Friday, August 22, 2014

My Amazon Review of Rick Pearlstein's, "The Invisible Bridge: The Fall of Nixon and the Rise of Reagan"

Rick Pearlstein has written a long book, perhaps too long. “The Invisible Bridge…” is really three books: a biography of Ronald Reagan, a political history with an emphasis on the continued rise of the Republican Right and a social history of the mid-1970s. This book follows his two prior books, “Before the Storm…” and “Nixonland…” on the emergence of the Republican Right. Pearlstein is a man of the Left, but he tries to understand the motivations behind the success of the Right. In some respects he succeeds, but in others he doesn’t fully emphasize that the period he discusses was one of retreat abroad and recession at home. With the latter along with virulent inflation ends the Keynesian consensus that ruled economics in the postwar period up to that time. Thus the way was open for a politician who offered hope to a nation where it seemed there was only despair. That politician was Ronald Reagan.

Pearlstein enabled me to relive the period that I remember all too well. It seemed that the wheels were falling off the train of history. For example the 1973-76 period encompassed the following:
   * Defeat in Vietnam
   * CIA scandals
   * The rise of OPEC which triples gasoline prices
   * Assassination attempts on Jerry Ford
   * Patty Hearst and the Symbionese Liberation Army
   * The widespread distribution of porn
   * The bankruptcy of New York City
   * The growth of weird self-improvement groups like est.

Into this milieu comes the former actor and former governor of California who offers what appears to be simplistic solutions to the liberal elite, but to a yearning public he offers hope and a return to the greatness of America that as Pearlstein notes resonates with the 1976 Bi-Centennial. Always under-rated by the pundits Ronald Reagan was far smarter and cannier a politician than his critics realized. And boy did he know how to give a speech.

Pearlstein spends a great deal of time on the 1976 Republican convention where Reagan almost rests the nomination from Jerry Ford. Much of this ground was covered by Craig Shirley’s very pro-Reagan, “Reagan’s Revolution.” In fact Shirley has sued Pearlstein for infringing on his material. Shirley’s book is a good read and I recommend it.

What Pearlstein gets wrong is his treatment of Reagan’s failed attempt to pass Proposition 1 his tax and spending limitation initiative in 1973. He highlights what he perceives to be its radical nature. In my opinion had Proposition 1 passed the far more “radical” Proposition 13 of 1978 might never have seen the light of day. Pearlstein also get wrong the notion that California coastal development was banned in 1973; not true. What actually happened was new permitting regime under Proposition 20.

Although he opens his book the the return of the Vietnam POWs, he doesn't really deal with the moral crisis associated with the treatment of the returning veterans. To the Right they were drug crazed losers and to the Left they were war criminals. The resentment that this engenders adds fodder to the growth of the Right later in the decade.

One last point Pearlstein should remember Eric Ambler’s maxim in “A Coffin for Demitrios,”  “In a dying (although I would use “threatened”) civilization political prestige is the reward goes not to the shrewdest diagnostician, but to the man with the best bedside manner.” Most dour liberals fail to understand this while an optimistic liberal like Bill Clinton knows this in his guts.

All told for readers who have the time for this very long book, it very well worth the read.

The Amazon review appears at the following url:

Wednesday, August 6, 2014

Reliving the 1930s - Part 2

On May 7 I blogged that we were reliving the 1930s with the Great Recession being the analog to the Great Depression and the appeasement of Vladimir Putin in the Ukraine being an analog to the appeasement of Hitler. Unfortunately we also are reliving the virulent anti-Semitism the 1930s as well.

There is no question that if Hamas had the power there wouldn't be a Jew alive in Israel today. If you are skeptical all you have to do is to read Hamas’ charter and listen to the statements of their leadership. The Gaza War was not about a two state solution for Palestine, but rather it was an attempt to kill as many Jews as possible and to make martyrs out of innocent Palestinian children. The killers of those children do not reside in Tel Aviv, but rather they sit comfortably in Hamas headquarters in Gaza and places far away from the battlefield.

