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What are Conservatives Conserving?

by Bruce Webb

Over at Open Left they are revisiting the concept of Conservatism and whether it is a coherent philosophy. And after concluding that Conservatives by and large have failed to come up with their own definition proceeded to advance some of their own, that it is about enabling aristocracy, or institutionalizing suffering, or whatever. What is Conservatism: Conservatives Have No Idea. Well I don’t think we get very far simply dismissing conservatism as a pathology, in particular it doesn’t get us very far in explaining small town and rural conservatism and particularly that of people who are not really in a socio-economic position to oppress anybody, the normal explanations based on race and economic class more or less breaking down in places like North Dakota.

Is it possible to come up with a common denominator of Conservatism, one that doesn’t reduce to institutionalized capitalist racism (which conclusion unfortunately is where too many of us liberals tend to gravitate to)? Well I think so, and probably not surprising anyone who has read my stuff, I locate it in a time and a place far detached from 20th century America. More in extended entry.

The first step is to separate Conservatism from its modern variant Reactionism. Political and Religious Reaction was a general response to the larger movement we associate with the European Enlightenment starting roughly in the late 17th century and a specific response to the historical developments associated with various revolutions from the Dutch, to the American, and most dramatically the French and then to the subsequent Continental/Napoleanic Wars. After the final defeat of Napolean the European Powers very consciously set up a system of institutionalized Reaction where the clear enemies were the interlinked movements of Revolution, Nationalism, Liberty, Democracy, and Socialism. To which you could add Free Thinking and such things as Deism. All of these were threats to a political and social system based on hereditary monarchy and aristocracy. Nor were these threats idle, within a hundred and ten or so years of the Congress of Vienna in 1815 imperial and royal houses whose histories could be traced back up to a thousand years were for the most part in Marx’s Dustbins of History.

While clearly the kind of Authoritarian Reaction that dominated the 19th century, or at least went down fighting, consciously drew to itself the elements of Conservatism and as noted can be seen as a varient should not be identified with it. Because most Conservatives are not Kings and Princes, or even Popes and Priests, and while there are reasons why Conservatism is most comfortable within a econo-political system based on authority and hierarchy they are not I think its motivating force.

The key question for me in tracking down Conservatism is whether it existed in recognizable form prior to the Enlightenment? If so it can hardly be a product of the latter even though it might have been (and in my opinion was) reshaped by it. And I think the answer is clearly yes, as far back as we have evidence of Western Civilization to which might well add Asian Civilization we see some particular shared characteristics that I think are the basis of Conservatism (I don’t know enough about Oceana, Africa, or Pre-Columbian America to even venture a guestimate on this in relation to them. Feel free to fill in in comments.)

So to answer the title of the post, what are Conservatives conserving? I suggest it is the Household, here seen as a socio-economic unit headed by the Householder (in English the ‘hus-bund) ‘with certain authority delegated to the Wife (O.E. ‘hus-wif’). In this context we can’t separate out ‘house’ ‘household’ ‘family’, each has a literal and figurative center or centers and a defined boundary, and defending that boundary figuratively, legally and often physically was the responsibility of the ‘family’ under command of the householder. And of course the concept of ‘hold’ is integral to both ‘householder’ and ‘holding’ as well to the legal terms of ‘possession’ (cognate with ‘seize’ itself ultimately identical to English Law-French ‘seisen’).

If we had to find a general European translation of ‘household’ we can hardly do better than Latin ‘familia’ which means more than the biological unit, but extends to all human and even animal occupants of the household, all of which are ultimately under control of the head of the household. Now viewed from the outside through our Enlightenment eyeshades all of this looks like a dictatorship, from the inside out that makes no more sense than asking why ships are generally not directed by committee, when the storm hits someone has to be in command.

If we take the European household back to its origins we can see that the authority of the householder extended most definitely to religion, indeed in very ancient times it seems that each householder was his own family priest, each family having its own religion tying it together (‘religio’ possibly deriving from ‘religare’ ‘to bind fast’ cf ‘ligature’). And in such matters precision and continuity were all important, it is characteristic of European religion from its beginnings to the Reformation that change in ritual is not only not welcome, it is potentially disastrous to the household.

