Plumb Bob Blog

09/19/2008 (11:13 am)

Bailout Fever

It’s been a tough week for the US economy, but a worse one for economic liberty. After giving us hope to feel the cleansing breeze of sanity by refusing to bail out Lehman, the US government decided to nationalize the insurance industry, just as it recently nationalized secondary mortgage markets and certain investment banks.

Make no mistake, these are nationalized industries. What the government did in the cases of Fannie Mae, Freddie Mac, Bear Stearns, and now AIG, is buy some percentage of their securities; I think in AIG’s case it was 80% of the parent company. This is precisely what Hugo Chavez did with Venezuela’s oil industry a few years ago, when he nationalized it. I don’t know precisely how to quantify something like this, but I’ve read that with the recent bailouts, the US is now more of a socialist nation than is Communist China. I’m still waiting to hear the plan concerning how these industries are to be returned to the private sector. I believe the McCain campaign has said something like this, but they also have favored all the bailouts so far. Forget Obama; he’d nationalize his grandmother if it were legally possible.

We’ve noted the irony for some time: even as socialism was discredited in the 1980s and nations around the world hastened to introduce economic liberty to stimulate their moribund economies (successfully, thus proving the correctness of fiscal conservatism), the US was creeping closer and closer to a more controlled economy. The result will be as it was in Europe before they took their cue from us: stifled innovation, uneconomical choices, economic malaise and increasing poverty.

Let’s review the basics: whatever you subsidize, you get more of. Subsidize bad business decisions? Subsidize senseless risk? Subsidize failure? The reader is left to complete the exercise.

The taxpayers are now on the hook for hundreds of billions of dollars in possible payments, possibly reaching into the trillions. Contrary to what some folks seem to imagine, the ability of the US government to pay its obligations is not unlimited. If the currency fails, starvation here at home is not unlikely. It could happen. I could swallow my misgivings about deficit spending during a war, but this is insanity, and we will all pay dearly for it.

Mish’s Global Economic Trend Analysis had a sensible and eye-opening analysis of the AIG takeover. Don’t be afraid of the newsletter’s daunting title, it’s not nearly so arcane as you might think. Mike Shedlock comments about the insanity of allowing AIG to break the law with regulators watching, which is part of what the state of New York did. There’s actually a good reason for the law, and the reason is that it puts insurance customers at serious risk. Read it.

Also, Michelle Malkin is on her horse today about the same issue, bemoaning the death of fiscal conservatism. Her links are always helpful, so it’s worth the trip. She also noted a few days ago that both parties are talking about bailing out the auto industry to the tune of another $25 billion. Repeat with me again, class: “What you subsidize, you get more of.” Subsidize the production of god-awful trucks and cars…

For those who glory in schadenfreude (I am not one of those, nor have I ever been): though the mess was created by liberals in Congress, the bailouts are the Bush administration’s legacy, and a sour one it is. I’ve never liked his domestic policy, but this tops the cake.

Meanwhile, to avoid being associated with the collapse, Congress is running as far away from the mess as possible, adjourning again until after the election rather than address the mess they created. Ed Morrissey has wryly dubbed this the “Brave Sir Robin Congress.” The only match to the ineptness of the 110th Congress is the inability of the Republican National Committee to take advantage of their opponent’s single-digit approval ratings and drive the bastards out.

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