The Power Broker of NYU

President John Sexton of New York University is a man for whom grand plans require grandiose explanations. As I once heard him remark at a discussion event, after belaboring a self-evident point, "After all, I am an intellectual." Like another New York figure, the legendary city planner Robert Moses, Sexton is not actually a thinker so much as a builder whose monomaniacal projects necessarily become part of public life and debate. NYU's 2031 plan seeks to add two million square feet of space to the university's historic Washington Square Park campus -- space "required to create a vibrant intellectual community in all senses of the phrase, with teachers and learners in proximity to each other, ready and willing to engage with other thinkers and doers throughout the city." Meanwhile, NYU has already added major academic outposts in both Abu Dhabi and Shanghai, which are accompanied by a 17,000-word manifesto from Sexton explaining the "Global Network University" paradigm that these campuses apparently represent. (A complete deconstruction of this document's confused pomposity would take multiple posts, but perhaps the effort would dignify the time Sexton squandered in his own writing process.)

Responding to community opposition and architectural critics, NYU leaders recently agreed to oh-so-slightly scale back (by about 15 percent) the building plans for its New York campus. That's some small comfort for local residents, but what about for students? As three NYU professors wrote in a recent Op-Ed, financing costs for the project are likely to fall heavily on already loan-saturated students in the form of higher tuition, especially given NYU's lack of any meaningful endowment. President Sexton conveniently neglects to address this issue in his letter of reply to the Op-Ed. The school's students must already apply for over $700 million, annually (see pages 23 and 24), from non-university sources to afford the $40,000+ tuition bill (and that doesn't even include room and board, easily another $10-$15k). At a 4 percent interest rate, every billion dollars of NYU 2031 financing opens another $40 million gap for students to fill, most likely with additional student loans. Perhaps if NYU really is so in touch with "thinkers and doers throughout the city," its leaders should start doing a better job hitting them up for capital instead of funding projects on the backs of over-leveraged students. The school's price tag is already out of reach for low and middle-income families, and shouldn't be jacked up higher to underwrite the expansion of Sexton's empire.

In Abu Dhabi, rich monarchs are footing the bill for the new campus, and kicking some cash to NYU for other needs as well. Money and principles are frequently at odds in the NYU-Abu Dhabi relationship, though, or at least cast an air of unseemliness over the whole arrangement. Last year, a United Arab Emirates (of which Abu Dhabi is part) university lecturer was arrested and detained for seven months for advocating free elections. When the American Association of University Professors asked NYU to speak out against the actions of its new patron, an administration spokesperson said, “We believe that we can have a far greater impact on creating a more informed, responsible, and just world, by creating powerful centers of ideas, discourse, and critical thinking, than by simply firing off a press release.” Sexton himself takes a cultural relativist view on human rights and discrimination concerns, preaching that “anytime we move into a completely different culture, we have to take pains to describe to people we are sending to that culture the various differences.” He simply cannot acknowledge that his new autocratic partners in Abu Dhabi may not fully embody the “many virtues, including tolerance, hospitality, openness, and tremendous generosity” that he ascribes to them in his “Global Network University” reflection. But he’s got that contingency covered in the reflection, too:

“A global network university necessarily will operate in many cultural milieus, contexts in which values will not always be defined and prioritized in familiar ways. It is not the case that recognition of interdependence and accommodation of differences leads inexorably to compromising core values. Indeed, core values will be defended most effectively if the effort incorporates a strong sense of the destructiveness of cultural hubris. Being engaged dialogically with other cultures compels serious reflection on which principles and practices of ours are core and which are not. Moreover, examining even core principles from another angle advances understanding of the dimensions and implications of what we profess. Core values will not be sacrificed, but smug insularity must be. And, as it turns out, such cultural humility is perfectly consistent with – indeed, perhaps is demanded by – the traditional and central values of the university.”

I had never associated widely recognized, fundamental human rights like free speech and free elections with “smug insularity” until now. Perhaps if NYU students and administrators spend enough tuition-free time in authoritarian countries like China and the U.A.E., they’ll develop enough “cultural humility” to jettison these silly ideas and focus on how exciting it is to engage other cultures “dialogically.” Assuming their professors aren’t locked up.