Seen from this perspective much that seems primitive in Conservatism is simply natural in context. Patriarchy, emphasis on property rights, rigidity in religious belief, unwillingness to sacrifice the family’s economic interest to outside demands, all can be seen as simple defense of the physical and human boundaries of the family/household.

If we extend our view outside the individual household other aspects of Conservatism come into focus. First no household is a total island, each of necessity is associated with others in a system of mutual defense and with that comes the need for internal conflict resolution (law), military command (kings), and community ritual (priests) all of which are necessary to protect the joint boundary in the same way as the individual householder protects his own boundary. On the other hand this commitment to law, common defense and religion might not necessarily extend to the general welfare. While this will seem heartless from the perspective of universal humanism or the specific tenets of Christianity and other faiths, there is nothing intellectually incoherent about privileging the family and then the larger tribal interest to extra-familial individual interests inside and outside the tribe.

So can Conservatism exist outside Capitalism? Of course, defined as protecting the Household it did so for centuries and millennia. Is Conservatism inherently dependent on racism? Well no, not everything needs to be viewed through the lens of American Exceptionalism and the Peculiar Institution, identifiable Conservatism existed in both European and American contexts where issues of race hardly came into play at all. Or class for that matter. On the other hand Conservatives are by nature suspicious of outsiders, who are by nature a potential threat to the family. Which may leave them very open to classifying the Other negatively by race or religion, after all from this perspective Conservatism is all about drawing and protecting boundaries.

This is by no means meant as a defense of the organized Conservative project as that is seen working its way in the media and Congress, just an appeal to separate out what can properly be seen as a Reactionary attempt to exploit Conservatism to advance an anti-Enlightenment agenda from a Conservatism that was never fundamentally exposed to the Enlightenment at all but instead stuck to a belief system hundreds and perhaps thousands of years old. Some guy wanting to provide for his family and protect what is his may express those beliefs in ways foreign to Liberalism but is not by that token simply open to condescension and disrespect in the ways seen in the linked post from O.L.

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Campaigning on Tax Increases ?!?

Robert Waldmann

For decades, I have been advising Democrats to focus attention on the progressivity of the tax system. This is an issue where the vast majority of US adults totally disagree with the Republicans and which people care about. My policy proposal and political strategy is to increase progressivity increasing taxes on the rich and cutting taxes on everyone else. This is still too politically effective and sound policy demagogic for many mainstream Democrats – it seems that the Democrats are debating whether to try to do this. However, they have decided to make the Republicans debate extending Bush’s tax cuts for families with income over 250,000 and individuals with income over 200,000. This means they have decided to campaign on tax increases (possibly paired with tax cuts).

I have long claimed that this is not just good policy but also good politics. Polling is clear, most US adults say they support this. The issue is whether the Democrats will get their message across. Simply put, they are proposing a tax increase on the highest income 2%. Will Republicans convince the public that Democrats are increasing their taxes ? The Republicans managed exactly that in 1993 and 4.

To me it looked good so far, and I get to reasons to worry after the jump.

I think a key factor is that prominent journalists and commentators will help the Republicans for two reasons. First, they present a disagreement about basic facts in which one party tells the truth and the other lies as a legitimate debate “opinions on shape of earth differ, both sides have a point.” Second, many of them are rich. I think plain class interest affects their reporting and commentary. In particular, I don’t think they believe that fewer than 2% of families make over $250,000.

So far I have read one article, the article by Lori Montgomery to which I link above. The news about the way the news is presented is not good. Among other things, Montgomery writes

Republicans say the tax cuts are critical to bolstering a feeble economic recovery. And with unemployment at 9.5 percent, even some Democrats are queasy about raising taxes on high earners — a category that includes many small-business owners — when policymakers are trying to encourage them to create jobs.

