The New Deal was not a failure.

In the March 18, 2009 New Republic article "Wasting Away in Hooverville," Jonathan Chait refutes the argument by political conservatives that the New Deal was a failure:

The Forgotten Man: A New History of the Great Depression
By Amity Shlaes
(HarperCollins, 464 pp., $26.95)

Herbert Hoover
By William E. Leuchtenburg
(Times Books, 208 pp., $22)

Nothing to Fear: FDR's Inner Circle and the Hundred Days that Created Modern America
By Adam Cohen
(Penguin Press, 372 pp., $29.95)

A generation ago, the total dismissal of the New Deal remained a marginal sentiment in American politics. Ronald Reagan boasted of having voted for Franklin Roosevelt. Neoconservatives long maintained that American liberalism had gone wrong only in the 1960s. Now, decades after Democrats grew tired of accusing Republicans of emulating Herbert Hoover, Republicans have begun sounding ... well, exactly like Herbert Hoover. When President Obama recently met with House Republicans, the eighty-two-year-old Roscoe G. Bartlett told him that "I was there" during the New Deal, and, according to one account, "assert[ed] that government intervention did not work then, either." George F. Will, speaking on the Sunday talk show "This Week," declared not long ago, "Before we go into a new New Deal, can we just acknowledge that the first New Deal didn't work?"

When Republicans announce that the New Deal failed--as they now do, over and over again, without any reproach from their own side--they usually say that the case has been proven by the conservative columnist Amity Shlaes in her book The Forgotten Man. Though Shlaes's revisionist history of the New Deal came out a year and a half ago, to wild acclaim on the right, its popularity seems to be peaking now. Fred Barnes of The Weekly Standard recently called Shlaes one of the Republican party's major assets. "Amity Shlaes's book on the failure of the New Deal to revive the economy, The Forgotten Man, was widely read by Republicans in Washington," he reported. "So were her compelling articles on that subject in mainstream newspapers."

This is no exaggeration. The Forgotten Man has been publicly touted by such Republican luminaries as Newt Gingrich, Rudolph Giuliani, Mark Sanford, Jon Kyl, and Mike Pence. Senator John Barrasso was so eager to tout The Forgotten Man that last month he waved around a copy and announced, "in these economic times, a number of members of the Senate are reading a book called The Forgotten Man, about the history of the Great Depression, as we compare and look for solutions, as we look at a stimulus package." Barrasso offered this unsolicited testimonial, apropos of nothing whatsoever, during the confirmation hearing for Energy Secretary Steven Chu. Chu politely ignored the rave, thus giving no sign as to whether he had heard the Good News. Whether or not The Forgotten Man actually persuaded conservatives that the New Deal failed, in the time of their political exile, which is also a time of grave economic crisis, it has become the scripture to which they have flocked.


When they say that the New Deal "didn't work," conservatives almost always mean New Deal fiscal stimulus. (Other policies, such as Social Security or clearing the way for unions, clearly succeeded on their own terms, whatever their ideological merits.) And then, in turn, they confuse New Deal fiscal stimulus with Keynesian economics, which is also not exactly the same thing. So let me step back and briefly explain for the uninitiated what Keynesian economics means. We may not all be Keynesians now, but we would all benefit from knowing what a Keynesian actually is.

Prior to Keynes, the economy was held to be self-correcting. The only cure for a recession was to let wages and prices fall to their natural level. The prevailing attitude, as Paul Krugman writes in his recently re-issued book The Return of Depression Economics, was "a sort of moralistic fatalism." Keynes upended the orthodoxy in a way that was every bit as dramatic as Galileo challenging geocentrism. He insisted that recessions are not a natural process, or the invisible hand's righteous judgment against our sins, but a simple failure of consumer demand.

When people worry about losing their jobs, they sensibly cut back on their spending. But that decision, in turn, reduces demand for goods and services, which results in reduced income or lost jobs for other workers. Keynes called this phenomenon "the paradox of thrift": what makes sense for individuals turns into a disaster for society as a whole. The recession was therefore a failure of collective action that required government action. Government needed to encourage spending by reducing interest rates or, failing that, to inject spending into the economy directly by deliberately running temporary budget deficits.

At the time, orthodox economists deemed this diagnosis heretical and dangerous, but, in the decades that followed, it became a consensus view. Today economists disagree sharply about how to apply Keynes's insights, with many conservative economists questioning the practicality of large-scale government spending to combat recessions; but the essential framework constructed by Keynes--that recessions are caused by a failure of demand, and that at the very least government should not respond to an economic slowdown by paring back its largesse--is no longer in dispute. Even a right-wing Republican economist such as Gregory Mankiw, a former Bush advisor, writes that "if you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes."

But everywhere you look, conservative pundits and elected officials have embraced the pre-Keynesian nostrums. Citing The Forgotten Man, they insist that efforts to stimulate the economy are not just insufficient but also counter-productive. Pence has insisted that The Forgotten Man proves "that it was the spending and taxing policies of 1932 and 1936 that exacerbated the situation." Sanford, for his part, offered this fiscal diagnosis: "When times go south you cut spending. That's what families do, that's what businesses do, and I don't think the government should be exempt from that process." That is, of course, a perfect description of the paradox of thrift, only put forward as the solution rather than the problem. Governor Tim Pawlenty of Minnesota insisted that "we can't solve a crisis caused by the reckless issuance of debt by then recklessly issuing even more debt," and called for a balanced-budget amendment to the Constitution, which would of course massively exacerbate the present crisis. It is 1932 again in the Republican Party.


Now here is the extremely strange thing about The Forgotten Man: it does not really argue that the New Deal failed. In fact, Shlaes does not make any actual argument at all, though she does venture some bold claims, which she both fails to substantiate and contradicts elsewhere. Reviewing her book in The New York Times, David Leonhardt noted that Shlaes makes her arguments "mostly by implication." This is putting it kindly. Shlaes introduces the book by asserting her thesis, but she barely even tries to demonstrate it. Instead she chooses to fill nearly four hundred pages with stories that mostly go nowhere. The experience of reading The Forgotten Man is more like talking to an old person who lived through the Depression than it is like reading an actual history of the Depression. Major events get cursory treatment while minor characters, such as an idiosyncratic black preacher or the founder of Alcoholics Anonymous, receive lengthy portraits. Having been prepared for a revisionist argument against the New Deal, I kept wondering if I had picked up the wrong book.

Many of Shlaes's stories do have an ideological point, but the point is usually made in a novelistic way rather than a scholarly one. She tends to depict the New Dealers as vain, confused, or otherwise unsympathetic. She depicts business owners as heroic and noble. It is a kind of revival of the old de haut en bas sort of social history, except this time the tycoons from whose perspective the events are narrated appear as the underappreciated victims, the giants at the bottom of the heap.

Mostly Shlaes employs wild anecdotal selectivity. At one point she calls the pro-labor Wagner Act "coercive," and elsewhere she alludes to the subtle anti-Semitism of a newspaper column criticizing opponents of the National Recovery Administration. Shlaes ignores the vastly greater use of violent coercion on behalf of employers, or the immensely more common use of anti-Semitic tropes against the New Deal. Does Shlaes think that workers were more coercive than capitalists, or that liberals were more anti-Semitic than conservatives? The book does not say, but clearly she wants her readers to come away with this impression.

Shlaes begins every chapter with a date (say, December 1936), an unemployment percentage (15.3) and a Dow Jones Industrial Average. The tick-tick-tick of statistics is meant to show that conditions did not improve throughout the course of Roosevelt's presidency. Yet her statistics are highly selective. As those of us who get our economic information from sources other than the CNBC ticker know, the stock market is not a broad representative of living standards. Meanwhile, as the historian Eric Rauchway has pointed out, her unemployment figures exclude those employed by the Works Progress Administration and other workrelief agencies. Shlaes has explained in an op-ed piece that she did this because "to count a short-term, make-work project as a real job was to mask the anxiety of one who really didn't have regular work with long-term prospects." So, if you worked twelve hours per day in a coal mine hoping not to contract black lung or suffer an injury that would render you useless, you were employed. But if you constructed the Lincoln Tunnel, you had an anxiety-inducing make-work job.

In response to this criticism, Shlaes has retreated to the defense that unemployment was still high anyway. "Even if you add in all the work relief jobs, as some economists do," she has contended, "Roosevelt-era unemployment averages well above 10 percent. That's a level Obama has referred to once or twice--as a nightmare." But Roosevelt inherited unemployment that was over 20 percent! Sure, the level to which it fell was high by absolute standards, but it is certainly pertinent that he cut that level by more than half. By Shlaes's method of reckoning, Thomas Jefferson rates poorly on the scale of territorial acquisition, because on his watch the United States had less than half the square mileage it has today.


Shlaes's actual critique of the New Deal is not easy to pin down. Defining what she believes depends on whether you are reading the book itself or her incessant stream of spin-off journalism. In one article she adopted the classic right-wing line taken up by Andrew Mellon, Hoover's treasury secretary: "Mellon--unlike the Roosevelt administration--understood that American growth would return if you left the economy alone to right itself." This is the conclusion that most excites Shlaes's conservative admirers. And in keeping with this argument, Shlaes, a committed supply-sider, scolds Roosevelt for raising taxes on the rich, which discouraged them from taking risks. She fails to explain how the economy managed to recover after the outbreak of World War II, which saw even higher taxes on the rich, or in the postwar period, when they remained high.

Moreover, the classic right-wing critique fails to explain how the economy recovered at all. In one of his columns touting Shlaes, George Will observed that "the war, not the New Deal, defeated the Depression." Why, though, did the war defeat the Depression? Because it entailed a massive expansion of government spending. The Republicans who have been endlessly making the anti-stimulus case seem not to realize that, if you believe that the war ended the Depression, then you are a Keynesian.

Shlaes also offers up a more subtle, and slippery, version of this argument. In the second iteration, the problem with the New Deal was not that it involved government but that it involved unpredictable government. Businesses failed to hire workers or open factories not because there was a lack of demand for their products, but because constantly changing government policies made them uncertain. "Uncertainty about what to expect from international events and Washington," Shlaes instructs, "made the Dow Jones Industrial Average gyrate."

