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They Know Better?

Douglas Holtz-Eakin wasn’t very good at constructing an economic blueprint for John McCain’s campaign, but he’s a pretty good analyst. He writes:

The AIG debacle teaches us two things: First, it does not make sense to try to save any single financial institution. Failed enterprises should fail — and go away… The second lesson is that no matter how bad you think market capitalism is, the federal government has proved it is worse.

It is this latter point that may prove troublesome for the Obama administration. The president’s New Deal II agenda depends on two premises — the sky is falling and only the government can protect us. The first argument is being downplayed as Obama figured out that talking down the markets might not be the best strategy. But the second is called seriously into question by the gang that can’t shoot straight.

Obama’s mantra about collecting the “best and the brightest” for his cabinet was not just puffery. It was a message: we’re smarter than those fools who messed up the economy. We have the answers and can devise exquisitely refined solutions, with thousands of interconnected parts, to do what the “broken” free market system cannot. But how credible is that?

The AIG mess revolves around a very simple issue: could the government have stopped the bonuses prospectively? This was such a vexing matter that it has now engulfed the entire administration and all of Congress, and served as fodder in an election two weeks away. But how much more complicated is cap-and-trade regulation and taxation for the entire economy? The AIG bonus issue is child’s play compared to devising a universal health care system that is simultaneously going to expand coverage, improve care, reduce cost, protect privacy, and digitize all our medical information. We’re just supposed to have faith in the Employee Free Choice Act’s phalanx of government arbitrators who will set wages, benefits, and working conditions in every newly organized factory and workplace in America.

The lesson from AIG is that the entire premise of the Obama administration — we know better — is fundamentally flawed. The Obama team can’t effectively manage a single troubled company without getting itself and the whole country tied up in knots. The notion that we should invest the federal government with authority to control vast swatches of the economy can now be seen for what it is: madness. We should consider ourselves lucky that the public is getting a glimpse of its government in action on a (relatively speaking) low-dollar item of limited consequences.