Consumption, Investment and Speculation

With the recent Nobel Prize announcement, previous interviews with co-laureate Robert Shiller have been recycled, such as the interview from February 2013 where he challenges the received wisdom of a home as an investment.

When is an activity an investment, and when is it not? And if it is not an investment, what is it? Although Shiller makes valid points, the answers are not entirely clear-cut.

Definitions

It is obvious from talking to people that the differences among consumption, investment and speculation are not well understood. So our starting point has to be clarifications of what each of these are.

Current Accounts

Start with the current activities of any person or group. The entity is producing and consuming wealth in order to stay in existence.

Consumption

People need food, clothing and shelter in order to live. These are forms of wealth that, to varying degrees, we use up in the course of living. Food has the shortest lifetime; we eat it and it is gone. Clothing lasts a little longer, but it has very little residual value.

Periodically, there is public discussion around the assertion that “70% of Gross Domestic Product (GDP) comes from personal consumption.” As Robert Higgs points out, it is easy to make an unwarranted leap from that assertion to a meaning. There is no agreed-upon norm of what proportion of the economy personal consumption ought to be.

The assertion itself is open to question, as Michael Mandel explained in 2009. A percentage is a ratio, and as is usual with statistics based on ratios, the denominator is where the slipperiness is. More about this shortly.

Surplus

Few people discuss surplus, but it is the secret sauce of prosperity. Surplus is production less consumption. In order to have anything left over to store up and get richer, one has to be producing more than one consumes; this is called capital formation.

The surplus produced by a business is called retained earnings. Typically, accountants back into retained earnings; it is what is left on the balance sheet after liabilities and equity, which are sources of funds, are subtracted from total assets, which are uses of funds.

In order to have any wealth to work with above the subsistence level, somebody has to either be running a surplus now or have formed and preserved capital from a prior surplus. Borrowing in order to invest presupposes that the lender has capital as a result of a prior surplus, or there would be nothing to lend. If a couple buying a house had enough money saved to pay cash for it, they would not need a mortgage. This is usually not the case. The source of the wealth for the mortgage must have accumulated the capital in order to lend.

The problem with GDP is that it really doesn’t measure production at all, but spending. We look at what was spent and assume that the wealth must have been produced in order to be spent. However, there is mounting evidence in the form of international capital flows in support of the argument that this assumption is being violated for the United States.

Capital

A store of wealth which can be used to fund other wealth-producing activities is called capital stock. Modern economic activity depends on the existence of capital stocks that can finance other activities. I will begin by discussing these in terms of a for-profit business, and then switch to examine what changes when applying the terms to the activities of an individual person.

Paddy Hirsch has created the Whiteboard series on marketplace.org; it is a well-developed series that explains complicated topics in economics, business and finance (although with some biases). His discussion of lending is typical of how the topic is typically presented: from the perspective of the bank. While the bank’s perspective is important, the demand for capital is even more important, and is essential to understanding the nature of business activity.

When you start a business, your payables are due now but your income will arrive mañana, maybe. Your suppliers and employees don’t want to wait until you get paid before they get paid. The rent and electric bill are due immediately whether you have money in the till or not. You, the business person, have to front the money and bear the risk of ownership. Thus, you start out in a cash flow bind. Capital provides the funding to pay the bills now and see the business through until the income arrives later. As such, capital is a factor of production and is entitled to its share of income, which is called interest and dividends.

Lending

A lender makes capital available at relatively low risk for a fixed return, the interest on the debt. Lenders typically expect to not have their principal at risk, and loaned money has a senior legal claim to invested money. The lender relinquishes some upside in return for this.

Investment

Investors provide capital in return for an ownership interest. Investors do expect to have their principal at risk, but they also expect greater returns. At least in theory, the management of the business has significant accountability to the investors. This is less so in a publicly traded company, which is another topic of discussion. An investor with a significant position in a private company will have a presence on the board of directors and will have transparency into the operations of the business.

Speculation

People often describe themselves as investors where they are really speculators. A person who takes an equity position in a business, not because he understands how the business makes money, but because a stranger on an airplane told him to, is really a speculator.

Upper-class people whose social norms discourage them from direct involvement in business affairs are often speculators and targets of swindlers. An example was provided in an en passant remark in the third series of Downton Abbey. The Earl was casting about for a source of income to keep the estate going, and he hit upon: “I hear of schemes every day that will double whatever’s put into them. There’s a chap in America — Charles Ponzi!” The reviewer in Television Without Pity described this as “super-cheap,” but I think it captures the propensity for such people to fall for speculative schemes without being overly preachy about it.

