First Principles Redux

The knock on centrists (by extremist conservatives and liberals alike) is that they are "moderates" - really a "mushy middle." Mainstream media generally presents two sides of any question, when the third side - a 360-degree view from the middle - might actually lead to solutions rather than nightly bickering by talking heads.

I believe credible principles backed by a coherent world view are essential for a Muscular Middle to emerge. The following is a more coherent assemblage of what I somewhat randomly posted in the past.

From looking at what others call political principles, I’ve concluded that several distinct concepts sometimes are conflated.

Values are abstract ideas that underlie the operating principles and world views: life, liberty, and the pursuit of happiness, fairness, effectiveness, private property, the common good, the environment, health... the list is pretty long.

World Views describe a summary analysis of the way the world works, and has worked. Do you think government is largely successful, or unsuccessful?

Operating Principles are the methods, the modus operandi to be followed if at all possible.

So what follows is a list of centrist Values, World Views and Operating Principles. Where appropriate these are compared or contrasted with conservative and liberal principles.

VALUES

One of the most important differences between centrists and those further to the right and left is that we embrace values on both sides of the aisle, so to speak, but recognize that there are often tradeoffs (see “Balance” below). Here are just a few: fairness versus effectiveness, progress versus equality, taxpayer rights versus human decency, economic growth versus the environment, right to life versus women’t rights. Centrists struggle to balance all of these when they come into conflict – which is often. It sometimes makes centrists seem indecisive, but every good judge knows it’s not always easy to figure out the right thing to do.

Contextualism, Not Relativism
Centrists believe in the importance of core values like liberty, personal responsibility, supporting the needy, protecting the innocent. They are not relativists who believe that all values are relative and judging one higher than another is pointless. However, in the real world core values can collide, and context is the key to assessing balance – which means that no value is permanently dominant.

Doing The Right Thing
While we may not all agree on what the right thing is to do, centrists agree with principled conservatives and liberals that it's important to do the right thing.

Results
Typically politicians declare victory when a bill is passed. Businesses know that new product launches mark the beginning of the work, not the end. Centrists understand that balanced results aren't guaranteed by mere compromises; victory can't be declared until inevitable unintended consequences surface and are addressed.

Freedom From, Freedom To
Liberals emphasize freedom "from" poverty, prejudice, injustice. Conservatives emphasize freedom "to" live their lives without government interference. Both are important to centrists.

Informed Loyalty
Centrists love our country. But friends don't let friends... and citizens don't let their government...

WORLD VIEWS

Genetic Similarity
There’s no reason to think humans who choose business careers have a nature or nurture substantially different from public servants. The litany of human weaknesses and quirks that can lead to untoward business results also plague those on government payrolls, and vice versa. So while liberals give government benefit of the doubt and conservatives cut business a break, centrists give the public and private sectors equal measures of support and skepticism.

What Does Government/The Market Do Well?
Typical conservative/liberal spitball fights are full of generalizations and often low on specifics when it comes to the relative competencies of government and markets. Centrists want the facts – inquiring minds want to know. The track record of both the private and public sector is mixed.

Policy Dials (aka The World Is Not Black or White)
Extremists hyperbolize about capitalism suddenly switching to socialism, or popular safety nets disappearing with a click of a voting booth for the "other" party. Centrists see a rainbow of options, a broad spectrum of policy choices that can be adjusted between values (fairness versus effectiveness, freedom versus security) on a policy dial.

Enlightened Self-Interest
Conservatives have faith that self-interest, guided by Adam Smith's "invisible hand," will lead to optimal social outcomes. Centrists tend to think that only when we myopic humans look long-term (see “Short-termism”) with 360-degree vision do we develop enlightened self-interest that truly can lead to great social outcomes alongside great private outcomes.

Bill of Responsibilities
In a world of conflicting rights, individuals must exercise responsibility, the first of which is to respect others’ rights.

Equal Opportunity, Not Equal Results
Exceptionally capable people happen, and we all benefit when their abilities are amply rewarded. Progress and growth are highly dependent on outliers. At the same time, we all benefit when human capital is fully developed across the board. Equal opportunity is in all of our enlightened self-interest as well as being the right thing to do.

Financial Incentives Matter A Lot
If you want to figure out whether markets, businesses, and even government agencies are working as they should, follow the money.

Watch the Watchdogs
Government isn’t the only important commerce referee. Accounting firms, boards of directors, bond rating companies, stock analysts, buy-side investors, banks and the press all play important roles. If watchdog financial incentives are misaligned, trouble follows.

Elite Hubris
Smart people often over-rate their own abilities. Too often elite policy prescriptions project their over-rated abilities onto their favorite organizations – government, business, religion, non-profits. Average competence is in fact alarmingly low, and it is average public servants, business people and ministers who implement these prescriptions to continual disappointment.

