Review of “The Wealth of Shadows” by Graham Moore

The Wealth of Shadows is a historical novel based primarily on attempts at the U.S. Treasury Department to kneecap Germany economically in 1939 and 1940 and to enshrine the U.S. dollar as the linchpin of the global financial system at the end of World War II. It is based on real events, but it reads as a thriller, though there are no violent scenes. The main characters are real, including senior U.S. Treasury official Harry Dexter White, Treasury Secretary Henry Morgenthau Jr., and John Maynard Keynes. The book is narrated from the perspective of a Mr. Ansel Luxford, a tax lawyer who works for White. Though little known, Luxford is a real person who was involved in White=s efforts against Germany and his successful besting of Keynes at the Bretton Woods Conference in New Hampshire.

For those interested in this historical period, this novel is not only good entertainment but interesting history, along with ruminations about what money is. There is even a side trip to a used car dealership which provides the author an opportunity to discuss Pareto optimality and the importance of reading the fine print. This foreshadows how White manages to trick Keynes at Bretton Woods. Mr. Moore has helpfully provided endnotes which detail what is historically accurate in selected chapters and what he imagined, made up, or changed. 

Secretary Morgenthau[1] is well-known for having tried, not all that successfully, to get the Roosevelt Administration to do more to help European Jews. He is, therefore, supportive of White=s unconventional and sometimes extra-legal maneuvers against Germany at a time when the United States was officially neutral. However, White is opposed by a faction at the State Department led by Breckinridge Long, an antisemitic senior State Department official, whom White eventually manages to sideline.

For those with even a passing familiarity with the period, it does not give anything away to mention that at the end of the novel Luxford discovers that White has been providing classified information to the Soviet Union. This is a subject about which I know little, not having read the various books and articles about White=s espionage activities. According to Moore, most historians believe he did spy for the Soviet Union. Assuming they are right, it is unclear how much harm to U.S. national security or interests White=s spying did. White apparently received information from the Soviets in exchange for the information he provided. It is probable that White thought he was smarter than the Soviets and that he was using them. The Soviets most likely thought they were using White. (Pareto optimality? I don=t know.) It is probably true that White did not consider himself a traitor.

Moore does not pass judgment on White and says in his endnotes that information on White=s espionage remains murky. White died before he could be tried for spying.

Much of what happens in the novel and in reality, in addition to White=s espionage activities, is morally ambiguous. Moore does not hammer this point, but he does leave it to the reader to ponder the ethics of what people did.

For those looking for an engrossing summer read, I recommend this book. It may even motivate some to learn more about this period, perhaps by looking at some of the books Moore said he consulted.[2]

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[1] Secretary Morgenthau deserves praise for his efforts to help the Jews. However, as Secretary, his record is mixed. For example, the journalist Diana B. Henriques, in her book Taming the Street: The Old Guard, the New Deal, and FDR=s Fight to Regulate American Capitalism (2023) writes: AFDR=s conservative Treasury secretary, his Hyde Park neighbor Henry Morgenthau Jr. was a decent but limited man with vague economic ideas firmly rooted in the Victorian era. Even as the market slump worsened, he argued that only a balanced budget would provide the big dose of >business confidence= the economy needed.@ Also, after the war he proposed that Germany be deindustrialized and made into an agrarian economy, the AMorgenthau Plan.@ Fortunately, President Truman opted in 1948 to implement the Marshall Plan.

 [2] Among other recommendations, the author notes that The General Theory by Keynes is Ahis most accessible book.@ However, reading and understanding that book is a challenge.

Brief Book Review: New Cold Wars: China’s Rise, Russia’s Invasion, and America’s Struggle to Defend the West by David Sanger with Mary K. Brooks

David Sanger, a long-time journalist for the New York Times, has written an interesting book with his researcher, Mary K. Brooks, about major global issues confronting the U.S. Most of the focus is on Russia’s invasion of Ukraine; the economic and political relationship of the U.S. with China, including Taiwan; conflicts in the Middle East (e.g., Iraq, Iran, Israel); and cyber warfare. The narrative jumps around from issue to issue and location to location, but the main point is that the world has become an exceedingly dangerous place with multiple players, any of whom might make a catastrophic mistake. Also, the three main countries (U.S., Russia, and China) have made policy and judgement errors and have had to deal with internal problems with implications for foreign policy. The book recounts fascinating, though selective, recent history.

