The Chimera of the "Commanding Heights"

Back in the old days, statists and thug dictators wanted to control the "commanding heights" of the economy. That was Lenin's line. With the "New Economic Policy" that allowed a resumption of some capitalist enterprise after the disaster of War Communism, he needed to assure his Bolshevik comrades that he still believed in The Plan.

He told them not to worry: The reforms were relatively modest, and the new Soviet state would always retain its control over what he called the "commanding heights" of the economy.

In those days, according to Arnold Kling and Nick Schulz in "The New Commanding Heights," the commanding heights were heavy industry, energy, and transportation. Socialists fascists, and other statists all over the world were determined to control them, and they did. They did something more. They just about destroyed them. They did destroy the Soviet Union, of course.

But now the socialists and the statists are determined to control the new commanding heights of the economy: education and health care. Conservatives and libertarians aren't paying enough attention to this, and are losing the battle for control to the socialists. Even George W. Bush increased the government control of education with No Child Left Behind and Medicare Part D, write Kling and Schulz. Only now, with ObamaCare and the state budget battles, are conservative politicians and activists finally engaging on health care and education.

Let us step back a moment, and think about the big picture. First of all, our liberal friends believe in government and in political power. So their approach to politics is to seize the commanding heights of the economy for government power. That is what they do; that is what they are. But how can conservatives push back against this? The answer is: they can't, not until the commanding heights in question are broken.

Let's think back. The stunning achievements of the railroads and the steel industry were stigmatized as the work of bandits, like the robber barons of the old Alpine mountain passes that robbed travelers between France and Italy with impunity. It wasn't until government had run the old commanding heights into the ground, with the steel industry bankrupt and transportation losing money for decades that the voters came around and elected politicians to deregulate industry and transportation. Government is still up to its ears in energy, and making a complete mess of it.

The same is true about education and health care. When government offers subsidized education and health care, who is going to say: forget it? On the contrary, you would be a fool to say No. It's free isn't it?

But, of course, government is busy breaking education and health care just as it once broke heavy industry and transportation. Education is a complete mess, with about half the students going to college requiring remedial instruction. And don't even start talking about the educational mess in the inner cities. Health care? The Rand Corporation back in 1971 found that the funding of health care didn't seem to have much of an effect on health outcomes. The more money people had for health care, the more they spent.

Kling and Schulz hold out hope that conservatives are beginning to make a difference in education and health care, but I think that is missing the point. There is only one way that we will force education and health care out of the grip of government. We will get to do it when they are broken.

In a better world, voters would understand that government is force, politics is power, and government wrecks everything it puts its hands on. They would say: forget adding this program or that program; all that will happen is that government will wreck it. But in the real world, people like free services.

In the real world reformers must wait. Reform can only happen when government is broken. If it ain't broke, the voters won't let you fix it.

What Is Called "Austerity?"

When I was a lad growing up in Limeyland in the 1950s the older generation used to talk about the post WWII "austerity." I understood, of course, that they were referring to the rationing and general hard times after the war, during which Britland had to adjust to the fact that the war had pretty well eaten up the seed corn and then some.

Now we are talking about "austerity" again, particularly in the case of the Greeks, who seem, like Falstaff, to "have misused the king's press damnably."

That is to say, the Greek government has handed out tax money and borrowed money left and right and now it is going to have to cut back a bit. In response, the Greeks are rioting in outrage.

We saw a similar, though muted, action in Madison, Wisconsin, from government employees when Gov. Scott Walker (R) proposed to increase, moderately, the contributions required of said government employees to their health and pensions benefits.

In other words, "austerity" means that the government proposes to cut back a little on government benefits. And the usual response by the recipients of government benefits is to riot in the streets (Greece) or take over the State Capitol (Wisconsin).

For some reason, I find this obscene. Here we have monies taken by force from citizens and given, out of the kindness of many hearts, to deserving beneficiaries. When it turns out that there ain't any money left in the kitty, the government determines that benefits must be cut, and so the beneficiaries riot.

There is only one sensible takeaway to this. The government should not distribute benefits among the people. Recipients don't regard the benefits as a remarkable and generous benefaction. They regard them as a right, and they get violent if anyone proposes to cut back on their rights. On top of everything, these government employees are not desperately low-paid, but usually earning something like 50 percent more than equivalent workers in the private sector who, wages and benefits aside, lack the tenure and security of government employment.

None of this is remarkable. Joseph Schumpeter wrote half a century ago that democracy is the rule of the politicians and politicians, before anything else, are people good at winning elections. They promise anything, if it will help them get elected. The problem comes later, when the extravagant promises must meet reality, usually in a recession.

