John Dewey. The Public and Its Problems. Athens, Ohio: Swallow Press-Ohio University Press. Originally Published New York: H. Holt, 1927. 236 pages. Available at Amazon.com for $13.95, used and new from $5.00.
John Dewey wrote The Public and Its Problems in response to Walter Lippmann's Public Opinion, which I previously reviewed here. While Lippmann was among the first to notice cognitive limits to public deliberation especially with respect to the mass media's inability to represent issues meaningfully, and so implied a threat to the possibility of big government democracy, Dewey aims to present an argument as to why public opinion can be rationally derived. Dewey's arguments in favor of pragmatism are strong but his arguments in favor of the possibility of rational public deliberation do not resolve the barriers to deliberative mass democracy. As Dewey suggests, this weakness gives the reader pause as to whether we actually live in a democracy.
I am of two minds about The Public and Its Problems. As a pragmatist, Dewey provides an excellent basis for skepticism about political systems. His emphasis on the need for experimentation and the danger of excessive fascination with tradition suggest the need for flexibility in government. But this book contains the germs of early 21st century social democratic conservatism as well. As much as he criticizes Whigs and individualists for their commitment to liberal institutions, Dewey fetishizes state-based solutions. His Progressive ideology leads to his claim that the public can deliberate by hiring social scientists and allowing journalists free rein in painting of artistic portraits of the experts' observations for public consumption. This is not a pragmatic argument. It is nonsense. Nor is his treatment of Locke and the utilitarians pragmatic. It is precisely in the results of Lockean individualism that the individualist theory's advantages are evident. When (p. 105), Dewey emphasizes that all history involves association and that there is no such thing as a natural economy, he misses the point that such associations and transmission of culture and tools existed in primitive Middle Age and tribal economies as well as in the 19th and 20th centuries. What differentiated the latter was Lockean individualism. Hence, instead of looking for the reason that progress emanated from Lockean individualism, Dewey emphasizes institutional history. But the important difference between the modern and more primitive economies ensues not from adjustment to particular circumstances but rather from flexibility and incentives; from the ability of price to enable entrepreneurs to gauge demand; and from the ability of firms to allocate resources in response to price. As Dewey's Progressive ideas gained currency through the 20th century, the economy became less promising. Rather than revise Dewey's arguments, today's social democrats (formerly known as liberals) dug in their heels and insisted on the religious fetishization of government programs like Social Security and the Federal Reserve Bank.
On page 35 Dewey summarizes his argument that the state arises as a mechanism to deal with third parties' perceived effects (what economists call externalities) from private transactions:
"Associated action is a universal trait of the behavior of things. Such action has results. Some of the results of human collective action are perceived...Then there arise purposes, plans, measures and means to secure consequences which are liked and eliminate those which are found obnoxious. Thus perception generates a common interest; that is, those affected by the consequences are perforce concerned in conduct of all those who along with themselves share in bringing about the results...Those indirectly and seriously affected for good or for evil form a group distinctive enough to require recognition and a name. The name selected is the Public...Then and in so far, association adds to itself political organization, and something which may be government comes into being: the public is in a political state."
Thus, the public arises from the need to cope with externalities and the state, argues Dewey, is necessary to so cope. Unfortunately for Dewey, his argument is susceptible to the same criticism that he levies at other theories, namely, the exaggeration of human agency in the evolution of the state. This is true in three ways.
First, he does not make explicit how interests, perceptions and organization are actually implemented by his "Public". He assumes away the possibility of vested interests, asymmetries of information and power that are crucial to understanding the state and the inequities it causes. Dewey downplays the human agency necessary in the creation of law, and so supposes a naive public interest rationale for law (p. 57):
"the law as 'embodied reason' means a formulated generalization of means and procedures in behavior which are adapted to secure what is wanted."
Note the passive voice in this sentence. "What is wanted" by whom? For what end? Dewey describes the "primary problem of the public to achieve such recognition of itself as will give it weight in the selection of official representatives and in the definition of their responsibilities and rights" (p. 77) but this problem is but the tip of the iceberg. Which portions of the public are likely to be most successful in influencing public officials? Why do some economic interests become more powerful than others? These are questions that democracy has failed to resolve. Dewey suggests that these problems are necessary to solve in saying that public officials will always suffer conflicts, but he does not outline the structural asymmetries that skew democracy.
In chapter three, "The Democratic State", he criticizes individualist democratic theory for ignoring the effects of large scale organization and implicitly the need for labor organizations. He asks (p. 98): "Why, then, was a movement which involved so much submerging of personal action in the overflowing consequences of remote and inaccessible collective actions reflected in a philosophy of individualism?" His answer is that workers were traditionally oppressed, and the real beneficiaries of individualism were owners, who were the only ones to experience individualism first hand. But this is short sighted. While it is true immigration flooded the American labor market in the late 19th century, facilitating large scale organization and eliminating the possibility of entrepreneurship for many Americans, it is also true that the philosophy of individual contract led to a flexibility in labor markets that facilitated the evolution of the American work force. A considerable portion of the public continued to be self employed, with the jobs in large firms becoming more desirable because of administered labor markets and high wages. Thus, self-employment did not remain the first choice for many Americans because the gains from employment in a large scale firm were greater than from self-employment. Americans abandoned farms because they could not provide a standard of living that was adequate by modern standards.
Second, historically the state did not evolve in the context of a pre-existing society where economic transactions caused externalities. Rather, the state in Europe and around the world was an offshoot of traditional tribal authority. The French state, for instance, evolved through violent overthrow of the monarchy, which in turn was derived from the tribal authority of Frankish kings, who were themselves descended from Frankish tribal leaders. As well, the Roman state was tribally derived. The idea that the state evolved from externalities is a more far fetched fiction than the Lockean thought experiment that results in the state's being derived to protect life, liberty and property.
Third, the idea that there is less intentionality in forming a state to protect against externalities than there is in forming a state to protect against incursions on life, liberty and property is unfounded. Dewey's fundamental premise is a non sequitor. He emphasizes the importance of interpersonal associations in human activity and concludes that (p.27):
"all modes of associated behavior may have extensive and enduring consequences which involve others beyond those directly engaged in them...For the essence of the consequences which call a public into being is the fact that they expand beyond those directly engaged in producing them."
Dewey presents a public interest theory of government in which the state comes into being full-blown from the excrescences of the Standard Oil Corporation, and experts like Henry Carter Adams and Herbert Knox Smith bear the public good via a state whose only reason for existence is to help the public address the evils that Standard Oil has caused.
That is, Dewey argues that the state evolves as the public recognizes its own existence from the externalities that private transactions cause. The public remains "inchoate" (p. 31) because past institutions impede an awareness of the public's (i.e., which is effected by externalities) own existence. He adds (p. 31):
"the state is the organization of the public effected through officials for the protection of the interests shared by its members."
But the book makes good points as well. Despite Dewey's questionable theory of what constitutes a state, he emphasizes the need for pragmatic experimentation (p. 33):
"The formation of states must be an experimental process. The trial process may go on with diverse degrees of blindness and accident, and at the cost of unregulated procedures of cut and try, of fumbling and groping, without insight for what men are after or clear knowledge of a good state even when it is achieved. Or it may proceed more intelligently, because guided by knowledge of the conditions which must be fulfilled. But it is still experimental...The belief in political fixity, of the sanctity of some form of state consecrated by the efforts of our fathers and hallowed by tradition, is one of the stumbling-blocks in the way of orderly and directed change."
Not only does the state need to change, but as well "diversity of political forms rather than uniformity is the rule" (p. 45) so that a range of possible alternatives is possible.
It is here that social democratic liberalism has failed Dewey rather than the other way around. For the programs that social democracy has advocated in the name of pragmatism have become fixed. They have lasted as long as the laissez faire world of Jacksonian democracy lasted, since the 1910s to 1930s, and they have not worked much better than Jacksonian democracy did. But instead of rising to the pragmatic challenge and thinking about structural change, social democrats (formerly known as liberals) defend every attempt to reform or change their programs as aggressively as any conservative attempted to defend 19th century liberal society from Progressive reform. Social democrats have become today's reactionaries, and in doing so have betrayed Dewey's pragmatism.
Dewey wrote in a context where laissez faire capitalism had been only moderately regulated. Thus, Dewey anticipated a flexibility in the action of state functions that has not materialized. He concludes (p. 54) that:
"rules of law are in fact the institution of conditions under which persons make their arrangements with one another. They are structures which canalize action; they are active forces only as are banks which confine the flow of a stream and are commands only in the sense in which the banks command the current."
In this, Dewey's progressivism retains a strong taste of liberalism. He assumes that the state is one derived from classical liberal principles even as he attacks the basis of the classical liberal state, i.e., its limited nature and purpose. Dewey anticipates the the totalitarian state, but he explains it away (p. 73) by arguing that his theory is "neutral as to any general, sweeping implications as to how far state activity may extend." In a totalitarian state, law does not canalize human action but dams it up. In fact, Dewey's claim that state action primarily serves public interests was tragically contradicted in subsequent decades, and Dewey does not anticipate nor does his theory explain how the totalitarian state evolved from the Bismarckian welfare state, a state which likely served as a model for his own ideas.
In chapter III Dewey discusses the democratic state. All politicians have conflicting public and private interests and (pp. 77-82)
"the primary problem of the public (is to) achieve such recognition of itself as will give it weight in the selection of official representatives and in the definition of their responsibilities and rights...the same causes which have led men to utilize concentrated political power to serve private purposes will continue to act to induce men to employ concentrated economic power in behalf of non-public aims."
In discussing the utilitarian and individualist theory of rights Dewey quotes James Mill's (p. 93) "classic formulation of the nature of political democracy", namely, popular election, short terms of office and frequent elections and argues (p. 95) that classical liberal democracy over-rated individualism. Rather, "Today, the everyday relationships of men are largely with great impersonal concerns, with organizations not with individuals."
Yet, Dewey's emphasis on the importance of large scale organizations overstates the importance of scale and understates the importance of flexibility, a fallacy characteristic of the Progressives. They could not have known that flexibility would be more important than scale. It took the Japanese automobile industry to hammer this home in the 1950s (as well as the Austrian economists in the mid 20th century). Nor did Dewey grasp that institutionalization of special interests would lead to impediments to economic growth as the special interests pushed for regulation, licensure, taxation and other impediments to growth.
In chapter 5, "The Eclipse of the Public", Dewey notes that increasing scale and public apathy have been coupled with increasing big business power and homogenization of the American public (pp. 116-23):
"In spite of attained integration, or rather perhaps because of its nature, the Public seems to be lost; it is certainly bewildered...Those still more inclined to generalization assert that the whole apparatus of political activities is a kind of protective coloration to conceal the fact that big business rules the governmental roost...Is the public a myth?."
He further notes that (p. 126-31):
"The machine age has so enormously expanded, multiplied, identified and complicated the scope of indirect consequences, has formed such immense and consolidated unions in action, on an impersonal rather than a community basis, that the resultant public cannot identify and distinguish itself...There are too many publics and too much of public concern for our existing resources to cope with...the Great Society has invaded and partially disintegrated small communities of former times without generating a Great Community...The local face-to-face community has been invaded by forces so vast, so remote in initiation, so far-reaching in scope and so complexly indirect in operation that they are from the standpoint of the members of local social units, unknown."
Moreover:
"Aside from business corporations which have a direct interest in it and some engineers, how many citizens have the data or the ability to secure and estimate the facts involved...But the very size, heterogeneity and nobility of urban populations, the vast capital required, the technical characterization of the engineering problems involved soon tire the attention of the average voter."
And (p. 131-46)
"The increase in the number, variety and cheapness of amusements represents a powerful diversion of political concern. The members of an inchoate public have too many ways of enjoyment, as well as of work, to give much thought to organization into an effective public...Access to amusement has been rendered easy and cheap beyond anything known in the past."
In chapter 5, "Search for the Great Community", Dewey points out that the transition from family and dynastic government was the result of technology rather than ideology. Ideology has served primarily the role of "war cries" but not of hypotheses meant for experimentation. History has not borne him out. The classical liberal ideas that he deprecates have been associated with far better economic performance than socialist ones. Ideology rather than technology differentiated the American and Soviet economies. Thus, by his own pragmatism Dewey's diminution of the importance of ideology failed.
Dewey believes that the trend has been toward greater democracy (p. 146) but I do not think that history has borne out this belief. There has never been a solution to his question:
"The prime difficulty, as we have seen, is that of discovering the means by which a scattered, mobile and manifold public may so recognize itself as to define and express its interests."
Dewey suggests as a solution, enhanced participation in pluralistic groups. Democracy is the idea of community life (p. 148). Associations become communities when they are infused with morality supported by signs or symbols (p. 152). "The young have to be brought within the traditions, outlook and interests which characterize a community by means of education: by unremitting instruction and by learning in connection with the phenomena of overt association."
Meaning and communication can influence the technological and economic change that creates the "Great Society". To transform the Great Society into the Great Community social transmission of knowledge, tools and habits are needed (p. 158-9). Habit is fundamental to institutions. Mere freedom from constraint does not create intellectual freedom. The "agencies of publicity which exist in such abundance are utilized in...advertising, propaganda, invasion of private life" and therefore obstruct the "circulation of facts and ideas" (p 169). "We seem to approaching a state of government by hired promoters of opinion...Men have got used to an experimental method in physical and technical matters. They are still afraid of it in human concerns." Social knowledge is backward and people are excessively conservative and loyal to established institutions. "Only continuous inquiry, continuous in the sense of being connected as well as persistent, can provide the material of enduring opinion about public matters" (p. 178). Much of news is trivial and sensational (p. 180). Social science must be integrated with news. Instead, pecuniary interests manipulate the news. Presentation of news is "fundamentally important" (p. 188). "The freeing of the artist in literary presentation, in other words, is as much a precondition of the desirable creation of adequate opinion on public matters as is the freeing of social inquiry."
As Dewey notes in chapter 6, The Problem of Method, the reader is left with a considerable sense of denial of the possibility of these conditions occurring. Dewey goes on to argue that abstract theory is not important, but rather the consequences of theories are what should be considered (p. 193). "The problem of exercising 'social control' over individuals is in its reality that of regulating the doings and results of some individuals in order that a larger number of individuals may have a fuller and deeper experience...Even professedly empirical philosophies have assumed a certain finality and foreverness in their theories which may be expresse dby saying that they have been non-historical in character."
Subsequent generations of social democrats (formerly known as liberals) have betrayed this perspective. Dewey's Progressivism was founded on pragmatism. Today's social democrats resent any tinkering with the solutions that were put forward in Dewey's day. They are as conservative with respect to Social Security, the Federal Reserve Bank and the income tax as early twentieth century conservatives were, only in reverse. As Dewey points out (p. 202) "The person who holds the doctrine of individualism or collectivism has his program determined for him in advance." Today's liberals hold their collectivism tightly, and resent and resist any attempt to reform failure in their many programs, to include urban renewal and planning, education and monetary policy. The solution ought to be a new technology of public management, not a new ideology. As Dewey points out, ideological debates are sterile, and American politicians lack the knowledge or courage to experiment.
Monday, June 16, 2008
Social Democratic Liberalism Came to Serve Corruption
Americans' acceptance of the Keynesian ideology, often called social democracy or post-war liberalism, had its roots in Hamiltonian Federalism. Hamilton, a follower of Hume's economic ideas, had advocated federal expansion of credit and concentration of its availability to business interests. This was to be accomplished by federal assumption of the Revolutionary War debt and establishment of a central bank. Hume had argued that if credit is made available to merchants, then the merchants' smart investment decisions would allocate resources into their most productive uses. Thus, the public might become richer by the artifical creation of money, in Hume's view. Hume assumed that it is a good bet for the public to bear investment risk. But there is certainly risk. Hume believed that the risk would pay off, but this is an apriori argument, not an empirical fact. Moreover, this argument rested on particular facts that were true in the 18th century and ceased to be true by the late nineteenth, in particular merchants' personal assumption of risk.
Hume wrote at a time when corporations did not exist. Corporations did not take their present form until the late nineteenth century, as late as the 1890s. At the time that Hume wrote, merchants who assumed risk did so on their own account, and if they lost money they personally suffered. Thus, there was considerable motivation for rational, profit-maximizing behavior. When central banking was abolished, business needed alternative means to aggregate capital. Corporate organization did so, and it did so by shifting risk away from entrepreneurs and merchants onto investors. This is a more rational method for allocating risk than is central banking because it can reflect personal preferences for risk. Moreover, it permits reflection of a wide range of public preferences. Some people have considerable utility for money in the present because they prefer to consume. Consumers might prefer not to take risks with money but rather to spend it. In contrast, other people have greater utility for money in the future. Such investors can choose to invest more heavily in corporate ventures than a central bank's broad allocation of public resources to specific interests would permit.
Corporate organization might be viewed as an alternative form of capital aggregation to central banking. It is superior because the allocation of risk is explicit. Those who wish to take risks invest in the corporation, while those who do not wish to take risks do not invest. This contrasts with monetary creation by the central bank, which forces all citizens to participate in risky business decisions whether they choose to or not.
But the compounding of the corporate form with central banking might exaggerate risk taking and confound the Humean-Hamiltonian model. Merchants who are not personally at risk may not behave rationally. The result is a potential for corrpution. A corporate president who is granted dollops of credit artificially created by a central bank might be motivated to present false earnings reports, pay himself an exaggerated salary and then resign from the firm before it goes bankrupt, much as the officers of Enron and Bear Stearns did. There is no guarantee of rational behavior by corporate organizations staffed by self interested bureaurcrats. Thus, the subsequent adoption of Hamiltonian Federalism under the Keynesian moniker has gradually led to a crap shoot economy unbridled by rationality and propelled by self-seeking, incompetence and greed.
By 1830 it was evident to most workers that the Central Banking system was not beneficial to them. The Humean and Hamiltonian theory of credit had failed. In particular, banking monopolies led to depreciating currency which in turn led to resentment of the central bank, which President Andrew Jackson abolished in 1832 and 1833. Between 1833 and 1913 there was no central bank, and this was the period of greatest economic creativity in American history. It was also a period of slow business profit, which resulted in repeated complaints about "depressions". Every decade saw increasing real wages and every decade saw a "depression". By the end of the 19th century the average American was much better off, the American economy was the center of world innovation, immigrants flocked here by the millions, but business interests incessantly complained about "depression". Moreover, governmental subsidies to railroads engendered corruption and overexpansion. Post-Civil War monetary inflation facilitated speculation and created income inequality. This occurred at the same time that Jackson's spoils system led to political corruption in the cities.
