Would We Have Been Better or Worse Off Without Government Intervention In House?

The collapse of the housing market provides us with a problem we can pose to people to see how they view government and free markets.

 

Government policies notably beginning with the 1979 Community Reinvestment Act arose out of an apparent desire to increase home ownership especially among low income families. Home ownership seemed to be such a good thing, why not use government to drive up home ownership? So Congress increasingly pushed huge amounts of capital into the housing markets through low income buyer quota's imposed on Fannie Mae and Freddie Mac along with reductions in loan requirements and the securitization of mortgage packages. Then to this escalation of loan availability, expansionary monetary policy by the Feds started in 2001. The 1997 Taxpayer Relief Act for the first time let people avoid capital gains on home price appreciation without having to rollover the gains into a bigger house also pushed capital into the housing market.

 

In a predictable response in the market, the demand for real estate continually pushed up home prices giving home owners a false psychology of an apparent source of equity to support their increased spending. Regulators who should have understood more deeply than the market participants failed to fully grasp what was happening, and those few that did were ignored as the government continued to push home ownership.

 

So in analyzing the problem, we could either blame unscrupulous lenders who took advantage of the policies or the increased lending to risky borrowers pushed by Congress and the Administration. Was the huge inflow of capitol into the house market a reaction to government policies as lenders did try to lend more to low income borrowers or was it a case of market failure cause by greed and the attempt to make higher rates of return from real estate portfolios?

 

Liberals may see the housing bubble as market failure and indicative of the need for more regulation whereas free market types may see the bubble as a huge distortion of the housing market created by government artificially diverting huge flows of capital into housing. On the one hand, liberals see it as obvious that markets don't work unless carefully supervised by government whereas on the other hand free market types think it difficult to see how the market could be expected to operate any differently other than to respond to easy money policies by increased investments followed naturally by a correction. Small changes in the flow of capital occur all the time but with housing, a much larger bubble made the market response an equally large correction. So the question is, was more government involvement in the house market then and now the problem or the solution? The housing situation poses an interesting problem for advocates of government intervention to explain. It is interesting to listen to liberals address the question of whether the greater good was achieved by government intervention in the mortgage market or whether they believe evil, greedy, and unregulated capitalists caused the problem.

Howard Gardner and Piaget

Howard Gardner no longer believes in Piaget's theory of how the mind develops. His specific points of disagreement are these.

Piaget believed in general stages of development that cut across contents (Space, time, number); I now believe that each area of content has its own rules and operations and I am dubious about the existence of general stages and structures.

Piaget believed that intelligence was a single general capacity that developed pretty much in the same way across individuals: I now believe that humans posses a number of relatively independent intelligences and these can function and interact in idiosyncratic ways,

Piaget was not interested in individual differences; he studied the 'epistemic subject.' Most of my work has focused on individual differences, with particular attention to those with special talents or deficits, and unusual profiles of abilities and disabilities.

Piaget assumed that the newborn had a few basic biological capacities — like sucking and looking — and two major processes of acquiring knowledge, that he called assimilation and accommodation. Nowadays, with many others, I assume that human beings possess considerable innate or easily elicited cognitive capacities, and that Piaget way underestimated the power of this inborn cognitive architecture.

Piaget downplayed the importance of historical and cultural factors — cognitive development consisted of the growing child experimenting largely on his own with the physical (and, minimally, the social ) world. I see development as permeated from the first by contingent forces pervading the time and place of origin.

Finally, Piaget saw language and other symbols systems (graphic, musical, bodily etc) as manifestations, almost epiphenomena, of a single cognitive motor; I see each of these systems as having its own origins and being heavily colored by the particular uses to which a systems is put in one's own culture and one's own time.

The key concepts creating differences between Gardner and Piaget seem to be:

assimilation/accommodation,
stages,
general capacity (epistemic subject),
individual difference/commonalities (decalague),
innate abilities at birth,
social and cultural versus isolated child (social factor)
language.

How Did Capitalism Create So Much Wealth?

While we may have agreement as to the goals and results of our economic system—to create wealth and prosperity for all—we seem to have less agreement on the means and causes by which wealth is created. How do the US and other nations create wealth? Recently, the dramatic reduction in marginal tax rates seems to have created increasing rate of wealth creation as did major deregulations and a broad expansion of trade.

Reduction of Taxes on Capital

After decades of top marginal tax rates in percentiles from the 70s into the 90s, President Reagan signed the Economic Recovery Tax Act of 1981. The top marginal rate was reduced from 70 to 50 percent, and by the time Reagan left office, it was down to 28 percent. During Reagan’s two terms, the top corporate tax rate was reduced from 34 to 28 percent, individual tax brackets were indexed for inflation, and—although there were some tax increases—the devastatingly high top marginal tax rates that preceded Reagan were gone. Nor have they come back—at least not yet.

In spite of President Bush the elder and President Clinton raising some taxes too much, but lowered others; and it now doesn’t appear smart to anyone that we should return to the levels that had prevailed prior to Reagan. The current President Bush lowered taxes dramatically—not so well in 2001, but then very effectively in 2003. The effect was to lower marginal tax rates, phase out the death tax, offer marriage penalty relief, and lower taxes on capital gains and dividends.

Deregulation

Major deregulation also enabled 25 years of strong growth. Interestingly enough, this deregulation began when President Carter signed the Airline Deregulation Act of 1978 that lifted price and route controls, the controls that had forced higher prices and fewer choices for consumers. Without these controls, airlines offered deals to fill otherwise half-empty planes and choose more efficient routes. The airline industry struggled for many reasons in subsequent years but consumers have been the big winners in terms of increased safety, more choices, and lower prices. Deregulation is responsible for ten to 18 percent lower fares, saving travelers $5-$10 billion a year.

Major deregulation also occurred in 1980 when Carter signed the Motor Carrier Act that deregulated an industry that had been closely controlled by the government since 1935. The deregulation put a stop to governmental requirements dictating what products truckers could transport and what routes they could travel.

The government required a motor carrier with authority to travel from Cleveland to Buffalo who purchased another carrier’s right to go from Buffalo to Pittsburgh to ship goods from Cleveland to Pittsburgh via Buffalo adding 272 miles to the trip. As a result of easing these regulations, prices for truckload-size shipments fell 25 percent by 1982; efficiency gains and cost savings helped make possible the “just-in-time” inventory system that has transformed retailing, lowered consumer costs, and, arguably, diminished the economy’s susceptibility to recessions.

President Reagan eased or eliminated price controls on oil and natural gas, cable television, long-distance telephone service, interstate bus service, and ocean shipping. In addition, banks were allowed to invest in a broader set of assets, and the scope of antitrust laws was reduced.

Free Trade

Recently, economic freedom has expanded in the form of freer international trade. In 1993, NAFTA eliminated a majority of tariffs on products traded among the U.S., Canada, and Mexico, and phased out others. In 2004, CAFTA eliminated tariffs immediately on more than 80 percent of U.S exports of consumer and industrial goods to Central America and phased out the rest over ten years. Since 1985, we’ve had bilateral or multilateral trade agreements with 16 countries. International trade is freer today than it has been at any time in the last 100 years.

Does Capitalism Work to Create Wealth? More Facts

Patrick Tomey of the Club of Rome puts the current downturn in the economy into perspective.

The fact of the matter is that we in the United States, and to a lesser degree the entire world, have just lived through—and continue to live in—the greatest period of prosperity in human history. Over the last 25 years, more wealth has been created, more people have been lifted out of poverty, standards of living have been elevated more dramatically, and the quality and length of life have improved, more than ever before in recorded history.”

• Average economic growth in the U.S. has not only been positive for almost the entire last quarter century, but for much of this period the rate of growth has accelerated. Our nation’s total economic output in 1982 was $5.1 trillion; last year it was $11.3 trillion (in real 2000 dollars).

• Per capita economic output in 1982 was $22,400; last year it was $37,807 (in real 2000 dollars).

• The average unemployment rate in the 1970s was nearly seven percent; it has been declining, on average, every decade since, and has remained below five percent since 2003. The average for 2007 was 4.6%. The current downturn in the economy raised unemployment to 6.7% in Nov 2008.

