The Five Star House of Horrors: Robert Higgs on the Bail Out

Gentle Readers,

Robert Higgs answers three questions that have doubtless been on your mind.

1. How bad is the current market situation?

2. How bad are the current proposed bailout plans?

3. What's the one thing we should be doing that we're not?

1. How bad is the current market situation?
How bad the current situation is depends on where you find yourself in the market system. So far, the troubles are highly localized in certain financial markets and, to a lesser degree, in the housing and related industries. Financial institutions that made foolish bets—all of them more or less contingent on perpetually rising real-estate prices—are in deep trouble, but the overall financial scene does not look bad. Lending continues at high levels; credit is not "frozen," as the media keep insisting. Outside the financial sector, conditions generally look okay for the moment.

2. How bad are the current proposed bailout plans?
The proposals already accepted or likely to be accepted add up, not to a house of horrors, but to a Five Star Hotel of Horrors. The bite taken out of the taxpayers—$700 billion to start with—is a huge injury with virtually nothing of value in return. The implications for future conduct are horrendous. To the old "too big to fail" rule, the government is adding "too well connected to fail." Moral hazard will be promoted tremendously, not to mention that the government is resorting to outright socialism by taking ownership positions in rescued firms, as well as pursuing the usual economic-fascist policies of subsidies and bailouts.

3. What's the one thing we should be doing that we're not?
Whose we, white man? The government would do almost all of us ordinary people a favor if it merely refrained from what it's been doing for the past few weeks, and simply let badly managed firms go bankrupt. Capitalism is supposed to be a profit-and-loss system. Too bad the so-called capitalists and their lackeys in the government don't believe in capitalism.

Robert Higgs is senior fellow in political economy at The Independent Institute and editor of The Independent Review: A Journal of Political Economy.

Tip of the glass to Reason: The Great Bailout Brouhaha here.