Liberals and Conservatives: Who Are They Really?

Keith's commentary (American Counterpoint - 11/14/11), along with the NYT article he encapsulates, raises an elusive question: who are liberals and conservatives? What defines them as such, and what makes them so contrary to one another?

For me the most useful part of what Keith has to say is his analogy between our modern political groupings and sports teams. Considering this I think can help elucidate at least one dimension of the current political impasse in the United States. A substantial portion of our voters identify themselves as either "liberals" or "conservatives", and once they've done so, have a tendency uncritically to swallow political notions officially emanating from their "side". At the same time, they quickly disparage notions arising from across the field, regardless of possible merit.

Anyone who has had the experience of sitting in the wrong set of bleachers at a high school football game understands the dynamic at work here. You can be a perfectly nice person and still get a drink poured down your neck if you're wearing the wrong color jersey. This may be OK in sports, where blind boosterism is part of the fun. It's less OK in politics, where rational discourse is necessary for achieving progress on issues of great importance to everyone.

Keith made his "team" analogy only in passing, however. In the actual substance of his commentary, he drifts onto less insightful territory. To define conservatives as "authoritarians" who "opt for isolation, force, and simple solutions" is stereotypical at best. Then to state, in the next breath, that liberals "rely almost exclusively on rational thought, without much concern for emotions" veers close to delusional thinking, if the point is meant somehow to apply to liberals in general. Moreover, I'm sure that many liberals themselves would take issue here, since they're often proud of their willingness base political views in part on emotional considerations. In fact, they see rationalism as more a conservative proclivity, tending as it does to put abstract reason above humanistic values.

I've thought a great deal about what the defining characteristics of liberalism and conservatism really are. These are, of course, old terms that have carried different meanings in different places and eras, and my focus here is on what they've come to mean in our contemporary United States. I've concluded that in order to answer the question, it's necessary to engage in a two-stage inquiry. First, we have to examine the laudatory self-definitions both groups are prone to using. Then we need to observe the actual political behavior of the opposing groups and its impact on the welfare of the nation. Only after we have probed both subjective self-definitions and objective practice can we can begin to understand the true contrasting political identities.

For this inquiry to be worthwhile, it is in my opinion necessary to start from the proposition that there are intelligent, sincere people on both sides who have constructive views. It follows then that rational dialogue among these people, including at times fierce debate, will lead to better public policy than will a process conducted by politicians operating from within a closed set of ideas. We also have to recognize that both groups contain people who are not sincerely principled or really committed to establishing good public policy. These are the people prone to using ideology as a cover for hidden agendas. Liberals and conservatives both at times talk as though they believe somehow that all the principled people reside in their camp, with all hypocrites and wreckers banished to the other. It is this degraded perception that leads to the kind of intellectual apartheid that the author of the NYT article appears to consider the common state of affairs. Such would be the case only for a nation preparing itself for partition or civil war.

So, let's start with the liberals. They see inclusiveness as their core mission. They consider personal happiness an imperfect goal so long as others are excluded from it on the basis of social class, race, sex or other innate conditions. Like conservatives, they generally believe in hard work, but they want the resulting rewards to be shared as widely as possible. Because inclusiveness is not a universal human virtue, liberals look to government as the necessary vehicle for forcing it on people otherwise intent on selfish lives. Higher taxes on the wealthy, and even middle-income people, are almost always justified if necessary to fund programs that help disadvantaged people improve their lives. Wealth is more the by-product of lucky circumstances than of hard work, and simple justice requires it's equitable distribution.

While some liberals are religious, many are suspicious of organized religions for promoting spiritual elitism, and for encouraging monetary donations and outward acts of piety as substitutes for social responsibility. With respect to foreign policy, liberals are often open to listening to America's detractors, in the belief that their enmity may turn out to be justified. It may in fact stem from the very worldview that American liberals themselves promote, which sees our nation's wealthy elite as plundering the Earth's resources for private gain. If geopolitical conflict can be understood through this lens, the obvious solution is for liberals of good conscience everywhere to push their greedy conservatives aside and come together in honest negotiation. The money now being wasted on military preparedness could then be diverted into beneficial social programs.

Turning to the conservatives, they see self-reliance as their core mission. Conservatives believe that through hard work and responsible living, anyone can succeed and receive rewards commensurate with their achievements. Some will benefit more than others, of course, as is befitting an economic system that differentiates among people according to their varying contributions. The prospect of gaining wealth is the vital incentive that motivates talented people to work hard, innovate and take the risks necessary for the nation's economic development. It's the labor of these high-achievers that provides the jobs and creates the bountiful flow of goods and services which is the foundation of everyone's prosperity. Allowing these people to grow rich is a small price for society to pay in return for their services.

On the other side of the coin, conservatives regard the threat of poverty as a necessary discipline for dissuading people from lives of sloth and dissipation. While not everyone has the talent to become wealthy, they all can find places in society and earn a decent living in accordance with what they contribute. If, however, overly-generous government programs eliminate the economic consequences of lassitude, too many will be tempted onto the course of least resistance and never find productive roles for themselves or pull their weight in the economy. Conservatives see free markets as the ultimate arbiter of value. Markets attach relative value to the labor of people and to the goods and services they produce. Since market value is by definition "true" value, the judgments of the market are sacrosanct and should never be countermanded by government policymakers or social engineers.

Many conservatives are religious. They tend to view our variegated social structure as the natural order of things and regard wealth as a sign of God's favor. At the same time, they tend to accept social Darwinism as the mechanism by which the social structure evolves, with God helping those who help themselves. In foreign policy matters, conservatives generally advocate a muscular response to the encroachments of foreign adversaries. They see other nations as being jealous of America's economic success and often seeking to undermine it because comparison puts an unflattering spotlight on their own national failures.

With such self-definitions in view, it's then not hard to see how both conservative and liberal ideals can inflate themselves into counterproductive ideologies. When that happens, political discourse becomes dysfunctional. Convinced of their own virtue and wisdom, liberals and conservatives alike become angry and defensive when confronted by limitations. They blame their adversaries for everything that goes wrong and refuse to consider contradictions possibly inherent in their own favored policies.

The central crisis of the present moment is paralysis of the global financial system and the lethal threat it poses to the real economies of all developed nations, including the United States. People's jobs, savings and way of life are at stake. Conservatives and liberals, of course, have their diagnoses of the problem and their proposed solutions, mostly rooted in their respective ideologies.

Conservatives tend to blame everything on welfare-state economics. They see generations of government give-away programs, most importantly the big "entitlements", as having finally pushed the nation to a breaking point. The money to pay for these compounding obligations cannot be raised through taxes, and the debt being used instead has become a millstone around the neck of what would otherwise be a vibrant American economy. Further aggravating the problem are the regulatory and tax burdens that hobble private enterprise and make it impossible for America's growth engine to gain its footing again and create the surplus needed to restore fiscal balance. Conservatives see liberal ideology as, at least in part, a cover for crony capitalists, tort lawyers, high level bureaucrats, public service union kingpins and others who cynically benefit from the inexorable growth of government.

