Alexander Hamilton began the tradition of big government conservatism. His followers have included Henry Clay, Abraham Lincoln, Theodore Roosevelt, Nelson Rockefeller and George W. Bush. In today's nomenclature, Hamilton was the first "Republican". In other words, the Republicans have been traditionally the party of inflation, and it was only intermittently, during the century from 1871 to 1971, that the Republicans could claim to support hard money. For the first 25 years of that century, the Democrats too were a hard money party. It was only by default that the Republicans became associated with monetary stability in 1896, and they have always been wobbly supporters. The Benjamin Strong Fed was inflationary, with the approval of the Harding and Coolidge administrations. The deflation of the Hoover administration was a product of Fed policy and had little to do with Hoover. Yet, the segment of Americans who are able to grasp this issue and are anti-inflation mostly remain within the Republican party. perhaps the greatest political betrayal of the late twentieth century was Ronald Reagan's decision to adopt Keynesian (supply side) deficit and expansionist policies despite his mandate from the Reagan Democrats. Both American political parties today descend from Hamiltonian centralizing, banking and rationalizing theories. Those who are skeptical of central economic planning, big government, Keynesian economics and the ability of academics to foresee progress have nowhere to turn. Both parties are marionettes of Wall Street.
Hamilton argued for federalism and centralization of government, a central bank and for banking in general. He was an elitist who believed in the ability of bankers and merchants to make use of artificially created money in the form of bank notes to expand the economy, and this theory provided the fulcrum on which his advocacy of the Bank of the United States pivoted. He argued that bankers can rationally assess risk. He makes the same aarguments that we hear on CNN and read in the New York Times today. The themes that Hamilton emphasized, paper money, central banking, rationality of business strategy, the importance of fractional reserve banking to stimulating the economy and the ability of the business elite to build the economy were paradigms for subsequent Whig, progressive, and New Deal ideologies, of which George W. Bush and Barack Obama are the latest manifestations.
There were two strange turns in the history of the elitist, centralizing ideology. At first, Jefferson and then Jackson reacted to the Federalist-Whig philosophy of Hamilton, Clay (and then Lincoln) by advocating decentralization and hard money. Thus, decentralization and hard money were benign views that represented the values of the workman. The loco focos and workingmen's parties of the 1820s and 1830s reflected the Jacksonian resentment of banks, business monopolies, internal improvements (the profits from which went into the pockets of elite Whig stockholders) and the central bank.
In the Gilded Age, the laissez-faire ideology became associated with the elite. This was a reversal. It occurred because laissez-faire became associated with social Darwinism in the ideas of Spencer and William Graham Sumner. Thus, the Mugwump Republicans carried forward the Republican centralizing and elitist views but adopted the laissez-faire and hard money philosophy of Jefferson and Jackson because it fit the ideas of social Darwinism. This deprived the hard money position of its benign, pro-worker foundation. So by adopting laissez-faire the Republicans weakened the force of its claims and destroyed it. They did this by claiming that only the fittest would benefit from hard money. This opened the door for the Democrats to claim that central banking, the chief elitist tool, was Democratic. Then, Progressivism removed the laissez-faire element from the Gilded Age's rationalizing philosophy, retaining the traditional Hamiltonian claims of rationality of business and banking elites, the importance of a centralized state, the virtue of elite experts, and centralized banking.
In 1790 Hamilton, as the first Secretary of the Treasury, wrote his Report on Public Credit and Second Report for Further Provision Necessary for Establishing Public Credit. He also wrote a report on the Constitutionality of the Bank and Report on Manufactures. The issues in the Report on Public Credit directly concerned the question of centralization and of establishing a central bank. The questions that faced the nation at that point concerned federal assumption of the states' revolutionary war debts and how such assumption would be arranged; and the question of whether the federal government should honor its debts at par, especially because speculators had purchased bonds at steep discounts; and the payment of interest on the outstanding debt. Hamilton argued for stabilizing the nation's credit record and honoring debts.
Hamilton argues for the importance of federal debt to the expansion of the US economy. He argues that a funded debt (which has been converted into bonds and for which there is funding) can expand economic activity because the debt can function as money and because debt will cause real estate prices to appreciate. The notion that inflation can help real estate investors finds legitimacy in Hamilton's report to the first Congress. He writes (p. 6):
"The effect, which the funding of the public debt, on right principles, would have upon landed property, is one of the circumstances attending such an arrangement, which has been least adverted to, though it deserves the most particular attention. The present depreciated state of that species of property is a serious calamity. the value of cultivated lands, in most of the states, has fallen since the revolution from 25 to 50 per cent. In those farthest south the decrease is still more considerable...This decrease in the value of lands, ought, in a great measure, to be attributed to the scarcity of money."
