How To Defend Capitalism

Mitt Romney, writes Ramesh Ponnuru, ought to respond to Barack Obama's attack on capitalism with something more than ten point programs.

To respond to Obama’s attacks on outsourcing and Bain, Romney ought to unveil something more compelling than another tax return.

Yes, but how?  People are right to fear outsourcing.  And they are right to fear private equity companies like Bain.  Capitalism is a fearsome thing.  It may be true that you work for a company that is getting slowly flushed down the toilet, but if it lasts until you retire, why rush out to get Bain to fix things if they ain't quite broke?

Don't look back, as Satchel Paige said.  Something may be gaining on you.

Capitalism has always had to take the rap that it doesn't give a rip about people.  The market economy is the law of the jungle and the weakest go to the wall.   Back when I worked for a consulting firm, my fellow workers would get shocked when the firm laid people off.  Look what it says in the employee manual, they said.  Look how it says that the firm cares about employee development.

Yeah.  They may care a lot, but when they see the company in the red for three months in a row, they will do the instinctive thing.  They will act to save the company, not the employees.  And really, this is nothing out of the ordinary.  What do you think an army is all about?  It is about sacrificing young men so the nation as a whole will survive.  The government may idolize the Fallen every Memorial Day and  those who served every Veterans Day, but the fact is that those mother's sons are still dead.

Both corporations and governments are pretty ruthless when it comes to survival.  They sacrifice their employees and their young men generously during hard times.  But people understand the social requirement for the government to defend them.  Anyway, most people aren't young men.  But when it comes to corporations acting to save the corporation, people identify with the folks losing their jobs to machines or outsourcing.  There but for the grace of the fickle market go I.

But there are ways you can protect yourself against the vicissitudes of the market, just as there were ways for the agricultural villager to protect himself against the vicissitudes of the weather.  Workers can save.  If they don't earn much they can mutualize their savings by joining a benefit club or fraternal association.  In the old days, labor unions were mainly mutual-aid associations.  For those with a bit more money, there is insurance.  For those with more money still there are savings accounts, bonds, and stocks.  Oh, and guess what:  there is family.

Yes, but shouldn't all these benefits be provided by your employer or by the government?  Well, you tell me.  That employer thing didn't work out so well for the old-line steel companies, and the only reason that the auto workers aren't totally screwed is that the government stepped in, screwed the widow-and-orphan bond-holders, and made good the corporation's broken promises, courtesy of the taxpayers.  And as for government, how do you feel about collecting on your Medicare or your Social Security in 20 years?  The latest estimate is that we are about $100 trillion short if the government means to pay out on its promises.

The point is that both corporations and governments are ruthless outfits interested only in #1.  Individual people, to corporations and governments, are expendable.  But there is a solution.  It is called civil society.  It is the social space in between the mechanical monoliths, the megastructures of business and government.  Civil society includes every organization that is in the business of people helping people.  They don't have power; they don't have influence.  That is why they can afford to think about the needs of their members rather than the glory of the collective.

Conservatives have been banging on about civil society since Edmund Burke and his "little platoons" over two centuries ago.  Civil society flourished mightily in the 19th century, as ordinary people formed fraternal associations, churches, labor unions, charities, benefit clubs, friendly societies, you name it.  Of course, they couldn't perform miracles; for one thing, the world was a lot poorer back in the 19th century.  In the 20th century, government got into the act and nationalized most of the functions performed by the "little platoons."  There turned out to be a problem with that.

The problem is the age-old problem in any association of social humans.  It is the freeloader.  In any community, there will be people that don't pull their weight.  They figure out how to game the rules and they do.  Traditionally, society has confronted this problem with naming and shaming, which works in the face-to-face community.  And religion has solved the problem with the concept of divine justice.  You may think you are getting away with your cheating, but God is not mocked.  He knows, and he will deal with you in the next life when you find yourself burning in Hell or, in Plato, in the river of Tartarus down at the center of the Earth.  But the welfare state has turned out to be a veritable Springtime for Freeloaders.  Just get yourself defined as a victim and you can live at the expense of your fellows forever.  That is why the welfare state is going broke.