Robert Moses’ plans to demolish the landscape of Greenwich Village were foiled by Jane Jacobs and local activists, but his other infrastructure projects – the bridges and thruways – probably had the more significant cultural impact of hastening New York’s suburbanization. With John Sexton, we again see an empire builder trying to force his vision for the Village on community leaders as grander projects proceed elsewhere. As with Moses, it is these other projects that will cheapen a distinctive urban experience and ethos with the unquestioned pursuit of greater wealth and faster growth. That a university president should fall victim to this corporate governance style is unfortunate and completely believable. That he should fancy himself an intellectual by theorizing sophomoric justifications for his actions is somehow far more troubling.

The Man Comes (Back) Around

It's a sorry state of affairs when nearly two full years pass between blog posts. I'd use the excuse that I've been in graduate school since the days of my last post, but that wouldn't be fair. The truth is I've had more time on my hands lately than I did at any point while I was posting, frequently, in 2010. Those earlier entries were the work of a mind feverish for uninhibited, incredibly nerdy expression after days spent working for an organization that tip-toed around important truths so it could, ostensibly, preserve its political independence. In principle, then, my employer was sort of the antithesis of a good newspaper, and it is just one more illustration of cosmic injustice that independent newspapers are disappearing while P.R. flacks are proliferating.

Given the circumstances of the blog's genesis, then, it shouldn't have been surprising that its content fell into the "institutions behaving badly" genre. (Is that a genre? Can I make it one?) Google turned a blind eye to China's human rights abuses until China attacked the company itself. Banks paid out exorbitant bonuses a year after wrecking the world economy. Universities sold out. Facebook sucked. In making these the topics of discussion, the blog held true to the spirit of righteous indignation referenced in its charter. To their credit, many of the posts from 2009 and 2010 read as prescient today. My criticisms of WikiLeaks worship were apparently deserved, as founder Julian Assange now has a television program on a Kremlin-funded news channel. It also seems the Fed really has been pushing on a string and boosting opportunities for systemic risk for two years, as I argued, but thankfully rising capital levels have been a factor in beginning to bring Wall Street back down to earth.

If this blog delights in anything, then, it is skewering elite institutions (or at the very least casting disapproving, disappointed looks at them) taken to be our cultural saviors or benevolent overlords. It doesn't assume technocrats are smart or corporations can be cool, but rather that they -- like most institutions and their actors -- want to monopolize power and reinforce a social structure that most benefits the most privileged among us. Looking back, the "thoughtcrime" mentioned in the blog's subtitle has referred to a deeply felt skepticism about those systems and institutions we are intellectually drawn to. Wall Street trading may be the ultimate complex game, but fascination should not give way to worship, and the same goes for tech companies, powerful bureaucracies, and social media campaigns. The more new or advanced something seems, the more likely we are to take its goodness or rightness or even neutrality as given. This blog endeavors to show there is no such thing as neutrality, especially for those institutions that purport to value it so highly.

Holding WikiLeaks Accountable

The self-styled "intelligence agency of the people," WikiLeaks, has whipped up quite a media dust storm in the last six months, first with a video showing two Reuters journalists being shot at and killed by American forces, and then last month with the release of 91,000+ documents related to the war in Afghanistan. The organization of cryptographers and network specialists -- spread out all over the world and not confined by any kind of physical headquarters -- combines hacker ethics and anti-authoritarian values with a civic pride to defend "the integrity of our common historical record and the rights of all peoples to create new history." Here's more, with my emphasis added:

The power of principled leaking to embarrass governments, corporations and institutions is amply demonstrated through recent history. The public scrutiny of otherwise unaccountable and secretive institutions forces them to consider the ethical implications of their actions. Which official will chance a secret, corrupt transaction when the public is likely to find out? What repressive plan will be carried out when it is revealed to the citizenry, not just of its own country, but the world? When the risks of embarrassment and discovery increase, the tables are turned against conspiracy, corruption, exploitation and oppression. Open government answers injustice rather than causing it. Open government exposes and undoes corruption. Open governance is the most effective method of promoting good governance.

Today, with authoritarian governments in power around much of the world, increasing authoritarian tendencies in democratic governments, and increasing amounts of power vested in unaccountable corporations, the need for openness and transparency is greater than ever. In an important sense, WikiLeaks is the first intelligence agency of the people. Better principled and less parochial than any governmental intelligence agency, it is able to be more accurate and relevant. It has no commercial or national interests at heart; its only interest is the revelation of the truth. Unlike the covert activities of state intelligence agencies, WikiLeaks relies upon the power of overt fact to enable and empower citizens to bring feared and corrupt governments and corporations to justice.

