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Showing posts with label Cronyism. Show all posts
Showing posts with label Cronyism. Show all posts
MR wisdom
Best sentence award:
France -- supposedly bureaucratic, dirigiste, labor-protected France -- builds subways and high speed trains for far less than we pay. Something about the US government makes us singularly inefficient in public expenditures. Don't expect the French health care model to cost the same here either.
A prime candidate, in my view, is the US habit of federal financing plus state and local decision making. Local politicians who are spending national taxpayer money have very little incentive to reduce costs.
"It will not escape notice that New York buys subway construction the way all of America buys health care."-Alex Tabarrok, Marginal Revolution, covering an excellent New York Times article on why subway construction in New York is so insanely expensive.
France -- supposedly bureaucratic, dirigiste, labor-protected France -- builds subways and high speed trains for far less than we pay. Something about the US government makes us singularly inefficient in public expenditures. Don't expect the French health care model to cost the same here either.
A prime candidate, in my view, is the US habit of federal financing plus state and local decision making. Local politicians who are spending national taxpayer money have very little incentive to reduce costs.
Hazlett on Spectrum
The public and media discussion of "net neutrality" seems to have degenerated to "we want stuff for free." In the end, it does cost something to deliver internet, and the bandwith is limited.
The (artfully named) "net neutrality" regulation was really a return to utility rate regulation, in which the regulators say who gets what, and how much they can charge. Just what a rosy success that was not, seems to have been forgotten.
In this context, it seems especially worth reporting on an event from last week. Tom Hazlett, former Chief Economist of the FCC, came to Hoover to discuss his new book "Political Spectrum," which covers the history of the US government regulation of radio (TV, and cell phone) waves, largely through the same FCC that was in charge of "net neutrality." (I haven't read the book, this is a summary of the seminar discussion.)
Contrary to conventional wisdom, the market for spectrum worked well until 1927, in just the way economists might expect. Property rights to spectrum emerged, evolved, and worked well.
Radio was, at first, considered only for point to point communication. It stayed that way until 1920, when the first broadcast occurred. Within 2 years there were 500 broadcasters.
Contrary to the common allegation of “etheric bedlam” the market was actually orderly through 1926. Under the 1912 radio statute, the Department of Commerce enforced first-come first-serve rules, basically homesteader rights to spectrum in a geographic area and time. Those emergent property rights were registered with Department of Commerce, and easily bought and sold. If a new station encroached on your frequency/geography, you could quickly sue and stop it.
Regulation emerged in much the way a public choice economist might predict. The regulators wanted much more discretion — they wanted to control who got to broadcast and what was said. The large commercial stations wanted to limit entry and competition. The National Association of Broadcasters quickly became a lobbying group and advocated “public interest, convenience, and necessity” to regulate. [Yes, in only 5 years an industry that nobody had ever heard of or thought of became an incumbent lobbying force for regulation to stop entry and competition.] Herbert Hoover, (sadly) the commerce secretary at the time stopped enforcing enforcing first-come first-serve rights in 1926. Now there was indeed chaos, the “breakdown in the law.” According to Hazlett, this was a strategic breakdown to get regulation going. That regulation was formalized in the 1927 radio act. The first sentence of the act preempted private rights to spectrum.
Now, rather than property rights, spectrum was allocated by a “mother may I” system. In 1932 FCC, took over authority of wires to.
Regulation was quickly captured to stop competition and innovation.
Hazlett offered FM radio as the classic example. Howard Armstrong (famous inventor) in 1933 created FM radio, which as we know is technically much better than AM. He had to ask the FCC for spectrum. FCC experts said it wouldn’t work. In 1939 he finally got some spectrum allocation for FM, and started selling FM radios. WWII stopped everything, as civilian radio production stopped. In 1945, broadcast TV lobbied the FCC for the FM spectrum, and the FCC moved FM from the 40 mhz range to 88-108 Mhz, making all existing radios obsolete. Armstrong had to start over. When finally in the 1960s FM was finally allowed, it immediately took over from AM for music; [as we know it has much wider frequency response, and “no static at all”.]
That’s a nutshell of “mother may I” regulation — it suppresses competition and deters innovative technologies, in this case for a quarter century.
Again in the 1960s, TV and cable repeated the story, regulation used to protect incumbents and stop innovation.
In likely the most famous speech by an American regulator, May 9 1961, FCC chairman Newton N. Minow characterized TV as a “vast wasteland.” He forced stations to show “public interest” to get a license renewal.
In the early 1960s, cable began to compete. Broadcasters naturally tried hard to stop it. From 1948-to the 1960s, cable only extended the range of broadcast TV signals. But in the 60s, cable started to offer competing broadcasts. The over the air broadcasters got Minnow to block cable, on the grounds that cable would destroy broadcasters’ profitability, and therefore their provision of public interest news and other public interest programming. This lasted until the late 1970s.
In an equally famous and vilified speech, FCC chairman Mark Fowler argued that “TV is just a toaster with pictures.” He argued for competition, free entry, entrepreneurship and letting people choose. He argued against the “public interest” standard, and for minimalist regulation.
Cable was deregulated. It immediately produced hundreds of channels, including CSPAN, and the all-news CNN. The result was, ironically much more news and public affairs, just what FCC said it was protecting, in place of networks’ 15 minute nightly news.
Hazlett covers the decades-long still-partial liberalization, and a lot of interesting detail on how spectrum auctions work (and don't work).
1st generation wireless mobile got licenses in the 1980s, though the technology was announced in 1945. Getting this spectrum allocation was called the “30 years’ war.”
In the 1970s, the FCC decided that only a monopoly can do cell phone service, and gave it to Bell. By the 1980s radicals said maybe there could be 2 cell phone companies. The Department of Justice had to sue the FCC to get more than one license.
Even in the first generation, there were only 2 competitors, and standards were set by the government. By early 2000 though, the US and many countries auctioned licenses and allowed liberal de-facto property rights. Regulators now allow mobile licensees to figure out networks, architecture (size, location, and power of stations), and use their own applications. In 2005, the iPhone was like FM, and needed spectrum. But this time it didn’t have to ask permission. Apple negotiated with Verizon and AT&T, initially going with AT&T exclusive for the iphone. It ended up that the price was negative — carriers wanted the iPhone on their network enough to pay for it.
2- 5 G wireless and the “internet of things,” is built through private coordination. But it is fragile. The old law is in place. Regulators have simply interpreted their mandate for “public interest,” and that liberalization and rights are working.
Most spectrum is still regulated. Of the “beach front” under 4 Ghz ,15% (mobile) is largely unrestricted, assigned by auction. About half is allocated to government, military, and forestry, and a wide swath is still owned by broadcast TV.
Now, do you really want the FCC to decide who gets to put what on the internet, how much they get to charge, and to control its architecture?
The (artfully named) "net neutrality" regulation was really a return to utility rate regulation, in which the regulators say who gets what, and how much they can charge. Just what a rosy success that was not, seems to have been forgotten.
Contrary to conventional wisdom, the market for spectrum worked well until 1927, in just the way economists might expect. Property rights to spectrum emerged, evolved, and worked well.
Radio was, at first, considered only for point to point communication. It stayed that way until 1920, when the first broadcast occurred. Within 2 years there were 500 broadcasters.
Contrary to the common allegation of “etheric bedlam” the market was actually orderly through 1926. Under the 1912 radio statute, the Department of Commerce enforced first-come first-serve rules, basically homesteader rights to spectrum in a geographic area and time. Those emergent property rights were registered with Department of Commerce, and easily bought and sold. If a new station encroached on your frequency/geography, you could quickly sue and stop it.
Regulation emerged in much the way a public choice economist might predict. The regulators wanted much more discretion — they wanted to control who got to broadcast and what was said. The large commercial stations wanted to limit entry and competition. The National Association of Broadcasters quickly became a lobbying group and advocated “public interest, convenience, and necessity” to regulate. [Yes, in only 5 years an industry that nobody had ever heard of or thought of became an incumbent lobbying force for regulation to stop entry and competition.] Herbert Hoover, (sadly) the commerce secretary at the time stopped enforcing enforcing first-come first-serve rights in 1926. Now there was indeed chaos, the “breakdown in the law.” According to Hazlett, this was a strategic breakdown to get regulation going. That regulation was formalized in the 1927 radio act. The first sentence of the act preempted private rights to spectrum.
Now, rather than property rights, spectrum was allocated by a “mother may I” system. In 1932 FCC, took over authority of wires to.
Regulation was quickly captured to stop competition and innovation.
Hazlett offered FM radio as the classic example. Howard Armstrong (famous inventor) in 1933 created FM radio, which as we know is technically much better than AM. He had to ask the FCC for spectrum. FCC experts said it wouldn’t work. In 1939 he finally got some spectrum allocation for FM, and started selling FM radios. WWII stopped everything, as civilian radio production stopped. In 1945, broadcast TV lobbied the FCC for the FM spectrum, and the FCC moved FM from the 40 mhz range to 88-108 Mhz, making all existing radios obsolete. Armstrong had to start over. When finally in the 1960s FM was finally allowed, it immediately took over from AM for music; [as we know it has much wider frequency response, and “no static at all”.]
That’s a nutshell of “mother may I” regulation — it suppresses competition and deters innovative technologies, in this case for a quarter century.
Again in the 1960s, TV and cable repeated the story, regulation used to protect incumbents and stop innovation.
In likely the most famous speech by an American regulator, May 9 1961, FCC chairman Newton N. Minow characterized TV as a “vast wasteland.” He forced stations to show “public interest” to get a license renewal.
In the early 1960s, cable began to compete. Broadcasters naturally tried hard to stop it. From 1948-to the 1960s, cable only extended the range of broadcast TV signals. But in the 60s, cable started to offer competing broadcasts. The over the air broadcasters got Minnow to block cable, on the grounds that cable would destroy broadcasters’ profitability, and therefore their provision of public interest news and other public interest programming. This lasted until the late 1970s.
In an equally famous and vilified speech, FCC chairman Mark Fowler argued that “TV is just a toaster with pictures.” He argued for competition, free entry, entrepreneurship and letting people choose. He argued against the “public interest” standard, and for minimalist regulation.
Cable was deregulated. It immediately produced hundreds of channels, including CSPAN, and the all-news CNN. The result was, ironically much more news and public affairs, just what FCC said it was protecting, in place of networks’ 15 minute nightly news.
Hazlett covers the decades-long still-partial liberalization, and a lot of interesting detail on how spectrum auctions work (and don't work).
1st generation wireless mobile got licenses in the 1980s, though the technology was announced in 1945. Getting this spectrum allocation was called the “30 years’ war.”
In the 1970s, the FCC decided that only a monopoly can do cell phone service, and gave it to Bell. By the 1980s radicals said maybe there could be 2 cell phone companies. The Department of Justice had to sue the FCC to get more than one license.