Many observers felt that rationalization of the state through civil service would improve the economy. The traditional American belief that morality led to economic success was being tested by corruption associated with the railroads and political clubs in the cities. In 1883 Congress passed the Pendleton Act, which created a rudimentary civil service for the federal government. In turn, advocates of moral and limited government, to include the Mugwumps, argued for increased use of civil service, honesty in government, and the gold standard and reduced tariffs. The election of 1884, in which the Mugwumps bolted the Republican Party to support Grover Cleveland, led to Cleveland's election. At the same time, the corporate form of organization facilitated the expansion of industry.
During this period Bismarck in Germany was experimenting with social democracy. Bismarck implemented national health insurance, social security and other social programs. The German historical school of economics argued against the laissez faire economics of Charles Sumner and Adam Smith. Smith, like Hume, argued that there are general laws of economic development. In contrast, the German historical school argued that economic laws are specific to time and place and that generalization is impossible. Moreover, the German historical school assumed that it is possible to rationally guide an economy. This contrasts with Hume's belief that merchants are better equipped to assess investment opportunities than anyone else. It also contrasts with the Whiggish and Jeffersonian belief in countryside entrepreneurs as better equipped to assess investment opportunity than either central planners or elite merchants.
In the late nineteenth century young American academics such as Henry Carter Adams, Richard T. Ely and John R. Commons sought education in the German universities. This was linked to the late nineteenth century Mugwumps' interest in establishing professions. The Mugwumps not only believed in fighting corruption and establishing sound money, but they also had specific professional interests in mind. They wanted to establish standards in academia, law, medicine and other professions. These professional interests became the common thread of modern liberalism. If there is one constant theme from the Mugwumps to todays American Association of University Professors, it is the importance of a college education, professionalism and regulations to establish them. The Mugwumps did not believe in social democracy, but they did believe in rationalization. The German universities were the best in the world, and they thought that if Americans were trained in German universities that they could bring the best methods to bear on American problems. But in social science the German universities were not really so methodologically advanced. The German historical school's emphasis on state-based solutions was a form of romanticism. The Americans who studied in Germany brought some reform ideas to bear on American problems, but combined these with faith in the power the state to solve social problems.
At first the Mugwumps resented the ideas of Richard T. Ely and Henry Carter Adams. As Nancy Cohen points out, Ely, who founded the American Economics Association, was denied tenure and forced to conform to the Mugwumps' expectations. Henry Carter Adams left academia altogether. However, the long term effect was to stimulate support for Progressivism. Ely's student John R. Commons was a central figure in the reform-oriented Wisconsin school, for instance. Progressivism had a number of roots, to include Social Gospel Christianity and Populism, but it was also heavily influenced by Commons's academic theories. Progressivism should not be confused with socialism or social democracy. At times it had elements of these but it included reform ideas of varying kinds.
In 1913, Woodrow Wilson had established the Federal Reserve Bank in order to rationalize the credit markets. Wilson was a supporter of the gold standard and had voted for the Gold Democrats in 1896. He did not anticipate a return to Hamiltonian Federalism. Rather, he saw the Fed as a way to rationalize and professionalize financial management. However, by reestablishing a central bank, he reopened the door to Hamiltonian Federalism. Immediately after the Fed was founded, there was a serious inflation which in turn led to a depression. By 1920 the public had grown weary of the disruptions in economic life and elected Warren G. Harding and Calvin Coolidge. By 1920, after two decades of Progressivism, there was little memory of the laissez faire ideas of the late nineteenth century. Thus Harding and Coolidge, who succeeded Harding when he died three years into his term, nor Congress, were motivated to repeal the Progressive legislation of Roosevelt and Wilson. Part of the reason was that the more extreme socializing ideas that the Republicans under Roosevelt advocated had not come to pass. Instead, the more conservative approach of William Howard Taft and Woodrow Wilson had led to limited judicial enforcement of the Sherman Anti-trust Act, the Hepburn Act which established railroad rates, and the Federal Trade Commission Act. But these laws had limited effects. On the other hand, they turned out to be a stepping stone to a greater degree of governmental intervention in the economy within 12 years.
The compounding effect of the central bank and the corporate form of organization in generating economic inefficiency and corruption did not begin to be felt for a number of decades. This was accomplished by Franklin D. Roosevelt in the early 1930s. First, FDR abolished the gold standard in 1932. Second, he used the pretext of social democracy to strengthen the federal government, which in turn led to increased availability of credit. This was done through the expansion of the military along with the expansion of the welfare state. Government contracts became available as did increased credit. The stock market began to increase from 1937 onward, and after World War II it began an ascent from which it has never returned. In contrast, the financial markets did not increase from the 1880s until the 1930s. In effect, Roosevelt implemented the Hamiltonian system in full force, but he did so with a cloak. The cloak was that of social democracy. American politics became a debate between two statist visions, both derivative of Progressivism and Federalism. The Republican vision was one of state intervention on behalf of business and opposition to social democracy. The Democratic vision was one of state intervention to regulate business in the name of social democracy but to subsidize business through credit expansion just as Hamilton had suggested in the 1780s. Thus, modern American politics deteriorated into a debate between two Hamiltonian visions, both of which aimed to subsidize inefficient corporations at the expense of a bewildered public.
Hume wrote at a time when corporations did not exist. Corporations did not take their present form until the late nineteenth century, as late as the 1890s. At the time that Hume wrote, merchants who assumed risk did so on their own account, and if they lost money they personally suffered. Thus, there was considerable motivation for rational, profit-maximizing behavior. When central banking was abolished, business needed alternative means to aggregate capital. Corporate organization did so, and it did so by shifting risk away from entrepreneurs and merchants onto investors. This is a more rational method for allocating risk than is central banking because it can reflect personal preferences for risk. Moreover, it permits reflection of a wide range of public preferences. Some people have considerable utility for money in the present because they prefer to consume. Consumers might prefer not to take risks with money but rather to spend it. In contrast, other people have greater utility for money in the future. Such investors can choose to invest more heavily in corporate ventures than a central bank's broad allocation of public resources to specific interests would permit.
Corporate organization might be viewed as an alternative form of capital aggregation to central banking. It is superior because the allocation of risk is explicit. Those who wish to take risks invest in the corporation, while those who do not wish to take risks do not invest. This contrasts with monetary creation by the central bank, which forces all citizens to participate in risky business decisions whether they choose to or not.
But the compounding of the corporate form with central banking might exaggerate risk taking and confound the Humean-Hamiltonian model. Merchants who are not personally at risk may not behave rationally. The result is a potential for corrpution. A corporate president who is granted dollops of credit artificially created by a central bank might be motivated to present false earnings reports, pay himself an exaggerated salary and then resign from the firm before it goes bankrupt, much as the officers of Enron and Bear Stearns did. There is no guarantee of rational behavior by corporate organizations staffed by self interested bureaurcrats. Thus, the subsequent adoption of Hamiltonian Federalism under the Keynesian moniker has gradually led to a crap shoot economy unbridled by rationality and propelled by self-seeking, incompetence and greed.
By 1830 it was evident to most workers that the Central Banking system was not beneficial to them. The Humean and Hamiltonian theory of credit had failed. In particular, banking monopolies led to depreciating currency which in turn led to resentment of the central bank, which President Andrew Jackson abolished in 1832 and 1833. Between 1833 and 1913 there was no central bank, and this was the period of greatest economic creativity in American history. It was also a period of slow business profit, which resulted in repeated complaints about "depressions". Every decade saw increasing real wages and every decade saw a "depression". By the end of the 19th century the average American was much better off, the American economy was the center of world innovation, immigrants flocked here by the millions, but business interests incessantly complained about "depression". Moreover, governmental subsidies to railroads engendered corruption and overexpansion. Post-Civil War monetary inflation facilitated speculation and created income inequality. This occurred at the same time that Jackson's spoils system led to political corruption in the cities.
Many observers felt that rationalization of the state through civil service would improve the economy. The traditional American belief that morality led to economic success was being tested by corruption associated with the railroads and political clubs in the cities. In 1883 Congress passed the Pendleton Act, which created a rudimentary civil service for the federal government. In turn, advocates of moral and limited government, to include the Mugwumps, argued for increased use of civil service, honesty in government, and the gold standard and reduced tariffs. The election of 1884, in which the Mugwumps bolted the Republican Party to support Grover Cleveland, led to Cleveland's election. At the same time, the corporate form of organization facilitated the expansion of industry.
During this period Bismarck in Germany was experimenting with social democracy. Bismarck implemented national health insurance, social security and other social programs. The German historical school of economics argued against the laissez faire economics of Charles Sumner and Adam Smith. Smith, like Hume, argued that there are general laws of economic development. In contrast, the German historical school argued that economic laws are specific to time and place and that generalization is impossible. Moreover, the German historical school assumed that it is possible to rationally guide an economy. This contrasts with Hume's belief that merchants are better equipped to assess investment opportunities than anyone else. It also contrasts with the Whiggish and Jeffersonian belief in countryside entrepreneurs as better equipped to assess investment opportunity than either central planners or elite merchants.
In the late nineteenth century young American academics such as Henry Carter Adams, Richard T. Ely and John R. Commons sought education in the German universities. This was linked to the late nineteenth century Mugwumps' interest in establishing professions. The Mugwumps not only believed in fighting corruption and establishing sound money, but they also had specific professional interests in mind. They wanted to establish standards in academia, law, medicine and other professions. These professional interests became the common thread of modern liberalism. If there is one constant theme from the Mugwumps to todays American Association of University Professors, it is the importance of a college education, professionalism and regulations to establish them. The Mugwumps did not believe in social democracy, but they did believe in rationalization. The German universities were the best in the world, and they thought that if Americans were trained in German universities that they could bring the best methods to bear on American problems. But in social science the German universities were not really so methodologically advanced. The German historical school's emphasis on state-based solutions was a form of romanticism. The Americans who studied in Germany brought some reform ideas to bear on American problems, but combined these with faith in the power the state to solve social problems.
At first the Mugwumps resented the ideas of Richard T. Ely and Henry Carter Adams. As Nancy Cohen points out, Ely, who founded the American Economics Association, was denied tenure and forced to conform to the Mugwumps' expectations. Henry Carter Adams left academia altogether. However, the long term effect was to stimulate support for Progressivism. Ely's student John R. Commons was a central figure in the reform-oriented Wisconsin school, for instance. Progressivism had a number of roots, to include Social Gospel Christianity and Populism, but it was also heavily influenced by Commons's academic theories. Progressivism should not be confused with socialism or social democracy. At times it had elements of these but it included reform ideas of varying kinds.
In 1913, Woodrow Wilson had established the Federal Reserve Bank in order to rationalize the credit markets. Wilson was a supporter of the gold standard and had voted for the Gold Democrats in 1896. He did not anticipate a return to Hamiltonian Federalism. Rather, he saw the Fed as a way to rationalize and professionalize financial management. However, by reestablishing a central bank, he reopened the door to Hamiltonian Federalism. Immediately after the Fed was founded, there was a serious inflation which in turn led to a depression. By 1920 the public had grown weary of the disruptions in economic life and elected Warren G. Harding and Calvin Coolidge. By 1920, after two decades of Progressivism, there was little memory of the laissez faire ideas of the late nineteenth century. Thus Harding and Coolidge, who succeeded Harding when he died three years into his term, nor Congress, were motivated to repeal the Progressive legislation of Roosevelt and Wilson. Part of the reason was that the more extreme socializing ideas that the Republicans under Roosevelt advocated had not come to pass. Instead, the more conservative approach of William Howard Taft and Woodrow Wilson had led to limited judicial enforcement of the Sherman Anti-trust Act, the Hepburn Act which established railroad rates, and the Federal Trade Commission Act. But these laws had limited effects. On the other hand, they turned out to be a stepping stone to a greater degree of governmental intervention in the economy within 12 years.
The compounding effect of the central bank and the corporate form of organization in generating economic inefficiency and corruption did not begin to be felt for a number of decades. This was accomplished by Franklin D. Roosevelt in the early 1930s. First, FDR abolished the gold standard in 1932. Second, he used the pretext of social democracy to strengthen the federal government, which in turn led to increased availability of credit. This was done through the expansion of the military along with the expansion of the welfare state. Government contracts became available as did increased credit. The stock market began to increase from 1937 onward, and after World War II it began an ascent from which it has never returned. In contrast, the financial markets did not increase from the 1880s until the 1930s. In effect, Roosevelt implemented the Hamiltonian system in full force, but he did so with a cloak. The cloak was that of social democracy. American politics became a debate between two statist visions, both derivative of Progressivism and Federalism. The Republican vision was one of state intervention on behalf of business and opposition to social democracy. The Democratic vision was one of state intervention to regulate business in the name of social democracy but to subsidize business through credit expansion just as Hamilton had suggested in the 1780s. Thus, modern American politics deteriorated into a debate between two Hamiltonian visions, both of which aimed to subsidize inefficient corporations at the expense of a bewildered public.
A Sociopathic Obama is a Greater Risk Than an Angry McCain
I was recently speaking with one of the Democratic Party's unwashed who offered the following arguments in favor of Barack Obama for President:
1. John McCain has the wrong personality
2. John McCain is too old
Arguments about media figures' personalities are precarious. In public affairs, deception is the rule, not the exception. One cannot know the true personality of a salesman or a corporate official, much less so a politician whose mien is publicly available through television, Internet and other electronic media. As difficult as it is for many to discern the intent of a confidence man, how much more difficult it is to discern the underlying personality or motives of a politician whom we see only through the thoroughly biased lenses of television news and the mainstream media. Hence, arguments about McCain's anger or Obama's charming personality are misguided. Many sociopaths have charming personalities, and Obama may be among them.
The question that needs to be asked about the presidential candidates is not whether they seem like agreeable men, but whether they are likely to be sociopaths. A sociopath is a someone without a conscience. Newt Gingrich recently pointed out that Obama is not unlike most politicians. Perhaps politicians are by nature sociopathic, which is part of the reason why government needs to be restrained. Perhaps Newt Gingrich is among them.
John McCain's reputation for anger is evidence that he is honest. As the New York Sun recently pointed out in an editorial, his grasp of economics is poor. But so is Obama's. Moreover, Obama was associated for many years with a church in which he now, when it is convenient, says that he no longer believes. Moreover, Obama claims to be for change, a slogan of past demagogues such as Adolph Hitler ("alles muss ander sein"). Hence, while arguments based on personality are necessarily specious, it would seem that there is a much greater risk of a sociopathic Obama than a sociopathic McCain. Moreover, Obama's association with a variety of fringe elements whom he readily disowns once revealed suggests a lack of character consistent with sociopathy. Anti-social personality disorder is the basis to sociopathy, and Obama seems to have been attracted to the fringe culture of Reverend Pfleger and Bill Ayers.
Mr. Obama claims to favor change, yet he is allied with specific economic interests, specifically Wall Street. In 2008, Goldman Sachs so far has given $2.7 million to Democrats and less than $1 million to Republicans. Goldman Sachs's contributions to Democrats has exceeded those to Republicans every year since 1990. To assuage public concern about excessive Wall Street influence on Obama, America's off-the-charts-insipid media provide testimonies from "principled" Wall Street tycoons like George Soros and Warren Buffett that Obama is for "change". Of course, Messrs. Soros and Buffett do not discuss how Obama's "change" will influence their own economic interests.
In contrast to Goldman Sachs, Morgan Stanley has traditionally given to Republicans, according to Open Secrets.org. However, in 2008 Morgan Stanley has donated $1.4 million to Democrats and only $824.8 thousand to Republicans. As far as the finance, insurance and real estate industry as a whole, open secrets reports that in 2008, for the first time since 1990 when it begins its report, the industry as a whole is favoring the Democrats over the Republicans.
Barack Obama claims to be for change, but the change he advocates will likely serve the interests of George Soros, Warren Buffett, Goldman Sachs and Morgan Stanley. Thus, we can expect continued loose monetary policy, public subsidization of incompetent and corrupt Wall Street business practices and of course increasing inflation and business regulation that serves Wall Street's economic interests.
Obama is not angry. Sociopaths infrequently express anger because they lack emotional substance. Rather, sociopaths learn to manipulate others' emotions. Thus, Obama publicly asserts that he is for "change" while he quietly accepts donations from Goldman Sachs and Morgan Stanley.
With respect to McCain's age, this argument evidences the divisive nature of Obama's candidacy. When running against Hillary Clinton, the Obama campaign was sexist. Throughout Obama's history, racial and class categories have been objects of manipulation. It is not surprising that age, which is not a material factor, becomes the focal point of Obama's divisive smear campaign. McCain and Obama should be asked to perform exercise jointly. Let us see who has greater stamina, and whether Obama, a smoker, can out-jog McCain.
1. John McCain has the wrong personality
2. John McCain is too old
Arguments about media figures' personalities are precarious. In public affairs, deception is the rule, not the exception. One cannot know the true personality of a salesman or a corporate official, much less so a politician whose mien is publicly available through television, Internet and other electronic media. As difficult as it is for many to discern the intent of a confidence man, how much more difficult it is to discern the underlying personality or motives of a politician whom we see only through the thoroughly biased lenses of television news and the mainstream media. Hence, arguments about McCain's anger or Obama's charming personality are misguided. Many sociopaths have charming personalities, and Obama may be among them.
The question that needs to be asked about the presidential candidates is not whether they seem like agreeable men, but whether they are likely to be sociopaths. A sociopath is a someone without a conscience. Newt Gingrich recently pointed out that Obama is not unlike most politicians. Perhaps politicians are by nature sociopathic, which is part of the reason why government needs to be restrained. Perhaps Newt Gingrich is among them.
John McCain's reputation for anger is evidence that he is honest. As the New York Sun recently pointed out in an editorial, his grasp of economics is poor. But so is Obama's. Moreover, Obama was associated for many years with a church in which he now, when it is convenient, says that he no longer believes. Moreover, Obama claims to be for change, a slogan of past demagogues such as Adolph Hitler ("alles muss ander sein"). Hence, while arguments based on personality are necessarily specious, it would seem that there is a much greater risk of a sociopathic Obama than a sociopathic McCain. Moreover, Obama's association with a variety of fringe elements whom he readily disowns once revealed suggests a lack of character consistent with sociopathy. Anti-social personality disorder is the basis to sociopathy, and Obama seems to have been attracted to the fringe culture of Reverend Pfleger and Bill Ayers.
Mr. Obama claims to favor change, yet he is allied with specific economic interests, specifically Wall Street. In 2008, Goldman Sachs so far has given $2.7 million to Democrats and less than $1 million to Republicans. Goldman Sachs's contributions to Democrats has exceeded those to Republicans every year since 1990. To assuage public concern about excessive Wall Street influence on Obama, America's off-the-charts-insipid media provide testimonies from "principled" Wall Street tycoons like George Soros and Warren Buffett that Obama is for "change". Of course, Messrs. Soros and Buffett do not discuss how Obama's "change" will influence their own economic interests.
