Books read in August 2019

August 2019

Taleb, Nassim Nicholas. Skin in the Game. New York: Random House, 2018. ISBN 978-0-425-28462-9.

This book is volume four in the author's Incerto series, following Fooled by Randomness (February 2011), The Black Swan (January 2009), and Antifragile (April 2018). In it, he continues to explore the topics of uncertainty, risk, decision making under such circumstances, and how both individuals and societies winnow out what works from what doesn't in order to choose wisely among the myriad alternatives available.

The title, “Skin in the Game”, is an aphorism which refers to an individual's sharing the risks and rewards of an undertaking in which they are involved. This is often applied to business and finance, but it is, as the author demonstrates, a very general and powerful concept. An airline pilot has skin in the game along with the passengers. If the plane crashes and kills everybody on board, the pilot will die along with them. This insures that the pilot shares the passengers' desire for a safe, uneventful trip and inspires confidence among them. A government “expert” putting together a “food pyramid” to be vigorously promoted among the citizenry and enforced upon captive populations such as school children or members of the armed forces, has no skin in the game. If his or her recommendations create an epidemic of obesity, type 2 diabetes, and cardiovascular disease, that probably won't happen until after the “expert” has retired and, in any case, civil servants are not fired or demoted based upon the consequences of their recommendations.

Ancestral human society was all about skin in the game. In a small band of hunter/gatherers, everybody can see and is aware of the actions of everybody else. Slackers who do not contribute to the food supply are likely to be cut loose to fend for themselves. When the hunt fails, nobody eats until the next kill. If a conflict develops with a neighbouring band, those who decide to fight instead of running away or surrendering are in the front line of the battle and will be the first to suffer in case of defeat.

Nowadays we are far more “advanced”. As the author notes, “Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.” As populations have exploded, layers and layers of complexity have been erected, removing authority ever farther from those under its power. We have built mechanisms which have immunised a ruling class of decision makers from the consequences of their decisions: they have little or no skin in the game.

Less than a third of all Roman emperors died in their beds. Even though they were at the pinnacle of the largest and most complicated empire in the West, they regularly paid the ultimate price for their errors either in battle or through palace intrigue by those dissatisfied with their performance. Today the geniuses responsible for the 2008 financial crisis, which destroyed the savings of hundreds of millions of innocent people and picked the pockets of blameless taxpayers to bail out the institutions they wrecked, not only suffered no punishment of any kind, but in many cases walked away with large bonuses or golden parachute payments and today are listened to when they pontificate on the current scene, rather than being laughed at or scorned as they would be in a rational world. We have developed institutions which shift the consequences of bad decisions from those who make them to others, breaking the vital feedback loop by which we converge upon solutions which, if not perfect, at least work well enough to get the job done without the repeated catastrophes that result from ivory tower theories being implemented on a grand scale in the real world.

Learning and Evolution

Being creatures who have evolved large brains, we're inclined to think that learning is something that individuals do, by observing the world, drawing inferences, testing hypotheses, and taking on knowledge accumulated by others. But the overwhelming majority of creatures who have ever lived, and of those alive today, do not have large brains—indeed, many do not have brains at all. How have they learned to survive and proliferate, filling every niche on the planet where environmental conditions are compatible with biochemistry based upon carbon atoms and water? How have they, over the billions of years since life arose on Earth, inexorably increased in complexity, most recently producing a species with a big brain able to ponder such questions?

The answer is massive parallelism, exhaustive search, selection for survivors, and skin in the game, or, putting it all together, evolution. Every living creature has skin in the ultimate game of whether it will produce offspring that inherit its characteristics. Every individual is different, and the process of reproduction introduces small variations in progeny. Change the environment, and the characteristics of those best adapted to reproduce in it will shift and, eventually, the population will consist of organisms adapted to the new circumstances. The critical thing to note is that while each organism has skin in the game, many may, and indeed must, lose the game and die before reproducing. The individual organism does not learn, but the species does and, stepping back another level, the ecosystem as a whole learns and adapts as species appear, compete, die out, or succeed and proliferate. This simple process has produced all of the complexity we observe in the natural world, and it works because every organism and species has skin in the game: its adaptation to its environment has immediate consequences for its survival.

None of this is controversial or new. What the author has done in this book is to apply this evolutionary epistemology to domains far beyond its origins in biology—in fact, to almost everything in the human experience—and demonstrate that both success and wisdom are generated when this process is allowed to work, but failure and folly result when it is thwarted by institutions which take the skin out of the game.

How does this apply in present-day human society? Consider one small example of a free market in action. The restaurant business is notoriously risky. Restaurants come and go all the time, and most innovations in the business fall flat on their face and quickly disappear. And yet most cities have, at any given time, a broad selection of restaurants with a wide variety of menus, price points, ambiance, and service to appeal to almost any taste. Each restaurant has skin in the game: those which do not attract sufficient customers (or, having once been successful, fail to adapt when customers' tastes change) go out of business and are replaced by new entrants. And yet for all the churning and risk to individual restaurants, the restaurant “ecosystem” is remarkably stable, providing customers options closely aligned with their current desires.

To a certain kind of “expert” endowed with a big brain (often crammed into a pointy head), found in abundance around élite universities and government agencies, all of this seems messy, chaotic, and (the horror!) inefficient. Consider the money lost when a restaurant fails, the cooks and waiters who lose their jobs, having to find a new restaurant to employ them, the vacant building earning nothing for its owner until a new tenant is found—certainly there must be a better way. Why, suppose instead we design a standardised set of restaurants based upon a careful study of public preferences, then roll out this highly-optimised solution to the problem. They might be called “public feeding centres”. And they would work about as well as the name implies.

Survival and Extinction

Evolution ultimately works through extinction. Individuals who are poorly adapted to their environment (or, in a free market, companies which poorly serve their customers) fail to reproduce (or, in the case of a company, survive and expand). This leaves a population better adapted to its environment. When the environment changes, or a new innovation appears (for example, electricity in an age dominated by steam power), a new sorting out occurs which may see the disappearance of long-established companies that failed to adapt to the new circumstances. It is a tautology that the current population consists entirely of survivors, but there is a deep truth within this observation which is at the heart of evolution. As long as there is a direct link between performance in the real world and survival—skin in the game—evolution will work to continually optimise and refine the population as circumstances change.

