Friday, February 20, 2009

America Has Let Madison Down--Why?

In the Federalist Number 10 James Madison described faction, or special interest activism, as the chief threat to republican government. In our era special interest lobbying has arisen as an increasing threat to the American republic, just as Madison prophetically predicted. The monotone media support for the Wall Street and banking "bailout"; the absence of intelligent discussion on television; the continued exponential growth in the federal budget in which both parties participate; the Democrats' use of the "bailout" as an excuse to subsidize special interests; the Republicans', including Ronald Reagan's, inability to meaningfully cut government; and both parties' loyalty to the Federal Reserve Bank's ever-escalating subsidization of Wall Street all portend ever steeper decline in American wealth, power and freedom. The two party system has failed. Yet, Americans lack the competence or education to identify the underlying problems. Why has America let Madison down? Why do the voters repeatedly elect the same corrupt politicians, beholden to special interests? Why have so few presidents displayed a fraction of the vision or leadership ability of the presidents of an earlier age?

Even in the 1780s factional rivalry challenged popular government. Madison defined faction as "a number of citizens, whether amounting to a majority or minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community."

His definition suggests a few possible reasons for the failure of twenty-first century American democracy. First, in the Progressive era, which occurred a century ago, Herbert Croly and John Dewey argued that democracy is an end to itself. They defined away the possibility that the majority could oppress the individual or a minority. This was a paramount concern to Madison but of no concern to Croly or Dewey. The Progressives' fetishization of democracy continues today even in many libertarian circles. Excessive democracy fails because the public is easily manipulated by wealthy factions.

The extension of democracy in the Progressive era, specifically, the direct election of Senators and the creation of the primary system in the two parties, opened the door to manipulation of public opinion. By increasing choice the Progressives reduced choice. Today's Congressmen, like the general public, are incompetent to discuss key issues such as the Federal Reserve Bank. Nevertheless, public opinion is more easily manipulated than Congress's, and more democracy has meant that public decision making has deviated from the public interest to a greater degree than Madison hoped. Madison believed that elected representatives would refine public opinion. Instead, the public is so dazed that it repeatedly elects representatives who act against its economic interests and who are themselves incompetent to discuss policy.

The second reason that democratic faction may no longer be recognized is the education system. The public has been educated to believe that Congress and the bureaucratic apparatus of the federal government make rational decisions; that the Federal Reserve Bank is a necessary and optimal institution; that politicians act in their interest; and that they are like children who must depend on the federal government. In the 18th and 19th centuries Americans were not so indoctrinated. A sheepish, indoctrinated populace is incapable of self government.

A third reason that faction has been increasingly triumphant is the mediazvestia*. In Madison's day there was a host of opinion sources. Newspapers, public debate and local discussion permitted a diversity of opinion. Today's mediazvestia is on a lower intellectual level than the newspapers of Madison's day, yet the public passively accepts its numerous distortions, lies and errors (the reporters themselves are badly educated so make frequent errors of interpretation and judgment). One wonders why a viewer would take CNN seriously. But millions do.

Thus, excessive democracy; indoctrination through the education system; and indoctrination through the mediazvestia are reasons for the public's inability to cope with democratic faction.

Madison goes on to argue that although the causes of faction cannot be eliminated the effects can be. Here he makes honest errors that economists identified two centuries later. First, he believes that if a faction consists of a minority, the democratic process will defeat it through a majority vote. This is an error, as I will discuss. Second, when majority faction arrives at a "scheme of oppression" the safeguard that Madison proposes is republican government and large size, neither of which work because of modern technology and the scope of government.

Since, argues Madison, small numbers of citizens are most easily captured by momentary emotion that leads to oppressive faction, republican safeguards such as representative government inhibit what de Tocqueville later termed "tyranny of the majority". He argues that "the two great points of difference between a democracy and a republic are delegation to a small number of elected representatives" who are potentially more rational than the citizens themselves and "secondly, the greater number of citizens and greater sphere of country over which the latter may be extended."

But a small number of elected representatives cannot serve as a safeguard if they have been brainwashed by an ideological educational system that teaches them to support special interests. Today's elite educational system impresses upon its subjects the importance of subsidizing Wall Street. As well, the great land mass over which the nation eventually extended was diminished first by print media, then radio, then television. Television has rendered the nation the equivalent of a small town by which the public is easily riled to violent emotion.

Contrary to Madison's hopes, as the country has grown larger, the quality of leadership has declined. A nation of 310 million produces leaders of vastly inferior quality to a nation of 3 million, the approximate population of the United States in 1790. One must wonder why a large nation like America has produced a failed, despised Congress; and presidents who are fools.