Even in the first generation, there were only 2 competitors, and standards were set by the government. By early 2000 though, the US and many countries auctioned licenses and allowed liberal de-facto property rights. Regulators now allow mobile licensees to figure out networks, architecture (size, location, and power of stations), and use their own applications. In 2005, the iPhone was like FM, and needed spectrum. But this time it didn’t have to ask permission. Apple negotiated with Verizon and AT&T, initially going with AT&T exclusive for the iphone. It ended up that the price was negative — carriers wanted the iPhone on their network enough to pay for it.
2- 5 G wireless and the “internet of things,” is built through private coordination. But it is fragile. The old law is in place. Regulators have simply interpreted their mandate for “public interest,” and that liberalization and rights are working.
Most spectrum is still regulated. Of the “beach front” under 4 Ghz ,15% (mobile) is largely unrestricted, assigned by auction. About half is allocated to government, military, and forestry, and a wide swath is still owned by broadcast TV.
Now, do you really want the FCC to decide who gets to put what on the internet, how much they get to charge, and to control its architecture?
Exceptionalism
A few snippets:
To be a conservative—or, as in my case, an empirical, Pax-Americana, rule-of-law, constitutionalist, conservative libertarian—is pretty much by definition to believe that America is “exceptional”—and that it is perpetually in danger of losing that precious characteristic.
So why is America exceptional, in the good sense? Here, I think, economics provides a crucial answer. The ideas that American exceptionalism propounds have led to the most dramatic improvement in widely shared well-being in human history.... Without this economic success, I doubt that anyone would call America exceptional.
Despite the promises of monarchs, autocrats, dictators, commissars, central planners, socialists, industrial policy makers, progressive nudgers, and assorted dirigistes, it is liberty and rule of law that has led to this enormous progress.
I locate the core source of America’s exceptional nature in our legal system—the nexus of constitutional government, artfully created with checks and balances, and of the rule of law that guides our affairs. And this is also where I locate the greatest danger at the moment.
The erosion of rule of law is all around us. I see it most clearly in the explosion of the administrative, regulatory state.This is the main theme:
the rules are so vague and complex that nobody knows what they really mean.. the “rules” really just mean discretion for the regulators to do what they want—often to coerce the behavior they want out of companies by the threat of an arbitrary adverse decision.
The basic rights that citizens are supposed to have in the face of the law are also vanishing in the regulatory state.
Retroactive decisions are common,..
I fear even more the political impact. ... The drive toward criminalizing regulatory witch hunts and going after the executives means one thing: those executives had better make sure their organizations stay in line.
The key attribute that makes America exceptional—and prosperous—is that candidates and their supporters can afford to lose elections. Grumble, sit back, regroup, and try again next time. They won’t lose their jobs or their businesses. They won’t suddenly encounter trouble getting permits and approvals. They won’t have alphabet soup agencies at their doors with investigations and fines... We are losing that attribute.
In many countries, people can’t afford to lose elections. Those in power do not give it up easily. Those out of power are reduced to violence. American exceptionalism does not mean that all the bad things that happen elsewhere in the world cannot happen here.Always be optimistic though:
The third article in exceptionalist faith, however, is optimism: that despite the ever-gathering clouds, America will once again face the challenge and reform. There is a reason that lovers of liberty tend to be Chicago Cubs fans.The other essays are great. Niall Ferguson basically thinks exceptionalism is over.
Trade insight
Daniel Hannan, a (soon to be unemployed?) UK member of the European Parliament, writes insightfully about trade in the Saturday Wall Street Journal.
It is telling that neither of the Obama administration’s flagship trade deals—the Transatlantic Trade and Investment Partnership, or TTIP, and the Trans-Pacific Partnership—even had “free trade” in the title. Although they had liberalizing elements, they also contained a great deal of corporatism.
Monitoring TTIP as a member of the European Parliament, I saw plainly enough what was going on: Big multinationals in Europe were getting together with big multinationals in the U.S. and lobbying for more regulation. By combining the most restrictive rules in the EU and the U.S., they aimed to raise barriers to entry and to give themselves an effective monopoly.There is a deep point here. Our trade treaties have strong elements of managed mercantilism, not free trade, and can serve the interests of global corporations. There is a "better" trade that is also freer trade, and may address some of the political unpopularity of trade deals. Hannan has in mind a very open US-UK bilateral deal, but more deeply states clearly and concisely how better trade deals could work in general
A British-American deal should avoid that danger. How? By focusing on mutual product recognition rather than on common standards. If a drug is approved by the U.S. Food and Drug Administration, it should automatically be approved for sale in the U.K. If a trader can practice in the City of London, he should automatically be licensed to practice on Wall Street. And so on.
A commercial deal, in this case as in any other, should have nothing to do with human rights or child labor or climate change. Important as those issues are, they are separate from the free exchange of products.
... Once Britain no longer has to worry about the protectionism of French filmmakers, Italian textile manufacturers and the rest, we should reach a comprehensive agreement covering services as well as goods. If we make sure that the resulting deal is in the interest of consumers rather than producers, we could revive the whole notion of free trade, which is something the world very much needs just now.
Trump Taxes Two
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| Source: Wall Street Journal |
To be more precise, he has a revocable trust that owns 99% of a Delaware limited liability company that owns 99% of another Delaware LLC that owns a Scottish limited company that owns another Scottish company that owns the 26-year-old Sikorsky S-76B helicopter, emblazoned with a red “TRUMP” on the side of its fuselage."So write Jean Eaglesham, Mark Maremont, and Lisa Schwartz in the Wall Street Journal
"WTF?" wonders the incredulous reader. Why does Mr. Trump structure his finances with such mind-boggling complexity, to say nothing of astronomic legal costs? The article is pretty thin on explaining the logic of all this.
You can see the Journal writers struggling for a narrative. Is this about Mr. Trump's "conflict of interest" issues? Is this something nefarious about Mr. Trump, efforts to hide something? (You can be sure earnest investigative reporters at the Times will be beating both drums for the next four years. And just as sure that nobody will pay much attention unless they can tempt Mr. Trump into saying something stupid about it all.)
Let me suggest a productive narrative. Mrs. Clinton's email saga laid bare for all of us to see the financial arrangements of prominent public figures -- "charitable foundations" to funnel money around, all "legal." In my view, rightly felt disgust at that look into our political system had a lot to do with the election. Mr. Trump's financial arrangements lay bare for all of us to see the financial arrangements of the super-wealthy in this country, also massively complex, perfectly "legal," and smelling equally of last week's fish. The right response is equal disgust at the obscene tax code and crony capitalist system that produces this mess. Mitt Romney's taxes were 550 pages long, and he only had investments, not operating companies! Fellow peasants, get out your pitchforks!
What are all these shell companies about? I would love to hear from some of the attorneys who set these things up. But we get some hint from the article
LLCs registered in Delaware are widely used for real estate because of their tax advantages.
Delaware LLCs don't have to publish any financial information or even disclose the identity of the owner. In addition, the most a member of an LLC can lose if the company fails is normally the amount he or she has invested in that companyI actually know something about this because, like Mr. Trump I own an aircraft. Mine doesn't even have an engine, but the law is the same. When you register an aircraft, the state sales tax authorities come looking for you and want their share. If you register the aircraft in a Delaware LLC, they have a much tougher time finding you. Google "Delaware Aircraft Registration" and many ads from very nice companies will pop up explaining it all. If your airplane is worth less than $100,000, it's not worth the bother. (Disclosure: I paid the sales tax. Chump that I am.) If its worth millions, it is very much worth the bother. Google the FAA aircraft registry (public, online) and you will see lots of Delaware owners. Hint, there aren't a lot of airports in Delaware.
I suspect this is about a lot more than sales taxes. There has been another drumbeat that Mr. Trump should sell or transfer his businesses to his children. This is ridiculous to anyone who pays taxes. If you actually sell a business you pay a huge capital gains tax, and if you transfer it you pay a huge gift tax. The affairs of real estate moguls are exquisitely structured to avoid estate and gift taxes, through vehicles and trusts that need to operate over long spans of time. It helps a lot to have very complicated structures where nobody knows what anything is worth.
(The second big advantage, mentioned in the above ads, is protection from liability. If the plane crashes into a puppy farm, they won't be able to go after Mr. Trump's other assets.)
The journal article also tries on the narrative that we don't know how much Mr. Trump is really worth, I think keeping up the spin from the campaign that maybe he was lying about his billions. But that too deserves a better narrative. We don't know how much he's worth. Neither does Mr. Trump, pretty obviously. Why did he set up his businesses so it is impossible for even him to know how much he's worth? Well, stated that way, one conjectures it's a pretty good idea for the IRS to be unable to figure out how much you're worth too!
Every time a sensible person pipes up that we should repeat 1986, lower marginal rates of the federal income tax, broaden the base, and simplify the tax code, our friends on the left (including a lot of prominent economists, who should know better than to echo propaganda) scream "tax cuts for the rich!" Reading this story, I can imagine just how much Mr. Trump's lawyers and accountants chuckle when they hear that. Personal income taxes? Who even bothers with those!
What has happened to America that, if you have the money to buy a plane, it is perfectly normal to route that purchase through a network of Delaware LLCs? What has happened to America that any citizen living on an investment portfolio should file 550 pages of personal tax returns? What has happened to America that if you ask for estate planning, even just on the web, it is perfectly normal that any citizen should set up a living trust, a trust A and trust B to get spousal exemptions, a descendants' trust to preserve the generation-skipping limit, and if you have any real money a grantor retained annuity trust and so on? What has happened to America that every wealthy person, and especially sports personalities, politicians and moguls, sets up a "charity" so they can write off private jet travel, the salaries of their entourage, and "employ" their relatives? Workers of America (and by this I mean rather unfashionably people who, like, actually work, and therefore pay taxes) unite, you have nothing to lose but your piles of papers and what should be your seething sense of injustice!
Really, and I appeal to my friends on the left here: Seeing this insanity, don't you want to throw it all out and have a simple VAT or consumption tax -- and nothing else? Both Mr. Trump and Mrs. Clinton would pay a lot more taxes! (The Hall-Rabushka proposal is one good implementation.)
(Previous Trump Tax post here.)
Growth full oped
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| Source: Wall Street Journal |
Don't Believe the Economic Pessimists
No matter who wins Tuesday’s presidential election, now ought to be the time that policy makers in Washington come together to tackle America’s greatest economic problem: sclerotic growth. The recession ended more than seven years ago. Unemployment has returned to normal levels. Yet gross domestic product is rising at half its postwar average rate. Achieving better growth is possible, but it will require deep structural reforms.
