The Nature of Responsibility

In the January 2012 edition of Vanity Fair, Christopher Hitchens—possibly the greatest intellectual of the last 30 years—addressed the issue of death from the perspective of one currently experiencing it (he was recently diagnosed with esophageal cancer and died on December 15^th).  He stated that there were only two things keeping him from fatalism and resignation: “a wife who would not hear of me talking in this boring and useless way, and various friends who also spoke freely.”  Not even Hitchens—the great atheist, wordsmith, luminary—was able to exist without partaking in society and relationship. 

During a conversation I had with him last semester, President of the Washington Institute and author of The Fabric of Faithfulness Dr. Steven Garber quoted Vaclav Havel—the recently diseased President of Czechoslovakia—who said that “the secret of man is the secret of his responsibility.”  I began thinking about the elusive nature of responsibility.  In many ways, it seems as though its meaning has remained a mystery in our culture--or, more nefariously, been purposefully subverted to emphasize the supposed victory of reason over emotion in the Modern and Postmodern ages. 

At the core of the idea of responsibility—truly at the core of humanity itself—is the importance of understanding our place within society and relationships.  We, as a culture, have a tendency to equate responsibility with independence.  We see responsibility as living on our own, buying a car, paying a mortgage, etc.  But true responsibility necessitates actively engaging with both our emotions and the values that our emotions articulate.  As New York Times columnist David Brooks discussed in his book The Social Animal, “Your unconscious, that inner extrovert, wants you to reach outward and connect…your unconscious wants to entangle you in the thick web of relations that are the essence of human flourishing.”

Brooks underscores the fact that the dichotomy of reason and emotion—particularly the supposed victory of reason over emotion—is a false one.  We view emotion as an untamed beast, unable to be controlled or even understood.  But Brooks states that “Reason and emotion are not separate and opposed. Reason is nestled upon emotion and dependent upon it. Emotion assigns value to things, and reason can only make choices on the basis of those valuations. The human mind can be pragmatic because deep down it is romantic.”   Far from being outside the realm of reason or understanding, emotion is the very foundation of reason, organizing the principles and value structures of our lives like an architect drawing blueprints for a building.  Our emotions, which guide our subconscious, seek to be in relationships.  We are, as Aristotle called us, social animals.

Even the ancients understood this concept.  Aristotle, writing in the 3^rd century BC, also said that “Anyone who either cannot lead the common life or is so self-sufficient as not to need to, and therefore does not partake of society, is either a beast or a god.”  In the ancient poem Inferno, Dante and Virgil traverse the levels of hell passing through those which housed souls guilty of the sins of lust, gluttony, murder, theft, and falsehood.  At the final level resides sinners guilty of disloyalty to kin, country, guests, and lords.  To understand why Dante reserves the final level of hell (where Satan also resides) with the most gruesome of punishments, we must realize that Aristotle’s writings were, in many ways, the foundation of Dante’s thought.  Disloyalty is the worst of all sins in Dante’s conception because it is the destruction of relationships which are at the core of humanity.  It is, in essence, a perversion of humanity itself. 

Havel, reflecting on his time as a playwright, said “What is important is that it is far harder to store a play away in your desk drawer than it is poetry or prose.  Once written, a play is only half done, and it is never complete and itself until it has been performed in a theatre.”  The parallels to Brooks’ work are enlightening.  Writing a play—like living an independent, solitary life—is a wholly irrational, unfinished, and unfulfilling exercise.  Only in its engagement with society at large, the carrying out of its ideas in a physical and social manner, is theater—and life—consummated.  In this principle we find the true nature of responsibility.

True responsibility is understanding the benefit we can receive from and the good we can infuse into our community—whether it be a family, a city, or a church—and doing the work necessary to maintain and build up that community.  It is understanding the foundational role of the emotions and letting them guide our path and order our value structures.  The micro and macro problems we face as a society and as a country are complex and divergent, but at the core of many is a lost understanding of responsibility.  The key to future solutions may lie in the resurgence of this understanding. 

The secret of man is the secret of his responsibility. 

Jon Huntsman is the Most Electable Republican

For the last three years, the Republican Party has been engaged in a struggle to define itself.  They have seen the backlash resulting from the failed policies of the Obama Administration and realized that this is an opportunity to reassert the small government, free market, low tax pillars of Conservatism.  We have seen the emergence of the Tea Party, the sweeping midterm election of 2010 and the increasingly abysmal daily tracking polls for President Obama.

