{"id":80621,"date":"2022-05-01T14:55:08","date_gmt":"2022-05-01T19:55:08","guid":{"rendered":"https:\/\/milesfortis.com\/?p=80621"},"modified":"2022-05-01T14:55:08","modified_gmt":"2022-05-01T19:55:08","slug":"80621","status":"publish","type":"post","link":"https:\/\/milesfortis.com\/?p=80621","title":{"rendered":""},"content":{"rendered":"

America Needs a Return to First Principles<\/a>
\nHow to revive U.S. vitality and confidence? Economists John Cogan and Kevin Warsh offer a way to think about what made the country prosperous. Pay attention to the \u2018three I\u2019s\u2019\u2014ideas, individuals and institutions.<\/em><\/p>\n

The 21st century so far hasn\u2019t been the best of times for America. First 9\/11, then a financial crisis and deep recession, then a global pandemic without recent precedent. The economy has suffered, and politics has been upended. American self-confidence has been badly bruised, and public trust in institutions has plummeted. What can we do about it?<\/p>\n

That\u2019s the question that John Cogan and Kevin Warsh, both policy veterans and Journal contributors, asked themselves in September 2020 when prompted by former secretary of state Condoleezza Rice. She had just taken over as director of Stanford University\u2019s Hoover Institution, where both men are affiliated, and she made a pained but probing observation.<\/p>\n

As Mr. Warsh tells it, Ms. Rice said that while \u201cpeople know what we conservatives believe about economic policy, it doesn\u2019t seem like we\u2019re winning. It doesn\u2019t seem like we\u2019re persuading people.\u201d American policy makers and businesspeople, and leaders around the world, \u201care less sure why we believe what we believe, and they\u2019re less sure why they should believe it, too.\u201d<\/p>\n

The two men treated Ms. Rice\u2019s lament as a challenge and set out to write what Mr. Cogan describes as \u201ca call to action.\u201d Titled \u201cReinvigorating Economic Governance\u201d and just released, it outlines a policy framework based \u201con our nation\u2019s foundational principle of natural liberty.\u201d Governments at all levels, Mr. Cogan says, aren\u2019t dealing effectively with America\u2019s challenges: \u201cIt\u2019s because economic policy has strayed from what I think of as the first principles.\u201d<\/p>\n

The two are well suited for the role. Mr. Cogan, 75, is an economist at Hoover who served in Ronald Reagan\u2019s budget office and is the author of an encyclopedic book on the history of U.S. entitlement programs. Mr. Warsh, 52, worked in the George W. Bush White House and was a governor at the Federal Reserve during the financial crisis.<\/p>\n

Their paper is optimistic, almost revivalist, in tone, even as it highlights the many faults with American policy. The U.S. economy, it states, \u201cis among the most powerful forces for good in the history of humankind.\u201d The authors credit the \u201cmicro-foundations of the economy\u201d for having driven living standards \u201cto heights unimaginable at the nation\u2019s founding.\u201d<\/p>\n

<\/p>\n

Those foundations\u2014Mr. Cogan\u2019s first principles\u2014are private property rights, the rule of law, free and competitive markets, and limited government. The last includes \u201csubsidiarity,\u201d meaning that no central authority should do what can be done by a more local body, and no public institution should do what can be left to private enterprise.<\/p>\n

\u201cWhen you think about what drives America\u2019s GDP,\u201d Mr. Cogan says, \u201cit\u2019s millions of individuals working, investing, saving and making allocative decisions with these microfoundations in place.\u201d<\/p>\n

The pair aim to stir debate and perhaps shape policy platforms before the next presidential campaign: \u201cWe are far enough from campaigning,\u201d Mr. Warsh says, \u201cfor it to be an incubator, a laboratory, of the next ideas that can motivate a series of candidates.\u201d He insists it isn\u2019t merely a \u201cmessaging exercise\u201d but an attempt to \u201cmake relevant and resonant the lessons of history and apply them to the challenges of today.\u201d<\/p>\n

Mr. Cogan says the paper is aimed at \u201cone, the general American public; two, informed citizens; and three, policy makers. I guess I\u2019d put them in that order.\u201d Mr. Warsh adds that they\u2019re \u201ctrying to distill a whole lot of intellectual history and make it accessible. If we can\u2019t convince the man on the street, then good luck convincing the man in Washington.\u201d<\/p>\n

The authors identify as the \u201csine qua non\u201d of American prosperity the \u201cthree I\u2019s\u201d\u2014ideas, individuals and institutions\u2014as they put it in our conversation by Zoom. (Mr. Cogan speaks from his house in Portola Valley, Calif., Mr. Warsh from his apartment in Manhattan.) Their paper states that \u201ca sound economic governance framework liberates the individual, encourages the promulgation of new ideas, and ensures the proper functioning of institutions.\u201d A policy that offends any of these elements\u2014by restricting the individual, stifling ideas or letting institutions stray beyond their proper limits\u2014is likely to harm the economy.<\/p>\n

