Let me ask a simple question to the pseudoliberals who take a soft line on the veil and the burqa. What about the Ku Klux Klan? Notorious for its hooded style and its reactionary history, this gang is and always was dedicated to upholding Protestant and Anglo-Saxon purity. I do not deny the right of the KKK to take this faith-based view, which is protected by the First Amendment to the U.S. Constitution. I might even go so far as to say that, at a rally protected by police, they could lawfully hide their nasty faces. But I am not going to have a hooded man or woman teach my children, or push their way into the bank ahead of me, or drive my taxi or bus, and there will never be a law that says I have to.

What the fuck is he talking about? The main thing that bugs us about the KKK was their tendency to wear hoods and their ideas about purity? It wasn’t the whole century of racial terror thing? Cause I thought it was more the lynching, the political violence, the burning down houses, and the century of racial terror. I thought preventing black people from being American citizens was the main thing. But I guess wearing hoods was pretty bad too.  

Yet as insanely stupid as this column is, I’m fascinated by the fact that his central rhetorical figure is his weird notion that because you’re supposed to show your face inside a bank, you should also have to show your face everywhere in America:

On the door of my bank in Washington, D.C., is a printed notice politely requesting me to remove any form of facial concealment before I enter the premises. The notice doesn’t bore me or weary me by explaining its reasoning: A person barging through those doors with any sort of mask would incur the right and proper presumption of guilt. This presumption should operate in the rest of society. I would indignantly refuse to have any dealings with a nurse or doctor or teacher who hid his or her face, let alone a tax inspector or customs official. Where would we be without sayings like “What have you got to hide?” or “You dare not show your face”?

It makes sense that you be requested not to wear facial concealment when you are in a bank. It’s still a complicated civil liberties issue, but at least it makes sense: it’s easier to rob a bank if you wear masks while you do it, so a bank wants you not to wear a mask.

But why exactly does he object to anyone anywhere wearing facial covering? Why is it that law enforcement is the instantly appropriate frame through which to think about this issue? Is it because Muslims are presumed, by virtue of being such, to be threats of some kind? Certainly you have to find some way of accounting for his weirdly aggrieved sense that veiled women are pushing past him in line at the banks, as we seem to have an awful lot of “barging” and “push[ing] their way into the bank ahead of me.” And certainly “My right to see your face” seems to be his takeaway point, in a way that makes his solicitousness for the choices of Muslim women a little hollow.

Which is why it’s so interesting that he not only conflates the “you” that is the dangerous Muslim threat assaulting his delicate sensibilities in public spaces with the “you” that is the sad Muslim victim of Muslim male power (speaking of “the right of women to show their faces, which easily trumps the right of their male relatives or their male imams to decide otherwise”), and which he actually poses as defending. But he at least recognizes that Muslim women that want to wear the veil are sort of a problem for his argument. After all, he can only imagine that horrible, horrible veiled lady that pushed past him in the bank as a threat to his civil liberties and imagine himself to be thereby in solidarity with her against her “male relatives” or “male imams” if he’s completely emptied her out of any subjectivity at all, making her into a weird repository of the desire of other males. And so, he makes the very silly claim that we “have no assurance that Muslim women put on the burqa or don the veil as a matter of their own choice,” despite the fact that we have lots of testimony that some or many do.

Now, of course, I’m not trying to make any generalizations about Muslim women or make any kind of statement about veiling as such; precisely the opposite, I’m pointing out that the only way to generalize about a massive group of massively heterogeneous people like “Muslim women” is to do what Hitchens is doing here: dumb yourself way, way down. After all, if some Muslim women somewhere choose to wear the veil of their own free will, then his argument falls apart, and he’s just imposing his personal preferences on that person in a deeply illiberal way. And so he categorically denies that possibility, arguing that we have evidence pointing the other way and supplementing it with a sense that we can’t really know more than that, that we just don’t have access to what Muslim women think, darn it.

Which is the real problem with his argument: rather than asking how he can best be an ally for the people he’s advocating for by getting to know as much as possible about them, his argument relies on knowing as little as possible about them. Yet just as with FGC/FGM/FGwhatever, if you want to have this conversation and have a coherent position on how to address it (especially as white person), you have to start with strong familiarity with why and how it happens and then proceed with a deep and basic solidarity with the people whose actual asses are on the line. Which is why a column like this one would be a lot more persuasive if it weren’t suffused with bitter rage at the mere sight of veiled women in his presence, and if his response to this “aggressive sign of a refusal to integrate or accommodate,” weren’t to take it so personally. And if the sight of a women being hidden from his gaze didn’t so instantly become a “right and proper presumption of guilt,” maybe Hitchens’ own psychodrama wouldn’t seem to be the most obvious place to look for the method in this column’s madness.

There are more drastic ways to reduce educational costs than incremental reductions in pay and in force. As I noted in a prior post, the school district has been experimenting with online courses. With no classrooms and with discussions taking place via blogs and emails, online teachers can be spread more thinly, reducing per-student costs. Then there’s home schooling, which costs the taxpayers nothing at all. I’ve not made a systematic study, but on a cursory review it’s evident that, in comparing course grades and test scores and student satisfaction, the e-learners and the home-schooled achieve equal or better results compared to students in traditional learning environments. I’ve also looked a bit at the impact of differences in teacher quality on student outcomes: again, the results aren’t at all persuasive that better teaching yields better learning. And despite all the advances in pedagogy over the past decades, standardized test results in the US remain steady.

Which brings me to today’s book report.

“In 1818, Joseph Jacotot, a lecturer in French literature at the University of Louvain, had an intellectual adventure.”

Joseph Rancière, former protégé of Marxist philosopher Louis Althusser, presents Jacotot’s adventure as a paradigm for educational overhaul in The Ignorant Schoolmaster: Five Lessons in Intellectual Emancipation (1987). In 1815 Jacotot, a celebrated scholar in France, found himself exiled to Brussels. Knowing no Flemish and having no motivation to learn it, Jacotot assigned his students the task of learning French by studying a bilingual French-Flemish translation of The Telemachy. Jacotot didn’t teach his students The Telemachy, nor did he teach French lessons; he simply told them to learn French by reading the book. Periodically he would ask the students how they were progressing, even though he couldn’t evaluate their self-assessments because he still knew no Flemish. Finally Jacotot asked the students to write, in French, what they thought of the book. The results proved enlightening to Jacotot: the students had learned French without being taught French.

