Amity Shlaes has an editorial by that name today at the New York Sun:
When a market crash is big enough, people are too panicked to think about the technicalities of reform. They think about the names they are losing and the names who, they hope, will save the day.
Names certainly have their uses in tense moments like this one. But only rules can bring the markets back in the longer run.
But it was, as she rightly points out, men who got us in this situation:
But maybe it was too many heroes on the stage that got us to this point. A former Federal Reserve chairman, Alan Greenspan, assumed the rank of deity in the last decade of his tenure. In hindsight, his task would have been simpler and more transparent had he not been required to advance the Fed’s two conflicting mandates: keeping employment high and inflation low.
I’ve been ranting about the Fed’s dual mandate for some time. The two goals are sometimes, if not usually, mutually exclusive. Not to mention that the Fed cannot cause growth by manipulating the monetary lever.
Shlaes then puts forth three rules we should implement:
First, no more bailouts. Otherwise, it is already clear, the auto companies will be next. The airlines are also in line.
Heck, you can even give this reform a name: The Lehman Rule — and then hope that the Treasury abides by it. One reason the Dow drooped during Mr. Paulson’s press briefing on Monday was that he seemed to be indicating he might break the rule soon.
Second, clean up the rating system so that numbers speak something closer to the truth.
Third, make America more competitive by lowering corporate taxes and other levies so foreign firms will want to fill our new vacuum.
I would add one more: give the Fed the sole mandate of maintaining a stable currency. That will solve the inflation problem and relegate the growth problem to its proper place – fiscal policy. Taxes and regulation are the answer to growth, not creating new money.