• The service sector of our economy has been on fire, growing from $1 trillion in 1982 to $5.5 trillion in 2006. America’s total manufacturing output reached its highest ever level in 2007. U.S. factories produced more last year than in any previous year in our history.

• The Dow Jones Industrial Average began the 1980s at 825; recently, despite its recent declines, it remained above 12,000, a 1,400 percent increase. Today during this economic downturn it stands at 8,630.

• Due to savings programs, like IRAs and 401(k)s, and investment vehicles, like mutual funds, the capital markets, have steadily increased family’s wealth. In 1983, 19 percent of American households owned stocks; in 2005, 50 percent were investors. In 1989, the median family net worth was $69,000; in 2004, it was $93,000.

• The income, wealth, and standard of living of the poor have steadily increased. Among families living below the official poverty line in the early 1970s, less than 40 percent had a car, almost none had color televisions, and air conditioning was virtually unheard of; in 2004, 46 percent owned their own homes, almost 75 percent owned a car (indeed, 30 percent owned two or more cars), 97 percent had color TVs, and 67 percent had air conditioning. The poor in the U.S. have an average of 721 square feet of living space per person, as compared with 430 in Sweden and 92 in Mexico.

• Technology has become accessible to all sectors of society. In 1975, there were 9.8 million cable TV subscribers; in 2006 there were 65 million; there were 2.1 million personal computers in 1985, and 243 million in 2007; there were 340 cell phone subscribers in 1985 and 243 million in 2007.

• As to health, infant mortality dropped from 20 deaths per 1,000 people in 1970 to seven deaths per 1,000 people in 2002. In 1980, American life expectancy was less than 74 years. Today it is 78.

• The world has improved. While the US leads the world in most measures of prosperity and growth, other countries have been enjoying the broadest expansion of wealth in history as well. Between 1999 and 2004, some 135 million people emerged from destitution, and there are now twice as many countries with fast-growing economies as there were in 1980.

Does Capitalism Work to Create Wealth?

From Federal Reserve System - Wikipedia, the free encyclopedia this chart shows the accumulation of total U.S. wealth:



Total wealth in the United States is published by the Federal Reserve in a report titled, Flow of Funds.[85] At the end of fiscal year 2007, total wealth of all U.S. households and non-profit organizations was $57.718 trillion."

Confusing Free Markets & Capture of Government By Business

Here's an example of thinking that confuses free markets with crony capitalism:
What's the Matter With Libertarians?: Thomas Frank blames the freedom movement for Jack Abramoff and George W. Bush - Reason Magazine: "The Wrecking Crew: How Conservatives Rule, by Thomas Frank, New York: Metropolitan Books."

Morning in America? Mandate for Change?

Some Obama supporters seem to think his election indicates a sort of mandate from the people. Even if it were so, the nature of any mandate by the people is very unclear. There is simply no consensus of citizens on anything.

For example, the respected polling firm Rasmussen periodically asks Americans if they favor fewer government services with lower taxes, or more services with higher taxes. In late September, the public once again favored smaller government and lower taxes by a 57% to 31% margin. That difference is about 20 points more than Obama's victory margin over McCain. If this election was a reaction to a very unpopular president, any mandate for change simply means throwing the bums out, and we are left with no other idea of exactly what change might mean.

The Economic Gloom in the Media

Friday evening, the PBS Lehrer News Hour reported more bad economic news, holiday retail sales are apparently down this year; consumers are not spending as they have in past years. Things are pretty bad.

One segment showed empty stores and aired gloomy interviews with shoppers. The reporter told us of how depressed retail shopping for this holiday seemed to be and gave some data for previous years spending. But then we were left waiting for the facts on this year's holiday spending. With no data for comparison to last year, the report left us with the message of gloom.

Well, there are numbers for spending this holiday season that can give us an idea of just how bad this year is compared to last year. Here they are via George Will.

Sales the day after Thanksgiving were 3 percent higher, yes, higher, 
than last year reports George Will. Over the weekend, 172 million 
people, shopping in stores and online, spent an average of $372.57, a 
7.2 percent increase over a year ago, when 147 million shoppers spent 
$347.55 per person. Personal consumption, which normally is 70 
percent of economic activity seems robust.

How can this economic 
situation be reported as gloomy news? Did the PBS report 
underestimate the strength of an economy in which more than 93 
percent of those who want to work are employed, and more than 93 
percent of mortgages are being paid on time? Why exactly would the 
News Hour paint such a gloomy picture enabled by omitting any actual 
data when the data were available and they directly contradicted 
their report?

Economics Left and Right, and Government Bailouts of Auto Companies

The Economic Thinking on the Left and Right

On the left (most of the family?), economic thinking seems to be that prosperity comes from consumer spending so give consumers consumption with massive government spending and jobs programs. On the right (Dianne, others?) economic thinking is that prosperity comes from producers who increase their productivity with investment so at most give business tax breaks or investment incentives.

If you're on the left (as apparently is most of the family), then you probably think the auto companies difficulties threaten jobs, the consumer side. If you're on the right (Dianne, others?, and me if you include both the right and free marketeers) the auto companies represent a poor use of capital and poor productivity (at least partly due to management). Let them restructure under ch 11 or at most let them put together a plan and offer issue bonds, or instead have government (why?) make loans to them.

Heated rhetoric aside (it doesn't explain, it justifies political action), the economy won't collapse (it's far too bit resilient, advanced, and complex), and there will be no dire consequences if the government doesn't bail out auto companies; auto companies will downsize further, file ch 11 bankruptcy so they can restructure the company and union contracts, create a plan and offer bonds to get capital, sell off some assets to other companies, continue asking Congress for bailout (by threatening plant closure, massive layoffs, pay us no or pay us later) or all of the mentioned. The auto industry will continue to operate their factories, employ workers, and make cars.

Bailouts by the government make the problem worse by artificially delaying the natural adjustments that are required. Allowing capitol to constantly be reallocated from relatively unproductive to more productive uses makes the economy resilient and prosperous (jobs and wages as well as better, more plentiful products). Leaving government out of auto companies will not have dire consequences even for most workers. Except for unproductive jobs, if auto companies have to restructure, all if not most of the auto employees will continue with their jobs, factories will continue to produce cars perhaps under new ownership or management, and certainly GM, Ford, Chrysler cars will continue to be produced although their market share may continue to decline. It is what is supposed to happen when companies or even whole industries become unproductive.

The restructuring is "painful," but the longer it take to reallocate capitol and jobs, the more difficult and painful. Many, many businesses large and small downsize or even go out of business just as many, many businesses start-up and grow. Jobs move around, get better, prosperity increases. If government locks business and workers into wage contracts, worker benefits, worker rights, and special benefits for some companies, and all the other rules and regulations, the economy can't adjust, reallocate its resources, create more productive activities, conduct research to improve or get rid of less productive activities. We will wind up with the high unemployment of European nations, lack creativity, and their lower level of prosperity.

Criteria for My Position

1. From the moral dimension regarding bailouts, it is unjust for politicians to pick winners (Bear Sterns) and losers (Lehman Brothers, Goldman Sachs?) and even worse to do this by taking wealth away (forcibly by unnecessary government debt and taxation) from current and future citizens without their consent or gain.

2. From a scientific point of view, the idea that ("Congressional leaders are reviewing three separate survival plans from the automakers in preparation for hearings Thursday and Friday, as they weigh whether to call lawmakers back to Washington for a special session next week to vote on an auto bailout.") Congressional leaders are more knowledgeable than industry executives regarding restructuring a complex company or that they understand principles and findings of economics (do they give you a factual analysis of the situation as either a liquidity [the Great Depression} or a solvency problem {today's situation]?) is absurd and arrogant.

3. From a political economy point of view, American constitutional government gives Congress no expressed power of unlimited government such that it can give taxpayer money to private companies.

4. As to citizens and democracy, we have already voted and continue to vote; we decided GM products have less value for us than Toyotas (I cast my vote for a Toyota to replace my Dodge Caravan). If you want GM to survive, express your vote by buying a GM product.

