Thursday, December 16, 2021

Introducing the Novelty-Narrative Hypothesis


Historically novel events cause the processes driving stock market returns to change in unforeseeable ways. This kind of instability famously eludes representation in terms of standard probability theory, which relies on past data. To deal with so-called “radical” or “Knightian” uncertainty, market participants rely on narrative dynamics to help give shape and contextual meaning to novel events as relationships change in real-time.

This is the essence of the Novelty-Narrative Hypothesis (NNH) that I assess in my new book, How Novelty and Narratives Drive the Stock Market: Black Swans, Animal Spirits and Scapegoats published as part of INET’s book series with Cambridge University Press. This new approach enables researchers, policy-makers, and investors alike to better understand stock market outcomes and confront unforeseeable change and the Knightian uncertainty it engenders with real-world observations and scientific scrutiny. Standard economics relies on probabilistic rules which presume that the future is an exact replica of the past and, as such, is unable to deal with “true” uncertainty. NNH offers a way forward.

Why is change in stock market relationships unforeseeable? Frank Knight famously traced the answer to events that are to some extent historically unique. The last two years perfectly illustrate Knight’s point. Financial markets have had to grapple with an unprecedented pandemic, historic US Congressional stimulus, dramatic supply chain disruptions, and sharp pivots toward more remote forms of both labor and commerce. Simultaneously, there has been an oil war between Saudi Arabia and Russia, the arrival of a new US presidential administration, shifting geopolitical conflicts in the Middle East, and, now, substantive talk of Federal Reserve tapering in the face of creeping inflation. Such events catalyze change in business processes and in the economy’s overall structure. Yet, true uncertainty implies that no one can foresee when such events would occur or, more importantly, how their impacts on future returns are interpreted by market participants at a given point in time.

My book offers the first comprehensive analysis of the role that stories play when novel events cause instability in the stock market. Stories are visceral, contagious, and ever-evolving. Stories share a living symbiotic relationship with the people and communities that tell them. Stories reflect a society’s culture, values, institutions, experiences, diversity, and politics. Stories are the consequence of uncertainty, but also serve as a source of uncertainty themselves. Stories are the currency of uncertainty. People tell stories that others have told them and major events are often the catalysts for many of the most popular story threads coursing through our minds, discussions, news reports, business communications, and social media feeds.

Macro shocks, however, do not occur in isolation. Rather, large-scale non-repetitive events often spill over into a churning stream of novelty at the firm level, think bankruptcies, management shake-ups, legal issues, M&As, new production processes, and so on. What’s more, the interpreted impacts of macro shocks on firm outcomes may be quite ambiguous; often, the distinction lies with short- versus longer-run return forecasts and the accompanying narrative links versus established story threads, respectively.

My book relies on a novel dataset based on millions of identified unscheduled corporate events across the universe of Dow Jones, Wall Street Journal, MarketWatch, and Barron’s financial news reports over the last two decades. I assess the intensity of narrative dynamics through big data analysis of event novelty, inertia, sentiment, and relevance. These metrics are then interacted to show how narrative intensity aligns with formal structural breaks in posited relationships driving returns, volatility, and fund flows. Interestingly, the narrative dynamics of firm-level events correspond rather closely with macro event narratives. But the empirical evidence shows that macro unscheduled events spill over onto future corporate novelty triggering different forms of stock market instability.

Narrative economics is a popular and growing field of research. Unlike other treatments of narrative dynamics in the stock market, my book places psychology in a rational setting of cognitive decision-making under uncertainty. Evidence from other social sciences supporting a rational view of sentiment is overwhelming. What’s more, my book does not trace the source of narrative dynamics to random chance, evolutionary biology, or psychological disorders, as others have contended. Rather, NNH implies that narrative dynamics stem from historically unique events and the unforeseeable structural change they engender in stock market relationships. Put differently, my book advances the view that the role of novelty and narratives reflects the normal state of affairs in inherently unstable asset markets. Consequently, my book breaks away from mechanistic models of contagion used to describe narratives’ impact on market outcomes.

The missing link to deal with inherent instability and uncertainty is narrative dynamics. Story threads are the primary source of soft information for researchers, policy-makers, regulators, and market participants alike. This year, we are witnessing an evolving interplay between the narratives of inflation pressures and narratives following Chair Powell and the Federal Open Market Committee. Yields on 10-year Treasury Notes increased from 1% in February 2021 to over 1.5% through June. Google Trends searches for “Jerome Powell” spiked in March as yields increased. Google Trends searches for “inflation” began to rise in April 2021 and peaked in May. There appears a connection between the stories individuals are participating in and the outcomes observed in financial markets.

In March of 2021, billionaire investor Ray Dalio claimed that “investing in bonds has become stupid.” He has publicly reiterated this view on September 21 which prompted the following Bloomberg News interview query posed to Michelle Seitz, CEO of Russell Investments: “A very common theme here has been 'don’t buy bonds’ ever since Ray Dalio said it (again this morning) and you have said the same. So where do you go?” Are narrative dynamics at play here? Was there an underlying market event that aligned with the timing of the comments? Was Dalio or Seitz providing a narrative link that extends an established story thread or were they cultivating a new narrative angle? Narrative analytics would explore the emotional intensity of the surrounding linguistic context. It would track the stories’ visibility and mileage observed by the general public and by financial institutions. Narrative analytics would investigate the possible contagion and propagation of the view by other major investment figures and personalities. And, narrative analytics would always keep in mind the time-series behaviors of these metrics and their interaction as many other events unfold simultaneously.

The toolkit under NNH can be used in myriad ways by researchers and policy-makers for informing financial market decisions under uncertainty. For example, investigators might consider tracking the narrative attributes surrounding unscheduled events mentioned in 10-K and 8-K corporate statements, IPO prospecti, or in the SEC disclosures of Venture Capital firms. By tracking the way CEOs and other executives discuss particular issues on their shareholder calls or through other investor relations, dynamics of firm-level and industry narratives could be revealed. Which subsets of soft information are they emphasizing? How are they framing the soft information? NNH offers an empirical, pragmatic framework for addressing these questions and many more.


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Tuesday, December 14, 2021

Models of Temperature and Economic Growth: Some Cautionary Remarks


Several major papers have been published over the last ten years claiming to have detected the impact of either annual variations in weather or climate change on the Gross Domestic Products of most countries in the world. At least seven major papers have been published in this vein, including some that rely primarily rely on the results of previous papers. The results have gotten a fair amount of attention in both the news media and in climate change newsletters.

Many of these papers go on to argue that as average annual temperatures increase in countries in the coming decades the changes in temperature will have a very large impact on GDP growth rates. This literature suggests that cooler countries will tend to have increases in their GDP growth rates while warmer countries will experience decreases in their growth rates.

Unfortunately, because the statistical methodologies relied on by these studies are not scientifically justified, their quantitative and qualitative results are wrong. My new INET Working Paper argues that they seriously mislead the climate change research community, policymakers, and the general public. The key point about these statistical methodologies is that they violate basic principles for the correct use of multivariate regression analysis for scientific research. They do not include any of the appropriate and usual economic factors or variables which are likely to be able to explain changes in GDP or economic growth whether or not climate change has already impacted each country’s economy. The work in these papers, accordingly, suffers from “omitted variable bias,” to use statistical terminology.

Some of these studies also claim that the likely impact on the GDPs of various countries and regions can be calculated for the long-range future well beyond the time period covered by their database – sometimes as far into the future as the year 2100. Climate change is a fact, but my paper also cautions against such sweeping extrapolations.


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Friday, December 10, 2021

Remembering Geoffrey Harcourt (1931 - 2021)


Geoffrey Colin Harcourt passed away in Sydney, Australia on the 7th of December 2021. He was born in Melbourne on the 27th of June 1931.

His signature G.C. Harcourt became a familiar name for the many people the world over who followed his always insightful writings for more than six decades. Harcourt was, with Luigi Pasinetti, a principal heir of the Cambridge Post-Keynesian school of economics. He studied accountancy and economics at the University of Melbourne where – as he himself stated – the famous names of the Cambridge University Economics department were very much part of the academic life there.

In 1955 he went to Cambridge University where he gained his Ph.D. In 1957 the University of Adelaide appointed Harcourt to a Lecturer position and in 1967 he was promoted to a Professor’s Chair. Harcourt rapidly became an important contributor to the Cambridge school of thought. At the University of Adelaide he was among the founders and editor of the Australian Economic Papers in 1963, a journal that became a reference point for heterodox scholars throughout the world. In 1964-66 Geoff Harcourt returned to lecture at the University of Cambridge as a Fellow of Trinity Hall, followed by other lecturing stints in 1972-73 and in 1980. In 1982 he moved permanently to the Economics Department of University of Cambridge where he became Reader. He was Fellow of Jesus College, and its President for most of the time from 1988 to 1992. Harcourt also served for eight years on the Council of the University of Cambridge. Upon retirement in 1998 he was nominated Reader Emeritus in the History of Economic Theory at the University of Cambridge as well as Emeritus Fellow at Jesus. Harcourt returned to Australia where he was appointed Honorary Professor of Economics at the University of New South Wales in Sydney. In 2018 he was made a Companion in the General Division of the Order of Australia for "for eminent service to higher education as an academic economist and author, particularly in the fields of Post-Keynesian economics, capital theory and economic thought."

Harcourt gave a particularly nuanced, refined, and wide-ranging contribution to the famous capital debates, publishing in 1969 what has become a well known article in the Journal of Economic Literature: "Some Cambridge Controversies in the Theory of Capital." That was followed in 1972 by a monograph with the same title published by Cambridge University Press, which is among the most widely read on the subject. The debates were revisited in depth in a joint paper with Avi Cohen titled “Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?” published in the 2003 volume of The Journal of Economic Perspectives. Over the decades Harcourt’s essays have been collected in many books. In 2006, with Cambridge University Press, he published The Structure of Post-Keynesian Economics: The Core Contributions of the Pioneers. The volume constitutes a fundamental piece of work as it discusses the whole development of the different strands of the Cambridge School. In 2009, co-authored with Prue Kerr, Harcourt published with Palgrave-Macmillan the definitive book on Joan Robinson. Intellectually and humanly Geoff Harcourt was an exceptional person.

