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Citizens United and False Consciousness
The Washington Post offers a brief item this morning on the upcoming Citizens United reargument. Robert Barnes writes, “The court is considering whether to overturn its previous decisions that restrict unions and corporations from using their general treasuries to influence election campaigns.”
Actually, a better description of the case would be: the Supreme Court is considering overturning decisions that restrict corporations from using their general treasuries to try to influence election campaigns.
In the most important decision at issue, Austin v. Michigan Chamber of Commerce, the latter organization wished to run an advertisement naming a candidate and supporting his views on economic policy. That ad may have convinced some voters. It may have repelled others. Many voters would not have been moved at all. Whatever influence the ad might have had would have depended on its reception among the voters.
Many people would like to see Austin affirmed. Absent restrictions on corporate issue spending, they say, business would have too much influence on policymaking. But the Supreme Court said in Buckley v. Valeo (and more recently) that restricting speech in the name of equality violates the First Amendment. Others see corporate spending as a kind of corruption and thus subject to the restrictions of campaign finance law. But if Austin falls, corporations will not be able to give candidates contributions in exchange for favors. They will be able to fund speech independently of campaigns and parties.
In truth, I think many people who support proscribing corporate spending in campaigns believe speech by business is “bad speech” that will make for bad policies. But “prior restraint” of speech clearly violates the First Amendment. Voters, and not censors, are supposed to decide what constitutes “bad speech” and “bad policy.” The fear of corporate speech often reflects a fear that voters will be persuaded by business interests to endorse candidates and policies that are not in the interest of the most voters. But coercion to preclude false consciousness is not compatible with the foundations of a liberal republic, the form of government ordained by the U.S. Constitution.
So the Court may well let corporations and labor unions try to influence elections. Voters will decide whether such organizations actually do influence elections.
Here’s a video produced by Cato’s Caleb Brown and Austin Bragg following the oral argument of Citizens United (and featuring Yours Truly):
Filed under: Cato Publications; General; Government and Politics; Law and Civil Liberties; Political Philosophy
Obama’s New Numbers
A new ABC/Washington Post poll is out. The trends are not comforting for the White House. President Obama’s approval rating – probably the most important number for a president these days – continues to drop. Approval by independents has fallen by 9 points over his term. Support for his handling of the economy now garners the approval of barely half of respondents. The number of people who see him as an “old-style tax and spend” Democrat has risen by 11 percentage points; the number who see him as a new Democrat “careful with public money” has dropped by about the same number.
A majority of the public now rejects a second spending splurge. Most now give avoiding deficits a higher priority than increasing spending, even to fight the recession.
The number of people in the poll identifying themselves as independents is at a post-1981 high. Most of those people may well vote most of the time for one of the major parties. For now, neither party is attracting much loyalty.
Surely some Democrats in Congress must be starting to wonder how far they should follow the president and his desire for ever greater spending.
The Correct Question for the Supreme Court
Eric Brown poses the correct question here.
The Supreme Court said in Austin v. Michigan Chamber of Commerce that the state of Michigan could indeed ban that particular advertisement.
Filed under: Government and Politics; Law and Civil Liberties
The Roberts Revolution to Come
As I mentioned yesterday, the U.S. Supreme Court surprised many people by ordering a reargument in the case of Citizens United v. Federal Election Commission. Specifically, the Court called for the parties to the case to address the question of overruling Austin v. Michigan Chamber of Commerce.
The Court decided Austin v. Michigan Chamber of Commerce in 1989. The state of Michigan had prohibited corporations from spending money on electoral speech. In the case in question, the Chamber of Commerce wished to pay for an advertisement backing a candidate for the House of Representatives. The Chamber took this action on its own and not in tandem with the candidate or his party. Paying for the ad was a felony under Michigan law.
A majority of the Court in 1989 said the Michigan law did not violate the First Amendment. However, the majority had a problem. Previous cases permitted limits on funding electoral speech only in pursuit of a compelling state interest: the prevention of quid pro quo corruption or its appearance. The Court had also ruled that independent spending by groups could not corrupt candidates.
