My Amazon Review of Gregory Zuckerman's "The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution"

Code-Breaker

Wall Street Journal reporter Gregory Zuckerman offers up a biography of Jim Simons and Renaissance Technologies, his $60 billion hedge fund colossus. It is no way a complete biography because both Simons and his firm are very secretive where employees sign very strict non-disclosure agreements. Nevertheless Zuckerman accurately portrays Simons as an M.I.T. trained math nerd who cracked the code of the financial markets without ever have taken a course in finance. Simons basically used the code breaking skills he developed at the Institute for Defense Analysis along with putting together an all-star team of math whizzes from academia and industry.

One of his hires was Robert Mercer who along with his daughter Rebekah became famous in 2016 as the big money behind Breitbart News, Cambridge Analytica  and, of course, Donald Trump’s presidential campaign. Mercer’s politics stands in sharp contrast to Simons who has long been a big donor to the Democratic Party. But what Mercer brought to Renaissance was the math behind the speech recognition technology that he was developing for IBM in the early 1970’s.

Simons approach to investing was harnessing big data analytics using Markov chains, stochastic calculus and high powered computers to develop a short term trading strategy. This was done before, but no organization has done it so successfully under the guidance of world class math geniuses. The result of this is the world-beating returns of Renaissance’s flagship Medallion Fund which from 1988-2018 generated a compounded pre-fee return of 66% and a 39% after-fee return; absolutely extraordinary. Further this was done where just over half of the millions of trades made were at a profit. So don’t do this at home. The markets are still loosely efficient, Simons found a way to notice small data anomalies that could turn into profitable trades.

Zuckerman also brings up Simon’ family tragedies where two of his sons died in freak accidents and his vast charitable giving. His charitable interests include finding cures for autism, supporting high performing math and science teachers in New York City and financing a radio telescope in the Chilean desert to study the origins of the universe.

What I would have liked to know is where Simons got his money to first start trading in size, first in the commodities markets and later in currencies. I would also like to know who staked the initial $16 million in 1988 to seed the Medallion Fund. Further a few numerical examples of some the trades would have been most helpful, but that would, of course, reveal a few trade secrets. That is because what Renaissance does is far more than a simple pair’s trade which buys Coca Cola and shorts Pepsi, for example.

Zuckerman has given us a highly readable and engrossing account of Jim Simons’ life and the rise of his firm. For any reader interested in how the quant revolution came to Wall Street this is a very good place to start.

For the full Amazon URL see: https://www.amazon.com/review/R251H7H1LFMA7I/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Amity Shlaes "Great Society: A New History"

The Cost of Good Intentions

Revisionist conservative historian Amity Shlaes has written what purports to be a history of the Great Society. True it is a history, but it is far from complete. Nevertheless her book offers a host of easy to read vignettes surrounding the milieu of the 1960’s and early 1970’s. She highlights the important role UAW leader Walter Reuther played in bringing about the civil rights revolution and the role of socialist Michael Harrington in supplying much of the intellectual heft to the ideas Lyndon Johnson promoted. She surprisingly offers a sympathetic portrait of the emergence of the New Left and she is especially sympathetic to the activist role played by Casey Hayden, Tom Hayden’s first wife.

In my opinion she spends way too much time on the role of the Office of Economic Opportunity in promoting far left community groups under the rubric of “maximum feasible participation.” This front of the war on poverty ended in defeat as America’s cities exploded in racial violence. It was the unrest at home and the growing unpopularity of the Vietnam War that led to a Republican revival in 1966, an election she does not mention.

However she is especially acute in her discussion of OEO’s Legal Services Corporation which unleashed a brigade of activist lawyers that rewrote housing, welfare and health law and spawned the notion of the public interest law firm. She also devotes far too much effort in discussing Nixon’s failed Family Assistance Plan while leaving out such Nixon accomplishments of the National Environmental Policy Act, the Clean Water Act, the Clean Air Act and the Occupational Safety and Health Act. Thus it was Nixon, not Johnson who created the enlarged administrative state of today.

