Another Telling Skirmish

We aren't going to get the Clausewitzean decisive battle until the fall of 2012. But if Sunday's tentative debt-ceiling deal holds we just saw another telling skirmish on the march to 2012. The new Republican House made a difference. Again. You can tell that because Paul Krugman is outraged.

Well, he would be anyway because the President is forced into at least token spending cuts in return for an increase in the debt ceiling. So the president can't do a big spending stimulus to tide him over the election.

Of course what the economy needs is repeal of ObamaCare to take the weight of uncertainty off the backs of business, repeal of Dodd-Frank to re-energize the credit system, and income tax rate cuts to end the capital strike. But it won't get that until the Republican president is inaugurated in 2013 and the Republican Senate is seated.

Well, maybe, as the economy continues to splutter into next spring, the president will get religion and propose some tax rate cuts. God only knows what Paul Krugman will think of that.

But the fact is that, going forward, the issues favor the Republicans.

This is confusing to Democrats who think that they are the party of the little people. Here is pollster Stan Greenberg feeling confused.

I see clearly that voters feel ever more estranged from government — and that they associate Democrats with government...

Oddly, many voters prefer the policies of Democrats to the policies of Republicans. They just don’t trust the Democrats to carry out those promises.

Yes. Of course voters like the idea of free services. They just don't like paying for them, and they really don't like paying for them when the economy is in the tank.

The fact is that the Democrats have blown it. They really believed their Keynesian economic fantasy. They really thought you could blow through a big recession on a debt wing and a spending prayer. Now they have crashed into the ground and they are dazed, and really don't know what has happened to them.

But we know what went wrong. We know what the problem is.

When you have a big easy-money boom the boom ends in a crash. Then the bad debt has to be liquidated and the credit system repaired before growth can resume. Unfortunately, there is still plenty of bad housing debt around, and plenty of unsold homes. Until we turn the corner on that, the economy will continue to languish.

Sorry Dems, but you created the mess with your stupid "affordable housing" policies and you deserve to pay the piper for it.

In my view the chances are 60-40 that the Dems will suffer a punishment similar to the experience of the Republicans in the Great Depression. But don't worry, Dems. Republicans won't be able to invoke the name of Obama to frighten the voters, as Democrats did with President Hoover, for the next 50 years. Dems have a good cheering section in the media and the academy, so I expect they will be able to rehabilitate President Obama within 20 years, tops.

Why "Central Planning Lite" Failed

Beyond the sound and fury of the debt-ceiling debate is a signification that means something. It is "The Failure of Central Planning Lite," as Robert Tracinski puts it.

It is the failure of the faith that the Fed and the Treasury could manage the business cycle and avoid big swings with properly timed economic interventions.

This system can be thought of as Central Planning Lite. By the time Communism collapsed in 1989, it was no longer plausible to claim that full-blown socialism or full-blown central planning were the wave of the future. But our political and intellectual leaders were not quite willing to give up on the dream, so they insisted that we could have a watered down Third Way between capitalism and communism.

No we can't. The Crash of 2008 and the pathetic recovery of 2009-11 give the lie to that conceit. But what is the real problem? What went wrong?

The problem is that the Fed and the Treasury actually have an impossible task. Their job is to mitigate the distortions that politics inserts into the economy.

Politicians are politicians. Their trade is winning elections, and they win elections by promising benefits and subsidies and cheap credit to their supporters. These actions distort the economy in various ways, and so the politicians need economists to tell them how to get out of a jam when all the bases are loaded and the count is 0 and 2. Keynesian economics is a way of trying to game the economic system in a downturn to minimize the damage to the beneficiaries of government largesse. It is, therefore, not a way of structuring the economic system to make it safe, but a way to game the system in the hopes of minimizing the consequences of government interventions. The trouble is that it doesn't work very well.

Ludwig von Mises writes that a recession is the period of adjustment for the liquidation of the malinvestments of the previous boom. Keynesian economics wants to slide out of the recession with bridge loans and printed money--but without actually fixing the problem, the malinvestments encouraged by the cheap credit in the previous boom.

So the experts end up advising the government how to cheat, rather than setting up the parameters for a fair and just economic system.

