Will Wall Street Own Romney?

There's a bit of a dust-up about Kevin Williamson's recent "Repo Man" article in NRO.  Kevin argues that there's a reason why Wall Street went for Obama in 2008 and why they are swinging to Romney in 2012.  They are betting that Romney won't do anything to curb the extra-high leverage tricks and off-balance sheet borrowings that helped make the Crash of 2008 such a mess.  Anyway, they aren't conservative:

Here’s what Wall Street doesn’t want: It doesn’t want to hear from Sarah Palin or Michele Bachmann or even Newt Gingrich, or suffer any sort of tea-party populism. It wants you rubes to shut up about Jesus and please pay your mortgages. It doesn’t want to hear from such traditional Republican constituencies as Christian conservatives, moral traditionalists, pro-lifers, or friends of the Second Amendment.

Radio host Hugh Hewitt says that's all rubbish, and it is "Bilderberger" stuff to think that "they" are working to get the fix in on Romney.

I’m just not going to buy that. I do think they might show up in a Sarah Palin T-shirt, and I do think that they are generally often quite conservative, very Evangelical. Some are deeply Roman Catholic, traditionalist, generous, high-minded people.

Hugh, you are wrong.  There may be some Catholics on Wall Street, but, based on my own limited experience, Wall Street is not evangelical.  In fact evangelical is radio-active for Wall Street.



I think that Kevin has it exactly right.  Finance is important, but the intersection between finance and  politics is nothing but trouble.  That's because the politicians need the finance guys to float their debt.  Right now, with the sovereign debt crisis, they really need the finance guys.  Right now, I read, banks are sopping up all but about 20 percent of government debt.  Why?  Because they don't have to hold reserves against government debt--good as gold, you see.



But there's a problem.  Government debt, especially in Europe, is not as good as gold.  There is a good likelihood that one or more governments will default on their debt.  That means that the banks ought to be holding reserves against those questionable government loans.



The whole point of proper accounting is that it properly accounts for risks and rewards.  The whole point of a balance sheet is to show assets and liabilities as honestly as possible.  But when the Basel banking regulations say that sovereign debt is a "risk-free asset class" then the regulators are encouraging banks to lie on their balance sheets.



You can see the intersection of politics and finance here.  Politicians need the banks to sop up their debt.  Banks like the idea of holding debt that doesn't require reserves.  Very often in this world, people want things they shouldn't get.  And that is certainly true at the intersection of politics and finance.



What happens if things go wrong?  Then the politicians have to bail out the banks because, hey, the banks were just following orders.



Under Dutch Finance, invented by the Dutch four hundred years ago, rock-solid government debt is the foundation of the credit system.  But under French Finance, invented by John Law three hundred years ago, governments trade on the rock-solid reputation of Dutch Finance to game the system.  Government debt turns out to be not so rock-solid after all, and then Poof!



The credit system works when the counter-parties can be trusted.  Trust is important because high-leverage, unavoidable in banking, requires that the parties work to manages their assets so that they will always be able to meet their obligations.  There is no way you can be sure that the other guy is really doing this:  you have to trust him.  That's why J.P. Morgan famously said that the most important factor for a banker in evaluating a would-be borrower is trust and character. "Because a man I do not trust could not get money from me on all the bonds in Christendom."



That's because when trust fails, then the whole system grinds to a halt.



Kevin Williamson is arguing that we need to get back to a financial system where the bankers are expected to manage their banks so that they will not require bailouts.  That means they need to keep a distance from politics: no rent-seeking by the bankers, and no bullying by the politicians.



One fine day, a president is going to need to unwind the present corrupt connection between finance and politics.  Kevin Williamson is afraid that it won't be Mitt Romney.

Conservatism Three by Three

What do we mean by conservatism?  We do not mean, as the critics charge, an unreflecting culture of tradition.  Conservatism, ever since Edmund Burke has been a self-conscious effort to balance the past, present and future.