She also doesn’t really focus on Medicare and Medicaid. It is these two entitlement programs that both improved the health of American and are driving huge increases in federal spending today. As was to be expected the all-in cost of these two programs has far exceeded their initial estimates.

Shlaes offers great insight in highlighting the importance of a now forgotten filibuster in the Senate led by Everett Dirksen. At the height of LBJ’s power in the fall of 1965 organized labor made a big push to eliminate Section 14B of the Taft-Hartley Act. That section allows states to ban union shops and thus offering the option of becoming a “right to work” state. That effort failed and the way was open to industrializing the South and to the diminution of union power in the North.

To sum up Shlaes has written an interesting and enjoyable history of the Great Society, but just remember it will not be remembered as the definitive history of the era.

For the full Amazon URL see: https://www.amazon.com/review/R2GMST6VS3F9NR/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Joshua Rubenstein's "Leon Trotsky: A Revolutionary's Life"

The Permanent Revolutionary

Leon Trotsky, born Lev Davidovich Bronstein in 1879 of Jewish parents, Russian revolutionary, leader of the 1905 Petrograd Soviet, skilled polemicist, Marxist theoretician, womanizer, coleader of the October Revolution with Lenin, founder of the Red Army, outmaneuvered by Stalin, exiled and assassinated in Mexico by an OGPU agent in 1940. He had quite a life and Joshua Rubenstein tells his story in a brief and succinct biography of only 215 pages.

Rubenstein’s Trotsky comes across as a brilliant egomaniac. Whether he was right or wrong he was never in doubt as he steered a course in opposition to Lenin and as a key ally. He was a great number two to Lenin, but it seems that in the struggle to succeed Lenin, he wanted power on a plate. He didn’t know how to fight for it as he was outfoxed by the wily Stalin. He should not have been surprised because he wrote well before the revolution that that Lenin’s party in power would inevitably lead to a one man dictatorship.

In exile he became Stalin’s leading opponent where presciently noted that there was very little difference between Hitlerism and Stalinism. However he remained loyal to the revolution to the end. This was his failure because Stalin was not an aberration, but rather the logical successor to Lenin. If Trotsky had won the power struggle he would have been little different from Stalin. His brutality during the Russian Civil War demonstrated that.

Because this book is part of the Yale Jewish Lives series I have to note that Trotsky was not really different from today’s Left with respect to Zionism. Trotsky was a universalist, while Zionism is particularistic. He cared more for the working class than his own people. 

Rubenstein touches all of the bases and highly recommend this very readable book on the life of Trotsky. He doesn’t get into the weeds and for this he should be commended.

The full amazon URL appears at: https://www.amazon.com/review/R30O1N3R1MKA8N/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

Links to Ziman Center version of UCLA Forecast + Video Presentation

Ziman Center version of December UCLA Anderson Forecast

https://www.anderson.ucla.edu/documents/areas/ctr/ziman/UCLA_Economic_Letter_Shulman_12.09.19.pdf


Video of "The Two Track Economy" presentation:

https://www.youtube.com/watch?v=tCOETvmUoUs

"The Two Track Economy," UCLA Anderson Forecast, December 2019

The Two Track Economy

David Shulman

Senior Economist

UCLA Anderson Forecast

December 2019

We have become a bit more optimistic since our last forecast.[i] Several of our worries have been mitigated. They include:

·        After being locked in a 21 month trading range, stock prices have broken out and made decisive new highs. (See Figure 1)

·        The Fed cut its policy rate by 25 basis points and is supplying additional reserves into the banking system to solve a “plumbing” problem. (See Figure 2) Although the purpose of supplying additional reserves is not a new quantitative easing program, it might have the same effect with respect to the financial markets.

·        The yield curve has returned to a positive slope. (See Figure 3) Although a yield curve reversal usually occurs prior to a recession, the shortness of the inversion period might very well mute its recession signal.

·        Housing activity doing better than previously forecast.

·        Better than anticipated employment growth revealed by the October jobs report signaling somewhat faster growth going forward.

·        There is less pessimism on both an interim U.S./China trade deal and passage of the USMCA trade treaty with Mexico and Canada.

