Spero Consulting

‘Religion’ Category

Poor, poor, piti­ful me!

This morning’s Gospel included Luke 4:18.

That’s where Jesus returns to Nazareth, goes to the syn­a­gogue, and reads aloud from the scroll of Isaiah.

What inter­ested us was (our para­phrase of) one of the lines from Isa­iah: “He has sent me… to let the oppressed go free.”

We won­dered: of the sub­set of the folks who were lis­ten­ing, how many of our (rel­a­tively for­tu­nate and middle-​class) fel­low parish­ioners thought, “Yes, Lord, that’s me. I’m oppressed. Please help. Please set me free. Please stop the oppres­sion by my spouse-​children-​parents-​classmates-​bosses-​teachers-​neighbors-​creditors-​clients-​patients-​etc.”

We also won­dered how many of the oth­ers thought that he or she were the sin­gu­larly most oppressed per­son in the entire con­gre­ga­tion. Of course, in that respect we knew, beyond any rea­son­able doubt, that any­one else who had drawn that con­clu­sion must be wrong.

If they con­sid­ered it, we sus­pect that they would know that we were just as wrong, and to be hon­est, they would be right.

Ah, the human condition.

The Joy of the Season… is Lost on Him

The chil­dren are all snug in their beds with visions of Wii’s danc­ing in their heads, and after four weeks, we finally have the chance to fin­ish a post that we started on Thanks­giv­ing Day, when we read a very silly col­umn by George Will.

His col­umn was enti­tled, “No gifts, please.” In it he dis­cusses (and approves of) a pam­phlet called Scrooge­nomics: Why You Shouldn’t Buy Presents for the Hol­i­days by Joel Wald­fo­gel. Based upon both Mr. Will’s col­umn and the book’s title, it seems that Mr. Wald­fo­gel believes that buy­ing Christ­mas gifts destroys value, i.e., the col­lec­tive sat­is­fac­tion in the econ­omy (and per­haps the world) would be greater if Christ­mas gift-​givers spent the money on them­selves instead of on loved ones and others.

Before crit­i­ciz­ing that con­clu­sion, we do want to men­tion a few caveats:

1. We’re not sure if Mr. Will wrote the col­umn in a tongue-​in-​cheek man­ner, but there is no indi­ca­tion that he is any­thing but seri­ous, and the col­umn was pub­lished on Thanks­giv­ing, not April Fool’s Day.¹ Also, we do real­ize that he is con­strained to only a cer­tain num­ber of words per col­umn, and that rel­a­tively low num­ber may make com­plete and clear com­mu­ni­ca­tion dif­fi­cult. Or, maybe a dim edi­tor unknow­ingly hacked the wit out of the column.
2. We didn’t and don’t have the time or inter­est to locate, buy, and read Mr. Waldfogel’s book, so it may be more nuanced and sophis­ti­cated than Mr. Will under­stands it or cares to explain it. If that’s the case, then we apol­o­gize to Mr. Wald­fo­gel for group­ing him with Mr. Will.
3. Sim­i­larly, Mr. Wald­fo­gel may have writ­ten the book in either a tongue-​cheek-​manner or – using rhetoric and exag­ger­a­tion – in an instruc­tive way to edu­cate his stu­dents. If that’s the case then, again, we are sorry for crit­i­ciz­ing him, and we note that Mr. Will did him no favor by pub­li­ciz­ing his work in such a poor manner.

That being said, using com­mon sense and a lit­tle knowl­edge of eco­nom­ics, there are at least four ways to negate their conclusions:

1. Revealed pref­er­ence of gift-​giving actions..
2. The pref­er­ences, includ­ing the risk pref­er­ences, of gift givers and receivers and what that means for col­lec­tive satisfaction.
3. The exis­tence of uncer­tainty as it relates to the level of enjoyment.
4. Whether one truly knows ones own tastes and how they will change through time and if oth­ers know better.

The first three can be dis­cussed within the con­text of stan­dard micro­eco­nom­ics and util­ity the­ory, while the fourth one involves the vio­la­tion of one of the most com­mon and basic assump­tions in economics.

Revealed Pref­er­ence

This is the sim­plest argu­ment to fol­low. Revealed pref­er­ences means that actions speak louder than words – i.e., what peo­ple do is what mat­ters – not what they say.

The fact that ratio­nal folks vol­un­tar­ily buy presents for oth­ers means that they have con­cluded it is the best use of their money (or credit). Oth­er­wise, one must assume that those being stud­ied are irra­tional and/​or that fac­tors other than their own con­sump­tion affect their well-​being or sat­is­fac­tion. Both are easy to believe, but once an econ­o­mist assumes irra­tional­ity it becomes very dif­fi­cult to draw any conclusions.

In fact, if they are irra­tional, telling them so isn’t likely to have much of an effect on them or their behavior.

For exam­ple, if folks are irra­tional, then what can Mr. Wald­fo­gel say? “Many peo­ple can’t think clearly and waste money.” We have no doubt that it is true, but that’s not very insight­ful or new. In that case, they don’t just waste money at Christ­mas but dur­ing every other sea­son. (Per­haps they waste less at Christ­mas than they oth­er­wise would (with­out the empha­sis on peace, love, and joy and shop­ping for others).

Now it is pos­si­ble that Mr. Wald­fo­gel has a game the­o­retic model – sim­i­lar to, say, the Prisoner’s Dilemma – in mind, where some “bad” equi­lib­rium of gift-​giving obtains by every­one behav­ing ratio­nally. But, for a vari­ety of rea­sons, every Christ­mas peo­ple stop buy­ing presents for other folks. So, unlike a text­book prob­lem that involves incar­cer­a­tion or com­mit­ment, it seems that real peo­ple can and walk away in the mid­dle of the “game” if they want.

Thus, when he states that value is destroyed, given the fact that folks con­tinue to do it, it may sim­ply be the fact that Mr. Wald­fo­gel may have mis-​measured the over­all sat­is­fac­tion folks get from giv­ing and receiving.

Risk Pref­er­ences

Pre­sum­ably, to con­clude that value is destroyed by Christ­mas gift giv­ing – and to assign a dol­lar amount to it – some mea­sure of sat­is­fac­tion, like util­ity, must have been assumed – at least implic­itly. More­over, that mea­sure, e.g., util­ity func­tion, must be invert­ible (from sat­is­fac­tion to dollars) .

Again, with­out read­ing the book, there seem to be a num­ber of ways to defeat the asser­tion that value is destroyed. Here are a few.

First, col­lec­tive sat­is­fac­tion can be aggre­gated and weighed any arbi­trary num­ber of ways. For every set­ting that shows value is destroyed, one can weigh the sat­is­fac­tion of recip­i­ents in such a way that val­ued is created.

Sec­ondly, obvi­ously indi­vid­u­als may have dif­fer­ent pref­er­ences for dif­fer­ent goods and ser­vices, and they may have dif­fer­ent pref­er­ences for the same good or ser­vice at dif­fer­ent lev­els of (their own) wealth and con­sump­tion. Most eco­nomic mod­els keep things sim­ple and assume that indi­vid­u­als have rel­a­tively con­stant pref­er­ences, i.e., that they are either risk-​neutral, risk-​loving, or risk-​averse for the entire range of consumption.

For a sim­ple world where there is only one good, econ­o­mists gen­er­ally assume that sat­is­fac­tion increases (or at least doesn’t decrease) as more of that good is con­sumed. So, in a “sin­gle period,”

• Risk-​neutral means that pref­er­ences are lin­ear with respect to the good. That means that regard­less of the num­ber of units con­sumed, each addi­tional unit brings the same level of sat­is­fac­tion, i.e., the 31^st ham­burger is as sat­is­fy­ing as the first.
• Risk-​loving means that pref­er­ences are con­vex with respect to the good, i.e, the more units con­sumed, the greater the mar­ginal sat­is­fac­tion. It is very rare to see such behav­ior. It means that in a world con­sist­ing only of ham­burg­ers, eat­ing the 31^st burger brings more sat­is­fac­tion than eat­ing any pre­vi­ous one, includ­ing the first one.
• Risk-​averse means that pref­er­ences are con­cave with respect to the good, i.e., the more units con­sumed, the lesser the mar­ginal sat­is­fac­tion, i.e., the 31^st ham­burger eaten is the least sat­is­fy­ing – although still pos­i­tively satisfying.

Now it is pos­si­ble in multi-​period, over-​lapping gen­er­a­tion mod­els, for folks to get sat­is­fac­tion from both con­sum­ing and giv­ing – by fol­low­ing the Golden Rule of giv­ing this period in exchange for receiv­ing in the future, but that’s not what Christ­mas is about. The young don’t give presents to the old in hopes of get­ting presents when they are old.