Speculation is inherently risky by nature. The speculator embraces risks that are not even visible to him in the expectation that a greater fool will come along. Public policy tolerates speculators, who magnify market movements, because they absorb risk.

Stockholders

Where does this leave the holder of common stock in a publicly traded company? Well, it depends on the purpose. A day trader is a speculator, pure and simple; there is not enough time for him to understand the business activities of the companies in which he is taking a position. His motivation is to take advantage of an opportunity that exists based on his expectation of what others will pay him for his stock in the immediate future.

A person who wants to be an investor rather than a speculator would have to know something about the business of the company whose stock she is buying in order to make an effective business judgment about it. She would be able to read the financials and understand the entire package line by line, including the notes. She would often still encounter challenges obtaining transparency into the business; this leads into corporate governance issues that are beyond the scope of this post.

The issues are further muddied because we commonly describe activities such as stock purchasing as “investments” when they may be in reality highly speculative. We discuss investments as if the mere fact that stock was purchased establishes that the purchaser is investing. We also misapply the term to describe speculation in metals. Then we take the same terminology and apply it in a parallel way to real estate.

The Non-Business Perspective

The foregoing definitions are from the perspective of a commercial business which produces wealth and is a going concern as long as it is financially solvent. How do these definitions apply to living persons, whose existence is not contingent on financial results?

Think about paying cash for a new car, with a service life of 5 years. A business that purchased a vehicle as part of its operations would expense part of the value of the car every year, matching this expense against the revenue generated by using the car in each year. The cash out the door at purchase would show up in the statement of cash flows in year one, but the car would be carried on the balance sheet as a depreciating asset.

An individual person is usually on cash-basis accounting. Nevertheless, the person who uses the car to commute to work is able to match some of the depreciating value of the car to income produced by its use in every year. At least part of the value of the car paid for up-front would then represent an investment, because it is amortized over a period of years to participate in income-producing activities. It also provides value in logistical functions such as getting to the grocery store. The owner of the car runs down the value of the vehicle, not in a malicious or destructive way, but by using it over its service life.

One could argue that a $20,000 car can perform these functions just as well as can an $80,000 car. If we were to use the $20,000 car as the baseline, a person who paid $80,000 cash up-front for a luxury car would be making a $20,000 investment and consuming the remaining $60,000. This is not a value judgment; the person choosing the luxury car has reasons that are perfectly valid to her, and I do not propose to criticize them. The important point is to recognize that not all of the expenditure in purchasing a long-lived asset is necessarily investment. I am not saying, “investment good, consumption bad.”

We can extend the metaphor by imagining a person paying $100,000 cash for a limited-production collector car, in the hope that the car will be worth more in the future. This would be speculative behavior; the value of the car in the future will be determined not by the use of the car by the owner but by the future demand for the car and the survival of other cars of its kind. The purchaser may represent that he is making an investment here, but it is really mere speculation.

Real Estate

I chose the car example both because it is easy to visualize and because it ties back into Shiller’s argument. What about “investing” in real estate?

Components of the Real Estate Purchase

When you buy a single-family house, you get the house and the land. The structure is, as Shiller says, a depreciating asset — it has a longer life than a car, but it depreciates nevertheless. For example, the expected service life of a well-constructed asphalt shingle roof is 15-20 years, although wind and hail can damage it and reduce the life.

Also, notice the introduction of the term “well-constructed.” The investor has to make sure that the roof really is well-constructed, possibly by personal supervision, either by the owner or a delegate. The speculator doesn’t care much beyond outward appearance; her only interest is what she can get someone to pay for the house.

Not only does the house wear out, but it ages in other ways. Interior décor goes out of style and requires updating or the house looks “dated” and the market value is impaired.

One would expect land to appreciate in value, because we can’t make more land (fills in coastal cities can’t keep up) and we are constantly making more people who want to live on it. However, several factors influence this. Land can be less desirable because it is less productive than neighboring land, or because it is in an area where demand is lower. When the conditions of a neighborhood (South Bronx) or the economic of a region (Detroit metro) deteriorate, demand for land there will go down. Thus, even land is not certain to appreciate in value over time.

I will exclude from this discussion townhouses and condominiums, which carry minimal or no land with the deed. These do not change the discussion except to increase the emphasis on the structure, which is the depreciating asset.

