The Moral Hazard of Bailouts

Everyone is bailout crazy. Insurance companies, banks, investment banks, automakers… and more are lining up for their share. So far the aggregate total exceeds $1 Trillion, and the total is expected to continue to grow. To put that in perspective, that’s about $4,000 for every living human being in America. If you have a wife and three kids, congratulations- you just spent $20,000 on corporate welfare.

President Bush stated that he has put aside free market principles, in order to save the free market. That is at the very least a calumnious statement. Many of us find it flat out contemptible. I wasn’t looking at the TV when I heard the President’s statement, but were it not for the Texas drawl I would have sworn the senseless words were those of Harry Reid or Barney Frank or, heaven forbid, Obama himself. If he put aside free market principles, what principle was he using?

To many who are attuned to the doublespeak of government, it has the ring of autocracy. To make you safe we put you in danger. To make you independent we make you dependent. To save the free market we attack the free market.

Those who seek power have long adhered to the Hegelian dialectic. The basic idea is that in order to get your way, you create a problem and then propose a solution to the problem that incorporates what you want. It works sort of like this — A wife wants a new car, but her husband doesn’t want to spend the money. So she stops changing the oil and, pretty soon.. voila, a new car is necessary.

If you substitute Congress for wife…and taxpayer for husband…oh what the heck. Here's how it goes — Congress wants control of the economy, but we Americans like our capitalism and free markets, so Congress sets fire to the housing market (see Community Reinvestment Act), the fire spreads, and now businesses are begging Congress to take control. Ah, the heady days before Chuck Schumer tossed a metaphorical hand grenade into the lobby of IndyMac Bank.

Everyone is condemning profit and greed, ironically to the tremendous profit of the greedy. This has been the largest single transfer of wealth in history, and the recipients have, until recently, taken private planes to do their begging. Whole industries are retooling themselves to qualify for government handouts.

I know what happens when these companies seek profit. They give me decent customer service to get me to return. They spend money on research and development to create new products. They market their items and provide the grease for our “free” entertainment from television to radio to the internet.

The effect of companies engineering for profit are pretty self evident. We all benefit. Corporations have to please thousands or millions of us to make their beloved profit. There is a morality to capitalism in that those who can do the most with capital get more capital with which to do it. When you're on corporate welfare the only people you have to please are the ones that write the checks.

There are those who favor strong government control of commerce. Generally speaking these people see government control as an opportunity to impose a morality on others that they feel the free market has ignored. They see this as a bright new day. The Greening of America. The left sees our current economic trouble as an opportunity to impose their will on the rest of us. We should all be concerned about the moral hazard this poses.