Following the election, both sides seem to be in disarray. Republicans are puzzling over why they lost and what they can do about it. Democrats don’t seem to know what they want to do with their victory, especially since they are a minority in the House and do not control most statehouses. And almost everyone laments the divisiveness that continues at the national level.
This essay looks at what we can do to make America better—to recover from our long-lasting economic doldrums while improving the environment. It begins by suggesting a return to our founding American values of rational civil discourse—of basing discussions on the facts, on taking consistent stands on values, and being willing to change our opinions some times, and even if we can’t, to accept compromise.
It starts with a discussion of what changes need to be made on the “Right”. I put the word “Right” in quotes because I show here how the principles the Republicans ran on for the past two years are inconsistent with core Conservative principles. What Republicans claim they stand for is based on fairy tales pushing aside reality. As I noted in my diary “Reality Defeats Story-Line” many Republicans, including Governor Romney, seem to have fallen for the fairy tales themselves. This needs to change before we can make progress.
But progressives need to develop some serious plans for moving forward and accept some core Conservative principles, at least as a compromise, for the nation to make progress.
Part 1 of this essay describes the problems we are facing to restore civil dialogue, and why it is so important that we do so.
Part 2 suggests a way forward that could possibly be the basis for a broader consensus.
The problems America faces are complex, and it is impossible for me to explain both the problems and the solutions in a simple, bullet-point format. Especially when part of the solution is to see how simple, easy-to-understand stories lead us astray. So I hope the reader will be patient with this 2-part very long essay.
Facing Facts, and Accepting Responsibility
America is facing severe challenges, starting with making a full recovery from the recession. This article argues that if we do not both return to a more civil society and develop strategies that work to solve our problems, America will continue to stagnate economically as other nations rise, and we will end up as just one more empire that has had its day and then faded away. It discusses in Part 2 one person’s vision of a potential political consensus that would allow new policies to promote economic recovery, and why it might appeal to many on both sides of the partisan divide.
The first step towards economic recovery is the same as the first step towards recovering from addictive behavior: We need to face facts. Not some specific facts, but the very concept of basing our decisions on fact rather than on wishes or fairy-tale stories.
Whatever your political philosophy, it has to be based on consistency with fact in order to allow civil political discourse. Everyone is entitled to his or her own opinion, but you don’t get to create your own facts. And when you try, it will eventually hurt you.
This is something we ought to agree on, particularly since Mitt Romney said so in his first Presidential Debate.
And we are being hurt right now. The economy continues to stagnate, with high unemployment, rising costs of health care if you can get it at all, and flat wages. No one in the political arena is discussing a plan for full recovery that has any plausible hope of succeeding.
The need to face facts is not something that can be taken for granted. People react to problems in different ways. Sometimes we react by thinking rationally about the problem and trying to solve it. Other times we react emotionally. Emotional responses may be based on many different types of reactions, for example responding to fears, or doing what everyone else is doing. The politics of the last generation increasingly has been dominated by emotions, and has led to divisiveness and meanness in politics, perhaps the reason why election turnouts are so low compared to other countries, and to paralysis in policy. This paralysis makes economic recovery difficult.
Divisiveness and paralysis cannot continue if America is to maintain its role as a world leader. We need to confront the reasons that our politics are so fractured, and search for a new way of looking at our problems and our needs that could be acceptable to most people.
The critical change that is needed is to sit down and think rationally about the principles that made America great. The process of thinking rationally itself is the cornerstone of what made America a democracy. Our Founding Fathers built this country on a foundation of rational thought about the rights of mankind, about liberty, and about equality. The American Revolution was a rationalist revolution—the rejection of previous ideas of privilege and authority in favor of democracy and freedom. It rebelled against fears of what would happen without kings.
But today the political dialogue is rooted in emotion.
Why is this such a problem?
Because the emotions have caused the nation to fracture into two factions and politics starts to look like football game, where all that matters is who is winning.
But politics is not football. When Team Red is still fighting to overturn the accomplishments of Team Blue from the 1930s, when Team Blue is still fighting the unionization wars of the 19th Century, no one is looking for new ideas that could satisfy most everyone and move the country back onto a track that gains America respect, power, and prosperity.
That is what this paper is about: restoring a civil conversation across the political spectrum. Civil dialogue is hard to conduct in an emotional frame, so I try not only to advocate for rational discourse but also to outline a rational approach to some key contentious issues, an approach designed to satisfy the values of both conservatives and progressives. A rational approach begins by accepting the facts, and continues by pointing out where they conflict with partisan ideologies.
This requires first pointing out how the policy objectives of those who call themselves conservatives are in conflict with the core principles of conservatism, since the conflicts are more extensive and profound on the Right. Real conservatives should look carefully at this discussion because these conflicts help explain why the Republicans lost the election.
If these conflicts can be resolved as I suggest, it provides a basis for progressives to modify their approach to allow consensus policies for economic recovery and economic fairness.
The principles of progressives are seldom stated in a way that allows us to draw consistent policy recommendations: once we get beyond overbroad principles such as economic justice and diversity, it is hard to tell what progressives stand for.
You can’t get to a reconciliation between left and right by looking only at principles in the abstract. The first element of an approach that can work is to decide that we are going to start with the facts and subject our principles to the discipline of being consistent with reality.
The need to face the facts presents the first of several ironies that I will discuss. Because the need to face the facts is fundamentally an aspect of the need to act responsibly and in a self-disciplined way. Responsibility and self-discipline traditionally have been conservative values. Yet it is the faction that calls itself conservative that has been most culpable in dealing with the facts with an attitude of denial. Progressives also have had problems of accepting the value of incentives in affecting behavior, and of framing issues in terms of workers versus corporations, which I will discuss subsequently.
Principles of Self-declared Conservatives
Let’s look at some of self-proclaimed conservatives’ attitudes and positions.