With­out pre­sent­ing any­thing close to a for­mal model, con­sider a case where every­one is risk-​averse. If they have the same util­ity func­tion, then wealthy indi­vid­u­als for­sake less sat­is­fac­tion (from, say, the 31^st ham­burger) by giv­ing or donat­ing to less wealthy folks who gain by receiv­ing such ben­e­fits. (Remem­ber with similarly-​preferenced, risk – averse agents, wealthy folks give up less (mar­ginal) sat­is­fac­tion or util­ity than poorer gain. Draw an increas­ing, con­cave func­tion, like a square-​root func­tion to con­vince your­self that sat­is­fac­tion increases with con­sump­tion but at a decreas­ing rate.))

The last time that we checked, there were not a lot of mod­els that incor­po­rated dona­tions and giv­ing, but even if the net spenders lose some sat­is­fac­tion by con­sum­ing less due to their gifts – let’s say they are com­pelled to con­sume less or donate – then those acts do not destroy value if the recip­i­ents are par­tic­u­larly grate­ful and derive more sat­is­fac­tion from the gift than to givers lose by not behav­ing selfishly.

Of course, Mr. Will and Mr. Wald­fo­gel may be sur­prised that indi­vid­u­als enjoy giv­ing of them­selves and their resources – whether to fam­ily, friends, or strangers. The fact that such acts are out­side of many eco­nomic mod­els, doesn’t make such peo­ple irra­tional, it makes them kind and generous.

More­over, if econ­o­mists have a dif­fi­cult time mod­el­ing such behav­ior, that’s not a short-​coming of gen­er­ous indi­vid­u­als, it is a short-​coming of eco­nom­ics (and note that we are extremely sym­pa­thetic to the dif­fi­culty of mod­el­ing such social phenomena).

Now, par­si­mo­nious read­ers may dis­agree with our con­clu­sion that net sat­is­fac­tion is higher because of Christ­mas gift-​giving and exchang­ing because they may argue that the giver may not know what the recip­i­ent wants. We’ll rebut that posi­tion with two related, but sep­a­rate points: (1) in uncer­tain envi­ron­ments, you don’t always get what you want or pay for, and (2) in real-​life, you don’t always know what you want – i.e., what makes you happy or what’s best for you.

The Pres­ence of Uncertainty

Who knows? It may sim­ply be the case that no one cares enough about Mr. Will to have given him a present that he wanted, and that may have caused his Scrooge-​like col­umn, or maybe he was told one too many times that “you’ll shoot your eye out.”

That scene from A Christ­mas Story of the ric­o­chet­ing BB break­ing the Ralphie’s glasses per­fectly illus­trates that in real life, ran­dom, uncon­trol­lable events affect the enjoy­ment of any every good and ser­vice consumed.

So, when com­bined with bad luck, get­ting exactly what you want can be dis­as­trous, and far worse than get­ting a safer, less-​desirable ver­sion of the good or ser­vice or a sub­sti­tute. For exam­ple, think of the teenage boy who would pre­fer a sports car to a large sedan, but is far more likely to harm him­self and/​or oth­ers in a new Corvette as com­pared to a new Suburban.

So, before one can con­clude the net value is destroyed, one must be able to aggre­gate the actual sat­is­fac­tion received rather than the expected sat­is­fac­tion when the gift is received. In other words, it is impor­tant to know the range of out­comes and their prob­a­bil­i­ties – when they are know­able – to mea­sure how things worked out.

More pre­cisely, for risk-​averse indi­vid­u­als, it’s not just the mean that mat­ters, but the dis­tri­b­u­tion mat­ters, too, and oth­ers may under­stand (or have bet­ter infor­ma­tion about) that dis­tri­b­u­tion than the recip­i­ent. That means that their gifts may be more appro­pri­ate, and have a higher con­di­tional expected value.

Does that mean that oth­ers always give bet­ter presents than items pur­chased by ones self? Of course not, but it means that in some cases, the dif­fer­ence might be smaller than sup­posed or negative.

Know Thy­self, or Not

We’ll read­ily admit that our three counter-​arguments are not very pre­cise. How­ever, each implic­itly assumes that (at least) the recip­i­ents, know what’s best for them­selves.²

As we men­tioned above, with uncer­tainty (and dif­fer­ent pri­ors and sig­nals, which gen­er­ate dif­fer­ent pos­te­ri­ors) it is pos­si­ble that givers may have bet­ter knowl­edge of the envi­ron­ment, i.e., the dis­tri­b­u­tion of (pos­si­ble) out­comes, and, there­fore, they may be able to select the most appro­pri­ate gift for the recipient.

In this sec­tion, how­ever, we have some­thing a bit dif­fer­ent in mind. It is pos­si­ble that on cer­tain dimen­sions, oth­ers know you bet­ter than you know your­self. Thus, they may be able to select more appro­pri­ate (use­ful, val­ued, appre­ci­ated) gifts than the recip­i­ent could have selected for him or herself.

We sus­pect that like us, most read­ers didn’t always get what they asked for, but on some of those occa­sions ended up lik­ing the sub­sti­tute bet­ter than the orig­i­nal. We also sus­pect that sen­si­ble read­ers will agree that until a cer­tain age, par­ents def­i­nitely know bet­ter than their chil­dren what will max­i­mize the child’s expected, dis­counted, satisfaction.

The ques­tion is: at what age does that change? Is it when a twelve-​year-​old wants a Wii, or is into adult­hood, when the child wishes to marry. (In some cul­tures, with arranged mar­riages, it is at least that age.)

In most math­e­mat­i­cal mod­els of pref­er­ences, indi­vid­u­als know their own pref­er­ences. Oth­er­wise, it is dif­fi­cult to sole the indi­vid­u­als max­i­miza­tion prob­lem, i.e., what does one max­i­mize or optimized?

In real-​life that isn’t always true. More­over, pref­er­ences do change. Do you, dear reader, eat the exact same foods that you did as an infant; as a high-​metabolism teenager; as a col­lege stu­dent? While some folks are sur­pris­ingly con­sis­tent, most aren’t, and a favorite restau­rant one day is no longer vis­ited the next.

So, if one is will­ing to admit that one doesn’t always know what one will like in the future and one can­not com­pletely spec­ify how to order likes and dis­likes (pref­er­ences) today, is it that much of a stretch to imag­ine that oth­ers may know cer­tain aspects of your pref­er­ences (and behav­ior) bet­ter than you, your­self, espe­cially how those pref­er­ences may evolve through time? We don’t think so.

Thus, is it that dif­fi­cult to believe that the net result of informed gift-​giving increases col­lec­tive hap­pi­ness despite the fact that many inap­pro­pri­ate gifts are received (and regifted)?

Merry Christ­mas!

Now we men­tion our objec­tions to Mr. Will’s silly col­umn in the spirit of true Chris­t­ian gift-​giving, espe­cially as we belat­edly pub­lish it on this Christ­mas morning.

There’s another small book – very thin and short – that both Mr. Will and Mr. Wald­fo­gel may wish to read. It takes an hour or two for most adults to com­plete, or a few hours more if read to a child (pre­sum­ing that the men like and/​or have chil­dren or grand­chil­dren). It’s called A Christ­mas Carol by Charles Dick­ens. Our read­ers may have heard of it, and it is avail­able free on-​line at many sites.

We strongly encour­age all our read­ers to read it every year so that they don’t end up like old Mar­ley, er, we mean Will.

God Bless us all, and we wish you a Merry Christ­mas and a Happy New Year.

–Andy, Jill and the gang

P.S. It’s late and there are prob­a­bly sev­eral typos. We will cor­rect them tomorrow.

There is an excel­lent col­umn in today’s edi­tion of The Wall Street Jour­nal enti­tled, A Dark Mat­ter Breakthrough?

In it, the physi­cist Lawrence Krauss writes about dark mat­ter, which may or may not exist. It does exist in many the­o­ries that seem to require it to elim­i­nate oth­er­wise incon­gru­ent obser­va­tions, and there may be empir­i­cal evi­dence that sup­ports its exis­tence, or not.

If it does exist, it may have a mass that is ten times greater than vis­i­ble matter.

When we read arti­cles like his, a few things come to mind.

First, although Mr. Krauss makes no men­tion of God, it’s dif­fi­cult not to think of Him when some­one men­tions mas­sive, unseen forces that influ­ence every­thing in the Uni­verse. More­over, we sus­pect there are many (athe­ists) who believe in dark mat­ter because it is from “sci­ence,” but not God, because they can­not find evi­dence of Him. That reminds us of two things: (1) the absence of evi­dence is not evi­dence of absence, and (2) do they appre­ci­ate the irony?

