Stitching Novak and Cahoone

Michael Novak, in his book The Spirit of Democratic Capitalism, divides modern society into three sectors: political, economics, and moral/cultural. That is the spirit of democratic capitalism, a polity in which the powers and the activities of politics, economics, and culture are separated, so that no single sector dominates the others. I have called Novak's idea the Greater Separation of Powers, extending the notion of the separation of powers from governmental separation of the legislative, executive, and judicial branches to society as a whole. Separation of church and state, for sure, and also separation of economy and state.

But I've recently read Lawrence E. Cahoone's Civil Society: The Conservative Meaning of Liberal Politics. Cahoone critiques the political culture of "neutralist liberalism", the idea that "government is to remain effectively neutral in questions of substantive morality and the meaning of human existence," and develops a sophisticated outline of civil society: what it is, institutionally and culturally. I am wondering how to stitch the two notions together.

Come on, you say, surely it is obvious!

OK, I give in. Of course it is obvious. Cahoone's civil society is simply Novak's moral/cultural sector.

Cahoone writes that the conditions of civil society include: the autonomy of the social, social equality, spontaneous order, institutional pluralism, and market economy. That is, civil society needs all these conditions in order to flourish and thrive. Novak writes that democratic capitalism is a society of “three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is pluralistic and, in the largest sense, liberal." "A democratic capitalist society is, in principle, uncommitted to any one vision of a social order."(p67) Therefore moral-cultural institutions belong to the system, but they must not command the system. History is understood as "emergent probability." Community is relaxed to the notion of "free persons in voluntary association." Loose as its community is, it still extols the communitarian individual, the bourgeols that practices "fellow feeling, common sympathy, and benevolence" while pursuing self interest.

What I find in Cahoone is a sharper definition of civil society, differentiated from political and economic culture, that strengthens and extends Novak's three-sector model. He identifies principles that can be used by civil-society proponents in the great moral movement ahead. Autonomy of the social means that culture and values come from civil society and not from politics, which is about power, not living together. Spontaneous order means that we cannot have economic or moral direction from the political sector because economic and moral order arise spontaneously from people living and working together. They cannot be rationally developed in a government committee room. Institutional pluralism means that different moral and cultural traditions will be competing for the right to be taken seriously and enrolled in the cultural consensus. And this civil society must be located next to a market economy. Civil society is not itself the market economy. It needs the market ecoomy, but only abuts the market economy. "The rules of civility are not the rules of the market."

The train wreck of Obama politics and Obamanomics is about to utterly discredit the current ruling class of the educated elite. It will create an opportunity for new ideas and a new culture to replace the failed authoritarian welfare state. Just as Eastern European dissidents discussed Novak's Spirit in samizdat chapter by chapter as they were planning for the end of socialism, so we must study Novak and Cahoone so we will be ready to lead the American people to a better future.

What Can You Say?

Over the last week I've been exchanging emails with a man that identifies himself as an "ex-Goldwater Republican." He rages about the corporate oligarchy and thousands of corporate lobbyists, and generally emits left-wing political memes. In other words, this chap is a Democrat. But he's a disappointed man: at 66 he is earning half what he did ten years ago.

When I asked him what he would do about the "corporate oligarchy" he responded thus:

You either, from the ground roots, elect dedicated people that will over time rewrite laws, enlist oversight and regulations and turn this around OR as a 64 year old female client said yesterday, wonder what the reaction would be to 3 or 4 million armed people , converging on the Capital or Wall Street? There is your answer. 1790 France.

I suppose that makes sense. If you believe that corporations are stiffing the American people, rather than being the cause of raising income from $3 per day to $120 per day since 1800; if you believe that the financial system is a crock, that the wealthy should give up their wealth in redistribution, and if all the left-wing economic ideas of the last 150 years have failed, then political or revolutionary action is the only remaining option.

