The 1.5 Percent Solution

Oh dear.  So today's GDP report shows that "the United States economy slowed in the second quarter" with slow consumer spending, government cuts, and higher imports.  So now what, in a world of 1.5% GDP growth?

So how about we ditch the whole Keynesian paradigm for something new?

Look, here's how the world looks from here.  For over a century, the educated elite, the governing class of our age, has operated on the following cultural assumption.  Liberals could ladle out social gains to the working class--and latterly minorities and women--without worrying much about what all those benefits and regulations and subsidies might do to the overall economy.

And if things did go wrong and the economy tipped into a recession there was always Keynesian stimulus, i.e., additional government spending on favored voting constituencies, and in the last resort, inflation.

That was the assumption the Obama administration brought with it into Washington DC in 2009.  Its agenda called for a quick trillion dollar stimulus, a couple rounds of quantitative easing, and back to the important work of finally implementing universal health insurance and replacing fossil fuels with green energy.  Why not? That was what the culture of the liberal governing elite said to do.

The conservative counterargument goes something like this.  All government interventions in the market are almost always designed to impose some favored political outcome on the interactions of economic actors, whether by taxes used in government spending or in regulations or subsidies.  Each intervention, therefore, adds up to an additional weight on the economy that slows it down, just as additional weight on a jockey slows down the horse.

Now each of these arguments is actually more than an argument.  It is a culture, in Jürgen Habermas's system, a lifeworld.  In Liberal World we are engaged upon a quest to eliminate injustice and inequality using the power of government.  In Conservative World we are engaged upon a quest to unleash the power of individuals and teams to build wealth and prosperity by getting government out of the way.  In the system of Juergen Habermas, this lifeworld is a taken-for-granted culture about how the world works, how we perceive the world, and how people act in it.

Obviously when the conservative taken-for-granted lifeworld is different from the liberal taken-for-granted lifeworld then something eventually has got to give.

That "eventually" might be right now, as the economy rather obviously is failing to bounce back from the Crash of 2008.  Liberals believe that what is needed is additional "stimulus" and, if necessary more quantitative easing "QE3".  Conservatives believe that tax rate cuts and government spending cuts are in order.

So you can see that neither side learns anything from events.  We just keep proposing the same nostrums. Here's an example.  The Obama administration is restoring the minority-friendly policies that conservatives believe got us into the Crash of 2008.  The new Consumer Finance Protection Bureau that was part of Dodd-Frank has dusted off the 1994 regulation that ordered banks to giver preferential treatment to "protected classes" in loan origination.

That's not surprising, of course.  As conservative William Tucker writes in utter fury:

Do you remember that thing about how the banks wouldn't lend to blacks and Hispanics because they were racists? And do you remember how they passed the Community Reinvestment Act so that banks were forced to reduce down payments practically to zero and lend to a lot of people they knew were bad credit risks? And do you remember how Wall Street bundled all these risky subprime mortgage and sold them to investors around the world so that when it became clear that those people weren't going to be able to pay their mortgages banks everywhere were left holding the bag and all five of the Wall Street investment houses either went under or had to be bailed out by the federal government?

And do you remember how, when it was all over, liberals said it was actually the banks' fault for "deceiving" all those people into thinking they could afford to buy homes and that the banks should be punished for it and some of those people be allowed to keep their homes anyway? And do you remember how all this cost the government close to a trillion dollars and put the whole economy in a hole that we really haven't begun to dig ourselves out of yet?

The point is that the New York Times and the Democrats have been busily pushing "the banks did it" meme for the last four years, and liberals believe it.  Because if liberals admitted that it was their credit subsidies and pro-minority discrimination that brought the whole financial house crashing down in 2008, why then they would have to abandon the taken-for-granted assumptions of their culture, their lifeworld.  And people just don't do that.

The American people don't believe either the conservative line or the liberal line.  They believe a mish-mash in between.  Yes the greedy bankers did it.  Yes the stupid borrowers who bought way more house than they could afford did it.  So there!

But the 1.5% economy is putting up storm signals.  It is saying that the liberal line isn't working.  And all the campaign flaps about "You didn't do that" and Romney's outsourcing are all grist to the mill that will grind out a decision in November.

Do we want to continue with the liberal world view, the assumptions of the liberal lifeworld, or do we switch more to the assumptions of the conservative lifeworld?

