Conor Friedersdorf remarks on an interesting problem with Herman Cain’s campaign: Cain’s appeal is that he is an outsider who will challenge conventional wisdom in Washington. But because Cain’s policy expertise is so limited, he is likely to be captured by elements of the Washington Establishment, whose policy expertise he will need to actually run the government.
To some extent, though, I think this just reflects the indispensability of the Washington Establishment, which is a lot better than people like to say it is. While it contains a lot of errors, the Washington Consensus is right more often than it is wrong. Even more importantly, critiques of the Washington Consensus are wrong more often than they are right—meaning that taking Washington Establishment down a peg will tend to do more harm than good.
Take, for example, the Federal Reserve. The Fed has made some big mistakes in the last few years—it was too loose during the middle of the last decade, allowing the housing bubble to inflate, and has been too tight since the housing crash. But the modal critique of the Fed has called for worse policy—even tighter money or, worse yet, a return to the Gold Standard.
Or look at banking. The government has mostly failed to address the root causes of the last financial crisis, by continuing to allow complex financial institutions to profit off risk-taking that is backstopped by an implicit government guarantee. But the ideas with the most populist energy—from calls for indiscriminate debt forgiveness on the left to insistence that we should have just let Citigroup and Bank of America fail on the right—are even worse than what Washington has actually done.
Since the Washington Consensus contains lots of errors, there are outsiders with better ideas in these areas. Nominal GDP targeting, championed by Scott Sumner and others, would constitute a major improvement of monetary policy. Higher capital requirements and a tax on financial institutions that benefit from government backstops, among other reforms, would reduce systemic risk in the banking sector.
But the question is, would empowering outsiders at the expense of the establishment tend to replace the Washington Establishment’s biggest policy errors with outside wisdom? Or would it more often gut sound-but-unpopular policy and replace existing errors with bigger errors?
There are numerous policy areas where the hegemony of the Washington Establishment is the only thing saving America from popular but terrible ideas—trade, immigration, foreign aid. But perhaps the best example is TARP. This is a program that looks better every day, having prevented an acute collapse of the financial system at very little cost. But in the popular mythology, TARP was a grievous and expensive error that created the Too Big To Fail concept, rather than simply recognizing its existence.
The populist view of TARP as one of the largest errors of 2008 rather than an example of policy success makes believe a weakening of the establishment will throw out the baby and keep the bathwater. It’s much safer to try to improve the Washington Consensus than to unleash the public on the levers of power.
I never thought I see the day when National Review would argue that the centralization of power in Washington was a good thing. It seems Josh is arguing that, contra WFB, he would rather entrust the government of the United States to the faculty of Harvard University (who, along with the Yale faculty, make up most of the establishment) than to the first 400 people listed in the Boston telephone directory.
Reply to this commentLinkReport AbuseI give you credit for being willing to take a rather counterintuitive position, but you cherry-picked your examples. Sure, no one wants a bank run, which the "Washington Consensus" would never allow to happen, to its credit. But "The Washington Consensus" also says that Medicare will never be cut or even reformed so long as seniors vote, that we must always be involved in some foreign war or another, that nothing can happen in the economy or education without Washington's stamp of approval, and that 'diversity' is the prime directive, higher than prosperity or even basic fairness. These are not ideas that cannot be "improved." They must be "removed" root and branch.
I say this as a Romney voter, so I carry no water for the Cain folks. But small measures won't cut it.
Reply to this commentLinkReport Abuse"But the modal critique of the Fed has called for worse policy—even tighter money or, worse yet, a return to the Gold Standard."
Really? The lost me here.
I agree that an outsider probably won't change things, but to say that the Washington Consensus is really good is like saying the UN is doing a good job at helping the world...
Reply to this commentLinkReport AbuseGreat point. The Greek vote, if it occurs, might further support some deference to the technocratic consensus.
Re Sumner, I'm intrigued by (and might agree) with the views expressed on his blog, but I think you might overstate the case with "a major improvement of monetary policy." Indeed, this claim is inconsistent with your claim in this post that the Fed inflated the housing bubble.
Sumner's worldview rests on the weak Efficient Market Hypothesis. As a result, Sumner is not all that concerned that ultra-loose monetary policy will inflate asset bubbles. To believe Sumner would be a "major improvement," you need also to be convinced that asset bubbles are not a major concern (or at least are less a concern than the horrors of too tight money). Your view that the Fed inflated the housing bubble is, I think, therefore in conflict with a factual predicate to a Sumnerian worldview.
By the way, I think the technocratic consensus these days is that China and the other currency-market-intervening countries inflated the housing bubble (not the Fed). The Fed's influence extends only to short-term (not long-term) interest rates.
