Saturday, September 6, 2008

Economies of Scale and Corruption in Walter Weyl's New Democracy

Walter Weyl was one of the co-founders of the New Republic magazine along with Herbert Croly and Walter Lippmann. After New Democracy* was published in 1912, Theodore Roosevelt called it one of the "true books of the (Progressive) movement"** I was dismayed yesterday to learn that TR is President McCain's (oops--I mean Senator McCain's) favorite President. (Recall that TR was the most left wing president of the twentieth century and virtually all of his cousin's, FDR's, ideas in the New Deal were inspired by or related to ideas conceptualized by Roosevelt Progressivism. Calling our current Democratic/Republican election system a choice between Tweedledum and Tweedledee is hardly an exaggeration. McCain favors TR, the most important Progressive politician, Obama fashions himself after the "Progressives" in general. Quite a choice.)

Weyl is a better writer than Walter Lippmann and Lippmann is a better writer than Herbert Croly and John Dewey. The book is very readable and enjoyable even if you disagree, presumably as Messers McCain and Obama, perhaps I should call them McObama, do not. The first few chapters are a potted history of the United States. What is remarkable about them is the lack of economic data and evidence on which the Progressives' arguments were based.

Like Croly and Dewey, Weyl emphasizes the shift from expansion and individualism to monopoly and teams (p. 47):

"It was indeed a strange psychological world in which the American individualist found himself, when, with the reaching of the frontier, American enterprise turned back on itself. The little gambler was like the belated boy who dreams of a Far West of Indian trails but finds there only railways and automobile roads. The individualist became bewildered when his familiar rebating became double-cross rebating and the big shipper received both his own and the littler shipper's rebate, and he became still more confused when the big shipper ended rebates by acquiring his own railroads and his own pipe lines. The individualistic American was dumbfounded when he saw that the favorable terminal facilities, public service franchises and other special privileges, given to a competitor, had ended competition; when he saw competition become parasitic; when he saw the trusts organizing a fictitious competition against themselves. His psychological development had lagged decades behind the industrial development of the country."

More on this below.

Note that there is a contradiction fundamental to the Progressive argument, and it is evident in Weyl's book. Europe, especially Germany, was already experimenting with social democracy in the late nineteenth century, yet rather than attempt such experiments, immigrants from Italy, eastern Europe and northern Europe continued to flock to the United States. This is a puzzle. Why would all these oppressed Europeans come here, rather than to enlightened Germany? Maybe enlightenment isn't all that enlightened. And given subsequent developments in Germany, the birthplace of social democratic enlightenment, I suspect that the impoverished immigrants were smarter than Weyl, Roosevelt and the Progressives.

Weyl writes (p. 68):

"In 1876 as now the American Commonwealths were far behind the leading countries of Europe in laws regulating hours of labor, conditions of work, the prevention of accidents; in laws regulating truck stores, sweat shops, the employment of women, the employment of children...While American manufacturers had been protected against the competition of foreign manufacturers, our resident laborers had not been protected against the competition of European laborers. Immigration had brought in nation after nation, each with a lower standard of living. Whether the ultimate effect was good or bad, whether the immediate burden upon the city toiler was tolerable or intolerable, the nation had not cared. The labor market might be glutted or anemic, the city tenements and shanties might be crowded, the political machine might already be creaking under the weight of illiterate and inarticulate voters. Nevertheless, if immigrants came--or could be made to come--they must be admitted...The poverty of even our most destitute Negroes is opulence compared with the bottomless misery of south Italy or Russia. The enormous wealth of the continent, and our long immunity from serious foreign war or the fear of war, lessened our pauperism."

Weyl predates Schumpeter, Hayek and Mises and so overestimates the importance of regulation and monopoly. His chapter VII, "The Resplendent Plutocracy" emphasizes the role of size and standardization in economic efficiency, which is a theme virtually all historians reiterate. However, he overstates these. It took a number of decades until the limitations of scale in generating progress became evident. Weyl uses the phrase "divorce of ownership and control" (p. 88) which is often attributed to Adolph Berle and Gardiner Means who wrote about this subject twenty years after Weyl in their classic 1932 Modern Corporation and Private Property.

Many of the reforms that Weyl discusses, such as the need for greater disclosure in investment (p. 88) are unexceptionable, and were subsequently adopted during the New Deal (one more piece of evidence that most of the New Deal was already advocated in the Progressive era). He writes (p. 94):

"The trusts are teaching us --as we are teaching them--that the end of it all must be production on the largest scale compatible with efficiency but a production so regulated as to ownership, stock issues, dividends, prices, wages and profits as to safeguard the whole community."

