Gigot’s editorial pages waded into the 2016 presidential campaign debate with firmly established public policy positions and forthright opinions about the qualifications of the candidates and the merits of their views. Along with many other commentators, some editorial page writers were surprised and uncomfortable with the early opinion poll successes of the bombastic real estate tycoon Donald Trump. Nor did Journal writers display admiration for another Republican front-runner, the opportunistic Texas senator Ted Cruz.
Particularly off-putting was the hostility of both toward immigrants, which the Journal felt was damaging to the chances for serious reform of the nation’s broken set of immigration policies. Trump’s talk of building “walls” and applying other draconian measures against immigrants, in the Journal view, merely worsened the worst features of current policy, which had made illegal immigration across America’s southern border inevitable by damaging the old policy of allowing “guest” workers to move back and forth across the border in response to the availability of jobs.
This flexibility had suited the needs of both the migrants and their employers, particularly growers who needed seasonal labor at planting and harvest time. But it didn’t suit labor unions who complained to their congressmen that the law allowed cheap foreign labor to undercut the pay levels and job opportunities of American workers. The Simpson-Mazzoli Act of 1986 responded to union pressures with the effect that the flexibility of the immigration laws was sharply reduced. Immigrants kept coming because jobs that Americans didn’t want were available, but they were coming by illegal rather than legal means. And no longer able to move freely, they stayed. The population of illegals rose steadily, roughly tripling in the 30 years after Simpson-Mazzoli.
Trump, in particular, displayed such negative, nativist attitudes that if his rants were to be taken seriously, it was easy to believe he would make matters far worse, damaging U.S. relations with an important and friendly neighbor, Mexico. The problem went beyond seasonal and menial labor. American companies were complaining that the difficulties in obtaining H-2B visas were preventing them from hiring foreign nationals with special skills, in science, for example, graduating from American universities, even though those skills would clearly benefit high-tech industries and the American economy.
Some Journal writers saw Trump, who also sounded like a threat to free trade agreements, as a one-man wrecking crew with little regard for constitutional limits on presidential power. Washington columnist Kimberly Strassel wrote a telling op-ed in February of 2016 in which she quoted Ben Sasse, a conservative Republican senator from Nebraska, thusly: “We have a President who does not believe in executive restraint; we do not need another.”
Senator Sasse was referring to Obama’s habit of legislating from the White House through the issuance of executive orders and signing “agreements” instead of treaties with foreign powers. His clear intent had been to shut Congress out of its rightful constitutional lawmaking role and to deny the Senate its power to review treaties and withhold its consent from any deemed contrary to America’s national interests. Senator Sasse, recognizing the danger that any Obama successor, Republican or Democrat, might continue these willful practices, wanted Republican candidates to pledge to observe the constitutional limits on executive power. He no doubt feared that Trump, with his contempt for “the establishment,” might be even worse than Obama.
Kim had another question for Republican candidates: “Do you promise to reject dark power?” She was referring to the increasing tendency of federal bureaucrats—the “permanent government”—to expand their power by making rules that they justified through some vague or loosely drafted provision of existing law but not bothering to ask Congress what the law actually meant. Along with his other transgressions against the Constitution’s separation of powers requirements, Obama had encouraged administrative lawmaking to fulfill his goal of creating a more powerful executive branch.
Kim cited the case of the IRS targeting conservative nonprofits by slow-walking their legitimate applications for tax exemptions. Kim had written in an earlier column that this political maneuver had been directed from the White House. Her claim was never successfully challenged.
As the initial primary contests began in 2016, the angry mood of the voters became manifest with Cruz winning the Iowa caucus and Trump claiming the New Hampshire primary with “anti-establishment” screeds. The Democrats fared even worse, with Socialist Bernie Sanders upsetting Hillary Clinton, who had been presumed to be the party’s anointed candidate, in New Hampshire. This mood of anger and protest suggested that the 2016 election might prove to be unlike any that had gone before, with a significant danger that both parties would pick candidates unequal to the task of wielding the vast powers of the modern American presidency and conducting a foreign policy that would protect the country’s security.
Amazingly, only 25 years after the collapse of socialism in Europe and Asia because of its failure to deliver decent living standards, Sanders seemed to have a strong following, particularly among young people with abiding attachments to cell phones but little acquaintanceship with history books. The costs and chaos deriving from Obama’s Progressive policies to expand government control of health care, energy and banking had somehow persuaded many Democrats that what was needed was more of the same. The ignorance of college students was a particular shock to those of us who thought the battle against socialist authoritarianism had been fought and won years ago. It seemed to be a manifestation of the old story that bad government policies often beget policies that are even worse as politicians meddle further to try to fix what went wrong.