5. And finally, as to economic systems which are extremely complex, they are dynamic, living systems that constantly adjust and construct in order to survive, and which do this in spite of burdens (taxations and regulations) and challenges (seizure of assets or statutory demands for certain products or standards) and distortions in their operations (tax breaks, quotas for subprime mortgages, environmental or carbon limitations) imposed by governments that effectively act as parasites, diseases, and disabilities on the system. First, do no harm so we should make sure the decision makers are omniscient before allowing government to create unintended consequences.

FDR's New Deal & the Great Depression

Interpretations of the Great Depression face the same ideologic dispute between those on the left (FDR saved the country and capitalism by Krugman (Nobel Prize in economics but now a leftist commentator), other leftist economists and many historians) and those on the right (the New Deal hampered recovery until after the war by Higgs [fascinating podcast based on his research], Schlaes [both recently in the news], other free market economists). FDR was no economist, and pursued neither Keynesian nor classical economics in his feckless actions but he was a brilliant orator (fireside chats and compelling speeches); he produced no consistent policy for either supply side (business) or for consumption (the common man), he tried many programs (alphabet soup of New Deal programs), made many serious mistakes (NRA), had little regard for the Constitution (packed the Supreme Court to get his constitutionally dubious programs through). So economists argue as to the effects of the New Deal on the economy, and one's position depends on how one decides what kind of data to look at (net investment or total investment, all jobs or non-government jobs, private GNP or total GNP including war production, length of recession or amount of growth occurring after the bottom until final recovery to pre-Depresssion levels after the war) or perhaps outright ideologic bias.


My Position

I side with Dianne regarding both the economics of bailouts and the New Deal's effect in prolonging the depression (to make it a Great, Double Depression from 1930, 1937, to 1944. I believe in protecting free economic activity by citizens (and every other kind of free activity by citizens) because of its essential and amazingly constructive, adaptive, creative powers (true of all living systems including biological, organizational, moral, cognitive, educational systems). And yes, a society of free human activity especially from the economic point of view also takes care of social problems very well without government interference.

To prevent freedom is to prevent the essence of life itself.

Dick

You Can't Have Democratic Decision-Making If You Governmentalize Citizens' Activities

Thoughtless political action has costs particularly since it is so very difficult to undo political actions such as creating a government program. Political actions have consequences not always directly part of their expressed goals. Therefore, it is important to think through just when political action is properly justified.

If we (what group or exactly who?) decide to take the free exercise of certain activities of citizens out of the private sphere and place them under government control or have government wholly take over the production of activities, even under the justification of solving a problem such as health care, retirement security, education, or some other that appears unsolvable by private, voluntary activity, that decision to governmentalize those previously free activities means we intend on giving up our right to any longer make individual choices in that sphere or to allow people to be free to conduct activities in any way they decide is best for them. A political process almost always results in transferring decisions from formerly free activity by citizens to government controlled decisions; seldom does political activity decrease government control and increase citizens’ freedom to choose and decide how to carry out their activities.

Once decisions are governmentalized through political means, they then must be implemented by some form of a government bureaucracy which insures their compliance. Every requirement enacted by political means requires an agency, that is, a bureaucracy, by which to carry out the requirement. It is this bureaucracy that is now implementing the decisions that no longer are under the discretion of citizens. A bureaucracy charged with implementation certain requirements always has a certain degree of discretion regarding the choices it must make since no law can exactly detail the specific actions that must be carried out. Thus, a bureaucracy has some freedom in carrying out a law and making decisions on behalf of citizens but it cannot change the legal framework that controls its actions even though better actions may be possible. It does not have “free” funding that is not within its legal mandates; it can only act to implement, not create, political decisions, and it is allowed no creative powers to experiment or develop new products. It is locked in to the legal requirements until political actions changes those requirements. Thus, the process of governmentalization creates legal and fixed control over citizens’ activity, it creates legal stasis that by design prevents development and change regardless of the merits.

To governmentalize then means first of all to carry out a political process to convert some sphere of individual decisions, either large or small, into government decisions, and, second, once a single politically decision is achieved, these decision then are carried out by a government bureaucracy it means to conduct the decisions through some government channels, that is, a government bureaucracy. Any attempt to solve problems (except in the case in which preventing force or fraud constitute the “problem”) by politics and government always means moving in the direction of decreasing the free activities of citizens and subordinating more activity to centralized government control. Whether the government actually delivers a service or whether it controls a non-governmental agent in order to have it deliver the service does not matter. Politics is the means and the expansion of government control over human activity is the end.

Thus, to politicize a problem such as health care, global warming, urban sprawl, means we are governmentalizing our previously free activities, that is, we intend on giving up our free activity and choices and intend to now subordinate our activities to government control. Politics is the means by which this process works. It is not the government program itself. Once the political process gives government the power to plan and manage a sphere of our activities, the administration of that power is no longer political, it is bureaucratic.

As an example, public education operates largely as planning and decisions carried out by a bureaucracy, not as a political process of democracy. It is true we have school boards but they do little in the way of actually planning and deciding. They mostly hire and fire the superintendent or make trivial decisions with little consequence to learning. Most of the rest of the time the significant decisions are carried out by the bureaucracy. The law controls much of school board actions such that it can’t in any real sense get rid of fundamental controlling rules accumulated over the years either in law or in the collective bargaining agreement. Collective bargaining itself is largely governmentalized by political decisions that have enacted into law the establishment of union representation, employment conditions, and bargaining procedures. Boards must turn over to district bureaucrats the conduct of negotiations and implementation. But even if boards are considered a democratic institution, by state law they are highly constrained in the way they deliver public education. They cannot use some arrangement other than having the district own and operate the public schools.

Politics converted the public’s education system into a government function. As a result of the political decision by state politicians (e.g., Horace Mann) made many years ago to governmentalize the citizens’ activities of educating their children, the school board functions only as an oversight agent for bureaucratic processes. It cannot decide whether to continue or not continue the government control of education. Once all the fundamental decisions were made through the political process, the implementation must be turned over to an educational bureaucracy that manages and controls public funding. Neither can the board change this bureaucratic design for the creation and administration of public schools, or the establishment and enforcement of standards, or hiring and firing, or the government requirement for mandatory attendance of students, etc. In effect, the political process governmentalized citizens’ educational activities as both providers and consumers such that now citizens have no practical right to provide educational services or choose what educational services to consume. Having done so, there is little left for boards in the way of democratic decisions. By law, public school decisions are no longer democratically controlled, they are standardized and bureaucratically controlled.

Therefore, to assert a problem is a political problem that requires government action carries with it the attempt to use political power to governmentalize some sphere of citizens’ activities, that is, to take over the citizens’ decisions and then establish some government bureaucracy by which those decisions are no longer subject to citizens’ decisions or a democratic process. It is the government bureaucracy that becomes the agent that gives meaning to the law and carries it out. To governmentalize means to use politics to create and give power to a government bureaucracy such that it can centrally plan and control citizens’ activities either by mandate (land use, product standards, consumer or producer rights) or by government practices of competition (public schools, the Post Office, tax breaks, eminent domain).

Within a sphere that is governmentalized, citizens’ activities and inter-individual exchanges can no longer be freely chosen nor voluntary and self-regulated by the relative values each citizen determines among the various choices the citizen has. They are not decisions subordinated to the collective will or common good; they are decisions subordinated to those with political power and then to the government; citizens’ activities become activities required by government and enforced by government power, and citizens’ values and choices no longer exist on their original free form. One particulary damaging consequence of the replacement of citizens’ free activity with government control is that it shuts down constructive activity by citizens which creates new and different choices since those activities are no longer rewarded or sometimes even allowed. Bureaucracies are not learning organizations; they only implementers what is set in law.