The most fundamental conservative position is responsibility. A person should be responsible for his or her own decisions. According to this view, law and policy should reinforce this responsibility. So if someone works hard and studies diligently, he should reap the rewards of his efforts: he should be allowed to do what he wants to in business and to keep most or all of his resulting earnings. On the other hand, if a person behaves badly, he should suffer the consequences without government letting him off the hook. The government should assure equal opportunities, but not equal outcomes. These principles are embedded in the concept of a free market economy: those who work harder and more effectively will make more money, and that reinforces self-disciplined behavior.
This attitude has both a moral and a practical element. The practical aspect is: if you take away the fruits of hard work and success, or moderate the level of punishment for misbehavior, people will not have the incentive to behave properly. Lacking that incentive, more people will do the wrong thing. This observation demonstrates one of the reasons that conservatives are passionate supporters of free markets and reject the Marxist maxim: “to each according to his needs, from each according to his abilities.”
I believe that this position is a strong basis for a national consensus.
A second conservative attitude is to favor economic growth. This seems like a no-brainer: Democrats argue for economic growth, as well. But Republicans act as if they own this issue. They label economic policies that they don’t like “job-killing”—and the fact that this epithet works for them suggests that the public trusts the connection between Republicans and promotion of growth.
The third position is to favor small government. Republicans consistently rail against big government programs and government spending. This is connected with conservatives’ traditional support for balanced budgets, which is a manifestation of their belief in responsibility. It is also fundamentally related to a rejection of Soviet-style government planning and operation of the economy.
A related position is to support lower taxes. Tax increases are believed to compromise economic growth. (I will show later that they do not.) They also appear to violate the principle that a person is entitled to the fruits of his or her labor. (I will show later how this appearance is illusory.)
Other conservative attitudes are to plan for the future, and to make changes incrementally so that we can avoid disruptive mistakes and make these future plans with confidence that the rules of the game won’t be changed on us halfway through the plan.
Errors and Self-Inconsistencies in the Application of Conservative Principles to the Economy
1) Low taxes do not help the economy grow: they make us worse off
The problem is that what “conservatives” actually argue for is inconsistent with these traditional beliefs, and as a result is leading America down the path to decay. And the left somehow fails both to point out the weaknesses of the other side’s arguments and to develop a vision of how we could do things better.
Let’s start with the problems of the “right”. The most fundamental problem is that the thesis that low taxes lead to economic growth is based on nothing. Proponents of low taxes cannot point to any studies, or serious examples, of cases where low taxes led to greater growth at the national level . The evidence, to the extent there is some, points clearly in the other direction: that low taxes are connected to low growth, and high taxes to high growth. The first example is the Bush tax cuts. Analysis of their results shows that these tax cuts reduced economic growth.
More detailed analysis, which despite its partisan tone is hard to refute, shows that tax cuts were attempted three times at the national level, and that all three experiments led to lower growth, not higher.
A 2012 report by the nonpartisan Congressional Research Service reached similar conclusions: it found a positive correlation between higher taxes on top earners and higher growth of GDP per capital. While it was cautious about what conclusions could be drawn from this result, it explicitly concluded that one could not correlate lower taxes at the top with higher economic growth, but one COULD correlate them with increasing disparity between the top 1% and 0.1% of earners with everyone else .
This result is more damning to the “Conservative” position than it looks. No one cares about GDP growth in the abstract: people only care about how well households are doing economically.
So let’s recap the results of the CRS study and connect the dots:
1. Lowering taxes on high earners clearly does not increase the size of the pie. If anything the results are that it reduces the size of the pie;
2. But they increase the share of the pie going to the top 1% and especially the top 0.1%;
Now here is the connection the CRS study failed to make:
3. Therefore less of the pie is available for everyone else.
In simple English, the report concludes that tax cuts for high earners make the 99% worse off on average. (Note that CRS chose the 99% threshold: this does not come from Occupy or other leftist definitions.)
The details of the study are even more negative on tax cuts than this: it finds a statistically significant connection between higher taxes on the rich and HIGHER economic growth, but dismisses this finding because there is so much scatter.
This presents a fundamental problem of self-consistency: if low taxes tend to reduce economic growth for everyone, or at least for 99% of everyone—why would anyone with a conservative spirit support them? Tax cuts unquestionably reduce government revenues while doing nothing to reduce spending, so they increase government debt, everything else being equal. Perhaps liberals shouldn’t care about that, but conservatives should.
This self-contradiction is not a new issue to conservatives. Ronald Reagan tried to paper over it when he argued in support of his tax cuts that lower taxes would increase the size of the economy so much that government revenues would increase so rapidly with this growth that overall tax collections would be the same, or even higher. This facially implausible assertion was quickly demonstrated in practice to be wrong, and even Reagan had to backtrack and restore some of the taxes he had cut. But he and his party continued to support both lower taxes and balanced budgets, and to use fuzzy math to cover up the inconsistency. (And amazingly, they have gotten away with it in the political debate: hardly anyone other than Paul Krugman seems to call them on this.)
But the problem has yet to be acknowledged by “conservatives”: they continue to pretend that we can cut taxes and reduce deficits at the same time, while preserving the basic benefits of Medicare and Social Security. This sort of denial is a fundamental barrier to economic recovery, and the politics of a prosperous and civil society will demand that it be faced.
It is also in tension with the market economics principle that there is no such thing as a free lunch. The ability to cut taxes, increase growth, and provide fairness at the same time is the type of free lunch that market advocates recognize can’t exist.
It would be interesting to poll conservatives and see how they responded to the question:
“If you knew to a certainty that lower taxes lead to lower growth and fewer jobs, which choice would you make?”
Some have noted that the real “conservative” strategy is what has been called “starve the beast”: to force cutbacks in government spending by restricting the ability of the government to spend at all. This strategy has two weaknesses: first, it did not work when tried at the national level in the 1980s and the 2000s: in both cases government spending rose independently of lower revenues. In the 2000s this spending increase occurred even under Republican leadership of Congress as well as the White House.
