Progressives, Engineers, and Ecologists – Foolproof by Greg Ip
TESI: I DISASTRI – IN TUTTI I CAMPI – SONO DESTINATI A RIPETERSI. QUANDO NON SI RIPETONO PRESTO, ALLORA SI RIPETERANNO PIU’ VIOLENTI. COSA OCCORRE? LA PAURA. COSTANTE. COSA CI MINACCIA? IL SENSO DI SICUREZZA. PURTROPPO PIU’ SICUREZZA IMPLICA QUASI SEMPRE PIU’ SENSO DI SICUREZZA.
In 1907 a terrifying panic swept New York’s financial markets… Three years later and thousands of miles to the west, massive forest fires broke out that burned across Montana…
Note: INCENDI E BORSE CHE CROLLANO Edit
Until then, western settlers accepted fire and businesses accepted bank panics as the unavoidable by-products of a civilization
Note: MA SIAMO ANCORA NELL’ERA DELLA RASSEGNAZIONE Edit
The two disasters marked a turning point in how Americans coped with chaos… more than a dozen distinct financial panics between its founding and 1907….
ECCO CHE PARTE LA SVOLTA: BISOGNA PORRE RIMEDIO. OCCORRONO SOLUZIONI.
There was available a solution: a central bank that could lend to banks
Note: PER LE CRISI FINANZIARIE LA SOLUZIONE SEMPLICE: UNA BANCA CENTRALE Edit
The Panic of 1907 shifted opinion decisively the other way. “It is the duty of the United States to provide a means by which the periodic panics which shake the American Republic and do it enormous injury shall be stopped,”
CAMBIO DI MENTALITA’
The fires of 1910 similarly altered the country’s attitude toward natural disaster.
Note: IL GRANDE INCENDIO DEL 1910 SOLLECITO’ I MEDESIMI IMPULSI: BISOGNAVA PORRE FINE A QUESTE DISGRAZIE
The logging industry wanted the trees for lumber; Theodore Roosevelt wanted them for national parks.
UN TEMPO L’ALBERO ERA UN FASTIDIO, ORA UNA RISORSA. INTERVENIRE DIVENTAVA NECESSARIO
Gifford Pinchot, a confidant of Roosevelt and the first chief of the U.S. Forest Service, wrote a few months after the fires: “Today we understand that forest fires are wholly within the control of men…
Note: POMPIERI E IL MITO DEL CONTROLLO Edit
He and his successors transformed the infant fire service into an organization devoted to preserving the woods
Note: NASCITA DEL POMPIERE Edit
A century later, panics and forest fires are still with us.
Note: MA UN SECOLO DOPO… Edit
Does this mean central bankers and forest managers were failures?
Note: POSSIAMO PARLARE DI FALLIMENTO? NO! Edit
Yet it was that very success that planted the seeds for future disaster and that illustrates the fundamental contradiction in humanity’s quest for safety and stability:
Note: NO: DOBBIAMO PARLARE DI SUCCESSO. SENONCHE’ E’ PROPRIO IL SUCCESSO A CREARE PROBLEMI… Edit
In the case of forests, putting out small fires makes large fires more devastating, since fire suppression allows more leaves, brush, and other dead tree matter to accumulate on the forest floor, leading to denser forests.
Note: LA VIRTÙ DEL PICCOLO INCENDIO Edit
the natural tendency of the landscape to immolate.
FUOCO: UN FENOMENO NATURALE (E BENEFICO)
The ferocity of fires in recent decades is the consequence of a warming climate combined with the fuel provided by forest density that has been allowed to develop over decades of fire suppression.
Note: DENSITÀ DELLA FORESTA Edit
IN ECONOMIA C’E’ UN PROCESSO PARALLELO.
As for the economy, there is no shortage of theories about what produced the crisis of 2008. One popular culprit is private greed… Another is government: pursuing a vision of home ownership for all… Or maybe the crisis was the result of one of the mass obsessions that periodically sweeps the population, from tulip bulbs in seventeenth-century Holland to Internet stocks in twentieth-century America…
Note: FALSI COLPEVOLI DELLA CRISI FINANZIARIA: L AVIDITÀ… GOVERNO… ISTERIA Edit
the most important factor was the sense of safety that resulted from years of successfully fighting crisis and recession. The twenty-five years before the global financial crisis were unusually peaceful
Note: IL VERO COLPEVOLE: IL SENSO DI SICUREZZA Edit
VENIAMO AI TEMPI PIU’ RECENTI…
the “Great Moderation,”… choking with the fuel of leverage, risk, and complacency.
