The Great TARP Cover-Up
Some folks want to pretend government intervention never happened.
In one of his reportedly few sober moments, the legendary statesman and tippler Sen. Daniel Patrick Moynihan (D-N.Y.) is rumored to have said, "Everyone is entitled to his own opinion, but not his own facts." Weirdly, the lack of definitive sourcing for that quotation only confirms its essential validity. But what happens when the facts seem so different to different people that there is virtually no common ground for conversation, much less resolution of basic differences?
I thought a lot about that question—not to mention drinking—while reading Thomas Frank's new book, Pity the Billionaire, which he describes as "a chronicle of a confused time, a period when Americans rose up against imaginary threats and rallied to economic theories they understood only in the gauziest of terms." A University of Chicago–trained historian who co-founded the hip left-wing journal The Baffler and did a stint as the token liberal on The Wall Street Journal's opinion pages, Frank has written a series of books about American culture and politics, most famously What's the Matter With Kansas? (2004). He now occupies the "Easy Chair" column at Harper's, a centuries-old seat of curmudgeonly, anti-capitalist editorializing once held by Lewis Lapham.
To Frank, fears that debt-fueled spending and government intervention in the economy helped cause and perpetuate the financial crisis are plainly "imaginary." He believes the economic "theories" America is currently embracing are hardcore austerity measures ripped from the playbook of Herbert Hoover, circa 1929. "The revival of the Right," says Frank, "is as extraordinary as it would be if the public had demanded dozens of new nuclear plants in the days after the Three Mile Island disaster; if we had reacted to Watergate by making Richard Nixon a national hero."
Where to begin separating facts from opinions? For starters, it's simply wrong to claim, as Frank does, that "the main political response to [the financial crisis of 2008] is a campaign to roll back regulation, to strip government employees of the right to collectively bargain, and to clamp down on federal spending."
Certainly the Tea Party, a handful of people in Congress (most of them with the last name Paul), and some policy wonks would welcome such moves. But far from being powerbrokers, these folks are little more than marginalized dreamers, as likely to be attacked by their allies as by their enemies. The toughest fight that Tea Party favorite Rand Paul had in becoming the junior senator from Kentucky in 2010 came not from his Democratic opponent but from Senate Minority Leader Mitch McConnell (R-Ky.), who did everything he could to keep Paul from gaining office.
Lest we forget, the major response to the financial crisis in 2008 was the bailing out of Wall Street and the auto companies under a conservative Republican president and the implementation of an $840 billion stimulus plan promoted by a Democratic president. That's not to mention a massive overhaul of the nation's financial regulations and a health care reform package that was routinely described as "historic" and "transformational" at its passage. Ironically, such immediate, massive and—in the case of the stimulus—ineffective actions are in keeping with Herbert Hoover's policies.
That's because, contrary to Frank's claims, Hoover was never a fan of government austerity (at least while in office). According to Florida State University economist Randall G. Holcombe, Hoover increased federal expenditures in real terms by 88 percent between 1929 and 1933.
Perhaps the major interventions of the last few years sneaked through under the wire because too many of us were traumatized by the collapse of Bear Stearns. But in fact, spending and regulations ballooned tremendously all through George W. Bush's presidency—and still show no sign of slowing down.
In constant 2010 dollars, the federal government spent about $2.3 trillion in 2001. By 2010 the total was around $3.6 trillion. And although the federal government has not passed (and will not pass) a budget for a third straight year, the two plans currently on the table envision spending either $4.7 trillion or $5.7 trillion in 2021. The lower figure comes from the budget that passed the GOP-controlled House last spring. The higher number comes from President Barack Obama's budget proposal.
If austerity is the new black, the news has yet to reach the people who actually wield power in the capital. And if the Washington elite aren't serious about cutting spending, they sure aren't hell-bent on cutting red tape and regulations either. For self-evident reasons, George W. Bush and the Republicans soft-pedaled the fact that over the course of his presidency he hired 90,000 net new regulators; signed the Sarbanes-Oxley bill, which radically complicated corporate accounting practices; passed a record number of "economically significant" regulations, costing the economy $100 million or more per year; and, according to economist (and reason columnist) Veronique de Rugy of George Mason University's Mercatus Center, spent more money issuing and enforcing federal regulations than any previous chief executive. Obama is continuing the trend, increasing employment at regulatory agencies by more than 13 percent and issuing 75 major rules in his first two years.
All this happened during what Frank calls "the golden years of libertarianism." So I have difficulty understanding what he is talking about when he issues dicta such as "free-market theory has proven itself to be a philosophy of ruination and fraud."
Frank is surely correct that many anti-government types conveniently minimize the role that private-sector bad actors at banks, financial houses, and elsewhere played in causing the financial crisis. But he also never provides a compelling response to the argument (common among libertarians) that the root of the problem is implicit and explicit bailout guarantees that socialize the costs of irresponsible risk taking. When it comes to free markets, I feel like quoting Gandhi's answer when asked how he felt about Western civilization: "I think it would be a good idea."
Pity the Billionaire suffers not just from a lack of engagement with what I consider reality. It dismisses out of hand those with whom the author disagrees. Members of the broadly defined right, says Frank, "blow off the facts when they feel like it; they swipe symbols from the other side." I hear him, and I even have some sympathy when he cries in exasperation, "What kind of misapprehension permits the newest Right to brush off truths that everyone else can see so plainly?"
We live in an era of "beer summits," diplomatic "resets," and a screwed-up economy in which inflated housing prices are not allowed to fall to the depressingly low levels they might actually be worth. In ways he surely didn't intend, Frank's Pity the Billionaire helps explain why so many of us seem to be talking past each other.
Nick Gillespie, editor in chief of reason.tv and reason online, is the co-author, with Matt Welch, of The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong With America (PublicAffairs). A version of this article originally appeared in The Daily on January 7, 2012.