Libertarianism and the pandemic

As one Twitter pundit put it last Spring, “There are no libertarians in a pandemic.”  There is no possibility of quickly identifying a deadly virus and advising the public at large on its impact and how to deal with it in the absence of a massive, well-established, government-funded medical research agency.  The Twitterverse lit up with glee at the cleverness of this observation.  But punditry aside, most libertarians and advocates of small government would support large-scale government response to public emergencies.  That line of thought doesn’t align with massive, intrusive government full-time, all the time. 

 

On the other side of the argument, small-government Republicans have pointed to the necessity of waiving a dump truck full of regulations to permit doctors to work across state lines, facilitate telemedicine and accelerate the development of a vaccine.  At a local level, restaurants have been allowed to sell alcohol to takeout customers, streets have been blocked to traffic to accommodate outdoor dining and distilleries have repurposed their operations to produce hand sanitizer.  All with the blessing of local regulators.  

 

None of these activities supports the extreme views of either liberals (massive government) or conservatives (drown the government in the bathtub).  Yet, the pitched battle waged in Congress reflecting the culture war leaves us with only the two extremes as options. 

 

Where to draw the line will never be an exact science, particularly when a crisis is upon us.  The mixed signals and false starts that were abundant in March and April remind me of trying to fix an airplane while you’re flying it.  State and local mandates were inconsistent from place to place as infection rates and local conditions varied.  Wyoming would never need the same restrictions as metropolitan New York.  And, Florida still has both a lower infection rate and lower unemployment rate than New York.  That needn’t have devolved into a battle of left vs. right.  But, as things go these days, that’s exactly what happened.  

 Fixing the plane while you're flying it

And, so, the pandemic has raised the prospect or, at least, a discussion about technocratic control a la Europe.  But such control hasn’t saved Europe from the worst effects of the virus and it is never a guarantee that such bureaucratic rule-making would be effective or just.  Is that an argument to turn everything over to the free market?  No, it’s not.

 

We must recognize that, in the absence of a financial motivation, the private sector would never develop the required regime of testing, contact tracing and quarantine.  Further, only government can mitigate the worst effects of the pandemic by providing funds to keep businesses and households in the black, all the while funding and guiding medical research to the best outcome, whatever that may be.  

 

The modern libertarian ideal has been distorted by the far right of the Republican Party with their own catchphrases.  I’m thinking of Grover Norquist’s vow to make government small enough to “drown it in a bathtub.”  We have delegitimized government so much that the nation that beat the Nazis and put a man on the moon by exercising its industrial might now can’t produce enough masks for its doctors and nurses.   

 

As with so many other of our greatest challenges, the American right has rendered itself irrelevant to the task of creating legitimate state capacity to address our greatest needs.  This is a genuine tragedy.  There is legitimacy to the Libertarian ideal.  Suspicion of centralized government power and respect of the power of market forces should form the basis of how we decide to move forward.  But that doesn’t mean we shouldn’t have effective government programs. 

 

The left would like to restore the triumvirate of the 3 BIG’s -- government, business and labor – that drove the economy for two and a half decades following WWII.  But that era was enabled by the destruction of the industrial capacity of Europe and Japan during the war.  By the 1970’s, high taxes had undermined capital investment rendering the US uncompetitive and setting the stage for the Stagflation that characterized that decade.  It also set the stage for Ronald Reagan’s supply-side economics that served us well for about two decades.  

 

At the dawn of the 21^st Century, that paradigm seemed to be getting too long in the tooth to drive economic progress.  The Bush tax cuts yielded economic growth equal dollar for dollar with the growth in government debt.  In other words, the multiplier effect seemed to be absent during a decade when capital flowed more easily into tax advantaged real estate investments eschewing innovating industries like manufacturing and high tech.  The failure of the tax cuts to spur economic growth combined with a failed government response to Hurricane Katrina and the bursting of the housing bubble then set the stage for liberal Democrats to take both houses of Congress and the White House.  Free trade agreements made in the 1990’s made the investor class richer while problems once isolated to the inner city spread to rural communities – family breakdown, drug abuse, education and healthcare gaps.  