Thus, Hamilton was among the first Americans to recognize the possibility of monetary expansion to transfer wealth to the landed, the stock holder and the wealthy. This theme was to continue throughout American history except for the four post Civil War decades because of the ideology of social Darwinism. Notably, it was in the post Civil War period that the United States made the lion's share of its economic progress, beginning with the abolition of the bank in 1836 through the advent of Progressivism in 1905.
Hamilton's preference for centralization is explicit in Report on Public Credit. It is much better, he argues, for creditors to receive payments from one source than from the several states. If the central government takes responsibility "there can be no competition for resources" and "different states, from local considerations, would in some instances have recourse to different objects, in others to the same objects, in different degrees, for procuring the funds of which they stood in need. It is easy to conceive how this diversity would affect the aggregate revenue of the country....hence the public revenue would not derive the full benefit of those articles from state regulation." Moreover, "if all the public creditors receive their dues from one source, distributed with an equal hand, their interest will be the same. And having the same interests, they will unite in support of the fiscal arrangements of the government; As these, too, can be made with more convenience, where there is no competition: These circumstances combined will insure to the revenue law a more ready and more satisfactory execution."
It was important to Hamilton to establish the national credit and he was certainly concerned with the interests of creditors, whom he saw as furthering national goals. To this end, Hamilton emphasized the importance of repaying the national debt, including interest. In the end there was a slight reduction in interest (see Elkins and McKitrick, The Age of Federalism.) But the nation did not make good on the currency it used to pay for the Revolutionary War, the Continentals. The federal government allowed them to become worthless.
In Second Report on the Further Necessity for Establishing Public Credit, Hamilton argues for a central bank and extols fractional reserve banking. Little has been added since Hamilton.
One passage that caught my eye might be extended to the subprime crisis and every other boom and bust bubble that has occurred since, including the one that occurred in 1790 in New York with respect to speculation in the stock of the First Bank of the United States:
"It may be said that as Bank paper affords a substitute for specie, it serves to counteract that rigorous necessity for the metals...and...it would retard those oeconomical and parsimonious reforms in the manner of living, which the scarcity of money is calculated to produce...
"There is perhaps some truth...but...of a nature rather to form exceptions to the generality of the conclusion, than to overthrow it...a situation in which a too expensive manner of living of a community compared with its means, can stand in need of a corrective, from distress of necessity, is one which perhaps rarely results, but from extraordinary and adventitious causes, such for example, as a national revolution, which unsettles all the established habits of a people, and inflames the appetite for extravagance, but the illusions of an ideal wealth, engendered by the cause. There is good reason to believe that where the laws are wise and well executed, the oeconomy of a people will, in the general course of things, correspond with its means."
Throughout the two reports on credit, Hamilton emphasizes the rational capacity of bankers and merchants and their sound judgment (e.g., "Those who are most commonly creditors of a nation are, generally speaking, enlightened men...", p. 3, Report Relative to Public Credit).
Hamilton argues vigorously for the positive effects of monetary expansion and a central bank. He argues that "Gold and Silver, when hey are employed merely as the instruments of exchange and alienation, have been not improperly denominated dead Stock; but when deposited in Banks, to become the basis of a paper circulation...they then acquire life." By depositing money in a bank, merchants enable others to borrow and "It is a well established fact, that Banks in good credit can circulate a far greater sum than the actual quantum of their capital in Gold and Silver. The extent of the possible excess seems indeterminate; though it has been conjecturally stated at the proportions of two and three to one."
This rousing defense of fractional reserve banking presaged two centuries of booms and busts, the most recent being the multi-trillion dollar transfer of wealth to wealthy bankers from the general economy and an aggressive monetary expansion.
Hamilton's ideas were rejected in the early nineteenth century but subsequently adopted by both political parties in the twentieth. Most progress occurred in the 19th. The twentieth century was one of reaction and decline.
Thursday, February 26, 2009
Wednesday, February 25, 2009
George Phillips Fights Free Speech Suppression
George Phillips ran a courageous race against incumbent Congressman Maurice Hinchey of New York's 22nd Congressional district. The 22nd district includes Ulster County and is gerrymandered to include several college towns (New Paltz, Binghamton and Ithaca) as well as a nursery for left-wing trust fund babies, Woodstock, NY. Despite the Democratic Party's corrupt gerrymandering and a bad election year for Republicans, Phillips won 39% of the vote against Hinchey. Recall that Hinchey was the Congressman who advocated price controls on gasoline last summer when the price had temporarily escalated. With an economic illiterate like Hinchey in Congress, Americans have reason to fear.
Phillips has started a new website to fight the fairness doctrine called "Stop the Fairness Doctrine". It is located here.
