Clause 61: The Pushback Blog

Because ideas have consequences

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Conserve Exactly What?

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I wanted to write something about what Conservatism is and where it is going before the Election Day, so that I was not perceived as being wise after the event. Evidently I was not alone in thinking this way, because I have seen three major thought pieces in the last month:

For context, the reader may also want to refer to these links:

All quotes are from the above.

Continetti

The Continetti article is a good place to start, both because it launched the discussion and because the author attempts a historical review of conservatism. He identifies four waves of conservatism:

  1. The Old Right initially organized against the original progressivism of Teddy Roosevelt and Wilson, and were always marginalized.
  2. The 1950-s era wave of William Buckley, James Burnham and Russell Kirk (among others), who were, in Continetti’s words, “elitist, pessimistic, grimly witty and academic” — and still politically marginal.
  3. The 1970’s New Right, full of political fire and brimstone, who took credit for bringing Ronald Reagan to power (more on that later).
  4. The religious right, whose fire and brimstone is not confined to politics.

Here is the first major problem that I have with Continetti’s analysis. Are the religious right really conservative? Well, it depends on how you define Conservatism, doesn’t it?

The relentless quest for votes.

The relentless quest for votes.

Back in the high summer of collectivism, between 1930 and 1963, Conservatism was not really a vote-winning political brand, so it was easier to keep the definition clear. I don’t believe that you ever would have seen a yard sign claiming a candidate was a Texas Conservative before 1963. Now, because of the perceived success of the New Right, conservatism is a label that can win votes, so we see dilution. As a result, we are not really sure what conservatism is anymore.

The Old Right did organize in opposition to Progressivism — not in reaction to it, as progressives would have you believe, but in principled opposition to its expansive tendencies. They did not accept the claim that human society could be perfected along rational lines. They rejected the expansiveness of Progressivism. If you’re not clear on what I mean by expansiveness, consider the slogan, “Yes, we can,” which is the ultimate expression of expansiveness. That opposition to expansiveness is the real unifying principle of Conservatism. Not, “No, we can’t,” but, “Should we?”

People on the religious right, who want to bring about the New Jerusalem, who want to achieve the Kingdom of God on Earth, are themselves expansive. I don’t want to disparage their beliefs, just to point out that there is nothing “conservative” about them. Conservatives can make common cause with them — or anyone else — but do not mistake the religious right for Conservatives.

So, having established that Continetti really doesn’t have a good working definition of Conservatism, it is hardly surprising that he is willing to grant conservative credentials to Donald Trump. If the religious right can be accommodated, can’t the populists?

Continetti concludes:

 The triumph of populism has left conservatism marooned, confused, uncertain, depressed, anxious, searching for a tradition, for a program, for viability. We might have to return to the beginning to understand where we have ended up. We might have to reject adversarianism [sic], to accept the welfare state as an objective fact, to rehabilitate Burnham’s vision of a conservative-tinged Establishment capable of permeating the managerial society and gradually directing it in a prudential, reflective, virtuous manner respectful of both freedom and tradition. This is the challenge of the moment. This is the crisis of the conservative intellectual. What makes that crisis acute is the knowledge that he and his predecessors may have helped to bring it on themselves.

I am not sure if Continetti meant adversarianism as a portmanteau of adversarial + Arianism = heresy, especially given his use of other religious terms (e.g., chiliastic).

More to the point, isn’t accepting the progressive vision of corporatism and the welfare state as an objective fact what Republicans have more or less been doing, with infrequent lapses, since Richard Nixon? Is this not just another go-along-to-get-along tactic that has fueled frustration with the Republican establishment?

Gerson

Michael Gerson is an evangelical and a neo-conservative. He was George W. Bush’s chief speechwriter from 2001 to 2006. This makes him a somewhat suspect advisor for conservatives, but let’s see what he has to say.

The main point of Gerson’s article is that:

Bush represented a fundamentally different option (still embraced, in more modern form, by many Republican governors). His appeal included the aggressive promotion of economic growth, expressed in support for broad tax cuts. A commitment to compassionate and creative social policy, demonstrated by No Child Left Behind and his support for faith-based social services. A belief in ethnic and religious inclusion, shown by his proposal for comprehensive immigration reform and by his defense of American Muslims after the 9/11 attacks. An internationalist foreign policy, which included not only the war against terrorism but also the U.S. President’s Emergency Plan for AIDS Relief. And a tolerant version of traditionalism, based on moral aspiration rather than judgment. (It is an approach I helped frame while working for candidate and then President Bush.)

Given how post-ideological Bush the man appears to have been, I can understand why Gerson might want to defend the merits of the Bush Administration. The ideas of the Administration might well have been more properly the ideas of key advisors, including Gerson.

A fundamental problem with neocons was their “internationalist foreign policy,” prominently featuring a misguided belief in nation-building. To summarize concisely, neocons originated as disillusioned leftists, such as Irving Kristol and Norman Podhoretz, who were alienated by the attitudes of the 1970s Left toward Israel, the Soviet Union and the exercise of power by the United States. All that would be understandable, but the neocons kept their expansive Wilsonian approach to foreign policy.

Nevertheless, Gerson has a point when he says:

But here is the reality: There is no reconstitution of conservative influence or the appeal of the Republican Party without incorporating some updated version of compassionate conservatism. And conservatives need to get over their aversion to the only approach that has brought them presidential victory since 1988.

But what we need to do is pick through the agenda Gerson outlines and understand what is worth having and why. David Frum illustrated the problem on the ground:

Owners of capital assets, employers of low-skill laborers, and highly compensated professionals tend to benefit economically from the arrival of immigrants. They are better positioned to enjoy the attractive cultural and social results of migration (more-interesting food!) and to protect themselves against the burdensome impacts (surges in non-English-proficient pupils in public schools). A pro-immigration policy shift was one more assertion of class interest in a party program already brimful of them.

