Subprime Donny

Some things in finance are very difficult to explain. Others aren’t. What Donald Trump did wrong in defrauding banks is one of the easy ones to explain.

Trump’s defense is, basically, something like this: “Sure, I lied about my assets, but everybody does it, and the banks got paid back—so, nobody got hurt.” That is, of course, nonsense, and the court is right to judge it to be such.

As everybody with a credit card or a mortgage knows, you pay less for loans and other financial services the better your credit standing is. Trump defrauded several lenders by lying on loan paperwork about the value of his assets and, in doing so, cheated those institutions and their shareholders out of the additional income they would have had if they had charged Trump a rate appropriate to his actual financial situation. If Trump had gone into a car dealership and signed paperwork to buy a Honda Civic and then drove off in a Mercedes S-Class, it wouldn’t be a defense to say that he made all the payments on the Civic, so nobody got hurt. His fraud was in using deceit to pay for a lower-priced product when he was receiving one that should have been more expensive.

What banks charge borrowers for is, for the most part, risk. If you have a good credit history and are taking out a $100,000 home-equity line of credit against a fully paid-for $2.5 million house, then there is very little chance that the bank is going to end up out any money. (In fact, if that scenario, the bank would almost certainly end up with a nice little windfall if you defaulted on your HELOC.) If you have a less solid credit history and are trying to borrow $100,000 against $175,000 in home equity, then there is a much bigger chance the bank is going to end up out of money on the deal. Sure, the bank can foreclose on your property and sell it if you default, but that takes time and money, and home prices go up and down, which is of more concern the closer the liability is to the value of the asset. That’s why loan-to-value ratios are a thing.

Pricing risk is something that American businesses are generally pretty good at, thanks in part to one of the unsung heroes of the modern economy: actuarial science. Actuarial science is pretty interesting from a Hayekian knowledge-problem point of view. If you were trying to determine how likely Bob is to get into a car accident in the next 10 years, you’d need to study Bob pretty intimately—you’d need to know Bob better than Bob does in some ways: You’d want to know his sleep habits, his drinking habits, whether he fights with his wife, how stressed he is when he leaves the office in the afternoon, the route of his commute and whether he varies it, the condition of the roads in Bobville and whether there is any new roadwork planned, whether something else might change traffic patterns, etc. That’s a lot of Bob knowledge. But if you have 10 million Bobs in your insurance portfolio, then you can make pretty good predictions about how many of them are likely to get into a car accident in the next 10 years based on relatively superficial and accessible information: age, accident history, ZIP code, etc. The finance guys have made some big, big mistakes over the years, but they are generally (generally!) pretty good at figuring out how many mortgages will go into default in a given portfolio in given circumstances. But that is a lot harder when people lie to them.

One of the reasons investment bankers, private equity investors, and other specialized financial operators make a lot more money than the average mortgage monkey down at the local bank does is that they have to deal with a lot more information—information that is difficult and expensive to access—than does a banker writing regular Joe Consumer mortgages. As those of you who remember the unpleasantness of the 2007-08 financial crisis may remember, sometimes the guys doing the math at the level of Very High Finance aren’t as good at their jobs as you might hope, and sometimes they intentionally misprice risk because doing so provides the shortest straightest line between them and a heap of money. Sometimes, they averted their eyes when there were obvious lies in front of them. They didn’t usually say it out loud, but they made the same argument Trump did: As long as everybody gets paid back, what harm has been done? But having unpriced (and, therefore, unaccounted-for) risk in a bank—or in a banking system—poses real problems and can have catastrophic results.

Which is why we put people in prison for bank fraud. 

Trump isn’t facing jail in this particular case (the New York action is a civil one), but people get charged with fraud all the time for lying on mortgage applications. A federal conviction for mortgage fraud can include a prison sentence of up to 30 years—and “I paid them back” is not in and of itself a defense. It’s no more a defense than returning a stolen car to its owner with a full tank of gas is a defense against grand theft auto.

As James Kirchick famously observed: “Everything Trump says makes sense when you just preface it with, ‘Donald from Queens, you’re on the air.’” And so, “The banks got paid back—no harm, no foul!” might sound like a pretty plausible defense, if you are engaged at the superficial level of talk radio or Fox News. But it isn’t a real legal or financial argument. When you lie to a bank, you cheat them out of income and expose them to risks other than the risk they had agreed to accept. There is a word for that: fraud.

