Tag Archives: Milton Friedman

The Progressive Delusion

Anyone looking for an explanation as to why the left went all in on identity politics and matters of conscience need only look at their record where they have long held political sway.

“Blue America,” defined as states that have not voted Republican in presidential elections since the eighties, is lagging “Red America” in virtually every economic category, and the gap is widening. Net migration from blue states to red over the past decade is staggering and the progressive planners are feeling the pain of losing so many taxpayers to fund their social democracy.  And much as activists might salivate over the prospect of “turning Texas blue” or of flooding red states with progressive migrants, the truth is that the blue state diaspora has not effected any real shift in states’ partisan affiliations. People motivated to “vote with their feet” typically do so out of raw economic self-interest and therefore are less inclined to factor politics into the decision to relocate. But even if many of these domestic migrants are motivated by progressive politics and seek to transform states, the aggregate effect of people looking for work and then finding it is generally not one of antipathy toward their new home; quite the opposite. Democrats who move to places like Austin, Orlando, Raleigh or Phoenix to find work and come to appreciate the policy agenda that facilitates vibrant economies are growing in number. Writ large, this phenomenon explains Reagan Democrats. After the malaise of the seventies, the Reagan revolution ushered in growth and opportunity nationwide. Blue collar workers and those without degrees saw with their own eyes how deregulation and lower taxes lead to broad prosperity. Most were Democrats frustrated with high gas prices, high unemployment and higher inflation, yet they were ready to dump partisan affiliation in favor of economic growth and when they got what they were promised, they registered their appreciation by giving Reagan forty-nine states (may Minnesota forever live in shame) in 1984. Ultimately, paychecks trump partisanship.

A similar thing is happening today, only it is the states instead of the federal government leading the way. Federalism – the system of decentralized power and state autonomy championed by Madison for its facility to cater competing experiments within the republic – is ascendant.

One reason to cheer the decline of Democrats’ political fortunes is that it will accelerate the left’s budding flirtation with federalism. As Matt Welch reminds us, in the wake of George W. Bush’s reelection in 2004, desperate Democrats looked to states’ rights as a panacea. “On gay marriage, marijuana, even environmental regulation, progressives were getting in touch with their inner decentralist.” Today the left has won genuine victories on same-sex marriage, gun restrictions, minimum wage and tax increases and, most notably, straight legalization of marijuana. All were achieved at the state level while federal policy lagged behind. Of course, being progressives, the embedded intent in state initiatives is always to lay the groundwork for federal extension. But the fact that the left is working to advance their agenda at the state level at all is encouraging. It is the way things are supposed to work.

Experience can be a hell of a teacher and as the drug war and police state escalate in proportion to the growth of government, progressives are starting to realize government’s inherent dangers. The rising tension between federal prohibition and state legalization of marijuana is instructive. How will they react when the feds bust pot dispensaries in Boulder or Spokane? I doubt it will be to say “well, it’s the law, and we progressives must bow to the benevolent will of our federal government.” Or is it more likely that such an experience would likely nudge a few leftists ever so slightly towards the view that politics and legislation should be conducted as locally as possible? Baby steps to federalism are better than the road to serfdom.

If there is hope yet for grass roots lefties to see the light as a result of government’s expanding reach, the same cannot be said for the leading lights of progressivism. Three celebrity stooges for an unabashed progressive agenda, Elizabeth Warren, Bill DeBlasio and Bernie Sanders believe that cronyism and inequality can be cured by adding more cronyism and bureaucratic oversight to an already straitjacketed economy. Like Occupy Wall Street, their answer to the genuine problem of corporatism and crony privilege is not to fix the underlying incentives that create corruption but to make sure that they are the ones in charge. They have no problem with the federal reserve or quantitative easing, the true culprits of widening income inequality. All are whole hog supporters of the Ex-Im Bank, an almost comical embodiment of special interest and regulatory capture that privileges large corporations over the interests of smaller competitors. Economist Veronique de Rugy’s extensive research “show[s] that the Export-Import Bank’s top beneficiaries constitute a large portion of total financial assistance—and therefore have plenty of reasons to support the upcoming reauthorization.” Elizabeth Warren wants to keep the Ex-Im Bank because to a progressive, eliminating any part of Leviathan is tantamount to admitting failure. So what if the only people in favor of keeping the bank are its direct beneficiaries, Boeing and GE? It is simply more important to the progressive identity that the benighted government they consider theirs be forever guarded. Denying the bureaucracy its ability to meddle in everyday Americans’ lives would be tantamount to stripping however many championships Alabama football claims and make Charlton Heston’s position on gun rights look tame by comparison. What truly vexes is the lack of any question from Warren’s rabid supporters about whether her support for the bank of cronyism is a good idea. The silence speaks volumes and suggests that OWS was never about tackling cronyism. Only the most confused socialist could rail against the injustice of rigged games and corrupt power and call in the next breath for further consolidation of power in the form of more rules and regulations. The farce that passes for leftwing “populism” is in reality just another primal scream against capitalism and a call for mass redistribution of wealth for the sake of fairness. To echo Milton Friedman, “I don’t believe in fairness. I believe in freedom.”