The second weakness is even more troubling: the starved beast would not in any demonstrable way lead to higher economic growth. The evidence we have, from New Zealand in the 1980s, suggests the reverse: an anti-regulatory small-government policy caused the prosperity of the nation to drop.
And this question leads to an alternate possibility, much more disturbing than the other two: what if “conservatives” know that tax cuts slow down the economy, but simply don’t care: that their agenda is not growth but something else that is hidden. For example, privilege for the rich—a desire to retain a larger piece of the pie for the privileged that will be pursued even if the pie gets smaller as a result.
In this alternative, the Right constructs a fairy-tale story that the goal is to protect our children from the servitude of having to repay large government debt and then positing low taxes as a means to forcing smaller government. The fairy-tale sounds plausible, but it is inconsistent with the facts, in two ways. First, as noted, higher taxes on individuals produces just as large deficit reductions as cutting the government spending budget, but it also increases economic growth (which would increase its ability to reduce deficits in the longer term) and reduces disparities in income. Second, the largest categories of government spending are areas that are hard to cut, such as Social Security and defense. Until very recently, no one on the Right admitted that they might want to do this.
The other piece of the “conservative” pro-growth position is to reduce regulations. I will discuss later how this position is in deep conflict with the conservative principle of responsibility and the maintenance or proper incentives for good behavior, but for the moment I will discuss the role of regulation in a market economy
2) Strong regulation underlies free markets
Markets provide the best possible economic outcome only when the conditions of the first fundamental welfare theorem of economics are met: That theorem says: “If every relevant good is traded in a market at publicly known prices (i.e., if there is a complete set of markets), and if households and firms act perfectly competitively (i.e., as price takers), then the market outcome is ‘Pareto-optimal.” A Pareto-optimum result means that no one can be made better off without making someone worse off. It is in contrast to a case where a transaction, such as my selling you my old car for $8,000, makes both of us better off.
But before we consider what the results of this theorem are, we must inquire about what conditions it is based on—in particular we must answer the question: “What is a relevant good?” A relevant good must be either be a brand name and a model number or else a product that complies with a regulation on quality or quantity or performance. You can’t have much competition on providing products of a given brand and model; the only way we can have serious competition is when different products compete for meeting the same level of quality and performance at a lower price, or higher levels of quality and performance, determined using the regulation, at the same price.
Regulations are so important that the private sector pays for maintaining more than 50,000 of them.
Regulations may simply define the objective quality of the regulated product as delivered. But some regulations will also include in the definition of quality the effects of the production process used to make it—such as the health consequences of how the product was made. No one would want to buy a product that used human flesh as an ingredient; and we expect that regulations would prevent such practices from even starting. But for products that entail dangers to workers that could be prevented by regulation, or that cause pollution that increases mortality but could be greatly reduced by regulation, regulations are critically important to making markets function in a morally defensible, as well as Pareto-optimal, way.
Regulations are therefore an essential part of making markets work. What would markets look like without regulation? We need not look far for the answer: many markets already function with essentially no regulation. These include the markets for methamphetamine and heroin, and the market for prostitution. Markets without regulation are black markets: they provide the greatest profits not primarily to those who provide the best products, but to those who can intimidate others not to compete or who defraud their customers and suppliers. Or else they are the sorts of bazaars we find in poor countries, that may be charming to walk through as a tourist, but which fail to produce prosperity for the countries that rely on them.
Without regulations we are stuck in a developing-country world of bazaars where buyers do not know what they are buying or what others are paying. They are markets where dominant players can intimidate competitors from setting up shop. They are markets where a vendor can sell one variant of a product to one person and a lower-quality variant to another for a higher price, simply because the quality of the product is not visible until you take it home. There is a reason that countries like America with well-regulated markets are rich while these others remain poor.
This reason is widely accepted in the business community. Its actions in paying to support standards and standard-setting organizations demonstrate a belief that standards are the foundation of a free market and not its antithesis. The American National Standards Institute, a private business-sponsored organization, says that
Standards are essential tools helping today’s businesses stay innovative, reduce costs, improve quality and market their products or services. Standards are the foundation for innovation. They help break down barriers to trade, provide industry stability and encourage commerce.
ANSI sees standards as so important that its mission statement is
To enhance both the global competitiveness of U.S. business and the U.S. quality of life by promoting and facilitating voluntary consensus standards and conformity assessment systems, and safeguarding their integrity.
The supportive relationship of standards to the free market is affirmed by the National Institute of Standards and Technology (NIST), a government standard-setting agency, which says
Standards  underlie all mass production methods and processes...Standardized parts can reduce inventory requirements, facilitate product repairs, and allow interoperability between different products and systems. Standards can also promote competition by facilitating the comparison of prices of standardized commodities. In addition, standards can facilitate the introduction of innovative products and new technologies.
Today, an estimated 80 percent of world merchandise trade is affected by standards or regulations that reference or incorporate standards. Standards are fundamental to the U.S. economy and vital to world commerce. In fact, the American Society of Mechanical Engineers (ASME) ranked the promulgation of standards among the top ten engineering accomplishments of the last century. Standards shared top-ten honors with such accomplishments as the inventions of the automobile and airplane. Standards permit society to make more effective use of limited resources and allow improved communication among all parties involved in particular activities, transactions, or processes. Indeed, standards are crucial to every form of scientific and industrial process.
The International Organization for Standardization says :
Standards make an enormous and positive contribution to most aspects of our lives.
Standards ensure desirable characteristics of products and services such as quality, environmental friendliness, safety, reliability, efficiency and interchangeability - and at an economical cost.