According to Stop the Fairness Dcotrine:
"Hinchey has been the champion of legislation known as “MORA” — the Media Ownership and Reform Act. The first provision of this bill would reinstate the “Fairness Doctrine.” MORA would also put a cap on how many radio stations a company can own, place a similar cap on television ownership and require more ‘independent’ programming. Hinchey has gone on national TV to defend his leadership of and support for the “Fairness Doctrine” — even going toe to toe with Sean Hannity."
Hinchey calls anyone who disagrees with his pathetic, ignorant views "a Nazi". Yet it is Hinchey who aims to use the violence of government to suppress the speech of those with whom he disagrees.
Congressman Maurice Hinchey is a totalitarian thug who aims to suppress speech in the interest of political opportunism. The hard left which Hinchey represents and the ACLU claim to favor free speech when the speech furthers hard left goals--destruction of economic freedom, impoverishment of ordinary Americans, and egregious taxes. But when speech opposes such goals, Nazis like Hinchey aim to suppress dissident speech.
Phillips has started a new website to fight the fairness doctrine called "Stop the Fairness Doctrine". It is located here.
According to Stop the Fairness Dcotrine:
"Hinchey has been the champion of legislation known as “MORA” — the Media Ownership and Reform Act. The first provision of this bill would reinstate the “Fairness Doctrine.” MORA would also put a cap on how many radio stations a company can own, place a similar cap on television ownership and require more ‘independent’ programming. Hinchey has gone on national TV to defend his leadership of and support for the “Fairness Doctrine” — even going toe to toe with Sean Hannity."
Hinchey calls anyone who disagrees with his pathetic, ignorant views "a Nazi". Yet it is Hinchey who aims to use the violence of government to suppress the speech of those with whom he disagrees.
Congressman Maurice Hinchey is a totalitarian thug who aims to suppress speech in the interest of political opportunism. The hard left which Hinchey represents and the ACLU claim to favor free speech when the speech furthers hard left goals--destruction of economic freedom, impoverishment of ordinary Americans, and egregious taxes. But when speech opposes such goals, Nazis like Hinchey aim to suppress dissident speech.
Friday, February 20, 2009
America Has Let Madison Down--Why?
In the Federalist Number 10 James Madison described faction, or special interest activism, as the chief threat to republican government. In our era special interest lobbying has arisen as an increasing threat to the American republic, just as Madison prophetically predicted. The monotone media support for the Wall Street and banking "bailout"; the absence of intelligent discussion on television; the continued exponential growth in the federal budget in which both parties participate; the Democrats' use of the "bailout" as an excuse to subsidize special interests; the Republicans', including Ronald Reagan's, inability to meaningfully cut government; and both parties' loyalty to the Federal Reserve Bank's ever-escalating subsidization of Wall Street all portend ever steeper decline in American wealth, power and freedom. The two party system has failed. Yet, Americans lack the competence or education to identify the underlying problems. Why has America let Madison down? Why do the voters repeatedly elect the same corrupt politicians, beholden to special interests? Why have so few presidents displayed a fraction of the vision or leadership ability of the presidents of an earlier age?
Even in the 1780s factional rivalry challenged popular government. Madison defined faction as "a number of citizens, whether amounting to a majority or minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community."
His definition suggests a few possible reasons for the failure of twenty-first century American democracy. First, in the Progressive era, which occurred a century ago, Herbert Croly and John Dewey argued that democracy is an end to itself. They defined away the possibility that the majority could oppress the individual or a minority. This was a paramount concern to Madison but of no concern to Croly or Dewey. The Progressives' fetishization of democracy continues today even in many libertarian circles. Excessive democracy fails because the public is easily manipulated by wealthy factions.
The extension of democracy in the Progressive era, specifically, the direct election of Senators and the creation of the primary system in the two parties, opened the door to manipulation of public opinion. By increasing choice the Progressives reduced choice. Today's Congressmen, like the general public, are incompetent to discuss key issues such as the Federal Reserve Bank. Nevertheless, public opinion is more easily manipulated than Congress's, and more democracy has meant that public decision making has deviated from the public interest to a greater degree than Madison hoped. Madison believed that elected representatives would refine public opinion. Instead, the public is so dazed that it repeatedly elects representatives who act against its economic interests and who are themselves incompetent to discuss policy.
The second reason that democratic faction may no longer be recognized is the education system. The public has been educated to believe that Congress and the bureaucratic apparatus of the federal government make rational decisions; that the Federal Reserve Bank is a necessary and optimal institution; that politicians act in their interest; and that they are like children who must depend on the federal government. In the 18th and 19th centuries Americans were not so indoctrinated. A sheepish, indoctrinated populace is incapable of self government.