Mistakes Happen
In a complex universe filled with uncertainty, mistakes happen all the time. To err is human, to recognize and correct them quickly is divine. To cover them up and blame someone else happens all to often. Government and businesses need to plan for mistakes without blame.

Unintended Consequences Happen
In a complex universe filled with uncertainty, many choices produce unwanted, unintended results alongside the desirable. Hubris-fired elite myopia compounds the problem with denial. Humble centrists plan for the unexpected and adjust at the line of scrimmage.

Not So Simple
Democracy is more than voting. Capitalism is more than private ownership. Actually, they are much more. The failure of neoconservatives stems from their overly simplified understanding of democracy and capitalism.

The Rules of the Game
Democracy and capitalism have extensive rules that dramatically affect outcomes. It’s often easier to rig the rules in your favor than win on merit, so rule rigging is frequent and attempted rule rigging never ends. Never.

Watch the Bigs
Big government, big business, big religion, big unions, big non-profits, big military… when power and money amass under one roof, it’s an irresistible honey pot for those who crave power and money, and a heady brew for all who try to lead. Large organizations are uniquely capable of massive projects (think lunar landings) but create Sisyphean imperatives for corruption watchdogs.

Short Termism
One of our most debilitating human flaws is our propensity to embrace short-term rewards over long-term success. Encouraging long-termism is both important and difficult.

It's Our Money
Centrists would align with conservatives in asserting that the money we earn, the wealth we accumulate, belongs first to we the people. Government of the people only earns the right to use some of it in the form of taxes by spending it wisely, with the consent of the people. Obviously we the people don't agree on everything, so not all expenditures will be made with the consent of all the people. That does not, however, give elected officials carte blanche to spend wildly, which is the perennial danger of those who deal with Other People's Money (OPM can be as addicting as opium).

OPERATING PRINCIPLES

Balance (aka The Goldilocks Principle)
The primary mantra of centrism is this: pursue balance. When values or principles conflict, centrists seek creative balance such that opposing values can both be honored while unintended consequences of extremist adherence are minimized.

360-Degree View
The right and the left have their blind spots, people or constituencies or values they largely ignore. Centrists have to work harder, striving to understand policy implications for everyone.

Transparency
In government and commerce, transparency is essential to proper functioning. It’s often battled, occasionally for good reasons but more often to hide socially undesirable behavior.

Accountability
Democracy and capitalism don’t work without accountability. Incumbents will forever attempt to escape or soften or delay or defer their judgment days. Widespread bailouts and 95% re-election rates are not a good sign.

Reason Rules
Going back to Plato, centrists have advocated that reason should rule over passion, both in government and individual behavior (see http://theglitteringeye.com/?p=2926 for a thoughtful advocacy of moderation).

Open Minds
AKA "The Truth Is My Friend." Nobody has a monopoly on the truth, and centrists are unafraid to embrace good ideas as well as harsh realities wherever they appear.

What Works
Centrists value what works – which is not to be confused with “the ends justify the means.” With a 360-degree, long-term view, centrists don’t advocate expediency for short-term results or horrific means to achieve them.

Humility With Confidence
In a complex universe centrists eschew blinding personal hubris. That does not preclude optimism and confidence that collectively we can overcome any obstacles the universe might throw at us.

Mutual Respect
We believe that all men are created equal. Combine that with open minds and confident humility, you get a prescription for mutual respect as a centrist modus operandi that stands in stark contrast to shrill put-downs from Extremist Talking Heads. Centrists don't make for great television, they make for great governance.

Distributed Honeypots
Part of the genius and success of American democratic capitalism is that power and money are widely distributed among competing government branches and industry giants, which helps mitigate (but does not eliminate) self-dealing by Big Leaders.

80/20 Government
Far too often government policies inadequately focus on the 20% that’s causing 80% of the problem. For example, if the current financial crisis had focused early on fixing the housing problems in California, Nevada, Arizona and Florida they might actually have fixed something by now. But that wouldn't have been "fair."

Value for Tax Dollars
It’s not unreasonable to ask the government what we’re getting for our tax dollars, and to see annual measures of the overhead in the services provided. Americans don’t mind getting value for their tax dollars – it’s bridges to nowhere, $50 toilet seats, bloated bureaucracies, corporate welfare and cushy government retirement benefits that raise centrist citizen dander. The federal government has started the process of evaluating program efficiency, which is a good beginning.

Policy Prescriptions

I've tried to avoid slipping into policy wonk land. Not that I have anything against that - I love a good discussion about the devil in the details (there's another centrist "world view"). But this isn't the place for a close-up; rather, here are two related issue prescription bullet.s

Democracy 2.0
The US led the world in creating modern democracy, but as other countries have created their constitutions, some of America’s “legacy systems” have not been emulated. It’s time to upgrade. In particular, the 150+ year reign of the Democratic and Republican parties has run its course.

