Peter L. Berger's Blog, page 630

The Self-Destruction of Public Universities

There are many writers who have done their part to expose and condemn the wave of politically correct lunacy that has swept across the academy in the last few years. We at Via Meadia are proud to have made our own contributions to this critical project. But no writer in America is as devastating a critic of the mindless ivory tower victimhood culture than the Manhattan Institute’s Heather MacDonald. We are late to it, but her essay in the latest issue of City Journal is a must-read.

MacDonald’s piece focuses on a University of California training program, created by the office of UC president Janet Napolitano, designed to teach faculty to avoid “microaggressions”—minor perceived slights against people on account of their race, gender, or sexual orientation. The contents of the faculty training materials are truly unbelievable—were it not for the official “ucop.edu” URL, we might suspect that they were a parody created by clever students to make fun of the prevailing diversity dogma. But alas, they are real. Among the phrases faculty are instructed to avoid saying lest they offend students: “where are you from?” (“message: you are not a true American”), “America is a melting pot” (“message: assimilate to the dominant culture”), “America is the land of opportunity” or “I believe the most qualified person should get the job” (“message: the playing field is even”), and “being forced to choose Male or Female when completing basic forms” (“message: LGBT categories are not recognized).”MacDonald emphasizes that this list of prohibited phrases was not developed by overzealous student activists or by some obscure diversity administrator. It was issued from the highest levels of UC leadership:

The most disturbing aspect of “Fostering Inclusive Excellence” is that it was initiated by the president’s office without outside provocation. Had Napolitano not come up with these antibias trainings, no one would have noticed their absence. Instead, she has sua sponte promulgated an initiative deeply ignorant about how seriously most professors—at least in the sciences—take their responsibilities to build up a faculty of accomplishment and research prowess. We have come to expect such ignorance from coddled, self-engrossed students. Now it turns out that those students may be the least of the university’s problems.

As the president of the University of California system, Napolitano is charged with making the case for the UC to a skeptical public and legislature. The UC has faced a steady decline in state funding over the last several decades, but Napolitano successfully fended off additional cuts for the coming year’s budget. California is a progressive state, with Democratic supermajorities in both houses of the state legislature, but it is simply defies imagination to believe that the type of extreme victimhood politics on display in the microaggression guidelines would have any purchase outside the most cocooned portions of academia.

We have argued before that public universities, “with their armies of administrators, tenure-shielded academics, far-left politics, and often arcane fields of study, won’t find it easy to convince a public facing tax increases and government service cuts that there’s just no budgetary fat in the entire university system.” The UC program MacDonald highlights is a prime example.The UC often complains that it is the first item on the state’s chopping block. If it keeps up this type of political indoctrination at taxpayers’ expense, perhaps it deserves to be.

Asia Tops Up On Spy Planes

In a region as tense as the South China Sea, where you know rivals are gunning for islands in your territorial waters (and if they can’t get them, simply building new ones), more and more countries want an eye in the sky. That’s why sales of surveillance planes to Asian countries are on the rise, as the Wall Street Journal details in an excellent piece:

Military commanders in Asia are putting surveillance planes at the top of their wish lists, ahead of warships and fighter jets, as they strive to protect their territorial waters from rival claimants. […]

Nowhere has Asia’s weak ISR capabilities—military shorthand for intelligence, surveillance and reconnaissance—been more ruthlessly exposed than in the South China Sea, where China has been building at least seven artificial islands to boost its territorial claims. The islets were half-built before Beijing’s rivals even realized what was happening. […]While defense spending in Asia has been surging, new monitoring capabilities have generally been neglected. But no longer: Malaysia, the Philippines, Singapore and Vietnam are among those prioritizing up-to-date surveillance systems.

For some of the claimants, this is quite a big step up from the current system, as one memorable passage underlines:

Brig. Gen. Molina admitted that the Philippine military only heard about China’s island-building program from fishermen.

“Right now our [surveillance] capability is nothing,” he said. “When something happens out there, we just don’t know about it.”

