Optimism Abounds

The Campbell Apartment at Grand Central Station.

My good friend Cortes DeRussy is optimistic about our economic future. In contrast to my pessimism over drinks and dinner two nights ago at the Campbell Apartment at Grand Central Station and Cafe Centro in the MetLife Building, Mr. DeRussy sent me the following quote from Alex Tabarrok writing in Forbes:

"People used to think that more population was bad for growth. In this view, people are stomachs--they eat, leaving less for everyone else. But once we realize the importance of ideas in the economy, people become brains--they innovate, creating more for everyone else.

"New ideas mean more growth, and even small changes in economic growth rates produce large economic and social benefits. At current income levels, with an inflation-adjusted growth rate of 3% per year, America's real per capita gross domestic product would exceed $1 million per year in just over 100 years, more than 22 times higher than it is today. Growth like that could solve many problems."

The Campbell Apartment and Cafe Centro illustrate free market change. The Campbell Apartment had been built as John W. Campbell's office and reception hall in Grand Central Station in the 1920s. Now it is a public bar and reception hall. Cafe Centro used to be Pan Am's airline ticket office. Now it is an excellent restaurant.

But is there reason for optimism? The past 40 years have seen the Fed's unrelenting expansion of the money supply despite reputed monetary policy change*; an increasing addiction to publicly manufactured credit; and virtually no movement toward repeal of the Progressive and New Deal regulatory regime. While liberals have mostly won on free trade, there is a strong impulse to revoke the gains and even stronger resistance to further progress. On balance, liberals have been successful on trade but failures with respect to money, permitting the Federal Reserve Bank to reallocate real resources in debtors' interest, in turn causing income inequality that the progressive-liberals now emphasize in agitating for additional taxes and regulation. Yet there is little movement toward further deregulation. The reason for lack of public debate about monetary inflation, which has caused serious disruption in countries like Germany, may be interest group capture of the Republican Party. The nation is reaching a stale mate. Future progress will require new strategies.

The US has been able grow, but there is no guarantee that growth can continue. How much misallocation is too much?

In New York, Mayor Michael Bloomberg has conceptualized a new scope for government regulation: personal wellness and fitness. Nationally, the emphasis is on adding environmental regulation. There is no impulse this year to discuss elimination of the massive waste in government in areas like the department of education.

Like Mr. DeRussy, David Boaz, head of the Cato institute, is optimistic. In response to my blog this morning on Mugwumps and libertarian strategy Mr. Boaz writes:

"I think Bill Niskanen would disagree with your suggestion that libertarians and conservatives haven’t had any effect. A couple of years ago he wrote, 'after a decade or so of gestation, almost all of the major economic policy proposals made during the past 30 years originated on the libertarian right'."

While I do not doubt that Messrs. Boaz and Niskanen are correct (and the Cato Institute has certainly been a crucial voice for reform), the reason is in no small part the Democratic Party's incompetence, with a resulting dearth of ideas. Naturally, the few good ones have come from the libertarian right, Milton Friedman and the Cato Institute.

Michael Cannon, director of health policy studies of the Cato Institute, also kindly responds to my blog. Mr. Cannon writes that the repeal of all campaign finance laws and instant-runoff voting are two changes that could improve libertarians' voice. He also notes a second Cato article by William Niskanen who 18 months ago offered the same idea that I proposed yesterday (although the Mugwumps beat Mr. Niskanen by 122 years):

"Increased outrage about the state of American politics and the prospect for a larger number of close elections increases the potential effectiveness of a different libertarian party — one that sometimes endorses one or the other major party candidate but does not run a party candidate for that position."

"The Libertarian Party’s efforts to promote their policy positions by running Libertarian candidates is counter-productive when they reduce the vote for their favored major party candidates. A disciplined group that is prepared to endorse one or the other major party candidate in a close election, however, can have a substantial effect on the issue positions of both major party candidates... conditions must be met to achieve this effectiveness...This is a strategy to increase the approval of libertarian policy positions rather than the usually counter-productive effort to increase the number of votes for Libertarian candidates. Maybe it is better to term the organization that I have described as a libertarian political action group, not a libertarian party."

