SW Border Apprehensions: New Fiscal Year Record -- with two months to go

Customs and Border Protection reported 181,522 apprehensions at the US southwest border for the month of July. This was by a large margin the second highest in the record, with the previous record set by the Biden administration in July of last year.

SW border apprehensions were the lowest since March, but nevertheless came in above our forecast. Ordinarily, apprehensions peak in the spring and decline during the course of the summer. This pattern is visible this year as well, but the decline was less than expected based on seasonal factors. Our July forecast, at 166,000, fell 15,500 below the reported number.

Martha's Vineyard, Hypocrisy and Cynicism

​In a cheeky move, Florida Governor Ron DeSantis flew four dozen migrants to Martha's Vineyard last week. This has created quite the brouhaha up here in Cape Cod, but it highlights the hypocrisy of the 'enlightened' left, as well as showing DeSantis capable of cynically deploying undocumented immigrants to make a political point.

Hypocrisy means acting in a manner inconsistent with one's stated beliefs. A prohibition -- including one in migrant labor -- creates such hypocrisy by pitting one's self interest against his social interest. That is, the elites of Martha's Vineyard claim to be all for poor, undocumented migrants, but not in their town. DeSantis, by shipping migrants to the Vineyard, has exposed this hypocrisy, but in a cynical way. DeSantis was not principally motivated by the ostensible goal of providing jobs for migrants, but rather intended damage the reputation of the left by exposing their hypocrisy in the matter.

Thus, hypocrisy implies actions contradicting stated beliefs, and cynicism implies looking for hidden motivations behind those ostensibly motivating action. In both cases, self-interest is divorced from social interest. The individual is motivated to act in contraction of his stated goals or beliefs.

To attribute hypocrisy to the left or cynicism to DeSantis misses the point. Such anti-social behavior arises from US government policy, which sets the price of a work visa close to zero and consequently provides very few visas for those who desire them. The predictable result is a black market in migrant labor where all the participants have an incentive to behave in a manner inconsistent with their stated goals and beliefs. Hypocrisy and cynicism are but side effects of trying to enforce a prohibition, and this applies to all prohibitions and black markets. For example, the EU's embargo on Russian oil -- another prohibition -- exhibits the same traits in an even more pronounced fashion..

Solving the problem does not require moral rectitude. Instead, in the case of migrant labor, H2 visa issuance has to change from a volume-based approach to a market-price based approach. If visas were available at their true market value, migrant-related cynicism and hypocrisy would disappear, not in years, but in days.

Wellfleet Bike Paths User Assessment

Wellfleet Bike Paths User Assessment

June Southwest Border Apprehensions: Record high. At forecast

US Customs and Border Protection reported 191,898 apprehensions at the US southwest border for June. This is comfortably a record for the month, almost twice the pre-Biden record of 115,000 set in June 2000 under the Clinton administration, and even 13,000 above last year's 177,000, a record for June at the time. At the same time, apprehensions were right on our forecast, and indeed, apprehensions have been following our forecast closely for the first half of the year, suggesting that border conditions are largely unchanged since the Biden administration took office.

Illegal immigration from traditional sources, notably Mexico, Guatemala, Honduras and El Salvador, has been below that of last year since March. We presume that such immigrants are well informed about labor market conditions in the US, as they have a wide variety of sources within the US to direct them to job openings. Migrants may be perceiving softness in demand for their labor.

At the same time, a key source of border crossing growth has come from the 'Other' category, that is, countries historically not a major source of illegal immigration. In March-June 2019, for example, an average of 13,000 migrants from 'Other' countries were arrested crossing the border monthly. In the same period this year, the average was 100,000 per month. One can imagine all sorts of legacy problems arising from the growth of 'Other' apprehensions. They will create a pipeline of illegal immigration that will long outlast the Biden administration.

Our fiscal year 2022 forecast for southwest border apprehensions remains unchanged at 2.1 million, by far an annual record and nearly 500,000 higher than the previous record set by the Biden administration last year.

Inadmissibles, those presenting themselves at official crossing points without appropriate documentation, have fallen sharply, with most of the decline coming from the 'Other' category. These were, in all likelihood, disproportionately Ukrainians fleeing the war, with their numbers declining as the situation has stabilized there.

Overall, the situation at the border is largely unchanged. The Open Borders policy remains in place.

I would note that, were we to use a market-based visa system, the US could have booked $30 bn in visa revenues this year from those otherwise entering illegally during the Biden administration. The border would effectively be closed to illegal immigration; all those working in the country would be legal and willing to return home; and these 53 migrants would still be alive.

The Pandemic and US Fiscal and Monetary Policy Errors

[Updated on July 11]

With surging inflation and looming recession in the US, economists and policy-makers have begun a belated round of soul searching about what went wrong. The critical mistake appears to have been conflating a suppression with a depression. Other mistakes followed from this fundamental misconception.

When the pandemic hit, policymakers adopted the 2008 experience as the template and decided to ‘go big or go home’. This was not entirely without cause. The decline in GDP and employment was far more acute in the 2020 pandemic than it had been in the Great Financial Crisis of 2008-2009. Indeed, GDP declined by twice as much in early 2020 as it had during the Great Recession.

Therefore, the Fed and the Biden administration deemed a much larger stimulus and fully accommodative monetary policy to be appropriate. Unfortunately, this involved an error of construction, the mistaking of a suppression for a depression.

Source: FRED, Princeton Policy Analysis

We define a depression as an economic downturn linked to a large decline in house values. When this occurs, households cannot use their homes as collateral for borrowing, as their dwellings are often worth less than the amount owed on the mortgage. Instead of borrowing more, homeowners are forced to slowly pay down their mortgages and re-establish positive net worth in their homes. The economy struggles as consumer borrowing is depressed for the many years borrowers require to regain home equity.

In such cases, as in both the Great Depression and after 2008 (which we refer to as the ‘China Depression’), the US Federal Reserve Bank reduced the benchmark Federal Funds Rate (FFR) effectively to zero percent, not for months, but for seven years. Because consumers were unable to refinance due to impaired home values, such low interest rates had no notable effect on house values, stock prices or inflation in the decade after 2008.

By 2017, however, home values had recovered, and by the time the pandemic hit, consumers were prepared to borrow and spend.

*****

The term ‘suppression’ is not commonly used in economics. Indeed, the profession does not distinguish among recessions, depressions or suppressions.

As used here, a suppression means a reversible outage, an exogenous restriction on economic activity. In this case, the suppression arose from pandemic-related lockdowns and spontaneously from the public’s fear of infection were they to leave their homes. None of this had anything to do with the business cycle.

To illustrate, consider a hypothetical teenager, Bobby. Imagine Bobby had the flu, and a doctor gave him stimulants and medicine to feel better. After a while, he would recover and gradually rejoin society. This describes a typical recession.

Now imagine instead that Bobby’s parents had grounded him and confined him to his room. At the same time, those same parents gave him $50 and some amphetamines to stimulate his activity. Bobby, when released from his captivity, would come out amped up and ready to spend.

That is the difference between suppression and a recession, and it illustrates why the economy rebounded much more quickly than the Federal Reserve expected.

By mistaking a suppression for a depression, the US government set both fiscal and monetary far too loose.

Consider fiscal policy. At the beginning of the pandemic, in Q2 2020, the output gap (the difference between potential GDP and the actual output of the economy), rose to $2.1 trillion or about 12% of GDP. This prompted the government to borrow $3.4 trillion, half again as much as the gap, to distribute as stimulus payments and other support to the economy.

Source: FRED, Princeton Policy analysis

Were this a depression, the gap likely would have persisted. But as it was an outage — a suppression — the gap closed immediately, down almost 60% by the next quarter. By year-end 2021, the gap had effectively disappeared. Meanwhile, the government had continued piling on debt, such that Federal debt today is nearly $7 trillion, 30% of GDP, higher than it had been prior to the pandemic. This is a colossal amount of borrowing in a very short time. In an ordinary year, government borrowing might increase by 2-3% of GDP. The pace of debt accumulation from the start of the pandemic was almost an order of magnitude higher, representing the most radical increase in US borrowing in its peacetime history. This was a grand and perilous experiment in US fiscal policy.

Unsurprisingly, such debt-fueled stimulus led to a rapid and unsupportable increase in demand. Since the US economy could not produce sufficient goods to cover the stimulus, imports soared, leading to record trade deficits and bottlenecks at ports like Los Angeles and Long Beach. Inventories were stripped across the economy. New and used cars were scarce. Items normally available in demand, for example bicycles, became rationed, with retailers hoarding items like the spare parts necessary to run their maintenance operations. A flood of stimulus money blew up the supply chain.

With the stimulus winding down, this process has begun to reverse. Retailers like Wal-Mart and Target reported record increases in inventories in Q1 2022. Previously placed orders arrived just as the stimulus began to wear off. Where inventories had been scarce, suddenly retailers had too many goods in their warehouses. Mark-ups are being replaced by discounts. After the party of cash handouts to the public, the hangover is now on us.

On paper, the roll-off of the stimulus should lead to a technical recession with a decline of perhaps 4% of GDP. Accordingly, GDP declined by 1.6% in Q1 and a number of forecasters see negative growth in Q2 as well. The Federal Reserve Bank of Atlanta, for example, projects Q2 GDP growth at -1.2%. If expectations of decline prove correct, the first half of the year would qualify as a recession by the two negative quarters standard.

Such a technical recession need not cause high unemployment. With the end of World War II, US government spending collapsed, leading the economy to contract by 11% in 1945, but with almost no impact on employment. Brisk growth resumed the following year. If that precedent applies in the current case, growth might resume in the second half of 2022 as the effects of the stimulus wash through the system.