This evolutionary process works just as powerfully in the realm of ideas as in biology and commerce. Ideas have consequences, and for the process of selection to function, those consequences, good or ill, must be borne by those who promulgate the idea. Consider inventions: an inventor who creates something genuinely useful and brings it to market (recognising that there are many possible missteps and opportunities for bad luck or timing to disrupt this process) may reap great rewards which, in turn, will fund elaboration of the original invention and development of related innovations. The new invention may displace existing technologies and cause them, and those who produce them, to become obsolete and disappear (or be relegated to a minor position in the market). Both the winner and loser in this process have skin in the game, and the outcome of the game is decided by the evaluation of the customers expressed in the most tangible way possible: what they choose to buy.

Now consider an academic theorist who comes up with some intellectual “innovation” such as “Modern Monetary Theory” (which basically says that a government can print as much paper money as it wishes to pay for what it wants without collecting taxes or issuing debt as long as full employment has not been achieved). The theory and the reputation of those who advocate it are evaluated by their peers: other academics and theorists employed by institutions such as national treasuries and central banks. Such a theory is not launched into a market to fend for itself among competing theories: it is “sold” to those in positions of authority and imposed from the top down upon an economy, regardless of the opinions of those participating in it. Now, suppose the brilliant new idea is implemented and results in, say, total collapse of the economy and civil society? What price do those who promulgated the theory and implemented it pay? Little or nothing, compared to the misery of those who lost their savings, jobs, houses, and assets in the calamity. Many of the academics will have tenure and suffer no consequences whatsoever: they will refine the theory, or else publish erudite analyses of how the implementation was flawed and argue that the theory “has never been tried”. Some senior officials may be replaced, but will doubtless land on their feet and continue to pull down large salaries as lobbyists, consultants, or pundits. The bureaucrats who patiently implemented the disastrous policies are civil servants: their jobs and pensions are as eternal as anything in this mortal sphere. And, before long, another bright, new idea will bubble forth from the groves of academe.

(If you think this hypothetical example is unrealistic, see the career of one Robert Rubin. “Bob”, during his association with Citigroup between 1999 and 2009, received total compensation of US$126 million for his “services” as a director, advisor, and temporary chairman of the bank, during which time he advocated the policies which eventually brought it to the brink of collapse in 2008 and vigorously fought attempts to regulate the financial derivatives which eventually triggered the global catastrophe. During his tenure at Citigroup, shareholders of its stock lost 70% of their investment, and eventually the bank was bailed out by the federal government using money taken by coercive taxation from cab drivers and hairdressers who had no culpability in creating the problems. Rubin walked away with his “winnings” and paid no price, financial, civil, or criminal, for his actions. He is one of the many poster boys and girls for the “no skin in the game club”. And lest you think that, chastened, the academics and pointy-heads in government would regain their grounding in reality, I have just one phrase for you, “trillion dollar coin”, which “Nobel Prize” winner Paul Krugman declared to be “the most important fiscal policy debate of our lifetimes”.)

Intellectual Yet Idiot

A cornerstone of civilised society, dating from at least the Code of Hammurabi (c. 1754 B.C.), is that those who create risks must bear those risks: an architect whose building collapses and kills its owner is put to death. This is the fundamental feedback loop which enables learning. When it is broken, when those who create risks (academics, government policy makers, managers of large corporations, etc.) are able to transfer those risks to others (taxpayers, those subject to laws and regulations, customers, or the public at large), the system does not learn; evolution breaks down; and folly runs rampant. This phenomenon is manifested most obviously in the modern proliferation of the affliction the author calls the “intellectual yet idiot” (IYI). These are people who are evaluated by their peers (other IYIs), not tested against the real world. They are the equivalent of a list of movies chosen based upon the opinions of high-falutin' snobbish critics as opposed to box office receipts. They strive for the approval of others like themselves and, inevitably, spiral into ever more abstract theories disconnected from ground truth, ascending ever higher into the sky.

Many IYIs achieve distinction in one narrow field and then assume that qualifies them to pronounce authoritatively on any topic whatsoever. As was said by biographer Roy Harrod of John Maynard Keynes,

He held forth on a great range of topics, on some of which he was thoroughly expert, but on others of which he may have derived his views from the few pages of a book at which he happened to glance. The air of authority was the same in both cases.

Still other IYIs have no authentic credentials whatsoever, but derive their purported authority from the approbation of other IYIs in completely bogus fields such as gender and ethnic studies, critical anything studies, and nutrition science. As the author notes, riding some of his favourite hobby horses,

Typically, the IYI get first-order logic right, but not second-order (or higher) effects, making him totally incompetent in complex domains.
The IYI has been wrong, historically, about Stalinism, Maoism, Iraq, Libya, Syria, lobotomies, urban planning, low-carbohydrate diets, gym machines, behaviorism, trans-fats, Freudianism, portfolio theory, linear regression, HFCS (High-Fructose Corn Syrup), Gaussianism, Salafism, dynamic stochastic equilibrium modeling, housing projects, marathon running, selfish genes, election-forecasting models, Bernie Madoff (pre-blowup), and p values. But he is still convinced his current position is right.

Doubtless, IYIs have always been with us (at least since societies developed to such a degree that they could afford some fraction of the population who devoted themselves entirely to words and ideas)—Nietzsche called them “Bildungsphilisters”—but since the middle of the twentieth century they have been proliferating like pond scum, and now hold much of the high ground in universities, the media, think tanks, and senior positions in the administrative state. They believe their models (almost always linear and first-order) accurately describe the behaviour of complex dynamic systems, and that they can “nudge” the less-intellectually-exalted and credentialed masses into virtuous behaviour, as defined by them. When the masses dare to push back, having a limited tolerance for fatuous nonsense, or being scolded by those who have been consistently wrong about, well, everything, and dare vote for candidates and causes which make sense to them and seem better-aligned with the reality they see on the ground, they are accused of—gasp—populism, and must be guided in the proper direction by their betters, their uncouth speech silenced in favour of the cultured “consensus” of the few.

