"Neil Gross's Plantation Theory of the Academic Labor Market"

My article "Neil Gross's Plantation Theory of the Academic Labor Market" just went online in Academic Questions  (29:1, spring 2016).   A draft version is available here. In the piece I argue that Gross's theory about why academics tend to be social democrats is riddled with statistical errors and historical inaccuracy.

Thoughts on Professor Codevilla's "America's Ruling Class"

A friend sent me Professor Angelo M. Codevilla's excellent American Spectator article "America's Ruling Class." I recommend reading it with careful attention. Unfortunately, I’m not sure that Professor Codevilla’s hope that a country party that  represents pro-freedom Americans is possible. The reason, as Professor  Codevilla points out, is that the potential members of a country party are diverse, spread out, and difficult to organize.  Moreover, he romanticizes the electorate, which is more corrupt today than earlier in my lifetime.

I literally live in the country and have gone door to door in my rural Catskills community, which has gone from Republican to Democratic over the past 40 years.  A large segment of the voters is preoccupied with government programs that secure them jobs in areas like nursing or education. An almost-as-large segment is comprised of welfare recipients who have been attracted to Kingston, NY by subsidized, public-and-private-partnership housing that has enriched developers at the expense of taxpayers, who are increasingly saddled with the cost.  Yet, the voters themselves are clients of the politicians, for 51% of the county works for government.  In other words, I don’t think a country party politician is electable in my part of the country at this point.  

Professor Codevilla unearths historical processes that have led to current problems. His implicit model is of a unitary elite.  There are elites, but they are more pluralistic than he assumes.  Also, he is vague about how the unitary elite is constituted.  Are they conscious that they are a unitary elite?  I don’t believe so—there is not a conscious conspiracy, although there are a number of old boys’ clubs.  He is right that education has homogenized the elite. At the same time, I don’t believe that the most powerful are fixated on social or religious issues. 

Investment and commercial banks play a bigger role in formulating economic policy than he says.  They constitute an interest group that likely trumps the others--especially in the economic realm.  At the same time, interest groups ranging from the professions to the pharmaceutical industry to agribusiness have identifiable interests that collide with the socialist and anti-religious objectives of Northeastern academics.  The array of interests collaborates in many ways, but they are also at loggerheads some of the time. The Republicans attract diverse special interest groups, which enables them to ignore their own rank-and-file. Thus, as Professor Codevilla suggests, the Republican Party is a me-too party that is at war with its supporters. I agree that there has been an attack on Christianity and on freedom, but I’m not sure that every section of the elite array is represented in those attacks.  At the same time, his analysis of the role of universities is on the money.

His analysis of why the Democratic Party is dominant is brilliant, but it begs the question as to why no Republican who represents the majority has stepped forward. First, I regret to say that given my small amount of experience with politics I am not optimistic about the intelligence or morality of voters, whom Professor Codevilla idealizes.  Second, my guess is that rank-and-file Americans have been bought with a $25,000 Social Security benefit and Medicare. That seems to me to be selling  freedom cheap,  but as Professor Codevilla--along with de Tocqueville--implies, democracy leads to the impulse to enhance one’s specialness or individuality by claiming privileges at others’ expense, and I believe that rank-and-file Americans have been convinced that government programs do that for them, so they identify with the elite power structure to a greater degree than Professor Codevilla admits. 

In other words, the people of the country party are as much to blame for their loss of freedom and opportunity as their leaders are.  How else did all the political goofballs get elected?  I briefly campaigned to be on the town’s Republican committee.  I got elected, but some of the people I met still give me nightmares.  When I listen to political conversations among the Democrats at the Kingston YMCA, I get a similarly queasy feeling.

A related story is this:  Two of the most conservative people in Ulster County, a guy who runs a fruit stand and a guy who runs a newspaper, for which I wrote for several years, both went on a warpath to defeat the Democratic county executive because he would not renew a subsidized lease to a tourist railroad.  When I suggested to them that a government subsidy to a tourist railroad is not a particularly freedom-oriented cause, the fruit-stand owner said that a private firm could not buy the property and run a private tourist railroad because it costs $25 million; therefore, government needs to do it.  

 Country party, maybe. Freedom oriented—I don’t think Americans know what the word means anymore. 