It's up to the voters.

The Silence of Romney's Guns

Some people are complaining that Mitt Romney hasn't yet come out with a compelling narrative for his election.



There is Conrad Black, who wants more criticism of the mess of the Obama years:

It would be a national tragedy if we got all the way through what promises to be an exceptionally trying and vapid election campaign without a full airing of the president’s fishtailing and flip-flopping on all these and many other matters.

Or Matt Towery in an article on polling.  He is anxious to see how the Romneys will actually fight the election:

In the end, it is message, image and strategy that win the race -- and debates. For Romney, the message is not clear, and the image is still fuzzy. But he may have a strategy that is going to work.

 Meanwhile Karl Rove is raising the spectre of Fannie and Freddie.  He wants to remind us that seven years ago the Bushies tried to push a reform of Fannie and Freddie, but the Democrats in the Senate told the GOP that they would filibuster their reform bill.

Democrats opposed regulation in large part because the GSEs were an important source of funds for community groups allied with the Democratic Party, and they were run by Democratic power brokers like former Clinton Office of Management and Budget Director Franklin Raines and Walter Mondale's 1984 campaign chairman, James Johnson. And so the Bush reform died.

And the Obama administration still hasn't done anything about Fannie and Freddie.  They are moldering away in the back of the FHA, getting broker and broker with about $5 trillion in debt.  Think about what happens when that gets added to the national debt.



My guess is that the Romneys have a schedule and that all will be revealed when Romney gets back from his foreign tour and starts to ramp up for the Republican National Convention.  There will be a "message," there will be image-building, and there will be plenty of negative ads on the many failures and corruptions and tyrannies of the Obama administration.



But you really don't want to show your hand too early.  You don't want to give the Obamis time to prepare for a counterattack.  Also, we don't exactly know whether the economy gets worse between now and October or the European slow-motion death spiral turns into a maelstrom.



And there is this ancient piece of wisdom.  When your opponent is digging himself a hole, hand him a shovel.  Or Napoleon's advice: "Never interrupt your enemy when he is making a mistake."



Given the number of unforced errors the Obama campaign has committed thus far in 2012, you really don't want to get in its way.

What Comes Next?

When you read an article about the failure of the global governing class: "The Governing Elite are the Greatest Threat to the World's Middle Class," it makes you think about what the governing elite and the world's middle class are going to do about it.

I am thinking about this in the context of the difference between the world of 1800-1850 and 1850-1900.  The first half of the century in Europe was about the absorption of the middle class into the councils of political power.  The second half was what to do about the new industrial working class.

The middle class wanted to bring its influence to bear on the general rules of society, particularly as they related to trade and subsidies.  The working class wanted "stuff."  All this is unexceptional.

Before the rise of the middle class, states were organized as the patrimonial estates of their rulers, but that did not work for the middle class which wants to work not in an Authority Ranking world of patrons and clients, but in a market world of exchange and commercial wealth creation.  The working class of 1850, on the other hand, was barely subsisting, so whenever the economy went into the tank due to wars or financial crises, then the workers would start starving.

Two kinds of politics arose from the rise of the working class.  The first was a top-down provision of social benefits, giving the working class what they needed in hard times.  The other was a bottom up revolutionary movement of refusal and opposition so the workers could take what they wanted.

Our welfare state today is the precipitate of those years in the second half of the 19th century.  It assumes that people are as helpless now as the working class was then, and that government should organize and provide against the vicissitudes of life.

Obviously, the working class of today is not the struggling working class of 1850, at least, not in the developed countries.  So just as obviously, we should be detecting a disconnect between what ordinary people want and need and what the political system wants to give them.  The political system offers more and more free stuff, and people take it and say "what have you done for me lately?"

The current debt crisis is the end game of the politics that began in the 19th century, the assumption that the way to avoid social unrest was to give the working class stuff.  But eventually you run out of other peoples' money.

The question is: what do the people of the 21st century want?  President Obama is playing the revolutionary politics of the late 19th century, telling the rich and the middle class that they need to cough up to prevent the lower classes from revolting.  Is he right?  Does the failure of the Occupy movement tell us something?  Candidate Romney is going around proposing that we release the private sector to do its job of producing goods and services and creating jobs.

What does the Tea Party mean?  It seems to want a return to common-sense middle-class prudence in government finance.

