Why the Tea Party Doth Protest Enough

The above graph shows the growth in total government spending, including state, local and federal, divided by gross domestic product, since 1948.  Notice the asterik at the far right that jumps up above the rest of the pack.  The outlier reflects President Obama's and the Democratic Party's outlays last year.  This was the most radical movement in spending in the past 62 years.  A similarly radical increase will occur in 2010.

Notice that one can draw an arc from 1948, when Harry Truman was president, to 2010.  The arc over-arches a V shaped pattern that began in the early 1990s and ended in 2009.  The Bush administration and Republican Congress of the mid '00s began the upwarded-moving right-hand leg of the V shape pattern after 2000  by gradually reversing the spending cuts of the Republican Congress during the Clinton years.  In other words, the federal government's best performance from the standpoint of an advocate of small government was during a Republican legislature and Democratic presidency. 

The Obama administration and Democratic Congress have effected  a radical shift from fiscal conservatism and the conservative consensus of the past 30 years.  The Democrats' radical shift amounts to a return to the social democratic arc (in the above graph) of the mid twentieth century.  In other words, the election of President Obama represents a return to the ideas of social democracy that were prevalent before the election of Ronald Reagan in 1980.

 
The next graph above shows the growth of non-defense government spending as a percentage of gross domestic product since 1948.  There were high post-World War II expenditures that were reduced during the Truman years.  From the early 1950s, the Eisenhower years, through 1980 there was a rapid increase in non-defense federal spending.  The election of Ronald Reagan changed the trend, but only moderately.  Between 1980 and 2010, three decades during which small government conservatives had a voice in government, spending fluctuated but remained roughly constant.

President Obama's spending levels represent a radical break back to the pattern of  the social democratic years of the early 1950s. Notice that the small government movement that President Reagan started did not reduce non-defense government spending.  A Republican Congress impeached Bill Clinton and proposed cuts in the Contract with America, but was unable or unwilling to execute sharp reductions in government spending.  The late twentieth century Republicans were moderate.  For many in the small government movement they were too moderate.  The Tea Party is on the avant garde of change on behalf of small government.

President Obama and congressional Democrats washed away three decades of moderation in a single, radical swipe.  We of the Tea Party anticipate further radicalism from the Democrats.  The Tea Party is insisting that the Republicans develop a taste for realistic change.

When defense spending is included in the ratio of federal government spending to gross domestic product in the above chart, several shifts become evident.  Until the late 1980s, including the Reagan administration, spending increased.  The difference between President Reagan and his predecessors was that he focused on defense spending and downloaded spending to the states via his new federalism.  The military spending paved the way for the peace dividend of the early 1990s.  As well,  the Republican Congress  gradually limited non-defense federal spending.

President Bush increased spending, partially for military reasons associated with the wars in Iraq and Afghanistan. The shift was not nearly so pronounced as it was in the first year of the Obama administration with its stimulus package.  It is true that Bush reversed much of the progress that the Republicans made from the early 1980s until 2000.  However, Bush's spending increases were not so radical as Obama's.    

The final graph is of state spending divided by Gross Domestic Product since 1948.  There was a significant dip in state spending during the 1970s during President Nixon's new federalism and then a significant increase during President Reagan's new federalism.

During the Bush years state spending advanced once again.  Currently, state and local spending divided by gross domestic product is at the highest level in history, and federal government spending divided by gross national product also is at the highest level in history.  With the stimulus and health care law, the Obama administration has altered federal spending to fit the mid twentieth century pattern that had ended in 1980 (as represented by a line that can be drawn from early 1950s non-defense federal spending levels to the Democratic Party's spending level in 2009 or as an arc with respect to total government spending).

Advocates of small government may rightly conclude that the Republicans' chief error during the past 30 years was  moderation.  The Obama administration and the Democratic Congress are interested not in consensus but in a radically reactionary return to the social democracy of the Eisenhower, Kennedy, Johnson and Nixon era.  The public rejected that consensus in 1980 and non-defense spending was kept roughly constant.  This is consistent with a moderate perspective whereby the Republicans recognized the interests of a large segment of the population that still believes in the social democratic programs of the 1930s to 1970s. Many in the small government movement would like to see those programs wound down.  However, the Democrats do not respect those who believe in small government in any way that parallels the respect that Republicans showed to Democrats.  This needs to change if the Republicans hope to regain office.

Small government advocates do not believe that government solves problems; that the Obama health reform law will save lives; or that current government programs such as the department of education or the department of energy have succeeded.  In future, given the radicalism that Democrats have shown, those who believe in small government have no ground to exercise moderation. The only explanation for doing so will be incompetence.   Were the Democrats, like George W. Bush, moderate in their big government stance, moderation among small government advocates might be a realistic strategy.  But to maintain a moderate bargaining position in the face of President Obama's radicalism would be absurd.

Hence the Tea Party.  The mass media has been unwilling to comprehend the Tea Party's nature.  When I Google the words "tea party racist" I obtain more than 2.1 million hits. But the Tea Party meetings I have attended have contained less racism than the average university faculty meeting. The Tea Party movement is not racist and it is non-violent. It is composed of people who were willing to accept the disappointing, moderate consensus of the Reagan and Clinton years, but whose moderation has been betrayed.

America In Extremis

The time has come to spin off the federal government and download it onto the states, leaving just national defense, interstate commerce and conflict resolution to the federal government. The federal government has proven itself to be unmanageable, with the growth of special interests, Medicare and Social Security, not to mention the many bureaucratic government agencies like the Department of Agriculture and the Department of Labor that should be simply shut down.

The states ought to be parceled out the federal responsibilities, and given the option to discontinue or continue them. States like New York, Massachusetts and California would undoubtedly continue the wasteful stupidity, and better and more intelligently run states will discontinue it. This will put the sharp regional differences between the backward "blue" states and the more enlightened "red" states into focus. Ultimately the "blue" states will lose population and go bankrupt as population will emigrate to the "red" states.

NRA Files Brief in McDonald v. City of Chicago

I just received the following e-mail from the National Rifle Association. The NRA "asks the US to apply the Second Amendment to state and local governments". There is a natural right to bear arms. The Second Amendment not only guarantees the right but establishes a responsibility of all Americans to bear arms in order to secure a free state. The Second Amendment says:

"A well regulated militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed."

The people have the right to bear arms, but they also have an obligation to participate in a well regulated militia in order to do the necessary work of keeping the state free. The people can only do this by owning a gun capable of resisting tyranny by the state and federal governments. All Americans ought to own weapons capable of resisting military attack.

I disagree with the NRA that the Constitution ought to be applied to the states. I understand that they are focusing on the right to bear arms, and God bless them. But centralization and the federal government's threat to state sovereignty equals the government's threat to eliminate citizens' freedom and their ability to resist the federal government's authoritarian state violence. Both federalism and the right to bear arms are important.