How do we get ethnic and religious inclusion while ensuring that the costs of these policies do not land on the people who are least able to bear them? How do we turn education reform into a meaningful program that prepares Americans for the realities of the 21st century, rather than an empty slogan that affects nothing in the real world?

Domenech

Ben Domenech wrote directly in response to Continetti, and also has some rejoinders for Gerson:

From Reagan through George W. Bush, conservatives largely agreed on the traditional three-legged stool of the fusionist GOP: national defense, limited government, family values. All of that blew up in the aftermath of the Bush years. Conservative intellectuals perceive what’s happening now as a crisis because the political universe has changed so dramatically thanks to Iraq, the Wall Street meltdown, and the lackluster growth that’s followed. But a good part of that crisis mentality could be due to the fact that they still haven’t come to grips with how much the Bush presidency damaged perceptions of conservatism, even among Republicans, and made the old frame of fusionism impossible.

But that fusion was always weak and strained. As explained earlier, there was common cause with the religious right on national defense, limited government and family values, but the religious right had an expansive approach to family values that was not compatible with conservatism or with Gerson’s “moral aspiration rather than judgment.” Meanwhile, there are also the libertarians, who do not buy into the conventional understanding of “family values” at all. Libertarians want more autonomy than the religious right is prepared to grant. Libertarians also want nothing to do with an internationalist foreign policy.

The Republican party from 2008 to 2015 was an uneasy coalition of libertarians, the religious right and Chamber-of-Commerce types. Then Donald Trump came along.

Ask yourself why so many of Trump’s voters, even the middle class ones, are willing to listen when he says even something as big as a presidential election can be rigged against them. All this is happening because American society is in collapse, and no one trusts institutions or one another. It is due to the failure of government institutions, largely stood up by the progressive left, to live up to their promises of offering real economic security and education and the promise of a better life. It is due to the failure of corporate institutions, who have warped America’s capitalist system to benefit themselves at the expense of others. It is due to the failure of cultural institutions, like the church and community organizations, to help the people make sense of an anxious age.

All this is true, but doesn’t tell us how to go forward. And many conservatives have been more than willing to prostitute themselves, by being pro-business rather than pro-market, to green-light the efforts of corporate executives to “warp America’s capitalist system to benefit themselves at the expense of others” by fobbing risk off on others while keeping the reward for themselves. Libertarians have been especially susceptible on this issue.

So, while the institutional problems Domenech cites are very real, institutions are composed of people, who in turn are animated by ideas. Conservatism needs to do the soul-searching, to examine its ideas.

Buckley

Francis Buckley looked at thought leadership on both sides of the political spectrum and found a lot to dislike.

We had thought the Great Chain of Being washed away by the rise of science, by 18th-century philosophes such as Voltaire, by Jefferson and the Founders. But we were wrong. As long as there are elites, there will be people who think they deserve their place atop the greasy pole, that resistance is futile, that the underclass must learn where they naturally belong. And that’s what many of our left- and right-wing elites have come to believe.

Buckley’s criticism of the left is beyond the scope of this essay. His criticism of the right begins with a review of the criticisms made of the Trumpkins.

For George Will, they were “invertebrates.” For Charles Murray and Kevin Williamson, the story is one of white working-class vice, of drug use, divorce, and unwed births. If the underclass wasn’t working, that was its fault. After looking at one town, National Review’s Williamson wrote, “the truth about these dysfunctional, downscale communities is that they deserve to die. Economically, they are negative assets. Morally, they are indefensible. … Donald Trump’s speeches make them feel good. So does OxyContin.”

I find that Williamson has a point when he says:

If you spend time in hardscrabble, white upstate New York, or eastern Kentucky, or my own native West Texas, and you take an honest look at the welfare dependency, the drug and alcohol addiction, the family anarchy — which is to say, the whelping of human children with all the respect and wisdom of a stray dog — you will come to an awful realization. It wasn’t Beijing. It wasn’t even Washington, as bad as Washington can be. It wasn’t immigrants from Mexico, excessive and problematic as our current immigration levels are. It wasn’t any of that.

If they are victims of anything, they are victims of a progressive education system that said it was OK to dissipate your disposable time on leisure and hitch yourself to the consumption-debt-repayment treadmill. People in the credentialed white-collar middle class who think they don’t have to confront the same problem have another think coming. At the same time, why should the white working class be exempt from the self-examination they would dish out to others: how long are you going to keep on being a victim? At what point do you stop being a victim of your upbringing, your culture and your education and assume moral responsibility for your own continued participation in it?

Charleroi, PA is 21 miles south of Pittsburgh. The town has experienced intense economic distress as a result of the decline in manufacturing in southwest Pennsylvania, The people there want to have their way of life protected in the face of these changes. OK, but if we are going to do that, would we do that for the people who live in the Core City neighborhood of Detroit? If not, where is the justice in that? Would that be racism? It is sure going to look racist to the people in Detroit. The Economist called it, “compassion for us; conservatism for them,” and rightly so.

I have my own take on this. I would have liked to continue to live in northern New Jersey, where I grew up, but I couldn’t afford it. So I had to make choices, and I did so — I moved. Staying is also a choice. You takes your choice, and you pays the price.

There is one more consideration, and it comes from David Wong:

If you don’t live in one of these small towns, you can’t understand the hopelessness. The vast majority of possible careers involve moving to the city, and around every city is now a hundred-foot wall called “Cost of Living.” Let’s say you’re a smart kid making $8 an hour at Walgreen’s and aspire to greater things. Fine, get ready to move yourself and your new baby into a 700-square-foot apartment for $1,200 a month, and to then pay double what you’re paying now for utilities, groceries, and babysitters. 

So it is a complex and messy issue with two parallel dimensions:

  • The ethical dimension, at the individual level, where I am more inclined to side with Williamson;
  • The political dimension, at the community level, where I am more receptive to Buckley. At the community level, there are also public policy issues. Do you want whole communities being abandoned because of economic dislocation? Where do they go?