But there are at least three flies in this Progressive ointment. First, in the following chapter on "Plutocracy in Politics" Weyl argues (p. 99)

"The organizing skill of the business magnate in systematizing political corruption has changed it from a local though chronic phenomenon to one which is organic and nation-wide. 'Every time I attempt to trace to its sources the political corruption of a city ring,' says Lincoln Steffens, the acute political pathologist, 'the stream of pollution branches off in the most unexpected directions and spread out in a network of veins and arteries so complex that hardly any part of the body politic seemed clear of it...Not the political ring, but big business--that is the crux of the situation'".

But in arguing for an expansion of the federal government, Weyl overlooks the problem of agency. Who is to ensure that the regulators are not equally corrupt? And if they are, then the expansion of regulation to be national in scope guarantees a governmentally enforced monopoly of corruption. The Progressives never raised, much less solved, the agency problem. Nor have their followers.

The second fly in Weyl's Progressive ointment is the incentivization of special interest lobbying by increasing the scale of government. It is not surprising that Weyl did not anticipate this problem because Madison and Hamilton missed it as well. In the Federalist 51 Madison argued that a large republic is less likely to be subject to faction than a small one because the competition among factions would cancel each other out. It was not until the 1960s that Mancur Olson and George Stigler began to realize that small lobbies with large benefits, i.e., the very trusts with which Weyl was most concerned, had structural economic advantages over dispersed lobbies, and the larger the size of the republic and the more concentrated industry the easier the large firms have it. Since this development went against the thinking behind the framework of Progressivism, what William Appleman Williams calls the "syndicalism" of Herber Hoover and the New Deal and the Federalist model, it is not surprising that Weyl missed it as well. But it causes Weyl's program to be self-destructive.

The third fly in Weyl's Progressive ointment is the inflexibility and inability to change that the capturable regulatory systems that he advocated would entail and the dynamic, mortal nature of big business. Like a stock market investor who buys at the top, the Progressives believed that the trusts would continue to expand. But few of the firms that were in existence in 1912 remain. In contrast, most of the government bureaucracies that Weyl and his colleagues advocated, do remain.


*Walter E. Weyl, The New Democracy. Harper Torchbook Edition. New York: Harper and Row, 1964.

**Ibid, p. viii.

Peter G. Peterson Foundation

Contrairimairi just e-mailed me about a petition sponsored by the Peter G. Peterson Foundation. I didn't sign it even though I agree with the petition in principle.

I don't know much about the Peter G. Peterson Foundation. According to the e-mail, reproduced below, they favor reduction of the federal debt as I do. They have produced a documentary film about it, and the film is doing well. The Peter G. Peterson website is apparently anti-federal deficit but is strangely vague as to the specifics.

According to Wikipedia, Peter G. Peterson is a former Secretary of Commerce (under Richard M. Nixon) and co-founder of an investment bank, the Blackstone Group. Mr. Peterson has been associated with David Rockefeller all of his life. He is apparently of the Progressive wing of the Republican Party. His career has been at the nexus of the linkages between big business and big government.

In sum, my esteemed readers, precisely the nexus that turns my stomach.

I do not believe that the Progressives, big business or big government have been positive developments for the country. I do not agree with the mainstream of academic historians who have mechanically parroted the view expressed by Walter Weyl and other Progressives that scale is essential to economic development. I do not think that big business is an efficient or effective method of production in many of the areas in which it predominates.

I do think that government has coddled big business and that much of the federal deficit that Mr. Peterson criticizes has been garnered in supporting the firm that he founded and the businesses from which he has profited.

In short, I think that Mr. Peterson is full of baloney, as are his supporters at the New York Times, Warren Buffett, David Rockefeller and the rest of the Progressive, pro-big business crew.

If Mr. Peterson opposes the federal deficit, let him come out against any further tariffs, subsidies to big business and regulation that squashes small business and most of all, the Federal Reserve Bank. Unless his petition mentions corporate welfare and the incredible inefficiency of America's Federal Reserve-subsidized corporations, I will pass on his phony petition.

Dear Friend,
Can "we the people" really save our economy? Can we really force our government to face the inconvenient truth of the $53 trillion hole we're in? That's the sum of all the US government's current financial obligations including unfunded promises for Social Security and Medicare - a $455,000 bill for every household in this country.
The answer is "YES" - there IS something each of us can do. Click here to add your signature to a letter we're publishing in the New York Times (more on the letter below).
This new movement for fiscal responsibility is just a few weeks old. And yet, thanks to folks like you, we've already made significant strides:
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"I.O.U.S.A.," our feature documentary about the impending fiscal crisis, has made an incredible splash. Not only did the film get three and a half stars from Roger Ebert, and rave reviews from the New York Times and other critics, but it set an opening-day record for a documentary, thanks to a bonus post-screening town hall, and is about to break into the ranks of the top 100 highest-grossing documentaries of all time (source: BoxOffice Mojo).
That's right - a documentary about fiscal responsibility is about the break into the top 100! And the film is still in theaters in selected cities; check here for listings.
We've taken the first step together, and we've begun to build the movement that cynics claimed was impossible. We're sounding the alarm and America is waking up. Now, it's time to take it to the next level. Here's how you can help:
This Sunday, we'll be publishing a letter across two full pages in the New York Times calling upon the presidential nominees to move beyond the "denial" stage, recognize that America has a $53 trillion problem, and start taking steps to solve it. This letter will be signed by a bipartisan group of some of the country's most prominent leaders in finance and fiscal policy-making, and by representatives of young people's organizations around the country. You can add YOUR name by visiting www.PGPF.org today. Please help us make this letter one our next President can't ignore.
Are you on Facebook? If so, please visit the Peter G. Peterson Foundation and I.O.U.S.A. pages and become a fan today.
And finally, spread the word! Forward this e-mail to your 10,000 closest friends.
We've started a movement for fiscal responsibility - a movement few thought possible. And with your help, we will wake up America and set the nation on a course toward a more secure future and a brighter tomorrow.
All the best,
Dave Walker
President and CEO, Peter G. Peterson Foundation

