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Exceptionalism series, Part IV

Now this idea of Exceptionalism has been is public circulation for many years, but there has always been something about it at odds with the strong note of humility that pervades the documentary history of American self-government. One might say that the American political tradition is most exceptional where it is least boastful. A spirit of moderation and realism pervades it; and there is little of that grandiosity of expectation that has come to dominate our political discourse, especially on the topic of Exceptionalism.

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Comments (74)

Excellent, Paul. I still take exception to the unseemly priority given by some to "exceptionalism", as it is contingent upon that which is beyond our competence and control, and moreover, does not seem to be rooted in a Christian hierarchy of values. But American exceptionalism does exist, and you've summarized its history perfectly.

I can't quite understand your approach, Jeff. It seems almost as though you wish America were _not_ exceptional. :-) Nor is it contingent upon what is beyond our competence and control, except as all political events _can_ happen against our will. But, for example, we can lobby against and oppose laws that undermine that sort of humility, etc., that Paul discusses.

Paul, it seems to me that an interesting corollary point is this: The sort of spirit of experiment and humility you discuss is seriously undermined the more centralized government becomes. This is partly a matter of sheer inertia. Gigantic programs for the entire country are harder to stop and turn back. An increasingly powerful federal government is an expression of "ideology" and the attempt to impose theories from the top-down, regardless of information coming back up from the bottom that shows that something is not working, and the yen many have for an international government shows these tendencies even more still.

Hence, the spirit of humility should lead us to a very great concern to oppose centralization of power and to try to return to a model of less centralized power, taking seriously the 10th amendment, overturning the crazy precedents based on the commerce clause, and the like. Instead of which, our country is going in the opposite direction and ceding ever greater power to the ignorant theorists.

I agree with that, Lydia. I'd only add that another challenging question facing us is how deeply finance capitalism is implicated in the modern trend of consolidation and centralization. My own study suggests that it is far more deeply implicated that many of us realized; that the hidden incentives which favor engineered securities and all the welter of rocket science finance over long-term productive business have only recently come fully to light. With the government behind the whole enterprise of finance capitalism, the risk associated with all these debt securities was reduced artificially. How much productive business was foreclosed to us by this massive misallocation of capital is anybody's guess, but it must be considerable.

But what is no longer a matter of guesswork is that finance capitalism provided a huge impetus toward centralization and integration.

Paul and Lydia,

Two points:

1) I think Lydia's "corollary" might even be more central to than she realizes, and even central to Lowry and Ponnuru's concerns about the dangers to American exceptionalism. What we've seen the past 50+ years is more and more federal centralization with a corresponding loss of community and political connectedness at the State and local levels. I could list all sorts of examples but here is one current one -- the Census is being marketed around here as important not so much because it is Constitutionally required, but folks are warned that they'll lose out on their fair share of federal largess;

2) Paul says "Self-government is a matter of continuing deliberation, a public conversation, upon the problems that confront us"

AND

"The dogma of the open society is just one of those patterns of rigid logic, confected out of minds intoxicated with abstractions, which can so easily derail a people from the gritty task of deliberative self-government."

Not to nit pick, but it seems to me that part of what makes "continuing deliberation" and "public conversation" work well is an openness to new ideas, even bad ideas. Again, I know we need to close the door to traitors and perverts, but a healthy appreciation for an open society seems different to me than a simple dogma.

If a community is prevented from closing itself to ideas and doctrines it determines to be pernicious, if an external force precludes this possibility, removes it from the deliberative process, can the community still be said to be self-governing?

There is some irony here, but the fact is that the dogma of the open society crashes headlong into the principle of self-government. Moreover, it is an illusion. All societies have orthodoxies. All have lines of inquiry men cannot cross without incurring serious penalties. So the whole business distracts us from the gritty work of self-government.

if an external force precludes this possibility, removes it from the deliberative process,

I wouldn't advocate this, but I would (and have) argued against local ordinances that do just that. For example, my local government passed a law last year outlawing "discrimination" on the basis of "gender identity" and "sexual orientation." Via the usual laws already in place concerning a "hostile environment" in the workplace, what this law in essence does is (among other things) to circumscribe freedom of speech on the part of employers and employees concerning the matter of, for example, the licitness of homosexual acts or the naturalness of self-mutilation in the form of gender-bending. If an employee declared that an employer's statement of his beliefs on this matter created a "hostile work environment," this would be grounds for a legal complaint on the basis of the ordinance. I certainly did argue against this on the grounds that it would illicitly constrain freedom of speech in the workplace, and I make no apology for doing so. But presumably my town fathers considered such views and ideas to be pernicious and wished to close the community to them. My response in argument was not a matter of bringing in an outside force to preclude their doing so, but it certainly involved an appeal to an American ideal of freedom as part of the argument against the ordinance. (There were, of course, many other arguments, but this was one.)

By the way, here is an article by Wesley Smith that expressly invokes the differences between America and Europe (advantage--America) against the horrible new proposed "presumed consent" law in New York State for organ donation:

Indeed, legislation (A-9865) just introduced by New York Assemblyman Richard Brodsky would turn the current approach for obtaining consent inside-out. Brodksy’s bill would require every applicant for a New York driver’s license to expressly opt out as an organ donor, rather than, as is currently the case, expressly opt in. The proposal states: “If the applicant does not decline to be registered in the New York State Organ and Tissue Donor Registry they will be automatically enrolled.” In other words, unless you explicitly refuse to be a potential donor—you are one.

“Presumed consent,” as this approach is known, is already the law in several countries, and studies are mixed as to whether they meaningfully increase the organ supply. But even if such laws have added to the number of transplantable organs in countries like Spain and France, as seems to be the case, we are not (yet) Europe. We value individualism over collectivism, autonomous decision making over the imposed “greater good.” Indeed, presumed consent laws could unleash a boomerang effect: Many would resent the new approach as government coercion over one of the most intimate decisions anyone can make and protest by taking the opt out option.

http://www.firstthings.com/onthesquare/2010/05/presumptuous-consent

Whether you like it or not, Smith is right: It is the distinctive American emphasis on freedom against collectivism that is protecting us from all manner of evils, including having our organs taken without our consent for the "greater good of society." We should hang on to such protections if we can.

I can't quite understand your approach, Jeff. It seems almost as though you wish America were _not_ exceptional. :-)

America is exceptional in good ways and bad. I am happy for the former, but regret the latter.

Nor is it contingent upon what is beyond our competence and control, except as all political events _can_ happen against our will.

Through events beyond our control America might cease to be exceptional in the ways you happen to like. Suppose we convince Europe to adopt American-style corporate capitalism? Or conversely, suppose we descend into European-style quasi-socialism, or meet Europe somewhere in the middle? Suppose we actually succeed in exporting democracy to wherever? Suppose China has another social revolution and - heaven forbid! - becomes more "dynamic" and "individualistic" than we are? For then our exceptionalism ceases on those points, does it not? The American neo-con, it appears, has lost his country. For him there is nothing left to conserve, nothing worth loving about America other than what once made her exceptional.

My approach is this: American exceptionalism exists, indeed, but it does not by itself define America. I will not die, or send my sons to die, in wars to defend American exceptionalism. If that sounds unpatriotic, so be it, but even in our advanced state of cultural malaise I find that we still have plenty left to conserve beyond a set of relative propositions with a built-in expiration date.

"another challenging question facing us is how deeply finance capitalism is implicated in the modern trend of consolidation and centralization"

And this is the thing that many modern (i.e., post-Reagan) conservatives don't get. The older conservatives like Kirk, who were skeptical of libertarianism, were not knee-jerk cheerleaders for big business/corporate capitalism. To the older conservatives any large concentration of wealth and power was suspect, partly because of its tendency to destroy localism and community. Modern conservatives understand this about big government, and rightly so. But they miss it entirely about big business.

I suppose it's time some folks actually read Russell's economics textbook.

Obviously, Jeff, if some other country gets _better_ in some concrete area that doesn't make me upset. I find this a very odd criticism. It is rather like criticizing an Englishman for being proud that his country doesn't engage in suttee because, if the British Empire stops suttee in India, England will no longer be "exceptional" in this regard! I mean, that's silly. Obviously, the Englishman could still say that a) England was civilized in that area a lot sooner and b) India was getting the idea of being civilized in that area from England. England could be proud of the fact that its more civilized ways had spread to other countries, that it had been a leader and a good example in this way. If China (unlikely as this is) discovers religious freedom, I'm not going to be sorry, because now America is less exceptional. I'll say, "Thank goodness they borrowed a good idea from us!"

I'm proud of the fact that my Baptist forbears (for I was raised by Baptists) have never engaged in religious persecution and were instrumental in the spread of the idea of non-establishment of religion in the American colonies. The fact that Catholics have now discovered the notion of religious freedom (and hence don't defend the bloodthirsty directives of the Fourth Lateran Council) doesn't make me sorry to have lost "Protestant exceptionalism." I'm glad they finally got a clue, but I can still say, "We Protestants were here first. Welcome to the club. Glad you got that right finally."

So this whole idea that the "American exceptionalist" is somehow going to "lose" something if other countries clean up their acts on this or that point just seems to me ridiculous and, if nothing else, untrue to both logic and human psychology.