As soon as the governing elite figures out what the people want, and I would guess that "the people" here means the middle-middle class of families with some colllege education but not a lot, they will be racing to give the people what they want.

What the people want, I suspect, is a society that actually delivers the social services that government presently delivers badly: health care, education, relief of the poor, and they want an economy that doesn't feel like a roller-coaster.

The challenge for conservatives is to persuade the American people that they can have all that without big government.  It probably wouldn't hurt to have all the government provision of social services obviously broken.

And that's why I think that conservatives will come to love the future former-President Obama like a brother.  He seems to have succeeded in breaking everything he touches.

Common-sense people say that if it ain't broke, don't fix it.  But when President Obama and his lefty friends have broken everything in sight, well, then it is time for the great American handyman to get to work with his tool belt and his power tools.

Some time in the next ten years it will all become crystal clear, and everyone will say that the leaders of 2012 were idiots not to see it.

The Trouble with Big Anything

Everyone is tut-tutting and serve-them-righting about the NCAA penalty dealt out to Penn State, home of the nasty Sandusky child-abuse scandal.



What a monster; how could they let it happen, etc.



But let's get real.  Of course nasty things like that will happen at a big bureaucratic organization.  The only reason we all know about the Penn State case is that it included college football and a legend in his own time, Joe Paterno.  That makes it bait for a national scandal.  But suppose the Jerry Sandusky in the case were not an assistant football coach but just some average Marginalized Studies department professor.  Who would care then?



The fact is that we are in two minds about Bigness.  Conservatives hate Big Government and love a scandal about government waste, fraud and abuse.  But we kinda like the armed forces and their hierarchical military spirit.  Liberals hate Big Business and love to report on, say, Big Oil laying waste to the planet with horrible oil spills.  But they love Big Government and all its caring compassionate programs that help the poor and the marginalized.  At least everyone hates the DMV.



But what about Big University?  Liberals hate the football program; conservatives hate the left-wing indoctrination.  Big Philanthropy?  Conservatives love to hate the liberal foundations like the Ford Foundation and the Rockefeller Foundation.  Big Religion?  Liberals love it when Catholic priests are caught covering up child abuse.



But I wonder if it's time to look at the problem of bigness in general.  The Penn State case shows the problem.

In 1998, a boy’s mother reported to police that Sandusky had showered with her son in a Penn State facility. An investigation began that Penn State officials were eager to see go away...



A janitor saw him in November 2000, but didn’t report it for fear “they’ll get rid of all of us.”...



Paterno and the others “repeatedly concealed critical facts relating to Sandusky’s child abuse from the authorities, the University’s Board of Trustees, the Penn State community, and the public at large.”

Everyone is creeping around, like a moral mouse, looking after Number One, anxious not to rock the boat.



It seems to me that the answer is that we need a lot fewer big hierarchical institutions around.  It's not just that they tend to cover up criminality, but that they are notably fragile and resistant to change.  Over the years they run down delivering less and less for more and more money.  They are a conspiracy against cooperation and adaptation.



I was reading a book about Prussia the other day, H.W. Koch's History of Prussia, and learned that the Prussian state bureaucracy had won for itself tenure and pensions by 1820.  That is eighteen-twenty!



Shades of government bankruptcies in 2012!  All bureaucrats want, in any big organization, in any era, is to get tenure and a pension.  Then that they can do nothing for the next ten, twenty years while they collect their salaries.  And then the glorious moment arrives when they retire and start to collect their pensions!



It is surely our job to make sure that the bureaucrats don't get it.  Because when we have guaranteed tenure and pensions to some special class of people it means that the rest of us are more at risk.  Like right now.

Liberals and Fracking

I was out to dinner with liberal friends last night and got roundly spanked for blogging about blacks that think "we're owed."  I don't know anyone that thinks that, said my black acquaintance.

That's comical, really.  Because the whole point of liberal politics is the idea of "We're Owed" writ large.  That's why we talk about "entitlement" programs.  I'm entitled; we're owed!

But the big takeaway was fracking.  The word has gone out, presumably through the documentary "Gastown," and liberals are all convinced that fracking, the technique of fracturing oil and gas-bearing rock in the neighborhood of a drill hole using water, sand, and a bit of detergent, will contaminate the drinking water supply and end the world as we know it.