Friday, September 5, 2008

The Greatest Similarity Between Barack H. Obama and George W. Bush

I just blogged about the many similarities between Barack H. Obama and George W. Bush. There are so many similarities it is difficult to keep them straight, so I omitted one of the biggest. George W. Bush could not articulate a strategic vision for the Iraqi War. It took him four years to oust Donald Rumsfeld. It was difficult for me to understand what was going on at the time because the media so utterly lacks competence with respect to discussion of military strategy. Today, five years after the Iraqi War began, Barack H. Obama is clueless about (a) appropriate military strategy, (b) the best way to handle Iraq, (c) what the strategic options are (see Charlie Foxtrot's and Instapundit's blogs on this, h/t Larwyn). The eerie similarity: It took President Bush four years to grasp the strategic issues in Iraq. After five years, Senator Obama is still clueless.

Ten Ways That Barack H. Obama Is A George W. Bush Clone

Barack H. Obama eerily parallels the patterns and style of George W. Bush. Let us consider some of the infinite number of similarities.

1. George W. Bush went to Harvard Business School, Barack H. Obama went to Harvard Law School.

2. Neither George W. Bush nor Barack H. Obama has a distinguished military record.

3. George W. Bush said that he was for "compassionate conservatism" and no one knew what that meant. Barack H. Obama says that he is for "change" and no one knows what that means.

4. George W. Bush said that he believes that government is an effective tool. Barack H. Obama believes the same.

5. George W. Bush has been indifferent to government bloat. Barack H. Obama has never done anything to reduce government bloat and does not indicate that he intends to do anything.

6. George W. Bush had the support of the oil industry. Barack H. Obama has the support of Wall Street, Goldman Sachs, Warren Buffett, Morgan Stanley and George Soros.

7. The media did not ask many questions about George W. Bush. The media is not asking any questions about Barack H. Obama.

8. George W. Bush was a stylized conservative. Barack H. Obama is a stylized "progressive".

9. George W. Bush's followers did not know what he was going to do. Barack H. Obama's followers do not know what he is going to do.

10. George W. Bush, claiming to be a conservative, was willing to increase government spending. Barack H. Obama, claiming to aim to reduce the deficit, is willing to increase government spending.

Thursday, September 4, 2008

McCain's Ethical Vision Is Awesome

Watching the Republican Convention at 10:32 EST, McCain is awesome. He is a great candidate, and the Republicans are a great party. They make me proud to be an American. McCain is the real deal, a war hero, a man of conscience. The Republicans will win. God bless him.

At 11:35, listening to the media pundits on Fox, I think they missed the main point. Bill Kristol's comment about McCain's reorienting his campaign and taking some of Obama's themes was insightful, though.

The main point is this. The change that Mr. Obama is advocating is that he will remove the bloat and corruption that has occurred under George Bush and replace it with the bloat and corruption in which he is steeped in the Chicago cesspool.

In contrast, Mr. McCain said that he believes in traditional American values and that these high ethical values will drive the change in which he believes. He does not work for faction, for party, for special interests. He works for you. The pundits do not hear this because they are part of the mainstream of political corruption in Washington. They do not hear Mr. McCain's ethical voice because they do not believe that there is such a thing as ethics, and even if they do, they are not used to hearing it.

Jim on Sarah Palin

>Mitchell:

If Sara Palin succeeds, everything the left has worked for will evaporate. If she performs well on the road, and has one good debate, Obama is done.

The left is completely apoplectic right now. They are in big trouble, right now. They have no answers, anywhere. The established media and the 527’s are the only players really left to do damage, so they will pick up the mud and start slinging. This plays to Obama’s roots, so get ready to see the long knives.

I understand that they want to “trooper gate” her a few days before the election. Good luck! The idiot trooper was tazering a 12 year old and threatening to kill the family. You’ll win no votes trying to pursue wrongful dismissal or abuse of office on that one. It will backfire-badly.