There are several interpretations of leadership. Among the most famous is the distinction between transactional and transformational leadership. Transactional leadership involves quid pro quo. The leader provides expertise and resources while the followers provide effort and other contributions. With respect to government, transactional leadership would amount to overseeing of factions. Congress and the president provide benefits to various factions. In turn, the factions offer support to Congress and the President. Transactional leadership is necessarily redistributive. It is not inspirational and is inconsistent with the Lockean values on which the nation is based. Yet it is the basis of both Progressivism and New Deal liberalism.

The alternative view of leadership is tranformational. Transformational leaders inspire. They project values and vision that motivate belief and commitment. They are likely charismatic (which was Max von Weber's term for this kind of leader). In order to be transformational, a leader must project the American value system. In American history, there have been several transformational leaders: Washington, Jefferson, Jackson, Lincoln and both Roosevelts. Until the Roosevelts all of the leaders projected Lockean values. Theodore Roosevelt and Franklin D. Roosevelt rejected Lockean values. Since then there has been a basic value conflict within the United States. Many people, called conservatives or libertarians, continue to believe in Lockean values. Many others called "liberals" have rejected American values in favor of a European value system. Still others are indifferent.

Great leaders cannot be transactional. The reason is that the brokerage of special interests limits the scope of leadership. It involves manipulation. It is inconsistent with the vision on which the nation's Constitution rests. Great leadership is visionary. It is transformational. It is impossible in post-New Deal America. Great leadership is not possible in a nation with disjointed values because Americans do not agree. Ronald Reagan disturbs social democrats. Barack Obama disturbs individualists. It will not be possible to mend the rifts in the American value system because those who advocate the European-style value system are as committed to it as those who advocate the American approach. America is divided so that great vision and leadership are impossible.

Moreover, and unfortunately, Madison was wrong in his hope that the fittest would be selected as representatives for the same reason that he was wrong that minority factions would not succeed. He did not understand the economic incentives at play in the post-New Deal democracy. These concerns were less true in the era of limited government, until say, 1950, when the federal government spent only 10 percent of gross national product. As the stakes have been raised, so has the corruption level.

The best do not enter government for a host of reasons. The selection process in politics involves a training period during which an amibitious college graduate is expected to confrom to a political machine. Only someone with flexible values, capable of ignoring corruption and stupidity, would be able to see through this apprenticeship. Second, the opportunities for gain are greater in other fields. Third, specialization is greater in the modern world than it was in the 1790s so that people who choose to specialize in science or business are unlikely to consider or be considered for a political career.

With respect to public indifference to poor leadership, costs of education about politics inhibit the population from thinking carefully about their representatives. Costs of organization inhibit public spirited groups from forming. In contrast, special interests enjoy economic advantages because their stakes are high. Wall Street gains billions from the Fed. It pays for Wall Street to organize. If each American each year pays a "tax" of $500, it is not worth it to fight them.

Special interests enjoy asymmetric incentives and low organization costs because corporations, Wall Street banks and similar lobbies are few in number. The gain from Fed counterfeiting and special interest regulation are skewed to favor a few groups but the costs are spread over a large number of voters. Therefore, minority factions triumph and inferior representatives are elected because of the costs and benefits that face voters. It is costly to learn about one's state legislator or Congressman. One person can educate himself, but to what avail? He cannot influence the election's outcome anyway.

Morals and idealism do not trump economics in most cases, unless the problems that special interests create become large enough to interfere in the daily lives and economic plans of Americans in a visible way.

Of course, the endless regulations and special interest arrangements that hamstring Americans already do interfere significantly in Americans' ability to function; to innovate; and to progress. Socialism has already done incalculable harm to progress. But the harm needs to be visible and sufficiently egregious so that the costs of organization to any one American are covered by the losses sustained due to efforts to correct the problem. Apparently, this has yet to occur. The majority does not see the current situation as warranting self education. Moreover, the mediazvestia supplies considerable disinformation, confusing most Americans and raising the costs of practical action. For instance the claim that the "bailout" is essential has been hammered home via almost every media outlet. How many Americans are not bamboozled?

Madison notes that smaller societies have fewer individuals who are more easily manipulated while larger states with more citizens are more difficult to manipulate. "Extend the sphere and you take in a greater variety of parties and interests; you make it less probable that a majority of the whole will have a common motive to invade the rights of other citizens; or if such a common motive exists, it will be more difficult for all who feel it to discover their own strength and to act in unison with each other."

Again, Madison fails to understand the insights that Mancur Olson grasped in "Logic of Collective Action" and "Rise and Fall of Great Powers" and that George Stigler notes in his "Theory of Economic Regulation". Economic incentives cause groups to form and to agitate in ways that are predictable based on benefits from lobbying and organizational costs. Size defers but does not eliminate faction. Rather, small groups of corporations or labor unions find it convenient and profitable to form. Large groups are difficult to organize and so cannot resist the smaller groups.

