2010 Books of the Year

The New York Times Book Review recently came out with its 2010 Books of the Year, and it is not surprising that my list didn't quite match up with theirs. It's not altogether easy for me to come up with a definitive list as I only get to read 25-30 books a year, but during 2010 there were some good ones. My reading is disproportiately nonfiction. Generally, to absorb and appreciate long, complex novels you have to devote large chunks of uninterrupted time to them, and that is hard to do with full time work, a spouse, children and all the other accoutrements of adult lilfe. Nonetheless, I did try my hand at some contemporary fiction this year and came up with a couple beauties. Here are my recommendations for the best books of the year in 2010.

NONFICTION

We are living in the aftermath of the worst financial catastrophe in a couple of generations, and I have gobbled up books on the topic. I read 13 Bankers, Too Big To Fail, In Fed We Trust, and a number of others (although I managed to miss The Big Short by Michael Lewis which received great reviews). It is not surprising that my nonfiction book of the year and runner up focused on this topic. My nonfiction book of the year was This Time Is Different by Carmen Reinhart and Kenneth Rogoff. This is a copiously researched book that studied financial panics across time. This is not an easy read. It overlays quantitative analysis and historical analysis, and its approach is very thorough. Of course, you need to be a bit of a data junkie to fully appreciate this book-- a degree from MIT or The University of Chicago is helpful. But if you can wade through it, you will have a much better understanding of how the U.S. financial system and economy ran into a wall. The punchline is that the kind of crisis we experienced is infrequent in U.S. history, but not uncommon worldwide. They follow certain patterns and take a long time to recover from. They show that, "banking crises almost invariably lead to sharp declines in tax revenues...on average, during the modern era, real government debt rises by 86 percent during the three years following a banking crisis." Sound familiar? And they eerily predict the next leg of this crisis, "In some cases domestic debt is eliminated through high inflation; in other cases, governments default on external debt." Any wonder why many economists are nervous about the current round of quantitative easing? Although laden with charts and graphs and data, This Time Is Different illuminated and put into context our current malaise, and it is deserving of my vote for nonfiction book of the year.

The runner up and a close second was Fault Lines by University of Chicago professor Raghuram Rajan. Fault Lines connects the dots between the widening gap between rich and poor in the U.S. and the financial meltdown. Rajan sees the radical loosening of credit and real estate boom as a deliberate attempt on the part of government to provide the appearance of an improving lifestyle in the face of stagnant and falling wages in lower income brackets. As the world bid up the wages of highly educated, highly skilled wages, it depressed those at the lower end. By liberalizing credit (and creating the housing bubble) through Fannie, Freddie, CRA and FHA, people at the lower end of the spectrum were able to improve their lot in life. Until the bubble burst. Rajan is true to is free market Chicago roots, "A forced equalization of wages that disregards the marginal contributions of different workers will deaden incentives and lead to a misallocation of resources and effort." However, Rajan does not marginalize government and is not blind to the strain on society and policymakers that the growing gulf between rich an poor is causing. He offers no magic bullets, but places a large emphasis on fixing our horrendous K-12 education system. Overall, Rajan presents an interesting synopsis of the roots of our current financial crisis and deserves to be one of the best books of 2010.

FICTION

My vote for fiction book of the year goes to David Mitchell's The Thousand Autumns of Jacob De Zoet. The book takes us to 1799 to a trading post of the Dutch East India company in Japan, and the tightly controlled and monitored intersection between East and West. While Japan permitted a limited amount of trade, it restricted the import of religion, culture and mores. The protagonist is a young clerk that seeks to build his fortune there, but gets tangled with a Japanese woman and the issues that cause friction between cultures. The book is richly textured, meticulously researched, and a joy to read. It also points out why the Kindle has not yet taken over my entire life. This book has a beautiful cover and binding and textured pages and reminds us that reading remains a sensual experience, even in the electronic 21st century. I highly recommend that for this one at least, you skip the Kindle version and buy the book.

