Founding Pragmatist – A review of “Thomas Jefferson- The Art of Power” by Jon Meacham

I just finished reading the latest book by Pulitzer prize winning journalist and historian: Jon Meacham, the author of highly acclaimed historical works such as “American Lion: Andrew Jackson in the White House” (for which he won the Pulitzer in 2009). A former editor of Newsweek, he seems to have finally succumbed to the itch that plagues every American historian, which is a restless feeling that can only be sated by writing yet another book on Thomas Jefferson. While the 3^rd president of the United States can be said to have been studied to death, Jon Meacham manages to write a book that holds its own among the great works on this over studied great man. My sense of the author’s intent in writing this book is to paint a picture of Thomas Jefferson as a practicing politician and statesman of his time. A man skilled in the exercise of power and not simply the high minded philosopher and ideas man behind the lofty words of the American declaration of independence. I found this book to be refreshing and illuminating and I took away a couple of lessons that are often lost due to the all too human tendency to inflate the currency of the past

Revolutions – at least the successful ones – are typically run or enabled by the rich and/or the established. As Meacham wrote about the march to the American Revolution, “for the elite, revolution was the shrewdest economic choice”. While the history books are replete with stories of yeoman American farmers and striving craftsmen picking up arms in ragtag armies to secure their freedoms by defeating the “Redcoats” (as the British Army was not so affectionately called in those days). The truth is a little more encompassing than this, as the revolution was championed by the gentry, ruling classes and business elite of the colonies who had come to realize that continued rule from London was, well, not great for business and for their continued prosperity. One of the initial skirmishes on the road to the revolutionary war was the “Pine Tree Riot” in New Hampshire, during which royal officials were flogged and marched out of town. The leader of this revolt was Ebenezer Mudgett, a rich lumber mill owner who basically did not like the effect the royal ordnance to save the best trees for his majesty’s use was having on his profits. Counted among the signers of the declaration of independence were some of the richest men in the 13 colonies, they saw that throwing off the colonial overlords was not only good for the liberty of man, it was also good for business. This was probably not lost on Thomas Jefferson himself as Jon Meacham noted, “it was a rich man’s revolution and Thomas Jefferson was a rich man”. This is not just a relic of historical revolutions, the protesters at Tahrir Square started the revolution to overthrow Hosni Mubarak but the decision of the Egyptian Army generals to not attack the protesters but to abandon Mubarak basically sealed his fate.

The second important lesson is that partisanship and partisan bickering, like the poor, have always been with us. Listening to American media, one hears “talking heads” and politicians bemoan the partisan rancor in the country. They collectively long for the more amiable atmosphere of the past while not forgetting to add something along the lines of the “founding fathers rolling in their graves” at the sight of the bickering politicians. I am not so sure that these fathers will be as taken aback as pundits (who pine for a bygone era when political sages strode across the nation and engaged in calm, high-minded discussions) will like us to believe. Former US President Harry Truman was said to have remarked that “the only thing new in the world is the history you do not know” and that statement was quite borne out by this book. The election of George Washington was in many ways the last non-partisan election of a US president as Thomas Jefferson and John Adams were locked in highly partisan contests in 1796 and 1800. And each man was at the head of a political movement, Adams led the Federalists and Jefferson the Democratic-Republicans. Vicious publications in broadsides and pamphlets were the attack ads of the day and men such as James Callendar, a noted pamphleteer of his age, may even have one or two things to teach modern campaign hands like Karl Rove and David Axelrod about “defining the opponent”. Jon Meacham notes that the election between Adams and Jefferson was so hard fought that it drove a wedge between two men that had hitherto been very close (although they did make amends in their old age). Much has been made of the Jeffersonian practice of opening the White House for dinners with legislators every night, as it was a good faith effort to build bipartisanship. However, it must have been a sign of the times that the President avoided having congressmen of both parties together on the same day out of concern that such dinners may end in fist fights.

Also shining brightly throughout the book is the vivid image of Thomas Jefferson, the pragmatist. The portrait of Jefferson as philosopher king, devoted to such idealistic pursuits as crafting the declaration of independence and the statutes of religious freedom, has become quite ingrained in the popular imagination. In this book we see a new side to the man, we see Thomas Jefferson the politician skilled in realpolitik. The man who had a deep belief in a participatory democracy anchored on an active citizenry of his much beloved “yeoman farmers” also did as much as any president to expand executive power. He negotiated the purchase of the Louisiana Territory, which currently encompasses all or part of 15 American states and at 3 cents per acre it is considered by many to be the greatest real estate deal in history. The judicial “strict constructionists” of his time viewed this move as unconstitutional as the constitution did not explicitly make provisions for acquiring territory. However, he viewed it as imperative that the French influence in North America be curtailed and that the opportunity for the young country’s westward opportunity needed to be ensured. In foreign affairs, the man who had expressed reservations about standing armies (considering them a marginally less bad idea than banks) expanded the navy and launched the United States’ first foreign war. He sent ships to defend American ships that were being harassed by the Barbary states, getting the sanction from congress after the ships were on their way and establishing a precedent of vesting the power to conduct war and defend the country in the president even though the formal declaration of war was controlled by congress.