One of the reasons we seem to have many more IYIs around than we used to, and that they have more influence over our lives is related to scaling. As the author notes, “it is easier to macrobull***t than microbull***t”. A grand theory which purports to explain the behaviour of billions of people in a global economy over a period of decades is impossible to test or verify analytically or by simulation. An equally silly theory that describes things within people's direct experience is likely to be immediately rejected out of hand as the absurdity it is. This is one reason decentralisation works so well: when you push decision making down as close as possible to individuals, their common sense asserts itself and immunises them from the blandishments of IYIs.

The Lindy Effect

How can you sift the good and the enduring from the mass of ephemeral fads and bad ideas that swirl around us every day? The Lindy effect is a powerful tool. Lindy's delicatessen in New York City was a favoured hangout for actors who observed that the amount of time a show had been running on Broadway was the best predictor of how long it would continue to run. A show that has run for three months will probably last for at least three months more. A show that has made it to the one year mark probably has another year or more to go. In other words, the best test for whether something will stand the test of time is whether it has already withstood the test of time. This may, at first, seem counterintuitive: a sixty year old person has a shorter expected lifespan remaining than a twenty year old. The Lindy effect applies only to nonperishable things such as “ideas, books, technologies, procedures, institutions, and political systems”.

Thus, a book which has been in print continuously for a hundred years is likely to be in print a hundred years from now, while this season's hot best-seller may be forgotten a few years hence. The latest political or economic theory filling up pages in the academic journals and coming onto the radar of the IYIs in the think tanks, media punditry, and (shudder) government agencies, is likely to be forgotten and/or discredited in a few years while those with a pedigree of centuries or millennia continue to work for those more interested in results than trendiness.

Religion is Lindy. If you disregard all of the spiritual components to religion, long-established religions are powerful mechanisms to transmit accumulated wisdom, gained through trial-and-error experimentation and experience over many generations, in a ready-to-use package for people today. One disregards or scorns this distilled experience at one's own great risk. Conversely, one should be as sceptical about “innovation” in ancient religious traditions and brand-new religions as one is of shiny new ideas in any other field.

(A few more technical notes…. As I keep saying, “Once Pareto gets into your head, you'll never get him out.” It's no surprise to find that the Lindy effect is deeply related to the power-law distribution of many things in human experience. It's simply another way to say that the lifetime of nonperishable goods is distributed according to a power law just like incomes, sales of books, music, and movie tickets, use of health care services, and commission of crimes. Further, the Lindy effect is similar to J. Richard Gott's Copernican statement of the Doomsday argument, with the difference that Gott provides lower and upper bounds on survival time for a given confidence level predicted solely from a random observation that something has existed for a known time.)

Uncertainty, Risk, and Decision Making

All of these observations inform dealing with risk and making decisions based upon uncertain information. The key insight is that in order to succeed, you must first survive. This may seem so obvious as to not be worth stating, but many investors, including those responsible for blow-ups which make the headlines and take many others down with them, forget this simple maxim. It is deceptively easy to craft an investment strategy which will yield modest, reliable returns year in and year out—until it doesn't. Such strategies tend to be vulnerable to “tail risks”, in which an infrequently-occurring event (such as 2008) can bring down the whole house of cards and wipe out the investor and the fund. Once you're wiped out, you're out of the game: you're like the loser in a Russian roulette tournament who, after the gun goes off, has no further worries about the probability of that event. Once you accept that you will never have complete information about a situation, you can begin to build a strategy which will prevent your blowing up under any set of circumstances, and may even be able to profit from volatility. This is discussed in more detail in the author's earlier Antifragile.

The Silver Rule

People and institutions who have skin in the game are likely to act according to the Silver Rule: “Do not do to others what you would not like them to do to you.” This rule, combined with putting the skin of those “defence intellectuals” sitting in air-conditioned offices into the games they launch in far-off lands around the world, would do much to save the lives and suffering of the young men and women they send to do their bidding.

Shlaes, Amity. Coolidge. New York: Harper Perennial, [2013] 2014. ISBN 978-0-06-196759-7.

John Calvin Coolidge, Jr. was born in 1872 in Plymouth Notch, Vermont. His family were among the branch of the Coolidge clan who stayed in Vermont while others left its steep, rocky, and often bleak land for opportunity in the Wild West of Ohio and beyond when the Erie canal opened up these new territories to settlement. His father and namesake made his living by cutting wood, tapping trees for sugar, and small-scale farming on his modest plot of land. He diversified his income by operating a general store in town and selling insurance. There was a long tradition of public service in the family. Young Coolidge's great-grandfather was an officer in the American Revolution and his grandfather was elected to the Vermont House of Representatives. His father was justice of the peace and tax collector in Plymouth Notch, and would later serve in the Vermont House of Representatives and Senate.

Although many in the cities would consider their rural life far from the nearest railroad terminal hard-scrabble, the family was sufficiently prosperous to pay for young Calvin (the name he went by from boyhood) to attend private schools, boarding with families in the towns where they were located and infrequently returning home. He followed a general college preparatory curriculum and, after failing the entrance examination the first time, was admitted on his second attempt to Amherst College as a freshman in 1891. A loner, and already with a reputation for being taciturn, he joined none of the fraternities to which his classmates belonged, nor did he participate in the athletics which were a part of college life. He quickly perceived that Amherst had a class system, where the scions of old money families from Boston who had supported the college were elevated above nobodies from the boonies like himself. He concentrated on his studies, mastering Greek and Latin, and immersing himself in the works of the great orators of those cultures.

As his college years passed, Coolidge became increasingly interested in politics, joined the college Republican Club, and worked on the 1892 re-election campaign of Benjamin Harrison, whose Democrat opponent, Grover Cleveland, was seeking to regain the presidency he had lost to Harrison in 1888. Writing to his father after Harrison's defeat, his analysis was that “the reason seems to be in the never satisfied mind of the American and in the ever desire to shift in hope of something better and in the vague idea of the working and farming classes that somebody is getting all the money while they get all the work.”

