I had hoped that this letter would be an opportunity to revert to the meme (stolen joke), with an erudite discussion of the AMC phenomenon and the market of the apes, but I have a suspicion that Daniel Tenreiro is writing on something related to that at just this moment. So I will leave you for now with this splendid piece (click on the link) of investment analysis and trudge wearily over to the jobs report, and more to the point, inflation.
In an earlier post, I described the jobs report as “something for everyone.” And by that I meant that the May number (559,000) was better than April’s (278,000), but worse than expectations (~ 650,000). That provided ammunition to those who argue that the Fed should keep on doing what it’s doing (too much, since you asked) and pleased the stock markets. That mix meant that President Biden was able to boast that the job creation was “due in no small part to the bold action we took with the American Rescue Plan,” while his supporters could make the case that still more needed to be done — bring on the trillions!
It’s a good rule that not too much should be made of monthly data, even more so when they are being distorted by a pandemic, but it was also worth noting the acceleration in wage gains, which, as CNBC reported “rose 2% year over year from being up just 0.4% in April.”
Economists had largely been dismissive of average hourly earnings numbers for much of the post-pandemic period, noting that the bulk of hires came from higher-earning positions, which made wages look like they were rising for everyone but left many low-wage workers out of gains.
With the return of more hospitality workers in May, the numbers are more relevant now and indicative of rising wage pressures across the economy, not just for higher earners.
Some economists fear that increasing wages could lead to further inflation, and they blame enhanced unemployment benefits for causing a “labor shortage” that forced huge companies such as Bank of America and McDonald’s to raise their hourly minimum wage.
Economically speaking, there can be “good” and “bad” reasons for wage increases, but I don’t think that that is the way that Joe Biden looks at it.
Back to CNBC:
When it comes to the economy we’re building, rising wages aren’t a bug, they’re a feature,” [Biden] said during a speech in Ohio last week.
That does not suggest to me that the president will regard wage inflation as a reason to change course.
In a post yesterday, Michael Strain noted the amount of the workforce that was remaining on the sidelines. As he argued, that will sort itself in due course, “last most through the summer,” but:
Even if workers return at faster rates in the fall, the potential of significant wage pressures growing over the summer is concerning because it could boost consumer prices. If upcoming inflation data show consumer prices growing above 4 percent, many will be alarmed.
And that “alarm” is not something anyone should want to see. Inflationary fears have a way of creating inflation, not least because of the way they tend to be echoed in wage increases.
That’s one reason why it is worth watching household expectations about inflation.
Here’s CNBC from three weeks ago:
As the economy reopens in the wake of the coronavirus crisis, more Americans expect inflation to increase over the next few years.
Overall, the expectation is that the inflation rate would be up to 3.4% one year from now — its highest level since September 2013 — and at 3.1% three years from now, according to the Federal Reserve Bank of New York’s Survey of Consumer Expectations for April.
I wouldn’t say that those are dramatic numbers, and the fact that those expectations are for inflation to decline after a post-pandemic spike is reassuring, but, then again, inflationary expectations can turn on a depreciating dime.
Meanwhile, in an article for Bloomberg, Richard Cookson observes that the supply-chain disruptions often singled out as prominent culprits for the current inflationary surge may not be as temporary as is often assumed:
There’s no evidence that supply blockages are loosening. Company inventories are at rock bottom. Every corporate survey, including this week’s manufacturing and non-manufacturing ISMs, shows huge worries about rising costs. The same is true of services.
Producers of oil and other commodities responded to the slump in demand during the early months of the pandemic by cutting back on their output. In a typical economic slowdown, it would have taken many months for demand to rebound. But during the pandemic households have adapted to working, educating their children and entertaining themselves from home by buying a range of durable goods, including electronic devices and furniture.
That mismatch between unexpectedly high demand and reduced supply has led to shortages of many of the things that factories need to make their products. Surveys of purchasing managers at factories around the world that were released Tuesday showed that activity rose at the fastest rate in 11 years during May, but the waiting times for delivery of needed supplies were the longest in the survey’s history. Factories reported that the prices they paid for inputs rose at the fastest pace in over a decade, while the prices they charged rose at the fastest pace on record.
Markets will respond (indeed rising prices are part of that response), but when it comes to supply, can they respond quickly enough?