One of the things that kept faction in check until the 1950s was limitation on the scope of government. As the power to tax increased, the incentive to manipulate the state increased. Today, we have the bailout and increased subsidy of the wealthy because the average American has been tricked into believing that subsidization means helping the poor.

Madison's final point is that the influence of factious leaders will be limited by geography. But television excels at flaming tyrannical emotion among the majority. The public is easily fooled by supposed experts who parade on national television, each one less competent and less informed than the last. Television conquered Madison's vision. It has destroyed the ability of republicanism to restrain tyranny. Lockean Americans are right to resist the "liberal media". Even if the media was conservative or libertarian it would pose a threat. By linking the mass mind it recreates the small town, the direct democracy. Heretofore the chief manipulator of the public mind has been Wall Street. It is entirely possible that a fascist or other totalitarian movement could replace it and play the same role.

Madison could not have anticipated the development of technology. Mass market newspapers and yellow journalism flowered in the post Civil War era and were followed by the expansion of Progressivism. Nikola Tesla patented the key elements of radio and television in 1897, at the beginning of the Progressive moment and the height of the late 19th century's innovative explosion. The practical implementation took somewhat longer but the military had begun using it by 1912, the year of Woodrow Wilson's election and it had been adapted to commercial use by the 1920s. The shift to social democratic Progressivism was effected in 1930, at the height of the radio age. Television was adopted in the 1950s, and the massive expansion of federal power occurred soon thereafter.

Madison believed that distance and population enhanced republicanism. Technology has successively reduced distance through improved transportation and, most of all, through more rapid communication. Rapid communication enhances the extent of decmocracy. Emotion such as outrage and superficially thought out strategies such as the bailout are passed off by interested economic actors as "policy". Economists for hire parade before the television camera, claiming that multi-billion dollar subsidies to firms that happen to have contributed to the universities that employ them are essential to economic progress. The public lacks the ability to rationally digest these claims. Crackpot schemes tack hold rapidly.

Much as Hitler and Mussolini were products of the radio age and New York Times social democracy was the chief product of the television age, so will the advent of the Internet influence the course of history.

But is the decentralization that will follow the Internet explosion be sufficient to counterbalance the longer term centralizing trend of television or radio?

Just as centralization of the federal structure enhanced and re-enforced the "small town" effects of television and radio, so decentralization will enhance and re-enforce the "big tent" effect of the Internet. Conflicting informational sources threaten and de-legitimize traditional centralized media. Even with the massive pro-bailout propaganda campaign on television and radio, the majority of the public remains unconvinced. Only Obama's fanatic followers on CNN and its mindless viewers think otherwise.

The Internet poses some hope to counteract the mass mind era of radio and television and its concomitant rejection of Lockean values. But Americans need to think about a new organization that will enhance the new Lockean revolution that can take root. Decentralization is consistent with the multi-faceted potential of computer and Internet technology. The centralizing trend of the last century can potentially be counteracted. But enhancement of Madison's vision requires the creation of a new frontier, a new form of diversity by which alternative social visions can coexist peaceably and the die hard rigidity of "Progressivism" and its pro-Wall Street fanaticism can be sidestepped. Of course, many liberals prefer the Wall Street liberalism of the New York Times and the Democratic and Republican Parties. But this aging system is increasingly incoherent. The academics who support it are increasingly self interested and foolish.

*In case your wondering, Izvestia was the official newspaper of the Soviet government. My point is that the American "media" is today little more than a propaganda organ for Wall Street.

New Yorkers Turned New York into A Hellhole--Now They're Doing The Same to Florida

New York City exemplifies the terrible destruction that the "progressive" or social democratic ideology has wrought. Once a center of innovation, the corrupt Ochs Sulzbergers and their minions, Robert Moses and the long list of social democratic bozos, have turned New York City into a playground for the super rich. Destroying the light manufacturing and business base; imposing regulation that destroys innovation; attacking business and private initiative through taxes; only the highest-margin service businesses, law, advertising, consulting and investment banking remain in New York. Destroying the housing stock through regulation, labor unions and rent control, the Ochs Sulzbergers and their mindless supporters trumpet how they help the poor and middle class, while they have ghettoized and made the lives of the poor and minority groups hopeless.

New Yorkers have fled the disaster that they have created. But brainwashed by the city's ideological elementary and high schools and by the city's ignorant mediazvestia, New Yorkers continue to advocate the very policies that have made it impossible to remain in New York. One must suppose that in the coming years places like Florida and California will continue to become incompetently run centers of decline, much like New York City.

America Going to Hell in A Handbasket

Cartoonist Paul Nichols of the Catholic Cartoon Blog links to my blog about Cortes de Russy's article here. The blog to which he links is as follows:

America Going to Hell in A Handbasket: Stimulus A Fraud

Cortes de Russy has an excellent article in Pajamas Media about the nonsesensical economic stimulus that our economic experts, who are rather our economic illiterates, have been advocating on the half-witted media outlets.