 Professor Codevilla Responds  

Dear Mr. Langbert   

Thank you for your thoughtful reading of my article.   Of course, I never suggested anything like a ruling class conspiracy. but near uniformity based on common mentality, experience and interest is even more solid.   Is the ruling class motivated by social issues? I suggest that it identifies itself in those terms. Animus and disdain seldom come from mere interest. Its common interest comes from its other defining feature - connection with government?   Why no serious Republican opposition? Why does not the moon slip its orbit from the earth? Just look at what the mass of Republican satellites are trying to do to Cruz, and why they do it. They are comfortable as satellites.   You are quite correct about the country class’s corruption. Yes, the country class is likely to take power carrying all that corruption with it. (vide Trump)

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Best wishes

Angelo Codevilla

 

Stock Market Predictions

Year to date the S&P 500 has returned -8.77%, but its average price-earnings ratio is still 19.3, which is unappetizing. My investable portfolio is down about 4.5% for the year (and down about 6% from its 2015 high versus the S&P 500's being down 14% from its 2015 high).  I'm currently about 25% in stocks.  My bet is that the market will continue to fall further this year, rebound this year, then fall again next year, so I will continue to keep much of my money out of the market until I see a correction closer to an average of S&P 15 times earnings (versus the current 19). That implies a fall of 21% from here unless earnings improve.  If stocks fall another 15% or so, I'm probably at least partially back in. If  the market does rebound from here, I will miss the rally, but better to be able to retire with my current portfolio than risk a 40% decline.  With my current asset level I can retire, but I cannot retire if it falls by 40%.

The Fed seems to have painted itself into a corner: It is running out of ammunition.  The world economic picture and aging boomers militate against a strong-demand economy.  Because of its obsession with demand and with growth rates, the Fed may overstimulate. If it doesn't, there will be declining stock prices and a slow economy.   

Moreover, we are at an ambiguous point in the commodity cycle.  Both oil and gold may have touched bottom, but that's unclear.   I had read that a bottom of $25 is likely for WTI crude price, and today's bounce to $29 seems to be consistent with that claim.  Today's bounce was painful for my oil short, but overall my investable asset portfolio is down year to date  less than the S&P 500 because I had removed much of my investment assets into cash.  I'm not sure that I still believe that $25 is the bottom for oil.

One thing I've learned is that low p-e ratios are not indicative of short term positive returns.  I didn't do better because of my poor timing on a couple of oil shorts and because my stock investment choices have been dismal.  These included falling into a value trap whereby I bought financial stocks because their valuations were fairer than the market average, yet the low-priced stocks underperformed the market this year.  Low valuation is not the only measure for short-term performance, and in today's market I'm not sure that low valuation doesn't signal poor momentum rather than the market's overlooking a good buy. It is probably true, as Morningstar points out, that in the long run the financial stocks will overcome their association with oil lending and outperform, but I don't believe that the market for oil or stocks will stabilize for the next couple of years.

Gold has taken me by surprise, but I'm not convinced that its positive performance will continue unabated. I am getting ready to go long again on gold, but I suspect that there will be renewed easing that will complicate commodities prices for a while longer. 

De Tocqueville on Progressivism and Presidential Power

I have been rereading Alexis de Tocqueville's Democracy in America; the translation is by Harvey C. Mansfield and Delba Winthrop.  It isn't light reading, but it is accessible, and every American should read it.  Following his 1831 visit to the United States, de Tocqueville published it in two volumes, which appeared in 1835 and 1840.  Many of de Tocqueville's insights about America are accurate today, often eerily so.

On page 128 de Tocqueville questions whether the framers of the US Constitution were right or wrong to permit the president to be reelected. This is a fascinating question because I can think of a number of abuses that have occurred in connection with presidential reelection during my lifetime, especially during the administration of President Richard Nixon. Indeed, statistics show that the stock market routinely rises during presidential election years, for the party in power manipulates the Federal Reserve Bank in its favor.  De Tocqueville points out that a president who seeks reelection views laws and negotiations as electoral schemes that redound to his or her, rather than to the nation's, benefit. "The principle of reelection therefore renders the corrupting influence of elective governments more extensive and more dangerous. It tends to degrade the political morality of the people and to replace patriotism with cleverness." 

De Tocqueville adds that all forms of government are associated with a natural vice, and laws that enhance the vice are undesirable.  The founding fathers limited the whims of the majority by state governments' electing senators and the electoral college's electing the president.  De Tocqueville notes, "In introducing the principle of reelection [of the president], they destroyed their work in part. They granted a great power to the president and took away from him the will to make use of it."

Progressivism worsened this result because the Seventeenth Amendment, a 1912 product of Progressivism, made the election of senators direct. Moreover, the replacement of party conventions with primaries and the diminution of the influence of the electoral college have made the president ever more likely to be tempted to manipulate public policy to gain reelection.

De Tocqueville writes:

Each [form of] government brings with it a natural vice...the genius of the legislator consists in discerning it well...[E]very law whose effect is to develop this seed of death cannot fail in the long term to become fatal, although its bad effects may not be immediately perceived.

The effect of Progressivism was to pass a series of such laws that enhanced the majoritarian principle without concern for checks and balances.  The power of banks and the Federal Reserve Bank interact with the tendency of the president to manipulate public opinion in his--and the banks'--short-term favor.  The result has been misallocation of credit and other resources and resultant economic instability that, in turn, has resulted in increasing cries for government intervention and socialism.  The public is unable to perceive that their economic insecurity is the direct result of governmental manipulation of credit to the short-term advantage of politicians and banking, real estate, business, and investment interests.

My thought is that the United States would be better with a president elected for one six-year or even four-year term rather than for two four-year terms.