Center-left philosopher Jürgen Habermas has attempted to differentiate between "representational culture" where "where one party [e.g., the king,] sought to "represent" itself on its audience by overwhelming its subject," and "Öffentlichkeit" culture, "a public space outside of the control by the state, where individuals exchanged views and knowledge." The representational culture is pure strategic/instrumental reason, one side trying to use the other as a means, to get something out of them. The Öffentlichkeit culture Habermas calls a process of communicative action, of two sides in a conversation of equals trying to tease out a path to social agreement through discourse. Wikipedia:

Unlike "representational" culture where only one party was active and the other passive, the Öffentlichkeit culture was characterized by a dialogue as individuals either met in conversation, or exchanged views via the print media.

The interesting thing about the administrative state is that it is clearly a "representational" culture, where only one party is active, although our liberal friends go on endlessly about dialog and national conversations.

When are our liberal friends going to catch up with the ideas of their greatest thinkers, release their white-knuckle grip on political power, and allow free and equal dialog about the great political and social questions of the age, most notably the bankruptcy of their administrative welfare state? If we can get to a bit of Öffentlichkeit as a result of all this "austerity" it will be worth the pain and the rioting in the streets.

Exploitation and the Master Race

President Quixote's curious performance in office since 2009 are attributable to his "seductive beliefs," writes Monty Pelerin in the American Thinker, echoing Thomas Sowell here and here. "Exploitation ideology" is the driver of the belief system that seduced Barack Obama, as Sowell illustrates.

One of the painfully revealing episodes in Barack Obama's book "Dreams From My Father" describes his early experience listening to a sermon by the Reverend Jeremiah Wright. Among the things said in that sermon was that "white folks' greed runs a world in need." Obama was literally moved to tears by that sermon.

In my research for An American Manifesto I have come to realize what the exploitation ideology is all about.

If you are a revolutionary that wants to seize political power or you are an activist that wants to increase goverment power you need an exploitation theory. Exploitation theory explains why the world is in a mess. It is because some people are exploiting other people. The only remedy is force. We must fight the exploiters and put them in their place. So anyone, like Barack Obama, who wants political power and wants to exercise it, will probably, given normal intelligence, come up with an exploitation theory. Man bites dog. The only cause for surprise would be a believer in big government that didn't believe in an exploitation theory.

But what about people that already have power, the ruling class? How do they justify their power? They usually develop a Master Race theory. You know how it goes. We landed aristocrats are something special; you can tell because we are bigger and better warriors than the inferior peasants in the country and the money-mad merchants in the city. For Marxists, the master race is the vanguard class that runs the "dictatorship of the proletariat." What about the Progressives that came to power in the US in the early 20th century? No sooner had they come to power than they developed eugenics to justify their right to power and to reduce overbreeding in the unfit lower classes. Our liberal friends in the ruling class of today are confident that they have the right to rule because they are the most educated and intelligent; Republicans are typically not intelligent enough to rule.

The Nazis, of course, ran an exploitation theory and a master race theory at once. The Germans had been tricked out of their rightful place as the most advanced country by a stab in the back orchestrated by stinking Jewish bankers. As a Master Race of Aryans, they had a right to conquer the world and rule it. It was obvious.

Conservatives, of course, have our own version of exploitation theory. We believe it is big government run by liberals that is choking the country to death. Therefore conservatives should replace liberals in the councils of government. Only then will the gross exploitation of the entitlement state come to a just and necessary end.

What about a conservative Master Race theory? Our master race theory probably goes something like this. We, the people of the advanced democracies, are the fortunate heirs to an astonishing tradition of democratic capitalism which has raised the capitalist West from a grubbing life of $1/person/day back in the 18th century to an unimagined prosperity of $100/person/day in the 21st century. Because we've figured it all out, people ought to copy our way of life. And if they refuse and rebel against it, like the Islamist terrorists, we will have no option but to sicc our armed forces on them.

The saving grace of conservatives, if we have one, is that we believe that government and therefore force should be limited. Unlike our liberal friends.

What "Deleveraging" Means

The point, if there is a point, to Keynesian stimulus is to carry the economy over a temporary slump where asset values have been reduced to panic lows. But what about a situation where asset values are permanently reduced, as in the current housing slump?

Chances are that there is no way that house prices will recover to their 2006 highs any time soon. That means that people with underwater mortgages are screwed. They must either continue to pay their mortgages down and eat the loss, or they must take the loss now and walk away from their underwater mortgages.

That, you may say, is their problem. But it is our problem too. So long as the housing market is depressed and there are millions of underwater mortgages, so long will the economy sputter along. It's easy to see why.

