The Grand Illusion
There’s more than one kind of wisdom. One way of classifying wisdom is by category: what to do; how to do it; when to do it. But there’s also the other side: What NOT to do [i.e., bad idea]; how not to do it [i.e., bad implementation of a good idea]; and when not to do anything [i.e., when to leave well enough alone].
One of the biggest problems in politics today is the fixity with which both politicians and voters hold their ideas. Those on the far right insist that cutting taxes and spending is always the right thing to do, while those on the far left are all for the opposite. At times, each has been correct, but it’s not just knowing what to do. It’s knowing how and when to do it… and when to leave well enough alone. Yet the ideologues insist that there’s only one “right” answer, and that, essentially, it’s right all the time.
There’s also the tinkerer’s philosophy: If one idea doesn’t work, try something else. That’s even before asking whether the implementation or the timing was good. Unfortunately, while there are times when it works, it’s often corrupted into a version where even when things are going well, the tinkerers decide that they could be better if something else were tried. I’ve seen all too many organizations, from government to education to private industry, where goals and missions and organizational structure changed so quickly that nothing was going to work. What’s so often forgotten is that the larger the structure, just like a massive ocean liner, the longer it takes to change course. Why? Because any organization that has survived has developed practices and procedures that work. They may not work as well as other practices, but because they do work in most cases and for most people, changing takes time and explanation, and Americans, in particular, are often far too impatient.
One of the ideas behind the American government is the idea that power must be shared, and that the party in power gets the chance to implement its ideas, and if they don’t work, then the people can vote them out. For most politicians, though, the idea of sharing anything is a total anathema. Congressional districts need to be gerrymandered so that the seat always remains with one party. Political appointees of the other party must be kept from their positions to which they have been appointed by a president of the other party, no matter what. By using a “hold,” a single senator can keep a nomination from ever even being voted on by the Senate, yet, so far as I can tell, that particular procedure appears nowhere in the Senate parliamentary procedures.
What’s almost fatally amusing about this is that over the past generation, neither party has been exactly either effective at improving government or the living conditions of anyone but the wealthy, and yet each holds to both its ideas and as much power as it can, claiming that if it only had more seats and power, it would fix things. If asked exactly how, each side falls back on generalities, and when the few politicians who actually want to do something come up with specifics, such as adding a year to the retirement age some ten years from now, or eliminating tax subsidies for billion dollar corporations with record profits, or suggesting spending federal funds on concrete improvements in infrastructure, the entire political system turns on them.
Looking at it from where I sit, it seems as though most people aren’t happy with things as they are, but they’re even less happy with anyone who wants to change things, and when they do want change, they want it their way, or no way at all… and that’s no way to make things better, at least not in a representative democratic republic.
You wrote: “One of the ideas behind the American government is the idea that power must be shared, and that the party in power gets the chance to implement its ideas, and if they don’t work, then the people can vote them out. For most politicians, though, the idea of sharing anything is a total anathema.”
The Americans system, as it was designed to work and before it was corrupted to work differently, had the tinkerer flaw built into it. Americans would go charging off in this direction, and those in the public who had things good would grow complacent, while those in the public who had things bad would suffer until the next election. Then there would be “change,” in which a different groups of people were the ones making gains at the expense of a new group of victims.
In 1787, the designers of the Republic anticipated a financial ensnarement of the whole country, very much like the one that actually did happen in 1913, and they warned us against it. What Jefferson and Adams didn’t expect was the broadcast media’s psychological power for convincing millions of Americans that black is white, that good is evil, that foolishness is wisdom, that lies are truth, and for making people vote for policies that led to their own disempowerment and to the destruction of their nation.
In other words, when the United States lost its tinkerer problem, the fixer wasn’t anybody who meant well for the Americans. It was an outside group of bankers who “fixed” it by imposing on our civil government what amounts to a higher government, a financial government whose rules the civil government is compelled to obey, regardless of the consequences to the American people.
The role of the media was to keep Americans confused and divided and as ignorant as possible about these big things, partly with lies about big things, and partly by smoke-screening: politicizing and emphasizing things unrelated to the banker’s goals.
I see that I have made a mistake.