So the majority needed a novel rationale for approving Michigan’s suppression of speech. The majority concluded that speech funded by corporations would distort the democratic process and that the state could prohibits such outlays to prevent harms done by “immense wealth.” In other words, the Austin majority tried to redefine “corruption” as “inequality of influence.” That revision had its own set of problems. Buckely v. Valeo, the Ur-decision in campaign finance, had excluded equality as a compelling state interest justifying regulation of campaign finance.
It is easy to see why the Buckley Court had rejected equality of influence as a reason for restricting political speech. Imagine Congress could prohibit speech that had “too much influence.” But how could that be determined? A majority in Congress would be tempted to suppress speech that threatened the power of that majority. Paradoxically, the equality rationale would strengthen those who already held power while vitiating representative government. The First Amendment tries to prevent that outcome.
In last year’s decision in Davis v. FEC, the Court again rejected the equality rationale for campaign finance laws. More and more the Austin decision is looking like bad law.
Justices Kennedy and Scalia, both current members of the Court, wrote dissents in Austin. Justice Thomas has called for Austin to be overruled in other contexts. Neither Justices Roberts nor Alito is likely to vote to uphold Austin (or the relevant parts of McConnell v. FEC for that matter). But it would seem that either or both of them were unwilling to strike down a precedent without a formal hearing. That hearing will come on September 9 with a decision expected by Thanksgiving.
Almost six years after the Court utterly refused to defend free speech in McConnell v. FEC, the Roberts Court may be ready to vindicate the First Amendment against its accusers in Congress and elsewhere.
Filed under: Cato Publications; Government and Politics; Law and Civil Liberties
Citizens United Case to Be Reargued in Supreme Court
The U.S. Supreme Court has decided not to decide in its current term the campaign finance case, Citizens United v. Federal Election Commission. Instead, the Court issued an order that the case should be reargued. The parties in the reargument should address the question of whether the Court should overrule two of its earlier decisions. In the Austin v. Michigan Chamber of Commerce, the Court held that state legislatures may prohibit spending by businesses on electoral speech. In McConnell v. Federal Election Commission, the Court validated limitations on electoral speech in McCain-Feingold.
The Court could have decided Citizens United on relatively narrow grounds. Instead, it has explicitly drawn into question two of its precedents upholding limitations on political speech. It seems likely that five members of the Court are prepared to overrule both precedents, but at least one justice was unwilling to do so without a formal argument.
We appear to be on the brink of a significant liberalization of campaign finance law.
For more on this important case, see below:
Trouble in Obamaland
The Washington Post reports on a recent survey:
The poll found little change in underlying public attitudes toward government since the inauguration, with slightly more than half saying they prefer a smaller government with fewer services to a larger government with more services. Independents, however, now split 61 to 35 percent in favor of a smaller government; they were more narrowly divided on this question a year ago (52 to 44 percent), before the financial crisis hit.
The Obama team probably assumes people who identify as Republicans will disapprove of Obama’s actions sooner rather than later. Independents, however, are crucial to keeping up his public approval and thereby getting what he wants out of Congress. On the size of government — as well as on many specific policy issues — Obama is now running counter to public opinion.
This may be the beginning of the end of the beginning.
Money in Politics, Virigina Edition
Bruce Bartlett has a good opinion piece on money in politics in Forbes. He mostly focuses on self-funding candidates who rarely win even when they contribute large sums to their own campaigns. The recent Democratic gubernatorial primary in Virginia, which Bartlett mentions, saw Terry McAuliffe spend over $7 million and lose badly. McAuliffe financed his bid in the usual way by attracting contributions. His success at fundraising may have cost him votes in the end.
Despite the McAuliffe example and others mentioned by Bartlett, people still believe “only money matters in politics” or “money buys elections.” The truth is, money matters but not all that much. Other factors, like circumstances, partisanship and the quality of the candidate, have more effect on the outcome of any election. It is true that incumbent members of Congress generally raise more than their challengers and almost always defeat them. But if you take into account the quality of a challenger, money has little effect on the outcome of a race.