In contrast to Goldman Sachs, Morgan Stanley has traditionally given to Republicans, according to Open Secrets.org. However, in 2008 Morgan Stanley has donated $1.4 million to Democrats and only $824.8 thousand to Republicans. As far as the finance, insurance and real estate industry as a whole, open secrets reports that in 2008, for the first time since 1990 when it begins its report, the industry as a whole is favoring the Democrats over the Republicans.
Barack Obama claims to be for change, but the change he advocates will likely serve the interests of George Soros, Warren Buffett, Goldman Sachs and Morgan Stanley. Thus, we can expect continued loose monetary policy, public subsidization of incompetent and corrupt Wall Street business practices and of course increasing inflation and business regulation that serves Wall Street's economic interests.
Obama is not angry. Sociopaths infrequently express anger because they lack emotional substance. Rather, sociopaths learn to manipulate others' emotions. Thus, Obama publicly asserts that he is for "change" while he quietly accepts donations from Goldman Sachs and Morgan Stanley.
With respect to McCain's age, this argument evidences the divisive nature of Obama's candidacy. When running against Hillary Clinton, the Obama campaign was sexist. Throughout Obama's history, racial and class categories have been objects of manipulation. It is not surprising that age, which is not a material factor, becomes the focal point of Obama's divisive smear campaign. McCain and Obama should be asked to perform exercise jointly. Let us see who has greater stamina, and whether Obama, a smoker, can out-jog McCain.
Publius on Localization of America
Let's do a thought experiment. Let's say the federal government agreed to download most of its responsibilities, such as social security, taxation, education (oh, I thought that was a state responsibility), medical care for the elderly, regulation of labor and industry and similar responsibilities onto the states. The states would have the power to reform or discard any or all of the progressive, New Deal and Great Society bureaucracies.
Continuing the thought experiment, under such a localization policy, some states might opt for greater freedom of enterprise and laissez faire. Other states might opt for subsidization of business, a central bank like the Fed, and eminent domain to subsidize real estate developers. Still other states might opt for governmental redistribution of wealth to enable the poor to contribute productively. It is likely that one of these models would be most successful. Would the successful states incur the unsuccessful states' wrath?
In the Federalist Papers number five (by Jay) and six and seven (by Hamilton) Publius, the pseudonym for Jay, Hamilton and Madison, addresses this question. Publius's argument is that decentralization will create animosity among the states or local confederacies of states. In Number 5, Publius (Jay) argues that "they ...would in no other sense be neighbors as they would be borderers." In turn, border conflicts and hatreds leading to war would evolve.
In Number Seven Publius (Hamilton) argues that:
Competition of commerce would be another fruitful source of contention. The States less favorably circumstanced would be desirous of escaping from the disadvantages of local situation, and of sharing in the advantages of their more fortunate neighbors. Each State, or separate confederacy, would pursue a system of commercial policy peculiar to itself."
States, muses Hamilton, might pass laws that justifiably benefit their own citizens, but in so doing incur the wrath of other states whose citizens are not benefited. An example might be tariffs set by coastal states like New York that expense inland states like Ohio. The result might be civil war.
The Constitution resolved the danger of warfare among the states. A decentralized system that relies on a federal government to resolve conflicts concerning interstate commerce, to set tariffs and conduct foreign policy, would be in keeping with the Constitution and permit improvement and modernization of decision making. A nation united by comparable values need not have but one bureaucracy.
It is likely that the most successful states, which I would guess would be the ones that adopted laissez faire policies, would incur the wrath of other states. But the magnificence of decentralization is that the wrath could be converted into productive action. States could learn from other states through mimesis. Thus, better and more productive methodologies would lead not to hatred and warfare, but rather to the spreading of ideas throughout the republic. Publius Wealth is not the result of resource endowment, but rather of human capital and technology. Greater diversity of experimentation from decentralization will reap benefits that far exceed the costs of multiple bureaucracies.
Continuing the thought experiment, under such a localization policy, some states might opt for greater freedom of enterprise and laissez faire. Other states might opt for subsidization of business, a central bank like the Fed, and eminent domain to subsidize real estate developers. Still other states might opt for governmental redistribution of wealth to enable the poor to contribute productively. It is likely that one of these models would be most successful. Would the successful states incur the unsuccessful states' wrath?
In the Federalist Papers number five (by Jay) and six and seven (by Hamilton) Publius, the pseudonym for Jay, Hamilton and Madison, addresses this question. Publius's argument is that decentralization will create animosity among the states or local confederacies of states. In Number 5, Publius (Jay) argues that "they ...would in no other sense be neighbors as they would be borderers." In turn, border conflicts and hatreds leading to war would evolve.
In Number Seven Publius (Hamilton) argues that:
Competition of commerce would be another fruitful source of contention. The States less favorably circumstanced would be desirous of escaping from the disadvantages of local situation, and of sharing in the advantages of their more fortunate neighbors. Each State, or separate confederacy, would pursue a system of commercial policy peculiar to itself."
States, muses Hamilton, might pass laws that justifiably benefit their own citizens, but in so doing incur the wrath of other states whose citizens are not benefited. An example might be tariffs set by coastal states like New York that expense inland states like Ohio. The result might be civil war.
The Constitution resolved the danger of warfare among the states. A decentralized system that relies on a federal government to resolve conflicts concerning interstate commerce, to set tariffs and conduct foreign policy, would be in keeping with the Constitution and permit improvement and modernization of decision making. A nation united by comparable values need not have but one bureaucracy.
It is likely that the most successful states, which I would guess would be the ones that adopted laissez faire policies, would incur the wrath of other states. But the magnificence of decentralization is that the wrath could be converted into productive action. States could learn from other states through mimesis. Thus, better and more productive methodologies would lead not to hatred and warfare, but rather to the spreading of ideas throughout the republic. Publius Wealth is not the result of resource endowment, but rather of human capital and technology. Greater diversity of experimentation from decentralization will reap benefits that far exceed the costs of multiple bureaucracies.
Sunday, June 15, 2008
Federalism and Elitism
The evolution of Hamiltonian Federalism and the American Constitution preceded the centralization of power that occurred in the 20th century. In order to understand why Americans have been ready to accede bureaucratic and money-creating power to the federal government, it is helpful to look at the country's earliest establishment. In that light, progressivism and post-World War II liberalism can be viewed as extensions of the Constitutional convention in 1787. The Constitutional convention reflected the federalist ideas of Hamilton and Madison and emphasized the importance of a central bank, federal support for business, and raising federal taxes. But this federalist impulse was rejected in 1800 by the election of Thomas Jefferson, and the America of the 19th century was not so much a Hamiltonian creation, was not so much federalist, as it was anti-federalist. Jefferson and then Jackson limited the federalist reforms. Thus, the Hamiltonian vision was very much a 20th century vision with respect to government and economics.
Hamilton was a close intellectual follower of the economic ideas of David Hume. Hume advocated a system that anticipated Keynesian monetary policy. Hume believed that a central bank should have the power to create money via credit and that allocation of the credit should be to a business elite. He believed that merchants, by which he meant bankers as well as manufacturers and traders, were more rational than the general public and could determine the best uses for created money. Hume, as well as James Madison, who wrote about the inflation that followed the Revolutionary War, did not believe in that expanding the money supply would be inflationary. Rather, Hume argued that if the productivity of assets in which the business elite invested exceeded their borrowing cost, then expansion of the money supply would not be inflationary and credit expansion would result in an expanding economy. Madison's argument followed Hume's. He argued that the inflation that followed the Revolutionary War occurred because of the public's expecations about the "redeemability" of the money. This is linked to the argument put forward today that inflationary "expectations" cause inflation.
In England in the 1690s, King William III of England was waging war against Louis XIV of France and needed financing. William Paterson and a group of merchants lent 1.2 million pounds to the king, and in exchange received a charter to found the Bank of England, which gave them the power to issue notes. As the British government borrowed money, it grew and established a bureaucracy. In the early 18th century, Sir Robert Walpole developed a system of allocation of patronage to provide incentives for those in power to cooperate with the king. As Stanley Elkins and Eric McKitrick point out in The Age of Federalism* Walpole's allocation of patronage assured "government of dependable majorities for its policies". English aristocrats in the country opposed the increasing power of the king's court. As Elkins and McKitrick point out, a similar process occurred in America. The Federalists, especially Hamilton, advocated centralized government power, the establishment of a central bank and the use of credit to create a strong economy. The country aristocrats were the Virginians who disliked speculation and finance and did not trust a strong central state.
*Stanley Elkins and Eric McKitrick, The Age of Federalism: The Early American Republic 1788-1800.
Hamilton was a close intellectual follower of the economic ideas of David Hume. Hume advocated a system that anticipated Keynesian monetary policy. Hume believed that a central bank should have the power to create money via credit and that allocation of the credit should be to a business elite. He believed that merchants, by which he meant bankers as well as manufacturers and traders, were more rational than the general public and could determine the best uses for created money. Hume, as well as James Madison, who wrote about the inflation that followed the Revolutionary War, did not believe in that expanding the money supply would be inflationary. Rather, Hume argued that if the productivity of assets in which the business elite invested exceeded their borrowing cost, then expansion of the money supply would not be inflationary and credit expansion would result in an expanding economy. Madison's argument followed Hume's. He argued that the inflation that followed the Revolutionary War occurred because of the public's expecations about the "redeemability" of the money. This is linked to the argument put forward today that inflationary "expectations" cause inflation.
In England in the 1690s, King William III of England was waging war against Louis XIV of France and needed financing. William Paterson and a group of merchants lent 1.2 million pounds to the king, and in exchange received a charter to found the Bank of England, which gave them the power to issue notes. As the British government borrowed money, it grew and established a bureaucracy. In the early 18th century, Sir Robert Walpole developed a system of allocation of patronage to provide incentives for those in power to cooperate with the king. As Stanley Elkins and Eric McKitrick point out in The Age of Federalism* Walpole's allocation of patronage assured "government of dependable majorities for its policies". English aristocrats in the country opposed the increasing power of the king's court. As Elkins and McKitrick point out, a similar process occurred in America. The Federalists, especially Hamilton, advocated centralized government power, the establishment of a central bank and the use of credit to create a strong economy. The country aristocrats were the Virginians who disliked speculation and finance and did not trust a strong central state.
*Stanley Elkins and Eric McKitrick, The Age of Federalism: The Early American Republic 1788-1800.
Friday, June 13, 2008
O'Reilly and Hannity and Colmes Drop the Ball on Oil Speculation
Dick Morris was on Hannity and Colmes tonight to discuss oil speculators' influence on oil prices. Last night, O'Reilly claimed that high oil prices are due to "greedy speculators" This is spin. If speculators are causing high oil prices, then the mechanism needs to be clarified.
For a subject this important, Hannity and Colmes and O'Reilly should have economists from the CATO institute and perhaps the Brookings Institution debate regulation of commodities speculation. Part of the discussion would explain what makes this situation different from the rest of the 300-year history of commodity speculation. Who are these shadowy speculators? What is the mechanism by which they supposedly drive up prices? Why doesn't real demand by consumers drive down the speculators' inflation of oil prices? Unlike the coverage on Fox heretofore, the debate would need to be specific, clear and avoid double talk.
Dick Morris is a nice fellow but he lacks understanding of economics or of futures markets. I don't doubt that markets can become inflated as we saw with the tech bubble and housing, but such asset holders risk a crash. There is every reason to think that this would happen and, if so, there would be no need for regulation.
Regulation is the wrong idea, but there is nothing wrong with debating it. In particular, such a debate would clarify why speculation has or has not caused the price increase in oil and why the market will not correct on its own. Morris did not explain this. He could barely say the word "futures contract" and I doubt if he could define the term. There has been futures trading since tulip bulbs went through a price bubble in 17th century Holland and then crashed.
Futures holders must sell their oil when the future contract expires. If consumer demand has been reduced because of high prices, when the contracts expire the oil price will decline.
If this basic pattern is to be violated, O'Reilly, Hannity and Colmes owe it to their viewers to explain the reason clearly instead of putting spin on it like saying "greedy speculators" or having an economic illiterate like Morris say that "paper trading" is causing price increases.
For a subject this important, Hannity and Colmes and O'Reilly should have economists from the CATO institute and perhaps the Brookings Institution debate regulation of commodities speculation. Part of the discussion would explain what makes this situation different from the rest of the 300-year history of commodity speculation. Who are these shadowy speculators? What is the mechanism by which they supposedly drive up prices? Why doesn't real demand by consumers drive down the speculators' inflation of oil prices? Unlike the coverage on Fox heretofore, the debate would need to be specific, clear and avoid double talk.
Dick Morris is a nice fellow but he lacks understanding of economics or of futures markets. I don't doubt that markets can become inflated as we saw with the tech bubble and housing, but such asset holders risk a crash. There is every reason to think that this would happen and, if so, there would be no need for regulation.
Regulation is the wrong idea, but there is nothing wrong with debating it. In particular, such a debate would clarify why speculation has or has not caused the price increase in oil and why the market will not correct on its own. Morris did not explain this. He could barely say the word "futures contract" and I doubt if he could define the term. There has been futures trading since tulip bulbs went through a price bubble in 17th century Holland and then crashed.
Futures holders must sell their oil when the future contract expires. If consumer demand has been reduced because of high prices, when the contracts expire the oil price will decline.
If this basic pattern is to be violated, O'Reilly, Hannity and Colmes owe it to their viewers to explain the reason clearly instead of putting spin on it like saying "greedy speculators" or having an economic illiterate like Morris say that "paper trading" is causing price increases.
Tuesday, June 10, 2008
Obama v. Hyperion
In ancient Greece the Sun god was known as Helios or Hyperion and later associated with light and so called Apollo. The Anchoress (hat tip Larwyn)provides evidence that Hyperion is a Republican for, alas, he does not believe in global warming. According to Anchoress:
"Some scientists think the “warming trend” which (despite the fact that we’re having our usual early-June heatwaves) has stalled out over the past few years was helped along by sunspots. And lately, there aren’t any...It continues to be dead,” said Saku Tsuneta with the National Astronomical Observatory of Japan, program manager for the Hinode solar mission...Today’s sun, however, is as inactive as it was two years ago, and scientists aren’t sure why...In the past, they observed that the sun once went 50 years without producing sunspots. That period, from approximately 1650 to 1700, occurred during the middle of a little ice age on Earth that lasted from as early as the mid-15th century to as late as the mid-19th century."
The Anchoress wonders: "It’s not like we can do anything about it. Either old Sol will spot and flare or he won’t."
But the Democrats know what to do. Sue. Send the Trial Lawyers Association to civilly enforce global warming. I can see it now, Obama v. Hyperion, with Ron Kuby representing Obama.
"Some scientists think the “warming trend” which (despite the fact that we’re having our usual early-June heatwaves) has stalled out over the past few years was helped along by sunspots. And lately, there aren’t any...It continues to be dead,” said Saku Tsuneta with the National Astronomical Observatory of Japan, program manager for the Hinode solar mission...Today’s sun, however, is as inactive as it was two years ago, and scientists aren’t sure why...In the past, they observed that the sun once went 50 years without producing sunspots. That period, from approximately 1650 to 1700, occurred during the middle of a little ice age on Earth that lasted from as early as the mid-15th century to as late as the mid-19th century."
The Anchoress wonders: "It’s not like we can do anything about it. Either old Sol will spot and flare or he won’t."
But the Democrats know what to do. Sue. Send the Trial Lawyers Association to civilly enforce global warming. I can see it now, Obama v. Hyperion, with Ron Kuby representing Obama.
Obama and Newsweek
Mark Hemingway has written an excellent article on NRO Online. Hemingway notes:
"Obama didn’t vote on an amendment sponsored by Lieberman and Arizona Republican Jon Kyl last fall that would have classified the Iranian Revolutionary Guard a terrorist organization for training and funding Hezbollah and otherwise contributing to the killing of Israelis...that didn’t stop him from pillorying Hillary for voting for it, and thereby contributing to the Bush administration’s “saber-rattling” with Iran...Anti-Israel sentiments are all around Obama (Zbigniew Brzezinski, Anthony Lake, Susan Rice, Robert Malley, Joseph Cirincione …). Nevermind that his pastor of 20 years has an affection for Louis “Judaism-is-a-gutter-religion” Farrakhan…"
but
"two big Obama supporters blame Clinton — without citing any evidence other than hearsay — for disinformation among Jewish voters. And that meets Newsweek’s publication standards?"
Let's face it: Newsweek is to news as Star Trek is to news, and Obama is to McCain as Newsweek is to news.
"Obama didn’t vote on an amendment sponsored by Lieberman and Arizona Republican Jon Kyl last fall that would have classified the Iranian Revolutionary Guard a terrorist organization for training and funding Hezbollah and otherwise contributing to the killing of Israelis...that didn’t stop him from pillorying Hillary for voting for it, and thereby contributing to the Bush administration’s “saber-rattling” with Iran...Anti-Israel sentiments are all around Obama (Zbigniew Brzezinski, Anthony Lake, Susan Rice, Robert Malley, Joseph Cirincione …). Nevermind that his pastor of 20 years has an affection for Louis “Judaism-is-a-gutter-religion” Farrakhan…"
but
"two big Obama supporters blame Clinton — without citing any evidence other than hearsay — for disinformation among Jewish voters. And that meets Newsweek’s publication standards?"
Let's face it: Newsweek is to news as Star Trek is to news, and Obama is to McCain as Newsweek is to news.
America Winning the War in Iraq
Hugh Hewitt blogs a NY Post article by Arthur Herman (hat tip Larwyn) that states:
>"AMERICA has won, or is about to win, the Iraq war.
"The latest proof came last month, as the Iraqi army - just a few months ago the target of scorn and abuse from Democratic politicians and journalists - forcefully reoccupied three cities that had served as key insurgency bases (Basra, Sadr City and Mosul).
"Sunnis and Shias alike applauded as their nation's army compelled insurgent militias to lay down their arms. The country's leading opposition newspaper, Azzaman, led the applause for the move into Mosul - a sign that national reconciliation in Iraq is under way and probably irreversible..."
Hewitt points out that Obama has been receiving hundreds of millions of dollars in financial support despite his eagerness to prove Herman wrong and to prove that America has lost. Obama does not express a pro-America game plan, but rather views defeat in Iraq as a way to prove America is a "nice" country so that terrorists will understand how nice the US is and stop being terrorists. Obama's and the left's position is foolish. General Petraeus has demonstrated that a fourth generation warfare strategy will work. The war will wind down soon without the left's and Obama's anti-American posturing.
>"AMERICA has won, or is about to win, the Iraq war.