However, there are two complicating factors. The first of these is high oil prices and, even more notably, high gasoline and diesel prices. The last time the world saw such high prices, from 2011 to 2014, Europe slumped into a five quarter recession and the US struggled with ‘secular stagnation’. The story may be repeating itself now, with 55% percent of the US public believing that the country is in recession already, paired with consumer sentiment at its lowest level in seventy years. Both these polls reflect a public under considerable stress from inflation, most notably in energy prices. Ordinarily, such sentiment would be linked to looming recession.

High oil prices often occur in the context of rising interest rates, and this time is no different. As the Fed misdiagnosed the pandemic downturn, monetary policy was set far too loose, contributing to the worst inflation in forty years. As is typical in such cases, the Federal Reserve has started to raise interest rates to suppress the demand for money and thereby reduce inflation.

Not everyone believes the money supply and inflation are linked. In December 2021, Federal Reserve Bank chairman Jerome Powell told a House committee that the once-strong link between the money supply and inflation “ended about 40 years ago.” Powell’s beliefs rest upon the relationship of the money supply to inflation from the start of the Great Recession. From late 2007 until the start of the pandemic, M2 had risen by 60% more than GDP growth, and yet cumulative inflation over that 12 year period was only 20%. The Fed could print money with impunity, it seemed.

Standard economic theory, by contrast, attributes inflation principally to growth in the money supply. The Nobel laureate economist Milton Friedman famously said that “inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” M2 is a widely used measure of the quantity of money, and it has increased by 39% since the start of the pandemic.

If Friedman were correct, we would expect prices to rise by the increase in M2 less the increase in GDP. GDP has risen by 5% since the beginning of the pandemic, and therefore we might expect prices to rise cumulatively by 34%, all other things equal.

Source: FRED, Princeton Policy analysis

There does, however, appear to be a lag between an increasing money supply and inflation. As the website of the St. Louis Federal Reserve Bank notes:

During periods of underutilization, when the money supply is increased, there will be an increase in output; however, as those idle resources are utilized—as idle factories return to production and the labor market begins to tighten up—an increase in the money supply will be reflected in the price level. This is inflation caused by too much money chasing too few goods.

And this indeed appears to correlate to the historical record. During inflationary periods of the past sixty years, observed inflation rates lagged increases in the money supply. However, several quarters after the deployment of monetary stimulus, the trend line took a ‘right turn’, as can be seen on the graph above, and inflation continued without further monetary easing. Such inflation can continue for several years as prices catch up with prior increases in the money supply.

Interestingly, observed inflation can often surpass increases in M2. After 1975 and again after 1983, cumulative inflation amounted to 5-10 percentage points more than the growth of M2 adjusted for real GDP growth would have suggested.

Source: FRED, Princeton Policy analysis

With this model, commonly referred to as the Quantity Theory of Money, we can consider the nature of monetary policy resulting from the pandemic. As with earlier episodes, recent monetary easing did not, in the initial phases, lead to the level of inflation predicted.

However, we appear to be at the inflection point now, as the trend line turns to the right, with high inflation even in the absence of further monetary accommodation. The vast increase in the money supply is beginning to make its way into the economy.

The increase in the money supply has been simply staggering, more than twice the relative size of monetary accommodation in the early 1970s associated with the first oil shock, and three times the size associated with the second oil shock in the last 1970s. Both of those episodes led to brutally high levels of inflation. The current bout could be 2-3 times worse if the model holds up.

Thus, if precedent applies, inflation could average 2-3 percentage points per quarter, 8-12% per year, for 18-24 months, and possibly substantially longer. Alternatively, inflation could be more acute over a shorter period. By implication, the Fed would have to continue to raise interest rates to counter inflationary pressures, something which has inevitably triggered recessions.

Not all analysts are so pessimistic. Unemployment remains low, and although initial unemployment claims are rising, they are rising slowly and remain at modest levels. Real estate inventory, although rocketing up, remains low by historical standards. In addition, consumer finances remain in comparatively good shape, allowing for a loss of purchasing power due to high gasoline and consumer prices. As a result, many economists anticipate ‘stagflation’, sustained high inflation with mediocre real GDP growth. This is unpleasant but not necessarily a disaster.

There are worse scenarios. The model suggests that monetary accommodation has been so great that the US could see both inflation and recession at the same time. Forget stagflation, the US could suffer a ‘Nor’wester’, an economic gale which blows the trendline down and to the right, pummeling the country with stiff price increases even in the face of declining economic activity driven by interest rate hikes. In fact, this is the outcome predicted by Kalshi, an online marketplace to place bets on economic outcomes. Participants expect a recession in 2022 by a ratio of 82:19, but at the same time anticipate elevated inflation above 8%.

*****

It is hard to overstate just how radical both fiscal and monetary policy have been under the Biden administration. The response to the pandemic was not at all the measured sort seen over the last forty years, or even during the excesses of the late 1960s and 1970s which brought intolerable stagflation at the time. The Federal Reserve and the Biden administration have deployed a scale of fiscal and monetary expansion never before seen in US history during peacetime, not by a substantial margin.

The implications are becoming clear. The fiscal stimulus is wearing off, which could lead to a recession by itself. At the same time, the vast increase in the money supply has begun to manifest itself in consumer price inflation.

It seems likely that the US will experience a technical recession in H1 2022, or barely escape it. After that, consumers will have to reckon with rising interest rates and oil prices unlikely to retreat much for the balance of the year. We would ordinarily expect such developments to lead to a recession starting in the next twelve months or so.

Time will tell. Notwithstanding, it is hard to avoid the sense that the reckoning is upon us.

April Border Encounters: Fewer than it appears

Southwest border encounters, comprising both apprehensions and inadmissibles, hit an all-time record of 231,000 in April, surpassing the previous record set in March 2000.

This aggregate number nevertheless obscures important underlying dynamics.

April apprehensions at the southwest border totaled 201,800, comfortably a record for the month back to 2000. Nevertheless, apprehensions declined during a time of year when we would expect them to rise, even if the drop was a relatively minor 2,000 persons compared to the prior month.

Apprehensions also came in about 10,000 below forecast. Moreover, apprehensions likely include Ukrainians fleeing the war, that is, non-economic migrants. Thus, the underlying apprehensions count may be in the 190,000 range, which would be both an improvement over the prior month and about 10% below our forecast level.

The interesting action this month occurred in inadmissibles, those presenting themselves at official border crossings without appropriate documentation. Inadmissibles soared to nearly 33,000, a number unprecedented in modern times. Virtually all of the growth comes from the 'Other' category, that is, not Mexicans, Guatemalans, Hondurans or Salvadorans. Although Customs and Border Protection does not specify nationality, we can assume that these were principally Ukrainians.

If we remove an estimated 25,000 Ukrainians from the April numbers, then the underlying pace of encounters, including both inadmissibles and apprehensions, probably totaled around 210,000. This is still an extraordinarily high level, but down about 10,000 from March.

Declining apprehensions may not be an unalloyed cause for celebration, however, as border apprehensions are sometimes a leading indicator for the US job market. With the stimulus now unwinding, President Biden expects the federal budget deficit to decline by $1.5 trillion this year, a number already achieved for fiscal year 2022. Such a decline represents 7% of GDP, which would ordinarily be expected to trigger a steep recession. About $400 billion of this might show up in a reduction in net imports, with the remaining $1.1 trillion associated with declining economic activity in the US.

This unwinding may well result in a reversing of certain trends seen during the pandemic. For example, whereas stock outages were common in stores during the pandemic, Walmart and Target both saw soaring inventory levels during Q1, with the former's inventory up a stunning 33%. We may expect to see similar surplus replacing scarcity across the retail space and, by implication, putting downward pressure on prices.

Surplus goods may imply surplus labor. We operate under the assumption that most undocumented immigrants come to the US to work and, moreover, are reasonably well-informed about labor market conditions before they undertake the journey north. With vast numbers of undocumented migrants entering the country since President Biden took office, the supply of unskilled, undocumented labor may be catching up with demand as the market turns. Apprehensions may become subject to trends similar to those witnessed in the retail sector. If that is the case, apprehension levels may decline materially as we head into the back half of the year. That would be good news for the Biden administration heading into the November elections were it not a reflection of distress in the economy. (I would add that President Biden now holds the record for the lowest approval rating at this point in a presidency, worse even than the prior record holder, Donald Trump.)

For now, we can state that the underlying rate of apprehensions declined in April, although it remains at historically high levels. If we are to take a guess about the future, expect apprehensions to trend downward for the balance of the year, possibly materially.

A Better Approach to Russian Oil Sanctions

Current EU efforts seek to impose an embargo on Russian oil and gas exports. This is unlikely to be successful, hurt the EU more than it does Russia (if at all, compared to prior years), cause stress in the anti-Russia coalition and provide no funds to Ukraine.

A better approach is needed, one which sees Russian oil revenues shared with Ukraine.

See the presentation: A Better Approach to Russian Oil Sanctions

March Southwest Border Apprehensions: Appalling, but at forecast

Court filings show that Customs and Border Protection encountered 221,303 illegal immigrants at the US southwest border in March. Encounters include both apprehensions and inadmissibles, the latter being migrants who present themselves at official crossing points without proper documentation. Apprehensions and inadmissibles for March were the second highest on record, with March 2000 slightly higher.

March encounters rose by 56,300 (+34%) over February, but the increase is largely attributable to normal seasonal variations. We forecast 212,300 encounters for March, with actuals 4.2% above the anticipated level. Consequently, March encounters were worse than expected, but not much worse. We are simply seeing a continuation of the Open Borders policy the Biden administration has employed for the last year. Put another way, border apprehensions at the current rate are absolutely appalling, but not a surprise.

Our forecast for a record 2.1 million apprehensions at the southwest border for both fiscal and calendar year 2022 remains unchanged.

US Fuel Efficiency and the Ukraine War

The price of gasoline is again in the news, prompting a revisit to the question of the demand for road gasoline and diesel, the implications for the business cycle, and trends in fuel efficiency.