I agree that there is something to the notion that unpredictable government policies can spook markets. Shlaes cites an industrialist who urged Roosevelt to "make the program clear and then stick to it." But the answer to this perplexity is not that Roosevelt should have abandoned his public works program, Social Security, and regulatory reforms. It is rather that he should adopted them sooner, and hewed to them more consistently. That would have been perfectly clear.

Yet that is not the conclusion that conservatives wish to draw. Nor is it a useful club to wield against contemporary liberals. So at other times Shlaes suggests--again, her writing is so convoluted that it is hard to discern what she means--that eliminating uncertainty means eliminating government activism. In her recent op-ed pieces, she urges Obama to forego Keynesian stimulus and instead cut taxes for corporations and stockholders. Her real argument, then, is that changing the rules in a liberal direction paralyzes businesses with fear, while changing the rules in a conservative direction promotes growth.

Several of Shlaes's admirers have taken up the line that the current slowdown is caused, or at least worsened, by the "uncertainty" of Obama's fiscal stimulus. "A main reason there's all of this 'money on the sidelines' out there among private investors is that Wall Street doesn't know what the government will do next," Jonah Goldberg wrote in National Review. "In short, don't just do something, President Obama--stand there." If this prescription were true, you would suppose it would show up in the business press. After all, there is a thriving media industry devoted to taking the temperature of the markets and discerning what causes them to rise or fall on any given day. Not all these business reporters are left-wing stooges. And yet almost never do they report that uncertainty about Keynesian politics has caused the market to sink. Instead, you regularly come across coverage like this, from The Wall Street Journal on December 8, 2008:

The prospect of new government action to create jobs and
keep auto makers out of the ditch sent stocks higher for a
second consecutive day, amid hopes that a worst-case
scenario for the global economy could be avoided. Gains in
the U.S. were part of a world-wide rally triggered by
President-elect Obama's plan for a stimulus package.


Shlaes's main indictment of the New Deal is contained within the first few pages of her book. It begins with a snapshot of the depressed economy, depicting a desperately poor family, and broadens out to describe a cratering economy, and finally moves on to Washington, where the oblivious Secretary of the Treasury announces his intent to "continue progress toward a balance of the federal budget." The reader is meant to think this is a description of Herbert Hoover's America. But Shlaes concludes the story with an aha! moment: this episode took place in 1937! "The New Deal was almost five years old," Shlaes concludes, after repeating this shocking tale in another op-ed, "but the economy was not back."

If your understanding of the New Deal is limited to the simple notion that Roosevelt spent a lot of money and tamed unemployment, then this story might sound like a persuasive piece of evidence for Shlaes. Yet there is a tip-off within the story that ought to give even the uninformed reader pause: the part where the Treasury Secretary promises to balance the budget. That doesn't sound very New Deal-ish, does it? And indeed it is not. The historical fact is that Roosevelt's administration contained warring factions with often wildly differing ideas. FDR came into office promising to slash the federal budget, but he moved in fits and starts toward a Keynesian policy of fiscal stimulus. After the elections of 1936, though, his more conservative advisors prevailed upon him to roll back the budget. Liberals, including Keynes, protested that this would jeopardize the fragile recovery. And events vindicated them: after impressive growth, the economy plunged back into a recession within a depression.

That Roosevelt see-sawed between Keynesianism and budget-balancing has been conventional wisdom among mainstream historians and economists for decades. The MIT economist E. Carey Brown wrote this in 1956. Keynes made the same point in a pleading letter to Roosevelt in 1937. Economists disagree about the extent to which Roosevelt's fiscal expansion helped. Many give more credit to his abandonment of the gold standard--which Shlaes, naturally, also decries. The fact that he retreated from Keynes in 1937 and that this retarded the recovery, though, bears little dispute.

Adam Cohen's Nothing to Fear, an admiring history of Roosevelt's first hundred days, captures the deep tensions between camps in the Roosevelt administration. Cohen's take is conventional, but it is executed well, tracing the disparate life stories of the main New Dealers in such a way as to make the inevitability of their conflict clear. This was a true team of rivals, some of them winding up as Roosevelt's most unhinged critics. Even before Roosevelt took office, Cohen writes, there was a "fundamental conflict--between spending more to fight the Depression and spending less to balance the budget--that would be a central tension of the Hundred Days." Yet for Shlaes and her admirers, the finding that Roosevelt vacillated between Keynesianism and orthodoxy represents a devastating intellectual blow to the New Deal edifice. And, yes, if you think of the New Deal as a series of unbroken triumphs held together by a clear and consistent ideology, and you have failed to take in any of the scholarship about the period produced over the last half-century, then The Forgotten Man will come as a revelation.

Shlaes writes that her discoveries about the New Deal show that "Roosevelt was unworthy of emulation." But who, exactly, is proposing to emulate everything that Roosevelt did? Much of his program has long been deemed a failure by liberals, including Roosevelt himself. (This includes the National Recovery Administration, which Shlaes dwells on at great length, while breezing past or ignoring altogether vast swaths of the New Deal.) When liberals suggest that Obama follow Roosevelt's model, they do not mean that he should replicate the entire thing. (The way, say, conservatives do when they suggest following Reagan's model.) They mean that he should emulate the Keynesian fiscal policies and other parts of the New Deal that worked. Shlaes has set out to demolish an argument that no serious person has ever made.

At one point in her book, in fact, Shlaes actually concedes that Roosevelt's Keynesian experiment succeeded when he tried it. "The spending was so dramatic that, finally, it functioned as Keynes ... had hoped it would," she writes about 1936, "Within a year unemployment would drop from 22 percent to 14 percent." So Keynesian policy worked, and the main fiscal problem with the New Deal was that Roosevelt made too many concessions to the right. Here we are in agreement. So can conservatives stop carrying around The Forgotten Man like it's Mao's Little Red Book? Can we all go home now?


It should be clear that intellectual coherence is not the purpose of Shlaes's project. The real point is to recreate the political mythology of the period. It does not matter that Shlaes heaps scorn on Roosevelt for doing things that liberals also scorn. Anything that tarnishes his legacy, she seems to think, tarnishes liberalism by association.

The conservative movement has invested enormous effort in crafting a political mythology that gratifies its ideological impulses. The lesson they learned from Ronald Reagan is that ideological purity is not only compatible with political success, but is also the best path to political success. They dutifully applied this interpretation to everything that happened since--George H.W. Bush, then Newt Gingrich, and then George W. Bush all failed because they deviated from the true path--and to all that happened before. Nixon failed because he embraced big government. Kennedy succeeded because he was actually a proto-supply-sider.

From such a perspective, Roosevelt casts a long and threatening shadow over the conservative movement. Here was a case of a wildly unpopular conservative Republican, Herbert Hoover, who gave way to an unabashed liberal Democrat who won four presidential elections. Shlaes goes to great pains to explain away this apparent anomaly. In this instance, she does produce an internally coherent argument. It is, alas, wildly ahistorical.

If the New Deal failed so miserably, one might wonder why voters continued to endorse it. In Shlaes's telling, Roosevelt's first challenger, Alf Landon, lost in 1936 because he "failed to distinguish himself" from Roosevelt. It is certainly true that Landon hailed from the party's moderate wing and shied away from the root-and-branch condemnation of the New Deal favored by, say, Hoover. But as the campaign wore on, Landon's rhetoric grew increasingly harsh. If Roosevelt returned to office, he warned, "business as we know it is to disappear." Voters who opposed the New Deal may not have had a perfect choice, but they did have a clear one. It also takes quite a bit of ideological credulity to believe, as Shlaes apparently does, that Roosevelt's twenty-point victory represented anything other than massive support for his program. Landon himself later remarked that "I don't think that it would have made any difference what kind of a campaign I made as far as stopping this avalanche is concerned."

And Shlaes offers an even odder explanation for Roosevelt's triumph in 1940. Wendell Willkie seized the advantage by attacking the New Deal, she writes, but squandered it with his dovish position on the war. The war, she argues, had become "the single best argument to reelect Roosevelt and give him special powers." After the election, she asserts, the Republicans "concluded, accurately enough, that the outcome would sideline not only their party but their record of accuracy when it came to the economy. They had been right so often in the 1930s and they would not get credit for it. The great error of their isolationism was what stood out."

Shlaes, characteristically, bolsters this highly idiosyncratic reading of history with only bare wisps of data. It is true that the outbreak of war in Europe made Roosevelt, the incumbent, appear safer. But this pro-incumbent upsurge merely cancelled out a powerful current of anti-third term sentiment. Moreover, public opinion opposed entry into the war, and Roosevelt had to fight the suspicion that he was nudging the country into the war by explicitly promising to stay out. Shlaes's portrayal of an electorate seeking activist government abroad and laissez-faire at home gets the history almost perfectly backward. (The Forgotten Man ends with the 1940 race, sparing her readers any further contortions of electoral interpretation.)


The final unanswered question that must nag at the minds of the true believers is how the Depression managed to develop even before Roosevelt assumed office. After all, his bungling caused the economy to stall for years, yet the Depression was already more than three years old before Roosevelt even took office. Shlaes's answer is to implicate Hoover as a New Deal man himself:

Hoover had called for a bank holiday to end the
banking crisis; Roosevelt's first act was to declare a bank
holiday to sort out the banks and build confidence. ...
Hoover had spent on public hospitals and bridges;
Roosevelt created the post of relief administrator for the
old Republican progressive Harry Hopkins. Hoover had
loved public works; Roosevelt created a Public Works
Administration. ... Hoover had known that debt was a
problem and created the Reconstruction Finance
Corporation; Roosevelt put Jones at the head of the RFC
so he might address the debt. ...

Hoover had deplored the shorting of Wall Street's rogues;
Roosevelt set his brain trusters to writing a law that
would create a regulator for Wall Street.