Even though the specific issue here is more complex and muddy than Buckley probably has in mind, and even though I don’t think it fair to pick on Williamson, his main point is still valid:

Williamson reminds one of the unfeeling strain in contemporary conservatism. It’s something we’ve seen in Mitt Romney, Ted Cruz, Randians, and not a few libertarians. What Romney and Cruz communicated was a perfect fidelity to right-wing principles and an indifference to people.

As they sales proverb goes, “I don’t care how much you know until I know how much you care.” Politics is a people business. Ideas animate people, but the ideas come second to people.

In the interest of not making a long story even longer, I am going to skip forward to Buckley’s conclusion:

My atheist friends who themselves adhere to the highest codes of duty and honor might nevertheless want to consider how often they’ve observed antique republican virtue on display on college campuses or on television. What they’ve seen instead, for the most part, is the detritus of a culture that has lost its religious anchoring and with it any semblance of a moral culture.

They have dispensed with God and for their sophistication ask to be accepted by the intellectuals of the left as fellow members of a privileged elite in our Great Chain of Being. But in abandoning the religious tradition of the West, in their contempt for the invertebrates, the OxyContin sniffers, the takers, they reveal the icicle lodged in the conservative heart.

Before Conservatives can overcome any left-wing bias in the media or any other true-but-incidental issue in being heard, we have to overcome this. The vast majority of the electorate sees “the icicle lodged in the conservative heart,” and wants no part of it.

Is There Anything to Conserve?

What does the term Conservative even mean here in the US anymore? In Britain, at least, they are rigorous about their labels: Liberals were almost completely displaced by the Labor Party by 1924. Here, we are more sloppy with our words, and we pay a price for that.

After eighty-some years of Progressive government (it depends on what you count Herbert Hoover as), there is precious little left to conserve. Meanwhile, we have to come to terms with urbanization, specialization, autonomy and deep pluralism.

We need an ideology that really cares about people, not just one that does a bad job of trying to appear like it cares. We need to put all the productive people first, not just those who can be donors. Sheldon Adelson spent $150 million in 2012 and whiffed completely. His money did not help Romney defeat Obama, and he went 0-for-5 in congressional races. It’s still one person, one vote.

We need to be clear on the difference between pro-market and pro-business policies. We need to remind everyone constantly that a moral foundation of capitalism is that the people who bear the greatest risks have the greatest upsides. There will always be people who want to ditch the risk and keep the reward; it is bad public policy to let them do it.

That means that people who choose to earn a wage or a salary have chosen a lower-risk, lower-reward life. It is unethical to leave them exposed when trade policies change so that others can reap all the rewards in terms of profit and lower-cost consumer goods.

The majority of adults with whom I have spoken do not want those who genuinely cannot take care of themselves pushed to the wall. We need to lead the conversation on what “deserving” means. We are going to have to rebut the schoolmarms who want to take the side of whomever cries first.

We are going to have to face up to intellectual bullies who tell us, “Everyone knows John Rawls said …” We are going to have to push back more and take pushback better. We are going to have to control the language battlefield, or we will always be on ground of someone else’s choosing.

We need to stop the appalling waste of human lives that progressivism encourages. We have a drug problem in this country because we have the demand for drugs. We have a population insulated from risk living lives devoid of meaning, having no higher purpose than consumption and leisure, so they make problems for themselves. Did you ever see those videos on YouTube where they say that, by some year in the near future, India or China will have more honor students than we have students? We can’t afford our current levels of wasting people’s lives in such a world.

We can’t afford to tell people, “We’re not interested in what you can contribute because you have the wrong plumbing.” Or the wrong skin color. We can’t afford to have people who hate to go to work because they expect to be groped or humiliated or ridiculed for being who they are. Actually, we make people hate to go to work for a whole lot of reasons, but that is another essay for another day.

We need to humanize the costs of progressive policies. On Wednesday, the election will be over, but the problems will not. Progressives make more promises to more people, with continually less ability to make good on those promises. A regime based on redistribution will only lead to more intense and ugly fighting over a shrinking pie. A focus on production and the people who make it possible is the only way forward.

Written by srojak

November 6, 2016 at 8:02 pm

US Constitiution 1.1

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In 1979, Theodore Lowi released the second edition of his book The End of Liberalism: The Second Republic of the United States. Lowi teaches at Cornell and would be characterized as a liberal; for example, he advocates government planning. However, he is also a proponent of the rule of law. The evolution of the political processes away from law and representative government toward bargaining and interest-group government began to trouble him by the time he wrote the first edition of the book ten years earlier.

Where contemporaries saw government departure from formalism as pragmatic, Lowi saw it as corrupt. Where reality deviates from formalism, we find arbitrariness, influence-peddling and injustice. He wrote the best defense of political idealism I have seen:

The gap between form and reality gives rise to cynicism, for informality means that some will escape their fate better than others. There has, as a consequence, always been cynicism toward public institutions in the United States, and this, too, is a good thing, since a little cynicism is the parent of healthy sophistication. However, when the informal is elevated to a positive virtue, and when the gap between the formal and the informal grows wider, and when the hard-won access of individuals and groups becomes a share of official authority, cynicism unavoidably curdles into distrust. Legitimacy can be defined as the distance between form and reality. How much spread can a democratic system tolerate and remain both democratic and legitimate?
The End of Liberalism, p. 297.

Although he did not use the term, the mechanisms that Lowi describes are that of corporatism: public-private partnerships in rule-making and governance. Although Lowi did not name it, he described it well enough:

The state grows, but the opportunities for sponsorship and privilege grow proportionately. Power goes up, but in the form of personal plunder rather than public choice. If would not be accurate to evaluate this model as “socialism for the rich and capitalism for the poor,” because many thousands of low-income persons and groups have provided within the system. The more accurate characterization might be “socialism for the organized, capitalism for the unorganized.”
Ibid, pp. 278-9.

For the second edition, Lowi reverse engineered a new constitution for the government from actual practice, in an attempt to highlight the spread between form and reality.

