Economic Corner 44 08/12/2026

[ History of AEI

The American Enterprise Association (AEA) arrived in Washington in 1943, in the thick of World War II. In Congress there was talk of making wartime price and production controls permanent to prevent another Depression when peace finally arrived. The tiny AEA, a business group formed in New York City in 1938, was horrified; it resolved to open a Washington office to advocate rapid postwar economic demobilization and, more generally, to improve Congress's understanding of the economic consequences of its actions. The new AEA office, which eventually became headquarters and graduated from "association" to "institute," was the avant-garde of two momentous developments of the decades to come, both responding to the growing size and power of the federal government: the migration of business and trade associations from commercial centers to the nation's capital and the emergence of the policy "think tank."

AEA was a partnership of top executives of leading business and financial firms (Bristol-Myers, General Mills, Chemical Bank) and prominent policy intellectuals (Roscoe Pound of the Harvard Law School, economic journalist Henry Hazlitt, and disillusioned New Dealer Raymond Moley). From the beginning, however, the Association's spirit was libertarian and conservative rather than simply "probusiness." Its founding mission statement would still serve well: to promote "greater public knowledge and understanding of the social and economic advantages accruing to the American people through the maintenance of the system of free, competitive enterprise." So, too, its academic and empirical commitments: AEA was to be "nonpartisan and nonpolitical," was to "express no opinion of its own," and was to produce "accurate, impartial, and objective" research.

Following the highly successful dismantling of wartime economic controls, the AEA Washington office began preparing analyses of legislative proposals and publishing studies on subjects that remain AEI staples today--Social Security reform, government health insurance, the effects of trade on domestic employment, and the effects of productivity growth on wages and income. In 1950, a fan letter from freshman congressman Gerald R. Ford began a long and happy relationship with the late president. AEA also produced philosophic tracts portraying private enterprise as a form of voluntary social cooperation undergirding strong communities and democratic self-government--intellectual sprouts that would later blossom in such landmark works as Michael Novak's The Spirit of Democratic Capitalism and Irving Kristol's Two Cheers for Capitalism.

The arrival in 1954 of William J. Baroody marked the beginning of the modern AEI. The son of a Lebanese immigrant stonecutter, Mr. Baroody gave up a secure job at the U.S. Chamber of Commerce for the chance to lead a small, financially strapped organization. He was an entrepreneur and risk-taker, a strong political conservative, and a widely read intellectual convinced of the potential for ideas to move practical politics. During his twenty-six years at AEI, he demonstrated singular gifts for spotting important academic talent and for promoting dense--and often contrarian--policy-reform ideas for busy public officials, business executives, and journalists. Mr. Baroody expanded the legislative analyses, commissioned original research by leading scholars, and raised the money to pay the bills. Within a year of his arrival, reviews and excerpts of AEA publications began appearing in the Wall Street Journal and Barron's. By the early 1960s, economists Milton Friedman, Paul McCracken, and Gottfried Haberler had joined his academic advisory board. Mr. Baroody conceived for AEI a brilliant slogan that combined the Institute's commitment to freedom and competition with a forthright challenge to the liberal orthodoxy of 1960s Washington: "Competition of ideas is fundamental to a free society."

Mr. Baroody's leadership produced a period of astounding growth in the quantity and quality of the Institute's output, making it one of the busiest and most productive centers of policy research in the nation and heralding the sea change in American politics to come. In 1972, Gottfried Haberler was appointed AEI's first "resident scholar," to be joined the following year by Yale's William Fellner; the arrival of such renowned scholars signaled the Institute's intention to become a first-rate research institution in fact and name. When the voters prematurely retired President Gerald R. Ford in 1976, he became AEI's "distinguished fellow" and brought with him a dozen colleagues to pursue work begun in his administration; among those who would subsequently return to public service were Arthur Burns, Robert Bork, Laurence Silberman, Antonin Scalia, James C. Miller III, John Snow, Rudolph Penner, and David Gergen. As AEI achieved critical institutional mass, it was able to attract several of America's most influential thinkers, including neoconservative godfather Irving Kristol; economists Herbert Stein and Marvin Kosters; sociologist Robert Nisbet; political scientists Robert Goldwin, Jeane Kirkpatrick, and Walter Berns; theologian Michael Novak; and author Ben Wattenberg.