Home Ownership Considered

The headline is naturally sensationalized to get your attention: “Robert Shiller Destroys The Idea Of Investing In A Home.” Does he really? We need to understand the benefits and costs of home ownership.

Personal Benefits of Home Ownership

There are several benefits that a home owner obtains from owning his residence:

• Control: You can do what you want with the house. Subject to local ordnances and association restrictions, you can hang items, paint and even move walls if you see fit. You can redo the kitchen, choose the appliances and arrange the storage to suit yourself.
• Permanence: You do not have the uncertainty of leases, changes in landlord/management and deterioration of service. You can count on living there as long as you want to and you can pay the mortgage.
• Privacy: Many people who would be renting apartments can qualify for a single-family house with greater separation from the neighbors.
• Credibility: Outside of areas that are predominantly populated with renters, such as Manhattan, a homeowner has credibility as a citizen that a renter does not.
• Tax shelter: Both mortgage interest and real estate taxes are deductible on Schedule A. This helps reduce the operating cost of owning compared with renting.

Notice that most of these are intangible benefits. It would be next to impossible to rigorously assign financial values to them.

Social Benefits of Home Ownership

Watch the movie It’s a Wonderful Life [trailer]. It was directed by Frank Capra, who had made the Why We Fight series to explain the necessity of American involvement in World War II. Capra really knew how to drive his point home. It’s a Wonderful Life is a paean to home ownership. He even gives the viewer a look at the alternative universe where most people don’t own their own homes: the town has become a pit, with dime-a-dance joints, pawn shops and prostitutes.

Frank Capra was not alone in the belief that a community of owners would be a better place to live than a community of renters. It has been tacit policy for decades to subsidize owners through tax relief and by the creation of quasi-government entities to influence home financing and socialize financing risk. These latter entities are commonly known as Fannie Mae and Freddy Mac.

We believed that a nation of homeowners would build stronger communities than would a nation of renters, because property owners would have a stake in their community. To an extent this is true, although there is not an exact correlation; it is possible to find locales with high levels of owner occupation that are not all that desirable.

When the owners start speculating on real estate, there can be problems because the owners overextend themselves and don’t have anything left to allocate for the upkeep of the community. However, without the community, the asset value of the property itself is at risk. Jack Knuepfer, who was chairman of the Board of Commissioners of DuPage County, Illinois from 1978-1990, summarized the problem this way in a 1990 interview:

It`s difficult keeping up with growth because when people move to a new house, they generally put every nickel that they have into it and maybe a nickel that they don`t have. And then, all of a sudden, they find out they have to pay for highways and schools and everything else, and that`s sometimes the straw that breaks the camel`s back. They want the lifestyle but would like someone else to pay for it.

At that time, you could drive around DuPage County at night and look at the see-through houses: the owners had made themselves so house-poor that they couldn’t afford window treatments, so you could see from the road clear through the house if the lights were on.

Drawbacks of Home Ownership

A house is a very illiquid asset. It ties up a significant amount of personal wealth in an asset that is not quickly or easily converted back into cash. People have been known to overextend themselves and become house-poor; they have the personal wealth, but most of it is tied up in the house.

If the homeowner wants to relocate to another part of the country, the house must be sold. If the local economy is doing badly, the homeowner can be stuck there if he owes more on the secured debt than the house is currently worth.

Don’t Spook the Cattle

Because of the way real estate pricing fluctuates, it has aspects of a Keynesian beauty contest: what matters when you go to sell a house is not what you think it is worth, but what you think other people will think it is worth.

In the face of a perceived deterioration in the surroundings, the value of the property will fall. The deterioration does not have to be real; all that matters is that enough people believe that the neighborhood is falling apart to, in effect, make it so. Even if one homeowner wants to keep his head in these conditions, the fear of sticking around too long while others pull out can be overwhelming.

Blockbusting is a practice where unscrupulous real estate agents take advantage of racial fears and prejudices of homeowners to create a stampede of panic selling. Blockbusting practitioners turned over a substantial portion of the housing in East Cleveland in the late 1960s, leading to the decline of the city. The problem for the city was not the fact that blacks were moving in, but the rate of turnover and the fire-sale prices leading to reduced valuations and a diminished tax base. Moreover, many white residents who fled took their businesses with them, causing further attrition to the economy and finances of the city.

Real Estate as Consumption

Consider a couple who purchase a newly constructed home, move in and live there for the next thirty years. As soon as the home is finished, the meter starts running on the service life of the various components. As they live there over the course of the years, they are in effect consuming the asset. If they did no maintenance or improvements on it, they would reduce it to its salvage value.

