A Basic Political Economy Jude Wanniski September 6, 2002

Memo To: Students of SSU
From: Jude Wanniski
Re: A Basic Political Economy

Last semester we concentrated on taxes and regulation and last fall we devoted to money and banking. This semester will focus on the political dimension to political economics and this first lesson will be as basic as it gets. The reason I think we must begin this way is that in my own experience as a student of political science at UCLA, 1955-59, there was no such foundation laid. The professors threw enormous amounts of information at me, in lectures and textbook studies, and when I got my BA degree in Political Science I really did not know what I had learned. Twenty years later, when I wrote The Way the World Works, I did realize that I had learned far more in school than I thought at the time, but that it had to come together with my life experience.

Life experience is what political economics is all about, from day one. The most basic lessons we get in life begin from the day we are born. We are political animals. But so are other species of mammal. All the primates arrange themselves in societies, but so do elephants, lions, tigers and bears. So do ants and bees, for that matter. When I mean basic, I mean basic. We think of the Law of the Jungle as a place where only the most fit survive, as individuals. But survival also depends on those who have learned over eons to cleverly arrange themselves in collectives. In the history of the world, the human species has thus far won the competition to be the species of life superior to all others. I say "thus far" because we can't assume that history is over now that we are on top. There are surely life forms even now arranging and rearranging themselves in collective and individual combinations with the real possibility of getting to the top -- by simply wiping out mankind. For our purposes, we can put these possibilities aside, on the assumption they are not very likely to occur in the next fifty years, which is the outside span of time that students of political economy today will exert an influence on the shape of the civilized world.

In The Way the World Works, which I wrote in 1977, my observations of the universe of human political economy led me to the idea that the family unit is the most basic form of government. Because the large world of politics is so complex, it makes no sense to have students at the beginning of their studies be asked to grapple with that complexity -- before they have thought through the most basic forms. Once you grasp all the combinations and permutations of a family dynamic, you can much more easily understand the complexities of a world of 6 billion people. We learn the way the world works first from our mothers and fathers and siblings, the way they first learned it from their parents. Soon after we learned to say "Mama," we learned to say "hi" and "bye-bye," forms of social expression. We learned rules of civilized behavior that preceded civilization by tens, even hundreds of thousands of years, rules that involved collective rewards or punishments to those entering the family or clan. What we do now at the national and international level may be more elaborate -- requiring legislatures, bureaucracies and courts of law. The basic building block is still the same. A family is a mini-nation state. When I wrote TWTWW, I thought perhaps this formulation was an original insight, but years later I realized I'd picked up the fragment of the idea from A History of Political Theory by George H. Sabine. It is the book I used at UCLA when I took a course in this topic in 1957:

Aristotle accepted from the start the point of view of the Laws, that in any good state the law must be the ultimate sovereign and not any person whatsoever. He accepted this not as an acceptance of human frailty but as an intrinsic part of good government and therefore as a characteristic of an ideal state. The relation of the constitutional ruler to his subjects is different in kind from any other sort of subjection because it is consistent with both parties remaining free men, and for this reason it requires a degree of moral equality or likeness of kind between them, despite the undoubted differences which must exist.

This distinction between different kinds of rule is so important for Aristotle that he returns to it again and again, and it had evidently been an object of early interest with him. The authority of a constitutional ruler over his subjects is quite different from that of a master over his slaves, because the slave is presumed to be different in nature, a lower sort of being who is inferior from birth and incapable of ruling himself. Aristotle admits, to be sure, that this is often not true in fact, but at all events it is the theory upon which slavery is justified. For this reason the slave is the master's living tool, to be kindly used, but still used for the master's good.

Political authority differs also from that which a man exercises over his wife and children, though the latter is certainly for the good of the dependent as well as for that of the father. The failure to distinguish household from political authority Aristotle regarded as one of Plato's serious errors, since it led him in the Statesman to assert that the state is like the family only larger. The child is not an adult and even though he is ruled for his own good, he is still not in a position of equality. The case of a wife is not so clear but apparently Aristotle believed that women were too different in nature from men (though not necessarily inferior) to stand with them on the peculiar footing of equality which alone permits the political relationship. The ideal state, therefore, if not a democracy, at least includes a democratic element. It is a "community of equals, aiming at the best of life possible" and it ceases to be constitutional or genuinely political if the discrepancy between its members is so great that they cease to have the same "virtue."