The problem is that government is force, politics is power, and we humans are social animals not soldier ants. Neither government or politics grow a single corn plant or produce a single stick of lumber to build a house.

I've been wondering over the last year or so about the incessant corporate exposé journalism of the left. Every left-wing magazine, almost every month, will feature an exposé of some corporate malfeasance.

I've decided that the endless attack on corporations is a necessary prop to the left-wing belief system that justifies government force. If there weren't outrageous crimes from the corporate CEOs then you couldn't justify government regulation and supervision of the private sector. You would say: well, there are bad apples, but still...

Alas, our lefty friends have trapped themselves in a closed system in which government force is always the answer. Because everything that goes wrong is an economic crime, and every crime must be met with a new law to stop it. The result is a spiral dive into economic madness, as every detail of economic life becomes dominated by government and politics instead of by the demand of the consumers.

How do you talk to such a person? How can you break the spell of the closed world of ideas? Who knows? I just try to stay polite and return insults with friendly replies.

"Inconsequential" Government

Gov. Rick Perry (R-TX) has certainly hit the campaign trail with a bang, what with his blast at the Fed for printing money, and his promise to make government "inconsequential."

To liberals, writes Jeff Jacoby, the idea of making government inconsequential is outrageous. Chris Matthews took the bait immediately.

The governor is saying "not just that the era of big government is over," Matthews hyperbolically told his "Hardball" viewers on Monday, "he's saying the era of government is over... Let's get rid of the government, basically."

I suppose that is how it plays to liberals.

But beyond outraged liberals, there's a big issue here. It is the issue of prudence. The bigger and more consequential that government becomes, the more it is likely to create real hardship for people when it makes a mistake. And government finds it very difficult to correct mistakes.

Let's say it is time to apply the Precautionary Principle to government.

Here's what I mean.

The federal government made itself real consequential in housing. It legislated mortgage interest deductions, it created government-sponsored enterprises to securitize mortgages, it got really interested in the ways that banks rationed credit to low-income and minority borrowers. But the upshot of all this consequence, at least in part, was a world-wide financial meltdown as the value of mortgage bonds and mortgage derivatives came into question world-wide and the solvency of banks world-wide came into question. And guess what. When the dust settled after the housing crash, minorities and women were hardest hit. Net worth among blacks is down by 90 percent.

Why be surprised? Politicians know about winning elections, but don't know too much about loaning money to sub-prime borrowers.

I could go on. What do politicians know about retirement finance, geriatric health care, education, energy? They know enough to use them to get elected and reelected.

Let's back this out further. Down the ages, governments have pretty well taxed and borrowed to the limit. They taxed until they provoked tax revolts; they borrowed until they went broke. In the old days all this taxing and borrowing was done to finance wars of aggression. In our age, after the megawars of the early 20th century, governments tax and borrow to fund entitlements, principally pensions, health care, and relief of the poor. They have made government very consequential in these areas, and they have taxed and borrowed pretty well to the limit in order to deliver lots of pensions and health care and welfare. Unfortunately they have way over-promised, particularly in regards to geriatric health care. That's Medicare to you and me.

Let's stipulate that there is an argument for modest programs to help old people who are unable to support themselves or get health care, from no fault of their own. And there are poor people of all ages that need help. Wouldn't it be better to have small, inconsequential programs to help those in need rather that gigantic programs for the middle class that threaten the very survival of the state when they go wrong?

That's what I understand when I read about government becoming "inconsequential."

Fixing Our Broken Finance

It's forty years since President Nixon took the US off the gold exchange standard. Since then the dollar has declined from $35 per ounce of gold to the present $1,800 per ounce. Not good. With the dollar as paper, our ruling class has expanded credit, government debt, and near government debt recklessly, and ordinary savers, people who save money in banks and bonds, have been screwed. The question is: what do we do?

Actually, I think there are two questions. What does each of us do individually, and what should we do collectively.