By living in the house, they obtain the shelter benefit. They avoid having to pay rent for a place to live. One could argue that they are paying rent to themselves, and that is the origin of imputed rent. Some countries in Europe tax this as income, which is another topic to take up another day.

If this hypothetical couple were to have made a significant down payment, so that they had equity in the house eight o’clock day one, they would have made an investment in the accrual accounting sense: they would have paid up front for an asset (or at least part of one) that they would depreciate through use over subsequent years. However, this is not the same as the general understanding of the term investment.

Real Estate as an Investment

What does investing in real estate look like? How do we tell the difference between investing and speculating?

• A person who purchases a house to rent it is an investor. The investor seeks an income stream in the form of rents as return on the investment. The investor may engage the services of property managers, tradespersons and various others to manage and maintain the property; this does not modify the situation. The investor doesn’t have to put her own personal sweat into the property in order to be an investor.
• A person who purchases a house planning to live in it for two years and sell it at a profit is a speculator. He may have projections that, based on past performance of real estate in the area; the future results may not meet these expectations.
• What about a person who purchases a house needing work, fixes it up and flips it? This falls in a gray area. To the extent that he depends upon his improvements to realize value, he is an investor. To the extent he is counting on future market conditions to be above current market conditions, he is speculating.

To an extent, we need to be able to see inside the soul of the person buying the house to distinguish between investment and speculation.

Closing the Loop

Return now to the interview with Robert Shiller. The title of the article is, “Robert Shiller Destroys The Idea Of Investing In A Home,” but it should really be, “Robert Shiller Destroys the Idea of Speculating in a Home.” Shiller takes the idea of investing in real estate at face value, considers the financials and shows that the home buyer motivated by asset speculation is taking on a lot of risks.

However, the total package as described above is more than just the asset price of the house. For the owner-occupier who wants control over the premises, doesn’t want a landlord or is motivated by the other, less tangible benefits, home ownership still makes sense. Such a person should maintain the house, avoid large renovations justified by the rationale that “it’s an investment” and look for ways to diversify holdings so that there are more liquid assets that can be liquidated if cash is needed.

Ignorance, Sin and Health Care

There was an interesting posting on LinkedIn this week, that began thus:

By now, everyone has formed opinions of the Affordable Care Act (ACA). Ironically, the strongest opinions seem to come from people that know the least about it. Our research indicates that the best predictor of a favorable opinion is not a person’s age, gender, race, education, income, or even whether he/she is uninsured: what matters most is whether they voted for Mitt Romney in the last Presidential election.
—  Dana Goldman, “Where Obamacare Went Wrong (Or Did It?)“

Dr. Goldman is on the faculty at USC. He is the director of the of the Leonard D. Schaeffer Center for Health Policy and Economics at the USC Price School of Policy, Planning, and Development.

It’s an odd juxtaposition in the paragraph; apparently, there is a linkage between knowing the least about the act and having voted for Mitt Romney. Well, let’s not live in ignorance here; we’ll just go download the Patient Protection and Affordable Care Act and, good citizens as we are, read the thing ourselves.

Holy buckets! It’s 906 pages! And here is just one excerpt:

SEC. 1139B. ADULT HEALTH QUALITY MEASURES.

(a) DEVELOPMENT OF CORE SET OF HEALTH CARE QUALITY MEASURES FOR ADULTS ELIGIBLE FOR BENEFITS UNDER MEDICAID.

The Secretary shall identify and publish a recommended core set of adult health quality measures for Medicaid eligible adults in the same manner as the Secretary identifies and publishes a core set of child health quality measures under section 1139A, including with respect to identifying and publishing existing adult health quality measures that are in use under public and privately sponsored health care coverage arrangements, or that are part of reporting systems that measure both the presence and duration of health insurance coverage over time, that may be applicable to Medicaid eligible adults.

So even if you do read through all 906 pages, you still are not sufficiently informed; this or subsequent administrations have ample discretion to fill in the blanks. As is often the case, the legislation delegates most of the details to government entities who are not accountable to voters. Even after reading it, you wouldn’t be done; you would still need to catch up with the Health Care and Education Reconciliation Act of 2010, and also look up all the legislation that these acts amend to find out what was changed.

Enough with the ACA. The real issue here is our being underinformed, and what that means.

