Principled Policy

 

Table of Contents

Preface

 

Prelude

 

Part 1 - Getting Our Bearings

 

The American Social Contract

The Nature of the Social Contract

The Coercive Power of the State   

Concentration of Power in the State               

Remedies for the inexorable growth of State Power    

Technology and the Social Contract    

 

Principled Policy begins with the analysis of the American Social Contract as developed by the nation’s Founders and examines the principles on which it is based. One of the primary principles is a government by the people that requires a limitation of the coercive power of the state. The people cede to the government certain coercive powers that are to be dedicated to the maintenance and the proper functioning of the social contract. If the citizens grant too little power to the state the result will be America as it was under the Articles of Confederation. Although the Founders realized the need for a stronger federal government, they put in numerous protections to limit the coercive power of the state.

 

The Free Market Economic System is the Most Moral      

What constitutes a moral economic system?    

The Social Contract Governs Ethical Conduct in a Free Market Economy

Factors Impeding the Implementation of the Rule of Law   

 

The book goes on to state that the free market economic system is the most ethical and moral of all economic systems. It analyzes the fallibility of institutions, the role of surplus or profit, and the use of state power to manage the economy. It shows that economic activity is an important element of the social contract and that the social contract is created to build trust among citizens including in their economic transactions. The book analyzes certain factors that can impede the Rule of Law including the fairness problem, the opaqueness of complexity and asymmetries of power and knowledge.

 

Redefining the Free Market Economic System   

What Drives Economic Growth                                                            

The Free Market System and the Social Contract

 

The book redefines the free market economic system, stating that capitalism is an inadequate descriptor of the nature of the economy. It states that surplus and innovation are the key factors for economic growth and describes how the social contract builds the necessary trust to foster economic activity.

 

Arguments Against the Free Market System                      

Uneven Economic Growth                                     

Distribution of Wealth                                         

Dislocation from Technological Advancement             

 

The book analyzes arguments that have been raised against the free market system and finds them wanting. The chapter shows that some of the supposed weaknesses of the free market economic system are actually its strengths. Uneven economic growth (booms and busts) is part of the process of creative destruction. Level income is a disincentive to hard work and creativity. It notes that economic measures often under value the changes that are occurring (from rotary dial to smartphone). The chapter also notes that recent studies indicate that some cultures may be genetically predetermined to certain social structures such that they have difficulty adopting the free market economic system and building democratic institutions.

 

The Level Playing Field - Equality of Opportunity

Education

The Role of Government                                                                     

 

Principled Policy discusses equality of opportunity (the level playing field) and how it is an essential element of the democratic social contract. It compares the differences between getting at the root of the problems and merely attacking the symptoms, which is where most current policy is directed.

 

The Problem with Democracy – Us                   

True Evil                                                                                           

Self-Interest

The Instinctual Brain

The Fairness Problem

Genetic Determination

Dealing with Human Frailty

 

The book adapts the studies of Dr. Daniel Kahneman in the field of behavioral economics to analyze the functioning of a democracy. The same behaviors described by Dr. Richard Thaler as Misbehaving apply to political activity as well as economic activity. This chapter also delves further into the problem of fairness and shows why the concept of fairness is an inadequate parameter for the development of policy. The book also examines recent studies linking evolution and social behavior and how this can impact foreign policy and immigration.

 

A Statement of Principles (and their Limitations)   

Conflict between Principles

The Costs of Principle Based Policy Making

The Benefits of Principle                                                                    

 Application of Principle in the Development of Policy

 

The book concludes the first part with a statement of principles, noting that there are conflicts between principles that make choices difficult. It notes that there are often costs associated with sticking to one’s principles. Part 1 closes by noting that while principle is theoretical,  policy development must deal with the real world.

 

Part 2 - Charting Our Course

 

Winds of Change                                                          

The Attack on the Free Market Economic System                                  

 

The first two chapters of Part 2 begin with an analysis of the causes of the Great Recession of 2008 and an explanation of why Keynesian based remedies have proven ineffective. It looks at the role of stimulus and why a lack of confidence rendered deficit spending and tax rebates futile (the Paradox of Thrift). The book also states that efforts to reduce joblessness were ineffective because policy makers do not understand the role of labor in the free market economy.

 

Leverage And How It Precipitated The Great Recession            

Leverage

Leverage with Volatile Assets

The Role of TARP and other bailouts

The Role of Stimulus

The Role of Confidence (or the Lack thereof)

Employment as a Derivative Function

Keynesianism’s Fatal Flaw

Is the Cure Worse than the Disease?

 

Social Security is Un-American                             

Un-American Activities

The Fallacy of Security

 

Principled Policy looks at the growth of the welfare state and shows why it’s expansion over the last fifty years is not in line with the founding principles of the country. The book asserts that Social Security System was the vanguard of the entitlement system that makes people dependent on the government. This chapter also illustrates the fiscal problems created by Social Security.

 

Hypochondriac Nation                                                                   

The Missing Invisible Hand

The Right to Healthcare

 

The book analyzes the health care mess noting that, although well intentioned, the mess was created by government policy. Double tax exemption has distorted the economic incentives of the health care industry so that it cannot take advantage of the benefits of the free market system. It shows that the government response to the mess they created is more government involvement.