As far as America's going down the road of European-style socialism, yes, that would be a terrible tragedy and may yet happen. And it would be a tragedy because of the concomitant loss of the American character. And if that sounds too "propositionalist," too bad. European socialism is a bad thing, and I'm glad we've escaped it and will continue to fight it. But while it could happen against my will (and is to some extent already happening), I'm not such a fatalist as to treat it as totally "beyond our control." Sad to say, the American people are voting the politicians into office who are taking us down that road.

I can and will fight the good fight in this area just as I do in, for example, pro-life areas. (And indeed, the two are not unrelated.) Are you going to say that because it might happen, against our will, that America legalizes suicide and infanticide on the scale and level of Holland, we should not now be glad and proud that America has not yet done so? Should we fatalistically resign ourselves on that point, too, because it is "beyond our control"?

Would there be less about America worth preserving if we adopted the Groningen Protocols for killing disabled newborns and imposed them even against parental wishes throughout the American healthcare system, by order of the government? You bet there would be.

Yes, America can change for the worse, far worse, even if the ground and land remains. To acknowledge this is mere common sense--in _all_ the areas where we are presently better than the rest of the world.

Agreed, Rob G. Also, it's galling to hear latter-day conservatives treat Kirk or Chesterton or Weaver as if they were quasi-socialists because they critiqued the Manchester School of classical liberalism. Someone used to taunt Solzhenitsyn by calling him a "Christian socialist."

There are reports that the Europeans have banned the naked credit default swap trade. Good for them. (Queue the right-liberal who accuses me of wanting to make America more like Europe.) Or again, I think it worth looking into breaking up the banks, or forcing them to become private partnerships again. Or again, I think it worth treating the multinational corporation with quite a bit more skepticism, even revisiting its legal status. So I must want socialism, right?

"European socialism is a bad thing, and I'm glad we've escaped it and will continue to fight it."

European socialism and multinational corporate capitalism are joined at the hip. See Paul Gottfried's "liberalism" trilogy on this.

Gee, Rob G., I thought you and Paul just agreed that the Europeans are resisting "multinational corporate capitalism" and that therefore all the "right liberals" will resist your economic recommendations in this regard because they will "make us more like Europe."

Make up your minds.

The Europeans just last week unveiled their Euro-TARP, worth a trillion dollars, and right alongside that the ECB announced that it was going to start buying sovereign debt from EU states. And here I thought the previous week's announcement that the ECB would simply accept Greek sovereign debt as collateral in repo markets was a big step.

They've just bailed out creditors of the major periphery debtor nations is a huge way. They can hardly be said to be resisting corporate anything.

That said, the naked CDS ban is a wise move, I think.

Correction: It looks like it's just the Germans, and temporary.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aRg1S6lCGHsY&pos=1

They've just bailed out creditors of the major periphery debtor nations is a huge way. They can hardly be said to be resisting corporate anything.

Well, maybe they had to. Maybe the civilized world as we know it was going to come to an end and be dissolved in uncontrollable war, riots, and looting if they didn't. You know, that does happen sometimes, I'm told.

It probably took just that sort of appeal to convince the Germans, with their extremely sound balance sheet and profound aversion to inflation, to cough up precious capital to rescue 52-year-old Greek beach-bum retirees. A hell of a system, this finance capitalism.

Hell of a system, this EU... (Would West Germany have done that forty years ago?)

European post-Marxist socialism is no longer anti-market, having learned that multinationals are perfectly willing to go along with their programs provided there's money to be made. What you get is the same thing we're heading towards here -- an omnicompetent corporate/managerial state, i.e., Leviathan.

Obviously, Jeff, if some other country gets _better_ in some concrete area that doesn't make me upset. I find this a very odd criticism. It is rather like criticizing an Englishman for being proud that his country doesn't engage in suttee because, if the British Empire stops suttee in India, England will no longer be "exceptional" in this regard!

Lydia, the difference between exceptionalism, which is by definition comparative, and the objective content of what makes something exceptional, might seem subtle but it is absolutely crucial. In the spiritual life, it is the distinction between the possession of actual virtue and the possession of pride in being more virtuous than others, the latter negating the former. The publican and the pharisee. There but for the grace of God go I. This is as true of nations as it is of men.

Granted, there is a sense in which national pride is legitimate when it pertains to the objective goodness of national characteristics. But the doctrine of exceptionalism is a step down from this. Exceptionalism says that the only thing that matters is that my country be comparatively better than others in this or that feature, not that it possess goodness or virtue on its own terms. The distinction, once again, seems subtle but it is vitally important.

I'm proud of the fact that my Baptist forbears (for I was raised by Baptists) have never engaged in religious persecution and were instrumental in the spread of the idea of non-establishment of religion in the American colonies. The fact that Catholics have now discovered the notion of religious freedom (and hence don't defend the bloodthirsty directives of the Fourth Lateran Council) doesn't make me sorry to have lost "Protestant exceptionalism." I'm glad they finally got a clue, but I can still say, "We Protestants were here first. Welcome to the club. Glad you got that right finally."

Now there's a mighty interesting digression. Suffice it to say that the Catholic Church - nevermind what certain influential Catholics might say - absolutely does not repudiate the disciplinary canons of the Fourth Lateran Council. In context they were prudential acts, completely within the exercise of the Church's legitimate authority, just as the encouragement of religious liberty is today a prudential act in the face of modern conditions. The sole criteria for each is the same: the temporal and spiritual good of the Catholic faithful.

So this whole idea that the "American exceptionalist" is somehow going to "lose" something if other countries clean up their acts on this or that point just seems to me ridiculous and, if nothing else, untrue to both logic and human psychology.

Lydia, your dismissal baffles me here. When America is no longer the exception, America is no longer exceptional, which is to say that the American neo-conservative loses the only basis for his conservatism. That's perfectly logical and true on its face.

As to the content of American exceptionalism, granted that "individualism", "dynamism", "democracy", et al, have led to some positive things, but they are double-edged swords which swing both ways. America is, after all, exceptional in some unsavory categories, all of which are manifestations of the aforementioned distinctives.

The corporate takeover of American life, the notion that "self-interest" is enough to make economic activity moral, the stupifying "individualism" of American youth culture, the ubiquity of degenerate forms of music and entertainment, the mass production and export of pornography, the cult of "self-fulfillment" and pleasure-seeking, the culture of contract and divorce, the universality of contraception, an insatiable appetite for drug abuse, a staggering incarceration rate, spiritual vacuity and indifference, etc., should be enough to convince anyone that American exceptionalism is not a reasonable foundation an which to build a political philosophy.

Are you going to say that because it might happen, against our will, that America legalizes suicide and infanticide on the scale and level of Holland, we should not now be glad and proud that America has not yet done so?

Yes, that's exactly what I'm going to say. We should not now be glad and proud that America has not yet legalized suicide and infanticide on the scale and level of Holland. Just as a bank robber should not be glad and proud that, well, at least he isn't a serial killer. Let the Hollanders be glad and proud of us, if they will. And let the angels rejoice in our noble restraint. But pride goeth before a fall, and the more proud America is of not being Holland, the more content she will be just not to be Holland, and the sooner she will likely become Holland.

Jeff, I can only understand you to be saying one of two things. Either you're saying that _any_ sort of national pride is wrong or else you are saying that national pride should never be pride in nationally characteristic virtues or good characteristics (say, the wisdom of laws) but only in something else. If the latter, what? Famous ancestors? But wouldn't that be appropriate only if they were _good_ famous ancestors? In which case, that's national pride in the virtue of the ancestors anyway. A beautiful land? Why is that a more appropriate locus of national pride than virtue? It would seem to be less so.

But if either of these is what you believe, then I'm not sure how much significance for this point really rests on your distinction between pride in being different and pride in the content of what makes us exceptional. Because if you believe either of the above, then pride even in the _content_ of what makes us exceptional--even in real virtue, real greatness and wisdom of laws, real and conscious refusal to go down a bad road--is wrong, just as is pride in the mere fact of being different or exceptional.

_Of course_ I do not endorse being proud of our country for being different in bad ways. (Though the incarceration rate is not one of the things I would list as a thing to be nationally ashamed of, and I'm rather surprised to see you list it. Must be a "Catholic social justice thing." We're not allowed to execute our wicked criminals, due to development of doctrine, and now I guess we're supposed to feel guilty for locking them up, too.)

As to pride in exceptionalism and "losing" exceptionalism if other countries change, I think I did answer that: Even if other countries adopt good things in which we have led the way, I think it will still be a legitimate source of legitimate pride that we have led the way and that they got good ideas from us.

In any event, obviously, if you think all national pride of any kind, even in things that really are great and good and in which one's own country really does lead the world and has done so for a long time, is simply wrong, because pride is a sin, etc., then of course you aren't going to like talk of national exceptionalism. But that seems to me to be a very strong position and a hard one to maintain.

I hope, at least, you would grant the legitimacy of gratitude and relief at being the citizen of a country where one has the freedom to do x, y, and z extremely important things that many others do not have in other countries. That, at a minimum, seems to me indispensable.

Rob G, the notion that present-day libertarians are "knee-jerk cheerleaders for big business/corporate capitalism" and that they haven't noticed that it is "joined at the hip" to "European socialism" (not to mention USG-Corp) is utter and total nonsense.

I've been following this whole discussion with interest, but also with mounting frustration. It sometimes seems to me that hardly anybody involved in it has ever taken a class in elementary argumentative writing. At least, not the way I teach it. 'Cause the way I teach it, the single most important responsibility of argumentative writing is to *characterize the views of your opponents in ways that they themselves would accept.* And if you just can't manage that, at least have the decency to *quote them* before launching your attack.