We hear little these days about money buying elections. The people who complain about the power of money to subvert democracy are almost always on the left. If money buys elections, is Obama’s presidency a subversion of democracy? After all, the current president is the most successful fundraiser in American history, and not all of his money came from small contributors. But Obama didn’t buy the election of 2008. He was running against an unpopular administration with the economy mired in a deep recession. Obama was a skillful candidate who ran an effective campaign. John McCain could have matched Obama’s fundraising and the Republican still would have lost.
Money is overrated in politics. Just ask Terry McAuliffe.
Declining Support for More Spending
The Pew Research Center has come out with the report of its latest survey on trends in political values. There is much interesting stuff here. For example:
The public continues to broadly support stricter environmental laws and regulation, but its willingness to pay higher prices, and suffer slower economic growth for the sake of environmental protection has declined substantially from two years ago. In the new poll, 51% agree that protecting the environment should be given priority even if it causes slower economic growth and some job losses, down from 66% in 2007. At the same time, the share saying that people should be willing to pay higher prices in order to protect the environment has dropped from 60% in 2007 to 49% currently. This represents a 17-year low point on this measure. Surprisingly, declines since 2007 in support for economic sacrifices to protect the environment have been particularly large among young people and political independents.
These results suggest one reason cap-and-trade is having trouble in Congress. Imagine what might happen if the public actually had to pay more for Obama’s green agenda.
The results are also consistent with the hypothesis that support for government spending should begin to decline almost immediately after Obama took office.
Cleveland Park Embraces Free Markets
Cleveland Park, an upscale neighborhood here in the District of Columbia, might be the last place you would expect appeals to the principles of the free market. It is, after all, the home of what David Brooks once called ”Ward Three Morality,” an outlook that celebrates government control of the economy. But not always.
Recently an entrepreneur proposed opening a new wine store in Cleveland Park. He sought the support of the advisory neighborhood commission, a local government board, before making his case for a liquor license to DC’s Alcohol Beverage Control Board. The most serious opposition to the entrepreneur’s plans seems to have come from an existing wine store nearby. According to its attorney, the existing wine store was “a beloved extension of the community.” More candidly he noted the new store would offer competition to the existing business. At this point, you might think: the Cleveland Park commission blocked opening of the new business while congratulating themselves on protecting the town from a ruthless “capitalist logic.”
Well, not quite. Peter Fonseca, the lawyer for the entrepreneur, reportedly “urged the commissioners to consider free-market principles when making their decision. ‘This is America.’” And they did: “Commissioner Richard Rothblum agreed, saying commissioners should not get in the way of free enterprise. ‘I don’t think we have any place telling people what their business plan should be.’” The commission then voted 8-0 to support the entrepreneur’s effort at the Alcohol Control Board. The appeal to “free market principles” seems to have carried the day in Cleveland Park!
Perhaps this is only the beginning. If the free market is desirable for fine wines, why not the auto industry and the banks?
Oprah Escapes the Long Arm of the Law
The Washington Post reports on the latest ruling by the Federal Election Commission:
William Lee Stotts of Cordova, Tenn., filed a complaint in October alleging that Obama’s appearance on Winfrey’s popular talk show during the Democratic primaries amounted to an unlawful campaign contribution that gave him an ‘an unfair advantage over the other candidates, both Republican and Democrat, who were deprived such an opportunity.’
The FEC decided that Winfrey was a media entity and thus qualified for the “media exemption” from the campaign finance laws. Without that exemption, Obama’s appearance would have become an electioneering communication and thereby a violation of McCain-Feingold.
The FEC provides a timely reminder that we no longer have a unified First Amendment. Congress shall indeed “make no law” regarding the freedom of the media, including the freedom to publicize a presidential candidacy. That’s a good thing, by the way. The bad thing is the rest of us are expected to make do with Congress making all kinds of laws limiting freedom of speech. Some animals, I suppose, are more equal than other animals.
