Friday, June 6, 2008

Richard Viguerie's "Obama Is Not the Problem"

Richard Viguerie has posted an interesting article criticizing John McCain's lack of ideological focus. He notes that:

"The problem is that McCain doesn’t have a coherent set of ideas with which he can simultaneously fire up the conservative base and attract independents. He’s a part-time liberal in conservative clothing. Conservatives aren’t fooled by that, and liberals aren’t going to vote for a part-time liberal when they have a very persuasive full-time liberal to vote for."

He adds:

"'The lesser of two evils' is not a governing philosophy. Yet Republicans repeatedly try to seduce conservatives with it. That strategy didn’t work in 1948, 1960, 1974, 1976, 1992 or 2006 — and it won’t work in 2008."

Perhaps Mr. Viguerie is right. America should move to a four-party as opposed to a two-party system. Two parties worked fine in an age of congruence, in the 19th century when the Republicans and Democrats mostly disagreed about who should get the spoils and whether tariffs should be reduced. The congruence continued through the first twenty years of the twentieth century, when Progressivism was adopted by both parties. By 1920 the public had tired of political change, and some of the Republicans became known as conservatives, which really just meant that they were a wee bit less radical than they had been a decade earlier under Republican Theodore Roosevelt, perhaps the most left-wing president of the twentieth century. In the 1930s Franklin D. Roosevelt identified the Democratic Party with social democracy. Although they fought social democracy, the Republicans never aimed to repudiate their earlier Progressivism nor did they aim to repudiate the New Deal. Rather, they became the "lesser of two evils" or the "wee bit less social democracy" party. The Republicans have never questioned the elements of Democratic Party social democracy. Rather, they have been content to argue for "a wee bit less". When elected, they have never attempted to repeal the most extreme Democratic policies. Warren G. Harding did not aim to repeal the Hepburn Act and Dwight Eisenhower did not aim to repeal the New Deal, even a bit of it.

Because there are two parties, there is a strong incentive for both candidates to locate as close to the center as possible. Those to the "right" of the Republican, i.e., those who are more libertarian on economics or conservative on social issues are forced to vote for the Republican unless the Republican goes so far to the left that the Democrat becomes more attractive. The Republicans go as far to the center as possible to attract the undecided voters. The conservatives and libertarians are forced to vote Republican even though the Republican's views are closer to social democratic than they would like. The reverse is true for the Democrat. The Democratic candidates are pushed as close to the "right", to the least radical position, as possible to attract the undecided. Thus, the Democratic candidate cannot seem as left wing or as social democratic as activist members would like.

This results in not, in my opinion, a move to the center. America has not arrived at a "centrist" solution. Rather, it has arrived at a liberal/free market conservative solution that has been radically modified by progressive/social democratic programs. This results in stability and much less change than would result in a four party system, but it also results in much less experimentation and competition. The result is a system that does not reward new ideas and that has foreclosed (a) the possibility of reductions in the extent of government as well as (b) the possibility of socialism. I am happy about (b), unhappy about (a), but the reverse is true for most Democrats. They would like to see a world where the crank ideas of the New York Times, William Ayers and Jimmy Carter are applied without restraint.

I do not think that Mr. Viguerie is right about the 2008 election. I do not think that Mr. Obama will win because he is too far to the left to attract centrists. His associations with Chicago radicals make clear Mr. Obama's left wing orientation. As a result, centrist voters will prefer McCain and McCain will win. McCain does not need to convince conservatives to vote for him. Rather, he needs to convince "centrists" to vote for him. Unless conservatives want Bill Ayers's and Reverend Wright's associate to run the country, they will have to support McCain. If they stay home or vote for Bob Barr, then we can welcome a new emphasis on extending centralized planning, intellectuals' planning projects and attacks on personal freedom.

While the Republicans' performance has been dismal, the way to change this is at the local level. The president is in many ways a symbol. An Obama victory will create a national mindset that America is turning to the left. A McCain victory will say that the nation has rejected left-wing ideology even if the Bush administration's and Republican Congress's performance has been dismal.

I live in Congressman Maurice Hinchey's political district. Mr. Hinchey made national news last week because he advocated price controls on gasoline. Mr. Hinchey has run unopposed for a number of elections. Tonight, I met a young man, a teacher from Binghamton, NY, who may run for Congress against Mr. Hinchey. The young man, George K. Phillips, is a conservative who has many good ideas. He is a political novice. I invite Mr. Viguerie to assist Mr. Phillips in his Congressional run. Rather than complain about McCain, let's think about how to assist Mr. Phillips and other conservatives like him at the local level.

