The Civil War is Not Over?

Mark Thoma has a blog called Economist's View which provides a wonderful running account of economic thought. Here is a piece that he has pulled out of the Washington Post and edited down to the key points. Very interesting stuff, and I love the catchy bit about Lehman aid!

The Big Bailout Lessons, by Harold Meyerson, Commentary, Washington Post: Two things we learned about our ... economy in 2008: Lesson One: If it's big and you don't regulate it, you end up nationalizing it. ...[U]nregulated and underregulated capitalism ends up confronting democratic governments with a subprime choice: Either let a major institution go down and watch as chaos follows (the Lehman option) or funnel gobs of the public's money into such institutions to avoid such Lehman-like chaos. ...

When the American financial industry came tumbling down this year, the laissez-faire ideologues of this most ideological administration indulged their ideology just once, allowing Lehman to go under. Thereafter, as one giant institution after another tottered under the weight of dubious deals, the administration tossed ideology out the window and funneled money to the banks.

Laissez faire be damned, the ideologues concluded: When handed a Lehman, make Lehman aid.

The lesson for 2009 couldn't be clearer: To avoid nationalization, you need regulation. Or, the lesson's ideological corollary: To avoid socialism (to whatever extent throwing public money at banks is socialism), you need ... the willingness to restrain capitalism from its periodic self-destruction...

Lesson Two: In matters economic, the Civil War isn't really over. ...Abraham Lincoln ... might detect in the congressional war over the automaker bailouts a strong echo of the war that defined his presidency. Now as then, the conflict centered on the rival labor systems of North and South. Now as then, the Southerners championed a low-wage, low-benefits system while the North favored a more generous one. And now as then, what sparked the conflict was the North's fear of the Southern system becoming the national norm. ...

Over the past century, of course, the conflict between North and South has been between union and non-union labor. The states of the industrial Midwest and the South ... developed two distinct economies. Residents of the unionized north enjoyed higher ... paychecks and ... higher public outlays on health and education, than did their counterparts in the union-resistant South.

But, just as Lincoln predicted, the United States was bound to have one labor system prevail, and the debate over the General Motors and Chrysler bailout was really a debate over which system -- the United Auto Workers' or the foreign transplant factories' -- that would be. ...