Is the Mortgage Crisis Being Solved?

After the American Century

According to the Financial Times, in the United States more than one out of every nine homeowners (11.9%) is in trouble with mortgage payments. This is the personal side of the larger banking crisis. If these millions of homeowners go down, the rest of the economy goes with them.

For those who are confused about the Obama plan to refinance American banks, there is an excellent short article in the New York Times by a Nobel Prize winning economist to explain things. In it, Joseph Stiegltiz argues that what the Obama team is doing is (Step one) to separate profitable assets from unprofitable ones and then (Step two) agreeing to protect investors from losses on those that are unprofitable. This might sound good, but in practice it will mean that US taxpayers will definitely lose while the bankers who over-leveraged their investments will be protected. For more details, see his article.

Stieglitz argues that nationalization of the banks would be cheaper and preferable. I think he is right. The Obama solution seems to be a case where American laissez-faire ideology has gotten in the way of common sense. In order to protect the "free market" this rescue plan makes sure that there is no free market, for if there were one, then many banks would collapse or be taken over by the FDIC, which insures the ordinary citizens' deposits.

I am missing something? What is so wrong with letting the free market decide which banks live or die, with the government taking over those that die, running them for a little while, and then selling them as soon as possible? This is what the government has been doing for years, after all.

For millions of Americans the problem is quite personal. In February, there were 290,631 legal foreclosures, an increase over January. Assuming an average family size of a bit less than 4, that means one million people lost their homes. About 300,000 of these people are in California. The hardest hit state appears to be Nevada, where one out of every seven houses has been foreclosed in just one month!

Yet often the problem is worse, because sometimes the bank refuses to foreclose on people who cannot afford to pay. In other words, they are abandoning foreclosures. Such banks have begun foreclosure proceedings, meaning that people are told to move out, only for the bank to discover that the legal costs are so great that the value of the building does not warrant the effort. So, the owners, having been evicted, suddenly find that they still own the empty property even though they cannot afford it. Often this news comes in the form of a letter demanding real estate taxes. It gets worse. Empty, low value (often inner-city) properties are often vandalized, and become uninhabitable. This drives down the value of adjacent properties and hurts the already weak market.

Banks that initiate foreclosure and then do not follow through leave property in limbo and people on the street. Do such banks deserve to live? Are they not community destroyers who act irresponsibly?

In other words, the situation is even worse than the statistics suggest. In the end, who cares about the banks? The homeowners should be the government's absolute top priority.

Danish Awareness of "Earth Hour" Dim

After the American Century

Across the world, in 88 countries, cities turned out their lights last night for one hour, starting at 20:30 local time. The Houses of Parliament and Big Ben, dark. The Eiffel Tower? Noir. The Chinese Olympic stadium, Sydney's harbor bridge and opera house, Atlanta's Coca Cola Building, dark. Toronto reduced its total electricity consumption by 15% during "Earth Hour," more than twice as much as last year. It may have been the biggest global demonstration in history.

In most of the participating 2800 cities and towns, the local newspapers and politicians were actively promoting Earth Hour. However, I looked in vain for anything about Earth Hour II in two Danish newspapers this morning. Last night, the City of Odense turned out its streetlights at 20:30, as we did at our house. Yet, as I walked around our neighborhood, few others seemed to have done so. Using the simple test of looking for lighted candles showing in windows, it appeared that most people had lots of light bulbs on, and that perhaps one in ten actively supported "Earth Hour." I hope I am estimating incorrectly, but in the last week I have not sensed any awareness of this event. Not a single student, colleague, or neighbor has mentioned Earth Hour to me, or showed any interest in it when I mentioned it. Not one journalist has called or written an email asking for my view of Earth Hour, from the viewpoint of an energy historian.