Overall, I found the book to be very densely researched but beautifully written in an engaging way that kept me going through the approximately 800 pages of this great book. It contained enough “red meat” for history and political nerds like me, while also having enough interesting anecdotes and engaging human interest content to engage the general reader. 

Melting Pot & Cauldron of Fire – A review of Levant by Philip Mansel

I thoroughly enjoyed reading Levant: Splendor and Catastrophe on the Mediterranean: a book describing the enigmatic history of the Levant by chronicling the vicissitudes of life over four centuries in Beirut, Alexandria and Smyrna (now the Turkish city of Izmir). The Wikipedia entry on the Levant region describes it as including “most of modern Lebanon, Syria, Jordan, Israel, the Palestinian territories, and sometimes parts of Cyprus, Turkey and Iraq”. This region of the world has quite distinct characteristics from the Middle East’s Gulf regions and the Maghreb region of West Africa. This unique identity however tends to get obscured in the statements and actions of those who prefer simplistic - and probably ignorant –terms such as “Arab world” or the much more annoying phrase: “Muslim world”. It is quite absurd to compare the multicultural, long established and often secular Levantine cities such as Beirut, Damascus, Alexandria and Istanbul with the more homogenous, conservative and recently founded cities of the Gulf Kingdoms.

The world we live in is not one that celebrates dual or split identities. It is considered an insult to be described as “two-faced”: a phrase we associate with traits such as insincerity and hypocrisy. We regard people or societies with “two faces” to be making an unwholesome attempt at “having it both ways”. There is even a biblical injunction assuring the “spitting out” of people who are “neither hot nor cold”. I have always found the scorn heaped on people trying to “have it both ways” to be quite silly: why should I or anyone else have it one way if we can have it two, three or even four ways! The ancient Greeks had the good sense to recognize the virtue of split personalities. Classical mythology is replete with figures such Janus: the two-faced god of beginnings and ends who looks both into the future and the past. Most of the heroes of Greek mythology have split human/god personalities and are therefore prone to perform god-like acts like slaying thousands of men but also capable of very human traits such as throwing fits over being jilted by lovers.

 I find the Levant region fascinating because it is a region that has throughout its history tried to have things both ways and to keep multiple identities. It is a region that looks both to the West and to the East; it is both ancient and modern; both Christian and Muslim; Arab and European. The author describes a region that was equal part melting pot of cultures, nationalities and religions and also equal part frighteningly combustible cauldron of fire. The Smyrna, Beirut and Alexandria of the17th, 18^th and early 19^th centuries described by the author were cities in which Turks, Greeks, Arabs and Europeans freely coexisted and were able to practice their Muslim, Jewish or Christian faiths as they wished. To understand how unique this was we should note that it was taking place at a time when Jews and Synagogues in Europe were largely still restricted to Ghettos and the Muslim population in Spain had been either forcibly converted or banished. These were multilingual commercial centers where thousands of European traders and their families lived with Turks and Arabs. Philip Mansel describes a Janus-faced region with men trotting about in European dresses adorned with Arab headgear; a society of debutant balls and Islamic marriages (Nikah) and a place with assimilated Europeans who had converted to Islam and taken on Arab names. I will not be stretching credulity by saying that 19^th century Levant gave the world a foretaste of globalization and multiculturalism. A poster child of this period was Mohammed Ali Pasha, founder of modern Egypt and patriarch of a dynasty that ruled the country 1805 to 1952. Ali Pasha was an Albanian born in Macedonia who first came to Egypt as an officer in the Ottoman Army. This is a more notable rise to the top than many ascents in our modern age that are often prefaced with the words “only in America will –“.