Let us take three strands of conservatism and illuminate each one.  First of all there is cultural conservatism, which finds its founding statement in Burke's declaration that we, the generation of the living, have a contract both with our dead ancestors and with generations yet unborn.  Then there is economic conservatism that begins with Adam Smith's declaration of the Invisible Hand, that there is a natural cooperation between people that directs them into socially beneficial actions even when they are seeking their own self interest.  Then there is political conservatism that begins with Montesquieu's doctrine of the three branches of government and the separation of powers.

The cultural strain that begins with Burke and his jeremiad against the mechanical culture of the Age of Reason, its reduction of everything to Newtonian mechanics and "sophisters, economists, and calculators" continues with people like George Eliot, who argued for the dignity of ordinary people, from Adam Bede to Maggie Tulliver to Mary Garth and to Mirah Lapidoth.  In our time we have Berger and Neuhaus arguing for the dignity of authentic self-governing mediating structures between the individual and the mega-structures of big government and big corporations.  And we have people like Lawrence Cahoone and his Civil Society working out the details of people living in dignity, equality and freedom. And there is Charles Taylor, a liberal Canadian philosopher, who makes a conservative case for a society that digests the modern ideas of freedom, equality, dignity, and expressive creativity into a blend that conservatives can live.

The economic strain that begins with Adam Smith and his Invisible Hand, was expanded with Ricardo's law of comparative advantage.  Then in 1870 came the marginal revolution that unified the idea of exchange value and intrinsic value.  Finally, Mises demonstrated the impossibility of economic calculation under socialism, and Hayek showed the impossibility of bureaucratic centralism: the man in Washington cannot hope to out-think the millions of consumers and producers.  The idea that only a wise ruler can negotiate the conflicts of a people is shown to be impossible.  People do better negotiating with each other than through the middle man from the government.

The political strain that begins with Montesquieu's idea of the three branches of government, legislative, executive, and judicial was implemented with astonishing success by James Madison.  It remains unequaled in its approach to the political problem: how do you give government enough power to fight enemies, foreign and domestic, yet not too much power that it can oppress its legitimate opponents?  Now Michael Novak has extended the separation of powers doctrine to society as a whole.  Differentiating society into three sectors, economic, political, and moral/cultural, he proposes what I call a Greater Separation of Powers.  In this view the separation of church and state, adumbrated in the First Amendment prohibition of an establishment of religion, is extended to the notion of a separation of power between the three sectors: separation of political and moral/cultural power and separation of economic and political power.

We have in this triple conservative vision a people independent and free and institutions that will protect freedom while encouraging social cooperation.  Now all we need is the implementation.

And that starts, after the horror of Obama, with persuading the American people to abandon the welfare state Battle of the Benefits, the reduction of social life to a scramble for loot, and return America to a land that is first of all a society of Makers from its current shame as a robber band of Takers.

Yearning for a True Conservative

I know.  All the Republican candidates are disappointing.  The serial Great Conservative Hopes have each turned out to have feet of clay, and Mitt Romney isn't anyone's idea of a conservative standard bearer.  Anyway, Mitt doesn't seem to have the cojones to go head to head with President Obama and the Chicago gang.



If we are looking for real conservatism, I don't take second place to anyone.  In my conservative vision, we chuck every social program in the can, from Medicare to welfare, because we humans are social animals, not soldier ants.  We can be trusted to do the social thing, most of the time.  But what really makes us into monsters is a check from the government.



The point to remember is that after Obama, we will need a president with the talent to get things done.  We know what needs to be done.  We need a reform of Medicare; we need a tax reform to reduce loopholes and reduce tax rates.  We need a sensible energy policy, and we need to roll back the environmental extremism of the Obamis.  We need to shake up the education system, and we need to defund the "grant" economy, the slush funds that keeps liberals in their Priuses and  their yeasty urban enclaves.



