Friday, May 16, 2008

Conservatism, Surgical Radicalism and the Four Party System

The current popular political debate occurs between two kinds of conservatives. The first, called liberals or progressives, argues that the current framework of American democracy, created during the Progressive era and New Deal and now roughly 100 years old, ought to remain in place. In their view introduction of additional institutions, plans and programs like national health insurance along the lines of earlier ones is needed, but today's framework is a good one.

The second kind of conservatives, popularly so called, are not comfortable with the New Deal project---Social Security, government regulation of industry, and large-scale federal social welfare programs, but do not want to repeal these programs either. They follow Edmund Burke, who argued against radical in favor of gradual change. Burke felt that gradual transformation of institutions while protecting liberty was a better path than the French revolution's authoritarianism, political correctness and executions. Rather, he preferred the American revolution's restraint.

Today's conservatives retain Burke's dislike for radical change. But the institutions that exist in America today were radically imposed during the first half of the twentieth century. They did not evolve logically from the market economy of the nineteenth and they did not reflect economic exigencies of the the early 20th century. Rather, they reflected the imposition of a political vision of specific rent-seeking special interest groups and agenda-drive political radicals.

Burke wrote in Britain in the late eighteenth century when barbaric institutions had gradually evolved into more democratic and liberal forms in Britain and to a lesser degree in Europe. Burke did not write about what to do to unravel the harm that the French revolution had caused. Rather, he wrote about how Britain and other liberal nations might best cope with change. This is not the problem that faces America today. An excessive application of Burke is inappropriate. America has had some radical change imposed while partially retaining liberal institutions. Conservatives who wish to create a new liberalism need to be surgical radicals. They need to undo New Deal radicalism's derangement of older versions of liberalism. The derangement has taken a number of shapes, to include social security, urban renewal, welfare, the Federal Reserve Bank, excessive application of eminent domain, and excessive regulation of business. Such radically instituted habits ought to be undone conservatively but radically.

Progressivism and the New Deal were radical upheavals. They rewrote American institutions that were not very old. A radical conservatism is one that is pragmatic, and asks that if radically imposed institutions fail that they be undone. This is a surgical radicalism that devises new liberal institutions where Progressivism and New Deal social democracy have failed.

Conservatives who wish to retain Progressive institutions, who are loyal to the old Federal Reserve Bank and its old-fashioned economic planning, high levels of government spending and support for business are Progressives. Conservatives who wish to retain New Deal institutions like Social Security and the National Labor Relations Act are social democratic liberals.

Perhaps Americans should think in terms of a four-party rather than a two-party system. Perhaps there should be a surgically radical conservative party; a Progressive-conservative Rockefeller-Republican Party; a New Deal Party; and a social democratic radical party. Of these, the surgically conservative radical party would be the most radical, liberal and progressive.

Tuesday, May 13, 2008

Chinese Tragedy Ahead

The Chinese have decided to imitate American economic progress. But they have chosen to imitate the wrong thing. American economic success has come in spite of, not because of, government development schemes. In particular, the US government and the states granted large amounts of land and access rights to railroads in the nineteenth century. Although railroads contributed to economic development, they did so at much higher cost to the public than was necessary. The public donations of land were accompanied by considerable incompetence and corruption. More railroads were built than were needed. In today's world, the corruption associated with land grants has not disappeared. The Progressives of the early twentieth century believed that by rationalizing the corruption of the political bosses, government support for business could be rationalized and made honest. In the Progressive tradition, Robert Moses in New York and similar social democratic Progressives in other states involved state and federal governments in considerable grants to business. This tradition is not why America has succeeded. America has succeeded in spite of government support for business. Sadly, the Chinese have chosen to imitate the Jay Gould/Robert Moses tradition. They are attempting to modernize their country through government support for development coupled with inflation.

The way that America did succeed in developing its economy was entrepreneurship. Freedom of enterprise not only permitted entrepreneurial genius to innovate here, but also drew entrepreneurial geniuses from other countries. For instance, Nikola Tesla came to the United States because Europeans refused to invest in his concept of A/C electricity. Thomas Edison, Jonah Salk and an endless list of homegrown and immigrant innovators came here because of American freedom. But a long list of social democrats, media pundits, quack academic economists and socialists have done all they can to destroy America's freedom.

The development that occurred because of Jay Gould, Robert Moses and Bruce Ratner, the successor to the governmental welfare approach to business, is not the development that made America a great country. Rather, America became a great country in spite of Jay Gould, Robert Moses and Bruce Ratner. In the case of Robert Moses, the public housing on which he squandered billions of dollars and was supported by the New York Times caused massive increases in crime, destruction of neighborhoods and the near-bankruptcy of New York City in the mid 1970s. Jay Gould's and his contemporaries' railroads were incompetently run and cost the nation far more than they should have. Despite the massive tax on innovation that corrupt government support for business has posed, the US surged ahead because of the innovation of men like Edison and Tesla. The entrepreneur, free of government impediment and government welfare subsidy, thinks of ways to meet consumer needs and so makes himself wealthy and the world wealthier still.

