In her Washington Post column Megan McArdle ruminates on the termination for cause of Federal Reserve Governor Lisa Cook. After explaining her tolerance of a small amount of misconduct among officials and what “occupancy fraud” is, Megan summarizes the problems:

Retailers adopted hands-off policies that prevented employees from stopping thieves, which minimized employee injuries, legal liability and bad publicity from employee mistakes. That trade-off made sense as long as the public didn’t realize just how much it could get away with. When the internet taught us that brazen shoplifting was tolerated, those policies contributed to a shoplifting explosion — and stores were forced to take stronger measures, such as banning bags and locking up merchandise, making everyone worse off.

I worry that the Trump administration has put us, and Cook, in a similar bind.

Protecting the Fed’s independence is much, much, much more important to the health of the banking system than reducing a small amount of occupancy fraud to a slightly smaller amount. The president appears to be using government agencies such as the Federal Housing Finance Agency to pursue personal political goals, like settling scores, or replacing Fed governors he dislikes with someone more pliant. Bill Pulte, that agency’s director, should not have abetted this.

But now that he has, can we afford to say, “Well, occupancy fraud is really not a big deal, it happens all the time, and, realistically, almost no one is ever punished”? Because that’s a good way to ensure that occupancy fraud really does happen all the time, or at least more of the time, forcing banks to do whatever the banking equivalent is of putting the Target deodorant aisle on lockdown. And I don’t love that solution, either.

So unless Cook explains why this really wasn’t occupancy fraud, we’re left with two unpalatable choices: letting a public official get away with something the system can’t afford to publicly condone, or letting Trump get away with something that no one can afford to publicly condone.

The only way out of that conundrum is for Cook to tell us why what looks like occupancy fraud was actually no such thing. So I sure hope she does, and soon.

While I could focus my remarks on the problems that Congress has created in its loosey-goosey definition and oversight of the Federal Reserve, I will merely note that out in passing and instead point out the context in which Fed Gov. Cook’s termination has taken place. Recently, a record-breaking civil judgment against Donald Trump has been voided by an appeals court. The judgment was levied under a novel theory of law in which there were no victims and for which no one had ever been prosecuted before. Some are calling Dr. Cook’s termination “retribution”. An alternative framing might be consistency.

What I think we are seeing is an extraordinary decline in trust. When you can’t trust Federal Reserve governors, Presidents of the United States, cabinet officers, lawyers, judges, banks, physicians, journalists, or ordinary customers of brick-and-mortar retail stores, whom can you trust?

The answer, rather obviously, is no one. We will miss our higher trust society now that it’s gone. It means a higher level of scrutiny, policing, and more restrictive laws will inevitably be necessary.

I have had some difficulty in developing any enthusiasm for this subject. When human-caused tragedies like the shooting in Minneapolis last week take place, it is natural to search for reasons and there has been no lack of explanations. Minneapolis officials immediately blamed lax gun control laws. Other blamed mental health issues, drugs, and the problems posed by excessive societal focus on self-actualization.

I did a little research on school and church shootings. What I found is that they back to the beginnings of the Republic but have been quite rare. Even rarer are shootings in which children are the primary targets. It might be prudent to recognize how difficult it is to draw meaningful conclusions from rare occurrences.

Are they increasing in number or savagery? I can’t distinguish between those and greater public publicity.

The picture that appears to be emerging from the Minneapolis shooting incident is one in which a family was crying out for help. Apparently, the police had been dispatched to that home on multiple occasions to deal with mental health crises.

I agree that the shooter should never have been able to obtain firearms legally—the multiple police calls to that home should have been disqualifying. But even more importantly mental health resources should have been offered to that family. If they had been and had been accepted, multiple other families would not be in mourning today.

Good public policy should be the least restrictive measures that have a chance of working not the most restrictive measures which if implemented with undeviating perfection have a minimal chance being effective. Let’s think about what those might be.

I’m not interested in celebrity engagements (congratulations!) so I’ll ignore the news of the day.

Let’s talk about a security guarantee for Ukraine. That’s something Ukraine needs for a ceasefire let alone for a more permanent peace.

My proposal is that France and the United Kingdom should provide security assurances for Ukraine. The U. S. should not.

There are many advantages to that. Although their forces are somewhat delipidated today those two countries have had armed forces at a high level of readiness in recent memory. No other European country (other than Russia) has. They do not border Russia or, presumably, have territorial ambitions there.

Neither France nor the UK has invaded Russia in force in two hundred years (they did invade Russia a century ago but not in force).

Poland borders Russia and has territorial disagreements with it. Germany invaded Russia in force 85 years ago, killing an entire generation of Russians in the process so Germany is out.