>On November 16, the NRA filed its brief with the U.S. Supreme Court as Respondent in Support of Petitioner in McDonald v. City of Chicago. The NRA brief asks the U.S. Supreme Court to hold that the Second Amendment applies to state and local governments through the Fourteenth Amendment.

>The McDonald case is one of several that were filed immediately after last year's decision in District of Columbia v. Heller, in which the Court upheld the Second Amendment as an individual right and struck down Washington, D.C.'s ban on handgun possession, as well as the capital city's ban on keeping loaded, operable firearms for self-defense in the home.

>The follow-up cases were filed by NRA and other organizations against Chicago and several of its suburbs. Each of these suits was aimed at the same goal: establishing that the Second Amendment applies to state and local governments as well as the federal government.

Aristotle: Federal Government Not A State

In Politics (1279-81) Aristotle argues that states exist for the sake of a good life. The Declaration of Independence restates this when Jefferson writes that rights include "life, liberty and the pursuit of happiness", an Aristotelian as well as a Lockean formula. In fact, Jefferson had been trained in Greek and Latin, as were the majority of the Founders. Positing the pursuit of happiness as the chief constitutional goal was taken from Aristotle's Nicomachean Ethics and Politics, in which Aristotle posits "eudaimonia", normally translated as "happiness", as the chief object of human existence. As Jefferson and the Founders well knew, happiness was the product of a virtuous life. In Aristotle's view, the existence of virtue suggested the existence of God.

Aristotle insists that states do not exist for alliances or security from crime, or for economic exchange and commerce. Rather, "virtue must be the care of a state which is truly so called...for without this end the community becomes a mere alliance which differs only in place from alliances of which the members live apart; and law is only a convention, 'a surety to one another of justice,' as the sophist Lycophron says, and has no real power to make the citizens' good and just.

"This is obvious; for suppose distinct places such as Corinth and Megara, to be brought together so that their walls touched, still they would not be one city, not even if the citizens had the right to intermarry, which is one of the rights peculiarly characteristic of states. Again, if men dwelt at a distance from one another but not so far off as to have no intercourse, and there were laws among them that they should not wrong each other in their exchanges, neither would this be a state. Let us suppose that one man is a carpenter, another a husbandman, another a shoemaker and so on and that their number is ten thousand: nevertheless, if they have nothing in common but exchange, alliance and the like, that would not constitute a state...It is clear then that a state is not merely a society, having a common place, established for the prevention of mutual crime and for the sake of exchange. These are conditions without which a state cannot exist; but all of them together do not constitute a state, which is a community of families and aggregations of families in well-being, for the sake of a perfect and self-sufficing life. Such a community can only be established among those who live in the same place and intermarry. Hence arise in cities family connexions, brotherhoods, common sacrifices, amusements which draw men together. But these are created by friendship, for the will to live together is friendship. The end of the state is the good life, and these are the means towards it. And the state is the union of families and villages in a perfect and self-sacrificing life, by which we mean a happy and honourable life.

"Our conclusion, then, is that political society exists for the sake of noble actions, and not of mere companionship. Hence they who contribute most to such a society have a greater share in it than those who have the same or a greater freedom or nobility of birth but are inferior to them in political virtue; or than those who exceed them in wealth but are surpassed by them in virtue."

But is the United States a nation that encourages virtue? The United States has increasingly disowned the Christian religion, which for many, likely a majority, is the foundation of virtue. The United States does not offer in the place of Christianity a coherent definition of virtue. Many argue for secular humanism, an inarticulate, disjoint set of claims that devolves into special interest brokerage, the commercial contracting which Aristotle argues cannot be the foundation of a living state.

The recent bailout rejects virtue in the interest of opportunism. Forgetting the claim (which I say elsewhere is nonsensical) that the bailout was necessary to prevent a "depression", to what degree is a nation that rewards sloth and incompetence with a large share of the national wealth one that is committed to virtue?

Moreover, and this is the point of greatest interest to me, I do not think that Americans share a common definition of virtue. On the one hand, the Progresssives and secular humanists reject traditional Christianity, preferring instead a Social Gospel based on violent redistribution and capricious definitions of "positive rights," which are whatever the whims of Wall Street and the New York Times say they are. On the other hand, liberals (libertarians) and traditionalists of various kinds reject the socialism of the Democratic Party and the Rockefeller Republicans and believe in the traditional virtues of religion and freedom.

I do not think that a reconciliation is possible. America is no longer a nation with a shared sense of virtue. It is no longer a state.

De Jouvenal on State Sovereignty

Decentralization is a managerial tool that has proven to be essential to conglomerates and other large organizations. With respect to political entities, it is essential. The managerial state, by which I mean the state that has committed to managing the delivery of services, is governed by the same principles that govern any other organization. The reason for decentralization is the difficulty in understanding problems. The large size of the federal government renders decision making difficult. Smaller size better reflects preferences and tastes. Finding a set of policies that matches people's preferences is exponentially more difficult when larger numbers of people are involved.

De Jouvenal notes that leaders of democratic-authoritarian states, like the United States, dread decentralization. Note that he argues that democracies are by their own nature authoritarian because the unfettered "national will" dispenses with law and views any intermediary unit--the family, firms, unions, hospitals, churches--as subject to its control. The transition from monarchy to democracy changes the historic role of law from that of guide to action and protector of rights to that of expression of the will of power as reflected in the sovereign will of the monarch-turned-legislature. In the United States that transition occurred from 1860 to 1935 and may be called Progressivism.

De Jouvenal writes (p. 286, On Power):

"Every Power is sure to attack centrifugal tendencies. But the behaviour of democratic Power offers in this respect some peculiar features of a striking kind. It claims its mission to be that of liberating men from the constraints put on him by the old Power, which was the more or less direct descendant of conquest. But that did not stop the Convention from guillotining the Federalists, the English Parliament from wiping out, in some of the bloodiest repressions of history, the separatist nationalism in Ireland, or the government in Washington from launching a war such as Europe had never seen to crush the attempt of the Southern States to form themselves into a separate unity. Another instance would be the action of the Spanish Republic in 1934 in opposing by force the movement to Catalan independence.

"This hostility to the formation of smaller communities is inconsistent with the claim to have inaugurated government of the people by itself, for clearly a government answers more closely to that description in smaller communities than in large. Only in smaller communities can the citizens chose their rulers directly from men whom they know personally. Only in them can justification be found for the encomium pronounced by Montesquieu:

"'The people is well fitted to choose...The people knows well whether a man has often seen active service and what successes he has won: therefore it is well equipped to choose a general. It knows whether a judge attends to his duties; whether most people leave his court satisfied; whether or not he is corrupt; therein is knowledge sufficient for it to elect a praetor. It has been impressed by the magnificence or wealth of a certain citizen; this qualifies it to choose an aedile. These are all facts which make a public square a better informed place than the palace of a king.'

