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                       The Limitations of Very Limited Government

 

 

 

During the 2012 Republican presidential campaign, Rick Perry, former governor of Texas, candidate and now Donald Trump’s Secretary of Energy said, “…I simply want to get America working again and make Washington, D.C. as inconsequential in your life as I can.” 1 We don’t see how he could have been serious, but he was. In 2010, the Supreme Court’s Citizens United case held that corporations, as “associations of individuals, “ are like people, having the rights of free speech, and can therefore contribute to U.S. political campaigns. In 2012, the election cost $ 7.0 billion, up 32% from $5.3 billion in 2008. 2 Both these ideas are not mainstream political ideas; but as we shall see, they also have deep roots in American culture.

 

The Tea Party is a radical Republican group, founded to advance these ideas. Founded in 2009, their no compromise beliefs in minimized government, guns and laissez faire economics result from a complex of  reasons.

 

As this is a political economics website, our emphasis is much more on the impact of the economic fundamentals upon markets and on the logical decisions of individuals. But there is, of course, another less logical side to human nature that we have discussed as romanticism, and that is also manifest in societies, politics; and, of course, the short-term reactions of investors to events. The Wikipedia defines German sociologist Max Weber’s verstehen (literally, to understand) as follows.: “Verstehen is now seen as a concept and a method central to a rejection of positivistic (i.e. empirical) social science.….Verstehen refers to understanding the meaning of action from the actor’s point of view. It is entering into the shoes of the other, and adopting this research stance requires treating the actor as a subject, rather than an object of observations…Individuals are seen to create the world by organizing their own understanding of it and giving it meaning.” 3 We think the following analysis matters to the understanding of present day U.S. politics.

 

Arlie Hochschild is a highly regarded professor of sociology at the University of California, Berkeley. In 2016, she wrote a book with the harrowing title, “Strangers in Their Own Land.”  To better understand the political attitudes of the far right, she asked how it was possible to simultaneously oppose both government regulation and pollution. Over a period of five years, she visited Tea Party supporters who lived near the petrochemical refineries of Lake Charles, Louisiana, where the good times definitely do not roll. She found the people there, although in very difficult circumstances, to be welcoming of her and caring for each other; they found her not to be a Communist from the People’s Republic of Berkeley.

 

In liberal democracies, voter behavior is formed by a complex intertwining of basic attitudes towards life; history itself, interactions with the surrounding society; and political thought. Although the author does not do so, for the sake of simplicity, we consider these as separate factors. This allows us to assume that people view the political landscape through various lenses before voting.

 

Basic Attitudes

 

People have general attitudes towards society, and therefore to the politics. If there is any word that typifies the attitudes of those whom Professor Hochschild met, it  is their endurance of life’s difficulties.  She notes four different attitudes:

 

The Team Player – ‘” I worked hard all my life. I started at age eight and never stopped…’ In the course of her work life, she had learned to tough things out, to endure. Endurance wasn’t just a moral value…it was a work of an emotional sort.  Not claiming to be a victim, accommodating the downside of loose regulations out of a loyalty to free enterprise – this was a tacit form of heroism, hidden to incurious liberals. Sometimes you had to endure bad news…for a higher good, such as jobs in oil…

 

‘If Sasol (a South African energy company) has a major fire or explosion, we’d be subject to it,’ she says philosophically. ‘But hey you’re subject to earthquakes in Berkeley, California. Things happen.’” 4

 

The Worshipper – “’After my stepdad kicked me out, my sister was the only one I could turn to. She took me in. I’d been in her apartment six weeks, and I was treating her horribly.’… Her sister was at work. Out the window it was a ‘beautiful bluebird day.’ …(She) had a moment of transformation. ‘I looked up at the sky, and said, ‘If  You really save people, Jesus, would you save me? I can’t save myself.’  Then I got up off the floor….I walked into the bathroom and looked in the mirror at a completely different girl. That was it.’… 

 

“Instead of overcoming her aversion to regulation, (she) spoke of learning to live without it.…You accommodate clean air and water; these were good,. She wanted them, just as she wanted a beautiful home. But sometimes you had to do without what you wanted. You couldn’t have both the oil industry and clean lakes, she thought, and if you had to choose, you had to choose oil….For its part, the federal government got in the way of both oil and the good life.” 5

