Milton Friedman; Freedom’s Greatest Advocate

(presentation to the Liberta Society; Buenos Aires 7/29/2021)

Image courtesy: clubdelalibertad.com

While Liberalism, in its classic 19th Century sense, is suffering a decline as the State extends its dominion over free markets around the world, the crucial linkage between Freedom and Free Markets for Liberty remains. Its greatest spokesman during the the 20th Century was Professor Milton Friedman. Even in Argentina where Government controls have eroded the potential for economic growth and a rising standard of living, the kernel of Friedman’s ideas remains, hopefully to re-emerge and energize the Argentine economy and the freedom of its people.

In preparing these notes, I have the good fortune to be spending a leisurely vacation in Greece (now in Thessaloniki, but I wrote this in Athens), the home of the first “democratic society” of which we have some considerable records. Ironically, the world is recovering from a hideous, international “plague” (Covid 19) which has limited our freedoms in so many ways, while enabling Governments to intervene in our ability to freely associate, to innovate, to travel, to teach, to express our ideas, to engage in free commerce as well as many other activities, all in the name of “protecting” us! Secondly, we might note that Athens was doubly set back at the beginning of the Peloponnesian war by a “Plague,” (not yet quite clearly identified) which crippled her response to the Spartan attacks and ultimately claimed the life of it most noted political leader, Pericles. I point that out because in my subsequent remarks about Professor Milton Freedom, the question of political leadership is not fully treated as it must be if we are to fully understand the pathways he outlined for us over his long career.

I had the good fortune of being a student at Chicago during Professor Friedman’s prime years in the early 1960’s when many of his ideas were often ridiculed both by other professional economists and by Government officials who had rather Statist views on the role of Government, descending from the then prevalence of Keynesian ideas left over from the last great experiments in Government (The Great Depression and the end of WWII.)

The first edition of Milton Friedman’s luminary work, Capitalism and Freedom, came out in 1962 in the midst of my graduate years at Chicago…and we know that it was not well received at the time. In fact, most of us who were totally overwhelmed by Friedman’s scope of interests in economics and politics, and his well noted analytical capabilities, found much of Capitalism and Freedom as “old news” already featured in some ways by his lectures in Price Theory—which we all took—and his efforts to change the focus of monetary policy. (Via his monumental book with Anna Schwartz, The Monetary History of the United States was published in 1963).

Another irony struck me as I reviewed the Forward (by Binyamin Appelbaum) to Capitalism and Freedom in his statement that capitalism “had fallen into some disfavor,” at the time. (1962). Capitalism and Freedom came out during the great fascination by many students at the time with the alleged success of Soviet Communism (e.g.Sputnik) and some mystic appreciation of what appeared to be the political success in China of the CCPC under Mao Tze tung. The brutalities and exterminations of millions that had occurred during the earlier years of these regimes were not widely documented until Solzhenitsyn’s The Gulag Archipelago appeared in the West in the late 1970’s.

I mention this chronology precisely because we are witnessing a second episode of Capitalism’s “disfavor” in the United States, and also in many other countries. Witness the changes in Latin America in Argentina, Bolivia, Chile, Ecuador, Peru, and Venezuela. And, in the USA, where Capitalism has raised our standard of living to its highest level in history–and reduced poverty by immense amounts wherever it has been given a chance to flourish. If you watch the US Media or read the majority of its newspapers, you wouldn’t know that. It would appear that “Capitalism and Freedom” has failed and failed badly! When we see the epithet of “Racism” cast about so freely by young people, often from middle class backgrounds, you have to wonder just what kind of education has disabled their knowledge of U.S. history; their awareness of brutal coercion in many non-capitalist societies; and, their understanding of the actual data of economic progress over the last 60 years since Milton Friedman published “Capitalism and Freedom.”

Milton Friedman has often been cited as the outstanding economist of the 20th Century. As far as his technical contributions, there is no dispute that his efforts in the 1940s-50s-60s-70s illuminated much of macroeconomics and still continue to bear fruit. His policy analyses of housing, of the virtues of Charter Schools as a market based educational alternative, of the flexibility offered to macro policies through elimination of exchange controls and his long advocacy of abolishing restrictions to international trade are part of the lexicon of freer markets and freer economies.

Normally, a man who covered such a range of social policy should be satisfied with such a menu of accomplishment, but I think the Milton Friedman that we knew in the 1990’s and 2000’s was not completely finished with both his analysis of current conditions nor his vivid assertions that free markets were essential to political freedom. Let me amplify those thoughts a bit.

When we look around the world—particularly at the nominally “democratic states,”— that is those states that are not governed by some form of totalitarian regime, we do observe a growing division between people who believe they are “free” and those who believe they are “controlled” by some amorphous and ill-defined cabal of special interests. We see this in the “Black Lives Matter” movement; in the looting and burning of certain sections of American Cities often by protestors willing to turn their demonstrations into violence. We see it from supporters of our previous President who attacked the Congress in a physically violent protest in which several died. We see it in protests in Europe and Eastern Europe on both the so-called “left” and on the “right.” It almost appears as if we are watching history repeat itself.

Marx claimed that history repeats, the first time as tragedy, the second time as farce. Should we think of what is going on today in nominally democratic states a farce? Perhaps, the second time is a tragedy as well? Or, is there some inherent connection between the seeming success of capitalism in the nominally democratic states and the discontent of our younger generation who frequently storm against “Capitalism,” the very system that has given them such enlarged economic opportunities and that has stood at the base of their political freedom.

