Frequently in economics, the views of a specific theorist are exploited for the interests of various political factions. The most salient examples are economic theorists are labeled as “free market” economists. Conservatives generally celebrate Adam Smith as a defender of unfettered commerce but conveniently ignore his concern for the blight of the poor. Smith was too multidimensional to be distilled to a simplistic bumper sticker slogan. The great F.A, Hayek suffered from a similar syndrome as many Conservative and Libertarian pundits disregard the nuances of his work and paint him as radical. However, there are also instances of the intellectual advances of various theorists being embellished by their opponents for partisan purposes. For example, the moderate and subtle rationalizations of James M. Buchanan are characterized as extreme libertarianism. Nancy Maclean is unacquainted with the work of Murray Rothbard!
The inaccurate framing of economic theory for political interests is not limited to right-of-center economists. Many left-wingers exaggerate the beliefs and postulations of their favored economists, the most conspicuous example being the abuse of John Maynard Keynes . Yes, in the eyes of most Conservatives and Libertarians, Keynes had a flawed perception of market processes. Although, he was not communist. Keynes still had some semblance of a pragmatic filter, which placed constraints on his sanguine view of consumption. Keynes did believe that after the end of an economic downturn, deficits should be eliminated. Therefore, Keynes did not advocate for a policy of perpetual deficit spending, most likely would take issue with the massive debts amassed by the United States over the past couple of decades.
It wouldn’t be outlandish to examine the embellishment of Keynesian economics for political gain from the precepts of Bruce Yandle’s Bootleggers and Baptists (1983) coalition paradigm. A political relationship between various factions of policy advocates where some supports sincerely believe in the normative intention of the policy (the Baptists). In contrast, the tacit beneficiaries (the Bootleggers) merely ride the coattails of the moralistic advocates (either silently or vocally alongside the Baptists). The support for various stimulus policies would have its share of Bootleggers and Baptists to defend “stimulus spending”. The most recent examples are the Obama-era stimulus programs (American Recovery and Reinvestment Act of 2009) and multiple rounds of COVID stimulus allocations. Often, Keynesianism is justified when it becomes politically suitable to do so. The most recent examples of economic stimulus initiatives exemplify this point quite well. This observation becomes more striking when you consider that the convergence of our monetary and fiscal policy has amounted to a hand-selected bastard-breed mutation  of Keynesian economics and Monetarism. The conception of this flawed system is being spurred by policymakers trying to select the most politically advantageous characteristics of both economic philosophies.
We could consider the founder of Keynesian economics the Baptist of stimulus spending policies. As Keynes envisioned stimulus spending as being a temporary remedy amid an economic downturn. Despite his good intentions, Keynes failed to recognize the political incentives to politicians, bureaucrats, technocrats, activists, and even ordinary voters; factors that only serve to reinforce one of Milton Friedman’s most enduring dictums “There is nothing more permanent than a government program”. While stimulus initiatives come and go, policymakers still keep implementing them as a remedy to soothe economic turmoil. Stimulus policies were adopted with little regard for the implied discipline advocated for by Keynes. After all, he was still an economist and was not ignorant of the discipline’s conceptual pillars. Stimulus spending is an unsound policy, but he never intended for it to be at the regular disposal of politicians and lawmakers. Dating back to the observations of Niccolò Machiavelli,politics is a game of perception, not one of technical proficiency. Conversely, economics is ideally a positive social science unconcerned with popular opinion.
Moral values always enter the equation whenever we enter the realm of actual decision-making, even in economic decision-making. Unfortunately, the line between economic science and public perception is often blurred, especially by the adroit manipulation of politically savvy elected officials, activists, lawmakers, and activists. Promising ever-larger transfer of “free” goods and services to the voting public. Applying the principles of concentrated benefits and dispersed costs, voters believe they have made out like bandits. Thereby, forming a mutually beneficial feedback loop of voters believing they have won and political actors presented in a positive light; as being defenders of the common man. Elected officials portrayed as advocates for the “little guy” helps establish social currency with the voting public. Social currency dovetails nicely with a politician’s incentive to remain in their position of political power.