Jacotot’s take-home lesson: it’s not only possible but preferable for a schoolmaster to teach subjects of which he himself is ignorant. Or, to paraphrase a popular slam on the teaching profession, those who can should do, those who can’t should teach. It’s like the Music Man forming a school band from scratch without being able to play a lick himself.

In the usual educational arrangement, the teacher is positioned as the Master of the subject and of explicating the subject to the student. This assignment of roles, said Jacotot, is predicated on an inequality of intelligence between Master and student, an inequality that reflects and perpetuates the hierarchical society which the educational system serves. Even progressives perpetuate the system by instituting one educational reform after another that attempt to redress baseline inequalities between the underprivileged and the elite, reforms that are doomed never to reach the goal of actually achieving equality. Instead of making equality the goal of education, Jacotot assumed equality as a starting-point. All children are perfectly capable of learning their native language without explicitly being taught: why can’t they learn another language, or mathematics, or philosophy, the same way? Give the kids a book and some time, make sure they’re not being lazy and inattentive, and voilà — the students teach themselves. A book is self-explanatory: why stick a Master explicator between the student and the book? The Master implicitly teaches students that they cannot teach themselves, instilling a passivity before recognized experts that’s liable to persist for a lifetime. And it’s in this way that the schools serve as an ideological apparatus of the state: the students’ passive dependence on the Master, the “stultification” of their will and attention, recreates and preserves the broader hierarchical social-economic inequality between the elite and everyone else. In contrast, the self-taught student is “emancipated.” Obliged to engage his own perfectly adequate intelligence rather than relying on the Master’s, the emancipated student enters an educational “circle of power” that includes himself, his fellow students, and his teacher in the joint exercise of intelligence among equals.

“Whoever teaches without emancipation stultifies. And whoever emancipates doesn’t have to worry about what the emancipated person learns. He will learn what he wants, nothing maybe. He will know he can learn because the same intelligence is at work in all the productions of the human mind, and a man can always understand another man’s words.” (p. 18)

“Man is a will served by an intelligence,” Jacotot asserted. Does this mean that the emancipated person who engages his will to learn can accomplish anything he wants? Yes, says Jacotot. Rancière cautions the reader that Jacotot’s teaching method

“is not the key to success granted to the enterprising who explore the prodigious power of the will. Nothing could be more opposed to the thought of emancipation than that advertising slogan… It is undoubtedly true that the ambitious and the conquerors gave ruthless illustration of it. Their passion was an inexhaustible source of ideas, and they quickly understood how to direct generals, scholars, or financiers faultlessly in sciences they did not know. But what interests us is not this theatrical effect. What the ambitious gain in the way of intellectual power by not judging themselves inferior to anyone, they lose by judging themselves superior to everyone else. What interests us is the exploration of the powers of any man when he judges himself equal to everyone else and judges everyone else equal to him. By the will we mean that self-reflection by the reasonable being who knows himself in the act. It is this threshold of rationality, this consciousness of and esteem for the self as a reasonable being acting, that nourishes the movement of the intelligence. The reasonable being is first of all a being who knows his power, who doesn’t lie to himself about it.” (pp. 56-57)

Equality of intelligence among individuals doesn’t mean identity in its application, such that each student learns the same things. Nor does a society comprised of emancipated individuals become an intelligent society. Jacotot’s vision for education and society — and Rancière’s as well — is an anarchism verging on libertarianism, in which individuals pursue their own individual pathways in a milieu of mutual support among equals. Says Jacotot:

“There is no pride in saying out loud: Me too, I’m a painter! Pride consists in saying softly to others: You neither, you aren’t a painter.” (p. 67)

Jacotot knew that the ignorant schoolmaster couldn’t successfully be instituted as a societally mandated model, with the accompanying insistence on certifications and standardized pedagogical techniques and evaluations. Emancipated education can’t be instituted; it can only be practiced, parent to child, ignorant schoolmaster to ignorant student, citizen to citizen.

“[G]overnment doesn’t owe the people an education, for the simple reason that one doesn’t owe people what they can take for themselves. And education is like liberty: it isn’t given; it’s taken.” (pp. 106-107)

As an aside in a post about lobbying, Ezra Klein posits that “This is, essentially, what journalism is about: Leveraging social relationships to get people to tell you things they probably shouldn’t be telling you, and that they certainly wouldn’t tell someone they didn’t know and have human feelings for.”

Obviously the concept of journalism contains many discrete activities, but I feel like to offer this as a generic characterization even of the investigative reporting function is a kind of double mistake. It’s starts with the erroneous conception of the “hard core” reporter who has a fierce attitude and piercing gaze, and roots the truth out from the unwilling and corrupt establishment. This attitude leads to the “cocktail party” critique of actually existing journalists as a bunch of gadabouts and schmoozers. This, in turn, leads to Klein’s reconceptualization of the cocktail party circuit as the essence of journalism—you schmooze, breaking down the psychic and emotional barriers, and then you get the scoop. This seems a little self-serving to me. I’m going to a dinner party tonight featuring a minister from the Afghan cabinet and I’m attending because doing so seems more interesting than the reverse, but if I learn anything there it’ll be because someone wanted to tell me something not because I tricked them with my charms.

Now admittedly, some people (viz: Ezra Klein) are arguably more charming than I am. But in general I think admissions against interest are quite rare. The reason investigative scoops happen is that government agencies are large bureaucratic enterprises composed of many variously motivated people. Some of those people decide to blow the whistle. Sometimes out of high-minded moral outrage, sometimes to pursue a personal or bureaucratic vendetta. The trick, of course, is that just because someone tells you something doesn’t make it true. At the same time, just because someone has an agenda, doesn’t mean they’re lying. And figuring out what’s true and what’s not separates the effective reporters from the ones who ran with “scoops” about US intelligence on the Iraq WMD program.

