– April 10, 2019
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You probably did not know this (why would you?), but the Washington Post published a piece about female income and wealth disparities that I coauthored with Bucknell’s Jan Traflet on its Made by History site last week. Perhaps the gatekeepers let me through because it was World Autism Day (do modern liberals still think all classical liberals are “on the spectrum”?), but I suspect the real link was to “Equal Pay Day.”

I know, I know, but the interesting thing is that the Post’s editors bought the argument that a for-profit enterprise might do more for female wealth and corporate-leadership equality than a nonprofit organization or, implicitly, the government. What Jan and I pitched was a Stringhamian private-ordering solution to unequal pay, similar to that in my op-ed here back in February.

We didn’t call it that, of course, but that’s what Sallie Krawcheck is up to, whether she realizes it or not. Basically, if women want more women on corporate boards, they should invest in women-controlled equity funds and vote women on to corporate boards.

If having more women on boards improves financial performance, as many believe, the investors will do quite well, others will catch on, and eventually wealth and leadership equality will be reached.

If gender doesn’t matter, then putting more women on boards won’t improve performance but it won’t sink it either. And if the old-timers are right (they aren’t, but just to cover all the logical possibilities), the investors who push for more women on corporate boards will suffer losses and the gender wealth gap will increase.

Maybe it was just a fluke, but the willingness of the Post to countenance private ordering has given me renewed hope that there might still be some thinking statists left, people who can be persuaded to jettison faith in “compulsory monopoly” solutions to every perceived problem. In fact, the extremists running for the Democratic nomination for president in 2020 might be pushing statists, left and right, towards not just the bland center but towards classical liberal solutions to problems.

These folks are content with their easy statist worldview until they start to think about economy – and world-shattering proposals like MMT, slavery reparations, and the Green New Deal. They still have strong ideological commitments to achieve certain goals, like gender equality, but are happy to contemplate alternative approaches before unrealistic, heavy-handed, top-down proposals polarize debate.

I sure hope this is the case because such people will be primed for my next three books, the biography of Wilma Soss that led to the Post op-ed, a book tentatively titled Liberty Lost about the crucial but largely forgotten political importance of the independent nonprofit sector, and my forthcoming book from AIER, Financial Exclusion: How Competition Can Fix a Broken System and due out summer 2019.

Financial Exclusion shows that America long handled financial exclusion the right way, by encouraging innovation and new entry. When commercial banks turned the poor away in the early 19th century, for example, legislators allowed mutual savings banks to form to provide the poor with a safe, remunerative place to stash their cash. Later, when mutual savings banks would not lend to their own depositors, many of the working poor put their money into building-and-loan associations and credit unions instead. Immigrants were also able to form their own financial institutions, with names like Germania Insurance and Hibernia Savings.

Similarly, when African Americans after the Civil War felt discriminated against by life insurance companies, legislators allowed them to establish their own companies, which soon became pillars of black business communities. Banks and brokerages owned and operated by African Americans arose as well.

Competition did not cure America of bigotry, but it sure did help those who would have otherwise been excluded from financial services. It is also beneficial in its own right, by forcing banks and insurers to examine their policies and priors and make adjustments, or suffer the competitive consequences. Best of all, if some group was wrong and was rightly excluded from loans, mortgages, or insurance for objective reasons, they soon discovered that fact and slipped out of business.

Alas, America gave up the open-entry model in the 1980s and 1990s, when regulators began to cajole financial institutions into lending more freely, especially for home mortgages. Ironically enough, the push to increase homeownership rates was based on bigotry. Homeowners, not renters, were the best Americans, politicians claimed. They had a bigger stake in their communities and were more civically minded than mere renters, who could move at any time. Never mind that it is often easier to sell a house than to get out of a lease and that the median homeowner is older and wealthier than the median renter.

And, more importantly, never mind that the home-mortgage interest deduction incentivized Americans to stay heavily mortgaged, to “rent from the bank,” in other words, rather than to build equity, real ownership, in their homes.

The mantra was everybody must own and hence everybody must be able to get a mortgage, whether they were objectively good credit risks or not. Throw Too Big to Fail and our weak systems of corporate governance and securities rating into the mix and no wonder we ended up merely reducing financial discrimination a little, at the cost of scads of financial predation.

Thankfully, though, the path forward is clear: a return to fighting discrimination with competition. Again, it’s no panacea but it is better than some federal-government megabank nominally lending out heaps of cash to anyone who applies for it, which is the illogical next step in the MMT progression towards the goal of communism by means of monetary policy.

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Robert E. Wright

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Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University in Sioux Falls, South Dakota. He is the author of 18 books, including a new book on financial exclusion published by AIER.

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