Steady On The Helm

Today's WSJ on how to Survive the Panic:

As for the larger economy, the last 13 months are a guide to what not to do. The Fed recklessly cut interest rates, while Congress and the White House dropped "rebate" checks from helicopters. The rate cuts ignited another oil and commodity spike that walloped middle-class consumers, while the rebates did nothing to change incentives or lift investment.

We hope the Fed heeds this lesson and holds firm on rates today. Yesterday it injected $70 billion in liquidity to stabilize the fed fund rate at its peg of 2%, as it should in a crisis. But that money can be withdrawn over time as the crisis eases. Meanwhile, a more cautious monetary policy overall will help the dollar, which in turn will mean lower oil prices and more capital flows to the U.S.

What the economy really needs is a big pro-growth tax cut, the kind that will restore confidence and risk-taking. This is an opportunity for both candidates, but especially for Mr. McCain. Instead of focusing on an extension of the Bush tax cuts, the Arizonan should offer his own tax cut to revive capital markets and prevent a recession. Democrats will claim he's helping "the rich," but our guess is that every American who owns a 401(k) will figure he's one of those "rich."

One great lesson of past panics is that they needn't become crashes, if policy makers make the right decisions. Thirteen months into this crisis, the best choices are the same as they were last August: energetic emergency plumbing to protect the financial system, steady monetary policy to defend the dollar, and a tax cut to spur growth. It's also the kind of agenda -- and leadership -- that could win an election.

Chances the government will follow these prudent steps? Slim to none. Fasten your seat belts.

McCain and Obama are blaming the financial fallout on "greed" and "not enough regulation" while ignoring the key fuel for the fire. Greed is a given of human nature and is not something you can legislate away. If you impose enough regulation to prevent any chance of another speculative bubble, you also strangle the initiative and incentive necessary to stimulate the economy. But one thing that government can do is end the days of easy money by pursuing a sound monetary policy. Not something that either candidate is talking about much these days.