This part of Shlaes's argument has generated enormous enthusiasm on the right. At last the cultural baggage of Roosevelt's predecessor--Hoovervilles, Hoover flags, and the like--has been lifted off the shoulders of conservatism and onto the real culprit, which is liberalism. Senator Kyl proclaimed on the Senate floor last fall that "in the excellent history of the Great Depression by Amity Shlaes, The Forgotten Man, we are reminded that Herbert Hoover was an interventionist, a protectionist, and a strong critic of markets." Recently the House Republican Steve Austria went so far as to declare that Roosevelt actually caused the Depression. "When Roosevelt did this, he put our country into a Great Depression," Austria said. "He tried to borrow and spend, he tried to use the Keynesian approach, and our country ended up in a Great Depression. That's just history."

There is indeed a revisionist scholarship that recasts Hoover as an energetic quasi-progressive rather than a stubborn reactionary. William Leuchtenburg, in his short new biography Herbert Hoover, makes some allowance for the revisionist case, but finally he settles on a more traditional conclusion. Leuchtenburg shows that Hoover's history of activism consistently left him with the belief in the primacy of voluntarism and the private sector, a faith that left him unsuited to handle a catastrophe like the Depression.

Leuchtenburg also provides a handy rebuttal to Shlaes's preposterous conflation of the two presidents. Hoover's National Credit Corporation, he explains, "did next to nothing." Hoover and Roosevelt would be amused to hear that his bank holiday aped Hoover's, given that Hoover denounced the Emergency Banking Act as a "move to gigantic socialism." (Does this ring a bell?) Shlaes's attempt to equate Hoover's disdain for short-sellers and Roosevelt's regulation of the market presumes that there is no important difference between expressing disapproval for something and taking public action against it.

Yes, Hoover created the Reconstruction Finance Corporation. But (I am quoting Leuchtenburg) "at Hoover's behest, RFC officials administered the law so stingily that the tens of thousands of jobs the country had been promised were never created. By mid-October, the RFC had approved only three of the 243 applications it had received for public works projects." Hoover's head of unemployment relief said that "federal aid would be a disservice to the unemployed." Hoover was a staunch ideological conservative who remarked, in 1928, that "even if governmental conduct of business could give us more efficiency instead of less efficiency, the fundamental objection to it would remain unaltered and unabated." This was not, to put it mildly, Roosevelt's philosophy.

Hoover himself would have found the notion that Roosevelt mostly carried on his work offensive. During the campaign of 1932 he warned that, if the New Deal came to fruition, "the grass will grow in the streets of a hundred cities, a thousand towns." This was not mere campaign rhetoric. After Roosevelt won, Hoover desperately sought to persuade him to abandon his platform. He spent the rest of his years denouncing Roosevelt's reforms as dangerous Bolshevism. Leuchtenburg records that Hoover wrote a book about the New Deal so acerbic that his own estate suppressed its publication to avoid further tainting his reputation.

Of course, the transition from one presidency to another always involves some level of continuity. The world never begins completely anew with a presidential inauguration. But the break between Roosevelt and Hoover was certainly sharper than that between any president and his predecessor in American history. After 1932, generations of Democrats continued to paint Republicans as neo-Hooverites. This was mostly a calumny. Though Hoover himself continued to assail the New Deal as calamitous socialism right up to his death in 1964, from 1936 on the party remained in the hands of men who understood that the New Deal had built an enduring base of support and could not be directly assailed.

But now we have come to a time when leading Republicans and conservatives--not just cranks, but the leadership of the party and the movement--once again sound exactly like Herbert Hoover. "Prosperity cannot be restored by raids upon the public Treasury," said President Hoover in 1930. "Our plan is rooted in the philosophy that we cannot borrow and spend our way back to prosperity," said House Minority Leader Boehner in 2009. They have come to this point by preferring theology to history, by wiping Hoover's record from their memories and replacing it with something very close to its opposite. It is Hoover, truly, who is the Forgotten Man.

Jonathan Chait is a senior editor at The New Republic.

It's 'Atlas Shrugged' all over again

The March 1, 2009 Economist article "It's 'Atlas Shrugged' all over again" suggests the fictional profession of Rand's novel may be becoming reality.

Books do not sell themselves: That is what films are for. "The Reader," the book that inspired the Oscar-winning film, has shot up the best-seller lists. Another recent publishing success, however, has had more help from Washington, D.C., than Hollywood. That book is Ayn Rand's "Atlas Shrugged."

Reviled in some circles and mocked in others, Rand's 1957 novel of embattled capitalism is a favorite of libertarians and college students. Lately, though, its appeal has been growing.

According to data from TitleZ, a firm that tracks best-seller rankings on Amazon, an online retailer, the book's 30-day average Amazon rank was 127 on Feb. 21, well above its average over the past two years of 542. On Jan. 13 the book's ranking was 33, briefly besting President Barack Obama's popular tome, "The Audacity of Hope."

Tellingly, the spikes in the novel's sales coincide with the news. The first jump, in September 2007, followed dramatic interest-rate cuts by central banks, and the Bank of England's bailout of Northern Rock, a troubled mortgage lender.

The October 2007 rise happened two days after the Bush administration announced an initiative to coax banks to assist subprime borrowers. A year later, sales of the book rose after America's Treasury said that it would use a big chunk of the $700 billion Troubled Asset Relief Program to buy stakes in nine large banks.

Debate over Obama's stimulus plan in January gave the book another lift. And sales leapt once again when the stimulus plan passed and Obama announced a new mortgage-modification plan.

Whenever governments intervene in the market, in short, readers rush to buy Rand's book. Why?

The reason is explained by the name of a recently formed group on Facebook, the world's biggest social-networking site: "Read the news today? It's like 'Atlas Shrugged' is happening in real life." The group, and an expanding chorus of fretful bloggers, reckon that life is imitating art.

Some were reminded of Rand's gifted physicist, Robert Stadler, cravenly disavowing his faith in reason for political favor, when Alan Greenspan, an acolyte of Rand's, testified before a congressional committee last October that he had found a "flaw in the model" of securitization.

And with pirates hijacking cargo ships, politicians castigating corporate chieftains, riots in Europe and slowing international trade -- all of which are depicted in the book -- this melancholy meme has plenty of fodder.

Even if Washington does not keep the book's sales booming, Hollywood might. A film version is rumored to be in the works for release in 2011. But by then, a film may feel superfluous to Rand's most loyal fans; events unfolding around them will have been dramatization enough.

Hayek vs. Keynes

In the February 23, 2009 National Review article "The Anti-Keynes ," Lanny Ebenstein claims "Friedrich Hayek sheds light on our economic troubles."

According to Ebenstein:

In the current economic-policy debate, the ideas of John Maynard Keynes are resurgent. Here are some of the results: Federal deficit spending soon will reach, and far exceed, previous peacetime peaks. Current projections indicate the budget deficit may surpass $1.1 trillion (that’s trillion with a “T,” one thousand billion) in fiscal 2009. Deepened by emerging stimulus expenses, the deficit may top $1.4 trillion, or about 10 percent of gross domestic product. The federal government will borrow slightly less than half of what it spends.

Before he became the great intellectual opponent of socialism, Friedrich Hayek was a technical economist and Keynes’s foremost intellectual disputant during the Great Depression. Given the renaissance in Keynesian thinking, it is fruitful to revisit some of Hayek’s analysis for the light it may shed on our current circumstances.

Crucial elements in Hayek’s thought are that (1) prices are the signals of worldwide supply and demand for various goods and services, (2) interest rates are vital in guiding production decisions, (3) profits guide resources to those who use them most effectively, and (4) the smaller government is, the better. It could hardly be said that any of these insights informs current policy. Hayek’s wisdom is being ignored, a fact that does not bode well for the future of the economy.

It is entirely possible — even likely — that there will be a short-lived turnaround in the economy in the second half of 2009. Both the federal government and the Federal Reserve have been dumping money into the economy and spending like there’s no tomorrow. Since 2001, the Fed has followed the most erratic course in its history; the fiscal reversal from a modest federal budget surplus to a prospective $1.4 trillion–plus deficit in this same period is unprecedented in peacetime. Hayek was an agnostic, but if he happens to be watching these developments from a perch in the afterlife, he must be agitated.

Let us focus first on the Fed, since it is the main culprit in the current mess — much as it was during the Great Depression, when its mismanagement of the money supply turned a recession into a catastrophe. The federal-funds rate, the Fed’s favored tool for influencing the economy, stood at 6.5 percent in early 2001 — in hindsight, excessively high. The Fed undoubtedly contributed to the downturn of 2000–01 by raising the funds rate between 1998 and 2000.

As a result of the economic downturn it helped cause, the Fed began to cut the funds rate in 2001. The rate had been reduced to the 4 percent range before September 11. The Fed then cut it to 1 percent, where it remained through 2004. At that point, concerned about inflation and heedless of the huge concurrent appreciation in home prices — many financed through adjustable-rate mortgages — the Fed raised the funds rate to 5.25 percent between 2004 and June 2006. This will be remembered as one of the most destructive policies the Federal Reserve Board ever pursued.

Hayek emphasized the importance of government-influenced interest rates in his early economic work in the 1920s and 1930s. He was among the first to consider himself a monetarist, meaning an economist who emphasizes the effects of monetary policy on the broader economy, but his brand of monetary economics was very different from that of his most famous colleague and intellectual compatriot, Milton Friedman. Hayek and Friedman taught together for a dozen years at the University of Chicago during the 1950s and early 1960s, and both were members of the Mont Pelerin Society, an international organization devoted to classical liberalism, from the 1940s to the 1980s.

Hayek argued that if interest rates are too low they will attract resources to areas of the economy that would not otherwise be attractive investments. This was certainly the case in the housing bubble. The Fed played at least as important a role as inadequate lending standards in the escalation of house prices between 2002 and 2006, when many real-estate markets saw double-digit annual increases in the sales price of a good that could be acquired for a single-digit down payment. This was the Greenspan housing bubble.

That lending standards for purchases and refinancing also collapsed at this point compounded the problem, of course. Hayek’s view was that prices, including the price of borrowing, broadcast important production and resource-direction signals throughout the economy. If the price of money (which is to say, interest) is unstable, or if it becomes possible to borrow for certain economic activities but not for others, this will distort decisions to buy, sell, or invest. Artificially low interest rates helped create an expectation of ever-rising prices, which attracted many home-buyers who otherwise would not have chosen to purchase houses at what were already historically high prices.