Reply to this commentLinkReport AbuseGood post. One thing to add: the popular wisdom that the establishment is irretrievably broken paradoxically makes it harder to fix the errors the establishment has. Politicians see this popular wisdom and pander to it by proposing plans which will never get enacted (flat taxes, Balanced Budget Amendments, abolish the EPA, etc.), sucking the oxygen out of the room and thereby preventing real reforms from taking place.
Reply to this commentLinkReport AbuseThis post seems to me to be a sort of tautological apology for the 'Washington Consensus' in the sense that it seeks to confirm that the Washington Consensus is usually right by merely asserting that its take on most issues is right. The ‘proof’, if it can be called that, that these ideas are right is that a few cherry picked oddball outsider ideas -- themselves asserted to have the most 'populist fervor' or whatnot behind them -- are bad. So basically the argument (using that word loosely) presented here is "Hey, the Washington Establishment is usually right! How do I know? Look at these idiotic ideas! They're terrible! QED!" This is not, to put it mildly, a convincing argument.
Nor do I think it serves to advance the debate -- any debate -- unless the debate is "Do Josh Barro & Conor Friedersdorf show sufficient deference to the Washington Establishment to justify their continued careers based on being part, however peripherally, of that same Establishment." This post provides a resounding affirmative to that question, were anyone in doubt.
To take just the last example, that Josh calls "the best", TARP: In Josh's considered opinion, this was a fantastic success that looks better every day. Why? Because it has had little direct cost to the government thus far and after all it didn't invent "Too Big to Fail", it merely recognized (& formalized) it. So the naysayers must surely have egg on their faces, eh? The Establishment nailed it with this brilliant program!
But this analysis misses all kinds of relevant costs & factors. Yes, the direct cost was low -- and thank heavens for that -- but what were the indirect costs & unintended effects of formalizing & further entrenching the Corporatist concept of "Too Big to Fail"? What innovations will we be inadvertently eliminating from any & all possibility b/c we have gone further in the direction of socializing (& effectively outlawing) failure for politically connected or large institutions? How much more lethargic will our economy be under this further diminishment of the necessary ‘destruction’ piece of the ‘Creative Destruction’ that has fueled our increasing productivity for centuries?
Indeed, how did "Too Big to Fail" get such a stranglehold on our polity in the first place such that it, in the estimation of Josh, cannot be undone so the most favorable possible course of action when its existence threatens to derail the world economy is to recognize & formalize it at the lowest possible direct cost? I would argue it was the product of at least a generation of Washington Consensus thinking & policy. So Josh is effectively saying, "Look, the Washington Consensus managed to temporarily mitigate the disaster that their own interest in having a Corporatist strangehold on the economy created at small direct cost! Huzzah! And the only real downside is that instead of addressing any of the fundamental problems that stranglehold presents, it instead increases them! But only mildly! Hooray!" To my ears this is not the description of brilliant leadership by a ‘usually right’ ruling elite.
Perhaps I'm an extremist loon, but I think the growing power of the Washington Consensus & the formalization over the past few years through a variety of different policy choices of the Corportist path our politics have been following for some time are not actually a sign of the immense wisdom of our ruling elite but rather a slow-motion disaster that serves, at best, only the temporary interests of that self-same elite. My supposition is that Josh is either un-self-aware enough to believe that his views on the wisdom of the Establishment are unrelated to his having a career parasitically attached to that same Establishment or else is cynical enough to proudly proclaim the wisdom of the group that he would have to join in order to move up in the world in his current career path.
Or, who knows, maybe he truly believes that the Washington Consensus actually represents brilliant thinking on all of the relevant issues of the day rather than realizing that most of their "Best of Bad Options" choices are fundamentally driven towards expanding their own power and often the reason we are faced with only 'bad options' in the first place is the summation of prior Washington Consensus decisions driven by the same short-sighted self-interest.
Similar arguments apply on the other fronts Josh only briefly mentions: immigration, trade & foreign aid. The wisdom of the Consensus opinion on these issues is mostly based, as with TARP, on elite-groupthink-based reassurances that ‘everybody who matters agrees’ combined with low observed (or at least recognized) direct costs. The unintended effects of these policies & the often unknowable costs associated with them are completely ignored by a cosseted elite smug in their satisfaction that they are wisely guiding us into a better world. There is, to my mind, precious little actual evidence that our country’s Washington-Establishment-driven policies on any of these issues have provided lasting or certain benefit to any portion of our country outside of that Establishment itself. And having young policy wonks like Josh & Conor eager to prove their bona fides with that Establishment praise these self-serving decisions as the very height of rational wisdom does little to dissuade me from that view.
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