During the fall semester of 2008 many current and former students spoke with me about the upheaval in the stock market and other capital markets, and about the resulting (and ongoing) dramatic expansion of the reach of the federal government into the economy.  This, coupled with the electoral triumph of the more left-wing party in November's election, have led many to ask, "So, how did we get into this situation?"  I don't have any wisdom to dispense about the financial meltdown [for the "Austrian" explanation, see the March 13 and April 22 updates, below]; I can, however, point the interested reader to the following explanations of the path that led the country to its present predicament, with approximately 98% of all Americans calling on the federal government to "save us" via the bailout or "stimulus" check du jour.  As of today, there seems no end in sight.

If you would like a nice, short overview to get you started, I recommend Radley Balko, Myths of the Nanny State, Cato Policy Report (Sept/Oct 2006), www.cato.org/research/articles/cpr28n5-1.html  If you're not yet acquainted wtih "public choice" theory, which is the application of economic reasoning to problems drawn from politics and government, there's a good, short introduction in Pierre Lemieux, The Public Choice Revolution, Regulation (Fall 2004), www.pierrelemieux.org/artpublicchoice.pdf  After getting squared away with these first two (shorter) articles, take a plunge into the (somewhat) deeper end of the pool with the articles below.  I suggest reading them in the order shown.

Randall G. Holcombe (the Moore professor of economics at Florida State University)
Liberty and Democracy as Economic Systems
The Independent Review, vol. 6, no. 3 (winter 2002), pp. 407-425
www.independent.org/publications/tir/article.asp?a=148
and
Government: Unnecessary but Inevitable
The Independent Review, vol. 8, no. 3 (winter 2004), pp. 325-342
www.independent.org/publications/tir/article.asp?a=15

Daniel B. Klein (professor of economics at George Mason University)
The People's Romance: Why People Love Government (as Much as They Do)
The Independent Review, vol. 10, no. 1 (summer 2005), pp. 5-37
www.independent.org/publications/tir/article.asp?a=536

James Buchanan (Distinguished Professor Emeritus at George Mason University and Nobel Laureate in Economics, 1986)
Afraid to be free: Dependency as desideratum
Public Choice, vol. 124, nos. 1-2 (July 2005), pp. 19-31
www.springerlink.com/content/g6n46t030668m05m/

Bryan Caplan (associate professor of economics at George Mason University)
The Myth of the Rational Voter: Why Democracies Choose Bad Policies
Cato Institute Policy Analysis No. 594 (May 29, 2007)
www.cato.org/pub_display.php?pub_id=8262
and/or
Ilya Somin (assistant professor of law at George Mason University)
When Ignorance Isn't Bliss: How Political Ignorance Threatens Democracy
Cato Institute Policy Analysis No. 525 (September 22, 2004)
www.cato.org/pub_display.php?pub_id=2372

Paul Rubin (the Dobbs professor of economics at Emory University)
Folk Economics
Southern Economic Journal, vol. 70, no. 1 (July 2003), pp. 157-___
www.thefreelibrary.com/Folk+economics.-a0105658279
 

January 22, 2009 update:

As I hear stories about the Senate considering the nomination of Timothy Geithner to be Secretary of the Treasury, Adam Smith keeps coming to mind:  "The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it." Wealth of Nations, Bk. 4, ch. II (1776), www.econlib.org/library/Smith/smWN.html

Obviously, we've come a long way since 1776.

Here's an interesting question:  To what extent is our current situation the result of the playing-out of wrong turns taken collectively many, many years ago?  On this, consider Garet Garrett, The Revolution Was (1938), mises.org/story/2726, which opens with this haunting image:  "There are those who still think they are holding the pass against a revolution that may be coming up the road.  But they are gazing in the wrong direction.  The revolution is behind them.  It went by in the Night of Depression, singing songs to freedom."
 

March 13, 2009 update:

The folks at the Mises Institute have put together a very helpful set of readings explaining how members of the "Austrian School" of economics view the current crisis.  The Bailout Reader is online at mises.org/story/3128
The Financial Times, Britain's answer to the Wall Street Journal, offers up a series of articles on The Future of Capitalism at www.ft.com/indepth/capitalism-future
 

April 22, 2009 update:
The Mercatus Center at George Mason U. recently launched a new website, the Economic Recovery Digest at economicrecoverydigest.com/ that aims to be "a one-stop shop for up to date information on public policy dealing with the economic recovery" by "compil[ing] news items and opinion pieces several times a day . . ."
Irwin Stelzer's October 2008 monograph, The New Capitalism, is well worth a read at www.hudson.org/index.cfm?fuseaction=publication_details&id=5840&pubType=HI_Reports
 

April 30, 2009 update:
Veteran regulatory analyst James DeLong has a terrific essay in the April issue of AEI's magazine, The American, entitled The Coming of the Fourth American Republic, www.american.com/archive/2009/april-2009/the-coming-of-the-fourth-american-republic  According to DeLong, "The Special Interest State that has shaped American life for 70 years is dying. What comes next is uncertain, but there are grounds for optimism."  I'm not sure I buy the optimism, but DeLong does a very good job explaining both the origin and the pathology of our Special Interest State.
George Mason law professor J.W. Verret is the author of Implications and Analysis of Government Shareholding in the Financial Sector, a quick (3-page) take on the "legal implications arising from the current Troubled Asset Relief Program's shareholding arrangement" online at www.mercatus.org/PublicationDetails.aspx?id=26874
 

May 12, 2009 update:
Deeper and deeper into socialism we go --
White House Puts UAW Ahead of Property Rights, Michael Barone, May 7 ("We have just seen an episode of Gangster Government. It is likely to be part of a
    continuing series."), www.realclearpolitics.com/articles/2009/05/07/white_house_puts_uaw_ahead_of_property_rights_96368.html
Why the Chrysler Deal Would Horrify a New Dealer, David Skeel, May 8,
    www.american.com/archive/2009/may-2009/why-the-chrysler-deal-would-horrify-a-new-dealer
Quick Fix Today, Crisis Tomorrow, David Frum, May 10, www.aei.org/article/100479
Upside Down Economy, George Will, May 10, townhall.com/columnists/GeorgeWill/2009/05/10/upside-down_economy (discussing Ian Bremmer, State
    Capitalism Comes of Age: The End of the Free Market, May/June issue of Foreign Affairs, podcast here)
The Real Culture War Is Over Capitalism, Arthur Brooks, April 30, www.aei.org/article/100436
 

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