Also writing for Bloomberg, Bill Dudley (a former president of the New York Fed, among many other accomplishments), turned his attention to the prospects for inflation. Dudley notes that Fed officials believe that “the current inflationary surge” is “transitory” (an adjective which we will be hearing more and more in the months to come).
In Dudley’s view:
For the temporary price acceleration to become persistent, three things must happen. First, employers must demand more workers, in a big and sustained way. Second, the increased demand for labor must push up wage inflation to the point where it cannot be absorbed by higher productivity growth or lower profit margins. Third, people’s expectations for future inflation must climb further. Without such an increase in inflation expectations, a tight labor market alone would be insufficient to trigger an upward spiral in which rising wages and prices reinforce one another.
True enough. That said, he is relatively relaxed about the prospects for now, arguing that there’s plenty to suggest that “the current sharp rise in inflation will subside over the next year as supply-chain issues get resolved.”
There’s reason to be concerned that the temporary nature of the spike will also prove to be transitory.
In the longer term, the country still faces the confluence of expansionary fiscal and monetary policy. The Biden administration is pursuing an infrastructure bill and other legislation that will pile on added stimulus. Households have done enough saving during the pandemic to sustain spending long after the fiscal impulse ends. And the Fed has committed to keeping short-term interest rates at zero until the economy has achieved maximum employment and inflation has reached at least 2% and is expected to stay above 2% for some time.
In other words, the Fed — according to its own policies — is likely to act too late to prevent the economy from overheating. So no matter what prices do this year, the risk of higher inflation down the road remains elevated . . .
Much is being made of how calm financial markets still appear to be about inflation (indeed Dudley makes that point):
Prices in the Treasury market suggest investors expect inflation to average a bit more than 2% over the five years starting in mid-2026. This is close to what such markets have implied over the past decade, and means only that the Fed is succeeding in bringing expectations closer to its 2% long-term inflation target.
I have my doubts how “real” those prices are, thanks to the effect on the Fed’s operations in the bond market, but it is undeniable that there are bond investors out there prepared (for now) to lend to Uncle Sam, a deadbeat in the making if ever I saw one, for ten years at 1.55 percent (admittedly a far higher number than the rock bottom lows we saw a few months ago) a fact that remains, to me, remarkable. We can talk about the increasing interest that some institutional investors are showing in residential housing — and what that might mean — on another occasion.
Nevertheless, where we have seen concern in the financial markets over inflation it has been (for the most part) indirect, dominated by worries over the implications of the fear of inflation on the Fed’s policies, policies that are currently doing a great deal to boost the price of financial assets to levels that would be hard to justify in the absence of Jay Powell’s free-spending ways.
Yet an interesting article by John Authers in Bloomberg (yes, I read a lot of Bloomberg) suggests that investors may be less complacent than some believe:
Something interesting has happened to the relationship in the last few months. While this isn’t because of some iron-clad affinity between stocks and bonds, it does tell us something about a factor that affects both: inflation. For the last three months, there has been the strongest positive correlation between bonds and stocks (meaning that their prices move in the same direction, and bond yields move in the opposite direction to share prices) in this century.
For most of the time since the internet bubble burst, there has been a negative correlation; bond yields have tended to move in the same direction as share prices. Why might this tell us something about inflation? Scanning the charts over the long term, we see that the correlation was positive from the late 1960s through until the late 1990s, before falling sharply after the bubble burst. After that, the correlation was consistently negative, until now.
The period during which the correlation was positive stretches from the era when the Bretton Woods partial tie of currencies to the dollar and to gold was coming apart, through to the round of financial crises in the late 1990s which reached their most frightening moment when the Federal Reserve under Alan Greenspan cut rates in the wake of the Long-Term Capital Management meltdown. During this period, inflation seemed a significant concern. Before, the tie to gold tended to keep inflation concerns under control. After LTCM, and the melt-up and asset price collapse that followed, fear of inflation went off the agenda almost completely. The Fed was acting to avert deflation, which Japan had shown could be a real possibility. Inflation was a consummation devoutly to be wished. So, stocks and bonds were positively correlated during the era when inflation was a real concern, but negatively correlated in the periods before and after . . .
It’s well worth taking time to read the whole thing.
But I shouldn’t end on such a bleak note.
