So, another day, another plunge in stock prices, another wave of aspiring moochers descending on Washington, and another God-knows-how-many billions set to be doled out under the Treasury’s “TARP” program. (“TARP” is an acronym, of course, which stands for “Totally Arbitrary Rewards and Penalties.” The goal of the program is to render unreliable the economic signals that have guided business activity for centuries, like interest rates, or profits or the lack thereof. By replacing these traditional signals with totally arbitrary rewards and penalties, policy makers can simultaneously pretend to “rescue” one group after another while vastly expanding their power over the livelihoods of private citizens.)
Treasury Secretary Paulson, who in September told us that buying troubled assets from investment banks was the only way to avoid a total financial meltdown, now says that buying troubled assets was not the only way; in fact it wasn’t really a very good way after all so it’s time to try something different. Apparently, Treasury is going to buy good assets rather than bad ones. If the assets are good, I’m not sure why government needs to find a buyer for them; nor do I understand what this is supposed to accomplish except to give banks money, but this sort of vacillating “Hey, what if we try this” economic policy is more or less how FDR got through his first term from 1933-1937, so at least we know approximately what kind of results to expect.
Meanwhile, President-Elect Obama wants President Bush to say yes to an auto industry bailout, which would make it easier for President Obama to say yes to other bailout requests in the future, but at the cost of making it much, much harder for him ever to say no. And the fact that we don’t actually have any money to give away — which someone visiting from another time or place might well consider to be an insuperable obstacle to these plans — is instead considered completely irrelevant by nearly everyone involved.
In times like these, I find myself so out of step with the public debate that it’s downright disorienting. In an effort to regain my bearings, I’d like to toss out five statements about the economy on which I think we should all agree. Please, please, please respond if you disagree with any of them:
- Government does not know how many loans should be made or to whom. This is not because government is bad; it is because no single actor can know this. Henry Paulson doesn’t know, Robert Rubin doesn’t know, and Warren Buffett doesn’t know. If it were possible for the government to manage the economy effectively through central planning, we’d do it all the time instead of just during crises like the present one. The reason we don’t is because history has conclusively demonstrated that it does not work.
- All credit is debt. If you have too much debt, more debt won’t solve your problems. Therefore, if you have too much debt, more credit won’t solve your problems. Credit can, however, mask the problems and postpone the time when you have to deal with them.
- Not everyone has too much debt. Some banks are not overleveraged. Some non-financial firms are perfectly capable of meeting payroll without drawing on lines of credit. Some automakers actually produce good cars and earn healthy profits for doing so. Bailing out failing firms keeps capital in the hands of people who are using it rather badly and keeps it from finding its way to others who either are already using capital well, or who wish to risk their own money on the chance that they can use the capital better than its current stewards.
- There may be good reasons for departing from market outcomes, but they are not economic reasons. For example, we may redistribute money toward the poor in order to help the poor, or we may impose tariffs that make imported goods more expensive so that it is profitable to keep manufacturing them here. We may even keep unprofitable automakers out of bankruptcy to avoid riots in Detroit. But in all these cases, we are pursuing a social goal; we are not by any stretch of the imagination helping the economy.
- We could print up enough new currency to give every man, woman, and child $1 trillion, but that wouldn’t stimulate our economy in any way worth mentioning and it wouldn’t make anyone better off.
Can any of this really be controversial? And if not, what the Hell is going on?