If Only Ralph Nader Supported the Gold Standard

I just saw Ralph Nader on Bloomberg television. He is critical of the bailout of Bear Stearns. To the extent that the major party candidates defend the bailout Ralph Nader is more serious intellectually than they are.

Looking at the minor parties, the Libertarian Party has a free market, limited government orientation but is dominated by vegetarians, nudists and those who favor animal rights.

Ralph Nader is right about the problem of special interests, but he does not fathom the underlying cause, which is big government. Nader supports the disease but complains about the symptom. He was excellent this evening with respect to the Bernanke Fed, but he lacks the intellectual foundation to consider that the Bernanke Fed does what the Fed does, and if he doesn't like it he needs to advocate reestablishing a fixed monetary standard. Rule by minority whine is ineffective.

Now let's look at the major party candidates. Hillary Clinton believes that the problem is lack of regulation and if there were only more regulation, then the bailout can be forgiven. Barack Obama's position is less clear, but I do not sense that he has a coherent strategy, and it certainly is not a free market one.

That leaves us with John McCain. Although Mr. McCain is beholden to the same special interest groups that inspire the bailout, he is not a vegetarian and he, at least in symbol, represents free market impulses. I suspect that the differences among McCain, Obama and Clinton with respect to subsidies to Wall Street are small. Nevertheless, Mr. McCain represents the most free market orientation. If Mr. Nader decided that our seven decade experiment of unlimited freedom to the banks to print money has failed, then he would have my support. Conversely, if the Libertarians would only grow up and focus on a few adult issues, they would have my support. Alas, I am left with Mr. McCain, who is the most logical candidate. In honor of this inspiration, I have sent Mr. McCain my $500 donation.

David Horowitz Freedom Center Fundraiser March 27

I attended David Horowitz's Freedom Center fundraiser at the Yale Club in Manhattan last night. I was pleased to meet David for the first time (we have corresponded a few times via e-mail). The speaker, Dennis Prager, is wonderful. I was delighted to learn that Mr. Prager is an alumnus of Brooklyn College and have extended an invitation to him to visit one of my classes. The esteemed Candace de Russy was there and I was privileged to dine with several outstanding students from Fordham, Columbia and NYU who work with David Horowitz. Horowitz originally comes from Sunnyside, which is not far from my neighborhood of Long Island City/Astoria.

Schnorrers' Day on Wall Street

"Hooray for Chair Bernanke
The economic explorer
'Did someone call him 'schnorrer''?

...

This fact I emphasize with stress,
I never print a dollar unless - Somebody's buying.

---Groucho Marx (Ben Bernanke), Animal Crackers

Groucho Marx was, of course singing about himself, Captain Spaulding, in Animal Crackers, but with a small modification or two the lines sing of Ben Bernanke. In case your Yiddish is rusty, "schnorrer" means beggar or sponger, according to Wikipedia. Is it fair that John Q. Public is subsidizing multi-million dollar Wall Street salaries for guys who can't figure out how to run a business?

Please review the entire song:

(All on Wall Street)
At last we are to meet him,
The famous Ben Bernanke.
From climates hot and cranky,
The Chairman has arrived.

Most heartily we'll greet him,
With plain and fancy cheering.
Until he's hard of hearing.
The Chairman has arrived.
At last - The Chairman has arrived.

(Butler)
Mr. Horatio W. Jamison, Field Secretary to Chair Bernanke.

(Jamison/Zeppo)
I represent the Chairman who insists on my informing you of these conditions under which he camps here. In one thing he is very strict, he wants his women young and picked and as for Wall Street bankers, he won't have any tramps here.

(All on Wall Street)
As for bankers he won't have any tramps here,
There must be no tramps.

(Jamison/Zeppo)
The bankers must all be very old,
The women warm, the champagne cold.
It's under these conditions that he camps here.

(Voice off Screen)
I'm announcing Chairman Ben Bernanke

(All on Wall Street)
He's announcing Ben Bernanke

Oh dear, he is coming,
At last he's here.

(Chair Bernanke)
Hello, I must be going,
I cannot stay, I came to say, I must be printing.
I'm glad I came, but just the same I must be going.
La La.

(Mrs. Rittenhouse/Margaret Dumont)
For my sake you must stay.
If you should go away,
You'd spoil this party I am throwing.

(Chair Bernanke)
I'll stay a week or two,
I'll stay the summer through,
But I am telling you,
I must be printing.