Of course to much of the European Left and to some extent the American Left along with a few on the far Right, the right of Israel to defend itself from rocket attack and an invasion from underground tunnels metastasized itself into a most virulent anti-Semitism. There is a straight line from the Hamas killers to the street demonstrators in Paris to the anti-Israel marches in the United States. For those who argue that the marchers and demonstrators were concerned about human rights rather than bashing Israel in particular and Jews in general, all I have to say is where are the protests against the carnage in Syria, ISIS terror in Iraq and Libya? I guess for them it is OK for Arabs to kill other Arabs.

Monday, July 28, 2014

Geopolitics and the Stock Market: A Lesson from the Start of the Great War

World War 1 started 100 years ago today and to the stock market it seemed to come from totally out of the blue. Simply put the stock market failed miserably as a discounting mechanism. Why? The markets were unduly complacent about international affairs where from 1900 – 1914 there were two Moroccan crises and two Balkan Wars that many thought that any one of them would lead to a general war. Those crises were settled diplomatically and thus when the Austrian Archduke Franz Ferdinand was assassinated in Sarajevo by a Bosnian terrorist in the pay of Serbia, the markets thought nothing of it.

Although the U.S. was far away from the enveloping European Crisis as an emerging market, it was unduly dependent upon the inflow of foreign capital. As the crisis came to a boil European investors liquidated their U.S. holdings and the Treasury feared a run on gold. The stock exchange closing along with other measures short circuited the run and enabled the U.S. to remain on the gold standard.

The July 1914 complacency is eerily reminiscent of the world today. We are now in the midst of the second Ukrainian crisis of the year, from Libya to Iraq the Middle East is in flames, and China is making serious naval probes in Southeast Asia. In all likelihood the world will muddle through, but the lesson of 1914 is disquieting.

Here is a thumbnail history of the Dow Jones Industrial Average matched with the events of 1914. A casual reader will note that the stock market did not respond to the events in Europe until war was imminent.

Date           DJIA       Event

January 2 –  57.6       Year Opens

March 20 -   61.1       Year High

June 27    -    58.7       Day before Assassination

June 29   -     58.6       Day After Assassination (Market closed on June 28)

July 22     -    59.2       Day Before Austrian Ultimatum

July 23     -     59.0      Austria Delivers Ultimatum to Serbia

July 28     -     55.9      Austria Declares War on Serbia – WW 1 Begins

July 29    -      56.2       Relief Rally

July 30    -      52.3       Russia Mobilizes

July 31    -                    Stock Exchange Closes

Aug  3     -                   Germany Invades Belgium

Dec 12    -       54.6        Market Reopens

Wednesday, July 23, 2014

My Amazon Review of Frederick Lewis Allen's, "The Lords of Creation"

This is far from Frederick Lewis Allen’s best books. “Only Yesterday,” his social history of the 1920s was his best and “Since Yesterday,” his history of the 1930s and “The Big Change,” his social history of the first half of the 20th Century come pretty close. Nevertheless if readers want to get a real flavor of the big business and high finance milieu in America from 1900-1930, “The Lords of Creation” does a credible, if biased, job. You see the House of Morgan, the other New York bankers, the railroad magnates and the new Wall Street men of the 1920s in full flower. They were “the 1%” of that era. He vividly illustrates the stock manipulation that was almost taken for granted and the way commercial banking was integrated with investment banking though affiliated organizations. Those abuses led to the Securities Acts of 1933 and 1934 and the Glass-Steagall Act of 1933.

Remember Allen wrote his book from the vantage point of 1935. In the popular imagination big business and big finance were the leading players in causing the depression the nation was then experiencing. To him and President Roosevelt the causes of the depression were domestic in origin. We have since learned as President Hoover thought at the time, that the depression had its origins in the dislocations caused by World War I and the transmission of deflation through the workings of the gold standard.

My criticism of the book is that Allen only pays lip service to the very real improvements in the living standard of the average American from 1900-1929. Unlike today real wages were consistently rising and we saw in the 1920s the glimmers of the kind of prosperity that occurred in the 1950s.

