Some thoughts on Libertarian-Populism

In the ongoing debate about how to re-orient the GOP, a new idea has garnered a lot of internet discussion--libertarian-populism. The idea--originally championed by Tim Carney of the Washington Examiner--is for the GOP to focus its policy and rhetoric on areas where the government enriches wealthy, connected "insiders", at the expense of everyone else.

I think Jonathan Chait's critique is, basically, correct:

A second mistaken premise of Republican populism is a confusion over what causes inequality in the United States. Republican populists are obsessed with the role of elites using the government to reinforce their privilege. Certainly examples of this exist. But the main driver of inequality today is the marketplace, and the main bulwark against that inequality is the federal government. The federal government disproportionately taxes the rich, and it disproportionately spends on the poor. Our government redistributes less from rich to poor than do most other advanced countries, but it does redistribute

The U.S.  government taxes in a progressive manner and mostly spends that money on retirement programs, health care for poor people, and the U.S. military*.

As a result, there isn't very much policy room for libertarian-populist initiatives. For the same reason, Paul Ryan's budget proposals would massively increase the after-tax/after-spending resources of wealthy people and decrease the after-tax/after-spending resources of poor people. Shrinking the U.S. government in a meaningful way will result in an upward redistribution of wealth.

To the extent that there is a "insider" vs. "populist" battle going on, its that Washington "insiders" tend to favor cutting entitlement programs that are massively popular with the rest of the country.

Conservatives generally dislike the federal government, and prefer federalism and local control. But the truth is, the best place for libertarian-populists to focus their attention is at the local level.

Large cities tend to be dominated by a single party (usually Democrats). The lack of partisanship empowers rent-seekers and discourages good governance. At the local level, revenue is usually collected via regressive sales and property taxes, placing heavier burdens on poor and middle-class families. It is not uncommon for cities to offer lucrative tax breaks to large companies to entice them into locating within their taxing jurisdiction. Cities will often help fund sports stadiums, and other unnecessary development projects. The average American's only encounter with the state's "monopoly on the legitimate use of force", is with their local police department.  

When I began writing this post, I intended to simply demonstrate the contradiction between libertarian populists' preference for local governance, and the prevalence of "cronyism" and intrusive government that occurs at the local level. But the more I thought about it, the more I would genuinely be interested to see if a "libertarian-populist" party could be successful in big American cities.

David Schliecher does some really interesting work on the problems associated with single-party dominance in local government. (See some comments by Matt Yglesias here) And has proposed that Michael Bloomberg start a "Bloomberg Party", in order to foster partisan competition through the formation of a local government party based on the policy preferences of Michael Bloomberg.

Another way to structure partisanship at the local level, would be through the creation of a Libertarian-Populist party, that focused exclusively on local elections in big cities.

The Libertarian-Populist party could have the following platform:

1) opposition to tax-payer funded convention centers, stadiums, etc.

2) opposition to tax-increment financing, urban redevelopment, and eminent domain

3) opposition to restrictive zoning and occupational licencing

4) support for school choice and charter schools

5) opposition to the use of police and judicial resources to prosecute non-violent, drug offenses, combined with support for needle-exchange programs and possibly safe-injection sites. 

6) greater police oversight and opposition to more aggressive policing tactics like stop-and-frisk

It would be interesting to see if a platform like this could be successful in a major city.

*I think there is a decent case to be made that a lot of defense spending is "crony capitalism", but since most of the debate has not been focused on military priorities, i'm going to put it to the side for the purpose of this blog post.

Reform conservatives are reforming conservative commentary, not conservatism

There has been some interesting discussion in the blogosphere about the "reform conservatives". Ryan Cooper got it started a few weeks ago. Mike Konzcal was fairly dismissive of the idea. Reihan Salaam responded. So did Douthat. Jonathan Chait wrote a profile of Josh Barro and another blog post on the subject. I wrote about this a few weeks back.

Thinking more about the subject, the most striking feature of the reform conservatives isn't their policy preferences. Instead, reform conservatives have redefined their roles as commentators, vis-a-vis their relationship with the Republican party and greater conservative movement.

A few weeks back, Alex Pareene had a great post on Media Matters' effort to promote a series of anti-scandal talking points for liberal pundits to use. The greater conservative movement walks in lock-step--with journalists, party members, and activists working together to promote the conservative agenda. Talking points feature prominently within the movement, with bloggers, pundits, activists, politicians and activists coordinating on message. The liberal coalition doesn't exhibit the same level of coordination. Actual democratic party operatives--Stephanie Cutter, Paul Begala, etc.--would be willing to use a series of talking points to defend the party, but liberal journalists would be too embarrassed to do so. Liberal journalists see themselves as independent of their political party, in a way that conservative journalists do not. Kevin Drum has coined the term "Hack Gap" to describe this disparity.

The unifying principle of the reform conservatives is a tendency to act more like liberal commentators and less like conservative ones, in this regard. Unlike the conservative media in general, they don't really discuss Benghazi and don't think the Obama administration has spent the last four years telling the IRS to prosecute conservatives. These subjects don't interest them. And I bet if you asked them in private, they would say the conservative obsession with these scandals is a little silly. In contrast, most of the non-reformish content at the National Review Online follows the basic Republican talking points on these scandals.

The actual relationship of the reformists to the Republican party is more complicated. Frum and Barro have staked out positions as explicit critics, outside the party. While Salaam and Douthat are still best viewed as critics from within. Here is how Salaam described his relationship with the party to Chait:

When I interviewed Salam for my Barro profile, he was admirably candid about the political delicacy of his mission, which he described as being “part of a team” and “politically engaged.” What’s more, I’m not sure he’s wrong, either.

Regardless of these constraints, the reform conservatives do seem to be exercising an independent voice. That is why liberal commentators actually debate with, and respond to, them. The reformists are engaging in the exercise of policy debate and discussion, rather than partisan hackery.

The reform conservatives don't have a coherent set of views that they all share, so it is unlikely they will be able to coalesce around a "reform conservative agenda". Rather, they share a certain degree of independence from the Republican party. Whether this posture is sustainable within the current conservative movement is the big question.

The conservative echo chamber is a destructive force in American politics. Hopefully the reformers can weaken it and provide a breath of fresh air for the conservative movement.

Impeachment will happen because it doesn't do anything

I remember as a child being confused, that, after Bill Clinton's impeachment, he got to remain President. Since everyone was making a big fuss about it, I had just sort of assumed that impeachment meant he would get kicked out of office, and maybe even thrown in jail. The fact that he needed to be tried for removal by the Senate, and everyone knew that wasn't going to happen, made me question why impeachment was such a big deal in the first place.

