Topic: Political Philosophy

The Real Problem with the Debate

Arnold Kling offers a strange remark about last night’s presidential debate:

If the candidates were out to correct economic ignorance instead of pandering to it, the debate would not resemble last night’s in any way.

If the two candidates had corrected economic ignorance throughout their careers instead of pandering to it, they would not be the two major candidates for the presidency.  Two other politicians who affirmed economic ignorance and pandered to it would have participated in last night’s debate.

You could say that both Obama and McCain have let their ambition get the better of them, but they are politicians and that is like saying, as many now are, that investors should not seek profits. Both candidates believe spouting economic ignorance provides an apt means to winning the presidency.

Question for the class: what does all this tell us about American democracy?

Laissez-Faire and Corporatism

I’ve just read Steven Horwitz’s excellent “Open Letter to My Friends on the Left,” on the subject of the credit crisis. I highly recommend it, whether you’re on the left or not:

In the last week or two, I have heard frequently from you that the current financial mess has been caused by the failures of free markets and deregulation. I have heard from you that the lust after profits, any profits, that is central to free markets is at the core of our problems. And I have heard from you that only significant government intervention into financial markets can cure these problems, perhaps once and for all. I ask of you for the next few minutes to, in the words of Oliver Cromwell, consider that you may be mistaken. Consider that both the diagnosis and the cure might be equally mistaken.

Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms’ benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn’t rig a new regulatory process in their favor.

The seemingly arcane difference between laissez-faire and corporatism is one of the most important in today’s public policy debates. Laissez-faire means the equality of all before the law, with the state neither helping nor hindering any market actor. Corporatism means offering special favors to those who’ve already succeeded. (Just for starters: “Too big to fail” is corporatism.)

If only this distinction were more clearly understood by lawmakers, journalists, and the general public. Too often all of these groups just use the vague word “capitalism,” which seems mostly intended to split the difference – or to obscure it. But laissez-faire and corporatism are directly opposed to one another, and if more people on the left understood this, they might be far more sympathetic to free markets. Even, perhaps, while keeping a healthy mistrust of corporations.

Nihilists!

Dieter: “Ve are Nihilists, Lebowski. Ve believe in nothing! Nothing!”

–Joel and Ethan Coen, “The Big Lebowski”

“And let us recognize above all the 228 who voted no — the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed.”

–David Brooks, “The Revolt of the Nihilists,” September 29, 2008

That’s David Brooks tearing his hair out yesterday over the failure of the bailout bill.  It’s interesting that Brooks characterizes people who resist the idea of privatized profits and socialized loss as “nihilists.”  If you’re not willing to let Brooks’ “new establishment” play with up to $700 billion in tax dollars, if you don’t offer up your wallet the moment an expert cries “crisis!”–why then, you must believe in nothing! Nothing at all!

Interesting, but maybe not all that surprising.  Brooks is, after all, the architect of National Greatness Conservatism, the philosophy that says “American purpose can only find its voice in Washington.”  Inside Washington: purpose, meaning, fulfillment–glory.  Outside Washington: a vast and pitiless void.  “All within the state, nothing outside the state, nothing against the state,” as a prominent theorist of national greatness once put it.

The Risk-Free Society Comes into View

Peter Bernstein draws a conclusion from the current problems in the financial markets:

The subprime mortgage mess, the huge leverage throughout the system, the insidious impact of new kinds of derivatives and other financial paper, and, at the roots, the vast underestimation of risk could not have happened in a planned economy.

Oh really? Another story from today’s New York Times reports:

The banking giant JPMorgan Chase, for instance, has 70 regulators from the Federal Reserve and the comptroller’s agency in its offices every day. Those regulators have open access to its books, trading floors and back-office operations. (That’s not to say stronger regulators would prevent losses. Citigroup, which on paper is highly regulated, suffered huge write-downs on risky mortgage securities bets.)

Goldman-Sachs, which was largely unregulated, mostly avoided losses related to the mortgage market through prudent hedging. Citigroup, which was highly regulated, suffered such losses. Expect state control without the promised payoff in a planned economy.