Filed under: General; Government and Politics; Law and Civil Liberties
Taxpayer Financing of Campaigns Returns
Taxpayer financing of congressional campaigns has returned.
Yesterday Senators Richard Durbin (D-IL) and Arlen Specter (R-PA) introduced a modified version of their public financing bill first proposed in 2007, now as then called the Fair Elections Now Act (FENA). The older version included “free media vouchers” and discounted ad rates for television; the new model focuses more on small contributions and matching funds from the federal treasury.
These bills to finance campaigns with government revenue are often introduced in Congress and rarely make any headway, much less pass either chamber. Their perennial failure is not difficult to understand. Members are interested in campaign finance regulations that make it more difficult for challengers to raise money. They are not interested in giving candidates federal revenue to run against incumbents. Members are especially unwilling to fund campaigns because the public takes a dim view of using taxes in this way.
FENA tries to avoid public opposition by creating the appearance that taxpayers do not actually fund this scheme.
As Politico reports:
In the Senate version, the public money would come from assessing the country’s largest government contractors with a small surcharge… In the House, the money would come from the sale of broadcast spectrum.
But the question should be asked: if public financing of campaigns will actually achieve all the great things claimed by its proponents, shouldn’t the public be asked to pay the bill? After all, the public can expect to receive the promised benefits. Why should the bill be financed by government contractors and the sale of public assets?
We know the answer to these questions. Durbin and Specter have to obscure the role of taxes in these schemes because the public would oppose the bill if taxpayers were on the hook for the funding. Yet the senators obscure rather than eliminate the role of the taxpayer who will have to pay higher levies to fund more expensive government contracts or to replace the money that might have been obtained from the sale of the spectrum. Once the FENA lunch turns out not to be free, will voters feel like paying the tab?
The rationale for the new program also merits attention. In the past, advocates of taxpayer financing argued that private financing of campaigns corrupted representation, policymaking, and the general political culture. Replacing private contributions with public financing would, it was claimed, remove private interests and end corruption. That rationale appealed to most of the supporters of public financing; they tend toward the left politically and had little trouble believing the Republicans running Congress — all of them — were corrupt. But 2006 brought the Democrats back to power, and general claims of corruption no longer fit the background assumptions of both powerful legislators and supporters of public financing. So we now hear little about corruption and a lot about how FENA will free up legislators to “tend to the people’s business.”
Will “tending to the people’s business” be enough to convince Americans to spend tax dollars funding congressional campaigns at a time of record public sector deficits brought about by reckless spending on bailouts and much else?
The question answers itself.
Filed under: General; Government and Politics; Law and Civil Liberties; Political Philosophy
Responsibilities
President Obama delivered an interesting inaugural speech yesterday. His theme was responsibility, a theme that provides a useful frame for his administration.
The individual versus the collective: Americans generally affirm individual or personal responsibility for one’s life. To be an adult – to put aside childish things – means taking responsibility for one’s actions and outcomes. Yet language permits another possibility. “We” can take responsibility for this outcome or that injustice. Putting aside childish things means taking collective responsibility through government action. In this view, emphasizing the individual suggests a childish selfishness that should be overcome. Obama seems to be about both kinds of responsibility right now. But extending state control over society vitiates personal responsibility. The new president will have to choose between the two.
The rule of law versus charisma: In a free society, individuals associate together through consent within a set of impersonal rules enforced by an impartial judiciary. Societies may also be ruled by charismatic leaders who are thought to have special powers granted by divine favor or by other means. Charismatic authority undermines both individual and collective responsibility. No one need do anything: the special man will say the magic words and everything will change for the better. Moreover, charismatic men with special powers should not be restrained by mere laws. They are above such restraints and must be so to do their work.