"A further requirement is that there should be a public square or its equivalent, and that the choice of administrators should take place at the municipal level.

"The desire to secure the fullest measure of popular sovereignty possible should logically lead to the same principles being followed in the formation of the higher authorities. At the provincial level the population is already too large and too scattered to be effectively assembled, so that each candidate for a place may be known personally to everyone. For that reason the choice and control of regional administrators should be the work of the representatives of the municipalities. And, for the same reason, the choice and control of national administrators should be the work of representatives of the region.

"A system of this kind would assuredly be best fitted to embody popular sovereignty, especially if the representatives were held in check by imperative mandates, and were liable at any moment to be recalled by their constituents, even as the representatives attending at the Dutch States-General could be recalled by their provinces and the representatives at the States-Regional by their townships.

"But the new men whom the popular voice has made masters of the imperium have never shown any inclination to a regime of that kind. It was distasteful to them, as the heirs of the monarchical authority, to fritter away their estate on subordinating themselves. On the contrary, strong in strength of a new legitimacy, their one aim was to increase it. Against the federalist conception Sieyes was their mouthpiece:

"'A general administration which, starting from a common centre, will reach uniformly to the remotest parts of the Empire--a body of laws which, though its elements are provided by the body of citizens, takes bodily form at as distant a level as that of the National Assembly, to whom alone it belongs to interpret the general wish, that wish which thereafter falls with all the weight of an irresistible force on those very wills which have joined in the formation of it.'"

De Jouvenal on the Public Loss Function

The notion of a loss function is the basis of total quality management. Quality losses appear when the realization of an output deviates from its target qualities. For instance, if a nail is supposed to be 6 inches long, and it comes off the conveyer belt measuring 6.0000001 inches, the .0000001 is a loss. Total quality management is a process of reducing the loss by investigating deviations that are more than three standard deviations from the target.

De Jouvenal argues that Power, the governing elite, derives historically from conquest. In European history this took the form of the conquest of the Roman territories and Rome itself by the Franks, Goths, Angles, and other Barbarians. In China this took the form of the unification of China by the Duke of Zhou and Qin Shi Huang's reunification following the warring states period. Qin, by the way, buried China's scholars alive, a fate I have dreaded after seeing the movie The Vanishing.

The monarch or leader of the conquering tribe exploits the conquered population rather than kill them. The invention of slavery reduced the amount of killing because the conquerers learned to make use of the conquered economically. The king realizes that the nobility, the leaders of his army, pose a threat to his power. Over time, perhaps multi-generationally, the king realizes that by taking the side of the conquered against the nobility he can reduce the power of the nobility and enhance his own power. This happened in England in the 1500s. The establishment of the Chinese Civil Service was within roughly two centuries of the Qin Shi Huang's reunification of China. In America, the Progressives, representatives of big business, realized that they could work with populist and socialist movements by saying that they were against the trusts, and in doing so bring regulations that attacked the rising entrepreneurs and benefited big business to bear. Thus, the king creates a bureaucracy or civil service that aims to provide social benefits in order to unite the people against the nobility. This occurred in modified form in the United States. Abraham Lincoln had enhanced federal power in the 1860s, and Progressivism appeared within 40 years.

Ultimately the people realize that the king can be replaced with the popular sovereignty or national will, which of course are non-existent imaginings. The king is deposed and democracy replaces the monarchy. The unlimited definition of democracy, in turn, leads to tyranny. Thus, the French Revolution led to killings by Jacobins, Robespierre and the Committee of Public Safety; the democratic revolution of Sun Yat Sen led to the tyranny of Mao Tse Tung; and the overthrow of the Czar led to the Bolshevik Revolution.

In America De Jouvenal's model does not apply exactly because there was no monarch. Also, Rousseau's unlimited theory of democracy did not take hold. Rather, Lockean liberalism limits the power of democracy. Hence, the tyrannies and suffocating power of government that took hold in backward Europe and Asia did not occur here. However, America's elite, jealous of the wonderful triumphs in Europe, aimed to introduce Rousseauean unlimited democracy here. Just two decades before the ascension of both Hitler and Stalin, Herbert Croly, Walter Weyl and Theodore Roosevelt argued for Progressivism. Croly's book glorifies the state and is very much in the tradition of German historicism, as was Progressivism in general.

The notion of a loss function is that the action of a producer can be improved by reducing losses. Many will argue with the claim that unlimited democracy leads to tyranny. However, whether you believe that unlimited democracy leads to social justice and benefits society, or whether you believe that limited government is better at achieving those ends, the question needs to be asked what the method of achieving each citizen's best interests can be. In other words, even if unlimited democracy and the state apparatus can advantage society, the question needs to be asked what method of execution or production will work best. It is unlikely that the centralized state by which Progressives hoped to emulate European Christian Socialism and social democracy (and itself was but an extension of monarchy, according to De Juvenal) is best at meeting public needs even if the state is better at meeting public needs than are private firms. The reason is bounded rationality.

Bounded rationality was discussed by March and Simon with respect to organizations in their book Organizations. Walter Lippmann discussed the idea with respect to public opinion in his book Public Opinion. Ludwig von Mises discussed it with respect to centralized economic planning. And De Jouvenal discusses it with respect to the ability of the state to achieve the objective of the common good.

Naturally, he mocks the idea that Power (as he defines it, the elite that governs society) has the common good in mind. This is the assumption of all advocates of big government, socialism, Progressivism, social democracy and the like. The notion that people seek power out of altruistic ends is laughable. We see this today with the naive news broadcasters, like CNN's Jack Cafferty, who offer prayers to Saint Barack Obama and his colleague, Lou Dobbs, whose head touches the floor seven times whenever Saint Barack's name is mentioned. But De Jouvenal grants this assumption.

He notes:

"But as soon Power is conceived as being exclusively the agent of the common good, it must form a clear picture for itself of what this common good is. While Power was eogist, the vital necessity under which it lay of reaching every day a daily accommodation with society, itself sufficed to form in it pictures of public requirements which, though confused, were born of actual contacts. But as soon as Power, under the spur of altruism, has a vision of the entire community and what medicine it needs, the inadequacy of human intelligence to such a task appears in its fullness. What the judgment pronounces then shows itself a blinder guide than what the senses indicate--to put it another way, touch is superior to vision.

"It is a noteworthy fact that all the greatest political mistakes stem from defective appraisals of the common good--mistakes from which egoism, had it been called into consultation, would have warned Power off." (On Power, p. 137).

