Election 2012 Offers An Unusually Clear Policy Choice: Nationalism through commerce versus egalitarianism through redistribution

December 13, 2011

Bigger government? Smaller government? Laissez-faire or price and market supports? Do the rich have a responsibility beyond paying their taxes when it comes to helping out those less fortunate? Do the poor have a responsibility to contribute in exchange for entitlements?    What does those things really mean, anyway?

What does it mean to be rich? What does it mean to be middle class? What does it mean to be poor?

The wealthy demand the poor embrace the mirage like notion that every man can compete against well entrenched and protected corporate interests, while the poor realize the promise of equal opportunity pales in comparison to the promise of the equal distribution of wealth.

Times change. Do the definitions  of accountability and responsibility change with these changing times?

 

Hoover Institution:

The presidential election of 2012 is shaping up to be an epic contest. It is uncommon for an incumbent president to be considered an underdog, yet as of this writing President Barack Obama’s odds of winning reelection, according to the Intrade prediction market, stand at less than 50 percent. An endangered incumbent always makes for a fascinating political dynamic, one that will be compounded by the enormously high stakes of the upcoming battle. With the unemployment rate stuck at near nine percent and the Democrats’ new health entitlement set to go into effect relatively soon, the winner of 2012 will have unusual power to set American domestic policy for the rest of the decade.

But 2012 is shaping up to represent much more than even all this. It is a very rare event in American electoral politics that the country is faced with such a stark choice between two competing visions for the government’s role in the society. Using a strict standard, there have really been only two such elections, those in 1832 and 1896. In other cycles, nonideological issues or national concerns ultimately kept the country from focusing on the ideological contrasts between the two parties. For instance, the election of 1800 was fought in part over large differences in economic policies, but much of it had to do with foreign affairs and extreme ad hominem attacks. The election of1936 was certainly consequential for the long-term political economy, but the substantial rebound from the depths of the Great Depression gave Franklin Roosevelt an easy “valence” issue to campaign on. Even the Election of 1860— unquestionably the most important in the nation’s history — was confused by the presence of four candidates, each offering different approaches to the slavery issue and ensuring that Lincoln could not claim a popular mandate.

So, it is an extremely unusual event in the nation’s public life that the people are posed with such a straightforward question of ideology — 1832, 1896, and now perhaps 2012. Interestingly, the broad ideological contours of the2012 contest resemble those prior contests. On the one side is a nationalist coalition dedicated to advancing the public interest by sponsoring American commerce. On the other side is an egalitarian faction that believes that those pro-business policies undermined the republican character of the government, and instead offers proposals to redistribute political power, economic resources, or both.

THE DIVISION’S ROOTS

The idea of a strong national government to facilitate American commerce and industry is as old as the nation itself. Frustrated by the experiences of the American Revolution, where runaway inflation, lack of pay for soldiers, and poor infrastructure to move men and materiel hampered the war effort, American nationalists were downright appalled by the crackup in society during the 1780s under the measly Articles of Confederation. Leading nationalists like Alexander Hamilton, John Jay, James Madison, and George Washington were prime movers in organizing the Constitutional Convention, where they pushed for a robust national government capable of solving big problems.

One of the first articulations of this nationalist philosophy can be found in Hamilton’s contributions to the Federalist Papers. In his famed “Federalist No. 10,” Madison focuses on the ability of a large republic to protect the public interest from the machinations of factions, but Hamilton offers a different approach in the oft-overlooked “Federalist  No. 11.” In it, he suggests that a strong central government could engender national greatness, in part by encouraging trade between the states:

An unrestrained intercourse between the States themselves will advance the trade of each by an interchange of their respective productions, not only for the supply of reciprocal wants at home, but for exportation to foreign markets. The veins of commerce in every part will be replenished, and will acquire additional motion and vigor from a free circulation of the commodities of every part. Commercial enterprise will have much greater scope, from the diversity in the productions of different States.

As secretary of the Treasury during the Washington administration, Hamilton was central in enacting an economic program that included the federal assumption of state war debts, the repayment of all debt at face value, and above all the chartering of the semi-public Bank of the United States (bus). Hamilton believed that this program would establish the creditworthiness of the United States, and thus promote economic growth and broad prosperity. In hisReport on Manufactures in1792, Hamilton went beyond this to anticipate much of the 19th-century Republican economic program by calling for protective tariffs, tax exemptions for certain raw materials, and facilitation of transportation.

This view forms the foundation of the modern Republican party, especially its conservative wing, although at first blush this might be difficult to appreciate. After all, today’s conservatives consistently promote limited government, whereas Hamilton and the Federalists were in favor of an activist government. How to bridge this apparent gap? The difference is accounted for in the rise of progressivism, the political philosophy developed at the end of the 19th century that promoted an active government to regulate business and redistribute income among the classes. Today’s conservative Republicans generally favor “limited” government when compared to modern progressives, but they are as “activist” as ever when viewed from the Hamiltonian perspective in that they prefer a government that encourages American commerce and industry.

The Hamiltonian view of the federal government has long provoked intense backlash, with critics usually blasting the philosophy as being inherently unequal and anti-republican. This was the charge leveled by the Jeffersonians, who took control of the government in 1800 by demagoguing the Hamiltonians as an aristocratic clique plotting to impose monarchy upon the United States.

