Yesterday, I ruminated on the ever-increasing degree of modern homophily and how that might wipe away the "overexposure" argument against allowing a President a lot of face time on television. Today, I want to write about how our modern degree of homophily (or self-segregation) impacts our political discourse and culture.
One of the ugly effects of self-segregation is extremism. Harvard Prof and Obama advisor, Cass Sunstein, writes a lot about how people become extreme, and one of his most interesting findings is that surrounding yourself with like-minded people will squelch diversity of thought and push normally moderate individuals toward extreme positions. I recently read about an experiment he performed in Colorado where he recruited a group of self-identified liberals to discuss politics amongst themselves for a day and followed that with a group of self-identified conservatives to do the same. His findings: spending time with like-minded people led the group to become intolerant of diversity and increasingly extreme in their opinions. This makes sense if you've ever talked with someone who watches Lou Dobbs or listens to Rush Limbaugh every day. When we lose access to the "other side" we become intolerant and extreme. Sunstein found the same thing among our impartial and enlightened class of judges. He found that three-judge panels that were all-Republican appointments became more radical in their thinking, as did panels of three-judge Democratic appointments.
Now consider Congress for a moment. Over the last three decades the Congress has become increasingly polarized and our political debates more partisan. Each caucus increasingly ideologically homogeneous signaling a parlimentarization of Congress. This, I believe is no accident. At the same time that we have increasingly segregated ourselves in communities of like-minded people and have increasingly adhered to a smaller and smaller number of sources for new information we have also seen a move toward polarization, partisanship, intolerance, and extremism (this may be especially true of those of us that primarily use the Internet for information and are therefore potential victims of cyberbalkanization--I know that I for one have a daily new and blog loop that rarely includes more than one or two conservatives).
This may even be true of class, as we have created more and more million dollar zip codes, keeping up with the Joneses has become truly unprecedented in scale and scope. How much is too much? It's a cultural measure and when you're only surrounded by extreme wealth it redefines "extreme". All of a sudden a Ponzi-scheme or "accounting irregularities" doesn't look so bad. It's the psychology of the bubble, but maybe the bubble is bigger than we think. Maybe the bubble isn't just about housing prices or tech stocks but about the bubbles that we have all moved into where all you can hear is the echo of agreement.
Homophily and the echo chamber that you, I, and many of our fellow citizens reside in, may be one of the most dangerous aspects of our modern cultural life. I think this may be more serious for the right-wing simply because of their potential psychological predisposition toward authoritarianism (think John Dean's Conservatives without Conscience or Chris Hedges' American Fascists). Then again how soon we forget Mr. Lenin, Mr. Mao, and Mr. Castro.
We can often see the danger among other cultures in other lands, and we are all-too-eager to declare their lack of open debate dangerous, but we are not so eager to contemplate on our own polarization. And then as stories often do, everything changes, maybe. And in comes President Obama, seeing that self-segregation and calling it out as what it is, un-American. His call for a renewed spirit of shared responsibility and "bi-partisanship", and his reawakening of the common good is a repudiation of the culture wars as much as it is an indictment of homophily. The question is, will his administration back the rhetoric with policy? One good sign is that Cass Sunstein has become the regulatory czar of the Obama Administration, my only concern is that his theories of "Nudges" and "Constitutional Minimalism" suggest he may aim too low, but then again that might just prove his point.
Be Brave. Be Wise. Be Compassionate.
Friday, March 27, 2009
Thursday, March 26, 2009
Ruminating on Homophily and Selling the President's Message
Homophily means simply that people have a tendency to surround themselves with people similar to themselves. This near-universal tendency is amplified to an extreme extent by our modern culture and technology dominated lives. This doesn't JUST refer to race, language, ethnicity or nationality, although they are clearly the most obvious examples, and it doesn't just refer to residential segregation, although that is probably the most recognized form. It's grown to a true phenomenon, as Robert Samuelson observed in a column called The 'Big Sort': The New Segregation. This cultural cocooning means that the modern American can realistically expect to almost NEVER encounter an opinion or lifestyle that disagrees with them. Whether it's your news source (ESPN, NYTimes, CNN, Fox, CBN, PerezHilton.com, etc.) or religion (think Utah or Ave Maria, FL), whatever your world view happens to be, you can continually reinforce it.