Chris Christie wants to nickname his rival “Donald Duck,” for ducking the debates. I’d go with “Subprime Don,” which befits his status, or simply call Trump what so many people who have lent him money or done business with him call him: deadbeat.

Alrighty, then.

And Furthermore: The Coalition of the Deradicalized … 

To reiterate, Donald Trump is not facing jail time for the fraud described above. But his current run for the White House is, among other things, a bid to head off the possibility of incarceration. Not every claim of criminal wrongdoing by Donald Trump is very strong, but some of them are very strong and, assuming justice is permitted to run its course, likely to result in more than one criminal conviction. There is a lot of open water between the word “Guilty!” and the clank of a prison door behind inmate No. P01135809, but the possibility looms over our politics.

As I wrote in National Review on May 4, 2016: “Americans and Republicans, remember: You asked for this. Given the choice between a dozen solid conservatives and one Clinton-supporting con artist and game-show host, you chose the con artist. You chose him freely. Nobody made you do it. I will be reminding you all of that, from time to time.” You idiots–and you know who you are–asked for this, and now, some of you idiots are asking for seconds. The most recent Republican debate confirmed that Nikki Haley probably is the person around whom Republicans who wish to see someone other than Donald Trump nominated would do best to rally ’round, while also making clear that Republicans at the moment give no indication of being thus inclined.

And so the election before us must claim our attention insofar as one of the major political parties is likely to nominate a habitual criminal (indicted but not convicted as of this writing) who also happens to be an incompetent bumbler, a whiner, and a would-be tyrant who tried to stage a coup d’état the last time he lost a presidential election. Joe Biden’s mental acuity will be a campaign issue—but have you witnessed the glassy-eyed perseverations of the near-octogenarian Donald Trump lately? If elected, he would take office just a few months shy of his 79^th birthday. He already seems to think, at times, that he ran a campaign against Barack Obama, and recently warned that the nation is facing the terrifying prospect of “World War II.” Trump, a coward who concocted a medical affliction to keep himself out of Vietnam, presumably would have weaseled his way out of service in World War II, as well—perhaps he is suffering from a case of “Greatest Generation” envy.

As much as I would like to simply ignore this election and the two contemptible ignoramuses who are likely to face one another in it, we cannot just set it aside. But let us give a moment’s thought to the next few elections.

We are in an interesting moment, politically, and not entirely for the reasons that have commanded our attention in recent years—angry populism and extremism in both parties, tribalism driven in part by social media, and all that.

In a recent Remnant conversation with my friend Jonah Goldberg, the libertarian writer Brink Lindsey of the Niskanen Center (a longtime fixture at Cato before that) pronounced his famous call for a progressive-libertarian alliance—“liberaltarianism”—a “complete failure.” Of course it is—the failure was inevitable because the animating spirit of the American left is approximately that of the Diggers: utopian, anti-property, always ready to immanentize the eschaton. Progressives at the very apex of economic life have made their peace with markets and globalization, with the world of Davos and Monocle Man, but the heart of the left remains anti-capitalism, anti-property, and anti-religion—adolescent, in a word. The anti-religion business might not be of concern to libertarians if it were expressed in indifferent agnosticism, but it is positively interventionist, a crusading turn of mind that will never cease insisting on Kulturkampf. At the same time, it is very difficult to imagine Cato/Reason-style libertarians returning to the fold of the Republican Party, at least the Republican Party as we currently know it—the party of fools and grifters such as Marjorie Taylor Greene, Lauren Boebert, and Matt Gaetz, the party of cowardly enablers such as Kevin McCarthy and Mike Pence, a party dominated by the desire of its foot soldiers for entertainment and hence dominated by such contemptible figures as Sean Hannity. (The specter of a society bent on destroying itself through entertainment: Infinite Jest was even more prescient than I might have thought.) Even traditionally Republican-aligned conservatives in many cases do not wish to be associated with such a party, and it is impossible to blame them.

But, again—there is an opportunity in front of us, if we have the wit to seize it.

A word of caution first: People in political life, from office-seekers to consultants to journalists, have a tendency toward self-delusion, believing that what the nation really needs, what the nation is all but demanding, is … whatever the deluded person specializes in. I remember a conversation I had with a famously moderate Republican at the height of the Tea Party era, a man who was obviously trying to talk himself into running for president. “I think the American people are crying out for the kind of moderate Republicanism I personify,” he said. I asked him what part of the people running around in tricorn hats talking about taking a meat-ax to the federal government made him think that it was high time for a return of the Rockefeller Republicans. You know the answer: Everybody he knew told him so. He went on to lose his next election and then deludedly set his sights on a higher office, losing that election, too. I believe he has since wised up and invested his energy in making money.