Now it seems important to clarify what democratic decision making is. Nothing about public schools is particularly democratic since to have democratic decision making process would means all citizens or at least everyone connected with schools would come together and vote as a body on each decision. When a group democratically decides to have a smaller group make the decisions, then it is a representative democracy already removed from pure democracy. If instead of deciding each decision anew when it repeatedly arises, political action creates laws that make and enforce decisions that are permanent, then that sphere of decision making is locked up and no subject to the processes of democracy. To be democratic, each new group of citizens should be able to make their own decision and not be subject to some earlier group’s decision. When the area of human activity controlled by democracy becomes at all larger than direct democracy can handle, it increasingly loses its ability to be subject to democratic processes. The decision making must be transferred to elected and non-elected officials. The only alternative to losing the citizens’ democratic voice is to prevent the political process from turning the decision into a decision of government and to prevent moving decisions from moving up in scale. If citizens’ decision are free from the process of governmentalizing that takes their direct voice in the decision away from them, then citizens can organize for collective action and make decisions about those collective actions democratically. It would seem that it is only when citizens’ activities are governmentalized that citizens lose their participatory freedom to make choices democratically. But with size comes the loss of that possibility.

The difficulty of keeping citizens free so that democratic decisions with others remains possible means the decisions must be protect from the process of converting individual choices into political ones. Even if this process is often described as the “democratic process of solving societal problems” or as the work of the “collective will” for the common good, very few if any of these decisions to governmentalize something come about through anything close to a democratic process of decision-making by the people, certainly not at the national level. They come about because a small class of politically powerful leaders manage to push the decisions through the political process. Citizens do not vote on issues or whether to governmentalize things. They only vote for a politician who will have decision powers over many issues. Giving politicians the power to governmentalize things removes the power of citizens to use a free, democratic and non-governmental process to make those decisions. Politics and government removes decisions from citizens’ direct choices, needs, and preferences. Whereas citizens might have qualms about raising taxes, forcing parents to send their children to government schools, starting a war, giving large tax breaks and bailouts to corporations, politicians may have no such qualms. Their interest is in getting elected so as to have the power to participate in these political decisions. Once elected, they can use the political power they have to get re-elected and stay in power, and they have an interest in governmentalizing things. Thus, one of the most fundamental principles in setting up a government is to provide some means whereby the power to governmentalize is limited and regulated by rights established to protect the free activity of citizens.

When the attempt to solve some societal problem through political means, politicians must decide how to governmentalize and homogenize the vast array and number of choices and values of citizens so as to force the choice on them and have them operate under one government bureaucracy or set of regulations designed by politicians and the bureaucracy to be implemented and imposed on all. This governmentalizing of citizens’ activities seems to appears justified, even necessary, when we think the personal choices and actions by some appear to us as lacking (parents won’t or can’t educate their children), dangerous (people smoke or don’t wear helmets), foolish (pay high rates for payday loans), or disadvantaged (work for minimum wages, take non-unionized jobs, go without some health care services), and therefore in need of correction and control by the group consensus. Or there is some large societal need that cannot be fulfilled unless government provides it (building railroads, highways, energy, national and local defense).

But the political process used to governmentalize decisions has no basis in democracy, group consensus, or a common good accepted by all. And since there is no democratic participatory decision by citizens to governmentalize the decision, they can only elect certain politicians they believe might make the proper decision. But if politicians are given decision making the power it is difficult to know how the politician acted much less the analysis used. Even if politicians governmentalize a problem that a majority of the citizens’ want, there is still a significant groups of citizen’s opposed and there are many other issues. And even within the majority many differences arise concerning the details.

As a result, even when politicians governmentalize something popular (e.g., health care) that many citizens seem to want, no one can get exactly what he or she wants or believes is best; government programs must be standardized. Everyone must accept the massive compromise for the design. Worse, the political decision makers are not technical experts and must either push significant decision-making down to the government bureaucracy or they must attempt to put in place a fixed design that will be less than optimal and difficult to change. Converting private decisions into political ones means everyone must loses their freedom to make decisions since they must subordinate their activity to a decision designed and controlled by those with political power. Worse, politicians don’t necessarily have any expertise in an area except a general political skill to win people’s approval. Political decision by a small group of politicians removes huge reservoir of constructive intelligence of citizens’ as they work on problems.

Thus, without a thoughtful understanding of a theory of government, people may easily find appeal in the idea that “democracy is the way we as a society come together to solve our problems.” Unless such a notion implying unlimited governmentalization can somehow be proven to be a valid theory of long term government, such thinking seems to inexorably lead to removing the free activity of citizens to democratically make their own collective decisions in any kind of voluntary groups they wish. Having politicians make decision for us is not only undemocratic by leading to unlimited government, it encourages thoughtless, rash and emotional decisions of citizens in wishing society would achiever some ideal goals. But the effect is to turn citizens’ voluntary decisions over to whomever is the most politically powerful, even if not elected, and to eliminate the rights of the minorities. Less obvious is the danger of the stasis governmentalizing decisions imposes on society by preventing intelligent, constructive activity and problem-solving by citizens.

Given the need to have at least some kind of government, how then could a thoughtful theory of government arrive at a design of the political processes a society uses so as to prevent these processes of governmentalizing from constantly taking over more and more of citizens’ activities? At least one theory if not the most successful theory is the American form of a constitutional republic in which the process of governmentalizing the free activities of citizens was expressly limited by constitutional rules within which political processes were constrained and regulated. For perhaps many reasons, the system have eroded but its principles remain clear.

First, in order to limit government so that democratic processes don’t takeover activities that should be left to citizens choices, American governance originally limited government to only those powers the people expressly gave it in the Constitution.

Second, the decision making process of American governance was removed from direct democracy and placed with elected representatives so as to create a deliberative, wise process free from the impulses and emotions of popular democracy.

Third, the rights of political minorities were set above the law so as to protect them from any laws the political majorities might enact.

Governmentalizing makes it difficult and even prevents the dynamic creation of more choices, the increase of efficiency of production, or the investigation and experimentation of large varieties of constantly emerging alternatives. Neither politicians nor government bureaucracies can predict the future; they have no omniscience that can correspond to the diversity of citizens’ values and needs, and so they cannot serve all citizens. Nor can they cannot freely conduct research and development into the possibilities, and even if it were possible government programs still would have no feedback as to value from citizens. Government bureaucracies simply cannot make choices and create huge varieties of choice by which to match consumers. It has no truly democratic process such as the market in which its products can be compared and evaluated by citizens. Since the government produces a single program funded by taxation it can and must disregard consumers, and it does not and cannot use the market to provide it with information as to the relative values of various products.

On the other hand, in the free sector of society those private and social decisions protected from government and hence from any democratic political processes take place in huge numbers and dizzying varieties. In a free society, everyone can vote as to the relative value of every product by placing a monetary value on the product in its purchase. Markets work amazingly well to create and allow a variety of choices. Democracy and politics works to reduce a variety of choices to a single one for all. Governmentalizing decisions so as to homogenize and subordinate citizens’ choices to one politically messy and compromised decision would seem to operate in opposition to citizens’ most general over arching values of respect for diversity and individual differences.

To prevent things from growing out of control, the challenge of how to design government must address at least how to delimit government action so as to prevent government from gradually extending and expanding its power and spheres of activity, forcing activities to be subordinated to a single program, and enforcing a rigid system of stasis that is difficult to change. And lest decisions ignore the views and rights of the minority, the challenge of a theory of government is to show how it will remove the decision making process from the lack of deliberation and emotion driven populism and democratic rule by the majority that tramples the rights of the minority. Those who would make political decisions must be confronted with the need to conduct due deliberation and compromise that are regulated by some definition and limitation of the sphere of government action.

The Two Problems of Thought—Its Content and Its Ideologic Framework

I had another of those discussions, this time with my very liberal neighbor, that topic hops and usually degenerates into argument in which no matter what attempt at clarification one pursues, it seems impossible to agree on any definitions that would distinguish between the Republicans and Libertarians. Apparently for him there are just two categories of political thinking, those policies he and the good guys hold who are Liberals and Obama supporters, and then those anti policies of all others who include those right wing Conservatives, Republicans, Cascade Policy Institute, Libertarians, and the Bush administration. It might seem his position—composed as it is of loose collections of policies based on vague notions without rational definitions— might simply be due to the fact his life is taken up with far different interests and a job that has nothing to do with policy analyst.  He clearly has no time to become a scholar in political economy. Perhaps these definitions rest on such subtle distinctions that they escape ordinary citizens.