The Journal editorial page tasked itself, as ever, with explaining why so many things went wrong in the Obama years and why so many voters were displaying extreme unhappiness with the status quo, an anger that had opened the doors to the likes of the bombastic Donald Trump and an ancient red, Bernie Sanders.
Some of the problems were quite obvious. ObamaCare’s irrationalities were manifesting themselves in higher health insurance premiums, in direct contradiction of the president’s promises of lower costs. For one thing, the law demanded that insurers accept applicants without regard to their existing health problems. This created an incentive for people to remain uninsured, paying a relatively small penalty (and sometimes not because of lax enforcement) until they got sick. Insurance is based on the principle that the premiums of the many pay for the problems of the few. When that equation was disturbed by the “existing conditions” rule, premiums for the unsubsidized middle class had to go up.
Adding new burdens onto the public at a time when the economy was already saddled with excessive taxation and regulation is a recipe for discontent. Years after the 2008 crash, the U.S. workforce remained stuck where it had been 30 years earlier. Household incomes also had remained stagnant. Thanks in part to the Fed zero-bound interest rate policy and Washington’s ravenous spending appetite, the federal government had piled up far more debt in the Obama years than it had in all its past history.
Dodd-Frank had forced banks to improve their capital bases and had subjected them to some 20,000 pages of new regulations. But little had been done to address the failures of public policy responsible for the 2008 crash.
Fannie Mae and Freddie Mac were still around as the year 2016 began, still enjoying the advantage over private lenders that comes from Uncle Sam’s backing. The Journal had been raising alarms about the unsound, politicized lending and borrowing practices of the two government-backed mortgage giants for almost 20 years. There had been talk of liquidating them, but it went nowhere. The Fed had stepped in to buy up the toxic mortgage-backed securities they and others had issued. And so there we were in 2016 with the federal government for all practical purposes holding half the nation’s mortgage debt and continuing the old practice of using much of it as collateral for mortgage-backed securities sold on world markets. It was assumed that this collateral contained fewer nonperforming “toxic” mortgages than in 2008, but who knew what would turn sour in another housing slump?
Paul ran an editorial on the last day of the year 2015 titled “Fannie and Freddie Forever” that began with, “Washington is the place where bad ideas go to live forever. How else to explain the latest innovation from federal regulators to keep Fannie Mae and Freddie Mac dominating the market for mortgage finance?”
The editorial noted that the Federal Housing Finance Agency (FHFA), the “conservator” of the toxic twins after their taxpayer bailout in 2008, was now using another artifact of the 2008 debacle, synthetic collateralized debt obligations (CDOs), to off-load some of their risks. In simplest terms, CDOs are insurance policies for investors against defaults. Wall Street provides CDOs at hefty costs. Asked the editorial: “But how about simply not holding these risks in the first place? Then taxpayers would have no need for insurance.”
Good question, of course. The answer, recited earlier in this book’s discussion of the toxic twins, is that builders, bankers and real estate interests are a powerful lobby in Washington and like nothing better than shifting mortgage risks to taxpayers. The editorial ended with, “And the Beltway crowd wonders why Donald Trump is winning.”
Another macroeconomic issue still with us in 2016 was the 15-year-old departure from monetary policy orthodoxy. The Federal Reserve was continuing its long experiment in providing cheap borrowing for the government and low returns on prudent investments for savers, with very little evidence that its policies had provided the kind of economic “stimulation” that neo-Keynesians persist in promising.
Because of low return on investments, many state public employee pension funds, to cite one example, were wallowing in red ink and in need of more support from hard-pressed taxpayers. Late in 2015, the Fed decided to try to climb out of the box it had put itself in by raising short-term interest rates by a quarter of a point from the zero-bound level.
Since a huge buildup of the excess reserves held by banks on account with the Fed, the traditional means for raising rates, tightened up the reserves banks trade among themselves, the Fed had to adopt a more cumbersome method using overnight borrowing in the broad financial services market to set higher rates. Some monetary economists were optimistic that the Fed was finally on the right track toward rates more balanced between borrowers and savers, but this form of rate setting, requiring huge trading volumes, was experimental. It raised new questions about the Fed’s ability to conduct a monetary policy that would give the dollar sufficient stability to engender business confidence in the United States and foster international trade and investment.