This is why, I believe, Obama will get impeached. Impeachment doesn't do anything. The House of Representatives get to have a big show for a couple of days, subpoena some witnesses, raise some campaign cash, and then we all get to go back to regular business once the Senate refuses to convict.

The other reason I think Obama will be impeached, is the inability of the current Republican party, and the conservative noise machine behind it, to let things go. Here is how political scandals should work: Step 1) you find out something potentially politically embarrassing about your opponent; Step 2) you make a big deal about it on TV to embarrass them, and claim that this is just the tip of the iceberg; Step 3) once it becomes apparent that there isn't much more to find, you move move on. But the Republicans have a different strategy: Step 1) you find out something potentially politically embarrassing about your opponent; Step 2) you make a big deal about it on TV to embarrass them, and claim that this is just the tip of the iceberg; Step 3) keep doing this, forever.

I thought that the emergence of the "AP" and "IRS" scandals would give Republicans a chance to transition away from Benghazi allegations that weren't really panning out. But instead, they have doubled down on the allegations. If Republicans can't transition away from any scandal, the end game is likely to be impeachment proceedings.

Making predictions is always a bad idea. But I am relatively confident that Obama will get impeached at some point.

What's with all the Austerity?

Paul Krugman has a new piece in the NYRB discussing austerity. His thesis is that austerity is appealing for two reasons. First, austerity appeals to those who see economics through a moral frame, for which belt-tightening is needed to offset the high-living that went on during the economic boom. Second, austerity serves the class interests of the creditors and the wealthy.

Its a good essay. But I don't think one can adequately discuss austerity politics in the United States without acknowledging the partisan nature of the conflict, and the way the "centrist" press creates narratives to sort out the conflict.

In 2008, Bush and Pelosi came to an agreement on a, mostly forgotten, $150 billion stimulus package. The negotiations were focused around what the stimulus should contain, rather than whether or not there should be one. Likewise, during the 2008 presidential primaries, Republican candidates ran on platforms that included fiscal stimulus. While Obama was constructing the ARRA, both the Republican House and Senate put together fiscal stimulus plans. It is fair to say that, at that point, their existed a bipartisan consensus in favor of fiscal stimulus.

Once the ARRA passed, with the support of only three Republicans, it became an obvious target for partisan attack. The financial collapse turned out to be far worse than initially understood, so administration predictions about the ARRA's impact on the labor market looked naive in retrospect.

Of course, Republicans were never really interested in austerity. They wanted to cut spending for its own sake. That's why, during the 2010 debt ceiling standoff, they refused to raise taxes under any circumstances. (During the presidential primary debates, every single Republican candidate said they would turn down a 10-to-1 spending-cut-to-tax-increase compromise). At the same time, Democrats in congress were opposed to the idea of cutting spending in the middle of a recession.

Out of this partisan conflict, a beltway consensus emerged. The beltway press couldn't just say "Republican partisans are highjacking the economy in a disingenuous attempt to advance their policy goals." Instead, the narrative became that the Republicans were right to worry about the deficit, but were too inflexible on taxes, while Democrats weren't serious enough about deficit reduction. The centrist dialectic yielded the austerity position we have come to know and hate: "everyone knows" the deficit should be tackled with a combination of tax increases and spending cuts. That reporters cited Rogoff and Reinhart to provide economic gravitas to their newly found conventional wisdom, makes complete sense.

I don't understand Europe as well, so I'm going to avoid commenting on the sources of austerity there. But I think the morality tales that Krugman is discussing are the product of a Washington D.C. press corp searching for a political narrative that placed both parties in the wrong.

Narayana Kocherlakota Speaks

I like Minneapolis Fed Chair Narayana Kocherlakota. He used to be one of the "hawks" on the FOMC, but recently did a "180" and now primarily argues that monetary policy has been too tight. A public official changing their mind in response to evidence showing that they were initially wrong is the correct thing to do, but it doesn't happen very often. I saw him speak last year, and thought his comments reflected clear thinking.

He commented today on the relationship between monetary policy and financial stability. A topic I have written about before. What he says makes me a little nervous about the possibility of fed tightening, but I think his analysis is correct:

One challenge with this kind of policy environment—and this is closely linked to the overarching theme of this panel—is that low real interest rates are often associated with financial market phenomena that signify instability. There are many examples of such phenomena, but let me focus on a particularly important one: increased asset price volatility. When the real interest rate is unusually low, investors don’t discount the future by as much. Hence, an asset’s price becomes sensitive to information about dividends or risk premiums in what might usually have seemed like the distant future. These new sources of relevant information can lead to increased volatility, in the form of unusually large upward or downward movements in asset prices.

These kinds of financial market phenomena could pose macroeconomic risks. These potentialities are best addressed, I believe, by using effective supervision and regulation of the financial sector. It is possible, though, that these tools may fail to mitigate the relevant macroeconomic risks. The FOMC could respond to any residual risk by tightening monetary policy. However, it should only do so if the certain loss in terms of the associated fall in employment and prices is outweighed by the possible benefit of reducing the risk of an even larger fall in employment and prices caused by a financial crisis. Hence, the FOMC’s decision about how to react to signs of financial instability—now and in the years to come—will necessarily depend on a delicate probabilistic cost-benefit calculation.

As he notes, monetary tightening will certainly make things worse right away, and it should only be considered if we have exhausted all other better options, and we think the probability of a much worse financial crisis is so large that we need to just take our lumps now.

I'm skeptical that we should ever use monetary policy in this way, and believe that an aggressive macro-prudential response should be sufficient, in almost any circumstance, to alleviate this risk.

When does structural reform occur?

Noahpinion has an interesting post on the ideology of austerity. His main thesis is that austerity proponents believe that their respective countries require structural reform, and a demand driven recovery, unaccompanied by structural reform, would lead people to believe that structural reform isn't necessary. This would cause the political will required to accomplish the structural reform would dissipate.

This thesis makes sense. And was, sort of, confirmed by this WaPo piece. But I wanted to respond to Noah's last paragraph:

In other words, maybe people like the idea of austerity because they think an economic stagnation is our best chance to address what they perceive to be our long-term challenges. Allowing a crisis might be less terrible than wasting it.