His confidence growing, Coolidge began to participate in formal debates, finally, in his senior year, joined a fraternity, and ran for and won the honour of being an orator at his class's graduation. He worked hard on the speech, which was a great success, keeping his audience engaged and frequently laughing at his wit. While still quiet in one-on-one settings, he enjoyed public speaking and connecting with an audience.

After graduation, Coolidge decided to pursue a career in the law and considered attending law school at Harvard or Columbia University, but decided he could not afford the tuition, as he was still being supported by his father and had no prospects for earning sufficient money while studying the law. In that era, most states did not require a law school education; an aspiring lawyer could, instead, become an apprentice at an established law firm and study on his own, a practice called reading the law. Coolidge became an apprentice at a firm in Northampton, Massachusetts run by two Amherst graduates and, after two years, in 1897, passed the Massachusetts bar examination and was admitted to the bar. In 1898, he set out on his own and opened a small law office in Northampton; he had embarked on the career of a country lawyer.

While developing his law practice, Coolidge followed in the footsteps of his father and grandfather and entered public life as a Republican, winning election to the Northampton City Council in 1898. In the following years, he held the offices of City Solicitor and county clerk of courts. In 1903 he married Grace Anna Goodhue, a teacher at the Clarke School for the Deaf in Northampton. The next year, running for the local school board, he suffered the only defeat of his political career, in part because his opponents pointed out he had no children in the schools. Coolidge said, “Might give me time.” (The Coolidges went on to have two sons, John, born in 1906, and Calvin Jr., in 1908.)

In 1906, Coolidge sought statewide office for the first time, running for the Massachusetts House of Representatives and narrowly defeating the Democrat incumbent. He was re-elected the following year, but declined to run for a third term, returning to Northampton where he ran for mayor, won, and served two one year terms. In 1912 he ran for the State Senate seat of the retiring Republican incumbent and won. In the presidential election of that year, when the Republican party split between the traditional wing favouring William Howard Taft and progressives backing Theodore Roosevelt, Coolidge, although identified as a progressive, having supported women's suffrage and the direct election of federal senators, among other causes, stayed with the Taft Republicans and won re-election. Coolidge sought a third term in 1914 and won, being named President of the State Senate with substantial influence on legislation in the body.

In 1915, Coolidge moved further up the ladder by running for the office of Lieutenant Governor of Massachusetts, balancing the Republican ticket led by a gubernatorial candidate from the east of the state with his own base of support in the rural west. In Massachusetts, the Lieutenant Governor does not preside over the State Senate, but rather fulfils an administrative role, chairing executive committees. Coolidge presided over the finance committee, which provided him experience in managing a budget and dealing with competing demands from departments that was to prove useful later in his career. After being re-elected to the office in 1915 and 1916 (statewide offices in Massachusetts at the time had a term of only one year), with the governor announcing his retirement, Coolidge was unopposed for the Republican nomination for governor and narrowly defeated the Democrat in the 1918 election.

Coolidge took office at a time of great unrest between industry and labour. Prices in 1918 had doubled from their 1913 level; nothing of the kind had happened since the paper money inflation during the Civil War and its aftermath. Nobody seemed to know why: it was usually attributed to the war, but nobody understood the cause and effect. There doesn't seem to have been a single mainstream voice who observed that the rapid rise in prices (which was really a depreciation of the dollar) began precisely at the moment the Creature from Jekyll Island was unleashed upon the U.S. economy and banking system. What was obvious, however, was that in most cases industrial wages had not kept pace with the rise in the cost of living, and that large companies which had raised their prices had not correspondingly increased what they paid their workers. This gave a powerful boost to the growing union movement. In early 1919 an ugly general strike in Seattle idled workers across the city, and the United Mine Workers threatened a nationwide coal strike for November 1919, just as the maximum demand for coal in winter would arrive. In Boston, police officers voted to unionise and affiliate with the American Federation of Labor, ignoring an order from the Police Commissioner forbidding officers to join a union. On September 9th, a majority of policemen defied the order and walked off the job.

Those who question the need for a police presence on the street in big cities should consider the Boston police strike as a cautionary tale, at least as things were in the city of Boston in the year 1919. As the Sun went down, the city erupted in chaos, mayhem, looting, and violence. A streetcar conductor was shot for no apparent reason. There were reports of rapes, murders, and serious injuries. The next day, more than a thousand residents applied for gun permits. Downtown stores were boarding up their display windows and hiring private security forces. Telephone operators and employees at the electric power plant threatened to walk out in sympathy with the police. From Montana, where he was campaigning in favour of ratification of the League of Nations treaty, President Woodrow Wilson issued a mealy-mouthed statement saying, “There is no use in talking about political democracy unless you have also industrial democracy”.

Governor Coolidge acted swiftly and decisively. He called up the Guard and deployed them throughout the city, fired all of the striking policemen, and issued a statement saying “The action of the police in leaving their posts of duty is not a strike. It is a desertion. … There is nothing to arbitrate, nothing to compromise. In my personal opinion there are no conditions under which the men can return to the force.” He directed the police commissioner to hire a new force to replace the fired men. He publicly rebuked American Federation of Labor chief Samuel Gompers in a telegram released to the press which concluded, “There is no right to strike against the public safety by anybody, anywhere, any time.”

When the dust settled, the union was broken, peace was restored to the streets of Boston, and Coolidge had emerged onto the national stage as a decisive leader and champion of what he called the “reign of law.” Later in 1919, he was re-elected governor with seven times the margin of his first election. He began to be spoken of as a potential candidate for the Republican presidential nomination in 1920.