There ought to be a national presence in every aspect of the lives of American citizens. National power is no longer a necessary evil; it is a positive virtue.

Article I. It is the primary purpose of this national government to provide domestic tranquility by reducing risk. This risk may be physical or it may be fiscal. In order to fulfill this sacred obligation, the national government shall be deemed to have sufficient power to eliminate threats from the environment through regulation, and to eliminate threats from economic uncertainty through insurance.

Article II. The separation of powers to the contrary notwithstanding, the center of this national government is the presidency. Said office is authorized to use any powers, real or imagined, to set our nation to rights by making any rules or regulations the president deems appropriate; the president may subdelegate this authority to any other official or agency. The right to make all such rules and regulations is based upon the assumption in this constitution that the office of the presidency embodies the will of the real majority of the American nation.

Article III. Congress exists, but only as a consensual body. Congress possesses all legislative authority, but should limit itself to the delegation of broad grants of unstructured authority to the president. Congress must take care never to draft a careful and precise statute because this would interfere with the judgment of the president and his professional and full-time administrators.

Article IV. There exists a separate administrative branch composed of persons whose right to govern is based upon two principles: (1) the delegation of power flowing from Congress, and (2) the authority inherent in professional training and promotion through an administrative hierarchy. Congress and the courts may provide for administrative procedures and have the power to review agencies for their observance of these procedures; but in no instance should Congress or the courts attempt to displace the judgment of the administrators with their own.

Article V. The judicial branch is responsible for two functions:
1. To preserve the procedural rights of citizens before all federal courts, state and local courts and administrative agencies, and
2. To apply the Fourteenth Amendment of the 1787 Constitution as a natural-law defense of all substantive and procedural rights.
The appellate courts shall exercise vigorous judicial review of all state and local government and court decisions, but in no instance shall the courts review the constitutionality of Congress’ grants of authority to the president or to the federal administrative agencies.

Article VI. The public interest shall be defined by the satisfaction of the voters in their constituencies. The test of the public interest is re-election.

Article VII. Article VI to the contrary notwithstanding, actual policymaking will not come from voter preferences or congressional enactments but from a process of tripartite bargaining between the specialized administrators, relevant members of Congress and the representatives of self-selected organized interests.

How did he do? How closely did he bring the form of his constitution to matches what actually happens?

Written by srojak

October 15, 2016 at 2:48 pm

Declarations of Dependence

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In August 2011, speaking in Andover, MA, Elizabeth Warren made these comments:

I hear all this, you know, ‘Well, this is class warfare, this is whatever.’ No. There is nobody in this country who got rich on his own — nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.

As if building on this idea, President Barack Obama made these comments in a campaign speech in Roanoke, VA on July 13, 2012:

There are a lot of wealthy, successful Americans who agree with me — because they want to give something back.  They know they didn’t — look, if you’ve been successful, you didn’t get there on your own.  You didn’t get there on your own.  I’m always struck by people who think, well, it must be because I was just so smart.  There are a lot of smart people out there.  It must be because I worked harder than everybody else.  Let me tell you something — there are a whole bunch of hardworking people out there.

If you were successful, somebody along the line gave you some help.  There was a great teacher somewhere in your life.  Somebody helped to create this unbelievable American system that we have that allowed you to thrive.  Somebody invested in roads and bridges.  If you’ve got a business — you didn’t build that.  Somebody else made that happen.  The Internet didn’t get invented on its own.  Government research created the Internet so that all the companies could make money off the Internet.

The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.  There are some things, just like fighting fires, we don’t do on our own.  I mean, imagine if everybody had their own fire service.  That would be a hard way to organize fighting fires.
So we say to ourselves, ever since the founding of this country, you know what, there are some things we do better together. That’s how we funded the GI Bill. That’s how we created the middle class. That’s how we built the Golden Gate Bridge or the Hoover Dam. That’s how we invented the Internet. That’s how we sent a man to the moon. We rise or fall together as one nation and as one people, and that’s the reason I’m running for President — because I still believe in that idea. You’re not on your own, we’re in this together.
[Source]

Some defenders of this idea claimed at the time that Obama’s remarks were being taken out of context. For this reason, I have included all the paragraphs that factcheck.org included when making such a claim.

Peggy Noonan wrote a very effective parody of this less than a month later:

From a friend watching the Olympics: “How about that Michael Phelps? But let’s remember he didn’t win all those medals, someone else did. After all, he and I swam in public pools, built by state employees using tax dollars. He got training from the USOC, and ate food grown by the Department of Agriculture. He should play fair and share his medals with people like me, who can barely keep my head above water, let alone swim.” The note was merry and ironic. And as the games progress, we’ll be hearing a lot more of this kind of thing, because President Obama’s comment—”You didn’t build that”—is the political gift that keeps on giving.
— “The Life of the Party”, http://www.peggynoonan.com/661/

So — obvious truths or outrageous philosophical claims?

The Philosophy of Dependence

There is a philosophical pedigree for the ideas that Warren and Obama are promoting. Their statements call the question on fundamental ideas of:

  • Deserved reward: in a society in which the co-operation of others is necessary to get any meaningful results, what share of the results can any one person really deserve?
  • Moral responsibility: to what extent are you responsible for your actions? To what extent is the community?

The subject touches on moral agency, free will and self-reliance. This is not a new topic of discussion. Friedrich Nietzsche wrote:

The desire for “freedom of will” in the superlative, metaphysical sense, such as still holds sway, unfortunately, in the minds of the half-educated, the desire to bear the entire and ultimate responsibility for one’s actions oneself, and to absolve God, the world, ancestors, chance, and society therefrom, involves nothing less than to be precisely this causa sui, and, with more than Munchausen daring, to pull oneself up into existence by the hair, out of the slough of nothingness.
— Nietzsche, Beyond Good and Evil, Chapter I

Informed by thinkers such as Nietzsche, communitarians have for a long time criticized the individualistic definition of the self. They have maintained that people are not, in the words of Charles Taylor, “self-sufficient outside of society,” and that the self is formed independent of social relations. From this, it would seem to follow that Taylor believes both that Nietzsche was correct in his criticism of individual moral responsibility, and that it is difficult for an individual to claim to deserve any distinct reward for contributing to a group effort, even if that contribution was to plan, organize and direct.