In organizational theory, it is well established that one of the cures for cognitive limits on rationality is decentralization or divisionalization of organizations. Thus, one way to address the problem of the social loss function that government creates is to reduce the scope of governance. In other words, to download responsibility to the states.

American government anticipated this idea in the form of Federalism. However, the tendency over the past two centuries has been to reduce the power of the states and increase the monarchical power of the federal government. The reason for this is, as De Jouvenal points out, the economic, political and egoistic interests of the ruling elite--the politicians in Washington, the Justices of the Supreme Court, the academics who cater to them and receive significant jobs and consulting contracts, and the military industrial complex.

The monarchical process thus results in one rather odd effect: that a key finding of the social sciences, that information is difficult to procure; that rationality is limited; and that experimentation is the best way to learn; is scoffed at by judges, economists and academicians, whose economic interests take precedence over their interest in pursuing justice or the truth.

The Unity Philosophy Failed Because Laissez Faire Succeeded

In the US, the notion that there needs to be a strong central state began with the Federalist Papers. The Federalists left a considerable degree of decentralized authority with the states, but from the beginning there was ambiguity as to how decentralized decision making ought to be. Centalization was re enforced with the Civil War, which further strengthened the federal government and opened the door to Progressivism. The Progressives were not necessarily centralizers. However, the key federal legislation that came from Progressivism, the Hepburn Act, the Federal Trade Commission, the federal income tax and the Federal Reserve Bank as well as imperialist ventures like the Spanish American War were all centralizing. On the other hand, much of the Progressive legislation, such as Workers' Compensation, housing codes and wage and hours laws respecting women and children proceeded at the state level. The New Deal served as a centralizing force on Progressivism, and may be viewed as the culmination of 160 years of Hamiltonian federalism.

The centralizing trend came about because of conflicts about morals and economic opportunism. As Charles Beard and other Progressives argued, much of the motive for the federal Constitution was economic gain to domestic manufacturers, which Hamilton wholeheartedly supported as did Madison and Jefferson to a lesser degree. But abolitionism and then concern about trusts led to moralizing about the economy. Until the post-bellum era Protestantism had been associated with local community as in John Winthrop's City on a Hill. The states were separate religious communities and did not aim to impose their religious-based moralities on other states. But slavery posed a national moral problem, as did the central bank. Thus Calvinist morality took on a national scope. The notion that the nation was a moral community took hold. Among the advocates of this notion were the late nineteenth century Mugwumps, who were among the first media-based national moral movements. The Mugwumps were mostly Protestant, although there were a few Catholics and Jews among their ranks as well (there were few Jews in America in the 1870s but there was a handful of notable Jewish Mugwumps, such as Simon Sterne). The Mugwumps were not necessarily religious, but they had been religiously trained and applied the morality of their education to the economic problems facing America, for instance, the corruption associated with the railroads, the Greenback inflation and most of all the need for a civil service to counteract the urban corruption of the political boss system. Although the Mugwumps were laissez faire in ideology they were very much the precursor to the Progressives in that they focused on national issues and saw national solutions in terms of the need to rationalize government.

The trend toward centralization thus came out of the Civil War and was re enforced by one outcome of Progressivism: the intensification of Jim Crow laws, especially in the South. As the results of Jim Crow became evident in the early twentieth century, the need to counteract it took hold in a reincarnation of the Civil War in terms of the Civil Rights movement. As well, the Roosevelt administration saw economic problems as resolvable at the federal level. Thus, Social Security, labor law, wage and hour laws, securities regulation, agricultural regulation and public works took hold in the public mind.

This was occurring precisely as it became evident to managers in America's large industrial firms that centralization does not work. This was noted by Alfred Chandler in his book "Strategy and Structure", especially with respect to Alfred Sloan. Sloan modeled General Motors after the federal government, downloading responsibility to the automotive and other manufacturing divisions just before Roosevelt saw fit to centralize decision making in Washington.

As it turned out, Sloan was right, although subsequent generations of General Motors executives dropped the ball. As General Motors re-centralized it failed to be able to compete with innovations of the much smaller Toyota Automotive in the 1950s. These innovations were known as lean manufacturing. As well, Toyota was able to adopt the ideas of Edward I. Deming.

As American industry found that decentralization was necessary to competent management, the federal government became more insistent on centralization. Part of this was due to intensification of the Civil Rights struggle in the 1960s, but part was due to the egos and greed of politicians and academics who oversaw federal policy. Thus, plans like Medicaid and Medicare which could have been experimentally adopted at the state levels, with the best results revealed, were thrown into existence in a slipshod manner at the federal level without the pragmatic advantage of state-based experimentation. Policies concerning health care, social security, pension regulation, health and safety regulation, auto safety, pollution and most of all monetary policy were adopted at the federal level, typically with poor to mediocre results.

The failure of the Great Society Programs; the mismanagement of social security; the crippling effects on inner city blacks of urban renewal and labor laws; the instability due to monetary policy under Richard M. Nixon and the early years of the Carter administration might have given the centralizers pause. But it did not.

Unwilling or unable to grasp the reasons why centralization does not work, they continue to push for dramatic, centralized solutions to America's problems. The result: the sub-prime crisis; the series of bubbles that occurred in the 1990s and 2000's; declining real hourly wages; a failing social security system (or a social security that fails to provide an adequate retirement benefit despite 14% annual contributions by workers and their employers); and declining career opportunities for young people.

Despite these and other failures, the "progressives" continue to agitate for the same failed, centralized approach. This should be called the "pathology of centralization".

Federalist's Argument for Union

John Jay, Federalist No. 5:

"Should the people of America divide themselves into three or four nations, would not...jealousies arise? Instead of their being 'joined in affection and free from all apprehension of different interests," envy and jealousy would soon extinguish confidence and affection, and the partial interests of each confederacy, instead of the general interests of all America, would be the only objects of their policy and pursuits. Hence, like most other bordering nations, they would always be involved in dispute and war, or live in the constant apprehension of them...

"The most sanguine advocates of three or four confederacies cannot reasonably suppose that they would long remain exactly on an equal footing in point of strength...Independent of those local circumstances which tend to beget and increase power in one part and to impede its progress in another, we must advert to the effects of that superior policy and good management which would probably distinguish the government of one above the rest, and by which their relative equality in strength and consideration would be destroyed. For it cannot be presumed that the same degree of sound policy, prudence and foresight would uniformly be observed by each of these confederacies for a long succession of years..."

But might this not argue indeed for separate confederacies? Jay assumes that management is the product of good fortune. But Sir Arnold Toynbee, a century and a half later, argued that mimesis or imitation is the hallmark of a rising civilization. Might not independent confederacies permit experimentation and learning which would potentially be imitated by the other confederacies? Management is a process of learning, and learning is possible through experimentation. The decentralization of decision processes permits learning. So the decentralization of federal power permits innovation that would not exist in a centralized federal structure.

