Friday, October 17, 2008

Parking the Free Market

We have studiously avoided much comment on the economic crisis on the principle of Proverbs 17:28, “Even a fool is thought wise if he keeps silent, and discerning if he holds his tongue.”

Well. Perhaps closer to the truth is the popular saying, “Better to remain silent and be thought a fool, than to speak and remove all doubt”.

So. A quote and a picture is about all we are going to offer, in an attempt to preserve whatever doubt you may still harbor regarding our foolishness.

From the Wall Street Journal:

The government's rescue plan moved into a new phase Monday night with the announcement that Treasury is injecting $125 billion into the country's nine largest banks. This amount -- as much as $25 billion each for the biggest -- seems to have stopped the financial panic for now by easing fears of insolvency. Another $125 billion is on the table for other banks that need capital on the same terms offered to the big boys.

The good news here is that Treasury Secretary Hank Paulson has at last moved from promises to action, and credit markets have responded positively. But this is also a very dangerous moment. The government has taken ownership stakes in the largest banks in the land. This extraordinary intervention is perilous -- not least to the banks themselves -- unless it is limited in scope and time. Mr. Paulson called the capital injection "distasteful" but unavoidable, and we can't disagree. The trick is to ensure that neither he nor his successors develop a taste for politically directed credit. ...

For those of us who believe in free markets, these interventions are unpleasant. These drastic steps might have been avoided had Treasury and the FDIC acted sooner, yet now they are necessary given the panic that threatens the larger economy. The goal should be to rebuild the financial system so Americans can once again trust their banks enough that government can then recede to its normal supervisory role. We are under no illusions that government will cede its new powers easily, but if it doesn't the economic damage will be far greater than anything we've seen so far.

The intervention is distasteful but unavoidable (Paulson); unpleasant but necessary (the Wall Street Journal).

Perhaps this photo, of a sign on our commute, is illustrative of where we are:

Free Market Parking Ahead
Free Market Parking Ahead

We certainly are in no position to argue against the necessity of the actions being taken. But we will register our worry now – that we are setting into motion the Principle of Government Intervention Inertia: government intervention once set into motion tends to stay in motion and limited government involvement once parked tends to stay parked.

Because asking the federal government to give away power it has gained – no matter how temporary it was supposed to have gained it – is like trying to stop the earth from rotating.

OK, now back to the wisdom of Proverbs...or rather, to observe the wisdom of Ecclesiastes 6:11, "The more the words, the less the meaning, and how does that profit anyone?"

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