Palin is not perfect, and that is her appeal. She is real, not contrived. She is human, but chooses to work through the problems than just blame or give up.

I have followed politics for 22 years, and I have never seen a VP speech like hers.

My reply:

Hear, hear.

Bob Robbins Asks O'Reilly -- Where is the Birth Certificate?

Bob Robbins sent this letter to Bill O'Reilly. I just wrote a follow up. The O'Reilly interview is tonight.

Bob Robbins writes:

Mr. O'Reilly -

While you're on the air on Sep. 4th, 2008, please ask Barack Obama to soon show his real birth certificate to the U.S. public at large.

Many of us are not willing to accept what clearly shows to be an image of a phony Certificate Of Live Birth for him on some internet sites.


As the media seems to be doing the vetting process on Sarah Palin, - ... please do your media part tomorrow to do this vetting of Mr. Obama.

I followed up:

I have been trying to obtain a copy of Senator Obama's actual birth certificate for several months. I have blogged about this quest repeatedly. What concerns me is not only the Obama campaign's method of handling my and others' requests--posting a digital copy of a certificate of live birth on an unofficial website (which has been alleged to be a forgery) but also the government offices' refusal to collect this information on a systematic basis from all candidates. Of the 15,000 elected state and federal officials around the country (not to mention another 500,000 local officials) are we certain that not one has committed identity theft? I have submitted a petition with over 5,400 signatures to the FEC, but Mr. Donald McGahan has not replied. If Mr. Obama is serious about openness and change, he will allow all Americans to see his actual birth certificate, not a digital copy of his certificate of live birth.

See:

http://mitchell-langbert.blogspot.com/2008/08/democracy-in-inaction-where-is-don.html

http://www.showusthecertificate.blogspot.com/

http://www.ipetitions.com/petition/Federal-Elections-Commssion/index.html


Please pass this message on to MANY others, -
... and ask each receiver to send a message to Bill O'Reilly, - ... just to show many Americans care.

Wednesday, September 3, 2008

Sarah Palin for President in 2012

I heard that the McCain campaign is suing the National Enquirer over lies about Sarah Palin (I think I heard that on Mark Levin's radio program).

I got back home in time to hear Palin's speech. Wow! Messrs. Obama and Biden must be running scared, along with the jugglers, clowns, jesters and acrobats at CNN and the New York Times.

After McCain/Palin win in 08, we can look forward to Palin in the Whitehouse in 12. The Republican convention is awesome, and they're hitting Obama with the right jabs. Palin lacks experience? Don't make me giggle. The Democrats should look before they leap. Raising experience as an issue with Palin is funny when Obama has less experience than Palin. As they were chanting, Zero. Zero executive experience.

The Republicans make me proud to be an American. I don't know how anyone can vote Democratic at this point.

Democrats Jam Republican Convention Radio Broadcast

Not really, but I was driving on Route 28 near Woodstock, NY and the broadcast of Mike Huckabee's and Governor Linda Lingle's speeches kept getting interrupted by Grateful Dead music. I'm betting Maurice Hinchey and the animal rights activists in the Woodstock Democratic party were copying the Soviet Communist Party when they used to jam Radio Free Europe.

Tuesday, September 2, 2008

Andy Martin Accuses Obama of Dirty Tricks

I just received this press release from Andy Martin, self-described "leader of the anti-Obama movement". Martin asserts that Barack Obama's "'dirty tricks' operation" is more sophisticated that of President Richard M. Nixon and that:

Obama unleashed his attack dogs on the Palin family. It is one of the most disgraceful performances I have witnessed in a half century of observing politics.

Martin's accusations do not seem extreme or far fetched. Obama's protestations about the recent (failed) Democratic attempts to smear Governor Sarah Palin indeed sounded insincere. I have been concerned about Mr. Obama's ethics for several months and concluded that Mr. Obama is a sociopath this past June. I would be very surprised if Mr. Obama did not engage in a considerable degree of intelligence gathering, lying and deception.

>FOR IMMEDIATE RELEASE:
ATTENTION DAYBOOK/ASSIGNMENT EDITORS
ANNOUNCEMENT OF NEW YORK NEWS CONFERENCE September 2, 2008
OBAMA AUTHOR ANDY MARTIN SAYS OBAMA "DIRTY TRICKS" OPERATION SMEARS PALIN FAMILY
MARTIN WILL ALSO BE A GUEST ON AL-JAZEERA ENGLISH ON TUESDAY
NEW YORK "KING OF TALK RADIO" BOB GRANT SAYS "BUY ANDY'S BOOK!"

(NEW YORK)(September 2, 2008) The leader of the national anti-Obama movement, legendary Chicago Internet columnist and Obama author Andy Martin, will hold a New York news conference Tuesday, September 2nd to charge that Senator Barack Obama's "dirty tricks" operation was behind the smearing of Governor Sarah Palin's family.