In the late 18th century, when the United States was just beginning under its new Constitution, it didn’t yet have the tinkering flaw, at least not greatly. The only people who could vote were landowning white men. If the vote had remain restricted to that group, it’s likely that the bankers couldn’t have hijacked the Republic as they did.
Looking back on it, on who the abolitionist leaders often were, which group also supplied America with its early feminist leaders, and which group also lobbied in the 20th century for the “open borders” policies, it seems to me that the tinkering problem was largely induced by that group in order to facilitate their subsequent financial hijacking.
And yet… I for one enjoy the financial high-jacking, for without the current financial system and the variations of it that led to our current system, we would likely not see the level of technological development we all enjoy. Instead we’d still be an agrarian/slave based society, but that is of course just my opinion.
Your “open borders” policy statement is the one thing I am mostly curious on… What should the policy have been? Immigration based on some form of racial or political litmus test?
I understand the distrust in political leaders, but you give them too much credit. Is there some shadow government or conspiracy that the general public such as myself has not been made aware of?
From an external point of view, I would say the main issues today with Politics in the USA didn’t really develop until the late 1940s. Certainly the rise of McCarthy and the expansion of the USA into the power vacuum left by the retreating European powers were a significant contribution.
Prior to First World War, the USA was very introverted. Between the wars the rise of prohibition led to a rise in interest in the immediate borders like the Caribbean and Central America.
Following the Second World War though, the USA massively expanded their interests into central Asia, the pacific and South America. There are wonderful articles on how american engineers and scientists brought tangible benefits to lots of new countries. Afghanistan for example was the recipient of vast amounts of american aid in the 50s as a bastion against Communism.
(see http://www.bbc.co.uk/blogs/adamcurtis/2009/10/kabul_city_number_one_part_3.html)
And it all seems inevitable when you consider that a lot of people were making vast fortunes and gaining considerable power purely because with the collapse of the colonial empires between 1930 & 1950, and the expense of rebuilding Europe after the war, none of the original power blocks really had any ability to maintain what they had. The USA and USSR pretty much took over without a fight. Fifty years later, we’re in a pretty stable system, similar to the late 1800s, where most of the power blocks are stagnating, and corruption is on the rise. And the reigns of power are tightly held by a limited number of people. The main difference is now many those people got their position through business rather than heredity, or from ‘having some watery bint chuck a sword at them’. Give it another fifty or hundred years and there will be another social upheaval and subsequent landgrab for power, nothing ever changes.
Oh, sigh. I am not going to bother to respond to what it seems clear to me is yet another conspiracy theory put out by a certain commenter. I’d just like to take the opportunity to put down some thoughts on US economic history as prompted by various economics and economic-historian sources, including (unusually, apparently) some foreign ones.
During Washington’s first term, Jefferson and Hamilton as representatives of their respective factions came to an agreement. Jefferson agreed to (among other, lesser things) allow Hamilton to set up an England-style financial system, and especially a central bank. In return, Hamilton effectively ceded political control to the agrarian/rural Tory element of America.
Over the next 40 years, America saw exceptionally rapid growth, fueled in part by close parallelism of England’s Industrial Revolution, and in part by massive immigration. The Central Bank did not increase or diminish this growth, but dampened the swings of the business cycle, thus avoiding much of the cost not only of human suffering but also of decreased labor force availability during downturns.
In 1832, Jackson, a rabid Jeffersonian, ended the Central Bank. The results were predictable: a vast increase in the size of downturns, while the overall upward trend in GNP under full employment remained the same. America continued its pattern of immigration plus Industrial Revolution, surpassing England to become the largest economic power somewhere between 1870 and 1890.
One of the results of the Civil War was to drastically reduce the economic share of the agrarian South and increase that of the industrializing North and Midwest. This simply set the cap on a trend that had been going on for 70 years, but also heralded a shift in American jobs, wealth, and political power from predominantly agricultural and land-based (both of my ancestral families made bunches of money in that period from speculative land sales) to predominantly industrial and urban/suburban. The early 1870s, which brought a recession that until recently was surpassed only by the Great Depression, also saw the advent of increased monopolies, speculative bubbles, and a related sharp rise in income inequality, peaking in the 1890s.