The INET community mourns his passing and extends its deepest condolences to his wife Joan, to their daughters Rebecca and Wendy and their sons Robert and Tim.


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Wednesday, December 8, 2021

Should Central Bank Liquidity Provision Be a Vehicle for Fiscal Discipline?


Unconventional monetary policies after the financial crisis have been extensively discussed and analyzed, with the notable exception of the collateral policies at their core. The work by Kjell Nyborg is a rare exception. On the basis of an in-depth analysis of the collateral policies pursued by the European Central Bank in the wake of the financial crisis, he argues that those policies aggravated the sovereign debt crisis and put the survival of the euro at risk. Nyborg’s analysis of collateral policy is an important contribution to the literature, but his critique of the ECB’s crisis response is misguided. Moreover, his proposal to retailor haircuts on central bank liquidity in a manner that would deepen the ECB's role in the fiscal disciplining of member states is dangerous: if adopted, it would be profoundly procyclical and destabilizing. Our new INET Working Paper analyses Kjell Nyborg’s work to identify a set of collateral policy principles that likely will ameliorate impending market liquidity crises as opposed to exacerbating them.

What is the role of collateral policy?

Central banking is widely seen as first and foremost a matter of using interest rates to achieve monetary policy goals. Central banks lend not merely at a cost, however, but always against securities. Borrowers pledge assets to access central bank funding. In this sense, the lending is secured. While secured lending exists in many forms, one feature is a constant: what is accepted as collateral varies significantly over time.

What the European Central Bank (ECB) accepted as collateral before and after the financial crisis were two altogether different things. When money and credit markets are liquid and well-functioning, central banks take a conservative approach, accepting only high-quality assets as collateral. In periods of market stress, on the other hand, they usually respond by accepting a wider range of assets as eligible collateral.

Overall, three core factors define the contours of central bank collateral policies. First, eligibility criteria set out what assets are eligible as collateral when banks seek access to central bank money; second, haircuts determine how much central bank money a bank will receive (as a percentage of the market value of the collateral) for different types of eligible collateral; and third, stipulations on counterparty access define what types of financial institutions the central bank is willing to provide lending to.

The haircut can be seen as the central banks’ insurance against liquidity risk. Should the borrower be unable to pay back the loan, the central bank can avoid a net loss, even if it has to sell the collateral at a price below the original market value. In this sense, haircuts are a risk management technique for central banks. Since the global financial crisis, it has become apparent, however, that haircuts have important implications for liquidity in the markets where collateral trades.

Since most collateral in the Eurozone is issued by Member States, the ECB’s collateral policy has significant impacts on liquidity and price in sovereign bond markets – that is, ECB’s collateral policy has significant, if deeply underappreciated, fiscal spillovers. In the early stages of the crisis, spreads between German bonds and ‘periphery’ Eurozone countries were amplified by the ECB’s collateral policy.

What is wrong with Nyborg’s critique of the ECB’s collateral policy?

The main message of Nyborg’s book is that the terms on which ECB supplied money for collateral during the crisis were “overly generous.” We argue that Nyborg’s characterization of the ECB's collateral policy is highly misleading, however. In fact, haircuts were increased several times for assets with low credit ratings. Moreover, haircut differentials – the spread between haircuts on collateral assets with a high and a low credit rating – widened, hence producing a contractionary rather than an expansionary effect on collateral space.

Before October 2008, the ECB applied identical haircuts to all European government debt. There was no distinction between high- and low-quality collateral in this asset class. After the collapse of Lehman, the haircuts on highly-rated government debt remained at the same level, while all lower-rated government debt was assigned haircuts 5 percentage points higher.

Overall, three observations about changes made by the ECB to its haircut schedule stand out. First, haircuts for high-quality collateral were kept low throughout the crisis (and even declining for longer residual maturities). Second, for government bonds with a low credit rating, the opposite trend prevailed. Assets with a low rating faced a dramatic increase in haircuts, in the range of 550 to 850 basis points (depending on residual maturities), seen over the full period. Third, the haircut spread – between assets with a low (B to BBB-) and a high credit rating (A to AAA) – jumped 500 basis points in October 2008, was unaffected by the January 2011 revision, but increased again in October 2013, with 50 to 400 basis points (depending on residual maturities). For short residual maturities, the haircut spread jumped by 50 basis points (from 500 to 550), while for long residual maturities it increased by 400 basis points (from 500 to 900).

Over the full period, haircuts on government bonds with a low credit rating and residual maturity of less than one year were increased 12-fold, from 0.5% to 6%, whereas haircuts for the same class of government bonds with a residual maturity of 7-10 years nearly tripled, from 4.5 % to 13 %. These are hardly trivial increases.

We suggest that the haircut changes do not match their depiction by Nyborg as “overly generous”. On the contrary, it is difficult to imagine that haircut increases at this scale did not add to the already severe liquidity strains of troubled banks and governments in distressed countries.

What’s the way forward for collateral policy?

In Nyborg’s view, future instances of over-borrowing by banks and sovereigns ought to be prevented by using haircuts in a punitive manner. “The idea is simple,” he says, “if a debt-to-GDP ratio of no more than 60 percent is desired,” all you need to do is “increase haircuts progressively in the debt-to-GDP ratio beyond this.” The same mechanism can be established for fiscal deficits, such that haircuts are increased progressively as fiscal deficits exceed agreed thresholds. “My proposal works,” explains Nyborg, “by reducing the liquidity and value of a highly indebted country’s bonds.” By increasing borrowing costs, the “appetite” for borrowing in excess of agreed thresholds should recede.

We strongly oppose Nyborg’s proposal. If haircuts were proportional to fiscal deficits and public debt to GDP, collateral policies would exert a pro-cyclical and destabilizing influence not just on collateral markets, but on the financial systems they anchor. For a central bank to combat a market liquidity crisis effectively, it must decrease haircuts, not increase them – and more so for assets with low ratings, such that haircut differentials narrow rather than widen. This is essential to market liquidity. Incidentally, it is also by far the best risk management strategy, because the need for liquidity injections and asset purchases will be much more speedily satisfied with this policy mix.

Our Working paper argues that the ECB's ambivalent strategy – of providing liquidity but raising haircuts on distressed assets – did not amount to “lending freely, against any and all collateral that is good in normal times”, as we believe Bagehot’s rule advises. By expanding collateral eligibility but raising haircuts and haircut differentials, the ECB was undermining the market liquidity it was trying to restore. To stop collateral valuation spirals, central banks must lower haircuts and haircut differentials – and suspend rather than follow the collateral valuation practices of financial markets.

Should we hold back for fears of moral hazard?

Countercyclical collateral policies are likely to be subjected to a standard criticism against measures that ease access to central bank liquidity. Such policies cause a moral hazard for both governments and banks, who would get access to funding on “subsidized” terms. Notably, lowering haircuts on central bank liquidity would amount to encouragement of “overborrowing” by banks that might in fact be insolvent and hence should not receive central bank funding.

Against such objections, we suggest that one must first acknowledge that liquidity provision and moral hazard are best dealt with separately. In much the same way as it would be “a terrible mistake”, in the words of Paul de Grauwe, if a central bank were to “abandon its role of lender of last resort in the banking sector because there is a risk of moral hazard”, we suggest that compromising collateral expansion by raising haircuts is a highly unfortunate conflation of strategies. The point is not that moral hazard problems should be ignored; only that they should be addressed differently. The solvency of individual banks is a task for micro-prudential regulation and supervision, not a concern that should be held against collateral policies designed to ease a market liquidity crisis.

Research has established that the moral hazard effects of liquidity provision are less detrimental than those resulting from direct recapitalizations of banks, the dominant response to bank insolvencies. The upshot is, we argue, that even if the main objective is to reduce moral hazard issues in banks to the largest possible extent, lowering haircuts likely will in fact contribute positively. By helping abate the liquidity crisis, incidences of banks becoming insolvent are reduced, and hence moral hazard in its severest form is minimized.


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Thursday, December 2, 2021

Looking for a Libertarian Who’s Not Afraid of History


The Wall Street Journal opinion section is nothing if not persistent. It rushed to print a critique of my detailed, primary source-based study of how Milton Friedman exploited southern resistance to desegregation to promote his ideas for privatizing public education by Phillip W. Magness. But obviously that wasn’t enough. When another scholar and I answered point by point, including in a longer version on INET’s site, the Journal came back with yet another screed of his.

The latest response is as insubstantial and factually incorrect as the first one. Let’s begin with his claim that “Rather than engage the economist at his word, Ms. MacLean imputes opportunistic motives to the date of Friedman’s 1955 article on the economic theory of school choice—one year after Brown v. Board of Education.”

What my piece actually did was to document how, from 1951 forward, the national press was reporting threats from segregationist officials to turn to private schools if faced with a mandate to desegregate public schools. This renders irrelevant Magness’s suggestion that the pre-Brown timing of Friedman’s drafting of his pro-voucher manifesto is exculpatory on its face. At the same time I was clear that “Whether or not Friedman had Dixie in mind as he drafted his article, he indisputably did all he could to take advantage of the opening created in early 1956 when southern states began ‘massive resistance’ to Brown.”

Friedman’s unpublished correspondence, which I quoted from in the original piece, leaves no doubt about his determination to use the emerging southern white resistance to promote his theory. When Friedman submitted his draft piece in October of 1954, Robert A. Solo, the economist who was editing the collection in which it was to appear, challenged him to consider how it could abet the segregationist cause. Friedman persisted. In answer to Solo’s challenge, Friedman responded that he opposed not only “forced segregation” but also “forced nonsegregation.” That is, he opposed the Supreme Court mandate to integrate southern schools.

Why is that so hard for Magness to admit? After all, Friedman went on to oppose the Civil Rights Act, as did his fellow libertarians. Do their heirs think they can keep such ongoing opposition to anti-discrimination measures a palace secret?

