Anchorage Daily News

First Afghanistan, then Iraq, and now we will buy out Wall Street debts at the equivalent cost of a bigger, third war -- two-thirds of a trillion.

That's why North Korea is getting chirpy. That's why Russia can invade a small country in its historic sphere of influence without consequence. That's why Iran is not afraid to continue its nuclear fuel program. While candidate McCain has seemed quick to brandish "the military option" because, as he has said, another country holding nuclear weapons is "unacceptable," the economic crisis has effectively removed that option from the table for the foreseeable future. Good.

Why are homeowners defaulting? While the economy was expanding, marginal borrowers could make it. Lately, it's all been recession, shrinking incomes, rising costs. All it takes is one family member to lose a job, all it takes is one family member seriously sick, and pretty soon its between not paying off the credit card or not paying off the mortgage.

Better to let the house go and find a cheap apartment. Credit card debt has increased to about a trillion dollars this year. The usurious rates and fees (acceleration for late payment, etc.) charged by both mortgage and credit card lenders, levied against families facing economic hardship have undercut the promise of prosperity and threaten any recovery. Usury, not well received in biblical writings, was once restricted. Now it produces new billionaires.

Not long ago, a triumphant cheer went up when the Soviet Union collapsed. The collapse was hailed as a triumph of capitalism, and in some ways it was. But the larger picture was of two unbending systems, locked in competition for 40 years, until one caved. The failure of communism as a socio-economic system came at the end of a successful run of 60 years, which included the support of a massive military machine that eventually crushed Hitler's Wehrmacht.

Yet fail it did, invisibly at first to us. Rigidity arising from blind faith in the system and the sometimes desperate competition with the United States prevented the rulers of the USSR from recognizing the need for restructuring, including leaving more room for markets, a lesson China has taken to heart.

Regulation, that dreaded word, is better understood as the Rules of the Game in which economic activity takes place. Flush with the notion that an unbridled economic system had been the key to our Cold War success, we repealed rules that had made it work. Our economic gurus encouraged the new Russia to switch over pell-mell to unregulated private ownership, contributing to a deep depression that brought gangsters, spymasters and oligarchs to the top.

The truth is: No economic system is static. An economy is not a machine. It is people doing whatever they may do. In any economic system there are trends, visible and latent, with an evolutionary impact on the system. Destructive trends, unchecked, can bring it down. For example, the central contradiction of capitalism is that competition results in winners. Winners tend to consolidate and seek monopoly. Anti-monopoly regulation is essential to stop a system from sliding into oligopoly.

Unlocked from Cold War competition, the United States had a chance to re-evaluate, to shake up its structure, to let in new ideas. There had been no essential change in the structure since the '60s. But triumphalism was the spirit of the hour. The country had nothing to learn, was in no mood to examine its own flaws. Consumerism ruled. More rules were repealed.

Now we are to pay the piper and the questions remain: Who can lead us out of this mess? What will it take to restore domestic prosperity? Will the standing of the United States in the world continue to shrink?

This "third war" would not have happened if we had earlier faced national health, labor, trade and monetary policy deficits. When the discussion of who should be bailed out and why is decided, the question will remain: Who let this happen? Maybe Pogo was right: "We have met the enemy and he is us."

John Havelock served as a White House Fellow in the Johnson administration. He lives in Anchorage.

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