlightening discussion of how zero empathy can be positive, in the case of people in the autism spectrum (particularly Aspergers). For empathy is not the sole route to developing a moral code (p.95). These people can be Zero-Positive for two reasons:

First, in their case their empathy difficulties are associated with having a brain that processes information in a way that can lead to talent. Second, their the way their brain processes information paradoxically leads them to be supermoral rather than immoral (p.96).

People in the autism spectrum show underactivity in the empathy circuit (Pp100ff).

What distinguishes these people from the Zero-Negatives is that they systemise to a remarkable degree. The social world lacks rules they can grasp, but the physical world is full of them:

People with Asperger Syndrome have brains that are exquisitely tuned to notice patterns (p.104).

Patterns are basic to acting, to predicting, to making things work, to find new ways to make things work. By identifying patterns we can see what is the case and what can be made to be the case. In a sense, seeing patterns allows us to step outside time because we can identify enduring realities. We can systemise by observing patterns, or by observing and operating on them: we can then create new ways of doing things (Pp105ff).

Calling those parts of the brain that can perceive patterns in changing information the “Systemising Mechanism”, Baron-Cohen points out that these are also distributed in a Bell curve, from people with very low systemising ability to those with very high systemising ability. The problem for the hyper-systemisers, is that all they see are patterns, so any unexpected change is toxic. They seek complete control so everything is completely ordered, with any disruption threatening collapse. The upside is that they see patterns no one else has discovered. Such people live in a black-and-white world of things being true or false, never shades of grey. For them truth is precision. And the emotional world does not “fit”. Their systemising mechanism is set so high, there is no place for empathy. But there can be great intellectual and other creativity, as they spot and use patterns no one has previously noticed (Pp112ff).

Classic autism, in Baron-Cohen’s analysis, is this to the max. Autistics have no sense of empathy at all, no sense of other people except as objects. But everything needs to be systematic, patterned or else it becomes toxic change they cannot deal with, that they have no place to “put” it. But without the obsessive systemisers, Baron-Cohen argues, humans would have achieved far less (Pp118ff).

What makes the hyper-systemisers' zero-empathy profoundly different from the Zero-Negative borderlines, antisocials (including psychopaths) and narcissists is that the hyper-systemisers come to morality, not through empathy, but through a very strong sense that behaviour should be governed by rules. They can, indeed, be super-moral because they are so strongly tuned to fairness as a basic principle. So, they are Zero-Positive both in the sense of being often highly creative and in being moral, even hyper-moral, without empathy (Pp 121ff).

Wrestling with cause
All of which is fascinating and enlightening, but still leads to the question of causes. Yes, parental abuse and neglect or otherwise seriously unbalanced upbringing can lead to destruction of empathy coupled with emptiness, rage or entitlement but most people with abusive or otherwise seriously unbalanced upbringings do not develop into borderlines, psychopaths or narcissists. Conversely, some people develop in to Zero-Negatives without suffering such neglect or abuse. If environment is not sufficient explanation, then interaction with genetics (and Baron-Cohen stresses interaction and that genes are just mechanisms for coding proteins) has to be considered (Pp125ff).

But any genetic tendencies to low empathy that manifests in the Zero-Negatives are going to be different genes from the Zero-Positives, given that the latter go down the empathy distribution as they go up the systemising distribution (p.127).

Which brings us, inevitably, to twin studies and which traits are common in identical twins and different in non-identical twins. Baron-Cohen discusses (in a very accessible way) the evidence on genes for aggression, emotional recognition and genes associated with EQ and autistic traits. Baron-Cohen then reminds us that causes are very mixed: genes are not determinative (Pp128ff).

If empathy is in part genetic, there should be evidence for empathy in animals. Which there is, some of it unexpected (in rats, for example)(Pp143ff). Nevertheless:

whatever glimmerings of empathy we can discern (or imagine we discern) in other species, the level of empathy that humans show is qualitatively different from that seen in any other species (p.145).

As are our systemising abilities.

The final chapter is Reflections on Human Cruelty, where Baron-Cohen returns to making what people call evil amenable to scientific analysis. (He carefully makes it clear he is not buying into any Dawksian anti-religion agenda.) He summarises the ten new ideas he hopes to introduce into the debate:

we all lie somewhere on the empathy spectrum;
at one end is zero empathy;
the empathy circuit in the brain will be abnormal in such cases;
treatment of zero empathy should target the empathy circuit;
John Bowlby’s notion of early secure attachment can be usefully characterised as an internal pot of gold able to be drawn upon;
there are genes for empathy;
while most forms of zero empathy are negative, one is positive;
Zero-Positive comes from a mind striving to “step out of time” to see the repeating patterns in nature;
the Zero-Positive mind finds change toxic;
empathy is the most valuable resource (Pp147ff).

I was particularly struck by the comment that:

Calling the brain types personality disorders leads to debates about whether personality can be changed, especially if personality is defined as a fixed set of traits. Calling them Zero-Negative opens up new avenues for intervention (p.150).

Some of his tentative suggestions for treatment echo what Albert J. Bernstein in Emotional Vampires suggests for narcissists.

Baron-Cohen identifies various outstanding puzzles and suggests psychiatry needs to give much more attention to empathy. He considers the alleged “banality of evil”, what an underactive empathy circuit means and the potential for change. Finally, he considers the possibility of super-empathy and empathy as an under-utilised resource (Pp153ff). The book includes an Appendix incorporating questionnaires for measuring EQ in adults and in children (Pp187ff) and a second Appendix listing characteristics of Type B, P and N Zero-Negatives (Pp197ff), a very useful summary.

I found The Science of Evil a very enlightening book. I would particularly recommend it for anyone who is on the autism spectrum or has to deal with someone on the autism spectrum.

Son of Hamas (2)

This is the second part of my review of Son of Hamas: A Gripping Account of Terror, Betrayal, Political Intrigue and Unthinkable Choices by Mosab Hassan Yousef. It concludes the review which began in my previous post.


Things were peaceful, Mosab’s relationship with Shin Bet became very relaxed. Then things changed:

Yasser Arafat had grown extraordinarily wealthy as the international symbol of victimhood. He wasn’t about to surrender that status and take on the responsibility of actually building a functioning society. So he insisted that all the refugees be permitted to the land they had owned prior to 1967—a condition that he was confident Israel would not accept (p.126).

That has been the continuing tragedy of Palestinian politics, leaders who have been much more interested in maintaining their own power and position than serving their people’s interests. Back in the 1920s and 1930s, the Mufti of Jerusalem had acted to protect the interests of a landlord class that had nothing to offer the processes of modernisation the Jewish immigrants were letting loose—in their different ways, Arafat and Hamas continued in this sad and destructive tradition. At President Clinton’s Camp David talks, Israeli PM Ehud Barak had made the most generous Israeli offer ever, Arafat had rejected it and came back home a hero to Palestinian nationalism.

One cost was that the American political class essentially gave up on Arafat. But that was much less important than:

For Arafat, there always seemed to be more to gain if Palestinians were bleeding. Another intifada would surely get the blood flowing and the Western news cameras rolling once again (p.127).

An excuse was needed.

“What’s going on?” I asked my dad.
“Sharon is scheduled to visit the Al-Aqsa Mosque tomorrow and the PA [Palestinian Authority] believes that this is a good opportunity to launch an uprising” (p.128).

In previous weeks, the Muslim controlling authority on the Temple Mount had been systematically bulldozing away evidence of its (particularly Jewish) past. Sharon’s visit was a message to Israeli voters that he would stop this destruction. He turned up, looked around, and left, never entering the mosque. But a Second Intifada was duly manufactured, something that Arafat and the PA leaders had been planning for months, even before the Camp David (Pp129ff).

A process helped by much of the Western media’s implicit acceptance that Palestinians are entitled to act like violent, narcissistic children.

Mosab’s father was caught in the middle, as Hamas was unable to outflanked in aggressive “resistance” by Arafat even though Arafat was clearly using (and intending to use up) Hamas. But the Intifada took on a life of its own, and was far more suited to Hamas than the corrupt PA: Hamas grew stronger. One can see the affinity with fascism and Nazism in Islamist and Arab nationalist politics: atavistic celebration of the past, elevation of collective harmony, glorification of violence—a sadly familiar mix. The escalating cycle of violence energised Mosab to work far more actively with Shin Bet (Pp132ff).