I am an Eisenhower guy, myself. But I do not want to delude myself into thinking that the country is crying out, in one voice, “We Still Like Ike!”

All that being stipulated …

I am pro-life and have long been associated with the abortion issue. One of the great things about the Dobbs decision is that it has had a liberating effect on me and on others like me when it comes to presidential politics. There are people who in good faith want additional federal action on abortion, and there are people who want there to be an ongoing federal abortion fight because it is a good way for them to raise money and recruit political support. But as for me—and I think I am not alone in this—I am perfectly happy for there to be little or no federal action on abortion in the near future. “Send the question back to the states” means exactly what it says. Provided that we are not talking about someone looking to use Supreme Court appointments to overturn Dobbs and reinstate the Roe regime, I would be much more comfortable today with a president or a vice president who doesn’t share my views on abortion than I would have been 10 years ago. I am willing to let the win be a win—willing to take “Yes” for an answer. State legislatures are a different issue, abortion remaining a much more urgent issue at that level.

Dobbs has had a radicalizing effect (mainly but not exclusively on the left) in the short term, but it could—and should—have a deradicalizing tendency in the medium and long term. I welcome that. As a conservative, I am wary of all radicalisms, including radical conservatism. William F. Buckley Jr. declared for the “radical conservatives” in National Review’s mission statement, although that radicalism mellowed pretty quickly. Another Buckley-ism is relevant there: “Idealism is fine, but as it approaches reality, the costs become prohibitive.” That is how Buckley et al. went from insisting that opposition to the New Deal should define American conservatism (“Conservatives in this country—at least those who have not made their peace with the New Deal, and there is serious question whether there are others—are non-licensed nonconformists”) to embracing as their champion Ronald Reagan, a self-described New Deal Democrat who idolized Franklin Roosevelt and remained a member of the Democratic Party into the Kennedy administration. Needless to say, overturning the New Deal is not very high on the agenda of Donald Trump, Lauren Boebert, or J.D. Vance.

Perhaps I lack sufficient imagination, but it seems to me that a coalition of the deradicalized is going to look a lot like the “fusionist” conservatism of the early days of the conservative movement, hopefully shorn of its least attractive features—its radical posturing, its apocalyptic rhetoric, and its perceived need to flatter the prejudices of right-wing populists who always have been spiritually closer to George Wallace than to William F. Buckley or those who inspired and informed his project. To declare for Trump is to declare for George Wallace, for Huey Long, for whatever authoritarian populist you like. Rejecting Trump and Trumpism puts current conservatives as a practical matter in the position of making at least limited common cause with people whose presence in a coalition would (and still does, I suppose) cause us to have second thoughts about marching in that particular parade.

The brilliant libertarian crank Murray Rothbard once argued for a redneck-hippie alliance, trying to join the most radical elements of anti-war 1960s radicalism to the David Duke movement, of all things. That was idiotic as politics in addition to being morally repugnant. (If your best idea is to get into bed with David Duke, then your best idea isn’t very good.) I suppose that a coalition of the deradicalized would look a lot like a joint effort between two rival country clubs, and it would no doubt result in an agenda that would be lampooned by populists left and right as pure Davos stuff, stale neoliberalism: entitlement reform, trade liberalization, a reinvigoration of the military-industrial complex with an eye toward challenges from China and elsewhere, and other agenda items close to the hearts which do not beat with any especial passion within the chests of the well-off, well-scrubbed people who read The Economist and roll their eyes at wide-eyed calls for culture war and revolution, whether these come from callow social-media performance artists named Alexandria Ocasio-Cortez or from callow social-media performance artists named Marjorie Taylor Greene or J.D. Vance.