The analytical points, though, are less well-developed than the stories of recent events. Analysis gets a bit lost in the skipping from story to story and also seems not to be completely formulated. Key questions are sometimes only tangentially addressed. For example, the original Cold War was characterized as both a power and an ideological competition. The new cold wars (plural), as Sanger points out, includes one power, China, having important economic relationships with the other two main antagonists. Is this global state of affairs the result of policy mistakes or was some kind of dangerous competition among these three countries inevitable?  How should policymakers deal with this new, more complicated configuration? Are there policies that can reshape the current relationships among great powers or are we fated to ad hoc reactions to crises as they arise and hope that we can muddle through?

It is unfair to be too critical. The questions, such as the ones I have posed, are difficult, and they and others will generate debate among political scientists and historians. Sanger is right to conclude that recent history demonstrates the dangers we are facing and that the great power relationships are challenging. Fortunately, rationality triumphed to bring an end to the most dangerous episode in the Cold War, the Cuban missile crisis. There can be hope, but not assurance, that rationality would triumph once again if the world again faces the abyss. Sanger concludes with more aspiration than prediction that the current great powers can continue “an eight-decade-long streak” of avoiding “direct conflict,” no matter their differences.

Treasury Considers Green Bonds

The U.S. Treasury’s financing decisions are not something most people need to pay much attention to unless their profession requires they pay close attention to fixed income markets. Now that I am no longer involved in Treasury’s debt management I rarely pay attention to the Department’s Quarterly refunding announcements. However, recently it caught my attention that Treasury may be considering issuing green bonds. The Treasury Borrowing Advisory Committee recommended it as one of the innovations that Treasury should consider. (Here is a TBAC document  where green bonds and other possible debt management innovations are discussed.)

The proceeds of green bonds are restricted to environmental initiatives, which would need to be defined. The rationale for issuing these bonds would be that it would broaden the market for Treasury securities to entities which have restrictions on their investments. The TBAC document suggests that green bonds may have a lower yield than regular Treasury securities, but they are unsure about that.

The issuance of green bonds would be a significant departure from the way Treasury debt management has been conducted. Treasury does not issue securities to the public to fund particular expenditures. In determining its planned issuance, Treasury makes estimates of the daily cash inflows and outflows for the month or so ahead, and sells enough securities so that its cash balance at the Federal Reserve does not go negative. It may have targets for a particular amount of cash. If Treasury issued green bonds, it would need to segregate those funds somehow to meet the expenditure requirements. If Treasury set up a trust fund for green expenditures, the result would be a lot of accounting with little real effect. Treasury would issue green bonds, the funds would be credited to a trust fund. Treasury could then issue non-marketable securities to the trust fund and spend the money. Alternatively, it could not invest the money in the trust fund. In either case, the funds raised by the issuance of green bonds would actually go into Treasury’s account at the Fed and would be spent. Since money is fungible, there would be no determination on what the initial money raised was spent on. The press would presumably explain all this, and green bond investors would likely not be happy.

Given the issues with a trust fund, another option would be for the Treasury to deposit the proceeds from the green bonds into a fund at the Fed separate from its general account. Then the Treasury could tell the Fed to transfer the funds to the general account when it needed them for green expenditures. This arrangement would probably satisfy green bond investors.

However, note that even using the Fed option, this does nothing to increase green expenditures. Treasury cannot affect government expenditures by using debt management. Congress must appropriate the expenditures. In fact, all this accounting does not accomplish anything, except presumably make some investors happy that their money is not being used to finance expenditures they do not like. However, since money is fungible, nothing has really been accomplished here except to make debt management more complicated.

Book Review: “Ours Was the Shining Future: The Story of the American Dream” by David Leonhardt

The declining belief in the “American dream” is the story presented in New York Times journalist David Leonhardt’s new book, Ours Was the Shining Future: The Story of the American Dream. The book is part political science and part history, and helps explain the current troubling U.S. political situation.