Now, when stated that way, the idea sounds kind of silly - why don't we just periodically bomb our own cities, in the hope that governance will improve during the rebuilding? But I find it very difficult to state with any confidence that the idea is wrong. When economists discuss the costs of stabilization policy, they limit their discussion to distortionary taxation, unexpected inflation, and things like that. They almost never bring politics or institutions into the picture. The fact is, we just don't know how institutions really work. So I can't dismiss the idea that anti-recessionary macro policy might, in fact, rob us of our best chances to make needed reforms. (italics his)

I don't know that much about the political economy of southern Europe or Japan, but austerity advocates in the U.S. are wrong to think it is their best chance for structural reform.

Most advocates of austerity in the U.S. fall on the right side of the political spectrum. They generally favor lower marginal tax rates, reduced government spending, free trade, balanced budgets, less regulation, and "tax reform" (closing loopholes and lowering rates). With the exception of lower tax rates (which Republicans enact whenever they are in power), the major victories for these policies have generally come during periods of strong growth. Despite having a divided government for six years (and a Democrat in the white house), the strong growth of Clinton-era formed the backdrop for NAFTA, welfare reform, a bunch of deregulatory initiatives, and a balanced budget. Reagan's 1986 tax reform also came in the wake of three years of strong growth.

Their is a narrative on the right that the stagflation of the Jimmy Carter years helped usher in the Reagan revolution. There are aspects of truth to this, and certain Reagan political victories--the Kemp-Roth tax cut, the high-profile defeat of PATCO--occurred in the aftermath of the 1980 election. But the broader liberalization and deregulation of the U.S. economy took place duringthe great moderation period. A time of steady growth and low unemployment.

I would argue that this is to be expected. During periods of strong growth, supply side constraints become much more relevant and actually serve as an impediment to growth. (Matt Yglesias wrote about this a few months back.) And even though I personally think welfare reform wasn't good policy, the arguments in favor of it become much stronger--economically and politically--when jobs are readily available. For similar reasons, protectionism is much more popular during economic downturns, whereas, people are much more comfortable letting the market do its thing when the economy is booming. It really shouldn't be a surprise that strong growth in a capitalist economy is a good way to make the case for more capitalism.

Conversely, I think there is a decent argument to make that economic depressions produce structural changes preferred by people on the left. The welfare state was born in the great depression, and the recent recession has resulted in universal healthcare, the subsidization of "green technology" in the stimulus, and Dodd-Frank. Admittedly, Johnson's second term doesn't really fit this model, and seems to have been the product of unique political circumstances.

Maybe the austerians should rethink things.

Don't end the Fed, split it in two

One of my favorite thinkers on monetary policy is soon-to-be-former Deputy Director of the Riksbank Lars Svensson. Sweden was fortunate enough to have not been part of the euro in 2008, and was able to use expansionary monetary policy to avoid the worst of the 2009 recession. Their success was due, in part, to their willingness to pioneer new policy tools, like negative interest rates.

Since 2010, Svensson has regularly dissented from the Riksbank's decisions to tighten policy. His argument for looser policy is simple: unemployment is below the target rate, and long-term inflation expectations remain anchored, therefore, policy is too tight. If the central bank projects that looser policy would reduce unemployment, without raising long-term inflation expectations, they should loosen policy.

His views, and disagreements with other members of the Riksbank, are nicely explicated in this speech he gave last year. The other members of the Riksbank are concerned that looser monetary policy will lead households to take out larger mortgages, increase household debt, create a housing bubble, and cause financial instability. Svensson argues that these aren't concerns in Sweden right now. But his more important argument is that even if these were problems, monetary policy would not be the appropriate tool for dealing with them.

First, monetary policy isn't very effective at preventing housing bubbles. Second, other policy tools--mortgage-lending rules, capital requirements, etc.--would be more effective and more appropriate for maintaining financial stability. Svennson refers to these tools as "macroprudential policy", but it is what most of us think of as financial regulation. Matt Yglesias makes a similar point in a recent post, noting that: "If full employment exists and inflation is low and stable, then you should not deliberately engineer a recession for the sake of financial stability."

Even though monetary policy and financial stabilization have separate policy goals--the managing of risk within the financial system and macroeconomic stabilization, respectively--they are often conflated in discussions about policy. One of the sources of confusion is that both monetary policy and financial regulation are associated with a single institution--the Federal Reserve.

The conflation of the two policy goals has lead to reduced accountability, and a non-optimal use of expertise at the Fed. Because Fed officials are considered responsible for both tasks, the public has a difficult time determining how well they performed at each one separately. The best example of this is Alan Greenspan, who, for the most part, kept both unemployment and inflation low (signs of successful monetary policy), but also oversaw a withering away of lending standards and a large buildup of systemic risk (signs of failed macroprudential policy). Though his reputation has suffered since the crisis, the criticism of him is often of a general nature, with a failure to distinguish his real (and substantial) failings, from the aspects of his job that he performed well at. I am not trying to make a point about Greenspan being treated unfairly, but rather the way confusion about this topic reduces accountability. The current structure of the Fed also gives officials responsibilities for which they are not ideally suited. Some members of the Federal Reserve Board of Governors, for instance, Daniel Tarullo, are experts in financial regulation and macroprudential policy, but have no real background in monetary policy. Other members, such as Janet Yellen, are primarily monetary policy experts. It is not optimal to have these specialists spending time focusing on areas of policy over which they have no expertise.

In many instances, the proper coordination of financial regulation and monetary policy requires the regimes to work at, what superficially appears to be, cross-purposes. For example, if regulatory authorities felt that major financial institutions were overleveraged and at risk, they would need to require these institutions to raise equity ratios. This would usually cause a reduction in lending by these institutions, which would slow down economic activity. Monetary policy authorities should respond to these developments by loosening monetary policy, in order to prevent the slow down. This is counter-intuitive, but keeping the two policy goals separate helps clarify the correct policy action. Because we conflate these two goals, we often hear policy makers arguing that the Fed needs to tighten monetary policy to increase financial stability.

I haven't ironed out exactly how this should all work. Certain tasks, like operating the discount window, probably fall within the purview of both policy areas. I would love to hear other peoples thoughts on this subject.

P.S. Read Lords of Finance if you are interested in how similar confusion helped lead to the great depression. Also, read Jeremy Stein's recent speech if you want the opposing argument.

Taxing land, what would it look like in practice?

Ashok Rao has an interesting blog post about the relevance of Ricardian economics. (See Matt Yglesias' comments on these issues here). One thing that Ashok argues for is replacing the current property tax regime with a land tax. He explains really well why this is beneficial in economic terms, but it is worth discussing the practical consequences of this sort of shift in policy.

