TCS Daily

It's Not the Economy, Stupid

By Max Borders - March 23, 2009 12:00 AM

Despite the occasional Krugman, most economists are scratching their heads. What is the Obama Administration doing? It just doesn't make economic sense. First, we get this stimulus bill, which amounts to an unprecedented wealth transfer. Now, coming down the pike, we have a budget so ambitious that even some in the Administration's own party are wondering if there's a little too much Audacity in all this Hope. But we're reminded ad nauseam that a) Obama has an electoral mandate, b) there is an economic "crisis," and c) they'll have to act swiftly and decisively to stave off economic catastrophe.

Still, the economics are curious. Indeed, economists and econ-minded pundits alike seem to be laboring under the assumption that, given said crisis, the Obama Administration and Congress, while acting in good faith, are probably embracing bad economic policy. Here, for example, is Nobel Prize-winning economist Gary Becker weighing in:

The rush to "solve" the problems of the crisis has opened the door to government actions on many fronts. Many of these have little or nothing to do with the crisis or its causes. For example, the Obama administration has proposed sweeping changes to labour market policies to foster unionisation and a more centralised setting of wages, even though the relative freedom of US labour markets in no way contributed to the crisis and would help to keep it short. Similarly, the backlash against capitalism and "greed" has been used to justify more antitrust scrutiny, greater regulation of a range of markets, and an expansion of price controls for healthcare and pharmaceuticals. The crisis has led to a bail-out of the US car industry and a government role in how it will be run. Even one of the most discredited ideas, protectionism, has gained support under the guise of stimulating the economy. Such policies would be a mistake. They make no more sense today than they did a few years ago and could take a long time to reverse.

Everyone seems to think that President Obama is listening to a cadre of brilliant, well-trained economic advisors who will steer us out of an exceptional economic doldrums—which is "the worst since the Great Depression" (we're told). It's just questionable economic theory guiding the Administration, then, right? Many of us have taken shots at trying to explain to anyone who will listen that raining largesse from on high a la J. M. Keynes just ain't gonna work.

As for me, the penny has dropped: If the multi-trillion-dollar credit card, massive redistribution schemes, and behemoth budget seem so zany, why is anyone continuing to think of any of this is economic policy at all? Why don't we think of it as, well, politics? Shrewd and well-played politics at that. For if we do, everything the current leadership is doing makes perfect sense.

Consider the following ten assumptions of the Political Power & Government Expansion Hypothesis:

  1. Neither the Administration nor Democrat-controlled Congress cares one iota about whether or not we're in recession—even if it's a deep, long-lasting recession. If it lasts two years or ten, it matters not.
  2. Like the Great Depression and like global warming, it's a "crisis," which is to be used in the manner of Rahm Emmanuel or Naomi Klein—that is, to bring about sweeping, radical political reform, economics be damned.
  3. Equality is more important than economic growth.
  4. Entrenching power is more important than economic growth.
  5. Keynesian stimulus is a plausible justificatory pretext under which to do everything the party in power has ever wanted to do, including socialize healthcare.
  6. The electorate of the U.S. is largely ignorant about economic matters, especially warmed-over Keynesianism. "Stimulus" sounds stimulating.
  7. Great swaths of the U.S. electorate can be bought via the formation of new interest groups who come to depend on all the new programs and new spending.
  8. New, dependent interest groups help Democrats consolidate even more power, as it is much easier to dole something out than take it away.
  9. If these economic policies fail in the short-to-medium term, it was always a problem that a) they "inherited" from George W. Bush, and b) will give them a justification for doing even more, for years to come.
  10. If the business cycle starts to trend upward again and the recession lightens -- notwithstanding the bad economic policy -- the Administration and Congress will take credit for it even though the upturn will come despite all this government action, and not because of it.

What does all this mean? It means it's time for the commentariat to be more cynical. It's time to call spades spades. Let's stop trying to explain, on economic grounds, that warmed-over Keynesianism won't help us out of the recession—as if those in power cared about growth (or the electorate understood our explanations), anyway.

Milton Friedman used to say that we should always assume the best of intentions in any adversary. We probably should. But we should also understand that when addressing ideologues that have power, we should have serious doubts as to whether economic growth is their goal (particularly when income redistribution is the only thing close to a stated principle we've ever been able get out of our President).

Is it overly cynical to use the Political Power & Government Expansion Hypothesis above as our working assumption about what this government is up to? If we do, instead of arguing that all this is bad economics, we'll realize that this is Machiavellian politics of the highest order. It's the politics of "just scare the public and demonize the opposition." Only then will we begin to expose this unprecedented power grab for what it is, and save our Republic from inevitable decline; whatever the intentions of our leaders.

Max Borders is executive editor of Free To Choose Network. He blogs here.

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