Mosab became “the Green Prince”, his Shin Bet codename; a 22 year old in constant contact with the religious and military wings of both the PA and Hamas, as his father was someone everyone would deal with and Mosab became his driver, assistant and bodyguard. Indeed, protecting his father became a motive for helping Shin Bet (Pp135ff). What Mosab saw just alienated him even more from the Palestinian leadership:

Amazingly in the midst of their sorrow and anger, the people seemed extremely grateful for the Palestinian leaders like my father who had come to share it with them. Yet these were the very Palestinian leaders who had led them and their children like goats to the slaughter and then ducked out of range to watch the carnage from a comfortable distance. This sickened me more than the gore (p.144).

Mosab witnessed Palestinian leaders bickering over who would control what funeral arrangements:

The competing factions had been reduced to ridiculous bickering over the dead (p.144).

Saddam Hussein paid $10,000 dollars to the family of anyone killed fighting the Israelis, $25,000 for each suicide bomber, $35m in two-and-a-half years:

You could say a lot about this mindless battle over real estate. But you could not say that life was cheap (p.145).

Mosab’s story becomes a real-life spy drama as he manoeuvres between his roles and worked to help the Israelis foil, break up or kill terrorists (particularly the organisers), his growing Christian faith being a great comfort (Pp147ff).

That Hamas was not a conventional organisation showed up in that:

… the Hamas military wing consisted of only about ten people who operated independently, had their own budgets, and never met together unless it was urgent (p.211).

The death of Arafat left a political vacuum: he had centralised everything in his own hands. Hamas debated over whether to participate in the PA elections—electoral politics meant compromise, the loss of ideological purity. Mosab’s father felt that a Hamas electoral victory would be a disaster, given its rigid contrarian nature and the ignorance and irresponsibility of its leaders. Frustrated by so much around him, Mosab was inspired to start up a small business providing home computers, which rapidly became very successful.

A friend introduced him to the Coptic priest Zakaria Botros whose televised forensic dissection of the Qur’an helped complete Mosab’s conversion to Christianity. (This article on Father Botros tells more.) An American Christian girl from San Diego gave Mosab a secret baptism in the sea off Tel Aviv. Meanwhile, things were getting worse. A Hamas munitions dump blew up during a Hamas rally, killing many people. Hamas blamed Israel and launched missiles. The Israelis retaliated, and the cycle of violence re-awakened. Mosab and his father went back to prison (Pp212ff).

When he came out, Mosab felt his life was going nowhere and nothing could be done to break the cycle of violence. As he told his Shin Bet contact:

Our enemies are ideas, and ideas don’t care about incursions and curfews. We can’t blow up an idea with a Merkava. You are not our problem and we are not yours. We’re all like rats trapped in a maze (p.236).

Mosab decided he wanted to leave the Middle East and migrate to the US, even though Shin Bet offered to set him up as head of a new major communications company in the Palestinian territories. He moved to the US in 2008. In January, 2008 he gave an interview with Haaretz about becoming a Christian. His father was appalled and shocked but continued to stay in contact. In March 2010, the day before the first edition of Son of Hamas came out, his father disowned him (Pp237ff).

Mosab believes the only way forth for the Middle East is truth and forgiveness (Pp247ff). The final irony is that, before the first edition of the book came out, US Homeland Security wanted to deport him as a terrorist threat. His Shin Bet contact (no longer with Shin Bet) came and testified on his behalf (not something that made him popular with Shin Bet), having become a valued friend. Mosab lodged a draft of Son of Hamas as evidence, which Homeland Security attempted to use, by selective citation, as evidence against him. Various members of Congress, of the Knesset and a former Director of the CIA wrote on his behalf. Homeland Security dropped their application for his deportation, and he won his case, gaining political asylum in the US (Pp253). His book ends on a very Christian note, expressing his Christian faith and the hope of forgiveness as the way forward (Pp262ff).

Son of Hamas is autobiography, social and political analysis, true-life spy thriller, conversion text and religious meditation woven together in a very revealing and engaging book. It can be read for all these reasons. I am struck by the perceptive and informative way Mosab analyses emotionally fraught events that he was at the heart of. He makes his extraordinary personal story a window into the heart of events that allows one greater understanding of conflicts that are so often distorted through various preconceptions and misleading conventional wisdom. It is an enthralling and revealing read.

Son of Hamas (1)

Son of Hamas: A Gripping Account of Terror, Betrayal, Political Intrigue and Unthinkable Choices by Mosab Hassan Yousef is a true story that is much more outlandish than any Hollywood scriptwriter would be allowed to get away with. The eldest son of one of the founders of Hamas (Ḥarakat al-Muqāwamah al-ʾIslāmiyyah: Islamic Resistance Movement) works for Israeli security (Shin Bet) and converts to Christianity.

His story starts with the young Yousef being stopped at an Israeli checkpoint, arrested, taken to an Israeli prison and beaten: Israelis being horrid to Palestinians, a familiar motif.

We then move to the story of his grandfather, Sheikh Yousef Dawood, iman of the village of Al-Jainya (population about 400) in Jordanian-ruled, Israeli-occupied West Bank and Mosab’s father, Sheikh Hassan Yousef, the favourite son who followed his own father, Sheik Hassan, into being an Islamic cleric. As Mosab explains, being a religious leader in Islam is a very broad and authoritative social role:

Because values and traditions have always meant more to the Aranb people than government constitutions and courts, men like my grandfather often became the highest level of authority. Especially in areas where secular leaders were weak or corrupt, the word of a religious leader was considered law (p.7).

Mosab’s father was assigned to a mosque in the city of Ramallah, where religious observance was very lax. He worked hard, with limited success, to build up the mosque. Sheik Hassan then sent his son to Jordan, for more advanced Islamic study (Pp5-8).

Mosab then takes us through the history of the Muslim Brotherhood; its founding by Hassan al-Banna, its struggles with the Egyptian monarchy, its involvement in Nasser’s coup and its suppression by Nasser. We get a sense of the power and effectiveness of the organisation based on the side of Islam that cares for widows, orphans and the poor, that engages in welfare and facilitates education as well as that side which leads to jihad (Pp9-11). Mosab’s father was trained in Jordan by the Muslim Brotherhood, energised and engaged by the positive side of Islam. Mosab doubts that his father has ever allowed himself to see the other side of Islam:

Islamic life is like a ladder, with prayer and praising Allah as the bottom rung. The higher rungs represent helping the poor and needy, establishing schools, and supporting charities. The highest rung is jihad (Pp11-12).

Muslims vary where they are on the ladder:

Traditional Muslims stand at the food of the ladder, living in guilt for not really practising Islam. At the top are fundamentalists, the ones you see in the news killing women and children for the glory of the god of the Qur’an. Moderates are somewhere in between.
A moderate Muslim is actually more dangerous than a fundamentalist, however, because he appears to be harmless, and you can never tell when he has taken that next step towards the top. Most suicide bombers began as moderates (p.12).

Mosab never felt able to talk to his father about where what he had sought had led, such not being done in his culture.

Then it is on to 1977-1987, when Mosab’s father was at the forefront of trying to breathe life into the stagnated Muslim Brotherhood in Palestine. Mosab’s father married the sister of one of the founders of the Muslim Brotherhood in Jordan, who had come to Palestine with Mosab’s father. Mosab was born, the first of several children. We are introduced to the tragedy of permanent refugee camps: places not built to function properly because they are only “temporary”—physical inadequacy creating social dysfunction breeding pathological, grievance politics. Consider Al-Amari covering about 22 acres, one of 19 West Bank camps:

By 1957, its weathered tents have been replaced by wall-to-wall, back-to-back concrete houses. Streets were the width of a car, their gutters flowing with raw sewage like rivers of sludge. The camp was overcrowded; the water undrinkable. One lone tree stood at the center of the camp. The refugees depended on the United Nations for everything—housing, food, clothing, medical care, and education (Pp13-14).

