Endgame of the Welfare State

So the French decided to toss their "conservative" President Sarkozy for the Socialist Hollande.  And M. Hollande promises to end "austerity" with growth--in government spending.  In other words the French want to spend the Germans' money for them.



And the Greeks are turning to a neo-Nazi party.  Of course they are.  What do you do when socialism doesn't work?  You turn to national socialism.



Europe's Big Problem, and ours, is that politicians have promised the moon in entitlements to the voters and now the voters are mad that they aren't going to get the moon.  Or even much in the way of green cheese.  We've known this would end in tears; we've known it for decades.  But from the point of view of the welfare-state beneficiary, none of that matters.  If s/he can keep the gravy train going another five, or ten, or fifteen years, then to hell with nation, to hell with the economy, to hell with the grandchildren: just keep those monthly payments going.  Tax the rich, tax the corporations, print the money.  Just don't cut my benefits, 'cos I earned them.



Here's what is needed.  What is needed is for the left-wing parties to admit (privately) that they were wrong and reform their welfare state so that it runs itself without detailed government supervision.  Government can proudly preside over the economy and pretend that it is giving out all kinds of benefits, but in reality it lets the market economy run itself.  Government demands the most frightful payroll taxes from evil, greedy employers, but the money all goes into private accounts for the workers and the workers get whatever pensions and health care and unemployment and disability their contributions yield.



That, of course, is what the German Social Democratic Party started to do under Gerhard Schroeder. They relaxed employment regulation.  They lowered unemployment benefits.  They didn't do it because they wanted to. They did it because they had to, and the German voters immediately voted them out of office.  But it was the right thing to do, and now the Germans have the only healthy economy in Europe.  They have even cut their green energy subsidies.  And the Social Democrats will be back as soon as the Germans get fed up with Frau Merkel.



No doubt the French socialists will be forced to do the same thing, and probably sooner rather than later.  But not until they have got the French economy completely in the ditch.



You might ask: why put the French people through such a nightmare?  The answer is that it's the only way to convince the welfare-state beneficiaries to loosen their grip on the public purse.



People will only agree to take half a loaf when they can see, beyond a doubt, that there is no chance in hell that they are going to get the whole loaf.

Rasmussen Misses Point on 50-50 Elections

Pundits often excoriate politicians as self-serving hacks that betray the noble American people.  Here's pollster Scott Rasmussen writing about the lack of decisive elections recently.

As voters, however, Americans experience a government that is unresponsive and catering to the interests and whims of politicians...



Nothing will be resolved until the political class catches up to the American people. That will require a major change in the way government and politics work.

Er, no, Scott.  The reason we are in this mess is that the American people can't make up their mind.  They can't decide whether to vote for an intensification of the welfare state of the last century or whether to cut government down a bit and take more responsibility for their lives.



And the symbol of this uncertainty is the white working class that has shuttled between the Republican and Democratic parties for the last couple of decades.  Do they want to stay with the grand old entitlements that FDR and LBJ designed for them?  Or do they go with the social conservative patriotism of Reagan and Bush?  It's a tough call, because the white working class hasn't quite adapted to the free-enterprise world; it still hankers for the safety of living in a close village community under the patronage-distributing lord of the manor or the urban village's precinct captain.



The point is that there are two elites competing for the votes of the American people.  There is the Progressive elite and its big-government agenda that started with Theodore Roosevelt.  Its ideal is the Life of Julia so ably described by the Obama campaign.  On the progressive view the great milestones in your life are the wonderful government programs that help you in education, in health, and in retirement.



Then there is the conservative movement that argues a small-government agenda.  Big government is the "road to serfdom" and sooner or later it will run out of other peoples' money.  In addition to that, conservatives argue, big government corrodes society, turning everyone into a dependent whose social thinking doesn't go beyond voting for the politician that offers the most free stuff.