In my view, there is a common theme that resonates in our current age of discontent. It is what I would call the “Doctrine of Fairness.” Apparently, the fact that free markets generate immense outpourings of innovation and that markets reward such innovations so well in an age of globalization, are principle ingredients to the Discontent of many. Invidious comparisons are drawn by many individuals between their own personal economic status and the highly publicized outcomes of the very wealthy. The latter, for a multitude of reasons, have gone far beyond the rewards of simple labor income. Indeed, much of their wealth and the income from that wealth is financial, stemming from their ownership of intellectual and physical capital. The wealthy cannot spend but a fraction of what their human and physical capital produces and their lifestyles are far different from the “average” family. Of course, as we know, in economies whose markets are much less than free, the “rich” do proportionately even better than do the “rich” in much less restricted markets, but that fact is scarcely addressed in public media. One has only to look at the kleptocracies around the world for a demonstration of that kind of inequality.

Furthermore, it appears to the Media and to the “common man” that the political clout by the wealthy with bureaucrats and senior politicians is far greater than those whose income derives solely from Labor. The implication of that observation, whether it is true or not, we can put on the back burner for now, is that “special interests” get served far faster and more thoroughly than the “mass” of the people. That observation takes me back to Ancient Greece, and the troubled history of the first great democracy, Athens.

Any fair reading of Athenian politics in the 5th Century BC shows that while it is true that there were always “leading” families and individuals who had closer access to important political and governing figures, Athenian politics was in fact heavily influenced, even dominated by the mass of Athenians who had significant political rights rather than significant property. One can even argue that it was the “Mass” that forced the bad choices of Leaders and Strategies (Sicily for example) that led to the ultimate defeat of Athens. Athens never recovered from its failed campaign in Sicily against Syracuse.

Applebaum in his notes brings out the fact that in his later years the intimate connection that Friedman had initially drawn between the necessity for Free Markets to undergird Freedom itself became perhaps less clear to him. Yet, the clear distinction between a totalitarian state and the freedom of those who are so ruled by such a state and a freely elected democratic state remains. But within democratic states, there are infinite variations in content and in style over property rights and free markets. Some democratic states are freer than others. Fairness of outcomes differs between countries. In some states, overwhelmed by the numbers who are clearly POOR, restricting the freedom of others and changing the distribution of output in a significant way becomes a more appealing choice than allowing extremely capable and industrious people to rise into the class of great wealth. The political outcome is to restrict by taxation or by Government spending programs the growth of the economy as a whole. Furthermore, and this is an area that Milton Friedman did not much opine about publicly, the outcome in different states is heavily influenced by the quality and the understanding of the leaders chosen by the voters.

Inevitably, the poorest voters—who by numbers are the largest class of voters—are persuaded they can have “Guns and Butter,” to use the old antonyms. As a result, politicians compete to spend Other People’s Money in order to gain or retain political office. They change tax laws and conditions of competition attempting to legislate “Fairness of Outcome.” Many of these measures limit the growth in output and often do not even readjust the outcomes to be more “FAIR.” However, appearances count more than substance. Voters are influenced by Presentation, not by actual data.

Abraham Lincoln said, “You can’t fool all of the people all of the time,” but a closely competitive political society doesn’t need the vote of all of the people. It just has to move the margin a bit. Binary voting outcomes are unlike market outcomes. Markets move output by the amount of dollars spent on the output—proportional representation so to speak. Voting outcomes are binary. One votes for A or B but political trades among the political winners can create a working majority of interest. What may count more in a binary choice system is moving the percentages slightly because then the “winner” can restructure the game. The Winner can become a virtual totalitarian. The bottom line of this kind of analysis is the old wisdom contained in the writers of the The Federalist Papers concerning the danger of a Tyranny of the Majority. It always exists in a democracy. Once a majority controls the Government, it can change the rules for political competition.

In my judgment Milton Friedman was the greatest spokesman for Freedom in my lifetime. He lived a very long and extremely productive intellectual life that had many spinoffs. He never gave up his defense of Freedom and the importance of Free Markets in enhancing and protecting that Freedom. However, the implementation of Freedom also requires good leadership ===leadership that is willing to see through the mist of “Fairness”. Politicians and bureaucrats focus on Now; good leadership looks for good outcomes in the Future. We have a deep need for another Milton Friedman to show us how that linkage can be achieved and how to choose leaders that will stay on the right path to that future.

Let me conclude with a few takeaways. In short, Liberals have a big load to lift!

Capitalism and Freedom is an elegant and persuasive argument for Freedom as opposed to growing Government Control… but if we look around the world, LIBERALISM IS NOW LOSING

Whether we look at nominally democratic governments or those governments that are explicitly totalitarian, THE STATE IS WINNING

As empirical economists trained by Milton Friedman, we should be asking why are we losing?

My own conclusion, not necessarily documented by clever and much needed research, is that people seem to accept several major premises:

  1. The functions of Government have grown exponentially over time: Explicit control over individual behavior is vastly preferred to the imperceptible functioning of markets.
  2. Human behavior seems to be heavily influenced by Risk Aversion. People are more prone to the allure that Government can fix the lottery characteristics of human outcomes —in spite of the vast empirical evidence of Government failure to contrive Equality of outcome! Governments can help Equality of Opportunity — they may not be able to create Equality of Outcome.
  3. A survey of Friedman’s critiques of Government intervention leads to some severe disappointments: public housing, social security, professional licensure, minimum wages, the end of the corporate income tax and assignment of undistributed earnings to shareholders as taxable income, the end of the inheritance tax and establishment of a flat income tax, ending tariffs and quotas, farm subsidies, and clearly, monetary authority rules vs bureaucratic authority.
  4. LIBERALISM’s VICTORIES ARE FEW

a. volunteer army— not mentioned in CAPITALISM AND FREEDOM
b. some progress on Charter Schools with small progress on use of public resources for charter schools
c. the negative income tax

WE HAVE OUR WORK CUT OUT FOR US – LET’S GO TO WORK! WE NEED TO START WINNING AGAIN

Friedman, Milton. Capitalism and Freedom (p. ix). University of Chicago Press. Kindle Edition.