My runner up in fiction is Man in the Woods by Scott Spencer. While it received mixed reviews generally, I liked it. I'm a sucker for stories that involve a life changing random event that you could easily see yourself responding in the way the protagonist does. In this case, the main character Paul Phillips stumbles upon another man with his dog while on a walk in the woods, and the man begins to brutally abuse his dog. Phillips intervenes and a fight ensues and in the scuffle, Phillips kills the dog abuser. Because Phillips knows that he cannot use self defense as a defense- he was defending the dog, he does not report the incident to the authorities. Man in the Woods reminded me of Deliverance-- the killer was morally justified in his actions, but the authorities probably wouldn't see it that way, and that sets up the tension that permeates the book. I liked Spencer's book very much, especially the nature writing and was one of the best books I read this year.

Happy Holidays, Happy New Year, and happy reading.

First Love

This is the first weekend that I have not attended a football game in person since late August. The withdrawal symptoms are starting to set in. Christmas is but a couple of weeks away and it is four months until I can attend my son's spring game at Columbia University in New York.

This year, I was able to attend most of my son's j.v. games as well as the Columbia varsity games (although they finished a quite unspectacular 4-6). In addition, I attended several high school games, a Division III playoff game in which the son of a friend of mine was playing, and a game at The University of Chicago on a weekend on which the university honored Jay Berwanger on the 75th anniversary of his being awarded the Heisman Trophy. This doesn't count the games I caught on T.V. or streaming video.

Some families are police families. Some are military families. Ours is a football family. My son is playing in the Ivy League and his two cousins are playing in DII and DII respectively. I played DIII football as did my brother. Both of us were captains and all conference in college. Our other brother played high school ball with me and blocked for me when I was a senior and he was a sophomore. I have told my son on several occassions that I have loved the game of football longer than I have loved his mother (carefully noting that I didn't say MORE than his mother, just longer). My uncle played football, so this is our third generation in the game. When we first got married, my wife made me vow not to push my son into playing. Despite my best attempts at being as neutral as Switzerland, the game found him. He was 6'2" and 245 lbs by the time he was in 8th grade, so it didn't take much for a mutual attraction to develop.


What is it about the game that is so consuming? Why do we love it so?


There are, I think, several reasons. First, is the unique nature of the contact. The hitting is intense and violent. It takes a certain amount of physical courage to tackle a 230 lb fullback running at you full tilt or block a blitzing linebacker. Not anyone can do it. I remember a really fast kid from the track team that came out for wide receiver one year in college. He did great for the first three days when there was no contact. He ran by defensive backs and caught several touchdown passes. But after the first day of hitting, when someone cleaned his clock after he caught a pass, he turned his gear in. It wasn't for him.

Second, the game is usually outdoors in the elements. You play in the heat. You play in the cold. You play in the rain. You play in the snow. There is something primordially gratifying about that. Now that only a small percentage of our society works outdoors, there is something about being in the elements, and having the weather be part of the game that takes us back to our boyhoods.

Third, it is a tribal experience. I believe there is something basically tribal about men. It is part of our genetic coding. And even if there are people on your team that you don't particularly care for, you need to put those differences aside and figure out how to cooperate to get a job done. And along with tribalism, it is egalitarian. Race, religion, wealth, what your daddy did and your family's standing are irrelevant on a football field. All that matters is your ability and willingness to commit and work hard for the team. Once you are in the huddle, there is a unique bond of brotherhood that forms, and I suppose it is not unlike a unit in the army. These bonds often last a lifetime. Last summer, we organized a reunion of my college football team and guys came in from all over the country to attend (one travelled from East Timor). Many of us had not seen each other in 30 years, and it was amazing to see us pick right up where we left off.


Fourth, it is of finite duration. Unlike many other sports--golf, tennis, even basketball or baseball, football ends at the age of 21 or 22 for most guys. There are no pickup games and flag football bears no relation to real football. Most players are aware that your playing days are short, and that awareness concentrates the mind. It is a microcosm of life itself. We know that it will end someday, and the game teaches us that we have to enjoy the moment, for there will come a time when we can't play anymore.