Figure 1

Source: EIA, Table 3.7c Petroleum Consumption: Transportation and Electric Power Sectors, through 12/2021

Historically, US road fuel consumption rises during economic expansions and only falls during recessions. At present, road fuel consumption is still recovering from pandemic effects. Notwithstanding, US road gasoline and diesel consumption has never recovered its August 2007 peak (measured on a 12 month moving average basis).

By our calculations, WTI priced above $135 / barrel would be sufficient to push the US back into recession. Or more precisely, push the coastal states into recession. As the US is not a net importer of oil (or any other other energy commodity), the impact of rising oil prices is theoretically neutral on the economy. Some sectors will have to pay more for gasoline, while others profit from finding, producing, refining and selling more crude oil and road fuels. Not withstanding, we would expect to see road gasoline and diesel consumption to fall, quite similar to the 2011-2013 period, when fuel use declined without sending the US into recession, a unique event in the historical record to that time.

Figure 2

Source: EIA, Table 3.7c Petroleum Consumption: Transportation and Electric Power Sectors, through 2/2020; US DOT for VMT

Fuel efficiency is not much improved over the last thirty years. The first and second oil shocks of the 1970s and early 1980s led to a dramatic change in consumers’ choices of vehicles. After 1990, however, most of the low hanging fruit hang been plucked, and subsequent fuel efficiency improvements have proved modest.

From 1992 to to the onset of the pandemic, road fuel efficiency had improved by only 7%, equating to an observed improvement in fuel economy from 17.5 mpg in early 1992 to 19.1 mpg in February 2020, a not particularly compelling gain of 1.6 mpg in a bit less than three decades.

Figure 3

Source: EIA, Table 3.7c Petroleum Consumption: Transportation and Electric Power Sectors, through 2/2020; US DOT for VMT

If we consider only the period of the pandemic, that is, from February 2020 to December 2021, the US shows a dramatic increase in fuel efficiency, a gain of 4% or 1 mpg in little more than one year. This is likely to prove a statistical artefact, a distortion induced by changed commuting and travel behaviors during the pandemic.

Perhaps the fuel efficiency gains will stick. Historically anomalous efficiency improvements suggests this is not the case, but we may need to wait for 2023 or even 2024 data to see whether recent gains are consolidated or prove transient.

Oil and the EU 2011-2013 Recession

The EU, had back-to-back recessions in the 2008 to 2013 stretch.

After the first recession in 2008/9, the EU recovered, but not to pre-recession levels. Instead, it fell back into the stiff recession of Q3 2011-Q1 2013. This recession requires an explanation, and only two sources have been suggested: an oil shock and an interest rate hike.

The rate hike recession was suggested by, among others, economist Scott Sumner, who argued that a 25 basis (0.25%) rate hike was sufficient to induce a six quarter recession. This is of course complete nonsense, otherwise economies would be sinking into recession every time a central bank raised interest rates even marginally.

An oil shock is the more plausible explanation:

Prior to the Great Recession, oil consumption in both EU and US peaked in 2005 / 2006. The oil supply was unable to keep up with demand; indeed, the oil supply was barely growing at all, leading to claims of ‘peak oil’, including by this author.

With the onset of the Great Recession, oil consumption plummeted in both the US and EU, and both fell into deep recessions. Oil consumption in the US and Europe fell largely in tandem in the EU to 93% and in the US, to 90% of 2005 levels during 2009. The decline in consumption resulted directly from high oil prices in 2008.

After 2009, oil consumption both in the EU and US began to recover, only to run straight into resurgent oil prices. US oil consumption again began to decline, but bottomed in 2012 and began to recover, notwithstanding high oil prices. By contrast, EU oil consumption was declining throughout this period, bottoming in 2014, that is, just about the time the European recession ended.

Europe has never regained its former consumption levels, falling to 83% of 2005 levels in 2021. US oil consumption in 2021 was down only 5% compared to 2005.

What was the difference between Europe and the US during the post-2005 period? Simple. Oil. The US was saved by the shale revolution, and therefore was able to adjust by import substitution whereas Europe had to adjust to high oil prices purely through demand destruction. As we treat oil as an ‘enabling commodity’, lower oil consumption generally implies lower levels of economic activity, and so it proved in Europe.

Source: EIA; NBER and CEPR for recession dating

February SW Border Apprehensions: At forecast; CBP perking up

Customs and Border Protection reported apprehensions for the month of February yesterday. I would note that this is the first time CBP has reported around this date in the last several months. We and others have taken CBP to task for delaying the numbers, for example here: Apprehensions Record as DHS Hides. It is a distinctly positive sign to see DHS and CBP return to traditional reporting dates. Improved reporting is a little thing, but is it a visible step away from chaos and towards some measure of predictability and control.

For the month of February, CBP reports 158,132 apprehensions at the southwest border. This is the second highest for the month since February 2000, and 60,000 higher than last year. Apprehensions were also up 10,000 compared to last month.

The numbers are actually somewhat better than they look. Last month, apprehensions came in 15% above our forecast; this month, apprehensions were materially at forecast as apprehensions rise seasonally as the weather warms. Thus, relative performance appears to be approving. Rather than being above forecast, the current month is now at forecast.

Having said that, we are still on track for 2.1 million apprehensions at the border, which would represent both a fiscal year and calendar year record. Things are better, but they are not good by any stretch. If the Biden administration can push apprehensions down as we head into the spring, some measure of public support may still be salvaged in November. We will see.

To add to the cheeriness my readers must now be feeling when they turn on the news, I would note that falling border apprehensions are often a leading indicator for recessions.

Let's hold that thought for now and let DHS and CBP bank a small win. We need more of this.

NATO's Emerging Ukraine Strategy

In American Thinker: NATO's Emerging Ukraine Strategy

It implies a protracted war of attrition, which, on paper at least, Russia loses. As strategies go, it is unbelievably destructive and cruel, and yet the predictable outcome of the intersection of the Biden Doctrine with American and European public sentiment unprepared to take a loss in Ukraine.

*****

NATO’s Emerging Ukraine Strategy

The war is not going well for Russian President Vladimir Putin. An invasion that should have been wrapped up in a few days is now entering its third week. The Russians still hold a preponderance of military force on the ground but the Ukrainians have been standing firm.

For NATO, the calculus is changing. Russian military might has been exposed as far weaker than thought, and the Ukrainians have shown themselves to be fierce and committed fighters. This has emboldened western powers to provide a laundry list of armaments and other support to Kyiv.

Even more importantly, the European and American public has now seen two weeks of fighting, suffering, and dying in Ukraine. While Ukraine was perceived as a far away, dispensable country before the war, it has now become the staple of the nightly news. The public is growing familiar with the country and, in particular, with the bravery and determination of Ukrainian forces and the suffering of its civilians.

The stakes are also becoming more apparent. President Putin is increasingly seen as a mad dictator waving nuclear weapons and hell-bent on taking over eastern Europe. He is viewed as threatening the global security order and the war is morphing in the public mind from something happening to ‘them’ into one happening to ‘us.’ Losing in Ukraine is beginning to look like an unaffordable luxury. As Gerard Baker writes in a Wall Street Journal editorial: “We cannot let Mr. Putin win.”

Nevertheless, Baker cautions: “We can’t risk pushing him to the brink.”

This, then, is the context of NATO’s emerging strategy. Ukraine cannot fall, but we cannot push Putin over the edge. Part of this strategy is already apparent in the provision of defensive weapons like the anti-tank Javelin and NLAW missiles, the Stinger shoulder-fired anti-aircraft missiles which gave the Soviets endless heartburn in Afghanistan, and garden-variety infantry weapons like guns and RPGs. The assortment and lethality of these weapons are likely to increase over time. Similarly, a No-Fly Zone has been rejected over and over again, but it keeps popping up on the agenda.

Most important is the view that Ukraine must not fall. If this belief fully takes root, NATO will stand in the background but lean on the scales if events in the field turn against the Ukrainians.

NATO’s passive-aggressive strategy augers a war of attrition, one reminiscent of Soviet strategy in the Vietnam war against the Americans. NATO and Ukraine do not need to win outright, at least in the medium term. They can simply hold the Russians in the field and bleed them out.

This is no idle threat. Cut off from his funding, President Putin has limited resources to fight the war. He can announce tax increases and spending cuts to pensions and other services, or print money to cover costs. All of these are likely to prove disastrous. Expect money printing, with all the inflation that implies.

Putin may also be short of troops. Almost all the 190,000 troops the White House estimated massed on Ukraine’s borders have been deployed. Many of these spent the Russian winter huddled in tents on the Ukrainian border and have been fighting non-stop for the last two weeks.

Putin may need reinforcements to augment his professional army. On paper, Russian conscripts are not to be used outside the homeland. In practice, they appear to have been deployed in Ukraine, according to NBC News. Nevertheless, if Putin needs to widen conscription or call up reservists, the political risks multiply.

Under the circumstances, Putin lacks good options. Russia can fight and possibly win, but if the European and American public is willing to sacrifice to prevent that outcome, the odds of success become more remote.

Alternatively, the Russians can stop fighting and try to hold their current lines, just as they did in Donbas and Crimea. Will the Ukrainians stop in return or will NATO stop arming them? Given the public mood, that would seem unlikely.

Finally, the Russians could withdraw to their pre-war lines and continue to hold Donbas and Crimea. This would mean that Putin had lost the war. Nor would it end sanctions on the regime.

On balance, therefore, the logic would seem to call for Putin to persist with the offensive war for a while to see if Russia can achieve a strategic breakthrough. If that fails, one might expect the Russians to dig in and try to hold recently acquired territory and hope to consolidate these gains at the negotiating table. Russia could then try to leverage limited land give-backs in return for sanctions relief. All this will take time to play out. In the meanwhile, the war will grind on.

Before the war, I had suggested that territorial disputes between Russia and Ukraine could be resolved if Russia paid a large sum to Ukraine to acquire the Donbas and Crimea in a voluntary transaction. On paper, such an arrangement could still work. But will anyone be willing to negotiate with President Putin when the time comes? Will the West sit down to talk with a leader who threatened them with nuclear annihilation? Or will Putin’s departure be a precondition for talks regarding a removal of sanctions or a resolution of disputed territories?

A week ago, Putin would have been a viable counterparty. Today, I am not so sure. By the end of March, will anyone be willing to negotiate with Putin?

The war in Ukraine is a disaster on every front, not only for that country but also for Russia, which deserves a better fate. As a consultant and investment banker, I have spent my professional career developing and negotiating transactions and arrangements that serve the interests of the involved parties. One could see a negotiated settlement for Ukraine, but the Russians are pinned in a trap of their own making, and they will be forced to try to fight their way out of it. For now, the men with guns will write the story.

The Biden Doctrine

In my latest at The American Thinker, I explore the Biden Doctrine.

As readers know, we treat liberal as pertaining to the individual and conservative as pertaining to the group. The Biden Doctrine reflects an extreme liberal doctrine giving almost absolute priority to the individual over the group. In the president's eyes, there is no national interest, only soldiers to be kept from harm's way. There are no criminals, just misguided youth. There are no illegal immigrants, only economic migrants.

By virtually ignoring the concerns of the broader society, the Biden Doctrine encourages individuals to challenge laws and accepted norms. The result is a failure of deterrence. The Doctrine encouraged President Putin to invade Ukraine, and the underlying philosophy fuels soaring crime rates and record-setting illegal immigration. Moreover, having failed at deterrence, the Doctrine offers no remedy for the violation of laws and standards. Rather than military intervention in Ukraine, the White House is focused on ex-post sanctions; rather than keeping criminals in jail, shoplifting should be decriminalized; rather than deporting illegal immigrants, the administration distributes them around the country in the dead of night. All of these problems stem from a single root: a misplaced emphasis on individual rights and liberty at the expense of social order.

The result is predictable chaos and tragedy, just as we see in Ukraine.

Recessions, Depressions and Suppressions

Recession
A recession is an income statement event typically caused by a lag in investment cycles (so a kind of real business cycle theory). The economy could see a demand shock or the pace of demand growth outstripping the ability of the fixed asset stock to respond in real time. This could happen for housing or tankers or drillships or other fixed assets with long order-to-delivery cycles. During this time asset prices will move into bubble territory. As orders are delivered, asset prices will start to fall, companies will start to lay off employees, and demand for assets and other goods will fall. Earlier ordered assets continue to hit the market as they are completed. Prices continue to fall and layoffs continue. This process usually lasts 12-18 months until orders in the pipeline start to peter out. Employment and similar indicators regain their prior peaks typically within 24 months or so. Cutting interest rates is helpful is moving inventory of assets hitting the market.

A variation of this includes a supply shock, almost always an oil shock in the modern era. In such an event, supply of a critical enabling commodity — oil — falls, inducing a recession in oil importing countries. Oil consumption falls to a new equilibrium at then begins to grow again from there. This is again a 9-18 month recession with 24 months to prior peak. For a recession, the policy prescription is the garden variety reduction in interest rates and fiscal stimulus essentially through automatic stabilizers.

Source: Calculated Risk

Depression
A depression is a balance sheet event. The hallmark of a depression is the impairment of collateral, most typically housing values. In the Great Depression and the China Recession (the Great Recession), housing values fell by 17%, in other words, a material decline. This meant that a significant portion of homeowners were under water with the equity in their homes and had to pay down debt to restore equity in the homes. If the debt has to be paid down with real money (ie, not inflated away), this is a slow process, figure 2-3% per year, implying the whole process takes seven years or so. If you take a look at the graph below, and look at the 2008-2016/17 stretch, you can see negative equity withdrawals (ie, net paydown of debt). I would argue that is the hallmark of a depression, and you won’t find it in the historical record except during the Great Depression. Because homeowners cannot borrow, the recovery is sluggish, employment growth is sluggish and everyone is kind of unhappy for a long time. These sorts of events are consistent with the rise of fascism, by the way.

https://www.calculatedriskblog.com/2021/09/the-home-atm-aka-mortgage-equity.html#google_vignette

For a depression, the main objective is to repair balance sheets quickly. That implies inflating the economy and debasing the currency, ie, expropriating lenders to benefit mortgage borrowers in order to revive the borrowing capacity of the economy. The prescription is then unsterilized cash injections into the economy, not QE. Interest rates adjustments will be largely ineffective because the collateral is itself compromised and people cannot refinance without a net repayment to the bank (because their house is not worth what they paid for it). Unsterilized cash injections may not cause significant inflation, at least for a while, due to the high propensity of consumers to pay down debt rather than increase consumption. Plus there should be plenty of spare capacity in the economy.

Note that this is not what any of the Fed or other central banks did. Their policy was largely ineffective at reviving the economy (although not in preventing a horrendously deep downturn). My perspective is more niche than even a minority view, but that’s where I think the analysis takes you. People were calling to help Main Street, not Wall Street, and I think that is in fact correct. Direct, unsterilized payments to households are far more important than putting the FFR to zero, which by the way, is another hallmark of a recession, that is, the FFR or equivalent is set to zero without causing either inflation or a robust recovery of the economy. The FFR will sit at zero for, say, seven years without much to show for it. That’s because it is the value of collateral, not interest rate, which is the problem. Again, the Great Depression and the China Depression have this in common, and only these two downturns in the last century have it in common.

I use the phrase ‘China Depression’ neither as a pejorative or to blame. Rather, we need to distinguish this event somehow from the Great Depression, and I believe the Great Recession was not a recession, but a depression. So what to call it? It is clear that the impetus for the China Depression was the rise of China’s economy in the global order. This is a good thing (assuming we don’t go to war) and lifted more people out of poverty faster than at any other time in human history. It would be fair to call it a near miracle. However, the size of China means that it is ‘large’ by comparison with other systems, including the US economy. Thus, China’s integration represented a major challenge to established economic structures and relations, and the process of integration had far reaching consequences for the global economy. From my perspective, the depression was likely unavoidable, but in any event, the proximate cause was the rise of China, hence the ‘China Depression’.

Suppression
In a suppression, there is fundamentally nothing wrong with the economy, no bubbles, excess inventory or unacceptable inflation. Economic fundamentals remain intact. However, a virus sends everyone to their homes. If the virus ended the next day, everyone would come out of their homes and it would be as though nothing has happened at all. So we’re not talking about an ordinary recession at all, but a kind of outage.

Recession dating supports this view. The NBER, the official US score-keeper for recessions, counts the length of the 2020 downturn as two months from peak to trough. This is the shortest recession in US history by a factor of four and does not even qualify as a recession by historical standards, usually defined as two consecutive quarters output decline (that is, 6+ months from peak to trough). We can state that the pandemic downturn was something qualitatively different that a traditional recession.

The outage is caused by 1) fear and 2) the government deliberately shutting down the economy, for example, through a lockdown. The government is actively suppressing the economy for public health reasons. The government is then also distributing massive amounts of cash to help people while the government is preventing them from working. This is going to be unavoidable, but we might expect significant inflation as a result, because purchasing power will be sustained (and then some) while supply falls. We would also expect the trade deficit to blow out as consumers turn to foreign supply, and if the stimulus is too large, it could blow up the logistics systems at its weak points, let’s say, the ports of Los Angeles. Here the issue is not whether you might get inflation, but rather how much. As Larry Summers pointed out, Biden’s fiscal stimulus (maybe some Trump stimulus is in here, too) was nearly 13% of GDP on a GDP output gap of 3%. Clearly, the stimulus was oversized, leading to the inflation problems we have today. Still, I think the model would suggest some inflation and trade balance deterioration is likely even in a more reasonably sized stimulus, just not necessarily this much.

Note that dumping the FFR to zero, as was the case again here, is a bad, bad idea. Because underlying purchasing power is not impaired, because there is no excess housing inventory, and because the ability to supply incremental housing is potentially impaired, tanking interest rates is likely to lead to a rapid and massive bubble in housing values, as well as in the stock market. And that’s what happened: Powell mistook a suppression for a depression and tanked interest rates to depression levels, when this was not warranted. We’ll have to see how this unwinds, but I would note that we could once again see collateral values impaired, and that means a depression, at least on paper.

https://fred.stlouisfed.org/series/FEDFUNDS

So, from my perspective, recessions, depressions and suppressions are different things and require different policy approaches. For that reason, they should have designations that clearly distinguish one from the other.

The Democrats will be buried in Kyiv's Ashes

My latest in The American Thinker.

I argue that Putin is essentially taking advantage of the Biden Doctrine, which the President laid down at Arlington Cemetery last April. In effect, Biden declared his intent to elevate the prevention of military deaths in the field over national interest or honor. This essentially laid open Ukraine as a target for invasion by Putin's Russia. Former President Trump was spot on in his analysis, saying "This is genius. Putin declares a big portion of Ukraine ... as independent. How smart is that! And he's going to go in and be a peacekeeper. That's pretty savvy. And you know what the response was from Biden? There was no response."

Trump holds that the invasion of Ukraine would never have happened on his watch, and I think the evidence suggests this to be true. First, although Trump talked a lot about pulling out of Afghanistan, in four years, he never actually did it. Biden did withdraw, and the method chosen demonstrated that the Biden administration had no stomach to hold its ground. Moreover, Trump would never have given the Arlington speech. Further, Trump showed a willingness to put it to the enemy with the assassination of Iranian General Soleimani. But most importantly, Trump shares a common characteristic with Putin and Xi: an absolute fear of being seen as a loser. Trump could not sit by and do nothing, and Putin knows that. He knows Trump would have called Putin's bluff.

What's more, the American public agrees with this view. According to a Harvard-Harris poll released Friday, 62 percent of those responding believed Putin would not be moving against Ukraine if Trump had been president. That is a huge problem for President Biden and the Democrats. If Ukraine falls, those two of every three voters will blame the Biden administration, and that blame will manifest itself come the November elections. I had earlier stated the Democrats should put themselves on suicide watch over the Open Borders policy. If Ukraine falls, forget suicide watch. The Democrats should bite their cyanide capsules and say goodbye, because the party will be pegged as unfit to protect America. Voters can forgive much, but not national humiliation at the hands of America's chief rival, and a two-bit one at that.

So what can Democrats do? I am no military expert, but what I can find on the internet (here and here and here, for example) suggests that the US could beat the Russians with comparative ease:

The Russians cannot fight a modern war and their bullying capability is limited and would be ineffective against NATO's air power alone[.] ... A US-Russian war would look like Iraq '91, both by overwhelming asymmetry and by multilateral coalition backing.

If Biden wants to save the Democratic Party, he has virtually no choice but to let US air power off the leash. Based on the 9/11 precedent, if Biden succeeds, it is worth +35% net approval points:

Source: 538

Interestingly, the Republican Party, currently wavering over the position it should take, would also benefit from a hard line against Putin. If Republicans call for military intervention and Biden fails to act, then the right can say that Biden betrayed both Ukraine and the US. That would be the expected case outcome. If Biden fights and the US wins, then at least the Republicans will have limited the damage to their own party by being on the bandwagon. (There is nothing worse for a conservative than being pegged as a coward.) Finally, if the US fights and Ukraine falls anyway, Republicans can blame Biden for having chosen the wrong method. The Republicans would seem to benefit from taking a hard line in most outcomes.

My personal view: Let US air power into the game. We have paid a boatload (more like an aircraft carrier load) of money to Boeing, Northrop Grumman and other vendors for state of the art air power. Let's call Putin's bluff and see what our equipment can do.

A Note to My New Readers

Historically, there has been no agreed definition of conservatism. Some argue that it is not even an ideology. Consequently, it has been relatively easy to dismiss conservatives as unsophisticated rubes rather than principled citizens. Fortunately, we now have a theory. I spent fifteen years working in Hungary after the fall of communism and so had an opportunity to see how a society changes from one ideology to another. As a consultant, I worked for communist apparatchiks heading bankrupt state-owned companies and saw a morose society transform into something better through nothing more than the power of free market prices. I cheerfully waved at the brownshirts assembling on Budapest's Freedom Square as I went for my daily jogs. I was shocked when a relative suggested that my uncle, a 26-year IMF veteran and member of the equivalent of Hungary's Federal Reserve Board, only understood 'liberal' economics. After all, I was a product of the same liberal tradition, with graduate studies in international economics and public policy at Columbia University. It made me wonder, though, what was motivating these conservatives, and what did they mean by 'liberal economics'? I spent more than a decade contemplating these questions.

Let me skip to the end and tell you the conclusion: Liberal means pertaining to the individual, and conservative means pertaining to the group (and its members). Because we're social animals, we not only live our lives as individuals, but as members of various groups, including our families, businesses, schools, churches and countries. Group members have both rights and obligations, and these will often conflict with personal preferences. For example, Maria may come home at the end of the work day and want nothing more than to sit down with a drink; Maria as Mom has to cook dinner for the kids. That's her duty, and it may conflict with her immediate personal interest in taking a break. Duty versus desire, 'must' versus 'could', normative versus positive, that's the friction point between conservatives and liberals.

Once we establish that conservatism is about the group, a whole series of issues follow. For example, groups involve questions of membership; of group mission and strategy; rules, norms and values; and group hierarchy, that is, who gets to decide what. If you're a conservative, you are probably recognizing some issues that matter to you.

For today, let's discuss membership. Of course, illegal immigration is the biggest membership issue in the US. It means that people without permission, qualifications or documentation can enter the US and become part of the group with many of the rights, but few of the obligations. For many members of the group -- US citizens in this case -- that's absolutely galling, not only as a practical matter, but as both an intellectual and visceral matter of principle. A fundamental obligation of leadership is to set and enforce standards for membership, in this case, to protect the country by enforcing the borders. It's about keeping non-members out.

But what do we want from new members? I bring this up because conservatives are likely to have a decisive say in US government from the midterms through 2032 or so. How we treat the issue of us-versus-them, how we think about group membership, will prove decisive for the future of the US, indeed, possibly the global community.

If you have a background in sociology, you've probably come across Maslow's hierarchy of needs. Maslow was a psychologist who, in the 1940s, posited that people have a hierarchy of needs, from food to safety, sex and love, esteem and on to self-actualization. It's fairly obvious, but helpful in thinking about motivation.

Maslow’s Hierarchy of Needs

We can construct an analog, a conservative hierarchy of needs, and ask what a group wants from a new member. If we are to let people come over the border, what characteristics should they have? As it turns out, these characteristics split into conservative and fascist components.

Conservative Hierarchy of Needs

The conservative needs boil down to safety, propriety, conformity and compensation.

Safety is the foundation of all groups. If the group cannot assure the safety of its members, the group is in big trouble.

Propriety means formal permissions, for example, a work visa, and meeting other legal and bureaucratic requirements. Conformity means adapting to local customs and unwritten rules. It's about appropriate behavior in a given setting. You can wear pajamas, but not at the mall.

Compensation is about paying one's way. Strictly speaking, this is a liberal objective, but no one ever complained if their neighbor was paying their taxes.

That largely exhausts the list of ordinary conservative objectives, what I call 'Little League conservatism'. Anyone who meets these requirements is in good standing in the group. Note that we have said nothing about race, religion or ethnic origin. The standards are based purely on behavior, but they are not liberal. "Take your feet off the couch!" Nothing liberal about that, but anyone can comply with the requirement.

We define fascism as "discriminating for or against an individual by a group or its members based on unalterable characteristics, typically race and religion." Fascism is about who you are, not what you do. I use it as an umbrella for all kinds of 'isms': racism, sexism, anti-semitism, ageism, nepotism, cronyism, and good-looks-ism, among others. In all these cases, an individual is either favored or disfavored because of some inherent characteristic: their race, religion, age, sex, appearance or family or business connections, for example. Either you have what it takes, or you don't, and if you don't, there's nothing you can do about it. That's fascism at the conceptual level.

Fascism is related to self-determination and the rise of democracy. Although self-determination was for most of the 20th century framed as an egalitarian concept, it tends to be fascist in practice. When India became a democracy, the Muslims were expelled to Pakistan. When Iraq became a democracy, the Kurds immediately left and the Sunnis and Shiites started fighting each other. When the Muslim brotherhood won democratic elections in Egypt, they promptly went about purging the Coptic Christians who had lived there for 2000 years. When democracy came to Yugoslavia, the country immediately disintegrated into its religious and national components, with plenty of ethic cleansing in otherwise democratic states. The bottom line is this: Given a choice, most people prefer to live with and be governed by people like themselves, which in practice means the same nationality, religion, race or tribe. This is not an endorsement of such behavior, but rather the sober assessment that the public's choices are often influenced by unalterable social characteristics. It's that birds-of-a-feather thing.

In homogenous countries, the distinction between conservatism and fascism may be all but imperceptible. In Japan, 98% of the population is Japanese, so discrimination against non-Japanese is a niche issue. It may be bad if you're, say, Korean, but it is not going to be a major theme for the society as a whole. By contrast, in the United States, 40% of the population identifies as either non-white or non-Christian. The distinction between conservatism and fascism is not a trivial matter in this context. How the right evolves, whether it becomes conservative or fascist, will prove decisive in our society and the world that is to come.

Here is the associated article: A Conservative Hierarchy of Needs

January Southwest Border Apprehensions

Customs and Border Protection has reported 146,942 apprehensions at the US southwest border for the month of January. This represents a decline of 23,600 compared to December. At the same time, border apprehensions were the second highest for the month on record, bested only by the 186,000 apprehensions in January 2000 during the Clinton administration.

Notwithstanding the decline in absolute numbers, January apprehensions were still running well ahead of our forecast, in fact 18,000 (+14%) above our forecast of 129,000. Illegal immigration shows a distinct seasonality, with January historically the softest month. Therefore, although apprehensions declined in absolute terms, they came in quite hot compared to expectations. We should not read too much into January numbers, but there is no reason to believe that border control has fundamentally improved this past month.

Our forecasts of a record 2.1 million apprehensions for fiscal and calendar year 2022 remain unchanged. Barring a material change in border policy, the fiscal year record will be formally determined around October 21st, the date CBP is likely to publish the September apprehensions numbers. The midterm elections are on November 8th. As I have written before, Democrats should put themselves on suicide watch, and indeed, they are, with the number of House Democrats not seeking reelection this year at a 30-year high, per The Hill. Even more will announce retirements as events in Ukraine prove to be a turbo-charged version of the debacle in Afghanistan, with the likes of CNN contrasting the images of dead Ukrainian children with members of the 82nd Airborne playing video games in Poland. Record apprehensions will not be the Biden administration's only problem come November.

The Fall of the The Wall

President Trump had many faults, but he did put illegal immigration front and center as a policy issue. This brought outsiders like Steve Kuhn of Ideal Immigration and myself into an active policy debate, with the CATO Institute leading the way in organizing conferences and thinkers.

Under the Biden administration, all that seems to have evaporated.

Sophisticated policy analysis has been displaced by stripped-down left wing advocacy and a naïve commitment to niceness as policy. This in turn has appalled the average American, as have other hard left policies from the administration. As a result, the Democrats will be blown out at the ballot box next fall. Republicans are likely to hold at least one house of Congress or the White House for the following decade. As I have written many times, by choosing to prioritize open borders over normalization of status for the long-term undocumented, the left's immigration advocates -- the NILCs, the SPLCs and their like -- have effectively gutted the prospects of the Dreamers.

But the situation is actually worse on the right. 'The Wall' was the mantra of conservatives under Trump. If only the US could build a wall across the southwest border, one to surpass the Berlin Wall in scope and magnificence, the Mexican and Central American hoards could be kept at bay.

So what has happened to the enthusiasm for the Wall? Why has it disappeared as a clarion call for the right?

As was foreseeable, the success of the Wall rested on fragile foundations.

The Wall would not and does not stop illegal immigration. And best, it slows down potential crossers or forces them to use a different means of entry, of which there are myriad. A Wall will be totally ineffective if judicial rulings make it impossible to enforce or the political will to stop illegal immigration is missing. Both of those have happened. Various judicial findings, like the Flores settlement and subsequent Dolly Gee and Sabraw rulings, have prevented the deportation or holding of undocumented minors and the separation of minors from their parents, both complicating border enforcement. Moreover, the stunning turn to open borders under President Biden is a stark reminder that walls only work if Border Patrol is allowed to detain and deport illegal entrants.

One could put all the blame on the Democrats, but they are not the only culprits. US employers want access to the sort of unskilled labor the undocumented represent. Those Republican managers at chicken processing plants in Mississippi might talk a big game about illegal immigration, but make no mistake, they will hire illegals without a second thought. Nor does the US public have the stomach for tough-minded enforcement. The public simply won't tolerate images of illegal moms being rounded up and sent to detention while their abandoned children wait in vain for their return.

For all these reasons, many conservatives have come to appreciate that a Wall is not the same as border control.

Perhaps we can also claim a contribution is to disillusion with the Wall. In its fundaments, illegal immigration is a black market, with illegal immigrants looking to arbitrage the huge wage differentials across the Rio Grande. That simple. History tells us that the US has been singularly ineffective in beating back any black market using an enforcement-based approach. On the other hand, legalize-and-tax approaches have been remarkably successful.

To illustrate, let's consider the three main black market trade flows over the southwest border: illegal immigrants, hard drugs, and marijuana.

For fiscal year 2022, we forecast border apprehensions at nearly six times -- six times! -- their average for the 2012-2018 period. That is not slightly worse, it's absolutely catastrophic.

Hard drugs are no better. Using year-to-date data annualized, we project that hard drug interdictions -- hard drugs meaning cocaine, heroin, methamphetamine and fentanyl -- will be nearly four times their 2012 level in 2022. Are we winning the war on drugs, now more than fifty years old? Or are we being slaughtered? The data is clear. We are being crushed.

Fentanyl is the worst. Before 2015, fentanyl was such a minor drug that Border Patrol did not even record it separately. For 2022, we anticipate fentanyl interdictions at 25 times the level of 2016, and three times the level of 2020. Fentanyl is the primary cause of 70,000 - 100,000 overdose deaths in the US every year. Hard drug smuggling over the southwest border is quite literally killing us.

But not everything is hard drugs. There is also marijuana. Historically, marijuana represented more than 99% of Border Patrol drug seizures by weight. How is that going? Are marijuana seizures like those of hard drugs?

In fact, pot seizures are down. But by how much? 10%? 20%? 30%? No, marijuana seizures are down 97% compared to 2012. 97%. As a practical matter, marijuana smuggling over the border has ended. Indeed, high quality US cannabis is coveted in Mexico, and it is entirely possible that the US is now a net exporter of marijuana.

How did we end marijuana smuggling? With elaborate border enforcement? No, we did not. The graph makes entirely clear that an enforcement-based approach to border control is a colossal loser. Even with four times as many Border Patrol agents as we had under President Reagan, we are catching no more illegal entrants than we did 36 years ago, and illegal immigration is at an all-time high. Is our current system viable in any sense? Will trying harder make things better? The numbers make it absolutely clear. An enforcement-based approach to border control does not work. Never has, never will. It is a total loser and a waste of money, time and energy. A Wall won't work and doubling the number of Border Patrol agents won't work, and not for one reason, but for many.

That's the realization slowly penetrating the thinking of the better analysts covering illegal immigration.

Apprehensions Record as DHS Hides

Customs and Border Protection, just a few months ago, was able to issue southwest border apprehensions data by around the 12th of the month. We are heading into the 24th with nary a peep, save for numbers from a court filing (via Fox News and an analysis worth reading from CIS's Andrew Arthur).

According to the court filing, 170,191 persons were apprehended at the US southwest border in December. This is 4,400 higher than the previous month and a record over the next highest December by 100,000. That is, December apprehensions were 140% higher than the previous record December and were running at a pace 4.4 times the historical average for the month.

Southwest border apprehensions for calendar year 2021 came in at 1.944 million, a staggering 333,000 above the prior record of 1.610 million set in 2000 during the Clinton administration.

This month we make our first preliminary forecast for both fiscal and calendar year 2022. Since March 2021, apprehensions have averaged a stratospheric 177,000 / month, with a minimum of 160,000 and a maximum of 200,000. Given the comparatively steady pace of apprehensions, we might expect recent experience under the Biden administration to continue. Under such circumstances, we forecast 2.1 million apprehensions for both calendar year and fiscal year 2022, both records besting not only all other administrations, but even the Biden administration's disastrous first year.

Our forecast above assumes ordinary seasonality in apprehensions, but normal variations have been less visible during the Biden administration: every month is similarly abysmal. However, should seasonality hold, the administration will be seeing monthly records right into the summer and a new fiscal year record being published two weeks before the November elections. Democrats should put themselves on suicide watch.

It is hard to overstate the disgrace of the Biden administration's border policy. This cannot be attributed merely to political party. Bill Clinton saw a similar surge in 2000, but had materially tamped it down by year-end. President Obama dealt with a much smaller surge in 2014, restoring order to the border in less than three months. This is not a matter of Democrats or Republicans, but rather the unbending incompetence of the Biden administration, whether in covid or economic management, border control, or even mundane regulatory matters like adjudicating 5G bandwidth around airports. It is a tragedy of poor judgment and a complete absence of technical and related political skills.

And where is DHS? They are hiding in their cubbies, fearful of the political blowback of the data they are to publish. They are sitting on the numbers. They know that a piece entitled something like "Apprehensions Record!" is coming, and it will paint an ugly picture of this administration. And it's worse than that. Secretary Mayorkas has declared that illegals can no longer be detained by ICE purely for being in the US undocumented. That is, a migrant can come to the border and claim asylum and enter the country in full confidence that ICE has been neutered, allowing the undocumented to stay in the country indefinitely. For that reason, the White House is yet to issue the ICE annual report, which was finished months ago, according to a former ICE director.

This is absolutely appalling. Stand up, Secretary Mayorkas, and own this disgrace. Stand with President Biden and own this incompetence, and apologize to long-time undocumented residents who have lost any hope of legal status for the balance of the decade. This is the brutal reality. The Democrats lack the votes for any sort of amnesty this year. After November, the Democrats may hold hardly more than 160 seats in the House, and may not see a majority again for a decade. In the meantime, the likes of Marjorie Taylor Greene will set the tone, which will be geared to dishing vengeance against the Biden administration and the progressive caucus. One object of this venom will be the flood of illegal immigrants in the country. No one is going to want to talk about DACA and the Dreamers. Not for years.

This was an entirely avoidable outcome. There was considerable sympathy for the long-time undocumented who are law-abiding and constructive members of society. The House votes were more than adequate, and a sufficient number of Senate Republicans -- the Romney Faction -- were willing to grant at least some legal status, amnesty if you will. It would not have covered everyone, but a tranche of 700,000 resident visas was within reach. Perhaps as many as 1.2 million. Biden merely needed to reach across the aisle and work on policy acceptable to the Romney Faction. Instead, the Biden administration has taken the my-way-or-the-highway approach, and gotten nothing for it. In mistaking anarchy for compassion as border policy, the Biden administration has stabbed the Dreamers in the back.

November Border Apprehensions: Deteriorating

US Customs and Border Protection reports November southwest border apprehensions at 165,783, up nearly 7,000 from the prior month. This is the largest increase for November in the historical record; in fact, apprehensions have ordinarily declined in November over the last twenty years. The trend is clearly headed in the wrong direction.

Our year-end forecast is revised up 70,000 to 1.92 million. We anticipate southwest border apprehensions for calendar year 2021 will set an annual record by a very large margin, coming in almost 300,000 above the next highest year, 1986, when 1.6 million apprehensions were recorded.

Where do the moderates belong?

In December 2018 -- now three years ago -- I attended a Niskanen Center conference in DC entitled "The Center Right After Trump''. The panels were sprinkled with conservative luminaries like Bill Kristol and David Frum. I recall the general view concluding that, after Trump, the social conservatives would come crawling back to their center-right masters, pundits like Kristol, Frum and the Niskanen staff of experts.

I disagreed, saying that I believed the median voter boundary had shifted, and that the communist-era center-right was now structurally on the center-left. There would be no return of Republicans to the sort of leadership espoused by, say, the late Bob Dole, Gerald Ford or the elder George Bush. Instead, the Republican Party would become either nationalist or populist, and viably so. This was greeted with incredulity. Nevertheless, my view has held up, and the balance of the moderate Republicans have since been purged from the Party. Even Niskanen was forced to take notice, and this past June began to confront reality with a tele-conference entitled "A Time for Choosing: The Center-Right’s Three Options for Saving American Democracy." One option called for fiscal conservatives to remain in the Republican Party and fight for its soul. Another called for the establishment of a third party. The final option, presented by Liam Kerr of the Welcome Party, called for formerly moderate Republicans to join the Democratic Party. In unsettled times, the traditional center right is trying to find a home.

Democrats are facing the mirror image of the same question. How should they treat the classical liberals -- the fiscal conservatives, libertarians, the independents and suburban moderates? The Republicans do not want them and do not need them. The Democrats do not want them, but they certainly need them.