Figure 1. S&P 500, 16Nov14 – 15Nov19, Weekly Data

Source: BigCharts.com

Figure 2. Federal Reserve Assets, 13Nov09 -13Nov19, In $Millions, Wednesday Level

    

Source: Federal Reserve Board via FRED

Figure 3. Yield Curve, 10-Year U.S Treasury Bond minus 3 Month Treasury Bill, 4Jan82 -13Nov19

Source: Federal Reserve Board via Fred

As a result we are backing away from our long held forecast of a 3-2-1 economy where real GDP growth on a fourth quarter – fourth quarter basis would be 3% in 2018, 2% in 2019 and 1% in 2020. We now anticipate that growth in 2020 will be 1.7% compared to 1.25% previously. So call it roughly a 3-2-2 forecast with 1.9% growth in 2021. But make no mistake there remains a significant risk of recession in late 2020, albeit somewhat less than we previously thought. For those who say that we can’t have a recession in a presidential election year, I would note that recessions occurred in 1960, 1980, and 2008; all presidential election years.[ii]

For the past year economic performance has diverged as strong consumer spending has masked significant weakness in business investment. (See Figures 4 and 5) You can characterize this as a two track economy. This result is somewhat surprising because most observers including us had assumed that the significant reduction in business taxation coming from the 2017 tax act would spur a capital spending boom. Obviously that has not occurred as growing trade tensions have made it difficult for businesses to plan ahead especially with respect to global supply chains. Indeed real business fixed investment actually declined in both the second and third quarters of this year. Nevertheless we think the worst is over and we anticipated a modest recovery over the next two years.

Aside from strong spending on intellectual property, the outlook for overall business fixed investment growth will remain modest with actual declines in structures investment which is being dampened by weak spending in the oil patch. We would note that the strong increase of 4.1% in the first quarter of 2020 is due to our assumption that Boeing begins to ship its long grounded 737-Max airplane to airline customers that quarter.

Figure 4. Real Consumption Spending, 2011Q1-2021Q4F, Percent Change, SAAR

Sources: U.S. Department of Commerce and UCLA Anderson Forecast

Figure 5. Real Business Fixed investment, 2011Q1-2021Q4, Percent Change, SAAR

Sources: U.S. Department of Commerce and UCLA Department of Commerce

As you will note from Figure 4 we are forecasting a reduction in the growth in real consumer spending that will work to eliminate the recent divergence between it and business spending. Why? There is a real problem emerging in automobile credit. Lending terms have been extended to seven years and many automobile loans are underwater at the initial underwriting.[iii] Would you believe a $27,000 Jeep Cherokee with a $45,000 loan? This type of behavior is very reminiscent of home lending during the 2004-2007 bubble years. As a result with delinquencies rising, we expect there will be an agonizing reappraisal of lending standards in the second half of 2020 that will likely reduce the current run rate of 17 million units a year to below 15 million units in late 2020. (See Figure 6)

Figure 6. Light Vehicle Sales, 2011Q1 -2021Q4F, In Millions of Units, SAAR

Sources: Bureau of Economic Analysis

As was mentioned above we believe that the economy will remain on a 2% growth path from 2019 – 2021. (See Figure 7) In this environment payroll employment growth will decelerate from the 170,000/month averaged this year through October to about 80,000/month in 2020 and 50,000/month in 2021. (See Figure 8) Temporary census hiring will positively affect the data in the second quarter and negatively affect it in the third quarter of next year. In our view the unemployment rate will bottom at 3.4% in the second quarter of 2020 and then gradually rise to 3.8% by late 2021. (See Figure 9)

Figure 7. Real GDP Growth, 2011Q1 -2012Q4F, Percent Change, SAAR

Sources: U.S. Department of Commerce and UCLA Anderson Forecast

Figure 8. Payroll Employment, 2011Q1 – 2021Q4F, Millions, SA

Sources: U.S. bureau of Labor Statistics and UCLA Anderson Forecast

Figure 9. Unemployment Rate, 2011Q1 -2021Q4F, Percent, SA

Sources: Bureau of Labor Statistics and UCLA Anderson Forecast

Federal Reserve Policy

Federal Reserve Board Chairman Jerome Powell effectively made a major policy announcement at his press conference after the September meeting of the Federal Open Market Committee. In essence he said that there will a very high bar for the Fed to further lower its benchmark federal funds rate and that there will be an even higher bar to raise the rate. Thus the markets should not expect further cuts. We previously forecast that the Fed would cut in December, instead the Fed cut in September. Because we forecast a significant weakening in economy in the second half of 2020 we have penciled in another 25 basis point cut in the fourth quarter of that year. (See Figure 10)