All of this sounds rather heroic and vital: undermining the venal or incompetent impulses of elected and unelected power through "principled leaking" of information by those with proximity to power. As WikiLeaks itself likes to point out, the Pentagon Papers represented just such a leak, and had a real impact by calling into question the honesty of officials orchestrating the Vietnam War. But notice the framing of powerful institutions versus WikiLeaks itself. The former are often "unaccountable," "secretive," "feared," and "corrupt" while the latter is "principled" and not "parochial". Though I take no issue with the notion that powerful organizations get to be that way by, at times, becoming some or all of those bad things, I'm not about to simply take WikiLeaks' word for it that it isn't capable of the same institutional behaviors. In particular, I fail to see how WikiLeaks itself can be defined as "accountable".

The first question we should ask ourselves is, Does WikiLeaks have an agenda? Is it acting on a virtuous philosophy, or does it selectively target particular people or organizations for embarrassment? Julian Assange, the face behind the organization, has voiced opposition to the wars in Iraq and Afghanistan. One would hope that Assange would not think twice of publishing leaked documents showing, say, that COIN was effective in Afghanistan if such a thing were made available. And personal email leaks are something that should perk everyone's privacy antennas up when they occur. Some of Sarah Palin's personal emails were published during the campaign, and I was initially disheartened to hear about this breach. Later, I read that the intention of the hack was to show that Palin was using personal email accounts for governmental business in order to skirt disclosure and archiving requirements, and examined the leak myself. The published disclosure has been handled in a prudent way so far, in my opinion. Still, leaking personal emails should draw a good amount of hesitancy. Personal emails from a Nazi mailing list were also leaked, and contain email addresses of recipients. It stands to reason why a government might want to monitor potentially violent extremist groups (a whole other can of worms), but what right does the general public have to see the members of this list? Where does the line get drawn between the public interest and the privacy rights of individuals, regardless of political beliefs?

This raises another problem: even if WikiLeaks does not have an agenda, its decentralization and nebulous legal liability render it essentially immune to outside pressure. It is an anti-institution in the hinterlands of cyberspace. Like guerrilla factions or even terrorist cells, its effectiveness comes from its mimicry of the just the sort of anarchic mutability and independence that hinder or topple large, traditional organizations. Great for WikiLeaks; it's fully exploiting the playing-field-leveling power of the Internet. But it is certainly no paragon for the democratizing influence of the web. It is true that freedom of information protects democracy by exposing abuses of power and informing the citizenry. But democratic governments (the ones whose authoritarian tendencies WikiLeaks means to check), remember, derive their legitimacy from the consent of the governed, and are accountable for their transgressions when they come to light. Likewise, corporations and businesses -- however unaccountable they may be to the justice and well-being of society, at times -- are subject to the rule of law, as are individuals and nonprofits. WikiLeaks is not. There is no record of who WikiLeaks is, so if it engages in illegal or dangerous activity -- such as endangering the lives of military or intelligence operators in the field -- there is no one or few people who can be brought to justice for it. The same goes for basic public shaming, too.

If WikiLeaks' raison d'etre is simply leaking information, and not building institutional credibility and integrity in the public eye, then it is unaccountable. Leaking has an impact with or without accountability, though. Were leaks to start happening in an "unprincipled" way, i.e. if WikiLeaks simply became a clearinghouse for all leaked material and published everything without consideration or verification, then the organization would quickly lose all institutional credibility. But the leaks themselves would still possess value for someone (why else would the information be withheld?). So the problem: WikiLeaks behaves true to its philosophy of "principled" leaking, and it has an impact. WikiLeaks loses all sense of principle and propriety, and the leaks still have an impact. That to date the leaks have not egregiously violated principles of privacy or safety is irrelevant. Future violations could conceivably occur arbitrarily and with impunity, and that threatens legally-sanctioned institutions (governments, corporations, individual rights and liberties) without regard to guilt or innocence.

The recent leaking of Afghanistan documents shows that either WikiLeaks recognizes its democratic legitimacy problems, or it at least wants fact-checking help. Prior to publishing the secret documents, they were given to the New York Times, The Guardian, and Der Spiegel with an agreement to withhold articles until the documents were published. (For two good accounts of the agreement and verification process, see the Columbia Journalism Review here and here.) All three of these newspapers are highly respected, legitimized institutions. They have built up credibility over decades, and while they are legally liable for gross abuses (for examples, look under "Update" in this Glenn Greenwald post), a number of protections exist so that they may speak truth to power in the public interest. (In the United States, at least two cases come to mind.) Sure, editors at major newspapers must operate under some personal, moral code of conduct when it comes to publishing, just as WikiLeaks must. But they are beholden to readers, reputation, and the law in a way that the unassailable WikiLeaks is not. It or an organization like it could function as long as someone is willing to fund it. Which, given the demand for anonymous sensitive information, will not be difficult.