As far as big ideas, perhaps it is time to think about a four-party system. But much ground work would need to be done before this idea has any practical political importance. A four-party system would better represent the ideological diversity that exists in America. It would lead to less stability but more experimentation.

Thursday, June 5, 2008

Fundraising Message from Susette Kelo (Yes, That Kelo)

My name is Susette Kelo. On Monday, June 23, 2008, I need your help in making a little bit of history.

June 23 is the third anniversary of the infamous Kelo eminent domain case, the U.S. Supreme Court decision that allowed perfectly well-maintained private homes like mine to be taken by the government and handed over for someone else’s private use. Under that ruling, any home could be taken and destroyed to make way for high-end condos. Any small business could be bulldozed to make way for a big box store. And, tragically, that is what is happening in too many parts of our country.

I’d like your help to put an end to that abuse of eminent domain once and for all.

Please go to today and pledge to give some small contribution to the Institute for Justice (IJ) on June 23. (Pledge today and we will email you on June 23 reminding you to donate on that day.)

IJ helped defend my home and my neighbors’ homes when they were threatened by eminent domain for private gain.

IJ continues to defend other homeowners and small property owners in similar fights.

One hundred percent of the money raised on this site ( on that day will be used to fight eminent domain abuse--the use of eminent domain for private development projects. We recognize that under the Constitution eminent domain can be used for genuine “public use” projects, such as for a courthouse or to build a highway, but when government power is used to take land from one private property owner only to hand that land over to another private person for their private profit, that is an abuse of government’s power.

Our goal is to earn 10,000 donations for IJ on that one day, Monday, June 23.

Leading up to the Kelo argument, the Institute for Justice documented that 10,000 American property owners had their property threatened or actually taken by eminent domain for private use in just a 5-year period. That 10,000 figure inspired IJ and me to seek 10,000 donations from across the country to send a message to those in power that we care about our homes and that the abuse of eminent domain must be stopped.

We are not seeking large contributions on this day: just $25, $50 or $100. Even a $5 contribution will make a difference and add greatly to the ambitious numbers we’re trying to achieve on that day.

And, if you feel strongly enough about this effort and would be willing to forward this to friends who will join us in the fight to end eminent domain abuse, that too would be greatly appreciated.

Together, we can convince policymakers that eminent domain abuse is un-American and must be stopped.

Thank you for your consideration,

Susette Kelo

Wednesday, June 4, 2008

Oskar Lange RIP: "On the Economic Theory of Socialism" in Benjamin Lippincott, Editor, On the Economic Theory of Socialism

Oskar Lange, "On the Economic Theory of Socialism". Reprinted in Benjamin E. Lippincott, editor, On the Economic Theory of Socialism Volume 2: Government Control of the Economic Order. Minneapolis, Minn.: University of Minnesota Press. 1948. Original article in Review of Economic Studies, Volume IV, Nos. 1 and 2, October 1936 and November 1937. Used copies available from starting at $1.34.

I've had this article on the back of my back burner for roughly 30 years and I was inspired to read it, first, by Professor Danthine my microeconomics professor at Columbia Business School who reminded me of it in 1986 and second by Nicolai Foss's blog that I blogged about two weeks ago.

This is the article in which Lange writes that a statue should be erected to Ludwig von Mises in the hall of the ministry of socialism for his arguments about the impossibility of price in a socialist economy. Lange claims that he has disproven von Mises's arguments based on elementary economics (the second section of the article is a review of microeconomic theory) but history has proven von Mises right and Lange wrong. The socialist economy of the Soviet Union fell because of the very kind of pricing inefficiency that von Mises identified. Hence, a statue might be erected to Lange in the hall of failed academic theories.

Lange's argument is elegant but there are several flaws that stand out and should have stood out even prior to the passage of the historical record.

First the part that Lange could not have known in advance. Lange overlooks the realities of bureaucratic and political decision making in organizations. He assumes that central planners are rational actors who will equilibrate marginal cost and price. History did not prove him right. Central planning was largely political, and political actors are influenced, as were the Soviet planners of Gosplan, by political considerations rather than considerations of pure rationality. Thus, the history of Soviet socialism is riddled with examples of price-setting on the basis of political concerns. For instance, bread was priced at a low level because the citizenry expected cheap bread. However, farmers had earlier supply-chain access to the bread than did retailers, and because the bread was set at a price that was cheaper than animal feed, they would purchase the bread from the distributers and feed it to their cattle while there were bread shortages in the cities. There were many examples of this type as Berliner's book Soviet Socialism from Stalin to Gorbachev illustrates.