Mr. Niskanen's idea is similar to what the Mugwumps did in the 1880s. It is true that there have been some policy successes, and perhaps I am unfairly pessimistic.

But where is the liberal momentum in this year of increasing inflation and monetary instability?

*Despite considerable PR about monetary targets, the inflation rate since 1979 has averaged 3.7%, considerably higher than it was before the establishment of the Fed in 1913. The 3.7% inflation rate may be understated because of exclusion of home purchase prices. At the same time, several foreign governments have acquired dollar denominated assets each equaling the total US money supply of $1.4 trillion.

The Libertarian Party Should Become a Voter Block Brokerage Organization

I would like to bring a crucial point about strategy to the attention of Ron Paul voters, libertarians and especially members of the Libertarian Party. The LP might reconsider its three-decade old strategy and adopt an interest group approach that worked well for the Mugwumps, or independent Republicans, in the 19th century.

David Tucker has written an excellent book on the Mugwumps. The name Mugwumps comes from a term that Algonquin Indians used for young chieftain. They were upper-class north easterners, many of whom had been abolitionists. Many died just before World War I, and their last major battle involved opposition to US imperialism and the Spanish-American War, which the early progressive-liberals, such as Theodore Roosevelt, supported.

The Mugwumps were the first industrial age libertarian movement. The chief issues with which the Mugwumps were concerned were:

1. Sound money and reestablishment of a pure gold standard
2. Free trade
3. Elimination of corruption from government by establishment of civil service

The Mugwumps have not always received favorable press from left-wing historians. In spirit, they were the American branch of the anti-Corn Law movement of Cobden and Bright. Several of them corresponded with John Stuart Mill.

1. The Mugwumps constituted a smaller percentage of the population than the Libertarian Party reflects today, but their effect on American politics was much larger than the combined Libertarian and conservative movements of the past 40 years.
2. It is true that the Mugwumps had far greater media support, namely Harper's Weekly, the Nation, the New York Post and the New York Times as well as several other publications than today's libertarians.
3. In that period, voters were more committed to party-line voting than today, so although the Mugwumps could leverage greater publicity, their ability to influence voting was smaller as a percentage of the vote than the Libertarian Party's today. If you add Ron Paul's Republican followers, then the total number of today's libertarians would be many times greater than the votes that the Mugwumps could leverage
4. The Mugwumps ran separate presidential candidates only twice: Horace Greeley in 1872 and John M. Palmer in 1896.
5. The Mugwumps' greatest success came in 1884, when they refused to back the Republican candidate, James Blaine, and instead backed the hard money, free trade Democrat Grover Cleveland.
6. Because the race in New York was decided by less than one percent, some credited them with winning the 1884 election for Cleveland.
7. They saw many of their ideas accepted. These included official de-politicization of the money supply; free trade and reduction of the tariff; and the civil service.
8. They failed circa 1900 because economists trained in the German historical school came to dominate university economics departments, depriving them of universities' imprimatur, and because of widespread support for imperialism in the 1890s. Imperialism and government economic intervention were more attractive to turn of the century Americans, especially the generation born after the Civil War. The loss of academia to the progressive-liberals caused the Mugwumps to die. They have been largely forgotten because of the loss of continuity, but they were prominent in my grandfather's lifetime.
9. The Mugwumps were repeatedly successful when they brokered between the political parties and served as a special interest group. They were repeated failures when they ran third party candidates.

The Libertarian Party has served an important educational function since the 1970s in education in the principles of free markets and civil freedom. Although classical liberalism has numerically and percentage-wise a greater base now than it did in 1884, it has not succeeded anywhere near as much as the 19th century movement succeeded. The problem has been tactical.

