You Say Po-tay-to and I Say Po-tah-to!

Our political divide between left and right is most often characterized by the media as an ideological battle between liberalism and conservatism. Yet the meanings of these ideological terms are too often misinterpreted and mischaracterized – mostly by the opposing point of view – in order to fit a preferred political narrative. For those on the left, liberalism implies tolerance and empathy, while conservatism connotes bigotry and selfishness. For those on the right, liberalism infers intellectual naiveté and moral degeneracy, while conservatism assumes moral rectitude and time-tested reason. A clear understanding of political ideology can be useful; false stereotypes much less so. We should unpackage these terms as they are used in the popular vernacular to understand just how unhelpful and misguided they have become.

The etymological root of liberal is liber, or free, as it pertains to individual human rights and freedoms. Merriam-Webster offers this definition: a political philosophy based on belief in progress, the essential goodness of the human race, and the autonomy (i.e., freedom) of the individual and standing for the protection of political and civil liberties. Liberalism shares the same root as liberty and it would be difficult to find an American conservative who was not attuned to the universal idea of individual liberty.

Likewise, the root of conservative is conservare, meaning to preserve. Merriam-Webster offers the following definition: a political philosophy based on tradition and social stability, stressing established institutions, and preferring gradual development to abrupt change. If one assumes the evolutionary perspective, it would be difficult to find a society, American liberal or otherwise, that did not seek to preserve certain time-worn traditions in the interests of stability and self-preservation. We should also note that conservatism shares the same word root as conservation, so nature weighs in on this meaning as well.

So where did we get the idea that these ideologies are opposed? Merriam-Webster is partly culpable by posing these ideologies as antonyms but, as we will discover, they should be mostly viewed as useful complements.

Jonathan Haidt, in his psychological studies summarized in The Righteous Mind, explains how our ideological leanings can be expressed through complex moral matrices, where differences arise in moral interpretations and priorities. Haidt cites six moral precepts: 1) care; 2) liberty; 3) fairness; 4) loyalty; 5) authority; 6) sanctity. Haidt results show how liberals privilege the first three, while conservatives employ a mix of all six, giving additional weight to loyalty, authority, and sanctity.

One should read Haidt’s book to understand the nuances of these moral matrices, but the major divergence between our conceptions of liberal and conservative seem to revolve around the moral values of care and fairness. Haidt argues that everyone cares about fairness, but there are two major kinds.: “On the left, fairness often implies equality, but on the right it means proportionality—people should be rewarded in proportion to what they contribute, even if that guarantees unequal outcomes.” Implicit in these interpretations is the idea that consequences follow actions, but some consequences are rooted in contextual factors that are outside the individual’s control, such as educational opportunity. The takeaway from Haidt’s studies is that these moral matrices are hardly set in concrete and can be easily reconciled through a fuller understanding of the different emphases. They do not really divide us into red vs. blue.

The other dichotomy posed by our definitions of liberal and conservative is the implication that conservatives are intolerant and resistant to change while liberals seek to remove institutional barriers to change. Conservatives may be guilty of saying ‘don’t fix what ain’t broke,’ while liberals may be guilty of forcing change without due regard to the uncertainty inherent in change. But there is a way of reconciling these two approaches to inevitable change.

All societies embrace change to a certain degree, what matters is the pace of change. Change that is disruptive to social traditions naturally will be resisted by those it disrupts. This does not mean change will not occur, it merely means the pace must be managed prudently. Pushing change beyond the limits of social adaptation often leads to reactionary backlashes, causing undo conflict over the inevitable. The gradual evolution of cultural mores is a good example of how change occurs within the limits of order and stability. Naturally, there will be those in society who object to the too slow or too rapid pace of change.

Finally, opinion polls and surveys suggest that fewer Americans define themselves as truly liberal or conservative, with conservatives exceeding liberals by roughly 35% to 26%, though the gap has been closing. I would also guess these poll numbers are biased by the partisan mischaracterization of both ideological labels.

If this is the case, how do we politically define or classify most American voters? Perhaps we don’t. I would suggest that average non-political Americans are neither conservative nor liberal as strictly defined by their true ideological meanings. Elsewhere I have suggested that most of us, regardless of our politics, are both tolerant and traditional. I have called this dominant ideology based on liberty and justice tolerant traditionalism, as opposed to conservative or liberal. Americans are generally willing to adapt to societal changes as best we can, embracing the good to come of it while feeling wistful for the past we know. Societies that evolve and endure by adapting to change have a proud past and an ever-brighter future.

Was Quantitative Easing the Father of Millennial Socialism?