Martin is the author of "Obama: The Man Behind the Mask."

"I want to make the accusation loudly and clearly: Barack Obama has the most sophisticated 'dirty tricks' operation in American political history. His smear artists make Nixon's 'plumbers' look like amateurs. David Axelrod's smear machine is part and parcel of the way he does business. This smear machine was behind the desperate attempts to demonize Governor Sarah Palin by embarrassing and exposing her daughter.

"Obama also likes to provide plausible deniability by protesting 'too much' that something is 'off limits' when he knows that all while his smear operation is in progress. Anonymously. Why this man wants to abolish anonymity on the Internet puzzles me. He is the most pronounced anonymous smear agent on the Internet.

"Obama's fingerprints and Axelrod's fingerprints are all over the Palin smear.

"Wednesday we will have a more detailed analysis of the pervasiveness of Obama's smear and dirty tricks operations.

"But today I am blowing the whistle on the mysterious Barry Obama, and alerting the American people to the threat Obama poses to our democracy.

"During the Army McCarthy hearings in 1954, attorney Joseph Welch uttered the eternal words: 'Senator, I think I never really gauged your cruelty, or your recklessness. Have you no sense of decency, sir, at long last? Have you left no sense of decency?'

"Obama's own teenage mother was caught in an unwanted and unwarranted pregnancy.

"Instead of being especially sensitive to such a situation, Obama unleashed his attack dogs on the Palin family. It is one of the most disgraceful performances I have witnessed in a half century of observing politics. At long last, Senator Obama, have you no sense of decency? You know what your dirty tricks operatives are doing, your 'Obamabots.' You, sir, are a threat to both American democracy and American decency.

"John McCain once said he would rather lose an election than lose a war. You would rather risk destroying a helpless teenage girl to further your mindless and limitless ambition.

"You launched your poisonous attacks. Now you want to pretend you had nothing to do with the smears. Well they did happen, and you are personally responsible for the Obama/Axelrod dirty tricks operation. You have been demonizing and smearing opponents since your first run for office.

"I saw you smear Blair Hull and Jack Ryan four years ago. I saw you try the same dirty trick against John McCain a few weeks ago. The latest mud is nothing new. This is the real Obama, the only Obama."

Andy Martin was a guest on the WABC-AM "Bob Grant Show" Monday evening. During the show, Grant told his audience "Buy this book." "I was surprised at how well-prepared Bob was," Martin stated. "He was familiar with my book. He 'got it.' Like me, Grant is an Illini. He gets Obama because he understands Illinois politics. I am sure the Obamabots will be attacking Grant the same way they attacked Milt Rosenberg in Chicago."

Andy will be at the Reuters Building in midtown Manhattan Tuesday morning at 10:00 A.M. for an Al-Jazeera English taping on American politics. His Obama news conference will follow at 12 noon.<

Monday, September 1, 2008

Centralization of Federal Power Has Led to Coddling of Business

The relationship between the state and federal governments fluctuates, but the overall trend has been toward centralization, with a few blips. This came about in part because of the Civil War, which enforced centralization in order to achieve noble objectives. The 13th, 14th and 15th amendments enhanced federal power over the states, requiring states to recognize citizenship, right to make contracts, equal treatment under the laws and voting rights to former slaves and, for that matter, to all citizens. The states' reaction to the growth of the railroads in the late 19th century was to subsidize them, and they enhanced the natural advantages of economies of scale through land grants, rights of way and other subsidies. In turn, the new, complex corporations faced multiple regulatory regimes across the states. This raised their costs. In the 1876 Munn v. Illinois Chief Justice Morrison R. Waite, writing for the Court, held that states have the right to regulate railroads because railroads reflect the public interest. In the 1886 Wabash, St. Louis and Pacific Railroad v. Illinois, law concerning the Illinois Grange's clamoring for regulation of railroad rates was federalized. The court held that states could engage in indirect regulation like safety regulation but not direct burdens on interstate commerce like rate regulation. The following year Congress passed and President Grover Cleveland signed the Interstate Commerce, which established the Interstate Commerce Commission. The ICC's responsibility was to set maximum railroad rates and eliminate individual discrimination. Thus, the age of centralization was born.

The aim of centralization was regulation coupled with subsidization. The regulation part reflected the impetus of Populist movements like the Grange, social Gospel Christianity, fear of labor unions and socialism and pressure from Progressives like Walter Weyl and Herbert Croly who, in the early 1900s argued that European-style social democracy was more "progressive" than American laissez-faire.

