I liked the headline that the Wall Street Journal gave to an op-ed by George Mason University economist Russ Roberts: "Don't Just Do Something, Stand There." Roberts pointed out that politicians can't wisely spend the trillions they commit, "even if they want to. The information about who needs to be bailed out and who needs to fail is too complicated. . . . It is time to let the imprudent fail and the prudent pick up the bargains."
What if the government had cut loose GM, Citigroup, and the others, forcing them to do what businesses do in hard times: renegotiate with creditors and revalue assets? Wouldn't prices have found a more solid floor? We'll never know. But today the CEOs of those companies would be suckers to drastically revalue assets or sell off a cherished part of the company. If they did that, and then Congress showered their industry with money, they would have cheated their shareholders. Better wait to see what the politicians will do. And so government programs frighten private investors away from making the tough decisions that would start them on the path to real recovery.
Of course some of those companies would fail, and suddenly letting that happen is a political no-no. When the automakers came to Washington to beg, Nancy Pelosi said, "We reject those advocating bankruptcy." Why? Bankruptcy can be a good thing. Kmart declared bankruptcy in 2002, but it didn't disappear. Filing for bankruptcy allowed the company to reorganize itself and reemerge stronger.
George W. Bush told
CNN, "I've abandoned free-market principles to save the free-market system." Why did Bush and Pelosi think they knew how to run the economy? F.A. Hayek famously termed this the "fatal conceit"--governments can't possibly know everything that's going on in an economy, and so while government intervention may delay some economic pain, it cannot stop it.
"The arrogance of officialdom should be tempered and controlled," said Cicero in 55 B.C. He was right.
John Stossel is coanchor of ABC News's 20/20 and the author of Myths, Lies, and Downright Stupidity.
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