Larry Fink, BlackRock’s chief executive [yes, that Larry Fink], has been vocal in pushing companies to agree to a net-zero carbon target by 2050. But there is good reason not to move too quickly, the head of the world’s largest asset manager said.
Accelerating the race to green the economy would raise the prospect of higher inflation and pose a major policy challenge for many countries, Fink said in remarks at the Deutsche Bank global financial services conference.
Citing the example of airlines (biofuels are 50 to 60 per cent more expensive than current carbon based sources), Fink said a mandate to go green quickly would result in higher ticket prices. This would ultimately prove too disruptive for the economy and would not fly politically given the likelihood of “displaced jobs and deepening regional inequalities”.
It would take a heart of stone not to laugh.
“The transition has to be fair and just,” said Fink. “We do not have the technology yet” for a smooth transition. “This is a big policy issue” in terms of whether regulators and governments “accept more inflation to go green”.
“We do not have the technology yet.”
And will regulators and governments “accept more inflation to go green”?
In their current frame of mind, yes.
So, I ended up on a bleak note after all.
The Capital Record
We released the latest of a series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 20th episode David was joined once again by Dr. Art Laffer, who shares with David fond memories of the recently deceased grandfather of supply-side economics, Dr. Robert Mundell.
And the Capital Matters week that was . . .
America today faces the modern equivalent of the Barbary pirates. And, similar to the Barbary pirates, today’s hackers often operate with the support or cover of hostile powers. The wisdom of our Founding Fathers should not go ignored. Although most of President Biden’s May 12 executive order was already U.S. government policy, his call to strengthen the cybersecurity of government and its contractors is a correct one. As the administration has correctly indicated, the trade-offs for private companies are complex, and government should generally continue to defer to the decisions of their owners and boards. While Europe has a history, going back to the Crusades, of attempting negotiation and paying tribute, and some colonial leaders (such as Adams) preferred this route, most of our Founding Fathers were resolute in their opposition. American policy today should not waver in its opposition to negotiating with terrorists and paying cyber ransom. Our Founding Fathers did not do it. Neither should we.
The rising costs of cyberattacks, the associated negative externalities, and the particular interest in protecting critical infrastructure present the federal government with an important role in enhancing cybersecurity. In 2018, the Trump administration issued for the first time in 15 years a National Cyber Strategy. The strategy outlined a number of priorities that could help close the private cybersecurity investment gap. These priorities include incentivizing cybersecurity investments, improving cyberattack reporting, and expanding and equipping a highly skilled cybersecurity workforce. Additionally, the CEA identified information sharing and transparency, cybersecurity standards, and investment in cybersecurity research and development as important areas for federal policy to address.
The Biden administration should build on the Trump administration’s strategy to confront the rising security and economic threat of cyberattacks. Although the ransom decision itself might be a “private sector decision,” cybersecurity is a common good that requires prioritization by the federal government.
Jordan McGillis looked at the way that the dependence on certain metals that will have to accompany the current energy “transition” will not only leave us strategically exposed, but won’t be that good for the environment either:
On environmental matters, the IEA report lands body blow after body blow, with its hardest punches pertaining to mineral requirements.
Electric vehicles, such as the F-150 Lightning the president hopped into, require six times more mineral inputs than comparable internal-combustion vehicles do. The average EV needs over 200 kilograms of minerals, with graphite (over 50 kg), copper (over 50 kg), nickel and manganese (combined over 50 kg) being at the top of the list. The mineral requirement for the average conventional vehicle is less than 40 kg total, most of it being copper.
On electricity generation, the IEA says that “while solar PV plants and wind farms do not require fuels to operate, they generally require more materials than fossil fuel–based counterparts for construction.”
Per megawatt, the IEA data show, offshore wind requires about 8,000 kg of copper and 5,000 kg of zinc; onshore wind requires about 3,000 kg of copper and 5,000 kg of zinc; and solar requires about 3,000 kg of copper and 3,000 kg of silicon.
Meanwhile, nuclear requires less than 2,000 kg of copper and less than 6,000 kg of minerals total; coal requires around 3,000 kg of minerals; and natural gas requires less than 2,000 kg per megawatt.