De Russy notes that:

"We now find ourselves informed by 'leading' economists and politicians that the solution to our current economic malaise is for government to embark on a gigantic spending spree. This spending, we are assured by one of the leading securities rating organizations, Moody’s Economy — whose recent history of ratings brings into question its judgment for quality analysis — that these expenditures will generate 'multiples' of growth in GDP in magnitudes exceeding 1.5 times the amount spent."

What a laugh. If I print $10 and spend it on a baseball, then prices go up because baseballs become scarcer. Any additional production due to the spending is offset by higher prices. Only cranks would make Moody's argument. And, of course, Moody's is one of the firms that was giving Enron an "A" rating in the weeks prior to its collapse. Now, they feel qualified to dispense dumb economic advice.

De Russy notes:

"Lest we forget, capital formation is the seed corn of wealth and job creation, and since wealth creation is the driver of economic progress, one must ask if government spending increases or enhances capital formation."

Government spending does not enhance capital formation--it demolishes it.

De Russy concludes that:

"The history of economic progress throughout the world provides irrefutable evidence that the economic well-being of ordinary citizens is closely correlated to the relative degree of freedom in markets and the relative lack of government planning and spending. To argue that government direction and allocation of resources will produce better results is to ignore history and the general understanding of how markets function."

A conclusion with which I have to agree.

Looking over the comments on de Russy's articles on Pajamasmedia, some are of better quality than others. This one from Sara for America caught my attention:

"The stimulus is like the treasure found in a mummy’s tomb. It excites at first, but then everyone who touches it starts dying."

Winds of Change in the Post Obama Workplace

My column, "Winds of Change in the Post Obama Workplace", appears in the February issue of the AICPA's Career Insider newsletter.

>On December 29, 2008 then President-elect Obama announced his choice of Hilda Solis as Secretary of Labor. On January 6, the first session of the 111th Congress convened. Wasting little time, three days later the House of Representatives passed the Ledbetter Fair Pay Act (FPA) and the Paycheck Fairness Act (PFA), two important changes to workplace regulation. Because of the economy’s parlous condition, there had been speculation during the campaign as to the priority President Obama would give to these and other labor-supported proposals. The House has hastened to pass them, perhaps to test the President’s mettle.

>Besides the FPA and the PFA, some of the workplace-related bills discussed during last year’s campaign were changes to labor law under the Employee Free Choice Act; increases and indexing of the minimum wage; the Healthy Family Act; and extensions to the Family and Medical Leave Act. The list is controversial, and the changes will affect accounting industry firms and employees.

Read the whole thing here.

Thursday, February 19, 2009

Black Republicans Just Say "No" To Socialism

I just received the following from Frances Rice of the National Black Republican Association:

In a moment that will live in infamy, President Barack Hussein Obama fostered upon America a gigantic Socialist Stimulus Bill that will plunge America deeply into the failed Euro-socialist psychosis.

Obama conjured up images of the Great Depression to intimidate the US Congress into voting for his $787 billion pork-laden stimulus bill that was crafted in the dead of night by liberal Democrats and read by no member of Congress before they voted the next day. Now, economists are revealing that Obama's Depression analogy is historically false and fearmongering at its worse. History shows that FDR's New Deal blocked recovery and plunged our nation into a deeper recession. What really got us out of the Great Depression was World War Two.

Click below to read the article "The Real Lessons of the Great Depression" by Michael Barone.

Click below to read the article "Obama's Rhetoric Is the Real 'Catastrophe'" by Bradley R. Schiller.

When Democrats voted for that bloated stimulus bill to reward their special interests and fund every kooky item on their socialist agenda, they sold out America for a bag full of our tax dollars -- their 30 pieces of silver. No Republican in the US House of Representatives voted for that bill. In the US Senate, only three moderate Republicans voted with the Democrats to saddle our future generations with a massive budget deficit.

Obama's cruelest slap was on the face of black Americans. Buried in the bowels of that big government spending bill is a poison pill that kills welfare reform. Welfare money will no longer be used for job training, child care or transportation. Instead, the money will now, once again, be just a government handout that keeps black children trapped in generational poverty. Uncle Sam has replaced the father in the homes of poor blacks because you cannot get a welfare check if there is a man in the house. Democrats have been running black communities for the past 40 years. The socialist polices of the Democrats have created a culture of dependency on government handouts and turned black communities into economic and social wastelands. Socialism is a moral and economic cancer that destroys families, communities and nations.

Hidden deeply in the stimulus package is funding for social engineering programs that can become the seeds for Obama to become our first American dictator. An Obama supporter put up a sign that says: "One Nation Under Obama". That sign is a chilling look into the world of Obama where America is no longer "One Nation Under God".

For the 233 years of our nation's existence, our rights came from God, not man. The Declaration of Independence signed on July 4, 1776 declares: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed."