The solution to big business is not big government.  And the solution to big government is not big business.  Nor can we go back to an imagined Garden of Eden where true community reigned.  We have invented modern business and modern government and we can't uninvent them.

But we can create a human space in between the ruthless megastructures.   We can grow a vibrant civil society in the spaces between the Bigs. That is what conservatism has wanted to do for decades.  And that is how we reckon we can defend capitalism from itself.

The Inequality Two-step

Inequality is the polite drawing-room version of the Exploitation narrative.  The Exploitation narrative, so ably set up by Marx, says that the workers inevitably get screwed by their employers.  So government is needed to redress the balance.



The Inequality narrative is more nuanced. It says that inequality is getting worse, so government is needed to redress the balance.  In a review of Timothy Noah's book on inequality, The Great Divergence, Scott Winship takes us through the many mansions of liberal ideas on inequality, and how it is getting worse.  Of course, liberals like to tell this story in a Three Ages template.  First there was a Golden Age after World War II when inequality was low due to strong labor unions, but then, after 1973, it all fell apart as the rich got richer faster.  In the new age, liberals will rectify the problem.  Here is Timothy Noah's solution.

Noah wants to “soak the rich,” create a public-jobs program, “impose price controls” on colleges, “revive the labor movement,” and “elect Democratic Presidents.”

The poor do better under Democratic presidents, you see, although I doubt if they are doing very well under Democratic President Obama.  And the Buffett Rule will stop people from becoming rich.



The problem with the Inequality narrative is that people don't stay where they are put.  Thomas Sowell:

The turnover of people is substantial in all brackets — and is huge in the top 1 percent. Most people in that bracket are there for only one year in a decade.



All sorts of statements are made in politics and in the media as if that top 1 percent is an enduring class of people, rather than an ever-changing collection of individuals who have a spike in their income in a particular year for one reason or another. Turnover in other income brackets is also substantial.



There is nothing mysterious about this. Most people start out at the bottom, in entry-level jobs, and their incomes rise over time as they acquire more skills and experience.

So, what does it do when you impose over this changing situation big clumsy government programs that assume that "the poor" and "the rich" are enduring categories?



There are three steps to the Inequality program, and every step is fraught with questions.  First of all, how much inequality is in fact harmful and unjust?  Second, can programs be devised to ameliorate inequality?  Finally, can any program avoid the introduction of new, legally mandated inequalities?



The record isn't good.  Let's look at a few.  We have universal education, yet clearly middle and upper income people benefit from the education system much more than the poor.  The poor get lousy schools, and the children of the rich get lifetime professorships.  We have national pensions.  But that means that the poor never get a chance to accumulate real wealth, since the government collects their retirement savings through taxes and then returns it in a benefit payment.  Upper-middle class people save money for homes and retirement.  But the money is not just directed at single uses.  It is available throughout life, for starting a business, sending kids to college, for travel, for end of life care.



The liberal approach to everything is a rigid, one-size-fits-all government program, that is so big and clumsy that it can never be reformed.  The smart people figure out how to game the system and the poor get left with the crumbs.



There has to be a better way to deal with inequality.

Uncle Miltie at 100

Milton Friedman was the classic smart Jewish kid.  He was smart, he worked hard, and he never backed out of an argument.  We need more of his kind.



For conservatives he represents a nuts-and-bolts defense of capitalism, while Mises (another smart Jewish kid, from the city of Lemberg, now Lwow in the Ukraine) represented a more Kantian, philosophical approach.  Hayek, I would say, because of his detour through Britain, brought more of a British empirical approach to the subject.



Milton Friedman was the public face of free-market economics because of his Free to Choose TV series.  But why, you will wonder, did PBS agree to put such a man up on TV?  The reason is that conservatives were miffed that the BBC and other public broadcasting agencies had put up John Kenneth Galbraith on TV with his hymn to liberalism, the 13 part series called The Age of Uncertainty.  What about our guy, was the cry!  So, grudgingly, PBS put up Milton Friedman for a 10 part series.