Maclean is aware of Rothbard’s work to a superficial extent, but if she sincerely understood his work, she would not be portraying Buchanan as a radical.
The author is not an exponent of Keynesian economics.
Despite the intense debate between Keynesians and Monetarists, both have their commonalities.
Op-Ed submission was rejected by the Foundation For Economic Education for being too “abstract” and “academic”. The corresponding paper proposal for George Mason was also rejected. I am currently working on another proposal for GMU focused on intellectual property.
Bruce Yandle’s Bootlegger and Baptist (1983) theory of regulation presents a practical explanation for why such unorthodox coalitions are effective vehicles for camouflaging rent-seeking behavior by a firm. In brief, armed with the public appeal of the moral arguments posited by the Baptists, the Bootleggers can quietly lurk in the shadows, funding initiatives that will advance their self-interest. In other words, the ethical advocates create a smokescreen that provides cover for the business interests, superficially obscuring the stigma of corporate advocacy, since few examples of political action invoke the ire of the average citizen than policy campaigns that line the pockets of big business.
The trend of “woke capitalism”, however, is bringing the Bootleggers out of shadows and into plain sight. CEOs are now openly standing in unison with political activists, speaking out against topics ranging from police brutality to environmental issues. The Bootleggers can work openly with the Baptists to promote a positive image while still silently providing monetary support in the background. Moreover, the social justice messaging of “Woke Capitalism” extends beyond corporate activism and is observable in the product market and advertising. Some companies, for example, adopt marketing that emphasizes social consciousness to secure the business of Gen-Z. A clear example is Gillette’s 2019 advertising campaign addressing “toxic masculinity”. Typically, companies use this tactic to target younger consumers with higher preferences for ethical products and brand authenticity, requiring companies to go beyond philanthropy and mandating community services hours for their employees; their woke ethics are thereby conveyed in their branding.
The Four Main Categories of Woke Capitalistic Coalitions:
The most recent alliances forged between business interests and political activists take the form of four main taxonomical categories. Some of the various types of Bootlegger and Baptist coalitions feature collaboration between firms and activists. Other coalition types form within the technocratic structure of the corporation or emerge between different departments within the organization. Woke coalitions thus have several notable classifications of “woke” corporate alliances. Two further subcategories include proactive and reactive forms of rent-seeking.
Reactive Coalition Models:
The reactive models for “woke” coalitions include two subtypes of collective action organization, the interaction between external actors and collaboration between internal employees. The first variety of reactive coalitions are rent-seeking alliances formed to restore the company from a sullied reputation caused by criticism, the objective being to mitigate the loss of sales and reputation amid public controversy. Some firms thus attempt to distance themselves from the controversy through their activistic partnerships. By way of example, Bank of America in the past was accused of engaging in “discriminatory” lending practices. To counteract this negative publicity, last year BOA pledged to donate $1 Billion over the next four years to community programs to address economic and racial inequality. Such an act of philanthropy can easily make the general public forget about the firm’s past indiscretions.
The second type of reactive “woke” coalitions are the intracompany factions designed to divert attention from potentially costly internal controversies. In instances of hostile work environment ligation, the legal team, the human resources department, and executive management band together to deescalate the publicity nightmare. Human Resources and management work together to legally distance the company from a harassment incident and shield executive management from more scrutiny and accountability. Legal navigates the statutory and tort concerns and works internally to establish an anti-harassment campaign intracompany. A prime example of an internal diversionary coalition was Vice media’s response to sexual harassment claims. After settling several cases, the company decided to form an advisory board to educate employees on diversity and proper workplace deportment. Even if such an initiative on the part of the human resources department failed to soften the bad publicity, at least it may decrease the probability of another incident.