There’s a larger point here that Bernstein neglects completely. A prosperous society requires risk taking. Bernstein is correct: historically a planned economy has prevented such risk taking. Not surprisingly, such societies have not been prosperous, to put it mildly.

More important, they have not been free societies. Preventing the downside of risk requires control over people’s choices. Seventy bureaucrats reviewing your trades. More generally, the best and the brightest continually uttering imperative sentences. Stay away from that cake! Avoid that derivative! Think correct thoughts! The risk-free society will be a society filled with hectored serfs.

Right now, at this moment of hysteria, the political class suffers from availability bias. Like Bernstein, they see only the downside of risk and conclude the necessity of the planned economy. A more complex and nuanced view would see both sides of risk and the enduring value of liberty.

Mark Sanford on Bailouts

South Carolina governor Mark Sanford, who spoke last Saturday night to our Cato Club 200 retreat, has a great column in the Washington Post today on the federal government’s accelerating tendency to respond to every crisis with an expansion of its powers. He writes:

An ever-expanding scope of federal commitment and power is not what made this country great. Expanded power in one place comes at a cost in other places. American cornerstones such as individual initiative and an entrepreneurial spirit — born in free and open societies with private property rights and the rule of law — have never fit particularly well within the context of an ever-growing federal government.

For 200 years, the “business model” in our country has rested on a simple fact: that while one may reap rewards from taking risks, one should also be prepared to face the consequences of those risks. Some of the proposed actions with regard to the credit market turn that business model on its head — absolving those who took too much risk, or bought too much house, from the weight of their own choices. If Congress passes the proposed bailout, we will be destined to have far greater problems in time, leaving those who are prudent in their finances to foot the bill for those who are not.

He goes on to appeal to the wisdom of Milton Friedman, Ronald Reagan, and Edward Gibbon in cautioning Congress not to put us on the path to “decline and fall.”

Bonus: Mark Sanford on Real ID here (podcast audio), here (speech video) and here (speech PDF).

The United States of Permanent Receivership

Next year marks the 30th anniversary of the appearance of the second edition of Theodore J. Lowi’s The End of Liberalism, subtitled The Second Republic of the United States. The preface to the second edition ends, “I want to express a very belated thanks to Friedrich A. Hayek. His work had much more of an influence on me than I realized during the writing of the First Edition. I neither began nor ended as a Hayekist but instead found myself confirming, by process of elimination and discovery, many of his fears about the modern liberal state.”

Lowi argues that the Second Republic is marked by “the state of permanent receivership,” which is defined as “a state whose government maintains a steadfast position that any institution large enough to be a significant factor in the community may have its stability underwritten. It is a system of policies that sets a general floor under risk, either by attempting to eliminate risk or to reduce or share the costs of failure.” This state includes anticipatory receivership, which includes “businesses that are not actually on the brink of bankruptcy but are in a sector of the economy where bankruptcies or reorganizations are likely unless there is some kind of a preventive measure.”

Thirty years out, Ted Lowi looks pretty good this morning. Not much else looks good, but the second edition of The End of Liberalism shows that this dour morning has been coming for some time.

Read the book.

Cult of the Presidency in National Review

Claremont Institute fellow Michael M. Uhlmann has a dismissive review of The Cult of the Presidency in the current issue of National Review: “It’s Not Just the Executive,” September 15, 2008. (Here it is if you get NR Digital, otherwise it’s available in the print edition). It seems to me that the review largely consists of inaccurate characterizations, unsupported assertions, and non sequiturs. But hey, I’m the author, and understandably biased, so check it out and judge for yourself.

Uhlmann writes that “The bulk of Healy’s book is devoted to various sins, offenses and negligences of the Bush administration.” That’s a bizarre statement, given that the book has nine chapters and an introduction, and only three of those chapters cover GWB’s tenure. In fact, the “bulk of the book” is devoted to demonstrating that, as I write in Chapter Two, “the problems of the modern presidency did not begin when George W. Bush emerged victorious from 2000’s seemingly interminable Battle of the Chads” and that–despite what some on the Left seem to believe–those problems will not vanish in January 2009 when he heads back to the ranch to cut brush.