It admittedly feels strange to be criticizing an organization whose premise of transparency is something I highly value. I think the war in Afghanistan can be best described as the next generation of technocratic Whiz Kids (both civilian and military) ignoring geopolitical reality and arrogantly soldiering on, literally. And here is WikiLeaks dumping thousands of documents showing how poorly that course of action is going. I think Americans are overly gung-ho for militarization, and, outside of military families, have very little sense of the human cost of war. And here is WikiLeaks providing video evidence that War Is Hell when Western media can't or won't. Isn't WikiLeaks filling a gap in our media and information landscape? Aren't they a check on legitimate power behaving illegitimately? Yes. But when I read about Julian Assange defending WikiLeaks' careful scrubbing of safety-sensitive data -- or read news reports about leaked Afghan informants -- I wonder, Who is the check on WikiLeaks? Unless they work exclusively with traditional media organizations (which seems to run counter to their independent ethos), I'm not sure who will hold them accountable if and when they must be.

Has Monetary Policy Jumped the Shark?

(Sorry for the long absence. But look! A new design! Thank you, point-and-click Blogger templates.)

The last week has been a rough one for the economy and financial markets, and those that love them...or are paid to watch/analyze/capitalize on them. Last Friday's jobs report showed that employment growth has slowed, and the Fed has taken this and other recent indicators as a sign that more needs to be done. In their most recent statement, the members of the FOMC directed the New York Fed to maintain the present level of the Fed's securities holdings by reinvesting principal payments from existing holdings. Not too aggressive, but also more monetary stimulus than was previously being supplied.

For the likes of Paul Krugman, the Fed's paralysis with regard to continued aggressive intervention is reason to get apoplectic. But for perennial FOMC dissenter Thomas Hoenig of the Kansas City Fed, the central bank has already besieged the economic recession with necessarily excessive force, only to find its true enemies (leverage, too-big-to-fail) still standing tall. What's more, he argues that continued stimulus will only aggravate the kinds of debt and risk-taking distortions that prompted the recent financial crisis. Which economist is correct?

First, it's useful to think about what securities purchases by the Fed accomplish. Quite simply, they supply additional loanable funds to the Treasury and Agency MBS markets. Holding the demand for these assets by other investors constant, interest rates on these securities will fall. (Sorry to mix supply and demand here. The supply of loanable funds is the same as saying "demand for these securities".) The hope is that by lowering the yield on the safest non-cash assets, investors who want to take any risk or earn any yield will be forced to look into other asset classes, such as stocks and corporate bonds. If this occurs, funds flow more bountifully to the private sector, and the economy (fingers crossed) heals itself as individuals flock to cheaper mortgages and businesses turn others' savings into productive investments.

The problem, though, is that this strategy -- and the Fed's monetary policy transmission mechanism, generally -- relies primarily on a steady or higher level of overall debt in the system if it is to work quickly.

• Businesses: With a lower cost-of-capital, projects that had previously not been economically viable may suddenly look profitable. Banks or investors lend them funds, which are used to buy equipment and materials, and to hire employees.
• Individuals: Lower interest rates persuade would-be homeowners to buy homes, stimulating demand for a larger housing supply (oops, looks like we already have enough of that!) and pushing up home values and property-owner wealth in regional markets. Existing homeowners choose to refinance their home or borrow against the equity they have (oops, where did all that go?) and use the cash they save to consume more.

For individuals, lower borrowing rates aren't going to do much. The housing bust has put serious downward pressure on their homes' values, so their net worth has similarly declined. They're not looking to take on more debt, and banks aren't looking to give them more. Those homeowners who still could have refinanced at lower rates (and those first-time buyers interested in a mortgage) would have refinanced, and probably did, over the last 18 months when rates were at historic lows.