His higher bar for a rate increase is based on inflation consistently exceeding the Fed’s 2% target. We expect that to happen in late 2021, hence we expect a 25 basis point increase late in that year. (See Figures 10 and 11) We do this only to signal that the Fed Funds rate won’t remain at 1.38% forever.  In this environment we expect that yields the 10-Year U.S. Treasury bond remain in a low 1.5% - 2.25% range.

Figure 10. Federal Funds vs. 10- Year U.S. Treasury Bonds, 2011Q1 -2021Q4F, Percent

Sources: Federal Reserve Board and UCLA Anderson Forecast

Figure 11. Consumer Price Index vs. Core CPI, 2011Q1-2021Q4F, Percent Change Year Ago

Sources: U.S. Bureau of Labor Statistics and UCLA Anderson Forecast

Housing Activity Plateaus

Housing activity continues to be range bound between 1.25 million and 1.3 million starts. (See Figure 12) Although this level of activity is more than double the lows reached during the Great Recession it still remains somewhat below the  long term historical average of 1.4-1.5 million units and well below the two million plus years associated with booms. Although our current forecast can be characterized as tepid it is 6% and 4% above what we forecast just three months ago for 2020 and 2021, respectively.

Figure 12. Housing Starts, 2011Q1- 2021Q4F, Thousands of Units, SAAR

Sources: U.S. Department of Commerce and UCLA Anderson Forecast

Export Growth Stays Weak

The combination of trade tensions (apparently lessening), near recession conditions in Europe, sluggish growth in Latin America and softer growth in China along with a strong dollar make for a hostile environment for U.S exporters. After being essentially flat in 2019 real export growth is forecast to be 3.3% and 1.9% in 2020 and 2021, respectively. (See Figure 12) The reason for the uptick in the first quarter of 2020 is again our assumption that the 737-Max will ship to customers in the first quarter of 2020 as most of those customers are foreign air carriers.

Figure 12. Real Export Growth, 2011Q1 -2021Q4F, Percent Change, SAAR

Sources: U.S. Department of Commerce and UCLA Anderson Forecast

$Trillion Federal Deficits

Given an existing imbalance between federal revenues and federal expenditures along with an economy plodding along at a 2% growth path, the era of trillion dollar federal deficits is up on us. (See Figure 13) Remember that there is no recession in the forecast horizon which means that should the economy fall into recession the deficit will double. Moreover, because interest rates are already very low, there can be very little relief coming from a further fall in rates.

Figure 13. Federal Deficit, FY2011 –FY 2021F, $Billions, Annual Data

Sources: Congressional Budget Office and UCLA Anderson Forecast

Conclusion

We modestly upgraded our forecast from last quarter to reflect improved financial conditions, a better housing and employment outlook, some relaxation of trade tensions and a modest improvement in business fixed investment.  As a result instead of forecasting 1% real growth for 2020, we expect growth to be on the order of 2% on a fourth quarter to fourth quarter basis. After going on a separate track from business investment, we forecast a slowdown in consumer spending largely coming from much weaker automobile sales as credit tightens in that sector. Overall the interest rate environment, aside from auto credit, will remain benign. But make no mistake, although we have lowered the risk of a recession, the second half of 2020 remains problematic for the economy.

---

[i] See Shulman, David, “The Year of Living Dangerously,” UCLA Anderson forecast, September 2019

[ii] The recession of 2001 started in the first quarter of that year making the 2000 election year a close call.

