Exclusive: Hurtling Toward Socialism – A Sorry Part of the Bush Legacy
by JOEL HIMELFARB
December 17, 2008
As one who twice voted to elect George W. Bush as president, I've admired this president's single-minded campaign since September 11th against international Jihadist terror. And there is no doubt in my mind that that, because of Bush's leadership, the country is much safer today than it would be if Al Gore, John Kerry or Barack Obama had occupied the White House since 2001. But since Labor Day, Bush's economic legacy has changed from mixed to borderline disastrous, as the president has given Treasury Secretary Henry Paulson extraordinary new powers to remake the American economy as he sees fit.
The latest example: Hours after the Senate rejected the $14 billion auto-industry bailout last week, the Bush Administration and Senate Banking Committee Chairman Chris Dodd were openly discussing their efforts to provide GM and Chrysler with the money regardless, using "emergency" aid money passed in October and signed into law by Bush as part of the original $700 billion mortgage-bailout bill. (Remember this the next time you hear Chris Dodd or one of his fellow liberals pontificating on the evils of the "imperial presidency" when it comes to some Republican president's efforts to stop a terrorist attack.)
I still give the president credit for the 2001 and 2003 tax cuts, his efforts to create a system of private accounts as an alternative to Social Security and his support for oil and gas drilling in ANWR. But I never had much use for Bush's "compassionate conservatism" – whether it took the form of huge increases in domestic spending ( including a massive new prescription-drug entitlement program added to Medicare) or this president's embrace of nanny-state programs like President Clinton's Americorps. Fortunately, the Clintonistas badly botched their efforts to create a socialized-medicine plan in 1993-94, so much so that Republicans won control of Congress and were able to check the Democrat administration's worst tendencies. But with an unpopular lame-duck Republican president currently in the White House and liberal Democrats dominating the House and Senate, the opposite phenomenon occurs: Politicians like Dodd (one of the top architects of the collapse of Fannie Mae and Freddie Mac, which triggered the current economic meltdown) reinforce Bush and Paulson's worst tendencies. Result? The Bush legacy of expanded big government is much worse than Bill Clinton's.
President Obama will be hardpressed to match the huge increase in federal power over the private economy that has occured in the past 14 weeks – courtesy of the Bush Administration and the leadership of both parties of Congress. The highlight was the mortgage-bailout package passed in early October, after Obama and Republican presidential nominee John McCain lobbied for it. On October 13th, the chief executives of the largest banks in the United States were summoned by Mr. Paulson to a 3 p.m. meeting at the Treasury Department. When they entered the ornate conference room, all were handed a one-page document that said they agreed to sell shares to the federal government. Paulson told the bank chieftains they must sign before leaving the building.
Jamie Dimon, chairman of J.P. Morgan Chase, said the deal looked good. But Richard Kavacevich, chairman of Wells Fargo, protested Paulson's diktat, saying that unlike other banks, his was not in trouble because of questionable mortgage investments and did not need a bailout. He expressed concern that the government-mandated investment could come at the expense of his shareholders. None of that mattered to Paulson, who presented the banks with an ultimatum, telling them they must start lending to one another for the good of the financial system, and that they needed to be better capitalized in order to do that. "It was a take it or leave it offer," one observer who was briefed on the meeting told the New York Times. Over the next few hours, Mr. Paulson played the "bad cop," tag-teaming with "good cops" – Federal Reserve Chairman Ben Bernanke and New York Federal Reserve Bank Chairman Timothy Geithner (nominated by Obama to be treasury secretary) – in selling the bailout to the bank bosses. It worked. By 6:30 p.m. that night, all had done what Paulson ordered them to do. They got on their cellphones, consulted with their boards, signed the document and agreed to take the money before scurrying into their limousines and disappearing into the Washington night.
In addition, federal government announced at the time that it would temporarily guarantee $1.5 trillion in new debt – bringing the size of the federal bailout to $2.25 trillion. And that was just part of the picture. Since Labor Day, Mr. Paulson and the Bush Administration have also taken over the once private government-sponsored housing enterprises Fannie Mae and Freddie Mac, and bailed out large companies including Citigroup, AIG insurance and Wachovia Bank. Last month, Bloomberg News totaled all of the bailouts that the federal government has committed taxpayers to finance thus far: $8.5 trillion. About $5.5 trillion of this comes from the Federal Reserve – a federal agency that does not need congressional authorization for taking these actions.
All of the above constitutes "bipartisanship" at its worst: how Democrats and Republicans, elected officials and unelected bureaucrats, often collaborate to pile higher debt and tax burdens on their constituents. While some of this behavior results from greed and arrogance, I think much of it results from basic economic ignorance, in particular, a failure to understand the importance of permitting failure to occur if capitalism is to succeed. When businesses are deemed too large to fail, they become insulated from one of the most important checks the marketplace has to offer against reckless, irresponsible behavior. Capital is transferred from profitable enterprises to failed ones, and by constantly raising the specter of economic catastrophe if taxpayers do not pony up more money, powerful bureaucrats like Paulson create self-fulfilling prophecies: The economy spirals downhill unless the federal government throws more good money after bad, and the private sector develops a perverse sense of entitlement. If Congress refuses to finance one or another bailout that one or another firm has been led to believe it will get, the stock market worsens and unemployment rises.
The current debate over whether to use the original $700 bailout scheme, called the Troubled Assets Relief Program (TARP), to finance the auto bailout should serve as a reminder of the arrogance that tossing around a lot of taxpayer money inevitably breeds. The auto bailout failed in the Senate last week over the United Auto Workers union's refusal to commit to a date certain to reform its compensation scale – which is 40-50% more expensive per worker than that of foreign competitors. When Congress refused to hand over the money right away (to make sure, in essence that neither GM nor Chrysler collapses during the remainder of Bush's presidency), Paulson administration, with the support of Democrats like Dodd, began searching for ways to use the TARP money to bail out GM, Chrysler and UAW. (Ford says it doesn't need the bailout.)
Many Republicans – including conservatives who swallowed hard and voted for the TARP in October – complain that the language of the legislation bars Paulson from using TARP money to finance the auto bailout. But the legislation may give Paulson all the latitude he needs: It limits aid to "financial institutions," defined as "any institution, including, but not limited to, any bank, savings association, credit union..." The operative words "but not limited to" are probably elastic enough to let Paulson bail out the auto companies.
To be sure, judging from high-tax, big-spending platform he ran on, Barack Obama's administration will be even worse than the Bush Administration when it comes to expanding the federal Leviathan. The sad thing is that Bush is giving Obama plenty of political cover for doing this.
FamilySecurityMatters.org Contributing Editor Joel Himelfarb is an editorial writer for The Washington Times. The views expressed here are his own.