Liberals tend to blame everything on private greed and social negligence. In fact in their view, far from being the source of our problems, the welfare state needs expanding at the present time. Despite the liberals' best efforts over the years and despite all the federal money that has been spent, poverty, social inequity, environmental degradation and healthcare inadequacy all appear to be getting worse. And the only thing wrong is that America's wealthy elite seem intent on hoarding their riches rather than paying the taxes needed to fund the programs that could fix all this.

Furthermore, in accordance with the Keynesian doctrine they favor, liberals consider increased government spending as the key to economic recovery. During hard times such spending becomes an end in itself, because it stimulates a stalled economy. Liberals largely dismiss the value of the supply-side nostrums favored by Republicans. They're less worried than Republicans about budget deficits and suspect handwringing over this issue of being little more than political theater.

They see financial instability and economic weakness as being largely the fault of conservative ideologues anyway. In one of their favorite narratives, the enlightened Keynesian policymakers who engineered America's post-WWII prosperity were expelled in a palace coup during the Reagan years. Free-market zealots took their places and twenty years later finally ran the economy into the ground. The laissez-faire doctrines of this new crowd were nothing but cover for their crooked Wall Street cronies bent on manipulating and looting financial markets for their own profit.

And so it goes. Getting away from their constructive principles, liberals and conservatives have come to paint one another into corners. Once on the defensive, both groups can start actively embracing the caricatures laid on them by their adversaries. When that happens, they all become very ugly people and a political death spiral is underway.

Luckily we're not there yet. The upside of all this is that liberals and conservatives can bring out the best in one another if constructively engaged. Inclusiveness and self-reliance, the core principles of each group respectively, are complementary rather than mutually exclusive. Liberals would do well to remember that social problems can be addressed effectively only within the context of a robust economy. This in turn is only possible when talented managers and entrepreneurs are allowed appropriate incentives and the necessary freedom to so their jobs.

Conservatives, for their part, might do their cause a service by stepping back to ponder the religious principles so many of them claim to espouse. They need to remember that inclusiveness is the foundation of Judeo-Christian ethics.

If the two sides can come to appreciate one another's legitimate priorities, they can work together to address the present crisis more effectively than has so far been the case.

Response to a NY Times article on the gulf of morality in politics

I have a very different frame of reference than do the November 13, 2011 NY op ed and the study it refers to, copied below. Perhaps this is because I agree, to at least some extent, with every single conservative tenet that is stated, and yet am and would be considered a very liberal voter and thinker. In other words, I don't think the study puts the differences very well at all. George Lakoff put it better when he wrote, some time ago, that the conservative mindset is basically authoritarian, while the liberal is much more multifaceted. In speaking of "mind," by the way, I don't think he meant the logical part of the brain, and I certainly don't. The electorate is divided into teams, and most people have the same devotion to their team that sports fans do, arising from the same relatively primitive parts of the brain. Within that context, we can see the basic differences: the authoritarian brain, confronting a bewildering and threatening new world, opts for isolation, force, and simple solutions based on instinct. Unfortunately, these work primarily as destructive impulses. The liberal brain, confronting the same world, tends to rely almost exclusively on rational thought, without much concern for emotions. So we have better policies; the Republicans have better ads and slogans. We have the rational Obama; they drag their heels about nominating a Romney, forget about Huntsman. This is not to claim that conservatives lack rationality. My co-author on this blog is highly rational. But his instincts are in the authoritarian direction, so conservatives are his team, and it takes a lot of disgust and misery to get him to root for the other side. Same with me, from the opposite perspective.

The Gulf of Morality

By THOMAS B. EDSALL

“There’s a gulf as wide as the ocean between the average politically active conservative and the average politically active liberal. We don’t just have political differences; we view the world through very different eyes.” So wrote John Hawkins, who runs Right Wing News, at the beginning of the year.

He’s right. The left thinks so too. George Lakoff of the linguistics department at the University of California at Berkeley argues that “conservatives believe in individual responsibility alone, not social responsibility. They don’t think government should help its citizens. That is, they don’t think citizens should help each other.”

Rush Limbaugh counters that “the left, the Democrats, can do anything — they can employ strategy and policy which is destructive — and be excused for it on the basis that they had good intentions. And, by the way, that’s how they skate on virtually every bit of destructive policy, which is every policy they have.”

I could go on, but you get the idea. Left and right look at each other with disdain and incredulity: what planet are these people from?

Electoral politics determine the distribution of valuable resources, and moral commitments can mask otherwise naked resource competition.

Perhaps the most illuminating examinationof these differences in values can be found in the work of Jonathan Haidt of the University of Virginia, and a number of his colleagues, including Ravi Iyer of the University of Southern California.

Using extensive data collected from online surveys, Haidt, Iyer and their colleagues have found that self-identified liberals and conservatives differ by very large statistical margins on questions of policy preference and political allegiance.

The liberal mind-set is defined by favorable responses to a variety of statements touching on economics, war and crime. Liberals agree that it feels wrong “when an employee who needs their job is fired”; “that it’s morally wrong that rich children inherit a lot of money while poor children inherit nothing”; and they describe themselves as often having “tender, concerned feelings for people less fortunate than me.”

Those on the left also agree that “peace is extremely important.” They believe that they have “understanding, appreciation and protection for the welfare of all people and for nature” and they feel “close to people all over the world.” Liberals generally “believe that offenders should be provided with counseling to aid in their rehabilitation.”

On all of the above statements, conservatives — no surprise — disagree with liberals. They believe that employees who “contribute more to the success of the company” should “receive a larger share” of the pie and they value “social status and prestige, control or dominance over people and resources.” The differences of opinion on war and peace are extreme, reflecting the importance of the hawk-dove split between the parties. Many on the right agree with few qualms that “war is sometimes the best way to solve a conflict” and that “there is nothing wrong in getting back at someone who has hurt you.”

Conservatives believe “that ‘an eye for an eye’ is the correct philosophy for punishing offenders,” and they endorse the view that “the ‘old-fashioned ways’ and ‘old-fashioned values’ still show the best way to live.” It feels wrong to them when “a person commits a crime and goes unpunished.” From the beginning, “respect for authority is something all children need to learn.”

This might all seem obvious, but actually seeing how the world looks to the most representative members of the left and the right helps us understand why the gulf between the sides is so deep. They talk right past each other. Analyzing the hurdles facing Democrats, Haidt attempts to explain to progressives why roughly half the population votes Republican in presidential contests.

People who call themselves strongly liberal endorse statements related to the ‘harm/care’ and ‘fairness/reciprocity’ foundations, and they largely reject statements related to ‘in-group/loyalty,’ ‘authority/respect,’ and ‘purity/sanctity.’ People who call themselves strongly conservative, in contrast, endorse statements related to all five foundations more or less equally. We think of the moral mind as being like an audio equalizer, with five slider switches for different parts of the moral spectrum. Democrats generally use a much smaller part of the spectrum than do Republicans. The resulting music may sound beautiful to other Democrats, but it sounds thin and incomplete to many of the swing voters that left the party in the 1980s, and whom the Democrats must recapture if they want to produce a lasting political realignment.

Conservatives and liberals speak different languages, so much so that they can hardly hear each other. “We have a moral responsibility to address the problems we face. That means working together to cut spending and rein in government,” John Boehner, the Republican Speaker of the House, told the National Religious Broadcasters on Feb. 27. “We have a moral responsibility to deal with this threat to freedom and liberate our economy from the shackles of debt and unrestrained government.”