By killing off a decent return on bank deposits, Federal Reserve policy had forced small investors seeking a higher return to venture into an increasingly volatile stock market. This flow into financial assets had ballooned the fortunes of the very rich, like the conservative Koch brothers of Wichita, giving Hillary and Bernie Sanders an excuse to deplore the rise of “income inequality” as a political issue, which, as always, had resonance with striving lower- and middle-income families. Progressives, of course, had been fully supportive of the Fed policy because it afforded the government with cheap borrowing to support the entitlement freebies with which the Progressives win votes. What Hillary and Bernie were really deploring was not so much income inequality but wealth inequality, which is not the same but close enough for government work.
The credit market distortions created by the Fed’s experiments were far reaching. A Journal editorial in August 2015 was titled “Emerging Market Rip Tide.” It explained that Fed direct massive purchases of government bonds and mortgage-backed securities, known as “quantitative easing” (QE), had brought such an outpouring of newly created dollars that it had driven their value down. “Investors borrowed dollars at low rates, converted them into other currencies and bought assets with a higher return, a phenomenon known as the carry trade.” Emerging market economies, particularly exporters of commodities like Brazil, boomed. But when the Fed started “tapering” its asset buying, the process reversed itself. The dollar strengthened, and the hot money that had flowed into emerging markets flowed out again. The strong dollar lowered the dollar price of commodities, an emerging market export staple. Places like Brazil and Malaysia were left in the lurch.
Said a Journal editorial: “The destabilizing effect of QE threatens global growth at a moment when none of the major economies is firing on all cylinders. By encouraging over-investment in developing countries, it may have created new deflationary pressures. China built massive steel-making capacity that will now drive down global prices and lead to protectionist pressure in the U.S. This dislocation and wasted investment should make policy makers reconsider their faith in the power of monetary policy to stimulate growth, and put the emphasis back on pro-market reforms.”
That was certainly good advice, but as we entered the new year, there was little evidence that it would be followed. With much fanfare, the Fed attempted to nurse interest rates upward in December 2015, getting them up to around .40 of a percentage point (40 basis points in Wall Street jargon), but even this minor change gave the stock market hysterics. The Dow Jones averages stumbled into the new year with one of the worst performances on record. Fed officials, who had promised more increases, began to reverse themselves, so it seemed likely that borrowing would continue to be cheap and saving unremunerative, with no more evidence than was shown in the preceding seven years that easy credit stimulated the economy.
Climate change was another piñata that the Journal had been pummeling for two decades, ever since Al Gore had unleashed his “Earth in the Balance” goblins from his lofty perch as vice president of the United States. As mentioned earlier, Barack Obama had remained true to the cause and to burdening American industry with ever more taxes and regulations on energy use, with the ostensible goal of lowering carbon dioxide emissions. That the scare tactics of so-called climate “scientists” had been discredited by genuine research was of little concern to the president and his supporters in the green lobby.
Holman Jenkins, author of the Business World column that we had started in 1987, was especially adept at uncovering the true motivations behind the strategies of both business leaders and politicians, not to mention religious leaders of the stature of Pope Francis. When the pope joined the crusade against carbon emissions in 2015, Holman wrote a column titled “The Pope’s Solution for Warming: Pray.” He noted a headline in some other publication that had credited the pope with “finding religion” on climate change.
“Maybe it would be truer to say Pope Francis has tried to annex one of the newer religions, that of global warming, to Catholic liturgy.” But Holman doubted that either the ministrations of the pope or of President Obama would have much actual effect on the climate. He quoted Georgia Tech climatologist Judith Curry as saying that even if the president succeeded in reducing carbon emissions, the trivial effects would “get lost among the natural variability of climate.” Thus, wrote Holman, “Mr. Obama, who has referred to the ‘urgent and growing threat of changing climate,’ has committed the U.S. to a program of costs without benefits.”
As the Journal had broadened its coverage over the years, editorial writers had found themselves much more involved with social and ethical issues in addition to its traditional discussion of the laws of market economics and the human lawmakers who constantly try to countermand those laws, sometimes with disastrous results. And many social and ethical questions had been on the public docket for a long time as we entered the new year.
Bob Bartley had written about Roe v. Wade when the Supreme Court had first overridden state laws banning abortions in 1973. He had seen the ruling as a compromise with logic of a sort, in that it granted women the right to an abortion free of government control in the first trimester of a pregnancy. But he argued that such a vexing issue as legalized abortion could only be properly settled in the political arena, not by the courts.
Sure enough, the abortion debate raged on just as Bob had expected it would. The pro-choice faction advanced the idea that the government should not only permit abortions but, in the case of poor unwed mothers, use tax money to pay for them.