You can call this the Treason of the Clerics, or the Co-optation of the Experts. Either way it is a big problem. Ever since Wilhelm von Humboldt set up the first research university in the early 19th century, governments have looked to academic experts to support and advise them. The result is that our academic friends have ended up in the pockets of the politicians, using their expertise to advise the politicians on how to maximize their power. Whether it is physicists helping build H-bombs, sociologists helping organize the welfare state, economists helping government game the credit system, or climate scientists inventing hockey sticks, the problem is clear. The professors have entered into a pact with the devil. In return for grants and funding and fame they have danced to the politicians' tune. They have helped build the big government state and helped to damage the health of civil society, the space between government and the individual.

We do not know whether the ordinary people are ready to tell the government to stop gaming the economic system, although the Tea Party gives us cause for hope. But the time is long past for honorable experts to stop feeding the beast, from Central Planning Lite to the whole corrupt bargain of the modern authoritarian welfare state.

After all, the first responsibility of an expert is to do no harm.

Obama Doesn't Need This Fight

Why is President Obama getting himself caught in the briar patch over the debt ceiling? The debt ceiling firefight seems to be consuming official Washington at a time when the president should be thinking about nothing except how to get the economy on track for next year. The president and his people seem to think that they win by getting the right poll tested sound-bites out there about a "balanced plan," "millionaires and billionaires," and "shared sacrifice."

What are they thinking? A look at the Rasmussen Presidential Poll shows the problem. Ever since the debt-ceiling fight started the president has been losing ground in the Strongly Disapprove column, while getting a very modest boost in the Strongly Approve column. That's no way to win an election.

Maybe the president and his people are crazy like a fox because they know they have to keep their base in the trenches fighting the Wascally Wepublicans. Otherwise they might get antsy and back a primary opponent against the president. More likely, if you ask me, is that they really don't have a plan to fix things before the election. They are just bulling forward hoping against hope they can get over the finish line before the track turns to mush. They are doing what they know, which is floating pretty words out to the voters.

But let's not make the mistake of calling this game of debt chicken an example of dysfunctional politics in Washington. Think of it instead as preparation of the battlefield for the 2012 election. The American people are going to be presented with a momentous choice. Do they go the Democratic Way of more spending, more regulation, more subsidies, more entitlements? Or do they make a Turn? To lower spending, reformed entitlements, lower tax rates, fewer subsidies, and less regulation?

The debt ceiling fight may be merely symbolic, for nobody is going to change anything before the election. But it shows, for anyone that is interested, that the Democrats are inflexible on their demand for continued spending. And the Republicans are inflexible on demanding spending cuts and no more taxes. Win or lose this round, both sides need to show their base that they are out there kicking and fighting for their side.

It's all pretty simple. People want to know that the politicians are on their side and that they care about people like me.

But President Obama doesn't need this mess. He needs to fix the economy, pronto. Or it's El Foldo in November 2012.

The Meaning of the Debt Crisis

The complexities of money and credit in the economy often serve to obscure the simplicities of the market economy. It is built on trust. When you hire someone to do a job for you, then you trust that they can and will do a good job. When you lend money to someone then you trust that they are good for the interest payments and the return of principal.

In the real world, of course, things get messy. People are optimistic. They offer themselves for jobs they are not quite qualified for; they borrow money on more of a hope that their business plan will work out than a real knowledge of the difficulties and the problems ahead.

Then there is government. Historically, government has entered the credit system to borrow money to finance its wars. If the wars turned out well then the bond holders got their money back. If the war was a disaster then the credit system crashed and bond-holders were lucky to get anything back. Anyway, governments default on their debt all the time.

But the Anglosphere was different. It managed to pay its debts more or less, from 1700 to 1930. That was, no doubt, because politics was dominated by the merchant class and the merchant class wanted a functioning credit system.

The century of the welfare state, starting in 1900, was different. Now politics revolved around the bribing of the employee class by the political class. Credit conditions were a secondary question. The only thing that mattered for the political class was winning the next election. The only thing that mattered for the employee class was getting and keeping their benefits.