At any rate, people can—and will—argue about this sort of thing forever, but I very firmly believe that one of the cardinal sins people in the media make is overestimating their own savvy and significance. People who write about the news are mostly conduits and sifters of information-flows that exist for independent reasons.

Because they didn’t look behind their statistics, however, the graphic is about as informative as CNBC’s now infamous unveiling of Ireland as the world’s most indebted country, with debts worth 1300% of GDP! The point that both miss is that you can’t look at debt liabilities without looking at corresponding assets.

That is why the markets are worried not about all debt. They are worried particularly about government debt, because typically there is no corresponding asset.

It’s true that Spain and Ireland — particularly the latter — have much less of their debt at the government level than, say, Greece. And Lyons helpfully provides a little chart showing how much of each of the PIIGS’ external debt is government debt.

But we’re still a long way from the point at which markets are more worried about government debt than about corporate debt, at least if you’re measuring such things using credit spreads. Investors still believe in the concept of the “sovereign ceiling”, and it’s still extremely rare for any corporate, including a bank, to be able to borrow more cheaply than the government of the country it’s in.

Writes Lyons:

For Portugal and Spain, it’s only one fifth of all debt. In the case of Ireland, just five percent of all its debt is general government debt.

The reason is hardly a secret: Ireland is a major international financial services centre. The international financial services sector plays such a large role in the Irish economy that it even gets its own set of statistics from the Central Statistics Office. At the end of 2008, the sector had debts of almost €1,650bn. Don’t worry though – it also had assets worth about €1,660bn.

Don’t worry? Of course we should worry. We’ve all seen what can happen to bank “assets” in extremis: Lehman Brothers and Washington Mutual both had assets greater than their debts before they collapsed, and then suddenly they didn’t. And in case Lyons has forgotten, the Irish government is still providing an unlimited guarantee on $600 billion of deposits and interbank debts at Ireland’s banks.

Or, to boil it all down into one word: Iceland. Government debt was never much of a problem in Iceland: the problem was bank debt. But bank debt has a habit of becoming government debt when there’s a crisis. And I’ve never seen a sovereign default where the banks of the country in question all happily continue to pay all their debts. When a country defaults, its banks default too.

So I’ll side with the NYT over the FT here: the original graphic is just as informative as it is striking, and it’s important to look not only at direct government debt, if you’re examining a country’s finances, but also the total external indebtedness of the country in question. Which actually helps Greece, a country where a huge swathe of the population owns their home outright, and where credit-card debt and other personal indebtedness never had the kind of bubble seen in places like the UK.

When social commentators paint the current generation of college students – do they still call them "millennials"? – they focus on the Special Snowflake phenomenon, that overpowering sense of entitlement that is the product of well intentioned but empty-headed emphasis on self-esteem building. Self-esteem is a good thing. So is having a grasp on one's own abilities and accomplishments that is at least partially grounded in reality. But this the generation of "everyone gets a medal" and "everyone's a winner." Gawker recently published an email from a would-be intern to a potential "employer" (to the extent that interning is employment) that sets the Special Snowflake problem in high relief. I am important, I am special, I am fantastic, I am desirable. That's what these kids have been told for 20 years before we graduate them into a grist mill of unemployment, unpaid internships, and $10/hr office work with no benefits.

Enough has been said about that, though. The parenting fad of the 90s that causes educators more grief than any other is the idea that children should always be given choices. Don't give them rules or orders (That's so 1950s!). Give them options and let them learn about making choices and dealing with consequences. So Billy didn't have a bedtime, Billy negotiated his bedtime. Susie's mom didn't turn off the TV, she said "You can either watch another 15 minutes of TV or (whatever), but not both." Let them choose, the talking heads of the day hypothesized, rather than making them feel like they are always being ordered around.

That's great except for the fact that nothing in the real world actually works this way. I notice this problem acutely in two situations.

First – and it's not surprising that I mention this immediately after the spring semester when final grades are handed out – today's college students believe that receiving a grade is a multistage process of which the grade they earned is merely a starting point for negotiations. In the short time (six years?) I've been doing this, this is the single most irritating part of the job. I tell them, I am not Monty Hall and this is not Let's Make a Deal. Unfortunately they were born in 1989 so that means nothing to them. Grade negotiation isn't new, I assume, but I have to think it's getting worse. In the past three days I have received numerous emails to the effect of, "I know I failed your class but I really need a C to graduate. What can I do?" You can't do anything, Shooter. If you need a C to graduate then I guess you're fucked.

Every student launches into the Negotiating Bedtime mode in these situations. They offer to do extra work (which will be as slipshod as their previous efforts, of course). They offer to re-take exams. They simply try to negotiate upward based on dubious logic of some sort – "This is why I deserve a higher grade" or similar nonsense. I have been offered large sums of money to change grades. I have been offered sexual favors for the same. I've been threatened (Not the scary kind – the sad, self-important kind on display in the Gawker link). Some of these kids, for as much as they suck at formal education, would be dynamite as used car salesmen.

Second, they want to negotiate their post-graduation lives when they have no leverage beyond their conviction that they are special. A student recently told me about getting into Elite Law School X but being unhappy with their offer in terms of financial aid. He described the scenario to me in a way that suggested he imagined himself like Lebron James on the free agent market – he'd state his demands and watch a bidding war for his services ensue. As gently as possible I explained that Elite U. doesn't give a rat's ass about him and if he doesn't take their offer they have 10,000 other applicants with nearly identical qualifications who will. Students also talk regularly about "job offers", as in, "I'll wait to see what kind of offers I get before I blah blah blah." They don't grasp how little they are worth in times like these. Most of them, talented or bright as they may be, will be unemployed or marginally employed for a few years at minimum. Doctors, nurses, and pharmacists can make demands. Social science majors can't. This does not occur to them.

We're quick to point out how counterproductive it has been to fill generations of kids with the idea that they are special, important, and entitled to success and happiness. We recognize that their self-image departs radically from the current reality. Maybe with time we will come to a similar recognition of how useless it has been to teach them to negotiate and to couch everything in the language of choices. This is every bit as impractical given the noticeable absence of choices and leverage to negotiate in the job markets of the new millennium.