"The latest proof came last month, as the Iraqi army - just a few months ago the target of scorn and abuse from Democratic politicians and journalists - forcefully reoccupied three cities that had served as key insurgency bases (Basra, Sadr City and Mosul).
"Sunnis and Shias alike applauded as their nation's army compelled insurgent militias to lay down their arms. The country's leading opposition newspaper, Azzaman, led the applause for the move into Mosul - a sign that national reconciliation in Iraq is under way and probably irreversible..."
Hewitt points out that Obama has been receiving hundreds of millions of dollars in financial support despite his eagerness to prove Herman wrong and to prove that America has lost. Obama does not express a pro-America game plan, but rather views defeat in Iraq as a way to prove America is a "nice" country so that terrorists will understand how nice the US is and stop being terrorists. Obama's and the left's position is foolish. General Petraeus has demonstrated that a fourth generation warfare strategy will work. The war will wind down soon without the left's and Obama's anti-American posturing.
Bernanke Discovers the Dollar
The valiant New York Sun has printed my letter in its June 10th edition and online here:
'Bernanke Discovers the Dollar'
Thank you for your editorial about the Fed's role in creating inflation ["Bernanke Discovers the Dollar," June 5, 2008].
In the late 19th century the Mugwumps, the educated New Yorkers and Bostonians who opposed the spoils system and big government, were concerned about currency depreciation and inflation that Civil War greenbacks had caused.
In particular, the Mugwumps were concerned that inflation led to the re-distribution of wealth from wage earners and those on fixed incomes to financial speculators like Jay Gould.
Ever since President Nixon jettisoned the international gold standard in 1971, Americans' average real hourly wage has declined. There has been no previous 38-year decline in the real hourly wage.
Modern economists, lacking the Mugwumps' courage, have averted their gaze from link between income inequality and monetary expansion.
But the link is obvious, and it is becoming more severe. In 1884 the Mugwumps bolted the Republican Party to vote for a Democrat, Grover Cleveland, a gold standard proponent.
Let us hope that John McCain offers greater integrity than did Cleveland's 1884 opponent, James Blaine.
MITCHELL LANGBERT
Associate Professor of Business and Economics
Brooklyn College
Brooklyn, N.Y.
'Bernanke Discovers the Dollar'
Thank you for your editorial about the Fed's role in creating inflation ["Bernanke Discovers the Dollar," June 5, 2008].
In the late 19th century the Mugwumps, the educated New Yorkers and Bostonians who opposed the spoils system and big government, were concerned about currency depreciation and inflation that Civil War greenbacks had caused.
In particular, the Mugwumps were concerned that inflation led to the re-distribution of wealth from wage earners and those on fixed incomes to financial speculators like Jay Gould.
Ever since President Nixon jettisoned the international gold standard in 1971, Americans' average real hourly wage has declined. There has been no previous 38-year decline in the real hourly wage.
Modern economists, lacking the Mugwumps' courage, have averted their gaze from link between income inequality and monetary expansion.
But the link is obvious, and it is becoming more severe. In 1884 the Mugwumps bolted the Republican Party to vote for a Democrat, Grover Cleveland, a gold standard proponent.
Let us hope that John McCain offers greater integrity than did Cleveland's 1884 opponent, James Blaine.
MITCHELL LANGBERT
Associate Professor of Business and Economics
Brooklyn College
Brooklyn, N.Y.
Hinchey Gas Cap Misguided
The Middleton Times Herald Record printed my June 8, 2008 letter in their Sunday edition and online here
Hinchey gas 'cap' misguided
Rep. Hinchey's recent call for a price control or "cap" on gasoline prices is misguided.
Those who remember the 1970s gasoline lines know that rationing causes shortages. With a "cap," those who need gasoline the most would be unable to get it, while the politically connected would have ample supplies. The "cap" would harm the environment because those who have political access to the gasoline would squander it because of low prices.
New York state's gerrymandering seems to have affected Hinchey's sanity.
Mitchell Langbert
West Shokan
Hinchey gas 'cap' misguided
Rep. Hinchey's recent call for a price control or "cap" on gasoline prices is misguided.
Those who remember the 1970s gasoline lines know that rationing causes shortages. With a "cap," those who need gasoline the most would be unable to get it, while the politically connected would have ample supplies. The "cap" would harm the environment because those who have political access to the gasoline would squander it because of low prices.
New York state's gerrymandering seems to have affected Hinchey's sanity.
Mitchell Langbert
West Shokan
Phil Orenstein's "New McCarthyism"
Over at Democracy Project, Phil Orenstein has written a blog about reaction to his Frontpagemag article "Fantasizing the New McCarthyism". Phil's article concerned accusations that discussion of terrorism and 9/11 constitute "McCarthyism". Universities throw conservative students out of education programs because they lack vague "social justice dispositions" and then call any critic of their tactics "McCarthyist". In particular, Sharad Karkhanis has been victimized by a law suit brought by CUNY union-cum-management activist Susan O'Malley. O'Malley, in an attempt to silence Karkhanis, has sued him for disagreeing with her. However, this does not stop O'Malley from calling others, including the exalted Karkhanis and the noble, distinguished and learned CUNY trustee Jeffrey Weisenfeld "McCarthyist":
"She then directed her venom toward CUNY trustee Jeffrey Wiesenfeld whom she described as so anti-Muslim that it’s a contradiction for him to be on the CUNY board...A number of panelists and people in the audience broke into an emotional discussion about the CUNY board and why they should remove Wiesenfeld."
Note the fixation of Susan O'Malley, the PSC leadership and the campus left in general on "removing" anyone with whom they disagree. University professors are too often bigots, and O'Malley and PSC colleagues have lynch mob tactics up their sleeves. Phil's blog notes:
"O’Malley, a long-standing academic public figure had the gall to sit piously on the panel and use the forum for her personal agenda to paint a far-fetched portrait of lies... ."
Phil notes that Muslim Student Associations sometimes are anti-Semitic, a matter of indifference to the Professional Staff Congress leadership. Phil, quotes my blog about Obama's Teapot Dome cabinet and, as well, his debate with a Satanic blogger (really, see link). When you debate with a Satanist, the devil is in the details!
Phil's courage and commitment are outstanding. Bravo Phil!
"She then directed her venom toward CUNY trustee Jeffrey Wiesenfeld whom she described as so anti-Muslim that it’s a contradiction for him to be on the CUNY board...A number of panelists and people in the audience broke into an emotional discussion about the CUNY board and why they should remove Wiesenfeld."
Note the fixation of Susan O'Malley, the PSC leadership and the campus left in general on "removing" anyone with whom they disagree. University professors are too often bigots, and O'Malley and PSC colleagues have lynch mob tactics up their sleeves. Phil's blog notes:
"O’Malley, a long-standing academic public figure had the gall to sit piously on the panel and use the forum for her personal agenda to paint a far-fetched portrait of lies... ."
Phil notes that Muslim Student Associations sometimes are anti-Semitic, a matter of indifference to the Professional Staff Congress leadership. Phil, quotes my blog about Obama's Teapot Dome cabinet and, as well, his debate with a Satanic blogger (really, see link). When you debate with a Satanist, the devil is in the details!
Phil's courage and commitment are outstanding. Bravo Phil!
Monday, June 9, 2008
Petition to Abolish the Federal Reserve Bank
I just received an e-mail from Ron Holland concerning a petition to abolish the Federal Reserve Bank. I have signed it and have forwarded Ron's e-mail to several friends. Ron's e-mail reads:
>"The Federal Reserve Has Created the Risk of a Global Depression!
>"Please sign, publish or forward our Abolish the Federal Reserve Petition at:
http://www.petitiononline.com/fed/petition.html
to all your pro-freedom friends and associates. The collapsing dollar, exploding oil and food prices, falling housing market, the subprime mortgage and growing credit crisis and stock market weakness are all a result of earlier Federal Reserve actions designed to maximize Wall Street and banking profits at the expense of productive, working people around the world."
http://www.petitiononline.com/fed/petition.html
>"The Federal Reserve Has Created the Risk of a Global Depression!
>"Please sign, publish or forward our Abolish the Federal Reserve Petition at:
http://www.petitiononline.com/fed/petition.html
to all your pro-freedom friends and associates. The collapsing dollar, exploding oil and food prices, falling housing market, the subprime mortgage and growing credit crisis and stock market weakness are all a result of earlier Federal Reserve actions designed to maximize Wall Street and banking profits at the expense of productive, working people around the world."
http://www.petitiononline.com/fed/petition.html
The New York Sun's Home Run
The New York Sun has hit a home run. I had previously blogged about my concern that the Sun's and Fox's coverage of the recent upsurge in prices has omitted the underlying cause: monetary expansion. This is of concern because economists have come up with many nonsensical explanations for inflation such as "cost push" inflation, "demand pull" inflation, unions cause inflation, oil prices cause inflation, consumer expectations cause inflation, speculators cause inflation, ad infinitum and ad nauseum. In the 1970s such spurious explanations reached a crescendo when President Ford wore a button that said "Win" if I recall, and argued that "jaw boning" would stop inflation. Worse, President Nixon had implemented price controls and controls on gasoline prices led to endless lines.
It doesn't take much to expose an unclothed Emperor. The Sun has come out and forthrightly said that the Fed has caused inflation. It will be hard for the mainstream media to spin the kind of fabrications that it spun in the 1970s. The Sun deserves a Pulitzer Prize for this editorial. Perhaps single handedly it will stop the establishment's reluctance to take the necessary steps to end the inflationary cycle and the mainstream media's eagerness to blow smoke in support of inflation.
The media have every reason to fabricate nonsense explanations for inflation. As I have previously blogged, there are special interests that demand inflation: the commercial banks, Wall Street, the real estate business and stock investors. The working man, the conservative saver and the entrepreneur who looks to build a business over the long term are harmed. Thus, in exchange for short term heating of the economy, the public loses entrepreneurial vision, the withdrawal of competent labor (as honest workers are diverted into less productive activities like stock investing), and there are dramatic increases in uncertainty for people on fixed incomes. It is also true that demand for labor is stimulated, but the jobs so created are temporary because the businesses that are created are of insufficient quality to survive the inevitable economic downturn that occurs when the Fed tightens interest rates because it has become politically impossible to continue printing money. By then, fortunes have been extracted from the public by those who had first access to the new money, namely hedge fund managers, and the public pays through higher prices and increased poverty.
Let us applaud the New York Sun and be thankful that at least one firm in lower Manhattan has clear vision and integrity.
It doesn't take much to expose an unclothed Emperor. The Sun has come out and forthrightly said that the Fed has caused inflation. It will be hard for the mainstream media to spin the kind of fabrications that it spun in the 1970s. The Sun deserves a Pulitzer Prize for this editorial. Perhaps single handedly it will stop the establishment's reluctance to take the necessary steps to end the inflationary cycle and the mainstream media's eagerness to blow smoke in support of inflation.
The media have every reason to fabricate nonsense explanations for inflation. As I have previously blogged, there are special interests that demand inflation: the commercial banks, Wall Street, the real estate business and stock investors. The working man, the conservative saver and the entrepreneur who looks to build a business over the long term are harmed. Thus, in exchange for short term heating of the economy, the public loses entrepreneurial vision, the withdrawal of competent labor (as honest workers are diverted into less productive activities like stock investing), and there are dramatic increases in uncertainty for people on fixed incomes. It is also true that demand for labor is stimulated, but the jobs so created are temporary because the businesses that are created are of insufficient quality to survive the inevitable economic downturn that occurs when the Fed tightens interest rates because it has become politically impossible to continue printing money. By then, fortunes have been extracted from the public by those who had first access to the new money, namely hedge fund managers, and the public pays through higher prices and increased poverty.
Let us applaud the New York Sun and be thankful that at least one firm in lower Manhattan has clear vision and integrity.
Friday, June 6, 2008
Richard Viguerie's "Obama Is Not the Problem"
Richard Viguerie has posted an interesting article criticizing John McCain's lack of ideological focus. He notes that:
"The problem is that McCain doesn’t have a coherent set of ideas with which he can simultaneously fire up the conservative base and attract independents. He’s a part-time liberal in conservative clothing. Conservatives aren’t fooled by that, and liberals aren’t going to vote for a part-time liberal when they have a very persuasive full-time liberal to vote for."
He adds:
"'The lesser of two evils' is not a governing philosophy. Yet Republicans repeatedly try to seduce conservatives with it. That strategy didn’t work in 1948, 1960, 1974, 1976, 1992 or 2006 — and it won’t work in 2008."
Perhaps Mr. Viguerie is right. America should move to a four-party as opposed to a two-party system. Two parties worked fine in an age of congruence, in the 19th century when the Republicans and Democrats mostly disagreed about who should get the spoils and whether tariffs should be reduced. The congruence continued through the first twenty years of the twentieth century, when Progressivism was adopted by both parties. By 1920 the public had tired of political change, and some of the Republicans became known as conservatives, which really just meant that they were a wee bit less radical than they had been a decade earlier under Republican Theodore Roosevelt, perhaps the most left-wing president of the twentieth century. In the 1930s Franklin D. Roosevelt identified the Democratic Party with social democracy. Although they fought social democracy, the Republicans never aimed to repudiate their earlier Progressivism nor did they aim to repudiate the New Deal. Rather, they became the "lesser of two evils" or the "wee bit less social democracy" party. The Republicans have never questioned the elements of Democratic Party social democracy. Rather, they have been content to argue for "a wee bit less". When elected, they have never attempted to repeal the most extreme Democratic policies. Warren G. Harding did not aim to repeal the Hepburn Act and Dwight Eisenhower did not aim to repeal the New Deal, even a bit of it.
Because there are two parties, there is a strong incentive for both candidates to locate as close to the center as possible. Those to the "right" of the Republican, i.e., those who are more libertarian on economics or conservative on social issues are forced to vote for the Republican unless the Republican goes so far to the left that the Democrat becomes more attractive. The Republicans go as far to the center as possible to attract the undecided voters. The conservatives and libertarians are forced to vote Republican even though the Republican's views are closer to social democratic than they would like. The reverse is true for the Democrat. The Democratic candidates are pushed as close to the "right", to the least radical position, as possible to attract the undecided. Thus, the Democratic candidate cannot seem as left wing or as social democratic as activist members would like.
This results in not, in my opinion, a move to the center. America has not arrived at a "centrist" solution. Rather, it has arrived at a liberal/free market conservative solution that has been radically modified by progressive/social democratic programs. This results in stability and much less change than would result in a four party system, but it also results in much less experimentation and competition. The result is a system that does not reward new ideas and that has foreclosed (a) the possibility of reductions in the extent of government as well as (b) the possibility of socialism. I am happy about (b), unhappy about (a), but the reverse is true for most Democrats. They would like to see a world where the crank ideas of the New York Times, William Ayers and Jimmy Carter are applied without restraint.
I do not think that Mr. Viguerie is right about the 2008 election. I do not think that Mr. Obama will win because he is too far to the left to attract centrists. His associations with Chicago radicals make clear Mr. Obama's left wing orientation. As a result, centrist voters will prefer McCain and McCain will win. McCain does not need to convince conservatives to vote for him. Rather, he needs to convince "centrists" to vote for him. Unless conservatives want Bill Ayers's and Reverend Wright's associate to run the country, they will have to support McCain. If they stay home or vote for Bob Barr, then we can welcome a new emphasis on extending centralized planning, intellectuals' planning projects and attacks on personal freedom.
While the Republicans' performance has been dismal, the way to change this is at the local level. The president is in many ways a symbol. An Obama victory will create a national mindset that America is turning to the left. A McCain victory will say that the nation has rejected left-wing ideology even if the Bush administration's and Republican Congress's performance has been dismal.
I live in Congressman Maurice Hinchey's political district. Mr. Hinchey made national news last week because he advocated price controls on gasoline. Mr. Hinchey has run unopposed for a number of elections. Tonight, I met a young man, a teacher from Binghamton, NY, who may run for Congress against Mr. Hinchey. The young man, George K. Phillips, is a conservative who has many good ideas. He is a political novice. I invite Mr. Viguerie to assist Mr. Phillips in his Congressional run. Rather than complain about McCain, let's think about how to assist Mr. Phillips and other conservatives like him at the local level.
As far as big ideas, perhaps it is time to think about a four-party system. But much ground work would need to be done before this idea has any practical political importance. A four-party system would better represent the ideological diversity that exists in America. It would lead to less stability but more experimentation.
"The problem is that McCain doesn’t have a coherent set of ideas with which he can simultaneously fire up the conservative base and attract independents. He’s a part-time liberal in conservative clothing. Conservatives aren’t fooled by that, and liberals aren’t going to vote for a part-time liberal when they have a very persuasive full-time liberal to vote for."
He adds:
"'The lesser of two evils' is not a governing philosophy. Yet Republicans repeatedly try to seduce conservatives with it. That strategy didn’t work in 1948, 1960, 1974, 1976, 1992 or 2006 — and it won’t work in 2008."
Perhaps Mr. Viguerie is right. America should move to a four-party as opposed to a two-party system. Two parties worked fine in an age of congruence, in the 19th century when the Republicans and Democrats mostly disagreed about who should get the spoils and whether tariffs should be reduced. The congruence continued through the first twenty years of the twentieth century, when Progressivism was adopted by both parties. By 1920 the public had tired of political change, and some of the Republicans became known as conservatives, which really just meant that they were a wee bit less radical than they had been a decade earlier under Republican Theodore Roosevelt, perhaps the most left-wing president of the twentieth century. In the 1930s Franklin D. Roosevelt identified the Democratic Party with social democracy. Although they fought social democracy, the Republicans never aimed to repudiate their earlier Progressivism nor did they aim to repudiate the New Deal. Rather, they became the "lesser of two evils" or the "wee bit less social democracy" party. The Republicans have never questioned the elements of Democratic Party social democracy. Rather, they have been content to argue for "a wee bit less". When elected, they have never attempted to repeal the most extreme Democratic policies. Warren G. Harding did not aim to repeal the Hepburn Act and Dwight Eisenhower did not aim to repeal the New Deal, even a bit of it.
Because there are two parties, there is a strong incentive for both candidates to locate as close to the center as possible. Those to the "right" of the Republican, i.e., those who are more libertarian on economics or conservative on social issues are forced to vote for the Republican unless the Republican goes so far to the left that the Democrat becomes more attractive. The Republicans go as far to the center as possible to attract the undecided voters. The conservatives and libertarians are forced to vote Republican even though the Republican's views are closer to social democratic than they would like. The reverse is true for the Democrat. The Democratic candidates are pushed as close to the "right", to the least radical position, as possible to attract the undecided. Thus, the Democratic candidate cannot seem as left wing or as social democratic as activist members would like.
