The Coming Media Revolution

All institutions become corrupt over time, and the way that they are recovered has to do with feedback and control. If feedback is available and control can be exercised by a well intentioned principal, the deviations toward corruption can be corrected. From the mid 19th to the early twentieth century, government in the US became increasingly corrupt. This was mitigated by a free press and by the availability of the frontier so that Americans could leave the political establishment. The flexibility to leave has kept New York City at a population of 8 million or so for 50 or more years as successive generations of immigrants have seen that the city does not function well and so leave. In the twentieth century media technology transformed media as radio and then television replaced once partisan newspapers. Many of the papers died, and the biggest ones, namely the New York Times and later the Washington Post, tended to reflect the views that at that time were most prevalent, namely Progressivism, particularly in its New Deal form. The television and radio stations also adopted the Progressive New Deal viewpoint because it was dominant when they were established between 1920 and 1960. As the number of liberal (in the nineteenth century sense) newspapers dwindled to nearly zero in the early twentieth century and the number of conservative-Progressive newspapers also dwindled, the newspapers as well as the radio and television news was dominated by the Progressive-New Deal point of view. By 1964, when Barry Goldwater ran for president, although he could capture a significant share of the vote, he lost in a 61% to 38% landslide to Lyndon Baynes Johnson. (Note that at its nadir, 19th century liberalism could attract almost 40% of the vote.)

The institutionalization of a viewpoint in a corporation is often called organizational culture. The views of the founders, to include not only the entrepreneur but the managers whom he appoints and the relations between the divisions of the new organization, shape the culture. The culture becomes ingrained and is difficult to change, even if a targeted effort is made. Philip Selznick first wrote about the problem of culture change in his "Leadership in Organizations" published int the 1950s. The idea was carried forward aggressively in the 1980s through such works as William Ouchi's "Theory Z" and is today a mainstay of management theory.

There were several factors that caused the institutionalization of the Progressive-New Deal point of view in the American media, the most important of which are (1) the nineteenth century liberal sources that resisted Progressivism ceased to exist or were taken over (as in the case of the Nation); (2) the media formed between 1920 and 1960 adopted the views of founders that were almost universally Progressive-New Deal; (3) the American education system has tended to re enforce this culture; and (4) hiring and promotional policies are inevitably linked to culture, and so there are powerful incentives for media operatives to adopt the Progressive-New Deal line.

Eventually, dysfunctional cultures create economic opportunities for entrepreneurs. As firms insist on a false reality consumers demand alternatives. This happened in Detroit in the 1960s, as a reading of John Delorean's and Patrick Wright's 1972 "On a Clear Day You Can See General Motors" reveals. Detroit has hung on for another 35 years, but new firms have gradually eroded their market share.

A similar kind of reality gap is occurring in a range of American industries. In finance, repeated failure, corruption and reliance on government bailouts are greeted with glee, as today's increase in stock market valuations at the news of the government takeover of Fannie Mae reveal. In automobiles, the American car makers still have not found a way to compete successfully with the Japanese after 35 years of indulgence. And in the news media, Progressive-New Deal bias in the media's news, inability to grasp the mindset of the "new conservatism" that is not so new, declining quality of Hollywood films and the invention of new technologies that leave the twentieth century media in the dust are not addressed.

The most recent gaffe is Oprah's refusal to invite a Republican candidate, Sarah Palin, onto her show even though she did invite the Democratic candidate, Barack Obama, onto her show (see photo from the Obamafile, h/t Bob Robbins). Oprah has shown bad judgment and bad ethics in using her position of trust as a talk show for partisan purposes. Oprah's viewers suddenly look foolish as it appears that they mindlessly follow Oprah's less-than-ethical whims.

Yet another example that came to my inbox today is Warner Todd Huston of the Stop the ACLU site's excellent analysis (h/t Larwyn) of a laughable San Francisco Chronicle story that claims to be about John McCain but is actually a vehicle to quote Barack Obama attacking John McCain. Ha, ha, the media clowns doing somersaults.

The question is why have no entrepreneurs stepped forward to arbitrage an increasingly inept media. Part of the reason might be the frontier of the new media, the increasing number of cable channels and the Internet. Also, the centralization of media ownership in a few large corporations that benefit from the Progressive-New Deal position and would logically favor a candidate like Obama would likely make it difficult for entrepreneurs to break into the old media. As well, the new media is doing quite a job as it is.

Nevertheless, I can't help but wonder if there aren't some good opportunities, as in a buyout of MSNBC.

America Can't Be Richer Than Europe If She Does The Same Things The Europeans Do

It should seem obvious but it apparently isn't. I heard Barack Obama on the radio this afternoon. He claimed that many Americans dislike government if they have a job but change their minds when they don't have one. But the more government the fewer jobs, and if the process continues long enough then you have a situation like England's where the bottom 20% have been self-excluded from the job market because welfare pays better, and the country hasn't been innovative in a long time.