The centralization of regulation helped big business because it established a stable, unitary source of regulation that made it easy to comply. Fifty states pose a fifty times greater compliance problem than a single federal government. Moreover, industry or what Williams calls "syndicalist" influence over government is easier to organize. Mancur Olson and George Stigler have written about the economic conditions for effective lobbying, and centralization of power makes lobbying considerably easier for large firms and gives them considerable advantages over small. Many small firms over a national market are far more difficult to organize than one fiftieth the number over a state-wide market. At the same time, it is far cheaper for a few large firms to lobby a single federal government than it is for them to lobby fifty state governments. Thus, in the name of "regulation" the Progressives tipped the political scale in big business's favor.

Theodore Roosevelt and other Progressives of the early 20th century believed that big business produced wealth. Historians such as Alfred Chandler argued that transportation and communication advances with respect not only to canals, railroads and then trucking and air delivery but also with respect to telegraph, telephone, and then fax, e-mail and Internet, expanded markets facilitating reduced costs and enhanced economies of scale. There were other subsidies to big business, specifically the creation of federally subsidized credit and banking through the Federal Reserve System, tariffs almost continuously to the days of Wilson and then after, cartels and price fixing during World War I, and a host of regulations that make it more expensive for small business to compete with big.

But has big business really delivered? Since 1980 manufacturing firms increasingly exited the United States. Hence, the subsidization of manufacturing through credit and protection did not yield permanent jobs to average Americans. Executive compensation, rationalized through artificially elevated stock prices due to Federal Reserve policy, has been an exercise in self indulgence and waste. Increasingly, Americans hanker after a few high-wage investment banking and celebrity jobs, and are unwilling to work hard in traditional crafts. The images of today's youth, rap singers since the 1980s, Beavis and Butthead in the 1990s, Paris Hilton today, suggest a culture of dim wittedness and sloth. These images are broadcast by subsidized big business concerns, the media conglomerates, who profit from popular music that advocates drug use and violence. Television shows like "Entourage" suggest that the way to succeed is to hang out with other self indulgent boneheads, as long as they are good looking.

The transition from decentralized to centralized federalism and from laissez-faire to statism altered incentives in the economy. The combination of centralized creation of credit and inflation of scale enhances returns to stock offerings, first because large firms are artificially profitable because of their subsidization and second because monetary expansion itself inflates the stock market by reducing interest rates. This inflation of stock returns makes investment and commercial banking far more profitable than they would be in a decentralized and laissez-faire system. In turn, firms are encouraged to maximize stock returns by minimizing costs in that low interest rates make stock returns more elastic with respect to increases in net profit. This does several things. First, firms are encouraged to move plants overseas, where labor costs are lower. Second, their incentive to innovate is reduced because ample returns can be obtained due to the reduced interest rates and the elasticity of stock prices to small gains. Why risk invention of a new technology, when you can, like the typical US CEO, simply think about reorganization or moving plants to another country and so earn $100 million? Third, the returns to initial stock offerings are enhanced. Thus, returns to investment banking exceed market levels. Because the manpower needed to issue and trade securities is small relative to the inflated returns, the high salaries divert human resources from manufacturing to investment and speculation.

It is likely for these reasons that the innovation level of late nineteenth century laissez faire America was far greater than during the Progressive twentieth century. The most innovative Americans have been attracted to investment banking and law rather than manufacturing. Firms like Intel need to recruit engineers from overseas in order to compete. This misallocation of human resources leads to lower growth and less innovation in the economy than there would have been in a decentralized, laissez-faire economy.

The coddling of business results in a trade off between risk and return. In a laissez faire economy credit is difficult to obtain, profits are reduced and stock returns are reduced because interest rates are relatively high. This results in considerable discomfort to business executives, who in the nineteenth century complained about "overproduction" and "depression". However, the decreasing prices resulting from slow monetary growth increase real gains to labor. Real wages rise because firms are forced to think carefully about productivity given the intensely competitive milieu. Moreover, innovation is stimulated because that is the only way to earn large profits. Thus, the laissez-faire economy is rocky soil in which only the hardiest firms can grow, and they grow by extending roots that crush even the largest competitive rocks. Workers, the soil in which these competitive plants grow, benefit from the nutrients that the innovative stems produce. But the weaker plants, the firms that thrive in politically driven, low-innovation "Progressivism" complain endlessly about depression, the need for subsidization, the need for a central bank, the unfairness of the competitive economy. They are, of course, backed by feudalists and socialists, who similarly yearn for stability at the price of innovation.

The Progressive economy does not reward achievement. It rewards potential. Investment banks hire from the ranks of Ivy League students, who are in turn admitted to Ivy League schools on the basis of SAT scores. But SAT scores are not achievement, they are just potential, and they do not explain the majority of what might explain achievement. Americans are rewarded for ability, and this reduces their risk. But this also has the effect of draining men and women of ability from the ranks of the innovators into the ranks of transfer recipients. There may indeed be economic gains from stock offerings and trading, but they are minute compared to the potential gains from innovation. A single Tesla is worth all of the investment bankers in history times 10. Yet of all of the thousands of potential Teslas, only a handful will succeed. Why risk failure, when a certain career in investment banking has a far greater probability of significant success. Thus, elite Americans have become increasingly risk averse. They have chosen the way of relatively certain but high returns, but sacrificed the moral rectitude of economic creation and productivity. They have come to favor the sleight of hand that Wall Street capitalism offers, claiming to create efficiency but depending upon credit expansion and government largess.