Unfortunately, the Jeffersonians would have to learn the hard way that Hamilton’s nationalistic policy was sound. Having all but vanquished their Federalist opponents, the Jeffersonian Republicans cut government spending to the bone and allowed the charter of the Bank of the United States to expire in 1811. The next year, amid a wave of nationalistic sentiment, they entered the country into another war with England — with calamitous results. A lack of internal infrastructure again prohibited the efficient movement of men and supplies, a lack of a standing army left ill-prepared state militias to handle most of the fighting, and a lack of strong financial institutions made it extremely difficult for the government to fund the war operation. The country had to suffer the ignominy of seeing the capital city burned to the ground, and it was only Andrew Jackson’s victory at the Battle of New Orleans that salvaged the national pride. The Treaty of Ghent accomplished none of the goals America had set when it initiated the conflict, and the “War of 1812” has been all but forgotten by 21st-century America.

The Jeffersonians would have to learn the hard way that Hamilton’s nationalistic policy was sound.

Yet it had a profound effect on the Jeffersonians. Almost immediately after the war, the party split apart based on the old Jefferson-Hamilton divide of twenty years prior. Moderate Jeffersonians like John Quincy Adams, Henry Clay, and Madison rediscovered the virtue of a strong central authority to promote internal development, and chartered a second bus. Indeed, Clay, who would dominate American politics for the next 30 years, elaborated a neo-Hamiltonian political program that he dubbed “the American System”: a national bank to stabilize currency and credit, protective tariffs to grow nascent American industries, and infrastructure improvements to promote internal development.

Mismanagement of this second bus abetted the Panic of 1819, but under the stewardship of president Nicholas Biddle, it contributed to the robust economic growth of the 1820s, when real gdp increased by an estimated four percent per year. Yet the bus had its detractors: Debtors in the South and West often viewed it as an institution that transferred wealth from their regions into the more prosperous Northeast; “radical” Jeffersonians considered it an unconstitutional expansion of government and a threat to simple republican virtue; and a growing number of observers would articulate a critique that has since become common in American political discourse — the idea that the bus executives played political favorites and created a climate of cronyism and corruption.

Andrew Jackson would come to expound all of these criticisms. His rough-hewn exterior belied a cunning political mind and firm belief that hard “specie” was superior to bank notes as the national currency, and Jackson set about to cut the power of the bank down to size, virtually from day one of his administration. Though Jackson would himself expand and enhance the powers of the presidency — by vetoing bills for political purposes and by standing up to the South Carolina Nullifiers — he was certainly no advocate of Hamiltonian, big government nationalism, believing that such intervention in private affairs inevitably favored the prosperous classes and therefore threatened the republican character of the government.

When Biddle requested that Congress renew the bus charter just as the 1832 election season began, Jackson’s worst fears seemed confirmed. Biddle was clearly in cahoots with Jackson’s opponents, above all Clay, the nominee of the “National Republicans” who was casting about for an issue to campaign on. Hence the petition for an early re-charter, and to Jackson a clear signal that an unelected financial elite were trying to influence the democratic process. Despite the fact that Jackson’s allies in Congress generally supported Biddle’s petition, the president vetoed the new charter and issued a stern rebuke in his veto message:

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, and laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government.

To this day, Jackson’s veto message remains the most cogent and effective critique of the Hamilton/Clay approach to policy. A government that is powerful enough to facilitate economic growth is also powerful enough to play favorites, and will inevitably favor the elite over the “humble members of society.” Though modern-day Democrats have since embraced big government progressivism, they nevertheless still regularly invoke this Jacksonian critique against today’s Republican Party and its pro-business policies, instead calling for reforms that address the “injustices” the “humble” suffer.

Unsurprisingly, the 1832 election became a referendum on these competing ideologies. The result was a decisive win for Jackson, who carried nearly 55 percent of the vote, the most for any Democrat until fdr’s victory a century later.

The Jacksonians dominated politics for the next quarter-century, but their inability to deal with the slavery issue meant that the new Republican Party would rise to power starting in 1860. Dominated by former Whigs, the Republicans would not only put an end to slavery, they would also push through a version of Clay’s American System over the next 30 years: protective tariffs to grow American industry, a stable currency pegged to gold, and federal land grants to nurture education and transportation. It seemed as though “Prince Hal,” as Clay was known during his lifetime, had finally been crowned king; though he would lose three presidential elections, his economic platform was largely implemented after he died, with the result being fantastic economic growth for the next 30 years.

The problem with a dynamic, industrialized economy is the persistent cycle of boom and bust, and the economic collapse of the 1890s was the worst depression the country had suffered to that point. The fallout from the “Panic of1893” exacerbated an already bad situation in the South and Great Plains, where indebted farmers labored to make ends meet despite a tight money supply, falling crop prices, and railroad monopolies that soaked them for every last penny. The frustration of the hardscrabble farmers gave rise to the Populist Party, whose spirit in turn overtook the Democrats in 1896. At its convention in Chicago, the party all but disowned Democratic President Grover Cleveland — an eastern conservative who favored the gold standard — and nominated the young, brash William Jennings Bryan after he gave a stunning speech.

The issue that year was not the bus, which had never been revived since Jackson killed it some 60 years prior, but rather the de facto gold standard the country had adopted to stabilize the currency in lieu of a central financial institution. Bryan and his populist Democrats favored the unlimited coinage of silver, which would bring about inflation (or so they hoped) and thus transfer a portion of the national wealth from the creditors in the Northeast to the debtors in the South and West. Bryan’s convention address in praise of “free silver” hit on many of the same themes from Jackson’s veto message, and has since become the template for modern Democratic politicking:

There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.

This argument is like nails on a chalkboard for the political descendants of Hamilton and Clay, then and now. Their belief is that a government that actively encourages commerce and industry may disproportionately help a few individuals at the top, but it is of lasting benefit to all classes of people. The Democratic view, then and now, was that this “trickle down” approach only made the rich richer and the poor poorer…

Read it all.

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