I am going to keep this short. If it runs on too long, conditions are likely to change and the opening sentences of this blog may be outpaced by conditions on the ground.
A summary of the steps taken thus far to address our economic situation would likely be incomplete since it is highly likely that right now our policymakers are concocting another financial trick play. Imagine a schoolyard football game taking place in a marble hall rather than a sand lot. A game in which the players all wear Brooks Brothers suits and the plans are drawn up by the point and click of a mouse rather than in the dirt with a stick.
Paulson and Bernanke are loath to let a week (or sometimes even a few days) go by without unveiling and trying to implement some new tactic. They appear to be doing so in response to the incessant drumbeat from most corners of the populace to do something, anything. Even the previously unflappable President-Elect Obama has entered the fray this week (most likely to his detriment, and ours).
With every new policy prescription, press release, and public comment crafted to reassure a frightened public, it has become increasingly clear to me that government most likely will never be the answer to slumping economic growth nor will it be the mechanism to prevent these same circumstances from recurring in the future.
I realize that it is beyond fashionable and nearly mandatory for all members of the political-celebrity class to denigrate deregulation and frown upon free markets, but with a little reflection it would seem this anger is really misplaced. The fact of the matter is that since the Great Depression government intervention into the economic sector has increased, not decreased.
This increased presence has taken many forms. Taxation as a percentage of income, for instance, was about 12% in 1930. In 2008, it was about 31%. These numbers come from the Tax Foundation, click here for a link to the data.
The last 80 years have also seen a proliferation of law making. It is hard to quantify since it depends on what you count as a law, but I don't think anyone believes we are actually reducing and simplifying the rules that govern the US.
Also, look at how FDR's cabinet was about half the size of George W. Bush's cabinet. With much of the increase coming from the promotion to cabinet-level of the heads of various regulatory agencies which didn't even exist under FDR.
Then there are Fannie Mae & Freddie Mac. They were chartered then regulated by the federal government. That wasn't enough to keep them out of trouble so the government stepped in to bail them out. The fact that they haven't flourished under their latest incarnation should be a surprise to no one.
We've had Hoover trying to put chickens in our pots, a New Deal, a Fair Deal, crossed into a New Frontier, and created a Great Society. We even had President Ford try to whip inflation, as if it were some sort of playground bully. (I heard he waited by the White House flagpole until 3:30, but inflation never showed.)
One can try to tar the policies of Reagan, either Bush, or even some of Clinton's as being lax regulatorily. But a case for ours being a highly unregulated economy is simply not supported by the facts. It is almost indisputable that the last 80 years have constituted an increasingly complex interventionist regime and yet we still find ourselves in a state of financial crisis.
I'm reminded that at least once, insanity has been defined as doing the same thing over and over again but expecting different results. If that definition is correct, it is clear we have gone completely insane as a nation. At this point, I'm not sure what it will take to snap us out of it.