When local governments assess property values, they usually try to determine the market value of your property--how much you could currently sell it for. This assessment implicitly considers both the value of the land, and the value of the structure. According to the Minneapolis government website, land value makes up about 20-25% of the total property value assessment. (Minneapolis--where I live--also considers property classification, but lets ignore that for now).

The problem with this scheme is that it disincentivizes the productive use of land. Let's say you currently own a piece of vacant land in downtown Minneapolis. Doing nothing with the land will keep your property taxes low, but you also won't make any profits. Building an office or apartment building will cause your property taxes to skyrocket, but you will presumably make some decent profits. But let's say you want to keep your property taxes low, but also want to make some profits. You build a parking lot! And now downtown Minneapolis is filled with half-used parking lots, that are taxed at very low rates despite their prime locations.

Now what if we taxed land value? If this were the case, and you owned a vacant piece of land in downtown Minneapolis, you would pay the same tax rate regardless of how you used the land. This would make sitting on the empty property a terrible choice, building a parking lot a bad choice, and building a large useful structure a great choice.

This also has another important consequence that is often overlooked. By shifting to a land value tax, the overall tax burden on residential property will shift from multi-unit structures to single family homes.

Lets say you are a developer who owns a piece of vacant property right now, and are deciding between building a single family home or a multi-unit building.* Under the current property tax regime, a multi-unit building may be more valuable, but it will also be taxed more heavily. This will result in a greater number of single family homes being built than is optimal. By switching to land tax system, the taxes will remain the same regardless of which type of structure is built, this should lead to fewer single family homes and more multi-unit structures.

This will benefit those who live in multi-unit structures (who are often renters, and usually less wealthy) in two ways. First, if more multi-unit structures are built, rents will go down. Second, the overall tax burden will shift away from multi-unit structures--whose taxes are payed by the renters through rent--to single family homeowners. The best way to picture this is to imagine you have a single family home and a multi-unit structure siting adjacent to each other. Because they are next to each other, their land values are likely the same. Under the current property tax regime, the multi-unit structure owes more in taxes than the house. In a land tax regime, both the multi-unit structure and the house owe the same amount in taxes.**

Overall, a land tax regime would increase density, incentivize the productive use of land, lower the tax burden on those who live in multi-unit structures, and increase the tax burden on those who occupy single family homes. Import Its an idea that progressives should get behind.

*obviously zoning laws matter for these types of decisions, i'm ignoring them to make the post simpler
** This can also be conceptualized another way. Suppose that all the land in a city were worth the same amount, and all the property was residential. Under a land tax regime, each parcel would pay the same amount in taxes, regardless of how many people lived on it. This would mean each individual's tax burden would be directly proportional to how densely populated the structure they occupied was. This would incentivize density, and reduce tax burdens on those living in multi-unit structures. Which, as I mentioned above, are often less wealthy individuals.

The Reform Conservatives

Ryan Cooper has a good piece discussing the small group of conservative writers who are attempting to reform the GOP. He is far more optimistic about their chances than Jonathan Chait was in his article last year about the destruction and exclusion of GOP moderates. My one disagreement with Cooper's piece is that he tries to draw too neat a parallel between current efforts and those of the New Democrat/DLC crowd in the late 1970s-early 1990s:

The Democratic Party’s equivalent period of soul searching played out quite differently. As early as the late 1970s, a major rethinking of traditional liberal ideas and policies about crime, welfare, entitlement programs, and much more was under way at magazines like the Washington Monthly and the New Republic—this at a time when Democrats controlled both houses of Congress and the White House. In 1984, only four years after Ronald Reagan’s first presidential win, reformist Democrats had their own popular primary candidate, Gary Hart. In 1985, the centrist-reform Democratic Leadership Council was founded. By 1988, two charter members of the DLC, Al Gore and Richard Gephardt, were running for president. By 1992, a former DLC chairman, Bill Clinton, won the office.

Compare this to Republicans. It’s two decades after Bill Clinton’s first presidential victory, and there is still no Republican equivalent of the DLC. During last year’s GOP primary, the only candidate who ran as a moderate reformer, Jon Huntsman, garnered almost no party support, quit in disgust, and started advocating for a third party. 

Its worth pointing out that "neoliberals" and the DLC were responding to, what they believed to be, real policy failures of the Great Society. The pushback was against actual measures in place, not just party orthodoxy. Why does this matter? Well, I think it really affects the GOP reformers chances of success. The Bush administration was no conservative equivalent of the second Johnson Administration. His domestic policies included an expansion of medicare and a federal education initiative. Conservatives in the GOP can, rightly, argue that the a real dismantling of the welfare state has never been tried. As a result, reformers are left arguing against a GOP agenda that is 1) mostly hypothetical, and 2) constantly shifts in response to the political winds and the proposals of Barack Obama. This leaves them a much greater challenge than that facing the DLC, who could point to actual policies in place, and argue that they needed to be reformed. As a result, it often feels like the reformers are stuck arguing about the message, rather than the substance. And this makes their actual criticism of the GOP (through no fault of their own) less coherent and unified.

An Open Question for Health Wonks

Sarah Kliff has a good post on why Democrats are holding back on selling Obamacare as a success. The short answer is that Obamacare hasn't really begun yet, so most Dems are waiting until people can actually go sign up for healthcare on the exchanges before they promote its benefits. Good plan.

But this leaves me with a question: Are Democrats concerned that people won't sign up for the healthcare exchanges? It doesn't seem out of the realm of possibility that moderately healthy Republicans will personally boycott their use (at the urging of party leaders) as a way to protest the law. Could this happen at a scale that triggers the, so called, "death spiral"? I remember this Alec Macgillis piece from a few years ago, but I would be interested to know if strong political opposition to Obamacare is raising concerns.

The Metaphysical Club

I just finished The Metaphysical Club by Louis Menand, and really I enjoyed it. The book was a bestseller and won the Pulitzer prize a number of years ago, so I'm sure lots of people have already read it, but I wanted to discuss it anyway.

The book tells the story of four individuals (Oliver Wendell Holmes, Charles Sanders Pierce, William James, and John Dewey), who were involved in the development of American pragmatism as a school of thought. Instead of simply discussing their individual contributions, the book gives four mini biographies and attempts to show how their respective situations--the time, place, and people they encountered in their lives--influenced the ideas they developed.

I would recommend this book for anyone who enjoys philosophical ideas, but finds actual philosophical text to be a little dry. The book is able to present these ideas in an accessible way by tying them to biographical accounts of their originators. As a result, a large portion of the book is a a vivid description of some really interesting characters in the post Civil War period--including brilliant thinkers, outright charlatans, and vicious racists.