The current rise of the right in the United States and European countries is dismaying to many. In the U.S., those of us not charmed by Donald J. Trump can be mystified about his appeal to many of our compatriots. For one, I am at a loss to understand or explain the attraction or even the entertainment value of his long rants at his rallies.

One aspect of the appeal of the right’s siren call, though, has been glaringly obvious: the failure of liberalism to deliver for the working class. The growing disparity of income over the past decades has generated anger and unpleasant political consequences. This is the theme of Leonhardt’s book.

Leonhardt begins by praising the glory years after World War II, which were marked by government investments in infrastructure (e.g., the interstate highway system) and education (e.g.the GI Bill, the reaction to the Sputnik scare), the increasing power of labor unions, and improvement, albeit slow, on race issues. However, later in the last century and continuing in the current one, things shifted. Republican policies, especially starting with the Reagan Administration, hastened the decline of the labor movement, and generally benefitted the more wealthy. Government investment declined, with the idea that a “rough and tumble” capitalism with less government intervention would best serve the country. On the Democratic side, Leonhardt argues that there was an emphasis on social issues and the professional elites dominating the party paid too little attention to working class concerns such as crime and visible job losses due to immigration. Democrats de-emphasized the useful government role in the economy, with Clinton famously saying that “the era of big government is over.”

I generally agree with many of the points the book makes, but there are some important developments that I think it misses. For example, in tax policy, the book makes no mention of the Tax Reform Act of 1986, which was a Reagan Administration initiative but enacted with bipartisan cooperation and enthusiasm among many Democrats in the Congress. This legislation strived to tax various sources of income equally and to make the Internal Revenue Code fairer. It has been mostly undone in subsequent years. For example, the current difference in tax rates for favored investment income, including long-term capital gains and most dividend income, and those for ordinary income is contrary to what the Tax Reform Act was trying to do. An analysis of the initial success and subsequent political failure of this initiative would have been useful.    

In addition, Leonhardt could have provided more discussion concerning Social Security and Medicare. Much of the current public discussion is misleading, with, among other issues, sleight of hand being played regarding confusing government accounting issues. Leonhardt is well qualified to cut through the debates on these issues and to discuss the real motivations of those advocating changes to these programs.

Because the book is U.S. focused, it does not discuss that a growing disparity of income and the rise of the right have also been taking place in European countries. The postwar history of Europe is different from that of the U.S., as have been government policies. This suggests that something more general has been afoot in both continents fueling growing inequality of income and the migration of some of the working class from the left to the right. (In Western Europe, the postwar left had been much further to the left than in the U.S.) Of course, a comparative politics study of the rise of the right would be another book.

It is interesting to note that under President Biden, some of the “third-way” Democratic policies have been effectively jettisoned. Biden is in favor of using tariffs and tax incentives to promote a type of industrial policy favorable to the environment. Also, he is wary of the Chinese and is not averse to using tariffs and other measures. Leonhardt believes that this is warranted. 

As far as whether the right will be successful, it is anyone’s bet about whether it will be in the U.S. for the short-term. Unlike other western countries, the U.S. has political arrangements that are currently helpful to the right, such as the unrepresentative U.S. Senate and the Electoral College. On the other hand, it has a political culture that is wary of the extremes. It is reasonable to think that ultimately the right will fail, but it may take longer than many of us would wish.

Even though, as I have argued, this book does not provide a complete view of how we have arrived at the current state of affairs, I can strongly recommend it for its analysis and the interesting history it presents. Moreover, it is well written and engaging. Whether or not one agrees with the author in general or on particular points, it provides the reader with a better understanding of how we have arrived at our current situation and provides information and analysis that should serve as fodder for thinking about current problems

Book Review: “Material World: The Six Raw Materials that Shape Modern Civilization”by Ed Conway

Ed Conway is a British economics journalist who works for Sky News and writes a column for The Times (London). His book, Material World, focuses on six raw materials: sand, salt, iron, copper, oil, and lithium. The point the book relentlessly drives home is that, for all our attention to the virtual  world, we are all dependent on real, material things. It also points out environmental tradeoffs. For example, making solar panels is an international endeavor requiring mining and a good deal of energy. Another example is electric cars, which require considerably more copper wiring than car with internal combustion engines, and the mining of copper is not without its problems. Moreover, the use of these materials, which involves mining, transportation, processing, and manufacturing of useful products, is not the province of a single country and requires considerable international trade.

