Why Dems love a crisis

Amity Shlaes:

THE trouble with new financial crises is that they provide pretexts for implementing old social agendas. As the president-elect's new chief of staff, Rahm Emanuel, said recently, "never allow a crisis to go to waste."

Consider President Franklin Roosevelt's New Deal, which President-elect Barack Obama invokes when he talks of "a defining moment." Like Obama today, FDR was inaugurated into trouble. He wisely addressed the financial crisis through the steps that we learned about in school. He signed deposit insurance into law, reassuring savers. He created the Securities and Exchange Commission, making the stock market more transparent and consistent. He soothed our grandparents via his radio Fireside Chats. This was the FDR we love.

But FDR also used the crisis mood to push through an unprecedented program of reforms that progressives had been hoping to put in place for years. Sen. George Norris of Nebraska, for example, had for decades argued that utilities should be in the public, not the private, sector. As far back as the early '20s, Norris wanted to build a big power project on Tennessee River. He wanted the government - and not the Ford Motor Company, which was drawing up such plans - to be in charge. FDR made Norris' progressive dream a reality by creating the publicly owned Tennessee Valley Authority. Washington won out, but it wasn't clear its power served the South down the decades.

Members of FDR's party and those to his left itched to enact other old plans: Subsidize agriculture like crazy. Institute a national minimum wage. Create strong unions to drive wages up, even when businesses couldn't afford it. The progressives and farmers wanted to end the gold standard.

None of these ideas got far in the prosperous '20s, but the financial crisis gave the progressives their chance. Suddenly, they had their Katrina, the telltale situation in which capitalism looked broken for all the world. They built a giant institution, the National Recovery Administration, to reorganize the industrial economy.

The NRA imposed a series of regulations on businesses - a minimum wage, shop-floor safety rules, price rules - codes that made certain infractions crimes. In a case that went all the way to the Supreme Court, the feds prosecuted a family of Brooklyn chicken butchers, the Schechters, on the absurd charge of setting prices too low. The court stood by the Schechters and, two long years after the New Deal began, ruled the NRA unconstitutional. But it was too late for the economy, which was hurt by this singularly perverse institution.

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The greater danger is that the public-sector unions, with support of Democrats, will push up their own pay aggressively. Behind the GM crisis is the crisis of state and city budgets - which the demands of AFSCME, the public-sector union, will only exacerbate.

President-elect Obama creates an opening for such demands when he says, as he did recently, that everything about the last four years was wrong. Everything? Sure, the financial crisis needs addressing. But government health care and card check don't have much to do with mortgage crises.

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Bailing out the auto companies is really about bailing out the unions who have forced the companies into uncompetitive agreements on pay and retirement benefits. That is why bankruptcy has become a more attractive remedy for many who don't have a stake in the status quo. Bailing out the local governments who made the same mistakes only rewards bad behavior and insures that we will get more of that kind of behavior. There should be consequences for bad judgment.