[iii] See Andriotis, Anna Maria and Ben Eisen, “Car Loans Force more Borrowers Underwater,” The Wall Street Journal (online), November 9, 2019 and Chaney, Sarah, Auto Borrowing Rises Amid low Interest Rates, Solid Economy,” The Wall Street Journal(online), November 14,2019

My Amazon Review of Tom Segev's "A State at Any Cost: The Life of David Ben-Gurion"

Implementing the Zionist Dream

Israeli journalist/historian Tom Segev has written a very detailed and somewhat biased biography of Israel’s first prime minister. He tells the story of how David Gruen, born in Plonsk, Poland, in 1886 becomes David Ben-Gurion the labor leader and for a time Israel’s leading politician after his arrival in Palestine in 1906.

Segev’s Ben-Gurion has a single minded focus on bringing the Israeli state into being. He analogizes him to Lenin, but there is also the all consummate Stalinist bureaucrat in him as he first gains control the Histadrut labor union and ultimately the Mapai (Socialist Labor) Party, Israel’s largest political party until 1977.

Ben-Gurion is a complete bibliophile as he reads voraciously and with his autodidact style become learned on science and military affairs. After the dropping of the atomic bomb in 1945 he immediately recognizes that it would bring a revolution in military affairs and in 1956 he starts the Israeli nuclear program.

We see him as a very lonely man subject to severe depression and although he was married to his wife Paula for over 50 years he undertook a series of affairs and he was far from a doting father to his children. His life was totally enmeshed in the politics necessary to bring into being the Zionist state.

Where Segev and his fellow “revisionist” historians go astray is when they argue that there was defined plan to uproot the Palestinians from 1948 Israel thereby creating the refugee problem. There was no central order given and while many Palestinians were forced to leave more of them left on their own accord. Segev pays little heed to Israel’s geopolitical reality of 1948 where there was no strategic depth. Hence it is unfair to characterize Defense Minister Dyan a warmonger in the 1956 War against Egypt. The strategic reality facing Israel is that it had to win quickly or lose a war of attrition. That lesson was learned in 1973 War, where Egypt attacked first and almost won.

Although Segev gives us a great deal of discussion on Ben-Gurion hot and cold relationship with Chaim Weitzman, there is far too little discussion on why Ben-Gurion’s relationship with Vladimir Jabotinsky, his political rival in the 1920’s and 30’s was so vitriolic. It had to be more than politics. That vitriol extended to Jabotinsky’s successor Menachem Begin.

To me Segev’s book is way too filled with minutia. Nevertheless, given the caveats mentioned above, he offers great insight into the life of Ben-Gurion and the creation of the Israeli state.

For the full amazon URL see: https://www.amazon.com/review/R1LLSNFVJT73TD/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

A Change in Registration

Today I walked into my county clerk's office and changed my registration to Democratic from Republican. Many of my friends asked, "what took you so long?" I guess I was hoping against hope that there would be real opposition to Trump within the Republican Party. That has obviously not happened and to the contrary the party has become even more sycophantic so much so that Republican House and Senate leaders have become mouthpieces for Putin. It is a far cry from the party of Ronald Reagan and John McCain.

The reason why I didn't register as an Independent is because I want to have a say in the Democratic nomination. No Bernie or Liz for me. Further history maybe playing out as I previously envisioned where the U.S. is realigning to three party system. A Hamiltonian Party (centrist Democrats and moderate Republicans), a Social Democratic Party (Bernie and his acolytes) and a Know Nothing Party (The zanies that make up most of today's Republican Party). My new home will be in the Hamiltonian Party. (See https://shulmaven.blogspot.com/2018/11/the-coming-political-realignment-part-ii.html)

A Simple Way of Looking At the Trump/Ukraine Scandal

President Trump's and his administration's dealings with Prime Minister Zelensky can be characterized as an extortion plot that went awry. In exchange for allowing the congressionally authorized  $391 million of desperately needed military aid to go through, Trump requested that Zelensky announce and follow through on a corruption investigation of Joe Biden and his son Hunter. If Zelensky followed through the Trump campaign would have received a huge boost, literally worth millions of dollars, against his Democratic rival Joe Biden.