Today's eulogizers seem to remember Free to Choose as a stunning success, but I remember feeling that it didn't quite come off.  The main reason, I felt, was that Galbraith in The Age of Uncertainty came across as urbane and cool, whereas Uncle Miltie was hot and combative.  Of course, Galbraith was the liberal's favorite liberal, lionized wherever he went and telling liberals exactly what they wanted to hear.  Friedman was a smart Jewish kid telling the establishment things it didn't want to hear.



Do we need another Milton Friedman today, someone who can teach free-market economics to a new generation?  No we don't, any more that we need a new Ronald Reagan.



A generation ago Milton Friedman taught men that free-market economics was the only way to go.  It was better for men to battle for market share than to battle for bureaucratic power.



But the task now is to teach women that civil society will create a better world for their children than centralized one-size-fits-all programs from the government for health, education, and welfare.  You'd think it ought to be a breeze, because women don't like being treated like a number in a line at the DMV: they think that their child is unique and that their mother's health care requires individual attention.



So we are still waiting for the smart Jewish kidette to amaze us with her brilliance and lead women away from the liberal culture of compulsion and home to freedom and the true social relations promoted by civil society--the society, in a word, of people helping people.

Dems Wasted Oughties Enthusiasm

I don't know whose idea it was, but someone decided that the Democrats would take the toss-up election of 2000 and rile up the base.  So all the liberal Subaru Outbacks carried Re-Select Bush bumber-stickers right through the 2004 election.  Har-de-har-har.



You can see the results at Gallup.  In summer 2004 Democratic voter enthusiasm was at 68 percent, in summer 2008 it was at 61 percent, while Republican enthusiasm was at 51 percent and 35 percent.



Today things are different.  In summer 2012 Democratic enthusiasm is at 39 percent and Republican enthusiasm is at 51 percent.



In my view the Democratic decision to crank up partisan rage back in the early Bush years has proved to be a strategic error.  Of course, I felt back in 2001 that the decision to insist that the 2000 election was stolen was an act of meanness.  After all, when the Democrats obviously stole the 1960 election in Illinois and Texas Richard Nixon took it like a man, because he didn't want to divide the country (and who knows, maybe he thought it wouldn't help him).



The partisan mobilization turned out to be an error because Democrats taught their followers to believe that a win in 2008 would "fundamentally transform" America.  Now that the Obama administration clearly hasn't transformed anything except the national debt, what will the partisans do?  Where will they go?



They will get demoralized.  Meanwhile, the rest of America is getting enthused about getting to the polls.



There is a good reason why the Obama win has turned to ashes.  It didn't come up with anything to deal with our underlying economic and social problems.  Liberal partisans suffer under the delusion that their agenda is something fresh and new.  It isn't.  It is just big government wanting to simplify and organize and control the people.  As governments have tried to do right down the ages.



The magic of social animals, from ants to zebras, is that we do the right thing instinctively, without being told. The magic of all living things is that they are adaptable.  They respond to changing conditions by changing their ways.



The problem about big government is that it is designed to treat humans like machines.  The problem with big government is that when conditions change it does not change.  The same is true, to a lesser extent, with big business.



The problem for Americans is how to reform big government into adapting to the future before it drives us all off the cliff.



That is why the Democrats ads featuring Paul Ryan pushing grannie over a cliff are such a joke.  We want to be nice to grannies--and to grandpas like me--but only up to a point.  First we have to make sure that the average working stiff doesn't go over a cliff, not to mention the average mom, and the average student, and the whole economy.



That, presumably is what President Obama means when he says that "I believe that the way you grow the economy is from the middle out. I believe in fighting for the middle class because if they’re prospering all of us will prosper."



The only problem is that the notion of growing the economy "from the middle out" is utterly fatuous.  It means, of course, that the president will take money from the rich via the Buffett Rule and give it to the middle class.  The only problem is that redistribution doesn't grow the economy.  Never did, never will.



The only problem is that Democrats just don't get it.  And now they are losing the big head of steam they worked up in the Oughties when the evil Bush was president.

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.