This results in not, in my opinion, a move to the center. America has not arrived at a "centrist" solution. Rather, it has arrived at a liberal/free market conservative solution that has been radically modified by progressive/social democratic programs. This results in stability and much less change than would result in a four party system, but it also results in much less experimentation and competition. The result is a system that does not reward new ideas and that has foreclosed (a) the possibility of reductions in the extent of government as well as (b) the possibility of socialism. I am happy about (b), unhappy about (a), but the reverse is true for most Democrats. They would like to see a world where the crank ideas of the New York Times, William Ayers and Jimmy Carter are applied without restraint.
I do not think that Mr. Viguerie is right about the 2008 election. I do not think that Mr. Obama will win because he is too far to the left to attract centrists. His associations with Chicago radicals make clear Mr. Obama's left wing orientation. As a result, centrist voters will prefer McCain and McCain will win. McCain does not need to convince conservatives to vote for him. Rather, he needs to convince "centrists" to vote for him. Unless conservatives want Bill Ayers's and Reverend Wright's associate to run the country, they will have to support McCain. If they stay home or vote for Bob Barr, then we can welcome a new emphasis on extending centralized planning, intellectuals' planning projects and attacks on personal freedom.
While the Republicans' performance has been dismal, the way to change this is at the local level. The president is in many ways a symbol. An Obama victory will create a national mindset that America is turning to the left. A McCain victory will say that the nation has rejected left-wing ideology even if the Bush administration's and Republican Congress's performance has been dismal.
I live in Congressman Maurice Hinchey's political district. Mr. Hinchey made national news last week because he advocated price controls on gasoline. Mr. Hinchey has run unopposed for a number of elections. Tonight, I met a young man, a teacher from Binghamton, NY, who may run for Congress against Mr. Hinchey. The young man, George K. Phillips, is a conservative who has many good ideas. He is a political novice. I invite Mr. Viguerie to assist Mr. Phillips in his Congressional run. Rather than complain about McCain, let's think about how to assist Mr. Phillips and other conservatives like him at the local level.
As far as big ideas, perhaps it is time to think about a four-party system. But much ground work would need to be done before this idea has any practical political importance. A four-party system would better represent the ideological diversity that exists in America. It would lead to less stability but more experimentation.
Thursday, June 5, 2008
Fundraising Message from Susette Kelo (Yes, That Kelo)
My name is Susette Kelo. On Monday, June 23, 2008, I need your help in making a little bit of history.
June 23 is the third anniversary of the infamous Kelo eminent domain case, the U.S. Supreme Court decision that allowed perfectly well-maintained private homes like mine to be taken by the government and handed over for someone else’s private use. Under that ruling, any home could be taken and destroyed to make way for high-end condos. Any small business could be bulldozed to make way for a big box store. And, tragically, that is what is happening in too many parts of our country.
I’d like your help to put an end to that abuse of eminent domain once and for all.
Please go to www.ij.org/keloday today and pledge to give some small contribution to the Institute for Justice (IJ) on June 23. (Pledge today and we will email you on June 23 reminding you to donate on that day.)
IJ helped defend my home and my neighbors’ homes when they were threatened by eminent domain for private gain.
IJ continues to defend other homeowners and small property owners in similar fights.
One hundred percent of the money raised on this site (www.ij.org/keloday) on that day will be used to fight eminent domain abuse--the use of eminent domain for private development projects. We recognize that under the Constitution eminent domain can be used for genuine “public use” projects, such as for a courthouse or to build a highway, but when government power is used to take land from one private property owner only to hand that land over to another private person for their private profit, that is an abuse of government’s power.
Our goal is to earn 10,000 donations for IJ on that one day, Monday, June 23.
Leading up to the Kelo argument, the Institute for Justice documented that 10,000 American property owners had their property threatened or actually taken by eminent domain for private use in just a 5-year period. That 10,000 figure inspired IJ and me to seek 10,000 donations from across the country to send a message to those in power that we care about our homes and that the abuse of eminent domain must be stopped.
We are not seeking large contributions on this day: just $25, $50 or $100. Even a $5 contribution will make a difference and add greatly to the ambitious numbers we’re trying to achieve on that day.
And, if you feel strongly enough about this effort and would be willing to forward this to friends who will join us in the fight to end eminent domain abuse, that too would be greatly appreciated.
Together, we can convince policymakers that eminent domain abuse is un-American and must be stopped.
Thank you for your consideration,
Susette Kelo
June 23 is the third anniversary of the infamous Kelo eminent domain case, the U.S. Supreme Court decision that allowed perfectly well-maintained private homes like mine to be taken by the government and handed over for someone else’s private use. Under that ruling, any home could be taken and destroyed to make way for high-end condos. Any small business could be bulldozed to make way for a big box store. And, tragically, that is what is happening in too many parts of our country.
I’d like your help to put an end to that abuse of eminent domain once and for all.
Please go to www.ij.org/keloday today and pledge to give some small contribution to the Institute for Justice (IJ) on June 23. (Pledge today and we will email you on June 23 reminding you to donate on that day.)
IJ helped defend my home and my neighbors’ homes when they were threatened by eminent domain for private gain.
IJ continues to defend other homeowners and small property owners in similar fights.
One hundred percent of the money raised on this site (www.ij.org/keloday) on that day will be used to fight eminent domain abuse--the use of eminent domain for private development projects. We recognize that under the Constitution eminent domain can be used for genuine “public use” projects, such as for a courthouse or to build a highway, but when government power is used to take land from one private property owner only to hand that land over to another private person for their private profit, that is an abuse of government’s power.
Our goal is to earn 10,000 donations for IJ on that one day, Monday, June 23.
Leading up to the Kelo argument, the Institute for Justice documented that 10,000 American property owners had their property threatened or actually taken by eminent domain for private use in just a 5-year period. That 10,000 figure inspired IJ and me to seek 10,000 donations from across the country to send a message to those in power that we care about our homes and that the abuse of eminent domain must be stopped.
We are not seeking large contributions on this day: just $25, $50 or $100. Even a $5 contribution will make a difference and add greatly to the ambitious numbers we’re trying to achieve on that day.
And, if you feel strongly enough about this effort and would be willing to forward this to friends who will join us in the fight to end eminent domain abuse, that too would be greatly appreciated.
Together, we can convince policymakers that eminent domain abuse is un-American and must be stopped.
Thank you for your consideration,
Susette Kelo
Wednesday, June 4, 2008
Oskar Lange RIP: "On the Economic Theory of Socialism" in Benjamin Lippincott, Editor, On the Economic Theory of Socialism
Oskar Lange, "On the Economic Theory of Socialism". Reprinted in Benjamin E. Lippincott, editor, On the Economic Theory of Socialism Volume 2: Government Control of the Economic Order. Minneapolis, Minn.: University of Minnesota Press. 1948. Original article in Review of Economic Studies, Volume IV, Nos. 1 and 2, October 1936 and November 1937. Used copies available from Amazon.com starting at $1.34.
I've had this article on the back of my back burner for roughly 30 years and I was inspired to read it, first, by Professor Danthine my microeconomics professor at Columbia Business School who reminded me of it in 1986 and second by Nicolai Foss's blog that I blogged about two weeks ago.
This is the article in which Lange writes that a statue should be erected to Ludwig von Mises in the hall of the ministry of socialism for his arguments about the impossibility of price in a socialist economy. Lange claims that he has disproven von Mises's arguments based on elementary economics (the second section of the article is a review of microeconomic theory) but history has proven von Mises right and Lange wrong. The socialist economy of the Soviet Union fell because of the very kind of pricing inefficiency that von Mises identified. Hence, a statue might be erected to Lange in the hall of failed academic theories.
Lange's argument is elegant but there are several flaws that stand out and should have stood out even prior to the passage of the historical record.
First the part that Lange could not have known in advance. Lange overlooks the realities of bureaucratic and political decision making in organizations. He assumes that central planners are rational actors who will equilibrate marginal cost and price. History did not prove him right. Central planning was largely political, and political actors are influenced, as were the Soviet planners of Gosplan, by political considerations rather than considerations of pure rationality. Thus, the history of Soviet socialism is riddled with examples of price-setting on the basis of political concerns. For instance, bread was priced at a low level because the citizenry expected cheap bread. However, farmers had earlier supply-chain access to the bread than did retailers, and because the bread was set at a price that was cheaper than animal feed, they would purchase the bread from the distributers and feed it to their cattle while there were bread shortages in the cities. There were many examples of this type as Berliner's book Soviet Socialism from Stalin to Gorbachev illustrates.
Second and related to the first point, much of Lange's argument is based on the theory that economic planners will be able to reach optimal, market clearing prices through trial and error. He assumes away Hayek's argument that it is impossible to acquire the necessary information for the myriad products in an economy. However, Hayek was right. The trial and error process is too difficult to accomplish because product variations are too complex for planners to anticipate. No amount of theorizing about the possibility of equating marginal cost and price will change the transactions cost impediments to doing so.
Third, there were several points that should have stood out as far fetched even in the 1930s. Many of Lange's arguments make assumptions that have a tautological quality. That is, to prove pricing is possible he assumes that price information is available, and then deduces that pricing is possible because the information is available. His argument begins with a model in which socialist firms have the ability to determine price and production levels, but this is the very problem that impeded socialist central planning. Central planners want to determine price and production levels centrally and so cannot make use of imbalances between supply and demand in each region and firm. For instance, Lange writes (p. 71):
"If demand and supply are not equal for each commmodity, prices change again and we have another set of prices, which again serves as a basis for individual rearranging of choices."
But this assumes either local price determination or the ability of the central planning authority to flexibly change price. It is precisely the absence of such flexibility that caused socialist planning to fail. Trial and error are impossible because the information constraints are too severe and because the political and bureaucratic processes are too inflexible.
The tautological quality of Lange's argument is especially seen on page 75 where he writes that:
"The decisions of the managers of production are no longer guided by the aim of maximization of profit. Instead, certain rules are imposed on them by the Central Planning Board which aim at satisfying consumers' preferences in the best way possible."
But it is the absence of price that inhibits the Central Planning Board from figuring out consumers' preferences. The entire problem is that the central planners do not know consumer preferences. This is related to their inability to judge product quality because of transactions costs constraints. The complex and subtle art of quality management could not be done by a central planning board. Even competitive American firms have had trouble in this area.
Similarly, on page 76 Lange argues that the central planners can combine factors:
"in such proportion that the marginal productivity of that amount of each factor which is worth a unit of money is the same for all factors".
The problem, though, is that determination of productivity is not independent of understanding consumer demand. You cannot know the productivity of the factors unless you know whether customers view the outputs as desirable in comparison with competitive products.
Perhaps most importantly, Lange's model omits one of the key assumptions of perfect competition: ease of entry. Because there is no flexibility as to competition to the governmentally controlled firms, they can all reflect arbitrary or bureaucratic decision criteria and fail to evolve or experiment simply because consumers are forced to purchase their product, which, to put it politely, will be garbage.
It is entirely possible that the central planning board produces garbage and since there is no entry of entrepreneurial firms, there are no competitors to produce alternative products. As it turned out, this was the rule in the Soviet economy, a rule which Lange's argument simply assumes away. If all existing firms produce garbage and there is no ease of entry, then consumers are forced to choose among an array of undesirable products and prices can be set by the trial and error method that Lange outlines but they will be market clearing prices for garbage.
Lange also omits the importants of dynamic change. Without entrepreneurship there is no process for quality improvement. Hence, he outlines a static economy that can produce garbage where, if there are no transactions costs, firms can disobey the central planners at risk of their necks and experiment to find optimal prices.
Price and marginal productivity are then equilibrated, but customers remain unsatisfied. Nor could the firms that produce the garbage be closed because doing so would be too complicated politically. You would have to shut down the entire economy.
It is puzzling that Lange's argument had any influence in the first place. Now that history has proven him wrong, let us resell our copy of this book for $.85.
I've had this article on the back of my back burner for roughly 30 years and I was inspired to read it, first, by Professor Danthine my microeconomics professor at Columbia Business School who reminded me of it in 1986 and second by Nicolai Foss's blog that I blogged about two weeks ago.
This is the article in which Lange writes that a statue should be erected to Ludwig von Mises in the hall of the ministry of socialism for his arguments about the impossibility of price in a socialist economy. Lange claims that he has disproven von Mises's arguments based on elementary economics (the second section of the article is a review of microeconomic theory) but history has proven von Mises right and Lange wrong. The socialist economy of the Soviet Union fell because of the very kind of pricing inefficiency that von Mises identified. Hence, a statue might be erected to Lange in the hall of failed academic theories.
Lange's argument is elegant but there are several flaws that stand out and should have stood out even prior to the passage of the historical record.
First the part that Lange could not have known in advance. Lange overlooks the realities of bureaucratic and political decision making in organizations. He assumes that central planners are rational actors who will equilibrate marginal cost and price. History did not prove him right. Central planning was largely political, and political actors are influenced, as were the Soviet planners of Gosplan, by political considerations rather than considerations of pure rationality. Thus, the history of Soviet socialism is riddled with examples of price-setting on the basis of political concerns. For instance, bread was priced at a low level because the citizenry expected cheap bread. However, farmers had earlier supply-chain access to the bread than did retailers, and because the bread was set at a price that was cheaper than animal feed, they would purchase the bread from the distributers and feed it to their cattle while there were bread shortages in the cities. There were many examples of this type as Berliner's book Soviet Socialism from Stalin to Gorbachev illustrates.
Second and related to the first point, much of Lange's argument is based on the theory that economic planners will be able to reach optimal, market clearing prices through trial and error. He assumes away Hayek's argument that it is impossible to acquire the necessary information for the myriad products in an economy. However, Hayek was right. The trial and error process is too difficult to accomplish because product variations are too complex for planners to anticipate. No amount of theorizing about the possibility of equating marginal cost and price will change the transactions cost impediments to doing so.
Third, there were several points that should have stood out as far fetched even in the 1930s. Many of Lange's arguments make assumptions that have a tautological quality. That is, to prove pricing is possible he assumes that price information is available, and then deduces that pricing is possible because the information is available. His argument begins with a model in which socialist firms have the ability to determine price and production levels, but this is the very problem that impeded socialist central planning. Central planners want to determine price and production levels centrally and so cannot make use of imbalances between supply and demand in each region and firm. For instance, Lange writes (p. 71):
"If demand and supply are not equal for each commmodity, prices change again and we have another set of prices, which again serves as a basis for individual rearranging of choices."
But this assumes either local price determination or the ability of the central planning authority to flexibly change price. It is precisely the absence of such flexibility that caused socialist planning to fail. Trial and error are impossible because the information constraints are too severe and because the political and bureaucratic processes are too inflexible.
The tautological quality of Lange's argument is especially seen on page 75 where he writes that:
"The decisions of the managers of production are no longer guided by the aim of maximization of profit. Instead, certain rules are imposed on them by the Central Planning Board which aim at satisfying consumers' preferences in the best way possible."
But it is the absence of price that inhibits the Central Planning Board from figuring out consumers' preferences. The entire problem is that the central planners do not know consumer preferences. This is related to their inability to judge product quality because of transactions costs constraints. The complex and subtle art of quality management could not be done by a central planning board. Even competitive American firms have had trouble in this area.
Similarly, on page 76 Lange argues that the central planners can combine factors:
"in such proportion that the marginal productivity of that amount of each factor which is worth a unit of money is the same for all factors".
The problem, though, is that determination of productivity is not independent of understanding consumer demand. You cannot know the productivity of the factors unless you know whether customers view the outputs as desirable in comparison with competitive products.
Perhaps most importantly, Lange's model omits one of the key assumptions of perfect competition: ease of entry. Because there is no flexibility as to competition to the governmentally controlled firms, they can all reflect arbitrary or bureaucratic decision criteria and fail to evolve or experiment simply because consumers are forced to purchase their product, which, to put it politely, will be garbage.
It is entirely possible that the central planning board produces garbage and since there is no entry of entrepreneurial firms, there are no competitors to produce alternative products. As it turned out, this was the rule in the Soviet economy, a rule which Lange's argument simply assumes away. If all existing firms produce garbage and there is no ease of entry, then consumers are forced to choose among an array of undesirable products and prices can be set by the trial and error method that Lange outlines but they will be market clearing prices for garbage.
Lange also omits the importants of dynamic change. Without entrepreneurship there is no process for quality improvement. Hence, he outlines a static economy that can produce garbage where, if there are no transactions costs, firms can disobey the central planners at risk of their necks and experiment to find optimal prices.
Price and marginal productivity are then equilibrated, but customers remain unsatisfied. Nor could the firms that produce the garbage be closed because doing so would be too complicated politically. You would have to shut down the entire economy.
It is puzzling that Lange's argument had any influence in the first place. Now that history has proven him wrong, let us resell our copy of this book for $.85.
Tuesday, June 3, 2008
Media Deception About Inflation
About two years ago I veered from my focus on higher education into the subject of inflation. The reason is that, based on my recollection of the 1970s, when an inflation begins there is considerable media distortion about the reason. The cause of inflation is monetary. The reason for the media distortion is that inflation has two effects. One is to boost the stock market, the other is to boost consumer prices. The media has a vested interest in an increasing stock market, and so tends to lie about the reason. Inflation and the stock market are caused by monetary expansion.
Monetary expansion boosts the stock market for this reason. Interest is the price of money. The stock market computes future earnings with an implicit discount rate. By printing money, the Fed lowers the discount rate. Thus, when the Fed "reduces the interest rates" (prints money) it increases the stock market valuation.
Now, who benefits from the boost that monetary inflation gives to the stock market? The answer, of course, is corporate executives who hold stock options, Wall Street stock jobbers, asset holders in general, home owners and debtors. Who is harmed by inflation? People who work for a living, who are thrifty, who do not have debt and have to pay for necessities with the dollars that the Fed has devalued.
The largest debtors are big businesses. Media companies are corporate enterprises just like any other, and they hold debt. Therefore, their executives benefit from inflation. Therefore, there is considerable pressure on media outlets to lie about the reasons for inflation.
Not surprisingly, my concern about potential lying in the media have materialized recently in response to Congressional testimony by Michael Masters. First, on Fox Business News, there was a panel discussion that included much verbiage about how commodity speculators are causing inflation. Second, when I opened the New York Sun, Liz Peek's article "Time to Intervene in Commodities Markets" likewise omits the underlying monetary cause of price inflation. Price inflation is a monetary phenomenon, a fact that Fox as well as Peek omit. Instead, Peek, like Fox, attributes inflation to speculators. The media lying circus has begun.
Fox and the Sun are two of the few "Republican" sources, which is why I am loyal to them. It is a testimony to Wall Street's and corporate power that superstition is presented as news when the few "conservative" sources discuss inflation much like the New York Times.