My essay also showed how Friedman found an ally in Leon Dure, a former newspaperman who was then fundraising for two Charlottesville segregation academies and advising southern states on strategy to defy Brown with a better chance of surviving court review. Friedman supplied Dure with ideas he used to win allies to his approach, as well as contacts for his outreach. What does Magness make of those strategy discussions? He doesn’t say; he just ignores them.

Magness then doubles down on his fanciful story of the roots of the strategy of “massive resistance” to the Supreme Court order that another researcher had already written to rebut.

The only difference between Virginia’s 1959 tuition grant plan and what Magness refers to as “the arch-segregationist ‘Massive Resistance’ laws of 1956-57” is that the segregationist backers of both—ultimately the same individuals in key cases--learned they needed to adopt formal color blindness to survive court review. I documented this learning process, aided by Friedman’s economic arguments and Dure’s evangelizing, but Magness, like the proverbial “see no evil” monkey, simply puts his hands over his eyes so he can hold on to his dogma undisturbed.

The NAACP, whose Legal Defense and Education Fund led the fight in the courts, consistently opposed the vouchers that Magness speciously claims were “a tool to achieve” integration. If Magness is right about their purpose, why would those in the best position to know fail to see this? And why did the courts come to agree that the vouchers promoted racial segregation and denied equal protection of the law to African American citizens? Magness never even addresses these points, much less explains why anyone should trust him rather than NAACP attorneys such as Virginia’s Oliver Hill and federal judges.

Milton Friedman himself ignored six years of mounting evidence of the segregationist impact of vouchers between 1956 and the 1962 publication of Capitalism and Freedom, in which he recommended the Virginia Plan, acknowledging that the state government aimed “to avoid racial integration” (p. 100, n. 5; also 118). So, why does Magness call me “brazen” and “conspiratorial” and engaged in “smearing” for sharing this indisputable history?

It’s time that Friedman’s admirers, the Journal’s opinion page, and the many supporters of diverting tax revenues from public education to private schools come to terms with the real history of their cause. They seem to imagine that sound defense requires belligerent denial of the factual record. Is any cause served by such blind faith?

Again, I ask Mr. Magness’s fellow libertarians: is even one of you willing to examine this history without defensiveness but instead with due recognition of the need for honest reckoning?

The disastrous consequences of segregation and the many efforts to revive it for political gain are, I hope, obvious. It’s time libertarians give up disinformation as a strategy of dealing with troubling matters. They could start by grappling seriously with their history in regard to race and education.[1]


Note

[1] See Nancy MacLean, “'Since We Are Greatly Outnumbered’”: Why and How the Koch Network Uses Disinformation to Thwart Democracy,” for The Disinformation Age, eds. Lance Bennett and Steven Livingston (Cambridge University Press and the Social Science Research Council, 2020). Free for downloading here.


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Tuesday, November 30, 2021

Warning: COVID-Fueled Mental Health Crisis Will Be a Costly Second Pandemic


Devastating conditions like major depression, bipolar disorder, schizophrenia, and obsessive-compulsive disorder are among the leading causes of disability in established market economies, according to Johns Hopkins Medicine. In the U.S., more than one in four adults was suffering from a diagnosable mental disorder even before the pandemic.

For too long, cost and access barriers to mental health care have caused incalculable suffering.

Covid has now blown the lid off a crisis building for decades. So why isn’t there a plan to deal with it?

A Runaway Train Accelerating

The Lancet reports that cases of mental disorders have skyrocketed during the pandemic, including 53 million new cases of major depressive disorder and 76 million new cases of anxiety disorders. In the U.S., since spring of 2020, the National Center for Health Statistics has partnered with the Census Bureau on a new, rapid-turnaround data system to monitor depression and anxiety, finding that just over half of adults between the ages of 18 and 44 surveyed have reported symptoms, as have 38% of adults living with children.

Researchers find that younger adults, racial and ethnic minorities, essential workers, and unpaid adult caregivers (most of them women), have been especially hard-hit by mental distress and increased substance use. Growing alcohol use is particularly worrisome among stretched-to-the-breaking-point young women juggling children under the age of five and work responsibilities. Feedback loops within families mean that distressed parents transfer their anxiety and depression to children and vice versa. Three top U.S. organizations specializing in child and adolescent mental health, including the American Academy of Pediatrics, recently declared a state of emergency for the country’s youth, noting that Covid-19 and the ongoing struggle for racial justice have compounded trends of declining mental health among kids observed prior to 2020.

Many people find themselves in so much pain, they think about dying. Suicide attempts by young girls are notably on the rise. Young people unable to obtain mental health care are being sent to hospital emergency rooms, where the staff are under their own intense stress due to private equity takeovers of health care and the spillovers of an inadequate care system.

We can’t go on like this. Yet as alarming as it all sounds, signs indicate the crisis may only intensify. Covid-19 case rates may be falling in some areas, but the stresses associated with the pandemic are far from over – particularly as new variants spread, causing further disruption.

In the U.S., those needing help face a serious shortage of mental health specialists (themselves often suffering from burnout and stress), a reduced number of psychiatric hospital beds, and a loss of job-based health insurance. Even for those who have insurance, a lack of in-network counselors and therapists means that care is frequently out of reach. And if you don’t live in a city, you may be out of luck: In some states, 80% of the population lives in an area where mental health professionals are scarce.

The upshot is that millions are going without the treatment they require. People are unable to sleep, gaining weight, and turning to potentially harmful strategies as they struggle to cope with grief, loss, isolation, family and workplace stress, and economic woes, including the latest worries about inflation.

A Neurotoxic Virus

The coronavirus itself attacks the mind. The infected may experience psychological symptoms like brain fog, and for some, the virus is nowhere near done with them after the initial infection. Long-haulers face a nasty list of potential psychiatric disorders, from phobias to anxiety. Some estimates suggest that as many as one in five people infected with Covid experience such disorders within three months. They get better, then they get worse, then they get better – up and down on a hellish rollercoaster.

That’s not all -- research has shown that those recently diagnosed with a mental disorder were significantly more likely to contract Covid -- and they tended to have worse outcomes than people infected who don't have a mental disorder. Researchers now suspect that having schizophrenia is second only to advanced age as the highest risk factor for dying of Covid. Nobody knows exactly why.

Viruses have long been linked to mental illness, though just how they relate is not well-understood. As early as 1732, clinicians noted that the flu often came with symptoms like neurasthenia, melancholy, hysteria, mental prostration, and insanity. When Covid hit, researchers looked back at the impact of the Spanish flu and other pandemics on mental health. Available data was scant, but demographer Svenn-Erik Mamelund had studied an increase in asylum hospitalizations from 1872 to 1929, finding that the number of first-time hospitalized patients with mental disorders attributed to influenza rose by an average annual factor of 7.2 in the 6 years following the Spanish flu pandemic. He also found that Spanish flu survivors reported sleep disturbances, depression, mental distraction, dizziness, and difficulties coping at work, and that influenza death rates in the U.S. during the years 1918-1920 were significantly and positively related to suicide rates.

Researchers in Great Britain reported an uptick in various nervous symptoms in patients recovering from Spanish flu infections, including neurasthenia, depression, nerve cell damage, and visual problems. Cases of encephalitis lethargica, an inflammatory central nervous system condition featuring psychotic and catatonic symptoms, also became common – 1 million cases were reported from the beginning of the Spanish flu pandemic in 1916 until the early 1930s. Clinicians surmised a link between the two, though causality is not established.

The Spanish flu, and other types of flu, have been linked to psychosis. Early observers of influenza, including Karl Menninger in 1919, noted that people who contracted flu showed a variety of psychotic symptoms, particularly schizophrenia, and theorized that the viruses were neurotoxins. They were onto something. Evidence indicates that Covid is indeed a neurotoxin.

Over the course of the current pandemic, doctors have seen infected teens suffer sudden psychosis, and researchers are wondering if brain inflammation or immune reactions may account for psychotic symptoms in Covid patients with no history of psychiatric complaints.

The coronavirus highlights the insufficiency of an outdated medical perspective separating the mind from the body. Viruses and other things that harm our bodies frequently affect our mental well-being, and vice-versa.

Social Toxins Spreading

Like wars and other devastating events, pandemics produce a wide range of mental health issues that hit poor and vulnerable groups especially hard. Covid is no exception.

Researchers Anne Case and Angus Deaton brought the term “deaths of despair” into public awareness with their studies of how mortality rates had risen sharply among certain populations since the 1990s. Their work has highlighted how the impact of stressors tends to widen the gulf between haves and have-nots already affecting the U.S and other countries.

Shannon Monnat of the Institute for New Economic Thinking and researchers at the Brookings Institute point to increased stress from Covid-19 on populations already facing rising deaths of despair, particularly those in rural areas. Monnat, who tracked deaths of despair related to the opioid crisis prior to the pandemic, has been studying how the coronavirus has been affecting populations of drug users in New York state. She has found that drug supply chain disruptions, including the increased appearance of deadly fentanyl as filler, along with other Covid-related factors like increased loneliness and isolation, appear to have helped fuel an increase in overdoses. She sees a breakdown in trust as an added stressor in areas where overdoses are high: “Trust in government, trust in media, trust in science, even trust in your own family have been strained…Families have been torn apart because of different willingness to accept facts.”

The pandemic, Monnat notes, has “accelerated a disruption in the social fabric of communities.”

People are feeling lonelier than ever. Even before the pandemics, researchers had begun to focus on the links between social isolation and loneliness and declining mental health, along with reduced lifespans and heightened risk for disease. Harvard researchers find that older teens and young adults are especially vulnerable to loneliness and isolation. They observe that people this age are particularly in need of a “robust social infrastructure,” which includes supportive connections with schools, doctors, and employers. Since many do not have such infrastructure, the reliance on social media to find a sense of connection increases. Yet studies show links between social media use and even more feelings of loneliness, particularly when online interactions replace face-to-face connecting. Recent revelations about Facebook (now changing its name to “Meta”) from whistleblower Frances Haugen, a former employee of the company, show that Facebook was aware of its negative impact on teen mental health – especially girls -- but did nothing about it.