And I see very little of that going on here. Not much nitty-gritty. Lots of airy-fairy.

Oh, and by the way - there is, of course, one glaring exception to my complaint. No doubt everybody can guess who I think she is.

Jeff, I would add this: Whether one calls it "pride" or just "awareness of our unique American blessings," it seems to me incredibly important that we never take for granted what we have in America. And realizing that others don't have it or are throwing it out is a very useful way of making sure we don't take it for granted. Eternal vigilance is the price of freedom. Watching a video about the loss of self-defense rights in England, images of all the English tamely turning in all their guns, a discussion of where things have gone from there, strengthens my resolve to defend 2nd amendment rights in the U.S. It fills me with gratitude that this has not happened here and with a firm purpose to be vigilant against the spreading of the rot. The same is true of one thing after another--the European loss of freedom of speech and Christian religion, the European hostility toward home schooling, the persecution of Christians in third-world countries, the greater advance of the culture of death in European countries, the European collectivist use of "presumed consent" in organ donation, which I cited above. Again and again, noting the contrasts leads to gratitude and vigilance for what we have here in the United States--for its uniqueness, its preciousness, and its fragility.

And that is incredibly important.

~~Rob G, the notion that present-day libertarians are "knee-jerk cheerleaders for big business/corporate capitalism" and that they haven't noticed that it is "joined at the hip" to "European socialism" (not to mention USG-Corp) is utter and total nonsense.~~

Yep, it would have been, if that's what I had said. But I didn't. Read it again. It's modern conservatives I'm criticizing, not libertarians.

I'll take a class in elementary argumentative writing as soon as you sign up for that reading comprehension course.

Let me clarify, Jeff. You do say this,

Granted, there is a sense in which national pride is legitimate when it pertains to the objective goodness of national characteristics.

But you also say this,

In the spiritual life, it is the distinction between the possession of actual virtue and the possession of pride in being more virtuous than others, the latter negating the former. The publican and the pharisee. There but for the grace of God go I. This is as true of nations as it is of men.

and this,

Let the Hollanders be glad and proud of us, if they will. And let the angels rejoice in our noble restraint. But pride goeth before a fall, and the more proud America is of not being Holland, the more content she will be just not to be Holland, and the sooner she will likely become Holland.

I'm having trouble squaring these.