I am in the middle of Walter Weyl's 1912 New Democracy and one of the evident fallacies in the book is his belief that America was wealthier than Europe because of natural resources and the frontier. That was untrue. Japan has no natural resources and no frontier, but it is much richer than Russia, which has both. Likewise, Weyl cannot repeat often enough how much ahead of the US Europe is. That's another theme that the social democrats have carried forward through today. I wonder if Weyl's relatives in Europe, if any, were killed within three decades by those wonderfully social democratic Germans he repeatedly extols.

The problem is the way that you become rich, holding resources equal (as e.g., America's and Rusia's resources were equal in the 19th century) is (a) thrift; (b) efficient management; or (c) new ideas, inventions and innovations. There are no other ways The nation as a whole cannot become rich trading stocks or timing the stock market.

For the past century Weyl and his Progressive followers have been telling Americans that they need to become more like Europe. But if you're not more thrifty, efficient or innovative than Europeans, you're not going to be richer. You can expect to live like Europeans. Americans have thought of themselves as wealthier, but they've listened to the Progressives, and now they are going to learn that if you copy Europe, you adopt economic practices and social democracy like Europe's, your natural resources aren't going to be of much help. That's a hard lesson to learn.

We cannot be richer than Europe if we adopt Weyl-cum-Obama style social democracy. Sorry. Because of Obama and the last century's worth of Progressives, Americans can look forward to becoming poorer and poorer.

But at least we'll be happy when we're unemployed.

Economies of Scale and Corruption in Walter Weyl's New Democracy

Walter Weyl was one of the co-founders of the New Republic magazine along with Herbert Croly and Walter Lippmann. After New Democracy* was published in 1912, Theodore Roosevelt called it one of the "true books of the (Progressive) movement"** I was dismayed yesterday to learn that TR is President McCain's (oops--I mean Senator McCain's) favorite President. (Recall that TR was the most left wing president of the twentieth century and virtually all of his cousin's, FDR's, ideas in the New Deal were inspired by or related to ideas conceptualized by Roosevelt Progressivism. Calling our current Democratic/Republican election system a choice between Tweedledum and Tweedledee is hardly an exaggeration. McCain favors TR, the most important Progressive politician, Obama fashions himself after the "Progressives" in general. Quite a choice.)

Weyl is a better writer than Walter Lippmann and Lippmann is a better writer than Herbert Croly and John Dewey. The book is very readable and enjoyable even if you disagree, presumably as Messers McCain and Obama, perhaps I should call them McObama, do not. The first few chapters are a potted history of the United States. What is remarkable about them is the lack of economic data and evidence on which the Progressives' arguments were based.

Like Croly and Dewey, Weyl emphasizes the shift from expansion and individualism to monopoly and teams (p. 47):

"It was indeed a strange psychological world in which the American individualist found himself, when, with the reaching of the frontier, American enterprise turned back on itself. The little gambler was like the belated boy who dreams of a Far West of Indian trails but finds there only railways and automobile roads. The individualist became bewildered when his familiar rebating became double-cross rebating and the big shipper received both his own and the littler shipper's rebate, and he became still more confused when the big shipper ended rebates by acquiring his own railroads and his own pipe lines. The individualistic American was dumbfounded when he saw that the favorable terminal facilities, public service franchises and other special privileges, given to a competitor, had ended competition; when he saw competition become parasitic; when he saw the trusts organizing a fictitious competition against themselves. His psychological development had lagged decades behind the industrial development of the country."

More on this below.

Note that there is a contradiction fundamental to the Progressive argument, and it is evident in Weyl's book. Europe, especially Germany, was already experimenting with social democracy in the late nineteenth century, yet rather than attempt such experiments, immigrants from Italy, eastern Europe and northern Europe continued to flock to the United States. This is a puzzle. Why would all these oppressed Europeans come here, rather than to enlightened Germany? Maybe enlightenment isn't all that enlightened. And given subsequent developments in Germany, the birthplace of social democratic enlightenment, I suspect that the impoverished immigrants were smarter than Weyl, Roosevelt and the Progressives.

Weyl writes (p. 68):

"In 1876 as now the American Commonwealths were far behind the leading countries of Europe in laws regulating hours of labor, conditions of work, the prevention of accidents; in laws regulating truck stores, sweat shops, the employment of women, the employment of children...While American manufacturers had been protected against the competition of foreign manufacturers, our resident laborers had not been protected against the competition of European laborers. Immigration had brought in nation after nation, each with a lower standard of living. Whether the ultimate effect was good or bad, whether the immediate burden upon the city toiler was tolerable or intolerable, the nation had not cared. The labor market might be glutted or anemic, the city tenements and shanties might be crowded, the political machine might already be creaking under the weight of illiterate and inarticulate voters. Nevertheless, if immigrants came--or could be made to come--they must be admitted...The poverty of even our most destitute Negroes is opulence compared with the bottomless misery of south Italy or Russia. The enormous wealth of the continent, and our long immunity from serious foreign war or the fear of war, lessened our pauperism."

