Market Talk

Credit crisis? Why, sure, it'll work on that too.

So Larry Kudlow was on the radio this morning, the CNBC commentator prattling on about the resilience of the free markets despite what he calls “socialism lite” and the ascendancy of a new conservatism driven by the tea partiers that’s going to lead to a Republican takeover of Congress in November. It’s essentially the same shtick he usually delivers. What’s amazing about listening to him now, though (as with so many partisan pundits) is that even after two of the most tumultuous years of our lives, he hasn’t changed his tune, not by even one note.

Kudlow’s performance requires some amount of self-delusion. He’s optimistic, and that’s fine. He expects a “mini-boom” in 2010. But in his world, it’s like the last two years never happened.

Despite the historic expansion of the federal government’s involvement in, intervention in, and control of the economy — including Bailout Nation; takeovers of banks, car companies, insurance firms, Fannie, Freddie, AIG, GM, Chrysler, and GMAC; large-scale tax threats; overregulation; an attempted takeover of the health-care sector; ultra-easy money; a declining dollar; and unprecedented spending and debt creation — despite all the things that would be expected to destroy the economy — all this socialism lite and the degrading of incentives and rewards for success — despite all this, the U.S. economy has not been destroyed.

You don’t have to like $700 billion stimulus packages, and trillion dollar banking bailouts, but it is intellectually dishonest to say the economy is getting better despite them. The economy is alive and breathing only because of them. The government didn’t just sweep in and take over anything. Private companies, including banks, insurance companies and car companies, all of which were about to go bust (and some of which did,) pleaded for government aid. And they petitioned both Democrats and Republicans.

If we’re ever going to get back to a place where we don’t need the government standing between the American people and the edge of some great depression, we’re going to have to get past the kind of dogmatic thinking that still infects people on the right and left, and produces a counterproductive and ultimately destructive conflict.

The central government has underwritten this recovery, from Congress leaning on the Financial Accountability Standards Board to suspend mark-to-market accounting, to the TARP program, to the stimulus program, to the Federal Reserve’s zero interest rate policy. To say that somehow GDP has turned positive because of some miracle of the free markets is either delusional or deceitful, but certainly not accurate.

There is a place, and a central place, for the free market in the United States. But the free market was never freer than in the aughts, and it failed miserably. The entire banking system was on the verge of collapse; at least, that’s what we’ve been told. There’s a reason a dyed-in-the-wool Republican administration like the Bush White House abandoned the free markets during the depths of the credit crisis, and used the blunt power of the government to save the economy. Because that’s all that was left.

We need a free market, and that free market needs rules. To pretend one can exist without the other is to invite — again — disaster. And for people like Kudlow to pretend that we can go back to some Ayn Randian, free market nirvana where the government exists only to provide a military and deliver the mail is, well, he’s just peddling snake oil. That’s all that is.