Maybe the Holland example was not good because America is not _more_ pro-life and hence the absence here of infanticide might seem too much of a purely negative virtue. But if the cry is, "Pride goeth before a fall," then I don't see how that matters. That is to say, even if America were where she was even in the year 1985 (and believe me, America was much more pro-life then on issues like euthanasia and infanticide, Roe v. Wade notwithstanding), even if there were a definite rejection of such things as killing the disabled, then one could still say, "Pride goeth before a fall" and reject the claim that we should be, as I said, "glad and proud" to be somewhere far other than where Holland is on such issues. If, as you say, "national pride is legitimate," then surely this is a place where it should be. But evidently, somehow, invoking the evil or folly of other countries to point the contrast and make clear why we should not take our virtues (and the blessing of being in a nation with such virtues) for granted empties national pride of all legitimacy. And this does not seem correct to me at all.

~~~The corporate takeover of American life, the notion that "self-interest" is enough to make economic activity moral, the stupifying "individualism" of American youth culture, the ubiquity of degenerate forms of music and entertainment, the mass production and export of pornography, the cult of "self-fulfillment" and pleasure-seeking, the culture of contract and divorce, the universality of contraception, an insatiable appetite for drug abuse, a staggering incarceration rate, spiritual vacuity and indifference~~~

Well, hell, if you're gonna nitpick...

I agree, Lydia. We're the Party of Grateful Men, remember?

Steve, I wonder how, according to the principle of characterize the views of your opponents in ways that they themselves would accept, you would summarize the dispute between me and Lydia on this thread.

Rob G - you wrote:

"...The older conservatives like Kirk, who were skeptical of libertarianism, were not knee-jerk cheerleaders for big business/corporate capitalism...."

Sorry if I over-read that. I'm glad to learn that you *don't* think that libertarians are knee-jerk cheerleaders for all that bad stuff.

By the way, I can't help wondering. Is someone under the impression that America is truly exceptional throughout the world with respect to...


the stupifying "individualism" of American youth culture, the ubiquity of degenerate forms of music and entertainment, the mass production and export of pornography, the cult of "self-fulfillment" and pleasure-seeking, the culture of contract and divorce, the universality of contraception, an insatiable appetite for drug abuse,..., spiritual vacuity and indifference

I leave out the supposedly "staggering incarceration rate" not only for lack of knowledge but also because I have heard that prison sentences are indeed far less in Europe, though I don't regard this as a good thing. But for goodness' sake! Spiritual vacuity and indifference? Ever heard of post-Christian Europe? Sexual degeneracy? Here's a little fact for you: Girls who are sex slaves in England are threatened by their masters with being trafficked to Germany, where their treatment (where prostitution is legal throughout the country) will be worse! Children in Thailand are openly offered for sale in store windows--or so I have read. Good grief. Certainly America has little to preen itself about in many of these areas--though as I have said on another thread, I believe that we actually have a good deal more Christian fervor (and are made fun of for it by liberals) than any other country where Christians are not under active, vicious persecution--but if we are to be characterized as the exceptionally bad leader in all these areas throughout the world, I'm going to raise an objection!

Of course, in Saudi Arabia they don't have all that flagrant sexual degeneracy, divorce, and so forth. No sirree. The morality police who roam the streets looking for unmarried men and women chatting in public see to that. Of course, the men enslave their Filipina maids, who have effectively no recourse under law. A tradeoff.

Sometimes I think that people who object to American exceptionalism need to overcome their distaste for comparing America to other countries at least long enough to get some of the information about other countries that's out there.

Paul, I don't know if you mean the little back-and-forth about economics or the discussion of the ability of local governments to exclude views they find pernicious. On the latter, I think I gave you some good material and food for thought.

On the former, it would help me a lot if you wouldn't keep saying negative things about bailouts and then continually characterizing them as necessary. If you really want bailouts to be stopped--not just to be "made unnecessary" by regulation that will supposedly prevent the conditions for them--in the future, I'd love to hear that. Meanwhile, I'm getting whiplash every time you talk about the moral hazard of bailouts, given that I know you're in favor of them.

Alexis de Tocqueville noted after his travels in America that Americans were prone to “the perpetual utterance of self-applause.” It's distressing that even two centuries ago we were chanting "We're #1!" while no one was listening.

American Exceptionalism is often taken to mean American Superiority, even while 'exceptional' merely means different. The more mundane reading, of course, is nothing to rah-rah about; as Jeff mentioned we are different in both good and bad ways. More individualistic, yes, but that's not an unqualified good or bad. More dynamic, ok. More democratic is obvious nonsense; America ranks about 30th on the Freedom House democracy rankings. I'm not a fan of democracy, but there it is. Freer? In reality, few of our day to day activities are not regulated in some fashion.

More open is another oddity. If taken to mean merely that we have the fewest legal restrictions on the airing of unapproved thoughts, then it might hold. But America isn't really "open" at all, as James Watson and Don Imus and various people at Harvard have found out to their chagrin. It's normal for societies to have orthodoxies and punish deviations, but we seem to be the only ones who refuse to admit that's what we're doing. Which is exceptional, isn't it?

Larison had a good summation of American Exceptionalism, the modern version:

It is important to remember that lurking behind most arguments on behalf of “American exceptionalism” is a demand for unending American hegemony and supremacy. This seems especially true of mainstream conservative arguments on this score. To the extent that Obama does not indulge in self-congratulatory bluster and arrogant hectoring of other nations, they find his embrace of American exceptionalism to be insufficient or non-existent.

"Self congratulatory bluster and arrogant hectoring of other nations" sounds like modern conservatism to a tee. Especially when it comes to stupid old socialist Europe, which of course is every bit as capitalist as America is. Ignorance might contribute to this, as people seem to think that Europe is e.g. some sort of giant gun-free zone. There's really no sensible way to declare America 'better' than all of Europe, or most countries within it, and the main impetus for doing so seems to be so that we can ignore their protests when we wage stupid and useless wars against benign Middle-Eastern countries.

And the alternative, of course, to "bluster" and "arrogance," is bowing.

Sheesh.

And yeah, that's me, too: I'm just dying for us to invade England and force everyone to own a gun.

No harm, no foul, Steve. I know there is a big difference between Ron Paul, say, and the Hannity/Limbaugh types. But it is the latter who, unfortunately, are the most prominent voices in mainstream conservatism.

I'd agree with Jeff C. about exceptionalism. I believe that America is exceptional in many regards, and it is the erosion/destruction of these exceptionalisms than I, as a conservative, decry. However, I think it's an error to assume that the U.S. is somehow "existentially" exceptional, as if we had some sort of charter for that from on high.

The hubris arises when we assume the latter. In many ways we are an exceptional nation, but in my view we are not a messiah nation -- we're not anointed to bring freedom and light to the rest of the benighted world. I'd say that this idea has its root in Puritanism and the notion of Manifest Destiny, and was furthered by liberal Protestantism in its drumbeating for the Civil War and WWI, both of which came to be viewed as messianic crusades against evil.


we're not anointed to bring freedom and light to the rest of the benighted world.

I agree with this to some extent, except mostly by example, where I think we do have a very important role to play. What's odd is that Jeff C. implies that "neocons" would have to be _disappointed_ if--by some means or other--the rest of the world _did_ accept freedom and light, because then America would lose her exceptionalism. Yet at the same time "neocons" are accused (with more justice) of wanting to force other countries to be like America by conquest. The picture of a "neocon" saying, "Oh, darn, Iraq got to be a better place. Now we're not so exceptional anymore" is ludicrous. If the idea is that they--or others like me who takes pride in the exceptionalism that America has--are logically required to feel that way, I do not see the argument at all.

Lydia, I know we've gone 'round and 'round with this, but please understand that I am not "in favor" of bailouts. The choices available to us in 2008 reduced to bad and really bad. There was no good option.

Principled non-intervention, Coolidge-like, was just not an option. Statutorily it was not an option. Certain mandates are laid upon the Federal Reserve chairman, one of the very earliest (I believe it was the centerpiece of the original Federal Reserve Act of 1913) being price stability. Well, in the fall of 2008 Bernanke was looking at a massive collapse in value of virtually all financial assets across every market. Comprehensive price instability.

Then there is, of course, the FDIC, which is on the hook for all depository assets. And there is the PBGC, which is on the hook for thousands of pension funds.

The problem comes down to this: the panic and pain we all observed in 2008 had been stored up for decades. One can with ease trace the bailouts back to the rescue of Continental Illinois, a big bank that was major creditor to a host of S&Ls in Texas and Oklahoma who got burned in the oil business (my dad is a veteran of the oil business; he can tell you some stories about the "out and out crooks" who brought down Continental Illinois). That happened in the mid-1980s under Reagan (!). Somewhat more discursively, one could trace the bailouts to the Great Society expansion of Fannie Mae's mandate and the chartering of Freddie Mac. But once to that point, one might as well trace it to the New Deal reforms.

So the liquidationist position -- which I take to be the argument for a laissez faire policy by Bernanke and Paulson in 2008 -- seems to me fundamentally utopian in character. It asks us to hold out hope that men raised up within a system (I call it finance capitalism) from their earliest formative days, whose livelihoods, reputations, and interests are inextricably bound to its maintenance and preservation, should decide in a moment of crisis to stand aside and let the whole system fall to pieces. It asks that we should pressure them precisely to abandon the principles by which they have lived and worked.

Now, I think that, when it comes down to it, you and I share a general distaste for this system. It's not free enterprise. It's finance capitalism; its framework is the integration and centralization and consolidation of global capital markets, all underwritten by state agencies or quasi-state agencies like the Fed.

In a word, the bailouts of 2008 do not, in my mind, represent the great change that so many perceived. They represent a concentration or culmination. There were, of course, some big unprecedented steps taken; but a careful study, by and large, will reveal not a sharp break with the past but instead, as it were, an amplified continuity.

"except mostly by example, where I think we do have a very important role to play"

Agreed. Which is why it's frustrating when our actions run counter to, or get in the way of, our being an example.

And the alternative, of course, to "bluster" and "arrogance," is bowing.

What in the world are you talking about?

And yeah, that's me, too: I'm just dying for us to invade England and force everyone to own a gun.

See above.

Matt Weber,

I'm afraid I don't recognize any real world facts in your rant up above, especially this part:

"Self congratulatory bluster and arrogant hectoring of other nations" sounds like modern conservatism to a tee. Especially when it comes to stupid old socialist Europe, which of course is every bit as capitalist as America is.

I could link you to all sorts of academic papers and bloggers who would be happy to disabuse you of the notion that Europe is "every bit as capitalist as America is" and our own Maximos would be happy to chime in and agree as he thinks this situation is a cause for celebration.

All,

As thoughts of the raging debate here at W4 over American Exceptionalism were ringing in my head, I came home last night to the newest issue of the "Weekly Standard" (actually it is a week old, but the U.S. Post Office works with ruthless efficiency to deliver my issues two to three weeks late) and to my delight and surprise, I found this article waiting for me:

http://www.weeklystandard.com/print/articles/europe-no-model

Some highlights:

Alexis de Tocqueville spoke clearly to the priority of liberty in the American case:
In America it is freedom that is old, and equality is comparatively new. The opposite obtains in Europe, where equality introduced by the absolute power of the kings and under their eyes had already penetrated into the habits of the people long before the idea of liberty had entered their thoughts.