All these good things notwithstanding, it’s important to realize that the Levant region of yore was not some multicultural nirvana where nice people gathered to hold hands and sing Kumbaya. This rich tapestry of nations, faiths and cultures was always on the edge of being ripped apart by partisanship, latent religious prejudice and the pursuit of narrow sectarian interests. Resentment of the special privileges or capitulations granted to Europeans and of the perceived impiety of the elite by the often more pious masses has always been a sticking point. This resentment often boils over and has been the cause of significant conflicts and bloodlettings from Smyra in the early 19^th century to the long drawn out civil war in Lebanon which lasted from 1975 to 1990. These tensions were considered sufficiently serious by many western powers that they took to stationing warships off major Mediterranean ports both as a deterrent and also as a means of quickly evacuating their citizens in the event of a conflict. Intermittent social conflict was not also the only challenge faced by the Levantines; also bubbling under the surface was a somewhat rigid social hierarchy. 19^th century and early 20^th century Lebanon has been described by some as a strict hierarchy with Catholics at the top and Shia Muslims at the bottom. In Mohammad Ali’s Egypt, European and Turkish officers were significantly better paid and more highly placed than their native Egyptian counterparts. These inconveniences and prejudices could be viewed as the worrisome Mr. Jekyll side to the more alluring Dr. Hyde side of the Levant where various nationalities and faiths coexisted.

However one constant theme, especially in Egypt, is the tension between the largely secular and pro-Western elite and the poor and pious masses over which they preside. This tension has become more important in the wake of the Arab spring: which saw the ouster of secular, pro-western strongmen such as Hosni Mubarak of Egypt. The hope of many western observers was that these strongmen would be replaced by secular democratic parties, alas the results of elections has given these people great pause. Islamist parties have won popular, free and fair elections in Egypt (Muslim Brotherhood) and Tunisia (Ennahda) while secular parties championed by the liberal educated elites have received sound drubbings. Turkey is also another country going through a similar transition as democratically elected parties with Islamic links have been rolling back much of the heavily pro-western regulations instituted by Kemal Ataturk. Described as the father of modern Turkey, Ataturk changed the Turkish alphabet to a Latin script; proclaimed Turkey to be a secular western country and banned the wearing of the Hijab (headscarf) by women in public. Parties campaigning on pledges to champion a bigger role for Islam have been winning elections with the wife of the current president also being known to wear the Hijab despite its official ban. While there are many challenges in the current-day Levant region, I regard the managing of the dual personalities of the region to be among the most important to get right.

In conclusion, this book validates the aphorism (attributed to US President Harry Truman) that “the only new thing in the world is the history you do not know”. Reading about the vicissitudes of life many centuries ago in these great cities, I am struck by how much of the lessons and challenges described by the author remain relevant today.

The European Cental Bank’s LTOR Initiative – furthering a deadly embrace?

To say the entire world has been fixated on the twin woes of a weak European banking sector and faltering sovereign fiscal situations will be stating the obvious. However, there is great justification for this fixation because of the extraordinarily tight connection between the economic fortunes of most European countries and their banks. Much has being made of the “too big to fail” issue as it concerns large American universal banks such as Bank of America, Citigroup, JP Morgan etc. While these institutions are large and have gotten larger in the recent past, their impact on the US economy seems really benign when compared to the impact their European counterparts have on their host countries.

Throwing out some numbers, the weakened Dexia Bank’s assets account for ~150% of host country Belgium’s GDP, RBS’ assets exceed 100% of UK’s GDP, BNP Paribas’ asset base is up to 100% of France’s GDP and so on. While a big driver of these numbers come from the far more international activities of European banks, it does not detract from the fact that in the vast majority of European countries we have less than 5 banks controlling substantially all of the banking system’s deposits and assets. French banking is basically controlled by BNP Paribas, Credit Agricole & Societe Generale, Unicredit & Intesa Sanpaolo have that distinction in Italy while Deutsche Bank has a kind of overwhelming influence on German finance that no American bank even comes close to having. If you couple this dominance with the fact that Europe has a more bank-centric financing system than the US, then the power of these banks become more glaring. Over the past couple of decades a shadow banking system, fuelled by securitization, has emerged in the United States to challenge the dominance of banks in extending credit to the economy. This has been far less developed in Europe with banks on the continent been more likely to hold assets on their books.

This has become apparent in the past couple of years with European nations basically turning a banking crisis into a fiscal one. Some of the fiscal problems currently ripping through Europe can be traced to the massive costs incurred by these nations as they tried to bail out their banks and ended up breaking their fiscal purses. One can easily link, to a non-trivial extent, the Irish fiscal crisis to the cost faced in bailing out such large lenders such as the Allied Irish Bank and the Bank of Ireland. As these banks have stabilized, the true costs of the (admittedly necessary) bailouts have become apparent as they are reflected in the higher borrowing costs of marginal European nation.

