One More Thought on Those Residues

In reading another excellent student paper, it strikes me that FDR's "Four Freedoms" speech has had its own residual effects that we see manifest in the current crisis.  If we're really serious about "freedom from fear" and "freedom from want," why shouldn't that apply to the corporate world as well?  After all, what is a bailout or various government guarantees if not ways to make the corporate world "free" from "fear and want?"  Why stop with applying such notions of supposed security to individuals when you can apply them to firms too?

One of the most troubling parts of the multi-trillion dollar debacle is that it seems to be setting a precedent for trying to create an economy, if not a world, where nothing bad ever happens to anyone (recall my post on "Parenting and Entrepreneurship").  The Nanny State is even worse when it adopts really bad approaches to parenting!

Comments

[Mauricio]

This is my blog... an austrian... a bolivian blog in economics.

http://riosgarcia.blogspot.com/

Regards, Mauricio.

[Jeff Haymond]

Steve--
While I agree w/the thrust of your main point, I think it would be beneficial to be more precise. Certainly the residue is NOT that nothing bad happens to anybody that is bailed out. Clearly the shareholders, even those that were allowed to keep something of their equity, were hammered from the values they previously enjoyed. The interesting question is what is the tipping point--at what level of "bad happening" is enough and the govt says no more? I suspect it is also well beyond the "too big to fail" mantra. For example, why are the bondholders of Fannie and Freddie bailed out while the shareholders were virtually wiped out? Why are all money market funds now being guaranteed?

While I disagree w/"too big to fail", it does have a certain logic to it. But when the govt bailout in effect bails out the Chinese govt who has heavily invested in agency securities, we wonder why shouldn't the Chinese take a haircut on their bonds? They certainly can afford to...

This whole thing screams for an Austrian analysis of the problem, and a public choice analysis of the "solution"....

Otherwise I agree with your main point--we've certainly leaped across the line where govt management of the economy is not only tolerated but thought to be the only responsible solution. And even if we somehow get out of this mess, their will be a bad legacy which comes with us...

[RickC]

"The ultimate effect of shielding men from folly, is to fill the world with fools." - Herbert Spenser. I've been thinking about this line a lot lately.