Nancy Pelosi, the Democratic House Minority Leader, argued from a diametrically opposed position. “This legislation will destroy American jobs while harming middle class families, young adults, seniors, and yes, even our veterans,” she said:

Consider what the Republican legislation we debate today would do to diminish our investments in education, halt innovation, destroy good-paying American jobs and make our neighborhoods less secure. Indeed, not even homeless veterans are spared by the Republicans. Our federal budget, as I said, must be a statement of our national values.

While there are obviously many Americans who fall between the poles represented by Boehner and Pelosi, strong views animate primary voters, the most ideological partisans. Candidates facing primary constituencies — Democrats as well as Republicans — must signal agreement with positions held by their most ideological supporters, moderating as they approach the general election. Republicans will be pushed to embrace compassion just as Democrats will be compelled to advocate national defense and ‘personal responsibility.’ Whoever makes the better case will pick up the center.

But moral reasoning is inhospitable to “split-the-difference” pragmatism, and never more so than when material benefits are at stake. Electoral politics determine the distribution of valuable resources, and moral commitments can mask otherwise naked resource competition.

Voters on the left and right can now use social-cultural issues as signifiers for their positions on distributional policies. Opposition to abortion or gay marriage is a way to identify office seekers who oppose progressive levels of taxation, just as support for reducing penalties for the possession of crack cocaine or advocacy of a ‘low-carbon future’ mark a politician who will vote for more generous unemployment compensation and higher wages for women.

The intensification of disagreements over moral values not only makes compromise difficult to achieve, but sharpens competition for scarce goods at a time when austerity dominates the agenda. If, as is increasingly the case, left and right see their opposites as morally corrupt, the decision to cut the benefits or raise the taxes of the other side become easy – too easy — to justify.

Thomas B. Edsall, a professor journalism at Columbia University, is the author of the forthcoming book “The Age of Austerity: How Scarcity Will Remake American Politics.”

Wall St. Journal's Mistake

Perhaps the Murdochs and the WSJ editors are distracted by their News of the World difficulties. Or maybe there was a lapse in building security at the Journal's headquarters. Whatever the cause, it appears that a sane person somehow got into the place, and wrote most of today's (September 8, 2011) lead editorial.

This editorial raises in an intellectually valid fashion, the question of why the Obama stimulus failed to work. "Failed to work" is itself, of course, a controversial concept. According to Paul Krugman and many other observers, the stimulus did work, to the extent that it could, but fell short of hopes because it wasn't large enough. The Democrats generally argue the unverifiable case that the stimulus did work, preventing more jobs from disappearing. On the other hand, the results have certainly been disappointing. They have not been what President Obama clearly expected, and have fallen far short of what the public needed. In that sense, at least, I think most people could agree that the stimulus failed.

I think that a serious debate about Keynesian economics in the face of this experience is very worthwhile. The WSJ editorial is based on two somewhat anecdotal academic studies from George Mason University (a largely right wing think tank), which it takes to suggest that the stimulus money did not create nearly as many jobs as projected, and that some of the money went to highly unproductive uses. In my terms, if we take the study findings as believable and generalizable, it suggests that this was one government spending program that accomplished less than projected, and that at least some of it was actually wasteful. What a shock!

I think that a more serious question should be considered: namely, whether Keynes's idea about the psychological impact of government spending is still workable today. The fundamental idea behind Keynes's spending proposal was psychological. A depression, he noted, created the public perception of an endless downward spiral of demand. The desire for production disappears, and credit dries up. Only the government can invest. If it does so, it can lift the public depression, creating demand and hope. As animal spirits revive, so does private investment and consumption. Rising tax revenues then pay for the credit that the government used.

But Keynes was writing in a day when information was far more limited than today, and more controlled as well.  The elites who guided economies in his time were close mouthed and relatively homogeneous in outlook. Those conditions no longer prevail. As we have seen during Obama's Presidency, the psychological impact of the stimulus package was immediately undercut by Republican and conservative opposition, which got more publicity and attention than the stimulus itself.  While there clearly was some effect as jobs got saved and new spending materialized, I bet that a study of public attitudes would show that the psychological effect on which Keynes was relying proved far weaker than anticipated.

It may also be the case that intervening factors overwhelmed Obama's efforts. The economy did in fact appear to be recovering through late 2010, albeit more slowly than hoped. At that point, however, two major changes in the environment took control of events. One was the success of Republican propaganda and opposition to Obama, leading to the Tea Party and Republican control of the House in 2011. The other was the eruption of the sovereign debt problem in the EU.

With the Republican opposition granted veto power, Obama's poor skills at deadly political combat ensured a crippling standoff, bringing public policy solutions to a halt. It was no longer possible to pursue policies that would repair deficiencies in the stimulus program. In fact, a highly regressive and economically disastrous set of policy proposals came to the fore. In many states, constrained by constitutional requirements for balanced budgets, there were sharp immediate cutbacks on employment, which the federal government could no longer offset, and also sharp reductions in public employee compensation.  On the federal level, Obama repeatedly made concessions to the Republicans that implemented or set in motion to implement important aspects of their regressive proposals. Instead of stimulus and continued economic recovery, these political changes produced severe cutbacks on government spending and the disemployment of hundreds of thousands of public employees.

Because Europe is an important trading partner of the US, its economic difficulties weigh on US prospects as well. When the euro came into existence in 1992, the politicians understood that in the longer run it would be necessary to strengthen the central government if the euro were to survive. But the politics of the moment being what they were, a stronger central union was not then feasible. All EU countries could borrow on terms that were suitable only for the wealthiest, and so Greece, Italy, Portugal, Spain, and Ireland did exactly that, with the collusion of northern European and American banks. The crisis of 2007 gradually made it clear, however, that many of these loans were worthless, or far less valuable than expected. Europe's creditors, like America's, had lost a huge percentage of their wealth. They were much poorer than they thought. In the US, the creditors turned to the federal government, which bailed them out. In Europe, however, there is no such benevolent savior. The central government is weak, and the constituent elements like the Dutch and the Germans are not too willing to bail out the fraudulent and spendthrift southerners; nor is it clear that they can actually do so. In short, Europe's loss of wealth is similar to that of the US, and they are both experiencing an economic slowdown to account for it.

On Partisan Vitriol and What It Means In The Current Environment

Keith's attack on Martin Feldstein's June 8 article in the Wall Street Journal is remarkable, although to me less for its substance than its tone. Stripped of the invective, Keith's commentary is a cogent but fairly routine defense of President Obama's economic policies since arriving in office. Feldstein's article, for its part of course, is little more than the opposite number: a routine critique of those same policies. Both are predictably partisan.

I'm not going to try to support Dr. Feldstein here, since his article in my opinion does indeed drift onto shaky ground in places. But what I do want to do is ask a question about Keith's commentary: since the debate has become largely ritualistic, why such bitter heat? Why, first of all, must we disparage Feldstein as a "partisan hack"? And if such he is, what partisan writers today can really escape this obloquy? If Keith's point is simply that Feldstein's article is essentially a recitation of current-day conservative dogma regarding the state of the economy, I would not disagree. By that standard, however, to take one prominent example, most of what Paul Krugman has written during the past three years could be dismissed as "partisan hackery" too, written from the liberal side of the fence. His articles, well-crafted though they generally are, boil down to mono-maniacal repetitions of standard neo-Keynesian economic doctrines. While it's becoming increasingly hard to learn anything new from them, I would avoid the temptation of labeling Dr. Krugman's work as hackery. He's actually pretty good, even if a bit trapped by his ideology.