A third reason that faction has been increasingly triumphant is the mediazvestia*. In Madison's day there was a host of opinion sources. Newspapers, public debate and local discussion permitted a diversity of opinion. Today's mediazvestia is on a lower intellectual level than the newspapers of Madison's day, yet the public passively accepts its numerous distortions, lies and errors (the reporters themselves are badly educated so make frequent errors of interpretation and judgment). One wonders why a viewer would take CNN seriously. But millions do.
Thus, excessive democracy; indoctrination through the education system; and indoctrination through the mediazvestia are reasons for the public's inability to cope with democratic faction.
Madison goes on to argue that although the causes of faction cannot be eliminated the effects can be. Here he makes honest errors that economists identified two centuries later. First, he believes that if a faction consists of a minority, the democratic process will defeat it through a majority vote. This is an error, as I will discuss. Second, when majority faction arrives at a "scheme of oppression" the safeguard that Madison proposes is republican government and large size, neither of which work because of modern technology and the scope of government.
Since, argues Madison, small numbers of citizens are most easily captured by momentary emotion that leads to oppressive faction, republican safeguards such as representative government inhibit what de Tocqueville later termed "tyranny of the majority". He argues that "the two great points of difference between a democracy and a republic are delegation to a small number of elected representatives" who are potentially more rational than the citizens themselves and "secondly, the greater number of citizens and greater sphere of country over which the latter may be extended."
But a small number of elected representatives cannot serve as a safeguard if they have been brainwashed by an ideological educational system that teaches them to support special interests. Today's elite educational system impresses upon its subjects the importance of subsidizing Wall Street. As well, the great land mass over which the nation eventually extended was diminished first by print media, then radio, then television. Television has rendered the nation the equivalent of a small town by which the public is easily riled to violent emotion.
Contrary to Madison's hopes, as the country has grown larger, the quality of leadership has declined. A nation of 310 million produces leaders of vastly inferior quality to a nation of 3 million, the approximate population of the United States in 1790. One must wonder why a large nation like America has produced a failed, despised Congress; and presidents who are fools.
There are several interpretations of leadership. Among the most famous is the distinction between transactional and transformational leadership. Transactional leadership involves quid pro quo. The leader provides expertise and resources while the followers provide effort and other contributions. With respect to government, transactional leadership would amount to overseeing of factions. Congress and the president provide benefits to various factions. In turn, the factions offer support to Congress and the President. Transactional leadership is necessarily redistributive. It is not inspirational and is inconsistent with the Lockean values on which the nation is based. Yet it is the basis of both Progressivism and New Deal liberalism.
The alternative view of leadership is tranformational. Transformational leaders inspire. They project values and vision that motivate belief and commitment. They are likely charismatic (which was Max von Weber's term for this kind of leader). In order to be transformational, a leader must project the American value system. In American history, there have been several transformational leaders: Washington, Jefferson, Jackson, Lincoln and both Roosevelts. Until the Roosevelts all of the leaders projected Lockean values. Theodore Roosevelt and Franklin D. Roosevelt rejected Lockean values. Since then there has been a basic value conflict within the United States. Many people, called conservatives or libertarians, continue to believe in Lockean values. Many others called "liberals" have rejected American values in favor of a European value system. Still others are indifferent.
Great leaders cannot be transactional. The reason is that the brokerage of special interests limits the scope of leadership. It involves manipulation. It is inconsistent with the vision on which the nation's Constitution rests. Great leadership is visionary. It is transformational. It is impossible in post-New Deal America. Great leadership is not possible in a nation with disjointed values because Americans do not agree. Ronald Reagan disturbs social democrats. Barack Obama disturbs individualists. It will not be possible to mend the rifts in the American value system because those who advocate the European-style value system are as committed to it as those who advocate the American approach. America is divided so that great vision and leadership are impossible.
Moreover, and unfortunately, Madison was wrong in his hope that the fittest would be selected as representatives for the same reason that he was wrong that minority factions would not succeed. He did not understand the economic incentives at play in the post-New Deal democracy. These concerns were less true in the era of limited government, until say, 1950, when the federal government spent only 10 percent of gross national product. As the stakes have been raised, so has the corruption level.
The best do not enter government for a host of reasons. The selection process in politics involves a training period during which an amibitious college graduate is expected to confrom to a political machine. Only someone with flexible values, capable of ignoring corruption and stupidity, would be able to see through this apprenticeship. Second, the opportunities for gain are greater in other fields. Third, specialization is greater in the modern world than it was in the 1790s so that people who choose to specialize in science or business are unlikely to consider or be considered for a political career.
With respect to public indifference to poor leadership, costs of education about politics inhibit the population from thinking carefully about their representatives. Costs of organization inhibit public spirited groups from forming. In contrast, special interests enjoy economic advantages because their stakes are high. Wall Street gains billions from the Fed. It pays for Wall Street to organize. If each American each year pays a "tax" of $500, it is not worth it to fight them.