In the early 1900s, Teddy Roosevelt via trust-busting and Wilson via “progressive” policies to reduce both civic and business corruption slowly began to reduce income inequality; but otherwise, America continued its immigration- and industrial-technology-fueled rapid ascent. However, WWI had a drastic effect on the global economy as a whole, which had reached levels of international trade as a percent of GNP not seen since then until globalization. The outcome of the war was that England and France owed massive amounts to America, which refused to forgive their debts (“they hired the money, didn’t they?”). In turn, England and France attempted to squeeze the money from Germany, which could not pay. In desperation, when all else failed, the German government simply printed money, which led to the massive hyperinflation that we’ve all heard about, which in turn showed the English and French that there was no way to pay America back. Part of the solution might have been to let the relative currencies fluctuate, thereby using comparative advantage to make up for some of the resulting economic downturn by increased exports. However, Britain, followed by America, were on a fixed, increasingly unrealistic “gold standard”, which effectively transmitted the British/French downturn to America. At first, the downturn seemed to be staved off by a speculative “bubble” in the stock market, caused by the lack of regulation, but that soon collapsed, and America found itself with a “triple whammy” of recession, losses on investments in Britain and France, and losses from speculative excesses, not to mention inability to export their way out of the mess, because WWI had also drastically decreased global trade as everyone “tariffed up,” and because exports were over-priced. The result of the severity of the recession was deflation — and,because wages are sticky downwards, too quick a rise in unemployment, so that businesses started planning for long-run revenue decreases by cutting costs, in an ongoing downward cycle. Soon, this cycle affected the ability of banks to invest, because the banks were full participants in the speculative bubble and had exhausted their reserves, and so began to be unable to cover withdrawals, thus suffering closures and further diminishing the amount of investment, to the point where everyone was anticipating further losses and no one was investing — a “liquidity trap.” Government intervention was entirely ineffective under Herbert Hoover because no part of the “triple whammy”, not to mention the problems with exports and the liquidity trap, were tackled.
Under FDR, the currency was effectively taken off Britain’s gold standard and allowed to float, and tariffing was reversed. Far more important, an effective Central Bank was restored, banks were regulated and insured, and the stock market was regulated. Far more important than that, the US escaped its liquidity trap by replacing the lost investment by temporary government “make-work” jobs fueled by the same printed money used to replenish bank reserves. The massive scale necessary caused as a side effect a temporary huge deficit (temporary because it would eventually be ended by increased tax receipts as the economy grew back towards full employment GNP). There was a slowdown in 1937 when FDR panicked, imagining for a while that the inflation caused by high deficits at full employment had arrived; but this soon reversed, and the boost to employment of WWII, followed by a soft non-inflationary landing after that war’s command-and-control economy had ended, put America on a new and better economic ascent path — better, because things like the central bank removed the drastic recessions.
A side effect of this effort was a drastic decrease in income inequality to a new “stable state”, cementing a shift towards less concentrated political power. The ability to create new “extreme rich” was curbed by very high top income tax brackets; and the ability of the rich to become even more rich by growing the value of their investments was to some extent curbed by inheritance taxes. One may also cite a small effect from widespread unions, which by raising wages of employees by an average of 20% at the cost of additional unemployment, decreased the take of CEOs.
Over the next 30-35 years beyond WWII, America continued its “stable state” strong growth, while the preconditions for that growth slowly began to erode. That erosion speeded up, especially around 1981, as forgetting the reasons for FDR’s solutions plus concerns about competitive productivity slowdowns (e.g., vs. Japan) led to increased deregulation (in particular, of savings banks and of the legislated divide between banks and stock speculators), active diminution of unions, the beginnings of “non-banks” such as credit card companies and hedge/private-equity funds that pretty much escaped regulation altogether, not to mention decreases in top income tax rates that contributed to perhaps one-third of the recent income/wealth inequality rise (the rest being partially the results of different tax treatment of investment and earned income, and partially the result of increased ability of CEOs and financial types to capture more of the profits of a business). This income inequality has now reached a point where it is greater than in the Gilded Age.