Link: http://clubdelalibertad.com/cycle-of-tributes-tribute-to-milton-friedman/

The Evil of Two Lessers

Many Americans today are doubly distressed. First, the obvious setback to a “normal” life in a free country are the Government lockdowns to defeat COVID-19. Second, the impending November election in a very badly divided country forcing a choice between the extremist views of the two leading candidates. Both candidates exhibit seemingly less in leadership qualities than what is truly needed.

We need not dwell extensively on the rank statements of the current President and his frequent feuds with the media nor on the rather strange remarks of the likely Democratic nominee. We merely observe that either candidate is likely to heighten the distress of Americans who believe in limited but cooperative government that is nonpartisan in the best sense of the term. It goes without saying that the politics of surviving the onset of COVID-19 in a meaningful way has been hardly nonpartisan. The “helicopter money” approach so far provided is an effort largely devoted to political optics not economics. To state the obvious in a country that needs to go back to work: does it make sense to pay an unemployed worker more to stay unemployed than to have that worker gainfully and permanently employed even at a lower wage? That is what both parties agreed to under the duress of the Virus War. It is not a tribute to rational government policy. It is a device used by both parties to appear to get something done when they fail to agree on an overriding strategy.

On the other side of the coin are the efforts of the Federal Reserve to operate a monetary regime that is as much fiscal as it is monetary policy. The Fed is “applauded” by both parties but the larger term components of massive Fed intervention in the debt markets are left relatively unexplored. The most recent is the Fed’s deployment of buying privately issued loans to unrated public and private companies.1 It is at best an experiment, but it takes our central bank far beyond anything ever contemplated or truly understood as central banking policy measures.

“Do Something Now” is the ruling guidelines of American politicians of all stripes. This is an optics game not a well-engineered policy strategy with appropriate cost-benefit qualifications. It also runs the risk of saddling the country with a monumental debt overhang without necessarily providing the economics of sustainable growth to liquidate that debt. World War II aviators often spoke of flying back from their missions holding their damaged planes together with “chewing gum and baling wire.” That was a necessity.

Flailing government policy to fight the Virus War is surely not optimal policy, but when the politicians have dramatically different purposes for Government, that is what you get. One can only hope that the State does not run out of gum!

“A republic if you can keep it,” as Benjamin Franklin once said, but can we keep it in a war where the politicians do not agree what kind of government we should have?2 One side clearly believes in throwing massive amounts of money out from a vast armada of currency-laden helicopters is a solution while the other side fears that the present economy cannot recover under the set of disincentives now or likely to be established.

Next comes the Presidential and Congressional Elections. What can we expect from such a contest in which each side has assembled a set of Generals to run the war with totally divergent strategies? One is reminded of Lincoln’s three-year struggle with inadequate military leaders until Grant proved willing and able to defeat the Confederacy? Then the country had a national purpose and a leader whose unifying principle was to save the Union. Can we expect the same in November? On the basis of the evidence so far, it seems highly unlikely. Both presumed candidates have waffled on a “needed national purpose.” Both are frightened by health and medical experts whose own models of the pandemic have given and still give conflicting predictions about the course of the Virus War.

Good strategy in war begins with a defined objective and a multiplicity of tactics evaluated with common tools. It is impossible to discern the strategy of each party or its presumed candidate at this point. One observes such a variety of changing tactics that hardly any military historian would infer a high likelihood of success. STUMBLECONOMICS might be a better description of either Party’s strategy?

Like Lincoln, we are still looking for our General.

  1. The Main Street New Loan Facility, authorized under Section 13(3) of the Federal Reserve Act, can purchase loans in a SPV made to all kinds of businesses including corporations, partnerships, LLC’s, trusts, associations, cooperatives, and joint ventures or tribal businesses, where the initial lender is a financial intermediary that will take a minority risk interest in the loan. []
  2. Quoted in Walter Isaacson, Benjamin Franklin: An American Life (New York: Simon & Schuster Paperbacks, 2003), 459. []

The Troubling Return to Central Controls

No one ever claimed that the path to freedom was untroubled by rocks in the road, but the corona pandemic has put added potholes and big detours in freedom’s path. We need to be observant of the risks that have now been created by the massive “step-in” of Government. Perhaps, the most amazing aspect has been the willingness of so many Americans to give over their personal responsibilities and ambitions to the cabal of politicians who in recent years they had learned to distrust. This is a bi-partisan, if misguided, delusion–––by the voters. They had previously demonstrated extreme disgust with the antics in Washington (and in many State Capitols in 2016), but the virus has thrown an unexpected curve ball at that stance. Fear of the unknown is a great mobilizer for giving up one’s personal controls over the conditions of life. More problems than additional infections and deaths is the current willingness to surrender control over our lives, and this terror has not been confined to individuals. Many corporate leaders, not seeing an immediate way out of the morass that lockdowns have created, are now on a pleading platform hoping to save what is left of their companies and their own power.

Coronaviruses–––there have been more than a few–––have crippling effects precisely because developing proper pharmaceutical treatment, let alone efficacious vaccines, has been a monumental task for even the best of the “biopharmas.”1 Believers in the efficacy of Government over Markets can point to the Manhattan Project and the claims that DARPA created the Internet as evidence that a properly marshaled government can perform wonderful magic when pressed into service. But is that a question of organization or an unlimited budget, untroubled by the personal concerns of private business for an adequate return to investment capital? Surely, we should distinguish between a war mentality that pits our survival as a nation as justification for Government takeovers and what we truly face, ugly though it may be, with COVID-19? Our national survival is not at stake.