It never hurts to begin a course of study in politics by checking out Aristotle and Plato. They may not have figured out all the possibilities leading to the ultimate political ideal, but they did put down the basic conceptual foundations. In this case, it was Plato who saw "the state is like the family only larger." Aristotle pooh-poohed the idea because women have some say in the family, but they don't in the state, and children are ruled for their own good and have no say. At the time, the parallel did make less sense than it does now. But this goes to show that Plato had a surer grasp of the ideal on this particular matter. In the intervening 2500 years, the state has steadily evolved to look more like the family. It clearly functions better when women are included in the policymaking process, as they are in the family, and the youth vote has not hurt at all as the voting age dropped to 18 from 21. The family unit is indeed the basic building block of the nation state, and we can see in it all the shadings of democracy that Aristotle thought desirable in the state.

In TWTWW, I'd posed a political problem for the family government, when I suggested the two parents and three children had to decide whether to go to the mountains or the shore for the summer vacation. A poll showed the vote to be 4-to-1 in favor of the shore, with both parents in the majority. Why does the family then go to the mountains? Because in the course of the discussions, one of the children makes such a passionate plea for the mountains that the others give way, perhaps with the promise that they will go to the shore the following year. In modern politics, political candidates will spend millions of dollars taking polls of the electorate, to find out what they want, and then promise to do just that, only to be defeated by another who seems to side with the minority. This is why public-opinion polls are so unreliable in forecasting the outcomes of elections, especially when election day is at a distance. Voters converse with each other as they mull the options and candidates, frequently voting quite the opposite of the tastes they said they preferred at the outset.

As in the above example, the political function of a family unit is to assess the available family resources, the reasonable goals over varied time schedules for the family and for individual members of the family, and to allocate resources in a way that promises the highest return on investment of time, energy, talent and money. We expect nothing less from our mayors and city councils, governors and state legislatures, and President and Congress. In the family, the mother and father and the children who are old enough to reason constitute the electorate. They and the younger children and other household members -- grandpa and grandma perhaps -- constitute the population. Aristotle was, of course, correct in noting that women have a different nature than men, although they are not inferior. This derives solely from the fact that they bear the children, which means they almost always assume the responsibilities of child-rearing as well. The nature of the male derives from his freedom from childbirth, hearth and home, which dictates his role as provider.

In the Oriental world, the yin and the yang of an individual or family or institution must be in balance if there is to be harmony. The yang component is masculine, positive and light. The yin component is feminine, negative and dark. This simply means the yang has the optimistic bent in arguing for the deployment of family resources, pushing for growth, while the yin argues on behalf of caution and economic security. The United States government is harmonious when its yin and yang are in bipartisan balance with each other and the demands of the times. The Republican Party can be thought of as the Daddy Party and the Democratic Party as the Mommy Party. The passage of the 1997 Budget Deal, included a cut in the capital gains tax which the Daddy wanted, and tax credits for education which Mommy wanted. It was the first evidence of bipartisan harmony in quite a few years. If you make a list of the things the GOP stands for and a list of things the Democrats stand for, you will quickly see that Republicans are more risk-oriented and Democrats more security-minded. In matters of national security, though, the Daddy Party always seems to prefer to spend more money on better weapons, while the Mommy Party argues that some of that should go to social programs, education of the kiddies and health of the old folks.

Of all the nation states, the United States is the only one which has a two-party system, which I tend to believe is one of the reasons why it has proven to be a superior system of governance to those nation states that have multi-party systems or one-party dictatorships. In the late 1960s and 1970s, which were chaotic in the United States, there were arguments from some experts, like Henry Kissinger, that the U.S. was at a disadvantage to the Soviet Union, because we had such an elaborate system of policy debate between the two parties. The Soviets could move much faster, he argued, because of their simple one-party system. The argument never impressed me, because I thought of the nation state as a family government grossed up. If Kissinger were right, single-parent families would be superior to two-parent families, because mom or dad would not have to reach a consensus with the other. It is when mom and dad consciously attempt to hammer out differences and reach consensus that yin and yang are in balance and the family resources are deployed with greatest efficiency. The multi-party systems in most of the world's parliaments are also less efficient, because they are never quite forced to find the most harmonious path. They can cop-out by electing several parties that have to scrounge about to find fractional coalitions.

