Blackburn: Perpetual money swoons

WEST PALM BEACH, Fla. — Irving Fisher got himself a place in history books by saying, "Stock prices have reached what looks like a permanently high plateau." The first celebrity economist, Fisher was once as famous as Lou Dobbs is today. He is remembered for that comment about the stock market because he made it exactly one week before the Crash in 1929.

Fisher wasn't the first, only or worst prognosticator of 1929. He was simply the most famous one with bad timing. For 50 years afterward, people were smart enough not to say anything like that.

Market exuberance began creeping back in the 1980s. If you look for recent backfiring predictions, the library and Internet are full of them. A generation too young to remember the Great Depression thought that it invented the perpetual money machine. The alchemists of old went wrong trying to make gold out of base metals; the new masters of the universe tried to make profits out of debts.

If the economic convulsions continue — as they can, bailout or no bailout — John McCain may be remembered as the Irving Fisher of 2008 for saying that "the fundamentals of our economy are strong" on a day when even the secretary of the Treasury sounded like Chicken Little. But what McCain said was not exceptional. It is what true believers in the religion of the market always say, like "gesundheit."

Many of them couldn't name three fundamentals if they had to. The fundamentals have remained "sound" despite obese trade imbalances, in years of high unemployment and low profits and, recently, through seven years of wage stagnation except at the highest levels.

You can ignore it when the president or Treasury secretary say the fundamentals are sound. They say it for every blip in the business cycle. Wait, usually, until the Federal Reserve chairman says it before you start worrying. Chairman Ben Bernanke has gone past saying it. He is defending the widest government intervention in the economy since Richard Nixon froze every price and wage in the land in 1971.

Nixon's action was a desperate stab at stopping inflation. It struck a glancing blow. Asking Republicans to take socialist actions like that is like asking the pope to give the benediction at an atheism rally: He may know the theory, but his heart won't be in it. Now they are trying state socialism again.

"I am a strong believer in free enterprise," President Bush said Wednesday night, "so my natural instinct is to oppose government intervention." But even the socialists couldn't make socialism work, so why should we expect capitalists to get it right?

Well, they have to try because, Bush said, "The markets are not functioning properly." Actually, they are. They are performing the kind of "creative destruction" that is one of capitalism's characteristics. True free-market believers glory in creative destruction when things are going well and the destruction is happening to Midwest auto workers, not to them.

Cupidity and stupidity are supposed to be self-destructive in a free market. They have been destructive lately. But it turns out that the market — called the greatest economic mechanism in the history of human thought while cupidity and stupidity are paying off — has nerves as fragile as a dotty dowager's. If it has to watch a house of cards tumble, or even totter, it takes to its bed with a bad case of the collywobbles, sighing heavily and registering low confidence levels. Send the true believers to the bank to bring back smelling salts. And a bailout.

Looking back, Fisher may have been lucky. He is famous for being wrong. But if he had said the stock market was about to sink like the Titanic, as it was, he might have been blamed for bringing on the crash by sending it into one of those tremors that, one way of another, everyone, true believer or not, ends up paying for.

Tom Blackburn is a former member of