No one should ignore the deaths that the virus has caused or is likely to cause before this particularly ugly pandemic has receded. As we currently approach some 70,000 deaths in the US caused by COVID-19, we are unpleasantly reminded that an ounce of prevention is better than a pound of cure. That said, adequate preparation for rare events is not particularly a virtue that Government has demonstrated. On the contrary, Government has been caught out more frequently than not when confronted with a rapid change in geopolitics, pandemics, or rapid technological change. That is in the nature of a free state governed by modest checks and balances. There will always be new dangers and questionable responses. Freedom is not a free lunch. We pay for our freedom by allowing multiple sources of information…and the threat that is insidious is to suppress the vast amounts of information that markets provide merely by their operation. Government may be a poor example of a first responder.

There are always post event claims of the “gurudom,” voices unlistened to at an early time, but Government is always and anywhere a late starter and then an information suppressor. Risk management occurs in private business because of the necessity of a budget restraints and the claims of equity and debt holders on current earnings coupled to the limits of corporate saving. That is how it should be. Failure in corporate or personal business is a great, even if unplanned, source of innovation. Yet, innovation is the mechanism that produces a better life for our specie. We learn, often through tragic circumstances, where not to reside, which natural flora and fauna are dangerous to our health, and which devices are likely to help us when we are surrounded by dangers to our survival. We do it piecemeal, and the uphill road to knowledge and control is fraught with many setbacks. However, the human condition is built on learning and progressing diversified by our experience in many different environments. That cumulative learning curve is our human history..

In military affairs, the State is often the driver of technology change, but there too, the State stumbles and often goes down roads to dead ends. In the worst of cases, we see the State collapse when it cannot marshal sufficient technologies or manpower or bureaucratic organization to overcome its adversaries. That is an important historical marker that should caution us to rely solely on the State organization of science, technology, production, and distribution. There is simply no way centralized government planning can duplicate the massive information production and distribution that a myriad of private markets provides nor the ever-present incentives to innovate when sufficient information is available. State planning often relies on very imperfect information and then commits vast quantities of resources chasing down roads to nowhere.

While it is true that there some counterexamples to these State-generated failures, it is more often than that States bury false moves and strategies until the light of historical research finally highlights them…often generations later. Sometimes, we attribute these cover-ups as the result of poor leadership, but that is truly another kind of error. With the power to marshal State resources, most leaders that go down false paths do not willingly provide evidence of their errors and there is no market response that normally would be self-correcting when error produces loss. In the most violent examples, States that find individuals who disagree with policy or judgment calls on the direction of technology or strategy use State violence to suppress alternative interpretations of facts and policies. Stalin murdered Tukhachevsky—his erstwhile former leading general of WWI—-prior to the advent of WWII. While the US doesn’t murder dissident military leaders, it does punish those out of step leaders who want to pursue alternatives not endorsed by the current ruling military clique. Hello Billy Mitchell, and George Patton—-you have great company with Winston Churchill.

That is the nature of Government—-it severely punishes dissenters within. Furthermore, it is hard for Government to finance and nurture alternative paths under the duress of military survival—-precisely what markets do every day. Great discoveries come from mavericks who throw out conventional wisdom because their failures are personal, not societal. Government failure can be societal precisely because once we hand over markets to Government, there are few outside alternatives to the Government ”truth!”

That is where the real danger lies today. Ironically, in spite of manifold distortions of truth and information, even this much criticized Administration has created, albeit by default, some remedy to overall Government takeover. Our Federal system allows, in fact, commands, many sources of alternative information and activity. Those politicians who demand a National Policy for fighting the corona virus miss the virtue of multiple attempts by State and local leaders—-and that provides an unending stream of useful information over what works and what fails. This administration has stumbled into the virtues of multi-pronged efforts by State governments probably because of its own lack of risk management much earlier in the game. Unfortunately, the current wisdom was that Lockdown was the appropriate death-mitigation model. That may turn out to be a half-truth if we find that restarting the American economy becomes a painful experience.

In the long postmortem on failed Viet Nam strategies, many military historians concluded that the massive firepower of the Westmoreland approach was inappropriate and devastatingly counterproductive. Early attempts at small local groups invested in the local communities—-a strategy vigorously asserted by our then chief of the Marine Corp—was squelched by the Johnson administration in favor of massive aerial bombing and huge suppression of the Viet Cong by tanks and napalm.2 Protecting the people from the Viet Cong was abandoned by a fixation on body counts. That massive kill strategy ignored the politics of collateral damage.

The US has finally learned that massive power projections often have countervailing downsides. We now try with small groups of tactically distributed forces in Iraq, Afghanistan and Syria, with much better results and much lower collateral costs. We do learn—-but it is a painful learning experience for both for our military forces and for the residents of countries torn apart by conflict.

Somehow, whether because of crony capitalism or national leadership failure, it seems there are now prospects of utilizing markets to deal with the treatment and vaccine development to fight COVID-19. By default, we are unleashing many non-governmental firms to search out the myriad of possible pharmaceutical answers to this pandemic. It is highly probable that we will learn more quickly with less direct expense than by a massive single effort by our national government agencies. That is what markets are good at. They sort out multiple paths. They follow small bits of information that possibly can be profitable as well as efficacious.

Sadly, some of the current drift toward collectivization is suffused with claims that profits will interfere with efficacy—-nothing is further from the truth than this canard. Bureaucratic collectivization is the long trod path of singular direction. The next battle will be the socially powerful claim to controlling the profits of the pharmaceuticals taking the risks ancillary to developing treatment and vaccines. This is the old story of Government trying to control the distribution of outcomes (income and wealth) through mechanisms with massive dis-incentives. When it comes to profits, politicians invariably forget old lessons. Killing the goose doesn’t produce new eggs. If the Government wishes to subsidize the cost of treatment or vaccine, it must do it in a way that does not punish the creators of these silver bullets. We don’t need to provide more examples of the Bourbons “learning nothing and forgetting nothing.”