As progressive-led cities across America suffer under terrible policies and worse corruption, it is the poorer citizens who suffer most, from education to crime to jobs. If Democrats held even an ounce of compassion for poor people as they claim, wholesale changes to the public union, tax-and-spend model would have been undertaken long ago. No such changes were made of course, let alone contemplated, since it is the only model they know. As Bill McGurn attests in the Wall Street Journal, progressivism “can claim its victories, here making it more expensive for employees to hire workers, there enshrining some race or gender grievance into law, here again imposing some new tax on millionaires. As a governing philosophy, however, progressive cures tend to leave the people the movement claims to want to help most – the poor and the working class – in worse shape.”

The poor are starting to notice how progressive policy “works” in practice. Black community leaders and Hispanic conservatives are pointing to different approaches to poverty and education because if one thing is clear, it is that America’s urban environments are in crisis and conservatives have not been at the helm of this sinking ship.

Because “progressive leaders [have] few examples of thriving progressive states and cities to point to,” they delude themselves into believing that Americans place matters of petty cultural disagreement above kitchen table concerns. The left is thoroughly convinced of their moral superiority, on everything from compassion, empathy and tolerance to women’s issues and sexuality. In fact, one could be forgiven for thinking the whole Democratic platform is about sex. Or race. Or “science!” Not a lot of particulars or specifics or even slight departures from the status quo regarding opportunity or upward mobility. It is like they believe that denial and obfuscation are enough to keep them in power, and once in power, prior transgressions will just fade away, especially as they work their will on the agenda that the American people really want, even if they don’t know it yet.

The progressive delusion is twofold: delusion about the reality of their economic and political stewardship of urban America and further delusion that economic performance is secondary to cultural considerations. Essentially, the Democrats are betting that cultural grievance and contempt for the “other side” will be enough to neutralize whatever fallout they suffer from being routinely exposed as incompetent inner city stewards. Ready for Hillary should be inspiring. If nothing else, it will be delusional.

 

The Federal Reserve and the Right

Consider me vexed by the glut of pro-Fed conservatives who seem to exist at times just to bash those of us who lament the very existence of central banking. The point of Ron and Rand Paul agitation against the Fed isn’t to convert us back to gold immediately. It’s to raise awareness on an incredibly complex and opaque institution that approximately no one understands. Rome wasn’t built in a day and the Federal Reserve isn’t going to be reigned in and/or dismantled at once either.