Reading Son of Hamas, it becomes clear that one of the fundamental failures of Israeli policy has been failing to provide avenues for Palestinians to develop aspirations beyond the politics of grievance. (That UN, Arab and EU policy have all conspired to do the same is true, but beside the point—Israel bears the consequences far more than any of them.)

Mosab’s father, living simply on a limited income, was successful in reinvigorating the local mosque. In 1987, he took a second job teaching Muslim students in a private West Bank Christian school. His wife raised their six children (four sons, two daughters). Mosab briefly tells the story of his upbringing, raised in love, admiring his father greatly, the enormous local cemetery looming over his neighbourhood (Pp13-18).

Then it is back to the Muslim Brotherhood. It having expanded to include many educated and professional folk, a dispute erupted between the Gazan and the West Bank leaders, the former wanting to take a stand against Israeli occupation the latter not wanting to repeat the mistakes of the Brotherhood in Egypt and Syria where attempted coups had led to great repression. In 1986, a secret meeting in Hebron of seven people, including Mosab’s father, founded HAMAS, deciding to take the next step of civil disobedience. Mosab describes this as his father taking a few more steps up the ladder of Islam (Pp18-20).

Hamas was looking for a pretext to start an uprising. It came in typical Middle Eastern style, via a tragic misunderstanding. An Israeli was stabbed to death, four Palestinians died in a traffic accident, the rumour spread that they were killed in retaliation and the First Intifada was sparked off (p.21).

Mosab’s father is arrested by the Israelis and Mosab flirts with becoming a stone-throwing adolescent. The detention of Hamas leaders fails to suppress the Intifada, which becomes more violent: Palestine, and particularly Gaza, being a land with many grievances but a dearth of alternative aspirations. (And some of the resistance tactics seem to be designed to increase grievances and frustrate alternative aspirations, such as school strikes.)

Mosab contrasts the PLO, (“even as a young boy, I saw the PLO as corrupt and self-serving” [.p33]) and Hamas, which was rising in power and influence. The arrest of Mosab’s father meant his family lost the extra income he earned teaching Muslim students at a Christian school; the family struggled on little income with little or no support. His father was released, and they used Mosab mother’s dowry gold to buy a house: his father was to be continually re-arrested and released, putting the family under great strain. The Intifada became increasingly violent, as younger, more radical activists demanded blood for those (largely teenagers) killed by Israeli soldiers: Israel now faced attacks from within its own borders (Pp34ff).

The kidnapping and murder of an Israeli border policeman led to a massive Israeli crackdown on Hamas, which saw Mosab’s father deported to Lebanon. Mosab’s family were not cut off from Mosab’s father, except for occasional glimpses on news bulletins. The deportation led to Hamas and Hezbollah forging links (p.51). Then came the profound shock and surprise of the Oslo Accords, which polls found were strongly supported by Palestinians, but not Mosab’s father, who trusted neither the PLO nor the Israelis (p.52).

Baruch Goldstein’s massacre of 29 worshippers in a Hebron mosque while wearing his IDF uniform set off further cries for vengeance and was followed by the first official suicide bombing (Pp53-4). Arafat and the PLO made a pragmatic argument for the Oslo Accords as the best deal available in adverse circumstances: Hamas remained opposed (Pp55-6).

Mosab explains that Hamas was not an organisation in the conventional sense, “it was a ghost, an idea”. Gaoling, or even killing, its leaders did nothing to stop its growth. While the PLO was ultimately a nationalist body, seeking a national solution:

Hamas, on the other hand, Islamized the Palestinian problem, making it a religious problem. And this problem could be resolved only with a religious solution, which meant that it could never be resolved because we believed that the land belonged to Allah. End of discussion. Thus for Hamas, the ultimate problem was not Israel’s policies. It was the nation-state Israel’s very existence (p.58).

Mosab asked his father about a suicide bombing that had killed many civilians, including women and children. His father replied with a story about being unable to kill an insect. Suicide bombing was not something he would do himself, but he could rationalise somebody else doing it. “At that moment, my view of my father grew much more complicated” (p.59).

The assassination of Rabin, Arafat’s negotiation partner, led to the PLO repressing Hamas, imprisoning many of its leader and activists—including Mosab’s father in Arafat’s compound. Hating Israel and secular Palestinians, Mosab moved to trying to get guns. The classmate involved with him was stupid enough to talk about the guns (which turned out not to work) on the phone. He and Mosab were both arrested (Pp61ff).

In prison Mosab was tortured (fairly lightly, by the grim standards of the Middle East). Then he is interrogated, politely and respectfully, over a decent meal, by Loai, the Shin Bet captain for his area, before being moved into solitary confinement for days. Loai offers him the opportunity to work for Shin Bet, which Mosab accepts as making the best of a bad situation. Mosab continues to be imprisoned, ending up in Megiddo prison, dominated by Hamas (the various Palestinian organisations police their own inmates). Mosab’s story becomes a prison story, detailing the fetid prison atmosphere of fear and suspicion. He comes the clerk for the internal Hamas files on inmates, attempting to identify collaborators. Files that were highly pornographic, detailing bizarre sexual confessions (Pp98-9). He sees Islam at its most unattractive:

… the Muslims I saw in Megiddo bore no resemblance to my father. They judged people as if they thought they were greater than Allah himself. They were mean and petty, blocking a television screen to prevent us seeing a bareheaded actress. They were bigots and hypocrites, torturing those who got too many red points—though only the weakest, most vulnerable people seem to accumulate those points. Prisoners who were well connected walked with immunity (p.106).

Mosab’s father was released from Palestinian Authority detention, to be imprisoned by the Israelis in Megiddo prison. Mosab is sentenced and released at the end of his term.

Two months later, he is contacted by Loai. In various highly secure safe houses, he is simply engaged in conversation about life in general. He is steadily trained, experiencing it as a process of Shin Bet “building him up”, paid some money and then given his first assignment: go to university and get his bachelor’s degree. The Shin Bet staff are polite and respectful, including of his religion: he finds the person Loai most resembles is his father. Mosab’s worldview is profoundly shaken (Pp113ff).

Then, literally at Suleiman the Magnificent’s Damascus Gate in Jerusalem (where Saul of Tarsus had his famous visionary encounter), Mosab encounters an Arabic-speaking Brit who gets him interested in a Bible study group. The New Testament in Arabic becomes his reading companion, along with attendance at the study group and church services. The contrast between the morality of the Gospels, and the religious engagement of his new Christian friends, with his experience of Islam is a revelation that steadily eats away at him over the next few years (Pp119ff).


This review is concluded in my next post.

About the welfare state

This comment provoked the thought that modern welfare states are systems for replacing private saving with public debt. With large health costs and retirement income guaranteed, much of the incentive for private saving is undermined. Meanwhile, the political incentive to pay for present goodies to hand out to voters by pushing the cost into a future that the office-holder may well not have to deal with encourages high levels of public debt.

Given rising per capita incomes, people should be increasingly able to manage their own health and retirement costs, yet the clear tendency has been for this process of replacing private saving with public debt to accelerate.

There are exceptions in various directions. For example, the Singaporean system of compulsory saving, the Australian system of compulsory superannuation, the Japanese combination of high private saving and mountainous public debt. Nevertheless, in adopting an inappropriate common currency--the euro--the eurozone EU may have revealed this basic contradiction in the post-1960 welfare state by cutting off a major mechanism for dealing with the consequences of replacing private saving with public debt, currency devaluation (both against other currencies, making one's products cheaper and imports more expensive, and future value, reducing the value of debts denominated in one's own currency). Add in collapsing fertility rates (and so lack of future taxpayers to pay these mounting debts) and one can see that the post-1960 massive income-transfer welfare state is not likely to be a long-lasting historical form.

There is no limit to the good, alas

This is based on comments I made here.