This morning, the local newspaper (Fyens Stiftstidende) has not written a single word about "Earth Hour" that I can find. The front page features a photograph of two girls eating ice cream. The three stories on page one are about increasing service charges on house loans, Conservative tactics for the next (hypothetical) election, and an extremely important piece on the development of a cardboard, biodegradable "Paradise coffin" for pets, available in five sizes. On the plus side, the same newspaper has five pages about energy-saving forms of electric lighting in its second section, without, however, mentioning Earth Hour anywhere that I can see.

Apparently, for all-too-many Danes, global warming is only an issue of concern for thousands of cities in other parts of the world. Judging by this event, you would never know that Denmark is hosting a major climate conference that will seek a replacement for the Kyoto Accords. Political parties paid lip service to the event, but except for a single concert in Copenhagen, the event was a non-event in Denmark. For 2009, the clear message from Denmark seems to be that hardly anyone cares very much about Earth Hour or about forging a world consensus to reduce global warming. To anyone familiar with the current government, this should come as no surprise. Maybe next year they will use their wall switches to vote for change, to proclaim the solidarity with others, and to send their politicians a message.

Why You Should Turn Off the Lights Tonight

After the American Century


Turn off the lights for one hour, tonight. Why?

(1) Because this is a way for people all over the world to demonstrate, quite painlessly, that we are concerned about global warming and the over-intensive use of fossil fuels.

(2) Because all of us can use less energy every day, without sacrificing anything, and we need to remember that we are not passive spectators, watching global warming. We are actors. We can make a difference, if we act together. In 1997, the average home in the OECD countries used 38 watts every day just to keep appliances on standby. These 386 million households were wasting 14,634 megawatts a day. Does anyone think this waste is necessary? Of course not. But we need to make an effort.

(3) Because the electrified world is historically new, and once in a while we need to remember what darkness looks like. Human beings evolved without artificial light, and during this hour we might reflect on where we stand in relation to the more than 100,000 years of human history. Human beings have used electricity for light and power for less than one tenth of one percent of human history. In that blink of an eye, historically speaking, we have polluted the atmosphere and the sea and unbalanced ecological systems in ways that we are struggling to understand.

(4) Because your house and your family seen by candlelight are beautiful in ways that you may not have seen lately. The human eye did not evolve to see the world blanketed in electric light, but rather evolved to see somewhat differently by day and by night.

(5) Because if the sky is clear, you will get a good look at the heavens. The urban landscape especially can be improved by reducing electric light. Most urbanites scarcely see the heavens at night, because excessive artificial light reflects into the atmosphere, making it impossible to see more than the brightest stars.

So why let this night be like all the others? Why not turn out the lights, and look for a local arrangement celebrating "Earth Hour" as it is called in many places, following the Australians who began this ritual in Sydney. The Danes are calling it something else, and starting not on the hour but at 20:30.

As the Toronto Star put it last year, “This event is an opportunity to show how individuals acting together as a community can have a huge impact. Ultimately, we hope it gets people thinking and talking here in Toronto and in cities around the world about real solutions to what is arguably the most important issue of our time.”

The Bureaucratic Dream of Quantifying Research Results

After the American Century

I can see the attraction for bureaucrats and politicians of giving a numerical score to every book and article that every academic produces. If one could find a way to do this accurately, then individuals, departments, universities, and whole nations could be ranked, and money handed out to the most productive. It seems so logical and easy. Of course, university researchers will resist, but the effort surely would be worth it.

This fantasy has been pursued in different nations, and for the last year has been a key project of the Danish Ministry of Research. As it happens, I was dragooned (not asked) to serve as one of 300 experts charged with drawing up the lists of all scholarly journals and academic publishers, and then dividing them into groups based on quality. More points would be given to work published in the "best" journals. The Ministry considered this task to be so easy that it provided no release time or extra funding for it, and the work was to be done in just a few months. Each sub-committee would send in its lists and the Ministry would combine them into a complete overview.