 

The Cowboy -  “A former Democrat, (he) voted for Republican presidential candidate George W. Bush because  ‘If Al Gore believes in climate change, he’s too stupid to be president.’ Since then, he had moved to the right of the Republican Party.…He has logged forests, worked the Alaska pipelines, handled electrical wires atop telephone poles – dangerous jobs. He also exceeds speed limits and hates environmentalists....(he) came to (endurance) through a celebration of daring. He is a cowboy.” 6

 

The Betrayed  “(He) had worked at hard, unpleasant, dangerous jobs. He had loyally followed company orders to contaminate an estuary. He’s done his company’s moral dirty work, taken its guilt as his own, and then been betrayed and discarded himself, as a form of waste.

 

“Yet over the course of his lifetime, (he) moved from the left to the right….For a while  his central life experience had been betrayal at the hands of industry, he now felt  - as his politics  reflected – most betrayed by the federal government. He believed that PPG and many other companies had done wrong, and that cleaning the mess up was right. He thought industry wouldn’t, “do the right thing,” by itself. But on the role of counterweight, he rejected the federal government, Indeed, (he) embraced candidates who wanted to remove nearly all the guardrails on industry and cut the EPA…..

 

“In the life of one man…I saw reflected both sides of the Great Paradox – the need for help and a principled refusal of it….his source of news was limited to Fox News and videos and blogs exchanged by right-wing friends, which placed him in an echo chamber of doubt about the EPA, the federal government, the president, and taxes.

 

“Indeed Tea Party adherents seemed to arrive at their dislike of the federal government via three routes – through their religious faith (the government curtailed the church, they felt), through hatred of taxes (which they saw as too high and too progressive), and through its impact on their loss of honor…” They also hold the federal government responsible for environmental regulations that result in the loss of jobs.

 

History and Society

 

Karl Marx thought that a society’s economic means of production determined the superstructure of its social system. There is some truth to this. “The South had become a ‘section apart,’…because of the plantation system. This system deeply affected well-to-do white planters and black slaves, of course, But it also left a deep imprint on another large group we often forgot – poor white sharecroppers, small farmers, tenant farmers, some of whom are the ancestors of those I came to know in Louisiana….Compared to (middle class) life  in New England farming villages (where there was always the opportunity to start a new business (farm) by moving West, in this more static society) there was much more wealth to envy above, and far more misery to gasp at below. Such a system suggested its own metaphoric line waiting for the American Dream – one with little room for the lucky ahead, and much room for the forgotten behind.“ 8

 

Like the plantation system of the past, the new economy is extractive. “The new cotton is oil…Like cotton, oil is a single commodity requiring huge investment and has, like cotton and sugar, come to dominate the economy….On the positive side, oil offers to restore lost honor. For if the plantation system brought shame to the South in the eyes of the nation, oil has brought pride.” 9 But there is a high cost . The petrochemical industry is a process industry, requiring high capital investment and generating not that much employment.  Money from outside the state flows into these industries, and then flows right out, rather than financing new businesses, leaving Louisiana poor and polluted.  In 2015, the state ranked last in health.  10  One hundred fifty petrochemical facilities line an 85 mile strip of the Mississippi, known as Cancer Alley.  Louisiana appears to be affected by the developing world’s “oil curse,” where the government does not expect that much of their citizens, and that attitude is reciprocated.

 

With all these problems, where was state government? Likely very influenced by the petrochemical companies; the Supreme Court holds they are merely “associations of individuals.” To lure more companies, past governor Bobby Jindal, “…cut corporate taxes as well as individual taxes and he had spent $1.6 billion in ‘incentives’ to lure industry to the state, offering companies ten year tax exemptions…he fired 30,000 state employees….Since 2007-2008, in the nation’s second poorest state,  (he) had cut funding for higher education by 44 percent…” 11

 

The author notes that the states can adopt two economic development strategies. The grow revenues strategy that California and Washington State adopted was to, “stimulate new jobs by creating an attractive public sector” environment, where skilled people want to live, among other things. The lower costs strategy Louisiana adopted was to import jobs from other states by, “Union bans, lower wages, corporate tax rebates, and loose implementation of environment regulations...” 12 The first strategy depends upon regional innovation, which requires a greater emphasis on education and new companies.