I will argue that the dynamics we see today are the culmination of changes driven by the fall of communism in the early 1990s. We are gradually completing a historic, but entirely foreseeable, return to the political alignments of the pre-communist era. The strategies of both the Republicans and Democrats are driven by this ideological shift, and they revolve around the future of the classical liberals, independents, and the suburban moderates.

******

On the Republican side, the divorce of the social conservatives from the fiscal conservatives should come as no surprise. It is the marriage which was the anomaly. Historically, the fiscal conservatives -- the classical liberals and libertarians -- have lined up on the political left, not the right. Indeed, the Stanford Encyclopedia of Philosophy describes liberalism and socialism as conservatism's "anti-traditionalist rivals". Not allies. Rivals. Fiscal and social conservatives are not on the same side at all. So why the marriage? It was a forced union in response to the rise of communism. In the US two-party system, the dynamics of a three ideology world -- egalitarians, liberals and conservatives -- do not correspond one-for-one with political parties. One party will ordinarily house two distinct ideologies. The question is where the ideology in the middle -- the classical liberalism of the fiscal conservatives -- lines up.

To better illustrate the dynamics, we can look to Britain, where the three ideologies have all had their own parties for more than a century.

As the graph below shows, until the establishment of communism in the Soviet Union, the UK Labour Party played a minor role in British politics, with the Liberal Party holding the left as the primary opposition to the conservatives. However, with the rise of communist Russia, Labour overtook and ultimately eclipsed the Liberal Party, which in turn was shunted to a minor role. Thus, the political left in Britain came to be -- and still is -- equated with the Labour Party. Historically, however, the Liberal Party dominated the left of the political spectrum.

Fig. 1: Share of UK House of Commons Seats by Party

Source: UK House of Commons Library

These changes were less visible in America's two-party system. Nevertheless, the rise of the Soviet Union also catalyzed left politics in the US, with President Franklin D. Roosevelt establishing the modern welfare state and co-opting the term 'liberal' after 1932. The classical liberals were accordingly squeezed out of the political left. Indeed, this can be seen in the rise of the term 'libertarian', brought into popular usage by the writer Dean Russell in 1955:

Many of us call ourselves “liberals.” And it is true that the word “liberal” once described persons who respected the individual and feared the use of mass compulsions. But the leftists have now corrupted that once-proud term to identify themselves and their program of more government ownership of property and more controls over persons. As a result, those of us who believe in freedom must explain that when we call ourselves liberals, we mean liberals in the uncorrupted classical sense. At best, this is awkward and subject to misunderstanding. Here is a suggestion: Let those of us who love liberty trade-mark and reserve for our own use the good and honorable word "libertarian."

The term stuck because those who had considered themselves liberals had lost control over the substantive meaning of the word as the egalitarians took over the political left in the US. While the term retained its political meaning as 'left of center', 'liberal' was stripped of its ideological connotation with individual liberty and rights.

With nowhere else to go, the classical liberals, now libertarians, joined the social conservatives as part of the anti-communist coalition. Thus was born the term fiscal conservative to denote the political affiliation of classical liberals with the conservative right while signaling distinct ideological roots. And the fiscal conservatives were needed. After 1932, even without their traditional libertarian allies, Democrats dominated the House of Representatives. From 1932 until 1994, the Democrats held a majority in the House for all but four years. The egalitarians had taken full control of the left. The classical liberals were neither wanted nor needed there.

Fig. 2: Democrats’ Seats in the US House of Representatives

Source: United States House of Representatives, Princeton Policy forecast

This lasted until the Soviet Union disintegrated and communism collapsed in the early 1990s. The changes were slow to be appreciated in the west, but they were immediately apparent in eastern Europe, notably in Hungary, where I spent the years of transition. In May 1990, just a few months after the fall of the Berlin Wall, Hungary held its first truly free elections in fifty years. The Hungarian Democratic Forum (MDF), a conservative Christian party, and the Alliance of Free Democrats (SZDSZ), a classically liberal party, took the lion's share of the votes, with the Socialists effectively excluded from parliament. The MDF formed the government and, interestingly, the Free Democrats (SZDSZ) went into opposition on the left. Thus, following the collapse of communism in Hungary, the classical liberals -- core members of the anti-communist coalition -- promptly took up their position on the left in opposition to the conservatives.

At the time, this did not seem so unusual. Four years later, it would prove shocking. By 1994, the Hungarian public had tired of the hardships of transition and voted the Socialists back in with a majority of seats in parliament. To the public's surprise, the Free Democrats joined the government coalition, a shock considering that those very socialists had been persecuting Free Democrat politicians just a few years before. Bewildered conservatives took it as a betrayal. Nevertheless, from that date forward in Hungary, the classical liberals would cohabit on the left with their recent enemies and historical partners, the socialists.

The change was also visible in the US if one cared to look. After 1994, the Democrats were no longer the natural majority in Congress. If we assume the Republicans retake the House in 2022 -- a pretty safe bet -- the Democrats will have held the majority in the House for only eight of the thirty years since the mid-1990s. And even these eight years are anomalous. Four of them came in the wake of the Great Recession, an economic trauma which upset the natural political order; and another four as a reaction to the presidency of Donald Trump, who also upset the natural political order. In other words, a Democratic majority in the House is an anomaly in the post-communist era. Even in the 2020 elections, one in which half the country loathed Donald Trump and the Republicans, the Republican Party managed to add thirteen House seats. The current composition of the House can therefore be taken as a floor for the Republicans and a ceiling for the Democrats. Conservative Republicans are now the natural majority in the House.

This brings us then to the civil war and strategy in the Democratic Party. Just as the remainder of moderates are being expelled from the Republican Party, the Democrats are arguing about whether they should give the independents a new home, that is, whether the Democratic Party is to be moderate or progressive. The progressive wing of the party -- the Squad -- has argued that moderates should toe the progressive line. Others have worried that positioning the party so far left will alienate moderate voters.

If we take the view that the collapse of communism has led the white, non-college educated working class to abandon the left and join the right, then the left will require at a minimum independents, classical liberals and suburban moderates to ally with the egalitarian wing of the Democratic Party in order to counter Republicans at the polls. But then who sets the tone, the branding, of the Democratic Party? If the Democratic Party is to be a far left party, the moderates will stay away. This is exactly the outcome seen in Virginia and New Jersey in the November elections. The Republicans swept Virginia and the Democrats retained New Jersey by the narrowest of margins. Therefore, the far left of the Democratic Party is insufficient to hold even Democratic strongholds like the eastern coastal states. The Democrats positioned as a progressive party could accordingly expect to be obliterated come next fall, as I have written earlier. This is the fate the Labour Party has suffered in the UK, where Labor's share of the seats in parliament is a miserable 31% -- 202 seats -- the lowest since 1944. Indeed, but for the moderate (classically liberal) Labour governments of Tony Blair and Gordon Brown from 1997 to 2010, Labour would have been out of power for the last forty years. A hard left Labour Party in the UK would rate as no more than a historical curiosity or electoral footnote. The Democrats are staring into this same abyss come next November, a loss of 50-65 seats, which would bring the party to its lowest representation in the House in ninety years, analogous to the UK Labour Party's current standing.

Fig. 3: UK Labour Party Share of Seats in the House of Commons

Source: UK House of Commons Library

Given that President Biden has enabled the rebranding of the Democrats as a hard left party, a wipeout next year may already be set in stone. To the extent such a fate is to be avoided, the Democrats must swing hard to the center. In this world, the fiscal conservatives will control the left, just as they controlled the right during the communist era.

This may seem odd, given that classical liberals typically constitute only 13-17% of the electorate. How can they wield such power? Median voter theory provides the critical insight: that policy will tend to be decided around the tastes of the median voter. In a three-ideology, but two-party, system, one ideology will fall off the median voter boundary. During the communist era, the social conservatives found themselves marginalized with RINOs running the Republican Party. In the conservative era, the social conservatives will straddle the median voter boundary on the right. The fiscal conservatives -- to the extent they are in the Democratic Party -- will line up immediately to the left of the median voter boundary and set the tone and policy for the Democratic Party. Thus, we can speak of 'dominant' and 'recessive' ideologies, with the ideologies on the median voter boundary counting as dominant and decisive in setting policy. The adherents of the recessive ideology, in this case the progressives, will spend a lot of time complaining, mostly about DINOs.

We can see this specific dynamic at play in the Democratic Party. The progressive faction of the party has proposed a vast social welfare bill. It has been held up — now killed — by a single moderate Senator, Joe Manchin of West Virginia. At the end of the day, the bill would only be as extreme as Manchin's tastes dictate. Progressives will vote for everything Manchin will support, for example, some form of paid family leave. By contrast, Manchin will not support everything the progressives want, not by a long shot. Therefore, legislation will only pass if it commands the median vote, in this case, Manchin's. In this way, median voter theory dictates that the ideologies near the center will determine the feasibility of a given initiative. The progressives can find wins at the margin, but in the future, legislation will tend to be either fiscally or socially conservative, notwithstanding the noise from the far left.

Fiscal conservatism has been the recipe for success for post-communist left administrations. For example, President Clinton raised taxes, reduced spending and balanced the budget. The economy boomed. In fiscal terms, Clinton would have qualified as the best Republican president since Coolidge. Similarly, no less than The Guardian noted that Labour leader Tony Blair built on the economic foundations of Margaret Thatcher’s economic reforms. Labour had the longest run in government with the greatest number of seats in the Commons under Tony Blair and Gordon Brown. In both the US and the UK, a moderate positioning of the left led to historically successful administrations. That model is still valid today, as November's election results in Virginia and New Jersey demonstrate. A Democratic Party positioned to the hard left will be obliterated. To win in a conservative era, Democrats must hold the moderate center, those suburban independents who will support conservatives if the left is presented as stridently socialist.