If you’ve been reading these pages for the past 8 years you know that central bank policy has been a constant refrain. The financial policies of the Fed for the past generation under both Greenspan and Bernanke have created a historic asset bubble with cheap credit. This has greatly aggravated wealth inequality and invited greater risks of both economic catastrophe and political chaos. We’re still experiencing where it leads. The eventual correction will likely be more painful than the original problem…

From the Financial Times:

Is Ben Bernanke the father of Alexandria Ocasio-Cortez? Not in the literal sense, obviously, but in the philosophical and political sense.

As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in the home of global capitalism.

Mr Bernanke’s unorthodox “cash for trash” scheme, otherwise known as quantitative easing, drove up asset prices and bailed out baby boomers at the profound political cost of pricing out millennials from that most divisive of asset markets, property. This has left the former comfortable, but the latter with a fragile stake in the society they are supposed to build. As we look towards the 2020 US presidential election, could Ms Ocasio-Cortez’s leftwing politics become the anthem of choice for America’s millennials?

But before we look forward, it is worth going back a bit. The 2008 crash itself didn’t destroy wealth, but rather revealed how much wealth had already been destroyed by poor decisions taken in the boom. This underscored the truism that the worst of investments are often taken in the best of times. Mr Bernanke, a keen student of the 1930s, understood that a “balance sheet recession” must be combated by reflating assets. By exchanging old bad loans on the banks’ balance sheets with good new money, underpinned by negative interest rates, the Fed drove asset prices skywards. Higher valuations fixed balance sheets and ultimately coaxed more spending and investment. [A sharp correction and reflation of solvent banks would have given asset speculators the correct lesson for their imprudent risks. Prudent investors would have had access to capital to purchase those assets at rational prices. Instead, we rewarded the profligate borrowers and punished the prudent.]

However, such “hyper-trickle-down” economics also meant that wealth inequality was not the unintended consequence, but the objective, of policy. Soaring asset prices, particularly property prices, drive a wedge between those who depend on wages for their income and those who depend on rents and dividends. This wages versus rents-and-dividends game plays out generationally, because the young tend to be asset-poor and the old and the middle-aged tend to be asset-rich. Unorthodox monetary policy, therefore, penalizes the young and subsidizes the old. When asset prices rise much faster than wages, the average person falls further behind. Their stake in society weakens. The faster this new asset-fuelled economy grows, the greater the gap between the insiders with a stake and outsiders without. This threatens a social contract based on the notion that the faster the economy grows, the better off everyone becomes. What then? Well, politics shifts.

Notwithstanding Winston Churchill’s observation about a 20-year-old who isn’t a socialist not having a heart, and a 40-year-old who isn’t a capitalist having no head, polling indicates a significant shift in attitudes compared with prior generations. According to the Pew Research Center, American millennials (defined as those born between 1981 and 1996) are the only generation in which a majority (57 per cent) hold “mostly/consistently liberal” political views, with a mere 12 per cent holding more conservative beliefs. Fifty-eight per cent of millennials express a clear preference for big government. Seventy-nine per cent of millennials believe immigrants strengthen the US, compared to just 56 per cent of baby boomers. On foreign policy, millennials (77 per cent) are far more likely than boomers (52 per cent) to believe that peace is best ensured by good diplomacy rather than military strength. Sixty-seven per cent want the state to provide universal healthcare, and 57 per cent want higher public spending and the provision of more public services, compared with 43 per cent of baby boomers. Sixty-six per cent of millennials believe that the system unfairly favors powerful interests.

One battleground for the new politics is the urban property market. While average hourly earnings have risen in the US by just 22 per cent over the past 9 years, property prices have surged across US metropolitan areas. Prices have risen by 34 per cent in Boston, 55 per cent in Houston, 67 per cent in Los Angeles and a whopping 96 per cent in San Francisco. The young are locked out.

Similar developments in the UK have produced comparable political generational divides. If only the votes of the under-25s were counted in the last UK general election, not a single Conservative would have won a seat. Ten years ago, faced with the real prospect of another Great Depression, Mr Bernanke launched QE to avoid mass default. Implicitly, he was underwriting the wealth of his own generation, the baby boomers. Now the division of that wealth has become a key battleground for the next election with people such as Ms Ocasio-Cortez arguing that very high incomes should be taxed at 70 per cent.

For the purist, capitalism without default is a bit like Catholicism without hell. But we have confession for a reason. Everyone needs absolution. QE was capitalism’s confessional. But what if the day of reckoning was only postponed? What if a policy designed to protect the balance sheets of the wealthy has unleashed forces that may lead to the mass appropriation of those assets in the years ahead?