Stephen Roach Op-Ed Piece

Roach reminds readers (ahem, the FOMC) that altruism is not the impetus driving foreign entities to fund our nation’s debt, and that “no nation has ever devalued its way into prosperity.” [NYT]

Genius factory: On sperm banking, nature v. nurture, & evolutionary psychology

About two years ago David Plotz’s Genius Factory: The Curious History of the Nobel Prize Sperm Bank was published. I was reviewing books for an online A&E city guide at the time and pitched the book to my editor, who instead saddled me with the novel of one of her friends or acquaintances or something of the similar sort. So, it was with pent up anticipation and (after canvassing some of the recent literature on evolutionary psychology) much interest that I began reading this book after a fortuitous reminder of its existence landed in my inbox. This isn’t a review, but rather I’ll lay out the interesting points I encountered while reading.

First, background: In the book, Plotz chronicles the birth, life and subsequent demise of The Repository for Germinal Choice, a sperm bank started by millionaire tinkerer Robert Graham (famous for inventing plastic-frames for eyeglasses just in time for the 60’s when glasses covering half of one’s face was all the rage). Graham, whose name was later tarnished somewhat through the bank’s association with eccentric Nobel laureate William Shockley (who publicly shared his beliefs that the poor and ‘dim-witted’ shouldn’t be allowed to procreate: “The government, he said, should pay anyone with an IQ of less than 100 to be permanently sterilized -$1000 for every IQ point under 100”), launched The Repository for Germinal Choice in a crusade to

save mankind from genetic catastrophe. In modern America, the millionaire complained, cradle-to-grave social welfare programs paid incompetents and imbeciles to reproduce. As a result, ‘retrograde humans’ were swamping the intelligent minority. This ‘dysgenic’ crisis would soon cause the evolutionary regression of mankind, as well as global communism.

And he believed that the only way to stop his fears from seeing the light of day was to help disseminate the sperm of, in his opinion, superior men. Graham’s intentions were fundamentally benevolent, he wrote:

The disappearance of genes for high intelligence is a defeat for the uniqueness of man, an erosion of the essence of the human condition. The childlessness of Isaac Newton or a George Washington, the extinction of the Lincoln family, the spinsterhood of the brightest girl in the class, are great biological tragedies. As a result, mankind is deprived of some of that essential quality which separates him from the apes.

Sperm banking: When suppliers refuse to cooperate
However, the problem was that in his quest for Nobel-laureate-quality sperm, Graham found few men of qualifying substance willing to donate. In the end, this lack of product led to lax requirements of specimen donors and weak, and in some cases no concern with fact-checking, so that a donor’s self reported history was taken as fact on his word of honor alone. Men whose IQs were unknown were passed off as men with IQs of 160, etc. Of the 200+ babies born from The Repository for Germinal Choice, none descended from Nobel-laureates. Nonetheless, most of the kids grew to be gifted, and if not, extremely well-rounded and well-adjusted individuals, which is no surprise considering they were raised by a self-selected sample of attentive women, all concerned with bringing up children with such qualities. Plotz notes that the mothers he met with all took an active interest in their children’s lives and provided stimulating environments to cater to the concert pianists and accomplished scientist’s written into their children’s genes at conception.

Children are smarter than you think, especially those in post-communist Russia

In the spirit of running experiments that explore the evolution of capitalist systems on children [Why We Banned Legos, 2006], consider a Russian version:

Nikolaevena had run the Krupskaya Camp since 1969… Despite her obvious misgivings about the new order, Nikolaevna was an indoctrinator by profession and said it was now her duty to prepare children for the coming times. ‘We have to teach the young what a free-market system is’…In this remote region, they recreated the prevailing market conditions of any big Western city…‘Just like in New York. If you didn’t work, you didn’t eat.’  

For five days, the camp’s Red Square parade ground was transformed into a capitalist labor exchange where the 413 campers bid on work assignments. The children were paid in the camp’s own currency [ecus], redeemable at the cafeteria, confectionery, and entertainment center. Nikolaevna played mayor while Anrei put his economics training to use as head of the central bank. The remainder of the staff and counselors ran the labor shop. The oldest campers were appointed police officers…

On the second day of the exercise, Andrei noticed that there was more money in circulation than had originally been printed. After some inquiry, he discovered that a few of the kids had taken it upon themselves to set up their own little printing press and crank out ecus to satisfy their sweet tooth. The camp police were dispatched to apprehend the culprits, but the kids bought off the lawmen with a case of chocolate bars and continued to operate with impunity. Some other policemen, lured by the promise of Pepsi and chewing gum, threw in their lot with the counterfeits. This prepubescent mafia began to bully other campers and exacted payments for such offenses as profanity –either fifty ecus or two waffles.

Taking one counselor’s words (‘there is no higher law than money’) to heart, a group of overly enthusiastic kid-capitalists stormed Andrei’s office (the central bank), and in the ensuing melee made off with the labor exchange’s payroll. Andrei was forced to print extra money, which caused the campers to increase the price of chocolates and services. Just as in the real post-Soviet world, hyperinflation was born…

On the third day of the Economic Game, the Krupskaya camp suffered a spectacular bankruptcy. A would be Donald Trump had bought the rights to the dormitory and demanded rent from all the campers. Unfortunately, the kids started sneaking in through the back window to sleep, and the budding landlord ended up owing more ecus to the labor exchange for rental rights than he was receiving from the campers. He abandoned his property deal and joined the police-force-cum-mafia.

