… is from page 551 of Robert Higgs’s excellent 2010 paper about the 2008 financial crisis. This paper, published in the Harvard Journal of Law & Public Policy, is titled “Cumulating Policy Consequences, Frightened Overreactions, and the Current Surge of Government’s Size.”
Many of the government’s crisis actions seem aimed not at doing what makes economic sense, but at saving select incumbent firms that got into trouble by making bad bets. Apart from anything that might be said about taking money from responsible parties and giving it to irresponsible parties, such policies in effect maintain an economic condition in which profits remain private, but losses are socialized. The moral hazard these policies promote may be the worst consequence of the government’s crisis response in the long run.
DBx: Please join me in wishing Bob Higgs a very happy birthday today!