Note: IL SENSO DI SICUREZZA INDUCE A “GIOCARE” UN PO’ TROPPO CON LA LEVA FINANZIARIA Edit
Fear serves a purpose: it keeps us out of trouble.
LA FUNZIONE DELLA PAURA
Parents vacillate between walking their children to school every day to protect them from predators, and worrying they’ll grow up sheltered and unable to cope with life.
Note: UN GENITORE LO SA
two schools of thought. One, which I call the engineers… the other, which I call the ecologists,
Note: DUE SCUOLE DI PENSIERO: INGEGNIERI VS ECOLOGISTI Edit
engineering’s rise began with the Progressive Era in the late nineteenth… Alfred Marshall published his path-breaking Principles of Economics in 1890, but as Marshall noted, as a science it was “in its infancy.”…, Marshall made famous the supply and demand curves that every economics undergraduate today knows on sight…. These tools persuaded experts that with enough study and will, the complexities of nature…
Note: LA NASCITA DEGLI INGEGNERI IN ECONOMIA: ALFRED MASHALL
American Economic Association was founded in 1885, the Society of American Foresters in 1900, the American Sociological Association in 1905, and the American Planning Association in 1909… revolt against Gilded Age capitalist…
COMINCIA LA PROGRESSIVE ERA. GILDED VS PROGRESSIVE Edit
Progressivism, the philosophy that government could be a force for both equity and efficiency…. Theodore Roosevelt and Woodrow Wilson… a more activist, muscular state… creation of a central bank modeled on those in England, France, and Germany… role of government sprung from social science….
IL MARCHIO DI FABBRICA DEGLI INGEGNERI PROGRESSISTI
One of his influences was Walter Bagehot… professional administrators in government.
FIGURA DI SPICCO
The basic tools now existed for engineers to manage the economy: new regulatory powers, a central bank, even an income tax…. Fed eagerly stepped forward to finance the federal government’s First World War effort…. This worked well throughout the 1920s, and leading economists concluded that the problem of depression had been abolished…
ORA GLI STRUMENTI PER IL CONTROLLO CI SONO! LE DEPRESSIONI SONO SCONFITTE. LO SI DICEVA NEGLI ANNI VENTI. POI… LA GRANDE DEPRESSIONE DDEGLI ANNI TRENTA.
what caused the Great Depression… One theory that emerged in the early 1930s was that the engineers had overreached.
CAUSE DELLA GRANDE DEPRESSIONE
Anything that remedied the Depression would interfere… This ecological view was shared by Andrew Mellon, Herbert Hoover’s Treasury secretary.
ECOLOGISTI DI NUOVO ALLA RIBALTA
If ecologists like Hayek and Mellon accused engineers of doing too much, engineers believed they had done too little… Fisher, for instance, laid the blame for the Depression at the feet of the Fed, for allowing deflation to take hold…. The Fed, he said, had to restore prices and end deflation through expansionary monetary policy….
TROPPA INGEGNERIA O TROPPO POCA?
Herbert Hoover… He was a Republican who believed in letting market forces play out, but he was also, by profession and temperament, an engineer… Hoover thought Mellon meant well, but he dismissed his prescriptions and fought the Depression as best he could, for example setting up the Reconstruction Finance Corporation to lend to banks…
HOOVER… INGEGNERE O ECOLOGISTA?
