Mr. Joseph Yam, former chief executive of the Hong Kong Monetary Authority, has proposed a package of policy changes that, if implemented, would undermine and destabilize the Hong Kong dollar—a unit that has been rock solid ever since Hong Kong established its currency board in 1983. And if you doubt that dire conclusion, reflect on the fact that Argentina blew up its famed convertibility system (OK—it wasn’t a currency board, but only an unusual pegged setup) in 2001 by adopting a series of Yam-like measures.

Like Walter Olson, I was struck yesterday by Tim Carney’s admonition that “Libertarians need to reassess their allegiances on social matters” in light of government infringements on religious liberty. Walter did a good job of demonstrating that libertarians, even those who are not themselves religious, have been “on the front lines” in defending religious liberty in such cases as Catholic hospitals’ objections to paying for birth control and the wedding photographer in New Mexico who didn’t want to photograph a gay wedding. Libertarians don’t have to be conservatives to object to “liberal” infringements on personal and religious freedoms.

But there’s another problem with what Carney wrote. I’m not quite sure what “Libertarians need to reassess their allegiances on social matters” means. But perhaps he means that libertarians should stop thinking of themselves as “fiscally conservative and socially liberal” and recognize that a lot of infringements on freedom come from the left. In my experience libertarians are well aware that in matters from taxes to gun ownership to Catholic hospitals, liberals don’t live up to the ideal of true liberalism.

But what about conservatives? Are conservatives really the defenders of freedom? Carney seems to want us to think so, and to line up with conservatives “on social matters.” But the real record of conservatives on personal and social freedom is not very good. Consider:

• Conservatives, like National Review, supported state-imposed racial segregation in the 1950s and 1960s. (I won’t go back and claim that “conservatives” supported slavery or other pre-modern violations of freedom.)
• Conservatives opposed legal and social equality for women.
• Conservatives supported laws banning homosexual acts among consenting adults.
• Conservatives still oppose equal marriage rights for gay couples.
• Conservatives (and plenty of liberals) support the policy of drug prohibition, which results in nearly a million arrests a year for marijuana use.
• Conservatives support state-imposed prayers and other endorsements of religion in public schools.

This is how the culture war generally plays out these days: The Left uses government to force religious people and cultural conservatives to violate their consciences, and then cries “theocracy” when conservatives object.

Elinor Ostrom, the first woman to receive the Nobel Prize in economics—though that is hardly the most significant aspect of her work—has died at 78. My old friend Mario Rizzo of New York University examined her scholarly accomplishment in 2009 when she won the Prize:

The work of Elinor Ostrom, the first woman to receive the Nobel Prize in economics, is not very well-known among economists. In fact, I would venture the guess than most economists had not heard of her before the prize was announced yesterday morning.

Two reasons for this are that her degree is in political science and she has written for publications outside of the mainstream economics journals. Additionally, her work, by and large, lacks the high degree of mathematical formalism now so characteristic of economics.

Yet the Nobel Prize Committee has done a great service to economics and the greater social-scientific community. When a well-known economist receives the prize little is gained apart from the recognition of a job well done and perhaps some wider public recognition. I do not think that great contributions are made in any discipline because of the incentive effects of an improbable prize. However, in this case the Nobel Committee has brought extraordinary work to the attention of an economics discipline that has become excessively specialized and, perhaps increasingly irrelevant to the real world, as Paul Krugman and others have recently suggested.

Professor Ostrom’s work is highly relevant to important issues in economic development, common-pool resources, the development of social norms, and the solution of various collective action problems. Her work is also methodologically diverse. She uses experimental methods, field research, and evolutionary game theory. She is not afraid to draw on various disciplines when appropriate: economics, political science, evolutionary psychology, cultural anthropology and so forth.

She is a very worthy intellectual descendant of Adam Smith who realized that the study of trade based on self-interest needed to be supplemented by a broader view of humankind – individuals capable of the so-called “moral sentiments” like honesty, benevolence, and loyalty, as well as the standard vices.

Much of Ostrom’s work centers on developing and applying a broader conception of rationality than economists usually employ. The standard conception of rationality is not the rationality of real human beings but the rationality of cognitively-unlimited lightning-fast calculators. This is a purely imaginary construct. On the other hand, Olstrom’s “thick rationality” is the result of trial and error, use of relatively simple heuristics, employment of rules, and the embodiment of cultural norms. To reject standard, improbable rationality is notto reject rationality. It is rather to develop more sophisticated, and yet more realistic, models of rationality.

