Conservatism

The Liberal Welfare State is not Sustainable

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It is increasingly clear that the liberal welfare state is not sustainable in its current form, and its costs and inefficiencies are increasingly present and real and are putting huge burdens on our economy at every level. This can’t really go on. From here on, the Left has mostly to play a defensive game of retrenchment and reaction, and this is an exhausting game, especially for liberals.

Yuval Levin

This comment encapsulates part of the argument that Jim Bennett and I make in our forthcoming book, America 3.0: Rebooting American Prosperity in the 21st Century – Why America’s Greatest Days Are Yet to Come.

The liberal welfare state is long past its peak. The question is, what next? We offer some predictions. But the main thing to consider is the transformative nature of the era we are living through. Both sides of the political spectrum are still stuck in 20th Century thinking, both thinking that the Blue Model can be tinkered with. It can’t. The challenge for Conservatives will be to figure out what they want to conserve and how to adapt their principles to the times. Progressives will need to figure out how to preserve their goals of protecting the weak and powerless using new methods, since the old ones are not working and will not continue to be popular once voters understand the burdens and costs.

Cross-posted on America 3.0.

Quote of the Day

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Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.

William Pitt the Younger, speech in Parliament, November 18, 1783.

Presidents’ Day: Amity Schlaes’ biography of Coolidge

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Very little attention is being paid to the holiday today, except as a traffic annoyance. When I was a child, we still celebrated Lincoln’s birthday (February 12) and Washington’s birthday (February 22). Since the holidays were combined and made into a long weekend, like most other American holidays, interest has declined in the subject. It has been for many years the weekend of the Midwinter yacht races in southern California, so I enjoyed it as much as anyone.

Amity Schlaes’ new biography of Coolidge, which has been delayed for nearly a year from the original date promised, is now out and I have begun reading it. It has also attracted a hostile review in the New York Times by Jacob Heilbrunn author of such profound works as God Bless Bernie Sanders, an encomium on the Socialist Senator from the “people’s republic of Vermont”, as it is known in New Hampshire, and another tiresome attack on Justice Clarence Thomas and his wife.

Mr Heilbrunn does not seem to be an economist and I am not certain of his qualifications to criticize President Coolidge, other than the obvious invitation by the New York Times.

James Ceaser, a political scientist at the University of Virginia and a regular contributor to The Weekly Standard, said it was important to revive the “moral stigma” of debt, and added, “I want to go back to Coolidge and even McKinley.” The Claremont fellow Charles Kesler, author of “I Am the Change,” a recent book denouncing President Obama and liberalism, agreed: “We’re in for a Coolidge revival.”

Indeed we are. Coolidge was a figure of sport in his own era. H. L. Mencken mocked his daily naps — “Nero fiddled, but Coolidge only snored” — and Dorothy Parker reportedly asked, “How could they tell?” when his death was announced. But such quips have only heightened the determination of a growing contingent of Coolidge buffs to resurrect him. They abhor the progressive tradition among Democrats (Woodrow Wilson) and Republicans (Theodore Roosevelt and Herbert Hoover) as hostile to big business and prosperity. Instead, their aim is to spread the austere doctrine of what might be called Republican Calvinism.

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What lies ahead, I fear.

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UPDATE: An an article at Belmont Club describes interest in alternative money creation as a way of anticipating inflation. It also goes further into a discussion of general competence.

The idea that Virginia should consider issuing its own money was dismissed as just another quixotic quest by one of the most conservative members of the state legislature when Marshall introduced it three years ago. But it has since gained traction not only in Virginia, but also in states across the country as Americans have grown increasingly suspicious of the institutions entrusted with safeguarding the economy.

What has changed is faith in the federal government, not just in Virginia but in a growing number of places. The lack of faith in the competence of government — and the soundness of the dollar — has been growing leading some states to create contingency plans in case the currency goes bust.

Once again, I apologize for my pessimism but this is what I see. First, there is this article, which quotes a well known financier.

There may be a natural evolution to our fractionally reserved credit system that characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a “big freeze” trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence. And too, the advancing entropy in the physical universe may in fact portend a similar decline of “energy” and “heat” within the credit markets. If so, then the legitimate response of creditors, debtors and investors inextricably intertwined within it, should logically be to ask about the economic and investment implications of its ongoing transition.

Certainly “growth” seems to be fundamental to our economic health. That, of course, presumes a growing population but it also would be affected by a stagnant population with a growing age disparity. The obvious example of the latter is Japan.

The creation of credit in our modern day fractional reserve banking system began with a deposit and the profitable expansion of that deposit via leverage. Banks and other lenders don’t always keep 100% of their deposits in the “vault” at any one time in fact they keep very little thus the term “fractional reserves.” That first deposit then, and the explosion outward of 10x and more of levered lending, is modern day finance’s equivalent of the big bang. When it began is actually harder to determine than the birth of the physical universe but it certainly accelerated with the invention of central banking the U.S. in 1913 and with it the increased confidence that these newly licensed lenders of last resort would provide support to financial and real economies. Banking and central banks were and remain essential elements of a productive global economy.

The effect of asset bubbles on such a system is worrisome as the history of Japan and the recent history of the US have shown. The Panic of 1907 was largely responsible for the creation of the Federal Reserve. That financial crisis is thought, by the authors of a recent book, to have been a consequence of the 1906 earthquake in San Francisco, which destroyed a large amount of real assets and the insurance costs that were associated. The immediate cause was financial speculation but the real losses had added to the fragility of the system.

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It’s a Matter of Trust

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As the old Billy Joel song goes; that is, a fair portion of a civil society is built on trust. Or at least a large portion of the citizens in that society not only trust each other, but they generally also trust the civil institutions, too. There is an assumption, albeit slightly frayed around some edges that our institutions are generally benign and have the well-being of the larger public at heart. We assume, or did in the past, that laws are passed for our benefit, that rules are instituted for the same reason, that our elected leaders did, or at least mostly made a convincing pretense of representing the interests of their constituents, and not those of lobbyists bearing large favors.

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