I recently had the pleasure of visiting AIER, staying in its historic hilltop mansion, and meeting many of its key players face-to-face for the first time. The collegial yet electric atmosphere balances the established principles of free society with innovative, new perspectives. Had I a fortune, I would willingly give of it liberally to this bastion of rational, civil discourse. Alas, all I can afford at present is an occasional mite of what I hope some will consider wisdom.
As I make clear in my book Financial Exclusion, recently published by AIER, I am no conspiracy theorist. Bad people need no cabal to create bad outcomes. All that is needed to create human suffering is poorly aligned incentives. Financial regulators have incentives to portray themselves as active agents in positive social change, so they sometimes prefer discouraging bad behaviors, like financial discrimination, and encouraging good ones, like financial inclusion, rather than allowing market forces, like competition, to work matters out. The problem, of course, is that large interventions, like those undertaken in the 1980s and 1990s, lead to large problems, like those encountered in the late 2000s.
Consider, as well, the incentives of university departments. Members of search committees do not have incentives to ask, “Which candidate is best for the university?” or even “Which is best for our students?” Rather, they are incentivized to ask, “Which candidate is best for us, the incumbents in this department?” The answer, as AIER’s Phil Magness shows, is usually the candidate who fits the incumbents most closely ideologically. This penchant has decreased diversity, real intellectual diversity as well as ideological diversity, to dangerously low levels in most of the humanities and social sciences, to the great detriment of students, schools, and society.
Just as insidiously, incumbents also have incentives to minimize productivity. The members of a low-productivity history department are unlikely to select a highly productive candidate, regardless of the candidate’s ideological compatibility, because they do not want anyone to “raise the bar” of expectations. As a result, the most meritorious candidates often have difficulty finding a plum job, and those with conservative or libertarian views, or even just leanings, often cannot find any work in the traditional academy.
Sometimes, the feeling is mutual. Consider, for example, the career of the brilliant business historian Thomas Doerflinger (1952-2005). The author of his obituary says that Doerflinger went to Wall Street instead of into the classroom because he disliked teaching. Unsaid is that what Doerflinger really disliked was the prospect of spending his life dealing with underproductive leftist historians with little to no understanding of business, entrepreneurship, or economics.
Whatever the causal chain, the result is the same, a set of institutions controlled by people who undervalue productivity and disdain intellectual inclusiveness — that is, the polar opposite of AIER and other classical liberal think tanks. In What Is Classical Liberal History?, Magness and co-editor Michael Douma hint that classical liberal historians should form their own professional association. I liked that idea when I reviewed the book for the Independent Review but now believe it does not go far enough.
What America really needs is new universities entirely based on classical liberal principles, especially free, rational inquiry. They need to be kept independent of restrictive federal guidelines by lending to their own students, as Hillsdale College does. Most importantly, they need to hire the most productive professors available, regardless of their ideological bent, and allow them to thrive without fear of ideologically based reprisals. Avarice, laziness, or stupidity should be the only grounds for dismissal.
Readers of Financial Exclusion will readily see the parallel to financial regulation, which long allowed groups that felt discriminated against to engage in self-help — that is, to form their own banks, brokerages, and insurers to give their ideas a real-world test. But today gatekeepers clutch tenaciously to the keys of their respective kingdoms.
One need not believe in completely free entry into finance or higher education to realize that barriers to entry are currently too high in both. Marijuana and narrow banks, for example, should be allowed access to the payments system, while the thousands of PhDs wallowing in idleness as university tuitions continue skyward should be allowed to quickly and easily form their own universities. Some will fail, but others will discover new ways of delivering quality education at the lowest possible price.
Soviet central planning did not collapse suddenly; it was simply difficult to forecast its demise because its failures were not priced. The failure of America’s central-planning regime, by contrast, is sending plenty of price signals, especially in health care, higher education, and fringe finance. The question is not if, but when and how reforms will come.