“Thick rationality” is a bottom-up phenomenon. It recognizes the importance of local knowledge and diverse approaches in the management of resources. For example, many top-down irrigation projects in developing countries have failed because they have concentrated on the physical aspects of water delivery. Ostrom believes that the institutional aspects are more important. Irrigation systems built by farmers themselves are often more efficient. They deliver more water, are better repaired, and result in higher farm productivity than those built by international agencies. Often these agencies take no notice of local customs, knowledge and incentive structures; the knowledge of the bureaucrat is inferior to the knowledge of the individuals on the ground.

The central problem on which her employment of the notion of “thick rationality” can shed light is what she calls “social dilemmas.” These are circumstances in which interacting individuals can easily succumb to maximizing their short-term interests to the detriment of their long term interests. To return to our irrigation example, suppose farmers share the use of a creek for irrigation. They face a collective problem of organizing to clear out the fallen trees and brush from the previous winter. Each farmer would like to have the others do it. There are incentives to free-ride on the “public spiritedness” of others – however, everyone may think this way and nothing will get done. Ostrom finds that cooperation will often take place while the “thin” theory of rationality predicts that it will not. She finds that factors such as face-to-face contact (likely when there are small numbers), the equality of each farmer’s stake in the benefits of irrigation, and the ease of monitoring the farmer’s contribution to brush removal all make the likelihood of cooperation greater.

Elinor Ostrom has and continues to expand the power of a broader conception of rationality – one that Adam Smith would have recognized and been comfortable with – to explain the multifarious forms of human cooperation that conventional economists have been unable to explain. This is a major contribution.

Paul Dragos Aligica and Peter Boettke of George Mason University showed excellent prescience in publishing a book in the summer of 2009, just a few months before the Nobel Prize was awarded, on the work of Ostrom, her husband Vincent, and their colleagues at Indiana University, Challenging Institutional Analysis and Development: The Bloomington School.

Remember that guy?

Well today, the Wall Street Journal reprints a series of emails showing how his administration colluded with drug-company lobbyists to pass ObamaCare. Never mind the nonsense about Big Pharma making an $80 billion “contribution” to pass the law. An accompanying Wall Street Journal editorial explains that Big Pharma “understood that a new entitlement could be a windfall as taxpayers bought more of their products.”

The money quote from these emails comes from Pfizer lobbyist/​Republican/​former George W. Bush appointee Anthony Principi. Even though the drug companies were donating to all the right politicians and pledging to spend hundreds of millions of dollars on pro-ObamaCare advertising campaigns and grassroots lobbying, President Obama still accused unnamed “special interests” of trying to stop ObamaCare in order to preserve “a system that worked for the insurance and the drug companies.” Principi was indignant:

We’re trying to kill it? I guess we didn’t give enough in contributions and media ads supporting hcr. Perhaps no amount would suffice.

The nerve. I smell a campaign slogan. “Barack Obama: a Politician Who Cannot Stay Bought.”

The Journal adds:

[Former Energy and Commerce Chairman Henry] Waxman [D‑CA] recently put out a rebuttal memo dismissing these email revelations as routine, “exactly what Presidents have always done to enact major legislation.” Which is precisely the point—the normality is the scandal.

And which critics have argued from the beginning. As I wrote more than two years ago, ObamaCare is corruption:

Each new power ObamaCare creates would be targeted by special interests looking for special favors, and held for ransom by politicians seeking a slice of the pie.

ObamaCare would guarantee that crucial decisions affecting your medical care would be made by the same people, through the same process that created the Cornhusker Kickback, for as far as the eye can see.

When ObamaCare supporters, like Kaiser Family Foundation president Drew Altman, claim that “voters are rejecting the process more than the substance” of the legislation, they’re missing the point.

When government grows, corruption grows. When voters reject these corrupt side deals, they are rejecting the substance of ObamaCare.

Fortunately, voters so detest ObamaCare that there’s a real chance to wipe it from the books. This video explains how state officials can strike a blow against ObamaCare/​corruption:

Today POLITICO Arena asks:

Is Jeb Bush right that his father and President Reagan would find themselves out of step with today’s Republican Party because of its strict adherence to ideology and the intensity of modern partisan warfare?

My response:

Jeb Bush’s remarks about the Republican Party represent the views of some members of a party that, like the Democratic Party, has become more sharply defined than it was under his father’s or brother’s presidencies. Looking at the longer and deeper view, however, that’s not surprising, because the Bush presidencies were more anomalous than indicative of the party.