A particularly cogent editorial on the subject appeared in the Journal on November 5, 2005, observing that “The word abortion appears nowhere in the Constitution,” yet that word had become the flash point of the Senate debate confirming Judge Samuel Alito for a seat on the Supreme Court. The 2005 editorial repeated once more that states already had been liberalizing abortion laws at the time Roe v. Wade took the matter out of their hands, and that by 2005 the political battles likely would have been resolved absent court intervention. It quoted Justice Antonin Scalia as saying that “by banishing the issue from the public forum that gives all participants, even the losers, the satisfaction of a fair hearing and an honest fight . . . the court merely prolongs and intensifies the anguish.”
Journal editorials often supported Justice Scalia, who died in February 2016, because of his frequent arguments that courts should defer to state legislatures when addressing social issues outside the purview of the Constitution and limited powers it grants to the federal government. He was quoted again in the June 27, 2015, editorial that commented on Obergefell v. Hodges, in which the court again overrode state laws in finding a constitutional right to same-sex marriage. The editorial noted that “The revolution in mores about gay and lesbian participation in the institution of marriage is among the most dramatic cultural shifts in U.S. history” and that the modification of laws in 11 states to liberalize the definition of marriage had been “a declaration of social inclusion whose outcome is welcomed by ever-more Americans.” It had been, as Justice Scalia had written in his dissent, “American democracy at its best.” But the editorial argued yet again, as with regard to Roe v. Wade, that “the Constitution is silent about marriage and social-policy preferences, which are supposed to be settled by the people and the political branches.” It asserted that by walling off the definition of marriage from political debate, the “majority may create more political polarization, not less.”
The editorial also quoted the dissent of Chief Justice John Roberts: “This court is not a legislature . . . whether same-sex marriage is a good idea should be of no concern to us. Under the Constitution, judges have power to say what the law is, not what it should be.”
By entering the lists on these complex and deeply emotive issues, the Journal had evolved from its beginnings as a market letter to a participant in the public debate in the broadest possible sense. While it could be argued that its positions on Roe and Obergefell contradicted its long-standing defense of individual freedom in that, in both cases, the court was countermanding state laws that restricted freedoms to abort a fetus and to form a same-sex bond, the Journal did not defend absolute bans on either practice. It simply argued that the Constitution and its Bill of Rights specifically defined the powers of the federal government and did so because the authors, James Madison and Thomas Jefferson, for example, sought to create a balance of power that would protect basic freedoms. In the real world, of course, state legislatures often passed laws limiting freedoms, but in no society, even a well-functioning democracy, can personal freedom be absolute and not subject to the constraints imposed by prevailing community standards. And far better to have random abuses at the state level than to suffer trespasses national in scope conceived in Washington.
Elsewhere as 2016 began, Russian president Vladimir Putin, a child of the Cold War era Soviet secret police, was still testing the United States to see how far he could go in thwarting U.S. policies and mostly getting away with it in places like Ukraine and the Middle East. The Middle East and Africa were again slaughter houses. Sunnis and Shia Muslims were killing each other in Syria and Iraq, with Iran and Russia helping out Syrian president Bashar Assad with his barbarism on the Shia side and Sunnis doing much of their handiwork under the banner of Islamic State, which had seized control of large swaths of Syria and Iraq. That’s a highly oversimplified description of the mayhem, which to be complete, would have to include Al Qaeda, the Afghan Taliban and various other murderous groups, including those in North and sub-Saharan Africa.
Russia’s occupation of eastern Ukraine seemed to be a fait accompli. China was in the process of taking control of the South China Sea, much to the consternation of the Philippines, Vietnam and the other nations bordering that sea. And North Korea was testing long-range missiles capable of delivering its nuclear weapons as far into the North American continent as Chicago.
Domestically, as mentioned earlier, Americans were turning to radical “nonestablishment” candidates like Donald Trump and Bernie Sanders. These protest votes might have been cathartic for those casting them, but they seemed at the time to be a reckless way to select a president who would be capable of leading the country out of its deep problems with mounting debt, overly intrusive government, distorted monetary policy and threats from abroad.
In short, the Journal’s editorialists and contributors of articles and letters had a lot of issues to discuss. The Journal, after 126 years of supplying its readers with news of events and ideas, was a favored venue for conducting this debate. It had come a long way from its small beginnings dispatching flimsies with news of business and finance from the basement of a soda fountain and candy store a few doors down Broad Street from that fabled New York hub of international finance, the New York Stock Exchange at Broad and Wall.