First of all I’d like to thank Anthony for inviting me to take part in this book event, as this is a work that I think is truly worthy of consideration, and one that will hopefully lead to some lively debate and discussion.

To set the stage a bit, I’d like to offer a few introductory remarks about the book itself. I presume many were originally skeptical to see a book being co-authored by Zizek and a name that many in the English speaking world have likely not seen before, Markus Gabriel. I experienced this sentiment myself on first seeing this book, but ended up spontaneously ordering it one night based primarily on the subtitle, ‘Subjectivity in German Idealism.’ Upon receiving the book I ended up reading it at a very rapid pace, as I found the content to be one of the most exciting discussions of German idealism I’d seen in quite some time. I know there are quite a few of us who have been convinced, to varying extents, by Zizek’s underlying ontological project (one more explicitly developed in The Parallax View and brilliantly systematized in Adrian Johnston’s Zizek’s Ontology), and in this work Gabriel and Zizek develop this project in a more straight forward and philosophically rigorous way than Zizek has yet to do himself. This is also Gabriel’s first major publication in English, and while he may not yet be a household name to those working on Contemporary European philosophy in the English speaking world, this is surely on the horizon, as his work in German has already established him as a serious scholar of both German idealism in general and Schelling in particular. It is also worth noting that this is one of Zizek’s most straightforward philosophical interventions in recent years. His two essays are noticeably lacking both jokes and political pronouncements, but full of exciting, if controversial, philosophical insight.

To begin the actual summary of the book, I’d like to briefly outline a few of the themes which emerge in the introduction, the one portion of the book co-written by Gabriel and Zizek, entitled ‘A Plea for a Return to a Post-Kantian Idealism.’ The introduction itself is quite short, so I will simply point out a few of the themes they introduce in these pages that play a substantial role in the rest of the work.

The introduction opens with a re-consideration of the space separating Kant from his idealist successors (Fichte, Schelling, Hegel). Gabriel and Zizek want to argue that the project of post-Kantian idealism is not nearly as opposed to Kant’s transcendental project as is usually assumed, and that in fact “the basic coordinates which render Post-Kantian Idealism possible are already clearly discernable in Kant’s Critique of Pure Reason” (1).

They go on to argue that the thinkers of post-Kantian idealism “share Kant’s preoccupation with transcendental illusion but argue that illusion (appearance) is constitutive of the truth (being). This is what this whole book is about” (1). In simple terms, the entirety of this book involves a reading of German idealism that considers its primary project to be a radical ontological re-casting of Kant’s epistemological project.

They go on from this statement of purpose to introduce another key concept crucial to their reading of German idealism: inconsistency. Anyone familiar with Zizek’s recent work will recognize this term and its usage, as it is Zizek’s way of describing the ‘non-all’ nature of metaphysical systems. Rather than considering the phenomenal appearance of inconsistency to be merely the inability of the subject to perceive the truth of the noumenal, Gabriel and Zizek want to instead argue that rather than there being a gap between the phenomenal and noumenal (or, appearance and being) that the gap is immanent to the noumenal itself, and thus, “the relative occurs within the absolute” (2). This is the same ontological structure Zizek emphasizes in The Parallax View.

Gabriel and Zizek state their position in different terms on page 3:

In our view, the reason for this ontological overcoming of epistemological dichotomies (appearances vs. the thing in itself; necessity vs. freedom etc.) can indeed be motivated by the Post-Kantian insight that the very mode of appearance occurs within the noumenal.

They go on to state this differently:

Thought is not at all opposed to being, it is rather being’s replication within itself (3).

Next they outline what they identify as the two perspectives on the turn from Kant to Post-Kantian Idealism. The first is the position that:

Kant correctly claims that the gap of finitude only allows for a negative access to the noumenal, while Hegel’s absolute idealism […] dogmatically closes the Kantian gap and returns to pre-critical metaphysics (5).

The second position, which is the position defended throughout the rest of the book, is that:

Kant’s destruction of metaphysics does not even go far enough, because it still maintains the reference to the Thing-in-itself as an external, albeit inaccessible entity. Seen from this vantage point, Hegel merely radicalizes Kant, by offering a transition from a negative access to the absolute to the Absolute itself as negativity (5).

When they argue for this reading of the Absolute itself as negativity, they are reaffirming their argument for the non-all nature of reality, in which the totality is in-itself incomplete and inconsistent. This is crucial as it is this gap (what Zizek also refers to as the minimal difference) that allows for the possibility of subjective freedom, a theme important throughout the work. It is also crucial to note that when they speak of totality, they do not mean what one typical thinks of as a totalized metaphysical whole. They note this distinction on page 10:

In other words, the Hegelian ‘true infinite’ is the infinity generate by the self-relating of totality, by the short-circuit which makes a totality an element of itself, which makes re-presentation a part of presence itself. The One is included in the act of excluding it, it becomes the inclusion of exclusion […]

In this passage they are once again reiterating the ontological conditions that see the immanent gap, or non-all, as the immanent ground of all representation. This is more or less the point that they spend most of the introduction re-iterating and expressing in different terms. Before concluding the introduction, they claim that philosophers in the 21^st century must ‘bite the bullet of idealism’:

We need a concept of the world or the real which is capable of accounting for the replication of reality within itself (13).

This concept of the real, in which reality is immanently fractured in-itself, and all representation of the world is an event within the world itself, is the unique ontological advancement made by the post-Kantian idealist. They believe that this insight needs to be the guiding light of a much needed 21^st century Post-Kantian Idealism, an era that Gabriel and Zizek believe has just begun (14).

The only critical question I’d like to pose at this point, and one that I think will re-emerge throughout our reading, is how faithful to the post-Kantian idealist this reading actually is. While I personally find the ontological vision presented by Gabriel and Zizek quite convincing, I still wonder how faithful their reading of the post-Kantian tradition, and Hegel in particular, is. On this point I hope those who are proper experts in Hegel and German idealism can offer their insight throughout this event.

