Monday, May 30, 2016

On Keynesian economics and the economics of Keynes.

Clower and Leijonjufjud reconstructed Keynes against the Keynesians - dynamic Keynesianism against static formal modelling - real time versus model time. They pointed to real-world experiences of changes in real time of prices and quantities produced by people acting on their disparate expectations. If incomes adjust rapidly - more rapidly than prices - an "income-constrained" process is possible. Production and employment may fall as a result of pessimistic expectations (loss of confidence, uncertainty) however produced.
My interpretation of real-world history suggests that this is not only logically coherent, it is also possible, and has happened from time to time. One may wonder whether the bounce-back of Keynesianism in the wake of the bust and the financial crisis, can be defended on the basis of this dynamic Keynesianism. On this I say the following.
1. Though one may see, if one looks hard enough, echoes of the Leijonhufjued-Clower reconstruction in the current climate of Keynesian opinion, it seems to me most of it is simply of the old ISLM, AS-AD variety, either explicitly, or else by implication inside the more sophisticated macro-models (stochastic or otherwise).
2. One may see in recent events evidence of income-constrained processes.
3. But this alone does not a Keynesian policy make. It is one thing to suggest that under some circumstances, the unsupported macro-economy may experience downturns. It is quite another to claim that, therefore, activist macro-policy is called for. There is no 'therefore' about it. Activist policy to be successful requires solutions to formidable knowledge and incentive problems. Failure to overcome these problems makes such policy destabilizing. And there is absolutely no attempt by the reborn Keynesians to grapple with this.
4. The conditions that produce significant income-constrained processes are worthy of examination, and, I would suggest are usually characterized by an accumulation of bad macro intervention policies - like artificially low interest rates, regulatory distortions on a macro scale (housing), etc.
5. Though income-constrained processes occur in the absence of policy distortions, they are likely to be relatively short-lived - quickly self-correcting. This is the empirical counterpart to recognizing the cogency of the argument while arguing against its significance in supporting activist, discretionary policy.
6. Non-Keynesians, Austrians and others, have not denied the possibility of income-constrained processes, like the 'secondary depression' that Hayek refers to. To claim that the unfettered market is basically stable, is not to claim that it is perfect, that it is free of all errors, or that adjustments to change are painless.

Monday, May 16, 2016

Keynes's beauty contest and the stock market.

Keynes was dismissive of stock markets in the determination of asset prices likening them to a beauty contest. I have some thoughts on this.
In Keynes’s beauty contest the voters form expectations about the judgement of others about the beauty of the contestants. And if everybody behaves like this no one may pay any attention to their opinion about the actual beauty of the contestants. The result is an emergent reflection of the opinion of other people’s opinion. There is no feedback from the ‘fundamental’ beauty of the contestants. There actually is no such thing, since beauty is in the eyes of the beholder anyway. And when the contest is over it is over. Nobody cared about ‘true beauty’.
On the stock market, people form expectations about other people’s expectations of the future price of the stock. And if everyone behaves this way, then the price of the stock depends simply on everyone’s expectations of everyone’s expectations of the future price of the stock. And no one may actually have any expectations about the future price of stock apart from these expectations of expectations (of expectations, …, ?). And the emergent outcome is thus a reflection of these optimistic or pessimistic expectations about expectations. A process without an anchor, says Keynes.
Except that is not the whole story. Unlike the beauty contest, things happen in the world outside of the stock market that affect the price of the stock. Most importantly the company, whose stock is in question, either does or does not have a cash flow from profits. Negative or zero profits means borrowing. This can go on for a while, but “at some point” the absence of profits must impinge upon those expectations because ‘everyone’ knows that the future price of the stock depends ‘fundamentally’ on future net earnings. The palpable uncertainty associated with these asset prices is a result of the ambiguity of the concepts “future”, “at some point”, etc. How long could Amazon actually have gone on without showing any real profits? It went on much longer than many thought possible, and many companies failed for want of earnings, even while Amazon endured. What determines the strength of investor forbearance in some cases and not in others? For that one needs a valid theory of expectation determination, probably an impossibility.
The stock market, for that reason, however, is not a beauty contest. Earnings, in a sense an ‘objective’ measure of performance depend upon revealed consumer preferences – whether *consumers* not *investors* think the product is beautiful. There is an *outside* judge who is not concerned about the asset price or even the future earnings of the company, but, rather, only about the value to him of the product being produced. That lends the crucial anchor to the process that is absent in the beauty contest. (Again we see the importance of capital accounting).