When products and services meet our expectations, we tend to take this for granted and be unaware of the role of standards. However, when standards are absent, we soon notice. We soon care when products turn out to be of poor quality, do not fit, are incompatible with equipment that we already have, are unreliable or dangerous.
When products, systems, machinery and devices work well and safely, it is often because they meet standards. And the organization responsible for many thousands of the standards which benefit the world is ISO.
When standards are absent, we soon notice. [emphasis in original]
Interestingly, Republican Presidential candidate Mitt Romney said the same thing in his nationally televised debate with President Obama on 3 October 2012. His statement was:
Regulation is essential. You can't have a free market work if you don't have regulation. As a business person, I had to have -- I needed to know the regulations. I needed them there. You couldn't have people opening up banks in their -- in their garage and making loans. I mean, you have to have regulations so that you can have an economy work. Every free economy has good regulation.
Reducing standards, also called deregulation, has been tried on a large scale, with the support of “conservative” political leaders, in other failed economic experiments besides that of New Zealand. California undertook deregulation of its electricity markets in the 1990s. This process and how it failed is described in the Appendix to Saving Energy Growing Jobs. The bottom line is that in addition to creating short term problems and a one-year increase in electricity costs of $20 billion, or some $2000 for every California household, the end result was an ongoing 40% increase in electricity rates that even spilled over into rate increases in the Pacific Northwest. And this from a policy whose sole rationale was to decrease rates.
Another argument used by Republicans to attack government regulation is the principle of Constitutionally limited government. But the Constitution clearly and explicitly enumerates powers of regulation to Congress when it states in Article 1 Section 8:
• [The Congress shall have Power] to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; (emphasis added)
• …to fix the Standard of Weights and Measures (emphasis added)
The latter is particularly important to the question of environmental protection, because weights and measures are a small subset in today’s economy of a broad class of regulations that underlie fair and free commerce. The scope of what the
Constitution calls Weights and Measures expanded as the economy became more complex and transactions more impersonal to include all of what is referred to here as regulations. Just as in 1787 it was recognized that a farmer who tried to out-compete his neighbor by selling a “bushel” of wheat that was smaller than a real bushel needed to be controlled by government, in 2011 we understand that a manufacturer who tries to out-compete by selling a product that is produced in a way that harms or kills people through its emissions, or that defrauds them, needs to be regulated by the government.
In a simple economy based on agriculture, regulations affected primarily the standardization and accuracy of weights and measures: a bushel of wheat was a reasonably well-defined relevant good, since the quality of the wheat could be determined by inspecting it and transactions were made in person rather than on paper or on-line. But today a buyer would need a lot more information about what variety of wheat he is buying, and what is in it or what isn’t (for example, pesticides or rodent feces) before he knew enough about the wheat to make a bid on it.
3) “Conservative” policies hurt economic growth
So if the “conservative” position is to support economic growth, and two of their chief strategic approaches—tax cuts and regulatory relief—demonstrably don’t work (and actually backfire), what is their answer for how to recover from the recession?
Apparently their answer is austerity: to cut government deficits. After all, the solution they passed in Congress to create the “fiscal cliff” required a large reduction in spending as well as tax increases.
Reducing deficits is probably a good idea in the long term, but the problem is that in the short term, following a major financial panic, deficit reductions retard economic recovery.
The only short-term benefit of a balanced budget is that the world has greater confidence in U.S. government debt and interest rates go down. But if the “Right” truly is concerned about confidence in the U.S. government, it would not have pushed the government to the brink of default in 2011, an action that caused the first rating agency downgrades of U.S. debt. And if the goal is low interest rates, one has to ask: how much lower could they go? Short term interest rates are already near zero, and the interest rate on a ten year bond is near 2%.
How much difference would a 1% interest rate reduction on the ten-year bond to 1% instead of 2% make? Clearly not much. It won’t encourage more housing affordability because lenders are tightening up so much on credit-worthiness tests. And even then, the true affordability of the kind of house Americans have been used to buying for the last 40 years is affected more by transportation and energy costs than by another 1 or 2 percent drop in interest rates.
It won’t encourage business borrowing because businesses already have excess capacity.
And Japan’s experience shows that a country can have long-term interest rates of about 1% for decades without jump-starting the economy.
So austerity sounds good, and may be a good thing in the long term, but it will not help us out of the recession: if anything it will do the opposite. Liberal economists such as Paul Krugman have pointed out that austerity policy was one of the causes of the Great Depression, both during its onset in 1929-32 and when we appeared poised for recovery in 1937. This is pretty well-accepted macroeconomic theory, and Krugman writes that he hasn’t seen any serious attempt by more conservative economists to refute this position, even when he invites these attempts.
What about Social Security? The “conservative” position is that the status quo is irresponsible and the system needs to be reformed by cutting benefits. “Cutting benefits” is not the exact terminology they use, but since they rule tax increases off the table, there isn’t any other alternative. Sometimes they sugar-coat the pill by saying that we should raise the retirement age, but this amounts to the same thing: an upper middle class worker already has the choice to retire at 62, 66, or 70, and the difference is that if they wait until 70, benefits are almost double what they are if they retire at 62. So raising the retirement age is in fact a cut in benefits.
Why should we ask older Americans to accept this sacrifice? The fairy tale is that the system will “go bust” in 2033. That story is derived from a report by the Trustees that says the system will run out of money in 2033 . But that does not mean that the system will collapse. It means it will only have the money to fund 75% of the payments it expects to make without borrowing from general funds. In other words if no changes are made in the system, in 2033 benefits to everyone would have to be cut by 25% or subsidized from other sources. Thereafter the system would be in balance forever. That is a problem, but clearly not a crisis. And it could be averted entirely by raising the Social Security tax by 2.7 percentage points from its current rate of 12.4%.
Some or all of this 2.7% could be raised by eliminated the earnings cap for the Social Security tax, a cap that makes a middle class earner of $100,000 a year pay a higher marginal tax rate than a wealthy wage earner making $5 million a year.
