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Redoing the Kitchen While the House Burns Down

Wall Street Journal columnist Thomas Frank is by far the most interesting part of that paper’s dull gray Op Ed page. Back in January he suggested that the world’s governments smack down those wing-nut gold bugs by selling all the gold in their central bank vaults — a plan that most gold bugs found hilarious, since they doubt that central banks have much gold left to sell.

And last week he explained that our current troubles were due, get this, to a lack of trust in government’s ability to solve our problems. A few excerpts:

Once in office, the strategic thinking went, Democrats could slowly brighten the antigovernment mood by setting up various transparency and accountability programs. And they could turn that frown upside-down simply by doing what Democrats do, namely, by using government to solve big public problems, beginning with the grotesquely expensive health-care system.

But as the drama played out, these clever flanking maneuvers failed. Now it seems unlikely that Democrats will ever get their chance to change the public’s attitude toward government in this indirect way; the antigovernment animus struck first, bringing the health-care debate to an end with a summer of unanswered town-hall protests and a voter revolt in Massachusetts.

Bruised by the backlash, President Barack Obama came before the nation last month to address the problem. “We face a deficit of trust,” Mr. Obama observed in his State of the Union address, “deep and corrosive doubts about how Washington works that have been growing for years.”

But what will the president do to assuage those doubts? In his speech, he mentioned a crackdown on earmarks, implementing government transparency measures, and banning lobbyists from his administration’s high positions. They are all good and necessary reforms, of course. But one suspects they will do little to allay the grandiose fears of the broader antigovernment set.

A more daring course would be finally to confront the antigovernment catechism directly, to attack his opponents where they are strongest. For decades, conservatives have explained every episode of government failure by shrugging: What do you expect? That’s just the way government is. When government fails to do the job—even when it’s a government presided over by conservatives themselves—it automatically reinforces core assumptions of the right.

Although this explanation is hollow and a little bit poisonous, it carries the day even in the unlikeliest circumstances. So the Bush administration screws up emergency operations in the aftermath of Hurricane Katrina, and conservatives use the episode to call for the privatization of federal emergency operations. Government didn’t work because government never works.

And yet the toxic truth is staring us right in the face: The reason government has failed so spectacularly in our time is because it’s been run into the ground by antigovernment politicians. Government agencies failed because they were often turned over to industry lobbyists. Government regulators didn’t regulate because they were starved for resources. The government work force had no esprit de corps because it was constantly being insulted by its bureaucrat-denouncing bosses. According to a story that ran in the Washington Post last week, government workers earn 26% less than private-sector workers in comparable jobs.

The debate is coming soon, whether liberals like it or not. The most colossal government failure in many years may be the next big issue in Washington, as Congress turns to proposals for re-regulating the financial industry.

No one denies that federal bank regulators dropped the ball during the housing boom of the last decade. Conservatives, for their part, will fit that failure neatly into their usual story line, asserting that those regulators need to take the blame for the deeds of the nation’s mortgage lenders, bond-rating agencies, and financial innovators. The answer, conservatives will say, is not more regulation but less. They will wave their rattlesnake flags. They will holler for freedom. They will pocket contributions from Wall Street.

And unless the president and the Democrats in Congress are prepared to steel their nerves and speak forthrightly for once about the causes of government failure, the Democrats will lose again. Nothing will be done. And failure this time around won’t just look bad at the polls, it may well set the stage for another financial disaster.

This is classic stuff: “And they could turn that frown upside-down simply by doing what Democrats do, namely, by using government to solve big public problems, beginning with the grotesquely expensive health-care system.” ; “The reason government has failed so spectacularly in our time is because it’s been run into the ground by antigovernment politicians.”

But it’s classic not just because it’s out-of-left-field absurd. It’s classic because it reflects the dominant view of both major parties that a policy fix is possible, that there is a combination of spending programs, tax rates, foreign policy initiatives and such that would set things right. So we have this non-stop debate over universal health care, the Afghan troop surge, cap-and-trade, and a “spending freeze”, all of which are sold as crucial to “getting us back on track”.

All, without exception, are irrelevant. If, through some grand compromise, the entire wish list of both left and right is enacted tomorrow, it won’t make a bit of difference. And if legislative gridlock stops anything from passing for the next ten years, the outcome will be pretty much the same.

Think of the U.S. as a family that’s busily renovating the kitchen while their house burns down.

Debt, of course, is the fire in this analogy. The U.S. has borrowed more it can ever hope to pay off, and for a country as for a family, when you owe too much your life changes in unpleasant, sometimes catastrophic ways. By now virtually everyone who cares has seen a debt-to-GDP chart, but I can’t help tossing up one more, because this single image conveys more useful information that a year’s worth of cable news talking heads or newspaper Op Ed columns.

No one really understands the U.S. balance sheet, of course, and because we own a printing press, the growing imbalances have yet to bite. Which is why the struggles of Greece are so enlightening. As part of the euro zone it doesn’t own the printing press that makes its currency. And now that it can’t borrow to fund its deficits, it has to decide — very publicly — how to live within its means.

As numerous analysts have concluded, that can only be achieved by cutting every citizen’s income by a painful amount. But the resulting drop in consumer spending will push the government budget even further into the red, requiring more cuts, which will lower spending even more, and so on. You see the problem: Without a printing press a bloated public sector can’t function.

The Greeks aren’t debating how many new soldiers to commit to their many foreign adventures or how to expand entitlements to cover everyone all the time. That’s because they’ve smelled the smoke and seen the flames. Now they’re standing in the front yard, garden-hoses in hand, trying to save some small part of what they’ve spent the past generation building.

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