By the afternoon of the fourth day, chaos reigned. Zhanna Nikolaevna, in her role as mayor, called a general meeting to resore order. When she proposed firing the corrupt police force and replacing it with a newly formed ‘national guard’ composed of camp counselors, the police staged a coup d’état and threatened to hold her for ransom. The coup d’état proved to be the coup de grace. The game was called off…

‘If this is how people act in capitalism,’ [Zhanna Nikolaevna] said softly, ‘then I fear for the future of Russia.’

—Casino Moscow, Matthew Brzezinski

USSR dismantled: behavioral spillovers

Currently reading Casino Moscow (memoir of a WSJ correspondent in Russia after the collapse of the Soviet Union), and was struck by the world I was not cognizant of as a teenager during the late 90’s.

On social effects wrought from dismantling a communist regime:

The eXile (…Moscow’s bawdy answer to New York’s Zagat restaurant and nightclub guide…) [wikipedia page] was published in English weekly, biweekly, or monthly depending on the sobriety and finances of its two young American founders… [Moscow nightspots] were judged primarily by twin barometers known as the ‘flathead’ and ‘scoring’ factors. The flathead factor was rated by a little drawing of a scowling goon… On a scale of one to five, a rating of four flatheads signified that a particular club was a serious mafia hangout and your chances of getting shot ranged from fair to excellent. You avoided rated five flatheads as if your life depended on it, which in fact it did.

The other determinant of a bar or disco’s worthiness was the more desirable scoring factor, demoted in the eXile’s columns by eye-catching stick figures coupling doggy-style. Five hunched stick figures next to a club’s name meant that American males needed only a pulse and a billfold to score there. Readers weighed the scoring factor against the flathead factor to calculate whether the game was worth the candle…

On the consequence of reckless optimism:

Now that I had traveled outside of Moscow, the market rallies struck me as more incongruous than ever. Yet the Moscow money-men were pushing into the countryside. And the appetite for Russian debt was so insatiable that Boris Jordan’s Renaissance Capital had just packaged a new type of offering called agro-bonds. These bonds were high-interest loans to collective farms, underwritten by regional government. Supposedly dentists and other self-styled savvy investors in Luxembourg had snapped up, sight unseen, $740 million worth of the notes, which –one could only suspect–would go a long way toward getting farm boss Pechushkin’s bust of Lenin repaired. p.100

…Jordan led a coalition of half a dozen Western investors, including George Soros and the Harvard University Endowment, who had together accumulated a majority stake in NLMK. The problem was that, despite the 51% controlling interest held by Westerners, the Soviet-trained managers of NLMK refused to let foreigners into the factory doors, much less grant them representation on the board of directors

…Like so many other Western investors, these owners were beginning to discover that, in their haste to cash in on the Russian bubble, they had bought a great many pieces of paper and not much more, since there was no real legal framework to uphold securities laws. p.170

Fear, like greed, is contagious, and the capital flight from Russian stocks spread to the GKO bond market, where now Russian banks were selling all their GKOs. The Kremlin tried everything to stop the exodus. In mid-June it nearly doubled interest rates to 150 percent…

…But no one wanted Russian paper any more. The $740 million worth of agro-bonds for collective farms that Boris Jordan’s Renaissance Capital had peddled when I first arrived in Moscow had come due, and the surprised and penniless Russian farm regions were proposing to redeem them with birdcages and barber chairs. Not surprisingly, the big monthly federal-bond auctions that the Kremlin had grown to rely on to plug tax-collection shortfalls failed to find any bidders. Yields on the ninety-day benchmark bonds spiked from 30 to 50 percent, then climbed to 80 percent and finally crossed the 110 percent mark. Still there were no takers. The Kremlin gave up and cancelled its debt auctions indefinitely. p.280

As the markets continued to plummet, and the ruble, in late June, started to teeter, the cries for an international bailout rose like a great, urgent tide. They washed over the Journal’s 16^th floor office and inundated our phone lines. Why was the IMF not stepping in, demanded the bankers?…Do something! shrieked indignant fund managers, as if we could shame the IMF into action with our copy –and just maybe salvage what was left of their battered portfolios. p.283

A great deal of soul-searching and more than a few careers changes accompanied the crash… Boris Jordan laid off hundreds of workers and was nearly wiped out. George Soros groused that investing in Russia had been the biggest mistake of his 40 yr. Career, while a bond-buyer I knew abandoned his $10,000/mo apartment for an ashram in India. Another acquaintance traded in his Land Rover for a room at his mother-in-law’s house. Then there’s the uplifting story of how one enterprising colleague managed to get around the freeze on all wire transfers out of Russia by using his ATM card…When he deposited the resulting garbage bag full of bills at his home-town bank branch, the manager thought he was a drug dealer. p.312