In other words, we need as president a man with the management skills to implement on a big program.  Looking around, you'd say that it wouldn't hurt if this guy had enough work ethic to do a business degree and a law degree at the same time.  He would have experience in the business sector, knowing when to save an ailing company and when to sell it.  Maybe he should have run a high-profile public project.  Of course he should have been the governor of a state.



Sounds a lot like Mitt Romney.



In the best of all possible worlds we would have  another Ronald Reagan and all of America would rise up and elect him by acclamation.  In the real world the real Ronald Reagan was always, even to Republicans, a rather questionable character.  Was he the real thing, or a lightweight movie actor, like the liberals insisted?  And what about the payroll tax increases of 1983?



It is only now, in the miseries of Obamadom, that the Reagan years seem like a Golden Age when giants walked the earth.



The political and economic situation in the United States is not that dire.  The problem is that every solution will require that Democrats take a hit.  Of course they will.  Just about every government program in existence is a slush fund for Democratic voters, from government universities to government welfare.



Think of it from the therapeutic point of view preferred by our liberal friends.  Democrats are substance abusers, addicted to enormous quantities of taxpayers' money.  They won't be willing to get straight until they hit bottom.  And pusher Obama certainly won't be the man to tell them that their addiction is ruining their lives.

2012 Isn't 1912 Isn't the Dark Ages

The real outrage in Osawatomie Bam's speech on Dec. 6, 2011 wasn't the "liberal history."  Liberals have to talk like that.  Liberals have to say that back in the Dark Ages at the turn of the 20th century people were outrageously exploited and some said it was all the price of progress.  Otherwise they don't have the therefore.  Therefore, we need big government programs to protect the exploited and the unprotected.  Run by caring and compassionate liberals with your tax dollars.



The outrage is that liberals like President Obama are still saying, after boosting the government from 7 percent of GDP to 40 percent in one century, that it's still not enough.



But it is still discouraging to read a chap like Barry Rubin making the Brooke argument.  All that Progressivism was all very well--it had a point--but now we need to "pull up" before we "go too far."

There is such a thing as balance. America’s rapid industrialization after the Civil War put the system out of balance and threatened to wreck the country’s constitutionally-mandated system. Robber barons, monopolies, exploitation of labor, and the buying and selling of legislatures were all commonplace. Only due to reforms, largely backed by Democratic presidents before most of us were born, was the balance corrected.

So legislatures were not being bought and sold in, say, 1812?  Labor was less exploited, as in plantation slavery and indentured servitude?  Let's get real here.  In 1900, the price of illuminating oil had been reduced by 90 percent--by Standard Oil.  The price of steel was down by 66 percent--by US Steel.  Railroads blanketed the nation so that, for the first time in history, farmers could sell their grain to the world.  But people were migrating to the US in their millions (because they could do it safely and inexpensively in the new steamships).  That kept wages down.



Here was the problem.  The political elite was afraid that the new rich, the men who had built the big corporations, would contest for political power.  Of course they would.  After all, politics for politicians isn't everything, it is the only thing.



So the Progressives set about shredding the power of the business elite and institutionalizing their own power--to control politics, to control commerce, and to control the culture.  To do that, they needed a scapegoat, and what better than to stigmatize the new barons of business as monopolists and robber barons and exploiters?



The cure was worse than the disease.  The Progressives turned the proud self-made business elite into cringing crony capitalists.  And they created "social insurance" programs that weren't social, they were regimental; and they weren't insurance, they were Ponzi schemes.



Here we are, 100 years later, and the "progressives," relabeled "liberals" who were relabeled "Progressives," are still retelling their "narrative."



Well, the postmodernists say that the "narrative" that historians tell us is really an apology for power.  When President Obama tells us a story of exploitation he is merely setting us up for bigger and bigger government.