However, this is by no means a settled issue. Robert Nozick described humans as self-owners: in full control of their talents, abilities and labor and the fruits of their application of these. He also takes the position that human beings are ends in themselves. From this, it follows that a person is able to grant or withhold her participation in a group effort, is morally responsible for her decision and is entitled to rewards that she deserves for the contribution she provides.

As Andrew Cline explained, the positions of Warren and Obama are an inversion of all this. Instead of government deriving legitimacy from the consent of the governed, it is We the People who must ask the government what we deserve for our efforts:

In Obama’s formulation, government is not a tool for the people’s use, but the very foundation upon which all of American prosperity is built. Government is not dependent upon the people; the people are dependent upon the government.

The system “allowed you to thrive.” That is fundamentally non-Jeffersonian. You succeeded because a greater power — the state — bestowed its favor upon you. The setup, the whole reason for the argument, is Obama’s contention that your wealth is not your creation, but an allowance from the state:

“You didn’t build that” was the clincher that would justify the demand to “give something back.” Not “give,” but “give… back.” The distinction is critical. Your wealth, he clearly and unmistakably asserts, is not your creation, it was given — allowed — by the state. And now the state wants some of it back. Refuse and you are denying the state its rightful claim to the wealth it “helped” you to create.
— “What ‘You Didn’t Build That’ Really Means — and Why Romney Can’t Explain It”, The Atlantic (http://www.theatlantic.com/politics/archive/2012/08/what-you-didnt-build-that-really-means-and-why-romney-cant-explain-it/260984/#).

A full treatment of the philosophy behind these remarks would be a book-length effort. If you are interested, I direct you to the following supplementary materials, which you can read without charge on the Internet:

  1. Internet Encyclopedia of Philosophy
    1. Autonomy
    2. Desert
    3. Moral Luck
    4. Nozick, Robert
    5. Responsibility
  2. Stanford Encyclopedia of Philosophy
    1. Communitarianism
    2. Desert
    3. Feminist Perspectives on the Self
    4. Free Will
    5. Incompatibilist (Nondeterministic) Theories of Free Will

I caution the reader that philosophy has trends, fads and fashions no less than any other subject of human study. These and the related materials are useful, but not the definitive last word.

How Stuff Gets Done

No one disputes that most of the interesting problems in the world require solutions designed and implemented by groups of people. Innovation, by definition, requires participation.

What are the appropriate rewards for various dissimilar contributions to group success? We can get some insights from everyday life at work.

A committee is a group that keeps minutes and loses hours.
— Milton Berle

Just putting a group of people together does not cause results to magically emerge. Many executives and managers have learned this the hard way. Someone has to stand up and risk being wrong, to take responsibility and overcome the indolence and inertia of others and guide the group forward.

Popular ideas link expectation of reward to hard work, but to hear people talk, everyone works hard. You can find a thousand people who are willing to work hard and still not one person who is willing to risk being wrong.

Victory has a hundred fathers, but defeat is an orphan.
— Usually attributed to President John F. Kennedy, but he got it from Tacitus, c. 98 AD.

After the results are in, if success is obtained, everyone standing downwind has a claim to deserve a share. However, if the effort fails, everyone who did not publicly take a position leading the effort will run and hide.

If the world worked any other way, we would not need salespeople. People looking for a solution would charge out into the marketplace, armed with perfect information, and select the best product without any guidance from anyone else. But in fact we do need salespeople to promote our product, establish mindshare and explain benefits. Salespeople also get prospects off dead center and lead them to make decisions to buy sooner rather than later.

Collectivism and Its Discontents

When these remarks were made, particularly those by the President, there was a lot of pushback. I am grateful that the country was paying attention. I hadn’t expected as much of a reaction over what is essentially a philosophical issue. I think that many people whose views align with those of Warren and Obama hadn’t expected it, either, and were scrambling for a response.

The “out of context” defense is disingenuous, and also lame. If the point of the remarks had been only that no man is an island, we already knew that. No one ever asserted that anyone ever did get rich “on his own,” without the participation of others or without the legal and physical infrastructure of society. The question is what to focus on: the person taking initiative or the group being led, the innovation or the ground that has already been paved by others. The point was, as Cline articulated, a radical reorientation of the relationship between governing and governed. That has always been the point of planners and collectivists. It was explained by Lester Thurow back in 1971.

Warren claims the existence of an “underlying social contract.” Yes, I believe there was a social contract in existence — in the forties and fifties. It unraveled because everyone decided to “improve” it in their own way, including the Federal government, after which there was no longer a societal consensus. The government does not have the prerogative to unilaterally redefine the rights and obligations of the polity. In its wisdom, our government helped abrogate the social contract. This is a major cause of the support for Donald Trump this year: people who feel that rewards in society are being directed to the undeserving. The correctness of this view is out of scope of this discussion; the relevant fact is that the view exists.

Although the viewpoint of Warren and Obama is not a perspective I share, I believe that the discussion that arises from these remarks is necessary. There are so many different concepts of who the deserving people are that we need to have a conversation about them, taking the subject on directly and coming to some sort of conclusion. We can’t just muddle through anymore; we need to face the conflict and work out what kind of society we want to have.

Sarbanes-Oxley: Ideas Are Not Laws

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The Sarbanes-Oxley Act of 2002 was and still is a contentious piece of legislation. Comments are still flying insinuating that the law is an unwarranted intrusion into the private sector and has negative consequences for the economy as a whole. I do not agree with this claim.