Businesses could save the day, but a lot of them already have large debt loads from the 2004-2007 credit bubble. If a debt-swaddled company is lucky enough to find more credit, it can either (a) use the funds to invest in a new project, or (b) refinance existing debt. If it opts for (a), it further leverages the company at a time when future earnings are uncertain at best: where's the demand going to come from? Consumers are hunkered down trying to cut their expenses and debt burdens. (Note that this is a problem for all companies, including those with healthy balance sheets.) If instead the company refinances old debt, then nothing really happens immediately. Lower interest payments mean that future profits will be higher, ceteris paribus, but those are future profits. They don't help the economy much now, though they may slightly boost the company's equity value. However, if the projects don't pan out, or if the company is actually already too indebted and the refinancing just prolongs its inevitable bankruptcy/restructuring, then the new debt actually just draws out our economic pain.

Finally, the banks. Many financial institutions are still sick (or recovering) from the toxicity of their loan and securities portfolios. As long as individuals and businesses are too heavily indebted to carry on normally in this macroeconomic environment, banks will remain risk-averse. If they behave responsibly, the uncertain economy will prompt risk premiums that wipe out the lower levels seen in the funding markets. And if the economic cycle worsens, the banks' funding costs themselves will rise for those institutions that use interbank funding and capital markets.

The point is that the Fed's transmission mechanism, which uses equilibrium levels in debt markets to nudge all other financial markets and transactions, cannot account for the stock of debt already outstanding in the national economy, which dwarfs levels seen historically. As long as individuals are too indebted to borrow more or consume like they did during those inglorious years past, businesses will be unable to count on strong earnings to justify new projects. And businesses themselves that gorged too heavily on cheap credit will have to forgo new borrowing for new projects, go bankrupt, or slowly pay down their debt, which means fewer resources dedicated to new consumption or investment.


What can the Fed do? At this point, not much. Its low rates probably helped still-financially-viable companies and homeowners refinance their debts, but the scale of over-indebtedness in the economy remains too great for these cash infusions to have an effect that creates enough jobs and investment opportunities to lift us out of low growth or even continued recession. I'm afraid we've already seen the most creative and useful brand of Fed policymaking, and that it will fall to fiscal actors to splurge for direct, immediate intervention (or not) while the bankruptcy lawyers and FDIC receivers slowly extricate us from this colossal mess. Paul Krugman may be right that it's too soon to tighten monetary policy. And Thomas Hoenig may be right to say that economic salvation won't come from low interest rates. But neither leaves us with a clear sense of what the Fed can do if things get worse, or stay, miserably, the same.

UPDATE (Monday, August 16)
On the related note of global imbalances and fiscal intervention vs. austerity, I recommend checking out Paul McCulley's most recent "Global Central Bank Focus" article.

UPDATE II (Monday, August 16)
Also, I just found this very creative post by Steve Randy Waldman today at interfluidity that contemplates various alternatives to traditional Fed policy. Like me, Waldman is concerned that modern monetary policy tools lean too heavily on capital markets and asset pricing, which not only has the effect of promoting asset price bubbles and bursts, but also favors capital over labor. Before you drop the s-word, note that this is relevant to the efficiency of the transmission mechanism as well as politics. Waldman says that central banks could use direct cash transfers to individuals (not reserves invested in fixed-income assets, as is currently the case) to strengthen worker influence while rendering unions less relevant:

That we’ve spent 40 years increasing the bargaining power of capital over labor doesn’t make it “fair”, or good economics. Supplementary incomes are a cleaner way of increasing labor bargaining power than unionization. Unionization forces collective bargaining, which leads to one-size-fits-all work rules and inflexible hiring, firing, and promotion policies, in addition to higher wages. If workers have supplementary incomes, employment arrangements can be negotiated on terms specific to individuals and business circumstances, but outcomes will be more favorable to workers than they would have been absent an income to fall back upon.

I highly recommend this post. It represents a step forward in finding new policy levers that move away from the ambiguities of effectiveness, causality, and fairness in the Fed's traditional tools.

Breaking News: Ezra Klein Murders NPR Coolness

I know I haven't posted in a long time, and this isn't going to be any kind of extended post. But I had to take a poke at Ezra Klein's characterization of NPR's and The Economist's success:

For better or worse, carrying the Economist is sort of like wearing a shirt that says "I'm smart and worldly and interested in knowing things about Ghana." But unlike a shirt saying all that, it actually works to convey that impression. An NPR bag, for its part, is a signal of a particular brand of non-confrontational, college-educated, sightly-crunchy liberalism. Is that a stereotype? Sure. But it's working for the station's merchandise department.

Thanks, Ezra, for turning my beloved NPR into the popular purveyor of, to coin a phrase, "Vampire Weekend liberalism."