The Great Society—Not That Great

One truth we often say here at the Spherical Model is,

Whenever government attempts something beyond the proper role of government (protection of life, liberty, and property), it causes unintended consequences—usually exactly opposite to the stated goals of the interference.

I should count how many times I’ve said that. Anyway, it’s something you can count on.

So, back when President Lyndon Johnson developed the Great Society, what did he actually create?

That was the subject of Rep. Dan Crenshaw’s podcast last week with, as his guest, historian Amity Shlaes. You might know her from previous works, The Forgotten Man, about the Great Depression, and her biography on President Calvin Coolidge. Her latest book is Great Society: A New History.

cover image from here

Dan Crenshaw tends to ask a question and then just listen as the guest informs. They went back a couple of decades earlier, to see what was going on. We had won World War II. We were a prosperous nation. We felt omnipotent. So when President Kennedy set a goal to reach the moon, we thought, of course we can. So why not tackle the poverty problem?

Shlaes paraphrases Norman Podhoretz, the editor of Commentary, as saying,

AS: “Well, I thought cleaning up poverty would just be basically a mopping up action in the United States,” because he’d seen the achievements of the US in World War II as a soldier. It just didn’t seem like such a big deal.

Dan points out that Kennedy didn’t look like a Democrat of today, so he asks her about that:

Dan: Do you think Kennedy would have, if he was still president, do you think he would have enacted something like The Great Society? You look at a lot of his rhetoric on free markets. He enacted tax cuts and pursued free trade policies and sound budgets. Pro-Second Amendment. It’s hard to see him as a modern-day Democrat. Would he have gone this direction?

She says there are people who have explored that very question. Ira Stoll, in a book called JFK, Conservative. Also Larry Kudlow. Her personal opinion is, no, Kennedy would not have implemented the programs of the Great Society.

He was more conservative than the impulsive progressives around him: his brother Robert Kennedy, his successor Lyndon B. Johnson, his brother-in-law Sergeant Shriver. But once Johnson saw his opportunity, he took it.

Johnson had been involved, years earlier, with President Roosevelt’s New Deal. He thought FDR didn’t get enough done. So he set out to finish. By means of the federal government, of course. And he was very ambitious.

As Shlaes explains,

AS: Lyndon Johnson was a New Dealer. He worked for Franklin Roosevelt. He led the National Youth Administration as a very young man in Texas. So, he said to himself, and to others, “I will finish what Franklin Roosevelt started. He started the New Deal. I will finish the work with The Great Society, and poverty will be cured.” C-u-r-e. That is the verb Johnson used. He didn’t say reduced. A very ambitious goal. And, because we were so wealthy, it seemed eminently possible—get to the moon, cure poverty.

So, what do the metrics say actually happened?

There was poverty. It wasn’t well defined. There wasn’t a metric until a woman in the Labor Department, Molly Orshansky,  invented one. But there were poor people. Shlaes recommended a book, similar to the recent Hillbilly Elegy by J. D. Vance, also about Appalachia, called The Other America, by a Catholic idealist named Michael Harrington. He described the people as really poor. Shlaes says,

AS: And it was true; they were really poor, and they had terrible problems. “So, let’s do something. Surely we can,” was the attitude.

Poverty, nevertheless, was on a downward trend, even in the 50s, because of economic growth. So there was something of an effort to step in front of a trend to take credit for it. Estimates show that the poverty rate was declining downward from 20% toward 10%. It hit 11% in 1973. Dan asks, did that mean the Great Society policies were working? Shlaes says no.

cover image from here

AS: John Cogan wrote a whole book about this, at Stanford. I recommend it. It’s about entitlements. [The book is The High Cost of Good Intentions: A History of US Entitlement Programs.] And what he shows is that, overall—some years you get a different picture—but overall the reduction in poverty decelerated. And then it stalled. So, you look at the result, once all the programs are in place, and in the 70s we kind of got stuck at 10% or so. What does that mean? Maybe 10% of people will always be poor. OK. That’s very sad. But what’s much more important is what we did… and that was to train people to believe they will always get entitlements.

That’s the point that caught my attention. If you want to create a truly great society, how can you get there by incentivizing people not to work?

Shlaes illustrates with the story of a talk she gave at a charter school in Arizona:

AS: I was mentioning food stamps, which exploded at the end of the 60s. And I talked about that. And a student got up and said, “Don’t you care about the poor? My family is on food stamps. We’re not ashamed. How dare you shame us?”