Back in 1990 conservatives thought that they had won the overall argument about big government, and the Clintonian liberals were certainly modest about their arguments for big government, at least they were after the failure of HillaryCare.  They were the new, non-partisan Democrats that hated the divisive conservatives of the Christian Right.  Then they got into power and went pedal-to-the-metal to implement their big-government agenda before an election could stop them.



Rasmussen is right to complain about the "trench warfare" of today's politics.  But the politicians are the wrong people to blame.  The politicians are merely putting themselves at the head of the various interests battling for the soul of America.



The state of Wisconsin shows us what is at stake.  Government employees have dealt themselves a pretty cushy situation with wages and benefits well above the norm in the private sector.  Some politicians want to reform that imbalance.  Others want to defend the government employees.  The result is the political donnybrook we have seen in Madison, Wisconsin over the past year and a half.



Eventually the American people must decide what they want.  And they will.  Look for two or three really decisive elections in the next few years.  Maybe the first one will be this November.

What About Atlantis?

When Socrates and his chums gather the day(!) after they discussed The Republic for another chat on important philosophical matters, the first thing they do is rehearse what they agreed to the day before.  How everyone should stick to one job, how the guardians were a race apart, how children should be raised in common and how "the bad ones were to be secretly handed on to another city".  But now Socrates wants to look at his ideas in motion and see his ideal city compared to other cities, and who better than Timaeus, a well-born man from Lucri in Italy, and his pals, to give a response to Socrates.

Oddly, you might think, in his review of The Republic, Socrates doesn't mention the philosopher-kings we've all grown to know and love, and that Karl Popper anathematized in his Open Society and Its Enemies.  But he doesn't really need to.  It is perfectly clear that Socrates and his young friends would form the junta in their ideal Republic: philosopher-kings in practice if not in name.

Then Critias launches into the myth of Atlantis, supposedly given by an Egyptian priest to Solon the Greek lawgiver centuries before Socrates' time.  Curiously the priest seems to intuit that Atlantis is an island in the middle of the Atlantic Ocean, and "provided passage" to other islands and "to the entire continent on the other side, which surrounds that real sea beyond."  You could take that as a description of the Atlantic Ocean, the Americas, the Pacific Ocean, and East Asia beyond.  Of course, some people now think that there was contact between the Egyptians and the early South American civilizations; there seem to be artifacts and food residues in the Americas that suggest this.  The Egyptian priest is modest about how big the continents and oceans are out there.  You can use your imagination about that.  The Atlantians, did not dwell on their Atlantic island as if in an Isle of the Blessed.  On the contrary, they tried to conquer and enslave Europe and Asia, but were stopped by the mighty Greeks.  But a short while later both Greeks and Atlantis were drownded, like Li'l Em'ly's father and many others.  It was storms that did for Li'l Em'ly's dad, but earthquakes and floods that did for the Atlantians.

Was there an Isle of Atlantis where now you will find nothing but unnavigable waters obstructed by a "layer of mud at shallow depth?"  Hardly.  But it is telling that the center of the Atlantic Ocean has an oceanic ridge, and actually rises above the watery and misty hollows up north in volcanic and glacier-covered Iceland.

What I Want From Romney

You don't get to read too much about the presumptive Republican candidate for president from the mainstream media: who is is and what he stands for.  That's because they aren't much interested in Mitt Romney and his agenda.  Those chaps have another agenda.



That's why you have to get past the mainstream media and actually look at the candidate's speeches to figure out who he is and what he means for America.  Now that Romney is the presumptive Republican candidate we can get a glimpse of how he proposes to run for president rather than run for the Republican nomination.  Our first look at his general election campaign came on Tuesday night, April 24, 2012, at Romney's victory speech in Manchester, New Hampshire, after he won primaries in five eastern states.