Finally, it is a uniquely American game. While the NFL has attempted to expose Europe and Japan to football, it has not really caught on. The object of the game is to go the full length of the field and score-- symbolic of Manifest Destiny, so I don't think the Europeans really get it at a gut level. It is a complex game. Underneath the violent surface is a game as elegantly strategic as chess. It is strength, power and violence. But it is also move and countermove. Jab, feign and attack.


But what I like most about football at the high school and college level is that it captures our youth at its very best. The papers are full of stories about kids getting involved in drugs and gangs. But football catches them at their very best, striving to be the best at something.

Recently, football has been at the center of some controversy, and many are wondering aloud if the game's survival may be at stake. Concussions and head injuries are making it harder to justify the sport. Cris Collinsworth, former NFL player and analyst wondered out loud if he wants his kids to play. Last year a Penn player that committed suicide was found to have a brain injury resulting from the repetitive hits. More reports are surfacing about ex-NFL players developing dementia at higher rates than the general population. Those are serious issues, and more research needs to be done. Hopefully, this risk can be dealt with through rule changes and better equipment.

Despite the risks, it's a great game and I can't wait for spring ball.

Hope

"Steady, but not spectacular growth," was the prognosis of Raghuram Rajan at the U of C Booth School of Business Forecast Luncheon this week. This forecast was remarkably consistent among the forecast offered by three economists-- Erik Hurst, Randy Kroszner, along with Rajan. As we struggle to pull ourselves off the mat from the worst downturn in a couple of generations, we are finally beginning to see some sunlight.

Kroszner, former member of the Federal Reserve, credited Ben Bernanke for keeping us out of a 1930's like depression and is perplexed by the criticism that has been leveled at Bernanke as of late. "No good deed goes unpunished in Washington," noted Kroszner. He further expanded on Truman's aphorism that "if you want a friend in Washington, buy a dog," to "if you want a friend in Washington, buy 2 dogs because one will turn on you." While we will have steady growth next year due largely to business investment and productivity growth, Kroszner believes it will be subdued because of tax uncertainty and government spending that is 2% higher than the 50 year range.

Rajan was the most guarded of the three. He believes that political risks are increasing, and that gridlock is not good with a deficit at 10% of GDP. Europe, he said, is an example of what happens when politics breaks down. He agreed with Kroszner that the Fed did a great job of averting a catastrophe in '08, but is worried about QE2 and its potential for igniting inflation.

Perhaps the most interesting comments were given by Erik Hurst, who presented data to suggest why the recovery will be slow. We are building back assets after a deflation in real estate and equity assets. This recession is fundamentally different than the big recessions of '74 and '81-82. Unemployment has huge variations. Not surprisingly, states that participated in the real estate boom and subsequent rollback (FL, NV, AZ) have the highest unemployment rates. All of these construction workers and other workers related to real estate will need to be realloccaed. He asserts that it took 6-10 years to draw these workers into real estate related industries and will take time to work through.

Most sobering, Hurst noted that each country that has experienced a real estate boom and bust throughout financial history has experienced no real recovery in housing for a long time. Hurst projects that housing will experience no greater than a 0-1% growth for a decade.

The good news is that we appear to be poised to crawl out from under The Great Recession. The bad news is that we appear to have learned little from the crisis. Tim Geithner envisioned a continued large role for the government in housing. Fannie, Freddie and CRA still survive. Financial reform did not effectively deal with the "Too Big to Fail" and we are a month away from year end and we don't know what taxes will be like in 2011.

Someone asked the panel who the chief spokeperson was for the free enterprise system. There is no one of the stature of Stigler, Hayek or Friedman. But Hurst noted that those giants had largely won the argument and today's position is more nuanced. There is much broader consensus today that there is some role for government but it needs largly to ensure that incentives for the proper allocation of capital need to be reinforced.