And even those findings—25% cuts in benefits after 2033 or 2.7 percentage point increase in the combined tax rate--are based on 20-year economic forecasts, which no one ought to take overly seriously.
4) “Conservatives” do not really support small government.
Another troublesome self-inconsistency is in “conservative” support for small government. This approach is self-inconsistent because the overwhelming bulk of current and (especially) predicted expenses of the federal government are Social Security and Medicare. If one thinks government is big now, the only mathematically defensible solution is to cut these entitlement programs, which few “conservatives” are willing to advocate. (Some “conservative” proposals involve replacing Medicare with vouchers, and then limiting the amount. But since health care is not a market in the first place, as I show in Annex A, this approach amounts to the same thing as cutting the program, and was seen as such by the electorate.)
And cutting Medicare is not a smaller-government approach in any case. What “conservatives” overlook is that Medicare is already the most cost-effective way of delivering quality health care services. (This cost advantage is due in large part to the fact that private insurance companies make money by trying to get other insurance companies to pay the costs of treatments already received, and this process raises administrative costs.) If Medicare is cut, and people do not die younger as a consequence, all of the care that is no longer provided by Medicare will be provided by a private insurer AT GREATER COST. And since, under Obamacare, everyone will have to have insurance, and most of the elders who buy it will qualify for subsidies, cutting Medicare is a bad way to try to cut government. Even if the right were to stop Obamacare, the health care system is shot through with subsidies so any reduction in government spending on health care would be more than offset by even larger cost increases elsewhere.
Furthermore, “conservatives” believe in big government when it comes to telling people what choices they have on abortion or contraception, maintaining a strong military, overriding state regulations on energy efficiency and environmental quality, enforcing immigration limits even in local jurisdictions that want freer immigration, overriding local limits on buying or carrying handguns, preventing marriage equality, subsidizing nuclear power, allowing oil and gas drilling on government-owned lands, and many more domains.
Besides that direct self-inconsistency, small government is a tactic, not a principle. Small government gets in the way of the more strategic principles of enforcing responsibility, promoting economic growth, and protecting human life. One could articulate a principle of the smallest possible government consistent with achieving the primary strategic objective—a strategy with which it is hard to imagine too many people objecting—but a principle of small government overall undercuts all the other principles.
Denial and the Right
Republicans now think climate change is a problem not worth worrying about. This shows how the faction currently in control of the Party is not really conservative. A conservative approach to addressing a risk is to take it seriously and to be sure that even in the worst realistic case, we are not subjecting ourselves to a problem. Thus a conservative approach to family finances is to make sure that we have enough money this month to pay the mortgage, the utilities, the car payment, the insurance, to buy food, etc., and only then allow ourselves the privilege of having a nice dinner out.
But on climate, the self-declared conservatives say that the right policy is denial of the science or to express doubt: “everything is fine now...don’t worry, be happy: a climate disaster can’t happen”. This is like a teenager telling her father before deciding to have sex with her boyfriend, “Don’t worry—all those stories about the risk of pregnancy and AIDS are not really true.”
How can this possibly be justified?
In truth, this is not a conservative approach—it is a self-indulgent approach of denial. As one who practices conservative personal finance, I buy life insurance even though my risk of dying next year, according to what my premiums are, is less than 0.5%. What is the worst-99.5% case of likely damage from climate change? It is so dire that no one even talks about it. The only consequences of climate change that are discussed seriously are those of the 50% most likely case.
Yet a truly conservative attitude would compel one to ask, (since we only have one earth and cannot move on if we make it uninhabitable [by which I mean incapable of supporting a standard of living anywhere near what we are used to]) “what is the worst reasonable consequence of climate change?” and to take whatever steps we can to make that scenario not come to pass.
Again, this is a description of what a truly conservative attitude towards managing a risk with nearly negligible probability of being realized is. A risk like climate change where the solid scientific consensus is that there is a near-certainty of adverse effects unless emissions are curbed rapidly should promote even greater efforts to mitigate the risks.
Instead, self-declared conservatives engage in a dialogue of Tinker Bell: wishing will make it so. Virtually all ‘climate change skeptics” essentially are saying:
1. climate change mitigation would require globally coordinated government programs
2. big government is bad
3. therefore climate change could not be happening; the consequences would be intolerable
The real problem with this train of thought is: that if climate change really is happening, despite the perceived intolerability of the solution, the longer we delay in stopping it, the harder and more expensive and more intrusive it will be.
Denial of the facts leads to failure to solve real problems, which makes them get worse. If you refuse to get tested for cancer, because you don’t trust the medical establishment (or for whatever reason) and you really do have cancer, it will get worse. A case that could have been treated fully if treatment began today may be much more painful and expensive if you wait a year, and may be incurable and fatal if you wait 5 years.
Climate change is like that, because the pollution that causes it is cumulative. Even if we eliminated emissions entirely next year, the level of climate disruption that we had last year would continue for some 500 years.
There is only a finite number of years that humankind can continue polluting at today’s emissions rates before we pass a threshold of catastrophic disruption of climate with devastating economic as well as environmental impacts, and every year we wait before taking action to cut emissions not only brings as deeper into the danger zone but makes the later emissions cuts we will need much deeper and more sudden and therefore harder and harder to make.
This is a fundamentally conservative approach that self-proclaimed conservatives find it impossible to accept.
The Right’s Paranoia on Socialism
What makes the problem of denial even worse is that self-described “climate change skeptics” web-based articles are almost never more than one or two clicks away from articles that claim that even environmentalists don’t worry about climate change—that apparent environmental concerns are only a Trojan Horse for the real policy goal of creating a Soviet-style command and control economy.
Could even the 30% Republican base actually believe such nonsense? This type of discussion is another strong piece of evidence that Republicans are acting in a world of make-believe.