Our liberal friends are passionate about this, almost as passionate as they are about "marriage equality," or really, gay marriage.

What is interesting to me, as an engineer that spent 30 years in energy and environmental consulting, is how cocksure professional musicians and professional photographers can be about these technical issues.  It didn't occur to me at the time to make the argument from authority, but I shoulda. You know what?  When it comes to music I absolutely defer to your knowledge and experience.  So how about the environment and the energy biz?  I spent 30 years, man and boy, working on sewers and energy resource questions.  I know a thing or two about cleaning up the environment and about the financial feasibility of intermittent resources like wind turbines.

But really, it's not about the science.  It's about the religion.  It's about the end of the world and original sin and finding redemption from the sins of the world.  It's about "immanentizing the eschaton."  When you don't believe in God any more then you tend to want to create Heaven on earth and not wait for salvation in the next world.

Yes, and those liberals all believe that the oil companies get gigantic subsidies, and make profits in the hundreds of billions of dollars.  Let's check Exxon Mobil.  Market cap. is about $400 billion and the P/E ratio is about 10.  So that means net profits are $40 billion a year.  Gross revenue is about $440 billion per year.  Big, you'll say.  But not obscene.  Apple makes about the same profit on one third of the revenue.

Our liberal friends.  What are we to do with them?  I guess the most sensible thing would be to beat Obama like a drum 55% to 45% in November, take over the Senate, repeal Obamacare, cut spending, reform entitlements, cut tax rates while cutting deductions and loopholes and drill, drill drill.

Liberals got the wrong idea when Obama won in 2008.  They thought it was game, set, and match.

But there is a reason why liberals had to rebrand themselves as "progressives."  Americans really don't like liberals.  They are America's ruling class and they are annoyingly bossy.  A nice win for the Gipper would really quiet our liberal friends up for a decade, and let the rest of us get on with building families, expanding the economy, and repairing the national balance sheet.

Then, a decade or two from now, it will be time for a new generation of liberals, a generation that "knew not Obama" and the really dumb strategic mistakes he made.

Estonia, Spain and the Welfare State

Today they are reporting massive demonstrations against "austerity" in Spain.

The protest was one of over 80 demonstrations called by unions across the county against civil servant pay cuts and tax hikes which drew tens of thousands of people, including police and firefighters wearing their helmets.

It's the basic problem with the welfare state.  It taxes and spends up to the limit in good times and then finds out that the welfare state functionaries and beneficiaries strongly object to the trimming of their benefits in bad times.

That's why there is Paul Krugman and Keynesian economics.  The solution to a debt and spending crisis is not to cut spending, they say.  Oh no.  That would cause "pointless misery." The solution instead is more spending and devaluation.

So it creates "pointless misery" for Estonia to bite the bullet and cut government spending and government employee salaries.  Far better to increase government spending on stimulus and bull through to the future. (Only, of course, in the case of Spain you can't devalue the Euro, so you call on the Germans to pony up.)

I think it is important to understand what is going on here.  Keynesian economics was born in the 1930s when the welfare state first went belly up after the central bank manipulations of the 1920s had created an unsustainable boom.  The Keynesian solution was devaluation and inflation.

But the Keynesians are just tame regime apologists trying to help get the welfare state pitcher out of a jam.  It is very difficult to get people to accept pay cuts--particularly government employees--after an unsustainable boom.  Union leaders an community organizers can get thousands into the streets to demand that the cuts be rescinded.  But if you devalue the currency or inflate it away then you have presented the people with a fait accompli.  Voila!  The politicians are out of a jam, for you can't roll back a devaluation.  Not without "pointless misery."

The real solution, of course, is that a nation's "welfare" should not be run through the government with all the waste, fraud, and abuse that entails.  Government doesn't do flexibility, doesn't do efficiency, doesn't do customer service, doesn't do constant improvement and renewal.  Government does force, and what government employees and beneficiaries want is the money, never mind if the whole country flushes down the toilet.