This metaphor of the family unit as the smallest unit of political economy is more useful than any other I can imagine for entering a study of political economics. It is especially useful now that students of political economy face the responsibilities of leadership of the family of nations in what amounts to a new American imperium. If you cannot relate political behavior to the politics into which you were born, you will make an understanding of history and the current world political flow of history more difficult than it really is. We'll have other metaphors in the lessons ahead, but will return to the family from time to time to relate seemingly complex situations to those close to home. Here are some examples of how the metaphor can be useful given the issues facing the American people today:

In the current global debate on whether or not to war against Iraq in order to depose Saddam Hussein, Vice President Dick Cheney has been presenting the most hawkish case. Saddam may not be a threat to our security today, but he may be next year, and even if the UN sends weapons inspectors to see what he has been up to since 1998, that will not remove the threat. The Vice President is playing the Daddy role. On the other hand, Secretary of State Colin Powell notes that the rest of the family of nations – excepting the hawkish government of Ariel Sharon – are opposed to taking action against Baghdad unless there is much clearer evidence that it poses a threat. They urge a return of the UN inspectors. Secretary Powell is playing the Mommy role. President Bush represents the entire family and does not have to choose one side or the other, but rather to come up with a plan that will blend the two positions. If he will be a successful "Daddy," he will not strike simply because he has the power to do so. A father who rejects the counsel of the entire family and uses force will produce little terrors. In 1998, I twice warned in this space that unless our government took the trouble to find out why the Muslim family produced terrorists who tried to blow up the World Trade Center, others would follow and complete the job. In a recent poll of six European countries, only 10% say they would support a US-only invasion of Iraq while 60% say they would support a UN-backed invasion. In the U.S., 20% say they would support a Bush go-it-along invasion, with 65% saying they would if the UN did.

Another use of the family metaphor helps us understand the stock market. There is current discussion of a stock market "bubble," with Fed Chairman Alan Greenspan saying the market acted irrationally in driving up the prices of New Economy equities in 1998 and 1999, only to see them collapse in the years since. A new Polyconomics client last week asked me to explain the "dot.com" bubble, and I related how I had explained to my clients in those earlier years that the market could not discern which of the new companies being born in this new telecommunications industry would succeed and which would fail. It was like a great many babies being born, with the parents not knowing which was an Einstein and which would be a high-school dropout. They were all being fed capital until the market could begin to discern the progress of each and all, and to adjust the capital flows accordingly. The same thing happened with the birth of the auto industry at the dawn of the 20th century. There were literally thousands of American auto companies racing to see which would survive and it did not take very long before only a handful remained, all the others going bankrupt or being absorbed by the winners of the race.

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Serious students will find it useful to read Chapter 3 of The Way the World Works, "The Electorate Understands Economics." Here is an example of what you will find:

A child's principle trading partners are his parents, and perhaps brothers and sisters. When the child is six or seven years old, he has to formally be taught money values, and the idea of a currency being a medium of exchange. By that time he has learned most of what he is going to learn in his lifetime about general trade and money concepts. Even before a child can communicate verbally, it is clear he has learned the precision that trade involves. That is, the child wants something from mother and knows something must be traded in return, and that those two somethings will be of roughly equal value. The child is happy when the terms of trade are struck and mother seems happier too. The message that both sides seem happier from trade is one repeated thousands of times in early childhood.

"If you eat your dinner, I will give you an ice cream," says mother to the toddler, who has thus far shown no interest in eating. A variety of economic concepts are directly involved in this offer of trade. ( p. 47)

The Sabine History of Political Theory from which I studied in the 1950s happily is still in print and still is used as a text in some of the better schools of political science. It's a book you will be happy to have in your library for the rest of your life. A copy of Aristotle's Politics would not hurt either. But hold off on that until we get to graduate school.