Here Comes the State
Paving the way for America's Lost Decade.
by Matthew Continetti
02/16/2009, Volume 014, Issue 21
In 2001, Brink Lindsey wrote Against the Dead Hand, in which he contrasted the "dead hand" of central economic planning with the "invisible hand" of the market. The distinction is memorable. It is also slightly misleading. These days, the "dead hand" is very much alive.
Look around. The state has never been more in vogue. Everywhere one turns, central governments are intervening in markets. For political elites, the question is no longer whether the state has an obligation to provide economic security for its citizens. The question is how to do it.
To some degree, this move toward government intervention is natural. Reasonable, even. In times of crisis, people want protection. Randolph Bourne famously wrote that war is the health of the state. He forgot recession. And this particular recession looks like a doozy. Employment and consumer spending may reach lows not seen in a generation. There will be a recovery. But the timing of that recovery depends on what the government does in response.
Voters, then, have every reason to expect from Washington a stimulus bill that will help restore growth. But they aren't getting one. The stimulus plan is flawed. It marries a few measures that count as stimulus with tons of spending on a domestic agenda that the Democrats have waited years to push through Congress. Why? Because Obama and the Democrats who run Congress are more interested in an idea than they are in economic recovery.
That idea has two components. One: The conservative era, with its more-free-than-not markets, is over.
Two: Now is the time to complete the American welfare state by (a) introducing universal health care and (b) fostering economic equality through higher taxes on income, capital, and estates and increased union membership.
The stimulus bill needs to be seen in this light. It is just the beginning. For Obama, the stimulus is a "down payment" on "investments" in health care, alternative energy, education, scientific and medical research, and infrastructure. When you buy a car, you don't stop with the down payment. There are many, many more "payments" to come. How large will these payments be? How long will we be paying them?
Our newly political economy has diverse sectors. This week the administration will lay out its rescue for the banking sector. The plan likely will combine buying up bad mortgage-backed securities with guaranteeing financial institutions' balance sheets. This might or might not help the global financial system. What it definitely will do is further enmesh the government in that system.
Obama, through no fault of his own, inherited a government that has stakes in the country's largest banks and owns what was once the world's largest insurer. Last week he used that authority to set compensation levels for some executives whose institutions receive public money. And his use of his authority is likely to grow in the coming months.
Obama and Congress want the banks to lend to consumers whose finances remain shaky. The banks will have to listen, because they are on the hook. And when the debtors can't repay the debts, who will the creditors turn to? You know who.
In the 1990s, Japan's zombie banks contributed mightily to its Lost Decade. In slow, halting steps, America is creating its own zombie army. The results will be the same.
Then, speaking of the living dead, there's the Detroit Three. Last year Congress rejected Tennessee senator Bob Corker's restructuring plan, missing an opportunity to craft a responsible rescue for American automakers. So Bush bailed out GM and Chrysler (Ford says it doesn't need the cash).
GM and Chrysler will be back for more. But this time Obama and Congress will tie any financial assistance to their own political objectives. Thus the American auto industry will remain alive on life support, forced to manufacture green cars that make the Natural Resources Defense Council happy but don't make a profit.
What's most remarkable about this assertion of government authority over the economy is how little debate has accompanied it. Up until last week, when conservative criticism of the stimulus bill put liberals on defense, the return of the dead hand was met with almost no political opposition.
It's remarkable. You encounter one liberal thinker after another who has all these grand plans for the way society ought to work, but exhibits little or no awareness of the American welfare state's long and troubled history. There's an entire literature out there dealing with the problems that government intervention in the economy creates, and explaining just how hard it is to improve society through politics. Has anyone been reading in it?
The United States has plenty of problems. Government has a role
in addressing them. That's not the issue. Nor is the issue government spending. Public policies meant to combat social pathology can work. America has always had, and will continue to have, a mixed economy. And there is no political constituency for ending Social Security or Medicare or radically scaling back American commitments abroad. The sooner conservatives recognize this, the better.
The issue is hubris. The issue is group-think. The issue is that Democrats are marching lockstep down a road that has been trod before, with nary a thought of the consequences. They ought to start preparing for the inevitable populist reaction. It will be swift. It won't be pretty.
--Matthew Continetti |