(Let’s start with some simple fact-checking. Go to the Communist Party USA’s website and look for their position on the environment. You will find some equivocal support for the environmental movement, but NOT EVEN ONE MENTION of climate change as an issue. So if Communism is really the driving force behind the climate protection movement, the real Communists are silent about it. Of course, this could just be a trick to cover up their real intentions, but if “conservatives” have been talking plainly about this for over a decade, what would be the point of a coverup? )
In sum, one would have to believe in an immense global conspiracy that no one has been able to penetrate for over 20 years to believe that climate protection initiatives are the sheep’s clothing on the wolf of Soviet Socialist advocacy to accept the position that seems to motivate the majority of Republicans.
And if Republicans do not accept this paranoid explanation, what is the reason for their near-universal rejection of attempts to solve or even mitigate the problem? Surely they can think of an approach that is not reliant on big government, even as they define the concept.
And actually the Waxman-Markey bill did not rely on big government either, instead making use of market-based approaches. Similarly, the one state that does have a comprehensive approach to reducing climate pollution—California—has a market-based strategy that continues to rely on a growing corporate business sector to drive the economy.
The feared economic impact of limiting climate pollution is not a sufficient argument against doing it, because again the evidence shows that at worst solving the climate problem would have only minor negative effects on economic growth—much smaller than the effects we ALREADY SUFFERED from faulty regulation of home mortgage underwriting nationwide (which occurred during a Republican administration) and from electricity deregulation (which was a product of conservative regulators) in California.
And at best, the most serious and careful studies I have seen on the impact of setting climate protection limits on emissions show positive economic benefits from the combination of an emissions cap and complementary energy and economic policies.
In contrast, all of the studies I have reviewed that show severe impacts are fundamentally flawed because they evaluate the effects of what I call “cap-and-trade-and walk-away”: a system that relies ENTIRELY on the price mechanism to do the work or curbing emissions. No such policy has ever been in serious discussion in the United States or at the state level, nor is it the approach in other countries with emissions caps, so evaluating the effects of such a system is either grossly erroneous or actually bad faith.
Instead, real climate change mitigation proposals always rely primarily on incentives and standards for low-emission resources, most all of which are cheaper than business-as-usual.
The California Air Resource Board has estimated that less than 20% of the emissions reductions it is overseeing will come about from the trading portion of the emissions reduction plan.
Perhaps the depth of “conservative” passion about climate change comes from their concern about economic freedom. This concern would have to be much broader than a concern about what realistic climate bills, such as the Waxman-Markey bill on the national level or the California Global Warming Solutions Act of 2006, AB 32, which was passed and is being implemented, would do, since both of these preserve and even enhance market forces and free enterprise.
But generalized concerns about economic freedom are also misplaced. Freedom turns out to be a very complex term to define, but traditional conservative definitions often distinguish between the freedom to act on your emotional impulses from the freedom to act based on rational decisionmaking. Indeed, this is the only definition that can be reconciled with conservative policies to support keeping prostitution illegal, to limit marriage to heterosexuals (among some but not all conservatives), to support monogamy (that is, prohibiting polygamy) among all conservatives, to keep gambling and drug use illegal in most cases, etc.
Conservative attitudes were galvanized by a reaction against the 60s attitudes of “if it feels good, do it”; the same principle should cause them to reject the economic version of this principle.
What is the difference between allowing new business activity and allowing piracy? The difference is that piracy harms others, whereas normal business requires that deals be entered into voluntarily. Allowing people or corporations to ignore the consequences of their pollution, just because it feels good to pretend that the problems of climate change and health effects of pollution don’t exist, does not enhance economic freedom in this case because pollution harms others directly.
Other Self-Inconsistencies of “Conservatives”
The problem of “conservative” policies undercutting conservative principles on the environment is not restricted to the climate change issue. “Conservative” opposition to environmental regulation (or health, safety, or anti-fraud regulation) undercuts the core principle of responsibility. If an individual has a choice between taking an action that benefits himself while harming others, such as stealing or cheating in business or damaging someone else’s property, the principle of responsibility demands that he or she be discouraged from doing so.
The legal system needs to present rewards for socially responsible behavior and penalties for behavior that preys on others. Conservatives understand this when it comes to traditional crime, but seem to have developed a blind spot when it comes to the environment (and also to other health and safety issues).
These are not the only examples of self-inconsistency on the right. Other fundamental tensions arise between the stated desire for keeping government out of people’s private lives to the strong support for government restrictions on abortion and recognition of gay marriage, and for expanded government powers to wiretap suspected criminals and to use private records of telephone calls for government investigations.
An interesting tension also occurs on national defense, where Republicans in principle stand for a strong military but in practice set out on an invasion of Iraq without a commensurate expansion in military capability, a policy that left us with almost no military capability to respond to unexpected challenges. (It is surprising that no one pointed out, when North Korea began its nuclear weapons testing, that the United States had no ability to act on a military solution to the problem even if we decided that this was the best way to go, because our armed forces were entirely devoted to fighting in Iraq and Afghanistan. This example of planned military weakness occurred on the “conservative” watch.)
What then is the self-consistent basis behind “conservative” policies: the principles that allow one to explain and predict specific policy responses? The answer that can be derived by examining their positions on the issues is that the” right” has the goal of maintaining and expanding privilege as its primary goal, and of fighting the chimera of Communism as its secondary goal. The secondary goal is doubly ironic because in pursuing their principles, they are both making the United States behave more and more closely like the Soviet Union did , and also creating a previously nonexistent risk that Communism might re-emerge as a political force in America.
Defending privilege explains why elevating the concept of low taxes to a fundamental principle makes sense. Taxes are paid mainly by those with lots of money; cutting them benefits the rich—or at least does so in the short term (see discussion of taxes in the conclusions section below). Deficit reduction can be sacrificed on the altar of tax cuts because the privileged don’t depend that much on a strong dollar or from low inflation that results from a balanced budget, since it is easier for them to move assets aboard.
