Wisdom from the New Republic...

This is excerpted from the latest edition of New Republic. It's great stuff. It makes me wonder if this country's economy is now more Japanese than American in its approach to failure.

Visible Hands
by Irwin Stelzer
The surrender of free-market capitalism.

'Capitalism without failure is like religion without sin," notes Allan Meltzer, one of the nation's most astute economists. Perhaps that was once true. But the New Capitalism has little room for the pain of failure. A host of measures have been introduced to make it easier for families delinquent in their mortgage payments to stay in their homes, an act of compassion (as some would put it), or encouragement of profligate sinners to sin again (as the Old Capitalists would say). The Old Capitalists mourn the lost era of individual responsibility even as they acquiesce to it, for there is no support for a return to the harsher regime they favored, in which government did little to mitigate the pain of poor management, bad judgment, or just plain bad luck.

Far more significant than its new attitude toward individual failure is the New Capitalism's fear of recession. At the very first hint of an economic slowdown, Ben Bernanke, the chairman of the Federal Reserve Board--and ostensibly a conservative--eased monetary policy. He did not wait to determine whether a major downturn was brewing or for growth to turn negative. He was not willing to risk the sort of mild recession that has peppered the post-World War II period. Rather, a risk appeared, and the Fed felt it necessary to lower interest rates--never mind that such a move would drive down the dollar, and therefore drive up oil prices.

Under the Old Capitalism, the authorities in charge of monetary and fiscal policy correctly assumed that the public understood the ups and downs of the business cycle and was willing to endure the moderately bad times that often followed the very good ones. But the tolerable level of pain and risk has shrunk, so the central bankers who are supposed to ensure that our currency holds its value subordinated that goal to avoiding the pain of a bursting bubble. We may not be a nation of whiners, as Phil Gramm believes, but neither are we as tolerant of recession as we were only recently.