Clinton Supporters for McCain

Bob Robbins just forwarded a link to Hillary Clinton Forum.net. What is intriguing about this site is that many of the posters are saying that they support McCain. The mainstream media is likely to downplay this phenomenon.

One poster who uses the nom de guerre "Hillary Clinton Rules" writes:

MANY OF US ARE NOW VOTING FOR MAC AND PALIN!!! IT IS WORKING!!!!
Obama and the DNC are going down this November!
the Democratic Party is going to be railroaded on Election Day by it's own party base -- that they disowned!!! LOL
Keep using our posts for reference
The Clintons and the DLC are COMING BACK

Another named "Expat4Hillary" writes:

"They've got my vote in November as well! A war hero and a working mother who each have children in the armed forces deserve my complete respect!"

However, not all agree. A poster named Muzza writes:

"Please only speak for yourself. The forum does not have a collective conscience whereby everyone does the same thing. You are supporting McCain/Palin and that's your choice. Not everyone in here will be doing that."

And someone named joeysky18 adds:

"It probably is the majority opinion, but not all members will vote Republican. Some will vote 3rd party. And some haven't made their decision."

One of the downsides of the World Wide Web is that almost everyone prefers anonymity. We are turning into a nation of academics who feel that they need to remain anonymous (the academic review process is often anonymous).

However, I am gladdened to hear about their choices.

Sunday, August 31, 2008

Obama Gets Negative Bump From Democratic Convention

Usually presidential candidates get a statistical bump from the party conventions. This is normal. What is happening to Senator Obama is unusual. He is has received a negative bump following the convention and Senator McCain's announcement of Governor Palin as his running mate. Zogby (h/t Bob Robbins) now finds that McCain/Palin is leading Obama/Biden by 47% to 45%, and the Republican convention has yet to convene.

I think part of the reason is Mr. McCain's excellent choice for a running mate. Although Governor Palin's experience is somewhat light, it is better than Senator Obama's. Governor Palin has comparable experience to other vice presidents who were forced to assume office, such as Theodore Roosevelt and Calvin Coolidge. The sudden fixation of the media on her experience, while it has ignored Senator Obama's light endowment, is another laughable example of our clownish media's somersaults.

Democrats' Reality Warp On Sarah Palin

Democrats smear Republicans. It's part of the democratic process. Smearing goes back to Federalist days. I can't prove this, but my guess is that the volume of smearing directly relates to the quality of the candidate. The better the candidate the more the smearing volume. In the case of Sarah Palin, the volume has been high. Oddly, the Democrats chose to emphasize Ms. Palin's experience. But the Democratic nominee, Senator Obama, has experience at most slightly greater than Governor Palin's. But she is running for the number two, not the number one spot. Moreover, Mr. McCain has evened the age difference, attracted conservatives and likely attracted women.

For instance, on the Huffington Post, Warren Goldstein raises the issue of:

"Sarah Palin's qualifications to be president of the United States -- that's right, President."

and concludes

"We can hardly be expected to take seriously her track record: being mayor of a town of 9,000, and less than a year of being governor of a state with fewer residents than 19 American cities (if it were a city, Alaska would rank just above Baltimore, just below Charlotte)."

I checked Ms. Palin's biography on Wikipedia and learned that she assumed office in December 2006, so Mr. Goldstein is facutally inaccurate. She will have two, not one year of experience when her vice presidential term begins in 2009. 2007 + 2008 = two, not one year.

Let us compare Ms. Palin's experience to some other vice-presidential candidates in history. Let us start with a worst case scenario: twentieth century vice-presidents who assumed office because of a president's death. In 1900, Theodore Roosevelt ran as Vice President under William McKinley following exactly two years as governor of New York. Previous to that he had been assistant secretary of the navy and police commissioner of New York City. In other words, his experience was of the same order of magnitude as Ms. Palin's.

Let us compare Ms. Palin to a second vice-presidential candidate who later became president, Calvin Coolidge. Prior to running as vice-president in 1921, Mr. Coolidge had served for exactly two years, the same as Ms. Palin, as Governor of Massachusetts. Prior to that he had been lieutenant governor for three years. When he assumed the presidency in 1923 (following President Warren G. Harding's untimely death) he had roughly the same experience, excepting the three years as lieutenant governor, that Ms. Palin would have under similar circumstances.

A third example is Harry S. Truman. Truman had been US Senator for ten years. A longer term than both Palin and Obama.