But bubbles cannot last forever. As Greenspan’s chairmanship was coming to an end, the Fed began its relentless campaign to raise the federal-funds rate, which reached 5.25 percent in 2006. In retrospect, it is impossible to justify the rise to that level. The excessive increase in the rate between 2004 and 2006 triggered the financial crisis that emerged in August 2007. Policies pursued by the Fed since that time, under chairman Ben Bernanke, have been positive and appropriate; even so, in retrospect it would have been better to lower the federal-funds rate even more in 2007. This might have prevented the financial carnage of late 2008.

What does the future hold? Hayek subscribed to the “quantity theory of money” — that prices will rise if the money supply increases — though he was more concerned with how changes in interest rates distort economic activity than with the influence of money on aggregate prices. Nonetheless, he would have certainly held that the unbridled growth in the money supply in the last quarter of 2008 — some 12–13 percent growth in M1 (essentially, currency plus checking deposits), an annualized rate of increase of more than 50 percent — could not continue without escalating inflation.

It is likely that at some point the Fed will raise interest rates and curtail existing measures to increase liquidity in financial institutions. Or it may allow prices to inflate. The United States could be in for a double-dip recession in which economic activity responds to the unprecedented fiscal and monetary stimulus but then hits a wall as interest rates and prices rise. Hayek’s adversary, Keynes, recommended fiscal policy rather than monetary policy as the way to steer an economy, and this seems to be the Obama administration’s intention.

Its $800 billion–plus stimulus package amounts to a short-term boost to the economy of about 2 percent of gross domestic product per year. That’s not a small amount of money, and, together with the Fed’s own monetary stimulus, it should lead to short-term economic growth. But in the long run (which Keynes deprecated), truth keeps the score, and it is unlikely that the fiscal policies being adopted by the Obama administration will resolve the fundamental economic difficulties before us. It’s not going to represent change Hayek could believe in, but rather more of the same.

Hayek’s argument for less government was efficiency. In the private sector, if one can sell a product for more than it costs to produce, then it is efficient to continue producing. But without a price mechanism, how is the efficiency of a government action to be judged?

Hayek emphasized that specific policies are more important than a generalized commitment to free-market principles. He argued this point in The Road to Serfdom (originally published in March 1944 in England, 65 years ago next month): “Probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez-faire.” He acknowledged that government has a vital role to play in society, and that how government performs this role is important to the economy.

Hayek also warned in The Road to Serfdom against government’s consuming too large a proportion of economic output. He worried about the state of freedom and economic productivity in a society dominated by government: “We can unfortunately not indefinitely expand the sphere of common action and still leave the individual free in his own sphere. Once the communal sector . . . exceeds a certain proportion of the whole, the effects of its actions dominate the whole system.”

Keynesian ideas of expansive and activist government are prominent now, but it is unlikely that they will provide the right antidote to the maladies that confront the global economy. Hayek’s prescription — free markets, limited government, a stable monetary policy, low taxes, and light but appropriate regulation — is more likely to produce lasting prosperity in the long run.

Mr. Ebenstein has written biographies of Friedrich Hayek and Milton Friedman.

A Critique of Keynes and Stimulus Spending?

In the February 23, 2009 National Review article "The second coming of Keynes", Kevin A. Hassett twists traditional economic analysis to suggest that fiscal stimulus is inappropriate for fighting a recession. Monetary policy is the primary tool for managing the economy. However, when monetary policy becomes ineffective, as it has recently in response to the the crises in financial markets, fiscal policy may be the best way to invigorate overall spending and promote economic growth.

According to Hassett:

As the world's economy has entered a dramatic slowdown, an interesting Keynesian revolution has taken shape. Up until recently, there was wide consensus among macroeconomists that activist fiscal policy was inadvisable. Princeton University's Alan Blinder, for example, wrote in 2004 that "virtually every contemporary discussion of stabilization policy by economists --whether it is abstract or concrete, theoretical or practical--is about monetary policy, not fiscal policy." Blinder went on presciently to question this consensus, but even he cautioned against relying too much on spending, stating that "if Congress decides to stimulate economic activity by building more public infrastructure, the natural spend-out rate of such programs will probably be very slow."

President Obama's economists have disputed that consensus. It was recently reported, for example, that Christina Romer, chairwoman of the Council of Economic Advisors, said "aggressive, well-designed fiscal stimulus is critical to reversing this severe decline." The New York Times helpfully added: "The vast majority of the nation's economists agree that one is necessary, and soon."

Statements such as these have been echoed by economists throughout the Obama administration, and by the new director of the Congressional Budget Office, Douglas Elmendorf, in recent congressional testimony. This apparent unanimity has had an enormous effect on the design of the current stimulus package, which calls for massive spending increases along with tax cuts.

The statements are not, strictly speaking, true. Monetary policy has pushed the economy as far as it can, but fiscal policy need not rely only on the Keynesian bag of temporary tricks.

The accompanying chart documents how dramatic this turn of events has been. It tracks the increase in government spending that occurred in each past recession (in blue) and the increase planned for the current recession. For scaling, all numbers are expressed relative to overall GDP. Until this year, the biggest countercyclical government-spending program in history was in the 1981-82 recession, when government spending increased by a bit more than 2 percent of GDP. In this recession, the increase will be approximately three times that.

The truth is that there is very little empirical support for policies such as these. They will likely provide a small boost, at an enormous cost. When the boost is gone, the cost will remain.

For those economists who are more skeptical of the theories of John Maynard Keynes, there is but one consolation: An experiment this large will provide ample opportunity for study.

[GRAPHIC OMITTED]

Conservatism is Dead

In the February 18, 2009 New Republic article "Conservatism Is Dead," Sam Tanenhaus provides "an intellectual autopsy of the movement."

In the tumultuous history of postwar American conservatism, defeats have often contained the seeds of future victory. In 1954, the movement's first national tribune, Senator Joseph McCarthy, was checkmated by the Eisenhower administration and then "condemned" by his Senate colleagues. But the episode, and the passions it aroused, led to the founding of National Review, the movement's first serious political journal. Ten years later, the right's next leader, Barry Goldwater, suffered one of the most lopsided losses in election history. Yet the "draft Goldwater" campaign secured control of the GOP for movement conservatives. In 1976, the insurgent challenge by Goldwater's heir, Ronald Reagan, to incumbent president Gerald Ford was thwarted. But Reagan's crusade positioned him to win the presidency four years later and initiate the conservative "revolution" that remade our politics over the next quarter-century. In each instance, crushing defeat gave the movement new strength and pushed it further along the route to ultimate victory.

Today, the situation is much bleaker. After George W. Bush's two terms, conservatives must reckon with the consequences of a presidency that failed, in large part, because of its fervent commitment to movement ideology: the aggressively unilateralist foreign policy; the blind faith in a deregulated, Wall Street-centric market; the harshly punitive "culture war" waged against liberal "elites." That these precepts should have found their final, hapless defender in John McCain, who had resisted them for most of his long career, only confirms that movement doctrine retains an inflexible and suffocating grip on the GOP.

More telling than Barack Obama's victory is the consensus, steadily building since Election Day, that the nation has sunk--or been plunged--into its darkest economic passage since the Great Depression. And, as Obama pushes boldly ahead, apparently with public support, the right is struggling to reclaim its authority as the voice of opposition. The contrast with 1993, when the last Democratic president took office, is instructive. Like Obama, Bill Clinton was elected in hard economic times and, like him, promised a stimulus program, only to see his modest proposal ($19.5 billion) stripped almost bare by the Senate minority leader, Bob Dole, even though Democrats had handily won the White House and Senate Republicans formed nearly as small a minority as they do today. The difference was that the Republicans--disciplined, committed, self-assured--held the ideological advantage, which Dole leveraged through repeated use of the filibuster. Today, such a stratagem seems unthinkable. There is instead almost universal agreement--reinforced by the penitential testimony of Alan Greenspan and, more recently, by grudgingly conciliatory Republicans--that the most plausible economic rescue will involve massive government intervention, quite possibly on the scale of the New Deal/Fair Deal of the 1930s and '40s and perhaps even the New Frontier/Great Society of the 1960s. All this suggests that movement doctrine has not only been defeated but discredited.

Yet, even as the right begins to regroup, it is not clear that its leaders have absorbed the full implications of their defeat. They readily concede that the Democrats are in charge and, in Obama, have a leader of rare political skills. Many on the right also admit that the specific failures of the outgoing administration were legion. But what of the verdict issued on movement conservatism itself?

There, conservatives have offered little apart from self-justifications mixed with harsh appraisals of the Bush years. Some argue that the administration wasn't conservative at all, at least not in the "small government" sense. This is true, but then no president in modern times has seriously attempted to reduce the size of government, and for good reason: Voters don't want it reduced. What they want is government that's "big" for them--whether it's Democrats who call for job-training programs and universal health care or Republicans eager to see billions funneled into "much-needed and underfunded defense procurement," as William Kristol recommended shortly after Obama's victory.

Others on the right blame Bush's heterodoxy on interlopers, chief among them Kristol's band of neoconservative warriors at The Weekly Standard, who beguiled the administration into the Iraq war and an ill-starred Wilsonian crusade for global democracy. But here again the facts are complicated: Bush's foreign policy owes no more to the neoconservative vision of exportable democracy than to the hard-right "rollback" philosophy of the cold war years. Bush's preemptive war against jihadists, with its promise to "take the battle to the enemy, disrupt his plans, and confront the worst threats before they emerge," echoes Goldwater's assertion, in 1960, that "given the dynamic, revolutionary character of the enemy's challenge, we [must] ... always try to engage the enemy at times and places, and with weapons, of our own choosing." And it was Reagan, the hero of the movement's putative golden age, who, in 1982, called for a worldwide "crusade for freedom that will engage the faith and fortitude of the next generation."

Perhaps, then, the explanation lies not in the Republicans' ideas but in the defective marketing of them. This is the line taken by party strategists who think Karl Rove and his team of operatives grew complacent after their victories in 2002 and 2004 and failed to update "the brand" to suit changing demographics in Sunbelt states like Colorado and Nevada, with their socially liberal white professionals and economically liberal blue-collar Hispanics. But this thesis evades a big question: Does the movement have anything to offer such constituencies apart from a plea for their votes?

