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.