This reminds me of a story I heard about the Spanish king (centuries ago) deciding to produce a map of his empire by asking each region to prepare a map of itself, the idea being to combine them all into a map of the realm. Each governor had a map drawn, but of course the scale employed and the methods of representation were by no means the same. The King tried to put the pieces together, but instead of a map he had a misshapen patch-work quilt of no value.

Yet making a map of Spain is easy compared to making a map of academic knowledge production. Land, surveyed according to a single system, can be mapped pretty accurately - even if it is not as easy as it might appear, for one one must take account of the curvature of the earth and of slight deviations in measurement due to equipment that reacts to changing temperatures, etc.

But a numerical system to measure knowledge production? Here are some of the problems. First, some fields are intensive, others extensive. In philosophy, for example, the closely reasoned article is the central form of publication, and even a very fine philosopher may not produce so very many in a decade. In my field of history, articles are more frequent, which makes a certain sense, since its subject matter is extremely extensive, with every nation, organization, and institution providing ample areas for study.

Second, in some fields, books are the most important units, in others, articles. Scientists mostly write articles, often of less than 10 pages. For historians, the most significant unit of production is the book. The typical academic book is 250-400 pages, more than ten times the length of the typical history article. How does one compare the two forms? Some university departments in the United States establish "conversion tables" ranging from five articles equals a book to as many as eight articles equals a book. There is no consensus.

The subcommittee of five persons on which I served developed a list of more than 700 English language journals from Britain, Ireland, the United States, Canada, Australia, and New Zealand. The same committee was also responsible for the Spanish and French journals, most of which I cannot offer a qualified opinion about. Imagine that we used only ten minutes to consider the ranking of each of the 700 English language journals. That is far too little time, yet that would take 7000 minutes, or 116 hours. The problem is that even a committee of five will not know all 700 journals.

Nor was this all. We also had to compile a list of academic publishers, a formidable task in itself, for many universities in the English speaking have presses, including some of the most prestigious. We were provided a list to start with, but it was rather useless, as it omitted many of the finest publishers and was not drawn up according to any principles that I could discern. We were told it was a Norwegian list, but I think the Norwegians are far more clever.

Well, we did our best, as did the other sub-committees, but our map of academic knowledge production could not possibly become coherent. And to make matters worse, unidentified persons in the Ministry (none of them with even a Ph.D. so far as I can tell) tried to adjust the rankings without consulting the specialists involved. They made the mess worse and called their own intelligence into question. Example. A physics article published in Science is considered by any university a great achievement. Unfortunately, the Danish Ministry of Research did not know this and assigned Science a low ranking. That should have been a no-brainer. Readers in Denmark will know that this fiasco became part of an on-going news story about the attempt to create a what is called (in rough translation) a "bibliometric measurement system."

For the record, let me say that from day one I felt this was a misguided enterprise, whose real purpose was to take decision-making about quality out of the hands of professors and give it to bean-counters in the Ministry. Furthermore, such experiments in other nations, notably the UK, have shown that it does not foster world class research. Rather, it encourages a calculated response to whatever point system is established. For example, suddenly several short articles are better than one long one, several articles accepted by mediocre journals are "worth more" than one really great article that took years to write and place in a top journal. A book that can be researched quickly is worthwhile, but scholars are, in effect, punished for attempting anything that takes more than a few years. Textbooks are not worth any points, so no one wants to write them. Book reviews are also worth little or nothing, so this essential and very public part of the peer review system is weakened.

Worst of all, academics may possibly come to believe that every article published in a "top" journal is automatically better than one appearing in a "lesser" journal. In fact, innovative work often finds a home in new journals or new publication series, created by upstarts or dissenters. Judging and rewarding academic research based on a point system reifies the present hierarchy and punishes innovators. The goal may be stimulating research, but the result can be ossification.

It may seem astonishing to bureaucrats, but the best judges of what is great research are the specialists themselves - the peers in peer review. Why judge the content of an idea by the venue where it appears? Why suppose that quantity can make up for quality? Why imagine that knowledge is quantifiable in the first place?