In light of the discussion surrounding Yuval Levin’s new book The Great Debate: Edmund Burke, Thomas Paine and the Birth of Right and Left, it’s fine for some conservatives to champion monetarism and cite Milton Friedman and advocate a more tempered attitude towards the Fed. That would be considered a Burkean approach because it takes the world as is and tries to build on what works (“its best self). And for all its flaws and infringements on good principle and sound economics, the central bank does work to a degree, and there are arguments that can be mounted in defense of it. Many respected writers on the right, including Ramesh Ponnuru and James Pethokoukis, defend monetary policy on the grounds that it has largely generated stability while preventing deflationary cycles that end with catastrophic runs on banks. But it’s more important in my view to adopt the Paineian approach and take a principled stand on the very idea of central banks. Thomas Paine believed fervently that every generation enjoyed its own autonomy and that no generation was really bound to its past. Contra Burke, who viewed the past as predicate and emphasized the preservation of institutions and of all the things that are “good” in a society as the true means to achieving progress, Paine saw every custom or cultural institution as a shackle. I’ll have a lot more to say on the fascinating debate between Burke and Paine, as I still am not sure if I agree with Levin’s ultimate siding with the Burkean disposition, especially as it relates to politics in 2014. The Paineian impulse to rely on reason and principle over tradition and custom in a quest to remake society anew according to each successive generation’s own desires explains why Levin asserts that Paine was an important precursor to the idea of the left. That he went on to fully endorse the French Revolution and its obsession with eradicating all remnants of French history supports this claim. When aimed at corrupt institutions though, Paine’s radicalism certainly has its merits, and principled opposition to the institution of the Federal Reserve would certainly have earned plaudits from Paine. The free market and the prosperity that flows from it is an organic process that is only corrupted by arbitrary third parties, and Paine loathed anything with arbitrary power to infringe on individual rights. Powerful and untrammeled as it is, the Fed cannot ever possess enough knowledge to know what optimal rates, yields or prices should be. It can get lucky guessing on occasion, but it can never know as much as the invisible hand.

My question for pro-Fed conservatives who tout their Burkean incrementalism in addressing problems with the central bank and who urge prudence and caution among those flying the End The Fed flag is simple: why is Burke’s method of building upon status quo institutions rather than abolishing them and starting over applicable to the Federal Reserve but not to the welfare state generally? Few if any modern conservatives are proponents of the welfare state – in principle and practice – and most of us are rabid Paine acolytes when it comes to our wishes to curtail both the welfare state and the permanent federal bureaucracy, and “curtail” is probably putting it lightly. Most conservatives and libertarians in 2014 want to see a comprehensive abolition of executive agencies, bureaucratic departments, and welfare state programs. That is not exactly a Burkean outlook. So why do most establishment conservatives insist on Burkean politics regarding the Fed while emulating Paine in their desire to see our government reclaim its first principles?

I understand there are cogent arguments for Fed-provided stability, particularly in the realm of inflation and deflation. Neither is desirable, but inflation is usually preferable to deflation, and the Fed has done a decent job at times of keeping inflation in check while effectively neutralizing the threat of deflation entirely. The problem is that central bank currency printing and bond purchasing alike create illusions of stability and growth while concealing the fact that markets and industries are just receiving distorted price signals which result in a mis-allocation of resources. The very instruments the Fed deploys to facilitate a stable business cycle contribute paradoxically to its volatility. Central planners can’t eliminate the boom-bust cycle in part because they themselves are responsible for it. It’s true that there were panics and crashes prior to the establishment of the Federal Reserve. But the introduction of the Fed did nothing to ease the trend; we’ve had as many or more wild rides with the economy in the Fed era than not. Bubbles form when credit is recklessly expanded, and you don’t need a central bank to recklessly expand credit. Whether you’re looking at the Panic of 1819 or a liquidity crisis of the late 1890’s, volatility and boom-bust cycles are always a risk, central bank or no.

The Fed creates false incentives (i.e. bubbles) that always lead to crashes. Bubbles are vile because lots of wealth and resources get woefully misallocated, but few are aware of the mal-investment due to the Fed’s instruments (like QE) that cloak and conceal the distortion. I understand Milton Friedman’s Burkean insight that central banking is probably here to stay so conservatives might as well figure out how to deal with it and make it least harmful to the market economy as possible, and to a large extent conservatives have succeeded in this arena. Ronald Reagan and Paul Voelcker’s partnership in the early 80’s showed how conservatives can work with the Fed Chairman to combat the rampant inflation carried over from the 70’s. But economic imperatives like inflation, energy prices and stagnation are very different today than they were at the dawn of the Reagan Revolution. Because Reagan succeeded so thoroughly in launching a three decade plus paradigm shift in American economic optimism and output, circumstances have changed (for the better) and the pressing demands of today’s stagnant economy have changed as well. As the progressives continue to cement chronic unemployment as a “new normal” and behave with utter hostility towards the private economy, conservatives need to point out that the income inequality progressives are going on about has only been made worse by their policies and the Fed’s ability to hide the true nature of a pathetic economy through money printing. Oh, and all that quantitative easing and debt monetization did was enhance the balance sheets of some very big and very wealthy banks.