Coolidge was nominated at the 1920 Republican convention, but never came in above sixth in the balloting, in the middle of the pack of regional and favourite son candidates. On the tenth ballot, Warren G. Harding of Ohio was chosen, and party bosses announced their choice for Vice President, a senator from Wisconsin. But when time came for delegates to vote, a Coolidge wave among rank and file tired of the bosses ordering them around gave him the nod. Coolidge did not attend the convention in Chicago; he got the news of his nomination by telephone. After he hung up, Grace asked him what it was all about. He said, “Nominated for vice president.” She responded, “You don't mean it.” “Indeed I do”, he answered. “You are not going to accept it, are you?” “I suppose I shall have to.”

Harding ran on a platform of “normalcy” after the turbulence of the war and Wilson's helter-skelter progressive agenda. He expressed his philosophy in a speech several months earlier,

America's present need is not heroics, but healing; not nostrums, but normalcy; not revolution, but restoration; not agitation, but adjustment; not surgery, but serenity; not the dramatic, but the dispassionate; not experiment, but equipoise; not submergence in internationality, but sustainment in triumphant nationality. It is one thing to battle successfully against world domination by military autocracy, because the infinite God never intended such a program, but it is quite another to revise human nature and suspend the fundamental laws of life and all of life's acquirements.

The election was a blow-out. Harding and Coolidge won the largest electoral college majority (404 to 127) since James Monroe's unopposed re-election in 1820, and more than 60% of the popular vote. Harding carried every state except for the Old South, and was the first Republican to win Tennessee since Reconstruction. Republicans picked up 63 seats in the House, for a majority of 303 to 131, and 10 seats in the Senate, with 59 to 37. Whatever Harding's priorities, he was likely to be able to enact them.

The top priority in Harding's quest for normalcy was federal finances. The Wilson administration and the Great War had expanded the federal government into terra incognita. Between 1789 and 1913, when Wilson took office, the U.S. had accumulated a total of US$2.9 billion in public debt. When Harding was inaugurated in 1921, the debt stood at US$24 billion, more than a factor of eight greater. In 1913, total federal spending was US$715 million; by 1920 it had ballooned to US$6358 million, almost nine times more. The top marginal income tax rate, 7% before the war, was 70% when Harding took the oath of office, and the cost of living had approximately doubled since 1913, which shouldn't have been a surprise (although it was largely unappreciated at the time), because a complaisant Federal Reserve had doubled the money supply from US$22.09 billion in 1913 to US$48.73 billion in 1920.

At the time, federal spending worked much as it had in the early days of the Republic: individual agencies presented their spending requests to Congress, where they battled against other demands on the federal purse, with congressional advocates of particular agencies doing deals to get what they wanted. There was no overall budget process worthy of the name (or as existed in private companies a fraction the size of the federal government), and the President, as chief executive, could only sign or veto individual spending bills, not an overall budget for the government. Harding had campaigned on introducing a formal budget process and made this his top priority after taking office. He called an extraordinary session of Congress and, making the most of the Republican majorities in the House and Senate, enacted a bill which created a Budget Bureau in the executive branch, empowered the president to approve a comprehensive budget for all federal expenditures, and even allowed the president to reduce agency spending of already appropriated funds. The budget would be a central focus for the next eight years.

Harding also undertook to dispose of surplus federal assets accumulated during the war, including naval petroleum reserves. This, combined with Harding's penchant for cronyism, led to a number of scandals which tainted the reputation of his administration. On August 2nd, 1923, while on a speaking tour of the country promoting U.S. membership in the World Court, he suffered a heart attack and died in San Francisco. Coolidge, who was visiting his family in Vermont, where there was no telephone service at night, was awakened to learn that he had succeeded to the presidency. He took the oath of office by kerosene light in his parents' living room, administered by his father, a Vermont notary public. As he left Vermont for Washington, he said, “I believe I can swing it.”

As Coolidge was in complete agreement with Harding's policies, if not his style and choice of associates, he interpreted “normalcy” as continuing on the course set by his predecessor. He retained Harding's entire cabinet (although he had his doubts about some of its more dodgy members), and began to work closely with his budget director, Herbert Lord, meeting with him weekly before the full cabinet meeting. Their goal was to continue to cut federal spending, generate surpluses to pay down the public debt, and eventually cut taxes to boost the economy and leave more money in the pockets of those who earned it. He had a powerful ally in these goals in Treasury secretary Andrew Mellon, who went further and advocated his theory of “scientific taxation”. He argued that the existing high tax rates not only hampered economic growth but actually reduced the amount of revenue collected by the government. Just as a railroad's profits would suffer from a drop in traffic if it set its freight rates too high, a high tax rate would deter individuals and companies from making more taxable income. What was crucial was the “top marginal tax rate”: the tax paid on the next additional dollar earned. With the tax rate on high earners at the postwar level of 70%, individuals got to keep only thirty cents of each additional dollar they earned; many would not bother putting in the effort.

Half a century later, Mellon would have been called a “supply sider”, and his ideas were just as valid as when they were applied in the Reagan administration in the 1980s. Coolidge wasn't sure he agreed with all of Mellon's theory, but he was 100% in favour of cutting the budget, paying down the debt, and reducing the tax burden on individuals and business, so he was willing to give it a try. It worked. The last budget submitted by the Coolidge administration (fiscal year 1929) was 3.127 billion, less than half of fiscal year 1920's expenditures. The public debt had been paid down from US$24 billion go US$17.6 billion, and the top marginal tax rate had been more than halved from 70% to 31%.

Achieving these goals required constant vigilance and an unceasing struggle with the congress, where politicians of both parties regarded any budget surplus or increase in revenue generated by lower tax rates and a booming economy as an invitation to spend, spend, spend. The Army and Navy argued for major expenditures to defend the nation from the emerging threat posed by aviation. Coolidge's head of defense aviation observed that the Great Lakes had been undefended for a century, yet Canada had not so far invaded and occupied the Midwest and that, “to create a defense system based upon a hypothetical attack from Canada, Mexico, or another of our near neighbors would be wholly unreasonable.” When devastating floods struck the states along the Mississippi, Coolidge was steadfast in insisting that relief and recovery were the responsibility of the states. The New York Times approved, “Fortunately, there are still some things that can be done without the wisdom of Congress and the all-fathering Federal Government.”