In the year 2009, we find ourselves faced with a serious question. Will we, the people of the United States of America, consent to having Obama as our god and leave it to him to dictate what rights we will have?

With the fawning media refusing to hold Obama accountable, Congress in control of Democrats and Obama poised to appoint extreme left-wingers to the US Supreme Court, there will be no check on Obama's power – except we, the people.

While telling us to be "civil", Obama uses fear and intimidation to silence his critics and seize unprecedented power over our lives and every aspect of our entire economy – our banks, automotive industry, airlines, food, drugs, education system, public health, energy production, science, and media broadcasts. Obama wants to plant our nation's feet so firmly in the concrete of dead-end socialism that America will never recover and never again be the land of the free.

Will we fight for our freedom, using the non-violent means of Republican Dr. Martin Luther King, Jr., or will we cower like cowards out of fear of being called "racist" or "divisive" and allow our country to be turned into a failed socialist nation?

Will we follow the courageous example of civil rights heroine Rosa Parks who refused to sit on the back of the segregated bus, or will we sit like sheep with our heads bowed on the back of Obama's socialist bus?

We, as American citizens, have three powerful tools we can use o fight against Obama's socialism – our money, our time and our vote.

Money Talks. We can cancel our subscriptions to liberal newspapers and magazines. We can make our lives a "TARP FREE ZONE" by refusing to put our money in banks or buy products from manufacturers that take TARP Two money. We can donate to Republican candidates and Republican organizations. Be creative in deciding how to use your money to fight for the soul of America.

Time Chalks. We can participate in "No To Socialism" protest rallies in our cities and our nation's capitol. We can write letters of protest to President Obama and our members of Congress. We can chalk up time as volunteers with our local Republican Party organizations.

Voters Walk. We can refuse to vote for any Democrat running for Congress in 2010 because doing so keeps liberal Democrats in control of Congress. In 2012, we can refuse to vote for a Democrat to be our president.

Wake up America. Fight for what is right. Just say NO to Socialism!

Click here for more information about the National Black Republican Association

Wealth, Not Politics, Drives Declining Birth Rate: Lessons for Immigration

A thought occurred to me: might the declining birth rates in Europe result from socialist ideology? I went to the web and extracted per capita gdp from the CIA Fact Book and the Freedom Index from the Heritage Foundation (the freest countries are Hong Kong and Singapore; the least free Cuba, Zimbabwe and North Korea; the US is sixth--overrated in my opinion since the bailout and the Patriot Act). I also obtained a list of fertility rates from Wikipedia.

I entered the data into an SAS program. SAS is a statistical program that social scientists use to analyze basic statistics.

What I found is that there is a hyperbolic graphic relationship between gdp per capita and birth rate. The variables can be linearized by taking the natural logarithms. There is also a weaker curvilenear relationship between overall freedom and birthrate. However, the direction of causality appears to flow from income to political freedom to birthrate (for the effect on birthrate, not for the development of high income, which reflects a different processs).

The political freedom variable is negative and significant when correlated with birthrate: more freedom is associated with lower birth rates. However, that relationship is blown away by gdp per capita. When both gdp per capita and freedom are included in a regression, the freedom variable has zero effect while the gdp per capita variable has a huge effect. The r squared or measure of fit is pretty strong for gdp, in the area of .6. That is, 60% of the variability in countries' birth rates is due to economic output.

This would seem to have some lessons for immigration. In countries, like France, where immigrants are not able to easily commingle with the general population and remain low income, the foreign culture would likely grow in influence over time because of the immigrants' lower income level. In contrast, where the immigrants are integrated into society and so acquire the same economic productivity over a few generations, they are likely to adopt the same fertility rate (and one might suppose the same culture in other ways).

Education that encourages and celebrates ethnic differences rather than the "melting pot" theory can give way to divergent economic outcomes as people of a poorer culture cling to their poverty-inducing habits. This would result in higher birthrates and social conflict between the slower-growing but more affluent majority group and the faster-growing but less affluent immigrant group.

It would seem that the educational system ought to take seriously its obligation to encourage the adoption of skills by which all children can equally become economically successful. Then factors like birth rates will not become threatening to the majority culture, as they have in culturally exclusionary Europe.

Europe's problem is that they have adopted a politically correct approach to immigration without dropping their snobby cultural attitudes. If you want to have immigration, you should be practical and open minded, not snobby and exclusionary.

Wednesday, February 18, 2009

Break Out the Champagne--New York Times Stock Sinks to $3.65/Share

Previous Close: $3.77 (2/17/09)
Open: $3.78
Bid: NA
Ask: NA
Day's Range: $3.65 - $3.83
52 Week High: $21.14 (4/25/08)
52 Week Low: $3.65 (2/18/09)

Markets do work. Too bad we didn't sell short. Arthur Ochs Sulzberger seems to be mismanaging his inherited firm into the ground. The Times reports that Carlos Slim Helú has lent the firm $250 million to help it pay off debts in light of flagging readership. The Times stock sold on the market is non-voting. Only the Ochs Sulzbergers, who advocate inheritance taxes for everyone but themselves, have voting stock.