Moreover there is a great philosophical reason why the welfare state is a bad idea.  It comes out of Habermas' analysis of society as a dual concept, part system and part "lifeworld."  Government is all system.  You bully through a law, and then everyone has to obey the law or pay a penalty.  But humans as social animals live in a lifeworld where people in a community are constantly discussing and evaluating norms and behavior.  The more you build a welfare state the more you dehumanize people by forcing them into a system.  You make them into passive consumers of benefits and passive payers of taxes.  In a truly "social" system everyone would be involved and responsible in the day-to-day business of the lifeworld, giving and receiving and discussing and evaluating and judging--on the day-to-day business of the health of old people, the education of young people, and the relief of the poor.

When social services are returned to the lifeworld then an economic crisis would prompt everyone to pitch in to find a way, somehow, to keep grannie's meds coming, junior's education going, and helping the poor get through the hard times.  That would be a big difference from today's situation where the money goes to the most powerful special interest, whether "banksters," bureaucrats, or beneficiaries.

Why Obama Gets It Wrong

Why does Obama get it wrong?  I don't mean at the political level, the level of not saying anything that riles up the opposition with stupid stuff that says that "You didn't do that."

Actually, the president made a bigger error, as Charles Murray pointed out.  Wrote Murray:

There’s a standard way for Americans to celebrate accomplishment. First, we call an individual onto the stage and say what great things that person has done. Then that person gives a thank-you speech that begins “I couldn’t have done this without…” and a list of people who helped along the way. That’s the way we’ve always done it.

That's the way we recognize success.  We tell the successful one: "you are awesome."  And the successful one replies: "Aw shucks; I couldn't have done it without the janitor."

The bigger error comes out in Barney Frank's little nugget, retailed by Ross Douthat.

In [the liberal] worldview, the government is just the natural expression of our national community, and the place where we all join hands to pursue the common good. Or to borrow a line attributed to Representative Barney Frank, “Government is simply the name we give to the things we choose to do together.”

Er, no, Barney.  That is a fundamental misunderstanding of the nature of government.  Let us look at how Alan Page Fiske, author of the Relational Models theory of human sociality puts it.  He says that there are four ways in which humans express themselves as social animals.  There is Communal Sharing.  There is Authority Ranking.  There is Equality Matching.  There is Market Pricing.

If we put it as baldly as possible, we would say that government is Authority Ranking all dolled up as Communal Sharing.  And that is being charitable to government.  Here is what Fiske actually says (PDF) about Authority Ranking.

The Authority Ranking (AR) mod bases sociality on asymmetrical differences... which define how to rank people: by age, gender, caste, seniority, promotion system, achievement on a task or test, contest or combat, passage through a ritual, possession of symbolic paraphernalia, bestowal of fiefdom, position determined by divination or revelation, charismatic performance, religious devotion, election, delegation or appointment by higher authority.

Sounds like the liberal welfare state to me.

Now, of course the United States is a community in the sense of Communal Sharing based "on the perception that a set of persons have something in common--something that makes them socially equivalent in some respect."  Well.  the whole point of the liberal ruling class is that racists, sexists, homophobes, and bitter clingers are not "socially equivalent."  The whole idea is to write them out of polite society.

And we know how Communal Sharing works in practice.  That's because Elinor Ostrom won a Nobel prize for her work on the "commons."  For Communal Sharing to work you have to have a small community with face-to-face relations where people are socially controlled by their need to maintain their reputation in the community as good citizens.  Naming and shaming is the name of the game for defaulters and rewards "You did it!" for the exemplary citizens.

But liberals don't do this with their welfare state.  They divide society into "us" and "them."  "We" are the good guys and "They" are the bad guys.  You are not allowed to name and shame anyone in the liberal ruling class--that is what "civility" is all about.  Nor are you allowed to name and shame anyone that is a liberal client--that is what the race card, class warfare and "blaming the victim" are all about.

The fundamental truth about conservatism is that conservatives have argued since the days of Edmund Burke that a national government cannot be the same as a local council of elders.  You can say that, at its best, your local council of elders can do Communal Sharing and rule by persuasion.  In other words, you can have Communal Sharing in your "little platoon."  But big government is government.  It is not a council but the power base of a ruling class.  It is an armed minority ruling over the people in a defined territory.  Government is force, and force goes beyond humans as social animals to the realm of Newtonian mechanics.  That is what Burke meant by "economists, sophisters, and calculators."

The real problem with presidents who say "You didn't do that" and Barney Franks that say "Government is simply the name we give to the things we choose to do together" is not that they are lying to us about government and community and the individual.

The problem is that they are lying to themselves.