So she asserts, in her own voice, that taxes would be raised on “many” small-business owners. The word many is vague enough that this claim isn’t false. Are 1,000 many ? However, the claim is false if one interprets “many” as meaning “enough that one can detect the effect of increased taxes on employment at small businesses with owners whose taxes increase in macroeconomic data,” which is her implicit claim. The Republicans are lying (as usual). They have told this lie frequently and have been called on it frequently.

For example, Annenberg Fact Check called a related (but much more specific) claim “bunk”Annenberg Fact Check tries very hard to avoid apparen partisanship, so they try very hard to find roughly as many false claims of fact made by Democrats. I found that link on my first effort at googling

and had to scroll down among the many refutations of Montgomery’s false assertion to get to an impeccably ballancedsource.

Also only in her last paragraph does Montgomery note that some Democrats actually support my proposal and suggest combining permanent elimination of tax cuts for the rich and temporary extension of tax cuts for the middle class. This is better politics than the proposal she headlines and also better policy. Tax cuts for the middle class are a better stimulus than tax cuts for the rich even though sending money to state and local governments is a better stimulus than tax cuts for the middle class.

My guess is that temporary middle class tax cuts will be added along the way. It’s just too obvious that such a proposal dominates temporarily extending tax cuts for the rich as a stimulus (as argued by Kent Conrad and Republicans) both as politics and as policy. I’d say leaving that bit until after the jump is part of being balanced. The Republicans have no argument against it, so it would be unballanced to admit that it is the Democrats proposal before handing the mike over to Republicans.

I think a key difference from 1993 is that there are now independent media (read blogs) who can call the ballanced MSM on letting Republicans get away with lies. The game is on and the ball is in our court.

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Presimetrics in Parade Magazine

by Mike Kimel

Presimetrics on, er, in Parade (Magazine)

Cross-posted at the Presimetrics blog.

For a long time, I knew the date that Presimetrics, the book I wrote with Michael Kanell, was going to be released – August 11. The date was recently pushed back later in the month. But, the other day some interesting news came up…

Parade Magazine – the Sunday news magazine – will have a quiz based on the book in their Intelligence Report column on August 8th. Parade is distributed with more than 400 newspapers and has a circulation of over 32 million, the largest in the U.S. I believe they will also set up an on-line Q&A with Michael Kanell and I where readers can write in with what is on their mind.

Obviously, all of us involved in the book are very excited by this unexpected development. Black Dog & Leventhal, our publisher, is naturally moving up the release date so I believe the book is now expected to ship at the end of this month.

FWIW, I’m not that good at self-promotion and tooting my own horn, but I think our book can make a contribution to the discourse. Not only do we make a systematic effort to point out graphically what happened across a wide range of issues (and why), we emphasize time and again the importance of looking at information in an easy, intuitive, and methodical way. We think these are things that can have a big effect on society as a whole. If you believe in our approach, please help us get the word out!



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Job Creation Follow Up

For those interested in more information on job creation in the Employment Dynamics data
base these three article provide very good information.

Cordelia Okolie, “Why Size Class Methodology Matters in Analyses of Net and Gross Job Flows.” July 2004 Monthly Labor Review

Jessica Helfand, Akbar Sadeghi and David Talan, “Employment Dynamics: Small and Large Firms Over the Business Cycle.” March 2007 Monthly Labor Review

Tim Kane, The Importance of Startups in Job Creation and Job Destruction (PDF from the Kauffman Foundation Research Series, July, 2010)

All three are pdf files and for the second article the link takes you to the Monthly Labor Review where you can directly access the article.

The subject is more complex than generally thought as different methodologies can create significantly different results.

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Standard analysis is that military spending for WW II provided the significant Keynesian stimulus that ended the depression. I have nothing new to add to that debate, but I recently looked at the data and found it somewhat surprising.

The surprise was not in what happened to military spending as the military swung from 0.5 million personnel in 1940 to 11.4 million in 1944 and back to 1.6 million in 1947. The total population grew from 132.1 million in 1940 to 144.1 million in 1947.

