Stimulating Times

During World War II, Oscar Levant, the pianist and wit, was asked by his draft board, "Do you think you can kill?" He replied, "I don't know about strangers, but friends, yes." Barack Obama might have felt that way when his Democratic friends in Congress proposed expanding contraception services as an economic "stimulus." Defending that (which was eventually dropped as indefensible), Nancy Pelosi said, "States are in terrible fiscal budget crises," partly because of all they do for children's health and education. Therefore, contraception, by reducing the number of wee parasites, "will reduce costs to the states and to the federal government." So: Children are a net cost to government and therefore (non sequitur alert) counterstimulative. Pelosi argues that a trillion dollars of other government outlays will be stimulative. In any case, the stimulus effect of more contraception would have been at least nine months in arriving.

The stimulus legislation is a strange response to the president's inaugural call for "a new era of responsibility." State and local governments, which in the five flush years 2003–07 irresponsibly increased spending five times faster than population growth, will get hundreds of billions. Forty-nine states have governors better than California's, but as that state sinks into insolvency (its budget deficit is 40 percent of the sum of all the states' deficits) Arnold Schwarzenegger is merrily saving the planet.

Last week the president gave California permission to impose, for vehicles sold there, one of Schwarzenegger's many dubious achievements—fuel-efficiency standards even more burdensome than the federal standards. California's market is so large, its standards will force upon Detroit's insolvent manufacturers (actually, upon taxpayers) the additional costs of hastening production of cars people do not want to buy (which is why government coercion is "necessary").

Rep. John Campbell, who owned a slew of automobile dealerships before coming to Congress from Southern California, has been told by a senior executive of Toyota's American operations that if Toyota were not making substantial profits from its SUVs and pickups, it could not continue making the Prius, which it sells at a loss. The federal government, which is in a position to dictate to mendicants, wants Detroit to make more cars like the Prius and fewer profitable vehicles. This is a novel business model.

Treasury Secretary Timothy Geithner stresses the importance of a plan to "unwind" government interventions in financial and other institutions. Being new to Washington, he probably thinks congressional Democrats want an exit strategy. Some do. Some do not. One flavor of liberalism holds that transferring wealth from the successful to the unsuccessful is not just an occasional unpleasant necessity; they think it generally serves social justice. A government controlled by Democrats is in a position to pressure banks about lending decisions. Will failing companies be allowed to fail for want of credit, merely because they are not creditworthy? Not likely.

During the Depression years of hunger, the New Deal ordered the slaughter of 6 million pigs. The theory (see President Roosevelt's May 14, 1935, speech on the Agricultural Adjustment Act) was, believe it or not, that one cause of the Depression—in 1935, people were selling apples on the streets; 20.1 percent were unemployed—was a "problem of overproduction." Government, FDR said, could keep production and consumption "in reasonable balance" so that farmers could charge "reasonable prices," as government intuited them. Last week Congress was importuned to have the government pay for the slaughter of dairy cattle in order to raise milk prices. Cows should die in Wisconsin so that mothers in Watts will pay a higher price—one that government deems "reasonable"—for milk for their children? The dairy lobby sees opportunity in a New Deal 2.0.

Fortunately, while the government, by its frenzied fidgets, is creating uncertainties that are certain to hinder recovery, the economy is responding to reality. Chrysler and the UAW have at long last agreed to terminate the preposterous "jobs bank," wherein laid-off workers receive almost full pay and benefits without working. A Wall Street Journal headline: PRICE CUTS SPUR HOME SALES. FALLING prices attract buyers—who knew?

McDonald's is one of the two corporations among the 30 that make up the Dow Jones industrial average that saw their share prices rise in 2008. McDonald's served 58 million people a day last year, up 2 million from 2007, and will add 650 stores this year. The other prospering company from the Dow 30 is Wal-Mart. See a pattern? Hershey, which has largely left the "premium" chocolate market (e.g., Dove candies) to others, saw its fourth-quarter net income soar 51 percent over 2007's fourth quarter. Markets are working; prices are driving behavior; people's consumption is conforming to reality.

One reality that might linger in people's minds after the economy recovers is this: The price difference between "the best" and the adequate often is much larger than the quality difference. All over America, local magazines identify, for the benefit of food snobs and other poseurs, their cities' "five best breads" and "five best lattes," as though settling for the sixth best would be a hardship. Come the recovery, Americans will be better off, and perhaps also better.