What conservatives have yet to do is confront the large but inescapable truth that movement conservatism is exhausted and quite possibly dead. And yet they should, because the death of movement politics can only be a boon to the right, since it has been clear for some time the movement is profoundly and defiantly un-conservative--in its ideas, arguments, strategies, and above all its vision.



What passes for conservatism today would have been incomprehensible to its originator, Edmund Burke, who, in the late eighteenth century, set forth the principles by which governments might nurture the "organic" unity that bound a people together even in times of revolutionary upheaval. Burke's conservatism was based not on a particular set of ideological principles but rather on distrust of all ideologies. In his most celebrated writings, his denunciation of the French Revolution and its English champions, Burke did not seek to justify the ancien regime and its many inequities. Nor did he propose a counter-ideology. Instead he warned against the destabilizing perils of revolutionary politics, beginning with its totalizing nostrums. Robespierre and Danton, the movement ideologues of their day, were inflamed with the Enlightenment vision of the ideal civilization and sacrificed to its abstractions the established traditions and institutions of what Burke called "civil society." They placed an idea of the perfect society over and above the need to improve society as it really existed.

At the same time, Burke recognized that governments were obligated to use their powers to meliorate intolerable conditions. He had, for example, supported the American Revolution because its architects, unlike the French rebels, had not sought to destroy the English government; on the contrary, they petitioned for just representation within it. Had King George III complied, he would have strengthened, not weakened, the Crown and Parliament. Instead, he had inflexibly clung to the hard line and so shared responsibility for the Americans' revolt. "A state without the means of some change is without the means of its conservation," Burke warned. The task of the statesman was to maintain equilibrium between "[t]he two principles of conservation and correction." Governance was a perpetual act of compromise--"sometimes between good and evil, and sometimes between evil and evil." In such a scheme there is no useful place for the either/or of ideological purism.

The story of postwar American conservatism is best understood as a continual replay of a single long-standing debate. On one side are those who have upheld the Burkean ideal of replenishing civil society by adjusting to changing conditions. On the other are those committed to a revanchist counterrevolution, the restoration of America's pre-welfare state ancien regime. And, time and again, the counterrevolutionaries have won. The result is that modern American conservatism has dedicated itself not to fortifying and replenishing civil society but rather to weakening it through a politics of civil warfare.

How did this happen? One reason is that the most intellectually sophisticated founders of postwar conservatism were in many instances ex-Marxists, who moved from left to right but remained persuaded that they were living in revolutionary times and so retained their absolutist fervor. In place of the Marxist dialectic they formulated a Manichaean politics of good and evil, still with us today, and their strategy was to build a movement based on organizing cultural antagonisms. Many have observed that movement politics most clearly defines itself not by what it yearns to conserve but by what it longs to destroy--"statist" social programs; "socialized medicine"; "big labor"; "activist" Supreme Court justices, the "media elite"; "tenured radicals" on university faculties; "experts" in and out of government.

But, if it's clear what the right is against, what exactly has it been for? This question has haunted the movement from its inception in the 1950s, when its principal objective was to undo the New Deal and reinstate the laissez-faire Republicanism of the 1920s. This backward-looking program mystified one leading conservative. Whittaker Chambers, a repentant ex-communist, had passed through a brief counterrevolutionary phase but then, in his last years, had gravitated toward a genuinely classic conservatism. He distilled his thinking in a remarkable sequence of letters written from the self-imposed exile of his Maryland farm, and sent to a young admirer, William F. Buckley Jr. When their relationship began, Buckley--a self-described "radical conservative"--was assembling the group of thinkers and writers who would form the core of National Review, a journal conceived to contest the "liberal monopolists of 'public opinion.'" Buckley was especially keen to recruit Chambers. But Chambers turned him down. He sympathized with the magazine's opposition to increasingly centralized government, but, in practical terms, he believed challenging it was futile. It was evident that New Deal economics had become the basis for governing in postwar America, and the right had no plausible choice but to accept this fact--not because liberals were all-powerful (as some on the right believed) but rather because what the right called "statism" looked very much like a Burkean "correction."

Chambers witnessed the popular demand for the New Deal firsthand. He raised milch cattle, and his neighbors were farmers. Most were archconservative, even reactionary. They had sent the segregationist Democrat Millard Tydings to the Senate, and then, when Tydings had opposed McCarthy's Red-hunting investigations, they had voted him out of office. They were also sworn enemies of programs like FDR's Agricultural Adjustment Act, which tried to offset the volatility of markets by controlling crop yields and fixing prices. Some had even been indicted for refusing to allow farm officials to inspect their crops. Nonetheless, Chambers observed, his typical neighbor happily accepted federal subsidies. In other words, the farmers wanted it both ways. They wanted the freedom to grow as much as they could, even though it was against their best interests. But they also expected the government to bail them out in difficult times. In sum, "the farmers are signing for a socialist agriculture with their feet."


To Chambers, an avid student of history, this trend toward government reliance was a function of the unstoppable rise of industrial capitalism and the new technology it had brought forth. Chambers put the matter bluntly: "The machine has made the economy socialistic." And the right had better adjust. "A conservatism that will not accept this situation, he wrote, "is not a political force, or even a twitch: it has become a literary whimsy." It might well be "the duty of intellectuals ... to preach reaction," but only "from an absolute, an ideal standpoint. It is for books and posterity. It does not bear on tactics or daily life. ... Those who remain in the world, if they will not surrender on its terms, must maneuver within its terms. That is what conservatives must decide: how much to give in order to survive at all; how much to give in order not to give up the basic principles."

It sounded like Burke, though Chambers occupied what he called "the Beaconsfield position," a reference to the Earl of Beaconsfield--a.k.a. Benjamin Disraeli, after Burke the second great figure in classic conservatism. In his long career, which spanned most of the nineteenth century, Disraeli advocated "just, necessary, expedient" policies--that is, the policies the public demanded even when they contradicted his own ideological certitudes. Disraeli conceived this approach during the Industrial Revolution, which had caused a serious rupture in England's social structure and also in its politics, as a rising class of capitalists began to accumulate vast wealth and demanded more say, via voting reform, in a government still dominated by the Crown and landed aristocrats. At first, Disraeli favored the status quo because he believed that the monarchy bound different classes together and that centuries of feudal obligation had instilled in the nobility a deep sense of responsibility to the poor, who were most vulnerable to exploitation in the industrialists' factories and workhouses. But, ultimately, Disraeli realized the futility of this argument. As a statesman, he became an innovative reformer, partly to outflank the Liberals, partly to keep the Conservative party viable in a time of dynamic upheaval, but also because he came to see that, in the modern age, conservatism required an activist government that guarded the interests and needs of the entire population.

Chambers was not alone in seeing a divide between classic conservative thought and the polarizing politics of the movement. Indeed he seems to have been influenced by "The Politics of Nostalgia," an essay by Arthur Schlesinger Jr. published in June 1955, five months before the first issue of National Review appeared. Schlesinger's subject was the unexpected rise of "conservatism as a respectable social philosophy" in the postwar period. One book in particular, Russell Kirk's The Conservative Mind, a sumptuously written survey of the classic Anglo-American tradition of the eighteenth and nineteenth centuries, had attracted much attention. But, Schlesinger noted, there was a strange disconnect. Kirk and others genuinely revered traditional conservatism. And yet, once "they leave the stately field of rhetoric and get down to actual issues of social policy, they tend quietly to forget about Burke and Disraeli and to adopt the views of the American business community." Kirk, for example, denounced federally sponsored school lunch programs as a "vehicle for totalitarianism" and Social Security as a form of "remorseless collectivism."


Where in this, Schlesinger asked, was even a hint of classic conservatism, with its concern for the social and moral costs of unchecked industrial capitalism?

Disraeli with his legislation on behalf of trade unions, his demand for government intervention to improve working conditions, his belief in due process and civil freedom, his support for the extension of suffrage, his insistence on the principle of compulsory education! If there is anything in contemporary America that might win the instant sympathy of men like Shaftesbury and Disraeli, it could well be the school lunch program. But for all his talk of mutual responsibility and the organic character of society, Professor Kirk, when he gets down to cases, tends to become a roaring Manchester liberal of the Herbert Hoover school.

For years to come, this paradox would roil the right, which remained split between the Burkean politics of realistic adjustment and the revanchist politics of counterrevolution. The realist Chambers, agreeing at last to write for National Review, clung to the Beaconsfield position. He supported the Eisenhower administration's negotiations with the Soviets, defended civil liberties, praised the writings of John Kenneth Galbraith. Another realist, Garry Wills, National Review's wunderkind in the 1950s and early '60s, urged a consensus conservatism that "can give the practical art of politics a combination of flexibility and stability" and also "seek 'the common good,' not as some ideal scheme of order, or quantitative accumulation of individual goods, but as the real life of the 'commonality,' of community in all its enriching forms." By contrast, the revanchist (and ex-Trotskyist) Willmoore Kendall--a mentor to both Buckley and Wills--advocated a contemporary politics waged in military terms, "a line of battle between two sets of combatants, each fighting to defeat the other ... there is a battle in progress, even a war in progress."

At first these debates were intellectual sideshows, with no overt connection to the actual politics of the time. The 1950s and early '60s were the apex of bipartisan consensus. No matter who was in office, whether it was the tightfisted Eisenhower or the free-spending Kennedy and Johnson, government inexorably expanded, driven by the twin engines of what Eisenhower called the "military-industrial complex" and a booming post-industrial economy that made it possible to improve conditions for the mass of citizens. But, by the late '60s, the situation had changed. Social disruptions similar to the kinds Burke and Disraeli had experienced had come to America. A "communications revolution" created a culture of continual novelty. And the Vietnam quagmire, combined with a civil rights movement shifting from hope to frustration, undermined the authority of the Democratic Party and its current version of New Deal liberalism. The same policymakers who conceived and executed New Frontier and Great Society programs, from the Peace Corps and Vista to the War on Poverty, were helpless to manage a politics of countercultural protest--from the Berkeley Free Speech Movement to the March on the Pentagon to riots in Watts and Detroit. The most conspicuous energies flowed outside the bounds of organized government and normative society and, in many instances, against them both.