And why do we have to disparage readers of the Wall Street Journal as suffering from "grotesque ignorance and gullibility", or describe the American economy as an "economic stinkpile" somehow entirely the fault of the miscreant George Bush - still the villain two and a half years after leaving office?

What I want to focus on here is not so much the economic issues under discussion as the political issue of the tone to which the debate has descended, and the causes of this devolution. I've read enough articles and blog posts from both liberals and conservatives that I'm confident in my judgment that the degree of vitriol is roughly equivalent on both sides at the present time. And while rightwing bile may be comparable in its intensity, it's of a different nature and would require a longer article to characterize. Since my purpose here it to respond briefly to my friend and brother-in-law, I'm going to focus on why I think it is that our liberals are in such a lather.

Much of it in my judgment stems from the unrealistically high hopes they had when President Obama assumed office at the beginning of 2009. Having spent much of eight years demonizing George Bush and his congressional supporters as the source of all economic and political failure, Democrats were handed what appeared to be a great opportunity when the financial system, along with the general economy, imploded with these rightwing types seemingly in charge of everything. As normal in the aftermath of such a fiasco, incumbents were swept out of power everywhere and the opposition swept in. Democrats indisputably had a mandate.

Barak Obama, in addition to being the first Afro-American president in the nation's history, was an intelligent and highly articulate champion of enlightened big government, for generations the central totem of liberal politics in America. Liberals expected great things. Backing Obama up would be the Democratic legislators who now had taken control of both houses of the U.S. Congress. Together the new president and his allies would re-populate the administrative and regulatory agencies of our government, so thoroughly ravaged during the Bush years. They would follow the infallible Keynesian playbook and pull the right levers to "get the economy moving" again. They would leave behind the amateurism, or alternatively the malicious greed, of the free-market enthusiasts who had been allowed to do so much damage under Bush.

Of course, certain veteran Democrats suspected the political trap they were setting for themselves and tried to warn that so much work would take time. However, nearly all appeared to be highly optimistic and to believe that the nation was now on the road to a stable prosperity, one to be fairly distributed and administered by wise government stewards. Righteous soldiers were marching into battle.

Unfortunately little that followed worked out in line with the script. The new governing alliance quickly attempted much of what they had promised, administering a massive fiscal stimulus to the economy, buttressed by the most accommodative monetary policy in our history. Such an overwhelming assault could hardly have failed, at least temporarily, to arrest the economic implosion that had been underway. Yet few of the underlying problems seemed to have been resolved, or even addressed in a sustainable way. The unemployment rate, the key touchstone of Keynesian economics, defied hopeful forecasts and stayed unnervingly high. The rate of economic growth, typically robust after so deep a recession, was anemic. A relapse into recession seemed not outside the realm of possibility. Furthermore, the cost of the stimulus package had been enormous and had been funded in the debt markets. Thus, the federal budget deficit, a chronic worry for much of the past generation in the U.S., soared to record levels with no workable option in sight for controlling it. Federal debt was compounding even as economic growth sputtered.

Motivated by the glamorous mythology long recalled of Franklin Roosevelt's first Hundred Days in office, exultant Democrats crammed even more work through Congress while they still had a monopoly on power. They passed massive legislative packages purporting to reform both the healthcare and banking systems. No one, of course, could make credible arguments against either of these efforts in the beginning. The American financial system had just come close to destroying itself and threatening he stability of the general economy. Healthcare in America, while already more expensive than anywhere else in the world, was grotesquely unfair to unemployed and underemployed Americans who had limited access to it. Something had to be done in both areas. Yet the bills ultimately signed into law by the President were dog's breakfasts that virtually no one in or out of government seemed fully to understand. The risk of unintended consequences was enormous, and yet there was limited confidence that the targeted problems were in fact being addressed.

Finding themselves with what looked like possibly a worsening mess on their hands after two years in power, the Democrats struggled for explanations. Everything they came up with boiled down essentially to variants on two arguments:

1) The depravity of Bush and his allies was far worse than anyone had imagined in the beginning. The problems created by incompetent, malicious or stupid (take your choice) Republicans were far too deep to be easily remedied. The damage was now going to take years, maybe even a full generation, to repair.

2) Democrats had refrained from fully wiping the Republicans off the political map when they had the opportunity. Now as a result, the surviving remnant was sabotaging everything Democrats, in their wisdom, were trying to do.

Most Democrats seemed to believe one or the other of these arguments. Many talked as though they somehow believed both. However, the party's experienced political hands fully understood that such excuses were not going to play well with the voting public. They, of course, did not, and the Democrats lost control of the House of Representative in the mid-term elections. If conditions don't improve, it's not out of the question that Obama, not long ago the heroic knight marching on Washington, might end his political career as a one-term president.

Having ridden such a rollercoaster over the past couple of years, it's not hard to see why liberal Democrats have become testy. For many of them, the only acceptable criticisms of President Obama are that he wasn't extreme enough in the solutions he tried to impose, or that he's been too polite in dealing with his opposition. Any suggestion that the ideology of modern liberalism is somehow at fault, and that it might no longer be up to the task of providing a governing framework in the United States, is anathema. Most Democrats don't want to contemplate it and are ready to fight anyone suggesting it.

I intend to follow this article up soon with another one describing how I see Conservatives as having arrived at parallel cul-de-sac in their thinking. This will attempt to explain why, like their liberal antagonists, Republicans are also acting so irresponsibly thin-skinned.

Then, if I get around to it, I hope to write a third article probing what I see as the deeper problems that none of our politicians are coming to grips with. These are the underlying issues currently escaping the shallow reaches of both conservative and liberal orthodoxies.

Of course, don't expect from me any practical solutions to the issues. Sitting here as a mere citizen, I have the luxury of not offering any, as does Keith. Hopefully, clarifying some issues may offer a bit of help. That's why we write. Eventually it's the politicians who have to do the work. That's why we elect them.

Europe, the Debt Ceiling "crisis" and Depression

I tend to think about financial matters by first looking at worst-case scenarios, deciding on the risk levels, and finally determining on a strategy.  So that’s how I will proceed here, first about Europe, then about the US.

1. I recently wrote in the NY Times that as long as governments keep nationalizing the bad loans of their creditor entities, and refuse to make both creditors and taxpayers share the losses in a reasonably fair way, the financial crisis will continue.  This thought applies primarily to the current crisis in Greece and Europe.  Since I think the people making decisions there are intelligent and knowledgeable, I remain optimistic that the crisis will be properly resolved.  But the risk has grown, perhaps to 30%, that it won’t.  Clearly, the fair solution demands a lot of sacrifice from privileged people who are ill-disposed to behave that way.

