Wednesday, February 29, 2012

Big Government to Prevent Bigger Government

I recently posted Tyler Cowen's thoughts on income inequality, but the article linked was originally sent to me by Justin because of Cowen's positive thoughts on the bailouts (which I don't support):
How about a world with no bailouts? Why don’t we simply eliminate the safety net for clueless or unlucky risk-takers so that losses equal gains overall? That’s a good idea in principle, but it is hard to put into practice. Once a financial crisis arrives, politicians will seek to limit the damage, and that means they will bail out major financial institutions. Had we not passed TARP and related policies, the United States probably would have faced unemployment rates of 25 percent of higher, as in the Great Depression. The political consequences would not have been pretty. Bank bailouts may sound quite interventionist, and indeed they are, but in relative terms they probably were the most libertarian policy we had on tap. It meant big one-time expenses, but, for the most part, it kept government out of the real economy (the General Motors bailout aside).
I actually agree. In fact, in my history classes I describe the intervention of FDR's New Deal as effective. Not because it fixed the Great Depression, but because it was the moderate choice in a time of extreme global chaos. Hitler, Mussolini, and Franco were taking over nations as the extreme right. Stalin and the communists were taking over as the extreme left. Even in America leftist critics like Governor Huey Long were writing books like Share Our Wealth. In fact, 1930's socialist Norman Thomas wrote that the "Mr. Roosevelt did not carry out the Socialist platform, unless he carried it out on a stretcher". Perhaps FDR's huge expansion of the government was the least government could do without forcing a revolution.


  1. Anonymous9:15 PM

    Do you think that saving Lehman brothers could have saved us from the "panic of 2008?"

  2. No. But I think bailing out the other may have prevented a bigger panic. That said, not sure if it was long run worth it.


You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.