50 De-Stimulating Facts

Senate Democrats acknowledged Wednesday that they do not have the votes to pass the stimulus bill in its current form. This is unexpected good news. The House passed the stimulus package with zero Republican votes (and even a few Democratic defections), but few expected Senate Republicans (of whom there are only 41) to present a unified front. A few moderate Democrats have reportedly joined them.

The idea that the government can spend the economy out of a recession is highly questionable, and even with Senate moderates pushing for changes, the current package is unlikely to see much improvement. Nevertheless, this presents an opportunity to remove some of the most egregious spending, to shrink some programs, and to add guidelines where the initial bill called for a blank check. Here are 50 of the most outrageous items in the stimulus package:


VARIOUS LEFT-WINGERY
The easiest targets in the stimulus bill are the ones that were clearly thrown in as a sop to one liberal cause or another, even though the proposed spending would have little to no stimulative effect. The National Endowment for the Arts, for example, is in line for $50 million, increasing its total budget by a third. The unemployed can fill their days attending abstract-film festivals and sitar concerts.

Then there are the usual welfare-expansion programs that sound nice but repeatedly fail cost-benefit analyses. The bill provides $380 million to set up a rainy-day fund for a nutrition program that serves low-income women and children, and $300 million for grants to combat violence against women. Laudable goals, perhaps, but where’s the economic stimulus? And the bill would double the amount spent on federal child-care subsidies. Brian Riedl, a budget expert with the Heritage Foundation, quips, “Maybe it’s to help future Obama cabinet secretaries, so that they don’t have to pay taxes on their nannies.”

Perhaps spending $6 billion on university building projects will put some unemployed construction workers to work, but how does a $15 billion expansion of the Pell Grant program meet the standard of “temporary, timely, and targeted”? Another provision would allocate an extra $1.2 billion to a “youth” summer-jobs program—and increase the age-eligibility limit from 21 to 24. Federal job-training programs—despite a long track record of failure—come in for $4 billion total in additional funding through the stimulus.

Of course, it wouldn’t be a liberal wish list if it didn’t include something for ACORN, and sure enough, there is $5.2 billion for community-development block grants and “neighborhood stabilization activities,” which ACORN is eligible to apply for. Finally, the bill allocates $650 million for activities related to the switch from analog to digital TV, including $90 million to educate “vulnerable populations” that they need to go out and get their converter boxes or lose their TV signals. Obviously, this is stimulative stuff: Any economist will tell you that you can’t get higher productivity and economic growth without access to reruns of Family Feud.

Summary:
$50 million for the National Endowment for the Arts
$380 million in the Senate bill for the Women, Infants and Children program
$300 million for grants to combat violence against women
$2 billion for federal child-care block grants
$6 billion for university building projects
$15 billion for boosting Pell Grant college scholarships
$4 billion for job-training programs, including $1.2 billion for “youths” up to the age of 24
$1 billion for community-development block grants
$4.2 billion for “neighborhood stabilization activities”
$650 million for digital-TV coupons; $90 million to educate “vulnerable populations”

POORLY DESIGNED TAX RELIEF
The stimulus package’s tax provisions are poorly designed and should be replaced with something closer to what the Republican Study Committee in the House has proposed. Obama would extend some of the business tax credits included in the stimulus bill Congress passed about a year ago, and this is good as far as it goes. The RSC plan, however, also calls for a cut in the corporate-tax rate that could be expected to boost wages, lower prices, and increase profits, stimulating economic activity across the board.

The RSC plan also calls for a 5 percent across-the-board income-tax cut, which would increase productivity by providing additional incentives to save, work, and invest. An across-the-board payroll-tax cut might make even more sense, especially for low- to middle-income workers who don’t make enough to pay income taxes. Obama’s “Making Work Pay” tax credit is aimed at helping these workers, but it uses a rebate check instead of a rate cut. Rebate checks are not effective stimulus, as we discovered last spring: They might boost consumption, a little, but that’s all they do.

Finally, the RSC proposal provides direct tax relief to strapped families by expanding the child tax credit, reducing taxes on parents’ investment in the next generation of taxpayers. Obama’s expansion of the child tax credit is not nearly as ambitious. Overall, his plan adds up to a lot of forgone revenue without much stimulus to show for it. Senators should push for the tax relief to be better designed.

Summary:
$15 billion for business-loss carry-backs
$145 billion for “Making Work Pay” tax credits
$83 billion for the earned income credit


STIMULUS FOR THE GOVERNMENT
Even as their budgets were growing robustly during the Bush administration, many federal agencies couldn’t find the money to keep up with repairs—at least that’s the conclusion one is forced to draw from looking at the stimulus bill. Apparently the entire capital is a shambles. Congress has already removed $200 million to fix up the National Mall after word of that provision leaked out and attracted scorn. But one fixture of the mall—the Smithsonian—dodged the ax: It’s slated to receive $150 million for renovations.

The stimulus package is packed with approximately $7 billion worth of federal building projects, including $34 million to fix up the Commerce Department, $500 million for improvements to National Institutes of Health facilities, and $44 million for repairs at the Department of Agriculture. The Agriculture Department would also get $350 million for new computers—the better to calculate all the new farm subsidies in the bill (see “Pure pork” below).

One theme in this bill is superfluous spending items coated with green sugar to make them more palatable. Both NASA and NOAA come in for appropriations that properly belong in the regular budget, but this spending apparently qualifies for the stimulus bill because part of the money from each allocation is reserved for climate-change research. For instance, the bill grants NASA $450 million, but it states that the agency must spend at least $200 million on “climate-research missions,” which raises the question: Is there global warming in space?

The bottom line is that there is a way to fund government agencies, and that is the federal budget, not an “emergency” stimulus package. As Riedl puts it, “Amount allocated to the Census Bureau? $1 billion. Jobs created? None.”

Summary:
$150 million for the Smithsonian
$34 million to renovate the Department of Commerce headquarters
$500 million for improvement projects for National Institutes of Health facilities
$44 million for repairs to Department of Agriculture headquarters
$350 million for Agriculture Department computers
$88 million to help move the Public Health Service into a new building
$448 million for constructing a new Homeland Security Department headquarters
$600 million to convert the federal auto fleet to hybrids
$450 million for NASA (carve-out for “climate-research missions”)
$600 million for NOAA (carve-out for “climate modeling”)
$1 billion for the Census Bureau


INCOME TRANSFERS
A big chunk of the stimulus package is designed not to create wealth but to spread it around. It contains $89 billion in Medicaid extensions and $36 billion in expanded unemployment benefits—and this is in addition to the state-budget bailout (see “Rewarding state irresponsibility” below).

The Medicaid extension is structured as a temporary increase in the federal match, but make no mistake: Like many spending increases in the stimulus package, this one has a good chance of becoming permanent. As for extending unemployment benefits through the downturn, it might be a good idea for other reasons, but it wouldn’t stimulate economic growth: It would provide an incentive for job-seekers to delay reentry into the workforce.