In a country with a plethora of consumer choice, why are we still stuck with the same two political duopolists?

Votes and Purchases: Crude Tools
In our multi-polar, multi-issue, two-party democracy, a vote provides insufficient information. Is it supporting economic policy? Social? Foreign? Or just good teeth? Similarly, purchasing multi-featured products in crowded markets is insufficient to guide product planning. Democracy and capitalism need more information-rich transactions.

Wall Street's Misaligned Incentives

To The Editors, Wall Street Journal:

Jonathan Macey (“’Say on Pay’ and Other Bad Ideas”) argues that “new federal regulations on compensation attempt to obtain by bureaucratic fiat results that the markets and ordinary democratic processes rejected.” I would argue that Wall Street’s “market driven” compensation practices, which all too frequently misalign incentives, are one of the core problems behind the meltdown.

Markets only work when participants’ financial incentives motivate them to “do the right thing.” In today’s complex markets (unlike Adam Smith’s simpler times) it is extremely difficult to design appropriate financial incentives – just ask any board member who sits on a compensation committee. All too often the financial incentives focus participants on short-term results, to the detriment of the long term, since we imperfect humans understand the short term much better. It is an expensive expedient.

Participants in our financial markets are largely motivated by quarterly and annual transaction performance, even when 30-year mortgages, permanent acquisitions or company-risking derivatives are the transactions in question. This is gross market failure, and we are all paying the consequences. While I’m not sanguine about Washington doing a better job, it is Wall Street’s failure to get it right that has stirred the beast into action.

Sovereign Funds for Vultures

In the search for solutions to the financial system crisis, economists have not spent enough time exploring options for adapting to failures. Classical economic theory posits that homo economicus – the mathematically perfect man walking around free markets – doesn’t make mistakes. How could he? He knows all – perfect information is necessary for perfect markets. Studies of market imperfections abound, but mistakes and failures still aren’t considered part of the normal modus operandi of markets.

Back in the real world, mistakes and failures happen all the time. Remember New Coke? People’s Express? OS/2? Companies large and small, consumers large and small make mistakes on a daily basis. Cascading mistakes lead to failures of companies and industries, and are part of the normal landscape of business as far-from-perfect homo sapiens try, try again to make money.

Just as humans are “predictably irrational” (the title of behavioral economist Dan Areily’s recent book), businesses fail predictably enough that there are “vulture industries” that can feed regularly on the carnage. Bankruptcy lawyers, overstock merchandise retailers, wholesale liquidators, vulture investors, pawn brokers – the list is long of companies and individuals who have gained expertise in profitably following in the wake of others’ mistakes and failures. In the U.S., about 35,000 businesses and over 1 million individuals filed bankruptcy each year during the 21st century.

While vultures and their human equivalents are distasteful to some, they perform an important role in the (financial) ecosystem – recycling waste efficiently. Just as rotting cadavers are more of a threat than picked-over bones, “zombie banks” (Japan’s lost decade), debtor prisons, fallow factories, empty warehouses are all worse alternatives than enabling financial vultures to work their recycling magic.

Financial crises like the one we’re in create enormous piles of economic detritus that need to be cleaned up. Government bureaucrats (with the exception of FDIC-type bank liquidators) tend not to have the skills, experience, inclination or cojones necessary to be efficient recyclers of damaged goods. The same is true of traditional bank senior executives, for whom impaired assets are an embarrassment rather than an opportunity.

If we want to clean up the mess, we need to turbocharge the vultures who know what they’re doing. So I’d like to propose that TARP funds be used to invest across the vulture investor industry. Armed with $300 billion and a chance to earn 20% of the profits (the rest going to US taxpayers), vulture investors could go on a buying spree and do what is needed to wrest productive assets from toxic sludge. Undoubtedly other investors would join in alongside taxpayer money and trigger a spree, knowing that the government is determined to let weak institutions go to their deserved place in the dustbin of history. Yes, it wouldn’t be pretty for a while, but a year or two of “recycling” is preferable to a decade drifting downward with the stench of death still around us.

Scandalous Reflections

The news is dominated by two scandals, one each in the public and private sectors. While "sobering" (one of the president-elect's apt descriptors), they are hardly surprising.

Bernie Madoff's asset management business is but the latest Ponzi scheme to fall apart, with the distinction that his fraud operated for at least a decade - a remarkably long duration - and sucked in A-list investors. Financial markets put a premium on cash right now, and undoubtedly the dramatic ebb tide of cash flow over the last three months made Madoff realize the inevitable end was at hand.