Second and related to the first point, much of Lange's argument is based on the theory that economic planners will be able to reach optimal, market clearing prices through trial and error. He assumes away Hayek's argument that it is impossible to acquire the necessary information for the myriad products in an economy. However, Hayek was right. The trial and error process is too difficult to accomplish because product variations are too complex for planners to anticipate. No amount of theorizing about the possibility of equating marginal cost and price will change the transactions cost impediments to doing so.

Third, there were several points that should have stood out as far fetched even in the 1930s. Many of Lange's arguments make assumptions that have a tautological quality. That is, to prove pricing is possible he assumes that price information is available, and then deduces that pricing is possible because the information is available. His argument begins with a model in which socialist firms have the ability to determine price and production levels, but this is the very problem that impeded socialist central planning. Central planners want to determine price and production levels centrally and so cannot make use of imbalances between supply and demand in each region and firm. For instance, Lange writes (p. 71):

"If demand and supply are not equal for each commmodity, prices change again and we have another set of prices, which again serves as a basis for individual rearranging of choices."

But this assumes either local price determination or the ability of the central planning authority to flexibly change price. It is precisely the absence of such flexibility that caused socialist planning to fail. Trial and error are impossible because the information constraints are too severe and because the political and bureaucratic processes are too inflexible.

The tautological quality of Lange's argument is especially seen on page 75 where he writes that:

"The decisions of the managers of production are no longer guided by the aim of maximization of profit. Instead, certain rules are imposed on them by the Central Planning Board which aim at satisfying consumers' preferences in the best way possible."

But it is the absence of price that inhibits the Central Planning Board from figuring out consumers' preferences. The entire problem is that the central planners do not know consumer preferences. This is related to their inability to judge product quality because of transactions costs constraints. The complex and subtle art of quality management could not be done by a central planning board. Even competitive American firms have had trouble in this area.

Similarly, on page 76 Lange argues that the central planners can combine factors:

"in such proportion that the marginal productivity of that amount of each factor which is worth a unit of money is the same for all factors".

The problem, though, is that determination of productivity is not independent of understanding consumer demand. You cannot know the productivity of the factors unless you know whether customers view the outputs as desirable in comparison with competitive products.

Perhaps most importantly, Lange's model omits one of the key assumptions of perfect competition: ease of entry. Because there is no flexibility as to competition to the governmentally controlled firms, they can all reflect arbitrary or bureaucratic decision criteria and fail to evolve or experiment simply because consumers are forced to purchase their product, which, to put it politely, will be garbage.

It is entirely possible that the central planning board produces garbage and since there is no entry of entrepreneurial firms, there are no competitors to produce alternative products. As it turned out, this was the rule in the Soviet economy, a rule which Lange's argument simply assumes away. If all existing firms produce garbage and there is no ease of entry, then consumers are forced to choose among an array of undesirable products and prices can be set by the trial and error method that Lange outlines but they will be market clearing prices for garbage.

Lange also omits the importants of dynamic change. Without entrepreneurship there is no process for quality improvement. Hence, he outlines a static economy that can produce garbage where, if there are no transactions costs, firms can disobey the central planners at risk of their necks and experiment to find optimal prices.

Price and marginal productivity are then equilibrated, but customers remain unsatisfied. Nor could the firms that produce the garbage be closed because doing so would be too complicated politically. You would have to shut down the entire economy.

It is puzzling that Lange's argument had any influence in the first place. Now that history has proven him wrong, let us resell our copy of this book for $.85.

Tuesday, June 3, 2008

Media Deception About Inflation

About two years ago I veered from my focus on higher education into the subject of inflation. The reason is that, based on my recollection of the 1970s, when an inflation begins there is considerable media distortion about the reason. The cause of inflation is monetary. The reason for the media distortion is that inflation has two effects. One is to boost the stock market, the other is to boost consumer prices. The media has a vested interest in an increasing stock market, and so tends to lie about the reason. Inflation and the stock market are caused by monetary expansion.

Monetary expansion boosts the stock market for this reason. Interest is the price of money. The stock market computes future earnings with an implicit discount rate. By printing money, the Fed lowers the discount rate. Thus, when the Fed "reduces the interest rates" (prints money) it increases the stock market valuation.

Now, who benefits from the boost that monetary inflation gives to the stock market? The answer, of course, is corporate executives who hold stock options, Wall Street stock jobbers, asset holders in general, home owners and debtors. Who is harmed by inflation? People who work for a living, who are thrifty, who do not have debt and have to pay for necessities with the dollars that the Fed has devalued.

The largest debtors are big businesses. Media companies are corporate enterprises just like any other, and they hold debt. Therefore, their executives benefit from inflation. Therefore, there is considerable pressure on media outlets to lie about the reasons for inflation.