Moreover, according to the IEA, the mining and processing of resources for allegedly clean energy involve substantial environmental harm, including water contamination, intensifying of water stress in arid regions, adverse impacts on biodiversity, and the generation of toxic and radioactive material.
And then, as Helen Raleigh pointed out, there is the little matter of forced labor:
China dominates the global supply chain for solar power and is the leading exporter of solar panels and critical components for making solar panels. For instance, about 95 percent of solar modules rely on one mineral — solar-grade polysilicon, and China produces 80 percent of the world supply of polysilicon. Xinjiang alone is responsible for 45 percent of the world’s supply of polysilicon. Such a high level of production requires a significant supply of labor.
The Sheffield Hallam University report, titled “In Broad Daylight: Uyghur Forced Labor and Global Solar Supply Chains,” shows how China’s booming solar industry has been tainted by the forced labor of Uyghurs and other minorities in Xinjiang . . .
Brad Polumbo on electric-vehicle subsidies:
Regardless of party affiliation, few Americans support taxpayer subsidies for the rich and well-off. But if you look closely at his plans for electric vehicles, that’s exactly what President Biden is currently promoting.
The president included a whopping $174 billion for electric-vehicle subsidies in his $2 trillion “infrastructure” proposal. And in a recent speech, Biden argued that “the future of the auto industry is electric. . . . There’s no turning back.” He went on to insist that “we have to look forward. . . . That means new purchasing incentives for consumers to buy clean vehicles like the electric Ford 150 — a union-made product — right here in America.”
This vision of government-led innovation spurring a green-technology renaissance to the benefit of all sounds nice, at least at first glance. But the truth is Biden’s proposed “green” spending binge amounts to nothing more than a taxpayer-financed handout to environmentally conscious rich people . . .
It’s ironic that Democrats are now throwing Obama under a bus and agreeing he had a rotten record on the economy, with his policies causing a “five-year recession.” That five-year recession was one of the longest in modern times — a mini-depression.
Back in 2009, the Democrats promised that their “shovel-ready” projects would cause annual growth of 4 percent or more. But they never came close. Indeed, it was Vice President Joe Biden who a decade ago promised a “summer of recovery” that never arrived.
So Democrats believe their nearly $1 trillion of borrowing and wasteful spending in 2009 tanked the economy but that $6 trillion will now deliver economic prosperity. Good luck with that . . .
Robert VerBruggen looked at the winners from the four rescue/stimulus packages so far (admittedly three passed under Trump, and, so far, the one from Biden):
To date, Congress has passed four COVID-relief bills: the CARES Act, the Families First Coronavirus Response Act, the Response and Relief Act, and the American Rescue Plan. President Trump signed the first three, President Biden the last.
Combined, these bills sent about $900 billion to lower-level governments, primarily states and localities. A new study from Jeffrey Clemens and Stan Veuger looks into where this money went and finds two major patterns.
First, small states made out quite nicely, probably thanks to their overrepresentation in Congress relative to their population. Some of the formulas used to provide these funds even had “floors” — meaning every state was guaranteed a certain minimum amount of money that did not depend on its size. In general, if a state has one extra congressperson per million residents, including senators, it got an extra $670 to $780 per capita. (As the authors note, this is the difference between Montana and Arkansas: The former has three congresspeople to represent 1 million people, or three per million, while the latter has six congresspeople for 3 million residents, or two per million.)
Second, Biden’s bill, but not the three passed through a divided Congress last year, show a big partisan skew, worth about $300 per capita for a state with an entirely Democratic congressional delegation (relative to a state with a fully Republican delegation). This comes from a skew in the funding formulas coupled with the huge size of the bailout given — which was not necessary, given the better-than-expected fiscal condition of states this year . . .
Dominic Pino was unimpressed by talk of a high-speed rail network for New England:
If you only listened to rail advocates, you’d think Western Europe and Asia are the only places in the world with developed economies. Canada and Australia also have developed economies, and they don’t have high-speed rail. Their transportation systems are based on highways and airplanes. Sound familiar? The United States is geographically much more similar to Canada and Australia than it is to Western Europe or Asia. We have very low population density and a very large amount of land. Our situation, like Canada’s and Australia’s, is not well suited for passenger rail. That doesn’t make us, or them, less competitive economically . . .