As we look forward to a decade of not only overcoming a pandemic but also confronting the strategic challenges presented by China and making economic growth more inclusive, we must fight the instincts of both the left (to put too much faith in government action) and the right (to leave too much to the market).  The legitimate objective of government is to do what we cannot do for ourselves but must be done.  The focus should be on making government effective rather on the dogmatic reflexes of the left and the right. 

Free markets only perform at optimal levels when embedded in common goods provided by government:  education, infrastructure and economic freedom.  And, government can only be effective if its limitations are recognized.  Regulation must be reasonable and consistent. Disincentives to private investment should be removed and corruption must be rooted out. 

WHO WILL LEAD?

Patriotism, Nationalism and a Letter from Bobby Kennedy

There's a meme going around on social media.  It's called Patriotism vs. Nationalism.  Sounds like a distinction work making, doesn't it?  Yet, I was offended when I first watched it. 

Why? Well, let me start by focusing on the “vs.” or versus in the title.  The post was initially promoted by a group with a Facebook page called America Versus.  Should every topic worth discussing start by positioning it as oppositional?

In Patriotism vs. Nationalism, the 3-minute video correctly defines the difference between the terms and supports its POV with snippets from liberal icons including President Obama, Senator Kamala Harris (D-CA) and Martin Luther King, Jr., all of whom promote the idea that dissent is patriotic.  There are no quotes or video snippets supporting an alternative POV.  There is simply the implication that those who disagree are less intelligent than those who do.

Now, to be clear, I agree with the distinction being made. So, why am I offended?  Because we are better than this.  This video is intended to further polarize us.  If you are liberal, it feeds your confirmation bias.  If its producers had wanted to get conservatives to think about or reconsider their view, they might have used quotes from the founders.  For example, here’s what Thomas Jefferson said on the subject:

"The spirit of resistance to government is so valuable on certain occasions, that I wish it to be always kept alive. It will often be exercised when wrong, but better so than not to be exercised at all. I like a little rebellion now and then."

The person who posted the video is someone I consider to be a friend despite our political differences.  (Yes, that’s possible.)  I didn’t respond to his post.  I simply sent him a video that approaches our differences differently: an 8-minute video from PBS discussing the origins of our political beliefs.  If you take the time to watch it, you’ll recognize friends and neighbors – people whose company you enjoy.  To me, it offers us the space to consider how people develop different values and the perspective not to hate those with whom we may disagree.  At some level, it creates empathy. 

I would rather start any political discussion there, not with the word versus in the headline. 

Many pundits date the beginning of the culture war to the 60’s.  Barry Goldwater ran for president from the extreme right wing and was defeated by the liberal LBJ.  The Supreme Court gave us Miranda Rights and banned prayer in school.  The war in Vietnam divided the country.  African Americans protested Jim Crow laws in the Deep South.  The country was divided then as it is now.

In its midst, I received a letter from Bobby Kennedy.  It’s dated May 29, 1967, a year and a few days before he was gunned down in Los Angeles.  It’s framed and hangs on the wall above my desk.  Bobby Kennedy ran for president in 1968 from the liberal left.  Today, I would not agree with his politics or policy prescriptions.  Yet, his letter hangs over my desk because none of that mattered then nor does it matter now.  He simply expressed that he knew that my “family must be very proud” that the US Navy had offered me a scholarship and that he “would like to join with … friends and family in offering … congratulations.”

I am sure he wrote thousands of those letters while serving as New York’s representative in the U.S. Senate.  I am sure that every member of Congress has long sent similar letters.  Yet, it’s special to me because it’s a touchstone.  Yes, I know that nostalgia improves our memories of times gone by.  However, I remember the 60’s as a time when, divided as we might have been, we were able to move forward as a nation.  Social media didn’t exist and mass media wasn’t engaged in trying to divide us.

