Saturday, November 20, 2010

Don't just do something. Stand there!

On the Corner, Larry Kudlow posts about an interview he did with former President Bush which will be broadcast next week on Kudlow's show on CNBC. Kudlow writes,
But the former president stuck with his view that TARP Bailout Nation was necessary to avert a depression. And although there were other voices with different solutions inside his administration, he said there was no time for theoretical discussion.
There's no way of knowing what things would look like in an alternate universe where TARP never happened. In other words, it's all theoretical discussion, and there seem to be plenty of smart people on both sides of it, just as there were in the event. But the wheels of government -- and recessions and depressions -- move slowly, and it was hugely important to get this right, so it seems to me that a whole lot of discussion, theoretical though it may be, was in order.

The idea that government must act, and act now, whenever there is a problem is a mindset, not a self-evident truth. The mere fact that the financial crisis caught so many "experts" by surprise is a strong indication that they don't understand these things nearly as well as they think they do. How can those who got it so wrong be so sure that their "solution" won't make things worse? And why should we believe them?

When Bush says there was no time for discussion, that says to me that he panicked. He fell prey to the politician's fallacy:

  • We must do something;
  • This is something;
  • Therefore, we must do this.

Not only is the logic faulty, but the initial premise, that we must do something, is unfounded. It takes a lot of courage to do nothing, but sometimes nothing is just the thing.

Kudlow continues:
Mr. Bush says he believes in the free market, but to this day he still thinks he had to abandon market principles in order to save the free-market system. He told me today that he hopes future recessions will not be dominated by more bailouts.
Bush used this as a talking point at the time, but he never offered any rationale as to why something that works would need saving, or why he felt called to abandon something he has faith in, or why, if he believes he acted wisely, he would hope we respond differently in similar circumstances in the future.

This doesn't add up for me, and I suspect that's because it doesn't add up for him either. I've always suspected that Bush, like so many of us, believes in things he doesn't fully understand. I'm not sure he could sit down and explain, beyond the mere basics, how free markets work. Could he explain why his tax rate cuts stimulated the economy, but his tax rebates did not? Could he articulate why policies like minimum wage laws, rent control, and affirmative action actually hurt the very people they are intended to help?

I'm guessing no. And that's why Bush could so easily "abandon market principles" when the calls came to do something -- or why he apparently didn't recognize that we had abandoned market principles long before the crisis hit.

Bush isn't alone in this, of course. President Obama also claims to believe in the free market system, but his actions reveal no underlying understanding of how markets work. As a candidate he argued that increasing taxes during a recession would further hurt the economy. Now, with unemployment 2 percent higher than it was, he is pushing just such a tax hike. Candidate Obama also argued, on economic grounds, against forcing Americans to buy health insurance. Now, he's in court, vigorously defending just such a mandate on the grounds that it's simply a new tax, despite the fact that he previously insisted that it's not a tax and argued that increasing taxes during a recession is unwise.

I'm more skeptical of Obama's professed belief in the market. I think he not only doesn't understand but doesn't particularly care about free market principles. He's more interested in social justice, wealth redistribution, and a rather warped and shallow notion of "fairness." But Bush? I think he's sincere when he says he had to abandon the free market in order to save it, and I think the irony of that belief is totally lost on him.

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