One of the main takeaways is that it's important to evaluate an idea within its historical context. Pragmatism was, in many ways, a conservative response to the Civil War. The Civil War, and the failed Reconstruction project, were viewed as the tragic result of idealism over practical thinking. As a result, the generation who grew up during the Civil War needed a philosophy that encouraged reconciliation and tolerance. This resulted in pragmatism. Pragmatism was popular for a number of years, but faded during World War II and the Cold War, when the global struggle between democracy and totalitarian regimes required a different frame through which to view the world.

Over the past few years, I have become increasingly interested in economics and debates about economic policy on the blogosphere. When I first began exploring some of these debates, I was amazed at how unconvincing some of the "supply-side" theories of the great recession were. More specifically, people like John Taylor would advocate fiscal and monetary tightening, and justify this policy based on their experience during the 1970s. But as anyone with a basic knowledge of economic history knows, The 1970s were a period of high inflation and high interest rates, whereas now we have low inflation, and low interest rates. Whatever the merits of Taylor's macroeconomic stabilization ideas (and I don't believe there are many) they quite clearly couldn't be justified as appropriate now based on the experience of the late 1970s. I'm not a big fan of "supply-side economics", but its clear that the ideas were developed and became popular in the wake of some of the supply side problems of the 1970s. I suspect that some of the supply siders are in some ways blind to. or wish to downplay, the changed circumstances. They believe that their ideas (lower marginal tax rates, labor market reforms) are universal economic problem solvers, when in fact the time and place for the primacy of those ideas has passed, and we need to focus on boosting aggregate demand.

The development of ideas can't be divorced from their historical context. And when evaluating the applicability of ideas, the historical context of their development should be considered and compared to the current one.

Expectations, Monetary Policy, and Austerity

Mike Konczal has a piece at Wonkblog arguing that we are witnessing a great natural experiment that will help us determine whether expansionary monetary policy can offset contractionary fiscal policy:

We rarely get to see a major, nationwide economic experiment at work, but so far 2013 has been one of those experiments — specifically, an experiment to try and do exactly what Beckworth and Ponnuru proposed. If you look at macroeconomic policy since last fall, there have been two big moves. The Federal Reserve has committed to much bolder action in adopting the Evans Rule and QE3. At the same time, the country has entered a period of fiscal austerity. Was the Fed action enough to offset the contraction? It’s still very early, and economists will probably debate this for a generation, but, especially after the stagnating GDP report yesterday, it looks as though fiscal policy is the winner.

Paul Krugman agrees.

Ryan Avent responded, noting that most monetary policy advocates were encouraged by the recent Fed actions, but almost no one argued that they would be sufficient.

Ryan Avent's post is worth reading in full, but I would add one thing. Market monetarists (and other monetary policy advocates) believe that the most important aspect of monetary policy is the expectations channel and the explicit statements from the Federal Reserve. What Ben Bernanke says is as important as what the FOMC does. With that in mind, it is worth looking at Bernanke's actual comments about fiscal tightening. Here is what he said about the fiscal cliff:

I hope it won't happen, but if the fiscal cliff occurs, as I've said many times, I don't think the Fed has the tools to offset that event.

And here is what he said about the sequester:

Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant.

What Bernanke was saying was that the public shouldn't expect the Federal Reserve to increase monetary stimulus in a manner sufficient to offset fiscal tightening and keep nominal spending on track. For those who believe the expectations channel is paramount, the fiscal tightening of 2013 should damage the recovery, because Ben Bernanke said it would.

The joke is that Ben Bernanke agrees with Mike Konzcal that monetary policy can't offset fiscal tightening. The market monetarists just believe they are both wrong.

I don't want to pretend this doesn't set a really high bar for falsifiability of market monetarist ideas, it does. I also agree with Mike Konzcal, that as a practical matter, active fiscal stimulus combined with a federal reserve that tolerates higher inflation is probably a more credible way to boost nominal spending expectations. But as a theoretical matter I don't think the first few months of 2013 settle anything.

You go to the sequester with the Democratic Party you have

Ezra Klein has a good piece on the decision by the Democratic party to allow a bill that would ease the pain of sequestration for the FAA:

Recall the Democrats’ original theory of the case: Sequestration was supposed to be so threatening that Republicans would agree to a budget deal that included tax increases rather than permit it to happen. That theory was wrong. The follow-up theory was that the actual pain caused by sequestration would be so great that it would, in a matter of months, push the two sides to agree to a deal. Democrats just proved that theory wrong, too.
...
It is worth noting how different the Democrats’ approach to sequestration has been to the GOP’s approach to, well, everything. Over the past five years, Republicans have repeatedly accepted short-term political pain to win the leverage necessary for long-term policy gain. That’s the governing political principle behind their threats to shut down the government, breach the debt ceiling, and, for that matter, accept sequestration. Today, Democrats showed they’re not willing to accept even a bit of short-term pain for leverage on sequestration. They played a game of chicken with the Republicans, and they lost. Badly.

For the most part, I agree with this analysis. But its worth pointing out that the different tactics adopted by the Democrat and Republican parties reflect different underlying philosophies of government, and longer term strategic aims.

The basic philosophy of the Democratic party is that capitalism basically works but under-produces public goods, over-produces negative externalities, can become unstable if not properly regulated, and can lead to gross inequality. Their governing philosophy is that government can effectively overcome these problems through a combination of regulation, the pricing of externalities, the subsidization of public goods, and the provision of a progressive social safety net.

The Republican party has a political philosophy that is less concerned about the weaknesses of capitalism. But more importantly, they also believe that government is incapable of solving these problems effectively. And this is what they focus on politically. Republicans seek to demonstrate that government is wasteful, corrupt, and ineffective at solving problems, and so the less government the better. This is a good strategy because Americans are generally more skeptical of government than other wealthy, democratic countries.

With this is mind, it is easy to see why the Democrats aren't going to be very good at the type of political chicken the Republicans have mastered. By allowing FAA delays to continue, the Democrats help the Republicans (albeit, in a small way) make the case that government is incompetent and doesn't work. Now I don't want to let the Democrats off the hook. It strikes me that it was probably worth it to hold the line in this particular case, as Klein notes:

The result is that sequestration is no longer particularly politically threatening, but it’s even more unbalanced: Cuts to programs used by the politically powerful will be addressed, but cuts to programs that affects the politically powerless will persist.

This is a really horrible outcome, and the most vulnerable in our society will suffer because of these cuts.

But a big lesson is that these types of standoffs are stacked against the Democratic party, and they should do everything to try to avoid them.