Contrary to what you might expect, environmentalists are some of rail’s foremost opponents. Let’s grant the emissions-reduction point in its entirety. That still leaves construction. Environmentalists aren’t big fans of new construction projects, no matter what they are, but especially ones that seek to cut straight lines through nature. This project wants to build a tunnel across the Long Island Sound to connect Ronkonkoma, N.Y., directly with New Haven, Conn. Are we supposed to believe that the Sierra Club and Greenpeace folks in Connecticut and New York State are just going to be alright with that? And even if they were, the environmental-review process with the state and federal governments would make Kafka wince. The communities the North Atlantic Rail people should be most worried about are not the poor neighborhoods, but the rich ones. It’s been hard enough building high-speed rail through the middle of nowhere in California. Good luck building it through some of the densest and wealthiest neighborhoods in America.
The North Atlantic Rail Initiative also brags that the $105 billion it’s requesting “would represent just 5% of a $2 trillion infrastructure program.” Just five percent! Imagine if it were a $20 trillion infrastructure program, then it would only be 0.5 percent! Though this proposal is entertaining, it should not be entertained by Congress.
Brian Riedl on the infrastructure binge:
For lawmakers, nothing is easier than spending money without paying for it. Deficit spending buys support among its recipients and allows lawmakers to appear compassionate, all while dumping the cost on the unborn or those too young to vote.
Despite having built a $22 trillion national debt with this formula, budget deficits still leave many voters feeling guilty about robbing from their kids. Ambitious politicians, therefore, seek to invent justifications to make such spending appear responsible. Many embrace the Keynesian notion that government spending is a perpetual-motion machine that creates substantial new economic activity out of thin air. More recently, advocates of the “Modern Monetary Theory” have contended that the government printing press can finance a nearly unlimited spending spree — a crank concept with little peer-reviewed research and almost zero support among academic economists. This approach has been embraced by big spenders seeking to slap an academic veneer on the same old borrow-and-spend pandering. And then there is the classic justification that “investment” spending need not be paid for because the attendant economic growth will pay for its cost, or at least make the borrowing more affordable.
Senator Brian Schatz (D., Hawaii) recently embraced this case, tweeting: “We should deficit finance infrastructure. Money is cheap, and the things being built last for 30 or 50 or 100 years, so it should be amortized over that period This ‘pay for’ thing is nuts. You just shouldn’t pay cash for infrastructure in a low interest rate environment.”
Where to even begin?
Victor Riches saw an opportunity for Arizona’s Governor Ducey:
Whereas most of Arizona’s governors have fallen somewhere between unremarkable and abysmal, Governor Ducey has the opportunity to break this mold and leave a permanent, positive mark on the state. This is where his second opportunity to make history lies: in tackling Arizona’s antiquated tax code — one made much worse by the recent passage of Proposition 208.
For the uninitiated, Prop 208 was billed as a tax on “millionaires” designed to provide additional money to the state’s K–12 education system. In actuality, the measure nearly doubles the income taxes on individuals and small businesses who have the audacity to make more than $250,000 a year. Unsurprisingly, Prop 208 contained little in the way of accountability measures to ensure that the confiscated dollars would be wisely spent. Rather, like crossing the event horizon of a black hole, once your income crosses the 208 threshold it simply disappears, never to be seen again.
Prop 208’s effects were felt immediately, with Arizona instantly joining the ranks of states with the worst top marginal-tax rates, far surpassing all its neighbors not named California. At the Goldwater Institute, we’ve challenged the constitutionality of Prop 208 and are now awaiting a decision from the state’s supreme court. A victory is critical to the state’s ability to attract job creators. In fact, an in-depth study published by Goldwater Institute found that, if left unchallenged, the measure would result in the loss of over 100,000 jobs as well as a significant loss of revenue to local and state coffers.
However, even with a court victory, Arizona would still have four separate income-tax brackets, coupled with — once city and locality sales taxes are thrown in — an already high sales tax . . .
The Perils of Forecasting
Dominic Pino on why doomsayers tend to have the upper hand:
In the Winter 1981 issue of The Public Interest, Simon wrote the article “Global Confusion, 1980: A Hard Look at the Global 2000 Report.” In that article, based on his then-forthcoming book The Ultimate Resource, Simon presents copious evidence on why the population doomsayers were wrong. But he also points to some of the dynamics that give doomsayers the upper hand in public discourse.