I wasn’t shaming them. The answer to that is, everyone comes to want from time to time. Some people need food stamps. No one would deny them that. It’s not a shame. But what is a shame is to expect, not only yourself, but your children and grandchildren to be on food stamps.

That’s what we did to them. We, the voters, did to poor people. We trained them to dependence. And they don’t deserve that. They’re more talented than that. We trained them to sell dependence rather than look for opportunity. We trained our own children to that. That is a shame.

There was a point where they mentioned Andrew Yang and his universal income. It sounds appealing. But—remember, the consequence is probably going to be the exact opposite of the intention. So what is the intention of a universal income? To alleviate poverty, along with the worry about not having the means for food and shelter. You want people who are free from that worry.

What you will get are people who are not capable of working their way out of poverty—because you take away the incentive. Why work if it doesn’t matter?

I’ve heard the theorists, including Yang, make a relatively convincing argument that changes in technology are going to affect the jobs available—and the level of thinking necessary to do those jobs. Jordan Peterson has talked about this to some extent. There are people that not even the military will accept, because they aren’t trainable. Their IQ is simply too low. It’s a relatively small percentage of the population. Some have a mental defect. Some are simply mentally well below average. Technology could make it so a larger segment of the population fits into that “can’t be trained” category.

But I don’t believe it. We have Down’s Syndrome people among us. Many can be trained. We see them working productive jobs at Walmart and Kroger near us. Can they do all jobs? No, but they can do something worthy of pay. If we didn’t have a minimum wage, there would be more jobs employers would be willing to hire them to do—something commensurate with the value they bring to the employer, so it isn’t merely charity on the employer’s part.

No matter how good technology gets, there’s still a whole lot of menial labor that needs to be done. I think Yang and others overestimate the ability of technology to clean up messes or do physical labor.

But, for argument’s sake, what if we did provide a basic income for those who can’t earn enough—because of their very real limitations? For some, that would mean they’d still need to live with someone who could supervise their daily living. But for the remaining few low-IQ untrained people, it would mean aimless and purposeless lives, to replace their meaningful labor. I don’t think that is a way to improve their lives.

And then you do it for everyone? Universal basic income?

Yang at least does that as a replacement to each and every poverty program now in place. But still. Not a good idea.

Shlaes offers a little history lesson, to show what we’ve already considered.

AS: We tried to do that with the universal income program led by Daniel Patrick Moynihan. It was actually Richard Nixon who led it. It didn’t pass, because Congress saw it was unbelievably expensive. But also because Congress saw it—Congress didn’t want people to think they—it didn’t want to put into concrete the entitlement that you’re supposed to be paid. So, I’m concerned about that, because I do think it’s bad to honor the idea that you should always pay people.

Not to mention, Dan says, “Why would you basically tax people, run that money through a bureaucracy, and then just give them back that money? That doesn’t seem to make any sense.”

What have we learned? What could actually work? Shlaes suggests education and training. She has come to like a historical black civil rights leader named Robert Paris Moses, from New York:

AS: He was a math teacher, and he developed a program called the Algebra Project on the hypothesis that all 13-year-olds should learn algebra. And maybe trig, right? And that all can. And the truth is that almost everyone can learn algebra. They might learn it more slowly than other people.

Almost everyone can be OK in trig. Most of us can’t do calculus. We pretend to, but we can’t. So, we’re all closer to being alike than we imagine.

And, I thought that was a great project. He said African-Americans will have a better life if they can get a skilled job. And, this project, the Algebra Project, won a McArthur grant, a genius grant. It never went scaled. And I think that’s a pity. I liked also about it that it was extremely empirical. “You can learn algebra; let’s be sure you do. And let’s spend endlessly to be sure you know algebra.” If you have algebra and you can talk, you can get a job.

Dan asked about the gap between black and white unemployment, because the Great Society actually made that worse. Shlaes talks about that, reiterating that education point:

AS: We undertook many measures that focused on the black community. And we hurt them. In fact all poor people, but poor people who happened to be black, we accustomed them to the welfare story. And then the question is, why are they unemployed? Some of that is, skills are very important now. We didn’t emphasize skills; we emphasized need. That was a problem. That’s why I like Robert Paris Moses. If you have enough skills, and you can talk to grownups—and that’s important—you can get a job in the United States.

It may not be a good job, but from that job you can learn. And then you move towards the job that you want. That whole culture is gone.