There are practical and political considerations in all that, and none of it suggests a way forward that is obvious or easy. As the aforementioned Brink Lindsey famously put it: “The rival ideologies of left and right are both pining for the ’50s. The only difference is that liberals want to work there, while conservatives want to go home there.” (“Only” perhaps wasn’t and isn’t entirely apt in that sentence, but the rest stands up just fine.) But we might note at least that as a matter of orthodox Keynesianism, boosting military spending ought to be at least as desirable a policy as dumping however many more trillions of dollars into health care benefits. (And we ought to be clear-headed about what we really mean to buy with our military expenditures: options.) Our progressive friends who talk about how great the tax rates were in the Eisenhower years ought to check out the relative distribution of spending in those years: In 1957, military spending was almost three times as much as it is today in GDP terms (9.8 percent of GDP then vs. 3.5 percent of GDP in 2022). Social-welfare spending, by comparison, was about a quarter of what it is today (again in GDP terms, those being the most relevant). I am not saying that we should reinstate that balance tomorrow—or at all—but moving in that direction while rationalizing the overall federal fiscal position would be a program with much to recommend it.

The old three-legged stool of fusionist conservatism—social conservatism, fiscal prudence, robust national security—may look like it has one leg too many to provide the basis for a cooperative, consensus-driven program for the deradicalized, with social conservatism being the odd one out. I am not so sure that that is the case. Dobbs has, as I have noted above, given us the opportunity to take a federalist approach to abortion, meaning that it does not have to be a necessarily national issue at all as far as formal electoral politics goes. If social conservatives want to make hostility toward homosexuals and other sexual minorities their central project, then they are going to lose that fight on raw political terms and alienate possible allies in the process. If, on the other hand, social conservatives want to talk about education reform, the excesses and genuine dangers of gender ideology, the relationship between family formation and personal economic autonomy, and things of that nature, then they may find some allies where they had not expected to. Some of the same feminists who fought us about abortion share some of our interests when it comes to gender ideology; many urban and suburban progressives understand the case for school choice—no less a figure than Barack Obama is said to have privately acknowledged the systemic shortcomings of the public-school monopoly system and has, according to people with firsthand knowledge, at least flirted on occasion with the idea of supporting a general voucher program.

If what you want is culture war—if your big idea is to denounce the local public librarian as a pedophile or a pedophile-enabler—then you probably are pretty comfortable with the Republican Party in its current degraded state. If what you want is to make meaningful, if careful and gradual, improvements to the systems and institutions through which we fund and provide K-12 education, then there are at least some responsible people on both sides of the aisle who want the same things you do, and who may share at least some of your ideas and priorities for getting that done. And there is more residual social conservatism out there than you might expect.

To be sure, the other two legs will be a little easier to deal with, I think. Balancing the budget—or, more precisely, the more modest goal of reducing the deficit to less than the rate of economic growth and thereby reducing debt as a share of GDP in the long term—will be a matter of relatively straightforward negotiation. Every sober person knows it is going to involve both taxes and spending cuts, and the only real questions are how much of each and in what specific form. The questions about fortifying our military position (which will be expensive and thereby complicate our budget-balancing) are to a very considerable extent technical, though these technical questions ultimately depend on policy priorities. Military policies have economic consequences just as economic policies can implicate military concerns, but we should be careful not to confuse the two. If you want to manufacture a certain piece of military equipment in the United States for security reasons, there are excellent arguments for that—but do not make the mistake of treating it as a jobs program, or a jobs program is what it will become.

But: Controlled spending, spending more sensibly funded, spending priorities shifted at the federal level toward the inherently federal responsibility of national defense, a more intelligent overall military posture, a social sensibility that rejects radical experimentation on children, families, and communities—if that should be our consensus, it would be a conservative consensus. Why not pursue it?

Alternatively, we could scream “Pedophiles!” at everybody and see how that works out.

Words About Words

Justin Frank, M.D., formerly a professor of psychiatry at George Washington University Medical Center, describes Donald Trump as suffering from “a classic God complex.” There are many apt ways to describe—and denounce—the past president, present madman, and possible future president. Mushy pseudoscientific stuff like “God complex” should be pretty low on the list.

“God complex” is not a thing. Or, more precisely, it is a literary term rather than a clinical one. It is not a recognized or diagnosable disorder, and the term is not used in a clinical setting. You won’t find it in the Diagnostic and Statistical Manual of Mental Disorders. Like a great deal of the intellectual detritus surrounding modern psychiatry and psychology (in particular the stuff Sigmund Freud simply made up), it is a bit of terminology masquerading as a distinct phenomenon.