One factor is reflected in the somewhat defensive tone in the last paragraph in Simon’s introduction. He confidently asserts that the evidence demonstrates that population growth will not ruin the planet, but he feels the need to clarify:
Please note that I am not saying that all is well now, and I do not promise that all will be rosy in the future. Children are hungry and sick; people live lives of physical and intellectual poverty, and lack of opportunity; some new pollution may indeed do us all in.
It’s hard to be optimistic when the prevailing narrative is pessimistic because that can come across as being dismissive of suffering. Presenting the case that a problem is not as bad as it may initially seem puts the presenter on defense right away. The doomsayers can be on offense all the time. You never hear someone predicting catastrophe clarify by saying, “Please note that it might not be as bad as I’m saying it will be.” . . .
Recent volatility in cryptocurrencies such as Bitcoin, Ether, and Dogecoin has emboldened the Biden administration and congressional Democrats to call for government regulation of digital currencies. Senate Banking Committee chairman Sherrod Brown (D., Ohio) fired off a scathing letter on May 19 to President Biden’s acting comptroller of the currency urging him to scrap a Trump-administration policy granting limited-purpose bank charters to some cryptocurrency firms. Bank charters should not be granted to firms involved with such “risky and unproven digital assets,” he wrote.
Yet Brown and others ostensibly concerned about cryptocurrency risks want the Federal Reserve to charge ahead with its own “central bank digital currency” (CBDC). In a March letter, Brown urged the Fed to “lead the way” on CBDCs while restricting private cryptocurrencies. Brown proclaimed that “the Fed must not stop at regulating a privately issued digital currency. It must go further and explore a publicly issued digital dollar.”
Dubbed the “digital dollar” by some proponents (including Brown) and “Fedcoin” by other supporters, a CBDC would extend government control over the creation of the money supply — which it already has through interest-rate setting and other monetary tools — to control over which businesses and individuals U.S. currency is distributed to . . .
As mentioned above, I concluded that the jobs report had something for everyone, if not necessarily in a good way, while Michael Strain, again as referred to above, discussed the question of those workers opting (for now) to remain on the sidelines:
Policymakers should be looking for ways to relax constraints on people returning to work. Republican governors are doing that by opting out of the $300 unemployment benefit supplement, but more can be done.
Long spells out of the labor force are bad for workers. In slack labor markets, employers are reluctant to hire workers who have been out of work for long periods of time. Long-term nonemployed workers see their professional networks weaken and their skills deteriorate. There is good evidence that workers’ health outcomes suffer during long periods of unemployment. It would be better for the economy if workers were returning, yes — and it would also be much better for workers themselves to avoid long spells of nonemployment.
Workers sitting on the sidelines is a serious issue. More is at stake than a bumpy economic ride.
It’s not that no one’s hiring, as anyone who’s driven past businesses lately can attest. It’s also not a failure of companies to try to make attractive offers: Wages are growing at a healthy clip. Businesses want workers, are willing to pay for them, and indeed are working their existing employees longer hours to keep up. Yet job growth keeps coming in weaker than expected, and labor-force participation actually ticked down slightly in May. Job-wise, we’re significantly behind the projections the Congressional Budget Office issued before the last round of “stimulus.”
It sure sounds to me like that $300-per-week boost to unemployment benefits, which pays about 40 percent of workers more than they made while working, might be having some bad effects. About half the states are opting out of this boost — which otherwise won’t end until September — and we’ll know soon if their decision produces results.
Meanwhile, Congress should at least give another look to Senator Ben Sasse’s “signing bonus” idea. The Democrats will never yank the existing benefit boost, but they should at least balance it out with an incentive to get back to work.
History (and More)
Thinkpieces lamenting the state of constitutional government are a dime a dozen. If only we embraced a correct reading of the Constitution (the various schools of originalist thought seem promising), we could get America back on track: “The Constitution has not failed; the Constitution has never been tried!”
But it has been tried. The Constitution did exactly what some of its most ambitious proponents hoped it would: It laid the foundations for an imperial fiscal-military state. Conservatives and libertarians rightly bemoan excessive centralization under a ravenous Leviathan. If they realized that’s a feature, not a bug, of the constitutional system, perhaps we could finally do something about it . . .