The question is not so much when the Times will fold, but rather, whether anyone will care (other than Mr. Helú and the Ochs Sulzbergers) when it does. (H/t Howard S. Katz.)

Federalist's Argument for Union

John Jay, Federalist No. 5:

"Should the people of America divide themselves into three or four nations, would not...jealousies arise? Instead of their being 'joined in affection and free from all apprehension of different interests," envy and jealousy would soon extinguish confidence and affection, and the partial interests of each confederacy, instead of the general interests of all America, would be the only objects of their policy and pursuits. Hence, like most other bordering nations, they would always be involved in dispute and war, or live in the constant apprehension of them...

"The most sanguine advocates of three or four confederacies cannot reasonably suppose that they would long remain exactly on an equal footing in point of strength...Independent of those local circumstances which tend to beget and increase power in one part and to impede its progress in another, we must advert to the effects of that superior policy and good management which would probably distinguish the government of one above the rest, and by which their relative equality in strength and consideration would be destroyed. For it cannot be presumed that the same degree of sound policy, prudence and foresight would uniformly be observed by each of these confederacies for a long succession of years..."

But might this not argue indeed for separate confederacies? Jay assumes that management is the product of good fortune. But Sir Arnold Toynbee, a century and a half later, argued that mimesis or imitation is the hallmark of a rising civilization. Might not independent confederacies permit experimentation and learning which would potentially be imitated by the other confederacies? Management is a process of learning, and learning is possible through experimentation. The decentralization of decision processes permits learning. So the decentralization of federal power permits innovation that would not exist in a centralized federal structure.

Jay feared that less successful confederacies would fear more successful ones. Might not they decide to imitate the more successful ones instead?

In the Federalist Number Six, Hamilton argued that separate federations would likely lead to conflict and war:

"Has it not...invariably been found that momentary passions, and immediate interests, have a more active and imperious control over human conduct than general or remote considerations of policy, utility or justice? Has republics in practice been less addicted to war than monarchies?...Are there not aversions, predilections, rivalships and desires of unjust acquisitions that affect nations as well as kings?...There have been almost as many popular as royal has from long observation of progress of society become a sort of axiom in politics that vicinity, or nearness of situation, constitutes nations natural enemies..."

But decentralization need not mean de-federalization. The states can remain in unity, as a single nation, but choose separate policies voluntary. The enmity of proximity can be induced by forced collaboration and participation in programs whose values many members of society do not share. The forcible extraction of assent to programs that only a portion of the population favors can give rise to the same resentment as that which neighboring states feel toward each other. The unity of a federal republic need not mean the unity of choice of consumption or or ideal.

Hamilton makes a similar claim in Federalist number 7:

"Competitions of commerce would be another fruitful source of contention. The States less favourably circumstanced would be desirous of escaping from the disadvantages of local situation and of sharing in the advantages of of their more fortunate neighbors. Each State, or separate confederacy, would pursue a system of commercial policy peculiar to itself. This would occasion distinctions, preferences and exclusions, which would beget discontent. The habits of intercourse, on the basis of equal privileges to which we have been accustomed since the earliest settlement of the country would give a keener edge to those causes of discontent than they would naturally have independent of this circumstance. The spirit of enterprise, which characterizes the commercial part of America, has left no occasion of displaying itself unimproved. It is not at all probable that this unbridled spirit would pay much respect to those regulations of trade by which particular States might endeavor to secure exclusive benefits to their own citizens."

Hamilton's concerns need not materialize in a hyper-federalized America. In Hamilton's time, geographic differences were of great importance. Modern management methods and technological advances had not yet made the importance of process and strategy so evident as they are today. Better economic success can be imitated, especially by flexible firms that are young. It is the centralization of American buisness, its scale, that has engendered the inability to imitate Japanese processes. The misallocation of credit toward failed, large firms has prevented the formation of smaller, more nimble automobile firms.

Hamilton also argues that "the public debt of the Union would be a further cause of collision between the separate states." But hyper-federalization need not involve repudiation of debt or individually-based federal taxation. This system has been instituted and need not be repudiated until the debts have been satisfied on the basis on which they have been incurred.

Tuesday, February 17, 2009

Stock Market Pukes in Obama's Face

The Fed has given a massive adrenalin injection to the stock market, specifically, monetary reserves equal to a good 30% of the US money supply. The market was very modestly priced when President Obama assumed office. The uncertainty of the election was over. Inflationist Democrats are in office, which means lots of goodies for Wall Street at the expense of the poor, minorities and working class who think that the Democrats represent them.