The Madoff scandal illustrates the limits of both public and private checks and balances. There are news reports of Madoff being reported to the SEC repeatedly, and yet nothing was done. Sophisticated investors were supposed to do their homework, yet nothing was done by the victims or their advisors. Reportedly some advisors kept their clients away from Madoff, who refused to discuss investment strategy or disclose true financial records. Transparency and accountability would have shortened the fraud's duration, but sometimes enforcing these essential principles requires backbone, forcefulness and fearlessness of being unpopular. And how many humans posess such strengths, either in government or the private sector? Democracy and capitalism are limited in their speed of self-correction by the frequency of human fallibility.

One common sense aphorism I've often used is "if it sounds too good to be true, it probably is." Homeowners and investors alike were lulled into an uncritical stupor by perennially rising asset appreciation. The good times were too good to be true, and now many are paying the price (me included - and I've used the phrase "don't confuse brains with a bull market" many times in the past).

Meanwhile, the Blagojevich scandal is another reminder that greed motivates both public and private leaders. Surprising? Not really. But the next time you hear a gratuitous screed against corporate greed, just reply "What about Blagojevich?" There are no genetic differences between those in the public and private sectors, so we shouldn't be surprised when financial incentives drive behavior, scandalous or otherwise, of public and private leaders.

Democracy and capitalism are designed to have multiple layer of checks and balances driven by financial and other incentives. Sometimes the incentives are mis-aligned (think mortgage meltdown), but sometimes it's just bad actors who bully their way through the levees of checks and balances upheld by mere mortals. No law can entirely overcome human weakness. It is the Sysiphean imperative for all of us to keep our eyes open.

A Good IDEA

My degree is in economics, not political science. Not wanting to re-invent the wheel, I'm educating myself about such things as voting systems. I knew there were lots of options used in the world's democracies - and I just learned about a small organization dedicated to helping democracies choose the right "rules of the game" for themselves. 

The International Institute for Democracy and Electoral Assistance (International IDEA) is an intergovernmental organization that supports sustainable democracy worldwide. Its objective is to strengthen democratic institutions and processes.

International IDEA acts as a catalyst for democracy building by providing knowledge resources, expertise and a platform for debate on democracy issues. It works together with policy makers, donor governments, UN organizations and agencies, regional organizations and others engaged in democracy building.

The US is not a member of this young organization. I hope some day we will be!

Executive Clawbacks

To The Editor, Wall Street Journal:
Carly Fiorina ("Corporate Leadership and the Crisis") recommended clawback provisions for CEOs, which are the right solution to the debate over executive compensation. Successful CEOs should be richly rewarded for great work, but if they've built a house of cards that collapses, they need to give it back. Well-designed clawbacks would not only satisfy the public's need for fairness, they would focus CEOs – and other corporate officers, and boards of directors – on long term performance rather than annual goals tied to compensation.

The devil is always in the details, so I'd like to encourage those focused on corporate governance to develop a "standard American clawback." My two cents: all compensation above what is earned by the President of the United States is subject to a two-year clawback – for example, bankruptcy in September 2008 would mean executives return all "excess compensation" from September 2006 on. Triggering events would include precipitous stock drops, significant layoffs, executive indictments, bankruptcy, and government bailouts. Mitigating circumstances might include popped stock bubbles, CEOs hired for turnarounds, whistleblowers and force majeure events.  All corporate officers and board members would be subject to the clawbacks, including those who have left the company. Clawback proceeds would go to the company in the case of bankruptcy, bailouts or indictments. Terminated employees would share clawback proceeds after major layoffs, and shareholders would receive a special dividend in the case of stock swoons. In no instance would the government share in the proceeds.

If this "standard American clawback" had been in place during 2008, hundreds of corporate executives and board members would be disgorging hundreds of millions of dollars, at times going into personal bankruptcy as a result. And that's exactly the point – we want our corporate leaders keenly focused to make sure this mess never happens again.

Left-Center-Right Sub-species

Wikipedia tells me that the modern American left includes New Deal liberals, Rawlsian liberals, social democrats and civil libertarians.

Conservative classifications include fiscal conservatives, social conservatives, libertarians (who sometimes argue they are neither conservative nor liberal), and the much-maligned neoconservatives. I'm not quite sure yet where the Edmund Burke/Kirk Russell followers would fit.

It would follow, then, that Centrists will include sub-species as well. Utterly speculating here, there might be Pragmatists, Realists, Fiscally Conservative Social Moderates, Poll Reading Straddlers (a brand of politicians, not voters), Moderate Republicans and Conservative Democrats. 

I'm a Fiscally Conservative Social Moderate.  I believe I have lots of company, but I'll need some hard data to back that up. Hopefully some enterprising political scientists have conducted polls that break out these nuances.