Conservatism's Fatal Flaw? Hitting the bottom hurts too much.

"Keep government out. Let the markets govern themselves. That is the way to growth and prosperity." This is the core of economic conservatism.

It sounds nice. But when the market is in a free fall, people don't want to wait for the crash when it hits bottom. It hurts too bad. So there is an incentive to aid the market. It has been that way since the 1930's.

When the depression of 1929 started, the conservative/Republican Hoover administration largely market forces continue. With skyrocketing unemployment and no safety net, the social costs were high. People did not want to pay the costs--Republicans were voted out and the Democratic era of government intervention to aid the economy, and the little guy, was introduced.

The Reagan Revolution convinced many people that free markets were the best path to renewed prosperity. But now we see that an unregulated (or misregulated) market led to a huge crash.

Alan Greenspan admitted his mistake-assuming that the markets could self-regulate.

Now the prevailing sentiment is: government intervention is needed to prevent a worse crash.

If you accept that some intervention is needed, the only issue is how much. Conservatism's central tenet--let market forces rule, free from government intervention--turns out to be (as Captain Barbossa famously said in Pirates of the Caribbean) "more of a guideline" than an "actual rule."

So conservatives and liberals agree on the fundamental principle: some government intervention is necessary and appropriate. The only question is: How Much?

The Parable of the Two Drivers--President-Elect Obama Gets Behind the Steering Wheel

Once upon a time a family went on vacation. They decided to spend the week at Prosperityland Resort. They were exited and piled into the family minivan. Dad took driver’s seat and Mom got shotgun. The kids sat in the back rows—all of them, and there were a lot of kids.

Unfortunately, Mom and Dad couldn’t agree on the best way to get ProsperityLand—Mom wanted to take the Interstate and Dad thought the scenic route would be better. They also couldn’t agree who would drive. They compromised. Mom and Dad each put a hand on the steering wheel. Mom put her foot on the brake, and Dad put his foot on the gas. Off they went!

You can guess what happened. Every time Mom pulled the car to the right, Dad jerked it back to the left. When Dad accelerated, Mom put on the brakes to keep him from going too fast—especially if he was steering the car the wrong way. The car lurched left, rocked right, spun out and skidded to a stop, again and again and again. Every time the family thought they were making progress, Mom would tell Dad that they had made a wrong turn, and should go back—or vice versa.

The kids took the brunt of it; they got car sick; they tired of wasting their vacation time driving when they should have been at ProsperityLand. So they got together and said “STOP.”

“Mom—you stay on the passenger side. Let Dad drive alone for a while. Don’t touch the steering wheel and don’t touch the brakes. You can give Dad advice, but he doesn’t have to take it if he doesn’t want to. We’ll let Dad drive for four hours—and if he can’t get us to ProsperityLand his way, we’ll let you take a turn, Mom.” Mom wasn’t happy about it but she didn’t really have a choice.

Off they went again… This time the driving was smoother. The kids could enjoy the scenery out the window without getting car sick. They could only hope, ProsperityLand was around the corner…

This parable is one reason to be glad for the decisive national election results. President Elect Obama will have the steering wheel and the Democrats will be driving. For the last 4-8 years, the Democrats and Republicans have been pulling the steering wheel back and forth. We certainly have not been in Prosperityland—maybe we were going in the wrong direction, or maybe we just missed the exit. But with one party steering the country for a while, perhaps we’ll get to ProsperityLand a little faster; and if we don’t, the kids will give Mom a turn.

The Messenger Is More Important Than The Message

I expect a strong victory by Barrack Obama in the upcoming presidential election.

There are parallels to the Reagan Revolution in 1980. In that election, Reagan demonstrated his skills as the "great communicator." He popularized conservatism by communicating his message of smaller government and less regulation. Reagan did it when the country was in an economic and political malaise, dissatisfied with the Carter administration. Reagan didn't bend his views to the popular will. Instead, he bent the public will to his views. Result: the country elected him, embracing conservative theories that hadn't been strongly advocated since the Goldwater era.

We're seeing the same phenomenon now. By the strength of his political charisma and communication skills, Obama is connecting with the middle range of the political spectrum. He is re-popularizing the traditional democratic liberal ideals of social improvement through governmental programs. He is bringing back a message that lost steam after the Johnson administration. Obama's programs are branded by Republicans as "tax and spend." But the messenger is so good that he can bring people around to his view.

These are hallmarks of major political figures: using the force of their communication skills to align public opinion with their policies. In this way, the Messenger is more important than the Message. Without the right Messenger, the Message is lost.

Paul Revere's Ride--in 2008

In Boston recently, I stopped in front of the statute commemorating Paul Revere. I got to thinking, if Paul Revere were alive today, what would he warn us about?

• The Terrorists are coming! The Terrorists are coming!
• The Credit Crisis is coming! The Credit Crisis is coming!
• The election is coming! The election is coming!

Things are much clearer in hindsight. The dangers facing us today seem diffuse and different. The best way to move ahead in an uncertain world is to to identify the most important priorities and follow those. And if you can find your own Paul Revere--someone who shares your priorities and is on the lookout for problems--follow Mr. Revere's advice.