How can he say this? Weren’t European nations and principalities everywhere characterized by royalty and aristocracy, producing a stratified class system? Was it not these very social distinctions that the Framers aimed to prevent, explicitly prohibiting titles of nobility in Article One of the Constitution?

There is no doubt that equality was much on the minds of the Framers, though they were not of one opinion about it. Charles Pinckney, for example, argued that Americans enjoyed an “equality of condition” that was absent in Europe. Hamilton disagreed, arguing that inequality existed in America, that it was bound to increase, and that its growth was not problematical. Madison, as was often the case, offered the deepest answer, which contained within it the third major innovation of American politics: the importance of diversity. Yes, Madison said, there existed a kind of equality in America—not, however, of sameness, but of diversity. It was this very diversity that would protect the union and would in turn be protected by the union. It was diversity that would help to guarantee limits to the majority’s ability to diminish the liberty of minorities. Madison argued, in effect, that the equality of Americans lay essentially in their equal freedom, not in their social characteristics. In this way, the American innovations of union, liberty, and diversity would all work to reinforce one another in a new political system embodied in a government with limited powers.

The European Experience

Tocqueville was of course well aware that aristocracy and social stratification continued to exist in Europe in the early 19th century. But he argued that the intellectual and social battle for the future had already been won and that the ideal of equality was the victor. In this, as always, he was prescient. He argued that Europeans were accustomed to being controlled by their governments and had been for centuries. As the ideal of equality drove out monarchies and aristocracies, one type of centralized control was substituted for another. Monarchies and principalities gave way to the centrally administered state.

The ideal of equality had never been tempered by the experience of liberty in Europe, as it had in America. Control by the political center seemed natural to Europeans, who transferred their condition from one type of centralized management to another. Kings and dukes were out, prime ministers and chancellors were in. And thus Europeans saw no reason whatever, as did the American Framers, to saddle their modern governments with complex systems of separation of powers and checks and balances. Europe inclined quite naturally to parliamentary systems, in which the governing party possesses at once both the legislative and executive powers and can secure its agenda in practice.

AND

Second, the predominance of equality over liberty in Europe has led to another predictable result: European central governments are not agents for preserving liberty, but for doing the bidding of their peoples. The European government’s role is not to preserve liberty by checking its own powers, but to serve as an enforcer of equality. The European administrative state is unencumbered by the kinds of limits that restrain the American government. There are no sectors of life into which it should not intrude; there is no need for its actions to be “slowed down” by the restraints of precedent or complicated rules and procedures; there is no need for it to be checked by slavish adherence to a pseudo-sacred document written in the distant past; and there is no reason not to try to impose fundamental equality by administrative rules, as opposed to full political debate.

We see today the unsurprising outcome. Majorities will provide for themselves an ever-expanding menu of entitlements. What reason could exist to oppose them? In the absence of the tempering effect of liberty, which teaches governments prudence about what they should and should not attempt, massive entitlement spending only increases. Majorities demanding entitlements do not much trouble themselves about who will pay the bill. Democratic majorities—as opposed to freedom-loving citizens—are self-entitled. When money for these entitlements run out, as they inevitably will, there is only one way to find new funds: by borrowing from the next generation, for whom it cares little.

Europe is further down the course of self-created entitlements than the United States (though we have gained ground in the last 18 months). As ever new entitlements are provided, ever more taxes are levied; ever more taxes diminish the productivity and creativity of the people; the goals and ends of the populace become ever narrower, until finally even rearing a replacement generation is too great a burden, threatening people’s comfort; and ever more money is borrowed from ever fewer lenders. This is unsustainable, and the fact that it has not yet come to its unhappy conclusion is no reason to emulate it. European politics is a slow engine of self-destruction. The question is not whether, but when, it will collapse. And when it does, the result is likely to be a more rigid and meaner despotism than the soft despotism of today.

Tocqueville describes this problem eloquently:

Only perceptive and clear-sighted men see the dangers with which equality threatens us, and they generally avoid pointing them out. They see that the troubles they fear are distant and console themselves that they will only fall on future generations, for which the present generation hardly cares. .  .  . The good things that freedom brings are seen only as time passes, and it is always easy to mistake the cause that brought them about. The advantages of equality are felt immediately, and it is daily apparent where they come from.

The only corrective to a too great love of equality is a tempering dose of liberty, that is, a degree of prudence about what the central government should and should not do. The only corrective to bankruptcy short of centrally mandated rationing is restraint of the role of government. In all of this, America still seems a better model for Europe than vice versa.

There is no quantification of 'capitalism' that I know of, but if we interpret it broadly to mean 'economic freedom' we can use the Heritage Foundation's index to investigate. What it shows is the US at number 8 (a high position no doubt) below Ireland and Switzerland, even with Denmark, and only a couple of points above the horrible socialist UK. In all, there are 13 European nations in the 'mostly free' zone (70-80) where the US is, and 2 European nations in the 'free' zone (80-100). Liechtenstein wasn't included; it would almost certainly be in the 70-100 range. Out of 44 countries (city-states excluded) a third of them have comparable levels of economic freedom to the US. So, while it was inaccurate of me to lump Europe together as one homogenous zone, Europe as a whole is clearly not a socialist hellhole.

That concludes our fact free rant this hour.

...and our own Maximos would be happy to chime in and agree as he thinks this situation is a cause for celebration.

No, it's a reason for American conservatives to sit down and shut up about the horrible socialist, road-to-serfdom ("It hasn't happened yet, but just you wait, it will, because my theory says that it must happen!") Europeans, because the differences in the respective political economies are culturally-grounded, and have essentially no moral weight independent of culture.

This is called observation, not celebration.

Again, make a simple observation about the objective bases of comparative political economy, and the "American Exceptionalists" immediately sink to the occasion, accusing one of allegiance to "socialism" and disparaging America. It's almost as though they want to prove my point for me.

Matt,

First of all while I love the folks over at Heritage, if they have an economic freedom index that ranks the U.S. only a couple of points ahead of the U.K., then I have to wonder about the methodology of the index.

But perhaps the index was compiled recently, which only makes the American conservative point which is that thanks to the Democrats and President Obama we are creeping toward a more European future which is news that all good conservatives should recoil at horror from and work to reverse.

Maximos,

No, American conservatives won't sit down and shut up because Roger Kimball, et. al. think the differences do have moral weight independent of culture. In other words, we think your analysis is wrong, despite your claim that all you are doing is making a "simple observation about the objective bases of comparative political economy." If I mischaracterized your position (i.e. you don't think the European political economy is worth emulating here in America) then I apologize for that part of my argument. In the meantime, as we watch the Europeans slide into bankruptcy and demographic suicide, I will continue to fight for the unique American experiment in liberty, religious vitality, self-government, and yes, openness to new ideas (especially creative economic ideas that continue to meet people's real needs for goods and services).

In the meantime, as we watch the Europeans slide into bankruptcy and demographic suicide

The Anglo-American model of political economy is, ummm, doing the same thing.

No, American conservatives won't sit down and shut up because Roger Kimball, et. al. think the differences do have moral weight independent of culture. In other words, we think your analysis is wrong, despite your claim that all you are doing is making a "simple observation about the objective bases of comparative political economy.

It's a culturally-independent truth of nature, or whatever, that marginal tax rates should never be more than X, or that unions should never have more than role Y in a nation's political economy, or that they shouldn't exist at all? That people should have no more than X days of vacation time per annum? That work-sharing arrangements such as those in France and Germany are not merely efficient or inefficient with respect to specifiable policy ends, but morally wrong? Really? Really?

I prefer to stick to obvious moral judgments, such as that abortion is evil, marriage is a union of a man and a woman, and that killing the sick and infirm is monstrous.

"I will continue to fight for the unique American experiment in liberty, religious vitality, self-government, and yes, openness to new ideas (especially creative economic ideas that continue to meet people's real needs for goods and services)."

But you see, what you're not getting is that corporate finance capitalism meets "people's real needs for goods and services" only at the expense of liberty, religious vitality, and self-government.

The sustainability of the very things that Ms. Palin travels around the country praising is undercut by her and her party's rah-rah-ism for corporate America.

Maximos,

The American model (no Anglo please, as our differences are too great with our cousins across the pond to lump us together) is not "doing the same thing" as the socialistic European models -- at least not at the same destructive rates. Yes, the danger is that the Democrats and Obama seem to be pushing us closer to Europe, but my hope is that the American people will resist. Our birthrates* remain higher than every country in Europe with the exception of Ireland (13.83 births per 1,000 persons for the U.S. compared to 14.23 for Ireland) although we are just ahead of Iceland (13.43) and I think France's rate is surprisingly high thanks to their Muslim residents (12.57).

As for moral judgments -- you don't think tax rates of 100% are evil? Or unions that protect incompetent people from being fired are morally bankrupt? Or the government interfering in the ability of an employer's and an employee's ability to negotiate a mutually beneficial agreement related to their vacation time is oppressive and yes, morally wrong? I guess my "obvious moral judgments" come easier than yours.

*Data is from the CIA World Factbook

Jeff, the differences in demographic trends owe largely to the greater religiosity of Americans; they have nothing to do with political economy. Even at that, absent immigration, they'd not be higher that replacement level.

As for moral judgments -- you don't think tax rates of 100% are evil?

Smelly red herring, as no one in Europe proposes them. Neither does anyone here.

Or unions that protect incompetent people from being fired are morally bankrupt?

I wrote of the role unions play in a nation's political economy, that is to say, of the general architecture of that political economy, and not any specific union policies. Specific policies may be morally dubious, but the abuse of thing does not invalidate the thing itself. Frankly, though such union regs should be reformed, yesterday, they are far less offensive and destructive, morally and otherwise, than Wall Street's "rip their faces off to earn your year-end bonus" culture. Doubtless, I will now be informed that I am a communist, and that I support the retention of illiterate teachers on the job, despite having endorsed neither of those things.

Or the government interfering in the ability of an employer's and an employee's ability to negotiate a mutually beneficial agreement related to their vacation time is oppressive and yes, morally wrong?

Except that, excepting highly-paid professionals - members of the meritocracy - employees generally do not negotiate vacation time, because in the US, we tend to have at-will employment: take it or leave it, including the benefits or lack thereof, because you can be fired whenever it pleases someone to fire you.

I'm so sorry, but an abstract freedom of contract is as dust and shadow by comparison to the duty to refrain from slaying the innocent, such as babies and the sick.

the differences in demographic trends owe largely to the greater religiosity of Americans;

Thanks, Maximos, for that acknowledgement. It is the same point I made above in response to a list (not by you) of (what I took to be) ways in which America is _badly_ exceptional, which included "spiritual vacuity and indifference."