Conditions were ripe for a resurgent conservatism predicated on reasserting the values of institutional stability. One who saw this was Buckley, whose politics had steadily matured. In 1968, a cataclysmic year in which two political assassinations and a series of riots made it seem that the country might actually descend into anarchy, Buckley, writing in explicitly Burkean terms, affirmed the need to maintain social order, even if it meant preserving the welfare state. Weeks before the two national conventions were held (each eclipsed by a riot), Buckley wrote a column based on a remark Gerry Bush, a young operative in Hubert Humphrey's campaign, had made to a British journalist. "We can win the election in November," he had said, "but then can we govern the country?" Buckley interviewed Bush and reported that Bush's "stated worries were by no means confined to the difficulties that a Humphrey administration would have in governing the country. He meant that the serious question has arisen: Can anyone govern the country?"

Buckley had begun to give serious thought to Chambers's equation: "how much to give in order not to give up the basic principles." The reason was a rapid sequence of election campaigns--Goldwater's for president in 1964, Buckley's own for mayor of New York City in 1965, and Reagan's election as governor of California in 1966. Each episode had reinforced a political home truth: The right had a chance of prevailing, but only if it attracted the broad base of voters who were non-ideological and, in some cases, not even attached to either major party. To attract these voters in the middle, the GOP had to acknowledge that most were as dependent on big government as Chambers's Maryland neighbors had been. What was more, amid the upheavals of the '60s citizens wanted government--specifically the federal government--to exert the authority Burke and Disraeli had claimed for it. It made no sense for conservatives to attack "statism" when it was institutions of "the State" that formed the bedrock of civil society. In 1967, when Reagan, soon after his election, was being accused of having sold out his anti-government principles--not least because he had submitted the highest budget in state history--Buckley wondered what exactly critics expected Reagan to do, "padlock the state treasury and give speeches on the Liberty amendment?"




It was this new sophistication that propelled modern American conservatism to the heights it reached in 1965-1975, its peak period as an intellectual force. In those years, The Public Interest came into existence, with its rigorously nonpartisan policy analysis; Commentary published searching essays by writers left (Richard Goodwin), right (Jeane Kirkpatrick), and center (Daniel Patrick Moynihan); National Review published Wills and Joan Didion along with bracing columns by Buckley (who proposed, in 1969, that the country would benefit from the election of a black president), James Burnham, and Frank Meyer. The period's two most prescient political books--Wills's Nixon Agonistes and Kevin Phillips's The Emerging Republican Majority--were shaped in the crucible of the right, and drew on its vocabulary, but were exercises in analysis, not in polemics. Sifting through the 1968 election, Wills concluded: "The liberal Eastern Establishment found it was not needed on election day--which made its leaders take a second look at the Forgotten American, at an angry baffled middle class that, paying the bill for progress, found its values mocked by spokesmen for that progress. These voters felt cheated, disregarded, robbed of respect; and unless their support could be reenlisted, the Establishment's brand of liberalism would perish as a political force."

Phillips, meanwhile, was one of several thinkers who examined a crucial distinction between the New Deal and the Great Society. The first had been a response to an economic emergency. A fearful public had been clamoring for help, and the government had met it responsibly. But the Great Society was developed at a time of supreme confidence among the governing class, who were convinced they could preemptively cure ills invisible to others. Policy intellectuals had moved ahead of the public--perhaps too far ahead. The "war on poverty was not declared at the behest of the poor," Moynihan wrote in the first issue of The Public Interest in 1965. "Just the opposite. The poor were not only invisible .. . they were also silent." Coal miners in the Appalachians, the first targeted beneficiaries, "were desperately poor, shockingly unemployed, but neither radical nor in any significant way restive." The radicalism, such as it was, originated inside the Beltway. Once the program got under way, there was "little involvement from the workers themselves."

As liberals unwittingly squeezed themselves into the stereotypes conservatives had invented, conservative intellectuals began to look like prophets for identifying a self-appointed "managerial elite" (Burnham's term from 1941) that was leading a "liberal revolution" (Kendall's, from 1963). The poor--believers in the American dream, content to struggle upward on their own--had become "a project" for technocrats intoxicated with nostalgie de la boue. In his book Maximum Feasible Misunderstanding, Moynihan--disillusioned with the programs he helped instate--ridiculed the pretensions of social scientists, "who love poor people [and] ... get along fine with rich people" but "do not have much time for the people in between." "In particular," he wrote, "they would appear to have but little sympathy with the desire for order, and anxiety about change, that are commonly encountered among working-class and lower middle-class persons. The privileged children of the upper middle classes more and more devoted themselves, in the name of helping the oppressed, to outraging the people in between." The absurdities of "social engineering" became sport for observers like Tom Wolfe, who satirized their excesses in Mau-mauing the Flak Catchers: "So the poverty professionals were always on the lookout for the bad-acting dudes who were the 'real leaders,' the 'natural leaders,' the 'charismatic figures,' in the ghetto jungle."

This liberal overreach combined with the right's new sophistication promised a new period in U.S. politics, one in which conservatives, fortified by Burkean principles, might emerge as the most articulate voices of "civil society," separating out the strands of true reform, which drew on inherited values, from "liberal-left" attempts to make those values extinct. Perhaps the Great Society could be retooled, tamed into a legitimate extension of the New Deal. But, to accomplish this, the right would have to deal honestly with capitalism and its many ambiguities.

In 1958, Chambers had declared (following Disraeli): "Conservatism is alien to the very nature of capitalism whose love of life and growth is perpetual change. We are living in one of its periods of breathless acceleration of change." This contradiction and others animated "Capitalism Today," a special issue of The Public Interest published in 1970. In an ambitious essay, Daniel Bell wrote that capitalism was transforming society and that "the corporate class," America's most powerful, had "abdicated" its obligation to reconcile its modernizing impulses with traditional values and so bore some responsibility for a contemporary culture in which "antinomianism and anti-institutionalism ruled." Writing in the same issue, Irving Kristol lauded two intellectuals of the industrial era, Matthew Arnold and Herbert Croly--both "liberal reformer[s] with essentially conservative goals." Arnold, Disraeli's contemporary, had deplored the philistinism of the business elite, its complacent indifference to humanism and the arts, while Croly, in his book The Promise of American Life, had exposed the emptiness of free-market liturgy and its corollary belief that moral and social benefits could be achieved "merely by liberating the enlightened self-enterprise of the American people." Kristol himself lamented "the ideological barrenness of the liberal and conservative creeds" and said that what America needed was a "combination of the reforming spirit with the conservative ideal."

In retrospect, two horrific events, Vietnam and Watergate, crowd out all other memories of the early 1970s. But the decade began with the promise of a mature conservatism. Richard Nixon, who took office as a credentialed anticommunist, had the authority to orchestrate a quick end to the Vietnam war, something voters clearly wanted. The civil disruptions that had plagued the late '60s also seemed soluble since the increasing militancy of the protest movements (the Weathermen, the Black Panthers) had tried the public's patience and created the demand for a return to civil society and respect for its governing institutions. Nixon, a protege of the moderate Eisenhower but also the prosecutor of Alger Hiss, seemed well equipped to combine "the reforming spirit with the conservative ideal." And his presidency initially seemed to pursue this objective. In 1969, Kevin Phillips, the most gifted strategist in Nixon's first campaign, recognized the need for Burkean compromise. Since "the emerging Republican majority," as Phillips called it, was sure to be built on the party's cooptation of Southern conservatives and on the frustrations of restive white ethnics, some of whom were attracted to the provocations of the segregationist George Wallace, it was all the more important that "Democratic liberalism" remain "a vital and creative force in modern politics ... injecting a needed leavening of humanism into the middle-class realpolitik of the new Republican coalition."

Of course it didn't happen. Why not? A big reason was Nixon himself. Rather than reconciling the two strains of conservatism, he played them against each other, sometimes strategically, sometimes cynically, sometimes paranoically, always chaotically. He perpetuated civil rights initiatives in the North, but then tried to appease white Southerners with archconservative Supreme Court appointees. Even as Nixon's most inspired cabinet choice, Moynihan, proposed a dramatic program for transferring cash directly to the poor, Nixon planted Donald Rumsfeld in the Office of Economic Opportunity, with instructions to dismantle it. In foreign policy, Nixon sent equally mixed messages. His overtures to the Soviet Union and China angered the right; his secret bombing of Cambodia inflamed the left. His legacy would be "the politics of polarization."

The polarization climaxed with Watergate. That cluster of White House crimes, once uncovered and prosecuted, gave conservatives the ideal occasion to reassert their role as guardians of social order. It was, after all, conservatives--most notably Burnham in Congress and the American Tradition--who had been inveighing for years against the destabilizing dangers of overreaching "Caesarist" presidents. Burnham was incensed when Nixon invoked "executive privilege" to evade congressional inquiry into "[t]he shoddy little trail of this pipsqueak Watergate business."


But the new generation of movement intellectuals interpreted Watergate differently. Just as liberals suspicious of Bill Clinton rallied around him during his impeachment, so Nixon's critics on the right defended him during Watergate. The true culprit, they decided, wasn't Nixon. It was the dark liberal forces arrayed against him. A "long term change in the equation of political power," Jeffrey Hart theorized in National Review, had placed the president at the mercy of "the federal bureaucracy," which, "though nominally part of the 'executive branch,' actually operates with considerable autonomy." But this "long term" change appeared to have happened overnight, with the election of the first president who had ties to the right. Hart also identified a second culprit, the "liberal-left bias of the major media."

