Into the Belly of the Beast

Jonah Goldberg
Friday, February 13, 2009

OK, things aren't going well. Good people are losing their jobs. Every day the deficit is looking more and more like the Great Pit of Carkoon, which, as we all remember, was that giant hole with a ravenous monster inside it that ate Boba Fett in "Return of the Jedi." "In its belly," quoth C-3PO, "you will find a new definition of pain and suffering as you are slowly digested over a thousand years." In this case, pain and suffering will inevitably take the form of inflation of Zimbabwean proportions and proctologically intrusive taxes that will make every April 15th seem like a thousand years.

Our elected representatives in Washington sold the "American Recovery and Reinvestment Act of 2009" as a stimulant for the economy, but it is, in fact, Viagra for the leviathan state. The legislation effectively repeals welfare reform, the single most successful domestic policy of the 1990s. I must have been in the bathroom during that debate.

It's no wonder lovers of limited government and fetishists for free markets are moping like dogs whose food bowls have been moved. Alan Greenspan has repudiated capitalism. George Bush paid for Barack Obama's expansion of government with the proceeds from a fire sale on his last remaining free-market principles. Not only are we nationalizing the banks, but the legislators overseeing the banking industry regulate about as well as I play the left-handed harpsichord. Christopher Dodd, chairman of the Senate Banking Committee, who got a sweetheart mortgage from Countrywide and carried water for Fannie Mae like Gunga Din, should be testifying before his own committee in an orange jumpsuit in exchange for early release. Instead, he's spewing righteous indignation about the malfeasance of the people who used to buy him lunch.

Meanwhile, a bunch of banking CEOs appeared before the House Financial Services Committee this week. Don't get me wrong: These executives should be holding cardboard signs on the side of the road these days ("Will Float Derivatives for Food"), but they at least know what they're talking about. One congressman after another berated the CEOs for making bad loans and having shaky balance sheets. Fair enough. But they also berated them for not using bailout money to make more bad loans, which would keep their balance sheets shaking like Keith Richards at a detox spa.

Rep. Maxine Waters (D-Calif.), who last May vowed to nationalize the oil industry if it didn't cut gas prices, spent her interrogation time sounding like the sort of person who waits in line at the DMV while having a conversation with her handbag, only to finally ask the clerk why he's wasting her time. The Atlantic's Megan McArdle writes that watching Waters interrogate the CEOs was "like watching your crazy aunt challenge your boyfriend to prove that fairies aren't real."

One of the great things about capitalism is that, unlike socialism or, say, Bobby Knight, it can deal with failure. In fact, capitalism needs failure. Joseph Schumpeter called this "creative destruction." Your grandmother called it "making lemonade out of lemons." The beauty of free markets is that firms learn from their mistakes or they lose money, shrink and then go out of business. Governments, meanwhile, grow from their mistakes and learn to make money from them.

Under normal circumstances, the financial inferno would cause a lot of pain, but it would also burn away a lot of deadwood. The strongest firms would survive, and newer, healthier businesses would sprout from the ashes. Plummeting housing prices would make homes affordable for first-time buyers again, particularly those with good credit who live within their means.

Sure, we would still have a stimulus bill, with tax cuts and infrastructure spending and, yes, silly pork projects. And that would be fine. We would even have some kind of bailout of the banking industry, which became a mess in part because people like Christopher Dodd and Maxine Waters tried to play the banker in their own personal game of Monopoly.

But that's not what we got. Instead, the old adage "Everyone's a capitalist on the way up and a socialist on the way down" is kicking in. The thing is, if you're a socialist on the way down, you were never really a capitalist on the way up. Capitalism requires putting your own capital at risk.

What we do have is a grand adhocracy where "government," aka Barack Obama, Timothy Geithner, Nancy Pelosi and a dozen others, will figure everything out as they go. Businesses will rise or fall based on their skill at kissing up to the government.

And as sure as shinola, when government fails again, we'll be told that only government can save us.