The act is also an excellent case study into how government does not operate on constitutional principles and the problems that arise from this fact. It works well in this role because the law is relatively brief and comprehensible — as acts of Congress go — and because so many ordinary people have had to live with the consequences.

Let’s peel it apart and see what the issues are.

The Law

The text of the law can be found here: https://www.congress.gov/bill/107th-congress/house-bill/3763. It is only 66 pages long, and not nearly as difficult to comprehend as the Patient Protection and Affordable Care Act of 2010.

The act, commonly referred to in industry as Sarbox or SOX, is divided into eleven major sections, or Titles:

TITLE I—PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
TITLE II—AUDITOR INDEPENDENCE
TITLE III—CORPORATE RESPONSIBILITY
TITLE IV—ENHANCED FINANCIAL DISCLOSURES
TITLE V—ANALYST CONFLICTS OF INTEREST
TITLE VI—COMMISSION RESOURCES AND AUTHORITY
TITLE VII—STUDIES AND REPORTS
TITLE VIII—CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
TITLE IX—WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
TITLE X—CORPORATE TAX RETURNS
TITLE XI—CORPORATE FRAUD AND ACCOUNTABILITY

Much of the law addresses problems commonly found in business at the time of the legislation. For example, Title II addressed the practice of consulting firms to offer audit services essentially as a loss leader to get the ear of executives so they could sell computer software selection, systems implementation and other management services. Once such relationships were in place, the notion of auditor independence was out the window; a dissatisfied audit client could hit back by reducing purchases of non-audit services from the consultants. The GAO had been pushing for changes in this area for years. As a result, all the audit firms who had not already spun off their management and IT consulting businesses were forced to do so.

Most of the complaints about the act arise from Title IV. For example, Section 402 prohibits publicly traded companies from making personal loans to their officers, a common practice prior to 2002. If you want to have a company that you can use as a personal piggy bank, don’t take the company public. Then it’s between you and your other private investors (if any) how you run it. However, it is bad public policy to allow these practices in a publicly traded company.

The most problematic part of the law was Section 404. Here it is, in its full glory:

SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.
(a) RULES REQUIRED.—The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal control report, which shall—
(1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) contain an assessment, as of the end of the most recent  fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.
(b) INTERNAL CONTROL EVALUATION AND REPORTING.—With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement

That’s it. The officers of the company have to attest that they have adequate internal controls and, as described in Section 302, they have to sign the report. Here is Section 302 in its entirety:

SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) REGULATIONS REQUIRED.—The Commission shall, by rule, require, for each company filing periodic reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the principal executive officer or officers and the principal financial officer or officers, or persons performing similar functions, certify in each annual or quarterly report filed or submitted under either such section of such Act that—
(1) the signing officer has reviewed the report;
(2) based on the officer’s knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;
(3) based on such officer’s knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report;
(4) the signing officers—
(A) are responsible for establishing and maintaining internal controls;
(B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer’s internal controls as of a date within 90 days prior to the report; and
(D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;
(5) the signing officers have disclosed to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function)—
(A) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize, and report financial data and have identified for the issuer’s auditors any material weaknesses in internal controls; and
(B) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls; and
(6) the signing officers have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
(b) FOREIGN REINCORPORATIONS HAVE NO EFFECT.—Nothing in this section 302 shall be interpreted or applied in any way to allow any issuer to lessen the legal force of the statement required under this section 302, by an issuer having reincorporated or having engaged in any other transaction that resulted in the transfer of the corporate domicile or offices of the issuer from inside the United States to outside of the United States.
(c) DEADLINE.—The rules required by subsection (a) shall be effective not later than 30 days after the date of enactment of this Act.

It’s a little longer, and it’s not entertaining reading, but it is not incomprehensible, either. And there is some dry humor here: anyone who has ever worked in a publicly traded company would find it comical to think of an executive team cheerfully reporting, “Yeah, we have these known deficiencies in our internal controls” to the shareholders.

Congress acted to address real problems. Every time there was any accounting irregularity at a publicly traded firm, the executives would claim no knowledge of it, seeking low-level employees and managers to blame. At the same time, executive compensation was spiraling upward and justified by the claim that companies needed the best talent available. There are plenty of people who are good at evading responsibility; there is no need for a bidding war to find talent like that.

However, there is a substantial problem with the law as written: what, legally, is an internal control structure? By what criteria does one judge its adequacy? Sarbox is mute on this subject. So how do you know whether or not you are out of compliance with the law?

Chaos Reigns

For five years, the business world was plunged into a compliance crisis. Are my financial controls adequate? How do I tell? How would I substantiate it in court if I had to?

The law became the Sarbanes-Oxley Full Employment for Management Consultants Act. An entire industry sprang up for devising controls that might be adequate. Examples of the extent to which people went include:

  • An instance where the company required the CFO to personally hand every employee their payroll check;
  • An instance where auditors found the company out of compliance because a salesperson spent $15 for donuts for a meeting and was not required to have two authorizing signatures on the reimbursement;
  • An instance where auditors required the company, as part of Sarbox compliance, to take pictures of a smoke detector and retain receipts for the batteries.

[source]

Further, the newborn audit industry put great weight on separation of duties, which focuses on the risk of low-level misbehavior. As Solomon and Peecher observed in a 2004 Wall Street Journal article:

Billions are being spent documenting controls that lie below, and can be stealthily overridden by, C-suite members.
— “SOX 404 — A Billion Here, a Billion There …”, WSJ, 9 Nov 2004.

There was a general tendency to demonstrate compliance by volume instead of weight. Elaborate charts and documents were generated to show the abundance of controls, whether or not they provided meaningful reduction of risk.

The real danger was that a class-action suit would assert that shareholders were defrauded by a company having inadequate controls, and then a judge would be determining what adequacy was.

