Conventional wisdom says that as the world becomes more and more complex, the case can be made for increasing government regulation. After all, in a world of increased complexity, how can the innocent be expected to be protected? Who, in other words, looks out for the little guy?
I was asked recently which version of the financial reform bill I thought was better, the House’s or the Senate’s. Read more »
President Obama recently announced that he desires more robust regulation of banks, particularly as it relates to their size and the types of investments they can make. As reported, he is embracing Depression-era policies.
Be careful what you ask for.
This story highlights the problem we encounter when we decide as a society to bail out private corporations. As has been discussed here before, bailouts are inconsistent with founding principles. The irony is that, in a way, the Administration has a point. Once a private corporation accepts public money, the public becomes a constituent with an interest in how the company operates. Since the “government” acted as the public’s investment advisor (willingly or not on behalf of the public), these companies have the challenge of either paying the money back, and quickly, or answering to another master.
More problematic than the bailout itself is the fact that we have large imbalanced government making these decisions; the government in Washington D.C. was never intended to be a creditor to private companies. The proper thing to do is to let good managers and owners succeed and bad managers and owners fail. As we have said before: it is bad business supporting bad businesses. Yet, if a private business was so critical as to merit a bailout, the employees and communities most effected should be the parties to make that determination.
Forget for a moment such antiquated criteria like reason, logic, and common sense. Forget also personal experience and general economic policy. All of these frameworks suggest – and often loudly proclaim – that any bailout is indeed throwing good money after bad. It’s bad business supporting bad business.
If all of that weren’t enough, a foundational approach based upon the Constitution renders the bailouts of private corporations by the government absurd, destructive and incompatible with original intent.
 As Jefferson noted in his autobiography:
“It is not by the consolidation or concentration of powers, but by their distribution that good government is effected. Were not this great country already divided into States, that division must be made that each might do for itself what concerns itself directly and what it can so much better do than a distant authority. Every state again is divided into counties, each to take care of what lies within its local bounds; each county again into townships or wards, to manage minuter details; and every ward into farms, to be governed each by its individual proprietor… It is by this partition of cares descending in gradation from general to particular that the mass of human affairs may be best managed for the good and prosperity of all.”
And again we return to this persistent matter of balance; of the division of powers. How then should domestic matters such as bailouts be addressed? In short, and borrowing tongue-in-cheek from that great moral question captured on wristbands across America, what would Jefferson do?
The bailout of a private corporation would be vehemently opposed, foremost; risk and reward, after all, go together for a reason. Yet, if popular sentiment suggested that such a remarkable intervention was required, Jefferson – and any principled party – would suggest that such relief must come from the community in which this entity operates. If it is the loss of jobs that evokes calls for “saving” a company, then naturally one would expect that the affected community would be the one to ante up.
What makes this conclusion all the more glaring in its departure from how these problems are being addressed is this: the affected communities and individuals have the power to save the automakers, for example. It’s a rather simple solution. Simply disband the union, for starters, which has extorted an hourly wage of close to $70.00 per hour, and accept the market pay rate (which is by competitive measures approximately $47.00 per hour). This would begin the process of conserving cash that is essential to the survival of an organization in the midst of a turnaround.
Yet, we’re told by Congress (and, regrettably, the Executive) that a bailout is necessary, and they’re the only ones who can do it. And through an inappropriately aggressive interpretation of “the general welfare” we’re staring down the prospect of American citizens rewarding poor executives, bad decisions, and union greed with good money. I might add: largely against our will.
Have the American people been wholly conned into believing that central planning might actually work? How far has this infection spread?