The policy worthies have said for eight years: stimulus today, structural reform tomorrow. Now it’s tomorrow, but novel excuses for stimulus keep coming. “Secular stagnation” or “hysteresis” account for slow growth. Prosperity demands more borrowing and spending—even on bridges to nowhere—or deliberate inflation or negative interest rates. Others advocate surrender. More growth is impossible. Accept and manage mediocrity.
But for those willing to recognize the simple lessons of history, slow growth is not hard to diagnose or to cure. The U.S. economy suffers from complex, arbitrary and politicized regulation. The ridiculous tax system and badly structured social programs discourage work and investment. Even internet giants are now running to Washington for regulatory favors.
If you think robust growth is impossible, consider a serious growth-oriented policy program—one that could even satisfy many of the left’s desires.
• Taxes. The ideal tax system raises revenue for the government while distorting economic decisions as little as possible. A pure tax on consumption, with no corporate, income, estate, or other taxes is pretty close to that ideal.
The U.S. tax system is the opposite: By exempting lots of income, the government raises relatively little money. Yet an extra dollar is heavily taxed, greatly lowering incentives and encouraging people to find or create exemptions. This massive complexity and obscurity undermine faith in the system.
Progressives, ponder this: With a sales tax of only 25%, the government would likely have gotten a lot more money from Donald Trump—who has employed complex but legal tax-avoidance schemes—than it did by purporting to tax income at high rates.
• Regulation. U.S. regulation is arbitrary, slow, discretionary and politicized. Speak out on the wrong side of the party in power and some federal agency will be after you.
Imagine a deep rule-of-law regulatory reform, along the lines proposed by House Speaker Paul Ryan’s “Better Way” plan. Congress must review and approve major regulations. People and businesses have a right to see evidence and appeal. Regulators face a shot clock—no more years and years of delays on decisions. Agencies must conduct serious, transparent and retrospective cost-benefit analysis.
Imagine a similar deep reform of state and local restrictions including zoning laws and occupational-licensing regulations.
• Social programs. When many people earn an extra dollar, they lose more than a dollar of benefits. If we fixed these disincentives, more Americans would work—and fewer would need benefits.
• Health. Replace ObamaCare with a simple health-insurance voucher. Deregulate insurance and entry into health care dramatically.
• Finance. Replace strangling regulation of financial companies with a simple rule: If you issue enough equity that stockholders bear the risks, you can do what you want. Rep. Jeb Hensarling has proposed such legislation. Hearty competition is the best consumer protection.
• Labor. The best worker protection is a worker’s ability to swiftly change jobs. This is more likely if employers do not face a mountain of red tape, complex rules and legal liability.
• Immigration and trade. The politically incorrect truth: Allowing Americans to buy from the best supplier and permitting people who want to work and start businesses to immigrate is good for the economy. Trying to impoverish China will not revive America.
• Education. Let lower-income Americans get a decent education from charter schools and vouchers.
• Energy. Trade all the crony subsidies and credits and regulations for a simple uniform revenue-neutral carbon tax. The country will have more growth and less carbon.
It would take an entrenched obtuseness to claim such a program cannot substantially improve economic output and incomes. If you claim such good policy cannot help, then it follows that bad policies do not hurt. Nativism, trade barriers, overregulation, legal capture, high taxes, controlled markets and people excluded from work won’t hurt our slow but positive growth. Don’t give populists cover to try it again.
If you object that such good policy is politically infeasible, then you at least grant that robust growth is economically possible. And small steps help. Current bipartisan proposals to reform taxes, Social Security, immigration, the regulatory state and trade agreements would go a long way to reviving growth. Have a bit more faith in democracy.
On the other hand, the major party presidential candidates’ signature plans—child-care tax credits, college subsidies, higher taxes on people who don’t hire good enough lawyers; threatening a trade war and deporting millions of unauthorized immigrants—cannot revive substantial growth.
So why is there so little talk of serious growth-oriented policy? Regulated and protected industries and unions, and the politicians who extract support from them in return for favors, will lose enormously. The global policy elite, steeped in Keynesian demand management for the economy as a whole, and microregulation of individual businesses, are intellectually unprepared for the hard project of “structural reform”—fixing the entire economy by cleaning up the thousands of little messes. Even economists fight to protect outdated skills.
Mr. Cochrane is a senior fellow of the Hoover Institution and an adjunct scholar of the Cato Institute.
Carrier Commentary
When Paul Krugman, Larry Summers, Sarah Palin, and the Wall Street Journal all agree on something -- that presidential deal-making and strong-arming over plant location is a terrible idea -- it's worth paying attention to.
I think Tyler Cowen did the best job of describing what's wrong with the deal, interviewed on NPR. (Transcript, Highlights and audio link).
(This is an impressive radio interview. I long to be able to express something that quickly clearly and coherently on radio. Tyler must have really prepared hard for it.)
Brooks and Shields
Who will defend President-Elect Trump? Surprisingly, Mark Shields, in a very interesting Shields and Brooks segment on the PBS newshour.
First David Brooks did a great job of slamming the deal, as Cowen did
Yes, presidential politics is not ivory tower economics, and occasionally Presidents have to do something abjectly wrong to garner support for a greater purpose. It's a delicate and dangerous act though -- if this is where we're going, early in an administration is the best time to do some hard things, set in motion policies that actually work, set a high bar against demands for cronyist payouts, and trust that four years of good policy will pay off.
The best hope in this direction is for the President to score some points, and for a loud chorus of serious policy people, from left and right, to denounce any more moves in this direction. This is exactly what has happened. Really, it gives one great hope that just about every commentator left and right says this is not the way to go.
Shields and Brooks are also nicely consistent. Shields:
Peggy Noonan
I was most disappointed in Peggy Noonan, usually excellent, in the Wall Street Journal, and approving of the deal for all the wrong reasons: to her it wasn't just a little political pandering thank you, but the path forward
Curiously, Peggy seems to get that.
He may have "thought" he was right. His Keynesian advisers had also forgotten lessons of two thousand years of history and thought jawboning an excellent idea. But this is precisely why we have a rule of law -- so that leaders who "think" they are right about the proper level of steel prices cannot wreck the economy.
Just as Trump's action is abjectly wrong on policy. For just as many thousands of years, leaders have been cutting Carrier-like deals, to just as contrary effect. It is our duty to say that, to undercut the political popularity that presidents can gain by counterproductive policies, especially when the means trample the rule of law.
"a Republicanism in new accord with the needs of the moment" is a Republicanism that works. And the point of "work" is not just to win the next election, or give people things that feel good but impoverish them. The need of the moment is leadership, to channel people's well deserved anger into a productive direction.
I hope Peggy will someday write a piece titled, "the worst sentence I ever wrote," in honor of
I think Tyler Cowen did the best job of describing what's wrong with the deal, interviewed on NPR. (Transcript, Highlights and audio link).
(This is an impressive radio interview. I long to be able to express something that quickly clearly and coherently on radio. Tyler must have really prepared hard for it.)
INSKEEP: Don Evans says this is a way for the president-elect to send a strong message to workers and to corporations about what his priorities are. What's wrong with that?(If it's not obvious one could add, 1) Every million dollars of tax break Carrier gets to stay in Indiana is a million dollars someone else has to pay instead -- likely a smaller company that hires more people. 2) If the US could, in fact, take jobs back from Mexico, then each such job taken back is one more Mexican who wants to migrate to the US. 3) Capital and current accounts add up. If carrier invests $1 M in Mexico, then US exports must increase by $1M. And vice versa. 4) If it's profitable to build air conditioners in Mexico, then someone else will do it and that Carrier plant is toast anyway.)
TYLER COWEN: We're supposed to live under a republic of the rule of law. Not the rule of man. This deal is completely non-transparent. And the notion that every major American company has to negotiate person-to-person with the president over Twitter is going to make all business decisions politicized.
INSKEEP: What do you mean it's nontransparent, first of all?
COWEN: We don't know exactly what the company is getting. There's plenty of talk that the reason Carrier went along with the deal was because they were afraid their parent company would lose a lot of defense contracts. So this now creates the specter of a president always being willing to punish or reward companies depending on whether or not they give him a good press release.
INSKEEP: Why don't you explain to me the thing about the parent company, which is United Technologies?
COWEN: Yes, they do a lot of defense contracting. It's at least 10 percent of their revenue. Carrier, from the state of Indiana, was already offered the tax break before the election. They turned it down. Now, all of a sudden, Trump is President. Bernie Sanders is telling Trump to threaten the defense contract of the parent company, and now, all of a sudden, the company takes the deal. And Trump is known for being somewhat vindictive. This, to me, is scary. It indicates an environment where business decisions are now about how much you please the president.
INSKEEP: Now, you just said an interesting thing. Bernie Sanders, a socialist of the Democratic Party, did, a few days before the deal was announced, say that Trump ought to use the leverage of the defense contracts to get United Technologies to change its behavior. We don't know on a factual basis that's actually what happened, but - but you're noting that this is kind of a leftist thing to do.
COWEN: That's correct. Trump and Bernie Sanders, for all of their populist talk, their are actual recipes in both cases lead to crony capitalism.
INSKEEP: What's crony capitalism?
COWEN: Crony capitalism is a system where businesses who are in bed with the government and who give the president positive press releases are rewarded and where companies who oppose or speak out against the president are, in some way, punished.
INSKEEP: David Wessel of the Brookings Institution said on our air the other day that this act reminded him of something that is done from time to time in France - under the socialist government in France. And I'm also thinking of Venezuela, where the late President Hugo Chavez would go on TV and denounce companies and demand that companies do specific things. And of course, the economy there has ended up being a complete mess. Is that - is that a fair comparison at all?
COWEN: Well, we're not close to that point yet, but we're taking baby steps in that direction. And the way you avoid getting to that point is by having people speak out when they see the baby steps.
INSKEEP: If the president-elect gets results, at least some of the jobs - at least for now - are staying in Indiana. Does it really matter how he does it?
COWEN: Well, keep in mind the broader numbers. Since the year 2000, Indiana has lost 150,000 manufacturing jobs. And this, at best, assuming all goes well, saves a thousand of those. So to actually make a dent in the problem, jawboning isn't the way to do it. It's changing economic incentives and making it more cost-effective to hire people in the United States. And none of this really does that.
Brooks and Shields
Who will defend President-Elect Trump? Surprisingly, Mark Shields, in a very interesting Shields and Brooks segment on the PBS newshour.
First David Brooks did a great job of slamming the deal, as Cowen did
The job of government is to be a level playing field where companies compete and make money honestly. And by rewarding one company over another, by getting involved in these sort of petty deals, the first thing you’re doing is encouraging rent-seeking, for companies to make money off government, rather than the honest way.
And the second thing, it’s — and especially in this administration, it’s an invitation to corruption. If you’re cutting deals with company after company, doing this kind of deal, that kind of deal, inevitably, there is going to be a quid pro quo. There is going to be under-the-table lobbying.