It's too bad that, with respect to residential real estate, government permitted those incentives to go horribly awry.

Dumbest Quote by a Nobel Prize Winner Ever

I read Paul Krugman's (that chronic curmudgeonly malcontent), evaluation of the recommendations of the National Commission on Fiscal Responsibility and Reform today. You know, the bi-partisan (wink-wink) commission that has illlustrious thinkers on it like Jan "collectivize America" Schakowsky and Alan Simpson, who I thought had passed away some years ago. Of course, while the rest of us are worried that what this commission has in mind is to reduce our military to the size of Guatemala's and to cut out the home interest mortgage deduction (I'd love to see the econometric models they used to demonstrate the effect on the economy and tax revenues on that one), Krugman's main complaint, as usual is that this commission benefits the rich and erodes the social safety net. Really? By reducing corporate tax rates and making our economy more competitive? By raising eligibility for social socurity to 69 and make people more self-reliant until then? The horror of it all.

But my favorite line in his op-ed is his complaint that, "why is a commission charged with finding every possible route to a balanced budget setting an upper (but not lower) limit on revenue?" This reveals his fundamental misunderstanding of government and its nature. Why would you set a lower limit on revenue? Since when did government shrink voluntarily? Unless vigilantly pushed back, government wants to grow and grow. That's what it does, and it has done so in spades since team Obama took over. It never shrinks without yeoman effort. As I mentioned in my previous blog, for example, home ownership is now more affordable than it has been in decades. Have we seen one governmental department that is devoted to "affordable housing" at any national, state, or local level disbanded? Not a chance. Those happy little bureaucrats in their little departments continue to trot merrily along, funding intact, as if the housing bubble never happened.

The notion of setting a lower limit on revenues is superfluous. We're not on the brink of becoming like Greece because we have spent too little as a percentage of GDP, nor has that ever been a problem. Only a hard cap will prevent us from a welfare state that threatens to swallow enough of GDP to destroy any incentive to work hard, save, and take risks. A lower threshold is a bit of a sick joke.

I'll start taking this commission a little more seriously when it is chaired by Chris Christie.

Sand in the Gears

Last night's election can only be read as an utter rejection of Obamunism. Despite the claims from folks like Obama and John Kerry that the electorate is scared and isn't thinking straight, or that the issues are too complex for voters to understand, voters were thinking clearly enough to sweep the tax, spend, and regulate crowd out of the House and nearly out of the Senate. Obama's drive to transform us from an independent, entrepreneurial, resourceful, pull-yourself up-by-your-own-bootstraps people to a docile, dependent, risk-averse society was entirely rejected last night. There were two messages that were sent by voters last night--one for Obama and his neo-Euro-socialists, but an equally strong message for Republicans.

The obvious first message was directed toward the Obama administration. Voters attempted in every way possible to tell him that the '08 election was NOT a mandate to put bearded Marxists in charge of every aspect of government mechanisms, and it was NOT a mandate for a foreign policy designed by George Soros. But that is what Obama reached for. He put academic leftists at the controls of all of the departments charged with carrying out policy: Kathleen Sebelius, Carol Browner, Cass Sunstein, Ken "we're up against 200 years of laissez faire capitalism" Feinberg, and Donald Berwick. In foreign affairs, Obama turned a cold shoulder to loyal democratic allies like Great Britain and Israel, while his staff sent birthday greetings to Ahmadinejad and hugged Hugo Chavez, all the while apologizing for America's arrogance. The message from the bullhorn of the American voters last night was: "We're Americans. We're proud of our heritage and our special place in the world. We're not Europeans. We're don't want this much government shoved down our throats." It was that simple. The most common comment I hear from voters that occupy the middle of the road to conservative voters space is, "He scares me." Last night was all about throwing sand in his gears. Most Americans are very uncomfortable with a future constructed by Obama because it is completely foreign and unmoored from our past.