Naturally, the video being less than 80 seconds long, there wasn’t room for a lot of background and exegesis. But the message I was trying to send is not that I think stocks are going to fall. Rather, it’s that volatility has risen, and that it makes sense to sell stocks in periods of high volatility.

I had a very interesting conversation with Barry Nalebuff today, co-author of Lifecycle Investing: he’s the guy with the idea that young people should lever up their stock-market investments, and that pretty much everybody under the age of 40 should have 100% of their retirement funds invested in stocks. I wrote about his idea a couple of years ago, and I found it intriguing; my main issue with it is that it’s very hard to implement in practice, and that someone trying to do so might well fail miserably. Basically, it’s far too complicated for a typical young investor to even try to follow.

Barry made one thing very clear to me today: if you don’t believe in the existence of the equity premium — if you don’t believe that stocks are going to outperform bonds over the long term — then you shouldn’t invest in stocks at all. Even if you’re completely agnostic on the issue — if you have no idea whether the equity premium exists — you should still have no money in stocks.

The advice in Barry’s book is entirely for people who are invested in the stock market, and who will invest even more in the stock market. They are likely to put in far too much money towards the end of their lives, when they’re at the peak of their earning power, and far too little at the beginning; Barry’s idea is to even things out a bit so that they’re less likely to get wiped out by a freak stock-market fall just before they retire. If you can follow his strategy — and that’s a very big if — then it’s actually safer than most retirement-fund strategies.

So let’s say that you’re a long-term investor, and you believe in the equity premium, and so you want to invest a chunk of your money in stocks. What percentage of your money should that be? Ayers and Nalebuff helpfully provide a downloadable “Samuelson Share Calculator” to come up with a number for that.

The Samuelson Share is named after Paul Samuelson, and basically says that the percentage of your retirement funds that you should have in stocks is found by a pretty simple formula:

Samuelson Share = Return / (Risk^2 x RRA)

Here, Return is the expected equity premium: the degree to which stocks will outperform bonds, on an annualized basis. Risk is the VIX, and RRA is your own Relative Risk Aversion.

On the downloadable spreadsheet, you can fill in whatever numbers you like for the different variables. Ayres and Nalebuff plug in a pretty high equity premium of 5.04%: that doesn’t mean that they expect stocks to rise by 5.04% a year, remember, that means that they think stocks will outperform Treasuries by 5.04% a year. I find that very optimistic, but fine, let’s leave it there. They also assume an RRA of 2, which means your risk appetite is greater than that of about 76% of the population. Given the expected audience for their book, maybe that’s reasonable. And finally, they plug in a value of 18% for the VIX. With all those inputs, the Samuelson Share output is 78%: you should have 78% of your investments in stocks, on average, over the course of your investing life.

But now what happens if you change the 18% value for the VIX to its actual closing level on Friday, which is 40.95%? Suddenly, the Samuelson Share plunges to just 15%.

And if you go from a portfolio with 78% stocks to a portfolio with 15% stocks, then that means you have to sell more than 80% of your stocks, pretty much overnight.

Meanwhile, if you think that the equity premium is just 1% rather than 5%, your Samuelson Share falls even further, to just 3%. And if your risk aversion is a pretty typical 4, rather than a relatively aggressive 2, then your Samuelson Share becomes a barely-visible 1.5%. At that point, you basically have to sell all your stocks.

And remember, none of these calculations are based on the expectation that stocks will fall — in fact, they’re all based on the expectation that stocks will rise!

The point here is that volatility alone is reason enough to exit the stock market. If you want your lifetime investments to have an average 78% exposure to the stock market, then it makes sense to have 100% or even 200% exposure when you’re young. But that’s no longer the case if the VIX is somewhere over 40. (And remember, it hit 80 at the height of the market chaos at the end of 2008.)

I feel I ought to have some money in the stock market. But if I take the spreadsheet and plug in an equity premium of 2.5%, a VIX of 30%, and an RRA of 2, then my Samuelson Share comes out at a decidedly modest 14%. And that’s being very generous, in my view, when it comes to the equity premium.

You don’t need to have a very long memory to remember how loss-averse people turn out to be when the stock market plunges. They hate it when that happens — even if their stock-market investments are long-term savings which they have no need to liquidate. That kind of risk aversion is — or should be, in any case — an incredibly important driver of asset-allocation decisions. And in a time of great uncertainty and stock-market volatility, the lesson to be drawn is that most of us will be able to sleep much better at night if we’re not invested in the stock market.

Just ask Barry Nalebuff. His net worth isn’t in stocks: it’s tied up in a company he co-founded, Honest Tea. Which has surely provided a much better return than any index fund, no matter how leveraged: ten years after he founded it, Coca-Cola bought a 40% stake for $43 million.

The continuing undersea gusher of oil 50 miles off the shores of Louisiana is not the only source of dangerous uncontrolled pollution spewing into the environment. Worldwide, the amount of man-made CO2 being spilled every three seconds into the thin shell of atmosphere surrounding the planet equals the highest current estimate of the amount of oil spilling from the Macondo well every day.

Right on!

And, of course, the consequences of our ravenous consumption of oil are even larger. Starting 40 years ago, when America's domestic oil production peaked, our dependence on foreign oil has steadily grown...

I am far from the only one who believes that it is not too much of a stretch to link the ongoing wars in Iraq, Afghanistan, and northwestern Pakistan—and even last week’s attempted bombing in Times Square—to a long chain of events triggered in part by our decision to allow ourselves to become so dependent on foreign oil.

Speak it, brother!

This enormous and increasing transfer of wealth contributes heavily to our trade and current-account deficits, and enriches regimes in the most unstable region of the world, helping to finance both terrorism and Iran’s relentless effort to build a nuclear arsenal.

—Jonathan Schwarz

It may be sample bias, but I’ve noticed two patterns. The first is a sharp uptick in criticism of “populism” or better yet, “populist anger”, which then serves as the basis for arguing that efforts to rein in the financial services industry are overdone. Now usually there is a wrapper around it, like “mistakes were made” or another not-very-convincing bit of crowd pleasing pablum to acknowledge that maybe some change might be warranted, but nothing approaching what those enraged savages want.