Summary:
$89 billion for Medicaid
$30 billion for COBRA insurance extension
$36 billion for expanded unemployment benefits
$20 billion for food stamps


PURE PORK
The problem with trying to spend $1 trillion quickly is that you end up wasting a lot of it. Take, for instance, the proposed $4.5 billion addition to the U.S. Army Corps of Engineers budget. Not only does this effectively double the Corps’ budget overnight, but it adds to the Corps’ $3.2 billion unobligated balance—money that has been appropriated, but that the Corps has not yet figured out how to spend. Keep in mind, this is an agency that is often criticized for wasting taxpayers’ money. “They cannot spend that money wisely,” says Steve Ellis of Taxpayers for Common Sense. “I don’t even think they can spend that much money unwisely.”

Speaking of spending money unwisely, the stimulus bill adds another $850 million for Amtrak, the railroad that can’t turn a profit. There’s also $1.7 billion for “critical deferred maintenance needs” in the National Park System, and $55 million for the preservation of historic landmarks. Also, the U.S. Coast Guard needs $87 million for a polar icebreaking ship—maybe global warming isn’t working fast enough.

It should come as no surprise that rural communities—those parts of the nation that were hardest hit by rampant real-estate speculation and the collapse of the investment-banking industry—are in dire need of an additional $7.6 billion for “advancement programs.” Congress passed a $300 billion farm bill last year, but apparently that wasn’t enough. This bill provides additional subsidies for farmers, including $150 million for producers of livestock, honeybees, and farm-raised fish.

Summary:
$4.5 billion for U.S. Army Corps of Engineers
$850 million for Amtrak
$87 million for a polar icebreaking ship
$1.7 billion for the National Park System
$55 million for Historic Preservation Fund
$7.6 billion for “rural community advancement programs”
$150 million for agricultural-commodity purchases
$150 million for “producers of livestock, honeybees, and farm-raised fish”


RENEWABLE WASTE
Open up the section of the stimulus devoted to renewable energy and what you find is anti-stimulus: billions of dollars allocated to money-losing technologies that have not proven cost-efficient despite decades of government support. “Green energy” is not a new idea, Riedl points out. The government has poured billions into loan-guarantees and subsidies and has even mandated the use of ethanol in gasoline, to no avail. “It is the triumph of hope over experience,” he says, “to think that the next $20 billion will magically transform the economy.”

Many of the renewable-energy projects in the stimulus bill are duplicative. It sets aside $3.5 billion for energy efficiency and conservation block grants, and $3.4 billion for the State Energy Program. What’s the difference? Well, energy efficiency and conservation block grants “assist eligible entities in implementing energy efficiency and conservation strategies,” while the State Energy Program “provides funding to states to design and carry out their own energy efficiency and renewable energy programs.”

While some programs would spend lavishly on technologies that are proven failures, others would spend too little to make a difference. The stimulus would spend $4.5 billion to modernize the nation’s electricity grid. But as Robert Samuelson has pointed out, “An industry study in 2004—surely outdated—put the price tag of modernizing the grid at $165 billion.” Most important, the stimulus bill is not the place to make these changes. There is a regular authorization process for energy spending; Obama is just trying to take a shortcut around it.

Summary:
$2 billion for renewable-energy research ($400 million for global-warming research)
$2 billion for a “clean coal” power plant in Illinois
$6.2 billion for the Weatherization Assistance Program
$3.5 billion for energy-efficiency and conservation block grants
$3.4 billion for the State Energy Program
$200 million for state and local electric-transport projects
$300 million for energy-efficient-appliance rebate programs
$400 million for hybrid cars for state and local governments
$1 billion for the manufacturing of advanced batteries
$1.5 billion for green-technology loan guarantees
$8 billion for innovative-technology loan-guarantee program
$2.4 billion for carbon-capture demonstration projects
$4.5 billion for electricity grid


REWARDING STATE IRRESPONSIBILITY
One of the ugliest aspects of the stimulus package is a bailout for spendthrift state legislatures. Remember the old fable about the ant and the grasshopper? In Aesop’s version, the happy-go-lucky grasshopper realizes the error of his ways when winter comes and he goes hungry while the industrious ant lives on his stores. In Obama’s version, the federal government levies a tax on the ant and redistributes his wealth to the party-hearty grasshopper, who just happens to belong to a government-employees’ union. This happens through something called the “State Fiscal Stabilization Fund,” by which taxpayers in the states that have exercised financial discipline are raided to subsidize Democratic-leaning Electoral College powerhouses—e.g., California—that have spent their way into big trouble.

The state-bailout fund has a built-in provision to channel the money to the Democrats’ most reliable group of campaign donors: the teachers’ unions. The current bill requires that a fixed percentage of the bailout money go toward ensuring that school budgets are not reduced below 2006 levels. Given that the fastest-growing segment of public-school expense is administrators’ salaries—not teachers’ pay, not direct spending on classroom learning—this is a requirement that has almost nothing to do with ensuring high-quality education and everything to do with ensuring that the school bureaucracy continues to be a cash cow for Democrats.

Setting aside this obvious sop to Democratic constituencies, the State Fiscal Stabilization Fund is problematic in that it creates a moral hazard by punishing the thrifty to subsidize the extravagant. California, which has suffered the fiscal one-two punch of a liberal, populist Republican governor and a spendthrift Democratic legislature, is in the worst shape, but even this fiduciary felon would have only to scale back spending to Gray Davis–era levels to eliminate its looming deficit. (The Davis years are not remembered as being especially austere.) Pennsylvania is looking to offload much of its bloated corrections-system budget onto Uncle Sam in order to shunt funds to Gov. Ed Rendell’s allies at the county-government level, who will use that largesse to put off making hard budgetary calls and necessary reforms. Alaska is looking for a billion bucks, including $630 million for transportation projects—not a great sign for the state that brought us the “Bridge to Nowhere” fiasco.

Other features leap out: Of the $4 billion set aside for the Community Oriented Policing Services—COPS—program, half is allocated for communities of fewer than 150,000 people. That’s $2 billion to fight nonexistent crime waves in places like Frog Suck, Wyo., and Hoople, N.D.

The great French economist Frédéric Bastiat called politics “the great fiction through which everybody endeavors to live at the expense of everybody else.” But who pays for the state bailout? Savers will pay to bail out spenders, and future generations will pay to bail out the undisciplined present.

In sum, this is an $80 billion boondoggle that is going to reward the irresponsible and help state governments evade a needed reordering of their financial priorities. And the money has to come from somewhere: At best, we’re just shifting money around from jurisdiction to jurisdiction, robbing a relatively prudent Cheyenne to pay an incontinent Albany. If we want more ants and fewer grasshoppers, let the prodigal governors get a little hungry.