As the Republican primary commenced, this struggle played out in the constant tug and pull between a resurgent Republican base and the party establishment.  It is, as the media has portrayed it, a struggle between philosophical catharsis (Newt Gingrich) and electability (Mitt Romney).  But that dichotomy is deeply flawed.

Romney has been seen since day one as the establishment candidate with a broader appeal to independents and thus better general election chances.  The reality of the situation, however, is that Romney’s persona does not appeal to the country at large.  In a year when the electorate loathes the political process, and the politicians who guide it, Romney’s image of politician through and through will be viewed with skepticism, at the very least.

His electability is in question for another reason: the Obama Administration, which is inept at governing but unparalleled at campaigning, knows his weaknesses and has a strategy in place to defeat him.  They will—in fact they have already started to—paint him as an unattached, job-killing flip-flopper with no moral center, willing to say or do anything and everything to get elected.  It is hard to imagine a more powerful strategy for a general electorate which values consistency and boldness over almost anything else.

Which brings us to Newt Gingrich.  His recent rise in the polls is the result of his constant, vocal, and sometimes outlandish criticism of Barrack Obama, a cathartic experience for Republican voters who are angry and passionate about defeating him in 2012.  But Conservatives, Liberals, and the Obama Administration itself realize the ease with which they would cruise to victory were Gingrich nominated by the Republican Party, for two reasons.

First, his bombastic personality, which is a positive in the primary election, would become a negative in the general election and the chances of him saying something too outlandish would increase day by day.  His past statements, such as when he stated that “people like me are what stand between us and Auschwitz” or when he described himself as a “definer of civilization” paint a picture of a Nixonian candidate, one with bold ideas and political prowess but hindered by substantial personal flaws.

Second, Gingrich is not the bastion of Conservatism that the Tea Party thinks he is.  The flip-flops on issues such as climate change, the individual mandate, and Libya are well known.  But more importantly, Gingrich has shown an utter disregard for some Conservative principles.  Last week, Gingrich committed Conservative heresy by responding to Mitt Romney’s statement asking the speaker to return the $1.6 million he received from Freddie Mac with his own challenge to return the money Romney made “bankrupting companies and laying employees off” at Bain Capital.  To equate crony capitalism and influence peddling with the market realities of capitalism itself is to completely misrepresent Conservatism and its principles, something voters will realize under greater scrutiny. 

If the Obama Administration is content with facing Mitt Romney in the general election, they are licking their chops at the potential nomination of Newt Gingrich.  But the dichotomy of Gingrich and Romney is flawed because it doesn’t include the candidate who is the most electable and who the Obama Campaign is most worried about, Jon Huntsman. 

As Conservative columnists George Will and Erick Erickson pointed out, Governor Huntsman has the most Conservative record of any of the Republican candidates.  The Wall Street Journal and most recently The Tax Foundation, a Washington based Think Tank, endorsed the Governor’s tax and jobs proposal as bold and transformative.  The New York Times ranked him as the most likely Republican candidate to defeat Barrack Obama.  He appeals to independents because of his consistent record, his foreign policy experience and his nuanced demeanor. 

The true dichotomy is not between catharsis and supposed electability; it is between candidates seeking political absolution through shallow verbal barrages and a candidate with the leadership credentials and bold proposals necessary to win.  Put simply, it is true electability.  Jon Huntsman is truly electable and he is the right leader to set the United States on the path toward future sustainability.  

Economic Domino Theory in the Eurozone, Part 2

On Wednesday, the Dow Jones Industrial Average surged 490 points, almost 5% in response to the announcement by the Federal Reserve that it was initiating a secondary capital injection in the European market.  This was the largest one-day jump since March of 2009, but was it enough to salvage the economic quagmire that is the European Union?

As the European dominoes have continued to fall—due mainly to the inability of those countries to maintain a sustainable level of debt—financial institutions across the world have developed strategies to limit the crisis and prevent the spread of this fiscal cancer.  With the interrelated nature of the worldwide financial system, this is not just a European problem; it is a problem for East Asia, the Middle East, and it is a problem for the United States.

