Bob Barr: Search for economic fix misses best example

Is all this happening by trial-and-error, as seems often to be the case; or is there really a “plan” according to which administration officials, including Treasury Secretary Timothy Geithner, are orchestrating the most massive economic bailout in eight decades? Two bailout models seem to be floating around the meeting rooms and briefing papers in our nation’s capital nowadays. Unfortunately, both are deeply flawed.

The first and most obvious bailout model is the Japanese. This is the favorite among those advocating directing taxpayer funds to “infrastructure” — that is, roads, bridges, power plants, and other public works projects. That such a model would hold allure for Geithner is not surprising; after all, it was the model favored by Japan in the 1990s when Geithner was serving in Tokyo as an economic attaché.

Beginning in 1991, Japan poured some $6.3 trillion into public works projects of dubious economic value, in a doomed effort to pull its economy out of the doldrums created when the country’s overheated real estate bubble burst. Results of the country’s failed effort to salvage the world’s second-largest economy are seen everywhere today — bridges to nowhere, airports devoid of travelers, public museums yearning for visitors and rural highways eerily uncongested.

The spending reflected a pattern seen in countries around the world, including ours — allocating public monies based not on long-term need and sound policy, but on political expediency and feel-good decisions. Not surprisingly, the results mirrored those reaped by spendthrift politicians everywhere — soaring debt and lackluster results. During that same period, Japan managed at least one dubious honor — the country accumulated the largest public debt in the developed world.

American economists enamored of Japan’s model have proposed a hybrid of the Japanese model. These economic hotshots believe the Japanese experience failed not because it was a flawed policy model to begin with, but because — get this — Japan did not spend sufficiently on it for a long enough period of time! If only Tokyo had thrown another $6 trillion at building bridges to nowhere, and stretched the spending out another decade; well, then it would have worked.

God help us if this is indeed the planned blueprint for the Obama bailout.

But there is another model making the rounds — the Swedish model. This template is favored by the nationalization whiz kids because its primary thrust is for the government to “quickly and decisively” (words elected officials love to use to describe their own actions) take control of the banks that led the economy to crisis, and then just as “decisively” return control of them to the private sector.

In fact, the Swedish model is just as inapposite to the situation facing our economy as the Japanese. For one thing, the Swedish economy, including its financial sector, was already heavily controlled by the central government in the early 1990s. Its economy was far smaller and infinitely less complex than our economy in 2008.

It was relatively easy for the Swedish government to identify the two (literally) banks to nationalize and run for a few years. The financial instruments in that small economy were also much less complex than those on which our current financial house of cards is based, including many millions of financial instruments for which no one has any idea of their worth.

For much of our nation’s history, America set the standard for economic development in the world. Our nation’s leaders — at least most of them — recognized that private businesses and individuals were better able than government to make economic decisions that in the aggregate would lead to economic progress.

We led. We prospered. Other nations followed us. They who emulated our economic freedom model also prospered.

Instead of timidly searching the world for a government-based economic model to rescue our economy, Geithner and the rest of the crew in Washington ought to take crash courses in American history and in Adam Smith; both taught by Steve Forbes.

Or, even better, get out of the way and let someone like Forbes lead.

• Bob Barr, an Atlanta attorney, was a Georgia congressman and Libertarian presidential candidate.