And it’s just a terrible precedent for our economy and for the administration.But that's easy. Shields, the "left" commenter, had the harder job, defending Trump's action:
I think it is bad public policy. I think it’s a political masterstroke. I think Donald Trump raised this issue during the campaign. When it first appeared, when Carrier showed the gross insensitivity, where it was on YouTube, where they went in and told the 1,000 workers that their jobs were leaving, that the company was leaving, and it was just — it was abjectly insensitive to the workers. And Donald Trump picked that up. It was part of his prairie populism of the time, unlike his Cabinet appointments to Treasury and Commerce.
And I think Donald Trump, this is a masterstroke that he said he would do something, he did it, and it’s been a long time since the president of the United States has made that kind of an announcement.
Is it a coherent national macro-policy? No. But as a micro-act, it’s a very positive act politically. And I think it reflects better upon him and his commitment to these people and their well-being and their survival than an awful lot that’s happened in the past.I'm almost -- but not quite -- convinced. Shields' narrow window of hope is that this was a one-off, rather brilliant symbolic political act, and that now the Trump administration will focus on serious policy, which mostly means bringing rule of law back to regulation and eliminating interference of this sort.
Yes, presidential politics is not ivory tower economics, and occasionally Presidents have to do something abjectly wrong to garner support for a greater purpose. It's a delicate and dangerous act though -- if this is where we're going, early in an administration is the best time to do some hard things, set in motion policies that actually work, set a high bar against demands for cronyist payouts, and trust that four years of good policy will pay off.
The best hope in this direction is for the President to score some points, and for a loud chorus of serious policy people, from left and right, to denounce any more moves in this direction. This is exactly what has happened. Really, it gives one great hope that just about every commentator left and right says this is not the way to go.
Shields and Brooks are also nicely consistent. Shields:
I give Barack Obama great credit for the rescue of the United States automobile industry. It saved hundreds of thousands of jobs.Unlike, say, Paul Krugman, who has been madly tweeting (correctly) that Carrier is bad policy -- but the same thing done by Democratic administrations such as the auto bailout are of course fantastic ideas.
Peggy Noonan
I was most disappointed in Peggy Noonan, usually excellent, in the Wall Street Journal, and approving of the deal for all the wrong reasons: to her it wasn't just a little political pandering thank you, but the path forward
This is called economic nationalism but whatever its name it suggests a Republicanism in new accord with the needs of the moment...She went on to tell the story of a related Kennedy escapade. Excerpts:
It was 1961 and the new president, John F. Kennedy, had been trying to signal to big business that they could trust him.. His impulses were those of a moderate of his era: show budgetary constraint, keep costs and prices down, prevent inflation.....I emphasized the paragraph of actions that Kennedy took. Each measure is blatantly illegal and an abuse of power. If you think abuse of the regulatory state and prosecutorial power for political purposes are new dangers, let this remind you just how far back it goes.
That September Kennedy asked the industry to forgo a price increase. He asked the steelworkers union for wage demands... Early in 1962 his labor secretary, Arthur Goldberg, put together a deal. In the spring the union and the steel companies accepted it. Everyone understood the industry would not raise prices.
A few days later Roger Blough, chairman of the board of mighty U.S. Steel, asked to see the president. He handed him a four-page mimeographed statement announcing his company would raise steel prices $6 a ton. ...
Soon Bethlehem Steel raised its prices. Other companies followed.
Now Kennedy was enraged. Accepting Blough’s decision would undo all his wage-price guideposts. It would also constitute a blow to the prestige of the presidency. And labor would never trust him again.
So he went to war. At a news conference the next day he called the steel companies’ actions “a wholly unjustifiable and irresponsible defiance of the public interest” by “a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility.” He implied they were unpatriotic in a time of national peril. ...
Kennedy ordered the Defense Department to shift its steel purchases from U.S. Steel to companies that hadn’t raised prices. The Justice Department under Attorney General Robert Kennedy launched an antitrust investigation, summoned a federal grand jury, and sent FBI agents to the homes and offices of steel executives. There were rumors of threats of IRS investigations of expense accounts and hotel bills. (my emphasis)
Bethlehem Steel was the first to back down. A week after informing the president of the price increase, Roger Blough returned to the White House to surrender...
Curiously, Peggy seems to get that.
It was a big win for Kennedy but it was a bloody affair, and on some level he knew it. His relations with business never quite recovered. The administration’s brutality left a stain. Robert Kennedy’s ruthlessness inspired the anti-nepotism law that is said, these days, to bedevil the Trump family. A nascent, national conservative movement was embittered and emboldened: Barry Goldwater said JFK was trying to “socialize the business of the country,” and decided soon after to run against him.
... presidents shouldn’t abuse their power—and he did. They especially can’t do it to shore up their own political position, and he did that, too.So how does she justify it?
But it’s also true he thought he was right on the policy and that the policy would benefit the American people.
And the American people could tell. His approval ratings, high then, stayed high. People appreciate energy in the executive when they suspect it’s being harnessed for the national good. The key is to wield it wisely and with restraint. But yes, a little muscle judiciously applied can be a unifying thing.No, Peggy. Crucially, he was wrong on the policy. No, we do not fight inflation by jawboning companies and unions not to raise prices. That does not "benefit the American people." This isn't fancy economics. Leaders from Emperor Diocletian to Nicolás Maduro have tried to quell inflation by muscling businesses -- sending police to terrorize businessmen in their homes -- not to raise prices, and it always ends with more muscle and more inflation -- as Kennedy's did.
He may have "thought" he was right. His Keynesian advisers had also forgotten lessons of two thousand years of history and thought jawboning an excellent idea. But this is precisely why we have a rule of law -- so that leaders who "think" they are right about the proper level of steel prices cannot wreck the economy.
Just as Trump's action is abjectly wrong on policy. For just as many thousands of years, leaders have been cutting Carrier-like deals, to just as contrary effect. It is our duty to say that, to undercut the political popularity that presidents can gain by counterproductive policies, especially when the means trample the rule of law.
"a Republicanism in new accord with the needs of the moment" is a Republicanism that works. And the point of "work" is not just to win the next election, or give people things that feel good but impoverish them. The need of the moment is leadership, to channel people's well deserved anger into a productive direction.
I hope Peggy will someday write a piece titled, "the worst sentence I ever wrote," in honor of
"A little muscle judiciously applied can be a unifying thing,"especially when the "unification" comes by feeding people falsehoods like Carrier deals save jobs, or jawboning lowers inflation. Just how does this not describe Castro? Or Chavez? Or...well, fill in the blanks.
Exceptionalism
For Thanksgiving, I offer a rumination.
Last month, the Hoover Institution's fall retreat was organized around the theme of American Exceptionalism. See here for podcasts of talks from the stars -- really good. I talked about the nexus between economics, rule of law, regulation, and exceptionalism.
This was before the election, but two themes strike me as especially important still.
First: America needs rule of law, regular order, a partisan truce, even more than it needs my particular free-market policy preferences.
If Republicans overturn Obamacare in their first 100 days, with no Democratic votes; if President Trump picks up his phone and pen, undoes 8 years of Obama in the first day, and starts writing his own; and sends the agencies after his critics and enemies, we are headed for disaster. Future president Elizabeth Warren, or President Malia Obama with Vice President Chelsea Clinton, will just do the same. There is an anectdotal story of early 20th century Chicago mayors, who alternated between German and Irish. Each one's first act in office would be to overturn the ban on whiskey (beer), and impose a ban on beer (whiskey). (Too good a story to check the facts!) Let's not do that.
Second, we must not become a country where you can't afford to lose an election. The criminalization of politics has already gone too far. If you can't afford to lose an election -- if losing or supporting the losing party or speaking out on policy issues that lose gains you the tender attentions of the FBI, the IRS, the DOJ, the NLRB, and the EPA, if you lose your job and your business -- then people in power will fight to the end not to lose that power. Though I'm no fan of the Clinton foundation shenanigans, the noises coming out of the Trump transition not to push that issue are hopeful. Losing an election, a 95% reduction in speaking fees, and the public attention that investigative journalists can bring are enough. Putin can't retire and stay out of jail -- or alive.
A last thought for Thanksgiving. The Pilgrims were all illegal immigrants -- violating their charter from the English King, and the natives' longstanding ban on white settlement. Thank the Wampanoag's tolerant attitude for your turkey.
To be a conservative — or, in my case an empirical, pax-americana, rule-of-law, constitutionalist conservative libertarian — is pretty much by definition to believe that America is “exceptional” — and that she is perpetually in danger of losing that precious characteristic. Exceptionalism is not natural or inborn, but must be understood, cherished, maintained, and renewed each generation — and her garden is always perilously unattended.
Like every word describing beliefs, however, “exceptionalism” is a slippery concept. America’s detractors often use the same word pejoratively and derisively. To them, exceptionalism means a parochial and ignorant moral superiority. We are not the first or only society to see itself as exceptional, different, or somehow better than everyone else.
The promise
So why is America exceptional, in the good sense? Here, I think, economics provides a crucial answer. The ideas that American exceptionalism propounds have led to the most dramatic improvement in widely-shared human well being, shared widely, in human history. That improvement is not just material, but health, lifespan, peace and any measure of human prosperity. Yes, despite the horrors we read from the world’s war zones and some of our own cities, violence remains on a steady decline.
Aesop tells of a hungry wolf, who meets and admires a well-fed dog. But the wolf sees the dog’s collar, he says, no thanks, and walks off. Fortunately, we do not face the wolf’s conundrum. We do not have to argue for a moral superiority of freedom, and ask for material sacrifice. The wolf is both well-fed and free.
Despite the promises of monarchs, autocrats, dictators, commissars, central planners, socialists, industrial policy-makers, progressive nudgers and assorted dirigistes, it is liberty and rule of law that has led to this enormous progress. To the Chinese argument, say, that their ancient culture demands authoritarianism, a simple reply suffices: You, $7,000 per capita GDP, and filthy air. Us: $52,000 per capita and a clean environment.
I do not think this outcome was intentional. Neither our founders, nor those that built the British institutions which the founders improved, had any idea of the material progress their invention would father, nor that the US would rise to lead the world to a 70 year pax Americana. Jefferson envisioned a bucolic agrarian society. Washington warned against foreign entaglements. A system designed only to defend individual liberty unintentionally unleashed unimaginable material and international benefits.
Of course, the foundations of this prosperity, in rule of law, security of property, internal peace, are not ours alone. America was built on British institutions, and the industrial revolution started there. Other countries have adopted many of these institutions, and joined in prosperity to the extent that they do so.
Without this economic success, I doubt that anyone would call America exceptional. Imagine that China were 7 times as productive per capita as we are, rather than the other way around. Or, imagine that great natural experiment, North Korea vs. South Korea. North Korea also claims to be exceptional. The rest of the world regards it as an exceptional basket case.
