TEXT OF COMMENTARY
TESS VIGELAND: One of the questions that keeps coming up in this whole mortgage mess is, how do we not learn from our mistakes when it comes to market manias?
When it comes to lessons about the economy, commentator David Frum reminds us that the definition of “insanity” is doing the same thing over and over and expecting different results.
DAVID FRUM: Economists have learned some lessons from past recessions. For instance, emergency tax and spending bills seldom do any good. Fiscal stimulus almost always arrives too late, after the recovery has already begun. Worse, the usual result is a net economic nothing. The government borrows to give to consumers, who in turn use the money to reduce borrowing. Demand remains constant.
One economist famously compared fiscal stimulus to attempting to refill a swimming pool by dipping a bucket into the deep end of a swimming pool and pouring the water into the shallow end.
Here’s another lesson. Oil prices are reaching extreme highs. That’s happened before. After the first shock, consumers substituted and conserved. Americans used less oil in 1988 than they did in 1978. Then the price slumped and slumped again. Conservation went out of style. Policymakers sadly realized that they had missed an opportunity.
OK, the price is high again. This is the perfect moment to pass a standby energy tax, a tax that would kick in when the price of oil falls below say $60 a barrel. Consumers could feel secure that if they make the investment in a hybrid car, or a smaller house with a shorter commute, they won’t feel like fools in four or five years, but that’s not what Congress is doing. Instead, Congress is planning a round of crowd-pleasing kicks at the oil companies that will do nothing to promote American energy security.
A third lesson, big banks are stuck with hundreds of billions in bad real estate loans. That’s also happened before, in the 1980s savings and loan crisis. Back then, everybody had to learn that the best way to unravel bad credit was fast. Yet once again we’re hearing prominent politicians urging rate freezes and foreclosure moratoriums, postponing the inevitable at great cost.
We like to think that we get smarter as we get older, and that society makes intellectual progress from year to year — not on present evidence. It would be bad enough if we did not know better. It’s worse. We have unlearned what we do know.
TESS VIGELAND: David Frum is a resident fellow at the American Enterprise Institute.
His new book is “Comeback: Conservatism That Can Win Again.”
Marketplace is on a mission.
We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.
Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?