Consequences versus absolute ends: In an ethic of responsibility, leaders and followers look to consequences in acting politically. President Obama alluded to an ethic of responsibility yesterday. We want a government that works; programs that do not work will be ended. The thought is admirable, the reality unpromising. Ronald Reagan eliminated two federal programs, one of which was a training program that worsened the lot of its clients. Reagan was thought to have a mandate to cut back government. Obama was elected for many reasons, none of which were constraining the federal government. More than a few of his followers expect he will, as he put it yesterday, “remake the world.” Those who set out to remake the world rarely notice the immediate consequences of their crusade. After all, the benefits of bringing heaven to earth will more than overcome the costs of the crusade.
Obama’s modest demeanor suggests an understanding of his own limitations. If that is true, he may turn out to be more a politician and less a priest, a president content to live within the laws and achieve marginal changes in public policy.
But I wonder. Living in Washington, DC, I have recently had reason to recall Samuel Johnson’s remark about Shakespeare: “In his plays, there are no heroes, only men.” Obama seems to be telling a different story, a tale about charismatic heroes and utopian aspirations. When the talking stops and the doing begins, one question will be answered: Do Americans really want to live out a play where there are no men, only heroes?
Filed under: Education and Child Policy; Foreign Policy and National Security; General; Government and Politics; Political Philosophy
A New Blog on Free Speech and the Media
This is the time of the season for being fed up with politics and not least, of course, with the presidential election. (Actually, I reached that point a while ago). Part of my frustration comes from the candidates who appear willing to say anything, no matter how unrealistic, to win the White House. But part of my frustration lies also with the media who don’t hold the candidates to any standards that might inform voters who care enough to read and listen. This is all the more so since we are experiencing a financial crisis that elicits nothing more from the candidates than a promise “to fix the economy,” whatever that might mean. Shouldn’t the media demand more on our behalf?
Writing for a new blog from The Media Institute, Patrick Maines helps makes sense of my frustration. He points out that the media are following their practice of covering the financial crisis (and the presidential election) like a horse race. Yes, the crisis is helping Obama, but is that the most important thing to know right now? Maines writes:
The stark fact is that the national news media have underreported and misreported virtually every important aspect of our national nightmare: how we got into it, how we can prevent it from happening again, and, most importantly, how we can escape its worst effects now — and how our national leaders can help us.
Maines’ criticism is apt and convincing. The Media Institute, the home of the blog, works on free speech issues and receives substantial support from media companies. Of course, free speech does not necessarily mean good or even useful speech. But the answer to such shortcomings is more speech as Maines proves in his post.
I am intrigued that Maines criticizes the media, a pretty independent stance when you think about it. This blog bears watching as we head into a new administration that seems likely to offer many challenges to freedom of speech.
Filed under: General; Government and Politics; Law and Civil Liberties
Two Reasons to be Optimistic
The chart below reflects the public mood about government spending over the past half century. The higher the line on the chart, the more the public wants government to spend. (The chart is the work of James Stimson, a public opinion expert at the University of North Carolina, Chapel Hill).
The public has become more favorable toward public spending since 2001. However, it is likely that Obama’s election will coincide with a peak in this trend. Both LBJ’s election in 1964 and Clinton’s in 1992 marked such peaks. In Obama’s case, however, the peak will be substantially lower than in the Johnson and Clinton cases. Note also that those earlier peaks were followed immediately by declining support for more spending.
If history is any guide, Obama will not have as much public support for more spending as Clinton or LBJ and such support as he has will begin to decline almost immediately after he takes power.
Missile Defense and the Banks
Many argue that the demand for public goods justifies government spending and taxing. Defense spending is a classic public good. The New Times offers an interesting case study of how the federal government actually spends money on defense.
The story recounts the activities of Michael Cantrell, a Defense Department employee who turned into a lobbyist for various projects connected to the missile defense program. According to the story, Cantrell “extracted nearly $350 million for projects the Pentagon did not want, wasting taxpayer money on what would become dead-end ventures.”
Cantrell is awaiting sentencing on corruption charges related to taking kickbacks for defense contractors. But his violations of the law did not start until 2000. Much of the $350 million wasted on defense projects happened before he started taking a cut of the action.