This sounds complicated, but it really isn't. Let's assume that instead of asking for "dirt" on the Bidens, Trump instead asked for a $5 million personal kickback. That would be extortion pure and simple as Trump would be skimming something off the top of the military aid package for his very own benefit. That is exactly what Trump tried to do with his attempted extortion of Zelensky. Instead of getting cash he was asking for an in-kind campaign contribution. If that is not impeachable, nothing is.

My Amazon Review of Emanuel Saez's and Gabriel Zucman's "The Triumph of Injustice: How the Rich Dodge Taxes and How to Make them Pay"

The Taxmen

UC Berkeley economics professors Emanuel Saez and Gabriel Zucman have written a social democratic screed against economic inequality and a concomitant plea for confiscatory taxes on the super-rich. That is taxation not to raise revenue, but rather to reduce the number of billionaires. It is no accident that they have advised both Elizabeth Warren’s and Bernie Sanders’ presidential campaigns.

Their discussion involves a data heavy look at the overall U.S. tax system that includes federal, state and local taxation. They conclude that from 1950-1980 the tax system has gone from a progressive one to a largely flat tax system with mildly regressive aspects at the top end. They use adjusted gross income as the basis for their tax rates among the various income groups. By using that metric they exclude transfer payments which bias the results. Further that ignores the very large charitable contributions made by the super-rich which reduces their effective tax rates as defined by the authors.  Had they not made those contributions I would assume that the apparent regressivity would give way to progressivity.

What Saez and Zucman get right is the need to crack down on corporate tax havens that allow for the transfer of income from high tax to low tax jurisdictions. The tax allocations performed by multi-national corporations have been elevated to a high art by the global accounting firms. Thus it makes a lot of sense to form a global compact to limit this behavior and establish a minimum corporate tax on the order of 20-25%.

Domestically they advocate increasing the corporate tax back to the 50% heyday of the 1950s and increasing the top individual rate to 60 %( federal and state). On top of that they propose a 6% national income tax on all income, but they would eliminate state and local sales taxes. On the individual level they would characterize capital gains and dividends as ordinary income while indexing gains to inflation. Because they are French I would characterize their pies de resistance a wealth tax on the order of 2-3% for the richest Americans. As noted above that tax is not for revenue, but rather to penalize and to reduce the number of super wealthy people. My simple question is how is the confiscating of 2-3% of someone’s wealth each year bear any relationship to justice? Think of a large farm where the government takes 20-30 acres away each year from the farmer without compensation. That would be a taking pure and simple.

The authors propose using all of the revenue generated from there overhaul of the tax code to fund child care, pre-K, free college and Medicare for all. It sure sounds like Bernie and Elizabeth.

What the authors ignore are the second order effects of their ambitious plan. The stock market would meltdown under the weight of lower after tax corporate profits and the forced selling of shares by the super-rich. With that the already shaky finances of public pension plans would crater and the private retirement savings of millions of Americans would take a severe hit. What would they recommend? The answer is obvious: a bailout.

Instead of their meat ax approach to the tax code a scalpel would achieve much of what they desire. A moderate increase in upper-income tax rates, elimination of the capital gains treatment of carried interest, elimination of 1031 exchanges for real estate transactions and increasing the corporate income tax rate from 21% to 25%. Such a program wouldn’t cure their bloodlust for billionaires, but would reduce inequality without wrecking the economy.

There is one major factual error in the book. The authors state that the top rates for ordinary income and capital gains taxation are 37% and 20%, respectively. That is wrong. The Obamacare taxes make the high income top rates for ordinary income and capital gains, 39.6% and 23.8%, respectively. They are also wrong in attributing the growth in tax shelters following the 1981 Reagan tax cuts to the genius of the tax avoidance industry. That is not quite true. It was the increased depreciation allowances of the Reagan tax cuts coupled with the Garn-St. Germain Act deregulation of the savings and loan industry that enabled the tax shelter industry to flourish. It was given to them on a silver platter. Lastly they note that stock buybacks were illegal prior to 1982. That is not true. Buybacks were legal, but they were highly restricted.

Saez and Zucman have offered up a serious, though dubious in my opinion, proposal for radical tax reform. Credible responses are necessary especially if either Warren of Sanders become the Democratic nominee for president.