I don’t mind writers taking a little bit of literary license with scientific or pseudoscientific language, though this often leads to error, distortion, and genuine stupidity—the literary critic who tells you that Heisenberg proved that “everything is uncertain” or that Einstein showed with mathematic precision that all things are relative. I would like to put a 20-year ban on nonscientific writers invoking, however poetically, Heisenberg and Schrödinger and possibly a few others I can’t think of right now. But while poetic license is fine for the poets, it won’t do for someone with “M.D.” after his name and relying on that medical qualification for his purported relevance to a particular political discussion to inject pseudoscience into the public’s mental bloodstream simply because it kind of sounds cool. If your thing is, “I’m the expert, so listen to me,” then you have to stick pretty tightly to the relevant intellectual standards; if your thing is, “I’m an entertaining conversationalist, so you’ll enjoy this,” then you can’t lean on the medical degree or the professorship or the “I’m a professional historian!” stuff. You get one or the other. You buy the ticket, you take the ride.

Dr. Frank is also the author of Trump on the Couch: Inside the Mind of the President. As the American Psychiatric Association put it in 1973 (in what is known as the Goldwater Rule, after Barry Goldwater): “It is unethical for a psychiatrist to offer a professional opinion unless he or she has conducted an examination and has been granted proper authorization for such a statement.” That was, and is, a good rule. And there isn’t any great need for clinical language in the matter of Trump. Yes, one wants to call him “neurotic” and such, but what’s wrong with the obvious and old-fashioned adjectives that most readily apply? Stupid, dishonest, childish, evil. All good words. No need to play doctor, which is a bad habit–especially if you are a doctor.

This sort of thing not only represents an abuse of the prestige enjoyed by the medical profession; it also ultimately amounts to a collective moral cop-out. The more we medicalize and pathologize ordinary human behavior—ordinary, rotten, disreputable, horrifying human behavior—the more we divest meaningful moral agency from ordinary human beings, including awful ones such as Donald Trump.

As a fictitious psychiatrist once observed, we really have given up good and evil for behavioralism.

Economics For English Majors

Joe Biden says silly things. One of those silly things is, “Unions built the middle class.” They did not. More on that in a bit. Also, Slate publishes silly headlines. One of them, related to the silly things President Biden says, reads: “Detroit Knows It. Unions Know It. Biden Knows It. Everything Is About to Change in the Car Industry.” This is silliness on top of silliness. Allow me to explain.

What Detroit knows, if Detroit knows anything, is that the automobile industry already has undergone its radical change. The synecdoche “Detroit” is here very useful: Of the five most productive automobile factories in the United States, none is in Michigan; the most productive of them has no union employees; none of them makes a regular passenger car for one of the “Big 3”; four of the five are in no way connected to the “Big 3” (one Tesla plant, two Toyota plants, and one BMW plant); the sole “Big 3” presence is the Ford factory that makes pickup trucks in Kentucky.

That Ford truck factory in Kentucky is not on strike as of this writing, possibly because both the union bosses and the corporate bosses know that the only reason Ford remains a going concern is its trucks—other than the Mustang, Ford no longer manufactures a conventional passenger car for the U.S. market, for which is makes pickups and SUVs almost exclusively. If you want a passenger sedan made by a leading U.S.-based manufacturer, then your choice is Tesla, one of two Cadillac models, or the Chevrolet Malibu—I suppose the Chevy Bolt, too, if we are being generous with the word “sedan.” The best-selling U.S.-made sedan is the Toyota Camry.

It is not Joe Biden or the other president, Shawn Fain of the UAW, who is driving change in the automotive industry. It is social media troll Elon Musk, who sometimes runs a car company in his spare time.

But why are we bothering to think much about “Detroit” at all?

Looked at in light of the actual data, the “Big 3” are, among other things, not very big—and one of them is not a U.S.-based firm and hasn’t been for years. The most valuable automobile maker in the world is Tesla, which has a market capitalization almost three times that of No. 2, Toyota. Other than Tesla, there is no U.S.-based automaker among the world’s 10 most valuable automotive firms. Stellantis, which for some reason we still list among the “Big 3,” is a Netherlands-based firm that owns the brands that once were part of the Chrysler universe: Jeep, Dodge, Ram, etc. Ford is a slightly larger company than General Motors is today, but, for context, consider that Ford’s market capitalization is less than that of Chipotle Mexican Grill. Do you know Public Storage—the self-storage firm with the orange signs dotting the urban landscape? It is a bigger company today than is General Motors. So are Lululemon and the people who make Dr Pepper.

(A word about two words: There is no period in Dr Pepper.)