The Mugwumps believed that the Republicans were the "party of principle", but they were willing to broker deals to support either party, as they did with the Democratic candidacy of Grover Cleveland. They did this because in their view the Republicans failed to live up to its promise and did not support liberal principle following the Civil War.

Conservatives and libertarians today have been dismayed at the choices that the mainstream parties present. But with five to ten percent of the vote, and possibly more, believers in classical liberalism constitute a powerful voting block.

The Libertarian Party is making a mistake by not offering compromise deals to the major parties, and going with the better of the two (not necessarily one or the other).

The Mugwumps were able to leverage say 100,000 votes by brokering between parties. There is no reason why classical liberals, libertarians and free market conservatives, who may represent 20 to 45 million votes, cannot do the same.

Partisan support for the Republicans and/or the third party approach has failed. The time has come for a change in strategy.

Democratic versus Achievement Motives in American History

David M. Tucker. Mugwumps: Public Moralists of The Gilded Age. Columbia, Mo.: University of Missouri Press, 1998. 139 pp.

David M. Tucker's Mugwumps: Public Moralists of the Gilded Age is an excellent overview of the Mugwumps. It is sympathetic to its subject, unlike others who have written about the Mugwumps. Phrases like "Old Right" abound in the post-war libertarian literature, but the image often is vague. Tucker's book shows that the 19th century classical liberals, known as independent Republicans, were former abolitionists, not bigots in any sense of the word (the few that turned out to be, such as Henry Adams ceased to be considered Mugwumps and became associated with Populism), and were very conscious of their libertarian ideology, their commitment to Adam Smith, the Manchester liberals and John Stuart Mill, with whom several corresponded. The Mugwumps were:

-A small movement, no larger than today's Libertarian Party as a percentage of the voting public, and probably smaller
-sharply differentiated from the two major parties in terms of their commitment to liberal or libertarian ideas, specifically tariff reduction (which the Democrats tended to support and the Republicans tended to oppose); hard money and the gold standard (which neither party really supported); and opposition to imperialism
-support for the newly formed (under the Pendleton Act) federal civil service, which they thought would end corruption in government and reduce the opportunity for spoils, which led the public to support corrupt government (in other words, they wanted to end special interest capture of government)

The book is very well written (although at times there could have been slightly better transitioning and linkage of ideas) and of serious interest to libertarians, conservatives, and those with an interest in the decline of morals in business and government.

Although the Mugwumps were the first post-industrial libertarian movement, they also were at the root of today's progressive-liberalism, as Richard Hofstadter has pointed out. The effectiveness of their tactics, the use of social control and groupthink to effectuate a uniform party platform, served as a model to the next generation's emphasis on big government, imperialism and state intervention in the economy. Most of all, Mugwumps pioneered the use of groupthink as a political tactic. This has been copied not only by the progressive-liberals but also by today's Libertarian Party, which borrows the Mugwumps' appellation for the Republican Party, "the party of principle".

Tucker's perspective on the Mugwumps is sharply from John R. Dobson's Politics in the Gilded Age which I blog here. Tucker has more respect for the Mugwumps.

David Riesmann has argued that in the twentieth century Americans turned from a 19th century inner directedness that involves a goal and future orientation to an other directedness that involves a focus on peers, influence from popular media, fashion and interpersonal relationships at work. But the tension between these two impulses was already evident in the 1870s.

Several of the Mugwumps, such as Theodore Roosevelt and Henry Cabot Lodge, sacrificed their Mugwump ideals for conformity to the Republicans' political demands. They refused to join the other Mugwumps in exiting the Republican Party in 1884. Both Roosevelt and Lodge had much more successful political careers than the other Mugwumps because they put politics over principle, and they did so by adopt the other-directed progressive-liberal ideas of the early twentieth century. Theodore Roosevelt may be thought of as the first other-directed American.