As my good friend Howard S. Katz has put it, when reading about the economy, assume anything that the mass media says is the opposite of the truth. If the media says that high interest rates are hurting you, conclude that they are helping you. If the media says that there is a "sub-prime crisis", conclude that the bloated house prices that have been causing middle class bankruptcies for the past two decades are moderating. If the media says that inflation is caused by commodity speculation, assume that it is caused by monetary expansion. If the media says that a depression is near, assume that the stock market is about to go up.
Smart men have become rich in this way.
I have responded to Ms. Peek's and Fox's "news" pieces with the following letter:
>"Thanks for your article 'Time to Intervene in Commodities Markets'. I disagree with Mr. Masters's argument. Neither he nor anyone else is smart enough to know when to intervene in markets. The S&P 500 is up 1500% since January 1970. Is that a reason to cap stock prices? If not, then why is a 183% increase in commodity prices, 12.2% of the 38 year stock price increase, a reason to cap commodity prices? If pension funds wish to hold commodities as a hedge against inflation, should the federal government tell plan participants that they must suffer from inflation?
"Given that the global supply of dollars has increased by 8% a year for the past 2 1/2 decades and the Greenspan/Bernanke Fed have been on a money printing spree since 2000, why attribute rising commodity prices to speculation? Why not the money supply? Does Mr. Masters have a theory as to why printing money does not cause inflation? And is he a relative of Jimmy Carter?
"Perhaps a more useful story would be on the reason the M-3 monetary statistic is no longer published and what the growth in the quantity of M-3 has looked like since 1983. And might there be a connection between money supply and inflation? I mean, duh."
Monetary expansion boosts the stock market for this reason. Interest is the price of money. The stock market computes future earnings with an implicit discount rate. By printing money, the Fed lowers the discount rate. Thus, when the Fed "reduces the interest rates" (prints money) it increases the stock market valuation.
Now, who benefits from the boost that monetary inflation gives to the stock market? The answer, of course, is corporate executives who hold stock options, Wall Street stock jobbers, asset holders in general, home owners and debtors. Who is harmed by inflation? People who work for a living, who are thrifty, who do not have debt and have to pay for necessities with the dollars that the Fed has devalued.
The largest debtors are big businesses. Media companies are corporate enterprises just like any other, and they hold debt. Therefore, their executives benefit from inflation. Therefore, there is considerable pressure on media outlets to lie about the reasons for inflation.
Not surprisingly, my concern about potential lying in the media have materialized recently in response to Congressional testimony by Michael Masters. First, on Fox Business News, there was a panel discussion that included much verbiage about how commodity speculators are causing inflation. Second, when I opened the New York Sun, Liz Peek's article "Time to Intervene in Commodities Markets" likewise omits the underlying monetary cause of price inflation. Price inflation is a monetary phenomenon, a fact that Fox as well as Peek omit. Instead, Peek, like Fox, attributes inflation to speculators. The media lying circus has begun.
Fox and the Sun are two of the few "Republican" sources, which is why I am loyal to them. It is a testimony to Wall Street's and corporate power that superstition is presented as news when the few "conservative" sources discuss inflation much like the New York Times.
As my good friend Howard S. Katz has put it, when reading about the economy, assume anything that the mass media says is the opposite of the truth. If the media says that high interest rates are hurting you, conclude that they are helping you. If the media says that there is a "sub-prime crisis", conclude that the bloated house prices that have been causing middle class bankruptcies for the past two decades are moderating. If the media says that inflation is caused by commodity speculation, assume that it is caused by monetary expansion. If the media says that a depression is near, assume that the stock market is about to go up.
Smart men have become rich in this way.
I have responded to Ms. Peek's and Fox's "news" pieces with the following letter:
>"Thanks for your article 'Time to Intervene in Commodities Markets'. I disagree with Mr. Masters's argument. Neither he nor anyone else is smart enough to know when to intervene in markets. The S&P 500 is up 1500% since January 1970. Is that a reason to cap stock prices? If not, then why is a 183% increase in commodity prices, 12.2% of the 38 year stock price increase, a reason to cap commodity prices? If pension funds wish to hold commodities as a hedge against inflation, should the federal government tell plan participants that they must suffer from inflation?
"Given that the global supply of dollars has increased by 8% a year for the past 2 1/2 decades and the Greenspan/Bernanke Fed have been on a money printing spree since 2000, why attribute rising commodity prices to speculation? Why not the money supply? Does Mr. Masters have a theory as to why printing money does not cause inflation? And is he a relative of Jimmy Carter?
"Perhaps a more useful story would be on the reason the M-3 monetary statistic is no longer published and what the growth in the quantity of M-3 has looked like since 1983. And might there be a connection between money supply and inflation? I mean, duh."
Hugo Chavez's Blood Libel
Gateway Pundit (hat tip Larwyn) reports yet another anti-Semitic campaign in Venezuela:
>On December 1, 2007, Venezuelan police raided a Jewish community center in Caracas. The raid by drug and terrorism police occurred just hours before Venezuelans went to the polls to vote on constitutional changes proposed by President Hugo Chavez. The Jewish community is routinely the target of verbal intimidation in the Chavez government-sponsored media- ADL.org.
>Today Hugo Chavez, the "brother" of Iranian president Mahmoud Ahmadinejad, opened a new media campaign against the Jews...
The stridency of Chavez's anti-Semitism is not, as the ADL claims, "inexplicable". Chavez is a national socialist in the same tradition as Hitler and Stalin. His storm troopers have attacked Jews before and will so again.
>On December 1, 2007, Venezuelan police raided a Jewish community center in Caracas. The raid by drug and terrorism police occurred just hours before Venezuelans went to the polls to vote on constitutional changes proposed by President Hugo Chavez. The Jewish community is routinely the target of verbal intimidation in the Chavez government-sponsored media- ADL.org.
>Today Hugo Chavez, the "brother" of Iranian president Mahmoud Ahmadinejad, opened a new media campaign against the Jews...
The stridency of Chavez's anti-Semitism is not, as the ADL claims, "inexplicable". Chavez is a national socialist in the same tradition as Hitler and Stalin. His storm troopers have attacked Jews before and will so again.
Media Silence on Iraqi War Success
The Belmont Club (hat tip Larwyn) notes that:
"The sudden and precipitous drop-off in the media coverage of Iraq is largely due to the reluctance among pundits to advertise the fact that they were wrong. Iraq is unmentionable because things are going well. Well for Iraq means not so well for pundits who staked their reputations on failure. Abe Greenwald at Commentary Magazine writes: "After years of telling us the war on terror was creating more terrorists, the mainstream media has mysteriously woken up to the fact that Islamic extremism is on the wane. Newsweek is the latest publication to run a support-for-jihad-is-fading piece.". The Washington Post has quietly and recently done so as well. Better to concede past mistakes in judgment quietly the better to deliver more judgements of the same quality in the future. But it comes at the price of clinging to the same false premises and ignoring the most glaring lessons. Greenwald writes:
"'there is an important omission in the sudden coverage of moderate Muslims: No one talks about the effect of the Iraq War. The MSM can dodge the issue all they like, but the fact remains that the Coalition’s toppling of Saddam facilitated the first organized rejection of fanatical Islam in the Middle East. Back in November 2005, while everyone stateside was crying fiasco, a group of Sunnis in Anbar province joined forces with a clutch of U.S. Marines and began to wrest their country back from al-Qaeda and its sympathizers.'"
In 1921 Walter Lippmann enumerated the reasons why the press could not be expected to provide reliable information needed for public deliberation. One is the need to sell newspapers. However, he was mildly sanguine about the technical ability of the media at that time to execute its news-providing mission competently. Things have turned out worse than Lippmann expected. Groupthink and political correctness dominate the media. The progressives of Lippmann's time had varying philosophies. Some were more or less socialist or conservative. The post-Depression New Deal liberalism resulted in two philosophies: (1) a moderately conservative progressivism that has mirrored social democracy and (2) social democracy. However, the media are almost all in the latter camp. One of the characteristics of social democrats is the inability to tolerate dissent and deliberation. Even in areas where their qualifications are weak, such as military strategy and foreign policy, the left looks to leadership from a few elite newspaper analysts. The result is a policy debate that is emotionally driven but poorly conceived.
Let us celebrate that things are going well in Iraq. General David Petraeus's fourth generation warfare strategy has worked. Rather than discuss why and begin to think about ways to improve it, the media react stupidly and public policy debate continues to be inarticulate and foolish.
"The sudden and precipitous drop-off in the media coverage of Iraq is largely due to the reluctance among pundits to advertise the fact that they were wrong. Iraq is unmentionable because things are going well. Well for Iraq means not so well for pundits who staked their reputations on failure. Abe Greenwald at Commentary Magazine writes: "After years of telling us the war on terror was creating more terrorists, the mainstream media has mysteriously woken up to the fact that Islamic extremism is on the wane. Newsweek is the latest publication to run a support-for-jihad-is-fading piece.". The Washington Post has quietly and recently done so as well. Better to concede past mistakes in judgment quietly the better to deliver more judgements of the same quality in the future. But it comes at the price of clinging to the same false premises and ignoring the most glaring lessons. Greenwald writes:
"'there is an important omission in the sudden coverage of moderate Muslims: No one talks about the effect of the Iraq War. The MSM can dodge the issue all they like, but the fact remains that the Coalition’s toppling of Saddam facilitated the first organized rejection of fanatical Islam in the Middle East. Back in November 2005, while everyone stateside was crying fiasco, a group of Sunnis in Anbar province joined forces with a clutch of U.S. Marines and began to wrest their country back from al-Qaeda and its sympathizers.'"
In 1921 Walter Lippmann enumerated the reasons why the press could not be expected to provide reliable information needed for public deliberation. One is the need to sell newspapers. However, he was mildly sanguine about the technical ability of the media at that time to execute its news-providing mission competently. Things have turned out worse than Lippmann expected. Groupthink and political correctness dominate the media. The progressives of Lippmann's time had varying philosophies. Some were more or less socialist or conservative. The post-Depression New Deal liberalism resulted in two philosophies: (1) a moderately conservative progressivism that has mirrored social democracy and (2) social democracy. However, the media are almost all in the latter camp. One of the characteristics of social democrats is the inability to tolerate dissent and deliberation. Even in areas where their qualifications are weak, such as military strategy and foreign policy, the left looks to leadership from a few elite newspaper analysts. The result is a policy debate that is emotionally driven but poorly conceived.
Let us celebrate that things are going well in Iraq. General David Petraeus's fourth generation warfare strategy has worked. Rather than discuss why and begin to think about ways to improve it, the media react stupidly and public policy debate continues to be inarticulate and foolish.
Monday, June 2, 2008
Social Justice Dispositions and Charles E. Lindblom's Concept of Preceptoral Authority System
In his book Politics and Markets: The World's Political-Economic Systems* political scientist Charles E. Lindblom describes three kinds of authority: market, state and preceptoral. Market and state reflect the usual definitions but preceptoral is a concept that seems to have been Lindblom's own. In William Ouchi's Theory Z**, published about four years after Lindblom's book, the idea that clan or organizational culture can supplement market and bureaucratic control methods seems to parallel this idea. The idea of preceptoral control is that educational indoctrination can substitute for state coercion or economic incentives as a method of control. This idea very closely fits the concept of "social justice disposition" that the National Council for the Accreditation of Teacher Education (NCATE) has advocated:
"Persuasion or "education" is aimed first--but perhaps only transitionally--at a transformation of personality, at the creation of the 'new man' as he is often referred to in communist discourse. Mao speaks of the need to 'remold people to their very souls.' 'We must fight 'self.' The 'fundamental task,' Castro declares, is the formation of the new man, a man with a profound consciousness of his role in society and of his duties and social responsibilities.
"For the USSR, Cuba and China alike, the template for the new man has been fashioned from socialist thought, George Orwell's 1984, and Victorian England. Selflessness, cooperation, egalitarianism and service to society mix as themes with duty, hard work, self discipline, patriotism and moral conservatism in dress, the arts and sexual behavior. Two features of the new personality are indispensable. 'Education' tries to create men who will autonomously serve collective interests, that is, who will do on their own initiative what in other societies they must be commanded or induced to do. It must also create men who will voluntarily respond to state and party when either asks for specific performance.
"To explain, justify and win agreement on all tasks takes too much time; such persuasive efforts have to be reserved for inducing personality transformation and for motivating major tasks. Hence, citizens must be persuaded simply to accept the authority of their leaders on the assignment of most tasks. How then does such a system differ on this point from a conventional authority system? It differs in that the new man will ordinarily need no external direction. When he does, authority is a residual tool to be used only in cases in which persuasion is not feasible because too costly in time and effort. In addition, such authority as is needed rests on its prior establishment by persuasion alone. If these requirements seem difficult to satisfy, they help explain why a preceptoral system remains largely aspiration rather than fact."
Not if the educational establishment can help it.
*Charles E. Lindblom, Politics and Markets: The World's Political-Economic Systems. New York: Basic Books, 1977, p. 56.
**William Ouchi, Theory Z, 1981
"Persuasion or "education" is aimed first--but perhaps only transitionally--at a transformation of personality, at the creation of the 'new man' as he is often referred to in communist discourse. Mao speaks of the need to 'remold people to their very souls.' 'We must fight 'self.' The 'fundamental task,' Castro declares, is the formation of the new man, a man with a profound consciousness of his role in society and of his duties and social responsibilities.
"For the USSR, Cuba and China alike, the template for the new man has been fashioned from socialist thought, George Orwell's 1984, and Victorian England. Selflessness, cooperation, egalitarianism and service to society mix as themes with duty, hard work, self discipline, patriotism and moral conservatism in dress, the arts and sexual behavior. Two features of the new personality are indispensable. 'Education' tries to create men who will autonomously serve collective interests, that is, who will do on their own initiative what in other societies they must be commanded or induced to do. It must also create men who will voluntarily respond to state and party when either asks for specific performance.
"To explain, justify and win agreement on all tasks takes too much time; such persuasive efforts have to be reserved for inducing personality transformation and for motivating major tasks. Hence, citizens must be persuaded simply to accept the authority of their leaders on the assignment of most tasks. How then does such a system differ on this point from a conventional authority system? It differs in that the new man will ordinarily need no external direction. When he does, authority is a residual tool to be used only in cases in which persuasion is not feasible because too costly in time and effort. In addition, such authority as is needed rests on its prior establishment by persuasion alone. If these requirements seem difficult to satisfy, they help explain why a preceptoral system remains largely aspiration rather than fact."
Not if the educational establishment can help it.
*Charles E. Lindblom, Politics and Markets: The World's Political-Economic Systems. New York: Basic Books, 1977, p. 56.
**William Ouchi, Theory Z, 1981
The Greatest Sin Against God
Gateway Pundit blogs that Barack Obama's associate, Father Michael Pfleger, has said that:
America is the greatest sin against God.
Rather than appoint Pfleger Secretary of the Interior Obama, rapidly becoming known as the Teapot Dome candidate, now seems likely to appoint Pfleger to the Supreme Court bench.
America is the greatest sin against God.
Rather than appoint Pfleger Secretary of the Interior Obama, rapidly becoming known as the Teapot Dome candidate, now seems likely to appoint Pfleger to the Supreme Court bench.
Walter Lippmann on Business Ethics
"The preparation of characters for all the situations in which men may find themselves is one function of a moral education. Clearly, then, it depends for its success upon the sincerity and knowledge with which the environment has been explored. For in a world falsely conceived, our own characters are falsely conceived, and we misbehave. So the moralist must choose: either he must offer a pattern of conduct for every phase of life, however distasteful some of its phases may be, or he must guarantee that his pupils will never be confronted by the situations he disapproves. Either he must abolish war, or teach people how to wage it with the greatest psychic economy; either he must abolish the economic life of man and feed him with stardust and dew, or he must investigage all the perplexities of economic life and offer patterns of conduct which are applicable in a world where no man is self-supporting. But that is just what the prevailing moral culture so generally refuses to do. In its best aspects it is diffident at the awful complications of the modern world. In its worst, it is just cowardly. Now whether the moralists study the economics and politics and psychology, or whether the social scientists educate the moralists is no great matter. Each generation will go unprepared into the modern world unless it has been taught to conceive the kind of personality it will have to be among the issues it will most likely meet."
---Walter Lippmann, Public Opinion, 1921, pp. 169-70.
---Walter Lippmann, Public Opinion, 1921, pp. 169-70.
Walter Lippmann's Public Opinion
Walter Lippmann. Public Opinion: An Important Work on the Theory of Public Opinion in Relation to Traditional Democratic Theory. Reprint by Filiquarian Publishing, 2007. Available used from Amazon.com for $1.98.
"The orthodox theory holds that a public opinion constitutes a moral judgment on a group of facts. The theory I am suggesting is that, in the present state of education, a public opinion is primarily a moralized and codified version of the facts. I am arguing that the pattern of stereotypes at the center of our codes largely determines what groups of facts we shall see and in what light we shall see them. That is why, with the best will in the world, the news policy of a journal tends to support its editorial policy..."
"The hypothesis which seems to me the most fertile is that news and truth are not the same thing and must be clearly distinguished. The function of news is to signalize an event, the function of truth is to bring to light the hidden facts, to set them into relation with each other, and to make a picture of reality on which men can act. Only at those points, where social conditions take recognizable and measurable shape, do the body of truth and the body of news coincide. That is a comparatively small part of the whole field of human interest."
----Walter Lippmann, Public Opinion, pp. 116, 332
This is a classic by Walter Lippmann, who co-founded the New Republic with Herbert Croly and Walter Weyl. Lippmann was a Progressive, but he was much more circumspect than Croly and John Dewey, and his ideas are more contemporary than either's. The book is disorganized and badly written, but Lippmann's insights are seminal.
The book was published in 1921. In 1920, Warren G. Harding had been the first presidential candidate to use radio in his presidential campaign. Forty years later, the Kennedy/Nixon debate was televised, and 87 years later Barack Obama's speeches are spliced on Youtube. Lippmann's book is seminal not only because he was among the first to ponder the effects of mass media on public policy but also because he anticipated the criticisms of the mass media prevalent among today's conservatives. Although the book references newspapers, not radio, the problems that Lippmann outlines have become increasingly important.
But the book has implications well beyond mass media. The question with which Lippmann grapples is the same question that has confronted many of the social sciences: to what degree are decision makers rational?
In 1958 Herbert Simon and James March published Organizations, a book whose main theme is "cognitive limits on rationality" in devising business strategy. The problem of limited rationality is important not only in management theory but also in economics, where information economics and agency theory have generated important and controversial policy prescriptions. In law and economics there has been much discussion of how informational asymmetries influence public choice and lobbying. In the field of organizational behavior, several of Max Bazerman's ideas on perceptual biases are directly linked to passages in this book. All of these developments owe Walter Lippmann a debt.