 

Political  Theory

 

The political justification to minimize government has its origin in the 17th century Enlightenment, a revolution against Church and State. The alternative to the hierarchical powers of both was the alternative assumptions that individuals were equal because they had in common the faculty of reason. 13 Such beings were assumed to be self-regulating; human nature was good and did not require much government.

 

Beginning with the assumption of an original economic equality, that opportunity required and that in fact generally pertained when America was first settled, a branch of the liberal philosophy then justified the resultant hierarchical and conservative economic and social order that the South fought to preserve in the Civil War. 14 As Professor Hochschild relates, resonances of that battle exist to this day.

 

The above illustrates that Tea Party support is deeply rooted in basic attitudes towards life; history and society; and the political theory that gives meaning to it all. To summarize this, Professor Hochschild narrates a “deep story” that describes how people feel about things.

 

“There are many kinds of deep stories, of course….The deep story, here, that of the Tea Party, focuses on relationships between social groups within our national borders. I constructed this deep story to represent – in a metaphorical form – the hopes, fears, pride, shame, resentment and anxiety of the lives of those I talked with. Then I tried it out on my Tea Party friends to see if they thought it fit their experience. They did….15

 

“You are patiently standing in a long line leading up a hill, as in a pilgrimage. You are situated in the middle of this line, along with others who are also white, older, Christian, and predominantly male, some with college degrees, some not.…16  Progress had also become harder – more chancy and more restricted to a small elite The great Recession of 2008 in which people lost homes, savings, and jobs had come and gone, but it had shaken people up. Meanwhile, for the bottom 90 percent of Americans, the Dream Machine – invisible over the brow of the hill – had stopped due to automation, off-shoring, and the growing power of multinationals vis-à-vis their workforces….17

 

“Just over he brow of the hill is the American dream, (of progress and security), the goal of everyone waiting in line. Many in the back of the line are people of color – poor, young and old, mainly without college degrees. It’s scary to look back; there are so many behind you, and in principle you wish them well. Still, you’ve waited a long time, worked hard, and the line is barely moving. You deserve to move forward a little faster. You’re patient but weary. You focus ahead, especially on those at the very top of the hill…Look! You see people cutting in line ahead of you! You’re following the rules. They aren’t.. How can they just do that? Who are they?...Through affirmative action plans, pushed by the federal government, they are being given preference for the places in colleges and universities, apprenticeships, jobs, welfare payments and free lunches…Women, immigrants, refugees, public sector workers – where will it  end?... 18

 

The stalled American Dream hits many on the right at a particularly vulnerable season of life – in their fifties, sixties, and seventies. (our note).” 19 During the Financial Crisis of 2008, they asked, “Where’s my bailout?” The Treasury Department estimates that the Great Recession caused an estimated loss of household wealth of $19.2 trillion. 20

 

In 2016, the Tea Party helped elect Donald Trump president. “As if magically lifted, they are no longer strangers in their own land.” 21

 

Conclusion

 

The 2016 election illustrated that it is dangerous to democracy for there to be a large group of very discontented voters. Political reform is obviously necessary at both the federal and state levels. At the economic level, people need hope, a hope in an economic growth that the federal government can catalyze and a new governor in Louisiana might someday direct, after he cleans up the fiscal mess left by the previous administration. At the redistribution level, the fruits of economic growth should not just go to the top 10%.

 

The following is for voters who value rationality in their political opinions - where the adopted means bear some relation to the ends. The Republican program of very limited government is unworkable, offering no solution because it destroys social cooperation and contradicts - human nature, U.S. history and the implementation of government policy.

 

1)    In a 1944 lecture called, “The Children of Light The Children of Darkness,” the theologian Reinhold Niebuhr questioned the core assumption of a self-regulating human nature.