One could imagine an alternate universe with a more aggressively leftist Democratic party. This party could have been the one in summer 2011 that was refusing to raise the debt ceiling (and pay wealthy bondholders), unless the government increased stimulus spending. This would be a party willing to more aggressively harm the interests of the business class, in order to secure benefits for the poor. But that would be a different Democratic party than the one we have, and probably one less likely to secure large majorities.

Effective, non-corrupt governance is hard, and most places throughout history and the world have been/still are terrible at it. A few countries in the world, for a brief moment in time, have managed to build effective institutions and establish good norms of governance. The United States is one of them. The Democrats have shouldered the burden of continually demonstrating this. And as long as they do, they will always be the center-left technocrats who cave on these issues.

Did the Bush Tax Cuts Make it More Difficult to Deal with the Recession?

A number of political commentators have spent the week evaluating the presidency of George W. Bush. I agree with the liberal consensus that, all said and done, Bush was a really bad president. But I find one aspect of the liberal critique unpersuasive. A number of commentators claim that the Bush tax cuts hampered our ability to respond to the 2008 financial crisis with appropriate fiscal stimulus. For example, Jonathan Chait:

His massive increase of the structural budget deficit, which ballooned to over a trillion dollars before President Obama took office, left the United States less fiscally equipped to respond to the economic crisis . . . (emphasis mine)

And Dylan Matthews:

It’s also worth noting that Bush was increasing the deficit at a time when the economy was expanding — which is exactly the opposite of what Keynesians believe makes sense, and which also made it more difficult for the country to respond to the recession. (emphasis mine)

This could be true for two reasons, both of which seem unsupported: 1) the accumulated debt could have created economic barriers to more fiscal stimulus; or 2) the accumulated debt could have created political barriers to more fiscal stimulus.

Despite high debt levels, the U.S. government would have no trouble enacting a deficit financed stimulus plan. Interest rates are some of the lowest they have ever been, and there has been no appearance of the dreaded "bond vigilantes" demanding greater fiscal prudence. Nor has there been any evidence of looming hyperinflation. Some have cited economic studies suggesting that higher debt leads to slower growth. But Excel problems with Reinhart & Rogoff's study aside, the bigger issue is that (as they note) their empirical work doesn't demonstrate that high debt causes slow growth. Overall, there is just little evidence that extra debt racked up by the Bush tax cuts were a real economic barrier to more aggressive fiscal stimulus.

Whether or not the Bush tax cuts made fiscal stimulus more difficult politically is a tougher question to answer definitively, but there are a few facts that suggest it didn't. When Obama was trying to pass the American Recovery and Reinvestment Act ("the stimulus"), he faced exceptionally strong opposition from Republicans. As Mike Grunwald recounts in his great book "The New New Deal", the basis of the opposition was political--the Republicans didn't want to deal with Obama and came up with a strategy to reject any plan he brought forward. As a result, the bill passed the house with no Republicans votes, and only narrowly avoided the filibuster with the support of three Republicans. One could argue that the Republicans were mainly concerned with debt levels, but both House and Senate Republicans had stimulus plans around the same size as Obama's. During the 2008 election, Mitt Romney had the largest stimulus plan. This suggests that Republicans weren't primarily concerned with debt, and so in an alternate universe where the Bush tax cuts never happened, it is unlikely likely that they would have supported a bigger stimulus.

But could Obama's stimulus have been bigger without the Bush tax cuts? As Grunwald describes, the size of the stimulus was originally constructed based on assumptions that underestimated the size of the collapse. However, ultimately the bill was capped by four senators (Nelson (D), Snowe (R), Specter (R), Collins (R)) who negotiated together to keep the bill at $800 billion dollars. How did they decide on that number? It's hard to say, but based on Grunwald's reporting the number was just basically something they all agreed to. Nowhere in the reporting do I remember aggregate U.S. debt levels being their main consideration, rather they were focusing on the size of this particular bill. Furthermore, all four of these Senators voted in favor of the Bush Tax cuts (except one "no" vote by Snowe on the 2003 cuts), so its hard to credit their decision to cap the stimulus as being based on fiscal prudence.

Two years, and a few smaller stimulus bills, later, the Republicans retook the house. During the lame duck session, congress passed the cumbersomely named Tax Relief, Unemployment Insurance, and Job Creation Act of 2010, along bipartisan lines (with most of the "no" votes coming from Democrats). The bill basically traded a temporary extension of the Bush tax cuts, in exchange for extending unemployment insurance, adding a payroll tax cut, and extending a bunch of items from the stimulus package. This was the only major bipartisan stimulus effort that was successfully enacted during Obama's tenure. And its arguable that it was made possible by the Bush Tax cuts, whose expiration forced the Republicans to the table. It's possible that, absent the Bush tax cuts, Obama still could have come up with a deal, but it would have been much harder to thread the needle between Democrats, who opposed the higher end tax cuts, and Republicans, who weren't interested cooperating with Obama. At the very least, the expiring Bush tax cuts framed the deal-to-be nicely and brought everyone to the table.

A few weeks later, the Republicans took over the House and have largely refused to deal with Obama. Stimulus has been out of the question. Obama may have been less eager to turn toward deficit reduction if the aggregate debt level was lower, but I'm skeptical for a few reasons reasons. First, most of Obama's focus has been on reforming entitlement programs, whose long term actuarial balances aren't really affected by the Bush tax cuts. Second, even with lower aggregate debt, debt/GDP ratio would have still shot up in 2008-10 (though not as high) and deficits would still have been very large. It's likely that their still would have been public pressure to reduce deficits. The idea of austerity always seemed like more of an ideological bias than a practical response to economic conditions. Third, even without Obama's rhetorical support for balanced budgets, I doubt he could have made a stimulus deal with the House Republicans.

The Bush tax cuts were bad policy. They were regressive. They increased deficits exactly when they shouldn't have (during a period of strong economic growth). The Heritage Foundation and the Bush Administration claimed they would pay for themselves, and they didn't, revealing flaws in supply-side economic thinking. When the economy finally recovers, and interest rates return to normal levels, that borrowing will have to be paid for.

But they didn't create the financial collapse. And they didn't hamper our ability to use fiscal stimulus to promote recovery. The response to the financial collapse was the result the political conditions of 2009-2011.