Not surprisingly, my concern about potential lying in the media have materialized recently in response to Congressional testimony by Michael Masters. First, on Fox Business News, there was a panel discussion that included much verbiage about how commodity speculators are causing inflation. Second, when I opened the New York Sun, Liz Peek's article "Time to Intervene in Commodities Markets" likewise omits the underlying monetary cause of price inflation. Price inflation is a monetary phenomenon, a fact that Fox as well as Peek omit. Instead, Peek, like Fox, attributes inflation to speculators. The media lying circus has begun.

Fox and the Sun are two of the few "Republican" sources, which is why I am loyal to them. It is a testimony to Wall Street's and corporate power that superstition is presented as news when the few "conservative" sources discuss inflation much like the New York Times.

As my good friend Howard S. Katz has put it, when reading about the economy, assume anything that the mass media says is the opposite of the truth. If the media says that high interest rates are hurting you, conclude that they are helping you. If the media says that there is a "sub-prime crisis", conclude that the bloated house prices that have been causing middle class bankruptcies for the past two decades are moderating. If the media says that inflation is caused by commodity speculation, assume that it is caused by monetary expansion. If the media says that a depression is near, assume that the stock market is about to go up.

Smart men have become rich in this way.

I have responded to Ms. Peek's and Fox's "news" pieces with the following letter:

>"Thanks for your article 'Time to Intervene in Commodities Markets'. I disagree with Mr. Masters's argument. Neither he nor anyone else is smart enough to know when to intervene in markets. The S&P 500 is up 1500% since January 1970. Is that a reason to cap stock prices? If not, then why is a 183% increase in commodity prices, 12.2% of the 38 year stock price increase, a reason to cap commodity prices? If pension funds wish to hold commodities as a hedge against inflation, should the federal government tell plan participants that they must suffer from inflation?

"Given that the global supply of dollars has increased by 8% a year for the past 2 1/2 decades and the Greenspan/Bernanke Fed have been on a money printing spree since 2000, why attribute rising commodity prices to speculation? Why not the money supply? Does Mr. Masters have a theory as to why printing money does not cause inflation? And is he a relative of Jimmy Carter?

"Perhaps a more useful story would be on the reason the M-3 monetary statistic is no longer published and what the growth in the quantity of M-3 has looked like since 1983. And might there be a connection between money supply and inflation? I mean, duh."

Hugo Chavez's Blood Libel

Gateway Pundit (hat tip Larwyn) reports yet another anti-Semitic campaign in Venezuela:

>On December 1, 2007, Venezuelan police raided a Jewish community center in Caracas. The raid by drug and terrorism police occurred just hours before Venezuelans went to the polls to vote on constitutional changes proposed by President Hugo Chavez. The Jewish community is routinely the target of verbal intimidation in the Chavez government-sponsored media-

>Today Hugo Chavez, the "brother" of Iranian president Mahmoud Ahmadinejad, opened a new media campaign against the Jews...

The stridency of Chavez's anti-Semitism is not, as the ADL claims, "inexplicable". Chavez is a national socialist in the same tradition as Hitler and Stalin. His storm troopers have attacked Jews before and will so again.

Media Silence on Iraqi War Success

The Belmont Club (hat tip Larwyn) notes that:

"The sudden and precipitous drop-off in the media coverage of Iraq is largely due to the reluctance among pundits to advertise the fact that they were wrong. Iraq is unmentionable because things are going well. Well for Iraq means not so well for pundits who staked their reputations on failure. Abe Greenwald at Commentary Magazine writes: "After years of telling us the war on terror was creating more terrorists, the mainstream media has mysteriously woken up to the fact that Islamic extremism is on the wane. Newsweek is the latest publication to run a support-for-jihad-is-fading piece.". The Washington Post has quietly and recently done so as well. Better to concede past mistakes in judgment quietly the better to deliver more judgements of the same quality in the future. But it comes at the price of clinging to the same false premises and ignoring the most glaring lessons. Greenwald writes:

"'there is an important omission in the sudden coverage of moderate Muslims: No one talks about the effect of the Iraq War. The MSM can dodge the issue all they like, but the fact remains that the Coalition’s toppling of Saddam facilitated the first organized rejection of fanatical Islam in the Middle East. Back in November 2005, while everyone stateside was crying fiasco, a group of Sunnis in Anbar province joined forces with a clutch of U.S. Marines and began to wrest their country back from al-Qaeda and its sympathizers.'"