If the purpose of government is to "do good", then there is no limit to government, for there is always more "good" to do. The more absolute the claim of "the good", the more total the therefore-legitimate ambit of government. The most complete manifestations of this logic is in totalitarian regimes, for the more complete the transformation of human society to be achieved, the more total the control. The Soviet Union sought to transform human beings, the Third Reich to give Aryans Lebensraum, the Fascist state to create a united, powerful and confident Italian nation. Each aim was more total than the next one, so the peace time Soviet state was more completely totalitarian than the Nazi state which was more totalitarian than Fascist Italy.

Democratic government points in both directions. As legislators are the elected representatives of The People, their authority is sanctified by popular sovereignty. On the other hand, their authority comes from said people, so controls which seem to too restrictive on said people also contradict popular sovereignty.

One sees this tension particularly clearly in US politics, where the left tends to take it as read that government acts across a wide range of issues to support the Good and manifest popular sovereignty while the right tends to take it as read that government is a dangerous delegated authority whose overweening ambition threatens popular (in the sense of individual) sovereignty.

This comes out particularly strongly in economic issues, where one sides sees property rights as manifestations of popular sovereignty and the other as them being various levels of impediments thereto.

It also comes out in that folks on the left tend to see private interests as something the political order can "sit over" and control while the right tends to see government as something that will be gamed by, or otherwise manifest, private interests. (To put it another way, one regulates in the hopes of restricting lobbies and private interests, the other is more likely to see lobbying as the predictable result of intrusive regulation.)

To complicate matters, there are "the claims of God" conservatives who are happy to use the state to do "God's will". Also, the default attitudes to state coercion tend to reverse when considering the physical coercive arms of governments (police and military forces). The left tends to be suspicious of legitimated official violence (while being terribly keen on all sorts of other official coercion) since criminals and angsty foreign powers are just misunderstood/have legitimate concerns (but corporate interests are, of course, evil), while the right wants social order to be protected (even while being generally sceptical of state coercion elsewhere).

So US politics is divided into two Parties who can both accuse the other of "not getting" the American Revolution and both are correct.

All of which makes the question of "yes, but what actually works?" an excellent one. It, more than anything else, was the question which led to liberalising economic reforms being adopted by both sides of Australian politics. Legislation normally has wonderfully "good" intentions. But intentions are easy, anyone can spout them, it is consequences that really matter.

Another way to think about the modern addiction to legislating is: what incentives constrain politicians to pay attention to consequences? And which consequences are they going to pay attention to? Thinking about those questions leads to rather more scepticism about the modern mania for lawmaking.

Changes in technology may also have affected the propensity to legislating. Looking at the stats on pages of legislation passed by the Australian federal Parliament, I suspect the photocopier helped expand the amount of legislation by making it easier for Parliament to process it.

As for the notion that purpose of legislators is to legislate, Pitt the Elder is reputed not to have shepherded a single Act through Parliament in his entire Parliamentary career.

Law can also repeal law. By the late C19th, British politics had a reputation for high levels of probity. This was not the case in the C18th. The British Parliament, from the late C18th on, spent much time repealing laws and regulations. By so dramatically reducing official discretions, it dramatically reduced the potential market for corruption (corruption being the market for official discretions) and so greatly improved the probity of British politics.

If one dislikes all the corporate lobbying, less intrusive regulation (particularly less complex tax systems) would be a great way of reducing the amount of lobbying. Complex tax laws and intrusive regulation attracts lobbying the way faeces attracts flies. It is a major cost of an excessive propensity to legislate.

A political order that is addicted to legislating should not have its addictive behaviour facilitated by a presumption of doing Good. Consequences are what really matter, because they are what people actually live with. Not justifying intentions.

Of labour income and shifts in income inequality

This is based on a comment I made here.


There are a host of issues with inequality: of the significance of income versus consumption inequality, for example. But that income inequality in the US has been increasing in recent times, (on some indicators) back towards the levels of the “Gilded Age”, is fairly clear. The effect is particularly concentrated at the very top of incomes.

Paul Krugman divides the history of C20th income inequality in the US into the “long Gilded Age” until about 1938, “middle class America” of the Great Compression from then until the mid 1980s and the “Great Divergence” since. A pattern he has tied it to political polarisation and financial deregulation.

Krugman is arguing that it is basically a creation of public policy. That the New Deal deliberately compressed incomes until the “supply side” policies of the 1980s reversed the effects. I suspect that public policy has less effect than Krugman claims.

It is worth noting, for example, that the US federal income tax is wildly progressive. The top 5% of income taxpayers pay over half of total federal income tax receipts. The top 20% of income taxpayers pay over 80% of total federal income tax receipts. Even given that the income figures cited above are about market (i.e. pre-tax) incomes, the income transfers of the US government work in the reverse direction to that which Krugman is indicating. So, for the “public policy did it” explanation to work, it must be overwhelmed by other aspects of public policy. For example, Krugman might have a point about the finance industry.

Still, there could be other factors are at work driving up capital and driving down labour incomes (relative to each other).

It is easy to nominate social changes that could be increasing income inequality.

(1) Immigration: widening skill differentials and driving down labour income (and therefore putting upward pressure on capital income).
(2) Increased life cycle inequality with the expansion in higher education, as poor students become highly paid professionals later in life, and increasing skill differentiation.
(3) Women entering the workforce, putting downward pressure on labour income (and thus upward pressure on capital income) and increasing household differentiation as high-income women marry high-income men.

In the C19th, there were temperate and tropical zone labour flows. A vital interest of labour politics in North America and the Antipodes was to block tropical zone labour flows competing with them. (Hence the White Australia policy and anti-Chinese immigration sentiment in both regions.) But even within the temperate zone labour flows, a lot was fairly low skill. The effect of the mass immigration to the US was to increase skill differentials and put downward pressure on labour income (and upward pressure on capital income): hence the inequality of the "Gilded Age".

There was a dramatic drop off in migration in the interwar period. After some lag, there was consequently downward pressure on capital income and upward pressure on labour income. In the postwar period, there was high productivity growth and immigration was largely from Europe, and the more educated and industrialised parts thereof. Capital growth more than compensated for labour force growth, so there was upward pressure on labour incomes and downward pressure on capital incomes (relative to each other) with little or no widening of skill differentials. Hence the "great equalising".

Then productivity growth died away, migration became much more "tropical zone", women flooded into the workforce. There was downward pressure on labour income, widening skill differentials and upward pressure on capital income (due to increased relative scarcity). Combine that with increased life cycle inequality (due to mass higher education) and high-income women marrying high-income men and you get flat labour income and increased income inequality. (And yes, I am aware of the claims that the net effect of migration is to increase per capita incomes. Maybe, but it does not increase specifically labour income, which is my point.)

So how much public policy changes drove, or responded, to these underlying patterns, a fascinating question. But I am sceptical how much public policy can counteract these effects.

I also disagree with Krugman’s take on the wider the effect of Reagan. There is little point in comparing Reagan’s performance with the period of high productivity growth. The interesting comparison is with other developed democracies at the same time as his term in office. The "supply side" reforms that started under Carter led to the US pulling away from European countries in per capita income, after the post war decades of convergence in per capita income as European countries got over the effects of Dictator’s War and technology spread in “technological catch up”. Reagan did well under the comparison that counts—similar countries in the same general context.

A lot of factors affect both relative economic performance and trends in income inequality: analysis needs to carefully consider the complete context, rather than focusing on what seems congenial to blame or credit.

The protection of the public eye

Blogging in Cuba is not the safest of occupations. Here is a request, received by email, by and on behalf of such bloggers:

Many people want to do something to help the bloggers directly. The most important thing is to read them, talk about them, comment on their blogs, share their blogs with others, keep them IN THE PUBLIC EYE, which is a shield that helps to protect them.

So, here are some blogs to follow:

Generation Y

Sin Evasion/Without Evasion

Laritsa's Laws

Octavo Cerco

Dimas's Blog

The Birth of the Nazis: the Freikorps

Nigel Jones' splendid A Brief History of the Birth of the Nazis: How the Freikorps Blazed a Trail for Hitler is an excellent rendering of the turbulent period in German history from the abdication of the Kaiser on 9 November 1918 to failure of the Beer Hall Putsch of 8/9 November 1923. So a period of precisely five years, but a very exciting five years.