Special interests enjoy asymmetric incentives and low organization costs because corporations, Wall Street banks and similar lobbies are few in number. The gain from Fed counterfeiting and special interest regulation are skewed to favor a few groups but the costs are spread over a large number of voters. Therefore, minority factions triumph and inferior representatives are elected because of the costs and benefits that face voters. It is costly to learn about one's state legislator or Congressman. One person can educate himself, but to what avail? He cannot influence the election's outcome anyway.
Morals and idealism do not trump economics in most cases, unless the problems that special interests create become large enough to interfere in the daily lives and economic plans of Americans in a visible way.
Of course, the endless regulations and special interest arrangements that hamstring Americans already do interfere significantly in Americans' ability to function; to innovate; and to progress. Socialism has already done incalculable harm to progress. But the harm needs to be visible and sufficiently egregious so that the costs of organization to any one American are covered by the losses sustained due to efforts to correct the problem. Apparently, this has yet to occur. The majority does not see the current situation as warranting self education. Moreover, the mediazvestia supplies considerable disinformation, confusing most Americans and raising the costs of practical action. For instance the claim that the "bailout" is essential has been hammered home via almost every media outlet. How many Americans are not bamboozled?
Madison notes that smaller societies have fewer individuals who are more easily manipulated while larger states with more citizens are more difficult to manipulate. "Extend the sphere and you take in a greater variety of parties and interests; you make it less probable that a majority of the whole will have a common motive to invade the rights of other citizens; or if such a common motive exists, it will be more difficult for all who feel it to discover their own strength and to act in unison with each other."
Again, Madison fails to understand the insights that Mancur Olson grasped in "Logic of Collective Action" and "Rise and Fall of Great Powers" and that George Stigler notes in his "Theory of Economic Regulation". Economic incentives cause groups to form and to agitate in ways that are predictable based on benefits from lobbying and organizational costs. Size defers but does not eliminate faction. Rather, small groups of corporations or labor unions find it convenient and profitable to form. Large groups are difficult to organize and so cannot resist the smaller groups.
One of the things that kept faction in check until the 1950s was limitation on the scope of government. As the power to tax increased, the incentive to manipulate the state increased. Today, we have the bailout and increased subsidy of the wealthy because the average American has been tricked into believing that subsidization means helping the poor.
Madison's final point is that the influence of factious leaders will be limited by geography. But television excels at flaming tyrannical emotion among the majority. The public is easily fooled by supposed experts who parade on national television, each one less competent and less informed than the last. Television conquered Madison's vision. It has destroyed the ability of republicanism to restrain tyranny. Lockean Americans are right to resist the "liberal media". Even if the media was conservative or libertarian it would pose a threat. By linking the mass mind it recreates the small town, the direct democracy. Heretofore the chief manipulator of the public mind has been Wall Street. It is entirely possible that a fascist or other totalitarian movement could replace it and play the same role.
Madison could not have anticipated the development of technology. Mass market newspapers and yellow journalism flowered in the post Civil War era and were followed by the expansion of Progressivism. Nikola Tesla patented the key elements of radio and television in 1897, at the beginning of the Progressive moment and the height of the late 19th century's innovative explosion. The practical implementation took somewhat longer but the military had begun using it by 1912, the year of Woodrow Wilson's election and it had been adapted to commercial use by the 1920s. The shift to social democratic Progressivism was effected in 1930, at the height of the radio age. Television was adopted in the 1950s, and the massive expansion of federal power occurred soon thereafter.
Madison believed that distance and population enhanced republicanism. Technology has successively reduced distance through improved transportation and, most of all, through more rapid communication. Rapid communication enhances the extent of decmocracy. Emotion such as outrage and superficially thought out strategies such as the bailout are passed off by interested economic actors as "policy". Economists for hire parade before the television camera, claiming that multi-billion dollar subsidies to firms that happen to have contributed to the universities that employ them are essential to economic progress. The public lacks the ability to rationally digest these claims. Crackpot schemes tack hold rapidly.
Much as Hitler and Mussolini were products of the radio age and New York Times social democracy was the chief product of the television age, so will the advent of the Internet influence the course of history.
But is the decentralization that will follow the Internet explosion be sufficient to counterbalance the longer term centralizing trend of television or radio?
Just as centralization of the federal structure enhanced and re-enforced the "small town" effects of television and radio, so decentralization will enhance and re-enforce the "big tent" effect of the Internet. Conflicting informational sources threaten and de-legitimize traditional centralized media. Even with the massive pro-bailout propaganda campaign on television and radio, the majority of the public remains unconvinced. Only Obama's fanatic followers on CNN and its mindless viewers think otherwise.
