Changing Circumstances

Rip Van Winkle Economics—David Frum

There's an ancient corny joke: How do you get down off an elephant? Answer, you don't get down off an elephant, you get down off a duck.

A lot of our economic debate takes the form of getting down off a duck, such as, for example, today's oped in the Wall Street Journal by Phil Gramm and Glenn Hubbard.

Here are two of the smartest men on the economic right, one a former chairman of the Senate banking committee, the other a former chair of the Council of Economic Advisers.

Yet they insist on treating today's economic crisis as a repeat of 1979-81—and Europe's agony as a debt crisis (which it isn't), not a currency crisis (which it is).

Why? Well you will consider only one policy solution—cut taxes and regulations—then you must insist that there can be only one policy problem.

Yet in almost every way, today's economic problems are exactly the opposite of those of 30 years ago. Then we had inflation, today we are struggling against deflation. Then we had weak corporate profits, today corporations are more profitable than ever. Then we had slow productivity growth, today it is high. Then the to-individual income-tax rate was 70%. Today it is 36%. Then energy regulations produced energy shortages. Today the removal of banking regulations has produced an abundance of debt.

Europe's problems are especially difficult to address on the Wall Street Journal, because they are caused by exactly following that paper's editorial advice. That paper fiercely advocated the Euro currency, without which today's European sovereign-debt problems would be manageable in every economy except Greece's.

One of the saddest ill effects of age is that the brain freezes in patterns set long ago. The mind finds it difficult to acknowledge new realities, much less devise or even accept new solutions. And as our societies age, such brain freezes becoming an ever more endemic challenge to the making of sound public policy.

As Macchiavelli wrote 500 years ago: "For this is the tragedy of man: circumstances change and he does not."