What I want to see is for Romney to step up to who he is.  Democrats have made a big deal about his years leading Bain Capital, as if it is shameful to be a capitalist creating new companies and trying to resurrect failing companies.  Republicans cannot continue to shy away from support of capitalism. And I want Romney to take on the "fairness" issue.  So long as Democrats can go on about fairness and not get push-back so long will the unaffordable welfare state get bigger and bigger until it collapses.  Then the real "unfairness" will start.



In Romney's Manchester speech he made a start on both these themes.  Said he, about his business experience:

Only in America could a man like my dad become governor of the state in which he once sold paint from the trunk of his car.



I’d say that you might have heard that I was successful in business. And that rumor is true. But you might not have heard that I became successful by helping start a business that grew from 10 people to hundreds of people. You might not have heard that our business helped start other businesses, like Staples and Sports Authority and a new steel mill and a learning center called Bright Horizons. And I’d tell you that not every business made it and there were good days and bad days, but every day was a lesson. And after 25 years, I know how to lead us out of this stagnant Obama economy and into a job-creating recovery!

OK.  I'd call that a start.  Here's what I'd like him to say next. I'd like him to say that his business centered around two things.  First, he helped create new start-up companies, based on new ideas, with new money.  Then he helped try to turn around and rescue companies in trouble, by reorganizing and recapitalizing.



When you do that, you are putting yourself on the line, because there are going to be failures to balance the successes.  But if you don't do something, risk something, then you can't get to success.  Here in America, we need someone like that, someone with experience in turning around failing companies.  Because the United States is not in a good place.  In fact it is in a turn-around situation; we have to change now or we risk losing it.  We need not a community-organizer-in-chief but a reorganizer-in-chief.



Then there is Romney on "fairness."

This America is fundamentally fair. We will stop the unfairness of urban children being denied access to the good schools of their choice; we will stop the unfairness of politicians giving taxpayer money to their friends’ businesses; we will stop the unfairness of requiring union workers to contribute to politicians not of their choosing; we will stop the unfairness of government workers getting better pay and benefits than the taxpayers they serve; and we will stop the unfairness of one generation passing larger and larger debts on to the next.

Now we are talking.  The basic fact of the big-government welfare state is that it is unfair.  It is a system of looting.  You get in power and then you hand out the loot to your supporters.  So the more we limit the looting, the better for all Americans.  Right now, the biggest chunk of government loot is going out to baby-boomer seniors like me.  But why?  Seniors are the richest kind.  We shouldn't be looting the younger generation for our Social Security and Medicare.  Romney doesn't mention that, of course, because he dare not.  But he does hit the Obamis where they are most vulnerable.  On lousy urban schools, run by Democrats.  On crony capitalism, giving out money to campaign contributors.  On the gigantic disaster of government employees looting the state treasuries with their unfunded pensions and retiree health care.



Jonah Goldberg is out with a new book this week on The Tyranny of Clichés.  He argues that liberals use clichés to shut down political speech.  There are two problems with this liberal habit.  First of all it stops the other guys from talking to the American people.  That's a pity.  But then it puts liberals into an idea-free cocoon.  They never get to defend their ideas in an open forum.  They are always sneaking around looking for the chance to lead with a rabbit punch.  That's a shame.  Because one day conservatives will break through to the American people with some new idea and liberals won't know how to counter it, because they have never had to honestly defend their ideas.  Maybe that is happening right now.



Mitt Romney has started out the general election campaign with some good themes.  Things can only get better from here.  Is that possible.  One of the campaign consultants working against Romney in 2008 said this.  He said that the Romney campaign in 2008 learned so fast it was scary.



What's so remarkable about that?  That is how capitalism and business works.  That is how you get to be successful in business. You learn and adapt every day or you go out of business.  Or, as Mitt Romney said in his speech: "there were good days and bad days, but every day was a lesson."

Those Big Greedy Bankers

Are bankers greedy?  Are they too big to fail?  Is it a mistake to allow banks to combine deposit and investment banking?  Yes, yes, and yes.  That's the conventional wisdom today.  And maybe the conventioneers have a point.