 

Free Market Tax Policy                                                     

The Purpose of Taxation

The Fallacy of Motivation through Taxes

Tax Competitiveness                                                                         

 Tax “Fairness”

Taxation and Economic Growth

A Social Contract on Taxation – A Proposal

 

The book highlights current tax policy as the most egregious violation of the social contract. It discusses the theoretical purpose of taxation as compared the actual use of taxes to benefit special interests and to manipulate people. It states that the purpose of taxation is to give government the power to maintain the social contract. It notes that tax cuts are no more effective at generating employment than deficit spending (they are just two sides of the Keynesian coin). It further states that tax stability is more important to investors and business people than low rates. It then proposes a new tax regime that is based on the founding principles.

 

The Regulatory Burden                                                

Transparency                                                                                   

 Impunity                                                                                         

 

Principled Policy discusses the role of regulation within the social contract. It is the government’s duty to assure trust among citizens and the regulatory structure should be oriented to this end. This is one of the most important powers granted to the government.

 

 American Exceptionalism                                                                        

A Nation of Immigrants

Strategic Vision

The Duty of Exceptionalism                                                               

 

The book analyzes American Exceptionalism stating that this exceptionalism is founded on the fact that America is based on principles and not racial, ethnic or religious identities. As an immigrant nation anyone can be an American and compares this to the identities of other nations. It also explains that the founding principles demand a strategic vision of America’s role on the world stage and that we have an obligation to stand by our principles when dealing with other peoples.

 

 It’s a Matter of National Security                                         

 

The book observes that national security is one of the key tasks of government as stated in the preamble of the Constitution and goes on to discuss the need for a strong military backed by a strong economy. Perceived weakness emboldens other world players. The world needs a policeman and American Exceptionalism makes the United States the most suitable nation to fill that role. While fulfilling that role has costs, it also has provided many benefits to the country.

 

The High Ground/The Final Frontier                                                           

 

This chapter notes that the US cannot cede outer space to other nations for strategic reasons. More importantly, it points out that Americans are a frontier people and that space is the final frontier.

 

Energy Policy! What’s That?                                                            

 

The book takes into account current events that have driven down the price of oil and observes that this gives the US the strategic opportunity to be the world energy price leader.

 

The “Inevitability” of Socialism                                              

The Lack of Creative Destruction in Government

 

This chapter shows that government has a tendency to always grow larger whether due to countercyclical deficits or increases in social welfare benefits. The growth of government requires that citizens cede it additional powers, diminishing democracy and slowing economic growth. It shows that the lure of socialism is it’s moral aspirations which however, in the past, have been used to justify acts of great evil. The chapter states that socialism, lacking the process of creative destruction, eventually must sink into decay and collapse.  

 

The True Cost of Going Green                                                    

 

The book notes that  extreme environmentalism requires drastic economic measures that result in an economy unable to support the current world’s population. Implementation of these proposals would cause great hardship and many deaths. It then goes on to propose a principle based environmental policy.

 

An Educated Citizenry                                                                  

 

This chapter observes that US students score well on self-esteem but are mediocre at best on academic subjects. It states that the goal of public education is to prepare children for their future as citizens and they have the obligation to take education seriously. It observes that today’s student over indulged and under disciplined.

 

Part 3 - Tacking to Our New Course

 

The final part of Principled Policy discusses the challenges to implementing the recommended policies in the current political environment. It notes a number of the anti-democratic forces working against reform. It rejects the notion that the discoveries of behavioral economics make it permissible for the government to manipulate people to act in accordance with government-approved guidelines. It makes recommendations, starting with the US Congress, on how to update traditional practices that have led us to the current warped condition of the level playing field.

 

The Revolutionary Spirit

 

We discuss how traditional politics and political parties are breaking down under the strain of demographic and cultural changes and investigate how to relate these changes to the American Social Contract. We look at the shortcomings a conservative value and the legitimate complaints of progressives; noting that we need a revitalized social contract to address these issues.

 

The Future of Democracy and the (Base) Nature of Politics                          

 

The book reviews American political history going back to the Adams/Jefferson election campaign. It reviews the factors that make reform difficult. It addresses the question of the viability of democracy as an institution and notes that socialism usually gives rise to authoritarianism. It shows how access to power and special interests can subvert well intentioned elected officials.

 

Discovering Our Democratic Selves                                      

 

This chapter reviews the work of behavioral economists such as Professors Kahneman and Thaler and notes that the ability to manipulate human behavior can be used for good or evil. While it is important that this research continue, the book states that it is important that the people are aware of how this manipulation can affect them.

 

Taking Back Our Democracy                                       

 

The book makes a number of recommendations on how to reform the political process within the framework of the founding principles with the goal of restoring the American Social Contract. Many of these reforms are directed toward Congress to reduce the impact of special interests and to foster fiscal reforms. Most importantly, the legislature has the responsibility of creating the legal framework for the social contract.

 

Checks and Balances

 

This short chapter notes that the proposed reforms are not meant to weaken Congress but to make it more effective and relevant. Crippled by gridlock and beholden to special interests, Congress cannot act as an effective check to balance executive power.

 

Turning the Ship                                                                    

 

This chapter makes some final proposals on how to; reform the tax code; dismantle the social welfare state; and, restore our national defense.

 

Transitions                                                                          

 

The book notes that the transitions needed to restore the American Social Contract will be painful. The unfunded liabilities of the social security and healthcare systems will have to be monetized which will increase the nominal debt burden of the country (but increasing the transparency of government). The chapter notes that the apparent compassion of the welfare state inverts the relationship between the state and the people.  Compassion should be reserved for those truly in need.

 

Conclusion                                                             

 

The conclusion is a call to action noting that our forefathers overcame even greater challenges.

 

Essential Reading                                                  

 

Websites to Investigate