But just as there was a message for Obama, there was an equally strong message for Republicans. There is no mandate. The reason Republicans were rejected in '08 are still around. Republicans are as guilty as Democrats at propagating crony capitalism. They have not developed well-thought out positions to attack the problems of health care, financial reform, entitlement and budget reform. I had an uneasy feeling when John Boehner spoke last night-- it sounded a little like back to the future to me.

Fortunately, Republicans are developing a bright young bench that is poised to replace the old guard. Mitch McConnell and John Boehner need to begin to cede power and influence to the new crew-- Paul Ryan, Marco Rubio, Eric Cantor, and Michelle Bachmann. This is were the future of the Republican party lies.

The second lesson for Republicans is that even in a wave year, you have to run good candidates. It is a shame that we lost Delaware and Nevada. Next to Nancy Pelosi, Harry Reid's departure would have been most gratifying. But Republicans failed to capture those seats because they ran poor, flawed candidates. In other states where the tea party supported candidates were strong (Rubio and Toomey), voters embraced them.

Overall, I was pleased with the results last night. It's no accident that seats held by Ted Kennedy and Barack Obama have fallen into Republican hands. But Boehner and crew are mistaken if they commit the same error as Obama by misreading the mandate.

Eating Your Own Children

Juan Williams was fired by NPR (letters stand for No Personal Responsibility) last week for admitting that he felt "nervous" when he boarded airplanes with Muslims in traditional Muslim garb. NPR summarily fired him for that "bigoted" comment.

Mr. Williams is one of my favorite liberal commentators. While I often disagree with him, he takes a reasonable approach to the discussion and has a good sense of humor. He's someone I'd love to have dinner with and have an engaging discussion with. I am outraged by NPR's abrupt termination of him.

First, Mr. Williams was merely vocalizing an emotion, a visceral reaction, not something entirely under one's control. He in no way indicated that his raw emotion would precipitate any change in behavior, and indeed expressed regret that he sometimes harbored this feeling. Truly mature and adult people often have emotions that are not acted upon; in fact, most of us adults spend a great deal of energy in work and at home mastering our basest instincts. It's called being human.

Second, this emotion is not without some rational basis in fact. It is the sympathetic nervous system reacting to a perceived elevated risk or threat. Now, one can argue that this is an overreaction to the probability of harm. The probability of dying or being harmed in a terrorist attack in your lifetime is very small--less than your chances of dying from a lightning strike. But we do know some inconvenient facts. While not all Muslims are terrorists, virtually all terrorist attacks on Westerners over the past quarter century have been Muslim. We also know that airplanes are a weapon of choice for Muslim terrorists. Third, we know (despite Eric Holder's feigned ignorance), that some proportion of Muslims are motivated to engage in such acts by a radical and fundamentalist interpretation of the Qu'ran. Given those facts, it is not bigoted for someone to have a visceral reaction to someone in Muslim garb at the airport. But it is important to note that Mr. Williams DID NOT say that he would refuse to fly on the same plane as someone in Muslim garb nor did he say that because of this nervous feeling, we should subject such individuals to heightened scrutiny (although many commentators believe that this might be warranted). All he did was communicate an emotion. And he was fired for it.

Did he and do we engage in religious bigotry? I think nothing could be farther from the truth. Do you realize that we tolerate a fundamentalist religious sect that demands of its followers that they live as they did a century and a half ago? They dress in strict garb. They observe strict mores and customs and rarely marry outside their own group. They are very devoted to their faith, and they reject modern technology and society. That sect would be the Amish. Yet, if an Amish man showed up at the airport (assuming his religion permitted flight), neither Mr. Williams or even the biggest bigot south of Archie Bunker would be nervous. Why is that? Despite their rigid religious beliefs and their desire to live and dress in ways that are not mainstream, no members of this sect seek to impose themselves on others or seek to impose their religion on others through violent means. As a consequence, despite being out of the mainstream, the Amish are left alone to live their lives quietly and peacefully. Unfortunately some proportion of Muslims has chosen a different path.