The argument that political power emanated from an alliance of liberal government bureaucrats and a sympathetic press became the favored theme in the movement's next phase, elaborated in neopopulist books like Phillips's Mediacracy, Patrick J. Buchanan's Conservative Votes, Liberal Victories, and William A. Rusher's The Making of a New Majority. In assessing the burgeoning literature of "New Right" ideology, Jeane Kirkpatrick detected a unifying set of beliefs she found delusional:

Among these are the idea that there exists in the electorate a hidden conservative majority; that the social division with the greatest potential political significance is not that between "haves" and "have-nots" but between the liberal elite and everybody else; that a realignment of the parties into two ideologically homogeneous groups is both desirable and likely; that the Republican party may not prove an effective institutional channel for the expression of truly conservative politics and should perhaps be abandoned; and that the principal obstacles to the conservative cause are the nation's media monopolies through whose "distorting lens" is filtered "almost every scrap of information Americans receive of their national government, its programs, policies, and personalities."

It was back to civil war, with some of the most intense skirmishes waged inside the GOP. Buchanan and Rusher, in particular, "were offended by the continuing presence in the Republican Party of a liberal minority which, ideologically speaking, belonged on the other side," Kirkpatrick noted. So preoccupied with doctrinal purity, however, New Right analysts missed the real meaning of the country's rightward drift, which had almost nothing to do with movement ideology. It was true that "a large majority of American adults are conservative," Kirkpatrick acknowledged, but in the classic, not movement sense, since "they are attached to the existing society and will support it against challenges to its legitimacy."

The Burkean moment was dissipating, and not only because of New Right populists. In 1975, the same year Phillips's, Buchanan's, and Rusher's manifestos all were published, Irving Kristol, the onetime elegist of the non-ideological "reforming spirit," identified a "new class" of liberal enemies. They were "not much interested in money but are keenly interested in power," Kristol wrote. "Power for what? Well, the power to shape our civilization--a power, which, in a capitalist system, is supposed to reside in the free market. The 'new class' wants to see much of this power redistributed to government, where they will then have a major say in how it is exercised." And who, exactly, populated this new class? "[S]cientists, teachers and educational administrators, journalists and others in the communication industries, psychologists, social workers, those lawyers and doctors who make their careers in the expanding public sector, city planners, the staffs of the larger foundations, the upper levels of the government bureaucracy."

This formulation mirrored "the antinomianism and anti-institutionalism" Bell had attributed to the countercultural left. The right, it appeared, was nursing its own version of anti-Americanism. In fact, it had been festering for many years. As Garry Wills, who broke with the movement in the 1970s but continued to call himself a conservative, observed: "The right wing in America is stuck with the paradox of holding a philosophy of 'conserving' an actual order it does not want to conserve."

The attack on the "new class," rooted in cultural hostility, dominated movement conservatism for the next 30 years, up through the administration of George W. Bush. On one side, as Rusher described it, were "businessmen, manufacturers, hard-hats, blue-collar workers, and farmers." On the other: "a liberal verbalist elite (the dominant media, the major foundations and research institutions, the educational establishment, the federal and state bureaucracies) and a semipermanent welfare constituency."

The great tribune of this new polarity was Ronald Reagan, with his denunciations of "big government" and the Cadillac-driving "welfare queens" it supported and his devotion (with urging from Kristol) to supply-side economics. The New Right was not only anti-Burkean. For all its populist enthusiasms, it reached back to the plutocratic Old Right of the Depression years, when businessmen had opposed federal assistance to the jobless because (as William E. Leuchtenburg summarized the argument in his book The Perils of Prosperity) "the suffering of the unemployed was not the product of an economic breakdown but was the direct result of their moral infirmity."

As Reagan's first term approached its end, it "has achieved as yet hardly anything in bringing the most rapidly growing domestic programs under control," Nathan Glazer concluded, after examining the available budget data. There was a reason nothing was done: The untouched programs benefited the "Reagan Democrats" who had been wooed in 1980 with the pledge that "insurance programs" like Social Security and Medicare would not be touched. The boom had been lowered in only one place: "The advocates of the poor play no role in this administration," Glazer found. "From this fact one can conclude that a certain blindness to their problems at best, and a positive malice at worst, animates the administration's policies." So much for the Beaconsfield position.


With Reagan, the argument between realism and revanchism all but ended. The revanchists had won. They consolidated their power during the 1990s when Republicans spent the better part of Bill Clinton's two terms trying to delegitimize him, even as he collaborated with them "to end welfare as we know it." The movement's new Danton, Newt Gingrich, who became speaker of the House in 1995, proposed "reforms"--"term limits" for representatives, the purging of moderates from committee chairmanships--that would have mystified conservative thinkers, such as Burnham and Kendall, who had contended that Congress's strength derived in large part from its institutional traditions.

The right, which for so long had deplored the politics of "class warfare," had become the most adept practitioners of that same politics. They had not only abandoned Burke. They had become inverse Marxists, placing loyalty to the movement--the Reagan Revolution--above their civic responsibilities. In 1995, the time of Gingrich's ascendancy, Kristol buoyantly spelled out the terms of revanchist strategy: "American conservatism is a movement, a popular movement, not a faction within any political party. Though, inevitably, most conservatives vote Republican, they are not party loyalists and the party has to woo them to win votes. This movement is issue oriented. It will happily meld with the Republican party if the party is 'right' on the issues; if not, it will walk away." By this calculus, all the obligations flow in only one direction. Parties are accountable to movement purists, while purists incur no reciprocal debt. They determine the "right" position, and the party's job is to advance it. Kristol does not consider whether purists might be expected to maneuver at all or even to modify their views--for the good not only of the party but also the larger polity.

Kristol went on, in this essay, to extol the contributions of two movement subgroups, the neoconservatives and the evangelicals. It was of course this alliance that most fervently supported George W. Bush during his two terms and remains most loyal to him today.

By their lights, they are right to do so. Bush, so often labeled a traitor to conservative principles, was in fact more steadfastly devoted to them than any of his Republican predecessors--including Ronald Reagan. Few on the right acknowledge this today, for obvious reasons. But not so long ago many did. At his peak, following September 11, Bush commanded the loyalties of every major faction of the Republican Party. The big central domestic proposal of his first term, the $1.3 trillion tax cut, extended Reagan's massive "tax reform" from the 1980s. Shortly before the Iraq invasion, Martin Anderson, Reagan's top domestic policy adviser, told Bill Keller (writing in The New York Times Magazine) that Bush was unmistakably Reagan's heir. "On taxes, on education, it was the same. On Social Security, Bush's position was exactly what Reagan always wanted and talked about in the '70s," Anderson said. "I just can't think of any major policy issue on which Bush was different." The prime initiative of Bush's second term, the attempt to privatize Social Security, drew directly on movement scripture: Milton Friedman denounced the "compulsory annuities" of Social Security in Capitalism and Freedom. Buckley noted the advantages of "voluntary" accounts in his early manifesto, Up From Liberalism. So did Barry Goldwater during his presidential campaign in 1964. Bush went further than Reagan, too, in the war he waged against the federal bureaucracy. And his attacks on the "liberal-left bias of the major media" were the most aggressive since Nixon's.

And then there was Iraq, the event that shaped Bush's presidency and, by most accounts, brought both him and the movement to ruin. It was also the event most at odds with classic conservative thinking. It is customary even now to say that the architects of the Iraq occupation failed because they naively placed too much faith in democracy. In fact, the problem was just the opposite. So contemptuous of the actual requirements of civil society at home, Bush's war planners gave no serious thought to how difficult it might be to create such a society in a distant land with a vastly different history. Those within the administration who tried to make this case were marginalized or removed from power.

In one of his prescient early writings, The Vindication of the English Constitution, a pamphlet published in 1835, the very young Disraeli reviewed the parallel democratizing experiments of his own time. In every nation where democracy had flourished, Disraeli observed, the rule of law was already embedded in social custom. This was why America had easily made the transition from a colonial protectorate to an independent constitutional society, while South American nations had not. Democracy was the fruit, not the precondition, of civil order. "Political institutions, founded on abstract rights and principles, are mere nullities," Disraeli wrote. Europe, too, had its pre-democratic places where "a comparative civilisation had been obtained under the influence of a despotic priesthood. And these are the regions to which it is thought fit suddenly to apply the institutions which regulate the civil life of Yorkshire and of Kent!"

In the end, movement conservatives got the war they wanted--both at home and abroad. It ended, at last, with the 2008 election, and the emergence of a president who seems more thoroughly steeped in the principles of Burkean conservatism than any significant thinker or political figure on the right.

What our politics has consistently demanded of its leaders, if they are to ascend to the status of disinterested statesmen, is not the assertion but rather the renunciation of ideology. And the only ideology one can meaningfully renounce is one's own. Liberals did this a generation ago when they shed the programmatic "New Politics" of the left and embraced instead a broad majoritarianism. Now it is time for conservatives to repudiate movement politics and recover their honorable intellectual and political tradition. At its best, conservatism has served the vital function of clarifying our shared connection to the past and of giving articulate voice to the normative beliefs Americans have striven to maintain even in the worst of times. There remains in our politics a place for an authentic conservatism--a conservatism that seeks not to destroy but to conserve.

Sam Tanenhaus is editor of The New York Times Book Review and Week in Review and is at work on a biography of William F. Buckley Jr.