The first step for the heads of the US financial system was to assess the exposure of American banks to European debt.  Last Wednesday, Ben Bernanke, Chairman of the Federal Reserve, announced that US banks would undergo a “stress test” over the course of the next few weeks.  This is, in essence, an effort to analyze the books of the six dominant financial institutions and determine the amount of European debt present.

These institutions—Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—currently hold approximately 66% of the US GDP, or about $9 trillion.  Most of them have engaged in complex transactions known as foreign exchange swaps, which are defined as “an agreement to exchange stipulated amounts of one currency for another currency at one or more future dates.” 

These transactions allow for more flexibility in financial dealings and serve as a hedge against future alterations in the exchange rate, but they also increase exposure to international debt.  A source at the Treasury Department revealed that initial estimates of US exposure range from $1-$2 trillion and could reach as high as $3.5 trillion; the most vulnerable are Bank of America, JPMorgan Chase, Citigroup, and Goldman Sachs. 

In terms of American institutions, the only solution available to them is to play the confidence game.  On Tuesday, in response to this stress test, Standard & Poor’s, one of three ratings agencies on Wall Street, downgraded the credit rating on all of these banks and many of their European counterparts.  As they seek to maintain some level of confidence, one strategy has been to constantly move money throughout the market as a means of reducing the actual debt and European exposure present on their balance sheets.  The financial confidence game is a fickle beast. 

While the American banks seek to maintain confidence, the Treasury Department and Federal Reserve, in tandem with their worldwide counterparts, have sought to address the crisis at its core.  European countries are being crushed under a mountain of debt and they lack the necessary liquidity to write-down their debt; as a result, their credit markets are practically frozen stalling any economic activity. 

The lynchpin of European economic activity is France—specifically the French banks.  All the major European nations—particularly Germany—and the United States have large sums of money in these institutions.  Moody’s, another of the three ratings agencies, originally announced that they would be downgrading both the French banks and France itself today, which would have led to the nightmare scenario. 

A simultaneous downgrade of France and its financial sector would result in a large-scale run on the banks in which major financial institutions, such as American and European banks, as well as countries themselves, such as Germany and the United States, would attempt to withdraw their money at the same time.  Since the current financial system is built on leverage and no bank in the world has enough liquid capital to return the money of all of their investors, the entire system could potentially collapse.

On Wednesday, the Federal Reserve in collusion with the European Central Bank (ECB), the Bank of England, and the central banks of Canada, Japan, and Switzerland announced an immediate process of quantitative easing.  Since Europe as a whole, and France in particular, needs to increase liquidity to write-down their debt, this process would involve an infusion of capital in the market.

According to the source at the Treasury, since the Federal Reserve cannot legally lend directly to France, they have lent money at a 0% interest rate to the European Central Bank which will then loan to the International Monetary Fund which will loan to France.  This capital injection will allow France to write-down a substantial percentage of their debt and potentially stave off a cataclysmic financial event. 

Moody’s announced on Wednesday that it will hold off on downgrading the credit rating of France and its banks for 10 days, meaning the complete process of loan and write-down must take place over that period.  The capital injection was the only legal action the Federal Reserve could take.  It is now up to the European Union nations to handle this fiscal crisis in a responsible way, but in many ways the damage may already be done. 

There is a perspective broader than economics in which the Eurozone crisis may have dangerously destabilized the worldwide geopolitical balance.  The European Union has been brought to the precipice of financial ruin and is still hanging by a thread.  In many ways, it has always acted as a constraint on the power of individual nations within it and surrounding it. 

The destabilization of the EU has created an excuse for Germany to possibly drop the euro and leave the Union altogether.  It has, by default, strengthened the geopolitical positions of nations like Russia and China and created a relationship of dependence, evident by the fact that exports from China to Europe have dropped precipitously over the last month.  Russia’s increased strength has the potential to simultaneously result in further destabilization in the Middle East as their influence in countries north of Afghanistan grows. 

None of these scenarios are in America’s interest.  The geopolitical balance in the world over the last decade has been tense, but it has been a balance nonetheless.  The US government and the US financial institutions have done all they can to maintain confidence and liquidity in the worldwide financial markets.  Now it is up to the Eurozone to ultimately fix the problem they have created.

Economic Domino Theory in the Eurozone, Part 1

In 1992, the thirteen nations of the European Communities met in Maastricht, Netherlands to sign the Maastricht Treaty.  By doing so, these nations, which included Italy, France, West Germany, the United Kingdom, and Greece, bound themselves in an association known as the European Union, now comprised of 17 nations.  In the process they created a unified currency—the euro—which forever linked the fortunes of these economies, whether good or bad, in an essentially unbreakable chain.