It looks to me as if the IMF, the World Bank, and the private lenders to Greece are insisting on full repayment.  While Greek politicians, desperate to keep the bankers happy in order to avoid default and the enormous problems that would befall Greece in that event, have agreed to unilaterally shoulder the losses that the creditors incurred, there seems no possibility that the Greek people will agree to the necessary austerity measures.  As with the majority of Americans who oppose raising the debt ceiling, they seem either ignorant or indifferent to the consequences if they fail to do what they are told.

If the creditors force Greece to default, I suspect that the government that would then emerge there, as in Germany during the Depression, would probably be a nationalistic, authoritarian one that in standing defiant would enjoy popular support.  Such a government could probably withstand great financial pain, and ultimately force the creditors to accept serious losses.  Portugal and Ireland would quickly follow the Greek lead, and Spain and others would either wring major concessions from their creditors or follow suit as well.  Credit would dry up everywhere in Europe very quickly.  In other words, the whole European financial system would collapse within a matter of weeks or months.  US markets would suffer a bit less, but all nations in the Atlantic world would head into a major deflation.

Europe aside, I am more optimistic about the chances for a reasonable agreement about the debt ceiling in the US, entailing a relatively sensible combination of spending cuts and tax increases (by whatever name).  We do not face the internal and international pressures that Europe does, and Congress seems to grasp the essence of the problem, as Obama certainly  does.  Still, it remains a very risky situation with, perhaps, a 5-10% chance of catastrophe.

Being an optimist, however, I also think the debt ceiling negotiations put within reach a number of important and desirable reforms that have previously been unthinkable: sharp cuts to military spending; reorganization and serious cost reductions in Medicare and Medicaid; measures to stabilize Social Security; higher actual taxes on the very wealthy and on corporations; continued payroll tax reductions. 

Moreover, by bringing matters to a head over the issue of the debt ceiling, I think the Republicans have created a very interesting negotiation “game.”  The negotiations are deadly serious in this game because everyone has implicitly agreed, it seems, to take them seriously, and in the face of apparent crisis they have more of a chance of major success than anything that has come along in a generation or two.  But if they fail, it will be easy to just kick the largely artificial debt ceiling “crisis” down the road, with no great harm done.

The major wild card in this negotiation is the Republican primary.  If they nominate electable candidates like Romney or Huntsman, who in light of Obama’s weaknesses stand a very good chance winning the Presidency in 2012, then it is hard to see the current Congress making significant progress on the debt ceiling negotiations.  The Republicans have too much to gain by deferring the debt ceiling issue until after the 2012 election.  Should they then capture the White House and the Senate, the party’s policies—regardless of the inclinations of their President—could well get enacted, with tragic consequences for us all.

Those are the major risks that I see, and they are truly frightening.  Indeed, should they materialize I have very little idea about how to avert personal financial losses.  I know that many people are buying gold, but that seems primarily a hedge against inflation, which I do not see coming.  The risks are all about deflation, resulting from a lack of credit that leads to a lack of demand—in short, Depression.  A carefully selected bond portfolio, or even just cash, might preserve capital in a Depression, but the governmental reactions could easily destroy such portfolios as well.  Moreover, it would be very difficult to select deflation-proof bonds.  In short, I know of no financial strategy, apart from sheer luck, for surviving Depression.  That being so, I might as well act as though those risks will not materialize.

Indeed, my current sense is that the risks I have elaborated have already driven stock prices so low that any reduction of the risks would trigger major rebounds.  In other words, at the moment the risk/reward ratio in owning stocks seems shifted toward reward.

Against Partisan Hack Martin Feldstein

Martin Feldstein’s partisan hack job in the 6/8/11 Wall St. Journal is shameful.  Not every criticism he makes of Obama's policies in dealing with the economic stinkpile he inherited from Bush is wrong, but the essence of his case is both fallacious and duplicitous.

His first claim is that the administration pursued misguided fiscal policies like the cash for clunkers program, the tax credit for new homebuyers, and the $830 billion stimulus program. The first two programs, he complains, had only a temporary impact. But that was exactly the point: to stop a spiral of despair and deflation, the administration’s programs were precisely targeted at breaking the  psychology of gloom that had taken hold after Bush’s debacles. And so they did. 

His critique of the stimulus package is that “both its size and structure were inadequate to offset the enormous decline in aggregate demand.” That is true. But he duplicitously fails to mention is that the size was limited by Republican obstructionism, and fell far short of what Obama and the Democrats thought advisable. Nor could any stimulus program have, in itself, offset the multi-trillion dollar decline in demand. As with the other programs, and in accordance with everything economists learned from the Great Depression, the goal was to reverse the deflationary psychology that had taken hold.  It would have been more successful if not for Republican obstructions, but it nonetheless managed to stem the depression and turn it into a recovery, much slowed due to Republican obstructionism.

Mr. Feldstein’s next claim is that by opposing further tax cuts for the wealthy, and in fact seeking to increase taxes on them, Obama increased the uncertainty of the investing class and caused them to withhold their investments. This claim comes at a time when the effective tax rate on the wealthy and large corporations is the lowest since World War II, a time when corporations have compiled over $2 trillion in savings. There is not a shred of evidence to suggest that companies and individuals who invested heavily under the higher tax rates of the Clinton administration are now holding back because of the administration’s threats to restore the Clinton tax rates. Feldstein’s is an absurd claim, an appeal to the grotesque ignorance and gullibility of his WSJ audience.

Feldstein’s third complaint is that the administration has not fashioned an explicit plan to deal with deficits. I have some sympathy for this complaint, although it rests on a critique of negotiating tactics that neither of us is really in a position to fathom.  The administration must negotiate tricky currents in formulating, with a hostile House, an approach to these issues, and we do not yet know the outcome of its approach.

Feldstein’s last critique, that the administration takes inconsistent positions with respect to the dollar’s strength, seems more naïve or stupid than anything else. As should be reasonable obvious to any observer, the administration is pursuing a highly pragmatic approach to the dollar’s position. It cannot publicly embrace a weak dollar, as that would undermine its role, highly benficial to the US, as the world’s principal reserve currency.  On the other hand, by allowing a gradual weakening of the dollar the administration has made exports much more viable, and allowed American workers and firms to once again participate in the explosive growth now taking place in the developing world—a policy that has proven immensely helpful in combatting the Bush Recession. I think the administration is very skillfully walking a narrow line in fashioning this policy.

Inflation or Deflation: Can Economists Tell Up From Down?

Much economic commentary today is gloomy. Even those investors and economists who sound bullish for the moment, are often somewhere between non-committal and bearish about the longer term when pressed for anything more than a sound bite. Enthusiasm for the immediate future is understandable. The economy appears to have stabilized following its near-death experience two years ago, and the stock market has enjoyed one of the sharpest rises in its history from the low point struck during the crisis. Most consumer prices, at least according the popular indices, are relatively stable. Yet almost no one believes that things are right with the economy, or considers an era of sustainable growth and trustworthy investment values to be just around the corner. It's hard to pick up an article in the popular press that doesn't make reference to bubbles of one sort or another, as though optimism and reckless illusion were indistinguishable.

