Bad medicine

For months the president, his friends in Congress and allies on the outside have been busily blaming businessmen, bankers, auto executives and Republicans for all that ails the American economy. It’s a strategy that has paid some dividends with a frightened public looking for scapegoats — but one that may have worked too well.

Class warfare is a dangerous beast that most reasonable politicians try to keep caged, if only because it has never really worked in this country, but it is working now and the consequences could be disastrous. True believers in total government control of the economy may be delighted at the prospect of dictating the sorts of cars our automakers will produce or punishing the successful for their success, but even the liberals who engage in the rhetoric of class warfare know that an angry public can demand retribution from those they successfully brand as responsible for an economic downturn.

The realization that perhaps they’ve gone a bit too far this time has some Democrats within the Obama administration and in Congress nervous about the possible consequences of last week’s frenzied attack on AIG executives and employees over the bonuses they have received out of funds poured into the company to stave off its collapse. Over the weekend, several administration officials began voicing doubts about the wisdom of passing a confiscatory tax targeting the bonuses and wondering if such tactics might not send the wrong message to a business community that will have to take the lead in ending the recession.

On Sunday, Christina Romer, who chairs the president’s Council of Economic Advisers, refused to say whether the president would even sign the House bill imposing a 90 percent tax on bonuses paid by companies that receive federal bailout funds. That bill goes to the Senate this week and Obama’s advisers are hoping and perhaps praying that it will either die or be significantly altered before it lands on his desk.

The problem Obama faces is that the public rage ignited by his friends in Congress and by Republicans hoping to turn the fire on him and his allies is still white-hot. What’s more, the stupidity of AIG’s top leadership has made things worse. It is hard to imagine what they were thinking to continue the bonus plan regardless of past commitments. Their PR people and lobbyists should have at the very least cautioned them against throwing fuel on a dangerous fire.

House Banking Committee Chairman Barney Frank (D-Mass.) is driven more by ideology than many who voted for last week’s legislation, but many of his colleagues voted in fear and a desire to avoid the fire. The bill to use the tax code to retroactively punish AIG passed the House by a whopping 382-93 margin, which included some 85 Republicans who should have known better than to abandon principle in the face of the firestorm. They sensed short-term gains by playing to an enraged public, but may live to regret the long-term consequences.

 Thus, Frank already wants to extend the punitive tax to other businesses, to at the very least ban bonuses for employees of Freddie Mac and Fannie Mae, and to decide what is and is not “reasonable compensation” for executives running firms that receive federal aid. This could have been predicted and is no doubt welcomed by the ideological left. When public tax money is poured into a firm, government decisionmakers want a strong voice in how the firm is run.

That’s why Bush Treasury Secretary Hank Paulson had to bludgeon several banks into taking funds they didn’t want, and it’s why firms like Ford are leery of bailout funds if they believe they can survive without them. Companies fear that once they join the gravy train, it will be run by bureaucrats and politicians with little understanding of the markets in which they operate. It’s a rational fear.

The president knows that if the government actually takes over this country’s banks, insurance companies and manufacturing giants, they will perform as nimbly as the Postal Service. He may not be a socialist, but the rhetoric he has encouraged may lead gradually but inexorably to something just as economically dangerous.

There is a word for an economic system that allows business enterprises to remain in private hands so long as those ostensibly running them cede real decisionmaking power to government.

It’s called fascism.

Keene, chairman of the American Conservative Union, can be reached at