After a brief semi-reversal from 1995-2000 (which also included a rise in productivity due to computer technology), these trends culminated in a depression starting in 2007 that might have matched the Great Depression, except that the remnants of the FDR/Keynesian knowledge was able to avert the worst. Specifically, banks here and abroad were kept afloat at all costs, there was some government “make-work” spending, Federal transfers to states cushioned some of the blow there, and although we were unable to export our way out of some of it, because China among the nations not suffering artificially fixed its currency for short-term gain (with bubble and inflationary consequences that appear to be becoming apparent), we did manage to coordinate our efforts with those of the Europeans in particular, to some extent, so that we have not “tariffed up.”
However, the decrease in the depression appears to have also removed the political impetus to make any further FDR-type fixes, partly because it has not removed the additional political power of the extreme rich. There is now every prospect of near-deflation slightly better than in Japan from 1990-2005 or thereabouts, where high deficits due primarily to reduced taxes from an economy operating far below its full-employment potential accompanied not inflation or concerns about the country’s creditworthiness, but rather low investment and very low growth, with some risk still that reversion to policies pre-2007 or future “bubbles” in the unregulated “shadow banking system” will yet bring about a “liquidity trap”.
@Wayne: Yes. Now the concentration of wealth determining policy is causing the US to lose its role as innovation center of the world. It might not yet seem like it at the consumer’s level but there is a lag between discovery and commercialization. The loss of innovation can also be seen in the crafting of laws such as PIPA and SOPA supposedly designed to prevent copyright infringement, but which in fact will censor much of the internet without preventing copyright infringement. A new industry will be destroyed to preserve the business model of an old, essentially because the old industry “lobbies” (bribes) more than the new one.
As to whether we are a democracy, we are in principle, but in practice wealth and influence determine which candidates the demos may choose from. Is it not incredible that Mitt Romney is the leading candidate, given his history running Bain Capital? My understanding is that he made his money there by buying companies, loading them up with unsustainable levels of debt he took as profit, and then dumping them to fend for themselves and pay back this debt. Thus he helped destroy US industry to make a profit. This is not “creative destruction”, it is looting. (Whereas the internet requiring publishers to update their business models would fall into the category of creative destruction.) Yet the media gloss over this fatal flaw. On the other hand, they ignore Ron Paul making such statements as: “Without Ron Paul, John Huntsman would have placed second”.
“One dollar, one vote” seems to be quite an accurate predictor of our near term future.
Very lucid– and accurate — summary!
Oh, God. I thought for sure I had missed something big, like misunderstanding the real economic effects of deeper recessions.
In return for that wonderful compliment, may I request that you please go back to writing your wonderful books, however you feel is best to write them, and don’t bother answering me further, while I will go back to wrestling with my confirmation bias 🙂
FDR was the devil’s errand boy. Any expansion of domestic political power that is not subject to a fixed expiration date is flat out evil, and in in that sense those who would wish for less taxes and less spending have it right.
If Ron Paul wasn’t a nutcase, I’d support him. If there were a libertarian somewhere that understood the difference between avoiding entanglements versus leaving dangerous vacuums*, I’d support them.
*on the domestic side, I don’t _care_ about concentrations of private wealth; rather, I favor private means of maximizing upward mobility on merit, and if that incidentally limits extreme concentrations of wealth, so be it. And when it comes to either government or private individuals using force or coercion to unduly restrict any freedom (I ought to have the freedom to carry …guns, pot, whatever…if I paid for it, but not to use it to harm people either intentionally or carelessly), that’s the one vacuum I’d like to see enforced. But on the world stage, vacuums will _always_ be filled, and the US (and willing democratic allies) is the least bad choice for the job, and the only one remotely capable.
@Wayne
Very good summary, colour me impressed!
So would you say then that the misstep was not to find some way to restrict income generation by the wealthier classes? I don’t mean just income taxes, but on a more comprehensive set of restrictions, such as reducing speculation on property and on essentials like basic foodstuffs?
@R Hamilton
Pretty much everyone in power in the US comes across as nutcases to me – certainly the entire presidential election process seems to be a contest worthy of the X Factor, and probably about as good at producing a good leader as that does a good singer.
As for the US being the least bad choice for anything .. well, that is a highly charged assertation up for challenge by pretty much anyone *not* an american. Frankly the fact the leadership wants to take on the role makes America inherently unsuitable in my opinion.
When it comes to mobility on merit, you could possibly start by having more than two factions capable of holding any power. Proportional representation is not a curse…