Sphere (AOL News), January 26, 2010

(Jan. 26) – "You never want a serious crisis to go to waste."

That's what White House Chief of Staff Rahm Emanuel said in November 2008 to justify the incoming administration's bold policy proposals including, especially, health care reform.

In one sense, Emanuel was right. Generally speaking, in times of crisis the populace is more willing to accept, and in many cases demand, larger-than-normal reforms.

But he missed one important caveat, which helps explain the apparent demise of President Obama's health care reform effort, the ongoing trouble he's had with other top items on his agenda and the sharp decline in public support for the president.

In the wake of the November 2008 elections and in the midst of the worst economic crisis since the Great Depression, the Obama White House, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid began their drive to implement a series of sweeping measures. In addition to health care reform, they included regulation of carbon emissions through a nationwide cap-and-trade system, broad re-regulation of the financial services industry and a fairly large increase in federal government spending.

But the Democratic leadership, unfortunately, misread the economics of crisis and ignored examples from around the world.

A common characteristic of every successful reform undertaken in crisis is that it was aimed at solving the crisis at hand. For example, countries suffering from deficits and accumulating debt such as Canada, Ireland and New Zealand were able to implement sweeping fiscal reforms in order to balance their books. Britain was able to undertake large-scale privatizations of government-owned companies to combat high unemployment. Closer to home, President Reagan successfully implemented large across-the-board tax cuts to stimulate the economy out of recession in the early 1980s.

The Democrats' approach to reform, however, was almost entirely delinked from the current crisis, a recession predicated on financial collapse in 2008 and 2009. Indeed, the so-called stimulus bill had more to do with funding longstanding pet projects and initiatives of the Democrats in power than with solving the fundamental issues of the recession.

At the same time, the push for health reform and the cap-and-trade legislation markedly increased the uncertainties facing business, dampening their willingness to hire.

Would labor costs increase because of the health bill? Would energy and related costs increase because of cap and trade? Would business financing be altered because of the regulation of financial companies? With no answers to these profound questions, businesses faced even greater uncertainty than was already present. Their response was to sit on the sidelines and wait.

The general lesson here is that while citizens are clearly willing to accept more change in times of crisis, the changes pursued must focus on resolving the crisis.

The more specific lesson is that the Democratic Party has paid, and will continue to pay, a very high price for pursuing landmark legislation in health care, the environment, financial regulation and other areas that are distinctly detached from the immediate problems of a slow-growth economy and weak labor market.

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Jason Clemens is the director of research at the San Francisco-based Pacific Research Institute (http://www.pacificresearch.org/).