Of course, the foundations of this prosperity, in rule of law, security of property, internal peace, are not ours alone. America was built on British institutions. Other countries have adopted many of our institutions, and joined in our prosperity to the extent that they do so.
In fact, the core of exceptionalist faith describes its own undoing. If American values are indeed universal, if America’s exceptional role is to bring these ideas to the world, then when the world does adopt those ideas, America must become somewhat less exceptional.
America is already less unusual than it was at its founding, and through the eras of monarchies, of great dictators, and of soviet communism, when America’s detractors insisted she would be just one more short-lived republic.
But the process is far from over. The U.S. remains the essential, exceptional, nation
All the great ideas for the next advances in human well-being are being made here. Computers and the internet, biotech, genetics, the microbiome. Most importantly, the great ideas are being implemented here - the new companies are American.
More darkly, any hope for resolving the world’s gathering storm clouds reside in the U.S. If we don’t get our act together and revive our exceptionalism, and pretty darn soon, the consequences are truly terrifying.
Chaos in the middle east, more swarms of refugees. Russian and Chinese forcible expansion. Nuclear weapons going off here and there. Pandemics of people, animals, or crops, which often follow waves of globalization.
The troops in the first Iraq war wore T-shirts saying “who you gonna call? 001.” It’s still the only number.
Enough self-congratulation. It’s time to move on to the second item of a conservative’s faith, that it’s all in danger of falling apart. And it is, more than ever.
The rule of law
I locate the core source of America’s exceptional nature in our legal system — the nexus of constitutional government, artfully created with checks and balances, and rule of law that guides our affairs. And that is also where I locate the greatest danger at the moment.
Lawyers? Government? You chuckle. That you may laugh just tells us how endangered this precious flower is. Without rule of law, any American character for innovation is quickly squashed.
Rule of law means the rights of the accused to know charges against them, to see evidence, to confront witnesses; the right of free speech and especially unwelcome political speech; the separation of prosecution and judges; grand juries to weigh evidence, and warrants for searches; the right to property, what that right means, and courts that will defend it (Fracking developed in the US pretty much because property rights include subsoil minerals, which are retained by the government in most other countries.); the delicate constitutional checks and balances that keep majorities from running amok, and delay awful ideas until enthusiasm passes; a free press, that can expose corruption. And so on ad infinitum.
Even democracy only lives on top of rule of law. We are a republic, not a democracy, and for good reasons. Democracy is a fundamentally a check on tyranny, not a good way to run day to day public affairs. Democracy without rule of law produces neither prosperity nor freedom. Even countries like Venezuela and Russia go through the motions of elections, but you can’t get a building permit without connections or speak out against the government without losing your job. Rule of law without democracy can function for a time and tends to produce democracy. America lived for 150 years under rule of law while still a monarchy.
And without rule of law, democracy is soon subverted. Those in government are always tempted to use the government’s power to silence opposition and cement their hold on power, and ruin the economy in the process. That’s our danger. If speaking out for a candidate, a policy question such as climate change, or working on behalf of a losing party earns you the tender attentions of the SEC, IRS, EPA, CFPB, NLRB, and increasingly the DOJ and FBI, it does not matter who votes.
Erosion of rule of law
The erosion of rule of law is all around us. I see it most strongly in the explosion of the administrative, regulatory state. Most of the “laws” we face are not, in fact, laws, written by a legislature and signed by an executive as we are taught in school. They are regulations, promulgated by agencies.
This made sense, initially. For example, it does not make sense for Congress to write the criteria for maintaining an airliner. But now that system has spiraled out of control. The ACA and Dodd-Frank acts are poster children. Their enabling acts go on for thousands of pages. The subsidiary regulations go on for tens of thousands. The letters and statements of interpretation and guidance, now essentially laws of their own, go on for more.
Were these even rules that one can read and comply with, it wouldn’t be so bad. But the real problem is that rules are so vague and complex that nobody knows what they really mean.
Companies can’t just read the rules. They must ask for regulator approval ahead of time, which can take years, and gives arbitrary results.
Hence, the “rules” really just mean discretion for the regulators to do what they want — or to coerce behavior they wish out of companies by the threat of an arbitrary and adverse decision. Anyone can be found guilty at any time — if the regulator chooses to single them out, as an EPA administrator once said, for “crucifixion.”
Richard Epstein calls the system “government by waiver.” The law and regulations are impossible to comply with. So business after business asks for waivers. Which are granted, mostly. But you’d be out of your head to object too loudly to the actions of the agency or the administration it serves if you want a waiver.
On top of laws, rules, and judicial interpretations, now agencies write “guidance” letters to state their interpretation of a rule, which become laws of their own.
Like laws, new regulations are supposed to follow a procedure. They are supposed to respect and implement Congress’ authorizing legislation, incorporate public comment, serious cost benefit analysis, and so forth. But even these weak constraints are less and less binding.
Obamacare subsides. FTC internet regulation. The EPA taking on carbon and closing down coal. Keystone. The education department war on private colleges. All of these step far outside the established limits. (My point is not the merits of any of these, which may be fine regulations. My point is the lack of rule-of-law process in how they were promulgated)
The basic rights that citizens are supposed to have in face of the law are also vanishing in the regulatory state. The agency is prosecutor, judge, jury, appeal court, executioner, and recipient of fine money all rolled in to one. You do not have conventional rights to see evidence and calculations, discover information, and challenge witnesses. Agencies change their interpretation of the law, and come after their victims ex post.
Retroactive decisions are common, never mind the constitutional prohibition on bills of attainder. When the DOJ and CFPB went after auto lenders, based on a statistical analysis of last names of people who had received auto loans, the computer program was obviously not announced ahead of time, so businesses had any idea if they were following the law. The CFPB went after PHH, a mortgage lender, issuing a novel interpretation of the law, charging the PHH ex-post with violation of that new interpretation, and increasing its own administrative Judge’s $6 million dollar fine to $109 million.
The expansion of the regulatory state, and disappearance of rule of law in its operation is already having its economic impact. The long-term growth rate of the US economy has been cut in half, driven largely by anemic investment.
I fear even more the political impact. The point of rule of law is to keep government from using law for political purposes. As we lose rule of law in the regulatory state, its politicization is inevitable. IRS and Lois Lerner. Campaign finance law and Gov. Scott Walker.
The drive towards criminalized regulatory witch hunts and going after the executives means one thing: those executives had better make sure their organizations stay in line.
ITT tech got closed down as part of the Administration’s war on for-profit education. Laureate International Universities, the for-profit college that coincidentally paid Bill Clinton $17.6 million as “honorary chancellor,” did not.
The SEC is piling on ambitious state attorney generals drive to sue Exxon, under securities law, for insufficient piety over climate change.
Big “settlements” with banks, are leading to millions of dollars channeled to left-wing and Democratic party political advocacy groups.
The classic analysis of regulation says it leads to capture: the industry captures the regulator, they get cozy, and regulation ends up being used to stifle competition in the industry. Capture is now going the other way. Health insurers, banks, energy companies are slowly being captured by the politicized regulators. Yes, they still get protection, but they must do the regulator and administration’s political bidding. And a constant stream of CEO show trials and criminal investigations keeps them in line. With calls for more. Just imagine what they could do with lists of donors to out-of-power party PAC and nonprofits.
Campaign finance law is precisely about regulating speech, and the government taking over who can support whom in an election. Corporations will be forced to disclose contributions. Unions will not.
In the classic story, industry captures the regulator, they get cozy, and regulation ends up being used to stifle competition in the industry. Capture is now going the other way. Industries are slowly being captured by the politicized regulators. Yes, they still get protection, but they must do the regulator and administration’s political bidding. And a constant stream of CEO show trials and criminal investigations keeps them in line.
The key attribute that makes America exceptional — and prosperous — is that you can afford to lose an election. Grumble, sit back, regroup and try again next time. You won’t lose your job, or your business. You won’t suddenly find trouble getting permits and approvals. You won’t have alphabet soup agents at your door. You won’t have prosecutions of your political associations.
In many countries, people can’t afford to lose elections. Those in power do not give it up easily. Those out of power are reduced to violence.
We are losing that attribute. American exceptionalism does not mean that all the bad things that happen elsewhere in the world cannot happen here.
Perhaps I am guilty of nostalgia, but I sense that once upon a time, those in American public life believed that their first duty was to keep alive the beautiful structure of American government, and the policy passion of the day came second and within that constraint.
We are suffering now a devotion to outcome, to winning the momentary battle at any cost. Legislation that passes by one vote? Fine. Regulations written far past enabling authority? Go for it. Executive order in place of law or regulation? Do it. Just write a letter of interpretation to tell them what to do. Shove it down their throats. But when policies are adopted without at least grudging consensus that the battle was fairly won, you can’t afford to lose an election.
Since the Nixon impeachment, and with the spread of campaign finance law and regulation, we are seeing a greater and greater “criminalization of politics.” It’s part of using any tool to win. But it adds to America’s central exception to human affairs, that you can afford to lose an election.
Our public life depends on voluntary cooperation. Administrations follow the law, even when they don’t really have to. They defer to court and supreme court decisions which they could ignore. The president does have a pen and a phone — and the number at DOJ and FBI and IRS. The rule of law depends on him or her not using it. We do not ask the question too deeply “so what are you going to do about it?” We are losing that respect for the system.
The idea of rule of law, the reverence for process over outcome seems to be disappearing. Few college seniors will have any idea what we’re talking about. Even basic civics courses are passé. And we see so much on both sides of the partisan divide that ignores it. Our many foreign-policy misadventures have a common theme, forgetting that all societies need rule-of-law foundations not just the superficial exercise of voting.
Rule of law, then, depends on a culture that respects it, not just the written word. And that culture depends on people to some extent understanding how it works. Like medieval peasants, having lost the recipe, looking up in marvel at Roman concrete structures, I fear our children will wonder just how the architecture of a broken system once worked its marvels. And the Romans lasted 1000 years. Pax Americana seems to be running out of steam at a mere 250.
Egalitarianism and the pursuit of happiness.
Our government’s purpose is set forth in the Declaration of Independence: to secure Life, Liberty, and the pursuit of Happiness, period. Government does not exist to lead us to some grander purpose: the advancement of the Christian faith, or the restoration of the Caliphate; the spread of communism on earth; the greatness of our kultur, or the glorious American Nation. When Kennedy said “ask not what your country can do for you — ask what you can do for your country” he had it precisely wrong.
Yes, American Exceptionalists wish to spread their ideas to the world, but not to subjugate those people to some greater cause — merely to allow them to pursue Life, Liberty and Happiness as those people see it.
