Acton Institute Powerblog

The Credit Crisis: Who Brewed the Stupid Juice?

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How has Obama responded to the lessons of the subprime crisis? He and other far-left Democrats like Nancy Pelosi and Barney Frank have pointed their fingers at President Bush, John McCain and the free market. The dodge is so transparently silly that even Saturday Night Live, no friend of conservative politics, debunked it in a recent skit about the bailout.

Obama, Pelosi and Frank blame what they characterize as a Republican rage for deregulation, but Bush and Republicans in Congress, including McCain, pressed repeatedly for closer oversight of the twin-headed financial monster called Fannie Mae and Freddie Mac. The two entities are government sponsored enterprises, with an implicit guarantee of government backup. That cozy relationship with Washington allowed them to pursue reckless investment activities knowing the government would probably rescue them if things went south.

Bush, McCain and others recognized the problem and tried to fix it. Democrats repeatedly blocked these efforts. When the problem finally exploded, the monster’s tentacles had reached so deep into the economy that even many defenders of limited government concluded the government need to step in to avert an economic meltdown.

What drove Obama and other Democrats to block reform efforts? Some point to a huge infusion of lobbying money. Fannie and Freddie contributed enormous sums to Obama and other Democrats while McCain, an influential veteran senator, was getting bread crumbs from these institutions. Clearly the skilled lobbyists at these two giant mortgage companies directed their money where they thought it would most benefit them.

There’s a less cynical explanation. Whatever influence the lobbying money might have had, it took a back seat to an ideological motivation. Obama, Pelosi, Frank and other far left Washington Democrats have long believed that giving Washington more and more power to redistribute wealth is the way to make America a better place.

The curious thing is how uninterested these politicians are in the results of their ongoing experiments in social and economic engineering. They are unfazed by the latest results in the credit markets. They are unfazed by the fact that states with the highest taxes on businesses (such as Michigan) have lost jobs and seen worker salaries decline while states with low taxes on business (such as Arizona) have been creating jobs and raising average worker salaries. They are unfazed, moreover, by the results of similar experiments abroad.

In the previous century, many European democracies experimented aggressively with centralized planning and wealth redistribution, and the results are in. Those with high taxes and heavy labor regulations generally experienced sluggish economic growth and high unemployment. Countries like Ireland and Estonia, who now have lower, flatter taxes and less regulation on their labor markets, are booming, with both workers and businesses moving ahead. Those in Washington who care about the poor, who care about workers, should take note.

UPDATE: My Tennessee blogging cousin, Bill Hobbs, has an excellent discussion of this issue at Newsbusters.

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Jonathan Witt