There is no doubt that the United States and much of the world are in perilous economic times. Sensing opportunity in crisis, many left-leaning politicians and experts, including President-elect Obama’s Chief of Staff, Rahm Emanuel, are calling for a potentially massive expansion of the state without explaining how such action will actually solve our current problems.
History shows that economic crises present opportunities for agents of change – from both sides of the political spectrum – to implement broader and more fundamental reforms than could be achieved under normal circumstances. President Ronald Reagan and British Prime Minister Margaret Thatcher implemented pro-market reforms in the late 1970s and early 1980s that ushered in three decades of prosperity.
Left-wing leaders have pushed their own brand of fundamental change during times of crisis. President Franklin Roosevelt’s New Deal programs marked a profound change in the role of the state and would never have passed were it not for the economic calamity then gripping the nation.
Fast forward to the present, and the result is the same. In the past few months, the federal government – though run by alleged proponents of the ‘free market” – has partially nationalized the financial market and now virtually controls the mortgage industry. The assumption of power would have been inconceivable just a year ago but was made possible because of the fear of economic collapse. Now people like Emanuel are arguing that “you never let a crisis go to waste,” indicating a plan for bold change given the crisis-based opportunity.
Politicians can make bold changes during a crisis because voters’ tolerance for risk shifts. Under normal circumstances, voters are somewhat risk-averse and will only accept minor changes on the margin if their leaders can sell them on the probable benefits.
But during emergencies such as the present financial crisis, voters don’t need to be convinced of change – they demand it. The only question is where that change will lead – in the direction of more markets or of statism.
Today, the debate has been monopolized by those in the statist camp. In their view, the only “realistic” argument is over how much new power the federal government should assume. As this debate unfolds, many on the left continue to trot out the same old proposals they’ve been championing for decades – without any real attention to whether they’d fix our economic problems.
For example, opinion leaders like Columbia University professor Jeffrey Sack and Washington Post business columnist Steven Pearlstein have argued for sizeable increases in the state in areas such as education and health care. But such reforms have little to do with the present crisis. Nobody can seriously argue that the financial sector is in shambles because kids can’t read or don’t have health insurance.
The real question facing the United States during this period of economic uncertainty was posed decades ago by Austrian economists Ludwig von Mises and Nobel laureate F.A. Hayek. Both scholars questioned the stability of a mixed, public-private economy. They presciently predicted that government interventions would fail to achieve their stated goals, leading the state to introduce ever-greater interventions to correct problems. We will see this pattern play out again if the Obama Administration attempts to micromanage markets.
A group of “experts” in Washington – no matter how smart, noble, and energetic – can’t possibly produce an outcome better than that in a decentralized market economy, in which millions of citizens make countless decisions each day based on their own rational self-interest. If the government can’t run Amtrak, the Post Office, or keep down costs in the Pentagon, how can Americans possibly expect politicians to reengineer gigantic financial firms and automobile companies?
To be sure, the present economic crisis demands leadership and extraordinary action from both government and the private sector. But it is precisely during times of vulnerability when free people are most tempted to give away their cherished liberties. Just as a store owner must be on guard during a natural disaster to protect his property from looters, so too must American citizens jealously protect their economic liberties in these troubled times.