In 1921 Walter Lippmann enumerated the reasons why the press could not be expected to provide reliable information needed for public deliberation. One is the need to sell newspapers. However, he was mildly sanguine about the technical ability of the media at that time to execute its news-providing mission competently. Things have turned out worse than Lippmann expected. Groupthink and political correctness dominate the media. The progressives of Lippmann's time had varying philosophies. Some were more or less socialist or conservative. The post-Depression New Deal liberalism resulted in two philosophies: (1) a moderately conservative progressivism that has mirrored social democracy and (2) social democracy. However, the media are almost all in the latter camp. One of the characteristics of social democrats is the inability to tolerate dissent and deliberation. Even in areas where their qualifications are weak, such as military strategy and foreign policy, the left looks to leadership from a few elite newspaper analysts. The result is a policy debate that is emotionally driven but poorly conceived.

Let us celebrate that things are going well in Iraq. General David Petraeus's fourth generation warfare strategy has worked. Rather than discuss why and begin to think about ways to improve it, the media react stupidly and public policy debate continues to be inarticulate and foolish.

Monday, June 2, 2008

Social Justice Dispositions and Charles E. Lindblom's Concept of Preceptoral Authority System

In his book Politics and Markets: The World's Political-Economic Systems* political scientist Charles E. Lindblom describes three kinds of authority: market, state and preceptoral. Market and state reflect the usual definitions but preceptoral is a concept that seems to have been Lindblom's own. In William Ouchi's Theory Z**, published about four years after Lindblom's book, the idea that clan or organizational culture can supplement market and bureaucratic control methods seems to parallel this idea. The idea of preceptoral control is that educational indoctrination can substitute for state coercion or economic incentives as a method of control. This idea very closely fits the concept of "social justice disposition" that the National Council for the Accreditation of Teacher Education (NCATE) has advocated:

"Persuasion or "education" is aimed first--but perhaps only transitionally--at a transformation of personality, at the creation of the 'new man' as he is often referred to in communist discourse. Mao speaks of the need to 'remold people to their very souls.' 'We must fight 'self.' The 'fundamental task,' Castro declares, is the formation of the new man, a man with a profound consciousness of his role in society and of his duties and social responsibilities.

"For the USSR, Cuba and China alike, the template for the new man has been fashioned from socialist thought, George Orwell's 1984, and Victorian England. Selflessness, cooperation, egalitarianism and service to society mix as themes with duty, hard work, self discipline, patriotism and moral conservatism in dress, the arts and sexual behavior. Two features of the new personality are indispensable. 'Education' tries to create men who will autonomously serve collective interests, that is, who will do on their own initiative what in other societies they must be commanded or induced to do. It must also create men who will voluntarily respond to state and party when either asks for specific performance.

"To explain, justify and win agreement on all tasks takes too much time; such persuasive efforts have to be reserved for inducing personality transformation and for motivating major tasks. Hence, citizens must be persuaded simply to accept the authority of their leaders on the assignment of most tasks. How then does such a system differ on this point from a conventional authority system? It differs in that the new man will ordinarily need no external direction. When he does, authority is a residual tool to be used only in cases in which persuasion is not feasible because too costly in time and effort. In addition, such authority as is needed rests on its prior establishment by persuasion alone. If these requirements seem difficult to satisfy, they help explain why a preceptoral system remains largely aspiration rather than fact."

Not if the educational establishment can help it.

*Charles E. Lindblom, Politics and Markets: The World's Political-Economic Systems. New York: Basic Books, 1977, p. 56.

**William Ouchi, Theory Z, 1981

The Greatest Sin Against God

Gateway Pundit blogs that Barack Obama's associate, Father Michael Pfleger, has said that:

America is the greatest sin against God.

Rather than appoint Pfleger Secretary of the Interior Obama, rapidly becoming known as the Teapot Dome candidate, now seems likely to appoint Pfleger to the Supreme Court bench.

Walter Lippmann on Business Ethics

"The preparation of characters for all the situations in which men may find themselves is one function of a moral education. Clearly, then, it depends for its success upon the sincerity and knowledge with which the environment has been explored. For in a world falsely conceived, our own characters are falsely conceived, and we misbehave. So the moralist must choose: either he must offer a pattern of conduct for every phase of life, however distasteful some of its phases may be, or he must guarantee that his pupils will never be confronted by the situations he disapproves. Either he must abolish war, or teach people how to wage it with the greatest psychic economy; either he must abolish the economic life of man and feed him with stardust and dew, or he must investigage all the perplexities of economic life and offer patterns of conduct which are applicable in a world where no man is self-supporting. But that is just what the prevailing moral culture so generally refuses to do. In its best aspects it is diffident at the awful complications of the modern world. In its worst, it is just cowardly. Now whether the moralists study the economics and politics and psychology, or whether the social scientists educate the moralists is no great matter. Each generation will go unprepared into the modern world unless it has been taught to conceive the kind of personality it will have to be among the issues it will most likely meet."