When borrowers are above water, then everything is fine. The borrower is making payments and anyway, if the borrower were to get into trouble, the borrower could sell the asset and still repay the loan. When the borrower is underwater, then creditors know they are in danger of losses. They cannot trust the current borrowers because the borrowers are likely renege on their loans. That makes creditors more conservative; they must create a reserve against losses to protect their own financial position and are thus less able and less likely to loan money.

Creditors in this position are "deleveraging." They are reducing the amount of credit they are extending. Debtors too are doing the same thing. They are reducing their indebtedness to reduce the risk of default.

In the US, according to Michael Pento, the temporary stimulus of 2008 to 2010 is spent. "Government intervention can only temporarily circumvent the deleveraging process that is necessary for viable growth."

In other words, sooner or later, all Americans must adjust their financial assets to the new reality after the crash. They must reduce their debt or increase their equity so that their balance sheets show a healthy positive net worth.

Of course, one of the purposes of the government printing money is to lower the value of the dollar and the underwater mortgages so that the nominal dollar value of houses will increase. The problem with that is that, so far, the inflationary money creation has increased commodity prices like oil, gold, silver, copper, and grains and left house prices underwater. Meanwhile the strict regulatory regime of the Dodd-Frank financial reform has made banks less inclined to make risky loans.

We are seeing, to coin a phrase, the euthanasia of Keynesian economics. It is easy to sneer, as Keynes did, at the "rentier" class, the holders of government bonds, and call for their "euthanasia." Maybe back in the 1920s there were just a few of them and it served them right. But today the rentier is the ordinary middle-class saver, the government employee with a stake in a pension fund. Is that what the ruling class wants? To euthanize the ordinary middle-class striver and saver?

The current sluggish recovery is a shocking indictment of everything we have been taught to believe about the ability of government to manage the economy. In fact, the government should observe the Hippocratic oath, do "do no harm," because that is all that it can really achieve, long term. But that kind of policy wouldn't help politicians buy votes.

What Liberals Know That Isn't So

The latest installment in this ongoing saga is the Crash of 2008. Liberals say that it was caused by greedy bankers and their derivatives operating in a climate of deregulation. Just yesterday, a liberal acquaintance was anxious to talk about derivatives bears and lax SEC enforcement. What do you expect the SEC to do, I replied? They are bureaucrats.

Pity that New York Times reporter Gretchen Morgenson and financial analyst Joshua Rosner, in Reckless Endangerment, agree with the conservative line that it was Fannie, Freddie and the Community Reinvestment Act wot did it, as Mona Charen writes.

Of course if you want the full story on 48 Liberal Lies About American History you should go to the full version written by Larry Schweikart. But Larry doesn't include the liberal line on the late, great, financial crisis.

But while we are on the subject let's rehearse some of the biggies, for history is a narrative of power written by the ruling class, and when you want to start a revolution you need to start chipping away immediately at the reigning ruling class narrative.

FDR got us out of the Great Depression. This fib has been modified recently to say that, true, FDR didn't get us out of the Depression economically but he saved the US from fascism or communism. Well who knows? But his price and wage controls in 1933-34 were a bust, and the Wagner Act sent union wages skyward just in time to meet the new 2 percent payroll tax for Social Security in 1937 and a fresh recession within a depression.

JFK was killed by a climate of right-wing hate in Dallas. No he wasn't. JFK was killed by a lefty who'd been to the Soviet Union and Cuba and married a Russian woman.

The Fifties were... Make your mind up liberals. Was it an age of conformism and racism or was it a golden age of equality, as chaps like Paul Krugman now want to insist?

Supply-side economics is a buncha baloney. Liberals have been pushing this line since the days of the celebrated "amiable dunce," and now they are about to hit an economic and political brick wall with their Keynesian big government spending in 2012. In another couple of years liberals will be saying that we are all supply siders now.

I could go on, but I gotta write a book.

Who Is Kidding Whom?

I remain unfazed by the doings of the National Labor Relations Board (NLRB). It is, no doubt, the poster boy for those that said all along that Barack Obama was a left-wing radical, and not the centrist healer of his campaign. In fact I am unfazed by all the extremist politics of Obamaland, from the stimulus that was really a payoff to supporters to the ObamaCare that will lead to government rationing of health care.

I am enough of a Clausewitzean to believe that you can't win a war without a decisive battle, and the best way to win a decisive battle is when your opponent is way over-extended.