Our present crisis is the end game of the century of the welfare state. The manipulation of the credit system to buy votes, in outright government debt, Federal Reserve open market operations to print money, and subsidies for debt in a host of vehicles like Fannie Mae and Freddie Mac have debauched the currency and brought the government debt up to about 100 percent of GDP.

President Obama is therefore in a bit of a bind. Sooner or later he must cut spending and/or raise taxes, but not before the 2012 election when he hopes to be reelected. Thus, for him, the long-term health of the economy is nothing. The propping up of the economy through the election is everything.

Republicans, goaded by the Tea Party movement, think that we might as well start baling out the ship of state right now by cutting spending. It's easy for them; Republicans don't buy votes with spending. Instead they buy votes by offering tax cuts.

Many people are shocked and appalled by the undignified spectacle of the debt-ceiling debate. But what we are seeing is the opening battle in the struggle for the future. Will the big authoritarian welfare state continue with its centralized, politicized programs of pensions, health care, education, and welfare, or will we cut these failed programs down to size? The Republicans, representing the middle class with jobs in the private sector, don't see too much of the benefit of big government. Democrats, as an over-under coalition of government administrators and experts on the one hand and program beneficiaries on the other are fighting to maintain their sinecures and their benefits. The fight is getting nasty and it will get worse. Of course it will. We are fighting over money.

In the end, of course, the American people will get what they want, whatever it is. In the meanwhile, government will break just about every promise it ever made.

Conservativism and Organized Religion

An e-mailer wrote me asking about an assertion I made that "religion is the only thing that will 'get people to live together without being bossed around by police and government.'" He wonders "is there no place for the atheist conservative/libertarian? Or the agnostic? My religion is very personal and I do not wish to share it with others in a formal, organized setting."

It's a tricky question. Most people in the educated elite today find "organized religion" a little distasteful, and express their search for meaning in more personal, philosophical terms. Including me. Right now I am listening to a Teaching Company lecture series called "The Meaning of Life: Perspectives from the World's Great Intellectual Traditions" given by Jay L. Garfield of Smith College. Garfield skirts around Christianity but gives full value to the Bhagavad Gita, Aristotle, the Stoics and Epicureans, Confucius, the Tao, Buddhism, Hume, Kant, Mill, Tolstoy, Nietzsche, Gandhi, and the Native American Lame Deer. All very private and personal.

But the implication of 20th century philosophy from Wittgenstein to Habermas is that meaning is a shared thing. There is no private knowledge; indeed private knowledge doesn't make any sense. The immensely successful knowledge of the natural sciences is instrumental, an attempt to understand nature in order to dominate it--and other humans. But it is also social. Scientists advance the boundaries of knowledge by bouncing ideas and claims off each other and shamelessly appropriating other peoples' ideas. If you read Charles Darwin, you will find that he mentions another scientist or naturalist and their findings on every page.

If knowledge is a "knowledge game" between people, then the way to knowledge is a process of discourse between people.

When it comes to moral knowledge the importance of knowledge as a social process, a discourse between equals, suggests that discourse creates a community, even that community demands a discourse.

Let's return to the question: Can there be such a thing as a private religion, can moral ideas exist except in a social setting where people are held to their commitments?

The immense value of organized religion as it has flourished in the United States under the doctrine of the separation of church and state is that religion provides a means of social consensus and control that operates in the space between individual and government. The point about society is that it is social. People live in a community and they influence each other and live together most of the time without resort to government and to hegemonic power. It is only when they fail to resolve their differences that they resort to government and force.

To live in a private space is to live beyond the influence of others. It means not having to listen to the opinions and maybe the authority of others. I fear that the modern yearning for privacy--in which all of us participate--is little more than a flight from accountability. We humans are social animals. We live together. If we are honest with each other we must acknowledge that the modern turn of increased individuality and government represent a troubling shrinking of community and social life, and who knows where it is leading us?

Anyway, the limit of privacy and individuality is the point at which it bumps up against another person and another idea of the good. Then what? Do we work together to resolve our differences or invoke the nuclear option and call in government?

Win Two Elections

The best way to understand the debt-ceiling crisis, in my view, is a battle at the end of the long strategic advance of the authoritarian welfare state.