She then mentioned that unions, another outgrowth of the Great Society, added to the problem:

AS: Unions were a big problem in the period too. Unions demanded very high wages. Who loses when unions are powerful? Underskilled people. New arrivals. That’s very sad. So, I’m mainly concerned about education and looking forward.

image from here

Dan, as a legislator, questioned what is the federal government’s role in that. He mention some successes of the private sector, in his Houston area district.

Dan: There’s a lot of private sector places, especially around the Houston area that do really incredible training programs, and they basically want us to just leave them alone. Which seems right. But how do I encourage more companies to do what they’re doing. They’re putting people through—these are definitely low-income, low-skilled people—through a training program that ends up starting, I think, $70,000 a year. Maybe welding pipes or whatever it is. And it’s incredible.

That is incredible. These are jobs people who don’t go to college are getting. Shlaes told another story about free-market solutions.

AS: In New Mexico, a lot of the Great Society was for Native Americans as now. Poverty was sometimes appalling, and people improve that on reservations. The company called Fairchild, whose executives later became the leaders of Intel, the chip maker, decided they were going to open a factory in the reservation area in Shiprock, New Mexico. They even had some cooperation from the government. And they quickly became the largest private sector employer of Native Americans in the United States. They employed hundreds and hundreds of Native Americans in chip making.

It was actually something that Native Americans were really good at, because they had worked with their hands on needlework. And, you know, that was opposed to having a factory abroad.

Eventually… the more left-leaning radicals tried to take over the factory, and the company did what companies always do, which is to withdraw and make the chips elsewhere. Because companies can’t handle big trouble.

But the point was, the private sector generally comes up with great solutions to help poor people by giving them work and training them.

That is the alternative to the Great Society programs: free market innovations. She summarizes the actual solution—instead of federal Great Society programs, which haven’t worked.

AS: A strong economy is the best way to help people out of poverty. It’s actually a fact.

Imagine if the interferences of FDR had never happened. Then imagine that the interferences of LBJ and beyond hadn’t happened. Then add into the equation the boom that happened in the first three years of the Trump administration, after the Obama malaise—and despite the still existing interferences. What if we allowed growth to just keep happening?

You want a truly great society? Follow the rules for freedom, prosperity, and civilization. Limit government to its proper role of protecting life, liberty, and property. Get out of the way so a free market can innovate solutions to problems. And, I’ll add, for when there are times when people need a temporary help—or long-term help that is due to circumstances beyond their control: charity and philanthropy. 

That system works. It takes a self-governing people to do it. But it works a whole lot better than government programs.

Economic Principles for Volatile Times

Monday we woke up to a sharp 1000-point decline in the stock market, which recovered to down only 500 by the end of the day. But still startling. What caused it? And what does it mean for the future?

Monday's stock market drop, chart from here.

It has something to do with China’s economy, but also a lot to do with American economic policy.

China’s growth has concerned world markets over the past quarter century. But growth—real growth—has to be related to actual creation of wealth. Wealth represents the accumulation of the results of labor. If it doesn’t represent real wealth, but is an illusion caused by printing money, manipulating money supply, then it’s bound to lead to an eventual comeuppance. That has been coming for a while.

Here’s a summary, by Greg Lewis at American Thinker, of what’s been going on there:

The Chinese economy, fueled by state-funded credit and money-printing, has enabled the size of the Chinese stock market to rise to dangerously overblown levels more than 50 times higher than they were only two decades ago….

China’s extraordinary stock bubble has been enabled by some of the most perverse practices ever perpetrated on this planet. Among other things, in order to prevent shareholders from selling their stocks to avoid the losses that it’s clear are inevitable, Chinese authorities have threatened to send police and paddy wagons around to arrest citizens who dare to sell off their investments.

Since the turn of the century, China has been on a state-credit-funded manufacturing spree that has caused the demand for commodities to spike to levels never before seen….

What does China have to show for it? Hundreds of ghost cities, filled with enormous skyscrapers, housing projects, and sports stadiums, along with superhighways to nowhere. They now stand virtually unoccupied and unused…. The problem is that what China has built will produce no lasting return to sustain its economy, and the resulting bust will also cause severe contractions in commodity prices and U.S. and global suppliers’ earnings.

China’s 10 percent annual growth rate over the past three decades is turning out to be nothing less than one of the great frauds in global economic history. …

China is an example on a large scale of the failure of central planning, the failure of tyranny to lead to prosperity.