Perhaps it's the modern media, the ease with which we can find our comforting sources of information and the ease with which we can filter anything that might upset us. Whatever the reason or source the phenomenon came to mind while watching the President's Online Townhall today. I silently wondered whether the President might become overexposed, I also wondered if this constant campaigning is a good thing. To the first question I decided that given the extreme modern homophily we experience it is likely very unlikely that the President will experience overexposure. More likely, the juxtaposition of a President out and about in many situations (Mr. Obama) to a President you almost never saw except standing in one of four interchangeable sets (you know the one with the flags, or the one in the Oval Office, or the Rose Garden, or the screen with various aphorisms and political catch phrases plastered across it) likely communicates a narrative of a President who is in actively pursuing solutions to our myriad problems. It also meets the American people where they are, online or watching The Tonight Show or ESPN or 60 Minutes. Overexposure implies that people will tire of seeing the President (if they see him more than once and for more than a few minutes at any one time to begin with). There used to be this notion of keeping the President away from the media to make those few communications more powerful, but our modern electorate doesn't tune in like it once did and even if you count the echo effect that a rare appearance might generate, it won't communicate with the persuadables, those who are voters but don't follow politics or the news very often.
As to the other point, the constant campaign. Every President thinks about re-election and uses it as a guide to their actions and has done so forever. It's a good thing so long as it doesn't mean a President begins to lead from behind and follow public opinion like a lap dog looking for it's next bone to chew on. And I really don't think you can say that about this President, not yet at least. What might be problematic is when you're campaigning without an opponent. Which the President is doing right now, I mean, how can you be the good guy when there is no bad guy? It's hard, and bipartisanship, or at least the effort toward bipartisanship, is necessary to keep your poll numbers high among independents and moderates which gives you political capital (ideally at least). Maybe that's why the effort to tempt the Rush into the ring. What really might turn the stomach is when it's their guy (or gal) in the office and they're doing a good job of it, that's what makes the blood boil.
Be Brave. Be Wise. Be Compassionate.
Perhaps it's the modern media, the ease with which we can find our comforting sources of information and the ease with which we can filter anything that might upset us. Whatever the reason or source the phenomenon came to mind while watching the President's Online Townhall today. I silently wondered whether the President might become overexposed, I also wondered if this constant campaigning is a good thing. To the first question I decided that given the extreme modern homophily we experience it is likely very unlikely that the President will experience overexposure. More likely, the juxtaposition of a President out and about in many situations (Mr. Obama) to a President you almost never saw except standing in one of four interchangeable sets (you know the one with the flags, or the one in the Oval Office, or the Rose Garden, or the screen with various aphorisms and political catch phrases plastered across it) likely communicates a narrative of a President who is in actively pursuing solutions to our myriad problems. It also meets the American people where they are, online or watching The Tonight Show or ESPN or 60 Minutes. Overexposure implies that people will tire of seeing the President (if they see him more than once and for more than a few minutes at any one time to begin with). There used to be this notion of keeping the President away from the media to make those few communications more powerful, but our modern electorate doesn't tune in like it once did and even if you count the echo effect that a rare appearance might generate, it won't communicate with the persuadables, those who are voters but don't follow politics or the news very often.
As to the other point, the constant campaign. Every President thinks about re-election and uses it as a guide to their actions and has done so forever. It's a good thing so long as it doesn't mean a President begins to lead from behind and follow public opinion like a lap dog looking for it's next bone to chew on. And I really don't think you can say that about this President, not yet at least. What might be problematic is when you're campaigning without an opponent. Which the President is doing right now, I mean, how can you be the good guy when there is no bad guy? It's hard, and bipartisanship, or at least the effort toward bipartisanship, is necessary to keep your poll numbers high among independents and moderates which gives you political capital (ideally at least). Maybe that's why the effort to tempt the Rush into the ring. What really might turn the stomach is when it's their guy (or gal) in the office and they're doing a good job of it, that's what makes the blood boil.
Be Brave. Be Wise. Be Compassionate.
A Phenomenally Better Commentary on the Geithner Plan
So, this is a much better commentary than the one I provided today.
It's a live Discussion between Felix Salmon, James Kwak, Brad DeLong, and Mark Thoma.
Link.
Be Brave. Be Wise. Be Compassionate.
It's a live Discussion between Felix Salmon, James Kwak, Brad DeLong, and Mark Thoma.
Link.
Be Brave. Be Wise. Be Compassionate.
The Geithner Plan
The 24-hour corporate media has been blasting a lot of hate Sec. Geithner's way. Every story needs a villain and Mr. Geithner's charisma problem may have ensured it was his head on the chopping block. It's unfair and lazy, but since when has that mattered much.
There are essentially three options.