Summary:
$79 billion for State Fiscal Stabilization Fund

— Stephen Spruiell is a staff reporter for National Review Online. Kevin Williamson is a deputy managing editor of National Review.

The Fierce Urgency of Pork

"A failure to act, and act now, will turn crisis into a catastrophe."

-- President Obama, Feb. 4.

Catastrophe, mind you. So much for the president who in his inaugural address two weeks earlier declared "we have chosen hope over fear." Until, that is, you need fear to pass a bill.

And so much for the promise to banish the money changers and influence peddlers from the temple. An ostentatious executive order banning lobbyists was immediately followed by the nomination of at least a dozen current or former lobbyists to high position. Followed by a Treasury secretary who allegedly couldn't understand the payroll tax provisions in his 1040. Followed by Tom Daschle, who had to fall on his sword according to the new Washington rule that no Cabinet can have more than one tax delinquent.

The Daschle affair was more serious because his offense involved more than taxes. As Michael Kinsley once observed, in Washington the real scandal isn't what's illegal, but what's legal. Not paying taxes is one thing. But what made this case intolerable was the perfectly legal dealings that amassed Daschle $5.2 million in just two years.

He'd been getting $1 million per year from a law firm. But he's not a lawyer, nor a registered lobbyist. You don't get paid this kind of money to instruct partners on the Senate markup process. You get it for picking up the phone and peddling influence.

At least Tim Geithner, the tax-challenged Treasury secretary, had been working for years as a humble international civil servant earning non-stratospheric wages. Daschle, who had made another cool million a year (plus chauffeur and Caddy) for unspecified services to a pal's private equity firm, represented everything Obama said he'd come to Washington to upend.

And yet more damaging to Obama's image than all the hypocrisies in the appointment process is his signature bill: the stimulus package. He inexplicably delegated the writing to Nancy Pelosi and the barons of the House. The product, which inevitably carries Obama's name, was not just bad, not just flawed, but a legislative abomination.

It's not just pages and pages of special-interest tax breaks, giveaways and protections, one of which would set off a ruinous Smoot-Hawley trade war. It's not just the waste, such as the $88.6 million for new construction for Milwaukee Public Schools, which, reports the Milwaukee Journal Sentinel, have shrinking enrollment, 15 vacant schools and, quite logically, no plans for new construction.

It's the essential fraud of rushing through a bill in which the normal rules (committee hearings, finding revenue to pay for the programs) are suspended on the grounds that a national emergency requires an immediate job-creating stimulus -- and then throwing into it hundreds of billions that have nothing to do with stimulus, that Congress's own budget office says won't be spent until 2011 and beyond, and that are little more than the back-scratching, special-interest, lobby-driven parochialism that Obama came to Washington to abolish. He said.

Not just to abolish but to create something new -- a new politics where the moneyed pork-barreling and corrupt logrolling of the past would give way to a bottom-up, grass-roots participatory democracy. That is what made Obama so dazzling and new. Turns out the "fierce urgency of now" includes $150 million for livestock (and honeybee and farm-raised fish) insurance.

The Age of Obama begins with perhaps the greatest frenzy of old-politics influence peddling ever seen in Washington. By the time the stimulus bill reached the Senate, reports the Wall Street Journal, pharmaceutical and high-tech companies were lobbying furiously for a new plan to repatriate overseas profits that would yield major tax savings. California wine growers and Florida citrus producers were fighting to change a single phrase in one provision. Substituting "planted" for "ready to market" would mean a windfall garnered from a new "bonus depreciation" incentive.

After Obama's miraculous 2008 presidential campaign, it was clear that at some point the magical mystery tour would have to end. The nation would rub its eyes and begin to emerge from its reverie. The hallucinatory Obama would give way to the mere mortal. The great ethical transformations promised would be seen as a fairy tale that all presidents tell -- and that this president told better than anyone.

I thought the awakening would take six months. It took two and a half weeks.

U2's “Get On Your Boots" video

Cheney warns of new attacks

Redd Appears on Fox's 24

On Monday, Feb. 2, 2009, Redd's photo appeared in the 2:00 PM - 3:00 PM hour (Season 7: Episode 7) of Fox's 24 (TV Series). The photo can be seen in a long shot of the FBI director standing in his filing cabinets from 4:49:-5:07 of the episode. It is the only photo on the filing cabinets.

Jews and the 2008 Election

The flirtation of the American Jewish voter with the Republican party over the past quarter-century has been, like all great flirtations, a lure and a torment. Both were in evidence again throughout 2008. Barack Obama was dogged throughout the year by questions about his close associations with Rashid Khalidi, an academic profoundly hostile to Israel who served as an official of the Palestine Liberation Organization in the 1980’s; with Jeremiah Wright, the pastor whose church issued flagrantly anti-Semitic literature; and with several aides and advisers who laid the blame for the failure of the Arab-Israeli peace process almost exclusively on the Jewish state. The controversy over these ties and Obama’s offer to meet without precondition with Mahmoud Ahmadinejad, the Iranian President who sponsored a conference denying the fact of the Holocaust and whose aggressive nuclear program may pose an existential threat to Israel, together suggested that the 2008 election might prove a watershed for Jews and the GOP.

The Republican hopeful had data to boost their spirits. Early polls showed Obama lagging far behind previous Democratic candidates when it came to Jewish support. In April, a Gallup poll found Jewish voters favoring Obama over the Republican, John McCain, 61 percent to 32 percent—landslide numbers, to be sure, but worrisome ones for Democrats, who had come to expect a Jewish supermajority of around 75 percent. In June, a poll commissioned by J Street—the dovish new Israel-advocacy organization—had the race at 62 percent to 32 percent for Obama. In July, Gallup’s numbers were 62 percent to 34 percent for McCain.

In a close election, those sorts of numbers could make a crucial difference in the electoral vote, since Florida and Pennsylvania are two states with sizable Jewish populations that do not automatically side with the Democratic camp. Obama thus appeared to have something of a “Jewish problem.” On the flip side, McCain, whose platform was predicated on the need to fight Islamic extremism of the sort Israel has been struggling with for decades, was doing better in these polls than any Republican since Ronald Reagan.

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But the Jewish flirtation with the GOP proved to be just that and nothing more. Obama ended up receiving 53 percent of the vote nationwide, but around 75 to 78 percent of the Jewish vote. Only 20 to 23 percent of Jewish voters pulled the lever for McCain, who received 46 percent of the vote overall. Obama scored a greater share of Jewish votes than John Kerry did in 2004. More striking, his performance almost equaled that of Al Gore among Jews in 2000, when Gore’s running mate was Joseph Lieberman, an Orthodox Jew.

In the end, Obama’s Jewish problem proved to be no problem at all, and the story remained what it has been over the course of the past seven national elections, with Jews voting for Democratic candidates by colossal margins. In the annual survey of American Jewish opinion released in November by the American Jewish Committee, 56 percent of Jews said they were Democrats, while just 17 percent professed fealty to the Republican party. Forty-four percent were willing to identify themselves as liberal, and only 24 percent confessed to being conservative.