For much of the post-War period the Republican Party, especially under the eastern establishment, was little but “Democrat-lite.” That began to change with Barry Goldwater in 1964, suffered a setback under Nixon and Ford, but nonetheless continued under Governor and then President Reagan, who brought a fair measure of ideological discipline to the Party—affecting the Democratic Party in the process. (Compare the ideological opposition to Reagan to that of Ford, for example.) Despite the two Bushes thereafter, the intellectual and activist institutions that had underpinned the Reagan revolution continued to grow, especially as the Democratic Party itself became more polarized, and those forces increasingly influenced the Republican Party, encouraging it to stand for something, unlike the earlier “always-in-the-minority” party—the party Democrats remembered fondly as the “reasonable” Republicans.

There were plenty of counterexamples to those developments, of course—the collapse of the Gingrich bubble late in 1995, the rise of the Tom DeLay opportunists, and the spending of Bush II. And there were issues that continued, and continue even now, to deeply divide members, like immigration and the drug war. But increasingly the two parties have become more sharply defined—“polarized,” if you prefer—as the 2010 mid-term elections made especially clear. And contrary to the Washington establishment, that’s not a bad thing, because voters now have a real choice, not just a choice between two parties, both of which stand for essentially the same things, their respective candidates seeking simply to stay in power. Today, in the main, Republicans stand for the private sector and limited government, Democrats for the public sector and government services. We’ll soon see which course the American people want to take.

In a high-profile presser on the economy last Friday, President Obama’s central proposal was to hire more public employees. Then, in his weekly address, he argued that hiring more public school teachers would allow the U.S. to educate its way to prosperity. His Republican presidential rival, Governor Romney, has recommended precisely the opposite: reducing the size of government to boost private sector job growth–and he, too, mentions public school teachers. So… who’s right?

First, let’s look at public school employment and student enrollment over time.

As the chart makes clear, enrollment is only up 8.5% since 1970, whereas employment is up 96.2%. In other words, the public school workforce has grown 11 times faster than enrollment over the past 40 years. What difference does that make in economic terms? If we went back to the staff-to-student ratio we had in 1970, we’d be saving… $210 billion… annually.

Wait a minute, though! Research by economist Rick Hanushek and others has found that improved student achievement boosts economic growth. So if the 2.9 million extra public school employees we’ve hired since 1970 have improved achievement substantially, we might well be coming out ahead economically. So let’s look at those numbers…

Uh oh. Despite hiring nearly 3 million more people and spending a resulting $210 billion more every year, achievement near the end of high school has stagnated in math and reading and actually declined slightly in science since 1970. This chart also shows the cost of sending a student all the way through the K‑12 system–the total cost per pupil of each graduating class from 1970 to the present. As you can see, on a per pupil basis, a K‑12 education has gone from about $55,000 to about $150,000 in real, inflation-adjusted terms.

The implications of these charts are tragic: the public school monopoly is warehousing 3 million people in jobs that appear to have done nothing to improve student learning. Our K‑12 government school system simply does not know how to harness the skills of our education workforce, and so is preventing these people from contributing to our economy while consuming massive quantities of tax dollars. So what would hiring even more people into that system do for our economy…

The Bipartisan Policy Center (BPC) has come out against bipartisan spending restraint. The BPC has issued a report highly critical of the sequestration spending cuts that were agreed to in the bipartisan Budget Control Act of 2011.

The BPC is a center-left thinktank in Washington that houses some very good policy scholars. The goal of the group is to celebrate “times in American political history when two sides have come together in the interest of the country and the people.”

Surely that describes the Budget Control Act. The Act made some modest progress at trimming the giant federal budget deficit, which is an important concern of BPC scholars. The Budget Control Act passed the House 269 to 161 with 174 Republicans and 95 Democrats in favor. It passed the Senate 74 to 26. President Obama signed it. What could be more bipartisan than that?

However, the BPC complains that the sequester will cause “immense pain, disruption, and uncertainty,” and it could “cost the economy more than one million jobs” from the supposedly negative “multiplier effects.” But that’s not what happened the last time we had bipartisan spending restraint in Washington, which was in the 1990s. Federal spending fell from 22 percent of GDP to 18 percent during that decade, and the economy boomed.

Government shrinkage creates a positive multiplier, not a negative one, because the government releases resources—such as skilled workers from the defense industry in the 1990s—that are put to more productive uses in the private sector. You take an engineer from the Department of Defense or Energy and put her in the private sector producing goods for the market, and GDP will go up not down.

I don’t want to pick on BPC in particular, and their new report has lots of useful data and analysis. But how is America going to avoid a Greek-style fiscal disaster if even the supposed deficit-hawk groups start chickening out of spending restraint after just the first small reform steps?

Rather than reversing course, we should be build on the BCA with the reforms at www​.Down​siz​ing​Gov​ern​ment​.org.