But all these cliches miss the main point.  After all, why was it that in the Crash of 1907 the biggest, greediest banker of them all, J.P. Morgan, ran the bailout and used his own money to bail out faltering corporations?  While in the Crash of 2008 it was the big bankers that needed bailouts with the government's TARP program?

Was Morgan greedier than the banker CEOs of 2008?  Were Chase Manhattan and J.P. Morgan bigger, relative to the market, in 2008 than in 1907?  And what about Morgan?  He was all over the place in investment banking as the chap that cleaned up the many railroad bankruptcies of the late 19th century.  And did the government's Federal Reserve System do any better in 2008 than Morgan in 1907 in righting the financial ship?

This is what we need to keep in mind when we evaluate, e.g., Warren Stephens' article in the Wall Street Journal about too-big-to-fail: "How Big Banks Threaten Our Economy."  Warren Stephens comes from the Stephens banking family of Little Rock, AR. You'll remember the name from the Clinton era.  Says he:

Five institutions control 50% of the deposits in this country. They are definitely too big to fail. In a capitalist economy, there should be no such entity. We should promote competition and innovation in the financial industry, not protect an oligopoly.

 He wants to limit banks to 5% of deposits, and break up banks currently over the 5% limit, keep $250,000 deposit insurance, and separate investment and deposit banking.  And no more bailouts.  Mr. Conventional Wisdom.



But Stephens is, in my view, missing the point.  The reason that banks went belly up in 2008 was that the government was forcing them to goose their real estate loans.  Not to mention that the inflationary anti-recessionary policy of the early 2000s encouraged borrowers to over-leverage.  The activities of Fannie Mae and Freddie Mac created a whole class of mortgages issued to people that couldn't afford any decline in asset prices.  Government was behind that, and a big-time political hack, James A. Johnson, campaign manager of the Mondale presidential campaign.



If we compare 2008 and 1907 we notice an important factor.  In 1907 Morgan regarded himself as the man in charge of saving the financial system.  He reckoned it was his job to fix the crash, and his job to bail out the firms teetering on the edge of bankruptcy.  In 2008 it was the government's job to do the bailout.  The result of the 1907 bailout was a restoration of the gold standard at the old parity of $20.67 per ounce.  The result of the 2008 bailout has been a significant devaluation of the dollar that may not yet be finished.



The big problem with finance is not greedy bankers and too big to fail.  The problem is that government has taken over the financial system and has ruthlessly exploited it.  With government in control the credit system is much more leveraged than in the old days.  Big banks understand that it is government that runs the system, government that sets the rules, and government that owns it.



If we want to get a financial system that is solid and stable we need to get the government out of it.  Well, not entirely because we still need the government to be able to borrow big time when we have a big time war.  But the lesson of the 20th century is that government is lousy at guarding the financial system, because it cannot resist using the financial system as a piggy-bank.



There has to be a better way.

Krugman and the Austerians

Paul Krugman, Keynesian extraordinaire, is crowing over the failure of "austerity" in Europe to reverse the economic decline.  He writes of "austerity" policies:

According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should — by spending more to offset falling private demand — but with fiscal austerity, slashing spending in an effort to balance their budgets.

He means, of course, the Keynesian textbooks preferred by chaps like him.  The basic idea is to keep borrowing to maintain government handouts and to print money to accommodate the borrowing.  Sooner or later the resulting inflation lifts all asset values and the credit system starts to work again.



In the alternative universe, the recession is the natural result of an inflationary boom; it is the period of adjustment after the failures of the malinvestments of the previous boom.  You can do your adjustment any way you want, by liquidating malinvestments or by printing money.  But the underwater debt has to be cleared one way or another.



The problem is that, in the European Union, the single currency has prevented the bad actors, Greece, Spain, and Ireland, from devaluing their currencies and refloating the credit system and its underwater debt.  So they have cut their budgets a little and raised taxes a little, but not enough to make it look as if they can start to lower their government debt to GDP ratio.  Markets are not stupid; they know that a rising national debt leads to default, sooner or later.