Sec­ondly, Mr. Krauss writes:

For the the­o­rist work­ing at his desk alone at night, it seems almost unfath­omable that nature might actu­ally obey the del­i­cate the­o­ries you develop on pieces of paper. This is espe­cially true when the the­o­ries involve ideas from so many dif­fer­ent areas of sci­ence and require leaps of imagination.

We’re not really dis­agree­ing with Mr. Krauss, but it does depend upon ones perspective.

If one views sci­ence and sci­en­tific knowl­edge as a proper sub­set of rea­son – the empir­i­cal, ver­i­fi­able part of rea­son – and if via the first chap­ter of the Gospel of John, one equates God with rea­son (logos, the word, thought) then one shouldn’t be sur­prised that, regard­less of ones moti­va­tion, one can learn more about God’s cre­ation through thought alone.

We think that Saint Thomas Aquinas said it best:

“The final hap­pi­ness of man con­sists in the con­tem­pla­tion of truth…. This is sought for its own sake, and is directed to no other end beyond itself.”

That’s why it is the first quote on our Quotes page.

By the way, inter­ested par­ties can read the lit­tle that we know about epis­te­mol­ogy in Uncer­tainty Man­age­ment or scan our reli­gion archive. Unearthly Dis­ci­pline and Freewill is the most closely related post.

Merry Christ­mas.

William McGurn has an excel­lent col­umn in today’s edi­tion of The Wall Street Jour­nal. It is enti­tled, “My Big Fat Gov­ern­ment Takeover.”

In the col­umn, he decries those in favor of gov­ern­men­tal solu­tions to all man’s ills, and he men­tions that lack of humil­ity of those like Pres­i­dent Obama and his ilk, who believe that a few “smart” peo­ple with cen­tral­ized power can solve the nation’s (and the world’s) prob­lems. (Yet, they can’t pre­vent party-​crashers to a state din­ner. Good luck with that.)

We want to empha­size the hubris (and the mis­guided and mis­placed faith in them­selves) because it is the per­fect mes­sage on this date, Decem­ber 8, the Feast of the Immac­u­late Conception.

Whether know­ingly, by coin­ci­dence or through the Grace of God, Mr. McGurn’s col­umn relates well to the bible read­ings (and we’re sure to many of the hom­i­lies) on this Holy Day of Oblig­a­tion for Catholics.

As many Catholics know – and all of them should know – today is the Feast of the Immac­u­late Con­cep­tion, which cel­e­brates Mary’s con­cep­tion and per­pet­ual state of grace. (A fair num­ber of Catholics con­fuse the Immac­u­late Con­cep­tion with the Annun­ci­a­tion, when Mary is vis­ited by the Angel Gabriel, and learns (and accepts) that she is to be the mother of our Lord. That’s partly their fault for not pay­ing atten­tion and partly because the Gospel read­ing for today is, in fact, the Annunciation.)

The first read­ing, from the Book of Gen­e­sis, recounts Man’s Fall from Grace, while Luke’s Gospel of the Annun­ci­a­tion gives the Angel Gabriel’s greet­ing, “Hail, full of Grace! The Lord is with you.”

The fail­ure to con­sider and appre­ci­ate that dis­tinc­tion between her grace and the Fallen Nature of every other per­son is why big-​government solu­tions always fails – either in the short-​term due to bureau­cratic inep­ti­tude or in the long-​term due to total­i­tar­i­an­ism (or both). In the extreme cases of total­i­tar­i­an­ism, when the gov­ern­ment attempts to get rid of the imper­fect true-​believers in it, there is no short­age of imper­fect folks to elim­i­nate. That, of course, is the impe­tus for the gulags and the killing fields.

Because we attended this morning’s Mass for the parish school’s chil­dren, our excel­lent new Parochial Vicar – who recently replaced our excel­lent and trans­ferred Parochial Vicar and friend, Fr. Sean – tried to empha­size that dis­tinc­tion between the grace of Mary and every­one is the Church– and the world, for that matter.

He asked the stu­dents three ques­tions: (1) How many of you always lis­ten to your par­ents and do as they ask? (2) How many of you always lis­ten to your teach­ers and do as they ask? And (3) How many of you always lis­ten to God and do as he asks?

Either out of (1) hubris or (2) incor­rectly antic­i­pat­ing the answers that he sought or (3) con­sid­er­ing which of Santa’ lists they hoped to be on so very near to Christ­mas, many of the younger chil­dren answered affir­ma­tively to all three questions.

Our priest then asked sim­i­lar ques­tions to the par­ents and other adults present, and no hands were raised. In fact, like every other priest that we know, he admit­ted to being a sin­ner and noted that he could not raise his hand for any of the questions.

That’s makes us won­der why those seek­ing cen­tral­ized solu­tions would (likely) answer in con­cert with first-​graders in the pews rather than with the adults?

By itself, there’s no prob­lem think­ing that you’re bet­ter than oth­ers. In many sit­u­a­tions, a healthy self-​confidence in one’s God-​given abil­i­ties is often a nec­es­sary con­di­tion for success.

The prob­lem is that much of the empir­i­cal evi­dence one observes about one­self often doesn’t sup­port that hypothesis.

So rather than inter­nal­iz­ing those flaws, an eas­ier way to main­tain the dis­tinc­tion or mirage of supe­ri­or­ity is to demo­nize oth­ers and attribute the basest of motives and behav­iors to them. In other words, imme­di­ately believe the worst that you hear about them, while main­tain­ing skep­ti­cism when you’re told good things about them.

A friend of ours men­tioned that prior to serv­ing as the head of a rather con­tentious orga­ni­za­tion, he would often view those with oppos­ing view­points as being either evil or stu­pid or both. After being lob­bied by both sides of var­i­ous issues for a few years, he real­ized that folks can have dif­fer­ent opin­ions and per­spec­tives and objec­tives with­out nec­es­sar­ily being evil or stu­pid. (We joke that those who dis­agree with us need not be evil or stu­pid, they may sim­ply be igno­rant and not know any better.)

In that regard, we would hope that both the faith­ful and non-​believers could agree with the first phrase of Alexan­der Pope’s famous quote: “To err is human…”

And, like Mr. McGurn, we would hope that indi­vid­u­als with respon­si­bil­ity for var­i­ous social, polit­i­cal, and eco­nom­ics orga­ni­za­tions would take their own flaws and the flaws of oth­ers into con­sid­er­a­tion when design­ing insti­tu­tions and poli­cies for those insti­tu­tions. After all, that type of orga­ni­za­tional and man­age­r­ial con­trol is one of our spe­cial­ties at Spero Consulting.

Today, we went to a funeral Mass for a friend’s father, and the priest had an excel­lent homily. It was the kind that one can only give if he well knows the dece­dent, and in this case, it seemed that the priest had known our friend’s dad for over twenty years due to the latter’s deep involve­ment in the parish.

Dur­ing the ser­mon, the priest merged details and anec­dotes of the man’s life with the typ­i­cal (and very use­ful) Catholic empha­sis on hope and redemp­tion, rather than sor­row and despair, e.g., that it is the begin­ning of the next step of a jour­ney and not the end of everything.

In fact, the good Father men­tioned that through­out the New Tes­ta­ment, Jesus states 125 times for his dis­ci­ples and oth­ers to be not afraid. (He said that he didn’t actu­ally count those instances him­self, but that’s com­pared to eight times when Jesus men­tions the top two com­mand­ments: (1) love God above all oth­ers, and (2) love (and treat) oth­ers as you wanted to be treated yourself.)

Per­haps it is because our own demise seems so far removed – but who really knows – we thought that his advice was excel­lent: be like our friend’s father – live life to the fullest and fear not death.

That’s coin­ci­dent with what we con­sider to be the best line in the three Pirates of the Caribbean movies. It was uttered by Cap­tain Teague, played by Keith Richards, as he rebukes his son, Cap­tain Jack Spar­row (played by Johnny Depp) in the third movie, At World’s End.

Jack Spar­row had just turned to his father, and quipped, “That’s the trick, isn’t it, to survive?”

And Cap­tain Teague replies with a very Catholic:

“It’s not just about liv­ing for­ever, Jackie, the trick, is liv­ing with your­self, forever.”

Of course, the beauty of it is that while it is com­pletely con­sis­tent with our own reli­gion, it is also com­pletely con­sis­tent with what we know of every other reli­gion, too.

Like our friend’s father, may you, dear reader, live to an age when and behave in a way that you have no regrets.

And a Brief Men­tion about the Decline in Num­bers of Reli­gious Personnel

“Inter­fer­ing with people’s prop­erty, labor, and exchange – except where nec­es­sary to uphold jus­tice and sus­tain soci­ety – is a vio­la­tion of the sacred­ness of the person.”

