Bailouts as Subsidizing Failure

September 30, 2008 1:25 PM by Dmitry Chernikov

And when you subsidize something, you get more of it. What incentives will the failing companies have to strive for profit through faithful service to their customers and for standing on their own feet? This is a question that haunts all protectionism, whether through bailouts or tariffs or subsidies or monopoly privileges. If the purpose is to make a firm or industry strong or able to compete in the market, then protecting it only makes it weaker. One must throw each company out into the "dog-eat-dog" (ha!) competitive environment and through these pressures force it to improve and excel.

Nor is there an analogy from protecting human children and the elderly to protecting "infant" and "senile" industries. If an industry is foreseen to be profitable only after it matures, investors will still put money into it now. The government can't find out which industries or firms ought to be kept alive and which, aborted. And if an industry is no longer profitable and its prospects are dim, then it deserves to "die."

Bailouts as Privilege

September 27, 2008 6:03 PM by Dmitry Chernikov

Note another thing that the bailouts represent: special privilege to particular market players to protect them from failure. This isolates these firms from the market forces, such that they remain afloat whether they do good or bad at satisfying consumer wants. Resources cannot be reallocated from what have been revealed as useless projects to more urgent ones, again, as determined by the consumers. The government is channeling the money into uneconomic uses.

This privilege, since protection cannot be extended to every single firm without resulting in a particularly absurd form of socialism and in complete calculational chaos, is the definition of injustice. It's destructive of the impersonal order that is the free market. On the market it is never about "who you know"; it is almost always about how much money you have in buying and the quality and price of your product in selling. Thus, the market does not respect persons or firms. Good will is hard to obtain and easy to lose. Under hampered market, on the other hand, there arises a class of mafia-like "connected" companies with privileges bestowed on them by the coercive power of the state. They are personal friends of the political elite. They are exempt from the discipline of the market which beats and decimates its every member who fails to please the consumers. This favoritism, I want argue, is unjust. Government cannot pick winners in the marketplace -- only consumers can; but losers surely pick the government as their refuge from the rigors of free enterprise.

Mainstream Economists, Bleah

September 20, 2008 7:43 PM by Dmitry Chernikov

Here's Mises interpreting Marx: "The capitalists, in their subconsciousness ashamed of the mean greed motivating their own conduct and anxious to avoid social disapproval, encouraged their sycophants, the economists, to proclaim doctrines which could rehabilitate them in public opinion." (Human Action, 78) Now it appears that Marx was in many ways right in his denunciation, except that he got the theory of class conflict wrong: the numerous so-called economists are sycophants not of the bourgeoisie but of special interests and the state. These economists have betrayed their calling to analyze the consequences of human actions not in the short-run and only for certain groups of people (such as the politically connected Wall Street firms) but in the long-run and for all groups. They have also failed to abide by rule utilitarianism, in that the market and a regime of private property cannot bear bailouts, subsidies, fiat money, massive government debt, and other forms of interventionism and outright socialism. They should be vociferously calling for explicit laws against this sort of things. As it is, they are paid shills for the political class.