Rahm Emanuel let slip the underlying Democratic philosophy: “never let a serious crisis go to waste.” And the Obama administration certainly doesn’t intend to let this financial one slip by. This is the greatest opportunity since Lyndon Johnson for liberal politicians to spend and spend and grow and grow the federal government.
That’s what we have to look forward to as Democrats plan — or rather plan to continue to — the federal government’s massive intervention into, and direction of, what used to be referred to as the private sector. The rationale goes like this : The private sector failed so we need government to “fix it.” But does “government” ( Who exactly — Hank Paulson? Alan Greenspan?) have a track record of getting it right, or doing better than market forces at producing prosperity?
The analysis set forth by Democrats ignores the irrationality which comes with a government-centric economy. Charles Krauthammer explains that with billions at stake and reams of new regulations massive lobbying is sure to follow. But there is more:
That [lobbying] will introduce one kind of economic distortion. The other kind will come from the political directives issued by newly empowered politicians.
First, bank presidents are gravely warned by one senator after another about “hoarding” their bailout money. But hoarding is another word for recapitalizing to shore up your balance sheet to ensure solvency. Is that not the fiduciary responsibility of bank directors? And isn’t pushing money out the window with too little capital precisely the lending laxity that produced this crisis in the first place? Never mind. The banks will knuckle under to the commissars of Capitol Hill. They control the purse. Prudence will yield to politics.
Even more egregious will be the directives to a nationalized Detroit. Sen. Charles Schumer, the noted automotive engineer, declared “unacceptable” last week “a business model based on gas.” Instead, “We need a business model based on cars of the future, and we already know what that future is: the plug-in hybrid electric car.”
The Chevy Volt, for example? It has huge remaining technological hurdles, gets 40 miles on a charge and will sell for about $40,000, necessitating a $7,500 outright government subsidy. Who but the rich and politically correct will choose that over a $12,000 gas-powered Hyundai? The new Detroit churning out Schumer-mobiles will make the steel mills of the Soviet Union look the model of efficiency.
Before we fall in love with the notion that the government will “correct” imbalances and excesses in the private sector, we should consider the real possibility that all that government activity may make things worse. Consider whether the “affordable housing” push helped the housing and financial industries. Think about whether CAFE standards helped the Big Three auto companies. Or better yet, recall the New Deal, which as Mona Charen reminds us, left the economy worse in 1938 than it was in 1930.
To paraphrase Winston Churchill, we may, after billions and billions are spent, conclude that a market-based economy is the worst system — except for all the alternatives that have been tried from time to time. We are about to explore just how bad those alternatives may be.