Guarantees from France and the UK would, presumably, not be as threatening to Russia as a U. S. guarantee. And the U. S. already guarantees France’s and the UK’s security. We provide their backstop as it were. Consequently, if anything short of President Putin’s maximalist demands (acknowledgement of Russia’s possession of Crimea, Luhansk, and Donetsk; “de-Nazification” of Ukraine; demilitarization of Ukraine; Ukraine not admitted to NATO) is to lead to an end of the war in Ukraine, I would think that a ceasefire, a path to EU membership for Ukraine, and French and British security guarantees might be minimally acceptable.

Lately I’ve been reading complaints from British, French, and German pundits that Europeans don’t want to risk their lives to provide Ukraine with a security guarantee. That may be the nub of the problem.

In a 1977 amendment to the Federal Reserve Act the Fed received the so-called “dual mandate” of maximizing employment and maintaining stable prices. Its mandate is not to maintain stable inflation which is how it has construed its mandate. It is to maintain stable prices.

Being able to redefine your goals yourself to what is relatively easy to do rather than something that’s quite hard to do is a pretty cushy gig.

Whatever its goals the Fed failed miserably in achieving them from 2020 to 2024. I don’t see how anyone can defend the Fed in good faith with that recent track record.

Something resembling the alignment of all of the planets has occurred. The New York Times, Washington Post, and the Wall Street Journal all have editorials opposing the firing of Lisa Cook as a governor of the Federal Reserve.

New York Times, “Where’s Your Evidence, Mr. President?”

President Trump’s attempt to fire the Federal Reserve governor Lisa Cook is a grab for power in defiance of the nation’s laws, and if it succeeds, it will be to the detriment of the nation’s interests.

When Congress created the Fed in 1913, it gave the president the power to appoint the central bank’s governors, but it did not grant the power to remove them at will. Mr. Trump does not appear to regard that law as a binding constraint. He has made clear that he wants to replace the Fed’s leaders because they have resisted his demands to lower interest rates. In pursuit of this goal, he now says he is firing Ms. Cook because of “potentially criminal” behavior.

The law does allow the president to remove Fed governors “for cause,” and Mr. Trump has not presented any evidence of wrongdoing by Ms. Cook, an economist whom President Joe Biden appointed to the job three years ago. Mr. Trump has asserted that she “may have made false statements on one or more mortgage agreements.” We have two words for the president: Prove it.

Washington Post, “Here are the consequences of a president politicizing the Fed”

It’s not hard to find mistakes in the Federal Reserve’s recent history, but Donald Trump’s latest attempt to erode the institution’s independence is dangerous. The president wants lower interest rates, but any benefits coming from that would probably be outweighed by supercharged inflation and the economic hangover that comes with it.

On Monday night, Trump announced that he would try to fire Fed governor Lisa Cook, whose term otherwise expires in 2038. He cited an unproven allegation of mortgage fraud that one of his appointees dug up and broadcast on social media, but Cook denies wrongdoing, and her attorney says she will “take whatever actions are needed” to stay on the job.

That fight could reach the Supreme Court. The conservative majority has been friendly to the idea that the president can fire executive branch employees at will. Yet the Fed, the justices wrote in May, is “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”

Wall Street Journal, “What if Trump Runs the Federal Reserve?”

President Trump has long wanted to control the Federal Reserve, and on Monday night he made his power play by firing Fed Governor Lisa Cook. A central bank with even a semblance of independence may be the casualty.

Mr. Trump has resisted his itch to fire Fed Chair Jerome Powell on the savvy advice that he could rattle markets and trigger an extended court battle. But Ms. Cook said Tuesday she’ll challenge her removal, so Mr. Trump will still get his legal fight in what could be a landmark case.

The Cook firing is a calculated putsch. Federal Housing Finance Agency director Bill Pulte teed up the dismissal last week when he posted a criminal referral for Ms. Cook on social media. He said she may have committed mortgage fraud by claiming two different homes as primary residences on mortgage applications in 2021, which may have enabled her to get favorable loan terms.

Intentionally misrepresenting information on a mortgage application is wrong and a federal crime. But we haven’t seen the details or Ms. Cook’s explanation. There’s also a question of selective prosecution, since Mr. Pulte’s crackdown on mortgage fraud seems to be aimed only at Mr. Trump’s opponents. Ms. Cook deserves more due process than a presidential declaration of guilt on Truth Social.

The criminal referral is a threat to other Fed governors: Cut rates, or else. It is also a pretext to fire Ms. Cook “for cause.” The referral, Mr. Trump wrote to Ms. Cook, provides “sufficient reason” to believe she “exhibits the sort of gross negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator.”

In reading these editorials a number of common themes emerge.

First, the editors are clearly not particularly fond of Donald Trump. Nor am I for that matter.