True, the Republicans transferred a considerable amount of potential wealth from the public to investors via the bailout and Bernanke monetary expansion. True the Democrats went along with it. Because of these wealth transfers, the market will go up.

But there seems to be another problem that is causing further investor nausea: Democratic Party corruption. The near-300 point drop in the Dow today is in spite of Amerikan Mediazvestia's supporting the crooked, pork laden Democratic Party "stimulus". Investors are no longer merely reflecting Mediazvestia's lies. Instead, investors are puking into the Democratic Party's Congressional pork vomitorium.

Sharad Karkhanis Exposes Incompetence at the Professional Staff Congress

I just received this e-mail from Sharad Karkhanis's Patriot Returns site.

>Nine years ago, many PSC members had expectations that the New Caucus management of Barbara Bowen and Steven London would bring fresh energy, new ideas and direction to the competent but slow pace of activity under former PSC president Irwin Polishook. This was however followed by a rude awakening and very big DISAPPOINTMENT.

Instead of a real union, what they got in the Bowen/London New Caucus group was a militant political junta unconcerned with members' needs.

The experience of the past nine years clearly demonstrates that the Bowen/London group has led us to unprecedented disaster in Welfare Fund coverage and further disaster regarding negotiated contracts for members.

They have spent more time and more of our dues money trying to conduct United States foreign policy than they have negotiating, implementing or enforcing the contract.

They have spent more time, more energy and more of our dues money on demonstrations, parades and pickets than any other comparably-sized union in the City of New York, to no avail in terms of benefit to its members. New York City law enforcement has been required to dissipate valuable time and resources guarding these sheep in demonstrators' clothing while we members foot the bills in terms of out-of-pocket cost and loss of credibility.

These nonsensical demonstrations, including the one in front of the Chancellor's home (Click here) have served to render CUNY professional staff a laughing stock.

Expenditure of dues money on breakfasts, lunches, T-shirts, baseball caps and buses for demonstrations in Washington and Pennsylvania is highly irresponsible and wasteful of union members' dues money.

The Bowen/London gang have donated your money to such terrorists as Lori Berenson and Sami Al-Arian.

During their nine-year reign, the New Caucus group has presided over very significant reduction in prescription drug benefits. And they have so dissipated our previously-good dental coverage that it is today nearly non-existent.

They bankrupted the Welfare Fund and then re-funded it by co-opting our duly-deserved retroactive pay!

While UUP (the SUNY union) and UFT (the Teachers' union) achieved significant contractual gains, the Bowen/London New Caucus did not even get us salary increases approaching the increase in the cost of living. Our salaries have thus effectively decreased!

A group which hires a convicted felon as its house attorney and pays him handsomely from your dues money is irresponsible. Nor is it a group which cares for its members' grievances and complaints. Past issues of The Patriot are replete with stories of New Caucus misdeeds and misbehavior in the arena of grievance, all at your expense.

We at The Patriot yearn for a new beginning, for a new leadership whose motto will be "Members First." Contract negotiations, contract implementation and contract enforcement will constitute its primary responsibilities coupled with focus on improved welfare benefits and such political activity on State and local levels as is necessary to advance those causes which directly benefit members.

We deserve a union with focus on legitimate economic and professional concerns of its members, not one which wastes, month after month, the time of its elected delegates on discussion and passage of resolutions on international conflicts and every-social-issue-under-the-sun.

We have had enough.
We have endured enough.
We have suffered enough.
It is time to elect new leadership.
It's time for a real union, one with pragmatic focus on members' needs.


Sharad Karkhanis, Ph.D.
Professor Emeritus

Issues of The Patriot may be accessed at
Archived editions are available at

As you know, Susan O'Malley has sought to silence the Patriot by bringing a lawsuit which seeks to limit his free speech and financially bankrupt him. Interested colleagues have weighed in at

Mayor Bloomberg Meets Gomez Addams

One must judge a leader by whether the plans that he has laid have furthered or hindered the purposes of the institution he leads. In the case of Mayor Michael Bloomberg, his record is execrable. Mr. Bloomberg is a former bond trader who, if anyone, ought to be aware that financial markets are cyclical. He has been mayor for nearly eight years, during which time the fifty-year trend of New York's becoming a one-industry town has continued unabated. That industry is, of course, Mr. Bloomberg's first one, the financial industry and Wall Street.

New York has seen industry flee because of its astronomical tax rates, about which Mr. Bloomberg has done nothing. New Yorkers pay more than one half of their incomes to government (including federal and social security as well as state and city taxes) yet the services that the City provides are abysmal. New Yorkers need not watch horror movies. They just need to step into the subway system to be assaulted by the miasma of foul bums, rats scurrying to and fro and a transportation system out of the 1960s television program (based on Charles Addams's New Yorker Magazine cartoon series) The Addams Family.