Reactive Coalition Models:
Finally, the last two variants of “woke” coalitions aligning business interests with moral advocates to facilitate proactive forms of rent-seeking. Similarly, these proactive coalitions can be delineated into examples of internal and external collaboration models. Proactive partnerships form to capture potential gains and avert the costs of prospective controversies. The most salient example of such external cooperation would be firms standing behind a woke cause, anticipating that such an alliance will obscure the firm attempting to shape current regulation (regulatory capture). A notable example was detailed in the Fall 2021 issue of Regulation magazine, which showed how providers of cloud computing services IBM and Oracle joined forces in 2017 to advocate for the passage of the Stop Enabling Sex Traffickers Act (SESTA) and the Fight Online Sex Trafficking Act (FOSTA); effectively becoming bedfellows with various factions of human rights activists. Both laws intended to attribute liability to digit platforms for any user content that promotes sex trafficking. The article’s author Thomas A. Lambert speculates that IBM and Oracle could have done this with the hopes crafting potential exceptions to the platform liability portions of SESTA and FOSTA.
Additionally, we cannot forget the proactive inter-department coalitions that are emerging within corporations. For example, several companies are hiring diversity and inclusion “coaches” as a peripheral subset of human resources. The demand for this job role has become so prevalent that a number of colleges offer programs to become a certified “diversity practitioner”. The human resources department defends the existence of these staff members by emphasizing the need to educate employees to avoid instances of harassment and discrimination. The diversity coaches preach the virtues of cultural sensitivity and other tenants of the “woke” philosophy, thus producing a self-reinforcing spiral justifying further diversity initiatives.
Superficially, these alliances between big business and “woke” activists seem relatively benign, but in reality, these coalitions have profound consequences for the integrity of capitalism and the rule of law. The four types of woke B&B coalitions described above undermine capitalism and the rule of law because woke capitalism has made it easier than ever for business interests to create the façade of morality but are unjustly bending the rules-of-the game in their favor. Wokeism provides the veil obscuring corporate America’s hand in the legislative till. Generating more anti-competitive laws that undermine both the rule of law and free trade.
The emphasis on firms getting involved with “woke” causes not only disguises crony capitalism and rent-seeking behavior, but also distracts companies from their primary custodial duty to their shareholders. As Nobel laureate Milton Friedman expresses in his own Friedman Doctrine , a firm has a duty to maximize its profits for its shareholders. After all, these individuals have invested in the company expecting a higher return. Without this financial support the firm could not achieve its current level of success. Diverting funds that could be used for investment in capital to increase productive efficiency for political activism is tantamount to theft.
What it means to be a political conservative has drastically changed throughout the course of American history. The meaning in a political context has even shifted from the defining proclamations of Barry Goldwater in The Conscience of a Conservative. Arguably a seminal pamphlet in defining conservative values in the 20th Century. I personally feel that conservatism much like any other body of ideas has its advantages and drawbacks. One value of conservatism that has been slowly eaten away by political opportunism has been fiscal responsibility. While not personally a conservative, this is a conservative value I am fully on board with.
The irony is that in the modern era of the 21st century even purported conservative politicians are not fiscally conservative. Making this virtue a relic of a bygone era. Profligate spending was a policy fixture of both Bush administrations and even prevalent in the Regan administration. It appears as if President Trump will also follow suit with veering away from budgetary constraints.
Interestingly enough Libertarian/ Conservative icon the economist, Milton Friedman, felt as if he had found the solution. This remedy is referred to as a Starve the Beast policy. Which is based upon a rather linear concept, simply cut taxes as this will discourage spending. Certainly, a novel postulation that appears to have been underneath our noses this entire time. Does this theory hold water upon the scrutiny of empirical analysis? This question has been highly debated among scholars of all stripes. Not to mention fiercely defended by Friedman-fanboys. As brilliant as Friedman was it does not make him infallible. There is sufficient evidence to suggest that Friedman was dead wrong about the overall impact of the Starve the Beast method of cutting spending.