The Cost of Ignoring Mental Health

The costs of mental illness are staggering, in human suffering and in dollars. In the U.S., 10% of insured people make up 70% of the total spending on health care. Of that high-cost group, more than half are seeking treatment for behavioral health. Mental health spending is rising twice as fast as overall medical spending. Shockingly, nearly half of people seeking treatment for mental distress get the wrong diagnosis.

In 2016, data from the National Health Expenditure Accounts showed that mental disorders were already the most expensive conditions in the U.S. in terms of health care spending—costing $201 billion. Heart disease, by way of comparison, cost $147 billion, and cancer, $122 billion. Of course, mental health issues and physical ailments like heart disease are often intimately related, so the cost of mental distress is likely even higher when vulnerability to disease is factored in.

People in mental distress can’t work at optimum levels. The loss of productivity as a result of two of the most common mental disorders, anxiety and depression, costs the global economy US$ 1 trillion each year. Affected employees quit, leading to replacement costs.

It should be clear by now that mental well-being will have to be a higher priority in plans for national and global recovery. It’s encouraging to see positive steps taken in the two stimulus packages, such as increased funds for mental health and substance abuse services, and the push to increase the use of telehealth for mental health services, such as expansions of coverage for such, will be helpful to some sufferers.

Going forward, some of the provisions in the Build Back Better Act (BBB), including investments in public health, child care, Medicaid expansions, and paid leave (a paltry 4 weeks, but better than nothing) will help to ease the strain on some – if they are enacted. The Act allocates $165 million to mental well-being, including $75 million for improving the National Suicide Prevention Line; $50 million for the mental health and substance abuse workforce in addressing the needs of communities of color; $25 million for peer-based programs to support substance abuse treatment; and $15 million for a program to educate school-aged youth about mental health issues. This is good, but it’s not nearly enough. And Thomas Ferguson, Director of Research at the Institute for New Economic Thinking, warns that rapid withdrawal of most Covid support spending, especially for health care, is likely to make things worse in the near term.

We need to think in terms of more transformative changes to address what is making us so unwell in the first place. Extreme inequalities and the wide range of pathologies generated by an economic model and political system that favors the interests of the wealthy and corporations are not yet being addressed. The priority of wealth for the few over health for the many is upside down. As our anxiety and depression increase, politicians can manipulate us into directing our frustration at various bogeymen, from immigrants to the unemployed. When we feel we have little power in our lives, many turn to guns for an illusory sense of control, creating more dangerous and tense conditions. When we feel disconnected, we may sink further into the unreal worlds of social media and gaming. The coming metaverse looks like a virtual world that could swallow us entirely. Mark Zuckerberg gushes that “creation, avatars, and digital objects are going to be central to how we express ourselves,” but others call it a “dystopian nightmare.” It will certainly have profound implications for mental health.

Mental distress is not just personal. It’s collective and political. An inadequate social safety produces mental illness. Income that can’t keep up with inflation causes it. So does a lack of child care and care for the elderly. And feeling like your kids will be worse off than you. Environmental damage and unregulated companies create mental illness. Misguided policies traumatize individuals, families, communities, and ultimately, our entire society.

The pandemic’s impact on mental health was predictable. In October 2020, the American Psychological Association released a report warning of a second pandemic, one of plummeting mental health, that would outlast the virus. What is also predictable is that recovery requires a comprehensive approach to support our mental well-being, individually and collectively.


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The Pandemic Triggered the Questioning of Current Governance Systems in Africa


In this interview for INET’s COVID-19 and Africa series, Camilla Toulmin and Folashadé Soulé discuss with Dr Ibrahim Mayaki, CEO of the African Union Development Agency (AUDA-NEPAD) about how the effectiveness of State responses to COVID-19 in Africa have been very visible, and are leading to far greater public scrutiny of the public sector and prospects for better governance.

Dr. Mayaki of the Republic of Niger has been the Chief Executive Officer of the African Union Development Agency (AUDA-NEPAD) since January 2009. A former Prime Minister of Niger, from 1997 to 2000, Dr. Mayaki set up the Analysis Centre for Public Policy in Senegal in 2000. He was a guest Professor at the University of Paris XI (2000-2004). He went on to serve as Executive Director of the Rural Hub, based in Dakar, Senegal, before taking up his current position.

In our discussions with African leaders and thinkers so far, many see the COVID pandemic as laying bare the weaknesses in current economic structures and relationships, and that Africa’s COVID recovery offers a starting point for doing things differently. Do you agree, and what lessons do you take from the COVID crisis for changes in Africa’s future economic direction? What has to change?

My first point is that such views have a certain truth. However, it also has to be put in perspective. It is true that, due to COVID-19, Africa has known its first economic recession in the last 25 years. It is recognised by multilateral institutions that generally, we had good economic growth rates and well-designed macro-economic policies in most cases. We were doing quite well and sustainability of debt in the pre-COVID period was fundamentally not an issue. However, there were some red flags for certain countries to be more careful, but overall, the situation was not alarming.

The second point is that the economic model we have been following is a consequence of structural adjustment programmes of the 1980s and 90s, and which was not sufficiently inclusive. We still are the most unequal region in the world. Inequality and youth unemployment are very important issues. The median age in Africa is 19 years and every year we have about 20 million young people coming onto the job market, but only 12 million jobs are created, and these are mainly in the informal sector. So, inclusivity was not the characteristic of that growth but nevertheless, we did grow. The COVID-19 pandemic accentuated existing fragilities, which you can see mostly in the social sectors – education, health, etc. - and we hadn’t invested sufficiently in primary health care. Evidently our capacity to respond to the pandemic was weakened by this limitation. We really need to take primary health care more seriously. Before COVID-19, we had 34-35 million children out of school and evidently this has increased with the pandemic. Pre-existing fragilities have been worsened during the COVID period.

The third point, to which we don’t give sufficient importance, which is happening as a consequence of the pandemic, is a questioning of the governance systems we have had till now. Why? The pandemic created a situation where governments face public opinion and public scrutiny directly, and the effectiveness of the solutions they are promoting can be gauged immediately. If you supplied sufficient masks or not, it was seen. If you had sufficient diagnostic tests, it could be seen. This immediate visibility of the efficiency of the State was immediately sensed by the population. It created a dynamic evolution where trust in public institutions has been reinforced in places where the response has been positive, or severely damaged because the response was not there. This is the most important facet from which will come a new economic model. Till now, governments and States had the monopoly of designing public policies. COVID-19 has led to communities becoming more pre-eminent, so we will likely see more co-creation of public policies. If it happens well, it will allow a reform of the economic model. If it doesn’t happen, we may see violent changes in certain parts of the continent.

The pandemic has shown the many advantages of coordinated collective action by African institutions, international institutions like the WHO, the World Bank and African governments, in addressing the health crisis early on and looking for financing. What are the key preliminary lessons that can be derived from this collective action and exercise of African agency for the future?

The first important point is that Africans could give concrete substance to the concept of regional integration. We have been promoting, discussing and reflecting on African integration through investment in physical infrastructure, but in this particular situation and in response to the pandemic, we could see an immediate reaction based on regional integration. You will remember that all the Ministers of Health met in Addis Ababa as soon as the pandemic started in February 2020. We had an organised and structured African Centre for Disease Control (CDC) and they drafted a roadmap which was immediately implemented in all countries, with the CDC outlining what needed to be done; for example, how to collect and report data et cetera. At the African Union level, we started putting in place mechanisms for the procurement of personal protective equipment, and diagnostics, and began thinking about a vaccine even before the COVAX system started. So, the content and purpose of regional integration in that domain was clearly understood by Africans and that has been one of the big lessons of the crisis. We realised we could use the same kind of approach in other domains beyond the immediate health issues. It also opened new reflections for African institutions. The World Bank, IMF, and EU have been helpful by accompanying us, without getting into the detailed discussions and decisions that were led by Africans.

The second lesson is this - most of the time when we design public policy, we bring our ideas and co-construct with donors and partners. However, this time we didn’t co-construct in this way but moved out on our own path which gave a real, tangible sense to what regional integration could do. At the same time, it opened new pathways for reflection in a very concrete manner. Access to vaccines was a real issue so we quickly started talking about vaccine manufacturing and that raised the question about broader manufacturing capacities on the continent. This concrete example has pushed us to reflect on the way we had been proceeding with regional integration. It is true that the African Continental Free Trade Agreement (AfCFTA), which was looked at rather theoretically by most Africans, even though it was a huge step forward, suddenly made sense. This is because it could enhance the creation of regional value chains, sharing lessons learned about manufacturing, especially from specific countries like South Africa which could produce and link to the other parts of the continent. Regional integration became even more real, once we started looking at the global scene. What we saw was vaccine nationalism, and we saw that global solidarity always starts with national solidarity. That meant that we as a continent really had to count on ourselves. If we look at the numbers of vaccinated people today, we see that in many countries there is a surplus of vaccines and people are talking about boosters. In contrast, in our countries, most people have not even had their first shot. So, there are economic questions about manufacturing, but there are also moral questions that need to be asked.

My other point is around vaccines and government behaviour. Some governments succeeded very quickly in getting vaccines accepted, while others couldn’t convince their populations to get vaccinated, despite having access to various media sources and much more information than in the past. It is therefore interesting to ask why some governments succeeded and others did not succeed in this domain. We have a list of countries where there is a surplus and people are not queuing to get the vaccine, and other places where there is a deficit and people are very keen to be vaccinated. Communities have played a big role here. Generally, the ordinary citizen believes much more in their community and on the views of local groups than what the state and governments are saying.

African countries will not be able to achieve their ambitions for economic growth and structural change without access to energy. COP26 has been an important moment to discuss climate and the constraints this places on Africa’s energy choices, but this is at a time when many countries are also discovering new reserves of oil and gas. How should fossil-fuel-rich countries navigate their future, given huge needs for energy on the one hand, and risks from stranded assets and climate change on the other?