This now brings me to the potential danger in the ECB’s latest plan to shore up the European banking system through the recently introduced Longer Term Refinancing Operation (LTRO). Theoretically, the aim is to provide a liquidity backstop to European banks as they seek to jumpstart lending to the economy. I am however somewhat skeptical of LTRO’s benefits due to the potential for the carry trade. The December round of approximately EUR 500 Billion 3-year LTRO funds disbursed have an interest rate of 1%, while Italian, Irish and Portuguese government 3-year notes yield 3.9%, 4.5% and 1.91% respectively. From these numbers one can easily see a situation where the banks take money from ECB and just plough them into purchases of European sovereign bonds. For example, Intesa Sanpaolo (the big Italian bank) participated in the LTRO funding window up to the tune of EUR 24 Billion. Since the bank has an average Net Interest Margin (NIM) of ~1.6%, borrowing from the ECB and buying Italian bonds will yield a spread of 2.9% (almost double its NIM on loans). And to crown the good deal, due to banking regulations its purchase of these bonds will be deemed riskless and it will not need to set aside any capital for potential losses.

If this happens across the banking sector, we will end up in a scenario where bank holdings of sovereign debt increases in an era of increasing fiscal instability. If there are defaults on these debt holdings, the banks will suffer large losses and will have to be bailed out by the governments whose fiscal situations will then worsen as a result. In essence, this move may be locking European banks and sovereigns in a tighter deadly embrace.

I hope that the doomsday scenario does not happen, but I see a reason to be skeptical

Life post-PMS subsidy – Ensuring we do not let a “crisis” go to waste

I woke up on the morning of January 1^st to Facebook updates from friends denouncing and disparaging the Nigerian government’s “heartless” decision to remove subsidies on PMS (Gasoline) effective immediately. I completely relate to the sentiments expressed by many Nigerians as the pump price of Gasoline is expected to increase by at least 200-250% and this is money from the pockets of ordinary people. The government has advanced a fiscal argument for the removal of subsidies: since Nigeria lacks any meaningful refining capacity, the rise in crude oil and freight prices have made these subsidies increasingly expensive for the government. The finance minister and central bank governor have both stated that sustaining the subsidies will place the government on the path of higher deficit spending financed by unprecedented domestic borrowing. The major buyers of these bonds are Nigerian pension funds and banks, so a worsening fiscal condition can (in an extreme scenario) can potentially weaken our banks and threaten pensions. A clear result of this borrowing, which is probably beyond contestation, is that it has led to the crowding out of private borrowing as rising yields have made government bonds a lucrative risk-free and high-yielding investment that has increased the cost of private borrowing. However, whether you buy this argument or not, there is an opportunity for the country to use the removal of this subsidy to effect some structural changes in the economy

A key reason the removal of the subsidy is generating so much uproar is due to the Gasoline-intensive nature of the Nigerian economy. A possible unintended consequence of decades of government subsidy is that we have effectively subsidized and encouraged inefficiencies because of the artificially low cost of PMS. Nowhere are these inefficiencies as prevalent and absurd as those of the transportation and logistics sectors: two sectors that affect everyday things as the cost of getting to work and the cost of food. Anyone who has visited Lagos will witness the huge number of cars on the road as almost the entire middle class (or anyone who can afford a car) drives to work, with carpooling being taken up by only a minute percentage of the population. That’s why the recent moves being made to introduce commuter rail to Lagos is a big, cost-effective step in the right direction. We need every metropolitan center in the country working on similar schemes.

These inefficiencies are not limited to intra-city transportation; they also extend to inter-city travels. It is beyond absurd that the vehicle of choice for inter-state transportation in Nigeria is the 18-seater bus. This is an inefficient vehicle for providing mass transit services over long distances. Other countries have the good sense to consign these buses for shuttle services between airports, tour sites etc. Spreading fuel costs over only 18 people gives us more expensive transit than we would have if we used 42 or 50-seater buses for inter-city transportation. Hopefully, higher fuel costs we force us to make this switch into large-scale, efficient transportation choices.

Obviously, I have saved the most egregious for last. And that is the logistics and haulage system in the country, which is the primary reason food costs can be expected to skyrocket following the removal of subsidies. Nigeria must be one of a few countries in the world where bulky, non-perishable goods are shipped almost exclusively over long distances (i.e. over 1,000 Kilometres) by trucks. Name the bulky stuff (cement, grains, steel rods etc), we transport it by road! We even transport petroleum products (including Gasoline) using trucks, no wonder everything costs more than it should. As a country, we need to revamp our railway network to transport bulky products in a much more cost-effective manner and also better monitor our pipeline systems so we can stop the lunacy of transporting Gasoline over 1,000 Kilometres by road.

I know adjusting to a life without PMS subsidies will be difficult for most Nigerians but we should not let this opportunity go to waste, we need to use this opportunity to correct the structural deficiencies in our economy.