Keynesianism is not, and never has been, an economic doctrine.  It is a political doctrine, a way for the government pitcher to get out of a jam when the bases are loaded with sovereign debt.  It rewards the recipients of government benefits and debtors with the money of creditors.  How?  Debt default and inflation hit the creditor class, people with money in government debt or securities denominated in government money like dollars.



It is important to realize what a financial crash and associated recession means.  It means that the bet that a lot of people made against the future has failed.  In the case of the Crash of 2008 the bet was made by homeowners that assumed they would have the money to service their loans and cash them out at higher home resale values.  They were wrong.  Another bet was made by politicians in expanding their budgets when the good times rolled.  Well, they were wrong, too.  So now politically connected people need to cinch their belts.



The whole point of being a politically connected person, whether you are a crony capitalist or a welfare beneficiary or a senior like me getting Social Security and Medicare benefits is that you "can't" cinch your belt.  You are a victim on a fixed income: it's heat or eat.  As for the crony capitalists, they are contributing to the future with vital services like green energy and they have paid to play.  How can they be asked to contribute?



But somebody has to pay.  That is what happens in a recession.  Profits go down, wages go down.  People turn to government to help them out and reduce their losses.  But government just takes money from other people, and usually government takes money from useful activities, where people pay for products and services and spends it on less useful activities, like cutting checks for people who do nothing in return.



The politicians don't care.  They have tame economists to justify whatever they do, whether it is "austerity" or inflation or "retrenchment" or "sound money."  People like Paul Krugman.

Conservatives Are Indeed Social Darwinists

President Obama, deep in his liberal bubble, seemed to think he was hurling the worst insult in the world at Paul Ryan when he described Ryan's budget as "thinly veiled Social Darwinism."  He was relying on the notion that, ever since Richard Hofstadter and Social Darwinism in American Thought, "social Darwinism" was an ever-useful pejorative to sling at evil Republicans to send them slinking back to their whites-only country clubs.

Of course, the way that Hofstadter defined it, no doubt it is enough to intimidate practically anyone.  But seriously, conservatives should be proud to be social Darwinists.  Darwinism, as developed in The Origin of Species, merely states that the animals that survive in any habitat (particularly in boundary zones) are the animals that produce offspring that adapt best to the environment.  Darwin includes a diagram to illustrate "the probable effects of the action of natural selection through divergence of character and extinction, on the descendants of a common ancestor."

President Obama wants us to think that, without the beneficent Oz of government programs, the poor will become extinct in an "on your own" economy.   What rubbish.  Applied to human society Darwinism merely warns that its social institutions, like the species "large in its own country," are subject to the law of natural selection.  The ones that adapt best to the social and economic environment will wive and thrive; the ones that don't will wither away.  Individual people, being resourceful and energetic, will be sure to join and contribute to the thriving institutions and abandon the withering ones.  You see this occurring in the United States today as ordinary people abandon bankrupt blue states with onerous state income taxes like California and Illinois and move to red states with right-to-work laws and no state income tax.  Humans are social animals; they know that survival depends on belonging to the right collective.

Conservatism, ever since Edmund Burke, has recognized the importance of trial and error in social evolution, especially in the gradual reform of social institutions.  Capitalism and freedom provide the best social process for gradual improvement and reform, because all the time and in every way, capitalism motivates people to adapt to the changing social and economic conditions, to react to small riffles in the stream before they turn, further downstream, into a Class VI unrunnable rapids.

Indeed, there is a whole conservative subculture that has shown that conservatism is the opposite of an "on your own" society.  That is because a non welfare state society develops a rich undergrowth of mediating structures between the government and the individual that protect and nurture the individual.  In totalitarian and welfare states there is no shelter for the weak and helpless, because there is no social middle ground between the all-powerful state and the helpless individual.  You go along to get along, or else.