Second, they don’t know what “termination for cause” means. In the private sector it means termination based on behavior of the individual—malfeasance, misfeasance, or nonfeasance. Or it may mean a difference in policy views between the employer and the employed. Somewhat like “rational basis” in legal terms it means there’s a reason. It doesn’t mean “guilt beyond reasonable doubt”.

For federal civil service employees “termination for cause” is much more restricted. It means misconduct, performance deficiencies, loss of security clearance, or criminal conviction and there are due process requirements. That brings me to the third point.

I have long been skeptical of public-private hybrids of which the Federal Reserve is one. I do not believe that the Constitution empowers the Congress to create institutions outside the scope of the legislative branch and that are not subordinate to the president.

Is the Federal Reserve a department of the executive branch of government or a private organization? If it is a private organization whose employees the president may terminate for cause, then President Trump is acting within his authority in terminating Ms. Cook. If Federal Reserve employees are government employees they should receive civil service protections and otherwise be treated like civil service employees including how they are paid. That would mean that President Trump has acted wrongly in terminating Ms. Cross but it also means that Federal Reserve governors are being paid twice what they should be paid.

Shortly after the Federal Reserve was created in 1913 (at that time the Secretary of the Treasury was chairman of the Federal Reserve) President Wilson importuned the Fed to create war bonds. It acceded. Said another way, the Federal Reserve was politicized almost from its creation. Complaining about it now is a bit late.

Well, there isn’t much question what the editors of the Wall Street Journal’s primary concern is today. They devoted both their featured editorial position (upper left corner) and their featured op-ed position (center column top) to it. It’s the federal government’s acquisition of 10% of Intel’s stock.

Rather than fisking or citing either of those pieces I’ll just give my opinion. I, too, think that having the U. S government acquire ownership of private companies either in part or in whole is a very bad idea. Inevitably, the purpose of such acquisition will not be either to produce more or put the company on a financially more solid basis. It will be to boost the fortunes of a mismanaged company, get a say for appointees or bureaucrats in the operations of the company, strengthen the company’s unions, or some other sketchy reason.

I’m also opposed to industrial policy in any form. That puts me at odds, apparently, with the WSJ and both political parties. The only sort of “industrial policy” in which the federal government should engage is tax policy. IMO the corporate income tax should be abolished (on economic efficiency grounds). For revenue we should depend more on consumption taxes than on income taxes. We should be taxing things we want less of rather than things we want more of. We tax employment. We tax income. We should be taxing consumption.

The problem with industrial policy in the U. S. is that we aren’t authoritarian enough, we aren’t socially cohesive enough, and we aren’t sufficiently observant of the laws for it to work effectively. Yes, that puts us at a disadvantage compared with China. We should employ solutions that rely on our strengths rather than foundering because of our weaknesses.

The best industrial policy we’ve ever had is the space program in the 1960s. It was focused on doing something quite specific and it created the modern U. S. economy. More recently, the best industrial policy we’ve had is “Operation Warp Speed”. Similarly, that was focused on accomplishing something quite specific. The way I’ve been phrasing it is that we’re relatively good at mass engineering projects.

Tunku Varadarajan has an interview of noted historian of Russia Stephen Kotkin at the Wall Street Journal that’s worthy of attention. Here’s the meat of his remarks:

Speaking by Zoom from his Hoover office, he’s keen to establish that we need to grasp three truths in the “big picture” of the war in Ukraine.

The first is a “paradox that people don’t usually put together”: Although much-smaller Ukraine may be “losing a war of attrition,” Mr. Putin “made an enormous strategic blunder and is damaging Russia severely for the long term.” He has lost his country’s old sphere of influence: “All his neighbors hate him and are afraid of him.” Even Alexander Lukashenko, the dictator in fraternal neighbor Belarus, is “looking for some distance, to get out of the stranglehold of Russia.” Mr. Putin has also “lost his civilian economy.”

Second, Ukraine is “an asset, not a liability—but we don’t seem to be able to appreciate how it’s an asset, and why.” He means that “Ukraine has an army”—a serious one, unlike, say, Germany. “We’ve been able to send a lot of our weapons and test them in battlefield conditions because of Ukrainian bravery and ingenuity.” As a result, “we’ve been able to see what a 21st-century land war looks like, and we’ve been able to change our defense industrial investments at home as a result.” He adds that military aid to Ukraine is “actually going to the American defense industry.”

Third, Mr. Trump is “correct” to seek an end to the war: “I applaud his forced imposition of a negotiation process.” But the president “lacks follow-through and patience. He lacks consistency. This is a hard problem. He promised to solve it in 24 hours,” but it’s “been going on since 1783,” when Catherine the Great annexed the Khanate of Crimea. Even so, “Trump’s instincts are correct. Ukraine, more than Russia, needs this war to end. And he’s groping towards that solution.”

