Now that we've had a day or two of Wall Street rallies, all is forgotten and forgiven by the professional amnesiacs of the nation's financial pages. Happy days are here again, thanks to the massive and smoothly successful bailouts of banks not just in the U.S. but around the world.
Give the Bush administration and its Democratic counterparts in Congress some real political credit: They've played the bailout of Wall Street in spectacularly smart fashion. If the markets had continued to tank after they announced their massive and still growing intervention and likely stimulus package, that would have been proof positive that they should have done more. But if the markets responded positively, well, that's just proof positive that they knew exactly what they were doing. More important, they've conjured the soft bigotry of low economic expectations through sometime next year, or even over the next several years.
That's a great gift to the next president of the United States and to Congressional leaders of both parties as the $700-billion-plus bill starts to come due in 2009 and beyond. And when the unintended consequences of yet again saving businesses from their own bad decisions start to appear. Moral hazard just hasn't gotten much play this news cycle. Look for its stock to rise in a few years, when journalists and analysts get around to questioning the new conventional wisdom that having the government own a chunk of the companies it regulates is such a great idea.
What are the great memes and motifs to come out of the bailout brouhaha? There are too many to list, but here are three top ones that you can look forward to seeing again and again. They share an antipathy toward anything remotely considered the free market and a belief that government intervention is a wise and prudent course. At least this time, because everything is different in the here and now. And because the government has promised to vamoose from the economy once its job is over (just like in Iraq).
1. All past, present, and future economic "crises," real or imagined, are the result of deregulation and uncontrolled "market forces."
"For 30 years," begins a New York Times story titled "Both Sides of the Aisle See More Regulation," "the nation's political system has been tilted in favor of business deregulation and against new rules. But that is about to change, now that the government has been forced to intervene in the once high-flying financial industry to avert an economywide crash."
Never mind that the financial industry is one of the very most regulated sectors of the economy here and abroad. Never mind that the two mega-corporations at the very center of the recent market meltdown, Fannie Mae and Freddie Mac, were massively regulated government-sponsored enterprises that were doing the bidding of the politicians to whom they gave cash so lavishly. Indeed, never mind that the Times story above features a chart showing that George W. Bush increased regulatory spending far more than any president since Richard Nixon (by some measures, Bush even routs Nixon). Forget about deregulatory successes in airlines, interstate trucking, and telecom. The culprit is now and will always be deregulation. And the answer will always be more regulation.
2. Corporate welfare is a good and decent thing, just like the New Deal was. Pity the poor bond trader and Treasury Secretary Henry Paulson's former (and likely future) colleagues at Goldman Sachs. Bailing out investment banks and other off-balance giants of the once great American economy (the Big 2.5 automakers; the airlines after the 9/11 attacks) makes sense, especially in a global economy where everything is connected and competition is so much tougher, and a butterfly flapping its wings in Antarctica can cause a bank run in Pyongyang. "America Needs a New New Deal," argues The Nation, in a view that is no longer just the province of the hard left.
Now that Wall Street has been bailed out in what is routinely and unconvincingly dubbed "the worst economic crisis since the 1930s," look for Main Street to start rattling its own tin cup, too. Government at all levels already shovels tons of direct subsidies, individualized tax breaks, and more to everything from farmers to professional sports franchises. Only a sucker wouldn't start playing the me-too game. And no politician worth his or her salt is going to turn away from constituents in distress, especially if they can claim their dry cleaning chain of quick-lube joint is vital to the local economy of Anytown U.S.A. There's strong logic here: If Wall Street sharks deserve grease, why not every business in peril? Or every family with a mortgage in peril (John McCain has already announced a plan that decrees all mortgages above 5 percent are rip-offs; during the vice-presidential debate, Joe Biden claimed the right to renegotiate the principal of mortgages)?
Forget that the New Deal prolonged the Great Depression by seven or so years according to new research by UCLA economists. Forget about the insights of F.A. Hayek and Ludwig von Mises and others who warned of limitless hubris in the limited minds of planners and tweakers. Hank Paulson set the new tone when he told The Los Angeles Times editorial board that the proper job of the Treasury secretary is to make sure that prices, especially house prices, never go down again. Anything else is "market failure."
3. History is bunk, especially when it comes to economic indicators and downturns. One of the most stunning elements of the bailout moment is its virtually complete lack of historical context. The easiest reach has been, as a recent Time magazine cover featuring an image of a '30s-era soup line shows, is to call the global credit crunch "The New Hard Times" and simultaneously invoke the Great Depression and halfheartedly distance yourself from that very claim ("No, this isn't Depression 2.0" reads Time's cover line.). Any comparison with the Depression, which featured an unemployment rate of 25 percent and a contraction in GDP of over 33 percent at its worst moments, strains credulity.
But where are the discussions of previous Wall Street manias and panics, of booms and busts (even the relatively recent tech-bubble bust is largely missing from news accounts that tag the current moment as a black period)? Or recessions (as defined by the National Bureau of Economic Research, which charts this sort of thing)? Americans have never been big on history, but discussions of the stock market and finance are particularly unburdened by even a quick Google search for precedents. Instead, readers are treated to stories touting the Dow's "biggest one-day loss in history" that only get around to expressing losses and gains in more accurate percentage terms in the final paragraphs.
None of these memes bodes well for "Free Minds and Free Markets" over the short term. But they can be countered by a small measure of interest in the past. And the near future, when this latest panic has receded into barely remembered history like the sock puppet from Pets.com.