If conservatives are Social Darwinists, believing in an adaptable, flexible society, how should we categorize the other Big Beasts on the ideological plain: communists, fascists, and our liberal friends?  These species come in two flavors.  The communists and fascists we can call Big Bangers.  They believe in the revolutionary convulsion, the Year Zero.  Everything changes in the revolution; the old order goes out, and with it all memory and all superstitious attachment to the past.  Society is reborn from a single point, with no memory of the past, as our modern cosmologists imagine the birth of the universe 14 billion years ago.

Our liberal friends are Intelligent Designers.  Well, they are.  They believe that liberals can intelligently design modern social institutions, and that the complexity of modern society demands that an educated elite of intelligent liberals be empowered to rule the less intelligent.  Without this intelligent design, liberal believe, individuals will find themselves "on their own" and reduced to helplessness and marginalization.  Of course the science on this is settled, except for the tribe of liberal deniers.  Ever since Hayek we have known that modern society is too complex for intelligent design.  Thousands of intelligent designers in Washington DC simply cannot outperform millions of producers and consumers out in flyover country.  The situation is rather like the situation with the Intelligent Design argument for the creation of the universe.  It may just possibly be possible for God to do Intelligent Design and direct everything from the Big Bang and the cosmic constants to the fall of a sparrow.  But when it comes to Intelligent Design of health care and affordable housing and student loans, well, the most charitable judgment is that the jury is still out.

So much for the overall design of social institutions.  But the big question is: what happens when something goes wrong?  In the Big Bang, it's too bad, because once the revolution erupts and the New Era begins, that's it.  Whatever the the God of the perfect society did when he set the cosmic social constants, that's it.  Actually, the record of Big Bang societies isn't too hot.  The Bolshevik cosmic constants caused it to run down in 60 years.  The Nazi Big Bang collapsed in on itself in 12 years.  Mao's Big Bang was reversed by Deng XiaoPing after 30 years.  The Intelligent Design universe is not much better; it seems to be running down after about a century.  So what is the problem?  The problem is that the Big Bang and Intelligent Design models of society are not designed for humans to run.  They are suitable only for the divine gods, driving around heaven in their chariots, as Plato imagined.  The gods are lucky; they have two good horses pulling their chariots, but the souls of mortal charioteers have one good horse and one bad horse, and spend so much time and attention wrestling with the bad horse that they can barely glimpse what the gods can see up at the rim of heaven: Truth, Justice, and the American Way.

But conservatism is different.  It is designed with humanity in mind from the ground up.  That is why it is Social Darwinist.  It is constantly inventing new institutions and replacing old ones that fail.  You don't need an Intelligent Designer, you just need to make sure that the government is built upon the principle of the separation of powers.  The idea is to prevent one branch of government totally dominating the others, or for two branches to gang up on the other.  And more than that, you need a Greater Separation of Powers--that's my idea--so that the three great sectors of institutional society, the political, the economic, and the moral/cultural are separated.  We already have the idea of the separation of church and state, the separation of the moral/cultural and the political.  Now we need to go the next step, the separation of political and economic.  Sure, the political and the moral/cultural sectors can set the rules for the economic sector.  But it's time to tell them to stop trying to run it.  Because when they do, they make a mess of it.

The reason that our liberal friends make such a fuss about Social Darwinism is that their situation is very close to the panic fundamentalists experience with regard to The Descent of Man.  It cannot, it just cannot be true that society does not need Intelligent Designers to organize and direct the lives of Everyman.

Of course the mystery of the modern era is the great question.  Can it really be true that Adam Smith's Invisible Hand is true and that humans naturally act in a social manner because that's the best way to meet their own needs?  Conservatives admit we don't really know.  But we would really like the chance to find out--if only those liberal Intelligent Designers would stop messing up the blueprints.