The collapse of the Kaiserreich in defeat and hunger left a gap in legitimacy and authority that the proclamation of a German Republic did not solve. No part of the borders of the Reich had been breached when Germany sued for peace, so it was easy to deny that Germany had "really" been defeated--leading to the "stab in the back" myth, a phrase first coined by a puzzled British general in conversation with Ludendorff (p.171). Ludendorff comes across as a wholly odious character--physically brave but an appalling moral coward who avoided any responsibility for the military outcomes he was more responsible for than any other German officer. He was an entirely pernicious influence in the new post-Imperial Germany.

Large parts of the judiciary, civil service, Reichswehr, academe, police and other "pillars" of order where hostile, or otherwise unreconciled, to the new Republic. Something that showed up dramatically in the derisory sentences (or even acquittals) handed out to right wing political killers and violent plotters and contrasted with the severity that left-wing equivalents were treated to.

With well-entrenched enemies on the right, the shaky German Republic had also to contend with territorial ambitions of new neighbours in Poland and the Baltic States, revolutionary outbreaks inspired by the success of Lenin's Bolsheviks in Russia and vengeful Western Allies who imposed a dictated peace treaty on the new Republic.

Though the Treaty of Versailles was not as vicious as the Treaty of Brest-Litovsk that the Ludendorff and the Second Reich had imposed on its defeated Russian and Romanian enemies. Indeed, both Treaties were failures. Brest-Litovsk meant that significant German forces (particularly its cavalry) were busy trying to secure what turned out to be empty gains in the East and so were not available to exploit Germany's initial gains in the Ludendorff offensive, an offensive launched without any arm of exploitation. (As one historian has noted, Ludendorff the politician defeated Ludendorff the general.) While the Versailles Treaty, as an imposed diktat, was one no Germans felt in anyway committed to; except as an unfortunate burden to be shed as soon as practicable. The aristocrats and gentry of the Congress of Vienna a century earlier did much better than the democrats at Versailles. (But then, as a hereditary elite, they and their children had to live with, and manage, the consequences.)

In order to defend against revolutionary outbreaks and aspirations at home and territorial intrusions on the borders, the new Republican government turned to the Freikorps, paramilitary formations formed of refugees from the demobilised Reichswehr officers and troops and right-wing students. Violent and contemptuous of the new Republic and its politicians, the Freikorps were dangerous and unreliable instruments. Gustav Noske, the new SDP Defense Minister, was ruthlessly determined to put down any signs of revolution so that the new Ebert Government did not suffer the fate of Kerensky's in Russia.

In this he succeeded, at considerable cost in blood and by feeding the ambitions of the Freikorps, which culminated in the Kapp Putsch. This was defeated by the passive resistance of most of the civil service and a general strike. The latter manifestation of successful worker power then led to another round of revolutionary alarms, forcing the Republic to once again call upon the Freikorps.

Eventually, the Republic stabilised, particularly with the widespread revulsion against the murder of the Republic's Foreign Minister, the urbane and cultured wealthy cosmopolitian Walther Rathenau. But large parts of the working class were alienated from the Republic, giving the KPD a solid voting base and creating a Reichstag bloc in permanent opposition which, as it grew, made forming a majority government increasingly difficult.

The Freikorps also faded away, but left a legacy of violent paramlitarism that was to feed into the new Nazi Party. Its Beer Hall Putsch was both the final surge in Freikorps activity and expressed much of the trends of the period (including Ludendorff's consistently awful political judgement: the Putschists having successfully captured the key figures in the Bavarian Government, Ludendorff released them on their word--as soon as they were free, they promptly organised the violent suppression of the Putsch). The Putsch itself was a deliberate emulation of Mussolini's March on Rome, but aimed at a regional capital (Munich) and was too little too late, since the greatest fears of revolutionary collapse had subsided, as all such attempts have been successfully (and brutally) repressed.

Its failure both gave the new Nazi Party a myth of martyrs and blood sacrifice while convincing Hitler that power was going to have to come via the ballot box. After his release from fortress confinement, he concentrated on organising an effective movement which was already consolidating its dominance of the violent right of German politics when the 1930s Depression gave them the crisis opportunity they needed.

Nigel Jones' prose is clear and vivid. This is history which is both exciting and perceptive. It is an excellent rendition of the violent, and deeply flawed, birth of the Weimar Republic, and the prehistory of the Nazis.

Property rights for animals

This is based on some comments I made here on a proposal to give animals property rights in order to protect habitats.


Presuming that the point of the exercise is not simply a green power grab (which is what it looks like) but to change people’s behaviour, then adding to people’s future possibilities rather than threatening their present ones seems a better way to go.

In his Economic Analysis of Property Rights Yoram Barzel notes differences between UK and US habitat law, which I summarized as:

Another striking Barzel example is property rights in wildlife (Pp145-7). In the UK, farms tend to be larger than habitats, so property rights to wildlife are largely held privately as habitats are largely encompassed within private holdings. In Canada and the US, farms tend to be smaller than habitats, so the state assumes much more control over wildlife, as habitats generally extend across several, or even many, holdings.

A famous example of giving people a stake in preserving wildlife is giving local people ownership rights over their local elephants rather than just banning poaching. The former means that live elephants are a continuing source of income, the latter means the only profitable elephant is a dead elephant.

If live possums or whatever a boon for the farmer, then there will be more live whatevers. There is no such thing as an endangered profits-from-owning species.

Property rights evolved as a way of creating productive boundaries. Harold Demsetz, in his classic 1967 article Towards a Theory of Property Rights uses the example of beavers in North America. As the fur trade developed, Amerindians developed property rights in beaver dams. An example of productive interactions, considered by Steven Cheung, is bee-keepers and apple farmers. (Coase’s classic The Problem of Social Cost (pdf) considers these sorts of interactions.)

The proposal to give animals property rights, does not create productive boundaries, it creates anti-productive boundaries; it does not increase human possiblities, it lessens them. Not a clever idea.

Property-rights environmentalism has a lot to be said for it, but precisely because it increases human possibilities, not because it undermines them.

As for the comment in the above-linked thread from an advocate of the proposal

Why do so many land holders react with hostility to the idea of having to talk to others about their land use decisions? I might be an optimist but considering all the other supposed regulatory burdens upon land holders, is what I’m suggesting all that more demanding?

Because there are only so many ours in the day? Because it is their livelihood one is talking about? Because their experience of other examples is not a happy one?

Discretionary controls by officials inevitably become dominated by the politically well-connected. The notion that this would be a reliably benign process is belied by an enormous amount of experience.

As for “talking to others”, once one shares control of some attribute, one raises transaction costs, lowering the number and return on such transactions. To quote Michael Kirby, then High Court Justice, certainty is the central demand of land law. Clear boundaries allow productive trades. Unclear boundaries undermine such: sometimes profoundly. If a way exists to eliminate the problem (such as eliminating the problematic animals), it is likely to be taken.

Here is a question: would landholders be compensated for their loss of rights, or a we talking about simple theft here? A property right is a right of control up to a boundary. If you create “property rights” for animals, then any previously existing right of control in that boundary is eliminated. Someone else — the landowner in this case — loses rights. So, will there be payment for such loss or is it going to be simple theft?

As for appealing for “good intentions” by landlords, incentives matter. They matter a great deal. Given the potential power over land use this proposal gives, one must expect that people will politically organise to gain control over that power.

This is one of those basic analytical differences. Libertarians and others presume that private interests are endogenous to the political process and will game it according to the incentives generated. Progressives of various stripes presume that political processes can somehow be made exogenous to private interests and “control them” from outside. This is nonsense on stilts, and pernicious nonsense at that.

The more proponents argue for this proposal, the more alarming I find it. The issue is not the intention, but the means suggested.

Markets with clear rules have shown excellent ability to trade attributes to their most efficient holders. For example, we pay to have the attribute ‘liable to catch fire’ allocated to insurance companies according to rules which work fairly well. The trick is being able to define boundaries to the attributes and to trade them to mutual benefit.

