Topic: Finance, Banking & Monetary Policy

“Too Tasty to Fail”

The National Oceanic & Atmospheric Administration (NOAA) – housed at the U.S. Dept. of Commerce because Dick Nixon wasn’t getting along with his own Secretary of the Interior – has determined that the decline in the harvest of Chesapeake Bay blue crabs is a “commercial fishery failure.”  With that declaration by the “stewards” of the nation’s fisheries, Chesapeake crab fishermen are looking at a bailout (popular word these days) of up to 15 million taxpayer dollars over the next three years.

The Examiner reports that Maryland Watermen’s Association President Larry Simns and his members were “elated.”  Go figure.  Simns says that this is not a handout because the money would be used to put the crabbers to work restoring fisheries, planting trees, etc.  Perhaps they can staff the exhibits at the NOAA-partnered Smithsonian Institution’s “Ocean Hall” opening this weekend too.

What kind of message does this latest government intervention send to other commercial fishermen?  Overfish, deplete your source of income, and the taxpayer will numb your pain.  Of course, NOAA bureaucrats will then cite resulting fishery depletions as justification for a budget increase.  Big Government 101.

The Washington Post Visits Cato

In the Washington Post this morning:

Bailout Raises Libertarians’ Market Value: Cato Institute’s Scholars Pained and Pumped By Government Action

[F]aced with a proposed $700 billion government bailout of  Wall Street, this town’s most gung-ho libertarians and free-marketeers are reaching for their coffee and their keyboards. They are invigorated. The prospect of doom and ruination for everything they hold dear only makes them stronger.

Another $700 Billion

For the second time in six years, the Bush administration has asked Congress for nearly unlimited authority without an independent professional review of the evidence that led the administration to request such authority.

In making the case for the Iraq war resolution, according to Senator John D. Rockefeller, “the administration repeatedly presented intelligence as fact when it was unsubstantiated, contradicted or even nonexistent. As a result, the American people were led to believe that the threat from Iraq was much greater than actually existed.”

As it turned out, of course, no “weapons of mass destruction” were ever discovered.

The skeletal proposal for the Troubled Asset Relief Program states that “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency. The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this act without regard to any other provision of law regarding public contracts” – again without an independent professional review of the evidence that led the administration to request such extraordinary authority.

In both cases, the administration requested urgent congressional approval of these measures when members of Congress were anxious to go home to run for reelection. And a final irony: the total direct cost of the Iraq war to date has been about $700 billion, the same amount that the administration has requested to buy bad mortgages.

The Constant Bailer

Over the last couple of weeks, the nation has been understandably preoccupied with faltering financial houses and federal promises to save them. Save them, of course, for the public good, to the tune of roughly 700 billion taxpayer dollars. (Or is it 1 trillion taxpayer dollars? Oh, what’s a few hundred billion among friends?)

These happenings have inspired a lot of folks to declare truly free enterprise a failure and conclude that government must do more to “manage the economy.” But before we accept all that, let’s put the supposed failure of freedom—and magnificence of government—in a little context by considering something government has managed for a long time: public schooling.

In the 2004-05 school year (the latest with available data), the nation spent about $520 billion, adjusted for inflation, on public schooling, a figure that in two years would surpass the utterly atrocious $1 trillion some people fear taxpayers are about to eat saving investment bankers. And, of course, we’ve been paying through the nose for public schools for decades. But what do we have to show for it? Flat achievement, sinking international academic standing, and a lot more teachers and school employees living off the taxpayers.

Without question, from taxpayer and simple justice perspectives, the proposed rescue of private companies that took big chances and lost is unconscionable. It’s hardly, however, a sign that free markets don’t work. Indeed, considered alongside the perpetual bailout that is public schooling, it just highlights once again that government—the constant bailer—is the real problem, not a free market that would punish both bad bankers, and bad schools, if only it were allowed.

“Wakeriding” the GSE Collapse

On the WashingtonWatch.com blog, I’ve reviewed some of the bills introduced and moved in Congress the last few days to respond - or at least react - to the collapse of Fannie Mae and Freddie Mac.

These bills deserve skepticism - the market for political posturing and other silliness is obviously high right now - but they might not all be bad … .

Slow Learner

Newt Gingrich tells the Washington Post, “We have now launched big-government Republicanism.” Referring to the Bush administration’s bailout-and-takeover plan for the financial sector, he said, “If we saw France do this, Italy do this, we would have thought it was crazy.”

He has a point. But some of us identified “big-government conservatism” as the operating system of the current Republican party a long time ago. I wrote about it in the Australian in early 2003 and in the Washington Post in late 2003. Or check out Bill Niskanen’s comments in this 2004 Los Angeles Times article. Of course, Ed Crane saw it coming in 1999. And Mike Tanner wrote a whole book about it – Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution – in 2007.

Or you could read Mike Tanner’s critique of “Gingrich’s Big Government Manifesto” back in 2006.

An Alternative to the United States of Permanent Receivership

If you have not seen this essay [.pdf] already, it is well worth your time. Zingales ends the essay:

The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded? For somebody like me who believes strongly in the free market system, the most serious risk of the current situation
is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists.

The next 50 years? Perhaps. Markets deal with risk through deterrence. Individuals and firms take risks and gain or lose from their decisions. The gain or loss comes after the decision. If individuals and firms are protected from losses through taxpayer interventions, deterrence against bad risks cannot work. Risks are dealt with prior to a decision rather than afterwards. The government is charged with preventing unwise risk-taking before any decisions are made. Government officials come to have a veto over choices by private actors.

In this way, the United States of permanent receivership becomes in theory, and more and more in practice, a state of control over private decisions.