That’s from an essay by Greg Forster, “Sacred Enter­prise,” in the Clare­mont Review of Books, Sum­mer 2009. (Unfor­tu­nately, it’s only avail­able on-​line to sub­scribers.) He goes on to write, “And increas­ing the total amount of avail­able wealth is morally good, so it is wrong to sti­fle eco­nomic growth or to force poten­tially pro­duc­tive assets to lie waste­fully dor­mant…” (Think the Para­ble of the Tal­ents (Matthew 25:14 – 30) as jus­ti­fi­ca­tion for the first clause, and Cash for Clunk­ers as an exam­ple of the second.)

We only wish that Mr. Forster had cho­sen a dif­fer­ent word instead of “jus­tice,” because that loaded term is too often used to ratio­nal­ize the med­dling and inter­fer­ence that he is condemning.

In the essay, Mr. Forster is mak­ing a moral case for cap­i­tal­ism and mar­kets. It’s an argu­ment that cur­rent Church lead­ers could make, which would be con­sis­tent with their tra­di­tions and cat­e­chism, if they thought about eco­nomic issues a lit­tle more clearly than they do (and had a bit more train­ing in both eco­nom­ics and his­tory). In fact, for quite some time, Church doc­tors , e.g., St. Thomas Aquinas, and oth­ers – the Scholas­tic econ­o­mists – did make such argu­ments. And those argu­ments had a tremen­dous and long-​term influ­ence on many – both reli­gious and irre­li­gious – includ­ing the founders of this great nation.

Mr. Forster men­tions the book, The Vic­tory of Rea­son, by Rod­ney Stark, which pro­vides a good, gen­eral his­tory of the Church’s pos­i­tive influ­ence on West­ern Civ­i­liza­tion, includ­ing its role in the devel­op­ment and defense of cap­i­tal­ism. How the Catholic Church Built West­ern Civ­i­liza­tion by Thomas E. Woods, Jr. is a sim­i­lar and fine book, too.

Those look­ing for more spe­cial­ized books on eco­nom­ics and Catholi­cism should con­sider The Church and the Mar­ket, also by Mr. Woods and Faith and Lib­erty: The Eco­nomic Thought of the Late Scholas­tics by Ale­jan­dro A. Cha­fuen. Both of these show the con­gruity between Catholi­cism and pri­vate prop­erty and free enter­prise. (We’ve men­tioned all of these books at one time or another and highly rec­om­mend all of them.)

We wish that America’s Catholics bish­ops would con­sider the argu­ments found in such books before sup­port­ing gov­ern­ment poli­cies like nation­al­ized health-​care. In fact, we view such sup­port for gov­ern­ment aid (ver­sus Catholic char­i­ta­ble aid and ser­vice) to be an abdi­ca­tion of the Church’s tra­di­tional role and respon­si­bil­i­ties. More­over, we think that as the Church veers from that role (as char­ity provider) it loses much of its vital­ity because it can­not recruit young, spir­i­tual, ide­al­ists who are will­ing to serve those in need. (It’s a long, multi-​part argu­ment that we promise to make in the near future.)

Part of our argu­ment is based upon our view that the sub­sti­tu­tion of government-​provided aid for pri­vate char­ity is a social ser­vice ana­logue of Gresham’s Law, i.e., bad money dri­ves out good money, and gov­ern­ment man­dates make the anal­ogy rather com­plete. (As you may recall, Gresham’s Law states that when both pure and debased coins must be accepted as legal ten­der, the debased ones are cir­cu­lated. It’s not much dif­fer­ent than keep­ing the crispy new bills in your wal­let and pay­ing with the greasy, dirty old ones, except in Pitts­burgh where it is rare to find crispy new ones.) By the way, the late Scholas­tics also knew and wrote about such cur­rency debase­ments and viewed them as theft by the rulers and vio­la­tions of the sacred­ness of the per­son, too. (There’s not much that is new.)

Finally, we’d argue that the dif­fer­ence in qual­ity of ser­vice can be addressed with a sim­ple ques­tion: who would you pre­fer to treat you: a mem­ber or employee of a char­i­ta­ble, reli­gious orga­ni­za­tion or a mem­ber of the fed­eral bureau­cracy? Where’s the love, man? Yeah, it seems rather rhetor­i­cal, doesn’t it?

Mary Anas­ta­sia O’Grady has a good inter­view with Richard Fisher, the pres­i­dent of the Dal­las Fed­eral Reserve, in this Saturday’s edi­tion of The Wall Street Jour­nal. It is called “Don’t Mon­e­tize the Debt”.

Reg­u­lar vis­i­tors of our site, who are sym­pa­thetic to our crit­i­cisms of the Fed; elected and appointed gov­ern­ment offi­cials; and finan­cial reg­u­la­tors, will find much with which to agree.

We’re writ­ing today to men­tion a few parts that are directly related to our site. First, per our motto in the header, Thought before Cal­cu­la­tion, Ms. O’Grady writes:

And finally, he says, there was the ‘math­ema­ti­za­tion’ of risk.” Insti­tu­tions were “build­ing risk mod­els” and rely­ing heav­ily on “quant jocks” when “in the end there can be no sub­sti­tute for good judgment.”

We’re not averse to math­e­mat­i­cal mod­els, and don’t mind get­ting paid to develop, ana­lyze, or val­i­date them, but we do agree with Mr. Fisher’s crit­i­cism. It must be done thought­fully. Too many senior man­agers neglected their respon­si­bil­i­ties and per­mit­ted the sub­sti­tu­tion of cal­cu­la­tions for thoughts. That being said,we think that it is nec­es­sary to add that even the best judg­ment doesn’t assure favor­able out­comes. That, unfor­tu­nately, is the nature of uncer­tainty, which we’ve writ­ten about any num­ber of times.

Sec­ondly, the penul­ti­mate para­graph describes a paint­ing by Anto­nio De Simone of a ship in a storm. Accord­ing to the arti­cle, Mr. Fisher has owned it for thirty years.

In the final para­graph, Mr. Fisher is quoted as say­ing “no math­e­mat­i­cal model can steer you through the kind of seas in that pic­ture there. In the end some­one has the wheel…On mon­e­tary pol­icy it’s the Fed­eral Reserve.”

As the reader can hope­fully see for him or her­self, we have an image of a sim­i­lar paint­ing in our header: Rembrandt’s Storm on the Sea of Galilee.

We pre­fer the helms­man on that boat to the quite fal­li­ble men and women at the Fed, who – as we see it – are try­ing too hard to “steer” the economy.

Per­haps oth­ers con­sid­ered sim­i­lar ana­logues when the nation’s offi­cial motto became “In God We Trust.” More­over, we hope that each time they notice it on our paper cur­rency and coins, our rep­re­sen­ta­tives and agents are reminded of the inher­ent uncer­tainty that they face – be it nat­ural or man-​made.

This a new feature/​question that we might add/​ask on a reg­u­lar basis.

There’s a nice, short arti­cle on The Wall Street Journal’s web site enti­tled, Calpers to Vote Against BofA Board. The title is self-​explanatory.

The penul­ti­mate sen­tence in it is: “Bank of Amer­ica has already taken $45 bil­lion in cap­i­tal from the fed­eral gov­ern­ment, some of it to help the bank cover losses stem­ming from its pur­chase of Merrill.”

The final sen­tence is: “Share­hold­ers have also been up in arms about $3.6 bil­lion in bonuses that were paid ahead of sched­ule to Mer­rill exec­u­tives despite the bank’s mas­sive losses.”

Thus, we ask: which is more egregious?

Using the para­ble of the faith­ful and unfaith­ful ser­vants (Luke 12:41 — 48) as a guide, we’d have to say the latter.

When we crit­i­cize risk man­age­ment and dis­cuss our take on Uncer­tainty Man­age­ment (our essay is sub­ti­tled, “How Trad­ing is Like Play­ing in a Cul­vert on a Hot, Sunny, Summer Day”) we often cite our favorite quote from St. James’ only Epistle:

Come now, you who say, “Today or tomor­row we shall go into such and such a town, spend a year there doing busi­ness, and make a profit”—
you have no idea what your life will be like tomor­row. You are a puff of smoke that appears briefly and then dis­ap­pears.
Instead you should say, “If the Lord wills it, we shall live to do this or that”

It cap­tures the notion that not all ran­dom­ness is measurable.

That quote came imme­di­ately to mind when we heard of the cir­cum­stances of actress Natasha Richardson’s tragic and untimely death.

How many times in sports and in cars – and even cross­ing the street, especially in front of Port Author­ity buses – have we taken chances greater than those found in a begin­ners’ ski lesson?

“There but by the grace of God go I.” We don’t think that thought is incon­sis­tent with our ear­lier post on freewill.

May God rest her soul and bring peace to her fam­ily, her hus­band, her chil­dren and her friends as they try to under­stand the tragedy and accept their per­sonal loss, espe­cially its unfore­seen and unimag­in­able suddenness.

