Three Trials of Government
When Events Cannot Be Prevented—and When Leaders Fail
SUMMARY
In this revised Neo-Federalist Paper, John Jay examines three upheavals that unsettled American confidence in government, but rejects the notion that every painful outcome proves a failure of leadership. Different events demand different judgments.
China’s industrial ascent was already underway before the Clinton administration established permanent normal trade relations. America could influence the pace and terms of trade, but could not simply prevent a tectonic transformation of global manufacturing. Its consequences were painful and unequal, yet no plausible exercise of executive skill could guarantee the survival of every threatened industry or community.
The post-September 11 wars present a different question. The campaign against al-Qaeda was a necessary response to attack; the invasion of Iraq was a separate choice. Vice President Cheney and Defense Secretary Rumsfeld exercised extraordinary influence over strategy and planning. Yet President George W. Bush, as commander in chief, retained responsibility for the decision to invade, the treatment of dissenting advice, and the adequacy of preparations for what followed military victory.
The financial crisis of 2008 reveals another failure: a foreseeable accumulation of private risk that regulators did not adequately restrain. Wall Street transformed mortgages into tradable securities, magnifying leverage, obscuring responsibility, and rewarding transactions even when the underlying loans were unsound. Warnings existed, but the official response was fragmented and insufficient.
Jay concludes that sound government requires discernment: accepting what cannot be controlled, directing those entrusted with power, and confronting preventable dangers before they overwhelm the people. Its essential duty is judgment, not a promise of omnipotence.
To the People of the United States:
At the close of the twentieth century, the American Republic enjoyed prosperity, growing technological power, and an influence abroad rarely equaled in the history of nations. Yet within a few years its citizens confronted upheavals of extraordinary magnitude: the displacement of manufacturing by the rise of China, prolonged wars in Afghanistan and Iraq, and a financial calamity that destroyed the homes, savings, and employment of millions. From these events arose a loss of confidence in the institutions of government whose political consequences have been profound.
In examining these misfortunes, however, I have come to believe that we must distinguish three very different conditions of public affairs. There are great transformations which government cannot prevent, grave decisions for which its rulers must accept responsibility, and gathering dangers which the authorities possess the means to restrain but fail to confront in time.
To attribute every calamity to bad government is as mistaken as to excuse every calamity as the unavoidable work of fate. The first duty of statesmanship is to know the difference.
The rise of China, the conduct of the wars following September 11, and the collapse of the American financial system present, in their different ways, a test of that principle.
China: A Transformation Beyond America’s Command
During the closing decades of the twentieth century, China was becoming a great industrial nation. Its immense population, expanding productive capacity, growing infrastructure, increasing foreign investment, and government’s determination to develop its economy were remaking the commercial geography of the world. That transformation had commenced long before William Clinton entered the presidency. By the time he asked Congress to grant China permanent normal trade relations in 2000, the movement was already far advanced.
China already traded extensively with the United States and enjoyed favorable American tariff treatment, renewed from year to year. Clinton’s proposal made that treatment permanent, enabling American enterprises to benefit from the commitments China had negotiated as it approached membership in the World Trade Organization. The administration anticipated new markets, lower prices for consumers, and improved prospects for American exporters. It hoped also that closer commercial relations might moderate China’s political character and strengthen its interest in international peace.
These were substantial reasons for engagement, not mere fantasies of inexperienced officials. China’s entrance into world commerce was not a concession which the American Congress alone could bestow or withhold. Its industrial ascent was driven by forces far greater than a single American statute: labor, investment, technology, and the ambitions of a rising nation. To suggest that Clinton might simply have prevented it is to confer upon an American President a power he did not possess.
Nor would a different President, however distinguished for administrative ability, necessarily have spared the manufacturing towns of America the upheaval that followed. Modern factories were already being transformed by automation and foreign competition. Even the most elaborate programs of training and economic assistance could not guarantee that a workman approaching the end of his career would discover an equally rewarding occupation, or that a town deprived of its principal employer would readily acquire another.
There are occasions when the most accomplished government cannot command events, but must govern amid their consequences. The refusal to acknowledge that limitation is not statesmanship; it is vanity.
This is not to deny that policy mattered at the margins. Permanent trading relations affected the speed and incentives of commercial adjustment, and the government could offer assistance to displaced workers or employ lawful remedies against unfair practices. Yet to recognize those possibilities is not to pretend that Congress could preserve the industrial order of an earlier generation. No sufficient evidence permits us to say that a more skillful administration could have prevented the central transformation.
The men who lost their livelihoods were not abstractions in an account book. They were citizens whose labor supported families, sustained communities, and contributed to the prosperity of the Republic. A factory once closed could carry with it the ruin of a town, the diminution of its revenues, the departure of its young, and the destruction of expectations upon which generations had built their lives. Their suffering deserves acknowledgment without the fabrication of a remedy which no government was able to guarantee.
The injury was real. But the existence of an injury does not, by itself, establish that a President possessed the means to prevent it.