Franklin Roosevelt took office in 1933 and implemented a banking holiday, devalued the dollar against gold, and proceeded to overhaul the Fed and vastly expand the role of government. … Government could make things much better, or much worse. This was the revolutionary insight of the British economist John Maynard Keynes… business investment as driven by “waves of optimistic and pessimistic sentiment.”… If businesses were pessimistic enough, even interest rates of zero could not coax them to invest… Thus was born a role for the government… Franklin Roosevelt didn’t just expand the government’s responsibility for the economy: he also extended its oversight of nature. Since 1910, the Forest Service’s leaders were convinced that the only thing that kept them from controlling fires… The Civilian Conservation Corps, one of the New Deal’s largest job creation programs…unmarried men to work planting trees and fighting forest fires… The Depression only strengthened the conviction that the rivers should be harnessed for economic benefit… Thus, at the end of the Second World War, the engineers had assumed responsibility for much of the environment and the economy…
SU ROOSVELT E KEYNES IL DUBBIO NON SI PONE: INGEGNERI AL MASSIMO GRADO. NEL GIRO DI UN DECENNIO ECONOMIA ED AMBIENTE PASSANO NELLE MANI DELLO STATO CENTRALE.
Within twenty years, though, fissures appeared in this new consensus. Neither the economy nor the natural world turned out to be as amenable… Gilbert White noticed that the frenzy of levee and dam building in the 1930s had not solved flooding… new problem: more homes, factories, and farms had sprung up on the floodplain… Starker Leopold… Called for the reintroduction of fire as a device for habitat management… Controlled fire was “the most ‘natural’…
CREPE NEL PROGETTO PROGRESSISTA: INCENDI E ALLUVIONI
University of Chicago, argued that government management of the economy was backfiring by failing to consider how people would adapt. George Stigler argued that regulators often ended up serving the regulated, not consumers… Sam Peltzman made an even more audacious claim: regulations aimed at making consumers safer might be doing the opposite… “risk compensation,”… “moral hazard”…
CREPE NEL PROGETTO PROGRESSISTA: MICROECONOMIA
Macroeconomic engineering faced a similar critique. Keynes’s… In 1967 Milton Friedman predicted that as workers got used to higher inflation, they would demand higher wages — negating any additional demand for labor… By the 1970s, he was proved right as both unemployment and inflation rose… Friedrich Hayek’s star rose as Margaret Thatcher, Ronald Reagan…
CREPE NEL PROGETTO PROGRESSISTA: LA MACROECONOMIA.
But monetary engineering — tweaking interest rates just enough to keep both inflation and recession at bay — not only survived; it was more popular than ever. Paul Volcker, Alan Greenspan, and other central bankers… unemployment and inflation steadily fell…
CIO’ HA DECRETATO LA SCOMPARSA DEGLI INGEGNERI? NO. MOLTE DELLE LORO SOLUZIONI SONO OGGI ROUTINE.
UNA FIGURA CHIAVE: Hyman Minsky
he also thought Keynesian models gave short shrift to the financial system. They assumed that the central bank had full control of the money supply, credit, and interest rates… money and credit didn’t depend just on the central bank but on financial innovation…. If, to control inflation, the Fed restricted the growth of lending by banks, then Wall Street’s innovators would come up with mechanisms to go around banks
UN KEYNESIANO CHE OBBIETTA A KEYNES
The longer the Fed prolongs prosperity, the further finance progresses through these stages, and the more unstable the financial system becomes…. “Stability is destabilizing” sums up Minsky’s thesis…
LA STABILITA’ CHE DESTABILIZZA
engineers’ efforts to control the economy would ultimately be self-defeating… Because the financial system is always evolving, “the next financial crisis will never be just like the last one.”… His papers were more like essays, somewhat repetitive… Falkenstein, one of his teaching assistants and later a fund manager, recalls that his advanced classes were all classes in “Minskyism.”… he preferred to tell stories of the great economists
OGNI CURA E’ IL PRELUDIO ALLA MALATTIA SUCCESSIVA
Apart from being a difficult person, Minsky had another problem: his theory wasn’t very useful… Minskyism was antithetical to such elegant model… Confidence and credit would grow hand in hand, until some event caused them to break… When? Minsky didn’t know… “He always thought a market collapse was just around the corner,” Falkenstein recalled… Falkenstein sent his old mentor a letter, telling him, “I’m going to get rich off your theory!” Minsky was tickled…
UN MODELLO PASTICCIATO E INUTILE… MA PROBABILMENTE VERO
“What this country needs to shake us up and give us a little discipline is a good bank failure…. it would be healthier if people were a bit more scared…
COSA SERVE? UNA BELLA CRISI E UN BEL PO’ DI PAURA.