At first, Chief Executive Officer Dan Porter and his enforcement officer and community manager, Joseph Alminawi, took the Chris Dodd approach to regulation. They made lots and lots of rules, and then tried to enforce them. The two created a list of banned words. … [The] list of banned words [soon] reached an unenforceable 9,000.

In addition, the OMGPOP discovered that publicly scapegoating wrongdoers had a counterproductive effect. Once other rogues heard of a vigilante, they didn’t want to shun him. They wanted to join him — even create a tough new gang to hijack the sweet culture of OMGPOP.

So Porter and Alminawi took a different tack. They involved players in the game, in management, even. Premium members, who have spent sufficient hours on the site, get to test new games, for example. And, like the New York Stock Exchange before the Securities and Exchange Commission, they tried to get players to police one another. Banning still happened. But management worked anonymously and played on the deep human desire not to be excluded from a desirable tribe.

Self-policing, OMGPOP discovered, worked best, with “lollipop policing” trumping “Spitzeresque policing.” Shlaes says that the OMGPOP example “highlights flaws in legislation to overhaul the financial system.”

Except, of course, that the online social communities of teenage girls and the real businesses of Wall Street traders have nothing in common. Shlaes might as well be recommending using the United States’ successful drunk-driving laws to referee the upcoming World Cup.

To state the blindingly obvious: The financial world is zero-sum and profit-driven. The incentive is to put the other players out of business and to reap all of the profits for yourself. The world of OMGPOP is not zero-sum and is community-driven. The incentive is to make friends and play games. Therefore, self-policing makes sense for OMGPOP, where regulators want to weed out bad words and keep all participants happy and chatty. Wall Street cannot and should not be self-policing, because it is competitive and filled with adults who want to make billions of dollars while “[ripping] the face off” some other trader.

If you read TWI nine weeks ago, you knew that Republicans were at a loss as to how to stop Democratic health care reforms. Want to find out if they’ve made progress? Check the update in yesterday’s Politico. And if you read TWI three weeks ago you found out about the just-introduced Parental Rights Amendment, which the Politico slightly oversold as “the new wedge issue” five days later.

The notorious Amity Shlaes, the Bloomberg scribe  who drives liberals around the bend with her thinly sourced argument that the New Deal was a failure, has come out boldly in favor of at least one form government stimulus spending. In a jaunty column today, “Sin City on the Potomac Wounds Nevada’s Bordellos,” Shlaes faults President Obama for driving business from that engine of American economic recovery, the capital of casino gambling.

No, its not parody. Shlaes, who can be fairly classified as a libertarian neocon, is having fun tweaking the pieties of the liberal left and Christian right in the service of Las Vegas business interests who are complaining to Politico and any one else who will listen that Obama’s let’s-get-to-work exhortations prompted TARP-subsidized Goldman Sachs to cancel a scheduled convention in Sin City. As a quipster, Shlaes is amusing. As an economist, her ideas are half-baked, as this contorted passage reveals.

Government pork tends to produce junk gross domestic product, because even really smart government doesn’t allocate capital optimally. To dismiss what GDP Nevada generates as junkier than what Washington might generate is misguided, since Nevadans most of the time probably know better what investments make sense.

Her complaint that the president effectively discouraged the recipients of TARP money from scheduling Nevada getaways implies that taxpayer money spent in Sin City is as productive as money spent anywhere else, so why be a stick in the mud? Shlaes isn’t exactly contending that spending taxpayer money in Nevada whorehouse is as worthy a way as any to drive economic recovery (though her headline implies as much), but she is saying you’d have to be liberal to think its smarter to spend taxpayer money on solar power than on gambling junkets. At least she’s right about that.

At one point in her book, in fact, Shlaes actually concedes that Roosevelt’s Keynesian experiment succeeded when he tried it. “The spending was so dramatic that, finally, it functioned as Keynes … had hoped it would,” she writes about 1936, “Within a year unemployment would drop from 22 percent to 14 percent.” So Keynesian policy worked, and the main fiscal problem with the New Deal was that Roosevelt made too many concessions to the right. Here we are in agreement. So can conservatives stop carrying around The Forgotten Man like it’s Mao’s Little Red Book? Can we all go home now?