Douglas J. Elliot, a Senior Fellow at the Brookings Institute, wrote on CNN Money that “the road into the Eurozone ran only one way.”  What he meant was that the Eurozone countries made it almost impossible to dump the euro without leaving the European Union; there is no mechanism in place for such an act.  The fear was that if a country like Greece were to dump the euro as its currency, they would set a weaker exchange rate leading to a run on their banks and a domino effect rushing through the Eurozone. 

At this moment, however, the very foundations of the European Union are buckling under the weight of debt and instability.  The governments of Greece and Italy have both been ousted after promising substantial austerity packages.  The euro itself is in danger of folding and the nations of the Eurozone watch as each domino continues to fall.  How bad is it?  Simon Wolfson, the CEO of European retailer NEXT is offering a $400,000 prize for a plan to break up the euro peacefully.  

The root cause of this crisis is essentially government debt, a prescient warning for American technocrats. The Maastricht Treaty mandated that annual government deficits not exceed 3% of GDP while government debt not exceed 60% of GDP.  Most European nations, however—particularly Greece and Italy—used complex currency and credit derivatives to mask the realities of their debt situation. 

Currently all the major Eurozone nations have debt to GDP ratios over 60%: the United Kingdom (77.8%), Germany (75.7%), France (83%), Italy (118.9%), and Greece (140.2%).  These staggering ratios—particularly those of Italy and Greece—have strained the relationships between banks and clients, investors and business, government and business, and government and citizens.  As a quick aside (and a story for another day), the American debt to GDP ratio is 99.6% for the year and ironically crossed the 100% plateau on Halloween according to projections by the International Monetary Fund. 

German Chancellor Angela Merkel and French President Nicolas Sarkozy have led the efforts by the more structurally sound European nations to maintain stability and find a long-term solution.  But experts worry that they are playing a losing hand.  The fiscal monstrosity that is the Greek and Italian bond market, combined with their astounding levels of government debt, has led some to fear the “doomsday scenario.”  

On Tuesday, the yield on 10-year Italian government bonds reached 7.039%, a rate at which economists believe the refinancing of Italy’s debt becomes unsustainable.  Were Italy and Greece unable to refinance their debt and default, economists and heads of state alike worry that the domino effect will spread through Europe and beyond—quickly.  Spain and Portugal would fall, followed by Ireland, and eventually the cancer would reach France. 

While France may not be a dominant geo-political power, they do dominate the banking sector of the Eurozone.  Germany, the most reliable of the bunch, houses almost all of its capital in French banks.  France also holds approximately $1 trillion in American money.  Meanwhile, the French banks have overleveraged themselves in the unpredictable Eurozone market resulting in France’s rocky fiscal infrastructure and dim economic outlook.  As rating agency Standard & Poor’s stated in downgrading the French banking sector, “we see weaker economic prospects for Europe, including the peripheral countries to which some French banks are significantly exposed.” 

Eurozone leaders have taken action.  At a summit in October, they decided to write down—essentially reduce in value—the Greek debt held by the private sector by 50%.  Meanwhile, Lucas Papademos has replaced George Papandreo as interim Prime Minister of Greece and promised a strong effort to pass a significant austerity package. 

Last week in Italy, the Parliament voted to approve an austerity package—which includes cutting 300,000 public sector jobs, increasing the retirement age for government benefits, simplifying the tax code, creating incentives for venture capital investment, and reintroducing the property tax—paving the way for Silvio Berlusconi to resign as Prime Minister. 

But there are flaws to these measures.  The write down of Greek debt makes very idyllic assumptions.  An article in The Economist after the deal was struck commented that the Eurozone’s main rescue fund, the European Financial Stability Facility, “does not have enough money to withstand a run on Italy and Spain” while other sources of liquidity—Germany and the central bank—have ruled out further bailouts.  The Italian austerity package is vague—such as when it outlaws deficit spending “except in the case of exceptional events” and fails to define “exceptional events”—and the country itself currently lacks a government. 

As the dominos continue to fall, the worry shifts from the collapse of the European bond market and banking sector to the impact on American markets.  The universality of the worldwide financial system means that the economic domino effect does not stop at the water’s edge.