Most western countries industrialised using fossil fuels and have benefitted enormously from them over the last 200 years, an era of explosive growth. Historically, Africa has been the least emitter of greenhouse gases, the principal drivers of climate change. This is nothing new. However, African countries have still made strong commitments to the Paris Agreement, in order to do their bit and contribute their part to the global goal of reducing warming to 1.5C above pre-industrial levels. There is, on the one hand, a commitment to an international accord, but there is also, on the other hand, the sense that as we industrialise, we shouldn’t make the same errors that others have made. We need “green industrialisation”. But the problem is no one in the history of economics has gone through a process of green industrialisation, there is no model. It will need the construction of a fundamentally innovative process, which requires transfer of technology. When African countries want to use gas to be able to industrialise quickly, there are some global institutions that are critical of this use of gas. But look at California, where their renewable energy supplies rely on gas for base-load power. Within our new economic model, we must think about what kind of transition we want to take. We should not be blinded by severe commitments because we still have 50% of our population who do not have access to energy. Our transition cannot be one that increases extreme poverty. It must not increase the burden on the most vulnerable. We should think of a green energy mix that can allow us to have a reasonable implementation of commitments and at the same time reduce extreme poverty, which has been rising during the pandemic. That’s the way we should think about energy. We cannot reject coal. If you reject coal in South Africa today, you will significantly reduce people’s access to energy, since coal remains central to the grid. Nonetheless, we should have a mix of energy sources, and think about the use of renewables in an intelligent manner, following a learning curve in coherence with reducing extreme poverty and achieving more inclusive growth. Otherwise, we will be doubly penalised because we fully implement commitments, which doesn’t make sense. We need incentives to move towards green industrialisation.

Some initiatives associating with the private sector were launched during the pandemic, such as the mVacciNation digital toolbox with Vodacom, Mezzanine and NEPAD. How do you assess the impact of such joint initiatives? Do you think the African private sector has been involved enough during the crisis? What lessons can be derived for the future?

There are some critical issues here. First, if you look at indicators of innovation and levels of expenditure in R&D in Africa, it is mostly driven by the private sector. Sometimes governments create an ecosystem that allows the private sector to be much more innovative. It happens in Kenya and some other countries. Innovation comes from the private sector, and if governments want to implement innovative solutions, they have to partner with the private sector. That’s the spirit with which we went into our partnership with Vodacom, MTN and now Orange for the mVacciNation solution so we could tap into the innovative capacity of the private sector through these partnerships. We found a very receptive private sector to engage with, not only the big ones like Vodacom but also a full range of start-ups that are emerging from countries across the continent and have enormous energy in terms of innovation. So, this is the context in which the governments are working. Some have pushed in a resolute manner in the creation of an ecosystem that can let these innovative institutions emerge. Some haven’t done it at all, but this hasn’t prevented these actors to rise up.

We realised that we could as a development agency of the African Union create very concrete partnerships with private entities. The receptivity of many governments has been very high because they realise they need to facilitate quicker, accelerated vaccination programmes, get the data on how vaccination is going, and then correct and adapt it based on feedback. So this is also one of the lessons which can be drawn from the pandemic. The behaviour of central governments has been shaken because they have discovered two things: they recognised their weaknesses and two, they have at the same time understood that there are many innovative ideas happening, structures, products and systems from which they can benefit. But in order to do so, they need to partner with business, which demands a fundamental mental shift. Most civil servants in African countries do not have a private sector culture, so their ability to link with them is somehow limited.

We need to create a space where there can be intercultural interaction between government and business, which allows this partnership with the private sector to flourish. We also have decided to promote this, and we have an initiative called 100,000 micro, small and medium-sized enterprises. We know most employment in Africa is in the informal sector - 80% of those employed in Africa are in the MSMEs, and the pandemic hit them very seriously. Our idea was to create a digital platform supported by financial institutions – we have a partnership with ECOBANK and accompany them in managing the financial and institutional stresses which the pandemic has brought. We created a Digital Academy and a digital platform to allow them better access to finance. Why a Digital Academy? To allow them to move from informal to more formal structures. This partnership with the private sector helps shape and change the behaviour of our states and governments culturally and structurally too. I like the work of Mariana Mazzucato very much, and her book The Entrepreneurial State, which describes an approach that is greatly needed in many of our countries.

As a former Prime Minister of your country Niger, and President of the Sahel and West Africa Club of OECD, we must ask you how you see the future of the region. Ten years on from the overthrow of President Gadhafi of Libya, terrorist and jihadist groups have embedded themselves very firmly in much of Mali, and parts of Niger and Burkina Faso. Neighbouring countries, like Cote d’Ivoire and Senegal, are increasingly concerned with spill-over. Military solutions don’t seem to be working. What political and economic measures could bring a better result?

The first thing the political elite in the Sahel must do is to recognise that they are the principal people responsible for this situation with the jihadists. That’s absolutely fundamental. If you think that jihadism is just an import from elsewhere, and the consequence of the extremely negative NATO intervention in Libya - while this does play a role, it is not the main cause of jihadism. If you say it’s the acceleration of the influence of particular religious figures, or Middle Eastern countries which have established radical religious education networks, if you believe this you are way off the mark. You are not facing reality. The reality is that our governments in the Sahel have completely neglected the territorial dimensions of planning and implementation of development. If you put two maps of the Sahel one on top of the other, you see those areas where the government has been active to improve health and education, and compare with those areas where jihadism is rife, you realise they have grown in those locations where the government has been absent. We need to recognise this as the elite.

Moreover, our response cannot be based exclusively on military intervention. The response must be the presence of the State in those zones that feel they have been completely abandoned. Evidently, the presence of the State currently demands a military presence, but the military by themselves are clearly not enough. The fundamental question for the Sahel is the re-establishment and re-founding of the State. There is a lot of writing and literature on this subject, but the re-foundation cannot be done by elites based in ministries in capital cities. Let me give you an example. When I was Prime Minister, we launched a survey before an exercise in national planning to see what the population really wanted. We asked the population of Niger about priorities for health, water, roads, education, health, and so on. Astonishingly, what came to the top of the list as the priority across the country, was not water, health or education, it was justice. It was a system of justice that was equitable, accessible, and not corrupt. They needed this to live their lives with dignity. In this context, you see that a military solution cannot provide all the answers. Clearly, if you have people with Kalashnikovs, you need people on the other side who also have Kalashnikovs. Given the evolution of the conflict, there are people who are now drawing a livelihood from these criminal activities, which have nothing to do with jihadism. It is easy to recruit young people at US$2 to $3 per day who become kings and lords in their own right when they hold a Kalashnikov.

We need to rethink the presence of the State. The army cannot sort out the problem. What we need is the State to be present in a decentralised, locally rooted form. This demands the presence of public services, and engagement with local communities in deciding what is to be done. The State has to be decentralised. It is a new way of thinking. If we don’t go in this direction, we will follow the route of Afghanistan – many billions spent and nothing to show for it. States must be present and make difficult but necessary choices in budget expenses. They should no longer prioritize the functioning of ministries that have no capacity to deliver anything in practice. We must help to construct local communities themselves who can then become a rampart and defence against the jihadists. Unfortunately, this essential shift in approach is not well enough recognised and understood. Instead, we see the multiplication of military actions and the corresponding spread of jihadist and terrorist groups. Too many international actors also participate in the illusion that this is the way to make progress.

Changing course won’t be easy. It will be slow and long, but we must follow the right road. We must renew the State, decentralise our budgets, and reinforce community-based actions so that people can judge for themselves that they are better off under the aegis of the State than jihadist groups. This should be our aim for the medium and longer-term. At the OECD Sahel and West Africa Club, we are trying to create space where people from a wide variety of backgrounds can meet, in what we call the Concertations sahéliennes to ask the real questions and co-construct policies and solutions with actors on the ground.


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Thursday, November 18, 2021

Experts on Inflation: Prognosis, Political Fallout and Who’s Really to Blame


Just in time for the holidays and the winter season, prices are rising at eye-popping rates. Energy costs have leapt 30% in the past 12 months, and food is way up -- the price of meat, poultry, fish and eggs together rose almost 12% over the same period.

I have just seen a $14 rotisserie chicken. Okay, it was Manhattan. But still.

All told, the consumer price index surged 6.2% from a year ago in October, the most since December 1990. According to the Labor Department, that wipes out any increases in wages workers have seen, with real wages falling 0.5% from September to October.

Neel Kashkari, the Minneapolis Fed Chair, has just said that it’s going to get worse in the coming months, blaming rising prices on people buying more goods and services with extra money from stimulus checks and also to Covid-related supply chain snags. But’s it’s temporary surge, he says. Yet Americans are still nervous – especially since energy and food prices don’t seem to fit that narrative especially well. Do you buy more heating because of a stimulus check you got months ago? Probably not.

So just how serious is the problem and what do we do about it?

Public Health is Key

Claudia Sahm, a senior fellow at the Jain Family Institute who has worked at the Federal Reserve and the Obama White House, sees higher prices at the pump and the grocery store as a real hardship to ordinary people: “It squeezed the budgets, particularly of low-income households who spend most of their money on necessities.”

In her view, the Fed failed to see just how long it would take to contain the global pandemic. “The highly contagious delta variant disrupted labor markets and supply chains again,” observes Sahm. “Covid is the root of all the problems, and the only lasting solution is a public health one.”

Sahm urges the White House, as well as state and local governments, to get more people vaccinated ASAP through measures like employer mandates and making access to the vaccine easier. Other measures she advocates to keep prices from ticking up further include using the Strategic Oil Reserve, reducing trade tariffs, and continuing to work with ports to speed the processing of goods in the short term.

On the bright side, Sahm sees a helpful buffer in the American Rescue Plan Act of 2021 – namely the “stimulus checks and the new Child Tax Credit which have given families the income necessary to cover the higher prices.” She points out that consumer spending, after accounting for inflation, is increasing more than prices: “That is notably better than after the Great Recession when families got much less relief, and consumer spending grew slowly for years.”