What is worrisome is how closely our formerly free economy has been following the Chinese model. Lewis adds this:

When you couple China’s unimaginably large and corrupt fiat economy with the fact that the United States has been following the Chinese model on a smaller scale since the crash of 2008, you have the makings of financial disaster. Indeed, in the name of bailing out the big banks involved in the 2008 financial meltdown, our own ignorant Keynesian economics poobahs have engaged in the same fiat currency printing as the Chinese. In addition, in maintaining interest rates at or near zero percent for the past half decade plus, the Fed has stolen upwards of $1 trillion in interest people should have collected on their savings over that time. In the wake of the current turmoil, the Fed is once again backing off raising interest rates.

I don’t know if the blip that happened this week portends huge disaster in the near term or not. But we do know that economic principles are about as inexorable as gravity. Anything government does that interferes with a free economy will increase the pain to come.

Back in 1988, Murray Rothbard wrote a piece refuting the contemporary economists about the causes and cures of the 1987 stock market crash. The Mises Institute shared that piece again this week. Rothbard lists nine myths about that crash and what should have been done—and shows why they’re myths, and what is the truth. The assumptions of the mostly Keynesian (liberal, progressive, central planning) economists was that fine tuning control over money supply, inflation, trade, taxes, and government spending would make things right. They just had to stumble upon the right mix of policy. But here’s the summary point:

The important point about a recession is for the government not to interfere, not to inflate, not to regulate, and to allow the recession to work its curative way as quickly as possible. Interfering with the recession, either by inflating or regulating, can only prolong the recession and make it worse, as in the 1930s. And yet the pundits, the economists of all schools, the politicians of both parties, rush heedless into the agreed-upon policies of: Inflate, and Regulate.

That is the main point of books like Meltdown, by Thomas Woods, which examines the 2008 crash, and The Forgotten Man, by Amity Shlaes, which examines the Great Depression of the 1930s. In addition, the “forgotten depression” of 1921 shows us by contrast what happens when government refrains from interfering. In that stock market crash, President Warren G. Harding refrained from interfering, and let the market correct itself, which happened within a few months. Calvin Coolidge continued the non-interference policies through the 1920s. And it wasn’t that naturally growing successful market that led to the 1929 crash: that was government interference. That crash was actually caused by federal easy money policy (exaggeratedly low interest rates). And the crash didn’t cause the Great Depression. The stock market was well on its way to correcting itself in a quarter year—until the Fed interfered with suddenly tight money. And then Hoover, followed by Roosevelt, tinkered with the market one way after another, keeping the market from returning to prosperity for more than a decade.

In 2012, economist John B. Taylor gave the Manhattan Institute’s Eighth Annual Hayek lecture, “The Policy Is the Problem.” In that lecture he does two things: he defines economic freedom, and then lists the known principles.

What I mean [by economic freedom] is the situation where individuals, families decide what to buy, what to produce—they decide where they will work, they decide how they're going to help other people. But they do this within a framework. It's kind of the American vision, if you like. And that framework involves five things: 1) predictable policy, 2) rule of law, 3) a reliance on markets, which generates 4) good incentives, and 5) a limited role of government.

What we’re looking at this week, and forward, is the result of the Obama experiment in interference. Policy has been unpredictable—changing, added regulations, applied according to crony capitalism rather than predictable law. Markets have been viewed as a measure of unfairness—success means some unfairness to the bottom, rather than entrepreneurial energy. Regulations have been discouraging and the opposite of good incentives. And monetary policy has continued extraordinarily ow interest rates, leaving nowhere to go when a correction is needed.

Capital—literal as well as social respect from other countries—built up over the first couple of centuries has been spent in this socialist experiment under Obama. The market has no chance of returning to growth and prosperity until the interference stops.

As for Monday’s stock market drop, correction depends on whether this government tries to do something about it. They’re already doing enough harm. Could they do more? There seems to be no limit to the bad policies they will try.

The 2008 drop could have corrected quickly with restraint from government. The current Great Recession (sometimes referred to as the historically slowest recovery) is lasting because of government policy. So we’re already down. But I’m sure they could manage to cause us to drop from the current plateau to an even lower one.

Drops naturally correct; it’s a parabola. They naturally bounce back up if allowed to correct. But then there's the trampoline effect—if they interfere, they keep the bounce back up from happening.