In a January issue,  the lead article of The Economist was “The Rise of State Capitalism”, featuring China as its leading example, of course, with comparisons with the recent problems in the world’s free-market systems suggesting that “the era of free-market triumphalism has come to a juddering halt”.  But in all objectivity, after careful analysis, in the end the long essay arrives at the wise conclusion that state capitalism’s biggest failure has to do with liberty.

I would add that we are certainly seeing serious problems in China as a result of this void in liberty, both in human and economic terms, and the most significant deficiency in the state economic model is the absence of Joseph Schumpeter’s principle of “creative destruction”, the bane of all state capitalistic models, which deprives the system of the natural function of rewarding success and disposing of failure and replacing old technologies with new ones,  thereby rationalizing the allocation of capital.  In fact, The Economist admits this in an indirect way, when it says “By turning companies into organs of the government, state capitalism simultaneously concentrates power and corrupts it.”  A related deficiency is that this concentration severely limits the free flow of ideas which drive innovation.  So as long as China disallows creative destruction to work its will, the days of its economic miracle are numbered, and when the bust comes and its corrupt system of crony capitalism hits the wall, as it most assuredly will, the good news will be the further discrediting of the state capitalism model one more time.

And it will further signal the day when it will no longer be possible to segregate the dynamics of the liberty of markets and human liberty, which is the elephant in the room in our diplomatic relationship with China.  The Chen affair is but the most recent manifestation of their moral dilemma and the trade off between human rights concerns and the need for open U. S. – China diplomatic dialogue.  President Obama says that “human rights are on the table in every conversation” with China.  Yes, but they are not pushed, and the elements of our relationship with China need not be mutually exclusive.  Ronald Reagan advanced both elements of our relationship with the Soviet Union forcefully and vocally–”the evil empire”, “tear down this wall”, etc.  It can and has been done successfully.

The leadership of the Chinese Communist regime has serious legitimacy problems, they know this, and they don’t know how to respond to the human rights issues as framed by a dissident like Chen without further undermining their legitimacy, but it’s only a matter of time until this facade crumbles.

Two fundamentally and diametrically opposed interpretations of the origin of American rights:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness, that to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed……….—Second paragraph, The U. S. Declaration of Independence.

The Declaration of Independence discusses the problem of government in terms of a contract.  Government is a relation of give and take, a contract, perforce, if we would follow out of which it grew.  Under such a contract rulers were accorded power, and the people consented to that power on consideration that they be accorded certain rights.  The task of statesmanship has always been  the redefinition of these rights in terms of a changing and growing social order.–Commonwealth Club Address, Franklin D. Roosevelt, September 23, 1932.

Much as Lincoln described in his “house divided” speech of 1858 as it pertained to slavery, the nation cannot continue half under one concept of the derivation of rights and half another, as represented by these two totally opposed interpretations; it will proceed all one or all the other.

FDR compounded the problem with his annual message to Congress in 1944, in which he outlined his “Second Bill of Rights”, adding wide-ranging rights to “security” to the rights of life, liberty, and pursuit of happiness, which he described as inadequate without the underlying economic security in the new self-evident rights to a job, a home, a fair wage, education, and medical care.

Herein lies the conflict between the negative rights embodied in our Constitution, which prescribes limited and enumerated powers for government, versus the progressive notion of positive rights as expressed by FDR.  This positive rights concept was recently suggested by Alan Blinder in the context of the health care debate when he writes, “Our country was founded on the idea that the rights to life, liberty, and the pursuit of happiness are unalienable.  Access to affordable health care is surely essential to two of these rights, maybe to all three”.  This is the house divided in a nutshell.

The implications of this gross misunderstanding of our grounding reach into every public issue and, as I have previously suggested on this conflict of visions as with many other issues, we cannot be neutral–there is no “moderate”.

I am not a Catholic, but I am a huge fan of Pope Benedict XVI.  I have read two of his books and studied closely his watershed address at Regensburg in 2006, which established a new foundation on which to debate the theological and philosophical conflict between Islam and Christianity.  I have also applauded his leadership in efforts to restore the Christian faith in Europe and I admire his continuing role in educating us on the interrelationship of faith and reason.  But I am disappointed in his recent trip to Cuba in that he did not meet with the dissidents and democrats who requested an audience, nor to my knowledge did he acknowledge the Ladies in White, women who hold vigils for those dissidents in prison, who had requested a meeting.  But, of course, he did meet with their persecutors and evidently only obliquely criticized the regime.  According to reports, many of the dissidents were arrested for simply asking for an audience, either before or after the visit.  I could be wrong, but I suspect that Pope Benedict’s predecessor, John Paul II, would have performed differently, because he was more inclined to the role of highly visible and provocative moral leadership on the world stage, which I would have much preferred in Cuba, but each leader has strengths in his own style and God moves in mysterious ways.

