Jay Reding.com

The New York Times has a look at the ideological battle within the Republican Party as the GOP deals with their drubbings in 2006 and 2008 and the Spector defection. Meanwhile, David Frum offers his own suggestions on rebuilding the party.

Everyone looks at the GOP’s problems through the lens of “conservatives” versus “moderates.” That is the wrong way to look at the issue: what this battle really is about is “principles” versus “politics.” The moderates want the GOP to play towards what they see as the political “center”—or the left. The principle-minded factions wants the GOP to stand on a bedrock of principle.

The moderates have a point. If you want to win as a party, you go where the votes are. It’s classic Anthony Downs, the voters fall along a bell curve and the party that can capture the most votes in the middle will win the election.

But the problem is that if the choice is between the Democrats and the Democrats-Lite, why not vote for the real thing? If Republicans start advocating for more government control, they lose the conservative and libertarian wings of the party and end up losing anyway.

There has to be room for both. The GOP cannot win by turning its back on its principles, but it has to be able to advocate for those principles. Being the best conservative in the world does absolutely nothing unless the GOP cannot get others to understand the importance of that stand.

That is the problem with the GOP today. They have no ability to connect with the average voter. They’ve lost the popular imagination, they’ve lost their political “brand” and there is no message coming from the GOP today. Even when they do have a point, they are so ham-handed in making it that they end up hurting each other.

All is not lost. Obama is a mule—a rare character that comes out of nowhere, establishes power, but leaves no lasting coattails. Obama is a rare individual, which makes him dangerous to the GOP, but the more the Democratic Party becomes a cult of personality, the worse off they are. Obama becomes largely irrelevant no later than 2016, and by then the sheen will be off. If the GOP hasn’t gotten their act together by then, they’ll have gone the way of the Whigs. Now is the time that the GOP needs to regroup and experiment.

That is what the GOP ultimately needs to do. They can’t be afraid of failure. They’ve already failed, now is the time to be bold. Yes, the GOP needs to stand on its principles, but what they really need to do is win on those principles. That means trying everything they can to advocate for their values and seeing what sticks. As badly as Michael Steele’s first weeks on the job has been, at least someone is trying new tactics.

Politics is cyclical, and the Democrats are already sowing the seeds of their own downfall. They will grow complacent and arrogant (and have already), and the GOP will get their opening. Exploiting that weakness will take time and trial. But the Republican Party must learn to stand for something and be able to make that stand one that others will join. That is a tall order, but it is the way politics work in America. Politics is cyclical, and any claim of permanent Democratic majority status is as premature now as claims of a permanent Republican majority in 2002 were then.

Sen. Arlen Specter of Pennsylvania is now officially becoming a Democrat. There isn’t much of a shock to this—Specter has always been an erstwhile Republican, and he would have lost in the Pennsylvania GOP primary to Pat Toomey. Specter’s argument that somehow the GOP has moved too far to the right for his liking is really just political cover—this is all about his own political self-preservation.

The problem for Specter is that there’s a good chance that he won’t win the Democratic primary. As NRO’s Jim Geraghty notes, why would the Democrats want a former Republican with a lifetime ACU rating in the 40s who opposes the union-backed “Employee Free Choice Act” and has ties with President Bush? Pennsylvania Democrats don’t need Arlen Specter nearly as much as Arlen Specter needs Pennsylvania Democrats.

The GOP should have gotten rid of Specter in 2004 when they had the chance. Specter’s claim that the GOP has moved too far to the right is based largely on his vote on the stimulus bill—which is opposed by far more than just Republicans. The GOP needs to remake its image, and jettisoning the old guard is probably better in the long run. What is needed now is a party that is more self-confident in their ideology and in their policies. The GOP right now is at war with “moderates” who barely identify with Republican principles and hard-liners who have failed to identify with the American people. That’s not a good position for a party to be in, especially not with a Democratic Congress and a President who could be caught on national TV greedily consuming a mewling infant and still get a 60% approval rating.