So what's wrong? Our most dogmatic commentators are entirely clear about this, of course. The problem is that their ideas offer seemingly incompatible 180-degree perspectives. Goldbugs, often allied with the political right, warn breathlessly about uncontrolled deficits leading to avalanches of worthless money and hyperinflation. In their articles they like to show pictures of harried middle-class Germans pushing wheelbarrows full of paper currency out to buy groceries in 1923. Old-style political lefties, on the other hand, talk with equal fervor about a new Great Depression on our immediate horizon if we don't stop fretting about deficits and start driving the economy full-tilt with bigger government programs and projects. On their websites, they favor pictures from a decade later of people in baggy clothes, no currency at all in their pockets, waiting grimly in lines for bowls of free soup.

There are, of course, more moderate voices suggesting nuanced versions of these same negative views. So-called "inflation hawks," like Dallas Fed Chairman Richard Fisher, often mention inflation risk to support calls for tighter monetary policy. Across the ideological fence, liberal economist and Nobel Laureate Paul Krugman routinely invokes Depression fears to justify ever-higher levels of fiscal stimulus.

People looking for reasons to be optimistic sometimes draw comfort from all this, like atheists who find hope in the dogmas of Jihadists and Christian fundamentalists. The implied assumption is that these people must all be wrong, since they can’t all be right.

Religion aside, however, maybe the time has arrived indeed to consider the counterintuitive possibility that all these diverse economic naysayers are onto something. Perhaps a few of them, including some of the more lathered Jeremiahs, see accurately into our current predicament, even when none of them has solutions to offer beyond revolution or gold bars and fortified bunkers.

Over at least the intermediate term, inflation risk is real. In the United States, chronic budget deficits continue to compound, while our politicians devote enormous energy to grandstanding about inconsequential reductions in federal spending or adjustments to the tax code. There is no politically viable solution even under consideration at the present time that brings deficits under meaningful control in the foreseeable future. New economic theories have arisen that conveniently purport to explain why we shouldn't worry about this. Yet the fact remains that the only reason we've gotten away with our financial high-wire act as long as we have is that the U.S. Dollar has so far retained its reserve currency status. Foreign governments continue to take down and rollover our bonds at low interest rates, regardless of the deficits. This kind of monetary power on the part of the United States is an historical anachronism and cannot be relied upon much longer. At the first real sign that the bond markets are becoming restive, rates will rise. Given the huge base upon which new interest would then start accruing, compounding interest costs would soon offset, and eventually overwhelm, hard-fought cuts in discretionary spending. At that point, we would find ourselves in an intolerable bind.

Our Federal Reserve is, of course, vigilant and fully aware of this potential scenario. Concern about it has to be one of the reasons it has dusted off the once old-and-obscure monetary tool that carries the appropriately obscure name "quantitative easing," even though economic stimulus has been the public rationale for its application. Once considered an extreme measure for dire circumstances, QE was employed during the height of the 2008 financial crisis and then, before much had settled, again last year. Rumors abound that QE3 may currently be in the works, and QE is looking increasingly as though it's been elevated to a standard weapon in the Fed's arsenal. We can be 100% confident that QE would be employed with an intensity not yet imagined in the event of a serious international run on the U.S. Dollar. At that point, new money would be pouring into our system and doing nothing whatsoever to stimulate the flow of new goods and services. That is one prescription for inflation, to put it in the blandest possible terms.

So if inflation risk is thus real, what can be done to circumvent it? Well, obviously in the minds of certain partisans, deficits have to be forced under control with tax increases, plus draconian cuts in entitlements and all other spending.

At this point in the debate we blunder haplessly onto the home turf of Professor Krugman and others who tirelessly and accurately point to the problem here. With unemployment still high, and economic growth anemic this far into a supposed economic recovery, austerity measures robust enough to make a difference would surely throw us back into recession. And another recession this soon after the last one, however our economists might choose to label it, would constitute a depression and probably intractable deflation.

That doesn't leave much middle ground, of course, but this is the nature of our problem. It seems depressingly obvious. Investors and savers trying to protect their money confront a dilemma, since investment portfolios prudently designed for one environment can be full of reckless exposures in the other.

Unfortunately it's politics more than economics that will determine which road we may actually be on. Voters contemplating the loss of their jobs, or the erosion of their savings and pensions, can be entirely unpredictable.

I just read an April report by Jeremy Grantham, who argues that in view of resource constraints we need to make serious policy changes. I agree that serious policy changes are desirable, but not simply because the cost of natural resources will now go up undefinitely, as Grantham predicts. It is almost always intellectually feasible to generate negative projections from a selection of current trends, as G does from the growth of population and wealth, the rising price of commodities, etc. He's a true descendent of Paul Ehrlich, who wrote the Population Bomb in the sixties. It is much harder, however, to generate positive projections for the simple reason that the driving forces are often unknowable.

In my view, there are four forces that generate economic growth. (1) Throughout most of history, population increase was the only one measurably operating. (2) With the development of systematic R&D in the late 19th century, innovation became a second force for economic growth. The availability of new and desirable products stimulated demand, and there was resulting economic growth PER CAPITA, not just in gross. (3) The third force for economic growth is marketing, a force that intellectuals like me often deride. But marketing makes goods and services desirable, often vastly more so than technological innovation. I think that marketing has vastly improved in quality during the late 20th century as R&D and technology have made it more effective. (4) Finally, we should not neglect institutional improvement.  As with innovation, this force was very much hit or miss for most of history. But with record-keeping, historical and social learning, and improved education—even for politicians—our understanding of how institutions affect economic activity has greatly improved, political craziness notwithstanding. Compare the 2007-8 response to market crashes with those of 1930-31. 

If we look at the resource constraints that concern Mr. Grantham—a longstanding bear, as I recall—population growth obviously works in favor of increasing constraints and, therefore, costs. Even that effect is greatly exaggerated in straight-line projections, however, because it ignores substitution. If we now factor in the power of innovation, marketing, and institutional improvement, I think the long-term impact of resource constraints becomes inherently unknowable, and just as likely to diminish as to increase.

My case is best made, I think, by comparing the resources needed to sustain a given level of economic activity in 1970, say, with today. With the possible exception of rare earths, I cannot think of any natural resource whose use would not have significantly decreased in this comparison.

Moreover, if we look at the costs of production even in China, it becomes clear that labor costs far outweigh material costs, and increasingly so as production moves up the value scale.  And the labor cost impact, due to technology and marketing and institutional improvement may well continue to drop, temporary fluctuations notwithstanding.

In short, I am not very worried about INflation; it is still DEflation that keeps me awake, especially given the current political threats to both the Euro and the Dollar.

Comparison Between Rome and the U.S. - A Response

We need to be cautious with historical analogies because, obviously, no two historical periods ever track one another that closely, and the implications we draw from comparisons between them can easily drift astray. Furthermore, the less we know about any particular period, the greater the temptation there is for historians to connect whatever dots are available to them in a manner that suits their preferences. The resulting picture may ultimately tell us more about the ideas of the author than about the era itself. My suspicion is that Keith may be indulging in a bit of that here with his comparison between the late Roman Empire and our contemporary America. Nonetheless, historical parallels can be useful to ponder, and I think he is onto something substantive in his commentary that warrants further examination.