When Coolidge succeeded to the presidency, Republicans were unsure whether he would run in 1924, or would obtain the nomination if he sought it. By the time of the convention in June of that year, Coolidge's popularity was such that he was nominated on the first ballot. The 1924 election was another blow-out, with Coolidge winning 35 states and 54% of the popular vote. His Democrat opponent, John W. Davis, carried just the 12 states of the “solid South” and won 28.8% of the popular vote, the lowest popular vote percentage of any Democrat candidate to this day. Robert La Follette of Wisconsin, who had challenged Coolidge for the Republican nomination and lost, ran as a Progressive, advocating higher taxes on the wealthy and nationalisation of the railroads, and won 16.6% of the popular vote and carried the state of Wisconsin and its 13 electoral votes.

Tragedy struck the Coolidge family in the White House in 1924 when his second son, Calvin Jr., developed a blister while playing tennis on the White House courts. The blister became infected with Staphylococcus aureus, a bacterium which is readily treated today with penicillin and other antibiotics, but in 1924 had no treatment other than hoping the patient's immune system would throw off the infection. The infection spread to the blood and sixteen year old Calvin Jr. died on July 7th, 1924. The president was devastated by the loss of his son and never forgave himself for bringing his son to Washington where the injury occurred.

In his second term, Coolidge continued the policies of his first, opposing government spending programs, paying down the debt through budget surpluses, and cutting taxes. When the mayor of Johannesburg, South Africa, presented the president with two lion cubs, he named them “Tax Reduction” and “Budget Bureau” before donating them to the National Zoo. In 1927, on vacation in South Dakota, the president issued a characteristically brief statement, “I do not choose to run for President in nineteen twenty eight.” Washington pundits spilled barrels of ink parsing Coolidge's twelve words, but they meant exactly what they said: he had had enough of Washington and the endless struggle against big spenders in Congress, and (although re-election was considered almost certain given his landslide the last time, popularity, and booming economy) considered ten years in office (which would have been longer than any previous president) too long for any individual to serve. Also, he was becoming increasingly concerned about speculation in the stock market, which had more than doubled during his administration and would continue to climb in its remaining months. He was opposed to government intervention in the markets and, in an era before the Securities and Exchange Commission, had few tools with which to do so. Edmund Starling, his Secret Service bodyguard and frequent companion on walks, said, “He saw economic disaster ahead”, and as the 1928 election approached and it appeared that Commerce Secretary Herbert Hoover would be the Republican nominee, Coolidge said, “Well, they're going to elect that superman Hoover, and he's going to have some trouble. He's going to have to spend money. But he won't spend enough. Then the Democrats will come in and they'll spend money like water. But they don't know anything about money.” Coolidge may have spoken few words, but when he did he was worth listening to.

Indeed, Hoover was elected in 1928 in another Republican landslide (40 to 8 states, 444 to 87 electoral votes, and 58.2% of the popular vote), and things played out exactly as Coolidge had foreseen. The 1929 crash triggered a series of moves by Hoover which undid most of the patient economies of Harding and Coolidge, and by the time Hoover was defeated by Franklin D. Roosevelt in 1932, he had added 33% to the national debt and raised the top marginal personal income tax rate to 63% and corporate taxes by 15%. Coolidge, in retirement, said little about Hoover's policies and did his duty to the party, campaigning for him in the foredoomed re-election campaign in 1932. After the election, he remarked to an editor of the New York Evening Mail, “I have been out of touch so long with political activities I feel that I no longer fit in with these times.” On January 5, 1933, Coolidge, while shaving, suffered a sudden heart attack and was found dead in his dressing room by his wife Grace.

Calvin Coolidge was arguably the last U.S. president to act in office as envisioned by the Constitution. He advanced no ambitious legislative agenda, leaving lawmaking to Congress. He saw his job as similar to an executive in a business, seeking economies and efficiency, eliminating waste and duplication, and restraining the ambition of subordinates who sought to broaden the mission of their departments beyond what had been authorised by Congress and the Constitution. He set difficult but limited goals for his administration and achieved them all, and he was popular while in office and respected after leaving it. But how quickly it was all undone is a lesson in how fickle the electorate can be, and how tempting ill-conceived ideas are in a time of economic crisis.

This is a superb history of Coolidge and his time, full of lessons for our age which has veered so far from the constitutional framework he so respected.

Carr, Jack. True Believer. New York: Atria Books, 2019. ISBN 978-1-5011-8084-2.

Jack Carr, a former U.S. Navy SEAL, burst into the world of thriller authors with 2018's stunning success, The Terminal List (September 2018). In it, he introduced James Reece, a SEAL whose team was destroyed by a conspiracy reaching into the highest levels of the U.S. government and, afflicted with a brain tumour by a drug tested on him and his team without their knowledge or consent, which he expected to kill him, set out for revenge upon those responsible. As that novel concluded, Reece, a hunted man, took to the sea in a sailboat, fully expecting to die before he reached whatever destination he might choose.

This sequel begins right where the last book ended. James Reece is aboard the forty-eight foot sailboat Bitter Harvest braving the rough November seas of the North Atlantic and musing that as a Lieutenant Commander in the U.S. Navy he knew very little about sailing a boat in the open ocean. With supplies adequate to go almost anywhere he desires, and not necessarily expecting to live until his next landfall anyway, he decides on an ambitious voyage to see an old friend far from the reach of the U.S. government.

While Reece is at sea, a series of brazen and bloody terrorist attacks in Europe against civilian and military targets send analysts on both sides of the Atlantic digging through their resources to find common threads which might point back to whoever is responsible, as their populace becomes increasingly afraid of congregating in public.

Reece eventually arrives at a hunting concession in Mozambique, in southeast Africa, and signs on as an apprentice professional hunter, helping out in tracking and chasing off poachers who plague the land during the off-season. This suits him just fine: he's about as far off the grid as one can get in this over-connected world, among escapees from Rhodesia who understand what it's like to lose their country, surrounded by magnificent scenery and wildlife, and actively engaged in putting his skills to work defending them from human predators. He concludes he could get used to this life, for however long as he has to live.