The GOP needs to get its act together and fast. Doing so without excess baggage is probably better over the long term, even if it is a huge problem over the short term. Specter was not the sort of person who could motivate the GOP base or the American people. His party switch hurts the Republicans in the short term, to be sure. But it is quite possible than even this Hail Mary play won’t be enough for Specter to keep his political career afloat.

Rep. Keith Ellison (D-MN) has been arrested in Washington D.C. for disorderly conduct after a protest in front of the Sudanese Embassy. Rep. Ellison was protesting the Sudanese government’s decision to expel aid groups from the Darfur region. Rep. Ellison was arrested along with 4 other members of Congress and other activists.

While this protest was for a noble cause—the Sudanese government is undeniably complicit in the killing of tens of thousands of Darfuris, what is the point? Rep. Ellison could do far more by lobbying the Obama Administration to get tough on the Sudanese than by a show protest.

All the protests in the world won’t change the situation in Darfur. The only way that it will change is if the regime in Khartoum has to pay such a high price for its acts that it has no choice but to stop. The international system is so broken at this point that there is little hope of that happening any time soon. When serial human-rights abuser like the Sudan can sit in high positions in the United Nations—including on the Human Rights Commission itself, the problem is with the U.N.

While Rep. Ellison’s heart is in the right place, it would perhaps be more beneficial for him to have protested at the U.N. than at the Sudanese Embassy.

In the Financial Times, Clive Crook wonders why President Obama is so keen on going after the Bush Administration on the “torture” issue:

Common sense may tell you waterboarding is torture, but the law is less clear-cut. Congress should make waterboarding a crime, for the reasons I have stated, and it has had many chances before and since 9/11 to do so. The fact is, it has chosen not to. Some of those in Congress now calling for prosecutions, including Nancy Pelosi, speaker of the House, were briefed about these methods in the panic-stricken aftermath of 9/11 and offered no objection.

Politically, what Obama is doing is pandering to the MoveOn.org left. Obama’s pragmatism is running against the blood lust on the left to get back at the Bush Administration any way they can. The left wants a kangaroo court to put on a nice show trial, then send the objects of their unbridled hatred to jail—or worse. The irrational hatred of the Bush Administration has not gone away with the left, even though the Bush Administration is gone.

Substantively, Obama is being foolish. For one, the idea that there was some kind of torture “regime” with tentacles spreading from GTMO to Abu Ghraib would never stand up to serious scrutiny, because their was no such regime. Prosecuting the Bush Administration for acts like waterboarding would be a blatantly unconstitutional ex post facto prosecution, as Congress had the opportunity to make the practices illegal but did not do so. Moreover, the majority of Americans don’t feel a great deal of outrage over waterboarding someone like Khalid Sheikh Mohammad—especially since there is likely strong, if not incontrovertible, evidence that doing so saved many American lives. In a country where a show like 24 is popular, the idea that people are going to give much care to the “civil rights” of one of the masterminds of the September 11 atrocity is not a very good bet.

Congress should not be so quick to want either prosecutions or a “Truth Commission”—Congressional leaders knew exactly what was being done, and they signed off on it. Speaker Pelosi knew what was being done, and said nothing. The outrage from Congress is nothing less than pure hypocrisy and political payback.

In the end, this is about politics and nothing but. Obama had taken a reasonable and pragmatic response to this issue. Now, the radical left is pushing him further and further towards a politically unsustainable course. Playing politics with national security does not play well outside of the Beltway, especially when this country faces very real and much more immediate crises. Obama should, to borrow a term, move on. What was done in the aftermath of September 11 was done to protect this country and was approved be the same members of Congress who now want to seek a kangaroo court to prosecute crimes they failed to make crimes when they had the chance. Obama has exercised his prerogative to prevent it from happening again under his watch. If the left wants to regard those actions with shame, let them. But this country deserves better than to have do deal with a political circus when there is work to be done. The Democrats will have to lead rather than try to enact their partisan vengeance, and Obama should make it clear that his concern is on the future rather than the past. Let history pass judgment, not partisans.