Defending privilege is the most consistent explanation for Republicans’ abandoning the field of assuring responsible environmental behavior completely. It would be one thing if Democrats proposed cutting pollution one way while Republicans favored a different approach, but that is no longer the case: the right has no solution to the problem at all. In the case of climate, the right denies, in the face of scientific authority, that there is even a problem that requires solving.
The irony of conservatives defending privilege as a principle is that it violates more fundamental conservative principles. Let’s consider the concept of American exceptionalism. Conservatives believe that America is different than the countries that supplied immigrants to us, due to our Constitution and our freedoms. But the first criticism applied to the Old World is that its wealthy and powerful controlled everything and operated in a system that rewarded birth and connection rather than hard work and competence. But by cutting taxes, and most notoriously the estate tax, we are doing our best in America to re-create the systems in the countries that we or our ancestors decided to leave.
It is not just a recent observation that American exceptionalism is based in part of a more equal distribution of wealth and income. In 1785 Thomas Jefferson wrote to the Reverend James Madison complaining that in France “[t]he property of this country is absolutely concentrated in a very few hands…the most numerous of all classes  is the poor who cannot find work.”
The second self-consistent principle appears to be the fear of Communism. This has gotten to the point of almost complete silliness at this point in history. There is no serious support for Communism in the United Stated, and there hasn’t been since at least the 1950s. The superiority of free enterprise to Communism began to be clear even to the left in the 30s, and by the time Communism collapsed in the 1980s the case for it was so thoroughly discredited that almost no one took it seriously any more (except in Latin America).
Yet fear of Communism seems to have been a driving force for “conservatives” in the debate over health care.
There are again multiple ironies here. But they all seem to revolve around the observation that the only risks of getting a Soviet-style system of government economic planning in the United States are risks that are exacerbated by the “conservative” agenda.
The most obvious risk is that with the fundamental causes of the recession still unaddressed and without any conservative plan for economic recovery, the American economy will continue to stagnate or grow slowly while the Chinese economy races ahead, not only competing against us but also financing our public and private debt. China, recall, is governed by REAL Communists, and many of its economic institutions, including ones that we are becoming more heavily indebted to every year, are State-owned businesses. How long can this persist before China starts imposing government-directed economic planning on us? (And it won’t even be OUR government doing the planning.)
The second risk is the growing disparity in incomes. America is becoming more and more like a Latin American country where all the wealth is concentrated at the top. This is an irony because when I noted that the real political risk of Communism in the United Stated is laughably small, this is not true in Latin America. A reasonable prelude to creating a serious Communist threat in American is the creation of economic conditions that cause it elsewhere.
The third risk is that by pandering to the organized business community’s wish list of policies, particularly with respect to regulation, “conservatives” are establishing a shadow centrally planned economy where trade associations take on the role that government planners had in the Soviet Union.
Businesses don’t spend the money to be members of trade associations so that they can compete more with each other; they do so to address common needs in consensus ways. This is the opposite of competition and free markets.
I have worked with trade associations for over 30 years, and it is clear that trade associations have vested interests in preserving the status quo to protect entrenched interests. If asked about job-killing regulations 100 years ago, the horse-wagon trade association would have nominated rules that encouraged streets to be paved and to be wide enough to accommodate cars. And they would have been right: encouraging cars would cost wagon makers jobs. But the problem is that car makers in fact added far more jobs than wagon makers lost, so the total job figure as collected by trade associations would be wrong and not just by a little.
In rulemaking after rulemaking, I have listened to trade associations talk about the prospective job losses if the regulation is adopted. In the cases where the regulation that they opposed was adopted anyway, the job losses never happened. In some cases, it was the reverse: new jobs were created by the regulation or older jobs were preserved rather than sent overseas.
“Conservatives” seem to think that the best way to make policy on business issues is to compile the views of all the trade associations, combine them into a single plan, mediating between associations where their recommendations disagree, and thus developing a “pro-business” policy. Essentially, this is what the umbrella business trade associations already do.
The world already has tried a system where industry associations decide how to carry on their economic affairs by working together communally. It was called Central Economic Planning, and was the system employed by the Soviet Union. History shows how badly it failed. It would be a shame if we Americans fought Communism through 45 years of Cold War only to reinstitute it by calling it something else.
Inconsistencies from Progressives
I have concentrated on the failures of the right. This is because the disconnect between the professed principles and the actual policies being promoted is far deeper on the conservative side of the spectrum, and because the left has not developed the fairy-tale structure of disinformation in their explanations of what they stand for: they may spin the facts to their advantage, but there is still some connection between the “story” and the real world. But the left has made significant errors as well.
The first is a near mirror-image of the errors of the right: the tendency to see every problem in terms of labor-management disputes. This is reflected in some of the anti-spending rhetoric of the right directed at the salaries and benefits of government employees. This is a real problem: many Democrats seem to behave as if their success in elections gives them the privilege of hiring people to cushy government positions and paying them more than what the market would. I am not making the observation here that in general government workers are compensated too highly, but rather that most Democrats would resist the argument that such problems EVER occur.
This problem afflicts the policy mechanisms that progressives use and the language and imagery they present. For example, progressives like to fund programs such as health care, unemployment compensation, and pensions from taxes on employers. Such taxes suggest that the employer somehow has a moral responsibility for the well-being of his or her staff. Not only does that put American employers at a competitive disadvantage compare to foreign competition, it also provides the benefits only to workers—not to the disabled or those unable to get a job, or stay-at-home parents--without a defensible rationale.
It is also, at its core, sexist. Why should a stay-at-home wife have fewer welfare, pension, and health care benefits than a working husband? Or why should the same woman who is divorced from her ex have fewer benefits than her married sister? Why should payments to help people who don’t have a job be contingent on having had a job before: aren’t the neediest those who were never able to find work at all?