The Internet poses some hope to counteract the mass mind era of radio and television and its concomitant rejection of Lockean values. But Americans need to think about a new organization that will enhance the new Lockean revolution that can take root. Decentralization is consistent with the multi-faceted potential of computer and Internet technology. The centralizing trend of the last century can potentially be counteracted. But enhancement of Madison's vision requires the creation of a new frontier, a new form of diversity by which alternative social visions can coexist peaceably and the die hard rigidity of "Progressivism" and its pro-Wall Street fanaticism can be sidestepped. Of course, many liberals prefer the Wall Street liberalism of the New York Times and the Democratic and Republican Parties. But this aging system is increasingly incoherent. The academics who support it are increasingly self interested and foolish.
*In case your wondering, Izvestia was the official newspaper of the Soviet government. My point is that the American "media" is today little more than a propaganda organ for Wall Street.
Even in the 1780s factional rivalry challenged popular government. Madison defined faction as "a number of citizens, whether amounting to a majority or minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community."
His definition suggests a few possible reasons for the failure of twenty-first century American democracy. First, in the Progressive era, which occurred a century ago, Herbert Croly and John Dewey argued that democracy is an end to itself. They defined away the possibility that the majority could oppress the individual or a minority. This was a paramount concern to Madison but of no concern to Croly or Dewey. The Progressives' fetishization of democracy continues today even in many libertarian circles. Excessive democracy fails because the public is easily manipulated by wealthy factions.
The extension of democracy in the Progressive era, specifically, the direct election of Senators and the creation of the primary system in the two parties, opened the door to manipulation of public opinion. By increasing choice the Progressives reduced choice. Today's Congressmen, like the general public, are incompetent to discuss key issues such as the Federal Reserve Bank. Nevertheless, public opinion is more easily manipulated than Congress's, and more democracy has meant that public decision making has deviated from the public interest to a greater degree than Madison hoped. Madison believed that elected representatives would refine public opinion. Instead, the public is so dazed that it repeatedly elects representatives who act against its economic interests and who are themselves incompetent to discuss policy.
The second reason that democratic faction may no longer be recognized is the education system. The public has been educated to believe that Congress and the bureaucratic apparatus of the federal government make rational decisions; that the Federal Reserve Bank is a necessary and optimal institution; that politicians act in their interest; and that they are like children who must depend on the federal government. In the 18th and 19th centuries Americans were not so indoctrinated. A sheepish, indoctrinated populace is incapable of self government.
A third reason that faction has been increasingly triumphant is the mediazvestia*. In Madison's day there was a host of opinion sources. Newspapers, public debate and local discussion permitted a diversity of opinion. Today's mediazvestia is on a lower intellectual level than the newspapers of Madison's day, yet the public passively accepts its numerous distortions, lies and errors (the reporters themselves are badly educated so make frequent errors of interpretation and judgment). One wonders why a viewer would take CNN seriously. But millions do.
Thus, excessive democracy; indoctrination through the education system; and indoctrination through the mediazvestia are reasons for the public's inability to cope with democratic faction.
Madison goes on to argue that although the causes of faction cannot be eliminated the effects can be. Here he makes honest errors that economists identified two centuries later. First, he believes that if a faction consists of a minority, the democratic process will defeat it through a majority vote. This is an error, as I will discuss. Second, when majority faction arrives at a "scheme of oppression" the safeguard that Madison proposes is republican government and large size, neither of which work because of modern technology and the scope of government.
Since, argues Madison, small numbers of citizens are most easily captured by momentary emotion that leads to oppressive faction, republican safeguards such as representative government inhibit what de Tocqueville later termed "tyranny of the majority". He argues that "the two great points of difference between a democracy and a republic are delegation to a small number of elected representatives" who are potentially more rational than the citizens themselves and "secondly, the greater number of citizens and greater sphere of country over which the latter may be extended."
But a small number of elected representatives cannot serve as a safeguard if they have been brainwashed by an ideological educational system that teaches them to support special interests. Today's elite educational system impresses upon its subjects the importance of subsidizing Wall Street. As well, the great land mass over which the nation eventually extended was diminished first by print media, then radio, then television. Television has rendered the nation the equivalent of a small town by which the public is easily riled to violent emotion.
Contrary to Madison's hopes, as the country has grown larger, the quality of leadership has declined. A nation of 310 million produces leaders of vastly inferior quality to a nation of 3 million, the approximate population of the United States in 1790. One must wonder why a large nation like America has produced a failed, despised Congress; and presidents who are fools.
There are several interpretations of leadership. Among the most famous is the distinction between transactional and transformational leadership. Transactional leadership involves quid pro quo. The leader provides expertise and resources while the followers provide effort and other contributions. With respect to government, transactional leadership would amount to overseeing of factions. Congress and the president provide benefits to various factions. In turn, the factions offer support to Congress and the President. Transactional leadership is necessarily redistributive. It is not inspirational and is inconsistent with the Lockean values on which the nation is based. Yet it is the basis of both Progressivism and New Deal liberalism.