It is a sign of the times when even the liberal Denver Post thinks the NLRB has gone too far with its publication of regulations to make it easier to organize the workplace. Writes the Post:

The compressed time frame would deprive employers of the full ability to communicate with employees about the effects of collective bargaining, and it would give employees less time to thoughtfully consider all the issues.

The Post editors are even copacetic with the idea of Boeing building "airplanes in a state with lower costs that is thrilled to have the company."

The reason that I remain unfazed by the Obama administration is that I believe that the Obamis are leading their supporters off a cliff. The result of ObamaCare will be to reverse the decades-long government takeover of health care. The result of the stimulus will be to give stimulus a bad name. The result of the rogue NLRB will be legislation that limits the privileges of labor unions. The liberals don't care. They will do fine; they will find liberal billionaires to fund the Democratic Party. But the union members will be thrown under the bus. The folks without health insurance will find that it's not as easy to game the health care system as it used to be. The government employees will be paying more for their benefits.

It's a shame, of course, because these folks really believed the politicians when they said they cared.

Big Units, Blue Social Model, Meta-narratives

If you read Walter Russell Mead you will quickly bump into "the failure of the Blue Social Model." If you read Michael Barone you will soon encounter talk of the decline of the Big Units: Big Government, Big Business, Big Labor.

These chaps are saying that the great meta-narratives that have sustained the growth and the dominance of the liberal administrative welfare state are breaking down. They no longer explain the way the world works or the way the world ought to work.

And yet, we read daily of the efforts of the National Labor Relations Board to bring back the past: to stop Boeing from assembling aircraft with non-union labor and to change the rules on union organizing by administrative ukase.

The funny thing is that none other than lefty postmodernist Jean François Lyotard has declared that overarching meta-narratives of this kind are bound for the ash-heap of history.

Meta-narratives roughly equate to the everyday notion of what principles a society is founded on. They form the basis of the social boand. The meta-narratives of the Enlightenment were about grand quests. The progressive liberation of humanity through science is a meta-narrative.

For our liberal friends the overarching meta-narrative is the big-government program, that our lives are given meaning when we all contribute to and belong to big-government programs guaranteeing pensions, health care, education, and welfare.

The problem is that when meta-narratives are concretely formulated and implemented, they seem to go disastrously awry. Marxism is the classic case of a meta-narrative based on principles of emancipation and egalitarianism which, when implemented, becomes perverted to totalitarianism under Stalin in the Soviet Union.

In the case of liberal administrative welfarism, we get the utter waste of one-size-fits-all programs captured by the producer interest and slowly delivering less and less service for more and more money--until the whole thing collapses in sovereign debt default.

Yes, but if the old meta-narratives are no more, where shall we go, what shall we do? Lyotard recommends the little narratives of Wittgenstein's language games.

[These are] limited contexts in which there are clear, if not clearly defined, rules for understanding and behavior. We no longer give credence to total philosophical contexts like Marxism which ostensibly would prescribe behavior in all aspects of life, rather, we have lots of smaller contexts which we act within. We are employees, we are students. These roles legitimate knowledge and courses of action in their limited contexts. By fragmenting life into a thousand localized roles, each with their particular contexts for judging actions and knowledge, we avoid the need for meta-narratives. This is the nature of the modern social bond. Our effectiveness is judged in the context of how well we perform in each of these many limited roles.

Thus, instead of sacrificing ourselves into a grand narrative, we "what legitimates knowledge in the postmodern condition is how well it performs, or enables a person to perform, in particular roles."

But judgment by results is the "instrumental reason" of the Enlightenment, and Horkheimer and Adorno have already noted that pure instrumental reason leads to domination: totalitarianism. That is where the three sectors model of Michael Novak comes in: the Greater Separation of Powers between the political, the economic, and the moral/cultural.

Obviously the blue social model, the Big Units notion, ObamaCare, wise regulation by experts at the Environmental Protection Agency or the new Consumer Financial Protection Bureau conjured up by activist academician Elizabeth Warren to be free of Congressional oversight, all these things belong to the big-narrative age. They do not say: let's try something and see if it works. They say: here is the big picture solution; just fall in line and believe and everything will come out right because we have the best experts in charge.

My belief is that we are going into a political cycle that will be the most convulsive in our lifetimes. Our liberal friends are pushing ahead on all fronts on their meta-narrative as though this is their last chance before their Liberal Hour is over. But my hunch is that we will see a monster repudiation of the liberal meta-narrative. Because, after all, the United States has always been a society built upon the pragmatic notion of doing what works.

That's why I voted for Barack Obama. I felt that, when the American people saw what liberals were about and felt it in their pocketbooks they would reject it. And I predict that in 2012 they will do so.