Let's get me, individually, out of the way first. I reckoned, back in the early days of the current recovery, that the government was going to print money big time. So I determined not to hold more than a minimum in dollars. Thus I converted my cash into gold ETFs and resolved not to hold dollar-denominated bonds. The stock market may go up and down, I reckoned, but it represents the wealth-generating power of the US economy. The dollar may go to zero, but the US economy won't. Nor will gold.

But what about the nation as a whole? What should we do to stop the damage? The easy solution is to say: get back to gold; set a new gold price for the dollar and stick to it. The problem is that this doesn't solve the other problems, the moral hazard of the central bank as the lender of last resort, the resort to inflation to gun the economy in a recession, and the dense net of credit subsidies embedded in the economy. It will be difficult to fix any of those things because the current ruling class gets so much of its power from their continuance.

I'm going to go out on a limb. I think that a new credit and monetary system is going to grow up alongside the current government-dominated system. The Dutch finance system of central bank, funded government debt, discounted short-term debt, and money-denominated bonds is going to wither away. Because the government abuses it so badly.

The modern financial system began, they say, with people depositing their gold with goldsmiths, who then started to lend money on the credit of the deposited gold. In our present world we have gold ETFs that are supposedly storing gold in vaults in return for electronic depositary receipts. How long can it be before someone figures out a way to turn the gold ETFs into a kind of bank? Don't ask me how. That is for those financial wizards and their lawyers to figure out. But right now a ton of people are sterilizing their cash by storing it in gold in the vaults of the ETFs. Not good. Nature abhors a vacuum and finance abhors one too. Finance is all about getting money from where it is to where it is wanted. Something has got to give, and sooner or later it will.

What will happen then is anyone's guess.

Fixing the Economy

You could call it the Summer of Reality. Liberal opinion leaders are confronting the reality that their response to the Crash of 2008 has failed. But, of course that doesn't mean that they are ready to ditch their Keynesian-Entitlement-Regulation policy brew. That will come later, and not before the end of the annus horribilis of 2012. Take James K. Galbraith, economist and son of famed liberal-socialist John Kenneth Galbraith. He's ready to admit that the Obamis shot the wrong arrow:

In fact, stimulus alone was never going to bring recovery. This crisis was caused by financial collapse, rooted in massive banking fraud. The financial system is our economic motor and when it fails it cannot be revived simply by pouring money on it, any more than a wrecked reactor can be restarted just by adding fuel. Team Obama faced a situation not seen since the 1930s — a worldwide banking meltdown. The financial system needed to be rebuilt — and it still does. But Team Obama chose to overlook this.

But he's not ready to admit the reason for the "massive banking fraud." It was government sponsored enterprises like Fannie and Freddie fire-hosing dodgy sub-prime assets into the credit system. The role of the bankers was in dressing up as much of the dreck as possible to look like investment-grade debt so that the banks and the insurance companies and the pension plans could buy it. The investment banks are middle men; their business is selling bonds to institutions. One way or another, they will sell it. The government's No. 1 job is to make sure that its own debt is investment grade. That's because, ever since modern finance was invented by the Dutch and adopted by the Brits, the foundation of a healthy credit system has been rock-solid government funded debt. The worst bubbles have occurred when government-sponsored enterprises have floated dreck, as in the Mississippi Bubble, the South Sea Bubble, and the Fannie Freddie Bubble.

Here's an article by Alex J. Pollock on the real story of the 2000s financial meltdown. The problem is "agency debt."

The huge debt of Fannie Mae, Freddie Mac, other government-sponsored enterprises, and other off-budget government agencies (“agency debt”) fully relies on the credit of the United States. This means it by definition exposes the taxpayers to losses, but it is not accounted for as government debt.

How much is it? Well, in 1998 agency debt was $4 trillion, the same as the Treasury debt held by the public. In 2009, it was again the same as the Treasury debt--at $8 trillion. Between those dates, during the credit binge of the 2000s, the agency debt was larger than the Treasury debt. In 2002 agency debt was $6 trillion, 50 percent more than Treasury debt held by the public. So the real debt that the full faith and credit of the United States was committed to honoring was about twice the published amount.