But domination by the classical liberals is a hard pill to swallow. I above noted that Liam Kerr of the Welcome Party sought to recruit moderate Republicans to the Democratic Party. He did so by offering to moderates that "you'll have a voice." What Kerr should have said is, "You'll have the deciding voice in the party." This is the issue to be negotiated, and it can only be decided in favor of the classical liberals if the Democratic Party is to retain national relevance.

For the Democrats, the strategy is clear. The moderates like Joe Manchin and Amy Klobuchar — and most importantly, President Biden — must stand up and claim the party as centrist. Failure to do so will spell electoral disaster next November and thereafter.

The Importance of Roe vs Wade

While we are discussing the impact of the fall of communism on the political divide, a word about the Supreme Court is also in order.

On the graph below, we can see the ideological balance of the Supreme Court measured as the number of conservative justices less the number of liberal justices. As the graph shows, President Franklin D. Roosevelt appointed liberal judges, transforming a formerly conservative court into one with a liberal balance. His successor, Harry Truman, appointed more conservative judges, but subsequent presidents tended to appoint liberal judges, such that by 1968, liberals outnumbered conservatives by seven votes. That proved the high-water mark for liberalism, and the court has trended conservative since 1980. As with Congress, the Supreme Court turned majority conservative in 1992 after the fall of the Soviet Union and has remained conservative since. Indeed, the court has become more conservative in recent years and is now the most conservative since the Truman administration or perhaps even earlier.

Fig. 4: Ideological Balance of the US Supreme Court (Conservatives minus Liberals)

Sources: Michael Bailey, Martin-Quinn Scores, author’s calculations

The preponderance of conservatives means that long-standing liberal rulings may come up for review, with Roe v Wade leading the way. Roe was always terrible jurisprudence, so the court has reasonable cause to reverse the ruling. For our purposes, however, abortion is not the central issue. Rather, the broader question revolves around the classification of rights as pertaining to the individual or to the group. As readers will recall, we define liberal as pertaining to the individual and conservative as pertaining to the group (and its members). In overturning Roe, the court will be reclassifying a right earlier deemed constitutional and intrinsic to the individual to one subject to public tastes and majority views. This is the central theme of evolving conservatism as we see it: greater weight put on societal norms and tastes at the expense of the freedom of the individual. It is this principle which will likely set the tone in the future.

Further, society is likely to continue to become more conservative for the next two decades. Ideology and demographics are closely linked. The young appreciate freedom; the elderly seek security. US society will continue to age through 2040. Politics and the composition of the Supreme Court may be expected to follow these trends in a more conservative direction. Indeed, if ideology follows the pattern of Hungary, conservatives will straddle both sides of the median voter boundary. Put another way, the overturn of Roe v Wade opens the door for Republicans to challenge long-accepted conventions and become a truly radical party.

Nationalist or Populist?

For minorities -- blacks and Hispanics in particular -- the question is whether the Republicans evolve as nationalists or populists. Nationalism is built around race and religion and is fascistic in nature (keeping in mind that we define fascist as 'discrimination by a group or its members based on an individual's unalterable characteristics, typically race or religion'). Nationalism has emotional appeal, but it can be extraordinarily adversarial and destructive. Blacks and Hispanics have little upside in this vision of the future. Nor is nationalism an easy long-term strategy in a country where whites are steadily shrinking as a share of the population.

Alternatively, the Republican Party may become populist. Populism is principally about class and income -- it is in effect a Marxist construct. As such, it is not primarily concerned with race and religion. We can see some movement in this direction, notably, working class blacks and Hispanics drifting towards the Republican Party, just as working class whites have over recent decades. One key to a populist strategy would be the resolution of illegal immigration, thereby removing the primary source of friction between Hispanics and whites.

Ideology, Affiliation and Identity

I would like to close this analysis as I opened it, with the Niskanen Center and, indeed, with my friends at the Cato Institute.

That the anti-communist coalition should fracture after the fall of communism is not a terribly deep insight, nor is it new. I first wrote about it twenty years ago. Nor is the communist-era migration of the classical liberals to the right obscure. I read about it on Cato's website fifteen years ago when I first researched this topic. So why then the difficulties? Why are Niskanen and my friends at the Cato Institute still twisting in the wind and hoping to remain on the center right?

Well, switching sides is about more than ideology. It is also about identity and affiliation. Those on the center right are used to thinking of themselves as being on the center right and enjoying status with the Republican elite. But the ground has shifted beneath their feet. It is like a man living in the Sinai who, upon that desert's return to Egypt, went to bed an Israeli and woke up an Egyptian. The fiscal conservatives’ self-conception and philosophy have not changed, but they are now on the other side of the divide. Emotionally, they struggle to digest that they went to bed Republican elites and woke up Democratic elites.

Affiliation also matters, both for think tank funders and for political allies and colleagues. The natural impulse remains to hold on to established networks and professional friendships, even if these may no longer be quite applicable to new circumstances. This is not an easy, and perhaps not even feasible, transition for mid-career professionals.

Nor should ideology be fully discounted. Fiscal conservatives have always loathed socialists, and they still do. Cohabiting on the left can look distasteful. But that is the bride on offer, the ex-wife from earlier times. And of course, the decisive question remains who rules the house. If the progressives set the tone, they cannot count on liberal support.

And finally, there is the question of comfort. The melding of fiscal and social conservatism is a cozy intellectual and emotional fusion, where both self-interest and social obligation can be combined in one political home. Doing good and doing well are manifest in a single party. That is no longer true. Today, one's self-interest and one's social interest are split between two parties. To put it another way, the organic left-right divide does not run through groups of people, it runs through the individual. It is duty versus desire. For the center right, it means they can't have it all, that the future of the political divide will force them to choose and offers a lesser world than the one they used to inhabit. From a psychological perspective, if the future is less than the past, why rush to embrace it?

For all these reasons, the center right think tanks, indeed, many former moderate Republicans, are struggling with their identity and political loyalties. The result, however, is both analysis and policy proposals which are not well thought through. Niskanen is intent on 'saving American democracy', but its proposals are undercooked at best. In its conference, the first speaker suggests moderates should fight for the soul of the party. A brief review of the historical record suggests that is unlikely to succeed.

The second speaker suggests a three party system, but this is no mean feat. If the left's votes are split between liberals and egalitarians, then the classical liberals -- that 13-17% of the electorate -- will have no material representation in Congress. Just look to the British precedent. The Liberal Democrats have polled respectably in the UK over the last half century, averaging 17% of the vote. However, this has translated into a meager 4% of the seats in parliament. The outcome would be no better in the US barring a fundamental re-write of the Constitution, and that is not going to happen. Splitting the left into two parties would mean disaster for both liberals and progressives. The concept of a third party is thus either a deadly serious topic requiring deep research and analysis, or it is a throw-away. Hardly the stuff of 'saving American democracy' to just toss it out for discussion.

Figure 5: Liberal Party Seats and Share of Vote

Source: UK House of Commons Library

The last option, for moderates to join the Democrats, is the viable political solution, but it deserves much more seriousness than Niskanen's passing treatment.

*****

Conservatives are not unaware of these discussions. In their gut they know that the thinking of the center right of, say, Niskanen or Cato, boils down to the three D's: Dominance, Disdain or Desperation. I have alluded to the dominance above, that pundits like Bill Kristol and David Frum feel entitled to call the shots, and that rural, non-college educated whites should shut up and follow their betters.

This is accompanied by utter disdain for social conservatives. Those at Niskanen consider themselves on the right, but they will not talk to Breitbart or the other conservative outlets. How can one claim to be on the right and not talk to the right? It’s simple. The center right elite assume conservatives will surely give up hope and go away. No need to engage with conservatives, or heaven help us, take them seriously.

The last option is, of course, despair, that social conservatives will end democracy. That is a terrible outcome to be avoided, but apparently not so terrible as to stretch the imagination or challenge the class prejudices of the think tank elites.

The center right must therefore either win or lose. Accommodation, relationship management and constructive interaction with conservatives is off the table.

This is apparent in the very definition of conservatism. Here is how the above-mentioned Stanford Encyclopedia describes it:

Many deny that [conservatism] is an ideology, or even a political philosophy, regarding it instead as a disposition that resists theoretical expression—a “non-ideology” that attempts to avoid the errors of ideologies. Is it an ancient attitude, or one that developed only in response to Enlightenment rationality and its political products, liberalism and socialism?

Well, if conservatism is not even an ideology, then surely we can disdain and dismiss it. And this would be fine, except that half the voters are conservative, representing the dominant political group in the country. Therefore, taking the attitude that conservatives are incoherent and have no addressable ideology is a bad idea, because the left's policy options will devolve into either Dominance or Desperation. Fight or flight, that's all Niskanen or Cato have on offer today. And make no mistake. The conservatives have arrived and are getting stronger. They will be the dominant party in the House, on average, and very possibly in the Senate and carry a majority of state houses and governorships. We live in a conservative era, one which is trending even more conservative over time. If Dominance and Desperation are the only options on the menu, the left and the traditional center right had better acclimate themselves to a steady diet of desperation.

*****

The Stanford Encyclopedia notes that “compared to liberalism and socialism, conservatism has suffered philosophical neglect.” This is in fact the case. Conservatism has descriptors like “traditional”, “backward-looking”, “slow to change” and “illiberal”, but it has no agreed definition. To broaden the options, we need a coherent model of conservatism, one which allows both the left and right to take a structured and constructive view of conservative ideology. And that's what we provide. Our model has excellent explanatory and predictive capabilities. It provides clear and coherent definitions of both conservatism and fascism using a unified framework for all three major ideologies. And critically, it is compatible with neo-classical economics, a necessary pre-condition for our approach to endure and be adopted in the policy world.

When the time arrives for a serious consideration of conservatism, our model will prove the indispensable tool.