Read the whole story. Here is my summary: Pentagon officials did not want the projects Cantrell pushed, but powerful members of Congress did support such outlays. DOD had missile ranges around the world, but Ted Stevens thought another one was needed in Alaska. Acoustics research might have been conducted many places, but Trent Lott preferred the work done by the University of Mississippi in Oxford and a Huntsville defense contractor that had a branch office in Oxford. And so on.
In other words, members were directing the DOD budget to benefit their constituents in exchange for votes on election day. “Vote for me and I will give you $1,000″ is not limited to presidential elections.
Gordon Tullock once wrote of campaign finance:
It should of course be kept in mind that [campaign contributions] are not actually for the purpose of buying votes. The votes are bought by the bills passed by Congress, or the Legislature, which benefit voters. But the campaign money is used to inform the voters about what their congressman has done. Since the voters pay little attention, concentrating the message on a narrow scope and repeating it again and again is necessary even though it annoys intellectuals. On the whole it is the actual things done for the voters by the votes of their and other congressmen, which attract voters to elect those congressmen.
The Cantrell story confirms Tullock’s insight. The reporter mentions campaign finance contributions by defense contractors, but by and large, the story is one of constituent service (that is, the creation and maintenance of vote purchase schemes).
There are several interesting questions here. Can Congress actually provide public goods efficiently? Isn’t Cantrell’s story one of earmarking without the earmarks? If so, won’t the practice of earmarking continue even if Congress gets rid of earmarks? The story shows Congress in a poor light, but don’t we want the legislature to control its agents (like the Pentagon) instead of simply delegating authority to spend to them?
One final lesson. The Cantrell story shows what happens when Congress has money to spend on national defense. In coming days, the federal government may come into ownership of many banks. How do you think Congress will spend the capital of those banks?
Filed under: Foreign Policy and National Security; General; Government and Politics; Regulatory Studies
The Real Problem with the Debate
Arnold Kling offers a strange remark about last night’s presidential debate:
If the candidates were out to correct economic ignorance instead of pandering to it, the debate would not resemble last night’s in any way.
If the two candidates had corrected economic ignorance throughout their careers instead of pandering to it, they would not be the two major candidates for the presidency. Two other politicians who affirmed economic ignorance and pandered to it would have participated in last night’s debate.
You could say that both Obama and McCain have let their ambition get the better of them, but they are politicians and that is like saying, as many now are, that investors should not seek profits. Both candidates believe spouting economic ignorance provides an apt means to winning the presidency.
Question for the class: what does all this tell us about American democracy?
Filed under: General; Government and Politics; Political Philosophy
Bloomberg’s Banana Republic
Michael Bloomberg has decided to run for an additional term as mayor of New York. He will do so despite a law limiting mayors to two terms in New York.
Here’s some history. The voters twice endorsed the term limits law in 1993 and 1996. In 1993, the law passed by a margin of 59 percent to 41 percent. In 1996, the City Council tried to change the law to extend term from 8 to 12 years. The initiative making that change lost.
Of course, elected officials predicted disaster. Some agreed then but not now. John Mollenkopf, a well-known political scientist at the City University of New York said: “My initial reaction to the term limits was negative, but the experience of how they have worked has changed my mind. On balance, I think this feature of government does create openings for fresh thinking and new leadership.”
Bloomberg does not plan to put the change in term limits before the voters. Instead, he will try to get the City Council to extend his term. A New York Times survey of City Council members in early September found that a majority might support changing the term limits law. Perhaps that’s not surprising: two thirds of the City Council will be turned out of office in 2009 under the current law. If the mayor’s term can be extended, it will be easier to change the law for City Council members.
New Yorkers are not rolling over for Bloomberg. Gene Russianoff, a spokesman for the New York Public Interest Research Group, said of Bloomberg’s power grab: “Sadly, the move is worthy of ‘democracy’ in a banana republic.” Susan Lerner, executive director of Common Cause/NY, called the mayor’s stance “profoundly undemocratic and deeply disquieting.” Even Establishment types are opposing him, according to the New York Times.
Before his ambition got the best of him, Bloomberg himself “called for the need for restraints on elected leaders, dismissed the notion that anyone is indispensable, and once called an effort to revise the limits ‘disgusting.’”
Let’s see if New Yorkers agree with the mayor.
Filed under: General; Government and Politics; Law and Civil Liberties
The Risk-Free Society Comes into View
Peter Bernstein draws a conclusion from the current problems in the financial markets:
The subprime mortgage mess, the huge leverage throughout the system, the insidious impact of new kinds of derivatives and other financial paper, and, at the roots, the vast underestimation of risk could not have happened in a planned economy.
Oh really? Another story from today’s New York Times reports:
The banking giant JPMorgan Chase, for instance, has 70 regulators from the Federal Reserve and the comptroller’s agency in its offices every day. Those regulators have open access to its books, trading floors and back-office operations. (That’s not to say stronger regulators would prevent losses. Citigroup, which on paper is highly regulated, suffered huge write-downs on risky mortgage securities bets.)
Goldman-Sachs, which was largely unregulated, mostly avoided losses related to the mortgage market through prudent hedging. Citigroup, which was highly regulated, suffered such losses. Expect state control without the promised payoff in a planned economy.
There’s a larger point here that Bernstein neglects completely. A prosperous society requires risk taking. Bernstein is correct: historically a planned economy has prevented such risk taking. Not surprisingly, such societies have not been prosperous, to put it mildly.
More important, they have not been free societies. Preventing the downside of risk requires control over people’s choices. Seventy bureaucrats reviewing your trades. More generally, the best and the brightest continually uttering imperative sentences. Stay away from that cake! Avoid that derivative! Think correct thoughts! The risk-free society will be a society filled with hectored serfs.
Right now, at this moment of hysteria, the political class suffers from availability bias. Like Bernstein, they see only the downside of risk and conclude the necessity of the planned economy. A more complex and nuanced view would see both sides of risk and the enduring value of liberty.
Filed under: Finance, Banking & Monetary Policy; Political Philosophy; Regulatory Studies
An Alternative to the United States of Permanent Receivership
If you have not seen this essay [.pdf] already, it is well worth your time. Zingales ends the essay:
The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded? For somebody like me who believes strongly in the free market system, the most serious risk of the current situation
is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists.
The next 50 years? Perhaps. Markets deal with risk through deterrence. Individuals and firms take risks and gain or lose from their decisions. The gain or loss comes after the decision. If individuals and firms are protected from losses through taxpayer interventions, deterrence against bad risks cannot work. Risks are dealt with prior to a decision rather than afterwards. The government is charged with preventing unwise risk-taking before any decisions are made. Government officials come to have a veto over choices by private actors.
In this way, the United States of permanent receivership becomes in theory, and more and more in practice, a state of control over private decisions.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Tax and Budget Policy
The United States of Permanent Receivership
Next year marks the 30th anniversary of the appearance of the second edition of Theodore J. Lowi’s The End of Liberalism, subtitled The Second Republic of the United States. The preface to the second edition ends, “I want to express a very belated thanks to Friedrich A. Hayek. His work had much more of an influence on me than I realized during the writing of the First Edition. I neither began nor ended as a Hayekist but instead found myself confirming, by process of elimination and discovery, many of his fears about the modern liberal state.”
Lowi argues that the Second Republic is marked by “the state of permanent receivership,” which is defined as “a state whose government maintains a steadfast position that any institution large enough to be a significant factor in the community may have its stability underwritten. It is a system of policies that sets a general floor under risk, either by attempting to eliminate risk or to reduce or share the costs of failure.” This state includes anticipatory receivership, which includes “businesses that are not actually on the brink of bankruptcy but are in a sector of the economy where bankruptcies or reorganizations are likely unless there is some kind of a preventive measure.”
Thirty years out, Ted Lowi looks pretty good this morning. Not much else looks good, but the second edition of The End of Liberalism shows that this dour morning has been coming for some time.
Read the book.
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