Sadly, the talk in Washington has a punitive theme: “don’t let the drug companies profit from our misery.” Will politicians ever learn how disastrous such a policy can be? Subsidies for use of a drug are one thing. Suppression of pharmaceutical pricing is quite another. This is not a panegyric for unlimited monopoly pricing power. We should expect that private pharma will have a number of remedies for treatment. We want many approaches. Hopefully each will be thoughtfully vetted by good statistical practices and early use limited to medical emergencies until suitable validation is obtained. We will make mistakes. Drugs with subtle contraindications will occur and we will never be perfect in eliminating hard to discover side effects. We can take reasonable precautions, but we should not promote the illusion that there are risk-free treatments or perfect vaccines. In medicine, it is also true that perfect is the enemy of good. To offer such false illusions—-even by well-meant Governmental health officials—-is another road to nowhere.

Ultimately, herd immunity must be the outcome or we will have to live with future episodes of corona virus emergence. What we should demand of Government is rapid response to local upsurges and a willingness to allow multiple paths in emergency situations. We will not be perfect. We never are. But we can do much better than we have done, as long as the learning path is not so obstructed by the “good intentions” of politicians who fail to make necessary cost-benefit calculations. Doing better is a worthwhile goal. Doing it perfectly is an errand for fools.

  1. Swine fever, another coronavirus, is decimating pigs around the world. Known since 1907 it still has no known vaccine or for that matter a successful treatment. []
  2. Victor Krulak []

Trump’s China Wrecking Ball Express

The recent arrest in Canada, under a request from the US, of the CFO of Huawei, the leading Chinese telecom equipment manufacturer, doesn’t seem to be an accident. In the context of the growing commercial dispute between China and the US, it will undoubtedly inflame the Chinese. In our view, it is a catastrophic strategic error. Was it merely an agency of the US government acting without Presidential instruction? Was this bad political governance or just an errant bureaucratic mistake? Either way, the consequences seem horrendous. Continue reading

Why is Distrust of Politicians So High?

The Founders argued over successive terms for Congress and the Presidency but allowed life terms for Judges (subject to “good behavior”). Was this an accident or did they have a different notion of fidelity when it came to Judges as opposed to Legislators and Executives?



Was Montesquieu correct in asserting that Direct Democracy fell because of factions–majoritarian politics— and were the Federalists specious in their argument that the faction would have to win in each Sovereign State so that the argument made in Federalist 10 really does not hold up when one considers “vote trading” by representatives?



Cronyism is the market’s response to more rules and more distance from rule making

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The American and French Revolutions contained two embryonic themes brought down throughout history: overthrowing the power of absolute monarchy and to one degree or another, empowering the people’s representatives with the power to govern. A generic feature of the American Revolution and its enduing Constitutionalism was its evident fear of an unshackled executive authority as well as the fear that populism would lead to legislative majoritarianism. There was a corresponding faith that Liberty would create a multitude of economic opportunities that should remain largely unshackled. The dividing line within the Constitutional Convention was the need for a strong central government to defend the new Republic from external and internal enemies and the fear that too strong a central authority would usurp the power of the thirteen separate sovereignties that were giving up some of their authority to create centralized authority for the purposes of safety from abroad and domestic harmony within. The latter concern was often conjoined with a preference for transparency and a faith that local control — seen and disciplined by local voters — would limit the feared excesses of a State over its own inhabitants.

The rather sophisticated structure of “checks and balances” designed into the Constitution was always a compromised outcome that reflected the need to create Federal authority while preventing such authority from becoming a new absolute “monarch” all on its own.



The same thematic division still runs thru American politics: between political leaders who “know what is best for the people” (and who also dislike “market generated outcomes);” and politicians and political theorists who believe that creating opportunity is sufficient while favoring minimal interference with market determined outcomes.



At a philosophical level, “market types” believe political rights begin with paying strong attention to property rights and “control types,” who believe that the “people” have both a right and a duty to push outcomes in an egalitarian direction, because equal opportunity is not sufficient for justice.

Can Mudville Be Fixed?

In a previous essay, we lamented that Mighty Casey had struck out. Maybe what is needed is not another Casey, but fixing Mudville. That means changing our expectations of good governance and then doing something about a reduced menu of expectations. There are many sources of our disaffection with government. Our political fragmentation, however, assures us that there is not a single silver bullet. As a country we have very different expectations concerning what our Government should provide for us.

From an historical perspective, what we wanted in 1776 and later in 1787 was that Government should insure our liberty and our freedom. Those were simpler times and the Founding Fathers prescribed a stronger national government that could marshal the resources to defend our nation and protect us from violent uprisings internally. The Philadelphia convention of 1787 was highly fearful of the outbreak of domestic uprising, coming as it did shortly after Shays Rebellion was put down only through a massive effort by the State of Massachusetts.

The Founders wanted an orderly state, hopefully not torn apart by faction. Federalist #10 (Madison) was devoted to just that issue: factionalism, and how the separate sovereignty of the 13 States coming together in a Union would provide a protection against factionalism. The Fathers were also strongly aware of the precarious nature of our finances. The Continental Congress had made long-term sufferers out of its own Army by its failure to raise sufficient resources to pay the Army and its officers. After the Constitution was written, Hamilton, as the first Treasury Secretary, federalized the separate States’ debt thereby creating a viable financial system that could support the new Government and its armed forces. Tax revenues then came largely from taxes on trade—tariffs! It would not be until the 20th century that the US turned to personal income taxation. In spite of the brilliance of our Founders, history must judge their failure to place term limits on the legislature as a strategic error.