Meanwhile, everyone who wanted to avoid change now had an evergreen excuse to do so: “We can’t do that because of Sarbanes-Oxley.” In 2006, my responsibilities included changing business processes. I finally downloaded the legislation on to my laptop and, when confronted with this excuse, would invite the person to look at the law and show me where it says the existing process has to be the way it was to maintain compliance. Disingenuous, to be sure; but so was the excuse I was given. This is the real hidden economic cost of Sarbox: compliance as a justification for inertia.

The PCAOB

Title I of the Act created the Public Company Accounting Oversight Board (PCAOB) to supervise the audit practices of publicly traded companies and set standards. Although its actions have the force of law, Section 102 explicitly states:

(b) STATUS.—The Board shall not be an agency or establishment of the United States Government, and, except as otherwise provided in this Act, shall be subject to, and have all the powers conferred upon a nonprofit corporation by, the District of Columbia Nonprofit Corporation Act. No member or person employed by, or agent for, the Board shall be deemed to be an officer or employee of or agent for the Federal Government by reason of such service.

The Act made the PCAOB answerable to the Securities and Exchange Commission, which is an independent agency of the federal government. The SEC must approve PCAOB rules and standards.

In July 2007 the PCAOB produced Auditing Standard No. 5: An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements, which formally provided for:

  • Risk-driven determination of control adequacy;
  • Scaling of the audit relative to the size of the business being audited.

Nevertheless, the guidance primarily addresses the process of auditing the controls, rather than control structure adequacy.

The constitutionality of the PCAOB was itself challenged. Within Section 101, this paragraph provides the SEC with exclusive supervision over board members:

(6) REMOVAL FROM OFFICE.—A member of the Board may be removed by the Commission from office, in accordance with section 107(d)(3), for good cause shown before the expiration of the term of that member.

This places the board members outside the supervision of either Congress or the President. The challenge  maintained that the PCOAB violated separation of powers, and further that the board members should have been working for the Government since they were executing the law. The challengers sought an injunction blocking the board from exercising the authority described in Title I. In 2010, in the decision Free Enterprise Fund and Beckstead and Watts, LLP v. Public Company Accounting Oversight Board, et al. (561 U.S. 477), the Supreme Court found that the structure did violate separation of powers, but simply severed the clause from the remainder of the Act, which the Court upheld.

Management Controls

Managers exist to plan, organize, staff, direct and control. Management controls are the tools available to you as a manager so that you can know what is going on when your back is turned.

Here are some common examples of management controls:

  • An expense report;
  • A purchase order;
  • A work order in a factory;
  • A second signature line on a check;
  • A budget;
  • A schedule;
  • A project review meeting;
  • A status report;
  • Paid vacation with a requirement that it be used every year (Do you see why? If not, think about check kiting: you can’t go on vacation if you’re kiting checks.).

Many managers are not good at devising and implementing controls. If you have any significant work experience, think about all the false starts and big splashes that you have seen, which fizzled out in weeks when upper management turned their attention to the next emergency or big idea. What happened? Almost always, a plan is launched with no controls. Once the sponsors were not paying full attention, the entire initiative falls by the wayside.

Controls have costs, and can be applied excessively. You may have seen checks requiring a countersignature only where the amount exceeds a threshold level. The risk of abuse below that level is not worth the additional time and energy to obtain a second signature. This is why the earlier cited requirement to get two signatures on a reimbursement for $15 of donuts is ridiculous.

Typically, as a company grows, controls have to be put in place, and these harden into policies. Then you encounter people who think policy is God and have no understanding of why the policy came about, enforcing minutiae while failing to understand intent. Eventually the company chokes on red tape, and the policies have to be relaxed. Then, the next time financial results go down or a compliance crisis occurs (such as provoked by this legislation), a new set of policies is thrown together. And so on, and so forth, and scooby doobie doobie.

So if the members of Congress and their staff aides thought that “adequate internal control structure” was a well-understood norm in the private sector that needed no definition, they had another think coming.

Lawmaking

Throughout Anglo-American history, people strove to replace rule of man with rule of law. Rule of man could be arbitrary and capricious; rule of law is systematic, comprehensible and predictable. Under rule of law, the citizen can know what actions would be contrary to the law and avoid these actions.

The Constitution considers Congress the premier branch of government, not the President (you’d never know that from watching TV news). Article I is half of the original Constitution. The Constitution forbids Congress from taxing the exports of a state to another, granting titles of nobility or passing bills of attainder. The Constitution provides Congress with the authority to coin money, raise and support armies and make laws.

The law works best when there are lists of requirements that you can check off. For example, to have a contract, there must be lawful subject matter, parties with capacity to commit to a contract, offer, acceptance and consideration to both sides. If any of these elements are not present, there is no contract. The law then defines the elements: what constitutes adequate capacity to enter into a contract, what is and what is not acceptance, what is and what is not consideration. The issues can get complicated because people are complicated; it is possible to apply the law to the facts and figure out whether or not you are in a contractual relationship.

The citizen has to be able to comprehend the law and its application to the her actions in order to be law-abiding. Judges love to say, “Ignorance of the law is no excuse.” But you can read Sarbox from front to back and still have no idea what would be an adequate internal control structure, and thus in compliance with the law. It is not possible to apply Sarbox to your facts and figure out whether or not you have adequate internal controls.

Delegation

.. [T]he Supreme Court created modern jurisprudence by giving full faith and credit to any expression that could get a majority vote in Congress. The Court’s rule must once again become one of declaring invalid and unconstitutional any delegation of power to an administrative agency or to the president that is not accompanied by clear standards of implementation.
— Theodore Lowi, The End of Liberalism (2nd Ed.), 1979, p. 300.

The Constitution visualized Congress as a the lawmaking power within the government, Congress being the branch of government most accountable to the people (and to the states, but that is another topic for another day). The president is the executive and exists to execute the will of Congress. There was no provision for administrative agencies effectively accountable to no one.

The last time the Supreme Court took non-delegation seriously was 1935. In A. L. A. Schechter Poultry Corporation, et al. v. United States (295 U.S. 495), the Court found that the National Industrial Recovery Act contained an unconstitutional delegation of congressional law-making power to the executive.

