Know nothing party continues

Sighs

I don't recall that intellectually speaking, "conservatives" have ever done nothing in response to a recession. The problem is that they've sometimes done stupid things instead or suggested doing things that worked previous because conditions were different. Reagan's tax cuts worked because the tax code was overly complicated and too progressive when he came into office. (Of course he also had Volcker at war with inflation at the Fed, which helped in some long term ways but more over purposely created the early 80s recession he was dealing with in the first place). The same theory worked pretty well with the early 20s recession, again a recession with "conservatives" in charge. Harding and Coolidge cut taxes and simplified the tax structure. The post-war recession more or less corrected itself. Hoover by contrast decided that a major recession was caused by a financial shock and moved to restrict risk taking behaviors or high incomes by passing one of the largest tax increases in history (outside of wars). That's pretty dumb. And this was an economic conservative, supposedly.

The problem is that this useful lesson did not apply to most of the Bush years. Taxes were already very low by modern standards and at no point was a tax cut combined with a simplified tax code. If anything the tax code became more onerously complicated and the exploitation of it by the wealthy or higher income earners (and corporations) more pervasive. When cutting taxes is a political slogan or a mantra useful as a platitude rather than a policy choice with useful implications on the general economy, it's not very helpful. It suggests rather that the idea of an intellectual conservative is a dying element. In many matters I find this notion appealing. I share no particular bias toward past and long-standing institutions simply because they are there or that's the way people have always done things. But when something DID work and had useful effects, I see no particular reason to amend it or no particular evidence that a central planner (ie, experts) will always be able to do better. Sometimes they do, many times they fail because their focus is too small and uncomplicated for the task at hand or carries political calculations that burden the overall goal with complicated secondary issues (like maximizing employment). The market is pretty smart in that way when you let it ride on its own and very carefully tune it by providing some simple frameworks of rules and laws.

In most senses, the strain of libertarianism I find consistent (and appealing) recognizes not that small decentralized governments will better reflect local customs, which I often find odious or out of line with evidence to the contrary, but that small decentralized governments better restrain the ability of people to intercede on each others affairs unnecessarily and restrictively. That means on social issues I often get viewed as progressive and economically speaking I'm often a conservative. And therefore very annoyed at other conservatives who speak without knowing of what they say. Doing "nothing" is never a good idea, if only because of the behavioral implications (the paradox of thrift for example). Milton Friedman basically put forward a plan for something like a bailout, the sort of break open glass emergency case. Except it wasn't a fiscal stimulus being used. It was monetary policy. His essential argument is that capable and simple monetary tools would actually prevent the need for major fiscal injections of policy specifically for recessions, with all their accompanying utility and waste, in the first place. Politically speaking, fiscal stimulus is useful. Perhaps it has psychological impact for the behavior of consumers (if done correctly). But economically, it's almost always useless (capital or infrastructure investment done by governments is useful in the abstract, but this is not the same as a one-time stimulus bill and should be ongoing instead of a big chunk all at once).

This was quite true in the case of bank bailouts. They did not adequately address problems of moral hazard, we're still dealing with the concept of "too big to fail", and we're nowhere closer to having a banking neutral federal reserve policy. Ie, we don't particularly need to have a policy that favors Goldman Sachs or JP Morgan in particular (big banks) so much as have a policy that these banks will do well under while having to compete against other financial institutions. I see no particular problem with the theory of a monetary injection of capital or a quantitative easing to essentially create inflation at the outset of our economic woes. But that is a slightly different argument than one which simply hands off money to banks as a stop-gap loan as a matter of fiscal policy and doesn't provide any rationale for doing so (ie, banks must more or less loan it back out instead of prettying their balance sheets back up) while at the same time putting up a monetary policy which encourages banks to horde capital well above their reserve requirements. We have almost a trillion dollars sitting around as excess banking reserves right now, just sitting there while the fed pays interest points to it. One would think that having that money floating around in circulation over the past 6 months would have been a great help to the rest of us. Perhaps that might have meant a few larger banking institutions failed (Citi or AiG for instance) instead of a great number of small ones. To me this is no great loss. Most of that money would have been insured and ended up on the federal taxpayer's agenda as a temporary loss while it was redistributed to the market. But it also wouldn't have just been sitting there doing nothing for very long either.

So in short, there's an old and very effective piece of advice just sitting around being ignored that either 1) could have prevented a major financial shock in the first place or 2) would have ameliorated it without need for major government spending programs in the case of the financial sector. This plan has been studied by academics, appears to address the causes of major financial collapses (like the Depression) and even shown to work in practice (Australia is doing moderately well under it). But that plan was discarded because 1) the financial shock made it impossible to focus on the cause of the financial shock (it really wasn't the housing sector or even the complex derivative markets it spawned) and 2) fiscal stimulus is more fun and immediate for politicians and media than boring automatic market responses. The other reason appears to be that the actual conservative intellectuals had all died off and that made it impossible to actually propose something radically different that might actually work faster and smooth out future business cycles to boot. Instead the policy choices were reflective of what had been done before (and has never been actually shown to work). And this was a conservative implementing them and actually doing something (TARP was a Bush policy).

So while it might be fair to characterize the present mantra as doing nothing (and that's a mantra I disagree with in almost all cases and causes), it's not fair to say that's what actually happens. It looks more like because their mantra isn't based on any sensible policy choices or values, that they (conservatives) will in fact do something. And often utterly fail in either the short or long run because they picked the wrong something.