Monday, July 27, 2015

My Amazon Review of Evan Thomas' "Being Nixon: A Man Divided"

His Own Worst Enemy

Evan Thomas, a pillar of what you would call the “eastern liberal establishment” has written a very sympathetic biography of Richard Nixon. As someone who both hated and respected Richard Nixon, Evans helped me understand the many aspects of Richard Nixon that made him such a confounding personality.

He was an introvert in an extrovert business. He could be a strategic genius, especially with respect to China, and at the same time be narrow and vindictive. To be sure he had real enemies who hated him for his doggedness in bringing the spy, Alger Hiss, to justice. For the liberals of his day that was Nixon’s greatest sin. And Nixon was correct in believing that the press had a double standard by continually giving Kennedy free passes while continually holding his feet to the fire with even the smallest of transgressions.

Nevertheless when Nixon’s “evil” side took over when he ordered his minions to run roughshod over the Constitution in what became known as the Watergate Affair where he was rightly impeached. In this sordid episode we see him seeking into a depression induced paranoia fueled by alcohol.

Although he did not cover himself with glory in Vietnam, his policies that were highly criticized at the time can now be better understood with the passage of time. For example the bombing of Laos and the invasion of Cambodia were, given the circumstances, military necessities.

Evans covers Nixon from his humble beginnings in Whittier, California to his graduating third in his Duke University Law School class where he achieved success by working hard and always being prepared. Those traits became a hallmark of his later career including his success at poker while in the U.S. Navy.

Evans portrays Nixon as a caring father and sometimes oblivious husband to Pat, who he loved very much. We get much insight into his character from his daughter Julie. We also learn that Nixon could be kind when he sent a letter to Thomas Eagleton’s teenage son after Eagleton was dumped from the Democratic ticket in 1972. Both father and son were touched by Nixon’s humanity.

In contrast we see his dark side where he appears to have enlisted Anna Chennault to torpedo the Paris peace talks ahead of the 1968 election by offering South Vietnamese President Thieu a better deal than what Lyndon Johnson had on the table.

In sum Evans sheds a great deal of light on one of the most influential politicians of the second half of the 20th Century and reads very well to boot.

The full Amazon URL is;

Sunday, July 19, 2015

A Yellow Light for the Iran Nuclear Deal

The proposed Iran nuclear deal is 159 pages long, loaded with technical issues pertaining to nuclear physics, the inspections regime and the enforcement provisions which if they work will delay Iran's progress towards a nuclear arsenal by at least decade. A noble goal. But, this is very complicated stuff, an arms control pact with the leading state sponsor of terrorism if you will, yet proponents and opponents are rushing to judgement without fully understanding the nature of the deal.

To me it makes sense to wait and to listen to what comes out in the upcoming hearings that in all likelihood will flush out the issues mentioned above. Nevertheless I do have some priors. Because President Obama wanted the deal more than the Grand Ayatollah it is logical to assume that the U.S. could have gotten a better deal. In selling the deal President Obama uses the example of Nixon going to China, but in that episode the U.S. was allowed to establish a base in western China to monitor Soviet missile tests. There is no equivalent here.  But that doesn't mean the current deal on the table is a bad deal. As we have often noted, you can't make the perfect the enemy of the good.

My concerns with deal have to do with the inspection regime where somehow "anytime anywhere inspections" have been scrubbed in favor of a 24 day managed process. We also don't know if the IAEA is capable of conducting a verifiable inspections regime in a hostile environment. And we don't know how the inspectors and the international community will deal with what appears to be small technical violations of the deal. For that matter we don't know whether or not there will be the will to reimpose a full set of sanctions in the face of obvious breaches.

And finally the opponents of the deal have to offer a realistic alternative should they vote down the agreement. Simply put the question is will we be better off with the deal or without it? Hopefully we will be able to answer that question by the end of the summer.

Thursday, July 16, 2015

Greece Needs Merkel's Tough Love

Whether Greece knows it or not, Angela Merkel has done Greece a great favor. Simply put Greece is incapable of reforming on its own. Let's face it, since Greece achieved its independence from the Ottoman Empire in 1832 it has hardly been a paragon of good government and economic growth. Left to its own devices Greece doesn't work.

What the EU has done under Merkel's leadership is force Greece to undertake the needed labor, pension, fiscal, taxation and market reforms that are necessary for economic growth. To be sure, in the short run Greece will go through economic hell, but remember leaving the Euro would bring with it a far more difficult hell. For those who argue that Greece should return to the Drachma, I have one simple question: where are the foreign exchange reserves to support a new currency. Tspras, to his credit, understood this fact.

Of course Merkel and the EU will have to relent on debt relief. The IMF is correct in its position that the current Greek debt situation is unsustainable. Although the EU will not or cannot grant a direct haircut to Greece's debt, it is in their power to restructure Greece's debt burden by lowering interest rates and extending maturities which would be the equivalent of a direct haircut.

Greece has stepped up to the plate by accepting the EU bailout conditions, it is now up to to the EU to move on debt relief. If it all works out in 20 years Greece will build a statue to Angela Merkel in Syntagma Square.

Sunday, July 12, 2015

Two History Lessons for Janet Yellen

On the eve of Fed Chair Janet Yellen’s semi-annual monetary policy testimony to the Congress I think it is appropriate to discuss two lessons from history that are appropriate for today. First there is a great deal of concern about the impact of the Fed moving off of its zero interest rate policy out of fear that it would trigger financial instability in the global economy that could blow back to the U.S.. One lesson from history suggests that giving international concerns priority over domestic concerns is fraught with unintended consequences.

For example in July of 1927 New York Fed President Benjamin Strong summoned the heads of the central banks of the U.K., France and Germany for a meeting to discuss fissures that were developing in the international gold standard, the sustainability of continued lending to Germany and most important the need to maintain Sterling at its new parity. Instead of focusing on the domestic economy which was recovering very smartly from the 1926 slowdown, the Fed yielded to international pressure and lowered the discount rate from 4.0% to 3.5%. Strong realized there was a risk of creating a stock market bubble by noting to Deputy Bank of France Director Charles Rist that the contemplated rate cut would be “coup de whisky” for the stock market. It was a risk he was willing to take and from then on the stock market went hyperbolic to create blow-off of 1929. As we noted in an earlier post despite all of the cries from Wall Street to keep rates low, Janet Yellen was not put on this earth to be the fairy godmother of the stock market.

Our second lesson concerns the myth of 1937 which blames the economic collapse of that year on a tightening of monetary and fiscal policy. Professor Douglas A. Irwin of Dartmouth convincingly debunks that myth with his “Gold Sterilization and the Recession of 1937-38” in the December 2012 issue of Financial History Review.  ( To Irwin it was not the doubling of reserve requirements by the Fed or the fiscal tightening by President Roosevelt, but rather it was the Treasury gold sterilization policy that began in December 1936 and lasted into February of 1938 that triggered the downturn. From 1934-36 the monetary base fueled by huge inflows of gold increased at 17% annual rate. Fearing speculative capital inflows, the so called “hot money,” the Roosevelt Administration elected to sterilize the inflow of gold. With that growth in the monetary base came to a complete halt. It was gold sterilization, not the nonbinding increase in reserve requirements that caused the recession.

The lessons here are that Janet Yellen should worry less about the international effects of monetary policy and the myth of 1937. She should instead focus on the domestic economy with a 5.3% unemployment rate that appears to be on a 3% growth path with prices rising toward the Fed’s 2% target.