For the full amazon URL see: https://www.amazon.com/review/R1SW7XXSI2N8SC/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

  

My Amazon Review of Janek Wasserman's "The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas"

Something was in the Coffee

I first learned of Eugen von Bohm-Bawerk from the late and great UCLA economist Jack Hirshleifer’s capital theory class nearly 50 years ago. Who knew he was an Austrian and I had never heard of the Austrian School of economics. I have since learned of the people and ideas associated with the school. Here University of Alabama history professor Janek Wasserman presents a way too detailed look at the people and ideas of the Austrian School.

There must have been something in the coffee of late 19^th and early 20^th Century Austria-Hungary. In Vienna there lived the founders of the Austrian school including the above mentioned Bohm-Bawerk and Friedrich Hayek, Joseph Schumpeter, Carl Menger, Fritz Machlup, Gottfried Haberler, Oscar Morgenstern, and Ludvig von Mises. Not to be overshadowed in the dual monarchy, Budapest produced such physicists as Edward Teller, Leo Szilard, John von Neumann, and Dennis Gabor around the same time. In fact the two strands would merge when Morgenstern teamed up with von Neumann to write the “Theory of Games and Economic Behavior” in 1944.

The Austrian school was a major promoter of the now accepted marginal utility theory of value. Menger along with Jevons and Walras developed the theory in the 1870s and it was codified by Marshall in the 1890s. Marginal utility stood in direct contrast to the classical labor theory of value developed by Adam Smith and David Ricardo that was later expanded by Karl Marx.

The Austrians viewed themselves as classical liberals and as such they stood foursquare in opposition to the growing appeal of socialism that developed in the 1880s. Their theory was developed in the coffee houses of Vienna and many of their seminars were open to all. Indeed Bohm-Bawerk was open enough to invite socialists Otto Bauer and Rudolf Hilferding and the soon to be Bolshevik   revolutionary Nikolai Bukharin. But make no mistake, the Austrians were suspicious of popular democracy.

Their world first crashed with the onset of World War I and its aftermath and then the leading lights were forced into exile with the arrival of Hitler. Two emigres to the West became famous in the 1940s with Hayek’s “The Road to Serfdom” and Schumpeter’s “Capitalism, Socialism and Democracy.” 

With collectivism on the rise in the 1940s, they formed the Mont Pelerin Society where unlike the looser seminars of pre-World War I Vienna, dissent was not welcomed. It was through Mont Pelerin that the Austrians linked up with such Chicago School luminaries as Milton Friedman and George Stigler. It was at one of their conferences that von Mises called them out as socialists. Splits were inevitable.

Nevertheless after the Austrians linked up with Chicago and they received increasing funding from sympathetic foundations their influence soared as their views of limited government, free trade, floating exchange rates and the information economy percolated up to policy makers on both sides of the Atlantic. In a sense they were the godfathers of the neoliberal world.

Wasserman tells the story in way too much detail which is great for the academic reader, but not so much for the educated lay reader.

The Full amazon URL appears at: https://www.amazon.com/review/R1ZQEF4OUM2GWU/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

Quoted in an AP story, "Apple commits $2.5b to combat California Housing Crisis," Nov. 4

"It's a recognition that the San Francisco Bay Area is in a major housing crisis," said David Shulman, a senior economist with the Anderson Forecast at the University of California, Los Angeles.



https://www.ajc.com/business/apple-commits-combat-california-housing-crisis/6umms4WnEQiZk2tChPLFfO/

Via Atlanta Journal Constitution

My Amazon Review of David Lagercrantz's "The Girl Who Lived Twice"

A Good Airplane Read

This book is David Lagercrantz’s third addition to Stieg Larrson’s Millennium series with star characters Lisbeth Salander and Mikael Bloomqvist. Although not as good as the originals, Lagercrantz does a very credible job in keeping the series going.

The story begins with the mysterious death of a beggar in Stockholm.  From there we run into Sherpa mountain guides on Mount Everest, Lisbeth’s evil sister, Russian internet trolls, high Swedish government officials, and a prima donna celebrity and although not directly on stage, we have a Donald Trump-like hotel mogul with links to the Russian mob. All in all that makes for a pretty good story.