Infrastructure, Child Care Spending Will Help

Pia Malaney, Co-Founder and Director of The Center for Innovation, Growth and Society and Senior Economist at the Institute for New Economic Thinking, warns that “wages are not able to keep up and rising food and gas prices are hitting the pocketbooks of many Americans who are still reeling from the pandemic economy.” She notes that this has persuaded some to call for a cutback in proposed spending on Biden’s Build Back Better plan. But it is important to remember, she points out, “that much of the proposed spending will address exactly the labor and supply chain issues that are driving the rise in inflation.”

Malaney is optimistic that money spent on infrastructure will improve roads and transportation, and that help with child care and education “will allow many women to re-enter the workforce, easing the tight labor market that is making it hard for employers to hire.” But she also observes that climate change is already causing costly damage that will have long term effects on economic output if not addressed. “While the rise in inflation is troubling, reigning it in at the cost of long term investments in people and the economy can be even more costly.”

Political Turmoil, Greedy Oligopolists

Delft University of Technology’s Servaas Storm also worries that consumer prices are eroding the real incomes of households, resulting in “all-round pessimism and growing recession fears, as shown in a recent CNBC poll).” He warns that if we see a long, cold winter and rising energy prices, U.S. households will increasingly suffer from “fuel poverty” and the number of “winter deaths” will increase. Most households are likely in for a rough ride, he warns.

“All this is likely to lead to anger and upset among the population and to political repercussions for the U.S. mid-term elections in 2022,” predicts Storm. “The recent elections for governor in Virginia may well be the first of more electoral surprises.”

Storm does not believe that the Fed has underestimated the problem. “Officials have been telling anyone who would listen to expect higher, transitory, inflation in the near term as the economy recovers from the COVID-19 crisis and gets back to normal,” says Storm. “And it has not raised interest rates, even with influential observers telling it to do so.”

The Fed thinks the problem is transitory, he notes, but a lot of folks still worry that higher inflation will become entrenched and we will see a rerun of 1970s stagflation, when supply shocks (the two oil crises) triggered a wage-price spiral in a stagnating economy with rising unemployment. “That’s due to a communication error on the part of the Fed,” says Storm. “They made a mistake in avoiding comments on the major role played by food and fuel prices.” Storm thinks that people with such fears are focused on the wrong issue -- stagflation is unlikely, he says, because there’s nothing to keep pushing up wages.

“Labor unions in the U.S. have been crushed and no longer constitute a force for wage-cost-push inflation,” he says. “It is true that strikes and work stoppages are rising, but their impact at the macroeconomic level is still negligible.”

He points out that while nominal wages are rising, especially in specific industries where workers left during the pandemic and are reluctant to come back, it’s not nearly enough to offset the sudden increase in cost of living. In his view, we should be looking at how firms in various industries, from retail and manufacturing to biotech, have boosted their profit margins, which inflates prices.

“The Wall Street Journal noted recently that nearly two out of three of the biggest U.S. publicly traded companies have reported fatter profit margins so far this year than they did over the same stretch of 2019, before the pandemic,” observes Storm. “Rising inflation makes it possible for firms to hide their increased profit margins from customers.

“Nearly 100 of these corporations raised profit margins by more than 50%,” says Storm. “Part of the inflation is therefore due to profit-push – and we should blame the oligopolists, rather than the working population.”

Thomas Ferguson, Research Director at the Institute for New Economic Thinking, who has just released a new study on what drove the 2020 election, put it this way: “We don’t’ have a wage-price spiral. We have a price-wage spiral.”

Storm thinks the Fed is right so far in refraining from increasing the interest rate in order to curb inflation. “That’s a blunt instrument which can bring inflation down, but only by depressing consumption and investment demand,” notes Storm. In his view, the problem is not mainly about too much demand, but rather supply-side problems “in very specific global and domestic production chains impacted by the pandemic.”

“Higher interest rates won’t solve bottlenecks in (just-in-time) commodity chains,” he warns, “so instead of solving inflation they will just depress aggregate demand and push the economy into recession.”

Sure, says Storm, a recession will lower inflation. “But it would amount to a clear instance of ‘operation succeeded but patient died.’”

Storm points out that there is another reason why the Fed will remain careful when raising the interest rate, namely “the high indebtedness of U.S. households, banks and corporation in combination with strongly inflated asset markets.” Raising interest rates too quickly, or even at all, could trigger painful financial-sector adjustments and a crash in the dramatically overvalued stock market and derivative markets, he warns. And that could mean “a balance-sheet-restructuring recession of similar proportions to the one following the financial crisis of 2008.”

Yikes.

Bottom line, says Storm, is that the Fed will likely err on the safe side in allowing higher inflation with the hopes that it will be short-lived rather than risking a major crash.

So what to do to help the ordinary people who are hurting? “A sensible policy response to the inflationary pressures would make a distinction between the short run and the long run,” Storm explains. “In the short run, the government can impose temporary price controls (and rationing) on energy, especially.”

He agrees with Sahm that government agencies should act vigorously to unsnarl supply-chain bottlenecks, adding that there should be “mandatory cooperation moves between firms and unions, reversing decades of deregulation, to solve the present trucking crisis, for instance.”

Storm also urges direct income support to the poorest households to compensate for higher energy costs. This could be paid for out of higher taxes imposed on the super-rich (say, the richest 1%-5% of U.S. households or on corporate profits, which in many cases have grown because of higher profit mark-ups).

“The collateral damage of such targeted fiscal interventions would be much smaller than the negative side-effects of higher interest rates, and the distributive implications will be progressive (rather than regressive),” notes Storm.

In the long run, Storm sees the need for increasing the energy efficiency of homes and transportation, as well as expanding the renewable energy supply system and to lower the dependence on fossil fuels. He would also like to see governments curbing speculation in oil, gas and coal futures markets, which he says is now contributing to higher energy prices and inflation. “The Fed can outlaw the trade in socially useless crypto-currencies,” says Storm, noting that “Bitcoin mining consumes around 0.6% of global electricity production, which is roughly equal to the annual energy consumption of the 21.4 million people of Sri Lanka.”

“Of course all these responses require cooperation, coordination and planning between the various actors including the federal government, state governments, the Fed, unions, corporations, the CFTC, and political parties,” Storm points out. “Absent that, we are left with second-best and third-best ersatz-solutions – which will not work.” He warns that how this ends will depend on the vagaries of the coming winter, the fancies of the coronavirus, the speed at which supply-chain bottlenecks will be removed, and the dynamics of heightened political polarization in 2022 and beyond.

Fasten your seatbelts, folks.


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Tuesday, November 16, 2021

2020’s Knife Edge Election: An Analysis


The 2020 election is very much like the famous opening notes of Beethoven’s Fifth Symphony: Virtually everyone can hear “fate knocking at the door.” But agreement on what that means is elusive.

Many foreign observers and Democrats, who never warmed to Trump anyway, keep wondering how he could possibly have rolled up more than seventy-four million votes in 2020 – as he said, more than any sitting president in history. Conversely, supporters of the former President and members of the Republican establishment advance all kinds of theories, some quite outlandish, to explain how the Democrats managed to win.

Meanwhile, everyone is pondering the long-term implications of the Trump movement’s transformation into an openly anti-system political formation uncomfortably reminiscent of the Weimar Republic as well as the breathtaking way big tech companies selectively shut off access to their systems following the storming of the Capitol. As the changes sweeping through the international system become more obvious, new worries are also rising: in particular, whether the shocking American exit from Afghanistan is a warning that the establishments of both political parties are living in a fool’s paradise.

All this persuades us that a careful look at what happened in the 2020 election is not idle curiosity. Elections, especially in money-driven political systems, are complicated affairs that repay analysis at many different levels.

Our new INET Working Paper analyzes the 2020 presidential election, focusing on voters, not political money, and emphasizing the importance of economic geography. Drawing extensively on county election returns, it analyzes how spatial factors combined with industrial structures to shape the outcome. It treats Covid 19’s role at length. The paper reviews studies suggesting that Covid 19 did not matter much, but then sets out a new approach indicating it mattered a great deal. The paper analyzes the impact on the vote not only of unemployment but differences in income and industry structures, along with demographic factors, including religion, ethnicity, and race. It also studies how the waves of wildcat strikes and social protests that punctuated 2020 affected the vote in specific areas. Trump’s very controversial trade policies and his little-discussed farm policies receive detailed attention.

The paper concludes with a look at how political money helped make the results of the Congressional election different from the Presidential race. It also highlights the continuing importance of private equity and energy sectors opposed to government action to reverse climate change as conservative forces in (especially) the Republican Party, together with agricultural interests.


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Monday, November 15, 2021

Why Mislead Readers about Milton Friedman and Segregation?


Not long ago I published the results of my research on the backstory of Milton Friedman’s discussion of education in his Capitalism and Freedom. The title of my INET Working Paper summed up my findings: “How Milton Friedman Exploited White Supremacy to Privatize Education.” Drawing on the private papers of Friedman and other primary sources, the paper started with the obvious: that as soon as the U.S. Supreme Court handed down its landmark Brown v. Board of Education decision in 1954 outlawing segregation in public education, southern political leaders began scheming to evade it and maintain racist education systems.

My paper was clear that we do not know exactly how much Milton Friedman knew of these plans when he wrote the 1955 case for vouchers that spawned today’s “school choice” movement. But we know for sure that, to promote his views, he decided to exploit the southern campaign. Documenting his take up and work with segregationists makes up the bulk of my paper. I also showed that Friedman’s correspondence with an economist colleague who was troubled by his stance revealed that his soothing reassurances that making parents responsible for paying for the education of their children might somehow enhance quality or even reduce segregation in some indefinite long run only scratched the surface of what he really thought. For in a twist reminiscent of some eugenics campaigns through the ages, he wrote that if parents were forced to assume the entire burden of paying for the education of their children, poor people would decide to have fewer of them.

One would think that today the facts about the long struggle of southern white leaders to preserve segregation are so well known that simple fact-checking would suffice to rule out attempts to whitewash their efforts. And that efforts to exculpate economists and policy advisers who worked with them would collapse out of sheer shame.