Once again, Republicans and politically conservative Jews find themselves engaged in wrenching discussions about why the Jewish vote is so unyieldingly Democratic when the GOP can honestly claim it is a far better friend to Israel and the Jewish people than its rival. In fact, its support for Israel has earned it so little in the way of credit from the American Jewish community that it can only be seen as a matter of underlying principle.

The answer may be that there is a continuing, and fundamental, misunderstanding of the political issues that motivate American Jews. According to the American Jewish Committee’s 2008 edition of its annual survey of Jewish opinion, conducted in September, a majority of Jews, 54 percent, wanted the presidential candidates to “talk more” about the economy. By contrast, only a tiny fraction, three percent, wanted to hear more about Israel. Similar evidence of the relative electoral unimportance of Israel comes from a survey taken by J Street, which asked likely Jewish voters to check off the two issues, from a list of thirteen, “most important for you in deciding your vote for President and Congress this November.” Fifty-five percent chose the economy, 33 percent the war in Iraq, 15 percent energy, and 12 percent the environment. Just 8 percent chose Israel.

A study published at the beginning of November by Steven M. Cohen of Hebrew Union College and Samuel J. Abrams of Harvard University entitled “The Diminished Place of Israel in the Political Thinking of Young Jews” burrows even more deeply into the phenomenon. “Among those 65 and over, 54 percent rate ‘high’ or ‘very high’ the Israel-Palestine conflict as a consideration in determining their vote for Obama or McCain,” Cohen and Abrams write. “This figure comes in contrast with far lower levels among younger non-Orthodox Jews: 39 percent among those 35 to 54 [years old], and just 29 percent among those under 35.”

Not only are Jews less concerned with Israel and its fate than they were in the past, but as the election came closer, they expressed far less concern about Obama’s stance toward Israel than they had during his primary contest with Hillary Clinton. According to a Gallup analysis in March 2008, she had the better of him with Jewish voters by a margin of 48 percent to 43 percent.

_____________

Obama and his campaign understood they had a weakness they needed to confront, and he began to court the Jewish vote. Speaking regularly to Jewish groups, and giving interviews to the Jewish and Israeli press, Obama emphasized his strong support for Israel’s security (“sacrosanct”), his determination to prevent Iran from obtaining nuclear weapons (“no option is off the table”), and even his opposition to the division of Jerusalem (a position from which he almost immediately had to backtrack).

This pattern—of Republican hopes swelled by apparent Jewish concern about Democratic softness on Israel soon dashed by a savvy Democratic response—is now a recurring one. Prior to the 2004 presidential election, some Republican strategists believed that President George W. Bush was likely to outperform his Republican predecessors by receiving a Jewish vote similar to the record share (38 percent) Ronald Reagan received in 1980. In December 2001, a survey by the Republican Jewish Coalition (RJC) went so far as to conclude that “If the election were held today . . . more Jews would vote for Bush—42 percent—than for former presidential candidate Al Gore, who received 39 percent support.”

Bush was then at the height of his popularity, of course, and his standing as an exceptionally good friend to Israel was confirmed when he made it clear he believed Israel had every right to defend itself as it saw fit during the terror war launched against the Jewish state by the Palestinians, and when he refused to surrender to the siren song of the Europeans and his own State Department on the matter of forcing an Israel-Palestinian peace deal in 2002. By May 2003, Virginia Representative Eric Cantor, the only Jewish Republican in the House, told Business Week that “The Jewish community is interested in strong U.S.-Israeli relations, and as they see those relations flourish, they’ve shown their support” for Republicans. Early in the summer of 2004, Bush campaign chairman Marc Racicot said he expected the president to receive more than 30 percent of the Jewish vote.

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The exceedingly clever Democratic response was not to claim that Bush was no friend of Israel’s but rather to offer praise of his stalwart support for the Jewish state. In October 2004, the veteran diplomat Richard Holbrooke, an adviser to the Kerry campaign, told a group of Jewish activists that Bush’s “support for Israel is, in my mind, unquestionable.” Kerry himself took pains to retract his earlier opposition to the construction of the security barrier separating Israel from the West Bank: “President Bush,” the Democratic candidate said, “is rightly discussing with Israel the exact route of the fence to minimize the hardship it causes innocent Palestinians.”

In the end, Kerry did just fine with Jews, receiving 74 to 77 percent of their vote. In contrast, Bush’s “unquestionable” support for Israel did not translate into the huge increase in votes his campaign had expected to garner. True, he did more than double his percentage of the Jewish vote from 2000, when Jewish voters were somewhat wary of the son of the president who had suspended Israel’s loan guarantees, and when they could also vote for a ticket with a Jewish vice-presidential candidate—but his final tally was considered a profound disappointment by Jewish Republicans and was a great source of relief to Democrats.

Still, hope sprang eternal, albeit on a smaller scale, in the midterm election of 2006. Across the country, Republican candidates were trying to woo the Jewish vote by arguing that the Democratic party was less supportive of Israel than the GOP. The Republican Jewish Coalition was pushing this message hard, trumpeting poll data that have consistently shown Democratic voters to be more critical of and less favorably oriented toward Israel. In particular, Republicans tried to make Israel a salient issue in the Senate race in Pennsylvania. In the run-up to the election, the incumbent Republican Senator Rick Santorum—one of Israel’s most vocal supporters on Capitol Hill—had emphasized his pro-Israel record in the hope that this would help him in Philadelphia and Pittsburgh. But not even the large donations (by some estimates more than $2 million) Santorum received from pro-Israel sources could turn the tide. According to exit polls, only one out of five Pennsylvania Jews voted for the Republican. Santorum was simply unable to distinguish himself from his opponent, Bob Casey, Jr., who claimed to be an equally good friend to the Jewish state. In a conscious echo of Kerry in 2004, Casey praised Bush’s pro-Israel stance, and even promised he would be as strong a backer of Israel as Santorum had been.

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The fact that Republicans have repeatedly been unable to play the Israel card is not solely due to the fact that Israel is no longer the central issue on the Jewish-American agenda. In the 2008 American Jewish Committee poll, a large majority of Jews still claimed that they felt “very close” (29 percent) or “fairly close” (38 percent) to Israel. The inescapable conclusion is that if a candidate claims to be a friend of Israel, the claim will be accepted and believed, so long as his positions on other issues are deemed acceptable. And given the extent to which the bar has been lowered, all one has to do to qualify as “pro-Israel” is not actively agitate for the country’s demise.

Obama himself made this point implicitly when he declared that

there is a strain within the pro-Israel community that says, “unless you adopt an unwavering pro-Likud approach to Israel, that you’re anti-Israel,” and that can’t be the measure of our friendship with Israel.