The problem with the Republican arguments for a combination of deep tax cuts and spending cuts is that no one can point to a recession that this program ended. Tax cuts and spending, yes. Tax increases and meddling with interest rates, yes. But the homespun wisdom of Republicans like Gov. Mark Sanford (R-S.C.), that the government should cut back spending just like an average family is doing, is not backed up by anything.

harpercollins.com

For five years, classical liberal columnist and Council on Foreign Relations fellow Amity Shlaes delved deeply into the history of the Great Depression. She had been an op-ed editor at the Wall Street Journal, a WSJ columnist reuniting Germany, and a columnist for the Financial Times. She wrote two books, on German national identity and on America’s tax policy, critiqued from the right. Both sold well, but neither one foreshadowed the success she’d have with her research on the New Deal.

The Forgotten Man: A New History of the Great Depression, published in 2007, has become one of the most influential books of the decade. Republicans and conservative activists have read the book, absorbed its lessons, and deployed them in the current debate over how to tackle the greatest economic crisis since the 1930s. Newt Gingrich has read it. So has Rep. Paul Ryan (R-Wis.), the ranking Republican on the House Budget Committee. And so has Sen. John Ensign (R-Nev.), the head of the Senate Republican Policy Committee; according to his spokesman, the senator has also circulated the book among his colleagues.

“I’m just very fortunate that they’re interested,” said Shlaes on Monday. “This is not an anti-Democrat book, but it is a book that says ‘cast a skeptical eye on stimuli.’”

Image by: Matt Mahurin

There are 200,000 copies of the The Forgotten Man in print, a dramatic success for a work of economic history. Shlaes has written a gripping revisionist history of the New Deal, told through the interweaving lives of New Dealers and prominent Americans of the era. Republicans, of course, have never been too enamored with Franklin Roosevelt or with the New Deal. But before Shlaes, Republicans and conservatives often sought a sort of compromise with the FDR legacy. In A History of the English-Speaking Peoples Since 1900, the conservative British historian Andrew Roberts writes that “the New Deal worked.” President George W. Bush widely recommended the book and feted Roberts. When the former president pushed for partial Social Security privatization, he presented this as a continuation of FDR’s legacy; conservative commentators such as Brit Hume even suggested that FDR would have supported private accounts. Even if he made mistakes, his style of leadership was worth copying, and some of the outgrowths of the New Deal were worth reforming, not abolishing.

The Forgotten Man’s revisionism does not give so much credit to FDR or his New Dealers. According to Shlaes, who builds on decades of New Deal criticism and research into the lives and work of FDR’s brain trust, the programs actually lengthened and aggravated the Depression because of regulation that ate away at American entrepreneurship and profit motive, and because of haphazard implementation that drove businesses and banks to uncertainty and panic. The “forgotten man” of the title is the American whose income and effort were taken, against his will, to pay for the experiments and entitlement programs of the New Deal. The New Dealers, in this telling, were well-meaning and smart people who did a lot of damage and little good, and understanding that is key to understanding why government intervention in the economy and big-spending stimulus packages are doomed to fail.

Amity Shlaes (cfr.org)

This argument did not begin with Shlaes, as the author readily admits. Criticisms of the New Deal are as old as the New Deal itself. “Roosevelt drove Republicans mad with rage,” Shlaes said on Monday. “The Republicans who appear in the history of the New Deal were very shrill. It did not become them. So, what can we learn from their mistakes?”

The last decade has seen a sort of boom in New Deal revisionism, beginning with David M. Kennedy’s Freedom From Fear: The American People in Depression and War 1929-1945 (1999), which argued that Roosevelt’s programs failed to rescue the economy in the 1930s, and continuing through the work of libertarian Cato Institute scholar Jim Powell, whose FDR’s Folly (2003) built a systematic case that the New Deal actually prolonged the Great Depression. The Forgotten Man has surpassed both books in sales. Powell couldn’t be more pleased.