But on October 18th an author in the Wall St. Journal set out to defend Friedman and rebut my INET study. Written by Phillip W. Magness, the attempted rebuttal bore the title “School Choice’s Antiracist History,” and carried the summary line that “Vouchers Sped up Integration, While Teachers Unions Fought to Preserve Segregation.”

That assertion could not stand up to even a quick internet search of reputable online Virginia history sites such as this one or this one. But here we are. Because the Wall St. Journal is such a prominent venue, and because Magness’s piece is such a teachable example of how unwilling libertarians have been to reckon with their cause’s long history of working against civil rights reform, I think it is worth exploring just how perverse the whole set of claims Magness advances really is. I also want to invite other libertarians to come to terms with his conduct, and finally accept their past so that they can learn from it.

Magness’s article begins as an attempt to defend Milton Friedman’s advocacy of private school vouchers in the wake of Brown v. Board of Education but quickly descends into a wholesale whitewashing of the formative era of their cause. Magness plays fast and loose with the staple elements of sound history: context, chronology, change over time, causation, and complexity.

Refusing to acknowledge facts established by African American civil rights leaders at the time and by seven decades of scholarship since the period I wrote about, and going well beyond a generous reading of Friedman as naïve and opportunistic, Magness seeks to make his readers believe that down is up and night is day: that a school voucher program designed and advocated by Virginia’s most avid white supremacists in the late 1950s in defiance of the desegregation mandate was intentionally “antiracist.”

The first stunning feature of Magness’s piece is that although he claims to be refuting my work, he completely ignores the substance of my research, especially the obvious point that Friedman published his case for vouchers at the very moment the South’s most arch segregationist officials were threatening public education (in 1955). Friedman then came South to make his case among potential disciples in the region’s universities (in 1957). Thereafter, Friedman moved on to active cooperation with a leading segregationist voucher advocate introduced to him by his first Ph.D. student, G. Warren Nutter, then a faculty member at the University of Virginia. Finally, my INET piece demonstrated that other leading libertarians—including what was then a leading libertarian foundation, the William Volker Fund – joined Friedman in embracing the segregationist voucher program, as did many members of the Mont Pelerin Society and two Virginia-based board members of the Foundation for Economic Education. The INET piece also points out that Friedman held up Virginia’s segregationist vouchers as a universal model in his 1962 manifesto Capitalism and Freedom.

This is all documented over 28 pages of abundant evidence with 84 footnotes and a 6-page bibliography including primary sources that Magness never engages in any detail.

Instead, he changes the subject by creating out of whole cloth a context-free story that seeks to absolve Friedman by fingering others. In Magness’s Virginia, there is no powerful oligarchy led by Harry F. Byrd, the aristocratic former Governor and sitting U.S. Senator at the time who called for “Massive Resistance” to Brown v. Board of Education. The deliberately created Virginia system of elections with its minuscule voter turnouts thanks to poll taxes, off-year races, and other disabling restrictions is never mentioned. Nor is there a Defenders of State Sovereignty and Individual Liberties, the organization founded to carry out that program.

Readers of Magness would never know that these self-appointed guardians of segregation on June 8, 1955, issued a Plan for Virginia that called on the General Assembly to pass legislation to supply tuition vouchers for white parents to send children to private segregation academies, and to cut off state funds to any school that integrated. The Assembly’s overwhelmingly rural white conservative representatives complied in 1956. But you do not learn this from Mr. Magness, who manufactures a chronology of immaculate conception, presenting vouchers as first arising in 1958 to make his own fictitious narrative work.

Instead, Magness would have his readers believe that the era’s worst oppressors were “teachers' unions.” This is rich; almost amazing, in fact. Anyone conversant with this period of Virginia history or the history of public sector unionism would immediately recognize its implausibility. The state was an early adopter of right-to-work legislation in 1947 and had a long history of labor suppression. And besides, there were no “teachers’ unions” at the time. There were only voluntary professional associations, segregated as the school districts employing them would have insisted they be. None had the power to be responsible for what Magness alleges. Further, this was a decade before teachers had collective bargaining rights anywhere; public employees in right-to-work states like Virginia to this day lack that means of exercising collective voice. The claim is preposterous on its face.

Nor is this all. Magness conjures up an entity he calls “Virginia’s racist antivoucher movement.” Abetting the teachers’ unions, he tells us, were the so-called moderate whites, who mobilized to save public education. Reasoning from a crude public choice axiom that people only act in their own (usually venal) self-interest, he depicts “public-education interests” as acting to save public education to preserve “their funding.” That assertion is a headscratcher since the movement was led by mothers, ministers, and some forward-looking businessmen, none of whom gained income from public education. But leave that to the side. It’s not the character assassination that matters now, but his claim about causation.

Seeking to make his reductionist public choice logic work, Magness asserts that the cause he seeks to malign “traces its origins” to a particular Charlottesville elementary school in 1958. This is impossible to take seriously. He adduces one school board attorney there, John S. Battle, Jr. and offers up some racist quotes from this individual to have us believe that he has identified the missing mastermind speaking for the public schools. Magness maintains that those who were defending public education were doing so not only to line their own pockets but also to ensure segregation.

Magness has been ably refuted for this and other sleights of hand by Daniel Kuehn, a Senior Research Associate at the Urban Institute. In fact, Kuehn’s excellent letter to the WSJ should shame its editors for giving Magness a platform with no attempt at fact-checking.

But there is a deeper moral stain here: the bait-and-switch gambit about who was most guilty could only seem plausible to someone unfamiliar with this history because Magness has mangled the context. He removes from readers’ view the other actors his case implicitly protects—the actual advocates of Massive Resistance who won the voucher program in 1956.

Thus, Magness keeps from readers potentially exculpatory information about how the protectors of public schools had to argue on terms set by the Massive Resisters, who had a grossly unfair advantage.[1] After all, Virginia’s conservatives—who had known for generations that their policy preferences were unpopular--disenfranchised Black voters, maintained a poll tax to also keep lower-income whites from voting, hamstrung labor unions, and used legislative malapportionment to overrepresent Byrd-backing rural whites and underrepresent liberal and moderate urban and suburban whites of all classes. Voting turnout in the gubernatorial election of 1957, for example, was 23.2%; in 1961, it was 16.7.

Those seeking to rescue public education from the wrecking ball of Massive Resistance knew all too well two key things about the enfranchised white voters they had to persuade: that most believed in public schools, and also preferred segregation. To save the schools for future generations, some advocates appealed to that racism in their arguments. They pointed out in print (“thundered” in Magness’s rendering) that the voucher program—designed only for parents in schools closed under the Massive Resistance policy--was being “greatly abused” by wealthier parents who had long sent their children to private schools and now tried to free-ride the segregationist voucher program to save money.

These people were trying to stem the revenue drain that threatened to destroy most children’s education, not to protect segregation per se.[2] They were no heroes in the fight for racial equity, to be sure. But nor were they the drivers of history—the causal force--Magness makes them out to be in his quest to exonerate Friedman and his Virginia allies. That disgrace belongs to Harry Byrd, his famous political machine (known as the Byrd Organization); James J. Kilpatrick, as editor of the Richmond News Leader and National Review stringer; and other champions long since identified by serious historians.[3]

While insisting that this formative voucher system was “antiracist,” Magness does another very curious thing that tells us something important about his real mission here.

He turns a deaf ear to those in the best position to judge his portrayal: contemporary African Americans. Virtually to a person, Black Virginians opposed the segregationist vouchers. Moreover, the state’s civil rights leaders quietly applauded the white-led fight to save public schools so that they could survive being desegregated. My piece quoted, among others, Oliver Hill, the Richmond-based NAACP attorney who helped win the Brown ruling. Hill put their shared conviction concisely: “No one in a democratic society has a right to have his private prejudices financed at public expense.”

Magness, like Friedman before him, clearly disagrees with Hill and other Black Virginians of the day. Indeed, he sides with the white supremacist parents who saw no ethical problem in taxing disenfranchised Black citizens to subsidize private segregation academies. But Magness lacks the courage of his convictions to argue the case honestly and openly, as Milton Friedman did, in the name of liberty from state coercion—opposing what Friedman called “forced nonsegregation.” Today, not many outside libertarian ranks would accept that liberty for some based on the exclusion and subjugation of others deserves to be called by that word. Aware of that vulnerability, Magness has invented “alternative facts.”

Some of the worst alternative facts on display in his work involve the tragic case of Prince Edward County, where local officials allied with the Defenders of State Sovereignty in Individual Liberties completely shut down public schools for Black children for five years, while sending white children off to segregated private schools—for part of that time with the state-funded vouchers Friedman backed to buy white solidarity that would otherwise fracture.

To pretend to unknowing readers that voucher advocates opposed racism, Magness makes the misleading point that “most voucher advocates welcomed a 1961 federal court ruling” that denied Prince Edward County access to tax-funded vouchers after county leaders shut down the public school system for Black children in defiance of Brown. I say misleading because Magness appears to have spent some time in primary sources that would readily refute his premises, even if he is determined to ignore the evidence in my work and others on this pivotal episode in civil rights history.

As my INET article showed, the two shrewdest pro-segregation strategists—the journalists Leon Dure and his convert James J. Kilpatrick—were painfully aware that Prince Edward County’s defiant stand was endangering the wider effort to salvage as much segregation as possible in the new constitutional context. It was hard to convince the National Review darling Jack Kilpatrick to stop trumpeting Prince Edward’s stand and see its peril for the voucher cause, not least because he had encouraged the county’s leaders to such an extent that they named the segregation academy’s library after him. After all, Kilpatrick in one debate warned the NAACP attorney and future U.S. Supreme Court Justice Thurgood Marshall: “We will fight state by state…school by school, and if necessary, room by room. The white south proposes to resist…by every device of legislation and litigation that ingenious men can contrive—and we can contrive quite a few.”

