After The Bailout

MANY CONSERVATIVES are skeptical about the bank bailout last fall. All that money thrown at Wall Street fat cats and what do we have to show for it, we grumble.

It is annoying, but the simple fact is that the government cannot let the credit system collapse. Period. And anyway, the banks are not really true private sector institutions. They are GSEs like Fannie and Freddie, only not quite as government-sponsored. Only a little bit pregnant.

No doubt, as Donald Lambro writes, the money expended in the bank bailout in purchase of toxic assets, in preferred shares and so forth, will come back to the government and reduce the deficit. (That will create a new problem, as solons decide they want to spend it rather than save it.)

No, the bigger problem is the way the government has learned to use the credit system to subsidize its favorites and to imagine that it can ease the business cycle. In Britain, Labour Prime Minister Gordon Brown used to boast that he had abolished “Tory boom and bust.” Now they are ramming his boast down his throat weekly at Prime Minister’s Questions.

Let’s stipulate that the government can do something to ease the business cycle. The question is: how much is enough? And when should it be done and when should the government just get out of the way? Obviously the credit operations of Fannie and Freddie are egregious errors, worse than a crime, a blunder. But we obviously need the government to print money and issue lots of debt when it has a war to fight.

The fact is that the way that the government “helps” in a down cycle is by the resort to inflation. That’s what happened in the Great Depression. That’s what happened in the inflationary/recessionary Seventies. And that’s what happened when Alan Greenspan brought interest rates down in 2001-2003. The key to these interventions is to know when to stop. And the record shows that the government doesn’t know when to stop. That’s why it took $20 to buy an ounce of gold in 1900 and now it takes $800. Today’s dollar will buy the same amount of gold as 2 1/2 cents in 1900.

But why worry? Government bonds are yielding 3 percent right now. From the government’s point of view, it doesn’t matter what it does to the value of the dollar as long as it can sell its bonds on the world market.

Well, it may not matter to the government and all the folks who got to eat lunch in the Capitol Rotunda on January 20. But it matters a lot to the rest of us. Debauching the currency is a crime. It is a crime upon the ordinary people that put their hard earned savings in bank accounts and fixed income securities.

But will we mend our ways after staring into the abyss last fall? Don’t bet your nestegg on it.

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Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.

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Faith & Purpose

“When we began first to preach these things, the people appeared as awakened from the sleep of ages—they seemed to see for the first time that they were responsible beings...”
Finke, Stark, The Churching of America, 1776-1990

Mutual Aid

In 1911... at least nine million of the 12 million covered by national insurance were already members of voluntary sick pay schemes. A similar proportion were also eligible for medical care.
Green, Reinventing Civil Society

Education

“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State

Living Under Law

Law being too tenuous to rely upon in [Ulster and the Scottish borderlands], people developed patterns of settling differences by personal fighting and family feuds.
Thomas Sowell, Conquests and Cultures

German Philosophy

The primary thing to keep in mind about German and Russian thought since 1800 is that it takes for granted that the Cartesian, Lockean or Humean scientific and philosophical conception of man and nature... has been shown by indisputable evidence to be inadequate.
F.S.C. Northrop, The Meeting of East and West

Knowledge

Inquiry does not start unless there is a problem... It is the problem and its characteristics revealed by analysis which guides one first to the relevant facts and then, once the relevant facts are known, to the relevant hypotheses.
F.S.C. Northrop, The Logic of the Sciences and the Humanities

Chappies

“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.” —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison

Democratic Capitalism

I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism

Action

The incentive that impels a man to act is always some uneasiness... But to make a man act [he must have] the expectation that purposeful behavior has the power to remove or at least to alleviate the felt uneasiness.
Ludwig von Mises, Human Action

Churches

[In the] higher Christian churches� they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm

Conversion

“When we received Christ,” Phil added, “all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.”
James M. Ault, Jr., Spirit and Flesh

Living Law

The recognition and integration of extralegal property rights [in the Homestead Act] was a key element in the United States becoming the most important market economy and producer of capital in the world.
Hernando de Soto, The Mystery of Capital

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