It was an odd choice of words—Likud has not been Israel’s governing party for more than three years—but what Obama clearly meant was that an American politician should not have to express fealty to the most hard-line ideas relating to Israel’s security to be considered a supporter of Israel’s.

There is, and always has been, a basic tactical reason for Jews to feel more comfortable with the presidential candidate who is most forthright about Israel’s need to defend itself. Presidents spend their time in office receiving a constant stream of advice on the Middle East, advice that inevitably centers on the notion that Israel must bend or be compelled to bend if the United States is to achieve its aims. Israel’s security will therefore always be at some risk; a President with a history of understanding the unparalleled difficulties of Israel’s strategic position would presumably be less inclined to intensify that risk.

But as the results of the 2008 election show, this tactical analysis does not hold sway in the American Jewish community. Jewish voters are now convinced that “support” can come in vastly different, yet still legitimate, forms. Jonathan Rynhold of Bar-Ilan University calls this phenomenon “pluralistic solidarity”:

American Jewry no longer expresses its solidarity with Israel by automatically supporting the political line of the Israeli government of the day, as was largely the case until the late 1980’s. Instead, it expresses solidarity in a more pluralistic manner, by supporting the advancement of various ideological agendas, Right and Left, Orthodox and non-Orthodox, each of which seeks to cast Israel in the image desired by its American Jewish proponents.

Expressing vague support for Israel’s “existence,” “security,” or “special relationships,” while avoiding harsh criticism of the country, is generally enough for a politician to pass the test. The growing cacophony of Jewish organizations attacking and defending the record of candidates on Israel—be it J Street on the Left, or the Zionist Organization of America on the Right—further encourages voters to shrug with indifference.

But even when details do concern Jewish voters, a Democratic politician can easily blur the issue. In the case of Iran, for instance, Obama obtained the advantage by convincing many voters that the difference between his and McCain’s approach was merely a disagreement about which means to take to the same end. The way Obama spun it, both candidates wanted to stop Iran; it was just that McCain supposedly wanted to do it by force, while Obama wanted to rely on diplomacy. And in such a debate, Obama could, and did, win easily with Jews.

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The question now is whether Republicans have any hope of winning the Jewish vote at any point in the future. The answer is: Perhaps. In a generation. If certain demographic trends hold firm. In November, the Orthodox Union compiled a list of precincts “with high-concentrations of Orthodox Jewish voters,” from which it was clear that the Orthodox tend to vote Republican in much higher numbers than the Jewish community overall. Indeed, it is even possible that the Orthodox constitute a majority of the Jews who vote Republican. Given that the Orthodox are younger than the Jewish average, and are proportionally growing much faster, over time one might expect the share of Jews who vote Republican to increase.

This is not to say that the efforts of politically conservative Jews and Jewish organizations to win support for candidates on the Right are of no value. There is a danger, in fact, that if such efforts decline in intensity, Democrats will be freed to take Jewish support entirely for granted whatever the positions they take on Israel and no matter what risky policies they are willing to experiment with that place Israel in peril. Following the Obama landslide among Jews, Republican activists such as Matthew Brooks, the executive director of the Republican Jewish Coalition, argued with some justification that by pressuring Obama on Israel-related issues, his group and others had forced Obama’s hand, leading the Democratic nominee to speak full-throatedly on Israel’s behalf and put himself on record before taking the Oval Office as a President who has committed himself to ensuring Israel’s safety at a uniquely perilous moment.

For this reason, Republicans who care about Israel have a powerful incentive to continue to seek Jewish support for Republican candidates, even though the result for the foreseeable future is likely to be more flirtation, more rejection, and more heartbreak.

The Meaning of Sarah Palin

wo political figures dominated the final months of the 2008 presidential campaign. One was the Democratic nominee, Barack Obama. The other had been unknown to all but 670,000 Americans only a few minutes before she was first introduced by the Republican nominee, John McCain, at a rally in Ohio on the Friday before the Republican National Convention, only 66 days before the November election.

By the close of that first weekend, Governor Sarah Palin of Alaska had become a national sensation. Two days after that, she delivered her debut address at the Republican National Convention as the party’s vice-presidential nominee—a dazzling stemwinder, it was all but universally acknowledged. McCain’s dramatic and unexpected bet appeared to have paid off in spades.

But by November 4, the day of the election, Sarah Palin had been transformed into one of the most divisive figures in recent American history. There was almost no middle ground between those who had come to adore her and those who believed she represented just about every dark and dangerous element of contemporary American politics. In choosing Palin, McCain had hoped to shake up the race; but the fault lines exposed by the Palin earthquake were not the ones he had thought they might be. He had wanted to run against the Washington status quo as a reformer with an independent streak. He believed he was picking a fellow reformist politician with a history of taking on the leadership of her own party, and that Palin would prove acceptable to the Republican base because of her social conservatism. Instead, Palin became an instant cultural and political magnet, attracting some and repelling others and dragging a helpless McCain into a culture war for which he had little stomach. Indeed, the overheated response to Palin’s presence on the national stage, from both friend and foe, was oddly disconnected from Palin’s actual actions, statements, and record. It was a turn of events no one could have anticipated, and one that has much to teach us about American political life in our day.

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Before her elevation, Palin had not been known as a combatant in the cultural battles of recent years. She had been serving as the popular chief executive of a geographically vast, sparsely populated, and economically vital state. She held conventionally conservative Republican views—pro-gun, anti-tax, and pro-life. She had risen to prominence by taking on Alaska’s corrupt and profligate Republican establishment. In running for and winning the governorship in 2006, she had promised (and had begun to deliver) reforms of the state’s relationship with Washington and with the oil companies that dominated its economy.

In all these respects, Palin was an uncanny match for John McCain. Her political style and priorities resembled McCain’s in a way that no other senior Republican elected official’s did. Her conservatism, like McCain’s, was more an attitude than an ideology: it was a kind of moralistic anti-corruptionism, obsessed with honest dealing and powerfully allergic to excess and waste. Palin did not, of course, share McCain’s foreign-policy expertise or his heroic biography, but she shared what he often stressed most about himself, and what he most wanted to run on: she was, as the public would soon be informed ad nauseam, a reforming maverick.

Palin’s social conservatism had never been the core of her political identity in Alaska. She always expressed general support for traditionalist views in interviews and debates, and it was widely known that she had also chosen to proceed with her fifth pregnancy after discovering the child had Down syndrome—a discovery that in about nine of ten cases leads parents to opt for abortion. But Palin never went out of her way to raise abortion or other social or cultural issues, and in her first two years as governor had not sought to change state policies in these areas. She was a good-government reformer with social conservative leanings, not the other way around.