Jay feared that less successful confederacies would fear more successful ones. Might not they decide to imitate the more successful ones instead?

In the Federalist Number Six, Hamilton argued that separate federations would likely lead to conflict and war:

"Has it not...invariably been found that momentary passions, and immediate interests, have a more active and imperious control over human conduct than general or remote considerations of policy, utility or justice? Has republics in practice been less addicted to war than monarchies?...Are there not aversions, predilections, rivalships and desires of unjust acquisitions that affect nations as well as kings?...There have been almost as many popular as royal wars...it has from long observation of progress of society become a sort of axiom in politics that vicinity, or nearness of situation, constitutes nations natural enemies..."

But decentralization need not mean de-federalization. The states can remain in unity, as a single nation, but choose separate policies voluntary. The enmity of proximity can be induced by forced collaboration and participation in programs whose values many members of society do not share. The forcible extraction of assent to programs that only a portion of the population favors can give rise to the same resentment as that which neighboring states feel toward each other. The unity of a federal republic need not mean the unity of choice of consumption or or ideal.

Hamilton makes a similar claim in Federalist number 7:

"Competitions of commerce would be another fruitful source of contention. The States less favourably circumstanced would be desirous of escaping from the disadvantages of local situation and of sharing in the advantages of of their more fortunate neighbors. Each State, or separate confederacy, would pursue a system of commercial policy peculiar to itself. This would occasion distinctions, preferences and exclusions, which would beget discontent. The habits of intercourse, on the basis of equal privileges to which we have been accustomed since the earliest settlement of the country would give a keener edge to those causes of discontent than they would naturally have independent of this circumstance. The spirit of enterprise, which characterizes the commercial part of America, has left no occasion of displaying itself unimproved. It is not at all probable that this unbridled spirit would pay much respect to those regulations of trade by which particular States might endeavor to secure exclusive benefits to their own citizens."

Hamilton's concerns need not materialize in a hyper-federalized America. In Hamilton's time, geographic differences were of great importance. Modern management methods and technological advances had not yet made the importance of process and strategy so evident as they are today. Better economic success can be imitated, especially by flexible firms that are young. It is the centralization of American buisness, its scale, that has engendered the inability to imitate Japanese processes. The misallocation of credit toward failed, large firms has prevented the formation of smaller, more nimble automobile firms.

Hamilton also argues that "the public debt of the Union would be a further cause of collision between the separate states." But hyper-federalization need not involve repudiation of debt or individually-based federal taxation. This system has been instituted and need not be repudiated until the debts have been satisfied on the basis on which they have been incurred.

Rationality and Decentralization in Montesquieu's Spirit of Laws

In his famous article "The Nature of the Firm", Ronald Coase claimed that firms exist because they are cost minimizing. It is cheaper to coordinate a set of economic processes using methods available to business concerns than on the market. Coase thus suggests that marginal costs of organization will tend to be equated to the returns from organization. In general, the larger the firm the greater the costs of organization. Transactions involved in maintaining complex or large organizations are more costly than transactions involved in maintaining smaller ones. Firms grow to an optimal size given the costs and benefits to scale. Economies of scale refer to declining unit costs because of increasing sized firms' increasing ability to spread overhead over a large number of units. But increasing organization costs, also due to increasing size, may outweigh the costs per unit.

Anticipating Coase by more than two centuries and relying on comparative historical analysis, Charles de Secondat, Baron de Montestquieu, makes a parallel claim about the benefits of scale in the design of republics. Montesquieu writes that the optimal size of republics is small, because large scale republics permit large fortunes, which in turn create immoderate demands by interest groups. The competition of special interests leads to an overemphasis on private concerns and an underemphasis on the public good:

"In an extensive republic the public good is sacrificed to a thousand private views; it is subordinate to exceptions, and depends on accidents. In a small one, the interest of the public is more obvious, better understood, and more within the reach of every citizen; abuses have less extent, and of course are less protected."*

Montesquieu gives as an example the Greek republics, which were small city states. Montesquieu also notes that there are advantages to great as opposed to petty states. Thus, he is arguing for a balance, or optimization, of benefits as opposed to costs. In Book IX Montesquieu notes that small republics may be destroyed by foreign invasions and large repulics are destroyed by "internal imperfections". But, argues Montesquieu "confederate republics" have the advantages of a republic together with the external force of a monarchical government. "Hence it proceeds that Holland, Germany and the Swiss cantons are considered in Europe as perpetual republics." The many states balance power. Insurrections in one state can be quelled by others. But confederacies must consist entirely of republics (this was integrated into the Constitution). I would add that confederacies permit intelligent management of information while permitting economies of scale with respect to defense and economic markets.

Of course, there are many other factors relevant to the nature of government. In writing about the geographical differences between Europe and Asia**, Montesquieu notes that geographical differences facilitate the "slavery" of Asia and identifies large scale with despotism:

"In Asia they have always had great empires; in Europe these could never subsist. Asia has larger plains; it is cut out into much more extensive divisions by mountains and seas; and as it lies more to the south, its springs are more easily dried up...Power in Asia ought, then, to be always despotic: for if their slavery was not severe they would make a division inconsistent with the nature of the country."

In the 1960s and 1970s, Mancur Olson and George Stigler argued that ease of organization of interest groups and the economic benefit per participant due to successful lobbying lead to success or failure of specific groups in economic competition. For a long time physicians formed a successful lobby because they shared common training, common values and attended conferences of the American Medical Association. Geographic advantages would certainly be among the kinds of advantages different interests might enjoy. Geography, argued Montesquieu in 1748, contributes to the nature of political organization, and large geographic scope is most consistent with despotism.

A school of historians, to include William Appleman Williams, Gabriel Kolko, Martin Sklar and James Weinstein, has identified Progressivism, which appeared following the advance of big business and the closing of the American frontier, as a pro-big business ideology; that Progressivism was the ideology of big business even though it was packaged as "liberal" and served to preempt socialism (and end laissez-faire capitalism). Montesquieu did not anticipate Progressivism, but he did anticipate that as nations grow in scope they are more likely to be dominated by economic special interests and that the domination is likely to be authoritarian in nature, which is the claim that Kolko-Williams school makes about Progressivism.