Dr. Kotkin admonishes us to abandon any notions of Ukraine winning the war and focus instead on Ukraine’s “winning the peace”.

“We’re all talking about how Ukraine needs to get Crimea back, because Russia took it by force in a violation of international law.” Mr. Kotkin says with the laugh of an unsentimental realist. “Crimea is going back to Ukraine the day after Texas goes back to Mexico.”

but

So how could Ukraine win the peace? Membership in the North Atlantic Treaty Organization is out of the question, if only because the U.S. opposes it. The alternative is “joining the West through accession to the European Union,” Mr. Kotkin says. “They’ll need massive domestic reforms to be able to join. But it’s a great process for bringing countries into constitutional rule-of-law, open-society, and market-economy institutions.”

The other marker of a Ukrainian win is “some type of security, which some people call ‘security guarantees’, but which looks more like the ‘steel porcupine’ approach.” This is a phrase Kaja Kallas, the EU’s high representative for foreign affairs and security policy, introduced in March. European Commission President Ursula von der Leyen defines it as fortifying Ukraine to make it “undigestible for potential invaders.”

That is an additional strategy to add to the two I’ve already covered here and one I see as more achievable. There are also some proposals for additional economic sanctions:

There are other things Mr. Trump could do. These include a removal of Russia’s Gazprombank from the Swift international banking system, to which it still has tenuous access, greenlighting the confiscation of $300 billion worth of Russian deposits in European banks, getting India to “buckle” and stop buying of Russian oil, and, most audacious, “cutting a deal with Xi Jinping behind Putin’s back to reduce China’s support for Russia in a bargain between the U.S. and China. It’s thinkable.”

Remember that MIT study I wrote about that found that the overwhelming preponderance of AI projects fail? And I attributed the failure to bad management?

It seems there’s an article in Fortune captioned “An MIT report finding 95% of AI pilots fail spooked investors. It should have spooked C-suite execs instead.” It apparently said pretty much the same thing.

I don’t subscribe to Fortune so I couldn’t read the whole thing. Maybe if someone else does (or are better at hacking into it than I am), they could verify my supposition about the article.

This whole generative artificial intelligence frenzy reminds me of an old wisecrack about computers from fifty or more years ago: with the aid of a computer in a fraction of a second you can make a mistake that would have taken years to make by hand.

I’ve got another one that I do know the source for: “To err is human, to really foul things up requires a computer.” The newspaper columnistBill Vaughan wrote that in 1969.

I see that the editors of the Chicago Tribune (via Yahoo) have reacted to the news that the Trump Administration plans to send the National Guard to Chicago in a way not dissimilar to the way I did:

Speaking Wednesday to reporters flanked by National Guard troops and Washington, D.C., police that had been commandeered by the Trump administration, Vice President JD Vance, Defense Secretary Pete Hegseth and White House deputy chief of staff Stephen Miller had a clear message for Chicago and other major cities.

Prepare yourselves for the kind of “protection” the nation’s capital has been provided over the past 10 days or so.

Continuing:

The last thing needed in Chicago, which isn’t as economically healthy as Washington was prior to Trump’s strongman maneuvers, is discouraging more people from patronizing bars, clubs and restaurants, as well as other attractions.

Downtown Chicago continues to be distressingly light on foot traffic, explained less by worries about crime than the paucity of workers returning to the office compared with other major U.S. cities.

A bit farther on they come to the meat of the editorial:

While all would agree there remains too much violent crime in Chicago, the latest numbers show that crimes against public safety are being prosecuted far more aggressively and most of what’s now occurring is related to street gangs that have been a scourge in this city for generations. In terms of federal action, a revitalized U.S. attorney’s office — Boutros is actively recruiting dozens of new prosecutors as we write — could and likely will do far more to improve the progress being made here than any destabilizing influx of outside federal forces.

I think the editors and President Trump as well are underestimating the role of gangs in Washington, DC’s lawlessness. For example, I question that DC could have as many carjackings per year as Chicago does without some level of organization to it. And that returns to what I’ve been saying. Where we really need resources is in dealing with criminal street gangs. I don’t have any knowledge of the situation in DC but Chicago’s problem with criminal gangs has been exacerbated by city government being in bed with the gangs. Sure, the NGOs have different names but they’re just the gangs operating under different names. Sort of like the difference between the Irish Republican Army and Sinn Féin. They’re the same organization—they just wear different hats.

The caption on the piece is “The last thing Chicago needs is Washington-style dystopia”. Hence my title. I see no way an impartial observer could look at the declining population, the rates of violence and crime in the city, our exorbitant taxes (the highest sales tax in the nation; the highest property taxes in the nation and the number of our elected officials incarcerated for corruption without the word “dystopia” coming to mind. However, it’s Chicago-style dystopia not the imported DC kind.