(All on Wall Street)
Before you print,
Will you oblige us,
And tell us of your deeds so glowing?

(Bernanke)
I'll print as much as you say,
In fact I'll even stay!
I'll print dollars far and away!

(All on Wall Street)
Good!

(Bernanke)
But I must be going.
I must be printing.

(Jamison/Zeppo)
There's something that I'd like to say,
That he's too modest to relay.
The Chairman is a moral man.
Sometimes he finds it trying
To be printing and printing.

(Bernanke)
This fact I emphasize with stress,
I never print a buck unless - Somebody's buying.
I never print a buck unless - Somebody's paying.

(All on Wall Street)
The Chairman is a very moral man.

(Jamison/Zeppo)
If he hears of a high interest rate, He'll naturally repel it.

(Bernanke)
I hate a high interest rate I do.

(All on Wall Street)
The Chairman is a very moral man.
Hooray for Chair Bernanke, The economic explorer.

(Chair Bernanke)
Did someone call me Shnorrer?

(All on Wall Street)
Hooray, Hooray, Hooray.

(Jamison/Zeppo)
He went onto Wall Street where all the bankers pocket bucks.

(Chair Bernanke)
If I stay here I'll go nuts.

(All on Wall Street)
Hooray, Hooray, Hooray.
He put all his reliance, In courage and defiance,
And risked his life for economic science.

(Chair Bernanke)
Hey, hey.

(Mrs. Rittenhouse/Margaret Dumont)
You are the only Chairman to print money over every acre.

(Chair Bernanke)
I think I'll try and make her.

(All on Wall Street)
Hooray, Hooray, Hooray.
He put all his reliance, In courage and defiance,
And risked his life for economic science.

(Chair Bernanke)
Hey, hey.

(All on Wall Street)
Hooray for Chair Bernanke, The economic explorer.
He brought his name undying fame
And that is why we say, Hooray, Hooray, Hooray.

(Chair Bernanke attempts to speak)
My friends, I am highly gratified at this magnificent display of effusion and I want
you to know.........

(All on Wall Street)
Hooray for Bernanke, The economic explorer.
He brought his name undying fame
And that is why we say, Hooray, Hooray, Hooray.

(Chair Bernanke)
My friends, I am highly gratified at this magnificent display of effusion and I want
you to know.........

Hooray for Ben Bernanke, Wall Street's hero.....
Well, somebody's got to do it!

Hooray, hooray, hooray.

Progressivism, Bureaucracy and the Limits of Government

In Search for Order 1877-1920 Robert Wiebe* argues that a bureaucratic philosophy emanated from the Populism; late 19th century Utopian visions of Henry George and Edward Bellamy; the social Gospel of Reverend Washington Gladden; the Utopian new order of Henry Demarest Lloyd; and the evolutionary historicism of Lester F. Ward (who argued that economic history followed four stages) and Richard T. Ely (who argued that history followed seven stages). The bureaucratic philosophy was not, in Wiebe's view, well-formulated. It combined elements of scientific management with pragmatism and an early version of Progressivism (Wiebe, p. 145):

"The ideas that filtered through and eventually took the fort were bureaucratic ones particularly suited to the fluidity and impersonality of an urban-industrial world. They pictured a society of ceaselessly interacting members and concentrated upon adjustments from within it...the rules, resembling orientations much more than laws, stressed techniques of constant watchfulness and mechanisms of continuous management...Bureaucratic thought made science practically synonymous with 'scientific method'. Science had become a procedure, or an orientation, rather than a body of results...The new ideas concerned what men were doing and how they did it. As Arthur Bentley said, the individual was meaningless as a unit for investigation: only men's social behavior deserved analysis...

"...The sanguine followers of the bureaucratic way constructed their world on a comfortable set of assumption. While they shaded many of the old moral absolutes, they still thought in terms of normal and abnormal

"...Endless talk of order and efficiency, endless analogies between society and well-oiled machinery, never in themselves supplied an answer. Instead of careful definitions, they offered only tendencies...One explained process through human consent and human welfare. The second construed process in terms of economy: regulate society's movements to produce maximum returns for minimum outlay of time and effort...Touching almost every area, this view appealed particularly to business, labor and agricultural organizations

(p.160)"the new political theory (progressivism) borrowed its most revolutionary qualities from bureaucratic thought, and the heart of these was continuity...Trained professional servants would staff a government broadly and continuously involved in society's operations...Above them stood the public man, a unique and indispensable leader. Although learned enough to comprehend the details of a modern, specialized government, he was much more than an expert among experts. His vision encompassed the entire nation...As the nation's leader the public man would be an educator-extraordinary. He bore the greatest responsibility for raising mass intelligence to the level of true public opinion. That, as Franklin Giddings explained, 'is rational like-mindedness...'