 

“The conception of human nature which underlies the social and political (and economic) attitudes of a liberal democratic culture is that of an essentially harmless individual….There is a specifically ironic element in the effort of the seventeenth century to confine man to the limits of a harmless ‘nature,’ or to bring all his actions under the discipline of a cool prudence.”  22

 

In this now American conservative ideal – people, communities and economies were essentially held to be self-regulating.  But the dynamic of the ungoverned industrial economy of the 19th century released social forces that tore apart the communities in which men lived, resulting in two world wars. There is a now glaring contradiction in American conservatism between an untrammeled laissez-faire economic philosophy that allows automation and globalization to destroy communities  (and of course social cooperation); while at the same time fostering a political climate that demonizes “the other” for the result.  The ideology of a very limited government now benefits two different classes - the top 1% get the bread and the disadvantaged get the circuses, deteriorating democracy, The maintenance of democracy substantively requires a rough equality of circumstances, requiring some government redistribution – as international trade theory also requires.

 

2)    The complex system of international relations and commerce is, itself, a post-war U.S. creation requiring U.S. leadership. At this writing, the Trump administration proposes to impose large tariffs, disadvantaging other Americans, to protect specific industries. Economists and businessmen say there more effective ways of increasing salaries and American jobs. At the most obvious level, American workers need to become more appropriately trained, an investment that must be made by someone.

 

3)    Economic policies need to address specific issues relevant at the appropriate level.  In “Straight Talk on Trade,” Harvard economist Dani Rodrik writes, “The design of institutions is shaped by a fundamental trade-off. On the one hand relationships and (different preferences) push governance down. On the other hand, the scale and scope of the benefits of market integration push governance up.” 23

 

The Republican party can no longer offer real solutions to the nation’s problems. Professors Steven Levitsky and Daniel Ziblatt are Harvard political scientists. In “How Democracies Die,” they write:

 

“Along with the Tea Party, the Koch network (that spent $400 million in the 2012 elections) and other similar organizations helped elect a new generation of Republicans for whom compromise was a dirty word. A party without a core that was hollowed out by donors and (single-issue) pressure groups was also more vulnerable to extremist forces….Unlike the Democratic Party, which has grown increasing diverse in recent decades, the GOP has remained culturally homogeneous.” 24

 

 Lacking a political philosophy, besides the mantra of “minimizing government,” the party has become totally driven by the winds of political expediency. According to the Washington Post, “…limit-testing of the GOP and its leadership (Donald Trump) learned years ago that there would be no consequences for whatever he did no matter how low…. The party that lambasted liberals for supposed insufficient support of law enforcement looks the other way as the Republican president wages a scorched-earth war against the FBI and the Justice Department. The party that branded un-American anyone not showing sufficient skepticism and distrust of Russia finds no outrage over Trump’s many unheard-of overtures to its president Vladimir Putin…” 25 Donald Trump took over a weakened Republican Party that could not resist his, “Triumph of the Will.”

 

Very limited or ineffective government has resulted in unsolved problems, electoral anger and a lashing out at “the other.” Furthermore, laissez-faire economics at home and strident nationalism abroad resulted in past catastrophes. They caused the Great Depression of the 1930s (as the banking system was allowed to fail), Iraq (lashing out at Saddam Hussein, which enabled the rise of Iran), and the Great Recession of 2008 (resulting from unregulated finance).

 

In contrast, the Democratic party is now running local candidates who can speak to the real constituent issues of regional economic development, labor and social insurance; rather than to magnify cultural issues, which may or may not include race.

 

A major challenge is reunifying America by more effective government; some things are better handled locally and others nationally. Government can create real jobs for people (for things that need to get done but aren’t), prepare the private workforce for the jobs of the 21st century (by helping to create new local opportunities), improve medical care (by enhancing national funding), reduce those trillion dollar yearly deficits, and prepare American society for the impacts of increased automation and global warming. 

        

                                                                                            

Many people in Europe and the United States have not benefited very much from overall economic growth over the past few decades, and skeptical of the policies and leaders in place. But the solution is not to throw out the liberal order. It is to complement it with government policies that allow people to share the benefits.