But, as Michael Barone points out, Republicans lack the strength to win a decisive battle at this point. That's because, as he writes, the Constitution made it that way. You have to win two elections in a row to flip the government to your side:

The lesson is that you have to win at least two elections in a row to make the kind of policy changes that the Obama Democrats made in 2009 and 2010 and that House Republicans want to make now.

Right now the president and the Democrats are insisting behind the scenes that there will be no spending cuts without revenue increases. That is what comes up time and again as negotiations break down. Democrats want to cement in as much of the huge increase in spending as possible. They know they have to do it by minimizing spending cuts and maximizing tax increases.

In my view, of course, they are whistling Dixie. We are going to see a massive realignment over the next few elections and a huge repudiation of the Democratic approach to politics. If Democrats had any sense they would be preparing the battlefield and making strategic retreats on the most egregious of their corruptocratic programs and subsidies.

That's what they should do. But people usually don't. They keep doing what they are good at even after the game is up.

Napoleon is a good example. His great skill was manoeuvering his army between the widely separated armies of his coalition enemies. Time and again he managed to defeat one opposing army with his whole force while the other opposing army failed to get to the battlefield in time to make a difference. The reason the Battle of Waterloo was a close run thing was that the Prussians almost didn't make it to the battlefield in time.

Napoleon's problem was that, eventually, he wasted an entire army in Russia, and then the next year suffered a huge defeat at the Battle of Leipzig. His army never recovered from those two blows.

Democrats are still good at manoeuvering over the political battlefield and winning the war of words. But the game is up. Spending cuts will be necessary: big spending cuts. The Democrats just don't want to face up to them before 2012 because they understand that if they cut spending on their spending constituencies before the election they are dead meat.

It comes down to the Fram oil filter man's proposal. Do we want to pay him now, or pay him later? With benefits cut and sinecures reduced, all those loyal Democrats will be betrayed in the end anyway. It's a shame, but that's what happens when you put your trust in princes.

Energizing Civil Society

Suppose we agree with Edmund Burke that it is the "little platoons," with Berger and Neuhaus that it is the "mediating structures", and with Lawrence Cahoone that civil society is the essential ingredient for the liberal republican society because "under conditions of civility, membership plus freedom equals dignity." Now what?

The what is obviously the culture that animates the civil society. The whole point of civil society is that it is a space of people living together without the interference of government, a community that, most of the time, resolves its problems internally.

But obviously, people do not just jolly along with their neighbors in a vacuum. They are inspired by trust in each other.

In The Faith Instinct Nicholas Wade makes it clear what it takes to get people to live together without being bossed around by police and government. It is religion. In the crudest terms, it is the threat of divine justice. People that behave badly may not be punished in this life but they will certainly be punished in the next one.

To expand this notion we could say that culture, in the broadest sense including religion, folkways, philosophy, and moral movements, is what makes civil society--people living together--work and give life meaning.

In the United States in the last century we have experienced a culture war between people who wanted to continue the Judeo-Christian religious cultural tradition and those who wanted a break with it in the direction of more sexual freedom, more cultural creativity, and more government in the areas of health, education, and welfare that were previously the responsibility of the Church and civil society. The situation has become complicated by the entry into the United States of East and South Asians with their faith traditions. How can all these traditions be brought together and blended so that civil society is still possible?

The answer is fairly simple. The three great cultural traditions, Abrahamic, Hindu, and Confucian, must come together to tame the modernist war on tradition and the mediating structures of civil society. For the great traditions are united in their knowledge of the importance of personal piety, the moderation of the individual impulse with the social impulse. They stand in the way of radical individual license and radical government power.

The moment for this coming together is now, as the modernist combination of radical individualism and overweening government crashes morally, economically, and financially all over the world. The great power of instrumental reason in the economic sector and the political sector must be tamed, and the place to do it is in the middle, the public sphere between the megastructures where people come to live together or close to each other and take off their political armor and economic weapons.

Is this possible? Can we really succeed in taming the monster? We already tamed the monster of plantation slavery, that Original Sin of capitalism. Now it is time to tame the monster combination of antisocial individualism and anti-human big government. It can't be that hard.