---Walter Lippmann, Public Opinion, 1921, pp. 169-70.

Walter Lippmann's Public Opinion

Walter Lippmann. Public Opinion: An Important Work on the Theory of Public Opinion in Relation to Traditional Democratic Theory. Reprint by Filiquarian Publishing, 2007. Available used from for $1.98.

"The orthodox theory holds that a public opinion constitutes a moral judgment on a group of facts. The theory I am suggesting is that, in the present state of education, a public opinion is primarily a moralized and codified version of the facts. I am arguing that the pattern of stereotypes at the center of our codes largely determines what groups of facts we shall see and in what light we shall see them. That is why, with the best will in the world, the news policy of a journal tends to support its editorial policy..."

"The hypothesis which seems to me the most fertile is that news and truth are not the same thing and must be clearly distinguished. The function of news is to signalize an event, the function of truth is to bring to light the hidden facts, to set them into relation with each other, and to make a picture of reality on which men can act. Only at those points, where social conditions take recognizable and measurable shape, do the body of truth and the body of news coincide. That is a comparatively small part of the whole field of human interest."

----Walter Lippmann, Public Opinion, pp. 116, 332

This is a classic by Walter Lippmann, who co-founded the New Republic with Herbert Croly and Walter Weyl. Lippmann was a Progressive, but he was much more circumspect than Croly and John Dewey, and his ideas are more contemporary than either's. The book is disorganized and badly written, but Lippmann's insights are seminal.

The book was published in 1921. In 1920, Warren G. Harding had been the first presidential candidate to use radio in his presidential campaign. Forty years later, the Kennedy/Nixon debate was televised, and 87 years later Barack Obama's speeches are spliced on Youtube. Lippmann's book is seminal not only because he was among the first to ponder the effects of mass media on public policy but also because he anticipated the criticisms of the mass media prevalent among today's conservatives. Although the book references newspapers, not radio, the problems that Lippmann outlines have become increasingly important.

But the book has implications well beyond mass media. The question with which Lippmann grapples is the same question that has confronted many of the social sciences: to what degree are decision makers rational?

In 1958 Herbert Simon and James March published Organizations, a book whose main theme is "cognitive limits on rationality" in devising business strategy. The problem of limited rationality is important not only in management theory but also in economics, where information economics and agency theory have generated important and controversial policy prescriptions. In law and economics there has been much discussion of how informational asymmetries influence public choice and lobbying. In the field of organizational behavior, several of Max Bazerman's ideas on perceptual biases are directly linked to passages in this book. All of these developments owe Walter Lippmann a debt.

Lippmann was writing about a broader topic than management: the ability of the general public to deliberate about policy issues. Progressives claim that democracy is not only viable, but the ultimate good. (This, of course, begs the question as to what construct of good the progressives apply; there is no ultimate ground for favoring democracy over wealth or human well being as the ultimate good, and logically democracy would seem to be inferior to human happiness or Aristotle's eudaimonia -well being-. In attacking natural rights theory as arbitrary or mythical, the Progressives supplanted natural rights with an even more arbitrary and much less fruitful construct.)

Lippmann argues that we are unable to understand the real world in which news and policy problems occur (p. 76):

"...the environment with which our public opinions deal is refracted in many ways, by censorship and privacy at the source, by physical and social barriers at the other end, by scanty attention, by the poverty of language, by distraction, by unconscious constellations of feeling, by wear and tear, violence, monotony. These limitations upon our access to that environment combine with the obscurity and complexity of the facts themselves to thwart clearness and justice of perception, to substitute misleading fictions for workable ideas, and to deprive us of adequate checks upon those who consciously strive to mislead."

Lippmann develops a psychologically-based argument. Because people think in stereotypes and cliches they cannot think clearly about underlying facts (p. 87):

"There is an economy in this. For the attempt to see all things freshly and in detail, rather than as types and generalities, is exhausting, and among busy affairs practically out of the question. In a circle of friends, and in relation to close associates or competitors, there is no shortcut through and no substitute for individualized understanding...But modern life is hurried and multifarious, above all physical distance separates men who are often in vital contact with each other...There is neither time nor opportunity for intimate acquaintance...The subtlest and most pervasive of all influences are those which create and maintain the repertory of stereotypes...(p. 102) Thus Marxism is not necessarily what Karl Marx wrote in Das Kapital, but whatever it is that all the warring sects believe."

