Archives for Ideology

With relative success in the 2012 Presidential elections – considering Ron Paul in the Republican primary and Gary Johnson as the Libertarian candidate in the general – libertarians maintain our strongest position in modern history.  With opportunity in front of us, hopes abound to create a “broader freedom movement” – a term which rankles top libertarians.

With this opportunity comes risk – specifically, the risk of being co-opted again, a la Tea Party 2010 – therein diluting an otherwise powerful message.  With CPAC 2013 in the near term, the 2014 midterm elections in the – ahem – mid-term, and the 2016 Presidential election in the far-term, we should expect more posturing from establishmentarians, mostly on the Right, for their votes.

It might be tempting to reject all policy ideas that don’t immediately get us to the Promised Land, or to support policy ideas when we disagree with their proposed end states. I don’t think we have to do “either / or.”  I believe we can work incrementally within the existing framework to build bridges and, as the minority, work our ideas upward within a broader movement, strengthening both the broader movement and ourselves.

Messaging Strategy

When presented with new opportunities, the typical impulse for political movements on the Left and Right is to look for new policy positions to woo more voters.  But libertarians don’t have a policy problem; we have a messaging problem.

Many in the freedom movement, including myself, too frequently answer policy proposals to solve problems with the standard “That’s not supposed to be a government function,” too often discarding any incremental improvements a proposal may make.  This is too often the libertarian approach to social issues such as gay marriage and drug legalization, and civil society issues such as health care and education; it’s either all or nothing.

While aiming for the ideal, we reject incremental and pragmatic solutions – as it’s not the ideal – instead of dealing with the world we have.  In the market, incremental improvements produce best results, through spontaneous human action and without formal planning.  We know that.  Incrementalism can work with public policy as well.

As Eric Olsen at the blog Humble Libertarian puts it:

“I want to be careful not to ignore “better” over “perfect,” with the pragmatic part of me slowly being won over to support bills I don’t really like, over the current state which I dislike even more.”

I believe we need a three-prong messaging strategy to communicate our policy positions:

1. Praise the good in proposals that would bring incremental change towards our desired state;
2. Plainly state what else must be done to reach our desired state, and why that state is desirable;
3. Reject settling before reaching the goal. That is, never compromise in pursuit of the desired end state.

This simple model shows a gap analysis of how we should endeavor and the pitfalls to avoid. This is a balancing act, and there are ways to overcome these risks.

Evoking Winston Churchill, I repeat, never compromise; never; never; never. The above strategy could be misconstrued as compromise, but incrementalism is not compromise; incrementalism is taking gains where you can get them.  We must avoid being co-opted, connaturalized, hijacked, diluted, distorted, maligned, and sold out again by the establishmentarians.  Enough said there.  And as this mixed message is vulnerable to misinterpretation, it must be plainly stated every time, with the end state in mind.

Overcoming Challenges

Although it is the nature of libertarianism to oppose most policy proposals, we must rethink how we do so, as opposing everything leaves libertarians open to the classic criticism as being ‘against’ everything and ‘for’ nothing – or worse, having nefarious intentions.

Libertarians are ‘for’ many things; namely, individual and economic rights.  But we should go beyond that, because it’s not just about the individual, for the individual is not entitled to anything not his. It’s about transactions. It’s about an exchange of earned value in the marketplace. It’s about respecting the rights of others. That requires placing your neighbor above yourself.

It takes a certain measure of maturity to treat others the way you want to be treated. Modern political movements clearly lack this maturity. Alternately, the message we convey must be one of humility, although it’s admittedly difficult to be humble when you are right all the time. I kid.  As G.K. Chesterton said, “Humility means making the subjective objective — realising that to the universe oneself is not I, but only he.”

In the ideal state, the individual is sovereign and has no obligation to fellow man or government. In the real world, he must interact with others for survival, given division of labor and all that. That does not make him subservient; it makes him a member of civil society. These interactions themselves are a form of government.

It is our duty to convince establishmentarians to unravel the government’s grip on many issues and return power to more local levels. Jason Kuznicki of the Cato Institute tells me:

“We need to learn how to let go creatively – in a way that doesn’t perversely maximize power.  All of this requires a good deal of careful judgment, but it’s not impossible. The state has let go of some very large realms of human activity in the past. There is no reason why it can’t learn to let go of more of them.”

More here. Another challenge is convincing others that libertarianism is not a cover for corporations. Kuznicki goes on:

“It’s sometimes said that libertarians’ incrementalism begins at the bottom – cut welfare to the poor first, cut welfare to the rich afterward. (If ever!) That’s a pretty messed up approach, particularly given how handouts to the rich often work indirectly to keep the poor in poverty. Of course, it’s not really what we’re up to.”

More on this here. And for more on pragmatic and incremental libertarianism, see Milton Friedman’s epic Free to Choose series.

For the time being, libertarianism is a minority, mostly on the sidelines of American politics.  Succeeding in our future opportunities may require us to hold the hands of non-libertarians and usher them towards the natural laws of freedom written on their hearts so that we may all to get to the Promised Land – or, at least, incrementally closer.

As a consequence of loose monetary policy with a fiat currency, the United States is rapidly descending into an economic reality of Modern Monetary Theory, or MMT.  While MMT (also known as Chartalism) is typically associated with its Keynesian predecessor and the policies of the Left, new developments reveal that both parties are responsible for the slip into a brave new economic world.