The basis sexism is apparent in the verbal and pictorial imagery of workers: workers are almost always portrayed as men, and men doing the kind of physical labor that women are less likely to do. Why is the image of the noble worker always a man carrying a heavy weight rather than a woman working on a computer?
The second error of the left is a tendency to think that incentives don’t matter and that it isn’t important to get them right. This is coupled with a tendency to deny the concept of responsibility at all: to assume that it is fairest to treat everyone the same regardless of merit or performance. Conservatives justifiably object to this tendency to create a “nanny state” that takes care of everyone equally even when they are not trying to help themselves.
I have seen this problem in advocacy on energy efficiency. Conservative and moderate Republicans that I have talked to understand intuitively the importance of incentives being based on performance and not on cost, on the size of incentives being modest, and of the term of incentives being limited. Democrats seem more inclined to want to just throw money at the problem and hope for the best, or to pay for incentives to their “friends” rather than look coldly and rationally at what the incentives should accomplish and how they should be structured.
This is a deep philosophical problem. People who work hard and follow the rules feel that it is unfair if others who do not get taken care of regardless of their own lack of effort. Moderate Democrats such as Bill Clinton understood this and used these very words to good electoral effect. But progressives in general don’t get it. In their efforts to give people with difficulties a chance at the American dream of economic success, they seem to act as if all economic setbacks are due to the system and that people should be entitled to success without the self-discipline to work for it.
These latter two combine in left wing proposals such as rent control. Without trying to say that rent control is always unjustified, it is clear that such systems often establish the wrong incentives on both landlords and tenants. It makes the landlord (as opposed to the government or the individual) responsible for the tenant, with an extreme case being an (unimplemented) idea that landlords should reduce rents to their tenants if they lose their jobs. (Perverse incentives: landlords would then seek out people with stable jobs or pensions and discriminate against people with a short employment history; tenants have the incentive to move to the most expensive place they can afford as soon as they fear that their job is in jeopardy…)
Another issue of the left is its systematic dismissal of the importance of religion. When one hears the words “the religious ___”, one tends to fill in the word Right, although there are also faith-based activities on the left and in the center. The progressives’ marginalization of religion leads to a source of civic division that I think is unnecessary and counterproductive. Progressives don’t need to be more religious, but they need to be more intellectually respectful of those who are.
But perhaps the most significant failure of the left is its failure to challenge the obvious factual errors of the right: the fact that higher taxes appear to increase economic growth and clearly do not reduce it, the fact that regulations do not impede market forces or kill jobs, and the canard about Democrats secretly supporting Soviet-style government planning of the economy.
So how do we get the economy to recover?
Economists are counting on increased consumer and business spending to draw us out of recession. But with unemployment stuck at almost 8% and consumers still deep in dept, with many homeowners owing more on their house that it is worth, where is that spending going to come from? And as state governments start to slash budgets and lay off workers and the stimulus money runs out, this problem will just get worse.
"There's no sector of the economy - not consumers, not business and not government - that's waiting to surge ahead and drive a strong recovery," according to John Williams, executive vice president and research director for the Federal Reserve Bank of San Francisco.
It is surprising how accurate this observation still is over 18 months after it was made.
One could, I suppose, argue that what is really needed is an increase in consumer confidence that could be engendered by strong conservative assurances. It is odd that “conservatives” would be advancing such a theory, though, since it calls for:
• Big government trying to change how people think
• A belief that one can get richer through public programs that are independent of individual work—how is this different from welfare?
But even worse than these philosophical self-contradictions, the real problem is that there is no evidence that increasing confidence works, other than to avert a financial panic, which is not a continuing event.
Is America really reconciled to spending the next two years, or five, or twenty-five, mired in unemployment? Especially as the rest of the world, starting with China and India, are continuing to do better?
What is the “progressive” approach to recovery? There appears to be little unity either among Democrats or in the blogosphere. Perhaps the most common prescription is for more economic stimulus. But this recommendation suffers from the same problem as many of the conservative approaches: where are the facts to justify it? Perhaps someone could argue that stimulus is the answer because the first stimulus package—ARRA—worked so well. To do this, one would have to show that what would have happened without ARRA would have been much worse than what actually happened. This is a plausible argument, and it may well be correct. But it is not the argument that many progressives are making, even in theory, and it certainly has not been demonstrated with evidence.
Even then, an argument for stimulus begs the question of how the money should be allocated. The ARRA stimulus was thrown together in a hurry, and was subject to a lot of constraints. First was the constraint that there wasn’t enough time to analyze and debate what the best uses of the money were. The criterion we heard most was “shovel-ready”, which is not the same as “most effective”. I would argue, and some economics writers have done so in print, that any future stimulus should be much better targeted and carefully planned than ARRA was. But aside from a few vague references to infrastructure, there has been no public dialogue on how this would be done. Without a track record of public discussion, it would take the better part of a year to figure out how to do more stimulus even if there suddenly were a political consensus to do so.
The second constraint, which was not talked about much, was that all of the programs that were funded had to be previously “authorized” by Congress. After 8 years of an anti-government administration, there were not a lot of good and well-administered programs that could be expanded. As a result, much of the ARRA funding was channeled to the states in the hopes that it might be spend thoughtfully, but without sufficient controls to assure that result. And new programs that were inexpensive and predicted to be very effective, such as the Retrofit Energy Efficiency Program (REEP), a grant program to incentivize performance-based improvements in whole house or whole building energy efficiency, which received bipartisan support and private sector consensus, and which was passed by the House of Representatives as part of the Waxman-Markey climate protection bill, were left behind.
The bottom line is that the left does not have a clear and implementable solution for economic recovery either.
Perhaps the economic crisis and the need for a more civil discourse can begin to point the way to a less ideological approach. I suggest one in Part 2 of this essay.