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But this was not how Palin was received on the national scene. Instead, her views on matters of cultural and social controversy very quickly became the chief focus of media attention, liberal criticism, and pundit analysis. Palin was assigned every view and position the Left considered unenlightened, and the response to her brought into the light all manner of implicit liberal assumptions about cultural conservatives. We were told that Palin was opposed to contraception, advocated teaching creationism in schools, and was inclined to ban books she disagreed with. She was described as a religious zealot, an anti-abortion extremist, a blind champion of abstinence-only sex education. She was said to have sought to make rape victims pay for their own medical exams, to have Alaska secede from the Union, and to get Pat Buchanan elected President. She was reported to believe that the Iraq war was mandated by God, that the end-times prophesied in the Book of Revelation were nearing and only Alaska would survive, and that global warming was purely a myth. None of this was true.

Her personal life came under withering assault as well. Palin’s capacity to function as a senior elected official while raising five children was repeatedly questioned by liberal pundits who would never dare to express such views about a female candidate whose opinions were more congenial to them. Her teenage daughter’s pregnancy was splattered all over the front pages (garnering three New York Times stories in a single day on September 2). Some bloggers even suggested her youngest child had not issued from her, but from her daughter instead, and that she had participated in a bizarre cover-up. I attended a gathering in Washington at which a prominent columnist wondered aloud how Palin could pursue her career when her religious beliefs denied women the right to work outside the home.

Palin became the embodiment of every dark fantasy the Left had ever held about the views of evangelical Christians and women who do not associate themselves with contemporary feminism, and all concern for clarity and truthfulness was left at the door.

To be sure, some criticisms of Palin were entirely appropriate. She had no experience in foreign or defense policy and very little expertise in or command of either. In a time of war, with a seventy-two-year-old presidential candidate who had already survived one bout with cancer, this was a cause for very real concern. And Palin did perform dreadfully in some early interviews. Some of her more level-headed critics did make their case on these grounds. But the more common visceral hostility toward her seemed to have little to do with these objections. Rather, the entire episode had the feel of a kind of manic outburst; it was triggered by a false understanding of who Palin was, and once it began, there was no stopping or controlling it.

The reaction to Palin revealed a deep and intense cultural paranoia on the Left: an inclination to see retrograde reaction around every corner, and to respond to it with vile anger. A confident, happy, and politically effective woman who was also a social conservative was evidently too much to bear. The response of liberal feminists was in this respect particularly telling, and especially unpleasant.

“Her greatest hypocrisy is her pretense that she is a woman,” wrote Wendy Doniger, a professor at the University of Chicago. “Having someone who looks like you and behaves like them,” said Gloria Steinem, “who looks like a friend but behaves like an adversary, is worse than having no one.”

This preposterous effort to excommunicate Palin from her gender suggests that the kind of new-order feminism she represents—a feminism that embraces cultural traditionalism and workplace egalitarianism at the same time—is especially frightening to those on the feminist Left because they recognize its power and appeal. The attempt to destroy Sarah Palin by rushing to paint her as a backwoods extremist was not a show of strength, but rather a sign of desperation.

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Meanwhile, on the Right, Palin was the cause of a manic episode of a different sort. The governor’s touching life story, her folksy way of speaking, and her gut-level appeal to the culture of the lower middle class exercised tremendous power over many conservatives, which inclined them to fill the sizable blanks in Palin’s political profile with their own wishful assumptions, and to make flustered excuses for her shortcomings.

There was a strong case to be made in her defense. Palin had as much foreign-policy experience as most governors do, and Americans have been willing time and again to overlook such inexperience in their hunger for proven executive acumen in Washington. (Four of the last five Presidents had been governors, after all, and Palin was running for Vice President with a foreign-policy expert at the top of the ticket.) And while Palin seemed out of her depth in several television interviews, she was extraordinarily effective on the stump, was a quick study, and proved to be at least an even match for Joe Biden, a six-term senator, in the vice-presidential debate.

Yet, for all these defenses, there could be no denying Palin’s real deficiencies. Nonetheless, Palin was embraced practically without reservation in many conservative circles. The very heat of the Left’s campaign against her made her all the more a darling of the Right. She became the 2008 poster child for the longstanding conservative grudge against the mainstream media. And, of course, having warmly accepted her unborn child with Down syndrome and having supported and encouraged her teenage daughter’s decision to bring to term an unplanned pregnancy and to marry the baby’s father, Palin instantly became an icon of the pro-life cause.

It seemed to matter not a whit that Palin had never taken any action on abortion in her time as governor, and rarely had much to say on the subject. Indeed, even as she campaigned before captivated audiences, drawing tens of thousands of proud conservatives to rallies in a display of rock-star popularity no vice-presidential candidate had ever earned, Palin barely spoke about abortion or social issues.
Palin did not merit her instantaneous conversion into the Joan of Arc of the American Right, just as she did not deserve the opprobrium that was heaped upon her by the Left.

So why did it happen? What was the Palin episode really about? The answer has much to do with the age-old tension between populism and elitism in our public life, which is to say, between the notion that we are best governed by the views, needs, and interests of the many and the conviction that power can only be managed wisely by a select few.

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In American politics, the distinction between populism and elitism is further subdivided into cultural and economic populism and elitism. And for at least the last forty years, the two parties have broken down distinctly along this double axis. The Republican party has been the party of cultural populism and economic elitism, and the Democrats have been the party of cultural elitism and economic populism. Republicans tend to identify with the traditional values, unabashedly patriotic, anti-cosmopolitan, non-nuanced Joe Sixpack, even as they pursue an economic policy that aims at elite investor-driven growth. Democrats identify with the mistreated, underpaid, overworked, crushed-by-the-corporation “people against the powerful,” but tend to look down on those people’s religion, education, and way of life. Republicans tend to believe the dynamism of the market is for the best but that cultural change can be dangerously disruptive; Democrats tend to believe dynamic social change stretches the boundaries of inclusion for the better but that economic dynamism is often ruinous and unjust.

Both economic and cultural populism are politically potent, but in America, unlike in Europe, cultural populism has always been much more powerful. Americans do not resent the success of others, but they do resent arrogance, and especially intellectual arrogance. Even the poor in our country tend to be moved more by cultural than by economic appeals. It was this sense, this feeling, that Sarah Palin channeled so effectively. Her appearance on the scene unleashed populist energies that McCain had not tapped, and she both fed them and fed off them. She spent the bulk of her time at Republican rallies assailing the cultural radicalism of Barack Obama and his latte-sipping followers, who, she occasionally suggested, were not part of the “the real America” she saw in the adoring throngs standing before her. Palin channeled these cultural energies more by what she was than by what she said or did, which contributed mightily to the odd disjunction between her professional resume and her campaign presence and impact.

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Palin’s cultural populism put her at odds with the foe that did her the most serious damage: the nation’s intellectual elite, whose initial suspicion of her deepened into outright loathing as the campaign progressed. Her inability in interviews to offer coherent answers about the Bush Doctrine, regulatory reform, and the Supreme Court’s case history, together with her unexceptional academic record and the fact that she had spent almost no time abroad, were offered as evidence that Palin represented a dangerous strain of anti-intellectualism on the Right.