The rise and fall of empires has always been a favorite topic among historians, and probably no empire has received more attention over the years than that of the Romans. It’s “fall”, if such it was, has been attributed to everything from imperial overreach to impurities in the Roman water supply. Keith offers us a different perspective, suggesting that a key reason the Roman system broke down was widening class disparities, and with them, increasing gaps in wealth and opportunity between rich and poor. He then makes the leap to contemporary America and suggests that similar inequalities here could lead to an analogous outcome if something isn’t done to intervene.

What interests me about this thesis is that it goes beyond the conventional “fairness” issue, which tends to be a battle of axioms and is therefore difficult to debate analytically. The thrust of Keith’s argument is that extreme disparities of wealth, in addition to being unfair, wreck the very economic infrastructure upon which is based the wellbeing of all classes in a society, including the rich. As I understand the point, the underlying problem is the erosion of the middle classes, whose economic creativity and labor constitute the core source of a society’s wealth. In the ancient Roman world, this “robust class”, as Keith labels it, consisted of “knights, entrepreneurs, civic leaders, and well-paid retired soldiers”, among others. They are thus distinguished, one presumes, from the landed aristocracy, who enjoyed the lion’s share of that ancient world’s wealth and political power in return for essentially passive management of inherited resources. Maybe we could refer to this latter group as the "reaper class", in the sense that they reaped an economic harvest largely sewn by others.

Applying the analogy forward, our “robust class” would consist of those people whose work is essential to our economy. At the very least this group would include entrepreneurs, small business owners, engineers, technology innovators, and those workers producing goods and services demanded by free markets. Our productive class is in fact much broader than this and, I would think, must include some senior executives, some lawyers and accountants, corporate middle managers, teachers, workers providing essential government services, and all others whose often invisible contributions undergird the robust functioning of our society. As Keith argues, any social dynamic that diminishes or demoralizes this class of people while rewarding an oligarchy or "reaper class", threatens our economic bone and muscle.

This far into his argument I concur entirely. Where I suspect I part company with him, however, is in the implied next stage of the argument, largely unspoken in this brief commentary. For if we must "repudiate oligarchy" and eliminate "grotesque disparities of wealth", we need tools to get the job done. And the tools Keith probably has in mind would be (1) higher and more progressive tax rates and (2) activist government programs aimed at re-distributing wealth downward. While at a theoretical level there is nothing wrong with considering these options, there is a great deal wrong I suspect with how they would probably pan out in practice. I can currently see very little to persuade me that, in America today, gains to be had from aggressive redistributionist policies would not be lost in a morass of perverse unintended consequences.

First of all, we need to try to understand who this "oligarchy" is that's so in need of being squeezed harder. It's interesting that President Obama, in pumping for more sharply progressive taxation, has pointed out that rich people themselves are saying they should pay more taxes. Presumably, here he's referring to people like Bill Gates, Warren Buffet, George Soros, and others in their class who, generally liberal-leaning in their political views, have indeed said exactly that. If it's possible to identify an elite super-rich oligarchy in America today, surely these are among the guys we're talking about.

Going beyond this small group of celebrity plutocrats and trying to uncover the broader universe of our modern-day oligarchs, there would be no more fertile ground to search than the hedge fund universe. Hedge funds are by definition investment vehicles for the very rich in America, since it's only by restricting their investor base to supposedly sophisticated high-net-worth individuals, or institutions, that they are exempt from the regulations applying to ordinary mutual funds. It's a revealing fact that hedge funds, being an important source of political contributions, have in general spread their money around between Republicans and Democrats and in fact, until perhaps very recently, have actually favored Democrats in the balance. Anyone who has spent time talking to hedge fund principals knows Democrats, and even liberal Democrats, to be well-represented among their numbers. Many of them support more progressive taxation and the ideals of interventionist government. George Soros, because of his liberal activism, is probably the most visible of this breed, but he is by no means alone.

None of this squares very well with Keith's picture of America's super-wealthy elite banding together like reactionary Roman aristocrats in a tooth-and-nail fight against economic democracy.

So what then is the real source of political resistance to the liberal economic agenda in America? A clue to the answer can probably once again be found in the words of President Obama. During the last Presidential campaign he put forward $250,000 in annual income as somehow a dividing line between "ordinary Americans" and the "super-rich". This line is, of course, orders-of-magnitude south of Warren Buffet's socio-economic turf. Still, Mr. Obama put the spotlight on this second group as being the ones who should bear the entire burden of increased taxation. The group was thus implicitly stigmatized as a pampered elite who could easily afford to pay more, and who should be made to do so anyway as a matter of economic justice. This distinction made for good campaigning, since $250,000 is far above what most Americans make in a year, and the majority would have no obvious reason to feel threatened by the suggested new tax burden.

The problem comes in thinking about exactly who would get caught up in this net thrown down by our soon-to-be President. It's not hard to imagine many people who might indeed deserve to pay more taxes, and who could be made to so without negative consequences to the economy. People living on large amounts of inherited money come to mind, as perhaps do investment bankers, some corporate executives, celebrities, lottery-winners, big-time tort lawyers, and anyone like Gates or Buffet who has made so much money, even when fairly gained, that he really doesn't know what to do with it all.

However, also represented in this targeted class is another group of people whose interests are closely aligned with our society as a whole, and for whom increased taxation would likely force a curtailment of vital economic activity. These would be owners of successful small and medium-sized businesses. Such enterprises in the aggregate make up a substantial portion of our economy, and represent a disproportionate share of our economic growth and new job creation. Their success usually means that they are contributing useful and innovative products to the economy, as well as vital employment opportunities. For expanding companies, profit means a source of low-risk equity capital for financing growth, more than a source of luxury-living for their owners. Diverting such income, through taxation, from productive investment and into government programs, even well-conceived ones, would in general lead to a net loss in economic vitality.

The other consideration to keep in mind here is the risk-return tradeoff that business people have continuously on their radar screens. Small businesses in general, and expanding ones in particular, are by their nature exposed to a high risk of failure and loss. Entrepreneurs willingly undertake such risk only because the prospect for outsized gains makes it attractive. If the risk remains while the gains, should they be achieved, are immediately subject to punitive taxation, businesses have little incentive to incur the risk of expansion at all. If such disincentives became pervasive, our economy would slide into chronic malaise that no amount of fiscal "stimulus" could do much about.

It is, of course, then government spending itself that represents the other prong of the liberal agenda. Proposals for such spending are often sold politically on the basis of either correcting social injustice or stimulating the economy. Such promises are often plausible on the surface but a little vague upon closer examination. In practice, too often federal money gets channeled into standing bureaucracies that grow relentlessly, whether or not they continue serving their missions. They also become conduits for federal money enriching networks of private contractors wedded to them politically and economically.

Liberals are, of course, not alone in facilitating this kind of wasteful application of government resources. Among the most entrenched federal bureaucracies is surely the United States Defense Department, long the darling of conservative Republicans. Decades ago President Eisenhower, himself a former general, coined the derisive term "Military Industrial Complex" to convey the omnivorous nature of this particular public-private partnership, and its lack of real accountability. This syndrome is typical of how government bureaucracies can learn to function once they gain access to the institutionalized flow of money from taxpayers and government bond sales.

Getting back to Keith's commentary, I think he's made a provocative analogy between ancient Rome and the contemporary United States. Just as Roman citizens enjoyed a relatively stable and prosperous way of life for many years, so do many of us today. And the fact that the Roman system eventually devolved into discord and relative poverty for most should be read as a cautionary tale.