In this post, we muse and spec­u­late on items and notions that we don’t com­pletely under­stand. That’s noth­ing new – as we’ll read­ily admit – but we think it’s worth the time to con­trast the cer­tainty of God-​given freewill with the lack of man­age­r­ial dis­ci­pline within firms and gov­ern­ments – well, actu­ally, all orga­ni­za­tions and soci­eties. Unfor­tu­nately, we all must con­stantly deal with the harm­ful side effects of that lack of discipline.

In many of our posts, includ­ing one from yes­ter­day, we often advise or admon­ish pol­i­cy­mak­ers to fol­low the Hip­po­cratic Oath: “first, do no harm.”

Because of their lack of humil­ity and dis­ci­pline, we fully expect our advice (and sim­i­lar advice given by oth­ers) given to gov­ern­ment lead­ers to go unheeded and there­fore we ratio­nally expect that prob­lems – eco­nom­ics and social prob­lems in par­tic­u­lar – will be exac­er­bated and harm­ful “unin­tended con­se­quences” will be real­ized. All due to that uncon­trol­lable impulse to DO SOMETHING! (AIG bonuses anyone?)

Such is the nature of med­dling (and dilet­tan­tism) is it not?

Lately, we’ve been think­ing much about the dis­ci­pline required not to med­dle – whether with a child’s irra­tional and over-​excitable bas­ket­ball coach or within orga­ni­za­tions that claim to be decen­tral­ized. In our mind, these issues are closely related to the notion of freewill granted to us by the higher being.

For new read­ers, it;s worth not­ing that we believe in a God as the Cre­ator and also believe that He has granted us absolute freewill (and that with that freewill comes respon­si­bil­ity so that we will be held fully account­able for our actions if we fail him). 

Seem­ingly unre­lated, but also lately, much of our con­sult­ing work now involves the use, analy­sis, and edit­ing of pho­tographs to an extent that we never dreamed pos­si­ble when we orga­nized our firm and began devel­op­ing our own web site one year ago to the day.

That work includes search­ing the world’s finest source of free, non-​copyrighted, dig­i­tal pho­tos for use on web sites. (Well, they’re not really, totally free pho­tos because they were pro­duced with your and our tax dol­lars, but that’s right. The fed­eral gov­ern­ment has a very large archive of excel­lent and freely-​available pho­tos for your use. (Ever won­der how so many dif­fer­ent orga­ni­za­tions and firms get pho­tographs of the earth from space with­out own­ing their own space­craft or pos­sess­ing really long arms?))

Now, we find some of those pho­tos of space – shown in this post cour­tesy of NASA – to be awe-​inspiring and to (some­what) reveal­ing of the true extent of the power of God, the Cre­ator. For if he is the Cre­ator, then all the power and majesty of these dis­tant galax­ies were cre­ated by him in – what to us – was a Big Bang. (But to him? Well, who knows?)

An Aside on Sin

To us, this means that sins against nature are also sins against God, and sin (against God) is there­fore an unnat­ural part of the uni­verse, i.e., it is man-​made, and being unnat­ural (from the Creator’s per­spec­tive), it goes against the very fab­ric of the rules of the uni­verse. So, per­haps rather than vio­lat­ing “just a moral or eth­i­cal code” per­haps we’re vio­lat­ing a phys­i­cal law in a dimen­sion that we can’t observe.¹

Now, the real­iza­tion of astro­nom­i­cal omnipo­tence illus­trated by the pho­tos – along with every other kind power that we might imag­ine – may not pre­vent one from sin­ning, but view­ing such pho­tos should give one pause to con­tem­plate what they’re up against (in the end) when they don’t do the right thing.

Of course and unfor­tu­nately, even that real­iza­tion doesn’t nec­es­sar­ily help with the cat­e­go­riza­tion prob­lem of dis­tin­guish­ing sin from other per­sonal fail­ings and fail­ures, and per­haps that is the true nature of Pascal’s Wager, i.e., at the mar­gin, it’s bet­ter to err on the safe side. 

That cat­e­go­riza­tion prob­lem also seems to be the cause of a con­tribut­ing fac­tor for the plethora of reli­gions – each with slightly dif­fer­ent inter­pre­ta­tions of right and wrong. For exam­ple is eat­ing pig a sin or fish on Fri­days dur­ing Lent? What about drink­ing wine? Per­haps that is where the expres­sion “the devil is in the details” derives.

But that’s not really why we are writing.

Freewill and the Dis­ci­pline to Per­ma­nently Grant It

Instead, rather than focus­ing on us, we want to briefly focus on Him, and the unworldly power, unimag­in­able dis­ci­pline, and incom­pre­hen­si­ble love required to per­mit fallen crea­tures, such as our­selves, to have freewill. 

Would you, dear reader, per­mit it if you pos­sessed such power? If yes, even given the atroc­i­ties that we’ve wit­nessed through his­tory and con­tinue to observe today? We mean real, harm­ful and deadly atroc­i­ties. Not lesser ones, like most late-​night monologues.

More­over, look at how gov­ern­ments his­tor­i­cally have and presently try to restrict free­dom and in many cases go fur­ther to try to elim­i­nate crea­tures that “just don’t fit in” or are pow­er­less and in the way, i.e., sheer nui­sances. And, yet, the God that per­mits freewill will have not of it: his gift of free­dom is given and is irrev­o­ca­ble. There is no dis­cernible, heav­enly inter­fer­ence to impede free choice.

To be clear, we are not argu­ing for anar­chy and law­less­ness and doing one’s own thing so-​to-​speak. Instead, we are not­ing that the God of freewill does not grant and then rescind dis­cre­tion and auton­omy. Once given it is per­ma­nently and irrev­o­ca­ble – despite the neg­a­tive exter­nal­i­ties that such free­doms per­mits (via dys­func­tional behav­ior and its impli­ca­tions). God plays accord­ing to his rules, but does not seem to change them on a whim.

That, of course, is in stark con­trast to humans and human nature. We’ve writ­ten about the earthly and quite fallen nature of man and man­agers in a few essays (Strate­gic Con­sis­tency and Man­age­r­ial Dis­ci­pline and Com­mon Man­age­r­ial Mis­takes in Decen­tral­ized Orga­ni­za­tions) and in any num­ber of posts. In firms and in the gov­ern­ment, par­tic­u­larly dur­ing this eco­nomic cri­sis, we see that too many are too weak to leave well-​enough alone and “do no harm,” and the impli­ca­tions of such inse­cu­rity and panic and impul­sive­ness and thought­less­ness rule (and ruin) the day.

The same God who is revealed as the God of rea­son (actu­ally as rea­son) in the first chap­ter of Saint John’s Gospel is the same God of the dis­ci­pline and love who grants freewill. That can’t be a coincidence.

His dis­ci­pline in main­tain­ing the rules and each person’s auton­omy as well as our fore­warn­ing of the ulti­mate day of reck­on­ing is suf­fi­cient to mit­i­gate the moral haz­ards of many. Too bad that except in rare instances, men have nei­ther the dis­ci­pline nor the insights into human nature to con­struct, imple­ment, and main­tain of scaled-​down ver­sion of sim­i­lar, long-​lasting mechanisms.

We’ll prob­a­bly revise and append this post as we revise and append our thoughts. May God be with you.

Or, Will Blacks Be the New Catholics?

Yes, the sub­ti­tle is pur­posely provoca­tive, but we’re inter­ested in cer­tain long-​term impli­ca­tions of the Obama Pres­i­dency and what it means for choice and free­dom among cer­tain vot­ing blocs.

This week­end, like most week­ends, Peggy Noo­nan has an inter­est­ing essay in The Wall Street Jour­nal. It is enti­tled, What I Saw at the Inau­gu­ra­tion.

As we noted in the past, Ms. Noo­nan is an extremely astute observer of the zeit­geist, and there was much on dis­play this past week in Wash­ing­ton, D.C.¹

In this weekend’s col­umn, Ms. Noo­nan men­tions that given the num­ber of furs she observed worn by black ladies attend­ing the inau­gu­ra­tion, “PETA just took one on the chin,” mean­ing that she doubts that PETA would attack the outer apparel choices of some in the black estab­lish­ment. (We recall hear­ing a sim­i­lar, but less race-​specific com­ment on FoxNews regard­ing the num­ber of fur-​wearers in D.C. this past week, which per Ms. Noonan’s col­umn, would seem to grate on many on the left.)

Her brief anec­dote made us won­der whether Ms. Noo­nan didn’t miss a big­ger poten­tial impli­ca­tion of that and oth­ers obser­va­tions she made – in this case, a pos­si­bly very large impli­ca­tion regard­ing the direc­tion of pol­i­tics in Amer­ica. Will Mr. Obama’s elec­tion allow blacks to vote more conservatively?