She was, the Left-leaning Christopher Hitchens insisted, “a religious fanatic and a proud, boastful ignoramus.” The Right-leaning David Brooks called Palin “a fatal cancer to the Republican party” because her inclination “is not only to scorn liberal ideas but to scorn ideas entirely.”

Palin never actually boasted of ignorance or explicitly scorned learning or ideas. Rather, the implicit charge was that Palin’s failure to speak the language and to share the common points of reference of the educated upper tier of American society essentially rendered her unfit for high office.

This form of intellectual elitism is actually fairly new in America, though it has been a dominant feature of European society since World War II. It is not as exclusive or as anti-democratic as cultural elitism is in other countries, because entry to the American intellectual elite is, in principle, open to all who pursue it. And pursuing it is not as difficult as it once was, at least for the middle class. Indeed, most of this elite’s prominent members hail from middle-class origins and not from traditional bastions of American privilege and wealth. They can speak of growing up in Scranton, even as they raise their noses at dirty coal and hunting season.

Nor is membership in the intellectual upper class determined by diplomas hanging on the wall. Palin could have gained entrance easily, despite the fact that she holds a mere degree in journalism from the University of Idaho. Although the intellectual elite is deeply shaped by our leading institutions of higher learning, belonging to it is more the result of shared assumptions and attitudes. It is more cultural than academic, more NPR than PhD. In Washington, many politicians who have not risen through the best of universities work hard for years to master the language and the suppositions of this upper tier, and to live carefully within the bounds prescribed by its view of the world.

Applied to politics, the worldview of the intellectual elite begins from an unstated assumption that governing is fundamentally an exercise of the mind: an application of the proper mix of theory, expertise, and intellectual distance that calls for knowledge and verbal fluency more than for prudence born of life’s hard lessons.

Sarah Palin embodied a very different notion of politics, in which sound instincts and valuable life experiences are considered sources of knowledge at least the equal of book learning. She is the product of an America in which explicit displays of pride in intellect are considered unseemly, and where physical prowess and moral constancy are given a higher place than intellectual achievement. She was in the habit of stressing these faculties instead—a habit that struck many in Washington as brutishness.

This is why Palin was seen as anti-intellectual when, properly speaking, she was simply non-intellectual. What she lacked was not intelligence—she is, clearly, highly intelligent—but rather the particular set of assumptions, references, and attitudes inculcated by America’s top twenty universities and transmitted by the nation’s elite cultural organs.

Many of those (including especially those on the Right) who reacted badly to Palin on intellectual grounds understand themselves to be advancing the interests of lower-middle-class families similar to Palin’s own family and to many of those in attendance at her rallies who greeted her arrival on the scene as a kind of deliverance. But it is hard to escape the conclusion that while these members of the intellectual elite want the government to serve the interests of such people first and foremost, they do not want those people to hold the levers of power. They see lower-middle-class populists like Palin and their supporters as profoundly ill-suited for governance, because they lack the accoutrements required for its employment—especially in foreign policy, which, even more than domestic affairs, is thought to be an intellectual exercise. It is for this reason that Barack Obama, who actually has far less experience in executive governance than Palin, was not dismissed as unprepared for the presidency. Palin may have been elected governor of Alaska, but his peers in Cambridge had elected Obama editor of the Harvard Law Review. He is thoroughly fluent in the parlance of the college town, and in the eyes of the new American elite, Washington is the ultimate college town.

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The reaction of the intellectual elite to Sarah Palin was far more provincial than Palin herself ever has been, and those who reacted so viscerally against her evinced little or no appreciation for an essential premise of democracy: that practical wisdom matters at least as much as formal education, and that leadership can emerge from utterly unexpected places. The presumption that the only road to power passes through the Ivy League and its tributaries is neither democratic nor sensible, and is, moreover, a sharp and wrongheaded break from the American tradition of citizen governance.

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And yet one must acknowledge that Palin was a problematic candidate. Charismatic and thrilling though she was at first glance, and impressive and dogged though she was throughout her 66-day run, she ended up at the center of a political and cultural vacuum of her own creation. She began by opening up a huge space for herself, and then was unable to fill it.

The sense of potential that accompanied Palin’s introduction, and the feeling that she might really reverse the momentum of the campaign, were not illusory. For two weeks or so, the polls moved markedly in McCain’s direction, as it seemed that his running mate was something genuinely new in American politics: a lower-middle-class woman who spoke the language of the country’s ordinary voters and had a profound personal understanding of the hopes and worries of a vast swath of the public. She really did seize the attention of swing voters, as McCain’s team had hoped she might. Her convention speech, her interviews, and her debate performance drew unprecedented audiences.

But having finally gotten voters to listen, neither Palin nor McCain could think of anything to say to them. Palin’s reformism, like McCain’s, was essentially an attitude devoid of substance. Both Republican candidates told us they hated corruption and would cut excess and waste. But separately and together, they offered no overarching vision of America, no consistent view of the role of government, no clear description of what a free society should look like, and no coherent policy ideas that might actually address the concerns of American families and offer solutions to the serious problems of the moment. Palin’s populism was not her weakness, but her strength. Her weakness was that she failed to tie her populism to anything deeper. A successful conservative reformism has to draw on cultural populism, but it has also to draw on a worldview, on ideas about society and government, and on a policy agenda. This would make it more intellectual, but not necessarily less populist.

McCain’s advisers were right about Palin: she was a mirror image of John McCain. She was not a visionary politician, or a programmatic politician, but an attitude politician with an appealing biography. In the end, she was no more able than McCain to offer a coherent rationale for his presidency.

That was not her job, though; it was his. The striking thing about the last two months of the 2008 presidential race was not Palin’s inability to turn things around decisively for McCain, but her success in giving McCain a lead for even a short while. She seized the imagination of the public in a way that scared the Left, and rightly so. It is not Palin’s fault that McCain was incapable of harnessing the phenomenal response to his running mate to his own advantage.

In the end, Palin had a modest impact on the race. About 60 percent of those interviewed in the exit polls said McCain’s choice of Palin had been a factor in their vote. Of these, 56 percent voted for McCain while only 43 percent voted for Obama. In other words, she appears to have helped McCain more than she hurt him, but not by much, which is as it should be; we were voting for a President, after all. In the face of unprecedented attack, Palin succeeded where almost no vice-presidential candidate ever has before in winning sustained support for the ticket.

This suggests Palin’s potent combination of cultural populism and social conservatism might provide the roadmap a Republican politician will need in the future to make headway against the Democratic tide. But that roadmap will only take that Republican politician so far. The rest of the journey requires the articulation of a broader vision for American families, American prosperity and freedom, and American security; a vision of conservatism, not only a nimbus of populism.

There is every reason to believe Palin will try to accomplish just this in a future national election. It may be, however, that other ambitious Republicans will be better suited to the task of perfecting the formula for electoral success she introduced last fall.