Rather the surprise is what happened to civilian real GDP ( real GDP less real military spending). Real civilian GDP fell -18.4% in 1942 and -14.8% in 1943. The peak to trough drop of -26.9% was almost as severe as the -30.4% drop from 1929 to 1933. Of course this is tempered somewhat by a -0.5% and -2.4% drop in the civilian population in 1942 and 1943, respectively. No wonder they imposed rationing of many goods, they just were not available. But civilian real GDP rebounded 0.4%, 17.4% and 58.5% in 1944, 1945 and 1946, respectively.
Total real GDP fell -1.1% in 1945 and -11.0% in 1946. Obviously, this recession like the major recession of 1922 was driven by the drop in military spending. This rebound took the civilian economy back to the 5.6% trend growth line that prevailed from 1933 to 1950. I’m not going to make any observations about what this means for economic analysis– that can be done in the comments — but the data is very interesting. The ability of the civilian economy to rebound so strongly clearly reflected the high savings — partially forced — during the war.
Is that just the opposite of what we have now?

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Economists = Idiots? Part 1829

It was their idea, so it’s no surprise they like paying interest on reserves, even excess reserves:

For quite a while, the Fed was quite happy to have that money on its books. Indeed, the power to pay interest on reserves was considered a key tool to keep control over all the liquidity the Fed pumped into the system during the financial crisis. The Fed wanted to see bank lending increase, but in a controlled fashion, so as not to fan the flames of an inflation surge.

But as worries about the outlook have risen, the game has changed. Some see a move to drive all those reserves into the economy as a key way to produce better economic growth. Markets got to thinking Fed Chairman Ben Bernanke would indicate this as a possible path when he testifies before the Senate Wednesday and the House of Representatives Thursday on the economic and monetary policy outlook.

Economists, however, think ending the interest on reserves policy would be a bad idea.

Right, because the $2,534,722.22 a year paid in interest on $1 Billion in excess reserves is a drop in the bucket for the U.S. Federal deficit.

And because the risk-free rate of return that features in so many economic models should be different for intermediaries (financial institutions) than wealth-creators (businesses).

And because “excess reserves” are money issued by the government which is inflationary because of the multiplier effect of money—which, of course, assumes the money is being invested. (As this money is, in taxing our tax dollars and giving them to Vikram Pandit, Ken Lewis, Lloyd Blankfein, and Jamie Dimon [in descending order of theft; YMMV].)

And, of course, because that $1 Billion that is not being used in the economy would only produce about $5-8 Billion in GDP, which is roughly, what, 50,000 to 80,000 new jobs?

But, of course, banks have better use for the money than potential workers.

[Barclays Capital’s Joseph Abate] noted much of the money that constitutes this giant pile of reserves is “precautionary liquidity.” If banks didn’t get interest from the Fed they would shift those funds into short-term, low-risk markets such as the repo, Treasury bill and agency discount note markets, where the funds are readily accessible in case of need. Put another way, Abate doesn’t see this money getting tied up in bank loans or the other activities that would help increase credit, in turn boosting overall economic momentum. [emphasis mine]

Oh, well, since they’re not going to lend the money anyway, we should have no trouble paying them interest on it. What is The Fed other than a mattress stuffed by tax dollars?

The key phrase is “precautionary liquidity.” If you assume that the recovery started in June or July of last year,* then you would expect “excess reserves” held for “precautionary liquidity” to have declined over time, as the need for “precautions” is reduced as the economy becomes safer. But that hasn’t been the case.

Choose one (or both) from: (1) the banks don’t believe the economy is recovering or (2) the banks are holding assets on their books at higher levels than they know they are worth, and are therefore using “excess reserves” to cover real losses until they can’t any more.

It is unclear whether Abate sees the banks’s unwillingness to be intermediaries as a feature. But at least he knows not everyone is doing it.