The alternative view of leadership is tranformational. Transformational leaders inspire. They project values and vision that motivate belief and commitment. They are likely charismatic (which was Max von Weber's term for this kind of leader). In order to be transformational, a leader must project the American value system. In American history, there have been several transformational leaders: Washington, Jefferson, Jackson, Lincoln and both Roosevelts. Until the Roosevelts all of the leaders projected Lockean values. Theodore Roosevelt and Franklin D. Roosevelt rejected Lockean values. Since then there has been a basic value conflict within the United States. Many people, called conservatives or libertarians, continue to believe in Lockean values. Many others called "liberals" have rejected American values in favor of a European value system. Still others are indifferent.
Great leaders cannot be transactional. The reason is that the brokerage of special interests limits the scope of leadership. It involves manipulation. It is inconsistent with the vision on which the nation's Constitution rests. Great leadership is visionary. It is transformational. It is impossible in post-New Deal America. Great leadership is not possible in a nation with disjointed values because Americans do not agree. Ronald Reagan disturbs social democrats. Barack Obama disturbs individualists. It will not be possible to mend the rifts in the American value system because those who advocate the European-style value system are as committed to it as those who advocate the American approach. America is divided so that great vision and leadership are impossible.
Moreover, and unfortunately, Madison was wrong in his hope that the fittest would be selected as representatives for the same reason that he was wrong that minority factions would not succeed. He did not understand the economic incentives at play in the post-New Deal democracy. These concerns were less true in the era of limited government, until say, 1950, when the federal government spent only 10 percent of gross national product. As the stakes have been raised, so has the corruption level.
The best do not enter government for a host of reasons. The selection process in politics involves a training period during which an amibitious college graduate is expected to confrom to a political machine. Only someone with flexible values, capable of ignoring corruption and stupidity, would be able to see through this apprenticeship. Second, the opportunities for gain are greater in other fields. Third, specialization is greater in the modern world than it was in the 1790s so that people who choose to specialize in science or business are unlikely to consider or be considered for a political career.
With respect to public indifference to poor leadership, costs of education about politics inhibit the population from thinking carefully about their representatives. Costs of organization inhibit public spirited groups from forming. In contrast, special interests enjoy economic advantages because their stakes are high. Wall Street gains billions from the Fed. It pays for Wall Street to organize. If each American each year pays a "tax" of $500, it is not worth it to fight them.
Special interests enjoy asymmetric incentives and low organization costs because corporations, Wall Street banks and similar lobbies are few in number. The gain from Fed counterfeiting and special interest regulation are skewed to favor a few groups but the costs are spread over a large number of voters. Therefore, minority factions triumph and inferior representatives are elected because of the costs and benefits that face voters. It is costly to learn about one's state legislator or Congressman. One person can educate himself, but to what avail? He cannot influence the election's outcome anyway.
Morals and idealism do not trump economics in most cases, unless the problems that special interests create become large enough to interfere in the daily lives and economic plans of Americans in a visible way.
Of course, the endless regulations and special interest arrangements that hamstring Americans already do interfere significantly in Americans' ability to function; to innovate; and to progress. Socialism has already done incalculable harm to progress. But the harm needs to be visible and sufficiently egregious so that the costs of organization to any one American are covered by the losses sustained due to efforts to correct the problem. Apparently, this has yet to occur. The majority does not see the current situation as warranting self education. Moreover, the mediazvestia supplies considerable disinformation, confusing most Americans and raising the costs of practical action. For instance the claim that the "bailout" is essential has been hammered home via almost every media outlet. How many Americans are not bamboozled?
Madison notes that smaller societies have fewer individuals who are more easily manipulated while larger states with more citizens are more difficult to manipulate. "Extend the sphere and you take in a greater variety of parties and interests; you make it less probable that a majority of the whole will have a common motive to invade the rights of other citizens; or if such a common motive exists, it will be more difficult for all who feel it to discover their own strength and to act in unison with each other."
Again, Madison fails to understand the insights that Mancur Olson grasped in "Logic of Collective Action" and "Rise and Fall of Great Powers" and that George Stigler notes in his "Theory of Economic Regulation". Economic incentives cause groups to form and to agitate in ways that are predictable based on benefits from lobbying and organizational costs. Size defers but does not eliminate faction. Rather, small groups of corporations or labor unions find it convenient and profitable to form. Large groups are difficult to organize and so cannot resist the smaller groups.