Friday, May 6, 2016


Today I was privileged to sit among the children of Levine Academy in Dallas to listen to Stan Siegal present the story of his parents, Joseph and Anna Siegal who survived the holocaust and came to America to rebuild their lives.
As the number of survivors still alive dwindles, it becomes ever more difficult and ever more important, to try to portray the horror and significance of this episode in history - for us as Jews and for the world at large. But to speak of it in numbers and historical facts fails miserably to convey that horror and that significance. As Adam Smith might have said, it only becomes real when one hears of real people with names, with dreams and hopes for the future whose lives were disrupted and exploded by unimaginable violence. Certainly when speaking to young children, statistics and dates mean nothing until one peoples them with human beings who have faces. Stan told the story of his parents in a way that could reach these young minds and hearts.
Judaism unequivocally exhorts us to "choose life" The story of Stan's parents is about how they chose life after Anna survived years of slave labor in the gulag of Siberia and Joseph survived years in the woods of Poland with other camp escapees. Though all of Anna's family miraculously survived, all of Joseph's family, his siblings, his parents, were murdered. They met in a displaced persons camp after the war and Joseph married Anna there and also married her family, having lost all of his own family. Their first child was born in the camp. They were not alone in marrying and building a family there.
Consider what it means for people who have endured such suffering and loss to pick themselves up and dedicate their energies to the building of a new life, a new family. The Siegals emigrated to the U.S. and today Stanley and his wife Janet live here in Dallas with two of their three children and three of their five grandchildren who attend Levine academy.
There are many stories like this. They occur against the backdrop of the times. I learned from Stan about the displaced persons (DP) camps (1945 - 1959) that contained at least 500,000 Jews (a pitiful remnant of the Jewish communities of Europe) and many others. Many ordinary soldiers and civilians dedicated their lives during that time to caring for and training these survivors. And (whatever his reasons) President Truman responded to the existence of these camps by achieving a dramatic change in U.S. immigration policy to enable many of those survivors to enter the United States. Decades earlier the waves of European immigration had been stopped and many who perished in the Holocaust might have been saved had that not been so. But after the war, at least the survivors were welcomed.
(I can't help thinking of Syrian Christian refugees in the here and now and how we could be instrumental in saving them).
These survivors who came to the U.S. built successful lives and careers and their children and grandchildren are among America's most successful. They enriched not only themselves but untold numbers who benefited from the value they added.
Other DP survivors went to Israel, where a sizable local Jewish population welcomed them, to England, France (and other W. European countries), South America, Australia and South Africa.
As we remember the dead, let us celebrate the living.

Tuesday, May 3, 2016

The Girl From Human Street: An Appreciation and Appraisal

What follows are remarks prepared for an event hosted by the Dallas Jewish Historical Society in honor of the South African Jews of Dallas that took place on Monday, May 2, 2016. Roger Cohen was the guest speaker and he spoke eloquently about his book. These remarks were prepared to be delivered in the event that he was not able to make event and are meant as an appreciation.
I have appended some further remarks by way of critical commentary that might be of some interest.

The Girl From Human Street: An Appreciation

In The Girl from Human Street, Roger Cohen has written a fascinating and unusual book. He is an accomplished and talented writer. His descriptions are vivid and insightful full of original clever little epigrams to encapsulate and summarize his observations.

It is easy to recommend this book to anyone looking for an interesting and informative read, but it will be of particular interest to those who like to read about history, especially modern Jewish history.  And it is above all very appropriate to discuss it here tonight because of its South African connection.

