We take for granted that the government of the United States will act with probity and restraint. Uniquely among nations, we have a government that is overshadowed by powerful ideas about the sources of its legitimacy. These are encoded in the Declaration of Independence, the Bill of Rights, key passages of the Gettysburg Address (“dedicated to the proposition…”, “of the people, by the people, for the people”) and elsewhere.
Examining the history of our government’s involvement in political economy bears out that it has always been very reluctant to intervene in private arrangements. Every nation must find a critical balance between the rights of men and the rights of society, and every nation must provide for its material well-being in the context of that balance. As Americans, we have always sought to err on the side of human dignity and private rights, even in times of war and crisis.
We’re now deeply enmeshed in crisis. Moments of crisis often bring change. But now we now have a President who is pleased to tell us that we must look to the future with fear, rather than welcome it with hope as Americans have always done.
Leave aside the sardonic irony of this disingenuous young President, who campaigned for his job telling us exactly the opposite of what he says now.
In fact, we have crossed many lines in the last twelve months. The Rubicon moment came last March, when the Federal Reserve, responding to a true emergency, intervened in the imminent failure of the Bear Stearns Companies, to ensure that firm’s demise would not threaten the global financial system.
They succeeded rather well, but to me the most striking thing about it was Fed Chairman Ben Bernanke’s Congressional testimony about a week later. Visibly shaken, he said that he had lost a lot of sleep over the decision, and he hoped he never again would have to do anything like it.
Why did he say that? Because the Fed throughout its history has understood its role as a lender of last resort and as a banking regulator in strictly limited terms. Quite apart from a prudential recognition of limited competency, this attitude reflects a powerful philosophy about limited government. Bernanke ultimately had no choice but to do what he did, but he was disgusted all the same.
And he was right to be. Because by September, the Fed and the Treasury, having just nationalized $5 trillion in mortgage assets issued by Fannie Mae and Freddie Mac, tried to re-establish some restraint. They chose to allow Lehman Brothers to go bankrupt with no intervention.
Two things happened immediately: the volte-face caused market participants to permanently lose their confidence about what the authorities would do in any given situation; and the bankruptcy unleashed a chain of disruptions that, after thirteen months of contained crisis, finally managed to jump the levees and infect the real economy. The Rubicon had been crossed.
In this context of crossing lines, Congress and the feckless new President are now jumping in to assert a degree of control over private arrangements that even the New Deal shrank from. Once we pass a near-trillion dollar spending package, essentially without reading it, because of a belief that the sky will fall if we don’t, it will be very hard to resist such stories in the future.
As Americans, we’ll decide together how much control over our affairs we’ll give up at this moment. Even after September 11, 2001, our leaders encouraged us to look forward with hope. What is historically discordant about today is that many of us will make the decision to embrace change out of fear rather than out of hope. Today’s leaders are challenging the fundamental character of America as an optimistic nation.