Montesequieu also anticipated the ideas of David Riesmann in his famous book The Lonely Crowd. In Book XIX Montesquieu discusses "Laws in relation to the principles which form the general spirit, the morals and customs of a nation".*** He notes that factors like climate, attitudes toward tyranny, religion, laws, morals and other factors influence "the spirit of mankind". He argues that nations ought to pass laws that fit their temperaments. In a puritanical nation with good character "no one ought to restrain their manners by laws, unless he would lay a constraint on their virtues." For instance, laws that reduce luxury or restrain women might cause the nation to "lose that peculiar taste which would be the source of the wealth of the nation, and that politeness which would render the country frequented by strangers." Thus, it is difficult to be rational with respect to law, and it is easiest to fit the temperament of the populace in designing law. Law should be avoided:

"Let them but leave us as we are, said a gentleman of a nation which had a very great resemblance to that we have been describing, and nature will repair whatever is amiss..our indiscretions joined to our good nature would make the laws which should constrain our sociability not at all proper for us."

If laws are necessary, they should build on existing patterns

One of the key attributes (Book XIX, section 8) is "effects of a sociable temper". This is analogous to Riesmann's other-directedness. Montesequieu writes:

"The more communicative a people are the more easily they change their habits, because each is in a greater degree a spectacle to the other, and the singularities of individuals are better observed. The climate which influences one nation to take pleasure in being communicative, makes it also delight in change, and that which makes it delight in change forms its taste.

"...the desire of pleasing others more than ourselves gives rise to fashions. This fashion is a subject of importance; by encouraging a trifling turn of mind, it continually increases the branches of its commerce."

Riesmann notes that the commercial centers are characterized by other-directedness while rural America is still inner- and tradition-directed. Likewise, David McClelland finds in his book Achieving Society that high achievers couple other-directedness with need for achievement. But McClelland was writing after America's greatest achievements were complete. The inner-directeds' achievements were in building a great nation, the other-directedness in consumption and mass communication. Other-directedness, as in Athens and likely Rome, are associated with decline after the inner-directeds have built their vision.

Montesquieu anticipated 20th century arguments such as Walter Lippmann's claim that the public is incapable of rational democratic decision; Mancur Olson's and George Stigler's claim that in a democracy special interest groups tend to organize along economic contours and extract rents from the public; and James March and Herbert Simon's claim that boundaries on rationality inhibit firms from thinking strategically or clearly.

Montesquieu notes the link between commerce and communication.++ It is likely that other-directedness is most advantageous where coordination is more important, i.e., in large firms and in interpersonally driven-tasks involving diplomacy or sales.

He adds:

"The effects of commerce is riches; the consequences of riches, luxury; and that of luxury the perfection of the arts. We find that the arts were carried to great perfection in the time of Semiramis; which is a sufficient indication that a considerable commerce

This is seen in his claim that the necessities of state and those of the taxpayers need to be balanced in assaying taxes, but that few politicians have "the wisdom and prudence" to limit tax levels.+ The wisdom required in a very large state is greater than the wisdom required in a small one. Much as Coase argued that there are limits to economies of scale, so Montesquieu argued, 220 years before Coase, that there are limits to the advantages of the scale of nations.

*Montesquieu, The Spirit of Laws. New York Prometheus Books, 2002. Translation originally published in New York by the Colonial Press, 1900, p. 120.
**Ibid., Book XVII, section 6, p. 269.
***Ibid., p. 292
+Ibid., p. 207
++Ibid., p. 334.

The Beginning of Cafeteria Societies

John Locke's Second Treatise of Government* makes the case that governments are instituted by the consent of the governed and that governments are instituted in order to maximize human freedom. Much of Locke's thinking was influenced by the American frontier, and it is evident that the Founding Fathers adapted Locke's work in their thinking about government in part because they saw the Declaration of Independence as a compact to which Americans freely consented. Locke saw the colonies as emerging in this way too. In chapter VIII, "Of the Beginning of Political Societies" Locke discusses how someone can consent to being a member of a political society. He argues that owning land in a nation or living there does not make a man a member of the society:

"this no more makes a man a member of that society, a perpetual subject of that common-wealth, than it would make a man a subject to another, in whose family he found it convenient to abide for some time; though, whilst he continued in it, he were obliged to comply with the laws and submit to the government he found there."

Locke sees the freedom to leave one's country of birth and to pursue citizenship in a different state as possible because of the existence of the American frontier. If one can pick up and move to a Pennsylvanian wilderness, then one has a choice. But such wildernesses no longer exist.

The impetus to adopt the Progressive ideology occurred right at the time that the historian Frederick Jackson Turner claimed that the American frontier had closed. The nineteenth century American belief in laissez-faire psychologically depended on the existence of a frontier. Part of the response to the sense of loss from the closing of the frontier and the end of expansive growth and (mistakenly thought) the beginning of decline, were imperialism and intensification of racism. Thus, the Spanish-American War, Progressivism and intensification of Jim Crow laws all occurred at the same time. These were all the product of a win-lose mentality, a belief that freedom is possible only when physical expansion is possible. Wilson and other Progressives believed that foreign markets would be necessary to sell "overproduced" American goods. A little earlier, economists like DA Wells had argued that "overproduction" was an ongoing problem and that business needed to consolidate. Progressives focused on the need for government to control big business. This way of thinking is the flip side of expansionism. Both are win/lose psychologies.

In a win-lose psychology, one believes that in order to gain, something must be lost. That was a primary assumption of mercantilism, and so the laissez-faire of the American nineteenth century was a mercantilist laissez-faire. It replaced mercantilism's emphasis on community with Lockean individualism but it retained the win-lose psychology of mercantilism. Thus, Jacksonian democracy was racist and focused on land expansion and suppression of the Indians.

The question that intrigues me about Locke's contractualism is whether it would be possible in a non-mercantilist, non-expansionist laissez-faire framework. The expansion necessary for increasing human welfare is mental, not physical. It is not a win-lose process, but a win-win one, whereby technological genius and creativity increment human welfare. This process is possible in all phases of the economy.

But not all Americans agree with this potential. America has become divided into factions. We are no longer a single people. In the nineteenth century there were ideological factions as there are now. Likewise, there were geographic and economic ones. The Civil War was fought for this reason.

But for the most part, the factions of the nineteenth century were not mutually incompatible. This was in part because of the frontier, and in part because alternative modes of government were still possible in the various states. Federalism still permitted considerable discretion among the states. As well, the states diverged on a few key issues, such as slavery, but all Americans shared a belief in individual liberty.

Today, the basic foundation of American culture and government is splitting into the America of liberal collectivism and the America of individualism.

Unlike the nineteenth century differences between the commercial interests of Boston and the agrarian interests of Virginia, collectivism is incompatible with individualism. The most important reason is that the collectivists or Progressives insist on centralization. They have accomplished this through educational systems; creation of an elitist psychology that has enabled the Supreme Court to deviate with respect to values from a large portion of Americans; and emphasis on collectivist federal programs such as Social Security and the income tax that require participation. Most of all, the Progressives have emphasized centralization, and do not tolerate state-level deviation from the broad Progressive program and will violently quell any individual resistance.