Essentially, there are four preconditions for Modern Monetary Theory:

1) Money enters the economy through government spending, as the total amount of money is constrained not by gold but by the total output of the national economy;
2) Government spending is speculative as it prints as much money as it needs to control production and, as a byproduct, employment, and spending beyond productive capacity leads to inflation;
3) Taxes do not pay for expenditures but are instead a way to throttle private sector demand; and
4) The government is the issuer of the currency, sovereign governments that issue their own currency are never insolvent, so debts essentially don’t matter.

I would submit we now meet those preconditions.  With the Federal Reserve’s bond-buying program, beginning with Quantitative Easing “QE1″ in November 2008, the US government is the de facto issuer of currency, as the Fed can, for the most part, purchase Treasury Bonds at will.  The Federal Reserve is currently purchasing 61% of Bonds at auction, quickly approaching its 70% self-imposed limit, which was relaxed from 35% in 2010.

When 40 cents of every dollar spent is borrowed, the US government is running record trillion dollar deficits, borrowing $4 billion per day to pay for massive spending.  As a result, the federal government has no other option but to flood the market with low-rate Treasury Bonds.  Basically, our monetary policy is being used to pay for unfunded fiscal policy.

The Fed has recently announced it will keeping its low interest rates to combat unemployment, and continue its bond-buying program, spending $85 billion per month on Treasury bonds and mortgage-backed securities.  As a result, banks are posting large quarterly profits as new money, tripling the monetary base since 2008, enters the economy.

With this newfound ability of the Federal Reserve to issue currency, the next constraint on spending is the Congress.  But when the dedicated priority of one party is tax reduction to stimulate production, and the other party’s is increased spending to fight unemployment, there are no real constraints.  Neither party holds spending in check.  MMT is already happening.

Consider the message stressed by Louisiana Governor Bobby Jindal last week, and repeated by Representative Paul Ryan, that Republicans must move away from “austerity” and embrace a ”pro-growth” focus.  Paul Ryan actually said Republicans should ”prevent and preempt austerity so we can get back to growth.”  But what are pro-growth policies, if not stimulative?

To further illustrate this, consider last week when the House voted to raise the debt ceiling, guaranteeing another fight in three months, where expectations of a debt reduction deal remain low.  Or consider that the last manufactured crisis, the fiscal cliff, came with $74 billion of hidden pork barrel spending.  Or consider how Defense hawks on the Right began to squawk when GDP unexpectedly retracted 0.1% in the 4th quarter of 2012 due to a plunge in Defense Spending.  More government spending, they portend, will fuel the economy.  Just let them pick the sectors.

In the short term, we collectively abandon our concerns for debt, as we get larger government at a discounted interest rate, which only encourages further spending.  Unlike the rest of the industrialized world, devaluing faster than we are, we don’t worry about imposing taxes or austerity measures to fight our debt, because, as the theory goes, we can acquire as much debt as can be paid back with interest.

And even if we have 10% inflation, as long as wages inflate 11%, we are fine.  And while that’s a good theory, it’s just that: a theory.  Even John Maynard Keynes, the forerunner to MMT acknowledges the deleterious effects of slow inflation:

“By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some.”

At Risk

So what are the risks of injecting money into the economy?  First, inflation is a concern, and while core inflation has not been high, commodities have inflated irregularly while savings and investments have been – ahem – confiscated through negative real interest rates. Acknowledging that stimulus creates bubbles of artificial speculation and malinvestment, the combination of low rates and monetary stimulus has created a Bond Bubble, with inflation hidden on the central banks’ balance sheets.  Also, while productivity (measured in output per “man-hour”) is rising, and GDP is not, we risk stagflation last experienced in the 1970s when we officially left the gold standard.

Second, our loose monetary policy leads to increased income inequality.  When the Federal Reserve buys Treasury Bonds, new money enters the system at the banks, which works its way through the financial system, to the productive sectors of our society, and, supposedly, to the service sectors. This new money results in weakened purchasing power of the Dollar, which results in higher prices. Therefore, prices rise faster than wages for those not “at the top.”

Third, our debt has a drag on our economic output.  Putting our debt in perspective, Carmen Reinhart and Ken Rogoff, the authors of This Time It’s Different (2009), conducted an empirical study of 22 global economic crises and found that when government debt-to-GDP ratio rises above 90%, it lowers the future potential GDP of a country by at least 1%, and begets a slow-growth, high unemployment economy.  As a reminder, the US ended 2012 with 103.8% debt-to-GDP.

Still, many believe debt accumulation is of little concern.  This past week, Nobel Prize-winning economist Paul Krugman said, “Don’t worry about these deficit things for the time being; they’re non-issues.”  But as fellow guest CFR’s Richard Haass responded to Krugman, “You’re right until the day you’re wrong, and that’s a bad day.”

With limited power to combat the Federal Reserve, the supposed deficit hawks should stop dabbling in Keynesian spending, and set a limit based on Hauser’s Law to keep spending/GDP less than 19.5%, equal to the maximum amount of revenue that can be extracted through taxation; otherwise, deficits are guaranteed.  Only then can we begin to address our long-term debt.