If one does not have such defined boundaries, one just has a mess. And the experience of officials (actual or quasi) having joint control over attributes with private property owners is not a happy one. (Such as aiding and abetting NIMBY and BANANA — build absolutely nothing anywhere near anyone.)

It is not a lack of imagination that leads to the scepticism about this proposal, it is the application of experience against comforting theories about good intentions.

Money and expectations

I recently listened to talk by a former Chief Economist for the Reserve Bank of Australia. He was speaking to a lay audience and gave a nice rendition of the basic intuition of monetarism, presenting its central idea as being based on the Fisher equation of MV = PT and, assuming V (number of transactions money goes through in a given time period: often converted into k = 1/V or the proportion of money held as cash) and T (total number of transactions: often simplified to total production of goods and services in a given time period, ‘y’) do not change much, then a rise in M (money supply) will lead to a rise in P (price level).

Basically, in monetarism, it is all about the quantities. Hence monetarism relies on the notion of ‘long and variable lags’ to make this quantity story work: in other words, it invokes a ‘fudge factor’.

Monetarism does accept that a short run effect of rising money supply can be a rise in production (as discussed below) but, in the long run, the rate of inflation is determined by the rate of money expansion in excess of the rise in production, but with "long and variable lags".

The historical evidence on the fundamental claims of monetarism is not as cooperative as it might be. As one economic historian notes:

From my own studies of monetary and price history over the past four decades, I offer these observations, in terms of the modernized version of Fisher's Equation of Exchange, for the history of European prices from ca. 1100 to 1914. An increase in M virtually always resulted in some degree of inflation, but one that was usually offset by some reduction in V (increase in "k") and by some increase in y, especially if and when lower interest rates promoted increased investment. Thus the inflationary consequences of increasing the money supply are historically indeterminate, though usually the price rise was, for these reasons, less than proportional to the increase in the monetary stock, except when excessively severe debasements created a veritable "flight from coinage," when coined money was exchanged for durable goods (i.e., another instance in which an increase in M was accompanied by an increase in V).

The quantity story is not enough for several reasons, starting with the flexibility of supply mattering (as monetarism itself acknowledges). For example, in the C16th and C17th, Asian goods coming into Europe was an upward supply response that would have dampened the inflationary effect of the Central European and American silver flows and the various debasements of coinage (notably the English debasements of 1526, 1542 and 1553 – the total reduction in silver content of coins reaching 83%, though Elizabeth’s recoinage of 1560 reduced the loss to 25%, a further debasement in 1601 bringing the total loss of silver content to 36% – while the silver coinage of the Southern Low Countries was debased 12 times from 1521 to 1644, totalling a 49% reduction in the silver content of coins).

But if the responsiveness of aggregate supply matters, that gets in the way of telling a quantity story. Hence the “long and variable lags”.

The quantity story is, however, also not enough because one has to look at people’s expectations, for that will affect their holding of money (i.e. k) and so how much money is in circulation (i.e. the level of spending: Py). The upward responsiveness of aggregate supply of goods and services to any increase in spending determining how much the response is in prices (P) and the downward responsiveness of prices determining how much any fall in spending is reflected in falling production (y). (Or, to put it another way, whichever of prices or production is more constrained will lead the effect of any change in spending to be greater in the other.)

Institutions also matter: what forms of money there are, how available credit is. So, changes in institutional structures will change the significance of various monetary aggregates. One of the notorious problems of monetarism is trying to work out which monetary aggregates to follow and when. Money is a tool of human action, so what happens to it and what it does is about human behaviour which change as institutional structures change and vice versa: a quantity story is never going to be enough.

Money complexities
It is easy to go wrong in thinking about money as it is so central to so much economic behaviour. One of the basic things money does is that it simplifies. Without money, people are stuck with barter price(s) – price in terms of goods and services. Money prices are much simpler to deal with: everything for sale then has a money price in terms of a unit of account, a single number. (Money has barter price(s) – what it buys in terms of goods and services: what economists call ‘real price’ is some average barter price across a “basket” of goods and services at some point or period in time expressed in numerical – i.e. “money” terms – to make it manageable.)

Money – as the medium of account: that is, a medium of exchange that embodies the unit of account – also connects across time. We accumulate existing obligations from past actions, obligations that are specified to be paid in the medium of account. We also have future spending intentions, making us attentive to money as a store of value. Our expectations about the future path of money as a store of value will affect our current holding and spending patterns; our use of money as something to hold (k) or something to spend (Py) in the current time period. So, if we expect money to seriously lose value, the incentive is to spend it; if we expect it to gain value, the incentive is to hold on to it.

These simplifying and cross-time aspects of money means that money matters in its own right, it is not simply a “transparent” connector to the “real economy” of goods and services. (So monetarism is correct in that.) Particularly as we are not immediately aware of all shifts in the barter price(s) of money: money is a response to a real information problem (keeping track of all those relative prices) yet, while it hugely reduces the information problem, it does not abolish it (since there is still the issue of becoming aware of shifts in the average barter price of money).

(I keep using the term ‘barter price(s)’ because I have come to dislike the terms ‘real price’ or ‘real wages’ as they skate over the information problem that money exists to solve and which is fundamental to how people use and think about money. So using ‘real price’ or ‘real wage’ becomes actively misleading even though talking of the 'barter price(s)' for money sounds a bit odd. Though surely no more odd than calling statistical artifacts 'real prices' and 'real wages'.)

While money does therefore matter in its own right, it is still just a means for human action. The constraints and expectations it is embedded in matter: there is no simple quantity story to tell. So, the level of money offers (i.e. money spent rather than held) matters, but whether any increase in spending will be inflationary or not (and how much) depends also on the responsiveness of aggregate supply.

Hence, as it is the nature of assets that they cannot respond as quickly to increased spending as goods and services can, it is easier to get much bigger inflationary surges in asset prices than in goods and services prices: surges which will be bigger the more constrained supply is. But the shift from using the Fisher ‘T’ to the Friedmanite ‘y’ diverts attention away from spending effects on asset prices.

The level of spending cannot, however, be inferred from M, since people’s expectations matter, as they will affect k. If people have low or negative inflationary expectations, then that is a reason to hold on to money. If they also have negative (i.e. pessimistic) uncertainty, that will be even more reason to hold on to money as a safety measure. If they wish to reduce debt (i.e. are “de-leveraging”), then that will also be a reason to hold on to money. So the combination of debt, negative uncertainty and low or negative inflationary expectations is likely to lead to a dramatic lowering in spending. Even while “base money” surges: relying on such quantity measures will not merely be uninformative, they will be actively misleading. Hence ‘quasi-monetarism’ [now Market Monetarist (pdf)]: monetarism with the addition that expectations matter.

So, the worst thing a central bank can do in a situation of high debt and negative uncertainty is to reduce liquidity (and so both the availability of money and the expected path of money supply); thereby creating expectations of low or negative inflation, leading to a “flight to cash” and a dramatic drop in spending leading to a dramatic fall in Py (i.e. nominal GDP, GDP in straight money terms), with the drop in y (economic activity/output) being bigger the more downwardly constrained prices are.

This debt-and-deflation story is basically Irving Fisher's story (pdf) about the Great Depression. It is also what happened with the recent Global Financial Crisis and Great Recession (see this chart of changes in nominal GDP and employment).

An example of downwardly constrained prices are wage contracts operating across time incorporating significantly higher inflationary expectations than actually occur, so that the price of wages in terms of goods and services – their barter prices – rise as demand for what they produce is falling. With such wages being downwardly “sticky” since cutting wages means breaking the agreed contract, creating a trust-and-future dealings problem: particularly as people have already acquired obligations to pay in terms of the medium of account, so are resistant to receiving less of such regardless of what is happening to the barter price of money.

There is a long-running critique of central banking with fiat money that fiat money central banks are inflation-addicted. But they seem to do their worst damage when they become inappropriately inflation-phobic. The question is whether these are soluble problems, or they are a manifestation in monetary policy of the classic problem of central planning – the destructive and chaotic combination of poor incentives and information problems.