A couple of years ago, I wrote a brief review of a very good book, Econoclasts, by Brian Domitrovic, a professor of economics at Sam Houston State University.  The book outlines the formulation, rationale, and history of the application of supply-side economic theory, with emphasis on the people who sparked the supply-side revolution beginning in the 1970s.  Essentially, the story is about monetary policy at least as much as fiscal policy, because the policy mistakes there have been the primary culprit in most of the crises of the past century, including this one.

In a recent article in Forbes magazine entitled “The Weak Dollar Caused the Great Recession”, Domitrovic returns to this latter point, explaining very convincingly that the rush to invest oceans of capital in housing, energy, and commodities between 2003 and 2008 was sparked by one thing–people lost trust in the value of the dollar.  And history tells us that when this happens, people rush to hedges against superfluous dollar production, which incidentally is still underway.  Domitrovic describes it in cause/effect terms:  Cause–comprehensive devaluation of the dollar on the part of its government masters (the Fed); effect–major investment shifting into hard assets corresponding to fear for the dollar’s soundness.  And as the flight from the dollar proceeded, the financial sector whiz kids were prevailed upon to provide products to accomodate the new opportunities and niches.

I have been writing about this for several years, and adding that the real problem is that the Federal Reserve has long since abandoned its primary mission, which was the preservation of the value of the dollar as the world’s reserve currency.

So, what’s new?  Finally, some members of Congress are responding in a realistic way to the underlying problem.  Rep. Kevin Brady (R-TX) and Sen. Mike Lee (R-UT) have filed counterpart bills in each house that will simply give the Federal Reserve a single mandate: to maintain price stability.  This would eliminate the dual mandate established by Congress during the Carter administration that included maintaining full employment, an unrealistic mission both now and then for an agency whose role was never contemplated to include micromanaging the economy as it has attempted to do in recent years.

More work will be needed, but this legislation will be a good start toward returning the Fed to its historical mission and possibly begin to restore the credibility of the dollar as the world’s reserve currency.

Recently I revisited the masterful 1970 BBC production, “Civilization: A Personal View by Lord Clark”, a sweeping, approximately 12 hour DVD tour of the historic places, structures, artifacts and legacy of the evolution of Western Civilization in Europe from the collapse of the Roman Empire to the 19th century, as guided and described by the eminent art historian Lord Kenneth Clark.  I highly recommend it for its quality of presentation and for the often provocative commentary by Lord Clark along the way.  Much of the commentary struck me as sad in a way in the sense that it described a world from which to a significant extent we have become alienated and no longer recognize.  And why is this so?  Primarily because the foundational linchpin of the development of this civilization in all of its manifestations was the Christian religion, a heritage which has now been hollowed out in Europe and has not been sustained by the dominant culture for at least five or six decades.

I have made three trips to Europe in the past six years and have visited a number of the places and viewed many of the structures and artifacts highlighted in the Clark tour.  These are awesome places, with enormous implications for the historical development of Christendom, which was synonymous with Western Civilization.  Many of these places are now mostly museums and tourist stops.  Who will sustain their viability in the story of the development of the greatest civilization in world history in the absence of their grounding in the worldview that produced them?  And, more importantly, who and what will follow in a next phase of civilizational evolution?  I wonder and I worry.

In an essay in The New Criterion, Charles Murray writes that a major stream of human accomplishment is fostered by a culture in which the most talented people believe that life has a purpose (“this is what I was put on this earth to do”) and that the function of life is to fulfill that purpose.  Further to his point, the characteristics of nihilism are at odds with the zest and life-affirming energy necessary to produce great art, architecture, and cultural artifacts, not to mention a broad range of other manifestations of human accomplishment,  the kind that is demonstrated in the tour by Lord Clark.  If life is purposeless, no one kind of project is intrinsically more important than any other kind.  And what is the most direct cause of the belief that one’s life has a purpose?  Belief in a personal God who wants you to use your gifts to the fullest, a belief that has been in constant decline in Europe for about a century.  There is a secular counterpart to this in the form of Aristotle’s pursuit of “the good”, a concept which has also been out of style for many years.

Can we turn around this sense of purposelessness?  Murray is optimistic, probably more than I am.  He believes that humans are ineluctably drawn to fundamental questions of existence and purpose and that the elites that have shaped culture in America and the West have avoided thinking about these fundamental questions for too long and will inevitably return to them.  I hope he is right before it’s too late.