THE BLOG
11/14/2008 05:12 am ET Updated May 25, 2011

Our Government's New Welfare-to-Workfare

As the financial contagion spreads, politicians around the world now realize that we together stand at the precipice of global depression. This means an end not only to the American way of life but the lifestyle that globalization has made many presume an entitlement. As the rescue package unfolds before our eyes, both the chorus of detractors and also evenhanded journalists note that the United States (and now its allies) are abandoning a failed free market system in favor of socialism. Ownership stakes are being taken in private banks, and recently Martin Wolf of the Financial Times told us that the free market has itself passed its peak. The Bush Administration shoulders much of the blame, and the McCain campaign for its close working relationship and associations with it, for not even bothering to referee the market from tainted toys to reckless financial products. As we play pin the tail on the donkey for the betrayal of the free market, we must reflect soberly on how it was in fact an activist government that drove us into this cul-de-sac and attached a collective anchor to the ankles of Americans who were already treading water.

While, for most, it's hard to escape the grim reality of the crisis, the free market demise story stretches the imagination. From Day One, the Bush Administration has praised our free market while practicing state-subsidized capitalism. We provide large government contracts to Halliburton and Bechtel to reconstruct Iraq. We advance loan guarantees to finance the sale of Boeing 777-200LR aircraft to Air India. We even offer the poor and hungry food aid tied to the purchase of American GMO grains. In our own backyard, we subsidize roads we need, and those we do not. We have numerous government agencies and programs busy subsidizing and directing our so-called free market economy.

We pay companies to develop countries, to fight the war on terror, to build bridges, and simply to promote US business. There's nothing wrong with this. However, we rarely ask whether the company fulfilled the purpose that justified the subsidy in the first place. We are in financial crisis in part because our government writes these checks without accountability.

The bailout bill is doubly susceptible to the problems of Free Market Statism -- when government acts as a partner, not a passive regulator. First, the Treasury Department is inevitably going to intervene in a way that advances certain private interests at the expense of others. Second, the pork-laden provisions are subsidy programs, assumedly inserted to bring some congressperson's influential local constituent on board. All of this is inevitable and not itself to be condemned. Our ability to weather many of the country's gravest challenges, like World War II, depended upon government and industry working together to advance the public interest.

The problem however lies in our poor track-record of effectively conceiving and administering subsidies. Certainly, many former American call center workers should bemoan the low interest loans in the 1990s to telecommunications firms that created the Fiber-Optic-Link-Around-the-Globe, which lay the infrastructure of the global economy. Before this, the idea that outsourcing their jobs was economically efficient was a tall tale -- you need cheap high quality phone lines to make the international calls possible. The same holds true for decades of subsidizing the infrastructure of overseas factories -- loans for power stations, water projects, roads, and ports to service them -- so that it eventually became cheaper to shift US manufacturing abroad.

There are of course many truly productive and even necessary ways of intervening in the market -- green tech stands out as do alternative fuels as do small business loans. However, as we swiftly move to implement our state-directed bailout, we should -- to quote Senator Obama on Iraq -- 'be as careful getting out as we were careless getting in.' Let's publicly debate the purpose of our bailout, how we should spend the taxpayer check, and, of course, carefully monitor our new welfare to workfare program.