"...(p.161) the theory was immediately and persistently attacked as undemocratic, an accusation that never ceased to sting its defenders...the theory also presupposed an ethereal communion between leaders and citizens. As all citizens became rational they would naturally arrive at the same general answers...national rationality would assure consensus on big issues..."

What a brilliant 20 pages from Professor Wiebe. But here's the rub. The bureaucratic model as Wiebe construes it utterly misconstrues the cognitive limits of rationality. Processes of production require a degree of flexibility that is far greater than governmental processes permit. The degree is greater by orders of magnitude. There is no such thing as a priori rationality in real world produciton processes. Rationality is ONLY derived from continuous application of thought to specific processes. No one could arrive at a solution a priori. This is true with respect to production systems, which according to total quality management and continuous improvement require ever more refined adjustment that is only possible by operators with knowledge on the spot. It is true with respect to retail sales people who must make on-the-spot decisions to accommodate customers. It is true with respect to teachers who see that a given approach to education is not working with their students and need to adjust the approach. It is true with respect to Theodore Dalrymple, who observes that welfare policies established by central authority decimate low-income Britain but is powerless to change them. Bureaucratic thought overestimated the importance of statistical and theoretical, i.e., "scientific", knowledge to production processes, and it vastly underestimated the sensitivity of production processes to on-the-spot information. But on-the-spot information is not conducive to a unitary rational solution; a Volkish meeting of the minds between ruler and ruled; or a solution by bureaucratic experts.

*Robert H. Wiebe, The Search for Order 1877-1920. New York: Hill and Wang, 1967.

Identity Politics in the 2008 Democratic Presidential Primary

This presidential year is the Democrats' to lose, and they seem to be losing it. The gleam through the cracked mortar of the Democratic Party's foundation is identity politics. Identity politics is the 1960s' ugly offspring that differs from its older brother racism in style but not substance.

Liberalism and Moral Relativism

The impulse underlying Progressive-liberalism was the late nineteenth century's moral angst at the expanded power of big business, its lack of moral foundation and the disorder and uncertainty that the railroads, the expanding market and the increased homogeneity of the American market had caused. Americans of that time were mostly religious Protestants. Their reaction to the increased power of business and the railroads was in part informed by their religious values. The economy had been a source of moral training and discipline when producers were small and life was local, what Robert H. Wiebe calls "island America" in his book The Search for Order. The late nineteenth century response to expanding markets included Populism, trade unionism, and Mugwumpery. The Progressives arose from the introduction of the ideas of the German historical school to this mix. It held that the state ought to be strengethened in order to manage big business. The underlying impulse was the moral one of correcting the moral abuses of big business and the new mass production.

The moral impulse behind Progressivism carries through to liberalism and its more extreme variants. Progressive-liberalism claims to rectify moral abuses through government or the marshalling of public opinion. Thus, Wal-Mart is evil because its prices are too low; oil companies are evil because their prices are too high; banks are evil because they demand that borrowers repay; and fast food restaurants are evil because they serve too much food. Liberalism is thus a moral movement that derives from late nineteenth angst about business. Liberals believe that the business system requires their moral guidance.

But liberalism pretends to derive from science, not religion. In part because of its scientism liberalism adopts Enlightenment skepticism about morality. But it applies its skepticism only to others', not to its own moral claims. Liberalism holds that the school system ought not to advocate religion. It insists that American values are not superior to those of other cultures. In its more extreme variants it holds that 9/11 victims are "little Eichmanns". It assumes that public morality is a convention and that rules about public morality amount to infringement on freedom of speech. It argues that morals are locally derived, have no logical foundation, and that their chief purpose is to justify power. Philosophy and literature have been written by dead white males; and natural rights have no meaning because morals have no logical meaning.

Given Progressive-liberals' skepticism with respect to American values, natural rights and morals, the liberal position faces an irreconciliable dilemma. No argument about morality is possible if there is no such thing as morality. If there is such a thing as morality, then liberalism has to explain why it is to be preferred over nationalism, religion or other locally derived moral systems.