1. "Nationalization" - this isn't really an option, you can't do it, the job is just too big. The US banking system is too centralized; the twenty largest banks in the US hold something like 90% of all deposits. It would take thousands of FDIC bureaucrats to take over just a fraction of those banks; it's just not realistic, at least not now. If it happened, it would probably go like this, Friday the bank is taken over, not just one bank but all, you have to do them all at one time because if you do it one-by-one the ensuing panic on other banks would be disastrous. So you close down and put them into receivership, all the good parts you would sell immediately and the bad parts you would place into a asset fund managed by professionals who sell the "toxic assets" piece-by-piece and try to get the best price possible. This is what happened with the savings and loan crisis in the 1980s and 1990s. A Resolution Trust Corporation was created to handle the resulting "bad assets" and they were sold off piece-by-piece. The problem is one of scale, this is problem is too big, we're talking the ENTIRE US BANKING SYSTEM, or close enough to that to make "nationalization" fundamentally untenable. Something similar also happened in Japan and Scandinavia in the 1990s. Japan did a piecemeal capital infusion program that kept insolvent banks alive which prevented consumer and investor confidence from returning and created "zombie banks" that were no longer really alive without their infusions from the Japanese government. Scandinavia did a temporary nationalization that worked very effectively, and if the American economy was the size of the Swedish economy we might be able to do that now, but it's not, so we can't.
2. "Let 'em Fail" - Again, an option that isn't really an option. You can't let them fail, we would cease to have an economy, literally.
3. "Something Else" - The only real choice. Keep the banks alive, at least the ones that cannot fail because we can't effectively manage their "nationalization" or bankruptcy. The FDIC has been closing and selling banks dozens of times over the last few months, but we can't do that with Citi or Bank of America. Like I said earlier, you'd have to do it at one time to prevent a panic and then you'd have to hope there is enough private capital to buy the banks and enough bureaucrats to do it. We've effectively kept the banks alive by providing direct capital infusions. There are a lot of problems in doing this, too many to really list, but needless to say this cannot be the sole solution mainly because it does nothing to address the true anchor on the banks balance sheets, toxic assets. No one wants to deal with a bank that has an unknowable balance sheet. The market for housing went illiquid, meaning you cannot sell into the market, so a house that was worth $200,000 now appears to be worth only $100,000 because no one is buying. A loss of 50% of a banks assets (mortgages, mortgage backed securities, etc.) or even 20% can destroy a bank, making it insolvent. So, in addition to preventing failure by increasing capital ($250 Billion from TARP and a whole bunch more from the Federal Reserve) you have to do something about the toxic assets, but what? If you nationalized you would just hold on to them until the market improved, but we cannot nationalize on a scale that would make this effective, so we need to do something else. We need to remove them from the balance sheets of banks, you need to buy them. The problem is in determining their worth. How much is it all worth? No one knows. The banks, mostly because they have to, argues the assets are close to 100% of their previous value, however, the market disagrees. So, the biggest debate is how much to pay. If you pay the market value, the banks will lose too much and stay insolvent, accomplishing nothing. So, you need to get the other money in the economy (private asset management firms) to get to buy the assets at a high enough value to keep the banks solvent, but low enough to ensure a they make money (so they'll actually buy them).
So, that is what the Geithner Plan does. It ensures the purchase, guaranteeing that a private asset management firm that purchases these toxic assets cannot lose more than their initial investment, any further loses are the taxpayers. Any profit belongs to the firm. It could work. Those, like Dr. Krugman and others, that disagree think that banks won't sell the assets at a low enough value to ensure that firms can buy them and sell them at a profit, meaning the tax payers will have to bail out the firms and not really solving anything. Or, the banks just won't sell, again, not solving anything. Those who favor a Swedish "nationalization" need to acknowledge that it's a hard lift and has as many unknowns as the Geithner Plan. That being said, if the auction does not work (the Geithner Plan calls for an auction to sell off the toxic assets) the "Swedish" plan can go forward.
Another fact to consider is that to enact the "Swedish" plan we would need to determine which banks need to be placed into receivership ("stress-test") and we need to staff up to take over the banks (which takes a few months). So, if we were to enact a Swedish model, we wouldn't tell anyone and we would have to "pretend" we were going with another option that removes the assets.
So, in closing, the Geithner Plan does a good job, it addresses the toxic assets in a way that gets private asset management firms to bite, and hopefully bite hard enough to get banks to sell. That is the big "IF" of the plan, it can work, but only "IF" private firms buy high enough for the banks and low enough to sell off for a profit. The risk of the firms buying too low (so low the banks don't sell or if they do the firms cannot sell) means we are at a great risk of ensuring undercapitalized banks, maybe even insolvent, "zombie banks". However, the shadow banking system (FDIC) might be preparing in an undisclosed location for the kind of massive intervention that a "Swedish" solution would require.
Be Brave. Be Wise. Be Compassionate.
There are essentially three options.