Conservative Criticism of Stimulus Spending

http://www.heritage.org/research/economy/upload/Heritage_stimulus_spending_2_11.pdf

February 11, 2009
It ain't over 'til it's over: Two Wrongs Don't Make a Recovery
by heritage.org
Fact Sheet #6

Economists Do Not All Agree

200 and Growing: The Obama Administration has claimed that virtually all economists support their approach to "stimulus" spending. Nobel Laureates Ed Prescott, James Buchanan, and Vernon Smith recently joined 200 other economists signing a letter opposing the legislation.
Even the CBO: When their own budget office says, "In the longer run, the legislation would result in a slight decrease in gross domestic product (GDP) compared with CBO's baseline economic forecast," Congress has a problem.
Even the President's Advisors: Council of Economic Advisors Chairwoman Christina Romer wrote, "Countercyclical fiscal policy is not achieving its intended purpose." Economic advisor Jason Furman said, "In the past, infrastructure projects that were initiated as the economy started to weaken did not involve substantial amounts of spending until after the economy had recovered."
Even Larry Summers:Last year, the National Economic Council Director wrote, "Poorly provided fiscal stimulus can have worse side effects than the disease that is to be cured.... Fiscal stimulus, to be maximally effective, must be clearly and credibly temporary--with no significant adverse impact on the deficit for more than a year or so after implementation. Otherwise it risks being counter-productive by raising the spectre of enlarged future deficits pushing up longer-term interest rates and undermining confidence and longer-term growth prospects."
Even Peter Orszag: The President's budget director oversaw a 2008 CBO report stating, "Large-scale construction projects of any type require years of planning and preparation. Even those that are 'on the shelf' generally cannot be undertaken quickly enough to provide timely stimulus to the economy."
Experts Do Not All Agree

Protecting Spending: The price of this spending bill, including interest, is currently $1.16 trillion. Under President Bush, America racked up $3.3 trillion dollars in deficits between 2002 and 2009, including the full cost of TARP and '09 spending. At his current pace, President Obama is projected to be responsible for $8.4 trillion in deficits if he has a two-term presidency.
Protecting Welfare: Aside from creating $787 billion in extra welfare costs, both versions of the "stimulus" bill would abolish the historic welfare reform of the mid-1990's that led to a dramatic reduction in welfare dependency and child poverty.
Not Protecting Jobs: The President has said, "I think my initial measure of success is creating or saving 4 million jobs." How do you measure a job saved?
Not Protecting Religion: Both versions of the "stimulus" bill deliberately censor religious speech and worship on school campuses by prohibiting use of any "stimulus" funds for facilities that are used for sectarian instruction, religious worship, or a school of divinity.
Americans Do Not All Agree

62% of Americans Want Less Spending: According to a Rasmussen Poll released on Monday, 62% of Americans want the plan to include more tax cuts and less government spending.
Twice the Jobs at Half the Price

Check out Heritage ideas for providing twice the jobs at half the price at: http://www.heritage.org/news/economic-stimulus.cfm.

What would Ayn Rand do?

In the January 14, 2009 Free Exchange blog article "What would Ayn Rand do?," an Economist correspondent considers modern parallels to the novel Atlas Shrugged.

AYN RAND is rolling in her grave, according to Stephen Moore.

In ["Atlas Shrugged"], these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

I bet Hank Paulson never thought he’d find himself accused of being opposed to competition when he took this job. It reminds me of an ongoing debate I’ve been having with a friend from graduate school (in a secure academic job). She is also from eastern Europe and has seen her share of crisis and harmful government intervention. She maintains the whole mess will be over more quickly if we just let the weak banks fail. Propping them up merely prolongs the crisis because the market can not distinguish between good and bad banks. She reckons we should just deal with the short-term pain of some banks failing, firm bankruptcy, and job loss and move on when the market re-equilibrates. Her experience growing up during communism speaks louder to her than lessons from the Great Depression.

Normally, and I never imagined I would feel differently, I’d agree with my friend and the John Galt-ites. But these are not ordinary times. The problem is that we’ve reached a point of market failure and uncertainty. It's impossible to tell who the weak banks are. No one involved wants to admit it now, but the justification at the time for not bailing out Lehman was at least partly based on these market principles. This caused widespread panic, and it looked as though a total banking collapse would take place absent a government guarantee. No one knows what the assets they have on their balance sheets are worth. This means there is no lending when there should be; firms who in any functioning market would get credit are left in the lurch.

I am all for market discipline, I would even argue that market distortions from the meddling government sowed the seeds of this crisis. That may be why we need intervention to get out of it. Unfortunately, that means firms, and entire industries, who have no business getting government money are going to receive cheques. But, as Ben Bernanke says (a man who also probably never saw himself on this side of government), "There are no atheists in foxholes and no idealogues in financial crises."

'Atlas Shrugged': From Fiction to Fact in 52 Years

In the January 9, 2009 Wall Street Journal editorial "'Atlas Shrugged': From Fiction to Fact in 52 Years," Stephen Moore argues the events foretold in Ayn Rand's 1957 novel are becoming a reality.

Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.

Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.

Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most influential book in their lives, behind only the Bible.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

When Rand was writing in the 1950s, one of the pillars of American industrial might was the railroads. In her novel the railroad owner, Dagny Taggart, an enterprising industrialist, has a FedEx-like vision for expansion and first-rate service by rail. But she is continuously badgered, cajoled, taxed, ruled and regulated -- always in the public interest -- into bankruptcy. Sound far-fetched? On the day I sat down to write this ode to "Atlas," a Wall Street Journal headline blared: "Rail Shippers Ask Congress to Regulate Freight Prices."

In one chapter of the book, an entrepreneur invents a new miracle metal -- stronger but lighter than steel. The government immediately appropriates the invention in "the public good." The politicians demand that the metal inventor come to Washington and sign over ownership of his invention or lose everything.

The scene is eerily similar to an event late last year when six bank presidents were summoned by Treasury Secretary Hank Paulson to Washington, and then shuttled into a conference room and told, in effect, that they could not leave until they collectively signed a document handing over percentages of their future profits to the government. The Treasury folks insisted that this shakedown, too, was all in "the public interest."

Ultimately, "Atlas Shrugged" is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand's political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear -- leaving everyone the poorer.

One memorable moment in "Atlas" occurs near the very end, when the economy has been rendered comatose by all the great economic minds in Washington. Finally, and out of desperation, the politicians come to the heroic businessman John Galt (who has resisted their assault on capitalism) and beg him to help them get the economy back on track. The discussion sounds much like what would happen today:

Galt: "You want me to be Economic Dictator?"

Mr. Thompson: "Yes!"

"And you'll obey any order I give?"

"Implicitly!"

"Then start by abolishing all income taxes."

"Oh no!" screamed Mr. Thompson, leaping to his feet. "We couldn't do that . . . How would we pay government employees?"

"Fire your government employees."

"Oh, no!"

Abolishing the income tax. Now that really would be a genuine economic stimulus. But Mr. Obama and the Democrats in Washington want to do the opposite: to raise the income tax "for purposes of fairness" as Barack Obama puts it.

David Kelley, the president of the Atlas Society, which is dedicated to promoting Rand's ideas, explains that "the older the book gets, the more timely its message." He tells me that there are plans to make "Atlas Shrugged" into a major motion picture -- it is the only classic novel of recent decades that was never made into a movie. "We don't need to make a movie out of the book," Mr. Kelley jokes. "We are living it right now."

Mr. Moore is senior economics writer for The Wall Street Journal editorial page.

Economic Thought - Topics

Introduction to Economic Thought

Economic Thought Can Be Divided Into Four Broad Categories¹:

I. PRECLASSICAL ECONOMIC THOUGHT

Early Preclassical Economic Thought

Greek Thought
Hesiod
Xenophon
Aristotle

Arab-Islamic Thought
Abu Hamid al-Ghazali
Ibn Khaldun

Scholasticism
The Feudal Foundation of Scholastic Thought
St. Thomas Aquinas

Precursors of Classical Economic Thought

Mercantilism

Thomas Mun

Gerard Malynes

Charles Davenant

Jean Baptiste Colbert

Sir William Petty

The Physiocratic School

Francois Quesnay

Anne Robert Jacques Turgot

Other Forerunners

Bernard Mandeville

Sir Dudley North

David Hume

Richard Cantillon

Spanish Economic Thought

II. CLASSICAL ECONOMIC THOUGHT & ITS CRITICS

Adam Smith (1723-1790)

The Theory of Moral Sentiments

An Inquiry Into the Nature and Causes of the Wealth of Nations

Thomas Robert Malthus (1766-1834)

Population Theory

Theory of Market Gluts

David Ricardo (1772-1823)

Currency Question

Theory of Diminishing Returns and Rent

Theory of Exchange Value and Relative Prices

Distribution of Income

Ricardian Equivalence Theorem

Unemployment

Other Classical Economists

Jeremy Bentham

Jean-Baptiste Say

Nassau William Senior

John Stuart Mill

Socialist Thought

Henri Comte de Saint-Simon

Charles Fourier

Simonde de Sismondi

Robert Owen

Louis Blanc

Charles Kingsley

Karl Marx

German Historical School

Friedrich List

Wilhelm Roscher

Gustav Schmoller

Max Weber

III. NEOCLASSICAL ECONOMIC THOUGHT & ITS CRITICS

Forerunners of the Marginalist School

Antoine Augustin Cournot

Jules Dupuit

Johann Heinrich von Thünen

The Marginalist School

William Stanley Jevons

Carl Menger

Friedrich von Wieser

Eugen von Böhm-Bawerk

Francis Y. Edgeworth

John Bates Clark

The Neoclassical School

Alfred Marshall

Monetary Economics

John Gustav Knut Wicksell

Irving Fisher

Ralph George Hawtrey

Departures from Pure Competition

Piero Sraffa

Edward Hastings Chamberlin

Joan Robinson

Mathematical Economics

Léon Walras

Wassily Leontief

John von Neumann and Oskar Morgenstern

John R. Hicks

The Institutionalist School

Thorstein Bunde Veblen

Veblen Goods

Upward Sloping Demand Curves

Wesley Clair Mitchell

John Kenneth Galbraith

Welfare Economics

Vilfredo Pareto

Arthur Cecil Pigou

Ludwig von Mises

Oscar Lange

Kenneth Arrow

James M. Buchanan

Amartya Sen

John R. Commons

John A. Hobson

Austrian Economics

Ludwig von Mises

IV. MODERN ECONOMIC THOUGHT & ITS CRITICS

The Keynesian School

John Maynard Keynes

Alvin H. Hansen
Paul A. Samuelson

The Post-Keynesians

The New Keynesians

Economic Growth and Development

Sir Roy F. Harrod

Evsey Domar

Robert M. Solow

Joseph Alois Schumpeter

Ragnar Nurkse

W. Arthur Lewis

The Chicago School & New Classicism

Milton Friedman

Robert E. Lucas, Jr.

Gary Becker

Empirical Analysis

Heterodox Economic Thought

Radicals

Modern Institutionalists

Quasi-Institutionalists

Joseph Schumpeter

Gunnar Myrdal

John Kenneth Galbraith

Neoinstitutionalists

Post-Keynesians

Public Choice Advocates

Austrian Economics

¹These categorical divisions follow the convention established in a leading textbook in the field, History of Economic Thought, by Harry Landreth and David C. Colander.