A central article of exceptionalist faith is that American institutions are universal. We deny that they are specific to a culture or (heavens) race. People everywhere want freedom, and can learn to use American institutions to get it as quickly as they can learn to use an American iPhone to order American Pizza. (Sorry Italy!)
Most of all, government does not exist to further the ethnic or religious identity of a people. Throughout the world, governments parcel up the spoils of power along ethnic and religious lines. Each losing ethnic or religious group then needs its own government to defend its simple economic and expressive rights. Multi-cultural and multi-ethnic empires existed before. But by and large they were empires of tolerance, not right, and extracted resources from citizens equally rather than served them equally.
In the US, the children of Serbians and Croatians, of Indians and Pakistanis, of Catholics and Protestants and Muslims and Jews, live side by side and intermarry. None imagine that they needed a government run by one of their own ethnic group or religion for basics like getting a business permit. The idea that government serves to foster their ethnic or religious identity becomes quickly foreign. Yes, this melting pot ideal has never been perfect, but it holds much more than in any other country.
But how quaint this melting pot view seems now!
Interestingly, that ideal it disappeared first from our foreign policy. For a hundred years, the U.S. has stood behind ethnic or religious governments, happily playing one against the other, and not once saying “you know, we have a better idea for managing this, one where you won’t be at each other’s throats for another century or so.”
But that exceptional ideal is now vanishing domestically as well. Our government requires us to fill out forms with fine racial categorizations. The core principle, that to be treated fairly by the law, you do not need to be represented by a police officer, mayor, congressman, senator, or president of your own particular racial, ethnic or religious identity is not not only fading away, but its opposite is enshrined in law.
It is true that these measures stemmed from the overturning of the even more egregious violation of American principles in laws governing African Americans, not only in the Jim Crow south but the segregated north as well. But at least we paid lip service to the principle.
A country that believes, and enshrines in law, the principle — opposed to everything in American exceptionalism — that you cannot be treated fairly by a government unless the officials of that government share your exact racial, ethnic, religious, and soon gender identity, will soon fracture.
Similarly, exceptional America does not recognize the concept of “class.” Our disavowal of aristocracy and titles set us distinctly apart from Britain in the 19th century. And yet we now use that language all the time — “middle class” or “working class” especially. Economic law, regulation, and policy, increasingly treats income as a permanent class designator, as fine and permanent as Indian castes, and treats its citizens on that basis every bit as much as monarchic England treated peasant differently from nobility. We decry the reduction in mixing in America, yet when housing, food, medicine and so on are distributed based on income, income becomes a permanent class marker.
Opportunity is a key part of the egalitarian credo. But a society divvied up by formal categories of class, race, and income quickly loses that opportunity. As with economic regulation though, each such division is a client usefully exploited for political advantage. Exceptional America foreswore the opportunistic politics of such divisions.
Don't get me wrong. Identity is important. Contemporary America is one of the most tolerant societies on earth, and if people want to use their liberty to explore their national, enthic, gender, religious, class or other identities, more power to them. But eventually, once the egregious persecutions of law have passed, we must aim to keep identity out of politics, especially presidential politics, and especially the ethnic and religious identities that are the organizing principle for conflict around the globe, and into culture and religious and community organizations where it belongs.
Fixing it
The third article in exceptionalist faith, however, is optimism; that despite the ever-gathering clouds, America will once again face the challenge and reform. There is a reason that lovers of liberty tend to be Chicago Cubs fans. (And, as a member of both tribes, I take hope from one for the other!)
Healing is not something we should take for granted, however. There is no automatic self-correcting force. Every scrape with disaster is a scrape with disaster. It can happen here. Hope is not a strategy.
The recipe is straightforward. Rather than just demand “less regulation” even louder, we need to bring rule-of-law process and protections to the regulatory state, and revive them in our legal procedures as well. It’s time to pay attention to the structure of government rather than on its outcome.
Congress should re-structure the law surrounding regulation. Stop writing 1000 page page bills. Strengthen the Administrative procedures act describing how regulations are written and implemented. Require serious, and retrospective, cost benefit analysis. Put in “shot clocks,” time limits for regulatory decisions. Give people more avenues to challenge regulation in a timely manner.
Good news: people on both sides of the partisan divide recognize this fact. The “better way” Ryan plan contains just this kind of radical restructuring of the regulatory process. It goes so far as to require that Congress must approve new major regulations — a large change in the balance of power back to Congress and away from Administration and Agencies. The Obama administration tried to strengthen the OIRA (office of information and regulatory affairs) its office of regulatory affairs, to regulation. The effort failed, but it signals a bipartisan realization that the regulatory state is broken and taught some useful lessons.
The court system plays a crucial role.. Fix the court system so you’re not bankrupt and dead by the time you win. The litmus test for new judges should be their willingness to sustain rule-of-law restrictions on the regulatory state, not to re-fight social issues. Let the litmus test be Wickard v. Filburn, which declared a man may not grow wheat in his own yard to make his own bread without a Federal Wheat Marketing Order, not Roe v. Wade.
A small comment on foreign policy
I have focused on economics, but nowhere is the decline of American exceptionalism more evident than in foreign policy. Post world war II pax Americana has been the most peaceful and prosperous period in all human history. But its development and success has been one narrow scrape after another, and any of them could have gone wrong. The next one may.
What country can look at the experience of Ukraine — to which the United States guaranteed territorial integrity in exchange for giving up nuclear weapons — North Korea, India, Pakistan, Libya, and Iran and not conclude that getting nuclear weapons and rattling them is a darn good idea?
Teddy Roosevelt said to speak softly and to carry a big stick. America these days speaks loudly, aimed at the daily polls, doesn’t mean it, and announces ahead of time that it won’t use its stick. Eisenhower did not tell Hitler ahead of time how many troops he was going to put in at Normandy, and how quickly he would take them out. The answer was, enough to win, period.
The Bush administration gave the project of bringing democracy to the world a bad name, in part by misunderstanding just how much rule of law must underpin democracy, and in part by misundnerstanding just how much the world still needs the idea and culture of rule of law.
For a messianic, universalist, religion, we do precious little missionary work these days.
A small thought for those anxious for America to retreat from its "exceptional" leadership role and allies to pay more and be more active: He who picks up the check gets to pick the restaurant.
Hope
It is common to bemoan the state of American politics. But we should be optimistic. The major parties are blowing up. We are in a once-in-a-generation major realignment and redefinition. Only a big realignment can produce the rule-of-law and free-market coalition that I describe here. Power may shift from the once imperial presidency to an emboldened Congress. Only a time of big change offers big opportunity.
Finally, ideas matter. An exceptional — and functional — America must understand how she is supposed to work. We are a democracy, and if voters don’t respond with elemental understanding of their rights, and outrage when those rights are violated, as the founders did, we can’t expect miracle politicians to save us.
How do we expect our children to understand the machinery if we don’t tell them? The schools and universities don’t do that any more. But others institutions do!
You’re sitting in an exceptionally American institution, a reservoir of, as our banner says “ideas defining freedom.” Sometimes that reservoir is an ark, keeping ideas alive in a dark age. Sometimes it is a fountain, ready to bring those ideas to the world when it’s ready. But you, me, and the institutions we form — another brilliantly exceptional American habit — are crucial to her renewal.
Last month, the Hoover Institution's fall retreat was organized around the theme of American Exceptionalism. See here for podcasts of talks from the stars -- really good. I talked about the nexus between economics, rule of law, regulation, and exceptionalism.
This was before the election, but two themes strike me as especially important still.
First: America needs rule of law, regular order, a partisan truce, even more than it needs my particular free-market policy preferences.
If Republicans overturn Obamacare in their first 100 days, with no Democratic votes; if President Trump picks up his phone and pen, undoes 8 years of Obama in the first day, and starts writing his own; and sends the agencies after his critics and enemies, we are headed for disaster. Future president Elizabeth Warren, or President Malia Obama with Vice President Chelsea Clinton, will just do the same. There is an anectdotal story of early 20th century Chicago mayors, who alternated between German and Irish. Each one's first act in office would be to overturn the ban on whiskey (beer), and impose a ban on beer (whiskey). (Too good a story to check the facts!) Let's not do that.
Second, we must not become a country where you can't afford to lose an election. The criminalization of politics has already gone too far. If you can't afford to lose an election -- if losing or supporting the losing party or speaking out on policy issues that lose gains you the tender attentions of the FBI, the IRS, the DOJ, the NLRB, and the EPA, if you lose your job and your business -- then people in power will fight to the end not to lose that power. Though I'm no fan of the Clinton foundation shenanigans, the noises coming out of the Trump transition not to push that issue are hopeful. Losing an election, a 95% reduction in speaking fees, and the public attention that investigative journalists can bring are enough. Putin can't retire and stay out of jail -- or alive.
A last thought for Thanksgiving. The Pilgrims were all illegal immigrants -- violating their charter from the English King, and the natives' longstanding ban on white settlement. Thank the Wampanoag's tolerant attitude for your turkey.
Economics, Rule of Law, and American Exceptionalism
(Talk given at Hoover retreat October 2016)
To be a conservative — or, in my case an empirical, pax-americana, rule-of-law, constitutionalist conservative libertarian — is pretty much by definition to believe that America is “exceptional” — and that she is perpetually in danger of losing that precious characteristic. Exceptionalism is not natural or inborn, but must be understood, cherished, maintained, and renewed each generation — and her garden is always perilously unattended.
Like every word describing beliefs, however, “exceptionalism” is a slippery concept. America’s detractors often use the same word pejoratively and derisively. To them, exceptionalism means a parochial and ignorant moral superiority. We are not the first or only society to see itself as exceptional, different, or somehow better than everyone else.
The promise
So why is America exceptional, in the good sense? Here, I think, economics provides a crucial answer. The ideas that American exceptionalism propounds have led to the most dramatic improvement in widely-shared human well being, shared widely, in human history. That improvement is not just material, but health, lifespan, peace and any measure of human prosperity. Yes, despite the horrors we read from the world’s war zones and some of our own cities, violence remains on a steady decline.
Aesop tells of a hungry wolf, who meets and admires a well-fed dog. But the wolf sees the dog’s collar, he says, no thanks, and walks off. Fortunately, we do not face the wolf’s conundrum. We do not have to argue for a moral superiority of freedom, and ask for material sacrifice. The wolf is both well-fed and free.
Despite the promises of monarchs, autocrats, dictators, commissars, central planners, socialists, industrial policy-makers, progressive nudgers and assorted dirigistes, it is liberty and rule of law that has led to this enormous progress. To the Chinese argument, say, that their ancient culture demands authoritarianism, a simple reply suffices: You, $7,000 per capita GDP, and filthy air. Us: $52,000 per capita and a clean environment.