The left denies the association. They deny the existence of political Islam. We have an attorney general that cannot even utter the phrase "radical Islam." We have people that walk out of discussions as guests on "The View" did when Bill O'Reilly asserted the fact that Muslims attacked us on 9/11. The unfortunate fact is that there wasn't a Catholic, Hindu, Jew, or Buddhist among the 19 hijackers. The Fort Hood shooter was a Muslim. The Times Square Bomber was a Muslim. The "underpants bomber" was a Muslim. Did Williams comment really reflect irrational bigotry. No. The worst that can be said of him is that he miscalibrated the relative increase in the probability of a threat. But to deny the increase in the threat is to deny reality.

Further, let's take another hypothetical. Let's assume that Juan Williams said, "I'm a devout Catholic and my twelve year old son was asked to go on a religious retreat with about 20 other young boys and 5 or 6 young priests in the White Mountains for a week, and I am feeling uneasy about that." Would NPR similarly have fired him for his bigoted comment? After all, only a small percentage of priests have been found to engage in unseemly conduct. Not a chance. They would have all been nodding their heads in sympathy. There would be no outrage over religious bigotry there. You can bet on it.

NPR should be ashamed of itself for silencing a reasonable, rational and articulate commentator. The threat of radical Islam is real and presents very difficult problems for an open, democratic and tolerant society. It is absolutely essential that we fully and fairly and openly address all aspects of the issues that radical Islam presents, not pretend that it doesn't exist. The P.C. crowd at NPR swung an authoritarian club at free and open discourse.

One could imagine the NPR bunch around about 140 years ago. Imagine a pioneer family seeing a group of 20 or so Native American braves on horseback on the horizon, thundering toward their ranch. Under NPR standards, the pioneers would have been harshly taken to task for their bigotry when they unlocked the gun cabinet.

I doubt I'll be real receptive at pledge time this year.

Peter

I heard Peter Orszag, President Obama's ex-budget director speak at the Association for Corporate Growth's Capital Connection (ACG) in Chicago last week. The ACG is a trade organization largely catering to private equity firms and companies that seek to grow through acquisition--- that is, wealth creators and job generators.

He presented a rather grim view of the budget, stating his belief that there is actually little room on the spending side for real reductions. The military consists of 2/3 personnel and 1/3 systems and hardware costs, and since defense experts do not believe it is advisable to shrink our forces at this time and because systems have long lead times, little can be taken out of the military. Entitlement program changes, he believes, may be phased in over time, but little can be done about current retirees. He does believe that tax increases are necessary but advocates leaving the Bush tax cuts in place for two years and then allow them to automatically expire. Orszag failed to differentiate between extending the tax cuts for "the rich" from the middle class, and ducked the question about raising taxes when the economy is so weak (so the liberal argument goes, "well, we raised taxes under Clinton and got a boom."). Yes, but they did so at the front end of a once in a lifetime tech boom, not while the economy was straining to crawl out of a once in a lifetime financial catastrophe.

In addressing health care, he asserted that "the bill addresses costs more than is popularly believed," but expressed disappointment that the bill did not address tort reform (although he claimed that research shows that malpractice claims to not significantly affect costs).

While optimistic about the long term vibrancy of the U.S. economy, he said that 2012 would be "bumpy" and was bearish about prospects for the U.S. budget, given the partisanship that will undoubtedly be present in Washington after the elections.

Overall, Mr. Orszag left me a little flat. He was better after he got the obligatory bland jokes out of the way at the beginning. He attempted to steer a neutral political course in his remarks, but as a result, left unanswered the important questions about the overall efficacy of the stimulus, the effect on growth, employment, productivity, and innovaation that all these tax increases and regulatory burdens being foisted on business will have, and said nothing about financial reform.

Afterwards, I asked one professional what he thought the punchline of Orszag's remarks was, and he replied dryly, "I can't get rich. I can't retire. And I sure as hell can't get sick."