Either way, the Palin moment shed a powerful light on the power, the potential, and the ultimate inadequacy of a conservatism grounded solely in cultural populism. It also exposed the vulnerability of the Left to a challenge to its most cherished claims—as the sole representative of the interests of the working class and the only legitimate path to political power for an ambitious woman.

And, perhaps even more telling, it revealed the unfortunate and unattractive propensity of the American cultural elite to treat those who are not deemed part of the elect with condescension and contumely.

Don't Push Banks to Make Bad Loans

There is a widespread belief that banks are now refusing to lend as much as they should, and that Congress should pressure them to extend more credit to consumers and businesses.

In reality, banks as a whole increased their lending during 2008 -- the notion they haven't is based on a misunderstanding of U.S. credit markets. Pressuring banks to lend more could backfire.

Lost in too many discussions of the financial sector is that banks and other depository institutions account for only 22% of the credit supplied to the U.S. economy (down from 40% in 1982). "Shadow banking" -- notably asset securitization and money-market mutual funds -- now supplies 33% (up from 14%). Insurance companies, other financial intermediaries, nonfinancial firms and the rest of the world provide the balance.

As far as commercial banks go, Federal Reserve data released last week show that their lending increased 2.36% during the last quarter of 2008. For all of 2008, commercial-bank lending rose by $386 billion, or 5.63%, even as the economy slid into recession. Over that 12-month period, business lending jumped $152 billion, or 10.6%, real-estate loans were up $213 billion, or 5.9%, and consumer lending rose $73.5 billion, or 9%. Other categories of bank lending such as loans to farmers, broker-dealers and governments, declined $53.2 billion, or 5.4%.

Fed data also show that during the first three quarters of 2008, the total amount of credit supplied to the economy increased $1.91 trillion, or 3.8%, with $540 billion of that amount coming from foreign lenders.

Nevertheless, Treasury recently demanded that the 20 largest recipients of government capital investments start providing detailed monthly reports about their lending and investment activities. This new requirement could lead to government lending mandates. That would not be a good idea.

In the first place, the drop in stock-market and house prices has made millions of families feel poorer and led them to save more than in recent years. It has also encouraged them (especially Baby Boomers approaching retirement) to pay off debt. They don't need more debt.

More broadly, many of the most creditworthy neither need to nor want to borrow right now. Richard Davis, CEO of U.S. Bancorp, recently said that he is seeing the demand for loans diminish at his and other banks "from people and businesses spending less and traveling less and watching their nickels and dimes."

Lenders moreover have tightened lending standards, correcting an excessive laxness that contributed to our financial mess. Zero or very low down-payment mortgages are out, as are "covenant light" corporate loans. Likewise, lenders have trimmed credit-card limits and cut the amount of money available under home equity lines of credit as home values have declined.

And contrary to the "lend more" message broadcast from inside the Washington Beltway, bank examiners are criticizing weak loans and forcing banks to tighten lending standards. Bankers are caught in a vise between politicians and examiners.

A lot of the credit tightness is a reflection of the near-collapse of loan securitization. Recent Fed plans to buy asset-backed securities may help revive asset securitization, but bankers have no control over the fate of that initiative.

The economy is in recession and working off the consequences of a housing bubble fed by excessive mortgage credit. Given that loan demand typically falls during a recession, it's amazing that bank lending increased as much as it did last year. It was essentially flat during the 2001 recession.

Bankers should always lend prudently, as they are now doing. If they are jawboned or worse by Washington into reckless lending, the U.S. will set itself up for another debt crisis, even before the present mess has been cleaned up.

Mr. Ely, the principal in Ely & Co. Inc., is a financial institutions and monetary policy consultant.

How Government Prolonged the Depression

The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR's policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.

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A man selling apples during the Great Depression.

The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.

Even comparing hours worked at the end of 1930s to those at the beginning of FDR's presidency doesn't paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn't just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.

Why wasn't the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.

So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.

The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation's antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of "fair competition" which spelled out what producers could and could not do, and which were designed to eliminate "excessive competition" that FDR believed to be the source of the Depression.

These codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive capacity by placing quotas on industry investment in new plants and equipment. Following government approval of each industry code, industry prices and wages increased substantially, while prices and wages in sectors that weren't covered by the NIRA, such as agriculture, did not. We have calculated that manufacturing wages were as much as 25% above the level that would have prevailed without the New Deal. And while the artificially high wages created by the NIRA benefited the few that were fortunate to have a job in those industries, they significantly depressed production and employment, as the growth in wage costs far exceeded productivity growth.

These policies continued even after the NIRA was declared unconstitutional in 1935. There was no antitrust activity after the NIRA, despite overwhelming FTC evidence of price-fixing and production limits in many industries, and the National Labor Relations Act of 1935 gave unions substantial collective-bargaining power. While not permitted under federal law, the sit-down strike, in which workers were occupied factories and shut down production, was tolerated by governors in a number of states and was used with great success against major employers, including General Motors in 1937.

The downturn of 1937-38 was preceded by large wage hikes that pushed wages well above their NIRA levels, following the Supreme Court's 1937 decision that upheld the constitutionality of the National Labor Relations Act. These wage hikes led to further job loss, particularly in manufacturing. The "recession in a depression" thus was not the result of a reversal of New Deal policies, as argued by some, but rather a deepening of New Deal polices that raised wages even further above their competitive levels, and which further prevented the normal forces of supply and demand from restoring full employment. Our research indicates that New Deal labor and industrial policies prolonged the Depression by seven years.

By the late 1930s, New Deal policies did begin to reverse, which coincided with the beginning of the recovery. In a 1938 speech, FDR acknowledged that the American economy had become a "concealed cartel system like Europe," which led the Justice Department to reinitiate antitrust prosecution. And union bargaining power was significantly reduced, first by the Supreme Court's ruling that the sit-down strike was illegal, and further reduced during World War II by the National War Labor Board (NWLB), in which large union wage settlements were limited by the NWLB to cost-of-living increases. The wartime economic boom reflected not only the enormous resource drain of military spending, but also the erosion of New Deal labor and industrial policies.

By 1947, through a combination of NWLB wage restrictions and rapid productivity growth, we have calculated that the large gap between manufacturing wages and productivity that emerged during the New Deal had nearly been eliminated. And since that time, wages have never approached the severely distorted levels that prevailed under the New Deal, nor has the country suffered from such abysmally low employment.

The main lesson we have learned from the New Deal is that wholesale government intervention can -- and does -- deliver the most unintended of consequences. This was true in the 1930s, when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk.

President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries -- including autos and steel -- are no longer internationally competitive. Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn't directly address the specific impediments that our economy faces is unlikely to achieve either the country's short-term or long-term goals.

Mr. Cole is professor of economics at the University of Pennsylvania. Mr. Ohanian is professor of economics and director of the Ettinger Family Program in Macroeconomic Research at UCLA.