I do not think this outcome was intentional. Neither our founders, nor those that built the British institutions which the founders improved, had any idea of the material progress their invention would father, nor that the US would rise to lead the world to a 70 year pax Americana. Jefferson envisioned a bucolic agrarian society. Washington warned against foreign entaglements. A system designed only to defend individual liberty unintentionally unleashed unimaginable material and international benefits.
Of course, the foundations of this prosperity, in rule of law, security of property, internal peace, are not ours alone. America was built on British institutions, and the industrial revolution started there. Other countries have adopted many of these institutions, and joined in prosperity to the extent that they do so.
Without this economic success, I doubt that anyone would call America exceptional. Imagine that China were 7 times as productive per capita as we are, rather than the other way around. Or, imagine that great natural experiment, North Korea vs. South Korea. North Korea also claims to be exceptional. The rest of the world regards it as an exceptional basket case.
Of course, the foundations of this prosperity, in rule of law, security of property, internal peace, are not ours alone. America was built on British institutions. Other countries have adopted many of our institutions, and joined in our prosperity to the extent that they do so.
In fact, the core of exceptionalist faith describes its own undoing. If American values are indeed universal, if America’s exceptional role is to bring these ideas to the world, then when the world does adopt those ideas, America must become somewhat less exceptional.
America is already less unusual than it was at its founding, and through the eras of monarchies, of great dictators, and of soviet communism, when America’s detractors insisted she would be just one more short-lived republic.
But the process is far from over. The U.S. remains the essential, exceptional, nation
All the great ideas for the next advances in human well-being are being made here. Computers and the internet, biotech, genetics, the microbiome. Most importantly, the great ideas are being implemented here - the new companies are American.
More darkly, any hope for resolving the world’s gathering storm clouds reside in the U.S. If we don’t get our act together and revive our exceptionalism, and pretty darn soon, the consequences are truly terrifying.
Chaos in the middle east, more swarms of refugees. Russian and Chinese forcible expansion. Nuclear weapons going off here and there. Pandemics of people, animals, or crops, which often follow waves of globalization.
The troops in the first Iraq war wore T-shirts saying “who you gonna call? 001.” It’s still the only number.
Enough self-congratulation. It’s time to move on to the second item of a conservative’s faith, that it’s all in danger of falling apart. And it is, more than ever.
The rule of law
I locate the core source of America’s exceptional nature in our legal system — the nexus of constitutional government, artfully created with checks and balances, and rule of law that guides our affairs. And that is also where I locate the greatest danger at the moment.
Lawyers? Government? You chuckle. That you may laugh just tells us how endangered this precious flower is. Without rule of law, any American character for innovation is quickly squashed.
Rule of law means the rights of the accused to know charges against them, to see evidence, to confront witnesses; the right of free speech and especially unwelcome political speech; the separation of prosecution and judges; grand juries to weigh evidence, and warrants for searches; the right to property, what that right means, and courts that will defend it (Fracking developed in the US pretty much because property rights include subsoil minerals, which are retained by the government in most other countries.); the delicate constitutional checks and balances that keep majorities from running amok, and delay awful ideas until enthusiasm passes; a free press, that can expose corruption. And so on ad infinitum.
Even democracy only lives on top of rule of law. We are a republic, not a democracy, and for good reasons. Democracy is a fundamentally a check on tyranny, not a good way to run day to day public affairs. Democracy without rule of law produces neither prosperity nor freedom. Even countries like Venezuela and Russia go through the motions of elections, but you can’t get a building permit without connections or speak out against the government without losing your job. Rule of law without democracy can function for a time and tends to produce democracy. America lived for 150 years under rule of law while still a monarchy.
And without rule of law, democracy is soon subverted. Those in government are always tempted to use the government’s power to silence opposition and cement their hold on power, and ruin the economy in the process. That’s our danger. If speaking out for a candidate, a policy question such as climate change, or working on behalf of a losing party earns you the tender attentions of the SEC, IRS, EPA, CFPB, NLRB, and increasingly the DOJ and FBI, it does not matter who votes.
Erosion of rule of law
The erosion of rule of law is all around us. I see it most strongly in the explosion of the administrative, regulatory state. Most of the “laws” we face are not, in fact, laws, written by a legislature and signed by an executive as we are taught in school. They are regulations, promulgated by agencies.
This made sense, initially. For example, it does not make sense for Congress to write the criteria for maintaining an airliner. But now that system has spiraled out of control. The ACA and Dodd-Frank acts are poster children. Their enabling acts go on for thousands of pages. The subsidiary regulations go on for tens of thousands. The letters and statements of interpretation and guidance, now essentially laws of their own, go on for more.
Were these even rules that one can read and comply with, it wouldn’t be so bad. But the real problem is that rules are so vague and complex that nobody knows what they really mean.
Companies can’t just read the rules. They must ask for regulator approval ahead of time, which can take years, and gives arbitrary results.
Hence, the “rules” really just mean discretion for the regulators to do what they want — or to coerce behavior they wish out of companies by the threat of an arbitrary and adverse decision. Anyone can be found guilty at any time — if the regulator chooses to single them out, as an EPA administrator once said, for “crucifixion.”
Richard Epstein calls the system “government by waiver.” The law and regulations are impossible to comply with. So business after business asks for waivers. Which are granted, mostly. But you’d be out of your head to object too loudly to the actions of the agency or the administration it serves if you want a waiver.
On top of laws, rules, and judicial interpretations, now agencies write “guidance” letters to state their interpretation of a rule, which become laws of their own.
Like laws, new regulations are supposed to follow a procedure. They are supposed to respect and implement Congress’ authorizing legislation, incorporate public comment, serious cost benefit analysis, and so forth. But even these weak constraints are less and less binding.
Obamacare subsides. FTC internet regulation. The EPA taking on carbon and closing down coal. Keystone. The education department war on private colleges. All of these step far outside the established limits. (My point is not the merits of any of these, which may be fine regulations. My point is the lack of rule-of-law process in how they were promulgated)
The basic rights that citizens are supposed to have in face of the law are also vanishing in the regulatory state. The agency is prosecutor, judge, jury, appeal court, executioner, and recipient of fine money all rolled in to one. You do not have conventional rights to see evidence and calculations, discover information, and challenge witnesses. Agencies change their interpretation of the law, and come after their victims ex post.
Retroactive decisions are common, never mind the constitutional prohibition on bills of attainder. When the DOJ and CFPB went after auto lenders, based on a statistical analysis of last names of people who had received auto loans, the computer program was obviously not announced ahead of time, so businesses had any idea if they were following the law. The CFPB went after PHH, a mortgage lender, issuing a novel interpretation of the law, charging the PHH ex-post with violation of that new interpretation, and increasing its own administrative Judge’s $6 million dollar fine to $109 million.
The expansion of the regulatory state, and disappearance of rule of law in its operation is already having its economic impact. The long-term growth rate of the US economy has been cut in half, driven largely by anemic investment.
I fear even more the political impact. The point of rule of law is to keep government from using law for political purposes. As we lose rule of law in the regulatory state, its politicization is inevitable. IRS and Lois Lerner. Campaign finance law and Gov. Scott Walker.
The drive towards criminalized regulatory witch hunts and going after the executives means one thing: those executives had better make sure their organizations stay in line.
ITT tech got closed down as part of the Administration’s war on for-profit education. Laureate International Universities, the for-profit college that coincidentally paid Bill Clinton $17.6 million as “honorary chancellor,” did not.
The SEC is piling on ambitious state attorney generals drive to sue Exxon, under securities law, for insufficient piety over climate change.
Big “settlements” with banks, are leading to millions of dollars channeled to left-wing and Democratic party political advocacy groups.
The classic analysis of regulation says it leads to capture: the industry captures the regulator, they get cozy, and regulation ends up being used to stifle competition in the industry. Capture is now going the other way. Health insurers, banks, energy companies are slowly being captured by the politicized regulators. Yes, they still get protection, but they must do the regulator and administration’s political bidding. And a constant stream of CEO show trials and criminal investigations keeps them in line. With calls for more. Just imagine what they could do with lists of donors to out-of-power party PAC and nonprofits.
Campaign finance law is precisely about regulating speech, and the government taking over who can support whom in an election. Corporations will be forced to disclose contributions. Unions will not.
In the classic story, industry captures the regulator, they get cozy, and regulation ends up being used to stifle competition in the industry. Capture is now going the other way. Industries are slowly being captured by the politicized regulators. Yes, they still get protection, but they must do the regulator and administration’s political bidding. And a constant stream of CEO show trials and criminal investigations keeps them in line.
The key attribute that makes America exceptional — and prosperous — is that you can afford to lose an election. Grumble, sit back, regroup and try again next time. You won’t lose your job, or your business. You won’t suddenly find trouble getting permits and approvals. You won’t have alphabet soup agents at your door. You won’t have prosecutions of your political associations.
In many countries, people can’t afford to lose elections. Those in power do not give it up easily. Those out of power are reduced to violence.
We are losing that attribute. American exceptionalism does not mean that all the bad things that happen elsewhere in the world cannot happen here.
Perhaps I am guilty of nostalgia, but I sense that once upon a time, those in American public life believed that their first duty was to keep alive the beautiful structure of American government, and the policy passion of the day came second and within that constraint.
We are suffering now a devotion to outcome, to winning the momentary battle at any cost. Legislation that passes by one vote? Fine. Regulations written far past enabling authority? Go for it. Executive order in place of law or regulation? Do it. Just write a letter of interpretation to tell them what to do. Shove it down their throats. But when policies are adopted without at least grudging consensus that the battle was fairly won, you can’t afford to lose an election.
Since the Nixon impeachment, and with the spread of campaign finance law and regulation, we are seeing a greater and greater “criminalization of politics.” It’s part of using any tool to win. But it adds to America’s central exception to human affairs, that you can afford to lose an election.
Our public life depends on voluntary cooperation. Administrations follow the law, even when they don’t really have to. They defer to court and supreme court decisions which they could ignore. The president does have a pen and a phone — and the number at DOJ and FBI and IRS. The rule of law depends on him or her not using it. We do not ask the question too deeply “so what are you going to do about it?” We are losing that respect for the system.
The idea of rule of law, the reverence for process over outcome seems to be disappearing. Few college seniors will have any idea what we’re talking about. Even basic civics courses are passé. And we see so much on both sides of the partisan divide that ignores it. Our many foreign-policy misadventures have a common theme, forgetting that all societies need rule-of-law foundations not just the superficial exercise of voting.
Rule of law, then, depends on a culture that respects it, not just the written word. And that culture depends on people to some extent understanding how it works. Like medieval peasants, having lost the recipe, looking up in marvel at Roman concrete structures, I fear our children will wonder just how the architecture of a broken system once worked its marvels. And the Romans lasted 1000 years. Pax Americana seems to be running out of steam at a mere 250.
Egalitarianism and the pursuit of happiness.