Back in the 19th century, people were quite a bit rougher with each other than we are today.  You can tell that from the lynching statistics, and I mean 50 white-on-white lynchings a year and 50 white-on-black lynchings a year in the 1880s.  But how bad was it?  Well, when the school inspector went visiting factories employing 13-year-old children in 1912 she found that the children much preferred work to school.  Why?  Because their employers treated them better than their teachers.

The Left Doesn't Like Vaclav Havel

Vaclav Havel, Charter 77 activist and former president of Czechoslovakia and the Czech Republic, was a hero of freedom.  So the left doesn't like him.  Let's piggy-back on Ron Radosh's review of two negative lefty anti-Havel screeds.



First of all there's the Guardianista Neil Clark who didn't like the way that Havel dissed the "achievements" of Communist Eastern Europe.

Havel’s anti-communist critique contained little if any acknowledgement of the positive achievements of the regimes of eastern Europe in the fields of employment, welfare provision, education and women’s rights. Or the fact that communism, for all its faults, was still a system which put the economic needs of the majority first.

It's helpful to have the point made so clearly, because it makes it so easy to debunk.  Let us make it clear.



Democratic capitalism is the system that puts "the economic needs of the majority first."  We know that because wherever democratic capitalism has been tried it has brought the majority up from $3 per day to $100 per day.  In socialist countries the opposite is true.



And let us be clear about the reasons for this.  Under capitalism, millions of people make millions of decisions in which they determine how to better their lives by serving others.  Under socialism, millions of people sit and follow orders while a few politicians and bureaucrats determine what is best for them "in the fields of employment, welfare provision, education and women's rights" so that "the economic needs of the majority" come first.  But there's a problem with this noble vision.  If the politicians and bureaucrats foul up, as they did time and time again in the socialist countries, and as they do in the government sector in the capitalist countries all the time, well, too bad.  Their intentions were good.



Then there is Geoffrey Robertson at the Daily Beast, writing from the arty left.   He's upset that the neocons have adopted him as one of their own.  To him, Havel was a man of the democratic left, and it's a sacrilege for him to be tarnished with neocon-icity.



That's the other side of the left, the world of fashionable "affect."  Capitalism and Reagan and Thatcher are wrong because they send out the wrong "vibes."  That's a problem that we have in the United States, where the educated class sneers at the unwashed masses in "flyover country" for their unsophisticated culture and their anti-intellectualism.



Too bad.  Vaclav Havel was a man of freedom, and whatever his faults, we salute him.

It's the Strategy, Stupid

Conservatives like to get our knickers in a twist every time our Republican heroes get out maneuvered by their wily Democratic foes.  And in the payroll tax flap they seem to have got their heads well and truly handed to them. Why, they thought that the Social Security Trust Fund was supposed to be a sacred trust!  That's what the Democrats have been telling us for the best part of a century.



But think what the Democrats are telling us with their payroll tax holiday:

1. Trust fund, schmust fund.


2. What matters is President Obama's reelection.


3. High taxes do too matter to the economy.


4. They are stuck with a stupid payroll tax reduction because they have shut off the real solution, lowering marginal income tax rates.  Millionaires and billionaires, old chap.

Let's step back a moment and look at the lay of the land.  The bigger picture is that, for the last ten to twenty years, Democrats have been on the back foot.  They had to run Bill Clinton as a centrist and had to concede welfare reform.  They had to run a non-stop campaign of character assassination against President Bush to keep their base energized.  And now, on defense and foreign policy they have basically endorsed the Bush doctrine.  Only they lack the intestinal fortitude to do it.



On economic policy they are having to lie to themselves that it was greedy bankers that caused the Crash of 2008 and not government credit policy and housing subsidies.  They totally muffed the recession by passing all their big government agenda before the economy got a head of steam.  And anyway, their Keynesian policy stuff is rubbish.  It was rubbish in the 1930s, and it is even more rubbish today because the government is up to its ears in debt and can't really mortgage the nation to "stimulate" it.