Progressive-liberals wish to have it both ways. They offer one emotionally charged moral argument after the next: Global warming is wrong; Wal-Mart is evil; America is the Great Satan. But at the same time, liberals deny that there is such a thing as morality.

From whence do liberals' derive their moral sense? If morals have meaning, liberals must be able to show that their causes are morally superior to those whom they attack. If natural rights have meaning, then liberal causes are generally immoral, for liberalism depends on redistribution of property by violence. If economic inequality is wrong, why is it worse than stealing? By what moral system does liberalism justify forcing me to pay taxes? What makes liberal causes more moral than natural rights?

Liberalism has not attempted to answer such questions. It is an ideology, not a philosophical system. It is an ideology whose aim is to justify the assumption of power by educated elites.

Howard S. Katz and Market Psychology

I had the opportunity to observe market psychology first hand during the past couple of weeks. My friend, Howard S. Katz, had called a market top in gold this past Monday when gold was about $950. He also called a bottom in stocks and shifted from gold stocks into construction stocks. The first few days after Howard's call, gold continued to go up. It hit $1002 toward the end of the week. The stock market had become very volatile as bulls and bears battled in response to Fed easing. Subscribers to Howard's newsletter contacted Howard to argue that he had called the top too early. I mentioned Howard's call to a few MBA students and they too argued that he had been too early.

It is very difficult to call a turn precisely, but to make it more so, social pressure opposes a correct call. The gold market indeed topped at about $1000 and the construction stocks are up about 50% since Howard's call. I'm not sure how he does it (he uses technical analysis which is Greek to me), and I don't believe that contra-opinion is necessarily right. Delusional markets can continue for several years or more. Look at politics.

One thing is certain. If you are right about a change in market patterns there is going to be alot of argument against your position and not too much social support. It takes confidence in addition to the rare insight. The insight alone is rare enough. The combination of courage wtih insight is difficult to sustain.

The same is likely true of ideas. It takes guts to tell the truth.

Organizational Learning and the Progressive Model

The natural evolution of organizational learning should over time shift the relationship between business and government from more to less. Early in their history, capitalist firms lacked the ability to think and plan strategically; to research markets; to assess competition. Over time, the professionalization of management, the development of tools and learning processes, new methods of management and new planning processes and models not only provide businesses with tools that were not available to them in the 19th century, but also are less accessible to government because the personnel are not available. In David Ames Wells's time, Wells did not believe that firms could strategically plan investment; could perform market research; could persuade workers to purchase consumer goods; or could assess the long run profitability of a plant or business unit. By the 1960s, John Kenneth Galbraith overstating the case argued that firms plan and manage demand. Clearly the role of the state must change in response to the evolution of managerial knowledge. But the state's role can change only if it develops sophistication about the same processes that the firms learn about. But of course such learning is beyond the budget, the ability and the organizational flexibility of government agencies. Hence, the role of government will quickly become outdated.

The problem facing government is not just a matter of organizational learning. It is a matter of being able to anticipate the insights, deviations and failures of ever-evolving organizations. Such learning is so far beyond the ability of government, that government will inevitably prove to be disruptive to firms' learning processes.

An example is the case of Enron. Enron's failure was in large part due to its accounting emphasis on mark to market accounting. But mark to market accounting was the very policy that the SEC approved in response to Jeff Skilling's application. Another example is the California degregulation of the power market. The state adopted a regulatory system that facilitated Enron's and other power firms' manipulation of the power grid that caused massive power outages.

The results of the relationship between a state which aims to guide organizations that learn at a faster rate than the state does is one of four things. One, the state becomes irrelevant and adopts a de facto laissez faire approach. Two, the state enforces its prerogatives to control or influence industry and limits organizational learning and economic progress. Three the state attempts to ritually mimic firms' organizational learning and its supposed role of providing support to industry, squandering resources while in fact adopting a laissez faire approach. Four, the state becomes captive or subject to the influence of the industry and competing interest groups, resulting in policies that reflect political power and economic resources rather than rationality.

Government has adopted all three approaches. In human resource regulation such as OSHA and ERISA, the federal government has adopted costly regulation that has done little to improve safety or security, reducing economic opportunity. With respect to education, education schools continue to advocate progressive education approaches that reduce educational outcomes. In finance, the state has gradually backed off various regulations but continues to maintain regulation that makes it difficult for entrepreneurial financial firms to compete. In most fields the fourth likelihood has occurred. The brokerage of special interests has become a key characteristic of the American economy.