One last point, I would avoid the very snarky introduction to this edition written by New York Times columnist Gretchen Morgenson. 

The Amazon URL is:

Saturday, July 12, 2014

My Amazon Review of Amanda Vaill's, "Hotel Florida: Truth, Love and Death in the Spanish Civil War"

Amanda Vaill has written a terrific book about the romantic attachment the western Left during the heyday of the Popular Front period had for the loyalist cause in the Spanish Civil War (1936-39). She tells her story through the eyes of three couples:  the writers Ernest Hemingway and Martha Gellhorn, the war photographers Robert Capa and Gerda Taro, and the chief censor of the foreign press Arturo Barea and his Austrian companion Ilsa Kulcsar. They are all people of the Left who utilized their exceptional skills to promote the loyalist cause. In their zeal, with the notable exception of Barea, the truth was sometimes shaded, bent or completely distorted to present the Republic in the most favorable light.

Little do they realize that despite all of their zeal they are pawns in a titanic struggle between Hitler and Stalin. Spain is a proxy war designed to further their respective foreign policy interests and when Stalin had a need to cozy up to Hitler he cut his Spanish pawns loose and kept Spain’s gold reserves. Along the way the purge trials then underway in Moscow found their way to Spain where all too many loyalist supporters were summarily executed or simply disappeared. Vaill, to her credit, is very clear about all of this.

Although “Hotel Florida” is not a history of the Spanish Civil War, there is much history to be learned. Its locus of attention is on the Hotel Florida where many of the journalists along with NKVD operatives hung out and it was there where the “war” tourists of the Left would pass through. Think Lillian Hellman, for example. In a way the book is analogous to Orwell’s classic “Homage to Catalonia” where the locus of action was Barcelona; here most of the action takes place in and around Madrid with side-trips to Paris, New York and Key West.

The most interesting character, all of 26, is the blond crop-haired Gerda Taro. She was always where the action was trying to get the best photograph and showed little concern for her own personal safety. She had both grit and verve to overcome the very real hardships faced by a war photographer. Unfortunately she dies in what can be characterized as a battlefield accident and is given a martyr’s funeral in Paris.

For all of this and much more, including appearances by the Soviet Spy Kim Philby and the future German Prime Minister Willy Brandt, I highly recommend “Hotel Florida” to readers interested in Spain and the prelude to World War II.

The Amazon URL is:

Sunday, June 22, 2014

An Open Letter to Janet Yellen

Dear Chair Yellen,

As a kid from Queens I am always willing to give the benefit of the doubt to a kid from Brooklyn. Nevertheless in your great fear of avoiding an error of commission I fear you are on track to a make an error of omission. I realize that you rightfully fear that Fed might raise rates prematurely thereby stalling or even reversing the economy’s painful progress since the Great Recession lows of 2009. Although it happened 77 years ago, the Fed is still haunted by its policy tightening in 1937 that was one of the proximate causes of the severe 1937-38 downturn. Never mind that my reading of the history of that period would assess much of the blame on a sudden contraction of fiscal policy.

More recently we all witnessed the severe bond market effects a year ago of your predecessor’s comments about the need to start tapering the Fed’s bond buying program. Although not the only cause, it certainly knocked the wind out of what was looking like a very strong housing upturn. Just as in medicine, the principle of “do no harm” certainly works for central bankers.

However, when you called the recent uptick in the consumer price index “noisy”, you ignored some really important evidence that the economy shifted its bias away from deflation and towards inflation. You know the data far better than I, but to state a few facts on a year-over-year basis headline inflation as measured by the CPI is now running at 2.1% and the core rate is 2.0%. And for two important categories, tenant paid rent and medical care services the year-over-year rate of increase is 3%, hardly benign. Moreover the rent component is understated because the over-weighting of rent controlled jurisdictions in the data tends to suppress measured inflation in a rising rent environment.  Indeed, over the last three months headline inflation is now running at a 3.3% rate and core inflation 2.8%. To me there is more signal than noise in the data.

