Sep

22

I got an email from a friend that I don't agree with, but I could use some help responding to it. How would you respond?

In the context of our ongoing discussion of markets and government, I can't help but feel that the meltdown of the last week lends considerable weight to my position that in the face of the value-neutral tendencies of free market capitalism the participation of a well informed, active public sector is imperative. There is a flip side to the way markets liberate economic energies; markets can become self-devouring. I accuse libert@rian ideas; they have brought us in large measure to this pass, because they foster a basic contempt for governance, ("government is the problem") the hallmark of the Bush administration.

When Robert Rubin bailed out the Mexican government by offering 20 billion dollars backing for their currency, there were howls of protest and forecasts of disaster from conservative minded politicians. Bush's laissez-faire attitude has resulted in a truly incredible 1 trillion dollar (!) giveaway. A replay, but only worse, of the S&L debacle that followed in the wake of the great free marketeer Ronald Reagan.

My friends B*b & I**a have three kids. B*b lost his teaching job.

Thank goodness that Connecticut has a "socialist" health program for people earning less than a certain amount. In Mississippi no one would come to rescue them. It would be against the grand american principles of self-reliance (or rather no bail outs for the powerless).

I'm not saying that I disagree with Paulsen and Bernake. At this point they have no choice but to intervene. But to my way of thinking the mistaken belief that the government should stay out of the way, the markets will take care of everything if left to their own devices, has led to this desperate state of affairs. Ironically, it is about is about to result in the greatest growth in government power since FDR.

My concern is that unlike the New Deal that sought to put people to work and create an ethos that we are all in this thing together, the current program will be directed at easing the pain of those who reaped the most benefits in the good times.

Henry Gifford responds:

FDRIf the mortgage market was really a "free" market, and not regulated, anyone putting money in would know there is risk, and not look to be bailed out. With regulation comes the excuse that the system let someone down, thus the system should come to the rescue.

And, if the mortgage market was really a "free" market in the sense of not being backed by Freddie Mac, etc., the penalty of default would be on the lender only, who would have watched out for their own money, and stopped making loans long before the appearance of billboards advertising 110% loans.

If the mortgage market was really a "free" market, Consumer Reports, Ralph Nader, etc. would be competing to sell information on which banks are safest, including selling stickers banks could put on the front window. The level of corruption in these private rating systems would be kept low for the same reason Coca-Cola doesn't cut corners by selling dirty or diluted soda, and the only cost to the citizen/taxpayer would be paying Consumer Reports, etc., if they chose to do so to get information to improve their decisions.

Craig Bowles writes:

Murray Rothbard’s History of Economic Thought is on six tapes but I don’t think he ever wrote the planned book. He didn’t think too much of Thomas Sowell. The tapes talk about Austrian economic theory which is the basis for libertarian views. He says that intervention alters the business cycle and causes inflation during the slowdown. The worst part though is it disrupts the allocation for production, so you get overinvestment in some areas (houses) and underinvestment in others (oil) with the liquidity-driven inflationary booms. Really great tapes and very applicable to today.


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search