Let’s start with two quite dis­parate fact: (1) there are few activ­i­ties more cul­tur­ally con­ser­v­a­tive than wear­ing fur, and (2) it has often been remarked that many blacks – espe­cially those involved in the church – are very, socially conservative.

The first point’s more for fun than seri­ous, but it was the impe­tus for our con­jec­ture and is still worth mentioning.

Despite what our chil­dren think, we don’t pre­date cul­ture.² How­ever, it’s easy to imag­ine that wear­ing fur does pre­date cul­ture by many years. That would indeed make it quite a tra­di­tional and con­ser­v­a­tive activ­ity.³

Per­haps bet­ter evi­dence than fur for our con­jec­ture is this very pro-​life ad by CatholicVote that ran on BET – that’s Black Enter­tain­ment Tele­vi­sion – this past week.

(By the way, the ad’s look and mes­sage is sim­i­lar to an inde­pen­dently designed tee-​shirt that is offered for sale at one of our affil­i­ates: www​.BWAMShop​.com.)

Socially con­ser­v­a­tive blacks and Catholics unit­ing to pro­tect the weak and vul­ner­a­ble. Why, it’s almost a match made in heaven!

We won­der: with the elec­tion of Mr. Obama, will Demo­c­ra­tic but socially con­ser­v­a­tive blacks real­ize their power and posi­tion and feel free to push harder on issues that seems quite at home in black churches – well, actu­ally, in almost all churches. (We think the fuss about Mr. Obama’s for­mer min­is­ter may have obscured the main­stream, con­ser­v­a­tive social val­ues of many tra­di­tion­ally black con­gre­ga­tions. As MLK said, it is the con­tent of the char­ac­ter, not the color of the skin that should matter.)

Will that sense of arrival, pride, and con­fi­dence per­mit socially-​conservative blacks to argue against other Demo­c­ra­tic Party inter­ests and posi­tions in which they do not believe? If they do, will that pres­sure mod­er­ate the party or cause the social con­ser­v­a­tives to seek a new polit­i­cal home?⁴

As we recall, the per­cent­age of Catholics who were Democ­rats decreased after the elec­tion of JFK – although it did take awhile. So, we think it is pos­si­ble to argue that the elec­tion of the first Catholic Pres­i­dent – a Demo­c­ra­tic one – per­mit­ted Catholics to real­ize their power and move to a Repub­li­can party that bet­ter expressed their social views, espe­cially after Gold­wa­ter in 1964 and the ascen­dancy of Ronald Rea­gan in the late 1970’s?

Will we be cor­rect? Who knows, but it is fun to spec­u­late and even bet­ter to have the lib­erty to do it in a pub­lic forum like the inter­net – with no threat of cen­sor­ship or gov­ern­ment interference.

That grat­i­tude for liv­ing in the USA and our prayers that God watch-​over and bless Mr. Obama and the nation dur­ing the next four years (and into per­pe­tu­ity) is some­thing that all believ­ers can agree upon.

Foot­notes:

Last Mon­day, The Wall Street Jour­nal pub­lished a small sur­vey of mostly aca­d­e­mic econ­o­mists in Experts’ Rx on How to Get Out of This Mess. (Per­haps “aca­d­e­mic econ­o­mist” is redundant.)

We couldn’t tell whether a few of the replies were poorly edited or were inher­ently trite, e.g., to para­phrase we need long-​term solu­tions, new risk mea­sures, and the abil­ity to sep­a­rate the good and bad firms. You don’t say!

Any­way, we did like Dou­glas Diamond’s response: “You have lots of car­rots and no sticks right now.”

The reporter, Justin Lahart, must have para­phrased the rest of Mr. Diamond’s reply because there were no other quo­ta­tion marks. He wrote: “One alter­na­tive would be leg­isla­tive changes that would allow reg­u­la­tors to quickly wipe out exist­ing share­hold­ers at prob­lem banks with­out invok­ing bank­ruptcy, and con­vert long-​term debt issued after the leg­is­la­tion went into effect to equity. That would effec­tively recap­i­tal­ize the bank with­out the need for gov­ern­ment money. And it would give big incen­tives to investors to buy banks’ debt, and to banks to raise cap­i­tal in order to keep their share­hold­ers from being wiped out.”

Now, we’re not­ing his remark a week after that arti­cle was pub­lished because, today, we saw on the same web site that it’s esti­mated that Citi lost another $10,000,000,000 in the fourth quar­ter of 2008. That means that it’s lost about $30,000,000,000 since Hal­loween, 2007, and that seems like a lot of money to us. We haven’t both­ered to check it, but that $30 bil­lion would be after-​tax, which means gross losses were even larger.

Of course, Citi was one of the firms that “res­cued” by the gov­ern­ment, and of that much has been writ­ten about that by many peo­ple, includ­ing at our site.

Sadly, today we also saw Mr. Bush request the “other” $350,000,000,000. (When the Feds decide to uri­nate our tax dol­lars away they do it on a scale rarely seen out­side of Nia­gara Falls.)

These recent losses and the government’s will­ing­ness to sub­si­dize make us ask: when is enough, enough?

To be clear with our read­ers, we don’t do this out of vengeance or spite or envy nor, unfor­tu­nately, even a sense of amuse­ment. In fact, we write in the spirit of the fol­low­ing excerpt from Leviti­cus 19:17 — 18, which we saw in our Mag­ni­fi­cat last week:

You shall not bear hatred for your brother in your heart. Though you may have to reprove your fel­low man, do not incur sin because of him.

Take no revenge and cher­ish no grudge against your fel­low coun­try­men. You shall love your neigh­bor as your­self. I am the LORD.

In that spirit, and con­sis­tent with Mr. Diamond’s rec­om­men­da­tion, we ask, when do we get to see the offi­cial reproof? When do these folks lose their right to con­trol assets, and when do these cor­po­ra­tions – legal enti­ties – for­feit their exis­tence and charters?

If you’re famil­iar with our writ­ings, then you know that we think they are far past that point of no return for many cor­po­ra­tions. Exactly how less trust­wor­thy must they become before the gov­ern­ment inter­venes per ours or Mr. Diamond’s recommendations?

One of them, at least.

Update: We’ve added an excel­lent line from Peggy Noonan’s Decem­ber 26^th, weekly col­umn, as it fits so per­fectly with our theme.

We spent a recent noon-​time dis­trib­ut­ing year-​end, hol­i­day, bonus checks to a group of care-​givers and their managers. 

It was very grat­i­fy­ing, espe­cially since it wasn’t our money. We’re jok­ing, of course. It would likely have been more grat­i­fy­ing had been our money, but while the lunch was for a small orga­ni­za­tion, it’s not that small.

Now, we know that it is quite easy to go through life ignor­ing not only peo­ple in need but also those who help them on both a vol­un­teer and paid basis. (It’s worth not­ing that those who do get paid usu­ally don’t get paid much for their efforts.) There are a lot of car­ing peo­ple serv­ing a vari­ety of con­stituents, e.g., in fields like men­tal retar­da­tion, men­tal health, the aged, etc.

Those folks spend sub­stan­tial time and energy help­ing oth­ers, includ­ing the less for­tu­nate, to lead more ful­fill­ing lives. For exam­ple, we know good peo­ple who have devoted their entire work­ing careerss to pro­vid­ing such aid, and that often requires fight­ing against an uncar­ing and soul­less gov­ern­ment bureau­cracy (in their attempts to do the right thing.) For another exam­ple, we know of oth­ers who call their work­places on their days off to check on their favorite clients. All of these peo­ple, for at least some por­tion of their daily lives, try to do the right things for oth­ers. (Yeah, some­times it seems weird to us, too.)

In her weekly col­umn, A Year for Books, Peggy Noo­nan men­tions “Mother Teresa’s Secret Fire” by Father Joseph Lang­ford, a friend of Mother Teresa’s. Ms. Noo­nan writes: “…and of the things he learned from her includ­ing, most cen­trally, this: You must find your own Cal­cutta. You don’t have to go to India. Cal­cutta is all around you.”

In that regard, if the reader has access to Touch­stone Mag­a­zine, we encour­age them to read the Anthony Esolen’s excel­lent essay, “Pot­ter­ville Nation,” in the Decem­ber issue. Unfor­tu­nately, it is not avail­able on line.

In the essay, Mr. Esolen writes about the clas­sic movie, It’s a Won­der­ful Life. His point is that it was not nec­es­sary for George Bai­ley to have never been born for Bed­ford Falls turn into Pot­ter­ville. (In the movie it is called Pot­tersville with an “s.”)