Weyl predates Schumpeter, Hayek and Mises and so overestimates the importance of regulation and monopoly. His chapter VII, "The Resplendent Plutocracy" emphasizes the role of size and standardization in economic efficiency, which is a theme virtually all historians reiterate. However, he overstates these. It took a number of decades until the limitations of scale in generating progress became evident. Weyl uses the phrase "divorce of ownership and control" (p. 88) which is often attributed to Adolph Berle and Gardiner Means who wrote about this subject twenty years after Weyl in their classic 1932 Modern Corporation and Private Property.

Many of the reforms that Weyl discusses, such as the need for greater disclosure in investment (p. 88) are unexceptionable, and were subsequently adopted during the New Deal (one more piece of evidence that most of the New Deal was already advocated in the Progressive era). He writes (p. 94):

"The trusts are teaching us --as we are teaching them--that the end of it all must be production on the largest scale compatible with efficiency but a production so regulated as to ownership, stock issues, dividends, prices, wages and profits as to safeguard the whole community."

But there are at least three flies in this Progressive ointment. First, in the following chapter on "Plutocracy in Politics" Weyl argues (p. 99)

"The organizing skill of the business magnate in systematizing political corruption has changed it from a local though chronic phenomenon to one which is organic and nation-wide. 'Every time I attempt to trace to its sources the political corruption of a city ring,' says Lincoln Steffens, the acute political pathologist, 'the stream of pollution branches off in the most unexpected directions and spread out in a network of veins and arteries so complex that hardly any part of the body politic seemed clear of it...Not the political ring, but big business--that is the crux of the situation'".

But in arguing for an expansion of the federal government, Weyl overlooks the problem of agency. Who is to ensure that the regulators are not equally corrupt? And if they are, then the expansion of regulation to be national in scope guarantees a governmentally enforced monopoly of corruption. The Progressives never raised, much less solved, the agency problem. Nor have their followers.

The second fly in Weyl's Progressive ointment is the incentivization of special interest lobbying by increasing the scale of government. It is not surprising that Weyl did not anticipate this problem because Madison and Hamilton missed it as well. In the Federalist 51 Madison argued that a large republic is less likely to be subject to faction than a small one because the competition among factions would cancel each other out. It was not until the 1960s that Mancur Olson and George Stigler began to realize that small lobbies with large benefits, i.e., the very trusts with which Weyl was most concerned, had structural economic advantages over dispersed lobbies, and the larger the size of the republic and the more concentrated industry the easier the large firms have it. Since this development went against the thinking behind the framework of Progressivism, what William Appleman Williams calls the "syndicalism" of Herber Hoover and the New Deal and the Federalist model, it is not surprising that Weyl missed it as well. But it causes Weyl's program to be self-destructive.

The third fly in Weyl's Progressive ointment is the inflexibility and inability to change that the capturable regulatory systems that he advocated would entail and the dynamic, mortal nature of big business. Like a stock market investor who buys at the top, the Progressives believed that the trusts would continue to expand. But few of the firms that were in existence in 1912 remain. In contrast, most of the government bureaucracies that Weyl and his colleagues advocated, do remain.


*Walter E. Weyl, The New Democracy. Harper Torchbook Edition. New York: Harper and Row, 1964.

**Ibid, p. viii.

Peter G. Peterson Foundation

Contrairimairi just e-mailed me about a petition sponsored by the Peter G. Peterson Foundation. I didn't sign it even though I agree with the petition in principle.

I don't know much about the Peter G. Peterson Foundation. According to the e-mail, reproduced below, they favor reduction of the federal debt as I do. They have produced a documentary film about it, and the film is doing well. The Peter G. Peterson website is apparently anti-federal deficit but is strangely vague as to the specifics.

According to Wikipedia, Peter G. Peterson is a former Secretary of Commerce (under Richard M. Nixon) and co-founder of an investment bank, the Blackstone Group. Mr. Peterson has been associated with David Rockefeller all of his life. He is apparently of the Progressive wing of the Republican Party. His career has been at the nexus of the linkages between big business and big government.

In sum, my esteemed readers, precisely the nexus that turns my stomach.

I do not believe that the Progressives, big business or big government have been positive developments for the country. I do not agree with the mainstream of academic historians who have mechanically parroted the view expressed by Walter Weyl and other Progressives that scale is essential to economic development. I do not think that big business is an efficient or effective method of production in many of the areas in which it predominates.

I do think that government has coddled big business and that much of the federal deficit that Mr. Peterson criticizes has been garnered in supporting the firm that he founded and the businesses from which he has profited.

In short, I think that Mr. Peterson is full of baloney, as are his supporters at the New York Times, Warren Buffett, David Rockefeller and the rest of the Progressive, pro-big business crew.

If Mr. Peterson opposes the federal deficit, let him come out against any further tariffs, subsidies to big business and regulation that squashes small business and most of all, the Federal Reserve Bank. Unless his petition mentions corporate welfare and the incredible inefficiency of America's Federal Reserve-subsidized corporations, I will pass on his phony petition.

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