Lippmann was writing about a broader topic than management: the ability of the general public to deliberate about policy issues. Progressives claim that democracy is not only viable, but the ultimate good. (This, of course, begs the question as to what construct of good the progressives apply; there is no ultimate ground for favoring democracy over wealth or human well being as the ultimate good, and logically democracy would seem to be inferior to human happiness or Aristotle's eudaimonia -well being-. In attacking natural rights theory as arbitrary or mythical, the Progressives supplanted natural rights with an even more arbitrary and much less fruitful construct.)
Lippmann argues that we are unable to understand the real world in which news and policy problems occur (p. 76):
"...the environment with which our public opinions deal is refracted in many ways, by censorship and privacy at the source, by physical and social barriers at the other end, by scanty attention, by the poverty of language, by distraction, by unconscious constellations of feeling, by wear and tear, violence, monotony. These limitations upon our access to that environment combine with the obscurity and complexity of the facts themselves to thwart clearness and justice of perception, to substitute misleading fictions for workable ideas, and to deprive us of adequate checks upon those who consciously strive to mislead."
Lippmann develops a psychologically-based argument. Because people think in stereotypes and cliches they cannot think clearly about underlying facts (p. 87):
"There is an economy in this. For the attempt to see all things freshly and in detail, rather than as types and generalities, is exhausting, and among busy affairs practically out of the question. In a circle of friends, and in relation to close associates or competitors, there is no shortcut through and no substitute for individualized understanding...But modern life is hurried and multifarious, above all physical distance separates men who are often in vital contact with each other...There is neither time nor opportunity for intimate acquaintance...The subtlest and most pervasive of all influences are those which create and maintain the repertory of stereotypes...(p. 102) Thus Marxism is not necessarily what Karl Marx wrote in Das Kapital, but whatever it is that all the warring sects believe."
Lippmann notes (p. 105) that the word "progress" connoted to most Americans "mechanical inventions". The emphasis on "the biggest, the fastest, the highest, or if you are a maker of wristwatches or microscopes the smallest; the love in short of the superlative and the 'peerless'" is (p 106):
"a partial and inadequate way of representing the world. With the stereotype of 'progress' before their eyes, Americans have in the mass seen little that did not accord with that progress. They saw the expansion of cities, but not the accretion of slums..."
Perceptual distortion occurs at various points. One of the most important is what Lippmann refers to as moral codes (p. 105), a term Chester Barnard borrowed in his seminal management book Functions of the Executive in the 1930s. I don't know how much has been done about the Progressive influence on management thought, but it was extensive. Croly talked about scientific management and Taylor was viewed as a member of the progressive movement. In Public Opinion Lippmann provides the foundation for Barnard's use of the concept of moral code in depicting the function of the executive as creating what we would call today organizational culture. Sanford Jacoby in his book Employing Bureaucracy outlines how many of the ideas of human resource management emanated from Jane Addams's social work movement. Arguably, the classic contingency theory of mainstream management, the idea that management style ought to be adjusted to fit the environment is also linked to progressivism in that it implies a key role for university experts to advise managers as to how to anticipate environmental change, a role played in large part by the Federal Reserve Bank (probably to the chagrin of management professors who were hoping for more extensive interest in their consulting services).
With respect to codes, Lippmann argues (pp. 111-114) "the way we see things is a combination of what is there and of what we expected to find". In order to make intelligent decisions about public affairs and politics, knowledge of the subject matter is necessary, but "few can be expert" and "those who are expert are so on only a few topics" so that "whatever we recognize as familiar we tend, if we are not very careful, to visualize with the aid of images already in our mind" and "when a system of stereotypes is well fixed, our attention is called to those facts which support it and diverted from those which contradict."
(p. 116) "Far more serious in the modern world than any difference of moral code is the difference in the assumptions about facts to which the code is applied. Religious, moral and political formulae are nothing like so far apart as the facts assumed by their votaries...At the core of every moral code there is a picture of human nature, a map of the universe, and a version of history."
(p. 120) "And since my moral system rests on my accepted version of the facts, he who denies either my moral judgments or my version of the facts is to me perverse, alien, dangerous...The opponent has always to be explained, and the last explanation that we ever look for is that he sees a different set of facts."
In addition to bias due to moral codes, Lippmann argues that public opinion is distorted by perception of time 9P. 136) and the inability to comprehend statistical inference:
(p. 141) "To pick fairly a good sample of a large class is not easy. The problem belongs to the science of statistics, and it is a most difficult affair for anyone whose mathematics is primitive, and mine remain azoic..."
Thus (p.145):
"There are few big issues in public life where cause and effect are obvious at once. They are not obvious to scholars who have devoted years, let us say, to studying business cycles, or price and wage movements, or the migration and the assimilation of peoples, or the diplomatic purposes of foreign powers. Yet somehow we are all supposed to have opinions on these matters, and it is not surprising that the commonest form of reasoning is intuitive, post hoc ergo propter hoc."
Moreover, as March and Simon (1958) put it, there are cognitive limits on rationality (p. 153-156):
"Of public affairs each of us sees little, and therefore they remain dull and unappetizing until somebody with the makings of an artist, has translated them into a moving picture...Not being omnipresent and omniscient we cannot see much of what we have to think and talk about...In order then that the distant situation shall not be a gray flicker on the edge of attention, it should be capable of translation into pictures in which the opportunity for identification is recognizable..."
Because of the vagaries of public opinion, it is difficult if not impossible to discern what motivates a given public reaction. If public opinion is to be unified or harmonized (p. 200) a symbolic phrase must unify a wide range of meanings so that the phrase itself is vacuous but able to be interpreted in many ways. Thus, an intelligent public policy is possible only through confusion of the public, or at least offering a symbol in which a wide range of people can believe. People come to accept symbols because they are (pp. 207-8):
"planted there by another human being whom we recognize as authoritative...symbols are made congenial and authoritative because they are introduced to us by congenial and important people...And though we may gradually master for ourselves many phases of that larger environment, there always remains a vaster one that is unknown. To that we still related ourselves through authorities...Except on a few subjects where our own knowledge is great, we cannot choose between true and false accounts. So we choose between trustworthy and untrustworthy reporters."
But the choice of an appropriate expert "is still too difficult and often impracticable. On all but a very few matters for short stretches in our lives, the utmost independence that we can exercise is to multiply the authorities to whom we give a friendly hearing...the democratic theory proceeds on the opposite assumption and assumes for the purposes of government an unlimited supply of self-sufficient individuals."
All political theories naively assume that some individual or group has the innate ability to govern. But all people are constrained by the cognitive limits that Lippmann outlines. In particular, Lippmann questions the state of information in the time of the founding fathers (pp. 240-1):
"But the democrats who wanted to raise the dignity of all men were immediately involved by the immense size and confusion of their ruling class...Their science tole them that politics was an instinct and that the instinct worked in a limited environment. Their hopes bade them insist that all men in a very large environment could govern. In this deadly conflict between their ideals and their science, the only way out was to assume without much discussion that the voice of the people was the voice of God...They could not show how a citizen of Boston was to stay in Boston and conceive the views of a Virginian, how a Virginian in Virginia could have real opinions about the government at Washington, how Congressmen in Washington could have opinions about China or Mexico."
He argues that by 1921 "there is no longer any doubt that the continuous reporting of an unseen environment is feasible. It is often done badly, b ut the fact that it is done at all shows that it can be done, and the fact that we begin to know how badly it is often done shows that it can be done better."
Nevertheless (p. 251):
"The democrat has understood what an analysis of public opinion seems to demonstrate: that in dealing with an unseen environment decisions 'are manifestly settled at haphazard, which clearly they ought not to be.'"
According to Lippmann, the American Constitution was based on the view that special interests needed to be kept in equilibrium by a balance of power. "They intended to deadlock local and class interest to prevent these from obstructing government" (p. 259).
Local interests can in Lippmann's view (p. 271) lead to decentralization or a "Roman peace". "Almost always they chose the path that they had least recently travelled." America was founded as a decentralized state, but reaction to the trusts led to centralization. Centralization led to pluralism (p. 273): "This time society was to swing back not to the atomic individualism of Adam Smith's economic man and Thomas Jefferson's farmer, but to a sort of molecular individualism of voluntary groups."
Lippmann goes on to argue (p. 289):
"The democratic fallacy has been its preoccupation with the origin of government rather than with the processes and results. The democrat has always assumed that if political power could be derived in the right way, it would be beneficent. His whole attention has been on the source of power, since he is hypnotized by the belief that the great thing is to express the will of the people, first because expression is the highest interest of man, and second because the will is instinctively good. But no amount of regulation at the source of a river will completely control its behavior, and while democrats have been absorbed in trying to find a good mechanism for originating social power, that is to say a good mechanism of voting and representation, they neglected almost every other interest of men. For no matter how power originates, the crucial interest is in how power is exercised. What determines the quality of civilization is the use made of power. And that use cannot be controlled at the source."
In order to obtain information, the public relies on newspapers. But newspapers are riddled with error. (p. 297) "The truth about distant or complex matters is not self-evident, and the machinery for assembling information is technical and expensive". Newspapers are businesses, and they have to make decisions based on business considerations as well as on public service ones (p. 298). Readers have limited attention spans. News must be tailored to the selfish and personal considerations of the audience. The very definition of news as well as the threat of defamation suits limit editors' abilities to discern important underlying causes (p. 325):
"A great deal, I think myself the crucial part, of what looks..as deliberate misrepresentation on the part of newspapers is the direct outcome of a practical difficulty in uncovering the news, and the emotional difficulty of making distant facts interesting unless, as Emerson says, we can perceive them to be only a new vewrsion of our familiar experience."
(p. 331) "...news and truth are not the same thing, and must be clearly distinguished."
The press is "too frail to carry the whole burden of popular sovereignty, to supply spontaneously the truth which democrats hoped was inborn...they fail, they are bound to fail, in any future one can conceive they will continue to fail...Unconsciously (democracy) sets up the single reader as theoretically omnicompetent, and puts upon the press the burden of accomplishing whatever representative government, industrial organization and diplomacy have failed to accomplish."
Lippmann argues that institutions that are well run will generate accurate information, so that the quality of the press reflects the quality of institutions (p. 335-6):
"At its best the press is a servant and guardian of institutions; at its worst it is a means by which a few exploit social disorganization to their own ends...The press is no substitute for institutions...The trouble lies deeper than the press..."
The book falls down when (p. 342-3) Lippmann argues that experts can solve the information problem. This solution sounds naive indeed, although Lippmann can be forgiven for he was writing in 1921. Lippmann qualifies this claim by discussing the limitations of social science as he conceived it then. Nevertheless his conclusion that there is a "need for interposing some form of expertness beween the private citizen and the vast environment in which he is entangled" sounds stale from this vantage point. He couldn't have known about Ben Bernanke back then, of course.
"The orthodox theory holds that a public opinion constitutes a moral judgment on a group of facts. The theory I am suggesting is that, in the present state of education, a public opinion is primarily a moralized and codified version of the facts. I am arguing that the pattern of stereotypes at the center of our codes largely determines what groups of facts we shall see and in what light we shall see them. That is why, with the best will in the world, the news policy of a journal tends to support its editorial policy..."
"The hypothesis which seems to me the most fertile is that news and truth are not the same thing and must be clearly distinguished. The function of news is to signalize an event, the function of truth is to bring to light the hidden facts, to set them into relation with each other, and to make a picture of reality on which men can act. Only at those points, where social conditions take recognizable and measurable shape, do the body of truth and the body of news coincide. That is a comparatively small part of the whole field of human interest."
----Walter Lippmann, Public Opinion, pp. 116, 332
This is a classic by Walter Lippmann, who co-founded the New Republic with Herbert Croly and Walter Weyl. Lippmann was a Progressive, but he was much more circumspect than Croly and John Dewey, and his ideas are more contemporary than either's. The book is disorganized and badly written, but Lippmann's insights are seminal.
The book was published in 1921. In 1920, Warren G. Harding had been the first presidential candidate to use radio in his presidential campaign. Forty years later, the Kennedy/Nixon debate was televised, and 87 years later Barack Obama's speeches are spliced on Youtube. Lippmann's book is seminal not only because he was among the first to ponder the effects of mass media on public policy but also because he anticipated the criticisms of the mass media prevalent among today's conservatives. Although the book references newspapers, not radio, the problems that Lippmann outlines have become increasingly important.
But the book has implications well beyond mass media. The question with which Lippmann grapples is the same question that has confronted many of the social sciences: to what degree are decision makers rational?
In 1958 Herbert Simon and James March published Organizations, a book whose main theme is "cognitive limits on rationality" in devising business strategy. The problem of limited rationality is important not only in management theory but also in economics, where information economics and agency theory have generated important and controversial policy prescriptions. In law and economics there has been much discussion of how informational asymmetries influence public choice and lobbying. In the field of organizational behavior, several of Max Bazerman's ideas on perceptual biases are directly linked to passages in this book. All of these developments owe Walter Lippmann a debt.
Lippmann was writing about a broader topic than management: the ability of the general public to deliberate about policy issues. Progressives claim that democracy is not only viable, but the ultimate good. (This, of course, begs the question as to what construct of good the progressives apply; there is no ultimate ground for favoring democracy over wealth or human well being as the ultimate good, and logically democracy would seem to be inferior to human happiness or Aristotle's eudaimonia -well being-. In attacking natural rights theory as arbitrary or mythical, the Progressives supplanted natural rights with an even more arbitrary and much less fruitful construct.)
Lippmann argues that we are unable to understand the real world in which news and policy problems occur (p. 76):
"...the environment with which our public opinions deal is refracted in many ways, by censorship and privacy at the source, by physical and social barriers at the other end, by scanty attention, by the poverty of language, by distraction, by unconscious constellations of feeling, by wear and tear, violence, monotony. These limitations upon our access to that environment combine with the obscurity and complexity of the facts themselves to thwart clearness and justice of perception, to substitute misleading fictions for workable ideas, and to deprive us of adequate checks upon those who consciously strive to mislead."
Lippmann develops a psychologically-based argument. Because people think in stereotypes and cliches they cannot think clearly about underlying facts (p. 87):
"There is an economy in this. For the attempt to see all things freshly and in detail, rather than as types and generalities, is exhausting, and among busy affairs practically out of the question. In a circle of friends, and in relation to close associates or competitors, there is no shortcut through and no substitute for individualized understanding...But modern life is hurried and multifarious, above all physical distance separates men who are often in vital contact with each other...There is neither time nor opportunity for intimate acquaintance...The subtlest and most pervasive of all influences are those which create and maintain the repertory of stereotypes...(p. 102) Thus Marxism is not necessarily what Karl Marx wrote in Das Kapital, but whatever it is that all the warring sects believe."
Lippmann notes (p. 105) that the word "progress" connoted to most Americans "mechanical inventions". The emphasis on "the biggest, the fastest, the highest, or if you are a maker of wristwatches or microscopes the smallest; the love in short of the superlative and the 'peerless'" is (p 106):
"a partial and inadequate way of representing the world. With the stereotype of 'progress' before their eyes, Americans have in the mass seen little that did not accord with that progress. They saw the expansion of cities, but not the accretion of slums..."
Perceptual distortion occurs at various points. One of the most important is what Lippmann refers to as moral codes (p. 105), a term Chester Barnard borrowed in his seminal management book Functions of the Executive in the 1930s. I don't know how much has been done about the Progressive influence on management thought, but it was extensive. Croly talked about scientific management and Taylor was viewed as a member of the progressive movement. In Public Opinion Lippmann provides the foundation for Barnard's use of the concept of moral code in depicting the function of the executive as creating what we would call today organizational culture. Sanford Jacoby in his book Employing Bureaucracy outlines how many of the ideas of human resource management emanated from Jane Addams's social work movement. Arguably, the classic contingency theory of mainstream management, the idea that management style ought to be adjusted to fit the environment is also linked to progressivism in that it implies a key role for university experts to advise managers as to how to anticipate environmental change, a role played in large part by the Federal Reserve Bank (probably to the chagrin of management professors who were hoping for more extensive interest in their consulting services).
With respect to codes, Lippmann argues (pp. 111-114) "the way we see things is a combination of what is there and of what we expected to find". In order to make intelligent decisions about public affairs and politics, knowledge of the subject matter is necessary, but "few can be expert" and "those who are expert are so on only a few topics" so that "whatever we recognize as familiar we tend, if we are not very careful, to visualize with the aid of images already in our mind" and "when a system of stereotypes is well fixed, our attention is called to those facts which support it and diverted from those which contradict."
(p. 116) "Far more serious in the modern world than any difference of moral code is the difference in the assumptions about facts to which the code is applied. Religious, moral and political formulae are nothing like so far apart as the facts assumed by their votaries...At the core of every moral code there is a picture of human nature, a map of the universe, and a version of history."
(p. 120) "And since my moral system rests on my accepted version of the facts, he who denies either my moral judgments or my version of the facts is to me perverse, alien, dangerous...The opponent has always to be explained, and the last explanation that we ever look for is that he sees a different set of facts."
In addition to bias due to moral codes, Lippmann argues that public opinion is distorted by perception of time 9P. 136) and the inability to comprehend statistical inference:
(p. 141) "To pick fairly a good sample of a large class is not easy. The problem belongs to the science of statistics, and it is a most difficult affair for anyone whose mathematics is primitive, and mine remain azoic..."
Thus (p.145):
"There are few big issues in public life where cause and effect are obvious at once. They are not obvious to scholars who have devoted years, let us say, to studying business cycles, or price and wage movements, or the migration and the assimilation of peoples, or the diplomatic purposes of foreign powers. Yet somehow we are all supposed to have opinions on these matters, and it is not surprising that the commonest form of reasoning is intuitive, post hoc ergo propter hoc."
Moreover, as March and Simon (1958) put it, there are cognitive limits on rationality (p. 153-156):
"Of public affairs each of us sees little, and therefore they remain dull and unappetizing until somebody with the makings of an artist, has translated them into a moving picture...Not being omnipresent and omniscient we cannot see much of what we have to think and talk about...In order then that the distant situation shall not be a gray flicker on the edge of attention, it should be capable of translation into pictures in which the opportunity for identification is recognizable..."
Because of the vagaries of public opinion, it is difficult if not impossible to discern what motivates a given public reaction. If public opinion is to be unified or harmonized (p. 200) a symbolic phrase must unify a wide range of meanings so that the phrase itself is vacuous but able to be interpreted in many ways. Thus, an intelligent public policy is possible only through confusion of the public, or at least offering a symbol in which a wide range of people can believe. People come to accept symbols because they are (pp. 207-8):
"planted there by another human being whom we recognize as authoritative...symbols are made congenial and authoritative because they are introduced to us by congenial and important people...And though we may gradually master for ourselves many phases of that larger environment, there always remains a vaster one that is unknown. To that we still related ourselves through authorities...Except on a few subjects where our own knowledge is great, we cannot choose between true and false accounts. So we choose between trustworthy and untrustworthy reporters."