Even if George had been born, there were any num­ber of steps along the way when he could have veered slightly (almost imper­cep­ti­bly) away from his con­science and duty, and that would have been to the severe detri­ment of other indi­vid­u­als, his com­mu­nity, and soci­ety. Many of those small turns would have seemed innocu­ous or would have been unob­served by oth­ers. It’s quite pos­si­ble that no one, includ­ing George, would have known the dam­age he caused or did not pre­vent as he chased his dream. (Per St. Fran­cis de Sales, that doesn’t mean that one should over-​analyze or over-​account for ones every actions and deci­sions. We’ll try to pro­vide a link in the near future.)

Mr. Esolen notes that nowa­days much of soci­ety looks more like Pot­ter­ville than Bed­ford Falls, and he attrib­utes that phe­nom­e­non to folks (self­ishly) fol­low­ing their dreams to the exclu­sion of oth­ers. (Per­haps, like Utopia, Bed­ford Falls never existed. In fact, Mr. Esolen men­tions that self-​recognition and feel­ings of guilt may have been the rea­son why the movie was unsuc­cess­ful dur­ing its ini­tial release in 1946.)

Now, one rea­son we par­tic­u­larly like his essay is that it fits quite nicely with a recent con­ver­sa­tion we had with one of the princesses. We were told “When I’m an adult, I’ll do what I want.” Our reply was, “Hmmm, we don’t see any real adults act­ing that way. In fact, it seems to us that ‘I’ll do what­ever I want’ is the antithe­sis of adult­hood, civ­i­liza­tion, moral­ity, ethics, and rea­son. The impul­sive ‘I’ll do what­ever I want’ cer­tainly makes one no bet­ter than ani­mals and not very close to angels.” (Obvi­ously and clearly, we’re not talk­ing about those who are old enough to be adults, but who choose not to be, but that’s a post for another day.)

We told her that being an adult involves doing what oth­ers need you to do. In that sense, adult­hood isn’t lib­er­at­ing, but as George Bai­ley dis­cov­ered, it can be very ful­fill­ing. (Lib­er­a­tion involves liv­ing a coun­try where the gov­ern­ment per­mits cit­i­zens to be adults, but that, too, is post for another day.) 

We’ve won­dered how many times we’ll have to repeat that mes­sage in the com­ing years, and at Christ­mas Eve Mass, we prayed for the strength to be able to do so as often as it is needed to be heard.

We’re also quite thank­ful that her mother, the chair­man, sets such an excel­lent exam­ple of adult behav­ior and respon­si­bil­ity (and com­pen­sates for our many fail­ings and immaturity).

Unlike the folks that we ref­er­enced above, we doubt that we do our fair share, but we pray for those who do. We wish them and you a Blessed and Merry Christ­mas and a Healthy and Happy New Year.

Reg­u­lar read­ers will know that we often crit­i­cize the stu­pid appli­ca­tion of math­e­mat­i­cal mod­els, espe­cially ones related to finance and eco­nom­ics; ergo, our firm’s motto, “Thought Before Calculation.”

In that light, we note that in last Friday’s The Wall Street Jour­nal (Novem­ber 7) the edi­tors excerpted a speech that Michael Crich­ton gave at Cal Tech in 2003, entitled ‘Aliens Cause Global Warm­ing.’ (For those who don’t know, Mr. Crich­ton passed away early last week.)

In the speech, Mr. Crich­ton dis­cussed the Drake equa­tion which attempts to illus­trate the winnowing-​down process of all the plan­ets in the uni­verse to ones that could sup­port life and could send intel­li­gent sig­nals (to us). There are seven vari­ables in the equa­tion, which was the impe­tus of the SETI project and one of the jus­ti­fi­ca­tions for spend­ing funds on it. For SETI, think Jody Fos­ter in the screen ver­sion of the late Carl Sagan’s Con­tact.

Mr. Crich­ton made the excel­lent points that the Drake Equa­tion is a serious-​looking equa­tion and that its seri­ous appear­ance pro­vided poten­tial inves­ti­ga­tors with a veneer of serious, scientific inquiry. This is despite the fact that NONE of the seven vari­ables can ever be known or esti­mated. Thus, the inves­ti­ga­tion was not sci­ence and was/​is not that dif­fer­ent than count­ing the num­ber of angels on the head of a pin. 

Mr. Crich­ton con­cluded that SETI et. al. “is unques­tion­ably a reli­gion.” (Below we argue it is a bad reli­gion – mean­ing a poorly-​considered one.)

More­over, he con­tin­ued his argu­ment by not­ing that with­out legit­i­mate sci­en­tific inquiry and pro­ce­dure, “soon enough garbage began to squeeze through the cracks…” (By this point, the reg­u­lar reader and the astute reader can see where we are headed by this post’s title.)

He went fur­ther to note that the achiev­ing con­sen­sus around a “model” is not sci­ence, and vice versa.

We go fur­ther to argue that such con­sen­sus is not sci­ence, nor even part of science’s broader super-set, reason. 

Yes, we view sci­ence as a sub­set of rea­son – the empir­i­cal part of rea­son. And so, we’d argue that such con­sen­sus is in fact a sub­sti­tute for rea­son. In fact, it fills the entropic chaos of unknow­ing that is the absence of reason. 

Thus, we con­trast such sci­en­tism with more fully-​developed reli­gions like, say, Christianity, which via numer­ous pas­sages, includ­ing the first chap­ter of the Gospel of St. John, defines God as rea­son (logos) and com­mands man to use that same rea­son to be bet­ter than instinc­tual, impul­sive ani­mals amidst the chaos.¹

At first glance, it might seem that the val­u­a­tion (and sub­se­quent real­iza­tion) of mortgage-​backed secu­ri­ties (MBS) and other finan­cial assets has lit­tle in com­mon with the esti­ma­tion of the cur­rent num­ber of intel­li­gi­ble planets.

However, both method­olo­gies require giant leaps of faith when mov­ing from real­ity to a model as both suf­fer from the absence of rel­e­vant data. Other galax­ies and solar sys­tems (and plan­ets) are just too far away to con­sider care­fully, and there are only (rel­a­tively) short his­to­ries of mort­gage prod­ucts and repay­ments avail­able from which one HOPES to extrap­o­late the future, and this is where and why the con­sen­sus arises. 

There are no good mod­els; so, indi­vid­u­als agree to use mod­els already in use (as a val­i­da­tion for their choice). Often, such mod­els first appeared in text­books for entirely dif­fer­ent pur­poses but were used out of convenience.

Mort­gage port­fo­lio, MBS, and CDOs suf­fer a few addi­tional bur­dens not shared by ET’s would-​be friends, including: (1) depen­den­cies and inter­ac­tions between or among bor­row­ers that would seem to be absent with plan­ets; (2) non-stationarities through time with respect to these (and other rel­e­vant) rela­tion­ships; and (3) the inter­ac­tions are endoge­nous as they involve people’s cog­nizant responses through time to eco­nomic con­di­tions and per­sonal cir­cum­stances. (In that sense, it is truly a daunt­ing task.)

Please see our ear­lier post for a descrip­tion of the mort­gage pool or port­fo­lio prob­lem. In it, we illus­trate how recent calls for more trans­parency are non sequiturs and sim­plis­tic, but do show a lack of under­stand­ing about the nature of the problem.

It seems that the soci­olo­gies of both plan­e­tary and mort­gage mod­el­ing envi­ron­ments do seem to place a pre­mium on con­sen­sus. While every indi­vid­ual trader or struc­turer may have their own idio­syn­cratic tweaks, most solve val­u­a­tion prob­lems in sim­i­lar man­ners because there just aren’t that many tractable ways to per­form the cal­cu­la­tions. But, as many for­mer traders and struc­tur­ers have dis­cov­ered, choos­ing a method­ol­ogy for its tractabil­ity is very dif­fer­ent than choos­ing one for its applic­a­bil­ity, par­tic­u­larly when the envi­ron­ment changes rapidly or drastically.

In fact, we’d argue that the recent lack of exchange or illiq­uid­ity in these mar­kets results from the real­iza­tion and inter­nal­iza­tion that these mod­els have failed, and no suit­able replace­ment yet has been found; ergo, the paralysis. 

As fur­ther evi­dence of paralysis, today Mr. Paul­son announced the Trea­sury Depart­ment wouldn’t pur­chase any trou­bled assets as part of their TARP efforts. (Recall that the “TA” in TARP stands for “Trou­bled Asset.”) It seems that the gov­ern­ment doesn’t know how to value them, either. We’d have been sur­prised by the announce­ment had we not pre­dicted it six weeks ago.

As always when we dis­cuss these top­ics, we point read­ers to our essay Uncer­tainty Man­age­ment, which presents a broader view of the nature of unknow­ing – far broader than the nar­row empha­sis on risk or mea­sur­able uncer­tainty one typ­i­cally sees.