Having begun the 1970s with a budget of $1 million and a staff of ten, AEI at decade's end had a budget of $8 million and a staff of 125. AEI had become a hotbed of innovative ideas--on deregulation, tax reform, trade policy, social welfare problems, and revitalization of defense and foreign policy--that were about to debut on the political stage.

The 1980s were great years for AEI's ideas but troubled years for the institution itself. President Ronald Reagan appointed several dozen AEI scholars and fellows to his administration and to federal judgeships, where they helped him to achieve monumental improvements in economic, regulatory, and legal policy and to deploy the more assertive foreign policy that dispatched Soviet Communism by decade's end. But Mr. Baroody died just months before Reagan's election, and his successor, son William Baroody Jr., struggled to maintain his father's legacy in a transformed political environment. With so many prominent AEIers in government, and with the emergence of several energetic new think tanks such as the Heritage Foundation and the Cato Institute, AEI's reputation and finances suffered. Still, many exceptional scholars remained busy and productive at AEI and began work on audacious new projects--such as producing a new liberal-conservative consensus on welfare reform that eventually produced the Welfare Reform Act of 1996.

AEI's trustees appointed a new president in 1986--Christopher DeMuth, a lawyer and economist who had served in the Nixon and Reagan administrations and taught at Harvard's Kennedy School of Government. Mr. DeMuth revamped the Institute's program of foreign and defense policy studies and focused its domestic research agenda on traditional strengths: public finance and tax policy; government regulation; U.S. politics and political institutions; and cultural, philosophical, and social welfare issues. He also instituted major managerial and financial reforms and a new and variegated publications program.

Donors responded with alacrity; by the early 1990s, AEI had paid off its debts and was growing mightily in financial resources, in the size of research staff, and in the quality and influence of its output. Soon, the Institute's eminent senior scholars were joined by a new generation of economists, social scientists, foreign policy and trade experts, and students of social and cultural problems. To name only two recent accomplishments, Institute scholars, and particularly Peter J. Wallison, provided prescient warnings about the problems of the government-sponsored enterprises Fannie Mae and Freddie Mac. In foreign policy, Frederick W. Kagan is credited with providing the intellectual and practical rationale for a change in strategy in Iraq in 2007, which came to be known as the surge.

Today, the Institute has a staff of 185, including seventy scholars and fellows. It also has a new president. In 2008, after twenty-two years at the helm, Mr. DeMuth stepped down as president and moved down the hall to do research. His successor, Arthur C. Brooks is a classical musician by training. He came late to the world of public policy, influenced by the innovative and daring social science research of Charles Murray.

After seven decades, AEI continues to serve a vital role in the intellectual life of the nation. The Institute furnishes policymakers with ideas to meet the pressing challenges of today based on the resilient principles of private liberty, individual opportunity, and free enterprise. ]

[ Too Big to Fail, or Succeed

Author

by Peter J. Wallison

Date

June 18, 2009

ECO-Mon-0017-Stock

iStockphoto/DNY59

In a speech at the White House yesterday, President Barack Obama outlined what he envisions for future regulation of the financial system. He called his plan “a new foundation for sustained economic growth . . . a transformation on a scale not seen since the reforms that followed the Great Depression.” Indeed it is.

His plan, if adopted, will fundamentally change the nature of our financial system and economy. The underlying concerns and assumptions are clear, and they are made clearer by considering other ways that his administration has dealt with the consequences of competition–particularly the faux bankruptcies of General Motors and Chrysler and the impending change in antitrust policy. Although the president said in his speech that he supports free markets, these initiatives confirm that the administration fears the “creative destruction” that free markets produce, preferring stability over innovation, competition and change.

According to the administration white paper circulated prior to the president’s speech, the Federal Reserve would be authorized to create a special regulatory regime–including requirements for capital, leverage and liquidity–for any firm “whose combination of size, leverage, and interconnectedness could pose a threat to financial stability if it failed.” In addition, if a large financial firm is failing, the Treasury is to be given the power–in lieu of bankruptcy–to appoint a conservator or receiver to “stabilize” it.