When Franklin D. Roosevelt ran for president of the United States in 1932, he had been governor of New York for three years, one year more than Governor Palin, and like his cousin TR, had been assistant secretary of the navy for seven years and a member of the New York State Senate for two. From the standpoint of significant prior executive experience, his resume was not that different from Ms. Palin's.

Now let us look at Senator Obama. He would have four years as US Senator and seven years as an Illinois state senator. He has no prior executive experience and only four years of legislative experience at the federal level. He would be going into the president's job with slightly more experience than Ms. Palin. He would be among the most inexperienced presidential candidates of the twentieth century. With only two years' additional experience as vice president, Ms. Palin's experience level, emphasizing executive-level experience, would be comparable to most other vice presidents' who have assumed the office of president. In contrast, Mr. Obama's experience is among the weakest because he lacks executive experience. Moreover, Governor Palin is running for number two, whereas Senator Obama is running for number one.

The great presidents include Washington, Jefferson, Lincoln, Jackson, Cleveland, Roosevelt, and Roosevelt.

Of these,

Washington had no prior political experience (other than briefly as a member of the Continental Congress) but had been the commander in chief for seven years.

Thomas Jefferson had considerable experience, having been governor of Virginia for two years, delegate to the Second Continental Congress, United States Ambassador to France, and Secretary of State when he became Vice President under John Adams in 1797.

Andrew Jackson had been Congressman for one year and Senator for six months, as well as a military officer in the War of 1812 and the First Seminole War before running for president.

Lincoln had two years of legislative experience and no executive experience when he assumed the presidency. In other words, he had less experience than Governor Palin and Senator Obama.

Grover Cleveland had been Governor of New York for two years, and Mayor of Buffalo, NY for one.

Theodore Roosevelt had been Governor of New York for two years, assistant secretary of the navy and police commissioner.

Franklin D. Roosevelt had been Governor of New York for three years, assistant secretary of the navy for seven and a Senator for two.

The foregoing were among the best presidents that we have had, and only Jefferson and Washington had significantly more experience than Governor Palin. Lincoln had less even than Mr. Obama.

However, all of the foregoing had demonstrated competence at some executive position. In Andrew Jackson's case it was military leadership (albeit controversial military leadership). In all other cases except Lincoln there had been some executive experience. Mr. Obama has no executive experience whatsoever.

Larry Johnson of No Quarter USA
is among the few Democrats who is willing to confront reality. The mainstream media, an organ of the Democratic Party, has chosen to emphasize the experience issue with respect to Governor Palin but not with respect to Senator Obama. Yet with four years of senatorial experience, Mr. Obama has less relevant experience than Ms. Palin, who has two years of executive experience. Johnson writes:

There is an unwillingness in many quarters, including the DNC, the MSM, the left wing blogosphere, Air America radio and others to acknowledge what is painfully obvious to those of us at No Quarter, which is that there are a lot of loyal Democrats who are seriously considering voting Republican in the fall.

I am not sure of why the mass media has gone ga ga over Obama. This is the same mass media that believed Walter Duranty when he thought that Stalin was a hero in the 1930s, that trusted Castro and that backed the overthrow of Diem in Vietnam. The American media has a proven record of blistering incompetence. The American public is wise to ignore the media's soap.

Sarah Palin's Critics Are Misogynists

I am always deeply disturbed by intolerance. Hatred of women, and denial of women's fair treatment is a historical wrong. We now see Barack Obama's followers unfairly attacking on Sarah Palin because she is a woman.

A thoughtful review of Ms. Palin's credentials suggests that they are far better than Barack Obama's. Ms. Palin has two years of executive experience. In contrast, Barack Obama has no executive experience. Executive experience is far more relevant to the presidency than legislative experience. There are many governors who, after one or two terms, have assumed the presidency.

Calvin Coolidge was Governor of Massachusetts for two years and lieutenant governor for two years before assuming the vice presidency in 1921. When Warren G. Harding died in 1923, Coolidge had roughly the experience that Palin would have under similar circumstances, minus the two years as lieutenant governor, hardly the best preparation for president.

Jimmy Carter had four years as Governor and three in the Georgia legislature. Theodore Roosevelt had only two years as Governor of New York (along with prior experience as assistant secretary of the navy and New York City Police Commissioner) before becoming vice president under William McKinley in 1901. When McKinley was shot in 1901, Roosevelt's experience was not much greater than Palin's is now. By any stretch of the imagination, Mr. Obama's four years in the Senate and utter lack of any executive experience would give him the weakest resume of any president in history were the public to make the error of electing him.

Thus, the media clown act around Ms. Palin's credentials is discriminatory. Ms. Palin, as a woman, likely has been subjected to misogyny before. The Obama campaign, in its brief history, already has demonstrated misogyny with respect to Hillary Clinton. Let fair minded men and women of America speak out against the Obama campaign's ugly bias.