But sometimes we find serious scholars who also conflate the various ideological frameworks into the same sort of two-category classification of Liberals and all others. They also lack rational definitions in their analysis. But first, we should be clear in our own definitions.

Definitions aren't some esoteric form of advanced thought; children naturally begin using them during their elementary school years. Definitions are elementary descriptions of classes of objects that consist of a genus and specific difference—defining a noun by its inclusion in a class of objects and naming those specific properties it possesses that distinguish it from the other subclasses: "a fork is an eating utensils with tines."

So, to define political though is simple. Today's liberalism is a pro-government form of thought that believes in the values of social justice through the welfare state and redistribution of wealth through social/economic engineering by government with a heavy dose of environmentalism.

Today's conservativism is also a pro-government form of thought but with different values of security and protection and the preservation of certain traditional values of family, church, life, and country.

Libertarian thought is not a pro-government form of thought. It is a form of limited government thought that values the freedom of individuals in all their diverse forms of constructive activity both social and economic.

So as to these definitions, clearly we have two major classes of political thought, that of the pro-government form that uses central and control by government to achieve valued ends, and that of the pro-freedom form that opposes central planning and control and favors free, non-harmful activity. The pro-government class itself has two subclasses, liberals and conservatives who both use government but for different valued goals. Of course we can define things however we choose as long as the definitions are useful and coherent but define we must since without stable, valid definitions no rational form of thought is possible, and that is what make discussion impossible.

So when we encounter a scholarly work addressing differences among the various forms of political thought, we would expect it to be based on clear, concise, and rational definitions but we can find all kinds of sloppy thinking without clear definitions that confuse the various forms of political thought. We find some who think that liberals should love the policies of President Bush since his administration spent lots of money. Or we find some who think libertarians should love President Bush's policies since under his administration we saw huge benefits given to big business that indicated an unfettered free market at work

To take one example, Thomas Frank in The Wrecking Crew, seems unable to base his analysis on any stable, clear definitions of libertarianism. He is an example of one who conflates libertarianism/free market policies with crony capitalism. He declares that "what makes a place a free-market paradise is not the absence of government; it is the capture of government by business interests." The lack of scholarship is a bit stunning since the free market idea of laissez faire clearly arose out of a critique of subsidies and government-imposed monopolies not by some obscure writer but by Adam Smith himself. He called these the "mean and malignant expedients of the mercantile system," and he clearly described the free-market principles as an alternative to "the capture of government by business interests."

So here in Thomas Frank is a scholar who states that "Governments are instituted among men in order to help one group in society exploit another," a statement indicating he clearly understands how some segments of society use the state to loot other segments but then he refuses to recognize that the opposite exists. The opposite of a powerful state in which the state is captured and used by either liberals or conservatives—or both together when they join forces to bail out business, give farm subsidies, etc.—is exactly what defines libertarianism, and in terms of definitions, it is the complementary class to the pro-government form of thinking.

Now even though on first glance the problem might seems to be a simple error  by Frank or an omission in his understanding of a proper definition of libertarianism and we often try to address it in that manner, there clearly is much more to it, something quite different at work. His notions of libertarianism are not simple errors that might easily be correctable since Frank actually seems intent in refusing to admit that the libertarian alternative is available and is fundamentally different from conservative thinking or the policies of the Bush administration. It is as if he wants to actively avoid seriously engaging libertarianism. There is something about his form of thought that appears to make him oppose libertarianism and see things the way he does.

We have then two problems. The first is simply the content of Frank's or anyone else's thought in which we expect normal sharing of information will correct errors and we will reach rational agreement.

The other is deeper and far more challenging. It concerns the ideological frameworks themselves, how they control thought, how they determine what is observed, how they operate such that they protect themselves and maintain their internal integrity. This problem concerns a different object of thought and analysis. This second problem is to understand how and why a form of thought arises that operates as an ideological framework that in spite of all the history and information available about libertarianism, it rejects or distorts facts and definitions in order to perpetuate itself. Now our topic is the various ideological frameworks.

For Frank's ideological framework how can we explain why it is that we repeatedly find this form of thought in which libertarian free markets are confused with big business and conservatives? Why does it repeatedly point to earmarks for business, outsourcing by government, regulations that protect big business from competition, and sometimes even corruption as defining properties of libertarianism and free markets? And what are the other ideological frameworks and how do they operate to maintain themselves?

At least some of the ideological frameworks include an emotional aspect such as is expressed in their polemical tone. This emotionalism in asserting the beliefs makes at least some of the ideological frameworks appear to be much closer to religious thought than to scientific inquire. Certainly we don't expect people to actually conduct scientific investigation into issues of political economy; we do, however, expect rational and objective discourse even when or perhaps even because someone is ignorant on an issue.

When discussions remain informative, objective, thoughtful, and pursue the formation of clarity in the definition of things under discussion, we can pursue the content of thought.  However, when a discussion degenerates into emotional assertions of belief, we might wonder if an ideological framework is at work. The challenge is to determine whether the discussion raises the first problem of simple content or whether it has moved to the second problem of an irrational ideological framework.

In Economic Policy, First Do No Harm

The response of today's politicians to the financial crisis is a kind
of activist government policy that depends on a spend-our-way-to-
prosperity approach crisis and appears consistent with Keynesian
economics. It is an approach that is supported by both the Democrats
and Republicans. President Bush has pushed for huge government
programs and spending of all kinds, and now in response to the
economic crisis the current spending by government will be the
largest in history. In spite of its staggering size, it has amazingly
widespread support.

The total spending the government has obligated is $7.8 trillion. So
far it has spent $1.4 trillion and has guaranteed about $8 trillion
in investments, loans, and deposits. To put this economic stimulus
program in perspective, it is easily larger than all the following
programs, that is, the combined total of all these
programs:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3
billion

• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost:
$217 billion

• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost:
$237 billion

• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion

• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion

• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost:
$500 billion (Est)

• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion

• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion

• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

This kind of thinking has parallels with the thinking of the 1930's
and 40's. What is interesting is that historically, the theoretic
basis for the general theory and policy of the 1930's and 40's was
discredited mostly by Milton Friedman but other free market
economists as well. They effectively destroyed the empirical and
theoretic basis of Keynesian economics, and supposedly put it to
rest. It was a consumer side type of economics that was hostile to
business, and many economists who have since analyzed FDR's big-
spending and regulating New Deal policies give evidence the New Deal
policies actually prevented economic recovery until after the war
when many of the policies were reversed.

On the other hand, Kennedy and Reagan used "supply side" economics
and applied across-the-board supply-side tax-rate reductions to get
America moving again. These pro business policies emphasized the role
of producers, not consumes, for increasing wealth production.
Increasing production and not increasing consumption produces
prosperity. Now it is hard to suggest that massive bailouts of
business reflects a hostile attitude toward business. However, it is
the activist role of government in managing the economy that the
current approach shares with Keynesian economics. But the basic
reality is that there is no clear evidence in history from any nation
that massive government spending or management helped an economy
recover or prosper. So why exactly does activist government and
Keynesian economic thinking keep arising?

The answer may lie in the more general and controlling framework of
people's ideas of how to explain and produce human progress; it may
be a kind of ideological framework or paradigm that lies beneath
their choice of position on many specific policy issues. It may be
that people don't begin with fact or theory by which to choose a
policy but they can only begin from within their existing framework
of how human society works. It may be this more or less subconsious
which guides their "choice" of facts and theories which they think
reflect the truth as they see it. So the two types of thinking, pro-
government or pro-freedom may represent a deeper framework of
thought, and quite clearly most of our political leadership believes
that solving problems lies in activist government, not the free
activity of citizens.