Yes, I know the Fed uses the deflators for personal consumption expenditures to measure inflation and by those measures year-over-year inflation as of April is running at around 1.5% (1.6% headline and 1.4% core), well below your 2% target. But I caution you, the public likely measures inflation by the widely publicized CPI and if that appears to running well above 2%, the well anchored inflation expectations that the Fed loves to brag about might soon give way.

To be sure measured wage inflation remains modest at 2% and if we looked at that alone, there would not be much to worry about on the inflation front, but a lot to worry about on the labor market front. However there is hard statistical evidence that the labor market is improving with the unemployment rate on the road to below 6% by yearend and anecdotal evidence that wage rates are picking up. A good thing, but when you combine that with the other inflation data cited above, it will be harder for you to be so cavalier about the uptick in inflation .It would be better to start laying the ground work now, rather than waiting until it is too late. History suggests that a Fed behind the inflation curve wreaks far more havoc on the financial markets than one modestly ahead of it.

On that score I would note that after your press conference last week both the TIPS market and the gold market rallied strongly. A few days don’t make a trend, but these auguries of inflation might just be sending you a message.

Let me add that you may have something more to worry about than signs of “irrational exuberance” in the credit markets and recent surge in corporate mergers and acquisitions. There are signs in the real economy of what the Austrians, and I do not call myself an Austrian economist, of malinvestment. For example there is real evidence that the demand for electric power generating facilities, office building, shopping centers and hotels are about to be technologically disrupted. Yet investment, in those areas, especially in existing assets, continues unabated because the capital market remains wide open to them. Trust me, an unwind here will not be pretty.

Finally, let me close by rephrasing what I noted earlier. Sometimes an error of omission can be just as dangerous as an error of commission. Meantime enjoy your trip to beautiful Jackson Hole later this summer.

Yours truly,

David Shulman

Wednesday, June 18, 2014

My Amazon Review of Hillel Halkin's "Jabotinsky (Jewish Lives)"

Hillel Halkin brings to life in a short and very readable biography, the story of Vladimir Jabotinsky (1880-1940), the founder of Revisionist Zionism. Jabotinsky was far from the prototypical Zionist of the early 20th Century. Being born in the cosmopolitan port city of Odessa, he was far from the shtetls of Poland and Russia. He was far from religious and didn’t really like living in the Palestine of the 1920s.

Nevertheless he was extraordinarily clear-eyed about the future of Zionism. Jabotinsky understood:

·       * The real need for Jewish Legion to assist in the British invasion of Ottoman Palestine thereby establishing the first organized Jewish fighting force in nearly 2000 years.

·      *  The local Arab population would not be passive to a surge in Jewish immigration. He leads in the formation of the Haganah out of the remnants of the Jewish Legion. The Haganah was the forerunner of today’s Israel Defense Forces.

·      *  The Nazi nightmare would wipe out European Jewry and urged the Jewish community to pack up and leave. He supplied chartered steamers to illegally transport Jews to Palestine.

·        *The Israeli economy organized along the socialist lines of Labor Zionism would not be viable and urged more market oriented policies.

Halkin discusses in great detail Jabotinsky’s long time and very acrid rivalry with David Ben Gurion. They fought each other for control of the Zionist Organization in the 1930s. To put it mildly they did not like each other and Ben Gurion prevented Jabotinsky’s reburial in Israel until after he stepped down as prime minister in 1964.

A failing of the book is that Halkin expends too many words on Jabotinsky the journalist and the writer and not enough on his leading his Revisionist Zionist group and his founding of Betar, its youth group. Menachem Begin was so inspired by Jabotinsky that he joined and became a leader of Betar. Nevertheless I would recommend “Jabotinsky” for those readers who want to go beyond the standard Labor Zionist version of the founding of the State of Israel. A great companion piece would be Daniel Gordis’, “Menachem Begin: The Battle for Israel’s Soul.”

For the Amazon URL see: