November 11, 2020


A Moderate's Manifesto: Ideologues get all the love in today's political environment, but moderates have one key thing on them: workability. (Ronald W. Dworkin, 11 Nov 2020, American Purpose)

The moderate carves out a middle position in all this, accepting the state as promoter, regulator, and guarantor, but not as partner. True, different shades of thought are at work here. Some ideologues may reach a conclusion similar to that of the moderate. Yet they generally do so grudgingly, as if they feel guilty for violating some faith. All ideologies come with a body of doctrine, and while the more flexible ideologues recognize doctrine might not apply in all cases, their natural inclination is to deduce from doctrine. Ideological thinking typically extends from the top down, while the moderate mixes experience with observation to build from the ground up. Ideologues and moderates may arrive at similar conclusions, but how they get there makes all the difference in what position is actually arrived at and how things are managed going forward.

Consistent with the state's guarantor duties, bailing out the airlines during the pandemic made sense to the moderate, as these essential companies operated responsibly until a unique blow hit them. So also did the one-time bailout of small business under the CARES Act that enabled employers to meet payroll. But a moderate might oppose the Federal Reserve's recent massive intervention into the credit markets, which threatens to create the kind of "zombie" companies that have dogged Japanese economic growth for decades. This borders on state partnering, as the government rallies around certain businesses the way loyal family members circle the wagons when one of them does something stupid. Some companies took on too much debt over the last decade, while investors who bought their low-rated bonds for yield were equally rash. At some point these companies and investors must be allowed to go under; otherwise, the notion of competition becomes meaningless.

The "competition" aspect of capitalism's definition looms larger for the moderate than its "division between state and economy" aspect. Competition among businesspeople channels capitalism's vital source of energy--the drive to make money--into tasks that society wants done, and at prices that society will pay. It leads to wealth and excellent service.

The state's role as regulator ensures competition, which is why the moderate supports it. At the same time, that regulatory duty can also be used to stifle competition and further the state's partnering activity. The ICC, for example, began by regulating railroad rates and preventing railroad monopolies from abusing customers. By the mid-20thcentury, however, the ICC became the protector (that is, the partner) of the railroads, establishing freight schedules for trucking that prevented this new form of freight handling from threatening the profits of "their" industry. A regulatory agency that had been charged with the suppression of the railroad's abuses had, over time, partnered with the railroads to protect them. This change in purpose has been repeated in other fields, such as banking and pharmaceuticals, and makes supporting the state's regulatory duty and opposing its partnership activity a difficult needle to thread. It is why the moderate prefers regulation by law rather than by bureaucratic rule. A judge applying a law is less likely to go native than is a regulator applying an agency rule that is only partial law, especially when that regulator aspires to work some day in the very industry he or she is regulating.

The confusion surrounding what capitalism is has led to state partnering being called a form of capitalism known as "crony capitalism." Although pejorative, the label misleads people, as they mistakenly view crony capitalism as an anti-competitive variant of capitalism, which it cannot be. Competition is essential to capitalism. When the state partners with a business, it means the game is fixed. There is no competition, and so no capitalism.

Consumers these days keenly feel competition's absence in price, especially in three areas that come up repeatedly in activist politics: health care, higher education, and housing. In 1973, American families put 50 percent of their discretionary income toward these three services; today they put 75 percent. Lack of competition keeps costs high in these fields, as when health insurance companies are barred from selling products across state lines; or when an alliance between higher education and the state hobbles for-profit college competitors, or suppresses national tests of achievement that might let young people bypass college and enter the world of work directly. The moderate opposes these examples of crony capitalism.

The purported connection between corporations and capitalism is equally maddening. The moderate looks favorably upon corporate America as the producer and distributor of great products at low cost. Yet the corporation is not inherent to capitalism. It grew out of government's promotion and regulatory activities during the second half of the 19th century. State legislatures decided to safeguard investors through the concept of limited liability, to keep a company's investors from having to pay out of their personal wealth a business's debts during bankruptcy. Eliminating that risk made the corporation possible, although some critics at the time thought it an unnecessary government intervention.

For the moderate, defending capitalism does not necessarily mean defending corporate America. On the contrary, the new trend toward state partnering demands protection for small business against corporate America, whom state partnering favors. For fifty years, capitalist ideology flowing out of the influential Chicago School of Economics has criticized anti-trust enforcement as unnecessary, arguing that markets self-correct. In the meantime, new business formation has steadily declined. In 1982, young small businesses made up half of all firms and a fifth of total employment. By 2013, they made up a third of all firms and a tenth of total employment.

The moderate sympathizes with progressives and even radicals who decry excessive corporate power and "corporate welfare"--not because corporations block the path to socialism but because they block the path to entrepreneurship. Even Black Lives Matter leader Hawk Newsome, who recently threatened to "burn down" the American system, complained that the system stifles entrepreneurship in both black and white communities. Small businesses cannot thrive when large corporations allied with government rig the system.

For the moderate, the most troubling aspect of the emerging state-corporation partnership is the threat to democracy. Even Marx fretted over how the independent farmer and small businessman, the "basis of America's whole political constitution," were giving way to "giant farms" with employees and large factories with a "mass industrial proletariat." The trend picked up speed over the next 140 years. Today, more Americans work at large or very large companies (2,500 employees or more) than work at small businesses (100 or fewer employees). Although the Constitution protects free speech, the fusion of corporation and state, along with the rise of the dependent employee, gives anti-democratic forces a way to control speech indirectly. Although the state cannot restrict speech, it can use corporations as proxies to do so, both at work and at home (as when companies scrutinize a worker's after-hours social media posts). Many politicized corporations have proven to be eager and willing censors.

The moderate strongly supports laws that prevent corporate America from discriminating against viewpoint. When most Americans were independent owners of some kind, such laws were unnecessary. Today, most Americans are dependent employees, and many are even subject to non-compete clauses, such that when fired for a speech violation they must move to a new city to find work. Democracy demands updated free speech protections.

Capitalist ideology defines capitalism as a series of inviolable laws, including the law of supply and demand. Progressive ideology, on the other hand, refuses to believe that anything about capitalism is hard and fast. Modern monetary theory, for example, argues that a sovereign country can safely print all the money it wants, with higher tax rates used to slow inflation whenever necessary, thereby allowing the state to fund any social program.

The moderate takes a middle position in all this, not to split the difference, but out of intellectual conviction.

In the mid-19th century, around the same time Thackeray used the word "capitalist" in his novel and Marx described capitalism as a system, the philosopher-economist John Stuart Mill published his Principles of Political Economy, in which he argued that rigid laws apply to economic production but not to economic distribution. Although nothing arbitrary exists in capitalism's laws of wealth creation, he wrote, no laws govern how that wealth should be distributed other than the arbitrary laws and customs of society. Rather than straitjacket society, as capitalist ideology does, or destroy the means of wealth creation, as progressive ideology risks, Mills's moderate position preserves capitalism's wealth-creating mechanism while allowing that wealth to be spread around to keep social peace.

An economy exists to generate wealth--which the past several centuries demonstrate is best achieved using capitalism (The First Way). In exchange for affording the freedom that capitalism requires, the citizenry of developed nations expects so level of social security net to guarantee a certain standard of living (The Second Way). The modern insight is that we can use First Way mean--like 401k's, HSA's, home ownership, etc--to fund Second Way ends; thus, the Third Way.  The particular genius here lies not just in placing the financing system on a more effcient footing but in giving even the least wealthy members of society a vested interest in maintaining the regime.   

Posted by at November 11, 2020 6:27 PM