Does anyone remember ? it was just over a month ago ? the day when the Dow fell over 700 points and the economically illiterate media shrieked that it was proof that the markets were crying out for a federal bailout? Others, including several economists, interpreted the results quite differently: that the markets were reacting to the prospect that a federal bailout was imminent. The markets’ temporary rebound when the original bailout attempt failed seemed to support the latter interpretation.

The Dow closed that day at 10,365 points ? which is nearly 3,000 points higher than where it is now (at this writing, there has been another big selloff; the Dow is at 7,622 points, and S&P is at its lowest level since 1997).

We have witnessed a sea change at the Fed and in Washington with respect to the government’s role in the economy, and if it has people thinking of the 1930s and the 1970s, there’s a good reason, for we’ve seen a return to the failed Keynesian economic nostrums of aggressive government manipulation of the economy that perpetuated those decades’ economic miseries.

First, the entire election-haunted political class favored an “economic stimulus” package for taxpayers below Evil income levels, then they favored a gigantic, superfluous bailout, then voters elected a “spread the wealth”1 socialist who excelled at making Marxist redistribution sound like low-tax Reaganism (I’m only going to raise taxes on a few of you; the rest of you will get a break), then more bailout rent seekers (from automakers to entire states) came out of the woodwork, and meanwhile, markets had to factor in the status quo ? surprisingly never challenged in the election by either party ? of massive tax increases at the end of 2010 when the Bush tax cuts of 2001 and 2003 sunset.

Note

1. Socialists “spread the wealth” the way pickup trucks spread ‘possums. They never, ever understand the idea that wealth is dynamic, that it can be created or destroyed, and that freedom allows its creation, while redistributory statism leads to its destruction.