Monday, September 29, 2008

The Economic and Political Implications of the Bail-out

After listening to President Bush about the Bail-out plan, I could not stop but wonder why once again the government is getting people out of trouble at the expense of others who have not made the same mistakes. The government has intervened one more time in the economy (and not for good). It was not enough already for the law makers to worked by privatizing profits and socializing rick and costs. The current solution according to President Bush is a 700 billion dollars bail-out. In other words, this bail-out will make you and me pay for companies and other people who became blind folded and put themselves at a high risk. Now, social cost of government intervention in the economy has spread throughout the nation and it also will impact in the international markets.

The political campaigns of Senators Obama and McCain have blamed the greed of Wall Street for this crisis. Greed is a factor in life that is always going to be present. It (greed) is a quality among people like gravity is what holds us down and keeps our feet on the surface of Earth. Both political campaigns have not come up with an actual plan that may lead us out of this situation (I am not surprised either). But financial markets do not need of a plan created by politicians or governments. The financial markets need not to be interrupted by any form of intervention.

People think that companies are taking advantage of this crisis and helping themselves to increase their profits. Well, this is not the case; the intervention of the state in the market has created misleading information taken by for-profit companies. When prices are been manipulated by governments entrepreneurial activity is condemned to die, companies will not generate profits and people will lose their jobs.

The interventions of the government in the financial markets have falsely shown people that jumping off from the 5th floor of a building is a great idea. People are going to keep on jumping after this bail-out passes through Congress. However, people now are going to jump from the 20th floor. Now more people will jump off the building at a cost that is also been paid by the people who know that jumping is not an option and then we will have a higher social cost. Professor Peter Boettke has said, in his latest blog entry called “PLEASE, just Say No!,” that intervention or government bail-out is not going to get us out of this crisis.

“To try to throw money at a problem that was caused by a system of incentives that said we will bail you out when your risky investments go sour is merely to reinforce the perverse incentives that caused the problem in the first place --- JUST SAY NO.”

People need to know that good intentions are not equal to good results. Politicians as greedy people are going to make you think that they are doing the best for all of us. But reality shows us the opposite. History reveals us that excessive intervention in the market economy will lead us to failure. Let us hope that the government would not screw up the set of rules and let the market take of its illnesses.