Second is a new meme, that of arguing that Congress is really at fault, that they (or “the regulators”) failed to curb excesses in the financial services industry (and you will no doubt see similar arguments surface regarding the Horizon Deepwater disaster). This is a staple of the sort of thing you see from Cato and the American Enterprise Institute, and once in a while gets picked up by the MSM, but we’ve had a positive outburst in the last few weeks (it seems to have coincided with the SEC and Senate salvos against Goldman. The furious pushback seems to result from the panicked recognition that if a firm that gives as much and is as well connected as Goldman is not able to “insure” its way out of trouble, then no one in the executive suite can rest easy).

Notice that arguments one and two are contradictory. The first presupposes that not much more in the way of regulation/oversight is in order (otherwise, those horrid populists might have a legitimate axe to grind) while the second is a tacit admission that tougher rules are needed, but endeavors to shift the blame away from the industry and on to regulators, and more recently, Congress. And ironically, the argument then becomes, “well they botched it, didn’t they, so it’s silly to let them have a second go at it.” That’s simply disingenuous. “Congress” is not static; its membership turns over, its party weights change, its posture adapts to changed moods and conditions. Similarly, the people in regulatory agencies change over time, and they can be emboldened or neutered by their leaders.

To widen the frame further, there has been a concerted forty year push by business interests to deregulate (this is not a mere assertion; I have an entire chapter on this, extensively footnoted, in ECONNED). If you succeed in carrying out the vision of Grover Norquist, to make government so small that you can “drown it in a bathtub”, it won’t be able to rein in private sector interests of any size. That push resulted in reducing both the number of rules and the effectiveness of oversight.

Let’s give a little example: Arthur Levitt at the SEC. I have no way of knowing for sure, but Levitt bears all the hallmarks of an appointee who was expected to give the industry a free pass: he was a former industry exec from a second tier firm and had headed the American Stock Exchange (importantly, he was the first SEC head in a very long time who had not been a lawyer).

Now Levitt was willing to give the industry its head as far as big institutional customers were concerned. In the wake of large scale derivatives losses in 1994 (bigger in aggregate than the 1987 crash), he beat back meaningful regulations, and similarly sided with Greenspan, Rubin, and Summers to ride Brooksley Born out of town on a rail when she tried to regulate credit default swaps. But Levitt was very serious about trying to protect the retail investor. His not very aggressive initiatives were beaten back by Congress, particularly Joe Lieberman (the Senator from Hedgistan). Their big threat was to cut the SEC’s budget, which meant reduced enforcement. So even if he won (sticking to exercising his authority under existing legislation), he’d lose (being denied the budget to do his job, and running the risk of having the SEC’s scope cut back by new legislation).

Now before some readers chime in, “But see, it really was Congress’ fault”, ahem, you need to widen the frame. Regulation, until the banking industry blew up the global economy, was a dirty word. It wasn’t all that long ago that being a senior regulator was prestigious, if not terribly well paid, and most did it for its own sake, not as a stepping stone to big ticket private sector jobs. The line that was sold very effectively, was that regulation simply reduced efficiency and impeded innovation, if we got rid of those pesky rules, the economy could grow faster and we’d all be better off.

Now the bit about regulation impeding innovation is actually false (regulation can spur innovation, as it has with mandates to improve fuel efficiency; moreover, the companies that fought for deregulation were the big boys who had never had had a track record of being innovative; further in the 1970s, they tried talking up an “innovation gap” which did not exist, as in the data actually proved the reverse regarding US innovation; the Carter administration tacitly admitted that by talking up a “perceived innovation gap”). So the real question, that was pushed aside, was, “what is the right balance between safety and efficiency?” There might indeed be cases in which regulations were misguided and called for excessive levels of safety, or were simply bureaucratic and outdated. But the fight to pull down all regulations, willy nilly, left industry to its own devices in a lot of areas as far as safety was concerned. We are now reaping the bitter harvest of taking an idea that might have had some merit well beyond its point of maximum advantage.

But let’s return to the “populism” attack, which sticks in my craw. It’s a not-very-subtle way of denying the legitimacy of the populace’s anger. The taxpayers have just been the victims of the greatest looting of the public purse, and the perps have the nerve to lecture them about their anger?

Two sightings illustrate the arrogance. One is an Financial Times comment “A boot on the throat is no way to do business,” by David Rothkopf. Some key bits:

Admittedly, business is not exactly blameless here. Mistakes have been made. Really big ones. But to respond to the culture of excess and recklessness on Wall Street with a culture of regulatory excess and recklessness in Washington is hardly the answer.

Yves here. This is an insulting straw man argument. Regulatory excesses and recklessness? We have “reform” regulation that is so watered down that it will do perilous little to avert future crises. But corporate leaders have gotten so used to getting everything they ask for that even pesky restrictions are fought tooth and nail. Next bit:

At a time when the business and economic challenges facing the US are dauntingly complex, what is really needed is a dose of humility. That is particularly the case when there are barely a handful of US senators who have even a basic understanding of the markets they seek to regulate. In such an environment, adversarial relationships are in no one’s interest.

Yves here. Humility? Spare me. The ones who OUGHT to be humble, as in begging for forgiveness, are the executives and producers who created such havoc. Instead, they’ve refused to make any pro-active suggestions; worse, they thumbed their noses at the taxpayers who rescued them at colossal cost by paying themselves record compensation in 2009. The right response to that is most assuredly NOT humility; it’s a swift and hard kick in the ass.

I could go on, but you get the drift. Readers with strong stomachs are encouraged to read this piece in its entirety. Its arrogance and dishonesty is striking.

The other sighting was similarly troubling, but in a more subtle way. Jeff Immelt, GE’s CEO, has closed ranks with the banksters. This isn’t surprising, given that GE is heavily a financial services company and would have been in extremely hot water had it not availed itself of some of the rescue programs on offer during the crisis. His remarks, per the Financial Times:

Goldman Sachs has been a partner for GE for a long time. We trust them, they have done great work for us … damning Wall Street isn’t good for the American economy….People need to tone down the rhetoric around financial services and stop the populism and act like adults.