The problem I have with the versus crowd is not what they have to say or what they believe.  It’s the laziness of their approach.  It’s this or that.   If this is good, that must be bad.  If you don’t believe this, you must believe that.  If this is good and that is bad, you must be bad.  People are complex and life is complicated.  The world isn’t divided into binary choices of good and evil.

WHO WILL LEAD?

Why both liberals and conservatives should hate the Fed

The Federal Reserve Bank

Most people don’t wake up in the morning thinking about the Federal Reserve System, the nation’s central bank.  Frankly, I don’t either.  But, when I think about it these days, I really hate what they’ve done to our economic prospects. 

Here’s why.

The Fed’s normal tools for modulating the economy – raising or lowering short-term interest rates – have exhausted their usefulness. Lower rates should stimulate the economy by reducing the cost of borrowing. But, when the economy wasn’t growing even with zero interest, what do you do?

Quantitative Easing (QE) was intended to stimulate the economy by supporting the acquisition of financeable assets through a policy of buying bonds like Treasuries and mortgage backed securities.  These purchases on a massive scale created low long-term interest rates with a goal of supporting the acquisition of financeable assets.  And it worked!

So, why do conservatives hate the program?  Because the increased supply of money hasn’t flowed through banks to increase the available capital for businesses to invest in growth.

Many blame the banks.  However, we should remember that we’ve told banks to cease the risky practices that led to the financial crisis.  Through the Dodd-Frank financial reform, we increased oversight of their lending activities. Also, international agreements negotiated in Basel, Switzerland required banks to increase the amount of capital they retain on their balance sheets, thereby decreasing capital available for lending. 

So, we succeeded in making banks less risky but decreased the capital flowing into the economy.  In terms an economist would use, we decreased the velocity of money. 

That’s why conservatives, read business people, hate theFed’s policy.  Growth has been floundering in the 2% range.  Take away the oil and gas boom and it would be closer to 1%.

Meanwhile, liberals -- led by the head cheerleader NY Times columnist Paul Krugman – embraced these policies.  More debt, more money in the economy the better, they said.  As for conservative fears about a collapsing dollar and inflation, we have seen no evidence.  Fools they must be, right?

Well, not exactly.  Sure inflation has been low for the last several years.  However, when viewed next to other currencies, the dollar has been weak.  And, a weak dollar increases the cost of buying foreign products.  In the last year, the Fed has ceased its bond-buying program while Europe and Japan have begun theirs.  Here’s what has happened to the dollar.

Dollar Index -- 5 year chart

What about the other effects of QE? 

The financeable assets that most benefited from the Fed’s policy have been real estate and the stock market.  Coupled with a tax code that rewards asset ownership, the policy has made the rich richer.  Liberal voices have decried income inequality without raising the connection between inequality and the Fed’s policies. 

If you want to find those most hurt by the Fed’s Zero Interest Rate Policy (ZIRP), look no further than savers who rely on interest for their income.  These include not just today’s retirees needing a low risk source of income but future retirees depending upon the success of those managing their pension funds in todays’ financial environment.

Further, policies that undermine business investment reduce employment opportunities, increase income inequality and reduce tax revenue to the government, thereby reducing its ability to fund programs that help those less fortunate. 

But, there is hope.  QE is over and ZIRP may be in its last days. And, as we emerge from a period of unprecedented Fed interference in the market, the government’s deficit has been reduced.  The end of the Bush tax cuts coupled with the cap on government spending pursuant to the budget deal struck by Congress and the President in 2011 have reduced the annual deficit.

Meanwhile, the Boston Consulting Group has projected that the US will be the manufacturing site of choice in the coming years owing to lower energy and transportation costs and favorable labor policies. 

It seems that the lesson here is: keep the government’s capital out of the market and our economy will soar.

WHO WILL LEAD?