In formulating public policies, if one believes in government and
central planning the idea of raising taxes and using government to
create jobs, regulating wages and prices by unionization and forcing
producers into cartels, restricting free trade, creating government
regulatory and spending agencies and justifications using Keynesian
economic theory as happened in response to the Great Depression will
have great appeal.

On the other hand if one believes in free market economics in setting
public policies, then tax reductions, increasing rather than
contracting the money supply, deregulation of industries, lowering
trade barriers, promoting the expansion ofd business, and free market
economics will have great appeal.

It appears the pro-government framework may also account for support
of government entitlement programs such as universal health care,
Medicare, Medicaid, Prescription Drug program, Social Security,
welfare programs including education, subsidies such as Ethanol and
farm subsidies, and rent seeking regulations of all kinds that
promote one industry over others or regulations supporting one cause
over others. But it also accounts for foreign intervention, law and
order, military, and issues of morality such as drug enforcement and
pro-life policies. What seems apparent is that there is not one but
two pro-government sub positions. The liberal position seems to
emphasize government activism in matters of social justice whereas
conservative position seems to emphasize issues of government
protection. Each side at least somewhat supports free activity by
citizens in certain arenas but their respective arenas tend not to
overlap. Their fundamental differences seem to lie not in whether
they are pro-government control or pro-free activity of citizens but
in the differences in arenas to which they would apply pro-government
or pro-freedom policies. Thus both modern liberals and conservatives
tend to be pro-government in one form or another. But this
classification is amorphous and appears to change over time. The only
distinction that remains useful for a clear classification is that
between pro-government and pro-freedom—the pro-freedom position
marked by the consistent limitation of government and defense of free
activity in every arena.

As a result, the pro-freedom framework seems to account for choice
and deregulation in all kinds of arenas in order to "use" the free
market to award benefits for value produced and establish prices to
consumers for those valuable products. So this framework promotes
education vouchers, free trade of human organs, removal of trade
barriers and tariffs, protection of tort rights and contracts, and
where necessary entitling the needy directly with negative income
taxes, vouchers for needed services, food coupons, lifting licensing
restrictions for starting a business, disclosure in place of safety
and regulatory standards, all in place of creating government programs.

In discussing issues, these frameworks are seldom analyzed. Each
person mostly argues from within his own framework either to try to
show how things work or how they don't work both of which are
opposite to the views of someone in the other framework. But the
frameworks themselves are not discussed, and th reason may be that
most citizens are unaware of them, they are too abstract, they are
too deep, they take time to get into. Most discussions aren't
sustained inquiries into something. They are one-time discussions.

Yet beneath most policy debates are the fundamental differences
between the two frameworks and those differences are controlling. As
a result almost always debate among citizens or politicians is
limited to arguing within an underlying framework either as reflected
in those who argue for a government response to a problem or in those
who argue against government and for more freedom. One side says
government is the solution, the other says government is the problem;
one side says freedom is the solution and the other side (at least
often appears) to come close to saying free activity is the problem
(as in "unfettered" markets or allowing the rich to get richer and
the poor to get poorer). And both sides find it easy to denigrate the
other's position (as is displayed in the blogosphere). If the two
positions are controlled by an underlying framework, then at heart it
is not the issues or positions we should discuss. We should try to
get at the frameworks themselves, and that, by its complexity, time
required, and demands on the ability to conduct analytic thinking
eludes us.

So as to the current crisis and responses, my hypothesis is that
theory and fact clearly are not controlling or even relevant, the
ideological framework is. The politicians want to do something, think
they should do something, believe in something, that leads them to
act in disregard of how little they actually know of the science of
economics or the history of political economy. As a result, their
continued ignorant and thoughtless conduct means that no matter how
destructive it may be in the long run or how unfair it is, or how
much it costs to we citizens and particularly our children who will
have to pay the debt and live with the consequences they will impose
their "solutions" with utter disregard for the ethical principle,
"first, do no harm."

The Swings of the Political Pendulum

The recent presidential election sets us on a still largely unknown direction by the nation’s new leadership. In politics and matters of political economy, prediction may look wise in the present but usually look foolish at a later time. Rather than predictions, we might consider some possibilities.

The Rejection of Excess, Not Conservative Principles

The pendulum has swung away from the Republican’s leadership but not necessarily away from principles of conservative governance. Polling shows these remain largely accepted among citizens.

What citizens do seem to have rejected are the unprincipled excesses and incompetence of the current administration, and the current administration’s unprincipled governance seems confirmed by its largely inarticulate and vague explanations and justifications as to exactly how their policies reflect anything of the founding principles that have made it possible for us to construct our advanced society.

If anything the Republicans’ politically pragmatic actions have rejected conservative policies and embraced the excesses of unconstitutional attempts to increase government power under cover of the need to deal with threats to our national well-being.

Superficial Politicians, Superficial Policies, their Goal of Power

When most of our political leaders aren’t rooted in society but are career game players in Washington their goals seem to center on finding a message that will be popular so that they can get elected and gain power. They want to be leaders who promise to take control, run the country, solve big problems. They do not aspire to leadership that subordinates its power to expanding people’s choices, respecting the diversity of citizens’ values, and protecting citizens’ constructive economic and social activities.

Their aspirations seem to focus on gaining more power, not principles of good government, and this focus on power often leads to excesses. Their credentials are political experience, not serious academic training or non-political leadership experience.

And they do not sound like ordinary people; they cannot use normal English to speak about principles to ordinary people. They instead use hackneyed phrases of political jargon, vague, overly general, without nitty gritty substantive meaning. They are not people we could imagine working in our community as an ordinary citizen. They are politicians who want more power so they can take over and run more aspects of our lives all justified by rhetoric of providing strong leadership to solve our problems.

It means the bigger pendulum of history may be driven by what citizens fear from unprincipled excesses in governance and power from either party. It is excesses in striving for power that has led to the wholesale rejection of the Republicans’ governance; the Republicans were not restrained by any deeper conservative principles that in the past appealed to citizens.

Reactionary Change In Leadership

As a result, we now have had an election signaling a rejection of Republican excesses. But the new leadership is still remarkably vague about whether it grasps guiding principles of a theory of governance or even what its policies will be. The new leadership may either contain the seeds of its own excesses if it remains unprincipled or it may develop an understanding of principles that produce a healthy, constructive society and that control the relationship between government and people.

Is this the new administration? If the citizens felt their fundamental problems with the Republicans were the excesses brought on by the Republicans “strong leadership” and that was unfettered by a principled understanding of the role of government, then the voters weren’t reacting to Republican or swinging to the Democrats; they were react to excess that was not born of principle. If the new administration cannot articulate and follow principles sensed to be proper by citizens, the new administration may produce a new set of unprincipled politicians who produce their own kind of excesses born of “strong leadership.”

The New Administration—More Superficial Power Grabbing or Principled Leadership?

So far we have largely had airy rhetoric given to broad, sweeping generalizations and vague promises drawing on the reactionary desire of people to fundamentally correct the current out of control and incompetent government. We need to see more of substance before predicting whether the new administration will eventually produce its own excesses and reaction from citizens.

The danger is that the new administration policies will continue to be composed of the vague goals of a hyper-articulate, hyper-charismatic man gifted in political speech. We do not have evidence yet that the new president actually has underlying principles and explanation of how our constitutional government is supposed to work and its proper relationship to people. He has offered amazing hopes and promises but without any clear analysis of the means to his ends. What tiny clues we have from his past service and voting give no evidence suggesting he understands basic principles of American governance.

Citizens aren’t concerned with principles and theories of governance and don’t take the time or effort to investigate and develop a theory of the relationship between government and society but they can sense excesses. They don't even seem to know what principles are. Even though they do not define the public policies they think proper, they can react to how policies play out. Citizens role is reactionary only and necessarily rather thoughtless regarding the underlying intellectual competence of a politician’s understanding of politician economy. Politicians’ can either help citizens understand the principled nature of their policies or if unprincipled and elected on superficial promises, to suffer rejection for their excesses.

More But Different Excesses or Principled Government?