Abate buttressed his argument that banks really just want to stay liquid by noting who is holding reserves at the Fed. He said the 25 largest U.S. banks account for just over half of aggregate reserve levels, with three by themselves making up 21% of the reserves.

So the biggest of the Too Big to Fail banks have decided not to act as financial intermediaries, preferring instead to continue feeding from the taxpayer trough (where the $25MM in interest really is a drop in the bucket) and/or pretend that they are more solvent than they really are.

And, according to the Wall Street Journal, economists believe we should continue to pay those banks for misvaluing their assets and refusing to perform their economic function.

The economic theory I learned is that capital is paid its marginal product. The marginal product of those excess reserves is zero, while the required reserves are intended to explicitly provide “precautionary liquidity.”

Unless the TBTF banks are arguing that the Fed’s current Reserve Requirements are too low—a possibility, perhaps, though the FT cites evidence contrariwise—the basis of all economic and financial theory indicates that they should receive no interest on those reserves.

An “economist” who says otherwise is either lying or selling something.

*I would argue—see yesterday’s post—that June 2009 is rather eliminated by the non-recovery of more than half the states’s job markets a full year later.

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Small & Large Business Employment

CoRev brought up the claim that small firms account for 70% of job creation in the US economy.

Several years ago the Small Business Administration and Census began an annual survey of employment by firm size.

You can find the data here:

Here is a table of what the joint survey of employment by firm size found. From 1988 to 2006 — the most recent year published — small firms (under 500 employees) share of total employment fell from 54.5% to 50.2% of private employment. Over the entire period employment by small firms grew 13.3% while large firms employment grew 21.8%.

That sure does not look like small firms account for 70% of employment growth.

Care to show us the data supporting the claim that small firms account for 70% of job growth.

The other interesting results of the survey was that payroll per employee in large firms averages 125% of that in small firms. The Small Business Administration published a study that claimed small business account for over 50% of business real GDP. They based this result on the claim that productivity was much larger in small firms. But if small firms salaries are so much smaller than large firms salaries I find it hard to accept that their productivity is higher.

In the comments I was sent to the BLS to look at the business Dynamics data. I confess I was familiar with the data, but had never looked at it in terms of firm size. Yes, in a summary statement the BLS says that small firms account for some two-thirds of job growth over the period 1993-2009 that would seem to support the claim that most jobs are created by small firms. But within the BLS business dynamics database they also publish data on the level of employment by firm size. This data agrees roughly with the SBA-Census data that most employment growth was in larger firms. Obviously this is inconsistent with the same source — BLS Business Dynamics — stating that most jobs were created by small firms.

To be honest, I am confused. Can anyone explain this?

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H.R.4173.ENR…final answer

Dodd-Frank Wall Street Reform and Consumer Protection Act (Enrolled Bill [Final as Passed Both House and Senate] – ENR)

Bill Text
111th Congress (2009-2010)

Update: The link did work this morning, but was temporary it seems. I will correct the link and update again.

Update: Link works to hyome page, then when at Thomas there is a link on the right for HR 4173 in latest bills….search works as well.

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The answer is the domestic private sector

Jim Hamilton used the Federal Reserve Flow of Funds data to present a question: who will buy “the additional $8 trillion in net new debt that would be issued over the next decade under the CBO’s alternative fiscal scenario.”

I thought that the analysis was curious and too “partial”. If one believes the deleveraging story, then domestic private saving is going to rise. The answer to his question seems pretty obvious…

Let’s say that consumption goes back back to the 1960’s-style 62% of GDP, then get ready for household Treasury accumulation. Spanning the decade of 1960, households held on average 30% of the Treasury’s liabilities.

A simple example illustrates my point. If the Treasury’s book doubles to $16.5 trillion, and the household share of Treasury holdings rises to 30% – as of Q1 2010 the stock of Treasuries outstanding was just about $8.3 trillion (see L.209 here) – then households will accumulate over $4 trillion of those new Treasuries. That’s just households, and holding all else equal (like financial funds and businesses).

So the answer is: the domestic private sector.

Rebecca Wilder

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