But I wouldn't be so quick to separate fertility and economics. Ask some of the Europeans why they have so few kids. You'll find not a few who will talk about money. And then there are my friends, missionaries to Hungary, who report that a 600-sq.-ft. apartment for an entire family is common. You don't think considerations like such a small living space as that enter into people's minds when they think of family size? Maybe not in Mexico, I suppose, but in Europe, certainly. Oh, and how about the enormous social pressure for the wife to work (yes, greater than here) outside the home, linked directly to government subsidies which are in turn linked to the age of the child, the enormous social expectation that all children will be put in daycare at age 2 if not before, and so forth. You have there an entire socioeconomic culture based on small family size.

Paul, I hear every word you say about the 2008 bailout. But I've never yet heard you say that we shouldn't do it again, or that the Europeans shouldn't do it again, or propose some sort of actual, statutory change that would block our doing it again, or even remove what you say is a _mandate_ to do it again, or anything of the kind. Maybe I've just missed it. But as far as I can tell, you say things from time to time that I wholeheartedly agree with about the moral hazard of the expectation of bailout and then _uniformly_ regard actual bailouts as necessary. So the moral hazard just has to continue, I guess, huh? So why talk about it? Why even bring it up? Wall Street should continue to be able to count on bailouts forever and ever, because they should always be forthcoming when "necessary." The only solution you ever propose is further regulation of the financial sector. I haven't even heard you propose the total dismantling of anything like Fannie or Freddie, the repeal of equal housing lending laws, or anything of that kind. Nothing on the government side except further regulation of the financial sector, outlawing credit-default swaps, and the like. Yet you yourself trace all of this back to the Great Society! Well, heck, since when do conservatives hold a brief for LBJ and the Great Society and the continued mandate of "reducing the gap between the rich and the poor" forever, world without end, amen? (See Steve's recent post for what this has done to education. You think it's not misguided in housing, too?)

I'm afraid it becomes more and more beyond me the more I read.

Lydia, I don't know how to fix our collapsing political economy. Full stop. I've mentioned a handful of ideas that amount to small-scale tinkering with the structure of the securities industry, but I have no illusions that these will solve the problems. I don't believe I've ever proposed any regulation beyond that. This for the succinct reason that I have very little confidence in regulation.

Please note that I'd only favor further regulations in the securities industry. In other sectors I would favor the exact opposite. Our high-end manufacturers show the hint of a potential for a real recovery, rather than this anemic government-driven one we have; they should be unleashed from taxation and regulation in a major way. Back when the stimulus was announced, well over a year ago now, I favored a straight infrastructure stimulus bill (maybe $60 billion) alongside massive tax cuts across the board -- corporate taxes, business taxes, cap gains, income, payroll: you name it, we cut it. I suppose I didn't talk much about it because it was so far a possibility that I figured, why waste my time?

In broad strokes my policy would be to fetter the securities industry and liberate productive business. Stomp on the usurers and uphold the manufacturers.

But the fact of the matter is that so much of the American political economy is bound up in finance capitalism that it drives a man to despondency to even imagine how we might get out of this mess.

And there is also the very real possibility that any sustained effort at reining finance capitalism could backfire and touch off another panic and crash. It will be very interesting to see how Germany's recent ban on various short-selling techniques is carried off. If you are a trader and suddenly you can't short assets you think are overvalued, your capital position may go haywire, forcing you to sell off other assets that you'd prefer not to. It's not inconceivable that short-selling bans could generate bizarre runs on other, perfectly sound assets that no one expected.

That's the hell of this ruinous system of globalization: the integration of world finance produces a dangerous and dangerously unpredictable fragility.

I understand that, Paul, but if you really favor repeated bailouts as things actually are, because they are inevitable, etc., then I just don't think I'm being unfair to say that you are in favor of bailouts. That doesn't have to mean that you like them, just that you think they have to be kept in place as a backup, moral hazard or no, even if (because of the moral hazard) they act as in part a self-fulfilling prophecy.

And--while I'm asking: Why don't you ever address the push to loan to credit-unworthy borrowers? Is it just that you think other conservatives are saying too much about that and not enough about credit-default swaps or globalization? Hey, if you admit that what you've advocated thus far is mere tinkering, we might as well advocate some salutary "tinkering" in that area too, right?

Let's try to get some specificity here. What do you consider to be bailouts?

On one end of the scale we have Lehman Brothers, which was the farthest thing from a bailout. The firm was pushed into fire-sale liquidation. On the other end we have, say, the TARP, which (originally) proposed to rescue dying firms by taking the troubled assets off their balance sheets. There are many complications and difficulties in the continuum between those two policies.

Was AIG a bailout? Tough to say. It sure cost taxpayers a pretty penny, but the shareholders were wiped-out, management removed, and the company is still being gradually dismembered.

Was Bear Stearns a bailout? The Fed staked $30 billion, as I recall, so there is an extension of public capital. But the company is gone, swallowed up into JPMorgan.

The guarantees extended to commercial paper and money markets "bailed out" millions of small investors, but no taxpayer capital was ever used, and those programs have since expired. The FDIC "lending" its balance sheet to a bunch of banks and finance units (GE Capital for instance) was a sweet deal if you could get in on it. That may have been the most egregious of them all, really. Quantitative easing, where the Fed purchased various securities, or accepted others as collateral in repo markets -- there were unprecedented operations, but not exactly the same as a straight up bailout.

Some of these I can be said to have favored; others not at all. There is a lot of complexity here.

How about just the ones that you keep referring to when you talk about how the expectation of public bailout encouraged risky behavior? After all, complexity or no, you're the one who keeps mentioning it, and you seem annoyed when I single out those comments for response. Could we agree that we should put up roadblocks to doing those again?

How about just the ones that you keep referring to when you talk about how the expectation of public bailout encouraged risky behavior?

Those go back decades. I mentioned Continental Illinois. There is also the Long-Term Capital episode in 1998.

Could we agree that we should put up roadblocks to doing those again?

The Democrats think they have, with their financial reform bill. Dodd says it will get rid of too big to fail forever. It does definitely expand the Fed's resolution powers, so that regulators are authorized to just sweep in and close down any financial institution, much like the FDIC does with failing banks. So the Dems think they've put up effective roadblocks.

No one believes them of course.

Call me simple-minded, but I meant something more like, "We're not going to do that anymore, so don't count on it." With legal teeth.

Well look, even from a strictly laissez faire perspective, the bankruptcy of a securities firm is very different from that of an industrial corporation. There has to be a resolution process and it has to involve the government in some way. (Unless, I suppose, you'd recommend eliminating bankruptcy courts as well.) Moreover, it has to involve the government handling the liquidation, not of actual physical assets like factories and machinery and other capital goods, but of securities. These securities represent financial obligations. The counterparties to these obligations, especially when we're talking about debt securities, expect regular revenue streams from the securities and have built their own balance sheets based on these revenue streams. So the loss of the securities' value in the bankruptcy weakens their financial position.

When Paulson and Bernanke told Dick Fuld of Lehman Brothers that no government assistance would be forthcoming in September 2008, they were precisely trying to proclaim to the financial world what you've said: "We're not going to do that anymore, so don't count on it." What happened then is that this bankruptcy exposed the perilous fragility of the global finance system, as all of the sudden every major bank or shadow bank in the Western world watched as its balance sheet was torn to shreds, because every class of financial security was collapsing in value.

So I guess I'm just not clear on exactly what sort of policy you would wish had been followed. How would you prefer that failing securities firms be liquidated?

In broad strokes what I want is to reform our way, gradually, away from the global integration of finance that produced this fragility. Local economies, sounder finance, less abstraction of property. How to do that, as I said above, is still mostly obscure to me. The scary thing is that in practice that means there would be far less available capital in the world. (The major financial benefit of integration is that it brings those holding capital and those desiring to use capital together more quickly and smoothly.) In a word, we'd all be poorer. So the earliest steps of reform would thus be intellectual or even spiritual in nature; persuading folks that the decades' long game of globalization is over, that they'll never return to the level of (illusory) national wealth they thought they had, and that their future perforce will be a more straitened one.

The alternative (much more likely) is to just muddle along as we have been, hanging on as long as we can with the government propping up financial asset after financial asset -- until the gods of the copybook headings bring on necessity hard and swift.

I don't know, but you yourself called the TARP the "other end of the scale."

I can't help wondering whether, if our currency inflation were severely limited or even itself rendered legally impossible, TARPs would be impossible. It was interesting: When Zippy did his series on usury at his personal blog, I asked him what sort of loan it is when the government "adjusts" the value of the dollar by increasing the federal deficit--issuing new federal debt instruments. Because I'll tell you what, it sure doesn't look like an "asset-security loan" (I think was his term for non-usurious loans) as he defined it. It's literally just a way of changing the value of the dollar by increasing debt, which can then be "bought back" later by monetization (which involves, as far as I can understand it, creating money out of thin air--using pixels or paper) to tweak the value of the dollar the other way. His response, as I recall, was that he had to admit that in our current situation discussing the exact meaning of usury is rather like discussing the value of a glass of wine a day with an alcoholic.

I'm sure that this doesn't mean that he's ready to endorse a no-inflation policy, but given that our entire monetary structure is built on federal monkeying with federal debt, if there's some sort of absolute ethics to what sort of debt is legitimate, it would seem logically like there should be some connection. And if that entire system were radically revised away from the government's ability to increase the deficit without apparent upper bound, I doubt very much whether the government could be bailing out companies to the tune of umpety trillion.

I'm not persuaded that fiat currency is at the root of our problems. Also, even a cursory reading of 19th century American economic history demonstrates that commodity money is by no means a guarantee against financial instability. Arguably there were more, and more ruinous panics when we were still on the gold standard. Heck, even in the very early Republic there were all manner of chicaneries tied to paper money issued by private operators. Crooks like Aaron Burr and James Wilkinson could probably teach Goldman Sachs a thing or two.

The characteristic problem of commodity money is deflation, because it is so difficult to create new money to absorb the new wealth created by private enterprise. The characteristic problem of fiat currency is inflation, because the tendency to create too much money is very pronounced. On balance, I think the latter is the more manageable problem.

That said, I'd certainly be willing to listen to serious proposals for currency reform.

I also think that fiat currency and government's relationship to the currency, whatever problems there may be with it, is an almost entirely separate issue from bailouts of private companies.

Specifically w.r.t. usury I would suggest that there are (at least) three kinds of loans: asset-recourse loans, person-recourse loans, and sovereign-recourse loans. To recover principal in the case of non-payment the lender has recourse to specific named assets, particular persons, or the public authority, respectively. It is only usury strictly speaking to charge interest on person recourse loans, as I understand it. (That doesn't give a free moral pass to everything which is not strictly-speaking usury, of course.)