Roger Cohen is a well-known and respected New York Times columnist and one-time foreign correspondent. He now calls New York his home (for more than 25 years), but by origin he is a South African, who grew up in England, and has strong Lithuanian roots. Human Street is in Krugersdorp, outside of Johannesburg, and the girl from Human Street is his mother. It is Cohen’s memory of her that hovers over the entire book as he struggles to come to terms with her suffering and the effect that it has had on him. And that suffering appears to him to have a lot to do with her exile from South Africa. So the South African Jewish element features very prominently in this book and I will pay particular attention to it.

The book is what one may describe as a bio-documentary. It is first an historical autobiography stretching from before the beginning of Cohen’s life until some unspecified time before the present. It is a very intimate and detailed autobiography of his past, told through the lives of his family members in various generations. It is probably more detailed and intimate in its revelations than any us could or would like to reveal about ourselves and our families. But in it South African Jews will recognize themselves, as I did, in a strikingly familiar way. It is his story, but it is also the story of most of us expatriate South African Jews of his generation, particularly those of us who have come to America. 

So at the inner most level it is the fascinating story of his family for which he clearly has done an enormous amount of research. His talent for writing is evidently a family trait. He was aided in his research by various memoirs of family members, evidencing considerable literary polish. Through these surviving documents and many other historical sources he is able to trace the various strands of his remarkable family and recount their stories over the generations. Most of us Jewish South Africans of Lithuanian origin have not taken the time or expended the energy to find out much about the lives of our ancestors, either in South Africa, or before that in Lithuania, nor about Lithuania after their emigration to South Africa. What would have happened to them had they not emigrated? Cohen has done this and his account is path-breaking.

At another level this book is an historical documentary of the Jews of Lithuania and of South Africa, with significant views of the Jews of England and Israel as well – and a few glances at Italy. In these forays into the surrounding conditions of the time, Cohen delves also into the lives of others, not family members, and treats their stories just as intimately and compellingly as those of his own family.

So there is a lot of stuff mixed up in the telling. It is not a narrative that proceeds in linear fashion from beginning to end. Rather it is collection of themes, “ghosts of memory” (as the subtitle of the book suggests) seemingly randomly presented, but which, upon further reflection, come together in a poignant mosaic. One may wonder, what is the motivation for this particular mode of expression? Before moving on I want to offer a potential explanation for this.

This is a book about identity. Who are we and what makes us who we are? Clearly, we are more than the sum total of our experiences, but those experiences do play a large part in shaping who we are. This works through memory – through the remembering and imprinting of those experiences. But events remembered do not appear in our memory in historical order. They are more random and mixed. One remembered element connects with another far removed in geography and in historical time. Every chapter in the book contains a kind of network of connected memories separated by place and time. The reader thus becomes privy to the way in which the author encounters his memories, and thereby to the reasons for their significance to him.
Lithuania: Cohen weaves his personal family history into the broader historical picture in different places at different times. These include Lithuania at the time of the emigration to South Africa in the 1880’s, Lithuania at the time of the Nazi occupation and extermination of more than 250 Jewish communities, Lithuania soon after the liberation from the Soviet Union and, finally, Lithuania in 2012, a Lithuania trying tentatively and not completely successfully to face up to the reality of what happened there with the submission of many and the active participation of many others in the genocide of the Jews. One learns also that there were indeed Lithuanians who did not stand by and who distinguished themselves by saving Jews at great risk to themselves.  But they were definitely the rare exceptions. Most Lithuanians, then as now, simply averted their eyes from the horror.

Lithuania is a very small country that has a traumatic history being squeezed between Russia, and later the Soviet Union, on the one side and the Nazis on the other. After the war, when Stalin had already annexed the country, recognition of the genocide was simply ignored and subsumed into the heroic suffering of the Soviet resistance to the Nazis. It is an old story, under Nazism Jews were vilified as communists (Bolsheviks). Under Communism they were vilified as capitalist collaborators. Lithuania achieved independence with the collapse of the Soviet Union in 1990. Only very recently has the Holocaust begun to feature in the Lithuanian collective consciousness and now school children are, at last, being told about it. They are learning about how centuries of Jewish civilization in Lithuania came to an end in a few months during 1941.