Update:  A response from 4:17am

Decline of House GOP Influence

Robert Costa had a good piece yesterday on the self proclaimed "Gang of Six" house conservatives who are attempting to build momentum to block immigration reform:

King and his crew are not driving the negotiations, and they increasingly feel like outsiders within their own party. “The meetings of the Gang of Eight and the secret meetings in the House of Representatives — the people who have been standing up for the Constitution and the rule of law haven’t been invited to those meetings,” King tells the assembled group of reporters. The other huddlers — Michele Bachmann (Minn.), Lou Barletta (Pa.), Mo Brooks (Ala.), Louie Gohmert (Texas), and Dana Rohrabacher (Calif.) — nod and grimace. 

I think we will all look back on 2011-12 as the high point of house Republican obstruction. As I have written about before, the house Republicans were quite successful at preventing further fiscal stimulus, slowing overall government spending, and making climate change legislation a non-starter.

But from the very beginning, Boehner has been steadily losing power. Conservatives were constantly concerned that he was going to "sell them out" during negotiations with the White House. Over time, the White House lost faith that he was actually speaking for the house conservatives and could deliver votes. This culminated in a series of dangerous budget standoffs and a mechanism intended to force bipartisan agreement--sequestration--actually being enacted.

Over the past 20 years, conservatives moved the Republican party to the right, encouraged discipline, and consolidated power within the leadership. To do this, they primaried Rockefeller Republicans, placed term limits on subcommittee and committee chairmanships, and instituted the "Hastert Rule"--a policy of the Republican leadership to not bring a bill to the floor unless it had the support of the majority of the Republican caucaus. The idea was to prevent legislation from being passed with mostly Democratic votes.

This came to a head at the end of 2012, when John Boehner, in order to avoid going over the "fiscal cliff", allowed a bill to come to the floor that did not have the support of the majority of the Republican caucaus. The bill passed with mostly Democratic votes, and conservatives flipped out (even though it was technically a tax cut for all but the highest-income Americans). Since that vote, Boehner has brought a few more items to the floor that did not have majority Republican support (Violence Against Women Act, Hurricane Sandy Relief). This has created the precedent for what is now being called the "Boehner Rule":

However, sometimes the Republican leadership in the House really does want something to pass. For these bills, as George Washington University’s Sarah Binder has said, the speaker has instituted a “new Boehner Rule”: Make the Senate go first. After all, given the 60 vote Senate (thanks to filibusters on everything) and a 55 Senator Democratic majority, nothing can get through that chamber without support from both parties. That is, it will generally require some sort of deal between most or all of the Democrats and at least some of the more moderate Republicans. After a bill passes in the Senate, Speaker Boehner calls up that product for a vote and, at least so far, has been able to get a similar result in the House—that is, lots of Democrats and enough Republicans to put it over the top. Hastert Rule violated, replaced by the Boehner Rule.

Furthermore, in order to mollify conservatives, Boehner has agreed to stop negotiating with Obama. The hardline Republicans love this, but in reality it cuts the house GOP out of the legislative process. Now major pieces of legislation are hammered out by bipartisan-minded Senators (Manchin-Toomey, Gang of Eight), passed through the Senate, and then sent over to the house.

The question is will Boehner allow a vote on these two major Senate bills? He's in a real bind. On the one hand, these deals are to the left of a hypothetical deal negotiated by Obama and Boehner (who is further to the right than most Republican senators). On the other hand, he has committed himself to not negotiating with Obama. In 2011-12 he was able to try to spin breakdowns in negotiations as the product of Obama's unwillingness to compromise. But once these bills have been passed (in a bipartisan fashion) by the Senate, he can't really make this argument.

In the Costa article, Michelle Bachman is quoted as saying “why aren’t we just introducing one bill that says we need to fully secure the borders?” This is her plan. Ignore public opinion, avoid the politically possible, and pass bills through the house that will never pass the Senate.

But Boehner is more politically savvy than she is, and recognizes that refusing to grant a vote to a Senate-approved measure will make the house Republicans look even more obstructionist and could be very damaging during the mid-terms. Obama has capitalized on Boehner's dillema, by framing the issue rhetorically around the idea that "they deserve a vote".

Its begun to appear that house conservatives have undermined their own influence. By failing to support Boehner's efforts to bargain with Obama, they have created a very challenging position for the Republican leadership. Either accept the obstructionist label and refuse to allow a vote, or let it pass with mostly Democratic votes.

Rand Paul and Voting Rights

I really liked this Jamelle Bouie post on Rand Paul's speech at Howard University. But to understand some of the current political alignments in America, its worth comparing Paul's stances on voting rights and gun rights. Here he is on voting rights (via Dave Weigel):

Paul tried to explain the larger context—something a Howard student, who has to take an African-American studies course in order to graduate, might have known already. "It's important to know the history of what happened," said Paul. "Democrats in the South were very, very harsh. They did have tests at the polls." But "I think if you liken using a driver's license to a literacy test, you demean the horror of what happened in the '40s and the '50s—maybe from 1910 to 1960s in the South. It was horrific. No American is favor of that. No Republican is in favor of that. But showing your driver's license to have an honest election? I don't think that's unreasonable." (emphasis mine)

Here he is on gun rights:

I oppose legislation that undermines Americans' constitutional right to bear arms. I worry that legislation mandating more regulations on law-abiding citizens will lead to an infringement on the ability to exercise constitutional rights without being subject to government surveillance.

When it comes to the right to bear arms, any regulation that potentially limits the ability of individuals to acquire guns is suspect and viewed as infringing on the constitutional right to bear arms. But when it comes to voting, he just doesn't have the same level of concern, and applies a more pragmatic "reasonableness" test. 

Now the reverse is certainly true, Democrats care more about the right to vote than the right to bear arms. But that is (in part) why groups like African-Americans support the Democrats in such large numbers. African-Americans really care about the right to vote and are very sensitive (for valid and obvious historical reasons) to legislation--that is facially race-neutral--being used as a tool of disenfranchisement. Rand Paul (and Republicans generally) don't have the same concerns, and you can see that from the pragmatic argument he is making above. At the same time, the core constituencies of the Republican party are really worried about their guns being taken away by the government, so much so that they oppose a lot of pragmatic efforts to reduce gun violence. 

If Rand Paul wants to attract African-American voters to the Republican party, while maintaining his libertarian ideology, he need to apply the same level of concern to voting rights as he does to gun rights.

Obama's Budget and Chained-CPI

There is a lot of good commentary about why Obama putting chained-CPI in his budget is bad politics. But I think one of my main concerns is that it (partially) adjusts expectations about where the "liberal" and "conservative" positions are on this issue.

