February 2009 Archives

I have a bit of a soft spot for David Brooks, as well as appreciation of Edmund Burke, so I was initially smitten with this argument.  The US expenditure of over $700 billion on Keynesian economic policy, which has a scant empirical track record, at a time when US public debt already exceeds 75% of GDP in the worst recession in a generation, is terrifying.  Even more terrifying is the fact that the US might someday struggle to issue new debt.  It's not clear how policies like universal healthcare will fit into this dreadful economic landscape.  Against this backdrop, Burke's gradualism sounds compelling: we should focus on getting a few small things right slowly, learning from our mistakes, before we turn government upside down.

Brooks recalls how he was assigned Burke's "Reflections on the Revolution in France" as a first-year student in college, and how he grew from hating to appreciating it.  At that same university, I was assigned that same book 25 years or so later, and I can't say I liked it much either when I first read it.  But as a first-year student I was also assigned another book: John Dewey's "The Public and Its Problems".  It deals with many questions and problems in society, some rather theoretical.  But one of Dewey's more famous propositions in the book is that social science and public policy should be experimental.  He states:

Burke and Dewey initially seem to be at odds: Burke wants to preserve institutions and Dewey wants to experiment.  But this analysis is too superficial.  Burke was writing in response to the French revolution, which catastrophically attempted to overturn the Old Regime through rigid and ideological social planning.  His sense of "epistemological modesty", which Brooks praises, was in response to people who thought that they could reorder society in a utopian manner.  As the quotation above indicates, Dewey's experimentalism has no such preconceptions.  He sees that we are all ignorant, but he thinks that the only way to learn anything is to try lots of stuff.  Certainly Burke and Dewey have philosophical differences, but they are not diametrically opposed.

As much esteem as I now have for David Brooks and Edmund Burke, I also (paradoxically?) love John Dewey.  But contained in David Brooks's reference to Edmund Burke in his critique of Obama is an implicit comparison of Obama to the French revolutionaries.  I completely disagree with this comparison.  Instead I think Obama is a faithful adherent to Dewey, trying to aggressively tackle many problems in an adaptive, nondogmatic manner (that is, when he can avoid the partisan hackery of the congressional Democrats).  I don't think anything Obama has said indicates that he thinks he has all the right answers.  But I think it's clear that he wants to try something out.  I can only hope that Obama recalls the lessons of Burke while forging ahead like the good Deweyan he truly is.

Nevertheless, hedge funds do appear to be outperforming the market on average, even in this downturn.  This is, of course, at the expense of much higher fees, which may wipe out any earnings.  Without capital restrictions, expenses should be set to a level that offsets any outperformance of the market: if one fund were able to outperform, investors would move money in until demand caused it to regress to the mean.  Reality obviously doesn't conform so well to this story, but believing in the supremacy of the hedge fund is an even greater fiction.  For risk-averse individuals, one also must account for the nontrivial probability that the hedge fund one chooses will fold.  Similarly, identifying the fund that will outperform in the future is nearly impossible.  Adaptive expectations are simply wrong most of the time, and rational ones have huge margins of error.  Thankfully for index funds, it is pretty hard for the entire global economy to fold.  At that point, the difference between annualized returns of 10 percent versus 12 percent is moot.

That said, the current crisis appear to be flush with very interesting and unusual ways of doing quite well.  There are all sorts of rare opportunities in the bond markets, government securities are bizarrely out of equilibrium, and certain commodities appear waiting to crash or recover (e.g. gold and oil).  These might be just as foolish as mutual funds, but investing one's money in them is the only way to find out.  Perhaps this is why the racket that is the mutual fund industry still exists.

Despite their generally libertarian slant, a Cato Institute Bulletin has a decent overview, describing how even leaders of New Keynesianism (Paul Krugman excepted, of course), find it difficult to justify the current government action in economic terms.  But still, the public is smitten with this return to old economic theory.  Even The Economist, the ardent defender of free trade, is awash with nostalgia for the Cambridge school in their recent leader, and in their briefing on Irving Fisher.

Set in one teacher's classroom in an unruly school in the XXe arrondissement of Paris, students struggle against their supervisors' best attempts to discipline them.  What ought to be an environment of intellectual exploration is instead an impossible exercise in balancing the need to discipline students with the need to encourage them to express themselves.

Eschewing the usual cinematic tricks like plot twists and soundtracks allows film to use a minimalist approach that focuses the characters' reactions and emotions.  During the parent-teacher conference, for example, there is no high drama, but one can feel the incredible awkwardness that teacher experiences, sitting contorted, occasionally biting his nails, as he tries to politely explain in that to parents that their children are worthless students.

Instead of trying to present a complete criticism of any one piece of the French educational system, the movie uses a series of episodes in the classroom and teachers' lounge to highlight the irresolvable philosophical and bureaucratic tensions that arise in public education.  This is ultimately the only mature way to approach the issue because there are no simple answers to the problems of schools.  By approaching these problems in an idealistic way, American high-school films just end up looking stupid by comparison.  e.g. "Stand and Deliver" gives the impression that the poor are totally and unfairly marginalized by the educational system.  While not untrue, it completely overlooks deep socioeconomic factors that make educating the lowest strata of society a nearly impossible task.  The feel-good sensation one might experience during the film is entirely wiped out by its disingenuous portrayal of reality.  "Entre les Murs" correctly realizes that it would be absurd take a stand on questions like: how can teachers ask students to respect themselves when they don't always respect their students in the same manner?  Or should one teach to the lowest common denominator, or to the 14-year-old girl in the class who reads Plato for fun (greatest description EVER of The Republic, by the way)?  These questions have no definite answers, so a montage that presents the difficulties of each stance becomes the most compelling approach.

In the end, we have a film that is probably not superb, but a thoughtful work that causes one to reflect on hard questions that we gladly forget about the minute we stepped through the insulated doors of our good universities.

--Barron's