Chronic Economic Madness

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Watching the Bush administration and Congress concoct an economically mad $700 billion taxpayer bailout of financial institutions for mortgage lending and sister stumbles reminds me of a passage in Ecclesiastes: What has been is what will be, and what has been done is what will be done, and there is nothing new under the sun.

The folly had seemed headed for final enactment in a Senate vote later this week until the House rejected it by a vote of 228-205 yesterday. If the bailout fails - which seems probable - another bailout will be promised as a new and better solution. Nothing has been learned from the futile bailouts of Bear Stearns, Fannie Mae and Freddie Mac and AIG.

More than 37 years ago on Aug. 15, 1971, President Richard M. Nixon succumbed to the political dynamics that chronically occasion futile government attempts to outfox the efficiencies of free-market economics. Greeted with popular cheering and media effusions, the Republican president announced his New Economic Policy: a 90-day freeze on wages and prices and a deflation of the dollar to make U.S. exports more attractive (and imports more expensive). Nixon clucked that, We are all Keynesians now, an allusion to the idea nurtured by Democratic President Franklin D. Roosevelt that political epiphanies can defeat the laws of supply and demand.

I was then a callow law student and supporter of the Nixon administration. I naively believed that the Republican Party was dedicated to the principles of Adam Smith's Wealth of Nations. Smith had sermonized nearly two centuries earlier: The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

The Scottish genius further taught that prosperity requires little else but peace, easy taxes, and a tolerable administration of justice.

Economic wisdom, I quickly learned, is no match for political calculations. The days have long passed when King Canute eagerly demonstrated to his subjects the limits of his power by ordering the waves to turn back without result. No modern politician confesses to a corresponding incapacity to ordain a permanently growing economy by passing statutes or printing money. His popular stature and self-love would diminish.

Nixon's New Economic Policy was a homonym of Bolshevik Vladimir Lenin's New Economic Policy announced in the 1920s. Lenin's NEP, however, relaxed government controls on private enterprise in recognition that Soviet collectivization had caused massive famine and privations. Nixon's NEP featured the opposite, suggesting an acutely suboptimal economic learning curve. On the other hand, Nixon was no political slouch.

One of his fabled praetorian guards, H.R. Haldeman, reports in his diaries about Nixon's evening at Camp David before his Aug. 15 bombshell: "He was in one of his sort of mystic moods. [Nixon informed Haldeman] that this is where he made all of his big cogitations. ... He said what really matters here is the same thing as did with [Franklin D] Roosevelt, we need to raise the spirit of the country; that will be the thrust of the rhetoric of the speech. ... We've got to change the spirit, and then the

economy would take off like hell"

Roosevelt's New Deal interventions, however, had proven worse than the disease they purported to cure. …