Government to the 'Rescue' - Been There, Done That

Larry Elder
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Posted: Dec 11, 2008 12:01 AM
Government to the 'Rescue' - Been There, Done That

"Say something nice about Obama."

This challenge came at a party from a good-natured self-described "rabid Obama supporter." Normally, when off the clock, I avoid this kind of stuff. How different is it to, say, approach a physician in a social setting and say: "Doc, my knee hurts in the morning. What do you think it is?" But the guy seemed nice enough.

"OK," I said. "Obama is likable. He means well. He appears to be a good father and a faithful and loving husband."

"That's it?"

"You asked me to say something good. I just did."

"Aren't you leaving something out?"

"I'll bite," I said. "What?"

"Well, you left out something that's pretty obvious. The man is extremely intelligent, don't you think?"

"I make a distinction," I said, "between intelligence and wisdom, intelligence and judgment, and intelligence and common sense. Obama attended elite schools and did well enough at Harvard to become president of the law review and graduate magna cum laude. But …"

"But?"

"But my 93-year-old Republican father, who only finished the eighth grade until going back to get his GED in his late 30s, has more judgment, wisdom and common sense. My father never spent one minute in the auto industry and does not think he could run it. Obama thinks government can. My father thinks if you lend or borrow money irresponsibly, you shouldn't be 'saved' by taxpayers. Obama -- and a whole bunch of Republicans -- think they should."

"It's about helping people," my "rabid" friend said.

"My friend, economist Thomas Sowell, told me that whenever government wants to 'do something,' ask yourself three questions. 1) Who pays for it? 2) How much will it cost? 3) Will it work? With this brief analysis, Sowell said, one almost always finds 'something' is not worth it, is wrongheaded, or makes things worse.

"Who pays?" I continued. "Taxpayers do -- either through higher taxes, borrowed money to be repaid with higher taxes, or printing money that creates inflation and higher interest rates."

"The cost?" he asked.

"Well, last Sunday morning, Obama appeared on 'Meet the Press,'" I said. "He offered a massive 'infrastructure' program, a New Deal II. The cost? Obama said his economic team is working on that. So far, the amount of government money spent or expects to spend -- on FDIC insurance and to rescue banks, borrowers, insurance companies and investment firms, as well as the auto industry -- exceeds $7 trillion or $8 trillion.

"Treasury Secretary Henry Paulson initially proposed $700 billion under TARP, the Troubled Assets Relief Program," I continued. "But wait, Paulson then said no, it's not a good idea to spend the money on troubled assets -- better to spend the money on buying stock in financial institutions. So within weeks, the central premise of the bailout -- the need to purchase 'toxic' assets held by financial institutions -- was thrown out the window."

My friend and I were now drawing a crowd.

"Paulson told us," I said, "that lenders needed money in order to unlock the 'credit freeze.' But banks instead used the money to clean up their own balance sheets or to purchase other banks -- completely contrary to the stated purpose of providing them cash infusions. And now Obama wants to 'put people to work' on government infrastructure projects. He wants to 'modernize' school and federal buildings. He wants to invest in technologies to create 'green' jobs."

"How do you know it won't work?" he asked.

"Well, years into the Great Depression, FDR's secretary of the treasury, Henry Morgenthau, declared (quoted here verbatim): 'We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!'

"So this has been tried, and many economists believe that the spending, along with other dumb government actions, prolonged and possibly deepened the problems and certainly did not solve them."

"So what's the answer?" he asked.

"Well, back to my dad. Mind you, he does not read The Wall Street Journal or Investor's Business Daily or Forbes magazine. I recently asked him the same question.

"'It seems to me the government's just too damn big,' said my Depression-era/World War II-veteran father. 'I'd let people keep their own money. They'll figure it out. They always do.'"

"But," I repeated, "Obama certainly is likable."