While the author tries to be optimistic in his conclusion, the message of the book is the complexity of dealing with the environmental challenges. While the chants on the right of “drill, baby, drill” are nonsense as a solution to our real problems, environmental groups are also often simplistic in their approach in opposing many projects. Environmentalists might want to set up input output models or other analytical techniques to evaluate tradeoffs.

Also, while Conway praises the use of fertilizers to grow the necessary crops to feed the world’s population, he does not discuss that continuing population growth may be part of the problem. Also, deforestation in order to make more land available for farming with the miracle fertilizers has its environmental problems, as does animal agriculture. The benefits from these materials in making possible more food, in other words, create other problems. There are tradeoffs everywhere.

This book also provides some interesting history. For example, during World War I, Britain had a shortage of binoculars and Germany had a shortage of rubber. According to this book, there is evidence that Britain and Germany effectively traded binoculars and rubber in neutral Switzerland during the war. One can also learn why Bolivia is a landlocked country because of a 19th century war during which Chile obtained Bolivia’s coastal regions, which also happen to be mineral-rich.

In addition, one can learn a bit of chemistry in reading about the processing of various materials and their conversions into useful products, such as batteries. Perhaps there is more detail than some readers may want, and it is difficult to recall it all, but it is interesting.

Conway did a great deal of research to judge by his endnotes and bibliography as well as the international travels he recounts to various mining and production sites around the world. While competently written, the book is not exactly a page-turner. Amusingly, he relies, perhaps a bit much, on his inner Kurt Vonnegut in the repeated use of the phrase – “So it goes in the Material World.” Reading the book all at once, as I did, may not be the best approach. There is a lot of information to absorb. 

I recommend the book as a useful contribution to understanding the environmental challenges ahead from a different perspective than is usually offered. It is not the whole story, but an important part of the story.

Book Review: “The Times: How the Newspaper of Record Survived Scandal, Scorn, and the Transformation of Journalism” by Adam Nagourney

 I have read that many journalists were inspired in part to join the profession after reading Gay Talese’s, The Kingdom and the Power, a book published in 1969 about the New York Times, and the Watergate book, All the President’s Men by Carl Bernstein and Bob Woodward. No young person, though, will read Adam Nagourney’s book, The Times, and come away convinced that The New York Times has been a great place to work, whatever they may think about journalism as a career. 

The book dwells on the challenges and the missteps of The New York Times from 1977 to 2016. During this period, there was the challenge to newspapers’ business model relying on advertising by the rise of the internet, and The New York Times committed serious journalistic errors, such as publishing Judith Miller’s articles on Iraq and Jayson Blair’s made-up stories, among others, which damaged the paper’s reputation. 

The story Nagourney tells, though, has a happy ending. While the paper was slow to embrace the internet, it finally bowed to the inevitable and has regained its financial footing. It did not have to do this the way The Washington Post found its financial salvation by selling itself to a billionaire savior, Jeff Bezos. The New York Times has in recent years become more a digital news outlet, with more of its revenue coming from digital rather than print subscriptions. However, missing in Nagourney’s telling is the role of Carlos Slim, a Mexican billionaire, who is barely mentioned. Mr. Slim provided loans and investments which enabled the New York Times to survive difficult financial times. 

The book’s focus is on how the two publishers and seven executive editors during the period covered coped with the challenges. Other employees of the paper appear when they become important to the top people. There is much detail concerning personal rivalries, maneuvers to get promoted, management style, and so on. It makes for an interesting and long story. 

Nagourney, himself, a longtime political journalist who eventually gave up his mostly national politics focused beat when he moved to Los Angeles, nowhere appears in the book. For a while, he was the Los Angeles bureau chief and then a cultural correspondent and now is back to covering national politics, though still based in Los Angeles. For some of us, it had been a bit of a mystery of what he had been up to, but now we know. He was writing this heavily researched and detailed book. 