Ignorance

Dr. Goldman’s position is not an isolated occurrence, but a instance of a common pattern that can readily be observed. To many people, their policy objectives are noble and good, and people who object to them are lacking in knowledge. “If you only knew enough, you would agree with me.”

I have been in church groups with people who have said variations of the statement, “Love, and do what thou wilt.” (From Augustine of Hippo, On the First Epistle of John). However, how do we know that what we will is the right thing to do? There would appear to be a lack of humility here; an unawareness that well-informed and loving people also go wrong.

Sin

The Christian doctrinal tradition is spelled out most effectively by St. Paul:

We know that the law is spiritual; but I am unspiritual, sold as a slave to sin. I do not understand what I do. For what I want to do I do not do, but what I hate I do. And if I do what I do not want to do, I agree that the law is good. As it is, it is no longer I myself who do it, but it is sin living in me. For I know that good itself does not dwell in me, that is, in my sinful nature. For I have the desire to do what is good, but I cannot carry it out. For I do not do the good I want to do, but the evil I do not want to do—this I keep on doing. Now if I do what I do not want to do, it is no longer I who do it, but it is sin living in me that does it.

So I find this law at work: Although I want to do good, evil is right there with me. For in my inner being I delight in God’s law; but I see another law at work in me, waging war against the law of my mind and making me a prisoner of the law of sin at work within me. What a wretched man I am! Who will rescue me from this body that is subject to death? Thanks be to God, who delivers me through Jesus Christ our Lord!
— Romans 7:14-25, New International Version

There is a very unpleasant tendency in contemporary America to equate sin with ignorance. The whole idea of well-meaning people like us going astray causes discomfort. I have been in liturgical churches that skip over the Rite of Contrition. I am very dissatisfied when this occurs in a service I attend. I know that I make mistakes every week, in what I have done or left undone, and I want to ask forgiveness for them.

It takes more than knowledge to avoid sin. Not only is it necessary to know what is right, but one must have the will to act on the knowledge. And, even then, one can find that the knowledge was imperfect; that what appeared to be a correct course of action was not so.

Does this mean that I must not advocate my point of view? Not at all. However, it does mean that others who don’t see issues as I do are not necessarily ill-informed or ignorant. Our politics would be less shrill and polarized if everyone would bring a little humility into the public square with them. Anyone who disagrees with me is not stupid, evil or crazy just by the fact of their disagreeing.

Specialists

Another aspect of Dr. Goldman’s viewpoint is that he is a specialist, whose job it is to understand the legislation and its policy effects. He gets paid to read all 906 pages of the ACA (or, more likely, have some grad student read it and summarize it to him); the rest of us would have to read it in our free time. Nevertheless, the legislation affects our lives, and we as citizens do not surrender our obligations to form judgments and act on them to specialists.

I am confident that Dr. Goldman could demonstrate that his grasp of details of the ACA and other current legislation exceeds most of ours, but what would that prove? We do not abdicate our rights as citizens to give or withhold our consent to the legislation as a result, or to act on that decision by voting or petitioning our elected representatives for redress. We are going to form judgments and take actions based on them, however much we know about the subject matter. To do otherwise is to surrender to a dictatorship of detail.

If specialists want to influence public opinion, the burden falls to them to explain their position to us in terms we can understand and sell us on the merits of the changes they want to introduces. The default is to leave things alone. In the medical field, this is summarized as, “First, do no harm.” The principle that changes have to be justified and ought not to be made if they cannot is the centerpiece of conservatism. It contrasts with the expansive viewpoint that says that change out to be made if a minority believe that they can make the world better and they need not bother selling the rest of us on the correctness of their beliefs.

There is an arrogance that comes with specialization, a belief that those who don’t have the specialized knowledge should just give way to those who do. It is not limited to those with doctorates; plenty of IT people, building tradespersons and auto mechanics have it as well. As citizens, from whose consent power is derived, we cannot condone this arrogance. Health care policy is too important to leave to the professionals.

The Republican Coalition

Could it really be happening? Some new political party birthing itself out of the side of the Republican Party?

The Atlantic finds evidence for it: http://www.theatlanticwire.com/politics/2013/09/meet-congress-new-third-party-and-its-leader-junior-senator-texas/69976/. The article claims that Speaker John Boehner’s control of the House depends on a coalition of two parties, and Boehner has to make moves he would not otherwise make in order to hold his coalition together.

However, I beg to differ in one important respect: this is not a new third party, but a candidate for a second party.