Finally, as usual, we also note that we have pro­posed a pri­vate solu­tion to the mort­gage cri­sis that uses tax incen­tives – via the equiv­a­lent of accel­er­ated depre­ci­a­tion or invest­ment tax credit – to induce pri­vate pur­chases of the trou­bled assets. We sug­gest Mr. Paul­son con­sider that alternative.

Exclud­ing fools – which we admit pro­vides a non-​trivial exclu­sion – we doubt that finan­cial mod­el­ers or ana­lysts will regain the (mis­placed) self-​confidence they exhib­ited in the calm-​market era prior to mid-​2007. 

In our view, such well-​earned and well-​deserved humil­ity will be ben­e­fi­cial for soci­ety as a whole. Such feel­ings may spur inno­va­tion and increase the level of thought­ful of analy­ses per­formed (rather than rote, pro­ce­dural tasks). Perhaps it may change the struc­ture of contracts.

Per­haps the recent fail­ures will allow senior man­agers to gain effi­cien­cies through the real­iza­tion that irrel­e­vant details are not infor­ma­tion and so many rou­tine tasks and algo­rithms are indeed worth­less – despite the claims of reg­u­la­tors and audi­tors. (Oh, who are we try­ing to kid. The skep­tic in us sug­gests that we’re show­ing our naiveté.)

Or – to seri­ously mix our metaphors – falling head-​over-​heels for the wolves’ claims that the “sky is falling.”

Our favorite line from the play and movie, A Man for All Sea­sons, is Saint Thomas More’s state­ment at his trial in which he gen­tly belit­tles one of his per­jur­ing accusers, Richie Rich:

“Why Richard, it prof­its a man noth­ing to give his soul for the whole world…Ahh, but for Wales?”

Mr. Rich received an appoint­ment from Henry VIII in Wales for his efforts.

After per­form­ing a short and cur­sory search of the web, we’re not sure – and it seems that no one else is, either – as to whether the mar­tyred Saint actu­ally made that statement, or whether it is an apoc­ryphally placed by the play­wright, Robert Bolt.

Nonethe­less, it so beau­ti­fully expresses the wry, amused, and con­sid­ered insight of a thought­ful, yet con­demned, man, who by quot­ing scrip­ture (Mark, 8:36), makes clears Rich’s Faus­t­ian bar­gain, and for what?

The Scared: We have been reminded of that 16^th cen­tury, court­room scene sev­eral times dur­ing the past sev­eral weeks, includ­ing today when we read Kim Strassel’s poorly-​reasoned, col­umn on in today’s WSJ, What Lead­er­ship Looks Like, and yes­ter­day, when we read The Wall Street Jour­nal’s edi­to­r­ial, enti­tled, “Free AIG.”

Yes­ter­day, the Journal’s the edi­to­r­ial staff seemed to regain – at least tem­porar­ily – their free-​market prin­ci­ples long enough to crit­i­cize the Fed­eral Reserve’s seizure of AIG in mid-​September. Unfor­tu­nately, the edi­tors have failed to take that same logic and apply it to the larger finan­cial cri­sis, as does Ms. Strassel and her subject, Congressman Paul Ryan.

Indeed, while claim­ing to be for “free mar­kets and free peo­ple,” they seemed awfully will­ing to for­sake it for a smidgen of a promise security.

Reg­u­lar read­ers know that we’re morally opposed to the plan for sev­eral rea­sons, includ­ing that trade-​off of free­dom for secu­rity and our doubts that it is nec­es­sary despite the many, many pleas of exi­gent cir­cum­stances, falling skies, and wolves.

Furthermore, as we have writ­ten exten­sively dur­ing the past two weeks, we believe that there are harm­ful imme­di­ate and long-​term impli­ca­tions of the bailout and that it will fail. 

So, the promised secu­rity and sta­bil­ity will be illu­sory – a mirage, per­haps – as all such promises have been since at least the takeover of Bear Stearns in the early Spring. See any of these recent posts: The Finan­cial Bailout, Reverse Auc­tions and Mark­ing to “Mar­ket”; Moral Haz­ard and Another Prob­lem with Illiq­uid Assets; If ‘If’s and ‘But’s Were Candy and Nuts…(#2); Big­ger Is Not Nec­es­sar­ily Bet­ter; OMG! OMG! OMG! Largest US Bank Fail­ure Ever!; The Cri­sis and Free Mar­ket Crit­ics; The Uncer­tain Value of Mort­gage Secu­ri­ties; Sorry Mr. Bush, We Respect­fully Dis­agree; Could a “Bailout” Pro­long the Finan­cial Cri­sis?; Idio­syn­cratic and Con­cen­tra­tion Risk, Again.; and Pub­lic Bailout? Why Rush or Do It at All?. (Actu­ally most every­thing we’ve writ­ten dur­ing the past two weeks.)

In that regard, we have pro­posed our own privately-​oriented, market-​based plan, A Bet­ter Solu­tion (than a gov­ern­ment takeover), that requires only a few small changes in the tax laws to imple­ment. It is sim­i­lar to allow­ing accel­er­ated – well, imme­di­ate – depre­ci­a­tion of the cost or an invest­ment tax credit to the prospec­tive pur­chasers of cer­tain mort­gages and MBS and CDS issues. (Note: the cur­rent bill pro­vides invest­ment tax cred­its for risky R&D but not risky mort­gages. Does that make any sense?)

The Scary: In addi­tion, we ask the dear reader to con­sider this: if the cur­rent plan fails to alle­vi­ate the pan­ics, can he or she imag­ine how far the gov­ern­ment will fur­ther over­step its author­ity to solve what will then be a pro­longed cri­sis REQUIRING addi­tional gov­ern­men­tal inter­ven­tion, or have sup­port­ers not con­sid­ered that prospect?

The Sorry: Think­ing of the illu­sory nature of many such bar­gains and trade-​offs made us won­der about the indi­vid­u­als – exec­u­tives, reg­u­la­tors, and employ­ees – who “cut cor­ners,” turned a “blind eye,” or just went along with some­thing in which they didn’t believe…in hopes of gain­ing the world or per­haps just a small bit, say, a lit­tle cor­ner of Wales or Long Island.

In the process, not only did they bear high per­sonal costs, but in many cases, the gains, e.g., the value of their stock grants or their new titles, turned out to be illu­sory. (Cromwell was guil­lotined a few years later, too.)

We sym­pa­thize with them – not the amoral ones; they don’t care and would only mock our sym­pa­thy. No, we mean the folks with con­sciences, who knew right from wrong, but couldn’t resist and traded their decency (and in many cases their self-​worth) for the lure of a few dol­lars more or a lit­tle less aggra­va­tion. That near-​universal weak­ness is the rea­son that we and many oth­ers admire Sir Thomas, even if we can’t always emu­late him.

The Final Irony: All such sac­ri­fices (and gov­ern­ment direc­tives) are designed to lead one or one’s peo­ple to Utopia. By the way, who wrote that book?

On Mon­day in a post, A Bet­ter Solu­tion (than a gov­ern­ment takeover), we pro­posed a serious, alternative solu­tion to the finan­cial liq­uid­ity cri­sis that is decen­tral­ized and free-​market ori­ented. In addi­tion, it could quickly be imple­mented with a few changes to the tax code. The main idea: per­mit pri­vate buy­ers of dis­tressed secu­ri­ties to imme­di­ately expense the pur­chase price and pay low tax rates of sub­se­quent sales or recoveries.

At the end of that post, we men­tioned that we had a few details to work out, includ­ing the opti­mal (sub­se­quent) cap­i­tal gains tax rate, the appro­pri­ate tax basis, and any par­tic­i­pa­tion restric­tions, i.e., should sell­ers of dis­tressed secu­ri­ties also be per­mit­ted to buy them from others?

Unfor­tu­nately, we must now defer con­sid­er­a­tion of these issues to inves­ti­gate a more press­ing the­o­log­i­cal one: is our dog’s eter­nal hap­pi­ness at stake now that he has bit­ten the priest’s elderly dog? (To be clear, the dog is old, not the priest.) We’re guess­ing mor­tal sin, not venal.

You see, Our Poster Boy for the Credit Cri­sis bit the poor old dog on the head when the duo vis­ited this evening. So, is Bootsy doomed? And are we per­son­ally doomed for our fail­ure to con­trol our Basenji’s trans­gres­sions against the church Lab?

In other words, will Boots and I be forced to spend a hel­la­cious eter­nity lis­ten­ing to the insipid prat­tlings of Mike Tirico, Ron Jaworski, and Tony Korn­heiser, ESPN’s Mon­day Night Foot­ball announc­ing crew?

We’re both sorry: very, very sorry.