\u201cThis isn\u2019t a model-centric view of how to maximize prosperity,\u201d Mr. Warsh says, \u201cbut one based on experience, history and intuition.\u201d Individuals who enjoy the fruits of their talents, ideas that enhance human welfare, and accountable institutions that don\u2019t get in the way have \u201cmotivated this incredibly successful experiment in prosperity over 150 years. We\u2019re trying to connect economic results to culture, to the Founding Fathers, so that we enact policies that ensure that the 21st century is as good for American prosperity as the 20th century was.\u201d<\/p>\n

In their paper, Mr. Cogan and Mr. Warsh write that \u201cAmerica\u2019s constitutional design and civil order were designed to incline the individual toward good.\u201d The nation\u2019s commitment to its foundational principles, they say, \u201chas yielded unrivaled economic gains.\u201d<\/p>\n

A major challenge to this worldview comes from China, which has achieved growth despite Communist Party control of much of the economy and the lack of political freedom. The Chinese model may look less attractive in light of Xi Jinping\u2019s heavy-handed rule and his brutal and economically repressive zero-Covid policy, yet Mr. Warsh says there\u2019s still a tendency in the U.S. to \u201cwant to adopt a set of industrial policies, to ensure that certain institutions are too big to fail, to make some private institutions quasi-public so that they\u2019ll take their orders from central command.\u201d<\/p>\n

He elaborates by pointing to \u201cthis newfound trend to ensure that private companies now have a multitude of interests,\u201d a reference to the \u201cstakeholder capitalism\u201d movement that purports to subordinate profit to \u201cenvironmental, social and governance\u201d objectives. The effort to hold large businesses to standards of \u201cpublic responsibility,\u201d Mr. Cogan adds, \u201cis a way that government is trying to get corporations to carry out its public-policy preferences.\u201d<\/p>\n

Public institutions have been similarly politicized. \u201cWhen they wander from their core remit,\u201d Mr. Warsh says, \u201cthey create uncertainty that undermines the ability of households and businesses to make decisions.\u201d He points to the Federal Reserve, where at 35 he was the youngest governor in Fed history after 5\u00bd years in markets at Morgan Stanley.<\/p>\n

Congress mandates that the Fed control inflation. \u201cPrices are now running four times what the Fed\u2019s definition of price stability is,\u201d Mr. Warsh says. \u201cI don\u2019t think it\u2019s a coincidence that it\u2019s happening at the same time as they\u2019ve wandered into other areas outside their remit\u2014such as ESG and the role that the Federal Reserve should play with respect to racial equality.\u201d The paper is scathing on the subject: \u201cUnder Chairman Jerome Powell, newfangled Federal Reserve policy is at odds with the prior forty years of precedent in the conduct of policy.\u201d<\/p>\n

Major crises give public institutions an excuse to arrogate ever more power, Mr. Cogan says: \u201cThe 9\/11 attacks created a national-security fear. The collapse in 2009 of our financial system created a profound fear that our financial institutions weren\u2019t capable of meeting the stresses of markets.\u201d The pandemic caused Americans to fear for their health. These three very different shocks led to a common result.<\/p>\n

\u201cWhat we know about governments,\u201d Mr. Cogan says, \u201cis that they continue to try to expand their roles in society. And what we find is, very often, emergencies allow government to expand its authority.\u201d Mr. Warsh concurs, adding that with the Russian invasion of Ukraine, \u201ca fourth shock in such a short period of time, there\u2019s the risk that we normalize the extraordinary in the conduct of government policy. Therein lies the problem\u2014that we\u2019ll never go back to the equilibrium in the level of government that predated the 21st century.\u201d<\/p>\n

Cultural freedom plays a central role in economic growth, the paper argues: \u201cCensoring ideas, whether controversial or unproven, produces stagnation.\u201d They cite Paul Romer, a 2018 Nobel economics laureate, who argues that the search for new ideas is at the core of economic progress. So what does academia\u2019s repressive atmosphere portend?<\/p>\n

\u201cWhen certain ideas are unworthy of debate or discussion,\u201d Mr. Warsh says, \u201cthere\u2019s no longer a premium on the pursuit of truth, or on the battle of ideas. It\u2019s antithetical to the idea of a university that certain things be inarguable, or beyond the pale.\u201d Future prosperity \u201crequires people to think differently.\u201d<\/p>\n

In the same vein, the authors contend that the \u201cFed\u2019s continued backstopping of financial markets\u201d has retarded the generation of new ideas in the economy. \u201cWhen the Fed has signaled to markets that they don\u2019t want to let markets fall too much,\u201d says Mr. Warsh, \u201cthat undermines the creative destruction that we think is essential to long-term prosperity.\u201d Such a policy is \u201cpro-incumbent, pro the largest firms in every vertical. It makes it harder for the motivated individual to bring a new idea, a new product or service, to market and disrupt an industry incumbent.\u201d<\/p>\n