One fact that should be noted is that while many conservative Republicans have anointed Regan with the status of a demigod, this is to some extent a shallow perception. The beloved cherub of the conservative shrine was not the most fiscally responsible president. It turns out while Regan may have cut taxes, he actually increased spending. These findings represented in a 2009 study published by the Cato Institue. The study found overall that cutting government tax revenue created the illusion of decreased spending. A firm nod to my previous blog entry addressing Fiscal Illusion. Overall, based on the result of the cited research it does not appear as if the data backs up Friedman’s claims.
From the standpoint of science, replication of results is the validation of the data obtained. It veers away from the potential of findings being an anomaly caused by sampling error. Thankful for our friends over at the Cato Institue have conducted further studies pertaining to Starve the Beast policies. Researcher Michael J. New conducted a regression study of the relationship between expenditures and taxation from 1981-2005. It was found that even when adjusted for wartime spending, limiting tax revenue did not effectively curtail discretionary spending. Substantiating the previous research of William Niskanen.
It is excellent that these studies have exposed the numerical shortcomings of simply cutting taxes. However, what is causing the profligate spending to continue even when tax revenue is decreased? Now it is time to applaud the advocates of the Austrian School of Economics and Public Choice Theory for acknowledging the role of inflation. If the printing presses are running the possibility of funding without direct tax dollars is on the table. This is a massive blindspot in Milton Friedman’s thinking, but an understandable one. Utilizing inflation for financing expenditures is circuitous means of procuring funding. Not an obvious means of generating revenue. Also, it is important to remember he was a proponent of monetarism making him less apt to question the government’s role in controlling the currency supply. However, considering the disastrous economic effects inflation can bring it is something that should always be questioned.
It is quite evident that the welfare programs in the United States are beyond broken. So much that many of these bloated and red-tape draped initiatives are seem unsalvageable, irredeemable, and impossible to adequately reform! Not only do they often fail to lift recipients out of penury appears to have generated cycles of multi-generational poverty. Leading to the perception that these programs operate more as institutional forms of job security for bureaucrats rather than measures to help the poor. Forms of public assistance stressing dependence versus progressive graduations of increase autonomy are a hair away from being medieval serfdom. A pen stroke away from the restoration of the repugnant practice of sharecropping. If being shackled to the debts incurred at the company store wasn’t haunting enough the ghosts of past sins don’t stop there. Sharecropping often occurred on former slave plantations in the Southeastern region of the United States. Freed only to remain on the same servile living quarters of your captive ancestors. This analogy is fitting because the current welfare system is analogous to an implicit form of slavery, like serfdom or sharecropping.
When faced with the social and financial costs of the current programs it is extremely tempting to advocate the flat out abolition of all forms of welfare. It is ineffective at helping recipients claim up the socio-economic ladder. Servers more as a temporary supplement in contrast to a permanent solution. The amount of money that has been squandered on such ineffective measures is very concerning. Considering the dismal results and the ever-expanding expenditures allocated for welfare programs, it is fair to surmise that government institutions are inept at efficiently running them. Despite the qualms any fiscally-minded voter may have pertaining to social welfare, outright elimination is unrealistic. The public outcry would be so profuse and pervasive it would not be a pragmatic political reality. I hate to expound upon such a reaction in such cynical terms; however, one quirk of human nature is that people like to obtain goods and services for free. Even in the private sector, if a product or service is being given away for free; people are willing to kill each other to obtain it. The best you can hope for is a significant downgrade in the amount of bureaucracy and spending utilized to dispense welfare services.
The question becomes if we cannot feasibly relinquish all welfare programs how do we implement a more efficient and effective means of providing such services? Literally a trillion-dollar question. Nevertheless, a question that we need an answer too, especially in the age of uninhibited profligate spending. The answer may come from an unlikely source, the Nobel Laurate Libertarian economist Milton Friedman. The answer is the implementation of a Negative Income Tax (NIT). The Negative Income Tax is often confused with Universal Basic Income (UBI), a policy championed by Democratic presidential candidate Andrew Yang. However, UBI is not a means-tested form of welfare entitlements whereas NIT is. In basic principle, NIT works by providing :
“….the percentage difference between an individual’s income and an income cutoff, or the level at which they start paying income tax..” .