Term limits were thoroughly discussed during the deliberations in Philadelphia and while some limits had been in effect under the Articles of Confederation, they disappeared completely in the final draft of the Constitution. Even from Madison’s voluminous notes, it is unclear how this omission was contrived. Government was smaller and stayed smaller, absent the Civil War, until the advent of the Great Depression. Perhaps the small size of the actual government and the limited scope of its interests at the Federal level dictated that outcome? We cannot be sure.

The size and extent of Government’s intervention into private endeavors is very much at the source of the observed cronyism and corruption that so disfigures our current governance. It might seem strange that government size would be a source of corruption, given that smaller states also suffer the malady. Consider, however, the nature of any Government effort, either through specific legislative enactment or through the rules of a government agency designated by that legislation.

The bureaucracy writes the rules and largely interprets them even though the formal legal structure comes from the Congress and is signed by the President. Each activity that is so described by the legislation both prohibits or directs that private actors, firms, households, individuals, associations, NGO’s —all domiciled in the private sector—are to undertake an activity or to forsake an activity under the sanction of a Government regulation.

Each such regulation sets up incentives to abide by the directives but the regulation also implicitly sets up a shadow price that measures the value of non-compliance to the regulation. Thus, regulations set up incentives for behavior of agents in the private sector and clearly these agents respond to these incentives. Then comes the investigation of such deviations and the enforcement by the specific government bureau or agency designated to compel private behavior. How do markets respond to these incentives?

Largely, in the US, it is first by lobbying efforts paid for by affected private agents. The lobbying can take place in the designated bureau and/or it can take place in front of particular legislators. Here a quid pro quo often occurs. Private agents want a “seat at the table,” and they are wiling to purchase the necessary admission tickets. They can contribute directly to a sympathetic legislator’s campaign to purchase that seat at the table.

The absence of term limits has created many permanent politicians, each of whom requires resources to maintain his elected status. Markets work—often all too effectively—and we then observe special interests buying tickets to the cronyism and corruption circus. The circus never pulls down its tent. It is a permanent fixture of expanding government interference in the affairs of the private sector.

Now Mudville complains that its true wishes are not heard, that no one in Washington really hears what they want. That’s tinder for a political candidate willing to state he hears the cries of the disaffected. Sound familiar? Clearly, no joy in Mudville. Instead, we have frustrated grievances by a great many angry voters. Can representative government survive this tumult? One has to wonder?

“There is No Joy in Mudville, Mighty Casey Has Struck Out!”

I loved this poem as a young boy thinking about baseball in a much simpler era. It was post WWII and there were no major television networks. You read about the Majors in the newspapers—the clubs were in the East and the Midwest. Migration was to be many years in the future. The war was over and the newspaper was one’s major source of information. The Cold War had begun, but we didn’t have the troubling doubts about Presidential and Congressional leadership that today race across our phones, tablets and other Internet connected devices.

We got through the harrowing experience of Korea and we began to notice that there were few “mighty “ anymore. Information flowed more readily across the television networks. Government provided information was more carefully parsed. Idols fell more frequently from exposed clay feet. Still, most of America believed what Government told us. Witness the support polls for the Viet Nam war that continued high well into the 1970’s despite the nightly baths of tragedy that streamed over national television. Then came Watergate, the resignation of a corrupted Vice President and finally the first resignation of a President.

Today, we have a surfeit of what passes for news, much of it highly infused with the political opinions of the networks, newscasters and the overabundant ‘talking heads.’ The Web is full of “bots” that convey “information” that incentivized sources wish to provide for what seems to be a still gullible public. And, above all, we have a troubled Presidency, attacked as illegitimate by one side of the aisle and supported on the other by a much-threatened, confused and silenced party.

The massive waves of dissent that redounds across America remind us of our earlier, troubled era of the Viet Nam war and our painful exit. Viet Nam taught us not to believe in what our Government told us, and our agony stretched past the fourteen years of our troop involvement. Revelations about the extent of lying during the war dragged on for at least a decade following our exit. There might have been little joy in Mudville as the war wound down and American forces were withdrawn but our malaise continued well through the 1970’s. The decade was troubled by incendiary politics, slowing growth and inflation and the post mortems of government mendacity during the war. Troubles were not confined to America. South East Asia exhibited horrifying murders and genocide in Laos and Cambodia; the Middle East exploded in another war and the decade’s end was underscored by the cancellation of our participation in the Moscow Olympics over the Soviet’s invasion of Afghanistan and our covert support of the Mujahedin against the Soviets.

There was a seeming respite in the 1980’s and the evident beginnings of a huge technological computer revolution that was gaining ground at every step. Plus, we had a very likeable President who seemed to ‘take it to the enemy,’ with his adamant refusal to kowtow to the Russians; his famous taunt to Gorbachev to tear down the Berlin Wall (which finally fell a year after his Presidency) and his constant stress on the American exception. His term ended with palpable celebrations despite the Iran Contra investigation and the evident cover-up that had cloaked its continuance. The residue of distrust of Government did not subside. It might have been tempered during the Reagan era, but it did not vanish.

Another recession and a shortened Presidency following Reagan ushered in the booming 1990’s, troubled once again by an impeachment proceeding (that failed) and a shocking defeat of Government sponsored health care. Markets boomed, however, and whatever distrust we as a people had developed was often subsumed by a huge stock market rally. It was to some a “unipolar” world with a collapsed former enemy seemingly weakened irretrievably by the fall of the Soviet Communist Party and the liberation of its East European satrapies. China was the new Casey at bat, with its rather unique Chinese Capitalism moving millions of impoverished families into the penumbra of growing wealth. They moved from agriculture to newly built factories. A growing class of wealthy Chinese began to tour the world, replacing the seemingly moribund Japanese of a decade earlier. It all seemed glorious and the US seemed to escape the Asian collapse of 1997 as we sped to the Dot Com world. Even the recession of 2001-2002 didn’t humble us, but 9-11 made us aware that new threats had emerged with asymmetric warfare now ascendant.