Obama put chained-CPI in his budget not to state a policy preference, but rather to endorse what he believes could be the outline for a fair proposal. This isn't really what a budget is for. A budget is for laying out a broad policy vision that makes clear your general spending and taxing priorities. If you want to let the public know you endorse compromising some of your goals to achieve other ones, you leak that information to the press during budget negotiations. This is exactly what Obama did last December during the fiscal cliff talks.

Obama is the President, but he is also the de facto leader of the Democratic party. By putting chained-CPI in his budget, he has shifted the party's stance on entitlement spending to the right. Its not inconceivable that Republicans are going to be able to paint any Democratic candidate who runs in 2016 on a platform of not cutting entitlement programs as an extremist. "Even Obama was willing to endorse chained-CPI" could be an effective attack.

I've generally been in favor of a lot of the compromises Obama has made over the last four years, but to announce the compromise you are willing to make ahead of time as part of a budget is both a tactical and strategic error.

The Politics of Immigration Reform

Ezra Klein blogged recently that the politics of immigration reform may actually be positive-sum, with both Democrats and Republicans gaining from its passage. Brian Beutler disagrees, arguing instead that either the Democrats or Republicans will be hurt by its passage (probably Republicans), and even though both parties think they will benefit, one them is simply wrong.

I'm more inclined to agree with Beutler, but I think it may be a little more complicated. Currently Hispanic citizens overwhelming vote for Democrats. If immigration reform passes, than there will eventually be more Hispanic citizens who will also generally vote for Democrats. At the same time, the Republicans perceive that Hispanic citizens don't vote for them because their hostility to immigration reform reflects a latent racism. They seem to feel that they could win back some of these Hispanic voters by dispelling this image. However, most Republicans understand that even if this happens they will be unlikely to "win Hispanic voters" outright (i.e. receiving over 50% of the Hispanic vote).

The ideal outcome for Democrats politically is for immigration reform to pass. The ideal outcome for Republicans politically is for immigration reform not to pass, but to fail in a way that makes it seem like Republicans aren't virulently hostile to undocumented immigrants or Hispanics generally. That way they may make some gains in the Hispanic vote (maybe a few percentage points), but won't add large numbers of new Hispanic voters to the populace.

That is the political context against which I view comments like these by Ted Cruz:

President Obama is pushing a path to citizenship as a "poison pill" to prevent meaningful immigration reform, Sen. Ted Cruz (R-Texas) charged Monday.

"The part that I’ve got deep concerns about is any path to citizenship for those who are here illegally," Cruz said during an interview with Sean Hannity. "I think that is profoundly unfair to the millions of legal immigrants who have followed the rules, who have waited in line.

"I think the reason that President Obama is insisting on a path to citizenship is that it is designed to be a poison pill to scuttle the whole bill, so he can have a political issue in 2014 and 2016. I think that's really unfortunate," continued Cruz.

Cruz is trying to kill the path to citizenship (which is essentially what comprehensive immigration reform is), but making it seem like it's actually Obama who is scuttling the bill. Even Rubio seems to be stalling the bill, claiming that everyone is agreeing to things too quickly. 

Now immigration reform may pass, lots of business groups on the Republican side favor this policy on substantive grounds, but I think the politics lean against it.

The Tea Party Case for Higher Capital Requirements

This Atlantic Wire piece on the Cypriot bail-in and Tea Party was kind of fun. In it, they quote the Tea Party Patriots:

Like in America, the [financial] sector then used government force to escape the effects of their errors. Unlike in America, they didn’t settle for bailouts from taxpayer dollars – they seized customer’s assets to pay for their mistakes.

The Patriots sense that something is amiss with banking throughout the world. Banks are making mistakes, but taxpayers and depositors are having to pay for these mistakes. Instead, "the banks" should have to pay these mistakes. So why isn't that happening?

In short, banks are severely over-leveraged. Most of the money they lend out for mortgages and to purchase assets comes from lenders (including depositors) rather than from equity shareholders. If by "the banks", the Patriots feel like the owners (shareholders) of the bank ought to pay for the costs of their mistakes, they should endorse higher capital requirements.

You Have to Choose a Monetary Policy

There is a lot I find obnoxious about David Stockman's epic NYT rant/article. The general premise is that since 1933, economic policymaking in the U.S. have been a disaster. In particular, government deficits and federal reserve policy have distorted and destroyed our economic system, and government officials of both parties are unalterably corrupt. As a result, our society has been left "broke--fiscally, intellectually broke."

This assessment is clearly incorrect. Since 1933--when the recovery from the great depression began--America has been incredibly successful. The post-war years saw wide-spread prosperity for a large portion of U.S. citizens and our economy has been both productive and innovative. In the meantime, we defeated Fascism and Communism, establishing liberal democracy as the preeminent form of government in the process, while also becoming a global hegemon. We have also addressed some of the contradictions in our society, the last 50 years have seen the elimination of state enforced racial segregation and the withering of legal restrictions and social norms that prevented women from participating equally in society. Of course, we still face challenges (climate change, wealth inequality, the legacies of racism and sexism, etc.), and the U.S. government has made a number of mistakes during that time period (Vietnam and Iraq come to mind), but no one in their right mind can claim that the U.S. is in a worse position now than it was in 1932, or that the last 80 years have been one large ponzi scheme.

My own counter-rant aside, one of the things that bothers me most about Stockman's rant is his views of monetary policy. He doesn't explicitly call for a gold standard, but seems to suggest that taking us off the gold standard was the beginning of the end of America. Most economists view the interwar gold standard as a disastrous policy that lead to the great depression, and Roosevelt's ending of it as crucial to the recovery. Stockman chooses not to address those arguments, and doesn't even call for a return to gold, instead he says:

It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism. 

This seems to suggest that he doesn't support free banking, but what would our system of monetary policy be? Would the government return to the gold standard, adjusting the money supply so that a dollar is worth a certain amount of gold? In which case, what are the advantages of the gold standard? Does he think depressions were better or worse during the period of the gold standard? Does he believe gold has some intrinsic quality that makes it advantageous? His answers to these questions might be yes, but he doesn't go into this at all!

Where I believe he is trying to hide the ball, is in implicitly pretending that the gold standard is less interventionist than the current inflation targeting regime. This doesn't make a whole lot of sense to me. Any form of monetary policy involves the government declaring a monopoly over the supply of currency and establishing a regime for determining how much of that currency will be available at any given time. These regimes could have more strict or more flexible rules, but the intervention occurs when the government establishes monetary policy, at which point it should just try to establish the least bad regime possible. Remaining on the gold standard should be thought of as just as interventionist as going off it.