I think I’m turning liberal… I really think so

I was watching a remembrance of the Watergate affair on the Discovery Channel the other night.  It was a great show incorporating newsreels, interviews and film clips from “All the President’s Men”.  Among the commentators was Rachel Maddow who speculates that Richard Nixon would be considered a conservative Democrat by today’s standards.  It was Nixon, after all, who signed the EPA into existence.  Imagine a Republican doing that today. I think it may be fair to say that the country has become more conservative since Tricky Dick exited the national stage.

But, the reelection of Barack Obama suggests a counter trend.  Republicans and pundits offered lots of explanations (read excuses) of why Democrats held their ground in the last election, ranging from the Hispanic vote to women’s issues to gay marriage.  If you’re into statistics, you could use any of these examples to make that case.

However, I think a better explanation can be found in a demographic trend.  As of 2011, more than250 million Americans (nearly 80%) live in or near a major city. And, nearly all major cities, including four in Texas, voted Democratic in the last election.

So, do liberals move to the city or do cities make people liberal?  I am inclined to believe the latter.  As Josh Kron wrote in Atlantic magazine, “The difference is [not where but] how people live: in spread-out, open, low-density privacy -- or … in-your-face population density and diverse communities …”.  In simple terms, if you live and work in a diverse environment you learn that we all have the same basic needs, the same joys and sorrows and the same desire to connect with our community.  It doesn’t really matter what color our skin is, where we come from or who we sleep with.

The urban environment tends to open you up.  So, the hard right dialog (about immigration, gay rights, birth control) that dominates today’s conservative politics drives urbanites and suburbanites into the arms of the Democrat Party. 

Liberal vs. liberal

There is a difference between the definition of the word liberal -- which can simplistically be defined as open to new ideas and willing to set aside traditional values – and Liberal as it describes a contemporary political philosophy. 

The model of Liberal government embraced by today’s Washington Democrats still reflects the 1930s New Deal and the 1960s Great Society.  Liberals are supposed to be progressive – forward looking.  So, why do they continue to embrace an 8-decade-old political philosophy?

Today’s urban young professionals are joining small, entrepreneurial companies.  The organizations are unstructured; the jobs require creative energy; and, success is based on either first mover advantage or superior execution. 

Contrast that with the early experiences of the Baby Boom generation.  We found job opportunities in large companies whose organizations were modeled on a military hierarchy that was embedded in our elders’ experience in WWII. 

Graduate schools of business reflect this transition as well.  If you went to the top B schools in the 60s, 70s and 80s, you were well prepared to work in the marketing department of Proctor & Gamble, the product planning group in one of Detroit’s Big 3 or the finance group of a big bank.

Today, nearly every top B school has a program that fosters entrepreneurship. 

What’s that got to do with liberalism?   Liberalism morphed into its 20^th Century form driven by the abuses of large companies.  The movement gave rise to trade unions, a social safety net and government regulation.  Today’s hip, urban, liberal Millennial generation scoffs at the idea that the safety net will be there for them in their senior years and small entrepreneurial companies are unaffected by trade unions… and, they certainly don’t want to be regulated.

The 21^st Century economy will drive changes to how we are governed.  Today’s urban youth will continue to be socially liberal.  But, they are unlikely to tolerate the downsides of an unsustainable model that has its roots in the experience of their great grandparents.  A generation of Americans that grew up with the Internet isn’t going to tolerate public institutions that operate on a 19^th Century bureaucratic model. Nor will they tolerate a healthcare system that absorbs more and more of our national income without improving outcomes, a social safety net that will collapse of its own weight or an education system that doesn’t match graduates with jobs and careers.

Going forward, the national debate won’t be about spendthrift compassion vs. cold-hearted austerity.  It will be about developing a healthcare system that can care for our poor and elderly without bankrupting the country, restructuring education to deliver globally competitive graduates and ordered liberty that provides equal opportunity to all.

When that happens, I’ll be a liberal.

WHO WILL LEAD?