The debacles in Iraq affirmed our suspicions that much of the information that Government provided was either wrong or intentionally shaded. While Bush II served two terms, he was widely undermined by a media that seemed to thrive on his malapropisms. The contrast to a well spoken, Harvard educated, social activist infatuated the press, but the Obama era was a watershed for acrimony between the two major parties.

Obama succeeded in passing Medicare, but its terms were unacceptable to the losing party. Obama withdrew forces from both Afghanistan and Iraq only to see Iraq collapse and the rise of ISIS. The divisions in our body politic were widening. Then came the campaign of 2016 from which we have not recovered at all.

Some see Trump’s capture of the Republican nomination as a political fluke while others blame it on a vast conspiracy fomented by Russian computers! His election is incomprehensible to the party that won the popular vote but lost in the Electoral College. They see conspiracy everywhere and our practicing “payback,” at every turn.

Bipartisanship is non-existent even at the water’s edge, despite the long period of foreign policy cooperation that had stretched some 60-odd years through even the early 2000’s. Economic policy is a one party game and immigration policy changes are blocked at every turn. Unless the polls are wrong again as they were in 2016, it seems quite likely that come January 2019, we will have totally divided government and the increased likelihood of rule by executive order. We may see a rancorous attempt at Impeachment. The mists are too thick to see past 2019 into 2020’s Presidential contest, but the level of distrust and disenchantment with Government is surely rising.

Meanwhile, as Government becomes more a story of the regulation derby, it also must mean, “who you know” becomes far more important than “what you know.” Voter disenchantment can only rise. If Trump’s victory lay in his recruitment of those voters who felt increasingly disenfranchised and unheard at senior government levels, what is likely in 2020 and beyond? A split of legislative and executive power may produce a kind of quasi-stability, but it cannot produce joy in Mudville. There will be no “mighty Casey” in our future.

The lamentable state of democratic order in America is hardly confined to our shores. Some 25-odd countries, all of who possess some sort of democratic republic structure seem to be suffering as well from widespread voter disaffection. Prior to Trump’s election, troubles in Australia and Canada produced similar symptomology. Those elections went different “political directions,” (one right, one left) but that is a key to understanding the current dilemma in democratic republics. Next is the Brexit upset and then Greece! Then comes the wide disaffection within the EU, including perhaps the failure in Italy. The rise of right wing anti-immigration parties in Sweden, in Hungary, in Austria and even in France and Germany, play a recurring theme. Dis-affection with Government, mistrust of Government, political fragmentation and consequential rule by executive order are now widespread across the democratic universe.

When the “national interest” becomes fragmented, “special interests” invariably rule by default. In the absence of term limits on legislators, particularly in the US, staying in office become a perpetual money-raising game. Those who have access to money can buy media time and a vast proliferation of Internet ads. Media consultants may provide strategy and tactics to electoral candidates, but they drive an increasing wedge between the average voter and the elected. The voter begins to think he is a chump. How long before that distrust mushrooms into support of an extremist candidate?

Trump’s 2016 election strategy was derided by the “liberal media,” but despite its odious historical comparisons to Germany in the 1930’s, it provided a vehicle for disaffected voters. They crossed over, because he brought them a road to travel on. He emphasized how unlike them were his opposition. He was “fighting” the establishment (for himself, to be sure) but for “them!” He gave them a hope that they would be “heard,” and they repaid him by crossing over. He perpetuated an invalid economic narrative that they were the “victims” of globalization and too many immigrants sucking away their jobs and undermining their pay structures. It was wrong, but it was credible.

He is not the first politician in history to construct a faulty but believable narrative. His ostensible wealth and previous success did not transmit to the disaffected that he lived in a very different world than his would be voters! On the contrary, it spoke of his success in besting the powers that be in the liberal cities where he built his hotels and buildings. He knew the “game!” He didn’t deny playing that game. He trumpeted his success in winning those concessions. He was a Master of the Game, and in spite of their hugely different class backgrounds, his crossover voters ate up his rhetoric.

When Media America constantly questions how he regularly insults accepted liberal norms, they see their champion. That is his strength and in a hugely fragmented body politic. His “minority” politics thrives. The consummate testament to his strategy is that the Democratic Party is now fragmented between espousers of “socialism” (despite its continuous history of failure wherever it has been tried) and capitalist democrats who know how to win with the money provided from “special interests.”
It may be that the November elections will feature a Republican defeat in the House and possibly an overturn in the Senate, but that will mean a two year era of rule by executive decree and constant legal appeals to the Courts to overturn Trump inspired orders. This can only mean more fragmentation and a deeper division of the electorate.

It is hard to judge whether the current level of political invective and disharmony has historical precedent. Certainly the decade before the outbreak of the Civil War showed how extremism and the lack of bi-partisanship could rip apart a country. But, 1860 and 2020 are separated by more than time. News traveled slowly in 1860. “News,” or whatever passes for that much- trammeled noun, travels instantaneously today. Truth loses out continually to immediacy—as Trump has learned. The Washington Post may flash four or five “Pinocchio’s” each day, but working class voters in Ohio are likely to ignore that. Beside, the “press” is a kept lady in their view. It doesn’t belong to “their kind.” It really doesn’t matter, despite the constant rant of the critics, how much Trump lies or distorts the information. Germany’s history proved how a “big lie” can work, and sadly, it continues to be proven day in and day out here in America. It is alleged that Trump rises early to “tweet” America its new truths. That is not accidental. He sets the agenda, irrespective of the truth table that accompanies the tweet.