President Roosevelt’s response was to threaten to seek congressional approval to expand the Supreme Court by six additional justices. Roosevelt abandoned this “court-packing” proposal after one justice shifted his position on rulings in 1937 to be more favorable to Roosevelt — the “switch in time that saved nine” — while another justice who was consistently opposed to New Deal legislation retired. Since then, the Court has been unwilling to uphold non-delegation.

Lowi shows how the rule of law has been abandoned as public controls have shifted:

  • from concrete and specific to abstract and general;
  • from rule-bound to discretionary;
  • from proscriptive through prescriptive to comprehensive (Lowi calls this last categoric).

Under present conditions, when Congress delegates without a shred of guidance, the courts usually end up rewriting many of the statutes in the course of construction. Since the Court’s present procedure is always to find an acceptable meaning of a statute in order to avoid invalidating it, the Court is constantly legislating. In contrast, a blanket invalidation under the Schechter rule is tantamount to a court order for Congress to do its own work.
— Lowi, p. 300.

The Constitution visualized Congress as the lawmaking body and accountable to the people. The Constitution, augmented by John Marshall, did not visualize courts as accountable to the people, but neither did the Constitution grant courts the power to make law. No one visualized a private non-government entity reporting to an independent federal agency where the private entity could make pronouncements with the force of law.

For rule of law to exist, it is necessary that the government is rule-bound. Laws must have clear definitions of the behavior to be avoided. Complex issues will arise that will cause the public to have a sense that something is going on that is improper, unfair or downright wrong. However, the starting point is that behavior is allowed unless ruled otherwise. If Congress cannot spell out what the unlawful behavior is, there should be no law.

The Bottom Line

The Sarbanes-Oxley Act offers a tour through important issues that are fundamentally wrong with lawmaking today:

  • Congress passed what was described as a law, but was really, in the instance of Section 404, a sentiment.
    • There were no factual definitions of the proscribed behavior.
    • The citizen could not know whether or not he was in compliance with the law.
  • Congress made a full-toss delegation of the definition of the details of the law to a non-governmental entity (PCAOB) working for a constructively autonomous federal agency (SEC).
  • Citizens had to wait years to have key aspects of the law operationalized and when that was provided, it was not provided by Congress.
  • Confronted with a constitutional challenge to the law, the Court granted itself a line-item veto to rewrite the law.
  • No one who operationalizes the law is politically accountable to the citizens for his actions.

It serves as an example of these issues that is comprehensible by those of us who have had to live with the effects of the law.

Written by srojak

October 31, 2015 at 5:14 am

What, Exactly, Do You Do Here?

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Back in 1982, two Harvard MBA students published a book in the Official Handbook mold, titled The Official M.B.A. Handbook, or How to Succeed in Business without a Harvard M.B.A.. The authors didn’t want to impair their future chances to recapture their educational investment, so they wrote under pseudonyms.

It turned out that they were ten minutes ahead of their time. They captured the issues around the aspirations of the decade.

One particular item in the book has stuck with me. The authors were discussing how to choose a career. They presented an overlooked but important consideration.

 

The Line of Direct Labor. Fisk and Barron, p. 104.

The Line of Direct Labor. Fisk and Barron, p. 104.

M.B.A.’s, having a rather oversized opinion of their own worth, are very sensitive about being underpaid. In addition, they know that pay levels are often keyed to one’s level of tangible output, if output is actually measurable. Thus, managers who work in jobs with tangible output get paid appropriate salaries, while managers whose output cannot be measured can earn absolutely stratospheric ones.
— Fisk and Barron, p. 104.

Yes, it’s satire, but satire has to have some grounding in recognizable truth in order to be funny. Moreover, in our time, yesterday’s satire will be left behind as stale and unimaginative by what people say and do in all earnestness tomorrow. As Tom Wolfe had written not five years before, “No sooner do you think you have hit upon a piece of Rabelaisian hyperbole for our times than reality shrinks you like a wool sock.”

What actually happened in the past thirty years is that everyone in the middle class has made a run for the right side of the Line of Direct Labor. The goal has been to find a setup where you have no tangible output, or even better, no output at all. This has led to corporate environments that I described in an earlier post. Even if you can’t get into a line of business that has no tangible output, you can set yourself up away from the tangible output within the business by being a gatekeeper or a professional critic. A substantial portion of the people who have middle-class jobs have done exactly this.

However, the relatively few people hitched to responsibilities with tangible output are carrying all those others who are above such mundane considerations. This leads to less wealth production and more people claiming credit for the wealth that is produced.

You would never know it to look at the published figures:

 

St. Louis Federal Reserve Economic Data (FRED): Real Gross Domestic Product, Downloaded 4 May 14. http://research.stlouisfed.org/fred2/series/GDPC1

St. Louis Federal Reserve Economic Data (FRED): Real Gross Domestic Product, Downloaded 4 May 14. http://research.stlouisfed.org/fred2/series/GDPC1

But this is completely meaningless if you want to understand the wealth picture. Gross domestic product (GDP) is a backed-into number. We have no way of measuring what was actually produced. We measure what was spent and say, “Well, if someone spent the money, they must have got something for it.”

But this is not true. All those people who don’t have tangible output, or any output at all, are also getting paid, eating food, buying houses and putting gas in their cars. All their expenditures show up in GDP, even if they don’t contribute anything — even if they actually obstruct wealth production. Furthermore, they are competing in the marketplace with those who do produce for scarce goods, bidding the prices up.

This is the dark, seamy, stinky story no one wants to touch: what if the middle class, as a whole, isn’t producing enough to earn its keep? Far better to stroke everyone with stories about how they are ripping you off. You, the salt of the earth, are out working hard every day and hanging on to what you have by your fingernails. Why is that? Because they are taking advantage of you.

But we have been down this road before, and it wasn’t pretty.

 

Written by srojak

May 4, 2014 at 3:33 pm