While the new president may represent a major swing of pendulum, if the swing is not based on a fundamental theory and principled form of governance consonant with the constructive powers of American political economy, it may be only a reactionary alternative to the Republican’s recent excesses in governance and grabs for power. If so, the new administration may itself produce its own excesses. It remains to be seen but if the new leadership cannot articulate a substantive theory of governance, then we might predict another reactionary election. The time still remains ripe for change to be tied to principled governance by an articulate leader.

The Challenge for Liberals—Defending the Use of Government Force & Its Corruption

The challenge for liberals (or anyone who believes in government as the means to social engineering) is to explain how changing private decisions into government decisions won't result in politics in which the politically powerful take over the decisions.

If one believes in good through government, then one might be able to point to some good things government seems to have done but to be consistent one also has to account for the bad even when the intentions seemed good. One then is in the awkward position of having to defend government actions such as the massive bail outs, tax breaks, and regulatory protections of big corporations and businesses since they too are always justified by good intentions.

The only possible method for justifying government action is to focus exclusively on the ends and ignore the means. The good intentions that justify government action only work as justification if the means of government force and its use by the politically powerful can remain unquestioned and perhaps even repressed.

As soon as government as the means to various ends is questioned as an immoral political method by which one group uses force to take away from another group, then the impossibility of government working as hoped for to produce the lofty goals that are intended collapses into hopes not attainable by government. The problems of the politics of the powerful will always haunt liberals. See this George Will column.

Belief in the Beneficence of Unlimited Government Just Cost Us Another 2 Trillion.

As the economic crisis continues, we're constantly hearing critics blaming America's alleged "laissez-faire economy" for somehow causing it. Tthe New York Times recently declared: "The United States has a culture that celebrates laissez-faire capitalism as the economic ideal."  It's hard to know precisely what such a statement might mean or why the assertion was made.

First, the assertion doesn't fit with the considerable government involvement, some of which reaches back to Hoover's time. There are 15 cabinet departments, nine of which control various aspects of the U.S. economy: the Departments of Transportation, Housing and Urban Development, Health and Human Services, Education, Energy, Labor, Agriculture, Commerce, and Interior. In addition there are many federal agencies controlling many more aspects of our economic lives: the IRS, the FRB and FDIC, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA.Second, as to the why, it may be that attempts to blame problems on free markets provides justification for more government involvement. 

Since obviously we are far from a lassize faire economy and with the trend almost constantly toward more government involvement, blaming free markets for economic conditions provides justification for more government involvement. By defining a condition as a problem needing immediate action leads to unlimited government. Here's the response of unlimited government (compiled by Reason magazine) to our current economic condition:

* $29 billion for Bear Stearns

* $143.8 billion for AIG (thus far, it keeps growing)

* $100 billion for Fannie Mae

* $100 billion for Freddie Mac

* $700 billion for Wall Street, including Bank of America (Merrill Lynch), Citigroup, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and a lot more

* $25 billion for The Big Three in Detroit

* $8 billion for IndyMac

* $150 billion stimulus package (from January)

* $50 billion for money market funds

* $138 billion for Lehman Bros. (post bankruptcy) through JP Morgan

* $620 billion for general currency swaps from the Fed

So far as of November 7, the total is over $2 trillion dollars: $2,063,800,000,000 about $6,800 for every man, woman, and child or about $15,000 per taxpayer given to private firms. The belief in the unlimited wisdom and beneficence of government is responsible for such immoral actions, not the Libertarian ideology of free markets which takes a clear stand for protecting individuals from such hyperactive government action.

The Gates Foundation—Still Stuck Inside the Box

The thinking of the Gates Foundation, just as with so many foundations such as the Oregon Chalkboard Project, is still trapped inside the traditional box of the public school model. As a result of their inside-the-box thinking, their past efforts in tinkering with reducing school size did not amount to much. The Foundation of course wants to learn from the results and adjust its goals but its emphasis is still on improving the existing public schools.

Getting outside the box requires some big idea but for whatever reason, it is not yet ready to tackle the big ideas just yet. Instead it wants to continue its emphasis on successful high-school completion and college-readiness for disadvantaged young people; it wants to add a parallel thrust toward college completion and feature measurable targets for both. It also wants to get into developing national standards and tests to markedly strengthening education data. And of course it wants to enhance research into "what works," accelerate the development and use of education technology, and strengthen teachers across multiple fronts perhaps by performance-related pay and tenure systems.

To Discuss Issues of Political Economy

    As a preliminary to any coherent discussions of specific issues of political economy, it is necessary to be clear as to the basics of American political theory. We could begin by asking:

—First, do we accept our history as a given, that the U.S. is rather unique in establishing the first limited government and lasting republican form of democracy, that the most basic expression we have is in our founding documents, the Constitution, the Declaration of Independence, and the writings of the Framers? If we differ in our understanding of American democracy, we do not have a common framework for conducting further discussions. Our form of American democracy is a political means that makes possible  personal economic and social freedom. It was established as a the first form of governance in which we as free people consented to be governed and carefully restricted government powers. We aren't a government that consents to or or determines people's freedom.

—Second, do we accept the principle that the source of the construction of a society, the common good, comes not from government action but from citizens' activities? To do more than to protect citizens' rights to conduct activity freely as in the first principle means that government is acting in the manner in which some citizens use power to forcibly impede, direct, demand, regulate, or redistribute at least some citizens' products or activities. Any use of force, whether by a group using government power or by any other group or individual who lack omniscience, remains an act of ignorance and moral repugnance.

—Third, do we accept the principle that benevolence is a voluntary activity of helping others in need?  Government cannot and is not a source of benevolence.; it cannot solve some citizens' problems except by forcibly taking away from other citizens, an action which enhances some citizens at the expense of others. To forcibly diminish some citizens' to the benefit of others is unjust. Government and government processes whether democratic or not use forcible redistribution and cannot be benevolent.

If we lack agreement on starting principles, we are organizing our thoughts in two different frameworks. The purpose of our exchanges must shift to an investigation into the differences of our two systems of thought as to how they differ as to the constructive powers of human activity.

Human activity, as for all living, is constructive by its own self-regulative powers. Life is form creative, and those external forces that impede activity impede its constructive powers. When governments or powerful people actively attempt to impede free activity, they necessarily impede the development of life. When a group of people by their use government attempts to go beyond the first principle of only using government to protect citizens' freedom, that group of people necessarily is reducing the equality of justice and the constructive power of some citizens' activities in order to give to others. Government is not moral except as it protects someone from forcible harm; life in its constructive powers is moral except as it uses force for private gain. Living activity tends toward cooperation, benevolence, love, creativity and away from arbitrary action imposed on others. People can form governments to protect these constructive powers of living activity but only if they limit the power given to government so that it carries out its activities in an equally just manner for all.

But there are other views of human activity that do not see it as form creative and without inherent self-regulative powers. An investigation those other methods of understanding of how social order is constructed will reveal how these understandings develop and their derivative views on specific political issues. Without agreement as to how things that are of social and economic value are created and constructed, how the common good arises, we can have no basis except a quasi-religious belief in government good and speculative public policies based only on hope. We have constructed a society; we continue to construct a society; and we should first be sure we cause no harm before we forcibly interfere with that constructive process.

The trend has been toward more government, not free markets

Regarding rise in government involvement in societty, these charts are interesting.

Have Republicans, and Republicans under President Reagan in
particular, reduced government?

"Here I am afraid the problem is murkier. Prof. Friedman offers a
graph showing the number of pages added to the Federal Register each
year, which is in general a measure of how much economic regulation
people face. It shows that the number of pages added during the
Reagan years declined from its highs under President Carter, and
after five years had actually fallen to roughly the same number of
pages as were added under the previous Republican president, before
starting to rise for the last three years of Reagan's tenure.

"This doesn't seem very convincing to me for two reasons.