Yves here. The finger-shaking at supposed children is overbearing and authoritarian, and amounts to a blanket refusal to deal with the substance of the bill of particulars against the financial services industry. But the part of his formula that is more revealing is his argument that the interests of Wall Street and “the economy” are aligned, and everyone needs to shut up and get with the program, since hurting the economy will be very bad for them.

But this is bogus. The economy we now have has increasingly shunted the benefits of production to the top 1%. In the 1960s, it was accepted that increases in productivity would be shared between corporations and workers. No more. We’ve seen a persistent gap rise between wage growth and productivity growth, so the gains in employee output have been siphoned off to the managerial elite and investors.

So these populists, despite the hectoring, aren’t stupid or emotional. Quite the reverse. They’ve been snookered by the system one time too many, and have had enough. Primates as well as people are willing to take losses to punish cheaters, and this is deeply rooted, instinctive behavior for a good reason: you need some measure of fairness for societies to function.

It’s the people at the top of the food chain who are wildly misguided. They seem to think if they posture well enough in public, they can restore the order that served them so well. But the hoi polloi understand better that the old paradigm is broken and are demanding new approaches. Ignoring and demeaning their demands isn’t sage and sober; its reckless and wanton. It will take a continued show of resolve to penetrate the orthodoxy’s defenses.

Many market analysts, commentators and economists claim to be having a hard time finding a metric in which the US is in better financial shape than Greece. Ken Rogoff, for example, recently warned that a Greek default would usher in a series of sovereign defaults, and suggested recently on NPR that the crisis also had implications for the US. The historian Niall Ferguson made a similar claim a few months ago in the Financial Times. The cries of the deficit hawks grow louder: Repent all ye fiscal profligates, before the “day of reckoning” comes.

Let’s dial down the Biblical hysteria a wee bit while there’s still time for rational debate. The market’s recent response to the intensifying pressures in the euro zone suggests that investors are beginning to differentiate between countries that are sovereign issuers of currency, such as the US or Japan, and non-sovereign issuers, such as Greece or any other nations in the euro zone. The US dollar is rising in value, notwithstanding the federal deficit, while debt distress in the so-called “PIIGS” countries, especially Greece, are intensifying, thereby driving down the euro to fresh 12 month lows against the dollar.

The relative performance of various currencies against the US dollar is highly instructive in this regard. Over the past 3 months, the Australian, New Zealand and Canadian dollars have all registered gains of some 4% against the greenback. The worst performer? Not surprisingly, the euro, down 6.3% over that period. Whether consciously or not, the markets are demonstrating that they understand the distinctions between users of currencies (who face an external funding constraint), and those nations that face no constraint in their deficit spending activities because they are creators of currency.

That the US has the reserve currency is an irrelevant consideration here. The key distinction remains user vs. creator. The euro zone nations are part of the former; Canada, Australia, the UK, Japan and the US are representatives of the latter.

Using “PIIGS” countries as analogues to the US or the UK, as Rogoff, Ferguson and countless other commentators do, is wrong. Their faulty analysis comes as a result of the deficit critics’ failure to distinguish between the monetary arrangements of sovereign and non-sovereign nations. Any sovereign government (none within the EMU enjoy that status any longer) can deal with a collapse in revenue and an increase in outlays from a financial perspective without invoking the sort of deadlocks that are now crippling the EMU zone. That is why, for example, the Japanese yen is not in freefall against the dollar, despite having a public debt to GDP ratio in excess of 200%, almost 2.5 times that of the US. In fact, over the past few days the yen has actually appreciated against the dollar. Now why would that be, if the lesson we were supposed to learn was the evils of “unsustainable” government deficit spending?

Fiscal sustainability has no relevance in a system where there are no operational constraints on the ability of a government to spend. US Social Security checks will not bounce. Nor will the Canadian or Japanese equivalents. Similarly, their bonds will always be able to pay out interest.

Note that this doesn’t mean that there are no real resource constraints on government spending. Let’s be clear: anyone who advances the use of fiscal policy as an effective counter-stabilization tool is always careful to point out that these interventions can come at a cost. That cost could well be inflation if, as a result of the fiscal expansion, we reach full employment, resource constraints begin to appear, but the government continues to spend. But if the economy recovers, tax revenues will increase and safety net spending will fall. In the US, that means we will likely be back to “normal,” with deficits around 2-4% depending on the state of the economy, which is where we’ve been for the past 30 years aside from 1998-2001.

Why won’t these deficits be inflationary? As Professor Scott Fullwiler noted in a recent email correspondence with me, once the recovery is underway and the economy gets to a significantly higher capacity utilization where price pressures could emerge, the deficit will be declining substantially. It will also be at least a partially offset by a fall in discretionary spending on social welfare. It’s axiomatic that the faster the economy grows, the smaller the deficit becomes, unless the government continues to spend recklessly–which we certainly do not advocate.

And by the time we get to a point where we might have inflation, the deficit is back to 2-3%, which again is where we’ve been for the past 30 years, while average inflation has been about 2%. Note: inflation does not equal default. You and I could well buy credit default swaps on any country in the world, but we are unable to collect if any of the relevant countries register a positive rate of inflation — even a double digit rate of inflation — because inflation is not tantamount to default. Nor do the ratings agencies recognize default in this manner. Default is defined as a failure to perform a task or fulfill an obligation, especially failure to meet a financial obligation. Inflation is not incorporated into the definition when it comes to questions of national insolvency.

By contrast, the talk of Greek default is prevalent across the markets, and that is a reasonable concern in the context of the euro zone. The default option is considered a foregone conclusion, even allowing for the massive 110 billion euro bailout, which was designed to inspire “shock and awe” among investors but instead has simply engendered shock. If Greece costs 110 billion euros to bail out, how much next time for Spain, Italy, or even France?

If the markets have concerns about national solvency, they won’t extend credit. And that is the problem facing all of the euro zone countries. Greece, Portugal, Italy, France, and Germany are all users of the euro-not issuers. In that respect, they are more like any American state or municipality, all of which are users of the US federal government’s dollar.