A few of the Mugwumps, such as Henry Adams, who rejected Mugwumpery in favor of anti-Semitism, Populism and free silver (Tucker suggests that the Adamses' exit from Mugwumpery was related to their failure in real estate speculation in Spokane and Kansas City and their hope for a silver inflation). Henry Adams became a Populist who blamed Jewish bankers for his business failings.

The most effective Mugwumps were those who played off the two-party system, favoring one or the other party depending on who was following the most libertarian course. They became famous for this in 1884, when they contributed to the defeat of James G. Blaine in favor of Grover Cleveland, who was a largely libertarian president.

The Mugwumps ran only two independent candidates in their roughly 35-year history: Horace Greeley of the Liberal Republicans in 1872 and John M. Palmer of the National Democrats in 1895. Neither fared well. There is a lesson for the Libertarian Party here. The LP would function more effectively as an election spoiler than as an independent political party.

The Mugwumps (or Independent Republicans) were mostly upper class northeasterners, mainly from New England and New York. They tended to have been educated in religious, Protestant schools and to have had a strong moral sense. Many were former abolitionists. They were not religious themselves, but their grounding and education was. They were concerned with the decay of morals in American politics, and were inclined to foresake personal gain and office on behalf of their ideals, which did not match their economic interests. In other words, many of them benefited from paper money and inflation, but they opposed it on moral grounds, and the same is true of tariffs. Many left wing historians, who lack grounding in economics and ethics, look for class or personal motives in the Mugwumps' position. Ironically, support for inflation, free silver, greenbacks and Keynesian economics is very much the position that favors the upper class, banking interests, Wall Street, hedge fund billionaires, large coroporations and corporate executvies. It was Theodore Roosevelt who benefited from his cynical adoption of progressive-liberalism, the ideology of the American upper class from 1900 to 2007. EL Godkin, Carl Schurz, Horace White and the other Mugwumps paid dearly for their idealistic commitment to morality in politics. The fact that historians have often treated them shabbily suggests shabbines in academia more than anything else.

The Independent Republicans had one advantage over today's libertarians and conservatives: the intellectual support of mainstream universities. Relatively few Americans were capable of thinking through monetary issues even in the 1870s. Today, probably even a smaller percentage of the population is willing to expend the effort to do so. However, when the Mugwumps could say that their ideas had the backing of Harvard economists, the public was much more likely to defer. In this sense, they provided a role model to today's progressive-liberals, who dominate our society through their control of higher education. This intrigues me because it suggests a tighter link between the ideology of higher education, economic interests and what Howard S. Katz calls "the paper aristocracy" than I used to think.

The Mugwumps had limited data on which to base their arguments, and they fell into a number of errors. The most grievous Mugwumps fell were their support for the establishment of the Federal Reserve Bank and their belief that the civil service would end special interest politics and government corruption. Their emphasis on the Fed came from three factors: (1) they believed that the Fed would be constrained by the gold standard, which Roosevelt abolished in the 1930s; (2) they believed that separating money from politics would reduce the temptation to inflate (they overrated the institutional separation of the Fed from Congress; (3) they did not anticipate Keynesian economics, which provided an ideological rationale for the inflationist view which (not to blame them, who could would have known?).

Their notions of morality led to their belief in free trade, the gold standard and honest government, notably via civil service reform. Their advocacy of sound money and free trade, which they explicitly linked to the elimination of special privilege, favoritism for the rich (the debtor class, according to their arguments, being the chief beneficiaries of paper money, then as now) was explicitly rooted in their moral sense. They saw individual achievement, self sufficiency and hard work as moral principles that protectionism and paper money would debase.

Then as now there were powerful forces arrayed against moralist and hard money positions. There was strong western agitation for greenbacks and then silver inflation by landowners (much as the subprime crisis today has been a strong motivation of reallocation of wealth to wealthy investment bankers and landowners), and politicians were inclined to support the demands for inflation. In fact, there were several greenback and free silver bills passed, that Mugwump agitation was able to stop, and some that the Mugwumps could not stop.