But the choice of an appropriate expert "is still too difficult and often impracticable. On all but a very few matters for short stretches in our lives, the utmost independence that we can exercise is to multiply the authorities to whom we give a friendly hearing...the democratic theory proceeds on the opposite assumption and assumes for the purposes of government an unlimited supply of self-sufficient individuals."
All political theories naively assume that some individual or group has the innate ability to govern. But all people are constrained by the cognitive limits that Lippmann outlines. In particular, Lippmann questions the state of information in the time of the founding fathers (pp. 240-1):
"But the democrats who wanted to raise the dignity of all men were immediately involved by the immense size and confusion of their ruling class...Their science tole them that politics was an instinct and that the instinct worked in a limited environment. Their hopes bade them insist that all men in a very large environment could govern. In this deadly conflict between their ideals and their science, the only way out was to assume without much discussion that the voice of the people was the voice of God...They could not show how a citizen of Boston was to stay in Boston and conceive the views of a Virginian, how a Virginian in Virginia could have real opinions about the government at Washington, how Congressmen in Washington could have opinions about China or Mexico."
He argues that by 1921 "there is no longer any doubt that the continuous reporting of an unseen environment is feasible. It is often done badly, b ut the fact that it is done at all shows that it can be done, and the fact that we begin to know how badly it is often done shows that it can be done better."
Nevertheless (p. 251):
"The democrat has understood what an analysis of public opinion seems to demonstrate: that in dealing with an unseen environment decisions 'are manifestly settled at haphazard, which clearly they ought not to be.'"
According to Lippmann, the American Constitution was based on the view that special interests needed to be kept in equilibrium by a balance of power. "They intended to deadlock local and class interest to prevent these from obstructing government" (p. 259).
Local interests can in Lippmann's view (p. 271) lead to decentralization or a "Roman peace". "Almost always they chose the path that they had least recently travelled." America was founded as a decentralized state, but reaction to the trusts led to centralization. Centralization led to pluralism (p. 273): "This time society was to swing back not to the atomic individualism of Adam Smith's economic man and Thomas Jefferson's farmer, but to a sort of molecular individualism of voluntary groups."
Lippmann goes on to argue (p. 289):
"The democratic fallacy has been its preoccupation with the origin of government rather than with the processes and results. The democrat has always assumed that if political power could be derived in the right way, it would be beneficent. His whole attention has been on the source of power, since he is hypnotized by the belief that the great thing is to express the will of the people, first because expression is the highest interest of man, and second because the will is instinctively good. But no amount of regulation at the source of a river will completely control its behavior, and while democrats have been absorbed in trying to find a good mechanism for originating social power, that is to say a good mechanism of voting and representation, they neglected almost every other interest of men. For no matter how power originates, the crucial interest is in how power is exercised. What determines the quality of civilization is the use made of power. And that use cannot be controlled at the source."
In order to obtain information, the public relies on newspapers. But newspapers are riddled with error. (p. 297) "The truth about distant or complex matters is not self-evident, and the machinery for assembling information is technical and expensive". Newspapers are businesses, and they have to make decisions based on business considerations as well as on public service ones (p. 298). Readers have limited attention spans. News must be tailored to the selfish and personal considerations of the audience. The very definition of news as well as the threat of defamation suits limit editors' abilities to discern important underlying causes (p. 325):
"A great deal, I think myself the crucial part, of what looks..as deliberate misrepresentation on the part of newspapers is the direct outcome of a practical difficulty in uncovering the news, and the emotional difficulty of making distant facts interesting unless, as Emerson says, we can perceive them to be only a new vewrsion of our familiar experience."
(p. 331) "...news and truth are not the same thing, and must be clearly distinguished."
The press is "too frail to carry the whole burden of popular sovereignty, to supply spontaneously the truth which democrats hoped was inborn...they fail, they are bound to fail, in any future one can conceive they will continue to fail...Unconsciously (democracy) sets up the single reader as theoretically omnicompetent, and puts upon the press the burden of accomplishing whatever representative government, industrial organization and diplomacy have failed to accomplish."
Lippmann argues that institutions that are well run will generate accurate information, so that the quality of the press reflects the quality of institutions (p. 335-6):
"At its best the press is a servant and guardian of institutions; at its worst it is a means by which a few exploit social disorganization to their own ends...The press is no substitute for institutions...The trouble lies deeper than the press..."
The book falls down when (p. 342-3) Lippmann argues that experts can solve the information problem. This solution sounds naive indeed, although Lippmann can be forgiven for he was writing in 1921. Lippmann qualifies this claim by discussing the limitations of social science as he conceived it then. Nevertheless his conclusion that there is a "need for interposing some form of expertness beween the private citizen and the vast environment in which he is entangled" sounds stale from this vantage point. He couldn't have known about Ben Bernanke back then, of course.
Saturday, May 31, 2008
Robert K. Murray's Politics of Normalcy
Robert K. Murray. The Politics of Normalcy. New York: WW Norton, 1973. 162 pages. $18.95
Robert K. Murray is a good writer and this is a useful account of the Warren G. Harding administration. The subtitle refers to the "Harding-Coolidge Era" but the book is about the Harding administration with a brief final chapter about Coolidge. Coolidge is more vividly remembered than Harding because after Harding died in office minor scandals, the most famous of which was the Teapot Dome Scandal, were revealed and these tarnished Harding's image.
Murray suggests that Coolidge carried forward Harding's "normalcy" philosophy and so Harding was the more influentional of the two presidents. Arguably, Harding's "normalcy" philosophy has been carried forward through George Bush.
The scandals did not touch Harding; they were the product of two or three unfortunate appointments he had made. Ironically, Harding's cabinet appointments were among the better ones in history. They included Charles Evans Hughes (state), Herbert Hoover (commerce), Andrew W. Mellon (treasury) and Henry Wallace (agriculture; the father of President Roosevelt's Vice-President, Henry A. Wallace). However, there were several exceptions, namely, Harry M. Daugherty, an Ohio crony of Harding's who was later accused of corruption and resigned during the Coolidge administration (1924), although nothing was really proven about Daugherty. Another unfortunate appointment was Interior Secretary Albert Fall, who was responsible for the Teapot Dome scandal, which involved Harry Sinclair's Mammoth Oil bribing Fall for oil leases. Another was Charles R. Forbes, director of the Veterans' Bureau who had sold government supplies illegally and whom Harding had asked to resign as a result.
My key interest in reading this book was to try to grasp why Americans had supported Theodore Roosevelt, a left-wing Progressive Republican in 1904, then supported William Howard Taft, a conservative Progressive Republican in 1908, then supported Woodrow Wilson, a middle of the road Progressive Republican in 1912 and 1916, then reverted to what most people call conservatives--Harding in 1920, Coolidge in 1924 and Hoover in 1928.
Murray does not give an answer to this because the political vocabulary he uses is already steeped in post-World War II liberalism, but a bit of interpretation is all that is needed. Hoover was a Progressive and the question that needs to be interpreted is how two conservatives, Harding and Coolidge, got sandwiched between 30 years' worth of Republican and Democratic Progressives (Wilson being the one Democrat). The answer is that Harding and Coolidge were not conservative in the sense that the word is used to refer to the late 19th century Mugwumps or Barry Goldwater. The Mugwumps had much more in common with Goldwater than Goldwater did with Harding or Coolidge. Rather, Harding and Coolidge were rural Americans who retained some of the homespun feeling for individualism without having much concern with the ideas of laissez faire economics or individual liberty. It is evident from Murray's rich description of the 67th Congress that progressivism had long been established. Harding's goals as president revealed the same thing. His goals included increasing agricultural tariffs, improving the federal farm loan system, increasing farmers' representation on federal boards (p. 32), promotion of "business-government cooperation" (with Hoover turning the Department of Commerce into "a beehive of probusiness activity"), and shipbuilding subsidies (p. 64). The tariff that Congress passed in 1922, the Fordney-McCumber tariff, in Murray's words:
"was of dubious value...The tariff debates had rarely involved principle; there were no great clashes as in the past between high and low tariff advocates. It was simply a struggle between vested-interest-groups for economic advantage. As the New York Commercial described it: 'The tariff now represents the composite selfishness of the country.'"
With respect to subsidies to ship builders, on February 18, 1922 Harding proposed (p. 68):
"that a fund was to be created to aid private shippers in building new ships as well as in buying the existing wartime government fleet. Subsidies would be paid to private shippers on a sliding scale, depending on vessel speed and gross tonnage. Shippers were to be allowed a 10 percent annual profit, but any excess would be divided between the owners and the government until the amount of the subsidy was repaid. The estimated cost of the program was $30 million per year. In presenting this plan to Congress, Harding pointedly admonished:
'We have voiced our concern for the good fortunes of agriculture, and it is right that we should. We have long proclaimed our interest in manufacturing...But we have ignored our merchant marine. The World War revealed our weakness, our unpreparedness for defense in war, our unreadiness for self-reliance in peace...'"
However, the agricultural interests fought this proposal. As preposterous as the shipbuilding proposal sounds to me, the farm lobby's opposition sounds even more preposterous. The agricultural resistance led Harding to change his philosophy of government from a belief that the president should be hands off, to a belief that the president should lead Congress toward legislation (p. 70).
It is evident that nothing in Harding's legislative or administrative agenda were conservative in an activist sense. Rather, his notion of "normalcy" was to accept the social system that the left-wing and conservative Progressives had implemented and simply "stand pat". He had no conception that assertion of markets and reassertion of individual freedom might be preferable to the Hepburn Act or the Federal Reserve Bank. He was conservative in this sense: he wished to conserve the progressives' programs, adding just a wee bit more progressivism, but not too much. What he meant by "normalcy" was just a wee bit more government spending.
In pages 3-6 Murray makes clear that there were serious economic problems facing the nation in 1920. Wilson had failed to liquidate military supplies resulting in inefficiency and waste (p. 3). Roberts indicates that prices increased 104.5% between 1914 and 1920, a compounded annual inflation rate of more than 10%. (Note that the Federal Reserve Bank was founded in 1913.) On top of the inflation, the end of the war threw many Americans into unemployment. In February 1919 an estimated 3 million Americans were unemployed. Then, the cost of living fell by about 10% in March 1921, just when Harding was inaugurated (March 4). By May 1921 farm prices had fallen by two thirds and land values fell (p. 5). The unemployment rate was 20 percent. Interestingly, Roberts is describing an inflation/recession somewhat like the one that preceded the election of Ronald Reagan in 1980. In the late 1970s the inflation and increasing unemployment occurred together, but the situation wasn't that different. But Harding did not offer to remedy the inflation/unemployment cycle by correcting Fed policies. Rather, his normalcy policy was primarily political: to end the discussion of the League of Nations and to subsidize farmers with a tariff (p. 11), tighter immigration policy, a bigger navy, subsidies to the shipbuilders and an anti-lynching law. He also favored rationalization of government, a long-time progressive theme. Most of all, Harding advocated normalcy (quoted on p. 15):
"By 'normalcy' I don't mean the old order, but a regular, steady order of things. I mean normal procedure, the natural way, without excess."
Harding defined the Republican stance for much of the twentieth century. Republicans have called for normalcy, accepting the "progressive" reforms that the Democrats concoct and then responding to by saying that they are too much. The Republicans then call for "normalcy" and win another term in office. But is it normalcy to have a Federal Reserve Bank that prints $29 billion to subsidize an incompetent and corrupt investment bank like Bear Stearns? Is it normal for the US government to spend a trillion dollars a year? What is normal about that? Perhaps in Harding's day the normalcy theme rang true, but the Democrats' schemes, the Department of Education, inflation, the Fed, political correctness, the incompetent, "progressive" education system, the failed social security system, the failed policies of "urban renewal" that destroyed American cities and subsidized real estate developers are not normal. Is accepting such programs normalcy?
Robert K. Murray is a good writer and this is a useful account of the Warren G. Harding administration. The subtitle refers to the "Harding-Coolidge Era" but the book is about the Harding administration with a brief final chapter about Coolidge. Coolidge is more vividly remembered than Harding because after Harding died in office minor scandals, the most famous of which was the Teapot Dome Scandal, were revealed and these tarnished Harding's image.
Murray suggests that Coolidge carried forward Harding's "normalcy" philosophy and so Harding was the more influentional of the two presidents. Arguably, Harding's "normalcy" philosophy has been carried forward through George Bush.
The scandals did not touch Harding; they were the product of two or three unfortunate appointments he had made. Ironically, Harding's cabinet appointments were among the better ones in history. They included Charles Evans Hughes (state), Herbert Hoover (commerce), Andrew W. Mellon (treasury) and Henry Wallace (agriculture; the father of President Roosevelt's Vice-President, Henry A. Wallace). However, there were several exceptions, namely, Harry M. Daugherty, an Ohio crony of Harding's who was later accused of corruption and resigned during the Coolidge administration (1924), although nothing was really proven about Daugherty. Another unfortunate appointment was Interior Secretary Albert Fall, who was responsible for the Teapot Dome scandal, which involved Harry Sinclair's Mammoth Oil bribing Fall for oil leases. Another was Charles R. Forbes, director of the Veterans' Bureau who had sold government supplies illegally and whom Harding had asked to resign as a result.
My key interest in reading this book was to try to grasp why Americans had supported Theodore Roosevelt, a left-wing Progressive Republican in 1904, then supported William Howard Taft, a conservative Progressive Republican in 1908, then supported Woodrow Wilson, a middle of the road Progressive Republican in 1912 and 1916, then reverted to what most people call conservatives--Harding in 1920, Coolidge in 1924 and Hoover in 1928.
Murray does not give an answer to this because the political vocabulary he uses is already steeped in post-World War II liberalism, but a bit of interpretation is all that is needed. Hoover was a Progressive and the question that needs to be interpreted is how two conservatives, Harding and Coolidge, got sandwiched between 30 years' worth of Republican and Democratic Progressives (Wilson being the one Democrat). The answer is that Harding and Coolidge were not conservative in the sense that the word is used to refer to the late 19th century Mugwumps or Barry Goldwater. The Mugwumps had much more in common with Goldwater than Goldwater did with Harding or Coolidge. Rather, Harding and Coolidge were rural Americans who retained some of the homespun feeling for individualism without having much concern with the ideas of laissez faire economics or individual liberty. It is evident from Murray's rich description of the 67th Congress that progressivism had long been established. Harding's goals as president revealed the same thing. His goals included increasing agricultural tariffs, improving the federal farm loan system, increasing farmers' representation on federal boards (p. 32), promotion of "business-government cooperation" (with Hoover turning the Department of Commerce into "a beehive of probusiness activity"), and shipbuilding subsidies (p. 64). The tariff that Congress passed in 1922, the Fordney-McCumber tariff, in Murray's words:
"was of dubious value...The tariff debates had rarely involved principle; there were no great clashes as in the past between high and low tariff advocates. It was simply a struggle between vested-interest-groups for economic advantage. As the New York Commercial described it: 'The tariff now represents the composite selfishness of the country.'"
With respect to subsidies to ship builders, on February 18, 1922 Harding proposed (p. 68):
"that a fund was to be created to aid private shippers in building new ships as well as in buying the existing wartime government fleet. Subsidies would be paid to private shippers on a sliding scale, depending on vessel speed and gross tonnage. Shippers were to be allowed a 10 percent annual profit, but any excess would be divided between the owners and the government until the amount of the subsidy was repaid. The estimated cost of the program was $30 million per year. In presenting this plan to Congress, Harding pointedly admonished:
'We have voiced our concern for the good fortunes of agriculture, and it is right that we should. We have long proclaimed our interest in manufacturing...But we have ignored our merchant marine. The World War revealed our weakness, our unpreparedness for defense in war, our unreadiness for self-reliance in peace...'"
However, the agricultural interests fought this proposal. As preposterous as the shipbuilding proposal sounds to me, the farm lobby's opposition sounds even more preposterous. The agricultural resistance led Harding to change his philosophy of government from a belief that the president should be hands off, to a belief that the president should lead Congress toward legislation (p. 70).
It is evident that nothing in Harding's legislative or administrative agenda were conservative in an activist sense. Rather, his notion of "normalcy" was to accept the social system that the left-wing and conservative Progressives had implemented and simply "stand pat". He had no conception that assertion of markets and reassertion of individual freedom might be preferable to the Hepburn Act or the Federal Reserve Bank. He was conservative in this sense: he wished to conserve the progressives' programs, adding just a wee bit more progressivism, but not too much. What he meant by "normalcy" was just a wee bit more government spending.
In pages 3-6 Murray makes clear that there were serious economic problems facing the nation in 1920. Wilson had failed to liquidate military supplies resulting in inefficiency and waste (p. 3). Roberts indicates that prices increased 104.5% between 1914 and 1920, a compounded annual inflation rate of more than 10%. (Note that the Federal Reserve Bank was founded in 1913.) On top of the inflation, the end of the war threw many Americans into unemployment. In February 1919 an estimated 3 million Americans were unemployed. Then, the cost of living fell by about 10% in March 1921, just when Harding was inaugurated (March 4). By May 1921 farm prices had fallen by two thirds and land values fell (p. 5). The unemployment rate was 20 percent. Interestingly, Roberts is describing an inflation/recession somewhat like the one that preceded the election of Ronald Reagan in 1980. In the late 1970s the inflation and increasing unemployment occurred together, but the situation wasn't that different. But Harding did not offer to remedy the inflation/unemployment cycle by correcting Fed policies. Rather, his normalcy policy was primarily political: to end the discussion of the League of Nations and to subsidize farmers with a tariff (p. 11), tighter immigration policy, a bigger navy, subsidies to the shipbuilders and an anti-lynching law. He also favored rationalization of government, a long-time progressive theme. Most of all, Harding advocated normalcy (quoted on p. 15):
"By 'normalcy' I don't mean the old order, but a regular, steady order of things. I mean normal procedure, the natural way, without excess."
Harding defined the Republican stance for much of the twentieth century. Republicans have called for normalcy, accepting the "progressive" reforms that the Democrats concoct and then responding to by saying that they are too much. The Republicans then call for "normalcy" and win another term in office. But is it normalcy to have a Federal Reserve Bank that prints $29 billion to subsidize an incompetent and corrupt investment bank like Bear Stearns? Is it normal for the US government to spend a trillion dollars a year? What is normal about that? Perhaps in Harding's day the normalcy theme rang true, but the Democrats' schemes, the Department of Education, inflation, the Fed, political correctness, the incompetent, "progressive" education system, the failed social security system, the failed policies of "urban renewal" that destroyed American cities and subsidized real estate developers are not normal. Is accepting such programs normalcy?
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