Bill Maher flaunts his ignorance once again over the issue of the Tea Party protests. Like many who live in a comfortable cocoon of left-wing orthodoxy, Maher fails to understand that the reaction to the Obama Administration is about matters of substance. Maher rants:

t’s been a week now, and I still don’t know what those “tea bag” protests were about. I saw signs protesting abortion, illegal immigrants, the bank bailout and that gay guy who’s going to win “American Idol.” But it wasn’t tax day that made them crazy; it was election day. Because that’s when Republicans became what they fear most: a minority.

The conservative base is absolutely apoplectic because, because … well, nobody knows. They’re mad as hell, and they’re not going to take it anymore. Even though they’re not quite sure what “it” is. But they know they’re fed up with “it,” and that “it” has got to stop.

Here are the big issues for normal people: the war, the economy, the environment, mending fences with our enemies and allies, and the rule of law.

Mr. Maher, here is what “it” is, in a way that even you can understand:

This is what President Obama is doing to this country. Former President Bush was fiscally irresponsible enough, but what Obama is doing is sheer madness. Trying to use government to fix the economy will not work. The bailouts are failing. The housing market is still in the toilet. Lenders are still holding back. If that isn’t a reason to be worried about the future, then it is time to pull your head out of the sand and look at the numbers.

When it was politically convenient, liberals pretended to care about the effect of massive deficits on the future of America. Now that Obama is in office, who cares about a few trillion here or there?

The Tea Party movement is not a partisan movement. There is great anger at the GOP for not leading on the issues of our time and allowing government to grow out of control during their tenure in office. This is a protest based on principles: in fact, it is a protest based on the classically republican principles that the United States should have a limited federal government of enumerated powers.

Maher, like many, think that just because Obama won an election, that means his policies are 1) popular and 2) right for the country. Neither are true. Winning an election doesn’t vindicate your policy prescriptions now any more than it did in 2004. Obama’s ham-handed handling of the economy, his Quixotic campaign against the Bush Administration on torture, and his constant prostrations before America’s enemies from Iran to Venezuela all demonstrate how radical he truly is. His popularity is being supported by a fawning media and a public that is hardly paying attention. Obama’s gotten the same honeymoon that most new Presidents get. But in time, his star will fade, as all Presidents do.

When that happens, the arrogance of Mr. Maher may come back to bite him. Politics in America is cyclical, and given the radical course that President Obama has set for this country, it may well be the Tea Parties that get the last laugh.

In The New York Times, John Tierney has an excellent column about why getting rich is the best way to improve the environment:

As their wealth grows, people consume more energy, but they move to more efficient and cleaner sources — from wood to coal and oil, and then to natural gas and nuclear power, progressively emitting less carbon per unit of energy. This global decarbonization trend has been proceeding at a remarkably steady rate since 1850, according to Jesse Ausubel of Rockefeller University and Paul Waggoner of the Connecticut Agricultural Experiment Station.

“Once you have lots of high-rises filled with computers operating all the time, the energy delivered has to be very clean and compact,” said Mr. Ausubel, the director of the Program for the Human Environment at Rockefeller. “The long-term trend is toward natural gas and nuclear power, or conceivably solar power. If the energy system is left to its own devices, most of the carbon will be out of it by 2060 or 2070.”

The best way to “save the environment” is to grow the economy and embrace new technologies. That means stopping our irrational fear of nuclear power. That means working to make solar a reasonable means of producing power. That also means, however, that we can’t just let some government bureaucrat decide what is best—we have to have a competitive marketplace for green technologies in which the best system wins.

It also means that we must stop looking at dangerous and economically unsound policies like “cap and trade”. As this article notes, cap and trade systems do not work and fail to reduce CO2 emissions while simultaneously hurting the economy. That kind of strategy will reduce capital that can be applied to new technologies, raise the price of energy through the roof, and end up raising the cost of living for everyone, disproportionately hurting the worlds’ poor who cannot pay extra for their electricity. Such a program would end up turning into a massive tax increase on America’s vulnerable middle class. Cap and trade is not the right solution.

The right solution is a system that fosters innovation. That means reducing the barriers that keep green technologies off the market, and giving tax incentives to those willing to take the risks of bringing new technologies to market.