We can holler all we like about "massive banking fraud" and "greedy bankers." But until liberals acknowledge that the central player in the late great 2000s credit bubble was government, we really can't start healing the economy.

And to suggest, as the president and Professor Galbraith do, that an "infrastructure bank" is just the ticket is to demonstrate nothing more than an alcoholic's morning-after craving for a pick-me-up.

Riots and Civil Society

Peggy Noonan, as usual, asks the critical question in the aftermath of the London riots and the Philadelphia flash mobs.

When the riot begins or the flash mob arrives, the best the government can do is control the streets, enforce the law, maintain the peace.

After that, what? Britain is about to face that question. We'll likely have to face it, too.

The usual answer, she writes, is "The government has to do something. We must start a program, create an agency to address juvenile delinquency." Only that seems to be a joke these days. After all, the youths of London have been programmed, agencied, and delinquencied to death in the last half century. And still we get riots?

The conservative answer to the failure of the authoritarian welfare state with its programs, its agencies, and its flexible responses is "civil society." That goes back to Edmund Burke and his "little platoons." Berger and Neuhaus addressed it in To Empower People where they argued for "mediating structures," of family, church, association between the individual and the state.

But recently I have been reading the work of Lawrence Cahoone. His Civil Society: The Conservative Meaning of Liberal Politics is a profound critique of the failure of "neutralist liberalism" and an argument for civil society. Of course, his book is not a font of policy prescriptions, ammo for politicians eager to "do something" in the present crisis. It does little more than describe civil society: What it is, what it means, and what it does.

Even in the chaos of the London riots we can see civil society at work. From the Daily Mail.

In Dalston and Hackney, north-east London, Turkish shopkeepers and their families fought back against looting youths, before spending the night standing shoulder-to-shoulder in an attempt to deter further attacks.

One man said: 'This is Turkish Kurdish area. They come to our shops and we fight them with sticks.'

Well, that is getting close to tribalism, but you get my point. When the chips are down, civil society means that the men get together to defend their neighborhood. You can also see that where families have degraded into single mothers and children, the defense option has suddenly become problematic. The neighborhood women defending their homes, assisted by their feral children?

Cahoone describes civil society in two major chapters of his book. The first, "Civil Society," describes civil society institutionally; the second, "Civility, Neighborhood, and Culture," describes it from a cultural perspective.

The key point is that civil society is informal, a "quasi-independent association of households." It is not government, but it is an association that relates to government. In detail, Cahoone describes five characteristics of civil society:

• The autonomy of the social "Society gets its norms from the inside rather than from institutions outside it."
• Expansion of civitas to society There are no subjects, only citizens. Aristocrat and commoner are united in their "Frenchness" or "Englishness."
• Spontaneous order Social order emerges out of "social interactions not coordinated by command" or political will.
• Institutional pluralism No "single agency dominates social life." There are different types of institutions competing and many competing within each type.
• Market economy Civil "societies must have market economies," but civil society is not the same as the market; it abuts the market economy and "the rules of civility are not the rules of the market."

You can see that anyone taking these notions seriously must be a foe of what Juergen Habermas called the "authoritarian" welfare state.

At the cultural level, writes Cahoone, it is important to keep front and center the idea that civil society is not politics. It is primarily "living-with, not talking-with." It has these qualities: "membership, freedom, civility, and dignity" that must not be violated. It is a loose form of association, with moral rules, obligation, and civility that falls short of a binding social contract. It requires above all a recognition of dignity, "recognizable worthiness," a rough equality so that banker and laborer take care to relate as equals, treating each other with civility and dignity.

The culture of the neighborhood and of localism is threatened in the modern era, partly by the growth of the modern economy and state, and partly by "liberal anti-localism." When liberals want to do something, they do it at the national level. Yet it is clear from the London riots that the marginalization of civil society at the neighborhood level leaves the local community naked to the power of the thugs.