1. "Nationalization" - this isn't really an option, you can't do it, the job is just too big. The US banking system is too centralized; the twenty largest banks in the US hold something like 90% of all deposits. It would take thousands of FDIC bureaucrats to take over just a fraction of those banks; it's just not realistic, at least not now. If it happened, it would probably go like this, Friday the bank is taken over, not just one bank but all, you have to do them all at one time because if you do it one-by-one the ensuing panic on other banks would be disastrous. So you close down and put them into receivership, all the good parts you would sell immediately and the bad parts you would place into a asset fund managed by professionals who sell the "toxic assets" piece-by-piece and try to get the best price possible. This is what happened with the savings and loan crisis in the 1980s and 1990s. A Resolution Trust Corporation was created to handle the resulting "bad assets" and they were sold off piece-by-piece. The problem is one of scale, this is problem is too big, we're talking the ENTIRE US BANKING SYSTEM, or close enough to that to make "nationalization" fundamentally untenable. Something similar also happened in Japan and Scandinavia in the 1990s. Japan did a piecemeal capital infusion program that kept insolvent banks alive which prevented consumer and investor confidence from returning and created "zombie banks" that were no longer really alive without their infusions from the Japanese government. Scandinavia did a temporary nationalization that worked very effectively, and if the American economy was the size of the Swedish economy we might be able to do that now, but it's not, so we can't.
2. "Let 'em Fail" - Again, an option that isn't really an option. You can't let them fail, we would cease to have an economy, literally.
3. "Something Else" - The only real choice. Keep the banks alive, at least the ones that cannot fail because we can't effectively manage their "nationalization" or bankruptcy. The FDIC has been closing and selling banks dozens of times over the last few months, but we can't do that with Citi or Bank of America. Like I said earlier, you'd have to do it at one time to prevent a panic and then you'd have to hope there is enough private capital to buy the banks and enough bureaucrats to do it. We've effectively kept the banks alive by providing direct capital infusions. There are a lot of problems in doing this, too many to really list, but needless to say this cannot be the sole solution mainly because it does nothing to address the true anchor on the banks balance sheets, toxic assets. No one wants to deal with a bank that has an unknowable balance sheet. The market for housing went illiquid, meaning you cannot sell into the market, so a house that was worth $200,000 now appears to be worth only $100,000 because no one is buying. A loss of 50% of a banks assets (mortgages, mortgage backed securities, etc.) or even 20% can destroy a bank, making it insolvent. So, in addition to preventing failure by increasing capital ($250 Billion from TARP and a whole bunch more from the Federal Reserve) you have to do something about the toxic assets, but what? If you nationalized you would just hold on to them until the market improved, but we cannot nationalize on a scale that would make this effective, so we need to do something else. We need to remove them from the balance sheets of banks, you need to buy them. The problem is in determining their worth. How much is it all worth? No one knows. The banks, mostly because they have to, argues the assets are close to 100% of their previous value, however, the market disagrees. So, the biggest debate is how much to pay. If you pay the market value, the banks will lose too much and stay insolvent, accomplishing nothing. So, you need to get the other money in the economy (private asset management firms) to get to buy the assets at a high enough value to keep the banks solvent, but low enough to ensure a they make money (so they'll actually buy them).
So, that is what the Geithner Plan does. It ensures the purchase, guaranteeing that a private asset management firm that purchases these toxic assets cannot lose more than their initial investment, any further loses are the taxpayers. Any profit belongs to the firm. It could work. Those, like Dr. Krugman and others, that disagree think that banks won't sell the assets at a low enough value to ensure that firms can buy them and sell them at a profit, meaning the tax payers will have to bail out the firms and not really solving anything. Or, the banks just won't sell, again, not solving anything. Those who favor a Swedish "nationalization" need to acknowledge that it's a hard lift and has as many unknowns as the Geithner Plan. That being said, if the auction does not work (the Geithner Plan calls for an auction to sell off the toxic assets) the "Swedish" plan can go forward.
Another fact to consider is that to enact the "Swedish" plan we would need to determine which banks need to be placed into receivership ("stress-test") and we need to staff up to take over the banks (which takes a few months). So, if we were to enact a Swedish model, we wouldn't tell anyone and we would have to "pretend" we were going with another option that removes the assets.
So, in closing, the Geithner Plan does a good job, it addresses the toxic assets in a way that gets private asset management firms to bite, and hopefully bite hard enough to get banks to sell. That is the big "IF" of the plan, it can work, but only "IF" private firms buy high enough for the banks and low enough to sell off for a profit. The risk of the firms buying too low (so low the banks don't sell or if they do the firms cannot sell) means we are at a great risk of ensuring undercapitalized banks, maybe even insolvent, "zombie banks". However, the shadow banking system (FDIC) might be preparing in an undisclosed location for the kind of massive intervention that a "Swedish" solution would require.
Be Brave. Be Wise. Be Compassionate.
One Year Out
It's been a rough year. The urgency of the moment and the complex nature of the challenges we face and the fact that I've been unemployed for a couple months means I am coming out of retirement.
Be Brave. Be Wise. Be Compassionate.
Be Brave. Be Wise. Be Compassionate.
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