Planes like the American P-3 Orion or the P-8 Poseidon can cover a lot of ground, literally: cruising above the ocean, these types of planes can scan hundreds of miles of area at a time, detecting even tiny metallic objects with sophisticated radar technology, and they can go in for a closer look with incredible, military-grade optics. So as more of them are deployed over Asia’s much-disputed waters, it will get harder for China, or anyone else, to take their adversaries by surprise. As the WSJ properly notes, though, Beijing doesn’t seem too deterred by the bad publicity from its territorial aggression these days.

Amid Economic Woes, Russia Ups Military Spending

In his recent interview with Walter Russell Mead, Sen. John McCain pointedly mentioned that he used to describe Russia as a gas station masquerading as a country. Now, after revising for accuracy, he describes it as a mafia-run gas station masquerading as a country.

Even in bad times, any good mafia outfit needs to have the muscle to back up its threats and protect it’s turf. To that end, even as sanctions and tumbling oil prices have put the economic squeeze on Russia over the past year and change, Moscow’s defense spending spiked. And Russian defense firms, which are all closely tied to the Kremlin, have made out (quite uncannily) like bandits, as Defense News reports:

Russian defense firms featured in this year’s Defense News Top 100 ranking saw surging revenues as exports reached new highs and the government poured money into defense procurement.

[For exampe,] Russia’s largest defense firm, air defense concern Almaz-Antey, saw revenues rise 10 percent to $9.2 billion, up $883.5 million over 2013. The Tactical Missile Corp., maker of air-to-air systems, saw the most drastic increase with a 48.6 percent rise in revenue to $2.8 billion in 2014.Other Russian firms that made the ranking were the United Aircraft Corp., which owns Sukhoi, MiG and Irkut, and saw revenues rise 7 percent to $6.2 billion; Russian Helicopters, which finished at $3.96 billion, up 16 percent over 2013; and the United Engine-building Company, which saw a 25 percent increase over 2013 revenues to $3.3 billion in 2014. […]At the same time, Russian [state] procurement hit a new high, with about 2.5 trillion rubles (US $43.8 billion) spent on new equipment in 2014, according to the head of the State Duma’s Defense Committee, Adm. Vladimir Komoyedov.

Putin’s worldview and his strategy for staying in charge require him to put power and bravado ahead of development and citizens’ interests. Lately, that has meant spending whatever it takes to fund the foreign military adventures and saber-rattling that have proved so useful for maintaining Putin’s popularity, as the model of his previous compact with the people—economic growth in exchange for unquestioned political power, roughly speaking—starts to look obsolete.

But it’s important to take a step back and realize that what Putin is effectively doing: he is essentially making a policy of challenging the two biggest economies in the world—those of the U.S. and China—to an arms race. In the Soviet era, the Kremlin’s obsession with keeping up with the Joneses proved to be its downfall, as technology got exponentially more expensive and the resource export-reliant Russian economy foundered in the decades leading up to the fall of the Berlin Wall. It’s important to remember that it was at least in part Moscow’s abortive attempts to invest in a competitor to Reagan’s highly contentious “Star Wars” program in the ’80s that ended up pounding the final nails in the Soviet coffin.Even beyond its Soviet legacy, Russia has a history of overspending on defense while ignoring the fundamental health of the economy and the financial interests of its citizens. Vladimir Putin of all people, whose public nostalgia for Soviet days of yore is so much touted, should remember where that leaves his country.

Illinois Court Ruling Rolls Chicago Back Down the Hill

An Illinois state court has dealt another blow to Chicago’s woeful finances. The city, whose pension system (on generous estimation) sits at around 36 percent funded, had proposed a plan to make minor changes to its defined benefit pension obligations, lessening the burden of its ever-worsening funding gap. But a court ruled against the changes, and the reasoning shows that Illinois’ constitution really is a suicide pact. From Bloomberg:

The state constitution “affords the participant protection against” cuts in benefits even if the general assembly changes the pension code, the judge wrote in her 35-page ruling.

The city will appeal to the state supreme court, Chicago’s lawyer said after the ruling.“We continue to strongly believe that the city’s pension reform legislation, unlike the state legislation held unconstitutional this past spring, does not diminish or impair pension benefits, but rather preserves and protects them,” Stephen Patton, a lawyer for the city, said in an e-mailed statement.

While the politician and union leaders continue to toe their hard-lined positions, few seem concerned with experts’ dire evaluation of the city’s finances:

The rejection leaves Chicago with no viable plan to solve the pension deficit, said Sarah Wetmore, vice president and research director at the Civic Federation, a Chicago nonprofit that tracks municipal finance.

‘‘Without these reforms, the city reverts back to an inadequate funding formula that has resulted in such severe underfunding that actuaries expect the Municipal and Laborers Funds will run out of money within the next decade -– an unthinkable prospect,’’ she said.

In Illinois, a state that is no stranger to cronyism, reform remains a Sisyphean task.

Grey Lady Sounds Note of Caution Over $15 Minimum Wage

The $15 per hour minimum wage proposal gaining momentum on both coast is so unprecedented that even Noam Scheiber at the New York Times is warning his readers that the economy is headed into uncharted—and possibly dangerous—territory if deep-blue state and local lawmakers get their way:

Even where the proposals are politically viable, the economic challenge could prove daunting. That is because the sheer magnitude of the recent minimum wage increases sets up an economics experiment the country has rarely if ever seen before…

“There could be quite large shares of workers affected, and research doesn’t have a lot to say about that,” said Jared Bernstein, a former White House economist now at the Center on Budget and Policy Priorities who generally favors higher minimum wages. “We can’t assume that because the proposal is out of sample it’s going to blow up. But we have to be less certain about the outcome.”

The Times story focuses on the $15 wage for fast-food workers recently approved in New York State. In the Big Apple, this would represent 60 percent of the average wage, a ratio that “lies at the outer limit of the country’s historical experience with the minimum wage.” In smaller New York cities, “the minimum wage for fast-food workers could rise to 75 percent or more of the wage for a typical worker” when the hikes go into effect, the Times reports.

As David Brooks noted on Friday in a post rounding up the latest academic research on the subject, a dispassionate look at the evidence should leave everyone at least a little apprehensive:

What we have, in sum, is a very complicated situation. If we do raise the minimum wage a lot of people will clearly benefit and a lot of people will clearly be hurt. The most objective and broadest bits of evidence provoke ambivalence. One survey of economists by the University of Chicago found that 59 percent believed that a rise to $9 an hour would make it “noticeably harder” for poor people to find work. But a slight majority also thought the hike would be worthwhile for those in jobs. A study by the Congressional Budget Office found that a hike to $10.10 might lift 900,000 out of poverty but cost roughly 500,000 jobs.

And that’s at $10.10.

It is ultimately better for states to experiment with different minimum wage levels than for the federal government to set one national one, especially since states have such widely differing costs of living. But even while blue states launch into uncharted waters with the $15 wage experiment, they should know that these policies are not likely to be costless. The laws of economic gravity cannot simply be suspended outright with enough political will. Raise the cost of labor enough and employers will cut back on hiring. You don’t need to be a Milton Friedman protégé to believe that raising the minimum wage above three quarters of the median wage will cause a labor surplus; you simply need to believe that incentives are real and markets exist.

Lies, Damned Lies, and Pension Liabilities

New regulations aimed at increasing clarity in pension budgets seems to have driven state and local governments to the gambling tables. The rules, adopted by the Governmental Accounting Standards Board (GASB), require pension funds running toward bust to report their funding levels with less unrealistic optimism about expected returns. However, because the GASB simultaneously allows governments to report more optimistically if they have issued large amounts of pension obligation bonds, ailing funds are able to mask their problems with an influx of borrowed money. From ProPublica and WashPo: 

[…A] side effect [of the GASB rules] is to allow governments with extremely underfunded pensions to slash reported shortfalls by $2 or more for each $1 borrowed. […]

It’s like getting a new credit card, borrowing on it to pay off part of an existing loan, then having the total amount owed magically shrink by more than what is borrowed. Sounds impossible — but it’s true. […]Plenty of takers are bellying up to the borrowing bar. Governments sold $670 million worth of pension bonds through the first half of this year, more than double the $300 million raised for all of last year, according to deal-trackers at Thomson Reuters.

Yet this particular scheme of issuing bonds tends not to work out very well:

A review by ProPublica and The Post of the 20 largest pension bonds issued since 1996 found that in three-fourths of the deals, governments did not make their full required contribution in the years after the bonds were sold. Those bonds account for nearly two-thirds of the pension debt issued since 1996, according to Thomson Reuters. In more than half the deals, some proceeds even went on to make annual pension contributions — borrowing from the future to pay today’s expenses.

Because of the underfunding, most of the pension funds now are worse off than before the bonds were issued.In all five recent or proposed bond sales examined — by Kentucky, Kansas, Pennsylvania, Colorado and the town of Hamden, Conn. — the issuers and potential issuers said they were planning to make less than full payments for many years.“These bonds are pernicious,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. “They discourage pension funding. They shift costs forward to future generations.”

The deck-stacking, debt-shuffling, pocket-lining malfeasance that plagues our public pension system isn’t going away. Pension funds shouldn’t sit uninvested, but the present system bets too much and expects too much from our bets. In the Simon and Garfunkel hit, The Boxer, the singer laments that promises are nothing but “a pocketful of mumbles.” In regards to our national pension promises, this truth is becoming evident. The whole report is informative and sobering—read it here.

Rattled Investors Tank Chinese Markets

Beijing’s month-long effort to stabilize China’s stock markets were dealt a blow today as investors mounted a broad sell-off. It’s not pretty, as Reuters reports:

Major indexes suffered their largest one-day drop since 2007, shattering three weeks of relative calm in China’s volatile stock markets since Beijing unleashed a barrage of support measures to arrest a slump that started in mid-June. […]

The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen tumbled 8.6 percent to 3,818.73 points, while the Shanghai Composite Index .SSEC lost 8.5 percent to 3,725.56 points. […]“The lesson from China’s last equity bubble is that, once sentiment has soured, policy interventions aimed at shoring up prices have only a short-lived effect,” wrote Capital Economics analysts in a research note reacting to the slide.

More than 1,500 stocks fell by the maximum daily amount of 10 percent, while only 77 rose. In Europe and to a lesser extent the U.S., markets also dropped, likely due to contagion from the Chinese mess. China’s stock markets had regained more than 15 percent since of their value since the government started its aggressive interventions earlier this month, but the new sell-off now seems to be reversing that bounce-back.

There appeared to be no single bit of news that would have explained the scale of today’s sell-off. Investors in China’s stock markets were reacting like “birds startled by the sound of a plucked bowstring”, one analyst told the FT. “The huge drop shows that the market is really sensitive now…I think it’s panic behaviour. People’s confidence has been shaken.”We warned that further trouble could be coming for the Chinese economy last week, when it came out that a quarter trillion dollars of private Chinese wealth had fled the country’s markets in Q2. WRM has written at the length about some of the reasons why China’s economy is in such danger. There’s no crystal ball for timing the country’s markets, but when the Big One for China—the crash that ends the miracle—comes, its early stages will look like what we see now, as China’s government tries and tries, but ultimately fails, to keep the economy up and running.

Playing Rugby on a Football Team

As Britain’s government gets down to brass tacks in its EU renegotiation, the noises coming from the French government have been mixed. The UK’s Chancellor of the Exchequer George Osborne has a major meeting with President Francois Hollande this week. The WSJ reports on the run-up, which has included meetings with Foreign Minister Laurent Fabius and Economy Minister Emmanuel Macron:

President François Hollande’s Socialist government has so far been resistant to any attempt to change the treaties that govern the union, which may be required to meet the U.K.’s demands. Mr. Fabius had in May likened Britain’s desire to renegotiate its relationship with the EU as joining a soccer club and deciding “in the middle of the match we are now going to play rugby.”

Yet Mr. Macron struck a warmer tone at a news conference with Mr. Osborne Monday, saying that although Paris is still unwilling to agree to treaty changes it is open to EU reform […]After dining together in Paris Sunday evening, Mr. Macron and Mr. Osborne both spoke of the possibility of a “win-win” deal on Monday.“It’s very encouraging to hear Mr. Macron talk about a win-win, which I think we can deliver,” Mr. Osborne said.

So, does France want the UK to stay in the EU? It’s an interesting question. On the one hand, on almost every economic question, the French and British disagree. The British want a freer market and a free-wheeling euro; the French want to regulate everything they can catch and they see the EU in part as a way to rebuild on a Continental scale a regulated, blue-model economy that doesn’t work anymore at the national level. On the other hand, does France really want to be left alone inside the EU with a much stronger and politically surer Germany?

If Macron’s apparently friendlier tone is genuine, that may change things. But the French, judging by the quote about the rugby team, seem to be leaning toward pushing the UK toward the exit by blocking the kinds of reforms the country seeks. Hollande’s recent call for a political union of the eurozone countries (echoed this morning by Italy) may be a clue to French thinking. According to the WSJ, Macron indicated that EU reforms sought by the UK could be linked to to this proposal for union. But without the UK or Poland, Denmark, and Sweden in the eurozone, France may also think it has a better hope of forming a coalition with Italy, Portugal, and Spain that can check Germany where it counts. If that happens, France wouldn’t have much need to keep the UK in the EU—the important decisions would be taken inside the eurozone where France could usually round up a majority of likeminded states.Either way, getting a French stamp of approval on their reform proposals is the biggest hurdle the British face in their efforts to make a more comfortable home for themselves inside the EU.

What Comes Next in Russia?

Even the most expert analysis is biased towards the rational extrapolation of known parameters. Gorbachev surprised the experts, and probably himself into the bargain: Both the disintegration of the Soviet Union and the peaceful way it came about remained at the outer edge of speculation for most of his time in the Kremlin. There is even today no commonly accepted account of why it happened, whether in Russia and other former Soviet states, or in the wider world.

It is a widely held assumption that, when Putin goes, he will be replaced by an analogous figure, and that his system will therefore last for the foreseeable future, for worse or just possibly for better. The lessons that he and his circle have drawn from the way that the Soviet Union collapsed are that experiments are dangerous, and that in Russia power rests on force. The dominant convictions in the Kremlin, which are shared by a substantial portion of the wider Russian population, are that: anything decided in the outside world without Russia is directed against Russia; others have to be made to obey rules set by the Kremlin, in particular in the “near abroad”; and regime change is a premeditated threat held over Russia’s head by its main rival, as they see it, the United States.The outside world might well share the Kremlin view that the Soviet Union collapsed because the changes that Gorbachev initiated were more than its structures could bear, but not the implied belief that the Soviet Union might have prospered without those changes. Several of the underlying causes for that collapse, as perceived in the West, have parallels in today’s Russia: overreliance on the export of natural resources; lack of well targeted investment; excessive defense spending; and nationality issues all spring to mind. So too do demographic, health, and social problems. None of this is to imply that anyone could have known for certain well in advance that the Soviet system would break down in the way that it did, or at the time that it did, any more than it would now be possible to set out a clear road map for the end of Putinism. But the parallels are worth pondering.The authors (including me) of The Russian Challenge , a Chatham House Report published last month, recommended among other matters that the West should consider the implications of an eventual change in the leadership of Russia. The policies followed by Putin since his return to the Kremlin in May 2012 have greatly narrowed the options for constructive engagement by the West with Russia. There is no sign as yet that he recognizes the need for economic reform. His remarks to the St. Petersburg Forum last month were founded on the disputable claim that Russia was over the worst. An unreformed Russian bureaucracy would anyhow be incapable of delivering liberalizing economic reform, as Herman Gref, the Chairman of Sberbank and once a key Putin adviser, has pointed out. Putin has nothing to say about judicial reform, let alone political changes. He has plenty to say about the need to protect Russia (meaning himself and his immediate collaborators) against the threat of color revolution (meaning popular demonstrations). He has yet to recognize the extent of his failure to impose a stable outcome for his adventures in Ukraine. Russia’s Strong Man is afraid of change.The Soviet Union fell apart for subjective reasons induced by the feeling that it had lost its way, and its internal justification, not just because of the objective difficulties that it faced. There are parallels with Putin’s Russia today here too. And the Soviet Union was a better organized state than today’s Russia, better able to cope with the long period of Brezhnevite stagnation. Heavy doses of propaganda-induced patriotism will not forever compensate for the overall sense, not least in Moscow, that Russia’s present leaders are concerned in the first place with preserving their power. The general population fear political change, and hope that somehow the good times of Putin’s first two terms will return, but hope delayed cannot last forever. Uncertainty as to the future is a corrosive force in its own right.The assumption I referred to earlier—that when Putin goes he will be replaced by someone like him—seems to me to be questionable. It is reasonably plausible if it is imagined that he might go of his own volition in the fairly near term. But that is unlikely to happen. If it did, he would have a hand in choosing who took his place and would need to ensure that his successor would protect him. Such a successor would also have to secure the support of Putin’s present entourage. He—or notionally she—would be chosen for his amenability, not his strength. But even so he would have to address the issues in his own way if he were to have a chance of establishing himself as the acknowledged leader of his country. That would mean infighting and change over time, even in the case of Putin leaving office through ill health.The uncertainty as to what will happen if Putin dies in office is also great. A lot would depend on what had happened between now and then. The constitution has it that the Prime Minister of the day succeeds for the three months leading up to the election of a new President. That would be Medvedev if Putin died tomorrow. A future PM appointed by Putin is unlikely to be more independent minded—even one with his own agenda like Kudrin, with his appeal to Western hopes—would be strictly constrained in office and unlikely to be supported by other members of the ruling cabal.The scenario whereby Putin is removed by a group of his present supporters looks improbable—and would be difficult to imagine as bringing continuity or stability.It is no wonder that so many Russians fear that, however Putin goes, a time of troubles will follow soon after.

Italy Calls for Full Political Union to Save Euro

Acknowledging the obvious—that the Greek crisis revealed deep vulnerabilities in the euro currency union—Italy is urging full political union among euro states. Reuters reports:

The euro zone needs deeper integration to remove the risk of a member country leaving the single currency, Italian Economy Minister Pier Carlo Padoan told the Financial Times in an interview on Sunday […]

“Some believe that the way it works is more or less fine with minor adjustments. I think this is not enough,” he said […]To strengthen the single currency, Italy wants a wide set of measures including the swift completion of banking union, the establishment of a common euro zone budget and a common unemployment insurance scheme

Nominally, full union is something that all euro members should be on board with. The text and spirit of the various European Union treaties have always had the formation of a new state—political union—as their end goal. German Finance Minister Wolfgang Schäuble has recently been pressing for European “economic government” featuring a common “euro budget”, for instance. But the devil is in the details, and in this case it’s likely that the Germans will not be impressed with what the Italians—and the French—have in mind.

Counted by country, the eurozone leans Latin; so too by population, by almost 2:1. But the north, the countries surrounding Germany and politically and economically similar to it, produces a significantly outsized percentage of the eurozone’s GNI—about 40 percent. So even if different countries agree in theory on closer union, getting there is not as simple as just saying, “form a political union.” Think of, for example, the protracted political battles amongst the U.S. founding fathers at the Constitutional Convention over proportional or equal representation (and the U.S. states were more politically homogenous than the European nations are).When the Germans gave up their beloved Deutschmark, they did it after carefully negotiated rules were set up to protect them, and they believe that the Greek crisis and its bailout ‘solution’ have gone against those rules. They do not want to be in a eurozone in which Latin countries would have a lot of clout, and they don’t think that it’s such a terrible thing if the fear of leaving the euro helps discipline some of the union’s dodgier members.While both sides of the northern-Latin divide in principle support the notion of “ever-closer Union”, a call like this is most likely a sign of how far apart they remain.