Lippmann notes (p. 105) that the word "progress" connoted to most Americans "mechanical inventions". The emphasis on "the biggest, the fastest, the highest, or if you are a maker of wristwatches or microscopes the smallest; the love in short of the superlative and the 'peerless'" is (p 106):

"a partial and inadequate way of representing the world. With the stereotype of 'progress' before their eyes, Americans have in the mass seen little that did not accord with that progress. They saw the expansion of cities, but not the accretion of slums..."

Perceptual distortion occurs at various points. One of the most important is what Lippmann refers to as moral codes (p. 105), a term Chester Barnard borrowed in his seminal management book Functions of the Executive in the 1930s. I don't know how much has been done about the Progressive influence on management thought, but it was extensive. Croly talked about scientific management and Taylor was viewed as a member of the progressive movement. In Public Opinion Lippmann provides the foundation for Barnard's use of the concept of moral code in depicting the function of the executive as creating what we would call today organizational culture. Sanford Jacoby in his book Employing Bureaucracy outlines how many of the ideas of human resource management emanated from Jane Addams's social work movement. Arguably, the classic contingency theory of mainstream management, the idea that management style ought to be adjusted to fit the environment is also linked to progressivism in that it implies a key role for university experts to advise managers as to how to anticipate environmental change, a role played in large part by the Federal Reserve Bank (probably to the chagrin of management professors who were hoping for more extensive interest in their consulting services).

With respect to codes, Lippmann argues (pp. 111-114) "the way we see things is a combination of what is there and of what we expected to find". In order to make intelligent decisions about public affairs and politics, knowledge of the subject matter is necessary, but "few can be expert" and "those who are expert are so on only a few topics" so that "whatever we recognize as familiar we tend, if we are not very careful, to visualize with the aid of images already in our mind" and "when a system of stereotypes is well fixed, our attention is called to those facts which support it and diverted from those which contradict."

(p. 116) "Far more serious in the modern world than any difference of moral code is the difference in the assumptions about facts to which the code is applied. Religious, moral and political formulae are nothing like so far apart as the facts assumed by their votaries...At the core of every moral code there is a picture of human nature, a map of the universe, and a version of history."

(p. 120) "And since my moral system rests on my accepted version of the facts, he who denies either my moral judgments or my version of the facts is to me perverse, alien, dangerous...The opponent has always to be explained, and the last explanation that we ever look for is that he sees a different set of facts."

In addition to bias due to moral codes, Lippmann argues that public opinion is distorted by perception of time 9P. 136) and the inability to comprehend statistical inference:

(p. 141) "To pick fairly a good sample of a large class is not easy. The problem belongs to the science of statistics, and it is a most difficult affair for anyone whose mathematics is primitive, and mine remain azoic..."

Thus (p.145):

"There are few big issues in public life where cause and effect are obvious at once. They are not obvious to scholars who have devoted years, let us say, to studying business cycles, or price and wage movements, or the migration and the assimilation of peoples, or the diplomatic purposes of foreign powers. Yet somehow we are all supposed to have opinions on these matters, and it is not surprising that the commonest form of reasoning is intuitive, post hoc ergo propter hoc."

Moreover, as March and Simon (1958) put it, there are cognitive limits on rationality (p. 153-156):

"Of public affairs each of us sees little, and therefore they remain dull and unappetizing until somebody with the makings of an artist, has translated them into a moving picture...Not being omnipresent and omniscient we cannot see much of what we have to think and talk about...In order then that the distant situation shall not be a gray flicker on the edge of attention, it should be capable of translation into pictures in which the opportunity for identification is recognizable..."

Because of the vagaries of public opinion, it is difficult if not impossible to discern what motivates a given public reaction. If public opinion is to be unified or harmonized (p. 200) a symbolic phrase must unify a wide range of meanings so that the phrase itself is vacuous but able to be interpreted in many ways. Thus, an intelligent public policy is possible only through confusion of the public, or at least offering a symbol in which a wide range of people can believe. People come to accept symbols because they are (pp. 207-8):

"planted there by another human being whom we recognize as authoritative...symbols are made congenial and authoritative because they are introduced to us by congenial and important people...And though we may gradually master for ourselves many phases of that larger environment, there always remains a vaster one that is unknown. To that we still related ourselves through authorities...Except on a few subjects where our own knowledge is great, we cannot choose between true and false accounts. So we choose between trustworthy and untrustworthy reporters."

But the choice of an appropriate expert "is still too difficult and often impracticable. On all but a very few matters for short stretches in our lives, the utmost independence that we can exercise is to multiply the authorities to whom we give a friendly hearing...the democratic theory proceeds on the opposite assumption and assumes for the purposes of government an unlimited supply of self-sufficient individuals."