"First, I question whether the number of pages added to the Federal
Register is an accurate gauge of how much individual liberty suffers.
The other problem is the relative value of different freedoms. If you
are a gay American, the fact that in…

"When I wrote that "individual liberty suffered" under Reagan, I was
thinking of things like his escalation of the War on Drugs, which
resulted in the imprisonment of hundreds of thousands of casual
marijuana users and the enactment at his administration's instigation
of omnibus anti-crime measures that allow, for example, federal
officials to search your person (including, as I recall, your body
cavities) if you happen to be canoeing on a river in central Kansas.
(The law authorized customs officials to make such searches on any
body of water that connected to any body of water . . . that
connected to international waters, which means virtually any lake,
river, or stream outside the basin areas of the West.)

"Under Reagan, federal spending as a percentage of GDP fell slightly.
It has increased under Bush. This is not purely attributable to
post-9/11 defense and homeland-security needs; spending outside these
areas rose from 12.8 percent of the economy in 2001 to 14.5 percent
in 2005. Setting aside the question of whether all homeland-security
spending actually goes toward securing the homeland, even excluding
such expenditures non-defense discretionary spending is up nearly 30
percent.

What Government Institution Does 2/3 of 3/4 Represent?

Is 2/3 of ¾ morally offensive? If we want a just society and our legislatures design a government institution so that it serves only ¼ of our young people who come largely from 'good' homes and the institution fails the other ¾, should that discriminatory effect outrage our moral sensibilities?

We have a choice. Should we take a serious look at what it is about the design of this institution it is that causes such a massive failure or should we assume the design of this government institution is OK and that it should be protected, and then should we try to tell it to reform itself and do better in various ways while giving it more money?

Response to Pozdena's merit pay opinion: Giving Teachers the Capacity to Create Change in Learning

Here's my response to Randy Pozdena's merit pay opinion, "Financial incentive work in schools, too."

Mr. Pozdena's advocacy of merit pay for teachers misses the context of the system within which teachers work. To use merit pay to try to make teachers do better takes as a "given" that teachers can only accept employment as unionized workers in a district under the control of administrators. Teachers do not control resources, hire the people, choose the curriculum materials, design the organizational system, develop the product, nor exercise any of the management prerogatives found elsewhere in the leadership of business organizations. They have no capacity to create change in students' performance. They are not the problem.

Teachers are the only professionals who work for the administrator of the organization. Teachers are not management, and they did not design the current arrangements of worker/boss taken for granted by Mr. Pozdena. Incentive pay carries an unfair, negative assumption that teachers are unmotivated and could and would change the academic performance of kids if given merit pay. Are these reformers saying that it is the teachers who are bad and that the system is good? What management consultant would blame the workers for performance of a bad system in which the workers have no voice or control?

Regardless of reformer's hopes for merit pay, significant change can't happen within the current system. Merit pay, 'reforms', are things imposed top down by strong leaders. They are things that are done 'to' the schools, not by the schools. But the kinds of significant change in student learning and motivation we need can really only come from the teachers in the schools where educational activity happen. It means teachers will have to create the change and improvements in learning programs.

But in the current district design, teachers do not have the capacity to create change, and merit pay won't do it. However, there are options for creating powerful incentives and the capacity for change inside the schools and classrooms. Teachers are beginning to own learning programs as true professionals under all kinds of new arrangements besides just charter schools, and in these designs, change in learning happens. Far more than with merit pay, when teachers are no longer employees of the district, the incentives change, powerfully…for both students and teachers.

If reformers want to investigate how to create the capacity for change by teachers so they have the tools to better motivate and promote student growth, they can go to local public school teachers and ask Ted Kolderie's question, "Assume teacher ownership is the arrangement in your school; What would begin to happen?" Teachers begin to talk with excitement about the possibilities.

 Or reformers could study programs already happening to understand how teachers can make learning interesting, individualized, and motivating to the students and to themselves. Teachers gain ownership over the learning program in the new public school charter schools but now also in "charter light" programs. Teachers form cooperatives in Wisconsin and Minnesota and as owners become Teachers in Professional Practice. My son's 5^th grade teacher can tell an interesting story of her struggles to gain independence to develop her program. She finally "went charter." But why not let teachers like her own the learning program and operate within the district school?

Usually organized as non-profits or cooperatives, these teachers in professional practice operate much like other professionals do; they control their own budgets, hire the administrators, select their instructional staff, and willingly accept some form of accountability. Some teacher co-operatives in Wisconsin retain their district employment and representation by the union while organizing into teacher owned group practice; they use the district as their fiscal agent.

By advocating merit pay for teachers, Mr. Pozdena takes the existing system design for granted. Why? He wants to use merit pay to make teachers do…well, what exactly? Work harder?

It's simplistic to think that we can continue to keep teachers in a status as employees hired, supervised, and assigned by the district at the same time we must produce significant improvements in learning. Pseudo-reforms such as merit pay, staff development, new curriculum materials, technology won't do it. Teachers simply aren't the problem. The system design is the problem, and notions of merit pay do not get to the causes of the failure and lack of motivation of many students that daily our teachers must face.

We must begin to think seriously about how schools must change to fit the students and teachers; we can't continue to impose reforms to try to make students and teachers fit the system. Before even considering merit pay plans—to get people to accept and work harder inside a bad design—we must make explicit its assumptions of top down 'reform' by experts, and we must directly compare merit pay plans with models that put the capacity for change into the system by allowing teachers to be owners instead of workers.

Randy Pozdena on Merit Pay: “Financial incentive work in schools, too”

Randy Pozdena conducted a study of merit pay for the Broad Foundation and Cascade Politicy Institute and wrote a Cascade Commentary that was published as an opinion column in the Oregonian. It was also posted on Oregon Catalyst Monday, October 13, 2008.

"…there is a growing appreciation of the fact that public education is fundamentally a service business. It faces the same challenges of meeting the expectations of its customers, organizing itself to be effective, motivating its labor force to be productive, and doing all this while keeping a sharp eye on costs.

 …Using consumer choice—and the prospect that underperforming schools, administrators and faculty may fail—can ensure strong incentives to excel.

 

…reformers are turning their attention to the motivational opportunities that might be implemented within the existing local public school setting. To this end, the idea of paying for performance is becoming the focus of various experiments and comparative studies.

 …The greatest potential appears to be at the classroom teaching level, since that is where the accountability process departs most markedly from what we think of as efficient organizational paradigms. In other words, we should apply financial incentives where the system is most in need of improvement – the classroom.

 

…The challenge is one of implementation. Educators long have been relatively insulated from the discipline of true accountability sanctions or incentives. Implementing performance measurement and incentives is considered by some to be an intrusion into the presumptively "special" setting of schools. But in the absence of structural reforms, my research suggests such intrusions may be not only warranted, but necessary to improve student achievement."

 

 

Can We Reform the Existing Schools To Get the Schools We Want or Do We Create New Schools?

The Reform/Improvement Ideology— Improve existing programs and schools	The Create Opportunity Ideology— Create new programs and schools
Stasis Maintained—Maintain administered schools and programs	Dynamism Added—Create self-governing and self-improving schools and programs
Take the current system as a given	Alter the system givens
Reform is something we do to schools	Creating new programs is something change oriented educators do
Find what works in literature	Seek causes in system design to understand problems
Use Blue Ribbon task force for big ticket reforms with strong leadership	Use locally generated, small efforts that can develop with success
Blame foot draggers and union for blocking change	Identify incentive relationships that conserve the current form of operation
Point a finger at teachers or students or managers as lazy or stupid.	Point the finger at the legislature who is responsible for the design and for changing the design
Use one, common set of standards and testing in order to centrally administer and evaluate	Allow multiple local proposals for new and different
Treat the student and the teacher as accountable to the state	Make the student's need primary. Make the teachers serve students' needs
Require instant success	Allow for long range process of research & development
Protect existing system from new ideas of outsiders	Create an independent sector that cannot be controlled by the existing system
Pretend that we all own the schools and should support them; involve stakeholders in reform	Recognize the districts own and operate the schools, not the parents, not local business groups, not foundations, and not the state legislature
Focus on reforms; avoid talking about system relationships; isolate pieces to change	Address the method of providing public education as a system; take account of the system's success as a system in maintaining and enlarging itself
Assert that the district and schools must be protected as institutions vital to democracy	Be clear about the dysfunctional, massive failure of the system in serving all kids.