Fear so­cial­ism, not a mar­ket cor­rec­tion

The Washington Times Weekly - - Editorials -

Trea­sury Sec­re­tary Henry Paul­son and Fed­eral Re­serve Chair­man Ben Ber­nanke told Congress last week that fail­ure to pass the Bush ad­min­is­tra­tion’s pro­posed $700 bil­lion bailout will lead to dire con­se­quences for the econ­omy. Mr. Ber­nanke said that if the plan were not en­acted, mar­kets would be fur­ther em­bat­tled. This would re­sult in higher un­em­ploy­ment, more fore­clo­sures and an eco­nomic con­trac­tion. In sim­ple terms: In their opin­ion, without im­me­di­ate action, there will be a re­ces­sion. Yet we know a bet­ter term for re­ces­sion: mar­ket cor­rec­tion. Why are we sud­denly so afraid of an eco­nomic down­turn — to the point that we have to gam­ble $700 bil­lion of tax­payer money?

Since the in­cep­tion of cap­i­tal­ism in the 18th cen­tury, there have been pe­ri­ods of boom fol­lowed by pe­ri­ods of bust. De­spite the at­tempts to mit­i­gate th­ese with gov­ern­ment in­ter­ven­tion since the Great De­pres­sion, there have still been pe­ri­ods of boom and bust. This is the nat­u­ral re- sult of the law of sup­ply and de­mand. Re­cently, we had a hous­ing bub­ble in which in­vestors made huge prof­its; now the bub­ble has burst and in­vestors are los­ing money. That’s cap­i­tal­ism. Let those who in­vested wisely, soar; and those who did not, fall. It’s called an econ­omy for grown-ups.

This “cri­sis” has been brought on by home­own­ers, lenders and bankers who made bad judg­ments. Let them bear the con­se­quences of their ac­tions. Fur­ther­more, by the ac­count of most an­a­lysts, a re­ces­sion is com­ing our way, re­gard­less of whether there is a $700 bil­lion bailout. And Amer­i­cans will weather it, as we have so many times be­fore. Since 1854, there have been 32 cy­cles of ex­pan­sions and con­trac­tions.

Are we re­ally now head­ing to­ward a Great De­pres­sion? The an­swer is: no. Are Amer­i­cans a lit­tle spoiled? Yes. Are th­ese un­cer­tain eco­nomic times? Ab­so­lutely. Is a bailout the an­swer? Ab­so­lutely not.

Re­call that sim­i­lar fears have been stoked be­fore. The sav­ings and loan cri­sis of the 1980s and 1990s, the dot.com col­lapse of 2000, and the ac­count­ing scan­dals that af­flicted MCI WorldCom, Tyco and En­ron were all mo­ments of tur­bu­lence. The fear­mon­gers then also pre­dicted eco­nomic melt­down — and it did not hap­pen. It is also well to re­mem­ber that there re­mains great de­bate about the cause of the 1929 stock-mar­ket crash and its re­la­tion­ship to the Great De­pres­sion. Par­al­lels to to­day’s vastly dif­fer­ent mar­ket are over­stated.

At­tempts to pre­vent the mar­ket from met­ing out re­ward and pu­n­ish­ment are not to be feared. What is cause for con­cern are med­dle­some gov­ern­ment ini­tia­tives — oth­er­wise known as so­cial­ism — that emerged in the bailout frame­work.

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