You Can’t Take the ‘Tics’ Out of Politics

by Don Boudreaux on April 18, 2009

in Reality Is Not Optional, Regulation

Here’s a letter that I sent last week to the New York Times:

Councilwoman Melinda Katz’s letter today reveals an ironic pitfall of government bailouts of private firms – namely, the inevitable demands by demagoguing politicians that recipient firms be hamstrung in their ability to respond to market forces.
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Ms. Katz argues that credit-card companies that received bailout funds should be prevented from raising their rates.  While I have no sympathy for any firm that accepted taxpayer funds, the fact is that a firm must be able to change its prices in response to changing market conditions if it is to survive in the market.

By turning private firms into quasi-political entities, bailouts undermine their own ostensible purpose of making these firms strong and nimble competitors.

Sincerely,
Donald J. Boudreaux

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{ 10 comments }

dg lesvic April 18, 2009 at 12:17 pm

Just want to say Great! before the Iceman Cometh.

Crusader April 18, 2009 at 1:42 pm

Don – this kind of interference is a feature, not a bug. You are mistaken if you thought these people ever wanted to rehabilitate the finance sector so that it could be strong, robust and on its own. We know from muirgeo and his ilk that they don't like the free market and would prefer it's removal.

gator80 April 18, 2009 at 2:24 pm

A similar sentiment appeared in a place which should know better. The Financial Times of April 15, 2009 features a column by John Gapper entitled, "Don’t set Goldman Sachs free, Mr Geithner."

It includes an amazing statement: "The bigger danger is the long-term precedent it would set." Many of us would agree with that, but Mr. Gapper means freeing Goldman would set a bad precedent. Why? Because it would prevent congress or Secretary Geithner from having "the chance to change fundamentally how it [Goldman] operates."

Don Boudreaux April 18, 2009 at 2:26 pm

Crusader,

I don't disagree with you; that's why in the final paragraph of my letter I used the word "ostensible."

vidyohs April 18, 2009 at 4:17 pm

I dare say that Melinda Katz would look at you in utter amazement if you told her she wanted to interfere with markets, she (IMHO) would have no clue as to what you were talking about. People like her have their enculturation and that is that.

I seriously believe that you could lecture her all day and never make her see your point.

Her suggestion is on par with California deregulating one side of the equation in the sale of energy but not the other. We all know that worked out well for California.

Crusader April 18, 2009 at 5:19 pm

Free market, what hell is that?

jorod April 18, 2009 at 5:54 pm

You might as well talk to a pineapple….

Martin Brock April 19, 2009 at 6:38 am

… bailouts undermine their own ostensible purpose of making these firms strong and nimble competitors.

False premise. The ostensible purpose of a bailout is protecting rent seeking "capitalists". The logic behind Katz' letter is "if we're protecting capitalists, let's protect others as well." In this scenario, various "capitalists" are first in line for handouts, and once they have theirs, others line up with the "capitalist" handouts as justification.

John Galt April 19, 2009 at 8:05 am

Martin:
The ostensible purpose of a bailout is protecting rent seeking "capitalists".

If that's the "ostensible" purpose, why don't we see any of the bailout's sponsors describing it that way?

The logic behind Katz' letter is "if we're protecting capitalists, let's protect others as well."

I think that, and not their rent-seeking, was the "ostensible" reason for bailing out capitalists at everyone else's expense in the first place.

BTW, I am not defending bailouts.

Sam Grove April 19, 2009 at 4:26 pm

May I sum it all up?

Government is dumb. When you put intelligent people in charge of it, it is still dumb.

Democracy in the hands of the ignorant is at least as dangerous as weapons in the hands of the evil.

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