Finally, we have to stop believing the cheap energy and green energy are opposed to each other. Basic economics teaches that as supply goes down, costs will go up. If we are running low on fossil fuels, then the prices for those fuels will only rise until the cost of “green” energy is substantially less. At that point, without of hint of government intervention, there will be a green revolution.

But government doesn’t want to wait. By scaring people into seeing an environmental “crisis” they want people to give them unprecedented power and control&madsh;power and control that they can use and abuse. Yes, we need a clean environment. But we don’t need scare tactics. We must take measured and rational steps rather than being frightened into radical and ill-conceived ventures.

200 years ago the streets of every major city were awash in horse manure, water supplies were unsafe, and soot darkened every building. Today, we have made incredible advancements in expanding human quality of life without damaging the environment. Tomorrow, who knows how far we will come if we abandon the politics of environmental fear and embrace the value of human ingenuity and the entrepreneurial spirit.

In The Spectator, Fraser Nelson has a searching piece on the myth that laissez-faire conservatives led to the current economic troubles:

So while it’s a statement of the obvious, the obvious can’t be stated enough at a time when we’re fighting (or should be) for the future of capitalism and the open society. The last ten years were not laissez-faire, as even Gordon Brown suggests. The crash was the result of bad regulation, not insufficient regulation. Brown told the Guardian last month that “laissez-faire had its day” and it did – in the 1880s. The problem this time was a blind, almost fundamentalist, faith in rules-based economics – the idea that, if inflation was low, everything else would be fine. And this stems from a blind faith in the power of governments.

He’s right. The crash was caused not be “Wild West capitalism” or anything similar. It was caused by a regulatory climate that encouraged systemic risk. The mortgage meltdown was not the product of evil capitalists meeting in smoky rooms to screw over everyone, it was the product of government meddling in the economy.

Our system of financial regulations has been based on a rules-based approach. Far from being unregulated, the financial markets are covered by a number of regulatory agencies—the Securities and Exchange Commission regulated the trade of stocks and other securities, along with FINRA (formerly the NASD) acting as a quasi-private regulatory body. Banks were governed by a massive amount of regulations by bodies like the Federal Deposit Insurance Company (FDIC) and the U.S. Treasury. Corporate books were governed by the Sarbanes-Oxley bill that was passed in the wake of the Enron and Worldcom scandals. The housing markets were heavily regulated by the Housing and Urban Development department, the Community Reinvestment Act, and the presence of Fannie Mae and Freddie Mac (who everyone know were “too big to fail” and would be bailed out by the government if things got too bad).

With all that going on, the argument that somehow the financial markets were totally unregulated is hardly justified by the facts. Quite the opposite, the government was doing plenty to tilt the market for various social policy reasons. Since President Carter signed the Community Reinvestment Act in 1977, it’s been government policy to expand home ownership to minorities and low-income people. President Bush’s “ownership society” was hardly a new direction from government policy, but rather a continuation of what came before.

Tilting the Playing Field: Why the Rules-Based Approach Failed

There are two rather huge problem with the rule-based approach: first, it gives incentives for industry to try to tilt the rules to their benefit, and secondly such an approach can’t work fast enough to effectively regulate a modern economy.

On the first point, it’s obvious to all that there was a cozy relationship between the regulators of the financial markets and those people they were supposed to be regulated. Take the example of Sen. Chris Dodd, who while having been supposed to be in charge of regulating the financial industry was getting sweetheart loan deals from Countrywide and raking in tons of cash from AIG. This is, sadly, not a case of one bad apple in a bunch—Rep. Barney Frank was one of the biggest impediments to reforming Fannie Mae and Freddie Mac and fixing the problems with the mortgage market.

This cozy relationship meant that efforts at substantive reform like the Federal Housing Enterprise Regulatory Reform Act of 2005 could never get off the ground. The regulators were in the pockets of the regulated agencies like Fannie Mae and Freddie Mac, and no way would they allow the world to inspect their books and see just how deeply in trouble they were.