I read the book on a transatlantic flight and it helped make the time go by quickly making it a good airplane read.

The full Amazon URL appears at: https://www.amazon.com/review/R38SQZEW4H8IFD/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Jane Gerber's "The Jews of Spain: The Sephardic Experience"

The Spanish Legacy

CUNY Jewish history professor Jane Gerber has written a marvelous history of the Jewish experience in Spain from Roman times through the Inquisition and the diaspora that followed. I read this book just prior and during my recent trip to Spain. Because the focus my trip was largely on Spain’s Sephardic legacy her book brought a great deal of context to my travels through Toledo, Cordoba, Granada and Seville. One obvious legacy is the ubiquitous presence of Iberian ham as proof that Spain was no longer Jewish or Moslem.

Gerber begins with a discussion of Columbus who wasn’t Jewish, but likely had many Jewish contacts. After all the leading cartographers of his era were Jewish. Further because the Mediterranean under Moslem rule was one giant free trade area it was ideal for Jewish merchants to ply their trade throughout the region. Those trading contacts would become crucial after the expulsion of 1492.

Although I once thought that the Jewish golden age in Spain ran from 711-1492, it really ended in 1086 when the very strict Islamic Almoravid dynasty replaced the more relaxed Umayyad dynasty. The great Maimonides leaves Spain for Egypt around this time. There is a statue of him in Cordoba.  It was under the Umayyad’s that the Jews of Spain thrived. With the Christian reconquest underway Jews sought refuge with some of the Christian kings and some actually thrived. In particular the Abravanel family were the reigning court Jews of the era. What I learned from the book is that 1492 was a culmination of Jewish hatred that had long antecedents. Specifically there were mass pogroms stirred up by local priests throughout Spain in 1391 where Jew were massacred, most notably in Seville.

After the exile Gerber follows the Jews as they remain in Spain as Converso’s move on to Istanbul, Salonika and Sarajevo with a few moving to Safed. It was in Safed that exile Joseph Caro wrote his guide to Jewish practice, “The Shulchan Aroch.”Later they move to Holland and then on to the New World. The Sephardim initially thrive in the eastern Mediterranean, but then gradually decline as the Ottoman Empire falls into its long term decay.  She then follows their expulsion from the region after the establishment of the State of Israel to Israel proper where they now represent about half of the Jewish population.

What Gerber’s book lacks is a discussion of the Converso Jews who settled in the American southwest and Mexico.  The Inquisition followed them to the New World. Today there are Catholic families in New Mexico who practice such Jewish traditions as lighting candles on Friday night, avoiding pork and sitting Shiva for the dead. A few of those families have actually returned to Judaism.

To sum up, Gerber has written a very informative book about the Sephardic experience that few Americans in general and Ashkenazi Jews in particular have very little understanding.

For the full Amazon URL see: https://www.amazon.com/review/R233CYL4H9J2AT/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Robert Shiller's "Narrative Economics: How Stories Go Viral & Drive Major Economic Events"

Telling Stories

My UCLA colleague Ed Leamer always reminds me that human beings are story telling animals. Here Yale economics professor and Nobel Laureate Robert Shiller has written a whole book on the subject as to how convincing narratives, whether true or false, can influence economic behavior. Some of the narratives he discusses are:

·        Housing prices can only go up.

·        Technological advancement leads to unemployment.

·        “New Era” booms in the stock market.

·        Gold is the only true store of value.

·        It is socially unacceptable for wealthy people to be extravagant in hard times.

When these ideas go viral they obviously can effect economic behavior. In order to track how viral an idea can be Shiller uses the science of epidemiology to track its rise and fall counting its appearances in publications or in the case of today how it trends over the internet.

Although Shiller doesn’t really give us a formal analytical framework as to how we can integrate a narrative into making predictions about economic behavior, he certainly makes the case that economists have to take into consideration prevailing narratives when trying to understand the macro economy where both booms and slumps can get exaggerated by the presence of mass psychology. This concept is far from new, but Shiller expresses it in a different way.

The full amazon URL appears at: https://www.amazon.com/review/R4XHVF8GCEJOX/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv