Harvard Man: “Wake Up and Smell the Crisis”

If anything characterizes our times, it is a sense of pervading chaos. In every field of human endeavor, the windstorms of change are fast altering the ways we live. Contemporary man is no longer anchored in certainties and thus has lost sight of who he is, where he comes from and where he is going. — The American Society for the Defense of Tradition, Family and Property, quoted in my Spinning the World Backwards.

Summers used his position to sing the praises of the so-called “energetic young reformers” – a phrase Boris Yeltsin helped coin that these days is rarely spoken in Russian circles except as a sarcastic insult.

There are children who are working in textile businesses in Asia who would be prostitutes on the streets if they did not have those jobs. –Lawrence Summers

Summers: “Odds Now Favor Recession” (W$J):

Former U.S. Treasury Secretary Lawrence Summers says “the odds now favor a U.S. recession that slows growth significantly on a global basis.” Mr. Summers, in his Financial Times column, posted on the newspaper’s web site Sunday night, wrote that just three months ago “it was reasonable to expect that the subprime credit crisis would be a financially significant event, but not one that would threaten the overall pattern of economic growth.” “This is still a possible outcome but no longer the preponderant probability,” he said.

The headline: “Wake up to the dangers of a deepening crisis.”

Should we apply the Chicken Little (Boy Who Cried Wolf) principle to this sort of dire prognostication — which is a dime a dozen these days — or is this bearish diagnosis well-founded?

It was interesting to read the following recently in the newly published style guide of the Último Segundo online news service in Brazil — which cites the Financial Times as one of the main sources of its editorial principles (the old Financial Times style guide, which I used to have a copy of, seems to be out of print).

Crise – Só use a palavra para definir um evento decisivo ou uma virada (turning point). Confusões políticas, desentendimentos ou discórdia não são crises. A crise se define por uma ausência de resposta.

Crisis: Only use the word to describe a decisive event or “turning point.” Political dust-ups, fallings out or disagreements are not crises. A crisis is defined by an absence of solutions.

Summers recommends three steps needed to avoid, or minimize the risk of, the deepening crisis.

On September 20, 2007, the Economist published a column called “The Turning Point” to describe the current situation of the U.S. economy. Tagline:

Does the latest financial crisis signal the end of a golden age of stable growth?

The answer: Maybe, but then again, maybe not.

Although it is perverse to argue the golden age has not been tested, it would be foolish to rule out a shock (or combination of shocks) that might break the economy’s resilience. Combine the present discord in credit markets with the seeming vulnerability of housing markets and it is all too easy to imagine the rich-world economies in trouble. … If America falls hard now, it will be a harbinger for the rest of the rich world.

There are three participants in this debate: Perverts, fools and The Economist, which has an active imagination.

(“Clowns to the left of me, jokers to the right, here I am: Stuck in the middle with you.”)

“It is all too easy to imagine” that Godzilla might emerge from the ocean depths to stomp Tokyo. It is easy to imagine a lot of things.

But how likely is it? The Economist editorial is remarkably noncommital on the hard probabilities — more so, even, than Summers, who frames his argument in terms of “the odds,” at least (though he does not put a number on them, that I can see).

The editorial is shot through with the rhetoric of alarmed speculation. The headline is in the indicative mood, the tagline is an interrogative, and the body of the editorial is firmly rooted in the subjunctive.

For an analysis with similar rhetorical characteristics, see

We apparently live in an age of crisis.

Or is it an age of merely apparent crisis?

Or an age of constant potential crisis?

As in, “The wake-up call could be a mushroom cloud”?

Is Summers’ prognostication to be received as an example of “brand the crisis” communications or as a credible analysis of the current macroeconomic risk scenario?

Or is it, as often occurs in postmodern journalism — “Can a common ingredient of Yankee pot roast kill you stone cold dead? Tune in at 11!” (The answer: Most probably not) — a case of the latter, but packaged as the former.

What, if anything, does Summers’ track record of prognostications have to tell us on this point?

The Shleifer affair immediately comes to mind. On which see also

On “brand the crisis, own the crisis” public relations gambits in general, see also

Summers’ bio for the Financial Times is a pretty typical case of partial disclosure, by the way, I think:

The writer is the Charles W. Eliot professor at Harvard University

Yes, but he is also a managing director at D.E. Shaw. He ought to disclose that substantial institutional relationship as well — I assume Shaw pays him a little something for his trouble — in the interest of the reader’s right to “consider the source.”

In a “fake news” segment run on a Fox News affiliate a couple of years ago, for example — the spot was produced by Intel but identified as the original work product of Fox News news team, without attribution — anthropologist Genevieve Bell is identified as an anthropologist, but not as an Intel-employed anthropologist.

It is suggested that she is a disinterested expert. The suggestion is reinforced by the fact that nature of her interest — Intel pays her salary — is not disclosed.

This is a symptom of deep intellectual dishonesty.

See

On Harvard, Russia, Summers and Schleifer, we could start with a re-read of Larry Summer’s Ghosts (The Nation, February 22, 2006.)

Summers used his position to sing the praises of the so-called “energetic young reformers” – a phrase Boris Yeltsin helped coin that these days is rarely spoken in Russian circles except as a sarcastic insult.

In the area of “technology evangelism,” the rhetoric of utopian revolutionary change is merely the flip-side of the rhetoric of impending catastrophic doom — much as Isaiah tends to be viewed by exegetes as the antithesis of Jeremiah in the Old Testament.

Ten years ago, on the eve of Yeltsin’s 1996 re-election, the Russian president disappeared from view and his most famous “young reformer,” Anatoly Chubais, took the stage. Chubais had a few months earlier been publicly fired by Yeltsin – Yeltsin at that time had accused him, in so many words, of being on the take, of selling off Russia’s oil fields and precious metal mines for kopecks in return for bribes. Now here was Chubais on TV again, apparently in charge of things – this came as a shock to many Russians. And as Yeltsin was heading in for risky heart by-pass surgery, he was promising, in not-so-veiled language, a Chubais-led junta if the surgery failed. (Did I mention that Chubais talked of ruling via a committee named “The Cheka”?)

Summers is one of those people that Vladimir Brovkin was talking about (“Fragmentation of Authority and Privatization of the State: From Gorbachev to Yeltsin”):

Yeltsin probably did not realize the full implications of his actions, which had the effect of legalizing insider trading. He made it possible to create post-soviet monopolies; he established a climate of state favoritism in business, which tied the state to private monopolists and their protectors in government. He made it possible to create political-corporatist criminal networks that did not pay taxes, disregarded laws, and used state resources for private purposes. Those networks were soon to show their power in financing Yeltsin’s reelection campaign. As this was happening, most observers in the West were applauding the rise of a class of owners in Russia that would become the bastion of democracy, the guarantor of the rule of law whose very foundation would be private property.

Paul Wolfowitz made similar predictions about an Iraq reconstruction that would pay for itself. He, too, was rewarded, perversely, for his failed prognostication with a position of significant responsibility. From which he was forced to resign for what was essentially a scandal over hypocrisy and intellectual dishonesty. See

Back to the emergence of Putinism:

This topped a year in which Chubais had been absolutely indifferent in public to the then-new-and-horrible war in Chechnya (and a few years later, Chubais would cry “treason” when responsible national figures dared question Vladimir Putin’s reprise of Yeltsin’s war). A year in which Russia’s natural resources had been parceled out among friends, via openly-rigged “auctions.” A year of political campaigning in which Chubais had met in the Kremlin with leading Russian newspaper editors and, according to Nezavisimaya Gazeta editor Vitaly Tretyakov, ordered them to do as they were told, because “if you don’t, bones will crack.”

Summers saw no crisis there:

None of this – not the flirtation with a Chubais-led Cheka, not the hijacking of the nation’s wealth – worried Summers. When Yeltsin survived surgery and promoted Chubais back to a top government post, Summers enthused that Russia had just received her”economic dream team.” (Perhaps Summers was thinking of shipping US toxic waste to Russia?)

The reference is to the infamous “toxic waste” memo leaked during Summers’ tenure at the World Bank, in which he wrote:

I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to it.

Rubbing the man’s nose in Shleifer:

Andrei Shleifer – a young economist protégé of Summers’ – ran a US-government-funded project to help Russia map its economic future. Under the auspices of the Harvard Institute for International Development, Shleifer and his American team advised Chubais and his Russian team on how to sell off the natural resource fields, how to set up capital and financial markets, etc.

Collapse:

Five years after its launch, Shleifer’s project collapsed amid corruption allegations. It quickly became public — thanks to whistleblowers in Russia — that even as they were providing “disinterested advice” to Russia, Shleifer, his lieutenant Jonathan Hay, and both men’s wives had been making direct investments to the tune of several hundred thousand dollars in these same projects. Perhaps most damningly, to quote a US government press release on the matter, “Shleifer and Hay participated in the launching and/or financing of Russia’s first licensed mutual fund, which was started by Elizabeth Hebert, Hay’s then girlfriend, now wife, and (b) Russia’s first licensed mutual fund depository, the First Russian Specialized Depository (‘FRSD’), which was started by Hebert’s business partner and provided support services to the mutual fund.”

Harvard dragged through the mud:

In 2004, Shleifer & Co. lost a case brought by the US Justice Department against them and against their employer, Harvard University: the Justice Department accused them of violating conflict-of-interest provisions in their contracts. The original 98-page complaint asserted that Shleifer and his lieutenant arranged for the US government to pay hefty salaries to people who worked on their personal side business projects, and who rarely showed up for their ostensible government jobs “other than to collect their pay or for the free lunches.”

Baffled and indignant American jurors:

It was an ironic coincidence that Summers technically joined old pal Shleifer in the docket: In the interim he had become President of Harvard and so was listed among the accused. (For an excellent account of the beating Harvard took in this trial at the hands of baffled and indignant ordinary American jurors, click here.)

I think Summers is a habitual purveyor of moral panic.

He could be right, but I would still prefer to listen to someone else’s risk assessment.

I cite the “boy who cried wolf” principle.

One day, after all, there was a wolf. But no one believed the boy.

Summers seems to have imprinted this intellectual style on Harvard during his tenure as head of the Corporation, too.

(Or was it the other way around? Did Summers, like a baby duck, imprint on the values of the Lippmann-Mangabeira tendency in postmodern “pragmatism unbound”?)

Global Voices Online is a symptom of this style, I think — which I tend to like to call “Veritas 2.0” or “The Pontius Pilate Principle”: “What’s so great about truth, anyway?”

Let us suppose there is a 25% chance that I will be run over by a car if I try to cross the Rua Natingui blindfolded between 3:00 pm and 4:00 pm on a Monday afternoon.

[That could well be a lowball estimate, mind you, and I actually know no way of actually quantifying the risk without actually trying it. Which would be uttterly inhuman of me to do. São Paulo traffic is murder.]

In the worst case scenario, I get run over and have a very good chance of being taken away in critical condition. Imminent massive organ failure. That sort of thing.

In the best-case scenario, the crisis is avoided — although you might try to make the case that I am experiencing a crisis of mental health, given my behavior.

The most effective way to avoid the crisis is to refuse to participate in the experiment, but once I start across that street, the time has come to figure out how to maximize my chances of survival under the circumstances.

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