 

 

 Douglas Elmendorf

                                                            John F. Kennedy School of Government

                                                                         Harvard                                            

 

Footnotes       

 

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People use ideas to deal with a complex reality. The idea of very limited government, we have seen, can be used to answer political questions. The idea of a laissez-faire free market can be used to handle economic reality. Both ideas are twins. The superiority of free markets is frequently used to justify the political program of very limited government, assuming that the benefits of growth in the former will accrue, in general, to the latter.

 

But do totally free markets accurately reflect economic reality? All introductory economics courses will start with the idea of an equilibrium price model, where the price for a good (P*) and the quantity produced (Q*) is determined at a point where the supply and demand curves intersect.

   

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From this equilibrium price model flows the entire field of microeconomics, describing the behavior of the firm and providing, for some, a political theory of society - where both are assumed to be efficient and self-regulating with no role for government necessary. *

 

But economies are actually social rather than mathematical systems; context matters. Economics is therefore more like engineering than like physics. Here is some of the context. Dani Rodrik (2018) writes, “Modern markets need an infrastructure of transport, logistics, and communication, most of it the result of public investment. They need systems of contract enforcement and property-rights protection. They need regulations to ensure that consumers make informed decisions, externalities (like pollution) are internalized, and market power is not abused. They need central banks and financial institutions to avert financial panics and moderate business cycles. They need social protections and safety nets to legitimize distributional outcomes. Well-functioning markets are always embedded within broader mechanisms of collective governance. That is why the world’s wealthier economies, those with the most productive market systems, also have large public sectors. (p.p. 127-128)

 

 

 

 * Getting back to the empirical basics. Has anyone seen real supply and demand curves? If an upward shift in the supply curve - say due to increased costs - causes a price increase (P*), the quantity demanded (Q*) will decrease. But what is observable is only the intersection of the supply and demand curves, not the actual curves themselves. Because an economy is a complex and interrelated system, where supply and demand curves constantly shift, it is difficult to find variables to trace an economy’s real supply or demand curves. Therefore, the responsiveness of an economy to changes can’t be precisely (and mathematically) predicted. This imprecise model will cause the invisible hand of the market to fumble. It should not solely determine the organization of the much broader society.

 

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In a 5/24/18 NYT article, Harvard economists Edward Glaeser and Larry Summers suggest a focus on America’s “Eastern Heartland,” those non-coastal states bounded on the west by Michigan and Louisiana. They write, “Federal policy can’t bring the Rust Belt back to its former glory, and we shouldn’t try to artificially relocate economic activity to less productive places. But we must do more to fight the scourge of long-term joblessness, and we should focus our efforts in the places where joblessness is most severe….To meet this challenge, many economists have argued for a universal basic income or a more generous earned-income tax credit. We would support an E.I.T.C. expansion. But the most direct way to encourage work is with a new (targeted and less expensive) wage subsidy that benefits workers and encourages companies to replace joblessness with employment.

 

Here, Professors Glaeser and Summers recommend a “market forces” solution rather than regional economic development, around hubs centered upon universities (like Palo Alto, Ann Arbor or Pittsburgh) and other enterprises. This is also a topic for development economists.

 

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The development strategies above essentially, “bring  jobs to people.” Economic theory, and indeed the history of the United States, is the opposite where people, “go to the jobs.” Yet, as an excellent 5/28/18 Business Week article, “Why Do Americans Stay When Their Town Has No Future?” notes, “America was built on the idea of picking yourself up and striking out for more promising territory. Ohio itself was settled partly by early New Englanders who quit their rocky farms for more tillable land to the west. Some of these populations shifts helped reshape the country…In recent years, though, Americans have grown less likely to migrate for opportunity. As recently as the early 1990s, 3 percent of Americans moved across state lines each year, but today the rate is half that. Fewer Americans moved in 2017 than in any year in at least half a century.”

 

The reasons for this are partly demographic, the younger people are more likely to leave; and partly occupational, the jobs in the city now require higher levels of training. Also, as the article notes, people want to live in their communities. For social, long-term economic and political reasons a regional development strategy seems to make sense.

 

 

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