Government Bailouts...the Wrong Approach

One of the infamous lines from the Great Depression, "Hey Buddy, Can You Spare a Dime", has taken on a whole new perspective in these trying financial times as millionaires go running to the government will their hands out looking for some government bailout funds. What started with the government trying to save the money managers on Wall Street has evolved into a free for all with practically everyone wanting a cut of the government bailout loot. While many so called experts declare that the bailout is necessary to save the economy, the facts point to the contrary.

It's been said by many so called experts that FDR's 'New Deal' pulled America out of the throes of the 'Great Depression' when the truth is that it wasn't Roosevelt's grand plan that did the trick, but World War 2 that was the engine that got things moving again. As shown by Llewellyn H. Rockwell in his recent column called 'How This Happened',

" Economic growth went nowhere between 1933 and 1939, with real gross domestic product per adult still 27 percent below trend at the end. Per capita GDP was lower in 1939 than in 1929. Unemployment was at 17.2 percent in 1939. This was actually higher than it was in 1931. This is despite a 100 percent increases in monetary expansion. Taxes had tripled. Employing people became ever more expensive due to unions and national income guarantees".

While I'm not advocating another world conflict to get things going, the point is that it wasn't FDR's job programs or the creation of money out of thin air through the printing presses that pulled America from the depths of the depression, but the cranking up of the war economy and the rebuilding that came afterwards with America left standing as the major economic power capable of producing the products that the rest of the world needed to rebuild, that created the boom.

Bailouts aren't bad for everyone. It allows and rewards businesses that otherwise couldn't compete and therfore allows them to remain in business where they otherwise couldn't. If we truly had a 'free' market system, the markets would weed out the inefficient and incompetent by allowing them to fail, leaving the more productive and innovative companies to provide the products and services we as consumers desire and need.

Much of the same can be said for the multitude of homeowners that the government is trying to save from foreclosure. The immoral aspect of the government's actions is that diligent homeowners will by punished by being asked to subsidize those that made terrible financial decisions such as buying houses they really couldn't afford. In both cases, the government is stepping in to alter the normal business cycle that would weed out the inefficient and unwise.

The end result of these numerous bailouts is that individuals and businesses that in a free society should be 'punished' for their imprudence are instead rewarded. These actions can only produce disastrous results for society at large. Not only does it create market distortions and misallocations, but sends the wrong message as well. For if there is no price to paid for failure, then society quickly evolves into a free for all with businesses and people taking unwarranted risks trying to get their share of the loot knowing that there is 'NO' price to paid because there is someone ready to bail them out.