Tyler A. Watts over at Mises.org writes on the added danger of bailouts that our politicians can not grasp:
I don't buy the probailout folks' predictions of impending economic chaos. But what if they're right? What if the short-run pain in store is just too terrible to endure if we don't start bailing out key industries? After all, we're talking massive unemployment, a new wave of foreclosures, a shrinking economy — in a word, recession. If the dire forecasts of the bailouters are correct, we'd be stupid not to do it; we'd be like a beaver caught in a trap: slowly dying, yet too timid to chew off his own foot to escape.
Capitalism depends on three highly complementary, yet distinct, institutions: prices, property, and "profit and loss." Classical-liberal economists have demonstrated the essential role of these pillars of prosperity for centuries. These fundamental institutions of the market economy are like legs of a stool. If we gradually weaken one leg, we will eventually bring the stool toppling down — economic collapse.
In this light, the implications of bailout are clear. Bailouts are designed to insulate people from the effects of bad decisions. When market prices change dramatically, exposing yesterday's poor investment choices, bailouts come "to the rescue," promising those left holding the bag that they won't have to endure the full cost of their errors...
...Bailouts, then, attempt to erase the effects of losses, or economic failure. But such efforts inevitably undermine the loss aspect of "profit and loss." Profit and loss go together — like up and down, left and right, good and bad. If we try to do away with losses, we'll wind up diluting the meaning of profits. After all, why strive for profits if Uncle Sam will cover your losses with a bailout? Why bust your butt to compete and succeed if you can just clamor for a handout instead? Bailouts destroy the profit motive — and all the benefits of a competitive economy.
By removing the risk of failure, government inevitably creates an environment where crony-capitalism flourishes. And we end up with the same essential distortions in our economy that has lead to the financial crisis.
1 comment:
I wrote here
"This is both collectivism and the inevitable consequent lack of self-responsibility run amok. Surely, what food to buy and eat should be an individual or, at most, family decision. But it points to a much larger problem, one that reveals one of the root causes of the current crisis: the longing for the 'safety' of dependency, the desire to have an all-wise parent solve your problems."
Obviously, the issue goes far beyond food choices, though, to encompass all choices.
When you surrender control of your economic decisions (or ask for the consequences to be modified by government) the economic consequences are bad for others, it's true. But the moral and practical consequences for you too, along with many others, are disastrous. It invites dictatorship via democracy, the hardest type to argue against or erase.
Apart from special circumstances, being an adult dependent is unhealthy for an individual. It's suicide for a culture.
Post a Comment