Our government’s purpose is set forth in the Declaration of Independence: to secure Life, Liberty, and the pursuit of Happiness, period. Government does not exist to lead us to some grander purpose: the advancement of the Christian faith, or the restoration of the Caliphate; the spread of communism on earth; the greatness of our kultur, or the glorious American Nation. When Kennedy said “ask not what your country can do for you — ask what you can do for your country” he had it precisely wrong.
Yes, American Exceptionalists wish to spread their ideas to the world, but not to subjugate those people to some greater cause — merely to allow them to pursue Life, Liberty and Happiness as those people see it.
A central article of exceptionalist faith is that American institutions are universal. We deny that they are specific to a culture or (heavens) race. People everywhere want freedom, and can learn to use American institutions to get it as quickly as they can learn to use an American iPhone to order American Pizza. (Sorry Italy!)
Most of all, government does not exist to further the ethnic or religious identity of a people. Throughout the world, governments parcel up the spoils of power along ethnic and religious lines. Each losing ethnic or religious group then needs its own government to defend its simple economic and expressive rights. Multi-cultural and multi-ethnic empires existed before. But by and large they were empires of tolerance, not right, and extracted resources from citizens equally rather than served them equally.
In the US, the children of Serbians and Croatians, of Indians and Pakistanis, of Catholics and Protestants and Muslims and Jews, live side by side and intermarry. None imagine that they needed a government run by one of their own ethnic group or religion for basics like getting a business permit. The idea that government serves to foster their ethnic or religious identity becomes quickly foreign. Yes, this melting pot ideal has never been perfect, but it holds much more than in any other country.
But how quaint this melting pot view seems now!
Interestingly, that ideal it disappeared first from our foreign policy. For a hundred years, the U.S. has stood behind ethnic or religious governments, happily playing one against the other, and not once saying “you know, we have a better idea for managing this, one where you won’t be at each other’s throats for another century or so.”
But that exceptional ideal is now vanishing domestically as well. Our government requires us to fill out forms with fine racial categorizations. The core principle, that to be treated fairly by the law, you do not need to be represented by a police officer, mayor, congressman, senator, or president of your own particular racial, ethnic or religious identity is not not only fading away, but its opposite is enshrined in law.
It is true that these measures stemmed from the overturning of the even more egregious violation of American principles in laws governing African Americans, not only in the Jim Crow south but the segregated north as well. But at least we paid lip service to the principle.
A country that believes, and enshrines in law, the principle — opposed to everything in American exceptionalism — that you cannot be treated fairly by a government unless the officials of that government share your exact racial, ethnic, religious, and soon gender identity, will soon fracture.
Similarly, exceptional America does not recognize the concept of “class.” Our disavowal of aristocracy and titles set us distinctly apart from Britain in the 19th century. And yet we now use that language all the time — “middle class” or “working class” especially. Economic law, regulation, and policy, increasingly treats income as a permanent class designator, as fine and permanent as Indian castes, and treats its citizens on that basis every bit as much as monarchic England treated peasant differently from nobility. We decry the reduction in mixing in America, yet when housing, food, medicine and so on are distributed based on income, income becomes a permanent class marker.
Opportunity is a key part of the egalitarian credo. But a society divvied up by formal categories of class, race, and income quickly loses that opportunity. As with economic regulation though, each such division is a client usefully exploited for political advantage. Exceptional America foreswore the opportunistic politics of such divisions.
Don't get me wrong. Identity is important. Contemporary America is one of the most tolerant societies on earth, and if people want to use their liberty to explore their national, enthic, gender, religious, class or other identities, more power to them. But eventually, once the egregious persecutions of law have passed, we must aim to keep identity out of politics, especially presidential politics, and especially the ethnic and religious identities that are the organizing principle for conflict around the globe, and into culture and religious and community organizations where it belongs.
Fixing it
The third article in exceptionalist faith, however, is optimism; that despite the ever-gathering clouds, America will once again face the challenge and reform. There is a reason that lovers of liberty tend to be Chicago Cubs fans. (And, as a member of both tribes, I take hope from one for the other!)
Healing is not something we should take for granted, however. There is no automatic self-correcting force. Every scrape with disaster is a scrape with disaster. It can happen here. Hope is not a strategy.
The recipe is straightforward. Rather than just demand “less regulation” even louder, we need to bring rule-of-law process and protections to the regulatory state, and revive them in our legal procedures as well. It’s time to pay attention to the structure of government rather than on its outcome.
Congress should re-structure the law surrounding regulation. Stop writing 1000 page page bills. Strengthen the Administrative procedures act describing how regulations are written and implemented. Require serious, and retrospective, cost benefit analysis. Put in “shot clocks,” time limits for regulatory decisions. Give people more avenues to challenge regulation in a timely manner.
Good news: people on both sides of the partisan divide recognize this fact. The “better way” Ryan plan contains just this kind of radical restructuring of the regulatory process. It goes so far as to require that Congress must approve new major regulations — a large change in the balance of power back to Congress and away from Administration and Agencies. The Obama administration tried to strengthen the OIRA (office of information and regulatory affairs) its office of regulatory affairs, to regulation. The effort failed, but it signals a bipartisan realization that the regulatory state is broken and taught some useful lessons.
The court system plays a crucial role.. Fix the court system so you’re not bankrupt and dead by the time you win. The litmus test for new judges should be their willingness to sustain rule-of-law restrictions on the regulatory state, not to re-fight social issues. Let the litmus test be Wickard v. Filburn, which declared a man may not grow wheat in his own yard to make his own bread without a Federal Wheat Marketing Order, not Roe v. Wade.
A small comment on foreign policy
I have focused on economics, but nowhere is the decline of American exceptionalism more evident than in foreign policy. Post world war II pax Americana has been the most peaceful and prosperous period in all human history. But its development and success has been one narrow scrape after another, and any of them could have gone wrong. The next one may.
What country can look at the experience of Ukraine — to which the United States guaranteed territorial integrity in exchange for giving up nuclear weapons — North Korea, India, Pakistan, Libya, and Iran and not conclude that getting nuclear weapons and rattling them is a darn good idea?
Teddy Roosevelt said to speak softly and to carry a big stick. America these days speaks loudly, aimed at the daily polls, doesn’t mean it, and announces ahead of time that it won’t use its stick. Eisenhower did not tell Hitler ahead of time how many troops he was going to put in at Normandy, and how quickly he would take them out. The answer was, enough to win, period.
The Bush administration gave the project of bringing democracy to the world a bad name, in part by misunderstanding just how much rule of law must underpin democracy, and in part by misundnerstanding just how much the world still needs the idea and culture of rule of law.
For a messianic, universalist, religion, we do precious little missionary work these days.
A small thought for those anxious for America to retreat from its "exceptional" leadership role and allies to pay more and be more active: He who picks up the check gets to pick the restaurant.
Hope
It is common to bemoan the state of American politics. But we should be optimistic. The major parties are blowing up. We are in a once-in-a-generation major realignment and redefinition. Only a big realignment can produce the rule-of-law and free-market coalition that I describe here. Power may shift from the once imperial presidency to an emboldened Congress. Only a time of big change offers big opportunity.
Finally, ideas matter. An exceptional — and functional — America must understand how she is supposed to work. We are a democracy, and if voters don’t respond with elemental understanding of their rights, and outrage when those rights are violated, as the founders did, we can’t expect miracle politicians to save us.
How do we expect our children to understand the machinery if we don’t tell them? The schools and universities don’t do that any more. But others institutions do!
You’re sitting in an exceptionally American institution, a reservoir of, as our banner says “ideas defining freedom.” Sometimes that reservoir is an ark, keeping ideas alive in a dark age. Sometimes it is a fountain, ready to bring those ideas to the world when it’s ready. But you, me, and the institutions we form — another brilliantly exceptional American habit — are crucial to her renewal.
Yglesias discovers rule of law
Matt Yglesias (HT Marginal Revolution) writes well of the danger facing America in the era of the regulatory state.
Update for Fire Man (I try not to endlessly push my previous work.) The Rule of Law in the Regulatory State
Update 2. A little less snarky. Still, the danger is real. Will Republicans, now in power, say thank you very much, pick up the phone and pen, and do unto D like D did unto R? Or will they be the ones to undo tit-for-tat, shove-it-down-their-throats policy, and reestablish executive restraint at least by custom if not by statute? That will take losing or delaying some policy fights, and foregoing the delicious irony of revenge. President elect Trump did threaten to use the IRS against political enemies. Let us hope that like much else was campaign rhetoric. Will the repeal and replace Obamacare happen strictly along party lines in 100 days -- and then be overturned itself by President Warren or Chelsea Clinton? Or will they take the time and effort to get a significant Democratic buy in? Time will tell.
I did not mean to say that the worry is unfounded, only that it goes back a ways in US politics, and the fight would now be oh so easier if people like Yglesias had kept true to principle while their policy priorities were being shoved down people's throats, and their political antagonists were the victims of the politicized regulatory state.
Good commentary from Glenn Greenwald on the Inspector-Renault quality of this outrage.
Those who support the regime will receive favorable treatment from regulators, and those who oppose it will not. Because businesses do business with each other, the network becomes self-reinforcing. Regime-friendly banks receive a light regulatory touch while their rivals are crushed. In exchange, they offer friendly lending terms to regime-friendly businesses while choking capital to rivals. Such a system, once in place, is extremely difficult to dislodge precisely because, unlike a fascist or communist regime, it is glued together by no ideology beyond basic human greed, insecurity, and love of family.He's talking about the Trump administration. Matt, where have you been these last 8 years? Well, better late then ever, but wow those partisan glasses make the mirror hard to see. (I might add that this is exactly how fascist and communist regimes work in reality. Ideology is easy to find.)
Update for Fire Man (I try not to endlessly push my previous work.) The Rule of Law in the Regulatory State
Update 2. A little less snarky. Still, the danger is real. Will Republicans, now in power, say thank you very much, pick up the phone and pen, and do unto D like D did unto R? Or will they be the ones to undo tit-for-tat, shove-it-down-their-throats policy, and reestablish executive restraint at least by custom if not by statute? That will take losing or delaying some policy fights, and foregoing the delicious irony of revenge. President elect Trump did threaten to use the IRS against political enemies. Let us hope that like much else was campaign rhetoric. Will the repeal and replace Obamacare happen strictly along party lines in 100 days -- and then be overturned itself by President Warren or Chelsea Clinton? Or will they take the time and effort to get a significant Democratic buy in? Time will tell.
I did not mean to say that the worry is unfounded, only that it goes back a ways in US politics, and the fight would now be oh so easier if people like Yglesias had kept true to principle while their policy priorities were being shoved down people's throats, and their political antagonists were the victims of the politicized regulatory state.
Good commentary from Glenn Greenwald on the Inspector-Renault quality of this outrage.