The Mugwumps saw the debate as one involving moral principle against personal gain. Those who favored personal gain over morals joined the regular party ranks. Theodore Roosevelt and Henry Cabot Lodge, are cited as two examples of reformers who chose to emphasize their careers as opposed to their morals. When James G. B

Gain in democracatic politics is linked to popular appeal. Hence other directedness results from focus on public opinion. However, the advances in American society came not from the political but from the creative, scientific, engineering and management fields, which do not depend on public opinion. Theodore Roosevelt was among the first other-directed, twentieth century men. In choosing personal gain and political advantage over moral belief, he set the stage for the progressive-liberalism of the twentieth century, its moral vacuity and the economic decline that will result from focus on relationships and opinion rather than achievement.

Opiate of the Masses

Merv of PrairiePundit posts Mark Steyn's article about capitalism and change (thanks to Larwyn). He notes that whereas the presidential candidates say that they favor change:

"it's capitalism that's the real "agent of change. Politicians, on the whole, prefer stasis, at least on everything for which they already have responsibility. ts."

But the change thatReInflateoCrat politicians advocate is not make believe. Politicians do create change. Progressive-liberal or political change is reactionary and exploitative. The name "progressive-liberal" refers not to progress or liberalization for the public, rather progress and liberalization for its privileged beneficiaries: lawyers, big business, academics and hedge fund managers.

In aiming to "deconstruct" American values, progressive-liberals aim to supplant them with values that serve their ends. Progressive liberals aim not only to staunch general progress and technological advance, which threatens established economic interests, but to intensify income inequality; shore up inept businesses; protect inefficient health care; make the poor poorer; and make the rich richer. All of this is done in the name of making the economy more efficient; reducing income inequality; providing general health care; and helping the poor. Progressive-liberalism is a vicious philosophy.

Universities have played a critical role in reinforcing exploitative political change . In the 1970s Milovan Djilas argued that communism and left wing ideology served the interests of a new class of journalists and intellectuals.

In America, political use of intellectuals to advocate and support economic exploitation of the poor takes on a specific pattern. American academics argue for cultural change that reinforces their power. They attack religious institutions and traditional values, and argue for a pattern based on groupthink, the "liberal Borg", whereby the New York Times sets an agenda which progressive-liberal cult members mindlessly follow. The progressive-liberal groupthink mentality is a social control process that serves specific economic interests. The new class, academics and journalists, is paid for this pattern with academic jobs, funding and the like.

The effect of the academics' purposed cultural domination and hegemony is to distract the public from state violence and exploitation. The public is made poorer by inflationary policies of the Federal Reserve Bank, while the media advises them that inflation is low. The dollar is artificially propped up and some jobs leave the country, and the media tells the public that free trade is to blame. There is massive waste in government, and the public is told that taxes are too low.

All the while, academia distracts from its exploitative purposes by raising crank political issues: terrorism is justice; defending America is imperialism; crime is justice; taxation creates wealth; free trade makes us poorer, and so on.

The Republicans have been too often part of this process. Republicans, such as Theodore Roosevelt, supported progressive-liberalism. This element never left the Republican Party. In those days, the Democrats were free traders and the Republicans supported exploitative tariffs. Support for hard money was a minority voice in both parties. It was not until 1896 that the Republicans became the hard money party.

It is primarily because of capture of academia that the progressive-liberals have been triumphant in the last century. Now that their ideas have been discredited, it is even more crucial to them to retain control of academia. Without the reinforcement of academic propaganda, it will be difficult for the progressive-liberals to appear to be anything other than what they are: the ideologists of corruption, narrow special interest and economic decline.

Conservatives need to state their case. The Republican Party is not necessarily a conservative or moderate conservative party. It has been a corrupt or progressive-liberal party for much of its history. Conservatives must ponder the way forward.