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The dawn of the dumb?

Nancy Bush is a veteran bank analyst. The following does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.

There has been an interesting phenomenon in recent years — the publication of books that have become immediate causes célèbres, in that they addressed political and societal topics of interest and became intensely celebrated (or reviled) on both the right and the left wings of the political spectrum. These works, which have evoked heated media and online debates, are best exemplified by Capital in the Twenty-First Century, published (in English) in 2014 and authored by French economist Thomas Piketty. The book, which purports to examine the growth of income inequality since the beginning of the Industrial Revolution(!), became an object of adoration on the left in the lead-up to the presidential election, in spite of the fact that Mr. Piketty omitted significant facts (like the existence of social programs in the U.S. and their ameliorating impact on the income divide) and just flat-out got some of his numbers wrong (and apparently made some of them up.)

On the right has been a more personal and less data-driven account of the U.S. income divide, the much-heralded Hillbilly Elegy by J.D. Vance. This young Washington attorney made his way out of Appalachian poverty — via the Marine Corps, Ohio State University and then law school at Yale — and he keenly examines the cultural aspects of his rural upbringing that made him strong but that keep many of his peers in poverty. This book especially appealed to me because it echoed so much of my family history and because it so vividly depicted what some (most?) of us instinctively know — that bad personal choices can result in bad economic outcomes — and I highly recommend it for both its readability (mercifully short) and for its insights into a part of America that often escapes the media spotlight.

In the last few weeks, it has been hard to swing a cat without hitting a print review or encountering a radio or TV examination of the book The Death of Expertise by Tom Nichols, who is a professor at the U.S. Naval War College and an expert on the Soviet Union. (Spoiler alert: The author skews right, as he is also a senior contributor to The Federalist.) I have just begun the book, but its premise is encapsulated in its full title, which includes the phrase "The Campaign Against Established Knowledge and Why it Matters." This book is so well-timed (although it was begun two years before the election of Donald Trump) and is of such great relevance to what is going on today in Washington, New York and elsewhere that I have come to regard it as one of the few must-reads of my long reading life (along with Gone With the Wind, To Kill A Mockingbird, Lee's Lieutenants and The Hunt for Red October.)

Mr. Nichols spreads the blame for our present national state of cluelessness around, to put it mildly. He points to online "resources" such as Wikipedia sometimes a source of knowledge but often wrong in its "facts"; the 24-hour news cycle and the need for journalists to fill space, often with purported "experts" who are later revealed to be nothing of the sort; declining trust in public leadership in the wake of national disasters like the Vietnam and Iraq wars; and of course, the dismal state of education in this country, including the hotly debated trend of institutions of higher learning becoming echo chambers of political correctness and "safe spaces" for anti-First Amendment speech vigilantes. (The recent spectacle of the assault on Charles Murray at Middlebury College is only the latest example of this utterly reprehensible trend.)

It became impossible for me to read Mr. Nichols' words without thinking back to the financial crisis and its aftermath, and to ponder both how experts failed us in the run-up to 2008 and how the reality of the causes of the crisis have been politicized (and sometimes falsified) in the years since. I get the cynicism of the general public toward the banks and the bankers — they have brought much of this down on their own heads through arrogance (Jamie Dimon and the London Whale) and plain misdeeds (John Stumpf and the cross-selling debacle at Wells Fargo)—but it's also hard not to look at the words of the experts and the regulators before and since the meltdown and not see why "expertise" in the banking industry might be a highly debatable issue.

For example — if you can’t believe the chairman of the Federal Reserve, then who can you believe? I looked back on the Nov. 5, 2005, pronouncement by Chairman Ben Bernanke in response to a question about the existence of a "bubble" in the housing market: "We've never had a decline in house prices on a nationwide basis. So what I think is that house prices will slow, maybe stabilize; might slow consumption spending a bit. I don’t think it's going to drive the economy too far from its full employment path, though."

Well, perhaps he can be forgiven for not being a tiny bit more skeptical of the 2005 housing trends, but I have less sympathy for his unwillingness to ever confront the critics of the TARP program with the reality that the program was wildly successful and that the Treasury actually made (at least) $15 billion (and by some accounts much more if Fannie and Freddie profits are included) from that much-reviled "bailout." Why? I can only surmise that it's because that narrative did not fit the political climate of the times, and that Sens. Elizabeth Warren and Sherrod Brown were not willing to hear any positive news on TARP or on any benefits derived from the banking industry. But for those who had been sold a bill of goods on why home ownership was a sure path to riches, the expert opinions of Mr. Bernanke and the rest of the realtor-industrial complex amounted to way less than a hill of beans and continue to produce hardship to this day.

The other big whopper of the crisis years got its start as a Bloomberg View column, got quickly confirmed by the IMF, and then got taken up as fact by the likes of Warren and Simon Johnson (the most anti-bank of the leftist economists.) That was the contention that the nation's largest banks received an $83 billion yearly "subsidy" by dint of their size, but I must say that I still find the numbers and the assumptions hard to follow. The research of the IMF and the conclusions of the Bloomberg columnist both assumed that all liabilities — including deposits — of the largest banks got an 80-basis-point benefit in debt costs due to the assumption that they are too big to fail. But deposits already carried FDIC insurance — so should they have been included in the calculation? Did the cost of the SIFI capital buffers get included in those numbers? In short — did the $83 billion number have any veracity, or was it just one more sop to the Paul Krugman crowd?

I salute Mr. Nichols on the publication of his important and thought-provoking work, and I hope that it is widely read and hotly debated. But while Donald Trump and his "alternative facts" White House may represent the apotheosis of "the death of expertise" and prove the existence of a large slice of America that has no use for inconvenient truths, the trend did not start on Nov. 9, 2016, and it will not end when Donald Trump leaves the White House. It will only be defeated when our country is presented with the harsh realities of a fact-free existence — and that day will likely make the darkest days of 2008 look like a walk in the park.