We South African Litvaks have all heard vaguely about the pogroms in Lithuania and that the Jews who remained behind were wiped out, but if you are like me, you do not know much more than that. Cohen uncovers painful but vital details about the history of the Jews in Lithuania, the fruits of careful painstaking research including multiple visits to the towns from which his family members came. Of the four pairs of Cohen’s great-grandparents, three were from Lithuania, from towns in close proximity to each other. (Actually in one case it was his grandparents that emigrated, as is the case with many of us). Two of the towns were Šiauliai and Žagarė. Each town has its own particular circumstances and story of how and when the Jews there met their end. Cohen documents the story of these two towns in stark detail. This is the reality of what our ancestors left, this is the fate they avoided, and in doing so they gave birth to us.

What may not be realized about the Jews in Lithuania is that their demise preceded Hitler’s final solution of the gas chambers. Instead, the Lithuanian communities were for the Nazi murderers a first step along the way to the discovery of a more efficient extermination method. The famous Nazi einsatzgrupen (death squads) specialized in mass executions the old fashioned way - with firing squads and naked Jews lined up in front of the graves that they had been made to dig for themselves. In this way they killed thousands upon thousands in a very short period of time. Cohen quotes a recently erected memorial: ”In this place on October 2, 1941, Nazi killers and their local helpers killed about 3,000 Jewish men, women and children from the Šiauliai region.”
South Africa: Roger Cohen is descended from a remarkable set of ancestors. As mentioned, three of the four pairs that emigrated to South Africa at the turn of the 20th century were from Lithuania, the other couple  came from England. Three of the four men, starting with nothing and struggling to overcome hardships and setbacks, eventually  made their fortunes, becoming founders of family dynasties in the new South African Jewish aristocracy of riches. One of his great-grandfathers was a founder of the very well-known South African mid-level department store the OK Bazars. His father’s side was of more modest means, but married into wealth.

So we have graphic and familiar descriptions of the life in South Africa for Jews starting in the hard-scrabble immigrant generation, through the formative period, to the ultimate established generation with their mansions in the Johannesburg suburb of Houghton – glimmering swimming pools, lush gardens tended by ubiquitous but invisible black gardeners, lavish meals cooked by invisible black cooks, and waited on by formally attired black waiters, babies and children cared for by uniformed black nannies, all very tranquil and secure.

The South Africa from which we emigrated was rich in blessings both material and cultural. It was a great place to grow up. Our grand-parents, or their parents, had done the hard work and we were reaping the rewards. The Jews were part of the privileged white minority that ruled the country with a view to hanging on to these hard earned blessings. But, of course, there were formidable, if subliminal, tensions. A slightly older friend of mine from that period, the historian Gideon Shimoni, refers in the title of his Ph.D. dissertation on the Jews of South Africa to the Community of Conscience. Whether we knew it or not, we all struggled with the moral dilemmas of living in the midst of the police-state that enforced the Nazi-style requirements of the policy of Apartheid.

Cohen confronts this ambivalence head on. He provides valuable details about the founding immigrant generation – again more than most of us are aware of. His admiration for their achievements is unstinting and well-deserved as is his appreciation of the richness of life in established Jewish South Africa. His South African readers will delight in the vivid familiar scenes – the foods, visits to the Kruger National Park, the rich South African English dialect with its sprinkling of Afrikaans and Yiddish words thrown in. “Howzit, hey?” “Shame, ach sistoch man” “He’s a brainbox” “Let me just go and put on my face” “I stopped at the robot.” [I embroidered here just a bit.]

Whatever the background circumstances there is no denying that it was a period of extraordinary Jewish achievement and creativity. And by contrast to Cohen’s experience in England, South African Jews had no desire to assimilate. South Africa was a society of separate groups living together in an uneasy accommodation. To be Jewish was to be a member of one of those groups. There was nothing to be done about it. They were proud Jews, strong Zionists and they practiced a unique form of Judaism in which the vast majority were affiliated orthodox no matter what their degree of observance – and by the time of our generation most were not observant. We were cultural orthodox Jews who reveled in our various synagogue affiliations boasting of the best cantors or choirs who reproduced the liturgical artistry of the big-city Lithuanian communities that had so recently disappeared. It is natural that in leaving all this behind we felt a considerable loss.