As a longtime reader of The New York Times, I wish there had been more discussion of its editorial and op-ed pages. For example, while William Safire’s controversial hiring in 1973 took place before this book begins, there might have been some mention of his success at being a mostly conservative columnist who also wrote a brilliant column on language for the paper’s Sunday magazine supplement. (Safire had been a speech writer for Vice President Spiro Agnew and was famous for phrases heavy in alliteration, such as “nattering nabobs of negativism.”) The New York Times has not been as successful in hiring other interesting conservatives as columnists. The book’s discussion of columnists is mostly about their being consulted by others.

In addition, missing is much discussion of how the reporters were impacted by this tumultuous period, except in broad generalities. Also, there is no discussion of the work life at foreign bureaus or U.S. regional bureaus, with the exception of Washington, DC. The tensions between the home office in New York and the Washington, DC bureau does play a significant role in the narrative. 

Nevertheless, this book, while both long and limited in focus, is interesting, especially for devoted readers of The New York Times.  For all its troubles and missteps, the Times is undoubtedly the most important English language newspaper in the world, and its influence is broader than its readership, because it plays a significant role in setting the news agenda for other news outlets in the United States, including for television and cable news. 

It is reassuring that the story Nagourney tells has a mostly happy ending. That was not inevitable; the paper could have disappeared in a bankruptcy proceeding. It is also reassuring that the Washington Post, with a significant assist from Jeff Bezos, is providing serious competition. This makes both papers better. In addition, The Wall Street Journal does provide some competition in its news pages. I wish that other papers, such as the Los Angeles Times, would provide more competition at the national level. 

To an extent, the British newspaper, The Guardian, provides web competition for U.S. papers, especially because it provides significant coverage of U.S. news. During the buildup to the U.S. invasion of Iraq, I thought The Guardian’s coverage was more reliable than that of U.S. papers, including the Times. It turns out I was right. 

Nagourney ends his book on an optimistic note concerning how The New York Times has reinvented itself and continues to provide much needed journalism. I agree with that and can recommend his book to those interested in journalism in general or The New York Times in particular. The book is well-written and, for all its length, never boring.

Additional Comments on Cryptocurrencies

As I indicated in my review of Ben McKenzie’s book on cryptocurrency, my interest and knowledge of this subject is limited. Given this, here are some additional comments.

One place to get an analytical, though dated, view of cryptocurrencies is Gary Gensler’s 2018 MIT course on the subject. It is free, but you do have to spend the time to watch it and do the readings. (I have not done this.) The crypto enthusiasts were initially pleased by Gary Gensler being appointed to head the SEC, but the crypto press is now harshly critical of him because of SEC enforcement actions.

From what I gather, Gensler now thinks most cryptocurrencies are securities except for bitcoin. He does seem though impressed with blockchain technology, which could be used for other purposes than transferring crypto. However, that is uncertain.

The regulatory dilemma with crypto is that setting up a formal regulatory regime provides legitimacy for crypto. To me, trading in bitcoin and similar “coins” looks like gambling with no benefit for society. In effect you are betting that someone in the future will be willing to pay you more than you paid for your cryptocurrency. In the meantime, it is up to the courts to decide what role the SEC and the CFTC can play in this space. Congress can of course decide to pass legislation on the subject, but that will probably take some time.

Some people putting actual money into crypto may be betting that crypto will become like dollars and euros and become embedded in our financial system, but it is hard to see that happening. It does not inspire trust; it does not have a central bank and a banking system to create it; and it is not embedded in the economy and the legal system as money. Perhaps, bitcoin can be a little like gold as a place to park money and, if there continues to be enough people who believe in it, maintain some fluctuating value, but that is uncertain. That could happen, though, with a few cryptocurrencies playing a small role in financial markets.

Finally, some major players are getting into the crypto game. For example, Fidelity Investments offers a trading platform for bitcoin and ethereum. I think this is a mistake, but, to its credit, Fidelity says that accounts in its crypto affiliate do not have the regulatory protections that its normal brokerage accounts benefit from. Other firms, such as Blackrock, want to offer ETFs in crypto. The SEC has not yet approved this, but it may.