In nearly eight years in office Mayor Bloomberg did nothing to reverse the long term trend of exit from New York. Taxes are as high as ever and services are worse than ever. He has failed to lead. He has failed to attract industry. His only two accomplishments are absurd televsion screens in taxi cabs and his initiative in abolishing the term limits that prevented Rudolph Giuliani from running for a third term but that will conveniently allow Bloomberg inflict his incompetence on a failing city for four more years.

Mr. Bloomberg joins the other Uncle Festers, Morticias and Pugsleys, and of course, "the thing", their hands reaching, reaching, reaching for ever more handouts, ever more freshly printed Fed bailout money from a corrupt, incompetent Congress.

Jan Tinbergen on Decentralization

Jan Tinbergen was a Dutch economist who won the Nobel prize in economics. His brother, Nikolaas, won the Nobel Prize in physiology or medicine. Tinbergen was a mathematically oriented economist who wrote from a Keynesian perspective. In 1954 he wrote a monograph "Centralization and Decentralization in Economic Policy"* in which he outlines structural equations that might be useful in studying the effects of decentralization on social welfare. He defines "conformity" as the conformity of policy makers' assumptions to the real world. In the chapter on centralized economic policy he notes the importance of trial and error to policy making. He is talking about quantitative policy goals such as income and price levels (p. 16):

"Conformity will hardly ever exactly be realised in practice, if only because of our imperfect knowledge of the structural constants or because of changes in such 'constants'. This circumstance makes it necessary and more or less usual for policy-makers to follow a trial-and-error policy method. They will try a certain value of their instrument and observe the result. Dependent on this result they will adjust the instrument variable. In view of this practice it is sometimes doubted whether it is any use to make econometric estimates for the values of the instrument variables. The answer is that although it is possible by trial and error to find the correct values, this method nevertheless implies some utility is usually unfavourably influenced by the frequency of changes in political instrument values."

The problem of uncovering the correct policy course becomes even more severe in the case of qualitative policies:

"In the case of qualitative changes all we can do, as a rule, is just to calculate the outcome for the alternative cases and to compare them...the problem of comparing alternative forms of organisation of economic life constitutes the problem par excellence of economic science; its real raison d'etre."

Tinbergen notes that:

"If in particular a higher degree of centralization would have been possible and would have led to target variable values with a higher utility, the reason of the discrepancy may be said to be the very fact of decentralization. In the case of non-conformity it is by wrong insight into or knowledge of the objective equations that wrong instrument variables are chosen. Simple though this phenomenon and its remedy may seem, it is not so simple in practice. One reason is that exact knowledge on the mechanism of an economy does not exist and that there can, therefore, only be question of better or worse approximations. Another reason is that even experts in this field are not unanimous and that it will be very difficult, then, for non-experts to be. Even if there is unanimity among experts in some cases, it is not easy to convince the rank and file of large organizations of this expert opinion."

Although economies of scale make centralization more efficient (p. 59):

"(I)t is in the nature of centralization that it will be more costly as soon as purely technical economies of scale are out of the question. It generally requires a bigger administrative machinery and, before all, more interference with private freedom,"

and (p. 62):

"any application of an instrument in a centralized way will imply higher disutilities, or will lower utility more than will the same application in a decentralized situation would. There is, therefore, a general tendency in a centralized situation to make less use of all the instruments, which will be the stronger the higher the disutilities are."

However, in decentralized situations policies which help other units are used to a lesser degree than they would be in a centralized situation so if there are positive overflows, the decentralized approach may not be as good.

Where all the units have similar or identical perceptions of their own social welfare then centralized regimes are to be preferred. Moreover, where policy instruments conflict among the goals of subunits or where a policy would help all the subunits if applied across the board, then a centralized approach is better.
But instruments which do not affect other decentralized units are better applied at a decentralized level (p. 74):

"In plain language, the cost and trouble will be diminished, without changing the situation any further...Each decentralization means reduction of costs and disutility generally."

Thus, where each unit's social welfare is similar to the others, policies which are neutral or do not affect the other units are best pursued on a decentralized basis and policies that can have an across the board positive effect are best pursued on a centralized basis (such as general price levels).

It is difficult to know which policies have positive overflows. Many policies have negative effects. Economists of the 1940s believed that the Fed was an instrument for positive results. Today, even the Keynesian descendants of this group does not deny that Fed oversight of the banking system has resulted in endemic catastrophes and miscalculations leading to the need for a trillion dollar welfare infusion from the public.

Polices which have outright negative effects, which I would argue that the Fed and the American banking system has, are better implemented on a decentralized basis because the groupthink, ideological commitment to central banking and massive errors that policy makers commit can be limited to local units that have preferred to take such risks.

*J. Tinbergen, "Centralization and Decentralization in Economic Policy". Amsterdam: North-Holland Publishing Company, 1954.