If the government lent money to various troubled firms interest-free that would not be usury, independent of whether or not it would be wise policy. And since the government's recourse for principal is to assets (the balance sheets of the borrowing firms) not persons, it would not be usury for the government to charge interest on those loans either.

I agree with Paul that you just can't make sweeping statements about various things the government did during the crisis. Specifics have to be addressed. About the only specific action I agreed with (though I haven't done the due diligence to be able to say that I definitely disagree with all the other actions) was the original TARP, which was changed into a purchase of preferred shares, which was better than nothing but not as good as the original asset purchase proposal. (It has also, AFAIK and as predicted, returned a profit to taxpayers. Lending to troubled firms is not always a bad investment, and it wasn't a bad investment in this specific case).

As for government borrowing: when I lend to a corporation, I can look at its balance sheet to see what assets are on the line in the loan. The government has vast assets, tangible and intangible, to which I have recourse when I lend money to the government. Unfortunately though there is no balance sheet for the federal government as a whole: there is no way to account for what assets actually back the loan, even though assets do in fact back the loan.

Looking deeper, we start to get into the fact that one of the most significant assets of the federal government is its authority, and perhaps paradoxically its authority to issue fiat currency. (Its most obvious authority-asset is its authority to tax, of course; but that is hardly the only one). There are doubtless all sorts of moral and practical issues involved in currencies, whether fiat or asset-backed. But my personal sense is that the government's capacity to borrow is not an intrinsic problem, its capacity to lend is not an intrinsic problem, and its capacity to issue fiat currency is not an intrinsic problem. In other words, I think looking at the government's economic powers as the source of the problem of 2008 is wrongheaded. Rather, the source of the problem is private-sector powers, including the private-sector power to engage in usury and related practices, invoking the government's powers in the enforcement of the contracts involved in those practices.

This paved the way for a whole lot of debt-funded leftism falsely spun as "stimulus" and other important-sounding economic triage. Or at least that is my take on it, FWIW.

What Zippy said.

Also, great point about the TARP turning a profit (except for the GM and Chrysler parts -- that's money down a rat hole). Warren Buffet lent $5 billion to Goldman in late 2008, in return for warrants or whatever his tough deal was; he's turned a huge profit on that.

Also, great point about the TARP turning a profit ...
I don't know how many times someone told me that if TARP (for the banks, not for the car companies) were such a great investment the private sector would do it. That was, to put it kindly, a naive retort: a retort apparently resting on the quaint egalitarian[*] idea that if D dollars invested in B is a good investment for party A, investment of any number of dollars in B is a good investment for anyone at all.

To the contrary: when it comes to balance sheets and investment in distressed assets, size does matter. Egalitarianism is factually false all the way down.

It would be great if my many interlocutors from that period would step in line and acknowledge that yes, TARP - even modified TARP - returned a profit.

[*] If I were feeling particularly subversive I might point out that our modern electoral rituals provide constant psychological reinforcement of this kind of false egalitarianism.

The government has vast assets, tangible and intangible, to which I have recourse when I lend money to the government.

Really? Just like a house mortgage, huh? This just does not seem to me to be true. There is no mechanism that I know of at all for your having recourse to such assets when you buy a federal instrument of sovereign debt.

Paul, I knew you were going to say that, but please notice that I was merely saying that stopping the government from a) increasing the public debt and b) issuing fiat currency to monetize said debt _would_ appear to be a mechanism for stopping large bailouts. In other words, the question at issue right here wasn't whether that would be a good or bad idea overall but what I would bring up as a possible way of stopping bailouts. That's what I would bring up, and I think it would stop bailouts and the moral hazard attendant on them. That's why they aren't entirely separate issues. The government couldn't do the bailouts, and the companies couldn't expect them and go out on a limb expecting them, if the government couldn't increase the deficit to stratospheric heights, which is in turn connected to the goverment's ability to create fiat money. You say it would have too many other problems to put a cap on the creation of fiat money (stop inflation). Okay, maybe, but everything has other problems. Certainly muddling along as you describe our currently doing has other problems, for example.

Perhaps a constitutional cap on the federal deficit would be another proposal that would stop bailouts and stop their self-fulfilling prophecy nature without as many problems.

There is no mechanism that I know of at all for your having recourse to such assets when you buy a federal instrument of sovereign debt.
Sure there is. The consequences of a federal default are far more dire than of (say) a Lehman default. The mechanisms may be different, but if anything recourse in the case of sovereign debt is much more ironclad than in the case of corporate debt. That us why the market considers sovereign US debt to be one of the most rock solid assets on earth: more solid than any commodity, by a long shot.

Is the contention that the free market is simply wrong in that assessment?

Tinkering with government powers associated with currency and sovereign debt would, in my opinion, do absolutely nothing to mitigate the "too big to fail" problem: rather like trying to fight heart disease by outlawing ambulances. Gradually and carefully purging usury from the system - by removing the right to enforce private usurious contracts and other trafficking in nothingness for profit - might at least have a prayer of doing so though.

Mind you, there might be other, independent reasons why one might want to tinker with government powers to issue debt and currency. I think these become irrelevant in an existential emergency, since in an existential emergency the government will do whatever it needs to do, independent of current statutes or other formalities, or that government will cease to exist.

please notice that I was merely saying that stopping the government from a) increasing the public debt and b) issuing fiat currency to monetize said debt _would_ appear to be a mechanism for stopping large bailouts.

Okay, fair enough. (Although it should be noted that operations to monetize sovereign debt has historically been very rare outside of normal overnight repo markets; the "quantitative easing" by the Fed in 2009, undertaken to the tune of $300 billion in purchases of Treasurys, was the first such operation in something like 50 years.)

So to get back to commodity money, we'd have to repeal the Federal Reserve Act. FDIC has to go too, because how can it make good on trillions in savings deposits if it cannot print money?

Here's another thing, Lydia. US Treasury bills, notes and bonds form the mathematical basis for the whole world's capital markets. Most debt instruments are priced according to a comparison to the yield on Treasurys. It's referred to as the "spread" -- the interest rate the market demands above the "risk-free" US Treasury rate.

In other words, if the US ceased to run deficits (which necessitate the sale of bonds), capitalism would have to find a new basis for its pricing. No possible replacement is even imaginable at the moment. The only one I've even heard mentioned is some sort of basket of currencies like the SDRs at the IMF. The very idea of giving such power to the IMF fills me with dread.

Capitalism presumably had a basis for its pricing a hundred and fifty years ago, no? And my understanding is that we only _totally_ broke the connection to commodities under Nixon, which isn't even going that far back.

If the world economy depends on America's running a bad balance sheet with gigantic deficit, the world economy definitely needs to change its demands!

I've also often wondered if there would be a way to keep sort-of-fiat currency. That is, not tie the currency to a commodity but simply pass an amendment or something preventing further inflation or putting an absolute cap on it--something of that kind. "This many dollars you may create, and no more."

But again, at this point I'm merely saying that this is the direction I would look in preventing the moral hazard of bailouts. What gets me a little frustrated, Paul, is when you talk about the moral hazard of bailouts and then, when I say, "Okay, so does this mean you want to set up some ironclad way of stopping us from doing bailouts in the future?" you more or less say, "No." Or you say, "Well, what do you mean by bailouts?" when presumably _you_ knew what you meant when you originally said things about how the expectation of bailout encouraged riskiness. We want to _discourage_ going out on a financial limb, right? So we should not let the financiers expect bailouts. I know this seems simplistic to you, but it seems to me like we should be at least trying something that would prevent their having that expectation, whereas you appear to have _no_ proposal of that sort and not even to be interested in one.

As I said, perhaps a cap on the federal deficit would be a better way to go, but it seems to me that there must be _limits_, that people shouldn't just be able to say, "Well we hope this isn't necessary, but I guess the government will just increase the deficit to whatever it has to do if necessary," which simply encourages more unjustified risk-taking.

And by the way, you haven't even addressed the possibility of "tinkering" by removing federal mandates for loaning to the credit-unworthy. God knows, it could hardly hurt our economic stability!

Zippy, my recollection was that the borrower's merely _having_ assets was not enough in your definition to make the loan an "asset-recourse loan." For example, by my understanding of what you said, if Joe borrows money with which to pay for wine, women, and song, or even to buy a car, and he places his grandmother's antique necklace that he inherited as collateral for the debt, that doesn't make this an asset-recourse loan. You were very clear that Joe had to be borrowing the money in order to purchase a productive asset, which was itself the collateral. Now you're saying that if the federal government borrows money to (say) throw down the black hole of social programs to provide drug-prevention therapy to cross-eyed, short, hermaphroditic minorities, or whatever, this counts as an "asset-recourse loan" simply because the government _has_ a lot of assets that (you claim, though I have my doubts) could be accessed in the catastrophic event of a default. This doesn't square with your previous discussions of usury, as far as I can see.

Moreover, since as you say yourself, we have no balance sheet for the government, there is _of course_ no designated "productive asset" tied to this or that government credit instrument! It would be like loaning someone money based on his assurance that he "has a helluva a lotta assets, and everybody agrees with this, so you should trust him," and calling this an asset-recourse loan! That doesn't even _begin_ to cut it in comparison to what you laid out for individuals.

Lydia, briefly (iPhone):

My ultimate conclusion (explained in my final post on the subject IIRC) was that (e. g.) a home equity loan for a vacation is not usury provided that the lender has recourse to the home and only the home for recovery of principal and interest. What the borrower uses the money for doesn't matter, at least in the determination of whether the loan is or is not usury strictly speaking. Only person-recourse loans for interest are usury.

Loans to institutions - without ultimate recourse to particular persons - as opposed to loans to persons are always asset-recourse by definition; because institutions are things, not persons.

None of that makes any particular non-usurious loan either wise or moral, of course.

when I say, "Okay, so does this mean you want to set up some ironclad way of stopping us from doing bailouts in the future?" you more or less say, "No."

That's because (a) I don't think it is possible under current arrangements, in other words absent a truly revolutionary reform of the structure of our financial system; and (b) even if it were possible, I'm reluctant to embrace a policy that would preclude prudential action in a crisis. Until (God willing) we get ourselves to a saner political economy, we're stuck with this system of global integration, which requires a large range for flexible operations by policymakers. I cannot say, for instance, that I would prefer a statutory framework that would have prevented the AIG rescue. It was obvious, after Lehman Brothers, that straight liquidation bankruptcy was not a workable option.

Analogically, we might compare this to a proposal to set up an "ironclad way" to stop the President from ever suspending the writ of habeas corpus. Now no one wants to see that writ suspended, ever; but most of us can readily perceive emergencies where said suspension would be right and necessary. We wouldn't call someone who acknowledges these exceptional circumstances an opponent of the writ generally.

On federal mandates to lend to uncreditworthy buyers: it was a bad idea then, and it's a bad idea now. It seems pretty clear, in retrospect, that our sustained policy efforts to establish home ownership for the great majority of Americans were in many specifics disastrously unwise. Home ownership is a good thing, but there must be limits.

