The truth is that there has never been a vibrant economy that it not managed to some degree by the federal government. By ‘manage’ I do not mean that the government controls the market in a rigorous sense, but that the government guides the market. But why does the free market need a guide? Because it is blind. The market is good at generating wealth, but generating wealth can be a dangerous thing if it is not done carefully. Somebody outside of the market has to look out for the market’s impact on the environment (eg: the feds forbidding companies from saving money by dumping chemicals into the river), for individuals who are exploited (eg: credit card contracts with impossible to read legal language for the purpose of tricking you), or for the free market creating inflation or deflation (eg: the Federal Reserve’s task of manipulating the interest rate).
It might seem that I have contradicted myself. I said that the market should be free, but also that it should be guided. How can something be free and guided at the same time? It is like an individual. An individual is free for the most part, but there are some actions that the government has told me that I cannot do. For instance, I am not free to drink and drive. Is this restriction on my freedom justified? Yes, because studies have shown that this particular restriction on my freedom is a good thing for society as a whole.
Fast forward to bailouts of 2008; most people hated them, and many think they never should have happened. First, they were terribly unfair because they saved already rich individuals who had acted stupidly or dishonestly, while many honest middle class people lost their jobs. Second, they were an infringement on freedom, because the federal government took away our private property (in the form of tax dollars) and gave it to people who we really didn’t like very much.
So what if ‘most people’ had their way, and the bailouts had never happened? Well, we would certainly be more free, and isn’t that a good thing? I say ‘no.’ Every reputable economist from the right and left was convinced that the failure of all the major banks would usher in a Second Great Depression that would have no foreseeable ending. Little House on the Prairie was a great book series, but I have no desire to live like that; not having enough to drink, watching my children die of curable diseases, freezing my butt off in the winter. The point is this: what good is freedom if we are all eating out of garbage cans?
If the bailouts had been orchestrated by a Democratic administration, can you imagine what Fox News and Rush Limbaugh would have said? “See, the Democrats’ secret plot to turn us all into socialists has finally come to fruition!” But in fact, they were done by the Bush Administration. But why? Was the Bush Administration part of some secret Commi plot? No, they were not. Here is the gist of what really happened:
Economic Advisors: “Ummm, sir, we’re going to have to give $700 billion tax payer dollars to private banks”
Bush: “But wait, I’m a free market guy who doesn’t believe that the government should do that. In fact, I wrote this really nice essay in college about how taxes are bad and that the government should let institutions fail that cannot make it on their own.”
EA: “Yeah, that theory sounds nice on paper, but unless you want to be remembered as the president who ushered in the Second Great Depression, we have got to do this”
Bush: “Well, OK…”
Last week I highlighted the fact that every society already limits individual freedom in the form of laws when that freedom is dangerous. I see the bailouts as adhering to the same principle. In the end, then, my critique of libertarianism is the same as my critique of socialism: nice sounding theory on paper, doesn’t work in reality.
