Sunday, October 26, 2008
The Forgotten Man of the New Deal
From the WSJ
People always underestimate how bad things can get. So advised a guy who made millions as a short seller in the 1980s. His insight certainly is borne out in the continuing market selloff -- and one reason is the incentive for political actions that actually make things worse.
Raymond Moley, a New Dealer who ended up dissenting from the Roosevelt administration, voiced a well-founded fear that FDR and his brain trust were more interested in exploiting the crisis to expand their political majorities and centralize power than in getting the economy growing again. David Kennedy, the Yale historian, forthrightly addressed these considerations in his book "Freedom from Fear." Amity Shlaes, in her recent "The Forgotten Man," pushed the analysis further. Sadly, these are brave exceptions, because arguing about the FDR legacy is tantamount to taking sides in current political contests. Ben Bernanke has learned the monetary lessons of the Great Depression, but the political class is largely ignorant of how the disaster was prolonged by tax and regulatory policy out of Washington.
Our next president is likely to be a guy with some book learning and all the life lessons you can gain from three terms in the Illinois state senate. He's already besieged by excited advocates of a "New" New Deal, a vast expansion of federal responsibility to assuage the supposed insecurity of the Middle Class. Except there's a problem: Washington over the past 70 years has not surrendered the Middle Class to the law of the jungle but already made it dependent on government for retirement income and health care for fully a quarter of the average person's adult life. Without any change in policy or bold new initiatives, we will soon have European-like levels of taxes and government spending to meet these commitments. We don't have a crisis of insufficient government as (arguably) we did in the 1930s. We have a crisis of too much government -- an insight likely to be lost on anyone afflicted with indiscriminate FDR idolatry. Forced selling by hedge funds undoubtedly plays a role, but the market cannot but be discounting the likely outcome of the presidential election: An Obama landslide that would sweep from the table any nonstale vision of a path to the future based on privatization, personal savings and curing the third-party-payer illness of our health care system.
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