Seizing the Commanding Heights

 by Jerry O’Driscoll

 On the Opinion page of yesterday’s Wall Street Journal, George Melloan spells out how government stimulus is stifling lending, crowding out private investment and impeding economic recovery. 

He writes that “the credit market has been tilted to favor a single borrower with a huge appetite for money, Washington.” It has done so in a number of ways.  

First, the Fed announced that it will evaluate bankers’ pay on the basis of how well they manage risk.  How better to be a good risk manger in a bureaucrat’s eyes than to take no risk?  Purchasing Treasury obligations and federal agency paper is the sure way to avoid risk.  The Fed has a second policy to make that strategy profitable: zero interest-rate borrowing to finance Treasury and agency debt yielding 3%.or more.  The Fed continues to signal it will keep rates low, diminishing interest-rate risk.  

These policies are choking off the supply of credit to the private sector, espcially small business.  To add to the problem of small business, the Fed and the Treasury have a third policy of credit allocation to major banks like Citigroup, Bank of America and JP Morgan Chase; large industrial firms like GM and Chrysler; and such entities as money-market mutual funds.   

The government crowds out the private sector overall, and Wall Street crowds out Main Street.  

Melloan doesn’t state it, but there is a name for this economic policy: corporatism.  Big government favors selected big business and rewards big labor as a junior partner. It’s not socialism, but the economic component of a fascist political program.    Credit administered on a favorable terms is the narcotic that anesthetizes businessmen to the creeping government control of their firms. To paraphrase Lenin, government seizes control of the commanding heights of the economy.  

After the loss of economic liberty, can political liberty survive?  As Melloan concludes, “it’s not unlike what we witnessed in the depression of the 1930s.”


5 thoughts on “Seizing the Commanding Heights

  1. Hi Jerry,

    Paul Kasriel of Northern Trust rebuts George Melloan’s article asserting that it hasn’t been about interventionism but the cyclical nature of recessions.

    See post below…

    Click to access popup_noprint.html

    Hope to hear your reaction on this

    Thanks and more power,


  2. Thanks to Benson for the Paul Kasriel link. As I read Paul’s analysis, the differences are in part over emphasis. (Look at all the use of italics to emphasize proportionality.)

    The fall off in gov’t. revenues drives deficits in recessions. But TARP plus the stimulus is well over $1 Trillion of new spending. Plus much of what the Fed is doing is disguised fiscal policy, i.e., spending. Three agencies now engage in spending: Congress, the Treasury and the Fed.

    Paul doesn’t address the corporatism argument. As I understand it, Melloan does nn his book though not in the op ed.

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