And deficits per se will not create the conditions for default in the US. If the US continues to run net export deficits (all the more likely given the ongoing fall in the value of the euro), and the private domestic sector is to net save, the US government has to net spend–that is, run deficits. That is a basic accounting identity, nothing more, nothing less. If the US government tries under these circumstances to run surpluses, it will first of all force the private domestic sector into deficits (and increasing debt) and ultimately fail because the latter will eventually seek to increase their saving ratio again.

And the same logic applies for Greece. The call is for the IMF/EU package to reduce its budget deficit as a percentage of GDP from the current 13.6% to 8.1% in 2011. How will they achieve that? Trying to engineer a reduction in the deficit via austerity programs (or freezes or whatever else one might like to call them) at a time when private spending is still insufficient to maintain adequate real GDP growth is a recipe for disaster. It will increase the deficit.

Consider Ireland as Exhibit A in this regard. Ireland began cutting back deficit spending in 2008, when its banking crisis began to spread and its budget deficit as a percentage of GDP was 7.3%. The economy promptly contracted by 10% and, surprise, surprise, the deficit exploded to 14.3% of GDP. We would wager heavy odds that a similar fate lies in store for Greece, given the EU’s inability to understand or recognize basic financial balances and the interrelationships among the various sectors of the economy. Neither a government, nor the IMF, can predict with any certainty what the outcome will be–ultimately private saving desires will drive the outcome, as Bill Mitchell has noted repeatedly.

Why do we have huge budget deficits across the globe? It’s not because our officials have all suddenly become Soviet-style apparatchiks. It is largely because the slower global economy has led to lower revenues (less income=less taxes paid, since most tax revenue is based on income, and lower tax brackets) and higher spending on the social safety net. Gutting this social safety net because we extrapolate the wrong lessons from the euro zone’s particular (and self-imposed) predicament constitutes the height of economic ignorance. It also reflects a transparently political agenda, which the US would be ill advised to embrace. The rescue packages, the IMF intervention and all the talk about orderly defaults cannot overcome the EMU’s fundamental design flaw. Let neo-liberalism die with the euro.

Look at the volume chart: what you see here is a big block of shares trading in P&G at around 2:30, followed by another huge block right before the market crashed. And then, nothing. The two big blocks were probably sell orders, which were big enough to blow through all the bids in the market. As Henry Blodget says, “for a few minutes, buyers just disappeared”.

It’s worth noting here that none of this data is particularly reliable: the Nasdaq is reportedly confirming that there were technical problems with the P&G quote, and there are persistent rumors of a “fat finger” trade as well, which I’m not sure that I believe.

If the market were rational, it could cope without difficulty with such things. There’s no bid on P&G right now? Fine, wait five minutes and see if you can get a bid then. But there were stop-loss orders on P&G, which meant forced selling into a no-bid market, and if these trades really happened, then a couple of people who are surely going to celebrate tonight were in the right place at the right time and bought up a small amount of the stock in the high 40s.

In any case, whether the trades actually happened or not, they were reported to the exchanges, and were immediately reflected in the Dow, which remember is an average and not an index. If P&G is off 14 points, and the Dow’s divisor is 0.132319125, then that one trade in itself wipes 100 points off the Dow in a matter of seconds.

The timing of that 100-point fall could not have been worse: stocks had started selling off about five minutes earlier, and so the 100-point drop came into a market which was already getting jittery and panicked. The velocity and severity of that drop in the Dow immediately triggered stop-loss selling in the market more generally, which then started feeding on itself: even as P&G’s share price was recovering, bids were falling away rapidly in the other 29 Dow components, and at one point the Dow was down just a hair short of 1,000 points on the day.

But the fact is that none of these numbers are all that meaningful: what we were seeing was traders flailing around in a context of limited information and liquidity, trying to get a grip on what was or wasn’t going on. There was always the possibility, after all, that the sellers knew something they didn’t, and that stocks were actually falling for a reason. So it took a few minutes for the market to realize that it was all just market volatility — and therefore a great buying opportunity for any trader.

It’s been a very impressive day to learn how the stock-market sausage is made: I think we just saw the largest intraday fall, in point terms, that has ever happened. But the bigger lesson is that in the short term, any market can fail temporarily. The question is whether the jitters from this afternoon are going to mean increased volatility and risk aversion going forwards. My feeling is that, yes, they both will and should.

Laura McGann has an interesting story in The Washington Monthly about conservative efforts to get into the reporting game:

But with Democrats back in power and the fourth estate in shambles, conservatives are starting to discover the virtues of shoe-leather reporting, and are throwing their organizational savvy and financial clout behind sustained investigative ventures. The Franklin Center, which is run by a Republican political consultant with no journalism background, supports ten state-level investigative news sites under the moniker Watchdog.org. Meanwhile, free-market state-based think tanks have begun hiring reporters to work in-house, focusing on local and state spending—in the last six months alone, they have brought at least eighteen reporters on board.

To ruin the punchline, though, the subhead asks of these new outlets “can their reporting survive their politics?” and the answer seems to be “no, it can’t.” Or, rather, what’s going on is basically continuous with the idea of opposition research as practiced by political campaigns rather than journalism as practiced by good reporters. Opposition research activities can bring actual new factual information to light, and thus have some real value, but the problem with them is that since the conclusion (”my opponent is a bad person”) comes before the reporting, there are large incentives to present facts in a misleading rather than informative way.

That said, unlike most liberals who write about politics for a living, I don’t have any particular investment in the alleged high ideals of “real” journalism and “real” reporting and whatnot. The real issue facing conservative media, as I see it, is that it’s not totally clear to me whether conservatives actually want accurate information about how the world is. This is really the point of recent controversies about David Frum and “epistemic closure” and Mark Levin and all the rest. Fox News and Rush Limbaugh and Glenn Beck aren’t merely propaganda outlets that spew misinformation out into the world, they actively mislead the conservative audience about what’s going on. As long as that’s the ethic of conservative media, then it’s difficult to see valuable reporting or research of any kind happening.