As Cohen points out, these achievement were possible because of the acceptance of Jews into to white mainstream and, notably, because of the absence of institutionalized anti-semitism. It is true that the white Afrikaners, with their seething antipathy toward Britain and to English-speaking South Africans, tended to side with Germany in WWII and identified with the Nazis in their anti-Jewish sentiments. There is a clear incipient anti-semitic movement in Afrikaner history. But after the war, and the gaining of political power, the Afrikaners changed their tune completely, finding it more expedient to coopt the Jews rather than persecute them. They were, after all, white and they were the brethren of those heroic survivors that had founded the state of Israel, in the promised land, out of the ashes of Auschwitz. So began decades of cooperation between the state of Israel and the Apartheid Republic of South Africa.

“Antisemitism was deflected by racism” and Jewish consciences were coopted. But there were notable exceptions, among which were left-wing dissidents, orthodox Jews like the eminent Rabbi Rabinowitz of blessed memory, and the awe-inspiring towering figure of Helen Suzman, the lone Progressive Party member of parliament for decades, a constant thorn in the side of the dictatorial, racist Nationalist Party. But for the majority of South African Jews, as Cohen points out, the name of the game was not to rock the boat. Better not to draw attention to themselves.

This was epitomized in the posture of the organization that styled itself as the official spokesman for South African Jewry, the South African Jewish Board of Deputies. Throughout the Apartheid period the BOD took the position that it would not comment in any way on political matters and thereby it avoided taking a stand for or against Apartheid and its brutal state apparatus. For this the BOD earned the condemnation of many vocal Jews in the midst of the quiet acceptance of the majority. Only very recently in the post-Apartheid period has the BOD acknowledged the unconscionable deception that this entailed. All this and more is recounted by Cohen with sympathetic cogency.
England: Though professing to be an atheist, Cohen feels himself to be a Jew, and a South African Jew at that. His parents were South African Jews even though, following his father’s wishes, they tried to leave their Jewishness behind when they emigrated to England. His mother could never make up for the loss of family and culture and geography that South Africa represented and her mental illness, and the mental illness of other family members, is a recurring theme in the book.

Cohen and his sister spent a lot of time back in South Africa while growing up. Still, England left its impression on him. For him England was in many way the not-South Africa. Though nominally open, polite English society had a way of letting Jews know that they were different and would always be different. He refers to “an ingrained bigotry” and recounts the anti-semitic taunts he endured while in school. Yet, for him, as for all South African Jews, the English experience is pivotal. By an accident of history and geography, we ended up in the English speaking section of the white population of South Africa and we developed a strong, if ambivalent, bond with England and with English culture. For Cohen as for all of us, the English heritage is priceless.
Israel: Israel features throughout the book as it influences the history of the family and of Jewish communities more generally, but it features most  prominently in two chapters towards the end of the book when Cohen recounts his visits with family members living there.  He is a strong and emotional supporter of Israel in its origin as a refuge for Jews and an admirer of the modern state it has become. It is worth quoting a brief passage.

“My family story, like that of millions of other Jews, leads inexorably to Zionism. By the early twentieth century, no alternative offered a plausible chance of Jewish survival and belonging. As Joseph Roth once wrote, “If there is one nation that is justified in seeing the ‘national question’ as essential to survival, then surely it is the Jews who are forced to become a ‘nation’ by the nationalism of others.” Zionism was a necessary break with past, pogrom and persecution.”

But he is worried that Zionism “sought a state on land that was not empty. Zionist resolution on the Jewish question could only give birth to an Arab question.” In the book and in his other writing Cohen expresses a sincere anguish at the fact that by being forced to defend itself, Israel has become an oppressor. Resort to military solutions has had a brutalizing effect on both sides and he worries about this dilemma seeing a two-state separation of irreconcilable peoples as the only solution. He is dismissive of a one-state solution. “One state, however conceived, equals the end of Israel as a Jewish state, the core of the Zionist idea. Jews will not allow this to happen.”