Still, one can be a quasi-monetaristMarket Monetarist in macroeconomic analysis without thereby being committed to any particular position on fiat money and/or central banking. (For those interested, George Selgin has recently posted a nice defense of fractional reserve banking [via].)

So, yes inflation is “always and everywhere a monetary phenomenon” but it is not a simple matter of measuring (and manipulating) monetary quantities: one has to include constraints and expectations. Indeed, expectations are where the real game is. So targeting stable growth in Py (nominal GDP) incorporates responsiveness of aggregate supply to money offers (i.e. output to spending), works to both stabilise and respond to expectations while not being constrained by institutional changes in money. It also optimises use of a policy instrument (monetary policy) which is a lot quicker in responding than fiscal policy without the nasty debt consequences (which is to say, fiscal policy is more rigid in both operation and consequences).

So, quasi-monetarists Market Monetarists of the world unite! There is nothing to lose but misleading obsessions with monetary aggregates!

ADDENDA I have amended the post to use the term 'spending' and 'output' more and 'money offers' less and incorporate the new name of 'Market Monetarists'.

Cosmology matters (or why Jews make the stupidest queer-haters)

Economist Deepak Lal usefully divides cultures—interwoven ways of doing things passed across generations by learning—into their material and cosmological aspects. In his words (pdf):

The former relate to ways of making a living and concerns beliefs about the material world, in particular about the economy. The latter are related to understanding the world around us and mankind’s place in it which determine how people view their lives—its purpose, meaning and relationship to others

Material beliefs are more amenable to changing circumstances, cosmological beliefs are more persistent. As Lal continues:

There is considerable cross-cultural evidence that material beliefs are more malleable than cosmological ones. Material beliefs alter rapidly with changes in the material environment. There is greater hysteresis in cosmological beliefs on how, in Plato’s words, “one should live”. Moreover, the cross-cultural evidence shows that rather than the environment it is the language-group which influences these world-views.

Since language provide cognitive maps, it is not surprising that language group might matter. (So Islam’s insistence on Arabic as its sacred language probably aids its consistency, its recurring patterns.)

Sex and gender – how sex is to be conceived, what genders there are, how are they to be conceived – are classic concerns of cosmological aspects of culture, since they are so important to being human and human purposes. The most important single reason why conservative Christian perspectives have been losing grand moral arguments within Western civilisation has been the improvement in the status of women. Giving women control over their own fertility, the right to exit marriage and full economic and property rights has involved basic shifts in some fundamental presumptions.

These changes are intimately connected with expanding knowledge and growing technology that has not only downgraded any premium on upper body strength (an area of male advantage), it has also made mental abilities more salient (men have no advantage over women in average intelligence) while making pregnancy much safer (so reduced greatly the risk that investment in educating women will be lost in early death) and child-raising more readily compatible with higher income work: both factors being strengthened by greatly increased average life spans. Capitalism promotes the spread of technology by encouraging use of its benefits, including in its hiring patterns. As women have become more competitive, they have been hired more. As they have become more broadly economically useful, so legal restriction have been removed, each process helping the other along.

Longer life spans and fertility-control technology encourage separation of sex from reproduction, weakening the ability to define sex in terms of reproduction: the fundamental sex-and-gender premise of monotheism since, in monotheism, sex separates us from the divine apart from procreation. (Clearer in Judaism and Christianity than in Islam, since in Islam the principle of status is so much stronger and more pervasive.)

Changing conceptions of gender, sex (and sexual possibilities) have knock-on effects. It is a nice historical resonance that John Stuart Mill and Harriet Taylor’s The Subjection of Women was published in the same year the term ‘homosexual’ was coined. The more equal in status men and women are, the less one man providing another with sexual pleasure involves “betrayal” of male status.

Sex and gender also involve intense, roiling emotions. Which makes it ripe for exploitation in all sorts of ways.

Religion-as-excluding
An important role of religion is to give you people to despise, to separate the righteous from the unrighteous. A sense of one’s own virtue (or possible virtue) is so much easier if combined with a sense of other people’s viciousness.

Monotheism, with its conception of a single, authoritative, definitive view of truth, and reviling of false gods and their worship, generally finds it easy to generate people to despise. Combine this status claim (believers as profoundly morally superior to unbelievers) with sex as only being validated by its procreative role, and you have a rich field of intense emotion to exploit. (It also counts for monotheism’s fun allergy, since almost any form of worldly enjoyment can be characterised as separating or diverting us from the divine.)

Controlling women
If sex is only validated by procreation, obviously queers (anyone who does not fit in the binary male/female sex-for-procreation framing) are anathema. But it also makes it much easier to insist on the motherhood-box as normative for women – a religiously-sanctified sex-and-gender role only permitted to be exited for religious reasons. Any attempt to escape the motherhood-box easily becomes an immoral transgression involving a profound loss of status.

[Read the rest at Critical Thinking Applied.]

Great Crises of Capitalism (3)

This concludes my review of P. D. Jonson's (aka Henry Thornton) Great Crises of Capitalism. The first part is here, the second part is in my previous post.


Money offers
Jonson quotes the famous line of inflation as “too much money chasing too few goods” (p.203). I prefer to talk in terms of money offers (Py or M/k), since money that is not spent has no inflationary effect. Base money aggregates can surge in either deflationary or inflationary situations. In the former, it represents money being hoarded (a rise in k). In the latter, it is part of a much wider monetary expansion (and can even represent a fall in k). Money aggregates can be as misleading an indication of monetary conditions as interest rates. (Jonson notes problems with interest rates as indicators [p.244].)

It is nonsense, for example, to suggest that low interest rates are a sign of “loose money”: if interest rates are zero, then that often implies negative money risk – that is, people are expecting the value of money to rise: this is not a sign of loose money. Just to confuse matters, it can also mean, if conditions are sufficiently peculiar, that there are inflationary expectations, these are just being overwhelmed by negative opportunity costs for capital: such a flood of capital in excess of demand that people are willing to pay to put it somewhere. (This is the situation Japan has found itself in.) The nonsense slogan that interest rates are “the price of money” leads to misreading of interest rates. What you can buy with money (goods, services, assets) is its (barter) price, its nominal price is 1. Interest rates include an element for expected changes in the price of money (money risk), so clearly are not the price of money. Interest rates are, at best, the price of capital (not the same thing as money, since capital has an across-time element to it).

All of which is to say I am a Sumnerian (or “quasi-monetarist”): I believe the crucial thing is Py (or nominal GDP). Consider this chart of change in nominal GDP with change in employment. Do you think that they might be connected? More precisely, the key thing is expectations about Py (what people expect about the overall level of economic activity in nominal terms) since they will drive their money holding (k) and their transacting. (Such as, for example, what wages will be agreed in contracts: so an unexpected deflation, or even disinflation, will lead nominal wages to "overshoot", discouraging employment.)

That monetarism needed to include the notion of ‘variable lags’ due to the disconnect between changes in monetary aggregates and price-level changes is an indicator of basic problems with the theory: use of such a “fudge factor” takes the power out of the theory – hence the rise of ‘quasi-monetarism’, focussing on expectations and nominal transactions.

Dot coms and Asian busts
Jonson moves on to a quick history of Japan from Commodore Perry onwards, recommending Ruth Benedict’s excellent Chrysanthemum and Sword, and noting some of the similarities in Japan’s postwar “miracle economy” with China’s recent economic rise. This culminated in Japan’s 1980s “bubble economy” and a spectacular 1991 bust from which Japan has still not fully recovered. The Bank of Japan “pricked” the bubble by raising interest rates but the failure to deal seriously with insolvent banks meant problems lingered: indeed, some of the more bizarre lending practices continued. Jonson holds that Richard Koo’s concept of a ‘balance sheet recession’ should be taken seriously (Pp209ff).

Many economists are puzzled by Japan’s fiscal policy of massive deficit spending – to the extent that it now has the world’s highest public debt to GDP ratio – coupled with the Bank of Japan’s policy of monetary restriction, thereby nullifying whatever stimulatory effect there might be from fiscal policy. (On of the basic policy principles is that ‘the monetary authorities move last’: i.e. they can respond much more quickly than fiscal policy.) The combination of fiscal stimulus and monetary restriction results in a flat economy and a mountain of public debt. (That Japan’s politicians have been coping with the new experience of competitive Party politics may be a factor in the mix.) Koo’s theory, an updated version of Irving Fisher’s debt-deflation analysis, at least explains the fiscal policy.