Related to this is what the authors call \u201cepistemic humility.\u201d \u201cThe best institutions know what they know, and they know what they don\u2019t know,\u201d Mr. Warsh says. \u201cThey should have a high degree of modesty about what they know of the future. And the best institutions know that bad things can happen.\u201d In the period of prosperity that preceded the pandemic, he says, the Fed should have asked itself what could go wrong, \u201cnot what\u2019s likely to go right.\u201d<\/p>\n

Instead, it continued its policy of quantitative easing\u2014buying Treasury securities to increase the money supply and encourage investment and lending. The central bank adopted QE in 2008 as \u201can extraordinary emergency measure,\u201d he says. \u201cBut the Fed has chosen to use it as a conventional tool\u2014in all seasons, for all reasons.\u201d As the nation recovered from the Covid-induced recession, the U.S. economy boomed in 2021, with real growth of 5.7%. \u201cYet the Fed still decided to buy more than half of the debt issued by the Treasury. Accountability is blurred and institutional responsibilities are conflated\u201d in ways that will \u201cerode America\u2019s long-term prosperity.\u201d<\/p>\n

Mr. Cogan, who has spent many years writing about healthcare, cites the response of public-health authorities to the pandemic as another example of arrogance. \u201cThe damage from this immodesty was enormous for our society, in terms of the economy, harm to children, and poorer health outcomes beyond Covid, such as cancers not diagnosed and treatments not made. It\u2019s a very good example of how immodest institutions can have very grave consequences for society.\u201d Without the lockdowns, he adds, the two enormous\u2014and inflationary\u2014fiscal packages that Congress passed would have been unnecessary.<\/p>\n

Although their paper comes out as a midterm election campaign gets under way and expressly aims to influence the next presidential race, the authors avoid the partisan fray. Asked if Democrats or Republicans would be more receptive to their ideas, Mr. Cogan demurs: \u201cWe certainly hope that both parties would.\u201d Then he alludes to the obvious answer by noting that he has \u201cconcerns about even the Republican Party at this point.\u201d He says the GOP has begun to \u201cstray from these first principles\u201d as many in the party call for \u201cindustrial policy, labor-market protections, tax credits that are merely handouts, and protectionist tariff policy.\u201d<\/p>\n

But he also suggests that free-market ideas are connected to the cultural concerns of social conservatives: \u201cUnder foundational principles that we outline, the individual and the family are paramount while government is limited. This hierarchy allows individuals to freely choose their path in life and to raise their children according to their values, not those of a government agency. This self-determination is what ultimately permits humans to flourish.\u201d<\/p>\n

A self-professed optimist, Mr. Cogan hopes that \u201cthe experiences that we\u2019ve been through as a country over the last two years might be an awakening of the American public to the dangers of straying from fundamental principles.\u201d Mr. Warsh adds that there\u2019s a danger in understating American power and resilience.<\/p>\n

\u201cOver the last 30 years,\u201d he says, \u201cwe\u2019ve become less and less confident that our system is the right system. It does seem to me that more emphasis has been placed on the weaknesses of America than upon its strengths.\u201d Yet both men see the country as hungry for a return to its \u201cnatural liberty.\u201d The U.S., they write, can again become a \u201cbeacon to the world\u201d if its leaders \u201cchoose to empower the individual, encourage the development . . . of new ideas, and ensure the fidelity of institutions to their mission.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

America Needs a Return to First Principles How to revive U.S. vitality and confidence? Economists John Cogan and Kevin Warsh offer a way to think about what made the country prosperous. Pay attention to the \u2018three I\u2019s\u2019\u2014ideas, individuals and institutions. The 21st century so far hasn\u2019t been the best of times for America. First 9\/11, … Continue reading “”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35],"tags":[],"class_list":["post-80621","post","type-post","status-publish","format-standard","hentry","category-culture"],"_links":{"self":[{"href":"https:\/\/milesfortis.com\/index.php?rest_route=\/wp\/v2\/posts\/80621","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/milesfortis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/milesfortis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/milesfortis.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/milesfortis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=80621"}],"version-history":[{"count":1,"href":"https:\/\/milesfortis.com\/index.php?rest_route=\/wp\/v2\/posts\/80621\/revisions"}],"predecessor-version":[{"id":80622,"href":"https:\/\/milesfortis.com\/index.php?rest_route=\/wp\/v2\/posts\/80621\/revisions\/80622"}],"wp:attachment":[{"href":"https:\/\/milesfortis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=80621"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/milesfortis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=80621"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/milesfortis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=80621"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}