On the other hand, almost all of the 20 most valuable firms in the world are U.S.-based firms, but who gets nostalgic about punching the clock and working the line at … Apple, Microsoft, Alphabet, Amazon, NVIDIA, Berkshire Hathaway, Meta, Eli Lilly, Visa, ExxonMobil, United Health, JPMorgan Chase, Johnson & Johnson, or Mastercard?

(If you are wondering which non-U.S. firms crack the top 20, they are: Saudi Aramco, Taiwan Semiconductor, Novo Nordisk, and LVMH. You will notice that, in spite of the hysterical rhetoric about the ascent of China, there is no Chinese firm on that list; if you expanded to the top 25, Tencent would appear.)

If you really wanted to fortify the firms and industries that currently are sustaining the U.S. economy and adding vast sums to the wealth of the American people, then GM would be pretty far down your list. GM made about $21 billion last year, which is not nothing—it is about what Apple paid in corporate income tax in 2022.

Apple’s $100 billion profit in 2022 far, far exceeded the profits of the so-called Big 3 combined. If current trends continue, it is likely that Apple alone will earn twice as much as the “Big 3” combined in a few years. Apple is the world’s most valuable company, but the United States is not a one-horse town of an economy. The U.S. economy is well-diversified, and its leading industries are tech, finance, energy, and health care. The U.S. firms that have thrived in those sectors are so massively successful that it is difficult to get your head around the scale of it, but here’s an interesting bit: The 10 largest U.S. firms (ranked by revenue) had combined revenues in 2022 exceeding the GDP of any of the world’s countries except the United States, China, Japan, and Germany.

I like Buicks just fine. I rented a Buick a couple of weeks ago (because I didn’t want an EV, Hertz!), and it was pretty nice. (Or, it would have been, if it hadn’t been, you know, filthy and overdue for an oil change.)  Hooray for Buick. But the future of the U.S. economy does not depend very much on how things go for Buick. It has been a dozen or more years since anybody has seen a new Pontiac—did you notice? Did it matter? Not very much.

Why do we care so much about Buicks and Chryslers and (RIP!) Camaros? Mostly nostalgia, I think. And that brings us to President Biden’s “unions built the middle class” nonsense.

The United States had a middle class long before unions were an important force in American economic life. The United States has a middle class right now, when unions are not an important force in American economic life, at least not in the private sector. The best-paying jobs in the United States are mostly not union jobs, and those jobs pay well not because unions said so but because they require skills and abilities that are relatively hard to find—that which is useful but scarce generally ends up costing more than that which is useful but plentiful. In a sense, trying to upend that reality has been the basic business model—and basic mistake—of the American labor movement. Of course, you can distort the market in the short term, so that a guy doing a low-skill job in a union shop gets paid a higher wage than he would without the union, at least until the market adjusts and the best automotive jobs leave Detroit for Alabama (where they make the Mercedes E Class) or Texas (where they make the Toyota Tundra and Sequoia). You can, if you have the government on your side, use legal coercion to command higher wages.

But there are two sides to that ledger.

Unions are precisely the thing that people such as President Biden profess to abhor: monopolies. The UAW is a textbook monopoly: It has an exclusive license to sell certain automakers a particular product that they need for their businesses, in this case, labor. A legal license to be the exclusive provider of an economic good is a monopoly, by definition. And, like all such legally enforced monopolies, the UAW sells its product at above-market prices. That is the whole point of the union, after all.

But it is good for workers, right?

Wrong. Remember: The ledger has two sides.

Very few workers in the private sector belong to a union. It never has been the case that a majority of U.S. workers were union members; at the highpoint of private-sector unions, about 1 in 3 workers belonged to a union. The above-market-rate wages enjoyed by union members are and always have been a minority privilege handed out by politicians to politically connected clients and politically influential industries. These higher wages came at a cost to somebody, and it wasn’t just guys in top hats and swallowtail coats—the artificially high union wages were subsidized by non-union workers.