What the Obamis are demonstrating in living color, for those of us with eyes to see, is that the weight of government really matters, most especially when the economy is weighed down with underwater mortgages and unknown future costs associated with ObamaCare.  And it doesn't help that the Dems are keeping various sacred cows alive on crony capitalist life support.



Look at the big picture.  It tells you that the Dems are toast.  Because they are running out of other peoples' money.  All the sound and fury is telling us something.  Macbeth knew, in the moment before a messenger reported to him that Birnam Wood was on the move:

Life's but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more: it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.

So it is, when the roof is about to fall in.



The American people don't know nuttin' about economic policy.  But they do know when things aren't working.  And when they feel that things aren't working they reckon it is time for a change.  Like right now.

Liberals and the Decline of Violence

In Steven Pinker's new book The Better Angels of Our Nature, the Big Idea is that states are essential to the decline of human violence over the millennia.

If you live in a non-state society, like a hunter-gatherer band, you will likely experience a violent death rate of at least 500 per 100,000 per year.  That's two orders of magnitude bigger than the current murder rate of less than 5 per 100,000 per year in developed societies.  And that includes so-called pacific tribes, like the !Kung in the Kalahari Desert and the "gentle" Tasaday in the Philippines.

The reason for this remarkable decline in violence is that modern states take over the defense of the borders and the defense of the streets from the people.  Ordinary people are not involved in war, and they do not settle their disputes with force.  They leave all that to the state.

In this view, of course, the "frontier justice" of the old West and the gun culture of the Jacksonians in the South are a threat to social peace.  Also, Pinker points out, the modern state tends not to police the inner-city ghetto, leaving it "stateless."  Police "seem to vacillate between indifference and hostility... reluctant to become involved,,, but heavy handed when they do so."  They are inclined to let the "neighborhood knuckleheads" and their families fight out their differences, because otherwise the combatants will all end up in jail "for BS behavior" and would never show up in court to press charges over violence anyway.  So why bother?

That's the liberal line.  The conservative line is that in America, "more guns means less crime," in that when the citizens are disarmed the only people with guns are criminals.  And conservatives rail against liberals that make it almost impossible to police the inner cities because any police action that liberals dislike is anathematized as police "racial profiling" or police brutality.

And then there is the lament of Victor Davis Hanson, that the rural areas of California have been abandoned by the law enforcers to vandals and looters--who are, of course, young Hispanic gang members.

It's clear that state policing, along with the rise of commerce, is the major cause of the decline in violence.  But something has gone wrong if the police don't bother to police the cities and don't bother to police the countryside.

The "problem" is that every new immigrant group that comes to the US from the countryside still has a culture that deals with violence by feud, and it takes a generation or two to change the culture from "frontier justice" to state policing and legal procedure.

But liberals don't help when they encourage racial and cultural separatism, and delay the integration of immigrant groups into the great American mainstream.  It's true that assimilated Americans aren't as patient as they might be with new immigrants, and the new immigrants don't trust the police.  But liberals seem to concentrate their efforts on disarming white gun-nuts rather than immigrant gang-bangers.  They make the police out as monsters, and thus discourage them from doing their job, which is to make life difficult for single young immigrant men with a taste for violence.

When you listen to your liberal friends you get the feeling that they have no clue what is going on in America.  It's frustrating, but that is what you expect from the ruling class in an ageing dynasty.  And liberal power depends on the faithful votes of the latest immigrants to the city.  In the 19th century it was the Irish.  In the 20th century the white working class.  Now it is the blacks (immigrants from the rural South) and Hispanics.

One day, of course, the black and the Hispanic gang-bangers will all be rock-ribbed Republicans; they will be the despair of liberals much as the bitter clingers of the white working class are today.

But it sure would be nice if liberals would actually help immigrants assimilate to the city and its commerce instead of encouraging pre-industrial behavior.  Why don't they read and learn from the books their liberal pals churn out: chaps like Steven Pinker?