Elizabeth Warren And The Economics Of Magical Thinking
(Max Gulker) In a Democratic primary field that looks like the cast of a Christopher Guest ensemble mockumentary, three candidates have established an early lead — Joe Biden, Bernie Sanders, and Elizabeth Warren. Sanders and Warren represent very distinct visions of the party’s left flank, but not in the way many assume.
Sanders, who proudly wears the badge of socialism and just announced a $16 trillion Green New Deal staggering in its scale and scope, is not the radical candidate. At his core Sanders is a redistributor, fighting along the same big-market/big-government axis on which American politics has focused my entire lifetime. To be sure, Sanders is less shy about pushing things much further toward the big-government end of the spectrum than any mainstream Democratic candidate in decades.
Warren presents herself as a tireless, technocratic savior of capitalism, but her plans give the U.S. government far more control over individual firms, households, and markets than anything proposed in recent memory. Warren, a legal scholar by trade, has moved into the complex realm of a modern economy, where a lawyer’s penchant for sweating the details is usually counterproductive and causes considerably more damage along the way.
Go to the section of Warren’s website entitled “Plans” and at the time of this writing you’ll have a choice between a staggering 43 links. Many of the plans could hugely impact our economy, but one stands above the rest in its potential to overhaul our commercia landscape. Warren calls the reforms she envisions to corporate mandates and governance “accountable capitalism.”
Corporations sometimes do bad things, and Warren’s plan might stop some of them. But accountable capitalism does nothing short of rethinking what it means to be a business in the United States and opens the door to negative consequences so severe that ignoring them involves a sort of magical thinking that would make even Warren’s starry-eyed socialist opponent shake his head in disbelief.
The Perils of Warrenism
So just what is accountable capitalism? It was originally a bill proposed by Senator Warren last year. In a fawning write-up in Vox, Matthew Yglesias inadvertently exposed the idea’s flimsy intellectual foundation:
Warren’s plan starts from the premise that corporations that claim the legal rights of personhood should be legally required to accept the moral obligations of personhood.
The morality that comes from “personhood” is not given to us by law, nor is it forced upon us by the government. Morality emerges and evolves as we interact and empathize with one another. Perhaps Warren and Yglesias should start an Adam Smith book club and begin with The Theory of Moral Sentiments.
What will this legally imposed veneer of corporate morality look like? It’s clear from Warren’s campaign materials that it will involve a new and large bureaucracy, but the rules to be enforced are less clear. In short, accountable capitalism means government mandating that corporations do what Elizabeth Warren wants them to do.
Warren’s plan requires corporations valued at over $1 billion to obtain a special federal charter. This charter exposes corporations to regulation from a new Office of United States Corporations that “tells company directors to consider the interests of all relevant stakeholders — shareholders, but also employees, customers, and the community within which the company operates — when making decisions.”
There are a few specific rules — misguided one-size-fits-all requirements about the number of workers on company boards, how executives can sell stock, and how companies can make political contributions. But it mostly appears to be a means for our elected political leaders to micromanage America’s largest corporations at their own discretion.
Watchful eyes might indeed rein in some amount of corporate excess or wrongdoing. But this abrupt shift in the objective of American corporations would be a potentially cataclysmic shock to the economy, and the means of enforcement would only increase the scope for corporate rent-seeking and cynical politicking that Warren currently condemns on the campaign trail. But her proposals simply wish these fatal flaws away.
Fiddling as Wealth Burns
In Warren’s utopia of technocratic micromanagement, one needn’t worry about the unintended consequences that come with major new government regulations. Accountable capitalism would change the goal of America’s largest corporations from a relatively objective metric, shareholder value, to a subjective balancing of the interests of several stakeholders, with the executive branch peering over management’s shoulders.
This would send shares of the largest companies tumbling overnight. No matter, says Warren, 84 percent of stock is owned by the wealthiest 10 percent of Americans. Under the disturbingly ascendant view that “democracy” sanctifies whatever 51 percent of the population likes, 10 percent isn’t important.
Of course, 73 percent of stocks are owned by Americans 55 and older, meaning the skewed wealth distribution noted by Warren is due in large part to the fact that people at or near retirement have accumulated more savings than younger people. Warren’s vision of capitalism through a funhouse mirror would surely destroy significant amounts of that wealth by diluting corporations’ fiduciary responsibility to shareholders.
Next, Warren seems to believe that her Office of United States Corporations will possess a sort of omniscience usually reserved for the realm of fantasy. Large corporations do things we don’t like all the time, but a centralized office with pushback on the level Warren imagines risks doing greater damage. Smith and especially Hayek stress the importance of local knowledge. How will a centralized office take the several hundred largest corporations in the country and order them to increase their payroll or decrease their stock buybacks? By how much?
We don’t need to keep our corporations safe from the meddling of Elizabeth Warren out of some starry-eyed hero capitalism that reveres big business. We need to do so because these corporations are the arteries through which information pumps in our economy. Some workers may have extra time to serve on company boards, as Warren mandates, after they lose their jobs from the overall economic damage wrought by the government’s attempt to legally impose its notion of good citizenship.
The Red Carpet
Warren has spent much of her career crusading against the harmful and unjust cozy relationships between Wall Street and government, often to her credit. It’s curious that someone with such expertise in the matter doesn’t seem at all concerned that this new “accountability” would multiply the number of meetings, phone calls, and emails between senior regulators and the titans of the private sector.
These billion-dollar corporations already employ armies of lawyers and accountants to navigate regulatory minefields and turn them into weapons against their smaller competitors. Does Warren believe this practice will stop overnight?
If most rent-seeking were a matter of nefarious corporate executives buying off weak or greedy officials, we could just elect better people. The fact that this problem persists over decades is indicative of a more subtle process. Rent-seeking is an inevitable systemic feature in a network with thousands of contact points between business and government.
Unless one ascribes mystical power to Warren’s moral presence, her plan represents a fertile breeding ground for mismanagement and corruption. And then comes the day when the people’s champion leaves the White House.
Candidates with big ideas that increase government power often seem to adopt an implicit fantasy that their election will usher in a golden age where “the people” will no longer make mistakes and elect candidates from the other party. What will happen when the unprecedented power Warren wants to assume over corporations falls into the hands of the next Donald Trump? This alone should give the Left serious pause before supporting game-changing deeply misguided reforms to our system.
Left-Wing Nationalism: Yet Another Threat to Liberty
Elizabeth Warren is smart, tenacious, caring, and catastrophically wrong on a host of issues. She’s running on a left-nationalist platform, where corporations turn away from their natural role serving shareholders and instead serve whatever interest the aspiring president believes is important.
I’ve spent multiple articles and podcasts kvetching about Bernie Sanders’ sky-high taxation and grandiose government programs. Sanders would divert large sums away from a private sector that derives its unique dynamism from the emergent and evolutionary processes that only occur when millions of individuals make decisions using the information they uniquely possess.
I’d take whatever Sanders calls socialism over accountable capitalism any day, because rather than starve the dynamic private sector of resources, Warren’s vision stifles the dynamism itself. One cannot overstate the importance of this point over the next year. Warren has convinced many voters, members of the media, and even herself that she is the Left’s pragmatic option. In this regard, the law professor whose staff is known for their prolific production of white papers is reduced to simply wishing reality away.