Even if federal regulators were uniformly brilliant and far-sighted (and some of them are), they’re no more insulated from political pressure than the corrupt politicians. Regulatory capture remains a major and persistent problem. There is enormous political pressure, not only from the financial companies, but from special interest pressure groups like ACORN and the unions to push rules through that try to expand home ownership to those who would be enable to afford it. In the end, it wasn’t just about turning a profit, it was about “helping the poor” by lowering lending standards so that more people could buy homes they couldn’t otherwise afford.

A rules-based approach will always produce these results. Ban the giving of money and the transactions go under the table. There’s no way to prevent this kind of influence-peddling so long as there is influence to be peddled. As long as people like Barney Frank, Chris Dodd, and the rest of our corrupt legislative class can tilt the playing field, entities like AIG, Fannie Mae and Freddie Mac, and others will have every incentive to see that the rules get tilted in their favor. That is human nature, what James Madison called “faction” all the way back in Federalist #10 in 1787.

The other problem with a rules-based approach is that it’s slow. The process of passing a new federal regulatory rule takes at least a year on average. Yet the financial markets move much faster. New financial equations and methods like David X. Li’s Gaussian copula function (which Wiredcalls “the formula that killed Wall Street”) is something that is difficult for anyone, especially federal regulators to understand and predict. Trying to craft a rules-based approach to deal with a modern financial system in the Internet age is ultimately futile: by the time there’s been a rule that’s survived the rule-making process, the system has already changed.

It’s not possible to have a regulatory system that works fast enough to meet the demands of today’s economy. Even if it were, we don’t want to have a system that produces rules without time for interested parties to have some say. Even worse than our deliberative rule-making process is one that pushes through rules without considering the potential ramifications.

Preventing the Next Crisis: Make Regulations Simpler, Fairer, and Automatic

The rules-based approach is not going to work in the 21st Century, at least not in the form that we have it now. There’s too many opportunities for regulatory capture and the system cannot keep pace with the needs of a rapidly-evolving market. We need a better approach to the financial system.

That approach should come in the form of a smarter system of regulations. Gary Becker wisely suggests that regulations be automatic rather than subject to the discretion of regulators—such as capital requirements that keep financial institutions from getting “too big to fail”. This approach would reduce regulatory capture, but it may be difficult for regulators to set the right ratio of assets to capital. Still, it’s a step in the right direction.

In addition to that, what we need is a set of financial rules that are dramatically simpler. The more complexity there is in a rule-based system, the easier it is for companies to find loopholes. The large and sophisticated players can find their way around the rules, the smaller and less sophisticated players are easily caught up in a system they can scarcely understand. That tilts the playing field away from smaller competitors and towards the bigger ones. That is not a smart way to run any kind of economic system.

We need to clear away the layers of over-complicated, overlapping, and over-burdensome regulations and replace them with a comprehensive system based on simpler rules that anyone can follow. That will naturally be met with huge cries from both the government agencies and the companies that have captured them, but it’s a necessary step to fixing this mess.

We also have an urgent need to reduce moral hazard. Fannie Mae and Freddie Mac knew they could get away with anything because they were “too big to fail” and their close ties with government would mean they would be the recipients of a federal bailout. That means that they could take far more risks than was safe, and once they did it, others started to follow suit. In a functioning free market system, there has to be a system in which smart risks get rewarded and dumb risks get punished—otherwise everyone will start making dumb and risky moves.

Finally, we have to recognize that more government is not the right solution. More bad regulations will only make the system worse. They will continue to create even more problem with regulatory capture and corruption, and it’s quite likely that they will have a host of negative side effects that won’t be foreseeable for quite some time. Too much bad regulation got us into this mess, and trusting the same government actors that created the mess in the first place to get us out is a fool’s errand.

This crisis was not the result of laissez-faire capitalism, it was the result of bad regulation and corrupt government. In order to repair the damage and move ahead we must stop the culture of bailouts and expanding the power of the corrupt technocrats and move to a system that is fairer, less needlessly complicated, and less prone to regulatory capture. That will not make people like Chris Dodd and Barney Frank happy, nor will it be very welcome within the industries that have grown accustomed to buying favor with the government. But for the future of the American economy, it is the right thing to do.