As you might have guessed, paying some workers above-market wages means that other workers will be laid off (or, more commonly, never hired in the first place) by the businesses made to pay above-market wages. That’s supply-and-demand in action: When the price of something goes up, demand for it goes down. The underlying realities of labor markets do not simply go away because somebody passes a law saying that you have to deal with a monopoly and pay higher than market prices for your inputs. The would-be autoworkers excluded from the automotive industry by artificially high union wages do not go out and become subsistence farmers or pirates or vagabonds—they get other jobs, typically at wages that not only are lower than the artificially high union wage but also lower than what the market wage would have been without political interference. H. Gregg Lewis, a noted labor economist, estimated that, at their peak, unions added from 10 percent to 15 percent to the wages of the minority of workers that belonged to them, while reducing the wages of the much larger majority of non-union workers by 3 percent or 4 percent. That is not how you “build the middle class”—that is how you use political power to redistribute wages within the working classes from politically powerless workers to politically powerful constituents.

What about spillover effects—when higher union wages and more generous union benefits become the norm across industries for union and non-union workers alike?

Economist David R. Henderson puts it this way:

It is worth pointing out that, if Lewis was correct, then we have been paying a very high price—in market distortions, political corruption, union violence, loss of competitiveness, the economic decline of Detroit—for (at the high end) a measly 15-percent wage premium for a relatively small minority of workers.

A far better model for “sharing the wealth” is, in fact, the one associated with those highly productive firms in the technology sector, the ones that actually matter to our economy so much more than automakers do: Paying workers some share of their compensation in equity (an ownership stake in the company) as well as wages. In the heyday of the technology start-up business in the 1980s and 1990s, there were a lot of modestly skilled workers (administrative assistants being one example) who became very wealthy because they were willing to accept a lower wage in exchange for a stake in a promising new company such as Microsoft or Apple, which were not always the corporate behemoths we know today. Of course, there is risk in that—there is risk in any investment. George W. Bush was sometimes mocked for his advocacy of an “ownership society,” by which was meant (among other things) the deployment of compensation models that made a general norm of stock ownership by workers not associated with the relatively affluent class of people who traditionally have been most likely to invest in corporate shares. There are some obvious design challenges involved in that: The easiest way to get workers invested in equity is to pay them in shares in the company that employs them, which has the benefit of aligning workers’ interests with those of the firm but has the disadvantage of compounding personal economic risks for those workers. If you have all of your savings invested in the company that employs you, then the failure of that company will cost you your job and your savings at the same time, whereas a diversified investment portfolio would lower workers’ risks but weaken the incentive-aligning effect.

Those are the conversations about workers’ prosperity we should be having. Instead, we are talking about the health of General Motors, a second-tier, increasingly insignificant firm that has collapsed twice and enjoyed a government bailout twice during my lifetime—and I would not be surprised if there ended up being a third GM bailout, though there is no indication of such a development in the immediate future.

As anybody with a 1963 Corvette can tell you: Nostalgia is expensive.

Elsewhere

You can buy my most recent book, Big White Ghetto, here.

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In Closing

There is more Trump in this newsletter than I would have liked. But the thing about journalism is: If you’re doing it right, you don’t get to decide what the news is. Harold Macmillan’s damned “events, dear boy, events” organize your professional life for you.

How about a little palate cleanser to end with? A young friend recently asked me to recommend 10 books to young conservatives. I didn’t exactly recommend 10 conservative books, but 10 books young conservatives ought to read. I thought I would share them with you. They are:

1.     Christianity and Culture, by T. S. Eliot.

2.     The Unmaking of a Mayor, by William F. Buckley Jr.

3.     Omnipotent Government: The Rise of the Total State and Total War, by Ludwig von Mises.

4.     Liberal Fascism, by Jonah Goldberg.

5.     America’s First Dynasty: The Adamses, 1735-1918, by Richard Brookhiser.

6.     Eisenhower in War and Peace, by Jean Edward Smith.

7.     Children of Monsters: An Inquiry into the Sons and Daughters of Dictators, by Jay Nordlinger.

8.     Sexuality and Gender: Findings from the Biological, Psychological, and Social Sciences, by Lawrence S. Mayer and Paul R. McHugh.

9.     Sexual Personae: Art and Decadence from Nefertiti to Emily Dickinson, by Camille Paglia.

10.  Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement, by Brian Doherty.

I am sure many of you will have suggestions of your own. Please do share them in the comments.

On a more general note, I think we need more of the kind of political thinking that expresses itself in books and less of the kind that expresses itself in tweets. I do not quite agree that “the medium is the message,” but if the medium is a sewer, as social media is, don’t be surprised that what flows through it is sewage. As the wise man knows, when you are stuck in a traffic jam, you are not in traffic—you are traffic; likewise, when you are floating through the sewer that is Twitter or Facebook …

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