This idyll comes to an end when he is tracked down by another former SEAL, now in the employ of the CIA, who tells Reece that a man he trained in Iraq is suspected of being involved in the terrorist attacks and that if Reece will join in an effort to track him down and get him to flip on his terrorist masters, the charges pending against Reece will be dropped and he can stop running and forever looking over his shoulder. After what the U.S. government has done to him, his SEAL team, and his family, Reece's inclination is to tell them to pound sand. Then, as always, the eagle flashes its talons and Reece is told that if he fails to co-operate the Imperium will go after all of those who helped him avenge the wrongs it inflicted upon him and escape its grasp. With that bit of Soviet-style recruiting out of the way, Reece is off to a CIA black site in the REDACTED region of REDACTED to train with REDACTED for his upcoming mission. (In this book, like the last, passages which are said to have been required to have been struck during review of the manuscript by the Department of Defense Office of Prepublication and Security Review are blacked out in the text. This imparted a kind of frisson and authenticity the first time out, but now it's getting somewhat tedious—just change the details, Jack, and get on with it!)

As Reece prepares for his mission, events lead him to believe he is not just confronting an external terrorist threat but, once again, forces within the U.S. government willing to kill indiscriminately to get their way. Finally, the time comes to approach his former trainee and get to the bottom of what is going on. From this point on, the story is what you'd expect of a thriller, with tradecraft, intrigue, betrayal, and discovery of a dire threat with extreme measures taken under an imminent deadline to avoid catastrophe.

The pacing of the story is…odd. The entire first third of the book is largely occupied by Reece sailing his boat and working at the game reserve. Now, single-handedly sailing a sailboat almost halfway around the globe is challenging and an adventure, to be sure, and a look inside the world of an African hunting reserve is intriguing, but these are not what thriller readers pay for, nor do they particularly develop the character of James Reece, employ his unique skills, or reveal things about him we don't already know. We're half way through the book before Reece achieves his first goal of making contact with his former trainee, and it's only there that the real mission gets underway. And as the story ends, although a number of villains have been dispatched in satisfying ways, two of those involved in the terrorist plot (but not its masterminds) remain at large, for Reece to hunt down, presumably in the next book, in a year or so. Why not finish it here, then do something completely different next time?

I hope international agents don't take their tax advice from this novel. The CIA agent who “recruits” Reece tells him “It's a contracted position. You won't pay taxes on most of it as long as you're working overseas.” Wrong! U.S. citizens (which Reece, more fool him, remains) owe U.S. taxes on all of their worldwide income, regardless of the source. There is an exclusion for salary income from employment overseas, but this would not apply for payments by the CIA to an independent contractor. Later in the book, Reece receives a large cash award from a foreign government for dispatching a terrorist, which he donates to support the family of a comrade killed in the operation. He would owe around 50% of the award as federal and California state income taxes (since his last U.S. domicile was the once-golden state) off the top, and unless he was extraordinarily careful (which there is no evidence he was), he'd get whacked again with gift tax as punishment for his charity. Watch out, Reece, if you think having the FBI, CIA, and Naval Criminal Investigative Service on your tail is bad, be glad you haven't yet crossed the IRS or the California Franchise Tax Board!

The Kindle edition does not have the attention to detail you'd expect from a Big Five New York publisher (Simon and Schuster) in a Kindle book selling for US$13. In five places in the text, HTML character entity codes like “&8201;” (the code for the thin space used between adjacent single and double quote marks) appear in the text. What this says to me is that nobody at this professional publishing house did a page-by-page proof of the Kindle edition before putting it on sale. I don't know of a single independently-published science fiction author selling works for a fraction of this price who would fail to do this.

This is a perfectly competent thriller, but to this reader it does not come up to the high standard set by the debut novel. You should not read this book without reading The Terminal List first; if you don't, you'll miss most of the story of what made James Reece who he is here.

Griffin, G. Edward. The Creature from Jekyll Island. Westlake Village, CA: American Media, [1994, 1995, 1998, 2002] 2010. ISBN 978-0-912986-45-6.

Almost every time I review a book about or discuss the U.S. Federal Reserve System in a conversation or Internet post, somebody recommends this book. I'd never gotten around to reading it until recently, when a couple more mentions of it pushed me over the edge. And what an edge that turned out to be. I cannot recommend this book to anybody; there are far more coherent, focussed, and persuasive analyses of the Federal Reserve in print, for example Ron Paul's excellent book End the Fed (October 2009). The present book goes well beyond a discussion of the Federal Reserve and rambles over millennia of history in a chaotic manner prone to induce temporal vertigo in the reader, discussing the history of money, banking, political manipulation of currency, inflation, fractional reserve banking, fiat money, central banking, cartels, war profiteering, bailouts, monetary panics and bailouts, nonperforming loans to “developing” nations, the Rothschilds and Rockefellers, booms and busts, and more.

The author is inordinately fond of conspiracy theories. As we pursue our random walk through history and around the world, we encounter:

The sinking of the Lusitania
The assassination of Abraham Lincoln
The Order of the Knights of the Golden Circle, the Masons, and the Ku Klux Klan
The Bavarian Illuminati
Russian Navy intervention in the American Civil War
Cecil Rhodes and the Round Table Groups
The Council on Foreign Relations
The Fabian Society
The assassination of John F. Kennedy
Theodore Roosevelt's “Bull Moose” run for the U.S. presidency in 1912
The Report from Iron Mountain
The attempted assassination of Andrew Jackson in 1835
The Bolshevik Revolution in Russia

I've jumped around in history to give a sense of the chaotic, achronological narrative here. “What does this have to do with the Federal Reserve?”, you might ask. Well, not very much, except as part of a worldview in which almost everything is explained by the machinations of bankers assisted by the crooked politicians they manipulate.

