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Pittsburgh Tribune-Review: “Answer before intervening”

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In my column for the March 31st, 2009, edition of the Pittsburgh Tribune-Review I offered counsel of caution in light of the then-raging financial crisis – counsel of caution that, I believe, is largely relevant in today’s crisis [2]. You can read my column (with a link added) beneath the fold.

Answer before intervening

Here are some questions that advocates of greater government intervention should be required to answer before we give them more power and money.

1. If, as you assert, many of today’s economic problems are the result of government gone bad — of government failing at its duty to regulate financial markets and of Congress succumbing to corporate lobbyists’ demands that Uncle Sam put private interests above the public interest — why do you suppose that giving this same error-prone and corruption-prone government more power will improve matters?

2. Government is now dictating production policies and CEO-hiring policies to corporations currently on the government dole, such as General Motors. Why do you suppose that politicians have any particular expertise in running businesses?

3. Are you blind to, indifferent to, or do you applaud the fact that every dollar that government spends bailing out private firms is a dollar more of influence that politically powerful interest groups will exercise over the way these firms are run — and, hence, a dollar less of influence for consumers?

4. Because the housing bubble caused Americans to spend too much and to spend it on items that they really can’t afford, why do you now want Washington to inject gazillions more dollars of new demand into the economy? Won’t this new demand, if it works as advertised, simply continue to artificially bloat asset values, such as that of houses? And won’t these artificially bloated asset values once again make consumers spend more than they can really afford? And because no amount of government fiscal policy can forever enable consumers to spend more than they can really afford, when this reality finally catches up with us, won’t the resulting economic downturn be worse than it would be if government today simply let firms fail and the market sort out viable from nonviable economic opportunities?

5. Uncle Sam is projected to accumulate, over the next 10 years, an additional $9.3 trillion of debt. Do you have any idea how much money that is? Do you not worry that the need to repay this debt will put an enormous drag on the economy in the future? Do you feel no shame for passing along such debt to your children and grandchildren?

6. You make much noise about your concern with “systemic risks” — that is, risks that are system-wide and, hence, difficult for individuals to escape. Why, then, do you propose to have these risks regulated by Uncle Sam? Do you not see that Uncle Sam is the one force that is not only the most system-wide institution in our economy, but also the only one that is virtually inescapable? If the federal government makes a mistake, then all Americans suffer. Not one of us has the option of opting out of Uncle Sam’s commands and prohibitions.

Why do you imagine that giving greater power to the one institution that intrudes itself into the affairs of all Americans will reduce systemic risks?

Why do you not see that, rather than “regulate” systemic risks, the better option is to reduce such risks as much as possible? And the best way to reduce these risks is to decentralize the economy — to return to each consumer, to each producer, to each investor, more autonomy to make choices as each of them deems best.

Not all of these individual choices will be wise, and some will be downright terrible. But because none of these choices will be forced upon anyone, their negative consequences will be limited in scope — at least compared to the negative consequences of poor choices made by the federal government.

7. Speaking of systemic risks, do you not see that one of the most important commodities in our economy is supplied by a system-wide government monopoly? I speak here of dollars. The supply of dollars is under the exclusive control of the Federal Reserve — a government-owned and -operated central bank.

More than a few experts have argued [3] that, especially from 2001 through 2006, the Fed irresponsibly injected far too many new dollars into the economy. These new dollars were crucial in permitting the housing bubble to inflate as much as it did. If this most system-wide of all government interventions — its monopoly control over the money supply — created the bubble whose bursting caused today’s turmoil, why do you trust government with greater authority to regulate systemic risks?

8. President Obama proclaims that it is “ingenuity and resilience that makes us who we are.” Nice words. But if he really believes his rhetoric, why is he using taxpayer dollars to protect GM and Chrysler from bankruptcy? Surely an ingenious and resilient people can weather the bankruptcy of these ancient behemoths.

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