One of the things that kept faction in check until the 1950s was limitation on the scope of government. As the power to tax increased, the incentive to manipulate the state increased. Today, we have the bailout and increased subsidy of the wealthy because the average American has been tricked into believing that subsidization means helping the poor.
Madison's final point is that the influence of factious leaders will be limited by geography. But television excels at flaming tyrannical emotion among the majority. The public is easily fooled by supposed experts who parade on national television, each one less competent and less informed than the last. Television conquered Madison's vision. It has destroyed the ability of republicanism to restrain tyranny. Lockean Americans are right to resist the "liberal media". Even if the media was conservative or libertarian it would pose a threat. By linking the mass mind it recreates the small town, the direct democracy. Heretofore the chief manipulator of the public mind has been Wall Street. It is entirely possible that a fascist or other totalitarian movement could replace it and play the same role.
Madison could not have anticipated the development of technology. Mass market newspapers and yellow journalism flowered in the post Civil War era and were followed by the expansion of Progressivism. Nikola Tesla patented the key elements of radio and television in 1897, at the beginning of the Progressive moment and the height of the late 19th century's innovative explosion. The practical implementation took somewhat longer but the military had begun using it by 1912, the year of Woodrow Wilson's election and it had been adapted to commercial use by the 1920s. The shift to social democratic Progressivism was effected in 1930, at the height of the radio age. Television was adopted in the 1950s, and the massive expansion of federal power occurred soon thereafter.
Madison believed that distance and population enhanced republicanism. Technology has successively reduced distance through improved transportation and, most of all, through more rapid communication. Rapid communication enhances the extent of decmocracy. Emotion such as outrage and superficially thought out strategies such as the bailout are passed off by interested economic actors as "policy". Economists for hire parade before the television camera, claiming that multi-billion dollar subsidies to firms that happen to have contributed to the universities that employ them are essential to economic progress. The public lacks the ability to rationally digest these claims. Crackpot schemes tack hold rapidly.
Much as Hitler and Mussolini were products of the radio age and New York Times social democracy was the chief product of the television age, so will the advent of the Internet influence the course of history.
But is the decentralization that will follow the Internet explosion be sufficient to counterbalance the longer term centralizing trend of television or radio?
Just as centralization of the federal structure enhanced and re-enforced the "small town" effects of television and radio, so decentralization will enhance and re-enforce the "big tent" effect of the Internet. Conflicting informational sources threaten and de-legitimize traditional centralized media. Even with the massive pro-bailout propaganda campaign on television and radio, the majority of the public remains unconvinced. Only Obama's fanatic followers on CNN and its mindless viewers think otherwise.
The Internet poses some hope to counteract the mass mind era of radio and television and its concomitant rejection of Lockean values. But Americans need to think about a new organization that will enhance the new Lockean revolution that can take root. Decentralization is consistent with the multi-faceted potential of computer and Internet technology. The centralizing trend of the last century can potentially be counteracted. But enhancement of Madison's vision requires the creation of a new frontier, a new form of diversity by which alternative social visions can coexist peaceably and the die hard rigidity of "Progressivism" and its pro-Wall Street fanaticism can be sidestepped. Of course, many liberals prefer the Wall Street liberalism of the New York Times and the Democratic and Republican Parties. But this aging system is increasingly incoherent. The academics who support it are increasingly self interested and foolish.
*In case your wondering, Izvestia was the official newspaper of the Soviet government. My point is that the American "media" is today little more than a propaganda organ for Wall Street.
New Yorkers Turned New York into A Hellhole--Now They're Doing The Same to Florida
New York City exemplifies the terrible destruction that the "progressive" or social democratic ideology has wrought. Once a center of innovation, the corrupt Ochs Sulzbergers and their minions, Robert Moses and the long list of social democratic bozos, have turned New York City into a playground for the super rich. Destroying the light manufacturing and business base; imposing regulation that destroys innovation; attacking business and private initiative through taxes; only the highest-margin service businesses, law, advertising, consulting and investment banking remain in New York. Destroying the housing stock through regulation, labor unions and rent control, the Ochs Sulzbergers and their mindless supporters trumpet how they help the poor and middle class, while they have ghettoized and made the lives of the poor and minority groups hopeless.
New Yorkers have fled the disaster that they have created. But brainwashed by the city's ideological elementary and high schools and by the city's ignorant mediazvestia, New Yorkers continue to advocate the very policies that have made it impossible to remain in New York. One must suppose that in the coming years places like Florida and California will continue to become incompetently run centers of decline, much like New York City.
New Yorkers have fled the disaster that they have created. But brainwashed by the city's ideological elementary and high schools and by the city's ignorant mediazvestia, New Yorkers continue to advocate the very policies that have made it impossible to remain in New York. One must suppose that in the coming years places like Florida and California will continue to become incompetently run centers of decline, much like New York City.
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