The Lite-Democratic Party

Following the defeat of Barry Goldwater in 1964, the Republicans sought to come to terms with Progressivism. The GI generation was deeply Progressive, and to politicians such as Richard Nixon and Robert Dole, the way forward seemed to be to embrace Progressive goals while directing their implementation.

However, this made the difference between Republicans and Democrats paper-thin. Seen from the perspective of 1970, there was still a significant difference between the parties in terms of their attitudes to order, experimentation and central control. However, from the vantage point of 2010, both parties have bought into an expansive reading of government authority that moves accountability away from elected legislators and toward the permanent bureaucracy.

In order to stay in office, the Republican establishment has been willing to compromise. I have addressed this perspective in a previous posting. However, in the face of current conditions, the Republican establishment is too compromising, being “in office but not in power.”

So on Election Day, we continually find ourselves with the choice between Frick and Frack. Each candidate mouths the platitudes, comes out in favor of such controversial issues as motherhood and the flag, and tries to light up the opposing candidate with attack ads. Whoever we vote for, the end result has been the same: more intrusion, more spending and more dependency. We had choices that were really no choices at all. The Republicans were often the Democrats-lite, with 65% less distribution of benefits.

Sitting on a sofa on a Sunday afternoon.
Going to the candidate’s debate.
Laugh about it, shout about it
When you’ve got to choose
Every way you look at this you lose.
— Paul Simon, “Mrs. Robinson”

The Progressives are bankrupt. They have promised too much to too many people, and the wealth to make good on the promises simply does not exist. As the claimants all come together in the public square, asserting the priorities of the promises made to them, the conversation will get ugly. There will be no room for compromise: many people are going to go home empty-handed.

President Obama has no private sector experience and no concept of how wealth is created. He chose to double down on the Progressive agenda by establishing a right to health care. He did not get all he wanted, but he got plenty. However, health care is truly a bottomless pit; there is no satiety. Furthermore, if health care is a right, how is it provided? It’s not like life or liberty: to deliver health care requires production of wealth. Whom do we enslave to provide those who cannot afford it the care to which they are deemed to be entitled?

The heirs of Nixon and Dole, such as John McCain and Karl Rove, are not ready to address these questions. They want to go along with Progressives in order to get along, continuing to divide up the pie. But they are all committing money to promises faster than Ben Bernanke can print it. Soon there is not going to be enough pie to go around. The day of reckoning is coming to an economy near you.

The Something-else Party

There have been an increasing number of people who were aware of something painfully wrong here. Is that number reaching critical mass to support political candidates?

We need a credible alternative to the Democrats so that we have a meaningful choice in elections. The Lite-Democrats that we have come to know as the Republican party do not offer that choice. They buy into the same corporatist beliefs as the Democrats.

What’s Missing?

Although the idea of a new political party is intriguing, there is far to go before it would be a viable political actor.

Voters in Metropolitan Areas

As Ryan Lizza notes in The New Yorker, there are not many Representatives with districts including metropolitan areas:

• Cobb County, outside Atlanta, is represented by Phil Gingrey.
• James Sensenbrenner has some of the west suburbs of Milwaukee.
• Randy Hultgren has a district in Illinois that gets as close to Chicago as Wauconda and Warrenville.
• Some suburbs northwest of Detroit are represented by Kerry Bentivolio.
• Some suburbs north of Dallas are in the district of Kenny Marchant.
• Ted Poe represents some suburbs north of Houston.
• The district of Keith Rothfus cuts as close to Pittsburgh as Ross and O’Hara Townships, but most of the district is rural.

There is the danger that the growing political entity could also be identified, or even identify itself, with anti-urbanism. This is a force that is underappreciated in American politics; it helped push through Prohibition and the National Origins Act of 1924, and has never really gone away. A new political party that is nativist and anti-urban would not be seen as a positive development, at least by this writer.

Coalition Building

Success in politics depends on addition, not subtraction. If this new force is to be successful, they will have to broaden their appeal beyond their current core constituency. This will be difficult, because their energy comes from highly motivated supporters rebelling against what they don’t like about the Republican Party, and these people will strive for purity. However, they will have to decide what are the important issues on which they can make common cause with other disaffected segments, and to what issues they must hold firm.

Similarly, I don’t offer an unqualified endorsement to this group or their followers. I am less than impressed by what I know of people like Michelle Bachmann. Nevertheless, I also recognize that success in politics requires making common cause with others with whom I may disagree on some points.

On Hold with Customer Pacification

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If my call really were important to you, you would have staffed the call center with more service representatives.