The essential core of the civil society is its "dialectic of civility and culture." There cannot be a "pure civility." It "must be informed by some cultural tradition." But not just one tradition. Thus civil society implies a diversity, a competition of cultural narratives, with some inside the cultural consensus and some left outside. The point is to minimize coercion, so that competing narratives can try to change the consensus. "Civil society and culture engage in a kind of dance" in which "the point is to keep dancing."

The deeper you immerse yourself in this kind of thinking the more you understand just how it challenges and threatens the current hegemony of the liberal elite and their authoritarian welfare state. Liberals cannot bear the idea of a spontaneous order where they cannot direct the national conversation. They cannot bear the idea of giving up control of the local neighborhood; they cannot bear the idea of toleration and co-existence with conservative culture.

Modernity is a mix of "market, civil society, and nationalism," writes Cahoone, and when you think about it, our liberal friends are at war with all three. They want to control the market, marginalize civil society, and neuter nationalism. And for what?

Right now, we see the whole liberal project teetering, and some prophesy that it is about to collapse in ruins. Given the weakness of President Obama, there is no telling what may happen. But the cultural and political opening created by the liberal crack-up creates an opportunity. With the right ideas and a new appreciation for civil society modern conservatives can work with the American people to conceive and birth a new order, in which the war on modernity will be defeated, and the three sectors of modernity can grow and flourish in freedom, trust, and dignity.

But first we must dash aside the poisoned chalice of the authoritarian welfare state.

When Gold Hits $2,067 an Ounce

In the last couple of days, the gold price breached $1,800 an ounce. Oh well, ho hum. So the gold bugs are making some money.

But let us think about something. One day soon, perhaps this year, perhaps next year, gold will breach the magic number of $2,067 an ounce. Why is that a magic number? Because, 100 years ago, before the modern wonder of the Federal Reserve System, you could buy an ounce of gold with 2,067 pennies.

Yes. The value of today's dollar in gold is getting perilously close to one percent of its value 100 years ago, when the government would exchange an ounce of gold for $20.67.

Now some people don't like to evaluate the value of the dollar in gold terms; for those, I suggest measuringworth.com's GDP deflator. It shows a price index of 6.23 for 1911, with 2005 prices as 100. Today the index is 111, so the value of the dollar is 5.61 percent of the 1911 dollar. On that measure the dollar buys about one twentieth what it could buy a century ago, rather than one hundredth.

Yeah, I know; many things we can buy today you couldn't buy then for love or money.

How did the dollar get to be worth 1 percent, or 5.6 percent of its value a century ago? It happened every time that the government got in a jam. In the Depression, after the Fed had gunned the economy in the 1920s, FDR devalued the dollar to $35 per ounce. Then in the 1970s Richard Nixon got in a jam and they floated the dollar. By 1980 the dollar had declined to less than $600 per ounce, but then Ronald Reagan became president and over the next twenty years gold declined to $270 an ounce in 2001. But since then, to get out of a jam in 2001, the Tech crash, and in 2008, the housing crash, the government has been devaluing the dollar with gusto. Now it's around $1,700 to $1,800 per ounce.

You might wonder why this keeps happening. It's not all that hard. Lots of people want easy money, cheap credit. So the government uses its credit to shovel money at deserving recipients. It might be farmers and farm credit, or it might be exporters and the Ex-Im Bank. Or it might be minorities that need affordable housing. No problem. We'll just shovel Fannie and Freddie at them, and when the whole thing comes tumbling down, why, we can refloat the nation's mortgages by taking the dollar down another 50 percent.

Let's call the 20th century the Century of Inflation. But let's make the 21st century something better. Because devaluing the dollar every generation to get out of a financial panic is no way to run a railroad. For one thing, as with most things, minorities and women and orphans and the poor get hardest hit.