The book is a history of the presidency’s transformation from the important, but constitutionally limited office the Framers designed to an extraconstitutional monstrosity charged with moving the masses and saving the world. But by beginning his review with a discussion of “unhinged” Bush critics, and mischaracterizing the book’s contents, Uhlmann has undoubtedly left NR readers with the impression that The Cult of the Presidency is yet another partisan screed against the current administration.  Move along, nothing to see here.

That’s a shame, because conservatives could surely benefit from reexamining their decades-long affinity for strong presidencies.

There’s nothing particularly conservative about investing vast unchecked power in the hands of whichever professional politician manages to claw his way to the top in a modern presidential contest. As Russell Kirk put it, “Knowing human nature for a mixture of good and evil, the conservative does not put his trust in mere benevolence. Constitutional restrictions, political checks and balances, adequate enforcement of the laws, the old intricate web of restraints upon will and appetite—these the conservative approves as instruments of freedom and order.” And if principled reasons aren’t good enough, the fact that Republicans, let alone conservative Republicans, are unlikely to dominate the electoral college in the coming decades ought–like the prospect of a hanging–to concentrate the mind somewhat.

Uhlmann is willing to concede that the Bush administration’s claims of uncheckable authority over the detention and treatment of terrorist suspects “entail arguable legal propositions.” Which is gracious of him. But he provides very little argument for his view that the Framers envisioned a president with anything like the powers the current president–or others before him–have claimed. What arguments he provides often consist of offering innocuous and uncontroversial historical claims about 18th-century Americans’ views of executive power–as if those claims establish that the modern presidency is the constitutional presidency. In each case, he falls a few premises short of a syllogism.

Yes, the Federalist suggests, as Uhlmann notes, that “legislative excess is the danger chiefly to be guarded against in a republic.” But that was so, as Madison explains in No. 48, because the government the Constitution envisioned would be fundamentally different from one in which “numerous and extensive prerogatives are placed in the hands of a hereditary monarch.” Legislative power was more to be feared precisely because under the American Constitution “the executive magistracy is carefully limited, both in the extent and the duration of its power.”

Yes, the Framers sought to avoid some of the mistakes made in some of “the state constitutions adopted between 1776 and 1787” and to create a relatively vigorous and independent executive. But there’s quite a distance between that fact and the current administration’s claims that Congress cannot restrain the president from ordering torture and that the president has the power to permanently imprison American citizens without charges or legal process. (Uhlmann treats these issues at greater length in an extensive essay on presidential powers in a recent edition of the Claremont Review, in which, it seems to me, the verbiage-to-evidence ratio is also fairly high.)

Then there’s Uhlmann’s painfully obvious argument that “It’s Not Just the Executive” that’s a problem in our modern welfare-warfare state. Well, yes. It’s not clear who Uhlmann’s arguing with when he points out “the size and arbitrariness of government in general” are intertwined with concerns about a powerful presidency, and that the growth of presidential power would not have been possible without the collaboration of Congress and the judiciary. I make the same points repeatedly and at length throughout the book.

But the book focuses on the presidency because the president has become the focal point of Americans’ dangerously unrealistic expectations about what government can deliver, at home and abroad. As the political scientist Theodore Lowi explained (and as I discuss in the book), the post-New Deal state pledged itself to the constant delivery of goods and benefits, with the public looking most of all to the president to meet the key test of the new regime’s legitimacy: “service delivery.” The emerging “Second Republic of the United States” was one in which, as Lowi sums up, “the system of government had become an inverted pyramid, with everything coming to rest on a presidential pinpoint.”

So the presidency is important. It merits special attention, perhaps especially from conservatives, given their longstanding myopia about the dangers of presidential power. For too long the Right has been wedded to the odd proposition that next to the “Imperial Congress” and the “Imperial Judiciary”, the executive branch–the branch with guns–is the least dangerous branch. I’m glad that NR reviewed the book, and I didn’t expect an uncritical embrace of my perspective. But I would have preferred a serious discussion of the issues the book raises.