Will an impeachment stop this game? Highly unlikely, unless one believes that the Senate could convict? If the Mueller investigation finally comes up with compelling evidence of an actual conspiracy between the Russians and the Trump campaign, perhaps that could turn the tide. So far, despite the Cohen and Manafort agreements to “cooperate,” no one has seen any substantive evidence that will document such a conspiracy.

The foregoing points up how important the Regulatory State has become, ironically even more important under Trump than before. The growth of Government is the prime source of political corruption. The more we allow Government to enter our lives, the more political corruption will occur. All regulatory efforts create two incentives: one to prohibit and one to avoid the prohibition. In turn, this makes the money flow that influences the legislators and the regulators in a particular direction. Lobbying and campaign finance are not an accident. They are market’s reaction to impending or actual legislation or regulation. The Smithian dream of a huge market of small firms each competing in its own way falls victim to the nightmare of much, much larger firms with very large resources to not only “listen” for changes in Congress and the regulatory establishment, but to promote those changes that are instrumentally important to the particular firm. The banking industry is a perfect example. The cost of compliance rising rapidly since Dodd Frank drives small banks into the arms of larger banks, better able to defray the cost of compliance. It is no different in a host of other industries.

At the end of the day, Pogo (a comic strip character from my forgotten age) was right: “I have seen the enemy. It is us.” The great tragedy of American politics is that “redress of grievances” produces excesses of Government intervention and regulation. If something is wrong with your corporate or personal life, get a Congressman or Congresswoman to address your grievance. If you are poor, there are many NGO’s that will pick up your cry. If you are poor and a member of a racial minority that’s even better. If you are not employed in the manner you feel you ought to be employed, find a “loudspeaker” to vent your case. Are you potentially harassed by your employer, find a media stringer to write your story of abuse and a class action lawyer to take your case!

The growing abundance of “Government Remedies” breeds the cabal of corruption that we witness daily in our political governance. Is there a way to reduce corruption and cronyism? There is no silver bullet, but there are some things we could do if we understood the problem and were willing to unite to limit its incidence. That is the subject of another essay. This one, like today’s baseball games, is already too long.

Leadership Deficits and Inherent Bias

While researching a new book on political economy and the events of 2016-17, I have been reluctant to voice opinions on the current state of economics and politics since the election of 2016. The sad event at Charlottesville and the subsequent media controversy over the President’s “fitness for office,” have forced my hand. Here is a small observation.

The President’s compulsive responses via Twitter or Q&A’s at his infrequent news conferences seem to create a continual fury that destabilizes any hope that thoughtful legislation can pass. Health Care reform has gone down already; legislation authorizing a large infrastructure program has not gotten off the ground; a well integrated tax reform is hinted at by the Secretary of the Treasury but has not been made public; immigration reform is either dead or in the courts for piecemeal remediation and foreign policy measures seem episodic or at best confused. Further, watching the President in his entertainment and recruitment mode during his various “rallies,” diverts attention from the essential leadership elements of a successful Presidency.

The clock is ticking on Debt Lift legislation and is now encumbered by Presidential threats that if there is no funding for the “Wall,” there will be a “shut down.” Bottom line, governance at the Presidential level is a shambles. This is not the first Leadership Deficit suffered by America, but it comes at a truly inopportune time. It does not seem as if the Trump Administration has made progress on “making America great again.”

The latest tempest is the story that Gary Cohn, the national economic advisor and often thought to be the next Chairman of the Federal Reserve, has publicly condemned the Trump administration by stating “This Administration can and must do better in consistently and unequivocally condemning these groups [neo-Nazi’s and white supremacists] and do everything we can to heal the deep divisions that exist in our communities.” Whether Cohn will resign or stay and whether he will be taken off the short list for the Chairmanship of the Fed are still open questions. Underlying all of this is a deeper question: Do the Twitter comments and the off the cuff remarks of the President tell us anything about any inherent bias he may have?

When you calmly think about the President’s first response to Charlottesville, it is hard not to notice the Presidential equivocation on responsibility. Why would a senior politician—let alone the President—seek to impose seeming “fairness” to both Neo-Nazi’s, KKK’ers and White Supremacists’ and the ‘Antifa’s who brawled with them at the University of Virginia?

The US repudiated slavery more than 150 years ago; we fought an expensive war against Nazism and expended billions of dollars in reviving a modern Germany that repudiated its own historical monstrosities; we have a more than 50 year history of trying to counter racial inequality through a host of Civil Rights legislation; and we have spent over a trillion dollars attempting to put down jihadist terrorism over very similar threats to freedom. Why then the sudden, unexpected attempt to equate two extreme sources of violence? It seemed to be such a simple line to draw in the sand. Does the President have a tin ear with regard to the vile conduct of racial bigots in the US?

There are two possible explanations for his extemporaneous attempt to apportion blame to both sides. One is a total misunderstanding of the likely reactions of both the media and the US population as a whole or an inherent bias that cannot be forgiven. The second one is that such a response plays to the Trump base. If the second reason is the case, and the two subsequent Trump rallies subsequent to Charlottesville hint at that explanation, then our future is grim. Stirring up that ‘witches brew,’ will cause continual legislative failures certainly until November of 2018 and a deeply divided country that desperately needs thoughtful and weighty Presidential leadership.

Congratulations to Gary Cohn for “doing the right thing” that could be very costly to any ambition he might have had to chair the Fed and congratulations to him as well for not resigning and staying the course of trying to achieve a more rational tax and expenditure policy as head of the National Economic Council. His courage was badly needed, but it highlights the enormous leadership deficit at the top level under which we continue to suffer.