But contrary to what Magness has told his readers, Kilpatrick soon came around to endorse the formally race-neutral vouchers advocated by Friedman and Dure as a way to win the fight against desegregation. He did so repeatedly, in print, at a time Magness claims he was opposing vouchers. During the 1959 legislative session in which the revised voucher program was crafted and adopted, Kilpatrick editorialized repeatedly in favor of it. On February 11, he explained that “a tuition grant plan, to be valid, cannot be tied in any way, directly or indirectly, to the segregation controversy.” If it were, it would not “survive court challenge.” The 1956 program just voided by the State Supreme Court had proven that vulnerability.[4]

On March 6, Kilpatrick warned the legislators not to “bungle” the opportunity to ensure that “white parents” in areas with the largest concentrations of Black residents (including Prince Edward), would get “the only tolerable answer” to their unwillingness to have their children attend school with Black peers: state-subsidized private schools.[5]

On March 19, Kilpatrick told the General Assembly, “the plan of tuition grants is basically sound.” In fact, he explained, it was the only viable way “to meet the integration problem in Virginia” and ensure a “workable system that will endure for years to come.”[6]

On April 2, after the revised plan passed, Kilpatrick went further: he advised changing the state constitution to ensure state subsidies to private schools could never be eliminated. Such a referendum could forever, in his words, save “Virginia from the evils of integration.”[7]

On April 23, furious that legislators had rejected his extremist constitutional measure, he charged cowardice: “needless and premature retreat—from Statewide resistance to integration.” Worse, he said, the Assembly had undermined white solidarity “in fighting a superbly unified foe”: presumably, the NAACP and the federal and state courts which its plaintiffs and attorneys had won over.[8]

How did Magness overlook this extensive documentary record to misinform readers that Kilpatrick only came around to backing vouchers in 1962? Magness quoted the Richmond News Leader’s news coverage of Battle’s anti-voucher position in Charlottesville but curiously failed to acknowledge that Kilpatrick’s editorial page was consistently and loudly pro-voucher.[9]

Dure and Kilpatrick then labored for several years to get Prince Edward County’s leaders to reopen the schools and embrace formally colorblind vouchers while there was still time. As Dure summarized: “the only way to get rid of compulsory integration was to erect the old marketplace right of free choice"—or “freedom of choice of association,” as he originally branded the vouchers to signal that white recipients should be free to refuse to have their children associate with Black children. Privately, Kilpatrick tutored the bullheaded Senator Byrd that "sound generalship" called for "waging a flexible, shifting, guerrilla defense." By that he meant a switch to ostensibly color-blind vouchers that could survive court review.

So yes, Magness is technically correct in reporting that voucher advocates applauded the ruling against Prince Edward’s school closures. But he is withholding crucial evidence, either from ignorance or intent: that advocates like Dure and Kilpatrick welcomed the ruling precisely because they were segregationists who knew that the denial of education to Black children endangered the wider cause. After all, the Prince Edward horror was widely reported and condemned almost universally by outsiders--with the exception of the National Review and like thinkers who applauded the white county leaders’ stand for, as the Defenders’ name put it, “state sovereignty and individual liberties.”

On the very eve of the 1961 ruling Magness cites, in fact, Leon Dure met with and then sweet-talked the attorney for Prince Edward and a leader of the Defenders, J. Segar Gravatt, by warning that “in winning this battle you lose the campaign." He went on to explain that “you subject the very thing we all want [state-funded vouchers for segregation academies] ... to the unnecessary risk of bad context: the black heart of Prince Edward."

Not long after, Dure privately referred to Gravatt and company as "stupid buttheads.” Their obstinacy was harming his fundraising for two segregation academies as well as his attempt to build pro-voucher alliances with northern Catholics. Dure and Kilpatrick never did persuade the "stupid buttheads.”

But the two did win over the head of the Charlottesville Defenders of State Sovereignty, a University of Virginia math professor who testified in favor of converting to colorblind vouchers in the spring of 1959. Dure then exulted to a former Governor: “The Defenders up here [in Charlottesville], like the [General] Assembly, are now entirely willing to give up segregation by law in a swap for the individual freedom of association.” Let’s be clear: they made a swap for the better word-smithed pro-segregation vouchers that Magness sold to the credulous Wall St. Journal opinion page editors as “antiracist.”

Dure went on to enjoy remarkable “success with segregationist officialdom in the Deep South,” as a member of the Southern Regional Council noted at the time. She skewered the vouchers for “pamper[ing] the pride of prejudiced white people with privileged and expensive isolation in private schools.”[10]

What should we call someone who wrongfully accuses bystanders while keeping information from the jury about the actual perpetrators? Accessory after-the-fact? For there is no getting around it: Magness’s account is complicit with the segregationists’ attempts to fool both the judiciary and northern critics with phony race-neutral vouchers. He is airbrushing from the past a history that is troublesome for his cause.

At the end of the day, though, Magness relies not only on evisceration of historical context, phony chronology, and sham causation. He also shows a willingness to stretch the truth beyond endurance. And not just once. Magness comforts his WSJ readers (who might be feeling some moral prickly heat about this history) with a statement he must know to be untrue, unless he is self-deceiving: he tells them Friedman pushed the vouchers “as a strategy to expedite integration.”

Magness is fully aware that was not Friedman’s purpose in touting vouchers, hence not “a strategy.” As the Urban Institute researcher Daniel Kuehn, himself a supporter of well-regulated vouchers, told the Wall St. Journal: “In Friedman’s 1962 best-seller Capitalism and Freedom he stressed not once, but twice, that the purpose of Virginia’s voucher program was to defend segregation.” Friedman was under no illusion that the voucher proponents in Virginia were doing anything other than promoting segregation. He just tried a Hail Mary pass to claim there might be a silver lining in the end (one that never materialized).

As if to reassure himself and his readers that his deal with the devil was not what it seemed, Friedman at a few points predicted that vouchers would eventually result in integration, reasoning not from any empirical evidence but axiomatically from his ideological premises. For such a smart man that would seem surprisingly self-delusional, because contemporary published investigations from across the South and in the Black press had been reporting the opposite since 1956: that the vouchers were working as intended--to forestall integration. That is why the NAACP continuously fought them in court. But Friedman ignored all this. Seeing that his logic failed the test of practice for seven years after publishing his case, he anted up as the only proof for his sunny predictions some hearsay: “I have been told,” (likely by Leon Dure) that one early voucher advocate transferred to an integrated school because it was a better school.[11]

“I predict” and “I have been told”: what kind of public officials would adopt a radical policy change on such flimsy foundations?

For his part, Magness goes further. He hoodwinks readers about the Massive Resisters whose program Friedman was abetting from 1955 to 1959 by inventing yet another alternative fact, this one at odds with a mountain of contemporary evidence and subsequent scholarship: “Virginia’s segregationist hard-liners recognized the likely outcomes [of vouchers expediting integration, sayeth Magness] and began attacking school choice as an existential threat to their white-supremacist order.”

There is no nice way to say it: this is a complete falsification of what actually happened. And Magness doubled down on it in his October 22 attempt to rebut Kuehn’s critique.

It’s as though Magness cannot resist churning out nonsense. “Vouchers sped up integration,” Magness declares. Really? Why, then, did the federal appeals court conclude in Griffin v. State Board of Education, 296 F. Supp. 178 (1969) that Virginia’s “freedom of choice” vouchers blocked integration? How did the NAACP Legal Defense Fund’s team of attorneys so fool the judges about the purpose and effect of Virginia’s voucher system? How was the court hornswoggled into believing that, in the conclusion of Judge Albert V. Bryan, “the present and past school tuition grant laws of Virginia are again assailed as violative of the equal protection clause of the Fourteenth Amendment”?

Perversely, perhaps it’s good that Magness and his libertarian colleagues who make analogous arguments don’t want to acknowledge how their cause has leveraged (and is leveraging) racism to achieve its purposes. It means they know white supremacy is no longer acceptable to most people. And they realize that people might see an even deeper ethical failure on the part of someone like Friedman, who said “I deplore segregation and racial prejudice”—yet rather than walk that walk, chose to ally with arch segregationists to achieve his own goal of privatization.

People might be further shocked to learn that at no point, at the time or later, did Friedman and his libertarian allies in this effort ever look critically at what they had done. For, after all, they were accessories to the Massive Resisters who sought to overturn what Brown promised: equal protection of the law for African Americans.


Notes

[1] See James H. Hershman, Jr., "A Rumbling in the Museum: The Opponents of Virginia's Massive Resistance," (Ph.D. Dissertation, University of Virginia, 1978), a superb study, and the first to show how white “moderates” who had worked so hard to save public education came to accept the tuition grants as a “safety valve” compromise for militant Black-majority counties like Prince Edward, in a shift from “caste” to “class”-based moats for white privilege.

[2] As signaled by the title of this article about the sole individual Magness cites for his case, John S. Battle, Jr: "Battle Cautions Against Move to Private Schools," Charlottesville Daily Progress, 24 March 1959.

[3] This was all documented in my 2017 book, Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America, particularly Chapters 3 and 4. Numerous libertarians denounced it vociferously while failing to ever come to terms with its well-documented factual content on this matter and others covered in its pages.

[4] “Notes on Tuition Grants,” Richmond News Leader, Feb. 11, 1959, p. 12.

[5] “In a Few Words,” ibid., March 6, 1959, p. 12.

[6] “Keep It Simple, Mr. Perrow,” ibid. March 19, 1959, p. 12.

[7] “The Perrow Report,” ibid., April 2, 1959, p.10. On the proposed constitutional change, see also “Virginians Divide on School Bills,” New York Times, April 10, 1959. P. 30.

[8] “A Sorry Session,” April 23, 1959, p. 14.

[9] For more on Kilpatrick’s opportunistic evolution, well-known to students of Virginia history, see William P. Hustwit, James J. Kilpatrick: Salesman for Segregation (Chapel Hill: University of North Carolina Press, 2013).

[10] Margaret Long, Editorial introducing “Six Years of Southern Free Choice,” New South, April 1964, 2, 16.

[11] Friedman, Capitalism and Freedom, 117-18. On other occasions, Friedman would change the subject and invoke Chicago, which was certainly segregated, too, as though that answered the question of whether the South would desegregate or not.


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