Furthermore, I believe that Keith has identified an interesting correlation in the decline of Rome and the disintegration of its middle classes. Any healthy economic system depends on a "robust class" of hardworking pragmatists who innovate, solve economic problems, and keep the flow of goods and services moving to the maximum number of people. If this class becomes diminished or demoralized, the entire system is at risk because takers and consumers and start to overwhelm the producers.

In the United States, our commercial classes are essential to the healthy functioning of our society. Too often our politicians take this group for granted and, even when giving lip service to its importance, seem ready to burden it with ever increasing levels of taxation, regulation and litigation exposure. The beneficiaries of these policies often are not so much disadvantaged citizens as government bureaucracies, crony capitalists, and tort lawyers.

The closest thing we have to true "oligarchs", our hedge fund millionaires and billionaires, remain happy and don't seem to care that much one way or the other.

Statement of Purpose

The purpose of these pages will be to post opposing views on a variety of political and economic issues, and to encourage their resolution through constructive debate.

                  Keith Roberts and Mark Bachmann have had many years of business experience between them. Keith is an attorney, business-owner, recently-published author and a liberal Democrat. Mark is a retired financial analyst and executive, author of an unpublished book on American business culture, and a moderately-conservative Republican.  Related by marriage, we’ve been friends for many years and have argued continuously over just about everything under the sun. We enjoy the process and have always found that it leads to more informed positions and a framework for better ideas.

                  Both of us are disappointed in the tone of much of the current political and economic debate in America. Arrogance, ad hominem attacks, and the trivialization of complex issues are more common than a search for practical solutions. At the same time, we both know enough history to understand fully that there’s nothing new in this state of affairs. Nevertheless, legitimate and useful common grounds can be found when people with different views and understandings  listen to each other and synthesize new ideas from their pragmatic contributions..

                  We believe this spirit still to be the driving force in American democracy.  It's our objective with these pages to do our part towards keeping it active in the current environment.

                  We urge readers to reply to our posts. While we'll strike unfocused diatribes or personal attacks, we encourage aggressive counterviews. 

The Decline of Rome and of the US: a Comparison

Current American social and political forces alarmingly resemble those that helped push the late Roman economy in Western Europe into the Dark Ages.  As then, there has been a fragmentation of society, and the concepts that previously unified it, at least to a significant degree.  To quote the poet, “the center does not hold.” While this fact is widely perceived, the late Roman experience may help explain the forces that are making it happen.

In The Origins of Business, Money, and Markets I describe these forces in some detail because they explain the decline and near disappearance of business activity in Western Europe after the 3^rd century AD, ushering in a period of economic depression that would last a millennium. We do not, of course, wish to see THAT repeated!

The basic similarity between late Rome and present-day America is that in each case manmade political and social developments seriously damaged a formerly robust commercial world, leading to enormous disparities in wealth and opportunity. The few who possessed that wealth and opportunity in the Roman world then demanded tax and legal concessions from the central government that greatly weakened the government, atomized the State, and ultimately destroyed its legitimacy. The concessions that Congress is granting to America’s super-rich today—constantly reduced taxes, freedom from legal restraints—could lead in the same direction.

When Marcus Aurelius became Roman emperor in 161 AD, ruling the largest State the world had ever known, it was “the period in the history of the world,” according to Gibbon, “during which the condition of the human race was most happy and prosperous.” Today, many would say the same for the 21st century USA.  In the Roman world, a robust class of knights, entrepreneurs, civic leaders, and well-paid retired soldiers inhabited the Empire’s many cities and towns, enjoying a market-based and monetized economy. The Empire’s per capita money supply was nearly 80% of that which circulates in the US today. Even in primitive northwestern Europe, where Rome stationed its army at frontier posts like Cologne, Mainz, and Vienna, cash salaries and pension payments, plus the use of private businesses to supply food, arms, and other necessities, ensured a city-centered, money-based market economy.

The social and economic restructuring of northwestern Europe in Roman times began with a series of disasters and wars, just as the Great Recession and multiple wars have afflicted the first years of Obama’s Presidency.  The Roman population declined, as did production. Marcus’s foolish son Commodus squandered the Empire’s substantial treasury, and his early 3^rd century successors launched expensive wars of choice against family enemies, greatly enlarged the imperial armies, and raised military salaries. The emperor who followed Commodus, expressing a view somewhat akin to that of recent Republican administrations, advised his sons: “Be of one mind: enrich the soldiers; trouble about nothing else.”

Since the tax revenues from a diminished Empire could not meet these increased military expenditures, the emperors tried to depreciate their coinage, creating rampant inflation. Credit and commerce collapsed during the 3^rd century (much as they did under Germany’s hyperinflation of the 1920’s), and barter became the primary method of trade in poorer parts of the Empire like northwestern Europe, whose land values plummeted. Peasants fled, the urban middle classes floundered, and by the end of the 3^rd century the surviving towns and cities, barely hanging on, could no longer protect the countryside and its farms. Only the very rich–Roman senators, imperial generals and the like—had the diversified investments that allowed them to escape the poverty and dangers that engulfed virtually everyone else.

From the late 3^rd to the 5^th century these wealthy Romans acquired huge tracts of land at bargain prices, becoming the owners of northwestern Europe’s most productive assets. They could offer protection and aid in return for loyal service, and desperate men flocked to their employment (mostly tenancy). The emperors now had to bargain with these great powers for the taxes and manpower they needed to protect the Empire. These bargains gradually sapped imperial power, and soon after the Vandals sacked Rome itself in 455, the last emperor was sent into retirement.

The crisis of the 3^rd century AD and its aftermath demolished the happy Roman world that Gibbon described, and led to a social and economic restructuring of late Roman society. In northwestern Europe it produced an oligarchy of a few exceptionally wealthy families. The elevation of the extremely wealthy to oligarchic status is happening differently today, but the earlier example makes the outcome of such a shift troubling to contemplate.

As the very wealthy assume political power through the virtually unlimited campaign spending that the US Supreme Court now allows, do they not also demand tax relief and legal protections? And if their power becomes overwhelming, is it not foreseeable that their demands will debilitate our military strength, and the government’s ability to protect the public interest within its own borders?

Oligarchy in northwestern Europe also froze the economy at near-subsistence levels. The self-sufficient landowners had little short-term interest in maintaining roads, protecting those who were not employees, sharing benefits with those who were their employees, or generating prosperity for others.  Except for their own households, life was largely reduced to the terms of subsistence, and in the absence of a more widespread demand for goods and services, even the richest could no longer find or acquire luxuries that had once been commonplace. The same economic laws still apply. If the very rich can use their power to monopolize wealth today, and a prosperous middle class disappears, then the disappearance of demand will force even the wealthiest to suffer a sharply reduced style of life.

Despite its dire economic consequences, the late Roman structure of society suited the powerful, whose dominance could not be challenged, and would last many centuries under the name of feudalism. An oligarchic structure could prove equally stable in the US. We do, however, have two crucial advantages. One is that we know where this road leads, whereas the Romans did not. The second is that, as a democracy, we still have the chance to repudiate oligarchy and the grotesque disparities of wealth that such a political structure brings, and so change our fate.