Cohen’s sincere grappling with these issues will resonate with his readers. And like us he is troubled by the rise in anti-semitism among the left intelligentsia and on U.S. campuses and he is likewise troubled by the spurious comparison between Apartheid in South Africa and the separation of populations in Israel. As a South African Jew he knows the difference.
America: Roger Cohen now feels he is at home in New York. He finds in America an openness that was lacking in England. America is a land of immigrants, a land constructively fashioned out of people’s differences. We as Americans are united in our differences. We can be whatever we are, while still being enthusiastic Americans. What better adopted home from which to contemplate and wrestle with the “ghosts of memory” that are the substance of this intriguing book.

Critical appraisal – three comments

One: As noted, this book is difficult to categorize. It is part autobiography and part historical documentary. At times it may seem like the expression of an unconstrained stream of consciousness. Some people have told me that they found this problematic. I suppose it depends on the reader. I think Cohen took a risk in creating the book in this form, but it did work for me. I was not troubled by the frequent jumps in and out of the personal to the general and back. But, clearly, some readers will be.

Two: There is a potential inconsistency in the personal story, the story of his mother. On the one hand Cohen wants to connect her wrenching displacement from South Africa to her tragic mental illness. On the other hand he wants to highlight the prevalence of mental illness in his family – more family member have black dots in the family tree than do not. Both impulses are understandable. Cohen wants to deal with the loss of leaving South Africa for his mother and more generally, and, also, he wants to deal with his personal discovery of this lurking genetic menace in his family. But it does raise the question: was his mother’s mental illness a result of the trauma of emigration or would she have succumbed under any circumstances simply because of her genetic makeup, like Cohen’s Israeli cousin many years later. A possible reconciliation is to imagine that his mother had the genetic disposition toward debilitating depression that was triggered and exaggerated by her traumatic experiences. This is probably how Cohen wants us to read it.

Three: Finally a word about his position on Israel. On these matters I think Cohen, like most analysts of this subject, may be  considerably off base, and, if I may, I would like to offer a few comments on that. 

To worry about the oppression of Palestinians by Israelis as a betrayal of the core Jewish values, values intrinsic to the founding of Israel, is certainly legitimate. The Israeli military and the Israeli government can be and should be called to account in a way that other governments in the region never are. There is a palpable double-standard, and maybe that is ok insofar as we as Jews set that standard for the only Jewish state. But to think that Israel is the ultimate cause of the poverty of Palestine and for the suffering of the Palestinians is just wrong. Cohen, like so many others, fails to mention that the Palestinians have been kept in refugee-dependency not by Israel but by the UN, by the various Arab states who have used them as pawns for their own nefarious purposes, and, perhaps most importantly, by the mendacious, corrupt, self-serving leaders that constitute the Palestinian Authority. It is the PA that has deprived them of the vote by refusing to hold scheduled elections, not Israel as Cohen suggests.

If Israel is responsible at all it is by handing over governance of the territories to the PA via the Oslo Accords. Palestinians fared much better under Israeli rule than they do now under the joint rule of the PA and the Israeli military. It is hard to see how a two-state solution is possible when one of the states is ruled by a grasping kleptocracy bent on the destruction of the other state. 

In fact, the only solution, if there is one, may indeed be a one-state setup in which Israeli civil law is extended to all the inhabitants of the territories together with the option to apply for Israeli citizenship. The fear that this will mean the demise of the Jewish state, though understandable, is probably unfounded. The population of the territories has been dramatically overstated by the Palestinian demographers and the growth of the Palestinian population is slowing down, even while Israeli populations growth is stable and high. Under civil law the Palestinians will be able to develop their own voices and solutions. And while some may elect to apply for Israeli citizenship, many will probably not. Other types of political arrangements, like some sort of local federalism, may emerge.

Whether and under what circumstances such a move (to extend civil law to all of Israel and the territories) is possible is another matter. How this could be done and what the reaction of various parties might be is the subject of Carolyn Glick’s provocative book, The Israeli Solution. Whatever one’s opinion on this, it seems to me that no peaceful coexistence will ever be possible until a way is found to allow the Palestinian people at large to express their own individual goals and desires and this implies a change in leadership and in political system that no one seems to be talking about.