The American Spectator

Whether with respect to America’s foreign policy or its economic policies, more and more conservatives find themselves agreeing with liberals that many of George W. Bush’s policies are wrongheaded and dangerous. This agreement was illustrated most dramatically last week in the U.S. House of Representatives when the left wing of the Democratic Party coalesced with the right wing of the Republican Party to defeat the Bush Administration’s bailout of Wall Street.

Conservatives and liberals alike were repulsed by the President’s effort to panic Congress and the American public into ceding him unprecedented power and tax dollars to reward Wall Street’s high rollers for their bad decisions. Conservatives were particularly appalled by the complete abandonment of prudence, common sense and free-market principles in the President’s proposal. Liberals found the idea of forcing the little guy on Main Street to bail out fat-cat bankers on Wall Street a total violation of everything for which the Democratic Party professes to stand.

The left/right coalition of opposition did not understand the true nature of the problem, however, and therefore could not effectively counter the hysterical assertion of the Administration and the Washington Establishment after the bailout’s defeat that “doing nothing is not an option.” Nor could Members in opposition conceive of a truly effective workout plan to substitute for the Establishment’s bailout proposal, offering instead bailout-lite alternatives in the form of loans and guarantees. Thus, by proclaiming that bailing out Wall Street was necessary to prevent economic devastation on Main Street, the Administration and the congressional leadership were able to peel away enough votes from the opposition coalition to pass a plan the Members did not like and did not believe would work.

Although there remains serious disagreement about what policies are necessary to solve the immediate banking crisis, there has emerged, ironically, an ill-conceived bipartisan consensus both about the causes of the financial crisis and the remedial policies that should be enacted to prevent its recurrence. This new consensus blames the financial crisis on lax government regulation and markets gone wild.

For example, during the first presidential debate, Senator John McCain said it was “regulatory agencies that weren’t doing their job that has brought on this crisis.” Governor Sarah Palin followed up in the vice presidential debate by blaming the crisis on predator lenders on Main Street, greed and corruption on Wall Street, and lax oversight out of Washington. Both McCain and Palin promised to punish greed and corruption with more oversight and regulation.

This new-found Washington consensus, while in perfect sync with traditional liberal views, illustrates the extent to which conservatives have lost their economic bearings. Markets do not spontaneously go wild, and there is no evidence that the human vices have become any more prevalent today than they were in the past to account for the crisis. There certainly was no lack of government regulation on the books.

THE REASON THE OPPOSITION COALITION fizzled out and the source of the muddle-headed Washington consensus stem from a failure to comprehend the true source of the problem — the debauching of the currency and the resulting boom/bust cycle of inflationary credit expansion followed by financial panic, which is inevitable under a central-bank-managed fiat currency. John Maynard Keynes said it best in 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”