Now, I agree with the author, on those occasions he actually gets around to discussing the Federal Reserve, that it was fraudulently sold to Congress and the U.S. population and has acted, from the very start, as a self-serving cartel of big New York banks enriching themselves at the expense of anybody who holds assets denominated in the paper currency they have been inflating away ever since 1913. But you don't need to invoke conspiracies stretching across the centuries and around the globe to explain this. The Federal Reserve is (despite how it was deceptively structured and promoted) a central bank, just like the Bank of England and the central banks of other European countries upon which it was modelled, and creating funny money out of thin air and looting the population by the hidden tax of inflation is what central banks do, always have done, and always will, as long as they are permitted to exist. Twice in the history of the U.S. prior to the establishment of the Federal Reserve, central banks were created, the first in 1791 by Alexander Hamilton, and the second in 1816. Each time, after the abuses of such an institution became apparent, the bank was abolished, the first in 1811, and the second in 1836. Perhaps, after the inevitable crack-up which always results from towering debt and depreciating funny money, the Federal Reserve will follow the first two central banks into oblivion, but so deeply is it embedded in the status quo it is difficult to see how that might happen today.

In addition to the rambling narrative, the production values of the book are shoddy. For a book which has gone through five editions and 33 printings, nobody appears to have spent the time giving the text even the most cursory of proofreading. Without examining it with the critical eye I apply when proofing my own work or that of others, I noted 137 errors of spelling, punctuation, and formatting in the text. Paragraph breaks are inserted seemingly at random, right in the middle of sentences, and other words are run together. Words which are misspelled include “from”, “great”, “fourth”, and “is”. This is not a freebie or dollar special, but a paperback which sells for US$20 at Amazon, or US$18 for the Kindle edition. And as I always note, if the author and publisher cannot be bothered to get simple things like these correct, how likely is it that facts and arguments in the text can be trusted?

Don't waste your money or your time. Ron Paul's End the Fed is much better, only a third the length, and concentrates on the subject without all of the whack-a-doodle digressions. For a broader perspective on the history of money, banking, and political manipulation of currency, see Murray Rothbard's classic What Has Government Done to Our Money? (July 2019).

Butler, Smedley D. War Is a Racket. San Diego, CA: Dauphin Publications, [1935] 2018. ISBN 978-1-939438-58-4.

Smedley Butler knew a thing or two about war. In 1898, a little over a month before his seventeenth birthday, he lied about his age and enlisted in the U.S. Marine Corps, which directly commissioned him a second lieutenant. After completing training, he was sent to Cuba, arriving shortly after the end of the Spanish-American War. Upon returning home, he was promoted to first lieutenant and sent to the Philippines as part of the American garrison. There, he led Marines in combat against Filipino rebels. In 1900 he was deployed to China during the Boxer Rebellion and was wounded in the Gaselee Expedition, being promoted to captain for his bravery.

He then served in the “Banana Wars” in Central America and the Caribbean. In 1914, during a conflict in Mexico, he carried out an undercover mission in support of a planned U.S. intervention. For his command in the battle of Veracruz, he was awarded the Medal of Honor. Next, he was sent to Haiti, where he commanded Marines and Navy troops in an attack on Fort Rivière in November 1915. For this action, he won a second Medal of Honor. To this day, he is only one of nineteen people to have twice won the Medal of Honor.

In World War I he did not receive a combat command, but for his work in commanding the debarkation camp in France for American troops, he was awarded both the Army and Navy Distinguished Service Medals. Returning to the U.S. after the armistice, he became commanding general of the Marine training base at Quantico, Virginia. Between 1927 and 1929 he commanded the Marine Expeditionary Force in China, and returning to Quantico in 1929, he was promoted to Major General, then the highest rank available in the Marine Corps (which was subordinate to the Navy), becoming the youngest person in the Corps to attain that rank. He retired from the Marine Corps in 1931.

In this slim pamphlet (just 21 pages in the Kindle edition I read), Butler demolishes the argument that the U.S. military actions in which he took part in his 33 years as a Marine had anything whatsoever to do with the defence of the United States. Instead, he saw lives and fortune squandered on foreign adventures largely in the interest of U.S. business interests, with those funding and supplying the military banking large profits from the operation. With the introduction of conscription in World War I, the cynical exploitation of young men reached a zenith with draftees paid US$30 a month, with half taken out to support dependants, and another bite for mandatory insurance, leaving less than US$9 per month for putting their lives on the line. And then, in a final insult, there was powerful coercion to “invest” this paltry sum in “Liberty Bonds” which, after the war, were repaid well below the price of purchase and/or in dollars which had lost half their purchasing power.

Want to put an end to endless, futile, and tragic wars? Forget disarmament conferences and idealistic initiatives, Butler says,

The only way to smash this racket is to conscript capital and industry and labor before the nations [sic] manhood can be conscripted. One month before the Government can conscript the young men of the nation—it must conscript capital and industry. Let the officers and the directors and the high-powered executives of our armament factories and our shipbuilders and our airplane builders and the manufacturers of all the other things that provide profit in war time as well as the bankers and the speculators, be conscripted—to get $30 a month, the same wage as the lads in the trenches get.
Let the workers in these plants get the same wages—all the workers, all presidents, all directors, all managers, all bankers—yes, and all generals and all admirals and all officers and all politicians and all government office holders—everyone in the nation be restricted to a total monthly income not to exceed that paid to the soldier in the trenches!
Let all these kings and tycoons and masters of business and all those workers in industry and all our senators and governors and majors [I think “mayors” was intended —JW] pay half their monthly $30 wage to their families and pay war risk insurance and buy Liberty Bonds.
Why shouldn't they?

Butler goes on to recommend that any declaration of war require approval by a national plebiscite in which voting would be restricted to those subject to conscription in a military conflict. (Writing in 1935, he never foresaw that young men and women would be sent into combat without so much as a declaration of war being voted by Congress.) Further, he would restrict all use of military force to genuine defence of the nation, in particular, limiting the Navy to operating no more than 200 miles (320 km) from the coastline.

This is an impassioned plea against the folly of foreign wars by a man whose career was as a warrior. One can argue that there is a legitimate interest in, say assuring freedom of navigation in international waters, but looking back on the results of U.S. foreign wars in the 21st century, it is difficult to argue they can be justified any more than the “Banana Wars” Butler fought in his time.