A firm example of how this would be applied the following example would best demonstrate how this would work.
“The NIT would thus be a mirror image of the regular tax system. Instead of tax liabilities varying positively with income according to a tax rate schedule, benefits would vary inversely with income according to a negative tax rate (or benefit-reduction) schedule. If, for example, the threshold for positive tax liability for a family of four was, say, $10,000, a family with only $8,000 of annual income would, given a negative tax rate of 25 percent, receive a check from the Treasury worth $500 (25 percent of the $2,000 difference between its $8,000 income and the $10,000 threshold). A family with zero income would receive $2,500.” .
Even though budget hawks and limited government purists would still scoff at the notion of implementing NIT. Especially individuals who unconditionally view taxation constituting theft. While their apprehensions are understandable, the unfortunate reality is that the likelihood of America ever becoming a “voluntary” society is minuscule. There is too much-invested interest ranging from self-interested bureaucrats to the welfare recipients themselves that would be an impossible sell. It is hard enough to persuade the public to go along with NIT. If implemented, fiscally, this would be a huge victory in reforming welfare. Per Milton Friedman’s 1962 book Capitalism and Freedom:
“…. In 1961, the government amounted to something like $ 33 billion (federal,
state and local) on direct welfare payments and programs of all kinds: old age
assistance, social security benefit payments, aid to dependent children, general
assistance, farm price support programs, public housing, etc. I have excluded
veterans’ benefits in making this calculation. I have also made no allowance for
the direct and indirect costs of such measures as minimum-wage laws, tariffs,
licensing provisions, and so on, or for the costs of public health activities, state
and local expenditures on hospitals, mental institutions, and the like.
There are approximately 57 million consumer units (unattached individuals
and families) in the United States. The 1961 expenditures of $ 33 billion would
have financed outright cash grants of nearly $ 6,000 per consumer unit to the 10
percent with the lowest incomes. Such grants would have raised their incomes
above the average for all units in the United States. Alternatively, these
expenditures would have financed grants of nearly $ 3,000 per consumer unit to
20 percent with the lowest incomes. Even if one went so far as that one-third
whom New Dealers were fond of calling ill-fed, ill-housed, and ill-clothed,
1961 expenditures would have financed grants of nearly $ 2,000 per consumer
unit, roughly the sum which, after allowing for the change in the level of prices,
was the income which separated the lower one-third in the middle 1930s from
the upper two-thirds. Today, fewer than one-eighth of consumer units have an
income, adjusted for the change in the level of prices, as low as that of the
lowest third in the middle 1930s.
Clearly, these are all far more extravagant programs than can be justified
to “alleviate poverty” even by a rather generous interpretation of that term. A
program which supplemented the incomes of the 20 percent of the consumer
units with the lowest incomes so as to raise them to the lowest income of the
rest would cost less than half of what we are now spending. (Page 159) .”
Clearly, even back in 1961 supplanting the many of the “New Deal-era” entitlements with NIT would substantially save money. Even when adjusted for the rate of inflation, those savings would be even more pronounced in 2019. Within the past 59 years, the size and scope of government have only drastically expanded which is in lock-step with sharp increases in spending. The national deficit back in 1961 was $289 Billion with a Debt/GDP ratio of 52%. . While the years between 1961 and 1988 saw fluctuations, it was not until the mid-1990’s that we started to see profound increases in deficit spending . As of 2018, the Debt/GDP ratio reached 104% . Doubling since referenced seminal work of Friedman has been originally published! If the United State were, in theory, able to reduce all current welfare initiatives it would significantly reduce expenditures on such programs. The excessive amounts of spending on welfare programs is one of my biggest reservations pertaining to such entitlements.