Tragically, the Chinese perceived the spectacular image of large-scale development and have attempted to emulate Robert Moses's approach with large construction projects, continuing to limit the intellectual and economic freedom on which economic development depends. Equally sadly, Americans lost sight of the reason for their success, and passed laws and regulations, and imposed punitive taxes, that have inhibited entrepreneurship, slowing American economic progress, even as they have increasingly provided welfare payments to incompetent bankers, real estate developers, academics and Wall Street stock jobbers who do not produce wealth.

This country and China have squandered resources in stupid ways. The bubble will burst as all credit bubbles do. America may have enough resources to reassess its errors. The Chinese likely do not, and many there will be hurt.

Monday, May 12, 2008

Letter to Congressman Maurice Hinchey Concerning Federal Reserve Bank

PO Box 130
West Shokan, New York 12494
May 12, 2008

The Honorable Maurice Hinchey
2431 Rayburn H.O.B.
Washington, DC 20515

Dear Congressman Hinchey:

Congress should abolish the Federal Reserve Bank and replace it with choice among monetary alternatives. The Fed has proven to be incompetent to manage the nation’s money supply. Choice among competitive money supply alternatives would be preferable to the current system.

The inflation of the 1970s followed the abolition of the gold standard. Inflation led to high unemployment in the early 1980s. Since 1983, when the Fed resumed its inflationary posture, price increases have been more moderate than in the 1970s because (a) house prices have been excluded from the CPI and (b) foreign dollar holders have absorbed much of the inflation. Now there are 5-10 dollars held abroad for every dollar held in the US. Nevertheless, the inflation rate since 1979 has been over 3.5%.

There are at least five additional problems that suggest that the Federal Reserve Bank has been incompetent to manage the nation’s money supply and that choice among competing money supplies would be a preferable alternative. The five problems are (1) food shortages, (2) excessive home and asset prices, (3) income inequality (4) corruption and (5) the threat of hyper-inflation.

First, the Fed’s excessive stimulus (or in plain language, printing of money) over the past 25 years has caused excessive real estate development of farm land. In turn, the elimination of farm land makes the land unavailable for farming. This in turn has caused food shortages around the world, including the US. It is not much of a stretch to say that the Fed has murdered third world children now starving to death because of food shortages. There are now numerous reports of rationing here in the US as well.

Second, home and other asset prices are excessive. In West Shokan, I have enjoyed house price appreciation but new buyers cannot afford current prices. The banking system, responding to the Fed’s monetary expansion, made illegitimate low interest loans that inflated real estate prices in the 2000’s. Some of the loans have not been repaid, and the Fed's response is to print more money, keeping the bloated house prices high. The high real estate prices make it difficult for moderate income citizens to afford a home. Likewise, the high stock prices of the 1990s made it difficult for the baby boomers to plan for retirement. Believing that there would be twenty percent returns on the stock market, many boomers did not save sufficiently or lost their savings in the tech and Internet bubble.

Third, the Fed has caused the flattening of real wages and income inequality that have occurred since the 1970s. This flattening began soon after the final abolition of the gold standard in 1971. The flattening of real wages and income inequality are caused by inflation, a process that the economics profession denies is important. Their prescription, taxation, is irrelevant to the underlying problem.

The beneficiaries of the current Federal Reserve monopoly on the money supply are of course the commercial banks and Wall Street and the sycophantic economists who support them. Low interest rates due to monetary expansion (printing money) cause the stock market to rise. That is, monetary expansion causes both stock market increases and price inflation, hurting the middle class and poor. Thus, the Federal Reserve Bank is little more than a redistributive vehicle that redistributes from poor to rich, from wage earners to stock holders.

Fourth, the Fed’s policies have been the cause of the corruption scandals of the past 30 years. All of the major corruption scandals of the past 30 years, to include Drexel, Enron, and Bear Stearns, have occurred because of the Fed’s credit expansion, because of easy money. The scandals amount to transfer of wealth from the general public, whose dollars have been depreciated, to criminals like Ken Lay to whom the Fed and the banking system have granted access to artificially created Fed money. The notion that the banking system is intellectually or morally equipped to assess credit risks seems to be contradicted by the recent collapse of Bear Stearns and by Ben Bernanke’s willingness to print even more money to subsidize these and a long list of earlier crooks. How much corruption is enough for the Fed?

Fifth, the Fed has significantly expanded the global supply of dollars. Now, its expansionary policy has international political implications that the economists who run the Fed are ill-equipped to assess. A global run on the dollar which might occur due to ordinary market behavior would have disastrous consequences for the American people, who have already been victimized in several ways by the Fed’s incompetence.

It is evident from what I am saying that:

1. The American economics profession has been incompetent in analyzing money supply and economic issues. They have widely supported policies that have been economically destructive. Most importantly, they have silently watched excessive investment in real estate resulting in large scale human suffering. This is brutal incompetence indeed, and the Fed and the economics profession should be held to account.
2. The Federal Reserve Bank has supported bad ethics.
3. The Fed is responsible for wealth transfers from poor to rich; flattening real wages; economic dislocation; food shortages; starvation in the third world; and the threat of hyper-inflation here in the US.

I urge Congress to abolish the Federal Reserve Bank. It is an institution that has failed, that has made Americans poorer and has served as a poor-to-rich welfare transfer device.


Mitchell Langbert, Ph.D.

Cc: Senator Hillary Clinton; Senator Chuck Schumer, President Bush