Locke argued that citizenship depends on agreement. Those who do not agree with the collectivist program ought to have some rights. So far, they have allowed the collectivists to intimidate them, and have acquiesced in seeing their rights whittled.

What might be a better approach? One might be the creation of cafeteria societies. Might Americans be allowed to choose among several alternative social structures? Why must all Americans make do with the failed ideas that Washington has imposed. In industry, benefit plans have been adopted that give employees a choice. Why can we not have two or three competing social security, welfare, taxation and health insurance schemes? Those who prefer low taxes and less benefits might choose one state, while those who prefer high taxes might choose the other. Democrats and Republicans could each have the system that they prefer. The two systems would be conjoined through a common defense and tariff policy, but Americans could begin to have governments that they believe in.

John Locke's idea of contractual government might point the way to a future that is characterized by flexibility and choice rather than the heavy, violent hand of collectivist Progressivism. America needs to think about how to reassert the basic Lockean compact.


*John Locke, Second Treatise of Government, Edited with an Introduction by CB Macpherson. Indianapolis, Ind.: Hackett Publishing, 1980

Hamilton on Federalism: The Federalist Papers No. 32-34

The Federalist Nos. 32 and 33 concern taxation. The constitution did not aim to consolidate the states into a single whole. Rather, "the plan of the convention aims only at a partial union or consolidation". State sovereignty would be "alienated" only when the Constitution granted an exclusive authority to the Union; where it gave authority to the Union but prohibited the States from exercising similar authority; and where a power granted expressly to the Union would be contradicted if similar authority were given to the states. The states and the federal government have coequal powers to tax except for exports and imports. Under the constitution the federal government has all powers that are "necessary and proper" for implementing the powers that the Constitution grants it, and "the Constitution and the laws of the United States...shall be the supreme law of the land."

Hamilton asks in No. 33: "Who is to judge of the necessity and propriety of the laws to be passed for executing the powers of the Union?" The national government "must judge in the first instance of the proper exercise of its powers...If the federal government should overpass the just bounds of its authority and make a tyrannical use of its powers, the people, whose creature it is, must appeal to the standard they have formed, and take such measures to redress the injury done to the Constitution as hte exigency may suggest and prudence justify." Hamilton does not introduce the Supreme Court in this discussion.

"...a law (passed by the Union) for abrogating or preventing the collection of a tax laid by the authority of a State (unless upon exports and imports) would not be the supreme law of the land, but a usurpation of power not granted by the Constitution...It is to be hoped and presumed, however ,that mutual interest would dictate a concert in this respect which would avoid any material inconvenience. The inference from the whole is that the individual States would, under the proposed Constitution, retain an independent and uncontrollable authority to raise revenue to any extent..."

In No. 34 Hamilton reemphasizes that "the particular states under the proposed Constitution, would have coequal authority with the Union in the article of revenue, except for duties on imports." But the states have more limited needs for revenue than does the federal government, in Hamilton's view. Future contingencies respecting the federal government would be unlimited, especially because of the threat of European wars. State budgets would likely be no greater than 200,000 pounds, but the potential exigencies of the union were likely unlimited.

He got the the 200,000 pounds part wrong, but forecasted the federal budget with uncanny accuracy. The point is that there is a partnership between state and federal governments, and in Hamilton's elitist view, the central government was to be more dominant than the states. The states need from one tenth to one twentieth of the resources, the federal government from nine tenths to nineteen twentieths. The ratio isn't as lopsided as Hamilton thought it would be, but he anticipated Progressivism nicely.

Thus, he argues for a concurrent jurisdiction in the article of taxation, a partnership between the States and the Union.

Hamilton on the Limits of Decentralization

Federalism has always meant a partnership among the states and between the states and the federal government. Just as there are certain public goods that are indivisible so that individuals cannot purchase them and so devolve upon government, so there are federal goods that the states cannot divide and pay for individually and so must devolve upon the federal government. Defense and foreign policy are indivisible not only among individuals but also among the states. In an economy with an enhanced level of decentralization as existed in the late 18th and 19th centuries it is beneficial for defense and foreign policy to be handled by the federal government. In the Federalist Papers No. 25 Hamilton wrote this:


"It happens that some States, from local situation, are more directly exposed. New York is of this class. Upon the plan of separate provisions (of defense), New York would have to sustain the whole weight of the establishments requisite to her immediate safety, and to the mediate or ultimate protection of her neighbors. This would neither be equitable as it respected New York, nor safe as it respected the other States. Various inconveniences would attend such a system. The States, to whose lot it might fall to support the necessary establishments, would be as little able as willing for a considerable time to come to bear the burden of competent provisions. The security of all would thus be subjected to the parsimony, improvidence or inability of a part. If the resources of such part becoming more abundant and extensive, its provisions should be proportionally enlarged, the other States would quickly take the alarm at seeing the whole military force of the Union in the hands of two or three of its members...Reasons have been already given to induce a supposition that the State governments will too naturally be prone to a rivalship with that of the Union, the foundation of which will be the love of power; and that in any contest between the federal head and one of its members, the people will be most apt to unite with their local government..."

Thinking of subsequent events, the Civil War and 9/11 for instance, Hamilton's vision was accurate, not just about federalism but about New York as well.

The Federalist Number 24 and the Scope of Government

In the Federalist Number 24 Hamilton makes the following statement about the powers that the Constitution confers upon the federal government:

"The powers are not too extensive for the OBJECTS of federal administration, or, in other words, for the management of our NATIONAL INTERESTS; nor can any satisfactory argument be framed to show that they are chargeable with such an excess."

Are the powers that we have granted the federal administration today impractical for the management of national interests? I refer to the myriad of large-scale administrative tasks that the President and Congress are asked to review: Social Security, the Federal Reserve monetary system, Housing and Urban Development and the Department of Education. These are broad, comprehensive programs of such scope and extent that no group of people, much less a single person, could competently oversee all of them.

Compare the problems of the federal government to the problems of General Motors. The president of General Motors is beset with complex details and administrative challenges concerning a handful of products: automobiles, parts, financing and some additional products. Yet, the management of this handful of products has proven too difficult for the management of General Motors to handle all that well, and the firm seems to be drifting to bankruptcy.

Are the politicians who serve in Congress or the President that much more capable than the executives of General Motors? Are the people whom the president appoints to his cabinet and to senior posts in the federal agencies that much more competent than the management of General Motors? In the case of Hurricane Katrina, it seemed that the government agencies are not competent at all. Yet, the public has burdened the federal government with such extensive powers that the management problems, ranging from control to budgeting to personnel selection are orders of magnitude more complex than the problems that confront the executives of an automobile company.