The question becomes is how does UBI stack up in comparison to NIT when it comes to budgetary allocations. As you can imagine UBI is the more expensive of the two policies. What’s the damage? Per an article from the Niskanen Center:Universal Basic Income is Just a Negative Income Tax with a Leaky Bucketdemonstrates this point astoundingly. At a proposed rate of $10,000 per person, annually would result in an estimated expense of $3 trillion dollars. It estimated even if the allocation per person was cut in half it would still constitute most of the federal budget minus “… Social Security, Medicare, defense, and interest payments” . However, it does appear based on a rough estimate of the cost of NIT that the total would be $182 billion annually. Which would be equivalent to the combined cost of SSI, SNAP, and EITC. Obviously, it is still a noteworthy expense but pales in comparison to the cost of UBI implementation and that of our current expenses. It becomes quite evident how foolish it becomes to utilize the terms UBI and NIT interchangeably considering the gargantuan differences in the costs. The referenced article questions why more policymakers are advocates of UBI over NIT. That is a reasonable question. Especially when one policy is more economically efficient from the standpoint of expenses.
Notable reductions in welfare spending are not the only benefit that would come of narrowing down public assist to only NIT. An article published by the Independent Instituteback in 2008: If you Really Want to Help the Poor, Remember Milton Friedman, focuses on these advantages. 1). The article mentions how NIT benefits the individual recipient by receiving more money through not punishing them for working. Many current programs cut benefits once the starts to receive a low threshold of compensation. Relinquishing incentives for working. 2.) It is more efficient than other forms of welfare by eliminating all the departments that currently allocate services. This would amount to a radical consolidation of internal government agencies. 3.) Being the funds are appropriately dispensed. In other words, the money is given to the recipient versus squandered by overhead costs (such as the salaries of administrators) or reallocated for another purpose. It speculated that a mere “… 15 cents of every dollar finds its way to the poor…” . Providing a truly awe-inspiring example of government inefficient at work.
The current welfare system is an abysmal train-wreck that most likely needs to be gutted down to the studs. Completely eliminating it is highly improbable, so the unfortunate fact is society needs to find an efficient compromise. From the standpoint of economic and institutional efficiency, a Negative Income Tax would be the most advantageous option. Not to be confused with Universal Basic Income, similar premise, however, financing that variation of distributed funds is a different story. One reading this article today, please stop substituting UBI for NIT and vice versa. Both policies have different ramifications when it comes to funding. In all honesty, one of the policies seems more rational and effective than the other. While the other is merely a Keynesian stimulus package camouflaged as a theoretical solution from the Chicago School of Economics. NIT only provides subsidies to those of the lower-income strata. UBI, in contrast, provides a siphon to everyone regardless of finical need, which is irrational. It harkens back to the fixation of the Keynesian school when it comes to economic consumption being the core impetus for economic health. Which in all honesty hasn’t always proven to be true. If you are going to redistribute tax dollars you might as well give to those in need rather than haphazardly provide it to everyone on the feeble hope it will spur an uptick in spending. In all honesty, welfare programs were intended to operate as a socialized charity. While I personally believe all charity should be privatized, I understand that I am in the minority holding such a view. If my tax dollars are going to be retributed at the very least do so in a rational manner. A five-time lottery winner doesn’t need any of my tax contributions.
I always try to give people the benefit of the doubt rather than casting suspicion upon them of duplicity. I am perplexed by the fact that Andrew Yang claiming that Milton Friedman was a proponent of UBI. As demonstrated previously UBI and NIT are similar but not the same. Yang is either ignorant of the difference because he never deeply examined the distinction between the two or he’s dishonest. Either could be the case as he is a presidential candidate. However, the potential for political opportunism is always lurking in the background for anyone with presidential aspirations. I wouldn’t put it over Yang to sell the benefits by omitting the key differences between UBI and NIT and conflating the two intentionally. Then utilizing the connection to Friedman and his premarket legacy to sell the American public on NIT’s more expensive brother. Why sell UBI over NIT? It is a matter of obtaining votes. What is a better sales pitch only low-income Americans get a check or everyone gets a check? The answer to that rhetorical question should be evident. The problem is when people are so engulfed in their own self-interest they are blind to the big picture, they are incentivized to make idiotic decisions. Long run everyone getting a check is more harmful than regulating it to the poor.