Despite all the talk about credit priorities, the fundamental point is that the administration used taxpayer money to overturn the market’s verdict.

Designating particular financial firms for this kind of special regulatory treatment clearly signals to the markets that these institutions are too big to fail. It will reduce the perceived risk of lending to them, enabling them to raise funds at lower cost than their smaller competitors.

In other words, the administration’s plan would create what are essentially government-sponsored enterprises like Fannie Mae and Freddie Mac in every sector of the financial economy–insurers, securities firms, finance companies, bank holding companies, and hedge funds–where these specially regulated firms are to be designated. The result will be devastating for competition. Larger firms will squeeze out smaller ones and aggressive small companies will have less opportunity to overcome the government-backed winners.

Moreover, the administration’s proposal to provide a special bailout mechanism for large firms confirms the likelihood that these firms will never be closed down or liquidated. Citing the market turmoil that followed Lehman’s collapse, the administration will argue that failures like this are “disorderly.” But failure comes from risk-taking–the very source of our economy’s strength–and it is ultimately risk-taking and its consequences that the administration’s plan is intended to prevent.

The turmoil following Lehman’s failure occurred because market participants expected, after the rescue of Bear Stearns, that any larger firm would also be rescued. When Lehman wasn’t, all market participants were required to recalibrate the risks of dealing with all others, causing a freeze-up in lending and hoarding of cash. Lehman’s failure itself did not cause any substantial losses, and within two weeks of its bankruptcy filing Lehman’s trustee sold its brokerage, investment banking, and investment management businesses to four different buyers.

Contrast this with AIG, the administration’s paradigm, which was saved by the government because it was allegedly too big to fail. That firm is gradually wasting away under government control, with the taxpayers footing the bill.

The administration’s fear of competitive outcomes is not reflected solely in financial-sector policies. Consider General Motors and Chrysler. They were defeated in the marketplace. Simply put, they failed to build automobiles enough Americans wanted to buy.

Their disappearance would not have threatened the stability of the financial system, although it would undoubtedly have been disruptive for suppliers, dealers and employees. Yet the administration wouldn’t allow them to fail, either. Despite all the talk about credit priorities, the fundamental point is that the administration used taxpayer money to overturn the market’s verdict. If we want a preview of what the administration will do with the resolution authority it wants for large financial companies, we need look no further.

The same pattern with regard to competitive markets can be seen in the Justice Department’s new antitrust policy. Christine Varney, the new assistant attorney general in charge of antitrust policy, has said that U.S. policy should be more like Europe’s. Until now, U.S. antitrust policy has tried to protect competition. Europe attempts to protect competitors. Protecting competitors means blunting the skills of superior players, allowing inferior managers and business models to remain in business and thus preventing better managements and business models from emerging. Again, stability wins out over change and progress.

The president has said on several occasions, including in yesterday’s speech, that “I’ve always been a strong believer in the power of the free market.” But his administration’s prescriptions tell a different story. In AIG, GM, Chrysler, Fannie Mae and Freddie Mac we can see the future that the administration envisions for our economy–a sclerotic and unchanging structure of big companies working with, protected by, and relying on big government.

Peter J. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at AEI. ]

I read the article...

The one thing I notice it doesn't concern itself with is the imprisoned or former imprisoned populace.

Do you know circa forty thousand women in the usa are blockaded from labor because they had traces or marijuana in their babies when born and the states they were in labeled them as endangering a child/child abusers.

These women , most of whom have had multiple children and have no criminal record are blockaded from work because of a situation in which their child had a drug in them.

https://www.youtube.com/watch?v=PX-kDnO6GSI

what is my larger point? How many people in the usa are blockaded from labor because of their criminal record? A criminal record whcih often is based on the criminal intent of law enforcers applying their activities to specific communities for a fiscal or governmental policy agenda.

But the reason why said populace isn't mentioned is because of the fiscal capitalistic philosophy of the AEI , which i argue is a faith based position toward fiscal capitalism which in Universal basic income is seeing the death of their faith as they know it.

https://aalbc.com/tc/events/event/795-economic-corner-44-08122026/