When Hamilton, Madison and Jay wrote the newspaper articles that form the Federalist Papers, the United States of America had a population of three million. Today, the average state has a population of six million. Yet, the powers of government have been federalized to a much greater extent than Hamilton anticipated. This enormous concentration of managerial demands resulted from the perceived threat that industrial concentration posed to the economy. Yet, the concentration resulted in enhancing such concentration. The New Deal intensified the extent of concentration by establishing federal programs that replaced state discretion in fields like social security. The concentration was also enhanced by the civil rights struggles of the 1950s and 1960s, which required a degree of federal intervention to end Jim Crow laws and discrimination.

Today's problems are managerial as much as strategic or political: how to make social security work; how to best combine incentives for innovation with an equitable tax system; whether to extend or contract the scope of government; how to manage the nation's money supply to limit economic crisis and corruption. All of these are managerial problems that lend themselves to a range of strategic choices. The political arguments about them become more emotional and cantankerous as the various protagonists, Democratic and Republican, know less about each question. The expertise that fields like economics, sociology and business offer do not offer one or another optimal solution to any of these problems. In industry, trial and error has proven to work better than grand theory. Yet, subjects of considerable subtlety from the Iraqi War to the management of Social Security are pronounced upon with dogmatic rigidity in the pages of the daily newspapers and in the blogs.

Why can't a pragmatic delegation of complex managerial decision making to states, which are on average twice as large in population as the entire nation was in Hamilton's day, permit a multiplicity of solutions? Such a multiplicity would serve (a) to afford experimentation and learning about solutions; (b) to test alternative ideological approaches; (c) to resolve bitter conflict among Red and Blue proponents (d) to reduce and contain the risk of failure; and (e) to enhance democracy.

The Federalist 14 and Decentralizaton

In the Federalist 14, Madison argues that while direct democracy is possible only in a small country, a republic can cover a larger geographic area. Based on the transportation available in the 1780s, he shows that a federal republican form of government is possible since the delegates can travel the distance required. He adds that:

"It is to be remembered that the federal government is not to be charged with the whole power of making and administering laws. Its jurisdiction is limited to certain enumerated objects, which concern all the members of the republic, but which are not to be attained by the separate provisions of any. The subordinate governments, which can extend their care to all those other objects which can be separately provided for, will retain their due authority and activity. Were it proposed by the plan of the convention to abolish the governments of the particular States, its adversaries would have some ground for their objection; though it would not be difficult to show that if they were abolished the general government would be compelled by the principle of self-preservation to reinstate them in their proposed jurisdiction."

Madison's recognition of the principle of decentralization anticipated the evolution of large scale corporate enterprise in the twentieth century. In his classic book Strategy and Structure, Alfred Chandler argues that big business evolved from the functional into the decentralized form in the twentieth century in response to strategic shifts, notably the concentration of industry and the formation of conglomerates. The reason the decentralized form was necessary was that the informational demands and transactions costs of a large organization inhibit intelligent processing. Madison anticipated this development in the 18th century.

The information demands of government are greater than the informational demands of private industry. The flexibility required is greater and the scope of the market is greater, which implies the need for greater diversity of strategy. Yet, the modernist or progressive approach to organizing government has been to centralize decision making authority. This runs counter to the insight not only of Madison but of practical business strategists who have learned that efficiency as well as responsive, flexible strategy depend on integration of small scale with large scale and the loose coupling of federal and local units.

Social System Matching and the Expertise Culture

In the twentieth century the idea of convergence was suggested to explain the trend of socialist economies to look more like capitalist ones and capitalist economies to look more like socialist ones. This idea fell on hard times in the 1980s because socialism failed and some capitalist countries deregulated. The idea of convergence is linked to the idea of optimality. The notion that there is one best way to do a job or one best way to solve a social problem was characteristic of the Progressive era. Convergence was a remnant of Progressivism.

But perhaps there is no such thing as optimality with respect to social systems. Rather, there is an infinite array of potential strategies which match citizens' needs to a better or worse degree. Optimality depends on the match between the culture in which people live and the social system. Social evolution involves the search for optimal matching. If a system is suboptimal the system which permits the greatest flexibility with respect to searching for matching arrangement may be most preferable. That is, there are likely an array of systems which match varying cultural configurations, and an approach which provide equal matching but more flexibility will be preferable to an approach which provides less flexibility.

Labor economists have argued that some workers fit some kinds of jobs, other workers fit other kinds. In the same way, some cultures may fit some kinds of social systems while others fit different kinds. Discovering a optimal match depends on how well the social system can change to fit a given region or culture.

If that is so, then the trend toward increasing federal power and centralization during the twentieth century may have been an error since centralized power is more difficult to change than decentralized power. The founding fathers in America had hit upon an excellent formula to exploit regional and cultural differences: permit variations in across state governments so that local match can be optimized. Moreover, variations permit experimentation so that the knowledge base develops much more quickly than with a centralized one.

The centralization of power in America in the past 100 years may have impeded learning through decentralization and so had a crippling effect on progress. As well, forcing regional and cultural uniformity across a large country results in lost opportunities to match sub-systems to sub-cultures. Centralization of power is authoritarian and so as the nation has grown and simultaneously centralized power deviations from optimal points for specific subgroups have become greater. In turn, this has lead to increasing stridency of public debate.

Advances in organization theory that started with James March's and Herbert Simon's 1958 book Organizations have permitted firms to think about the key problem that faces them: information. Organizing information, gathering information, undestanding it and using it is a problem that faces government as well as private firms. In the twentieth century firms decentralized and experimented with increasingly flexible organizational forms. Toyota's Taiichi Ohno took 15 years to develop the process known as lean manufacutring, which includes just in time inventory. No expert had thought of this concept. Similarly, E.I. Deming's total quality management was unknown in business schools until he convinced a number of Japanese firms to adopt it.

In contrast, progressives and social democrats have made an antiquated assumption about rationality based on the ideas of Herbert Croly and Theodore Roosevelt: that experts can discern optimal solutions. Naturally, such experts will see the possibility of convergence toward an optimality in which they believe because of sharing of ideas, peer review and the like.

The corporate world has found that preconceived strategies rarely materialize and that focused or organized chaos results in the spontaneity of creativity that also depends on interaction and supportiveness of change. Supportiveness of change is foreclosed by the expertise culture. If an expert claims an optimal answer, then alternative views are ignored. Thus, fundamental errors in social science and economics have been perpetuated, and the public's ability to debate and innovate has been forestalled by social democracy.

There are many other concepts in organizational theory, such as the learning organization, organizational differentiation and integration and differentiation can be applied to the modern state. However, instead of thinking small and decentralizing, federal power has been increasingly concentrated in poorly performing agencies like the Department of Education and the Social Security Administration.