Outline for a Talk
By Arnold Kling
To be given next month, not open to the public, on the widely-unread Unchecked and Unbalanced.
1. We are in the midst of three crises–a financial crisis, a political crisis and a sovereign debt crisis. I will propose that they have the same source and the same solution. The source is the discrepancy between dispersed knowledge and concentrated power. The solution is competitive government.
The rest of the outline is below the fold.1a. The financial crisis is the collapse of the asset-backed securities market in general and the mortgage-backed securities market in particular. In terms of the Monty Python dead parrot routine, the U.S. mortgage market is being nailed to its perch by the Fed and by a fully-nationalized Freddie and Fannie. The government today is providing mortgage loans on terms that are more lenient and under-priced for risk than was the case even at the wildest time in 2006. The financial regulatory community and Wall Street are assuming that at some point the parrot will be able to fly again. That will never happen.
1b. The political crisis is the emergence of irreconcilable differences. Both political parties are in the throes of reformations. On the Republican side, the Tea Party is responsible. On the Democratic side, the reformation already took place. The equivalent to the Tea Party is what is known by various names such as the Democratic Wing of the Democratic Party (DWDP. The DWDP vetoed Hillary Clinton’s nomination for President. Even if Barack Obama himself is a centrist (a claim made repeatedly by famous columnists with first name David and first initial of last name B), his legislative accomplishments represent compromises not between Democratic and Republican centrists, but between Democratic centrists and the DWDP.
It appears that the 2010 election will strengthen both reformations. The Tea Party will gain inside the Republican Party. And my guess is that the Democratic loss of seats will be among centrists, leaving the DWDP even more strongly in control of the Democrats in Congress.
The center is weak to begin with. Look at the polls on public confidence in Congress. Look at the decline in market share of the traditionally centrist media outlets, such as urban newspapers, the weekly news magazines, and the nightly news of the three major TV networks.
1c. The sovereign debt crisis lies ahead. The financial crisis has made a sovereign debt crisis more likely by causing the U.S. to run large deficits at a time when it ought to be accumulating surpluses. It is also more likely because of the political crisis, which makes it difficult to see how a coalition can be assembled to address entitlements and tax changes.
2. The cause of all these crises is the increased complexity and diversity of our society, brought on in large part by the emergence of computers and the Internet.
2a. CEO’s at large financial institutions are overseeing empires that are more complex and sophisticated than they can understand. Regulators are even more badly over-matched. The securitization process throws out too much local knowledge,
2b. The communications revolution, particularly the Internet, has brought diverse political ideologies to the surface. Both reformations have been fueled by grass-roots activists taking advantage of alternative media and peer-to-peer communications.
2c. Factors that are pushing us toward a sovereign debt crisis included demographic realities and technological trends in health care spending, which are not amenable to centralized control.
2d. We are living in the era of expert failure.
3. The solution is to have government operate more like the Internet. That is, dictate very little from the center, and allow diverse organizations to compete to solve problems.
3a. Land and territory should matter less as determinants of government authority. Imagine the U.S. splitting into two sub-countries, one governed by the Republicans as reformed by the Tea Party and one governed by Democrats as reformed by the DWDP. Couldn’t people choose their government without having to congregate into distinct territories? How difficult would it be for a Republican to be surrounded by Democrats and yet not have to participate in a Democratic social insurance program, a Democratic alternative energy program, a Democratic health care system, and so forth? Yes, the two sub-countries would need a common defense and they would need to agree on a court system that would resolve disputes that arise from differences in the two systems. But “virtual Federalism,” meaning political allegiances based on choice rather than location, is something to consider.
3b. In fact, one can imagine many different political systems that Americans might choose to be under, while allowing individuals to choose a system regardless of where they live.
3c. There are reforms that move us in the direction of competitive government without creating an entirely new political or Constitutional system. Allowing taxpayers to allocate some tax dollars directly; using vouchers for government programs; allowing local communities to secede from larger government entities.
3d. The goal of competitive government is to reduce the concentration of power. The idea is to make the political system more like the Internet, with its robustness and diversity.