Paul, I suppose to continue the analogy to habeas corpus, suppose we found that we were in a system where the president was suspending the writ of habeas corpus all over the place to arrest and punish people who questioned his policies on the grounds that this constituted an insurrection or something crazy of that sort. What we would need would be at a minimum to establish further limits on the use of habeas corpus, some way to provide checks and balances to what the president was doing.

This is one reason that it seems to me perhaps a constitutional cap on the deficit would be a good idea. That is to say, we say, "This far and no farther." In the habeas corpus example, I'm imagining the president as _banking_ on his ability to suspend habeas corpus and therefore doing other tyrannical things he would not otherwise have done. In the economic case, people are banking on the government's bailing them out and therefore doing dangerous and unsound things they would not otherwise have done. There must be a way of breaking that vicious cycle.

Zippy, it looks as though I may have misunderstood you, and Joe could put up his antique necklace as collateral for his wine, women, and song loan. I'd have to look up the posts again, because it does seem to me that you said something to the effect that if the money is just spent on wine, women, and song, then it's just _gone_. But perhaps you only meant in cases where there wasn't some other concrete collateral. But in that case, it still seems absolutely necessary for there to be a clear, specified piece of concrete collateral, owned by the borrower, for each loan, which there definitely is not in the case of government debt.

You say that loans to institutions are always asset-recourse by definition. But this seems problematic in the case of an institution that does not actually have collateral to cover the loan, and where the lender has no way of finding out if there is such collateral or what that collateral might be.

Part of what sort of baffles me here is this: It is a principle often used by Catholics that "ex nihilo nihil fit" and also that we should not do things that are against nature. I'm nervous a bit that I will sound like some sort of crank, but it comes to me again and again over the last year or so, so I might as well say it: If pretending that you can create something out of nothing and expanding your operations, power, and programs indefinitely, without upper bound, on the basis of your ability to create wealth-proxy (money) ex nihilo is not contrary to nature, I really do not know what is. It seems to me like the height of playing "let's pretend" with reality, and it seems to me no wonder that it comes back to bite us in the posterior eventually.

Lydia:

But this seems problematic in the case of an institution that does not actually have collateral to cover the loan, and where the lender has no way of finding out if there is such collateral or what that collateral might be.
That isn't any more problemmatic than a case of a house burning down, or having undiscovered rot in it that makes it worthless or whatever.

The key features which make a loan usury - this again is my ultimate conclusion, so whatever I may have said conjecturally before reaching that conclusion is superseded by it - are (1) recourse to a person rather than specific pre-agreed assets for recovery of principal, and (2) profitable interest.

Institutions are things, not persons; so even if the asset in question is "that whole entire institution" a loan does not thereby become usury. Analogously, "killing" a computer or some other thing is not murder. It is not possible to commit usury against a thing, and institutions are things. (One thing that struck me as ironic in reaching this conclusion is that it represents a moral endorsement of some form of limited liability corporation).

Again, none of this represents a blanket moral endorsement of every business practice which is not usury. The more general category of selling what does not exist, the main target of Paul's polemics and the genus of which usury is a species, is not sanctified simply in virtue of being not, strictly speaking, usury.

Beyond all that, I think that folks looking to solve the "too big to fail" problem specifically are barking up the wrong tree in attacking fiat currency, government lending, and government borrowing. Again, there may be other reasons for attacking or at least reforming those things. But they are, in my view, irrelevant to the "too big to fail" problem.

If pretending that you can create something out of nothing and expanding your operations, power, and programs indefinitely, without upper bound, on the basis of your ability to create wealth-proxy (money) ex nihilo is not contrary to nature, I really do not know what is.
I agree. The question that raises, then, is how accurately that description reflects reality. I've made this point before, and I'll make it again: it is not possible to know the financial reality the question poses. It is not possible to know it, not even in principle, because the government does not do the kind of accounting that would be required in order to know it. All sorts of people can have all sorts of intuitions about what they think is happening, of course. It is even possible that some of those intuitions are right, or at least partially right. But a lot of those intuitions are based on flat wrong presuppositions, such as (just as an example) the presupposition that a growing institutional debt balance is in itself an inherently bad thing reflecting some kind of financial dysfunction. So I am generally very suspicious of those intuitions; and the underlying financial reality is not even knowable, any more than a man blind from birth can know what a tree looks like.

Does it not help to show, Zippy, that this is a correct statement of reality if one considers that the government itself does not in any way tie its issuance of debt to its possession of actual collateral to cover the debt? The government itself does, indeed, just go on expanding its own programs, power, and deficit with no principle regarding an upper bound, on an entirely ad hoc basis, based on what the government _wants to do_ (what programs, for example, it thinks are required if we "really care" and so forth). Its activities and the payment for them, now that we have a limitless deficit, are in no way bound by any sort of necessity for economic restraint or by any notion--which the simplest housewife or child understands--that "we can't afford that because we don't have enough money to do it." On the contrary, the decision as to whether to do it is made instead in an independent fashion, as by an omnipotent being who simply decides whether something "ought" to be done, and it is assumed that the money will be found _or created ex nihilo_ somewhere, somehow, by future generations if need be.

For you to say that maybe the government could objectively cover its present debt with assets, so maybe this description isn't correct, because no one knows, seems to me extremely strange, given that the government itself thinks of things in pretty much exactly the way I described and that any correspondence between its debts and its real assets is *totally coincidental*.

Lydia:

Does it not help to show, Zippy, that this is a correct statement of reality if one considers that the government itself does not in any way tie its issuance of debt to its possession of actual collateral to cover the debt?
The fact that the debt is structured with recourse to the entire institution - a thing or asset itself - rather than with recourse to specified assets owned by the institution, does increase the accounting obscurity. It doesn't mean that "... pretending that you can create something out of nothing and expanding your operations, power, and programs indefinitely, without upper bound, on the basis of your ability to create wealth-proxy (money) ex nihilo..." -- even if we stipulate that that is what some government officials actually think they are doing -- accurately reflects objective reality though.

Sovereign debt involves recourse to the sovereign institution (a thing, not a person) for the repayment of that debt. Sovereign institutions have many tangible (e.g. land, buildings, natural resources, personnel and operating departments, actual cash flows, etc) and intangible (taxing authority, authority to issue fiat currency, legal authority, agreements and treaties, military power, connections tying the nation's well-being to the well-being of other nations, etc) assets, as well as many liabilities. Just as GE can issue debt against itself in general rather than specified assets, governments can also issue debt or other currencies against itself (including its balance sheet) in general. We don't even have a system of accounting capable of accurately representing that balance sheet in the case of the federal government; let alone do we have a concrete balance sheet populated with actual data.

We do, on the other hand, know that the assets and liabilities represented by that nonexistent balance sheet are real; so we know that the notion that currencies issued against that balance sheet are literally created out of nothing is false.

When GE issues more stock or some other security it isn't creating something out of nothing. When GE issues or buys debt, it isn't creating something out of nothing. It is adjusting proportions in its balance sheet in the abstract; it is adjusting its asset and liability base in the concrete.

I am quite certain that something very similar takes place in the case of governments and currencies: a dollar is analogous to, though not precisely identical to, a share of common stock or some other security in "America, Inc". I am also quite certain that there is no system of accounting in use capable of giving us concrete, real, actionable information about what the pertinent financial objects and relations actually are in reality.

And again - yet again - all of this has little or nothing to do with the problem of "too big to fail" in the private sector, in my view. So while it is a large and interesting subject, it is quite beside the point if the discussion is supposed to be about avoiding future government-bailout-of-private-institution scenarios.

Well, it came up here, Zippy, because Paul asked me what I would do to stop bailouts, and it seems to me that stopping the government from raising the deficit ever-higher _would_ stop bailouts, so I said that this is the direction I would look for a solution. That's the connection as it came up here.

"The characteristic problem of commodity money is deflation, because it is so difficult to create new money to absorb the new wealth created by private enterprise. The characteristic problem of fiat currency is inflation, because the tendency to create too much money is very pronounced. On balance, I think the latter is the more manageable problem."

I'm very late to this thread but I wanted to respond to this point. First, I take the reference to deflation to mean price deflation as opposed to monetary deflation or monetary contraction, since under a true gold standard fiduciary media (ie. credit expansion) would be kept to a minimum either by laws making fractional reserve banking illegal or by the basic competitive forces of a free banking regime manifesting, in this case, in the form of the interbank (checking) deposit clearing mechanism. Thusly, monetary contraction under a 100% gold reserve standard would be impossible since the existing gold money supply would not fall violently or at all but would actually grow slightly each year. On the other hand, price deflation likely would occur but this poses no problems as long as nominal wage rates are free to fall along with prices even as real wage rates are rising. Price deflation under a constant or slightly growing money supply also poses no problems for debt repayment since it is monetary contraction, not price deflation, that makes debt repayment more difficult. Economist George Reisman works out the details here:

http://mises.org/daily/3296

Besides all this, I'll say that those who argue for a move to a true gold monetary standard, at least those coming from within an Austrian or neo-Austrian framework, are relying on a comphrehensive and robust theory of money and credit when they do so. What theory of money and credit are those on this blog who prefer the current fiat regime appealing to? The Founders were not dogmatic free traders but none of them, even Hamilton, wanted a system of pure paper money. Not given what they were witnessing in France at the time. Madison called "a rage for paper money" "improper...a wicked project" in Federalist #10. It will also not do to cite the financial bubbles and crashes of the 19th century, not when the purchasing power of the dollar was greater at the end of the century than it was at the beginning, in notable contrast to the 20th century. Also, economic historians such as Murray Rothbard have written extensively about the numerous state interventions in banking that existed in the 19th century and prevented market forces from stifling the growth of credit expansion.

Lastly, while it's one thing to say a gold monetary standard is preferable to a fiat currency regime, I realize that working out how we get from here to there, in a fair, equitable manner is a completely different and very difficult problem. In my opinion, Bernanke and Paulson instead of bailing out the financial system and instead of letting it collapse into a pile of rubble should instead have re-capitalized the banking system with the nation's gold reserve. In other words, ceding the gold back to bank depositers, pro rata, and divying up any excess equity from the process among the bank creditors rather than rewarding the equity holders. It was our gold anyway before it was taken from us in 1933 (or more accurately, taken from our forebears).

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