“I’m kind of hammer and tongs in my approach,” said Powell on Monday. “[Shlaes is] a wonderful, graceful writer who’s, perhaps, more elegant than that. If you’re trying to change opinion on any subject, you need a lot of different people, different voices, and different approaches. That’s true whether you’re trying to abolish slavery or you’re trying to limit the power of government.”

Among liberals, Shlaes is also the most controversial of the New Deal revisionists. She was roundly criticized on the left for a July 2008 column in which she defended former Sen. Phil Gramm’s (R-Tex.) charge that America was in a “mental recession.” New York Times columnist Paul Krugman criticized Shlaes’ work and conclusions about the New Deal both before and after he won the 2008 Nobel Prize in Economics. But Shlaes has become unescapable on op-ed pages, hungry for contrarian arguments about the stimulus; for example, she has made three appearences in the Washington Post since early December 2008, all of them to argue against repeating the mistakes of FDR. Fred Barnes, the well-sourced editor of the Weekly Standard, reported that those columns, like the book, were “widely read” by Republicans.

The Forgotten Man became essential reading among conservatives as soon as it hit the shelves. In June 2007 Gingrich called the book one of two that was “guiding” his thoughts (the other being French President Nicholas Sarkozy’s Testimony). In The Forgotten Man, Gingrich saw a path back to “the Whig-style free-market liberalism” that defined America before the New Deal. “Sarkozy shows us how a courageous leader could translate Shlaes’s call to liberalism into the boldest campaign in our lifetime,” said Gingrich, then flirting with a run for president. Gingrich never ran, but endorsements like that, from a man who many on the right consider an intellectual pioneer, rocketed the book’s popularity on the right.

During the 2008 campaign, Sen. John Kyl (R-Ariz.), the Republican whip in the Senate, bristled at Democratic comparisons between George W. Bush and Herbert Hoover. On September 18, as the economic crisis hit, Kyl argued from the floor of the Senate that “in the excellent history of the Great Depression by Amity Shlaes, The Forgotten Man, we are reminded that Herbert Hoover was an interventionist, a protectionist, and a strong critic of markets. If anything, Hoover-and then Franklin Roosevelt-prolonged the Great Depression by their manic intervention in the free market, which caused a spiral of deflation.”

Since President Obama’s victory, Shlaes’ work, and her columns for Bloomberg News, have provided much of the grist for Republican arguments against a spending-focused economic stimulus package.

In a December 2008 interview with Brian Howey, Rep. Mike Pence (R-Ind.), the third-ranking Republican in the House, fired back at a criticism from Paul Krugman with analysis he’d gleaned from The Forgotten Man. “Shlaes points out… [that] the recession had abated by the middle of the 1930s in the West with the exception of the United States,” said Pence. “She argues that it was the spending and taxing policies of 1932 and 1936 that exacerbated the situation. That’s why I say it’s important for the Congress to act, but one of the lessons of the 1930s is we can’t borrow and spend back to a growing economy.”

Last week, former New York Mayor Rudy Giuliani cited Shlaes to argue against the idea of spending to get out of a recession. “Basically it points out why the recession of 1929, which was a bad one, became the Great Depression of 11 or 12 years,” Giuliani told Sean Hannity on his Fox News talk show. “It became the Great Depression because of unwise government actions first by Hoover and then by Roosevelt. If you think you’re just going to get your way out of this recession by all kinds of social programs, welfare programs, you’re just going to make it much worse.”

Shlaes wants to wave Republicans off from making the kind of rhetorical or ideological compromise with the New Deal that Republicans made, for example, during the 2005 Social Security fight. “This is a time for choosing,” she said on Monday, “and I’m not the first person to say that or to use that term in saying so. Reagan could afford to like FDR because, at the time, it seemed possible to keep our entitlements if we reformed them. It turns out that we can’t afford entitlements. We have to choose between Reagan and Roosevelt. You can’t just say you like both Reagan and Roosevelt.”

As conservatives make their choices, Shlaes is still plugging away. Her next book will be a revisionist history of the 1960s and the spending and entitlement programs of the Great Society, tentatively titled — after Richard Nixon’s 1969 speech on Vietnam — The Silent Majority.