Jonson then discusses the 1997 Asian crisis, then the ups and downs of post-Soviet Russia, whose gyrations brought down the (spectacularly erroneously named) Long Term Capital Management. Then it is on to the Shanghai Stock Exchange bubble (the Cultural Revolution is a long way away now: modern China is far closer to Chiang Kai-shek’s vision than Mao’s) followed by an extended consideration of the dot.com booms and busts (Pp209ff).

Considering capitalism
Having started with three general chapters framing the issue, Jonson concludes with three chapters considering the history of boom and bust covered in the middle seven chapters. The first of the final three chapters examines how capitalism works, its strengths and weaknesses.

This is a matter of “myriad of transactions” with the great divide in macroeconomics being those who hold that all markets (eventually) clear (i.e. those who rely on equilibrium analysis) and:

a school of economics – based on simple facts – that asserts that economies develop irrational financial instability, with runaway asset and credit inflation followed by a reaction that leaves many resources unemployed or underemployed (p.230).

Jonson has considerable respect for Keynes, who grappled with these large questions and whose efforts “have not yet been bettered” (p.230).

While the facts of asset booms and busts, so engagingly covered by the author, are clear, I am less inclined to throw around terms like ‘irrational’, ‘mania’ and ‘animal spirits’. It seems to me one is dealing with patterns of reinforcing expectations in a situation where all we can have about the future are expectations (admittedly, based on available information including past experience), not direct information.

But any price one can sell at is economic reality, and so therefore are any expectations of capital gain they are based on: reality until, that is, they are not. Expectations are driven by information and experience but also frame how information (or its lack) is treated. Where there is a general expectation of rising prices, for example, lack of information is treated very differently than when expectations of falling prices have set in.

Still, one takes his point about dealing in reality. One just needs to expand rationality analysis to take account of the limits of time and information – including for cognition itself.

Jonson discusses the work of Keynes, Friedman and Minsky in the course of making some general policy recommendations, including “leaning into” asset booms (Pp229ff). His discussion of the continuing relevance of Hume’s analysis of monetary economics (Pp233-4) is reminiscent of Friedman’s comment that in the last two centuries monetary economics has only managed to go one derivative beyond Hume. Part of the problem is adding in a non-monetary asset to simple basic models of open economies quickly lead to very complicated mathematics (p.235). (See my previous point about limited information.)

Jonson then gets to the heart of his macroeconomic analysis, discussing what happens when one adds in a non-monetary asset to economic models in a world where China is massively expanding its production of goods and services – money expansion will be reflected in rises in prices of non-traded good and services and assets, with the (eventual) impact on traded goods and services potentially taking decades (Pp233ff).

The implication of this is that:

When analysts write of ‘global imbalances’ they are usually writing about an incomplete adjustment in which one country or group of countries have an external deficit (or a falling exchange rate), and another country has an external surplus (or a rising exchange rate) with incomplete price adjustment. The great modern example as the USA and other developed countries in deficit and China and similar nations in surplus (p.236).

As well,

goods inflation is slow to adjust to monetary contraction, the same approach predicts asset deflation (p.236).

Jonson cites then Chancellor of the Exchequer Churchill’s 1925 setting the gold value of sterling too high as a classic example.

Monetary economist Scott Sumner clearly takes the Fed’s recent disinflation as a similar example. When critiquing the inflationary habits of the Fed, it is well to remember it did its greatest damage by monetary contractions and managed to do so both on (1929-33, 1937-8) and off (2007-8) the gold standard.

Jonson discusses the main competing explanations of stagflation, the range of monetary regimes across history and the virtues of the gold standard and the problems and opportunities of booms and busts for asset management, citing some seminal texts on the way through. He is particularly exercised by the debt and inflation problems that emerge after banking crises and busts and is informative on the pervasive problems of lack of predictability of events (Pp229ff).

Lessons of up and downs
Then it is on to the lessons of booms and bust. Jonson regards attempting to stop booms and busts happening as likely impossible to begin with and having high costs – vitiating the achievements of booms and the punishing of poor or misguided behaviour of busts. He then proceeds to tease out lessons for governments, central banks and investors, with a helpful one-page summary at the end of the chapter (Pp247ff).

Jonson is not a fan of Greenspan or his successor Ben Bernanke and fears that the recent “quantitative easing” will release high inflation down the track. He is particularly concerned with the mounting levels of public and private debt, pointing out that large government debt leads to default, inflation or a squeeze on services (p.249). While very keen on policing of fraudulent behaviour and separation of investment banking from commercial or deposit banking, and use of anti-monopoly laws to stop any institution being “too big to fail”, he also suggests it is desirable if the broader citizenry was educated in basic principles of finance to try and reduce the level of public credulity (Pp250-1). Jonson also feels that some version of Keynes’ Bancor proposal is likely superior to Taylor rule targeting (Pp257ff).

Scott Sumner is eloquent on the pitfalls of a gold standard. The implication is that a monetary system that had the discipline to run a gold standard would also have the discipline to run a fiat money system, unless there is some very strong threshold effect in entering into the gold standard. Some version of Keynes’ Bancor might, through the international commitment involved, have such a threshold effect. One of the benefits of such agreements is, after all, providing an excuse to stand up to domestic interests – thus the structure and processes of the GATT-cum-WTO does not make much sense in terms of economic theory, but a great deal of sense as an international forum to deal with domestic political pressures.

Future shocks
In the final chapter, Jonson attempts to look forward, based on the principle that:

In the absence of some great catastrophe, the future will be like the past, only more so (p.263).

A survey of trends and possibilities is followed by a critique of the ‘two-speed’ Australian economy with rising interest rates and $A undermining small businesses, particularly small exporters: he judges that a classic “bust” is the likely outcome (Pp272-3). Brief considerations of issues of the economically disadvantaged and corporate power is followed by the suggestion of a continuing “regulatory pendulum” which Jonson judges as likely to swing towards more regulation (Pp276-7).

In contrasting the US policy of using “every form of stimulus known to man” with the British strategy of austerity, Jonson is inclined to think the latter will work better, as it forces focus on basics such as “thrift, hard work and smart ways to do things” (p.277). Jonson then makes various “modest suggestions” for reforming capitalism and reiterates his fear of financial instability spiralling out of control due to misguided attempts to stop the process of boom and bust (Pp278ff). He concludes, however, with a basic optimism about the possibilities before us.

Considerations
I enjoyed Great Crises of Capitalism a great deal. Jonson has an engaging writing style and a refreshing confidence that the facts matter. While taking his points about public debt, “too big to fail”, inevitability of booms and busts, the problems of ignoring asset inflation, I am less convinced by some of his assertions about monetary policy. As this post eloquently puts the case (with revealing graphs), disinflation by inflation hawks have (and continue to do) great damage.

If central bankers have a persistent tendency to be too sanguine about inflation much of the time, but disastrously over-concerned with it on some searing occasions, this surely raises the issue of the value of central banking in the first place. “But they just have the wrong theory” is always a suspect move in trying to explain away problems of central control. The pattern looks more like the perennial problems for central control of dubious incentives and information limitations.

But this is not a book for the ideologically pure and is mostly the better for it. Though a framework can be so open-minded that it lacks the constraints required for intellectual rigour. The diffidence of the author does leave a feeling that the heart of things has not quite been captured.

Talking of the failure of Long Term Capital Management (rarely has a major financial institution been more incorrectly named), Jonson writes:

these bright but naïve men used a short run of history in developing their models, the sort of silly mistake this book is dedicated to discouraging (p.242).

However one might quibble about this assertion or that implication, Great Crises of Capitalism succeeds very well at putting boom and bust into a deeply sensible perspective. It is not a book of answers so much as warnings, questions and examples: but that too serves. Far better than do the spruikers of the latest unending boom, who are not possessors of some new truth but mere purveyors of recurring delusions.