Every Wednesday in Washington, conservatives gather in the conference room of Grover Norquist's pressure group, Americans for Tax Reform, to hash out arguments and promote their projects. The off-the-record meetings are notorious among liberals: proof of the shudder-inducing organizational powers of the right.
In late September, a White House economist arrived at Norquist's salon to sell a proposed $700 billion bailout of Wall Street firms whose investments in worthless mortgage-backed securities had sparked an international financial crisis. In a tense meeting, the president's emissary was turned into a piñata. Pro-market activists and economists with decades of experience battered him with questions, asking whether the administration was putting an end to capitalism as we knew it. The White House's economist responded coolly. Did these people really want to do nothing in the face of the great 2008 meltdown?
In the end, what fiscal conservatives wanted didn't turn out to matter much. As the Wall Street vapors scrambled every aspect of the 2008 presidential campaign and of George W. Bush's final days in office, no one was as angry as D.C.'s dwindling number of libertarians. They pointed out that Treasury Secretary Henry Paulson's plan involved a massive takeover of private firms and (in its original draft) unchecked executive power. They invoked previous examples of government meddling worsening crises, in the 1930s and the '70s. But as Washington faced the greatest economic panic in a generation, adherents of free markets were spectators in a debate between moderate interventionists and radical re-regulators.
Libertarians proposed alternatives, such as privatizing Fannie Mae and Freddie Mac and letting the market find a bottom. They were shouting into the dark. Instead the feds imposed a two-week ban on short-selling stock and engineered the largest economic intervention since Nixon's wage and price controls. "The market is not functioning properly," warned President Bush. "The government's top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold."
People who should have been primed for such a crisis had little voice in the matter. Take the Republican Study Committee (RSC), the fiscally conservative caucus within the House of Representatives. The RSC regularly responds to pork-filled budgets with thriftier alternatives. As Wall Street shattered, the RSC was confronted with a spending package equal to a million earmarks.
On September 18, the committee sent a public letter to the White House opposing any Wall Street bailout because "the risk to taxpayers and to the long-term future health of our economy remain just too great to justify." The next day, RSC Chairman Jeb Hensarling (R-Tex.) put out a tentative, grasping statement on the proposed bailout that decried the idea without ruling it out completely: "My mind remains open."
The next day the draft of Treasury Secretary Hank Paulson's plan was released, with a giant price tag and a two-year ban on oversight of Treasury's activity. Former RSC Chairman Mike Pence (R-Ind.), who attracts TV cameras like lightbulbs attract moths, rejected "the largest corporate bailout in American history."
And then all went practically silent. Fiscal conservatives dared not come out swinging against a proposal whose effects they could not predict, offered by a White House they had trusted more often than not.
On September 22 at 5 p.m., the RSC met to strategize further. Who was opposed to the bailout, full stop? Who had alternatives to propose? According to staff who attended the meeting, the mood was somber and the opposition was not uniform. The next morning, when the full Republican conference met, there was even less unity. According to Arizona Rep. Jeff Flake, only about half the party's members opposed a bailout.
On September 23, a dozen members of the RSC called a press conference in the House to sell their suggestions. These fit on one piece of paper, and included a two-year suspension of the capital gains tax, full privatization of Freddie Mac and Fannie Mae "over a reasonable time period," and a suspension of the "mark-to-market" regulations that forced banks to value assets at zero if they couldn't be sold at that precise moment.
At the press conference, Republicans proposed fixes with little chance of making it into a bailout bill. Rep. Kevin Brady (R-Tex.) suggested that business tax cuts could attract investors to our shores, bringing in more revenue from "profits left stranded overseas." Rep. Joe Barton (R-Tex.), a dogged supporter of more oil drilling, claimed that the policies he favored would, conveniently, pull us out of the crisis. Mike Pence was the only legislator at the events who ruled out any vote for the bailout. He tried, in vain, to challenge the premise. "There are those in the public debate," he said, "who have said that we must act now. The last time I heard that, I was on a used-car lot."
"I would amend that statement," added Rep. John Shadegg (R-Ariz.). "The last time I saw the phrase ‘act now,' it was advertising one of those time-share condo deals that lock you in after a free trial period."
"Did you try it?" asked a reporter.
"No!" Shadegg laughed. That summed up the fiscal conservatives' effort: outraged gallows humor with no expectation of success.
Members of the RSC got a louder megaphone for their ideas when GOP presidential candidate John McCain flew to Washington to tacitly support them. The stunt drew some attention to the House Republicans' proposals, and a coalition of Republicans and liberal Democrats defeated the bailout in an initial vote. But the suggestions themselves didn't challenge the central proposition of the bailout: that the government, in a crisis, needed to nationalize whole chunks of the finance industry. The minority of Republicans who spoke up were accused of being Chicken Littles stoking false fears about the "end of capitalism."