The Wars: When Presidential Judgment Was Indispensable
The wars undertaken after the attacks of September 11 present a different case. The nation was cruelly assaulted, and its government had both the authority and the obligation to defend its citizens. The campaign to destroy al-Qaeda and deprive it of its Afghan sanctuary arose directly from that necessity. The invasion of Iraq in 2003 was another decision altogether, principally justified by claims concerning weapons of mass destruction and threats to American security.
Here it will not suffice to invoke impersonal historical forces. War is an act of government, chosen by responsible officers, conducted through institutions established by law, and sustained by decisions which must be renewed as circumstances change. The power to engage a nation in war demands the closest exercise of presidential judgment.
President George W. Bush surrounded himself with men of strong convictions and extensive experience. Vice President Richard Cheney had served as Secretary of Defense under an earlier President. Donald Rumsfeld, the Secretary of Defense, possessed formidable authority over the military establishment. Both became powerful advocates of an enlarged response to the dangers perceived after September 11 and exercised exceptional influence over the course of the Iraq undertaking.
Yet constitutional responsibility was never theirs alone. The Vice President, although elected to his office, was not the Commander in Chief. The Secretary of Defense was an appointed officer through whom military command lawfully passed, but he exercised that authority under the President. Bush himself authorized the invasion of Iraq. It would therefore be historically mistaken to suggest that these men formally seized command or that the President was merely an innocent spectator of their decisions.
The more serious charge is that a President may surrender the substance of leadership without surrendering its formal authority. When powerful advisers come to determine the direction of policy, the President's duty is not diminished; it becomes more urgent.
The President was obliged to insist upon disagreement as well as agreement, to hear doubts from the State Department and military officers, to subject intelligence concerning Iraq to searching examination, and to require an intelligible account of the political order expected to follow the defeat of Saddam Hussein. The removal of a government is a military undertaking; the establishment of peace after its removal is a political enterprise of far greater complexity.
Warnings were available. The State Department had assembled studies of postwar Iraq, and officials raised concerns about public security, civil administration, and the dangers that might follow military victory. Yet responsibility for postwar planning became divided and confused, and military preparations did not adequately resolve what would happen once the existing government had been overthrown. To the extent that competing advice was subordinated to the convictions of a narrow circle, the defect was one of presidential supervision and judgment.
In Iraq, the army of Saddam Hussein was rapidly defeated, but insurgency, sectarian conflict, and disorder followed. In Afghanistan, the Taliban government removed at the beginning of the war returned to power after two decades of extraordinary sacrifice. These events were not identical, and each involved complexities no statesman could fully master. Yet both demonstrate the danger of confusing military operations with the political purposes they are intended to achieve.
The ability to defeat an enemy in battle does not ensure the attainment of the political purposes for which a war was undertaken.
A prudent President could not delegate to favored advisers the duty to determine what victory meant, what sacrifices it justified, and when circumstances required a change of course. He might rely upon their knowledge and employ the lawful chain of command, but the larger judgment must remain his own. It is the President whom the Constitution makes responsible, and it is the nation which bears the price when that responsibility is not adequately exercised.
National prestige, no less than national credit, is a possession accumulated through prudent conduct and endangered by its abandonment. The long wars consumed lives and treasure and left obligations extending into the future. Their history does not prove that every military intervention must fail. It illustrates the consequences when the power of advisers, the momentum of institutions, and the attraction of military success are permitted to obscure the President's obligation to direct the purposes of war.
The Financial Collapse: A Danger Left to Grow
If the rise of China illustrates the limits of political power, and the conduct of war illustrates the necessity of personal executive judgment, the financial collapse of 2008 presents a third and more disturbing condition: a danger which grew over many years while public authorities failed to employ their powers with sufficient force to restrain it.
The original wish to extend homeownership was honorable. Yet the disaster was not primarily the result of an excess of families desiring homes. It arose from a financial structure in which the making of mortgages became increasingly separated from responsibility for their repayment. Banks and mortgage brokers originated loans, collected fees, sold them to other institutions, and transferred them into securities traded throughout the world. Investment banks assembled and divided those securities into complicated claims; rating agencies conferred assurances of safety; and further contracts permitted parties to wager upon the performance of obligations they did not themselves own.
A mortgage, once understood as a long obligation connecting a lender with a borrower, had become the raw material of a succession of profitable transactions. Fees were earned when loans were made, when they were packaged, when they were sold, and when risks were supposedly transferred. Those who profited at one stage might have little remaining interest in whether the family whose home secured the original debt could continue making its payments.
The business of finance was increasingly rewarded for multiplying transactions rather than for exercising sound judgment over the obligations those transactions created.
Excessive borrowing magnified the danger. Institutions relied upon fragile sources of short-term funding while accumulating securities whose values rested upon the belief that housing prices would continue to rise. Financial engineering appeared to disperse risk; in fact, it often concealed its location, multiplied exposure, and joined the fortunes of institutions that scarcely understood how dependent they had become upon one another.
