The post below was submitted to the local paper, the Liberty Vindicator. Check out the newest website on the block, www.robertthornton.net, where my brother pontificates on various subjects of his interest. Thanks to cousin Brian Howe for his webmastery!
By now, everyone is familiar with “The Bailout,” its supposed benefits and its subsequent cost to taxpayers. The Emergency Economic Stabilization Act is intended to dump capital into the American financial system to shore up failing banks, and in turn, restore confidence in our market. What is being disregarded is its impact to America’s governing philosophy and the threat it poses to capitalism as a whole.
The $700 billion bailout marks the largest infusion by the federal government in the corporate sector since the Great Depression, but it is not alone: $380 billion had already been spent in the last six months bailing out Bear Stearns, AIG, Fannie Mae and Freddie Mac, and the US auto industry. Due to these recent government interventions, over $1 trillion will be added to our National Public Debt, pushing inflation higher, while we stand on the brink of recession.
Did America become the greatest country in the world by bailing out failed businesses? Not likely. Our capitalist economy is based largely on the ideals of Adam Smith, 18th Century author of The Wealth of Nations, which dictates that “an invisible hand” drives a free market. We know from history, that in any society, people will act according to their self-interests. Good business practices lead to good business and the opportunity of wealth for all involved. Today, the Leviathan hand of government intervention provides endless safety nets for both individuals and corporations. In doing so, government, instead of supply-and-demand economics, pick the winners and losers in the market. I contend these actions constitute a dangerous march into statism, and eventual tyranny at the price of freedom.
A free market allowed to operate without massive government intervention benefits all citizens. Isn’t it true that the world’s richest nations have better standards of living for all members of their society? Isn’t it also true that the world’s richest countries have the freest economies? Innovation thrives in free nations, due to capitalism. Consider this: how many Russian cars do you see on the road? Do any of you own a Saudi-made computer? Even with massive amounts of petrodollars, these countries’ governments cannot compete with free markets.
To give Keynesian economic theory its due credit, our government should stand ready to intercede and regulate our market, as a running machine must be oiled occasionally to ensure its proper operation. As we have seen recently, minor tweaking in the market can have major, and at times, disastrous consequences down the road. It must also be true, then, that proper regulation can lead to recovery. When restored, however, the market must be let go.
So what, besides redistributing wealth, can be done to prevent financial freefall and panic? A better question to ask is, not what can be done, but what should be done?
First, transparency must be maintained regarding any interference in the economic sector. Bailouts must have proper oversight to ensure quality control. There must also be the intention to keep all unneeded bureaucracy temporary, remembering the words of economist Milton Friedman: “There is nothing so permanent as a temporary government program.”
Secondly, reform is needed in lobbying and campaign contributions. Consider the fact that Fannie Mae and Freddie Mac doubled every five years from their inception in 1970 until their recent collapse due to overwhelming government subsidies. At the first sign of alarm among our legislators, lobbyists on behalf of the mortgage giants kept Congress quiet, spending over $200 million in the past ten years in campaign contributions. Then, when the system collapsed, Congress attempted to redistribute the blame.
In addition to lobbying reform, government must be cautious about deeming every financial situation an emergency. Doing so can exacerbate a problem and affect the market adversely in a number of ways. Bailouts crush consumer confidence, which is crucial in a free market. Let’s remember that 94 percent of American house mortgages have not faced foreclosure; unemployment is substantially less here than among our European allies who have a more “social market,” with more government control. Our “real” economy - that is, industry - has remained relatively strong, and will, as long as lending remains available and corporate taxes remain low. Economic crises in the past have resulted in hasty responses, as in the case of the Smoot-Hawley Tariff Act that aggravated the Great Depression. Therefore, a government willing to jump in and save the day has proven mixed results. Intervention and its ramifications should not be taken lightly.
Austrian economist Friedrich Hayek warned us that, “‘Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.” For America to maintain a free market, actual freedom must exist, including the freedom to succeed or fail as a consequence of actions. In accordance with founders’ intent, citizens must value this freedom more than economic security: as Benjamin Franklin said, “Those who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” In turn, it is the government’s duty to resist weakening our system with more security while risking the economic freedoms of our society. This too shall pass, if we value liberty as greater than safety.