Don’t Waste a Crisis

Absorbing as much of the economy as possible.

By Victor Davis Hanson
Thursday, January 15, 2009

Euphemism comes from the Greek word euphemia, which means “using the good word”—usually in place of the accurate bad one. Recently we’ve become experts at it.

Printing trillions more dollars and growing government to cover new debts isn’t so bad if we call it “stimulus.” That is far smarter than saying something honest like, “I propose a new $1 trillion debt program.”

The old-fashioned spendthrift policies we used to ridicule as congressional pork and “earmarks” are now justified under that ubiquitous, nice word “stimulus.” If funding another questionable museum in your district was once congressional pork barreling, it will now be a patriotic act to get the national economy moving again.

Yet much of what is driving this national hysteria in our reaction to the current economic downturn is psychological. After all, no plagues, wars, or earthquakes have killed our workforce, destroyed our infrastructure, or wiped out our computer banks.

Instead, for years now we have overspent and over-borrowed—and must naturally pay up. And like any chastised debtor, panicked Americans logically have temporarily clammed up and are holding on to what money they have left.

In response, the government apparently doesn’t only want to free up credit to get us back to our profligate habits of borrowing what we don’t have so we can buy what we don’t need. It also would like to create new programs to build infrastructure; guarantee new loans; and offer additional credits, bailouts and entitlements.

Or in the words of incoming White House Chief of Staff Rahm Emanuel, “You never want a serious crisis to go to waste.”

Traditional conservative custodians of the budget can’t say much. They are largely discredited on matters of finance. During the last eight years of Republican prominence in Congress and the White House, the government borrowed as never before.

Liberals in turn have suddenly rewritten their own economic history. They used to claim the great surge in government under Pres. Franklin Delano Roosevelt got us out of the Great Depression with deficit spending and federal jobs programs.

But many historians have argued instead that unemployment and slow growth remained high throughout Roosevelt’s first two terms—until the Second World War scared us all into a fit of national mobilization that alone ended the ongoing 13-year depression between 1929 and 1941.

Now here’s the irony: Liberals suddenly agree that only the Second World War stopped the Depression, after all! So they now argue that we need a new New Deal far greater than the old New Deal. In other words, they want to re-create the urgency of World War II to get government to grow and spend big-time.

Their argument is that if FDR failed to stop the Depression, it wasn’t, as conservatives insist, because he turned to unworkable government solutions, but rather because he didn’t try big enough ones.

The government-affiliated, under-regulated, and corrupt Fannie Mae may have collapsed. And it may have helped to cause the sub-prime mortgage meltdown. No matter—the proposed “don’t waste a crisis” cure seems to use that model of government-guaranteed corporations to absorb as much of the economy as possible.

Still, no one knows whether the present borrowing and printing of money to give short-term credits, cash grants and jobs to Americans will get the economy moving again—or simply reinforce the bad habits that got us here in the first place.

But consider a few facts: Even in the current mess, recent unemployment figures are around 7 percent—not the 10 percent of the recession of the early 1980s, much less the peak of 25 percent in the Great Depression.

Meanwhile, energy prices have plunged, saving consumers and the country hundreds of billions of dollars. The existing pre-stimulus annual budget was already set to run about a half-trillion-dollar deficit. The present government debt, much of it to Asia and Europe, was nearing $13 trillion even before the latest borrowing plans.

We are going to have to pay these debts back by cutting federal spending and entitlements or raising taxes—or both. Or we can convince panicky debt holders abroad to loan us even more money for years at near-zero interest rates. Or we can try simply printing trillions of new dollars to inflate the economy while hoping that creditors don’t mind being paid with funny money.

What got us in this debacle was the lack of self-control on the part of consumers who borrowed to spend more than they could pay back, rapid growth in government debt, and Wall Street speculators who wanted obscene returns they had not earned.

It would be a pity if the government now trumped these bad examples and turned some helpful federal loan guarantees of troubled banks into a permanent state-run economy with crushing debt for generations to come.