What is most troubling is not that government failed to predict the precise day of collapse. It is that the warning signs were increasingly visible. Concerns about predatory lending and weak borrower protections had been formally reported by federal investigators by 2004. Supervisors saw the spread of mortgages requiring little proof of income, offering deceptively low initial payments, and imposing later obligations which borrowers might be unable to meet. Regulators issued guidance on these dangers in 2006 and 2007, but those efforts came late and did not adequately restrain the broader financial system.
Nor should we pretend that no official attempted reform. The Bush administration urged stronger oversight of Fannie Mae and Freddie Mac, and various agencies undertook enforcement actions or warned of dangerous lending. Congress, independent regulators, and successive administrations shared portions of the responsibility. But isolated measures did not amount to effective supervision of a system whose risks were accumulating across the boundaries of individual agencies.
The Financial Crisis Inquiry Commission would later conclude, over dissent from some of its members, that the catastrophe was avoidable and reflected pervasive failures of regulation, corporate governance, and financial judgment. That retrospective conclusion cannot identify a single measure certain to have prevented the collapse, but it establishes the seriousness of the failures which must be examined.
What, then, was required of President Bush? He could not lawfully dictate the decisions of every independent regulator or command the Federal Reserve as though it were a department of his household. But he could demand a searching account of the dangers from his economic advisers, appoint officers committed to effective supervision, urge regulators to employ their lawful powers, require his Treasury Department to coordinate its responsibilities, and propose legislation wherever existing authority proved inadequate. Above all, he could have given the growing financial peril the sustained attention ordinarily reserved for a grave threat to national security.
A President need not be a banker to recognize that a system which rewards the creation and transfer of risk, while weakening responsibility for its consequences, may endanger the entire Republic. He must possess the wisdom to understand and the judgment to ask the questions which his experts would prefer not to hear.
Instead, the housing bubble broke, losses spread through the securities built upon mortgages, and by the autumn of 2008 the government confronted the possibility of a general financial collapse. The authorities were then compelled to marshal extraordinary resources to preserve institutions whose earlier activities had helped create the danger.
For whose protection was the financial system preserved? Was it for the banks themselves, or for the citizens whose prosperity and security depended upon them?
I do not contend that rescuing the financial system was necessarily mistaken, or that no assistance was given to distressed families. The preservation of credit was indispensable to the welfare of countless citizens. Yet millions witnessed institutions receiving extraordinary support while ordinary families lost homes, employment, and savings. The contrast left a wound upon public confidence which long outlasted the immediate emergency.
A republic cannot indefinitely preserve the confidence of its citizens when its government appears powerful enough to rescue the prosperous, yet insufficiently attentive to the continuing distress of those who have suffered.
Three Different Lessons of Government
From these events emerged discontents which helped deepen the divisions of American political life. Citizens displaced by international competition wondered whether their country still had a place for them. Families burdened by debt or bereaved by war questioned the purposes to which national resources had been committed. Households ruined by the collapse of finance saw great institutions preserved while their own losses remained. The Tea Party and Occupy Wall Street expressed markedly different political convictions, but both gave voice to forms of estrangement from established authority. Other disputes over culture, immigration, and national identity contributed to the rise of MAGA and Donald Trump.
It would be mistaken, however, to trace all these movements to three events or to suppose that the existence of popular discontent establishes the fault of any particular President. What matters is the differing obligation of government in each case.
China teaches humility. There are great changes which no administration can arrest by intelligence, determination, or the multiplication of programs. Government may moderate their effects and seek to aid those harmed, but it must not promise mastery over forces beyond its control.
The wars teach responsibility. A President may employ experienced advisers and entrust operational authority to officers established by law, yet cannot relinquish the judgment that belongs to the office of Commander in Chief. Advice is not command, and the confidence of subordinates is no substitute for presidential direction.
The financial catastrophe teaches vigilance. When private enterprise discovers means of obtaining immediate gain while shifting danger upon others, public supervision becomes indispensable. Government cannot wait until the system has endangered the nation and then regard its rescue as sufficient performance of its duty.
Sound government does not consist in preventing everything that can go wrong. It consists in recognizing what cannot be prevented, taking responsibility for what must be decided, and acting decisively against dangers that can be restrained.
In the fourth of our Federalist essays, I described the government we sought as efficient and well administered, its trade prudently regulated, and its resources and finances discreetly managed. We did not expect infallibility. We expected judgment, fidelity, and accountability in the exercise of powers entrusted to public officers.
My countrymen, the gravest injustice is committed when rulers claim either an ability to command events which no government possesses, or an innocence of responsibility where their own decisions and neglected duties have brought harm upon the people. Between these errors lies the demanding, imperfect, and indispensable art of governing.
The true measure of statesmanship is not whether adversity visits the nation. It is whether its leaders can distinguish misfortune from misjudgment, exercise the authority entrusted to them, and answer faithfully for the dangers they had the power—and the duty—to confront.
PUBLIUS