The politics a crisis leaves behind

When crises hit, it is quite common to think it is us who are living in unprecedented times, even if we have already experienced a few severe downturns. In many ways, this is not far from the truth. Speculation was nothing new when the dot-com bubble hit in the 1990s, but this time it was accompanied by the widespread adoption of new technology. The most severe recession since the calamity of the Great Depression was prompted by a housing bubble that didn’t care about state lines. The corona crisis is similar to the Spanish flu, and yet we are connected like never before.

Governments, ancient as well as modern, noted Adam Smith, have long resorted to “juggling tricks” when confronted with their fiscal folly. But from its origins, and for more than a century and a half, economics was a branch of moral philosophy, a social science discipline. In the wake of the Great Depression, however, the scope and scale of the juggling tricks dramatically increased, laying the foundations for a far more interventionist economic order. Fascinated by the natural sciences, economics was transformed into a “social physics.” Microeconomic regulations were supposed to deal with all sorts of market failures, no matter how loosely market failures were defined. All the while, macroeconomics was tasked with the management of key features—the big variables of the economy, such as GDP, unemployment, price indices, and so on. This changed the role of government from one closer to that of a night watchman, a sort of impartial referee, to an active corrective player.

However, crises alone do not necessarily cause the government to grow. Certain ideological conditions must also be met. The forgotten depression of 1920–21, which saw Woodrow Wilson’s inaction, followed by Warren Harding’s more deliberate restraint and a Federal Reserve still in its infancy, might be the last major example of a crisis that did not lead to significant government growth. What it allowed instead was the price mechanism to work its wonders, letting the depression become “the one that cured itself,” while staying put in the forgotten alleys of history.

Even under the credo, “what is good for the household is good for the economy,” running a deficit in a crisis is not necessarily the problem. You borrow when you need to. But you pay it back! In the 1930s, we changed the tracks on which the world ran. How do we solve crises today, if not by running deficits, accumulating public debt, and inflating away part of the real burden of debt? It took the U.S. 210 years for the national debt to hit the two-trillion-dollar mark; it took only two months and two days during the coronavirus crisis to add that same amount. By then, there was little doubt that deficits and debt would continue to increase. The only question was by how much.

Six years later, the direction of travel has hardly changed. Neither has the economic nationalism that was already increasing in 2020, intensifying the age-old “us versus them” and bringing mercantilism to our doorsteps. And this was hardly a Trump or Republican phenomenon. The Biden administration kept much of Trump’s trade policy toward China and went further down the road of industrial policy with the CHIPS and Science Act. Since returning to office, Trump has gone further still, with the federal government taking ownership stakes in more than 30 private companies, most notabily Intel.

None of this means collapse is inevitable. But history does offer warnings. The fall of Rome, one of the mightiest empires of all time, was a long and painful process. It was not a single feature that led to its fall. But in many ways, we seem to walk the same path: endless wars, spending what we don’t have, debasing the currency, and concentrating power in central government, to name a few. If we continue down that road, what we could end up with is a destroyed economy at best, or worse, a destroyed society. So we need to stop juggling. Even more so, we need to learn from the rich tradition and knowledge at our hands and figure out ways to stop public officials from juggling. But we also need to stop asking them to juggle in the first place. After all, we are the ones who elect politicians who promise to spend, protect, subsidize, and fix our problems, while leaving someone else to pick up the bill. And even though juggling doesn’t create wealth, it certainly seems to reward those closest to the jugglers: in the aftermath of the last financial crisis, eight of the ten richest counties in the U.S. were in the Washington, D.C. area.

This article is part of ECAEF’s Publish with Us initiative, which provides a platform for emerging authors to share their ideas and contribute to the debate on economics, politics, and individual liberty.

Simon Sarevski isa  founder and editor of Strixly, an independent publication exploring the ideas, institutions, and developments shaping civilization. He holds a BSc in Finance and have a particular interest in economics, political philosophy, and individual freedom.