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Cato Dispatch for April 23, 2010

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(Links to outside sources were active as of the date of this dispatch; however, not all news sources maintain links to current stories indefinitely. Some links also may require registration.)

The Era of Permanent Bailouts

The Senate is poised to open debate on a Democratic reform package that would set up new regulatory oversight of the financial sector. Writing in the New York Post, Cato scholar Mark A. Calabria argues that the bill ignores the root causes of the 2008 crisis: "The central flaw is that Dodd's bill continues bailouts as federal policy, despite his claim that he's ending 'too big to fail.' ...It wouldn't bring stability to our financial system, but further erode market discipline — while asking us to put all our faith in the same regulators who have failed repeatedly."

"Under the bill, debt holders can still be, and will likely be, bailed out," writes Calabria. "A bill that essentially says, "No more bailouts -- except under conditions A, B, C and D,' is not a bill that ends bailouts."

The bill merely gives the government more control to pick winners and losers in the marketplace. Writes Calabria, "To function properly, capital markets need certainty about how the government will respond in crisis situations. The Dodd bill doesn't provide that clarity: Instead, it massively delegates power -- allowing regulators to decide who gets rescued and who doesn't." In short, Dodd's bill makes bailouts into permanent policy.

In the Wall Street Journal, Cato scholar Gerald O'Driscoll warns that Dodd's financial regulation will increase cases of "crony capitalism":

If we want to restore our economic freedom and recover the wonderfully productive free market, we must restore truth-telling on markets. That means the end to price-distorting subsidies, which include artificially low interest rates. No one admits to preferring crony capitalism, but an expansive regulatory state undergirds it in practice.

Piling on more rules and statutes will not produce something different than it has in the past. Reliance on affirmative principles of truth-telling in accounting statements and a duty of care would be preferable. Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit crony capitalism.

A Libertarian Response to Earth Day

Thursday marked the 40th anniversary of Earth Day, a time designated to highlight and discuss ways to work toward a cleaner planet. While many use the time to advocate stringent government regulations, Cato scholars have shown repeatedly that markets, property rights and prosperity work to achieve the same ends. Cato's energy and environment research promotes policies that would help protect the environment without sacrificing economic liberty.

As Cato scholar Jerry Taylor explains, we have capitalism to thank for the clean air we breathe and the fresh water we drink:

It's businessmen -- not bureaucrats or environmental activists -- who deserve most of the credit for the environmental gains over the past century and who represent the best hope for a Greener tomorrow. … Indeed, we wouldn't even have environmentalists in our midst were it not for capitalism. Environmental amenities, after all, are luxury goods. America -- like much of the Third World today -- had no environmental movement to speak of until living standards rose sufficiently so that we could turn our attention from simply providing for food, shelter, and a reasonable education to higher "quality of life" issues. The richer you are, the more likely you are to be an environmentalist. And people wouldn't be rich without capitalism.

…This is not to say that government regulations haven't had an impact or aren't occasionally worthwhile. It is to say, however, that free markets are an ally -- not an enemy -- of Mother Earth. The Left, accordingly, has no special claim on Earth Day.

Cato Quick Hits

• Really, Senate Commerce Committee? Do you really think Hollywood actress Sigourney Weaver has important information you need to know?
• Clear and simple: It is unconstitutional for the federal government to force people to buy a private product.
• Who are these centrist, independent-minded voters some say will be crucial in the 2010 elections?  They're not conservative. Many of them may be libertarian — fiscally conservative but socially liberal or tolerant.
• Was there ever really a "libertarian golden age?"

Chris Moody, editor, cmoody@cato.org