All political theories naively assume that some individual or group has the innate ability to govern. But all people are constrained by the cognitive limits that Lippmann outlines. In particular, Lippmann questions the state of information in the time of the founding fathers (pp. 240-1):

"But the democrats who wanted to raise the dignity of all men were immediately involved by the immense size and confusion of their ruling class...Their science tole them that politics was an instinct and that the instinct worked in a limited environment. Their hopes bade them insist that all men in a very large environment could govern. In this deadly conflict between their ideals and their science, the only way out was to assume without much discussion that the voice of the people was the voice of God...They could not show how a citizen of Boston was to stay in Boston and conceive the views of a Virginian, how a Virginian in Virginia could have real opinions about the government at Washington, how Congressmen in Washington could have opinions about China or Mexico."

He argues that by 1921 "there is no longer any doubt that the continuous reporting of an unseen environment is feasible. It is often done badly, b ut the fact that it is done at all shows that it can be done, and the fact that we begin to know how badly it is often done shows that it can be done better."

Nevertheless (p. 251):

"The democrat has understood what an analysis of public opinion seems to demonstrate: that in dealing with an unseen environment decisions 'are manifestly settled at haphazard, which clearly they ought not to be.'"

According to Lippmann, the American Constitution was based on the view that special interests needed to be kept in equilibrium by a balance of power. "They intended to deadlock local and class interest to prevent these from obstructing government" (p. 259).

Local interests can in Lippmann's view (p. 271) lead to decentralization or a "Roman peace". "Almost always they chose the path that they had least recently travelled." America was founded as a decentralized state, but reaction to the trusts led to centralization. Centralization led to pluralism (p. 273): "This time society was to swing back not to the atomic individualism of Adam Smith's economic man and Thomas Jefferson's farmer, but to a sort of molecular individualism of voluntary groups."

Lippmann goes on to argue (p. 289):

"The democratic fallacy has been its preoccupation with the origin of government rather than with the processes and results. The democrat has always assumed that if political power could be derived in the right way, it would be beneficent. His whole attention has been on the source of power, since he is hypnotized by the belief that the great thing is to express the will of the people, first because expression is the highest interest of man, and second because the will is instinctively good. But no amount of regulation at the source of a river will completely control its behavior, and while democrats have been absorbed in trying to find a good mechanism for originating social power, that is to say a good mechanism of voting and representation, they neglected almost every other interest of men. For no matter how power originates, the crucial interest is in how power is exercised. What determines the quality of civilization is the use made of power. And that use cannot be controlled at the source."

In order to obtain information, the public relies on newspapers. But newspapers are riddled with error. (p. 297) "The truth about distant or complex matters is not self-evident, and the machinery for assembling information is technical and expensive". Newspapers are businesses, and they have to make decisions based on business considerations as well as on public service ones (p. 298). Readers have limited attention spans. News must be tailored to the selfish and personal considerations of the audience. The very definition of news as well as the threat of defamation suits limit editors' abilities to discern important underlying causes (p. 325):

"A great deal, I think myself the crucial part, of what deliberate misrepresentation on the part of newspapers is the direct outcome of a practical difficulty in uncovering the news, and the emotional difficulty of making distant facts interesting unless, as Emerson says, we can perceive them to be only a new vewrsion of our familiar experience."

(p. 331) " and truth are not the same thing, and must be clearly distinguished."

The press is "too frail to carry the whole burden of popular sovereignty, to supply spontaneously the truth which democrats hoped was inborn...they fail, they are bound to fail, in any future one can conceive they will continue to fail...Unconsciously (democracy) sets up the single reader as theoretically omnicompetent, and puts upon the press the burden of accomplishing whatever representative government, industrial organization and diplomacy have failed to accomplish."

Lippmann argues that institutions that are well run will generate accurate information, so that the quality of the press reflects the quality of institutions (p. 335-6):

"At its best the press is a servant and guardian of institutions; at its worst it is a means by which a few exploit social disorganization to their own ends...The press is no substitute for institutions...The trouble lies deeper than the press..."

The book falls down when (p. 342-3) Lippmann argues that experts can solve the information problem. This solution sounds naive indeed, although Lippmann can be forgiven for he was writing in 1921. Lippmann qualifies this claim by discussing the limitations of social science as he conceived it then. Nevertheless his conclusion that there is a "need for interposing some form of expertness beween the private citizen and the vast environment in which he is entangled" sounds stale from this vantage point. He couldn't have known about Ben Bernanke back then, of course.