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Source link: http://archive.mises.org/8633/bailouts-as-privilege/

Bailouts as Privilege

September 27, 2008 by

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.


Jonathan Knight September 27, 2008 at 9:11 pm

This is the best opportunity the Austrian school will ever have to change public policy. Whether the American people get stuck with multi-trillion bill or no bailout happens and the system implodes now and their credit cards get frozen, either way, there is going to be a popular rebellion against the status quo system. But we need to formulate serious cogent alternatives that can be put forth and adopted by a serious politician. Who is our political leader?

Ralph Fucetola JD September 27, 2008 at 9:55 pm

Ron Paul.

Brad Hunter September 27, 2008 at 10:39 pm

Yes, Ron Paul. Unfortunately the American People vote for individuals who subscribe to the same way of doing business in America. Do we all REALLY believe that The People have the discipline, desire, to live within their means???

Book 'em Danno September 27, 2008 at 11:59 pm

People accept deprivation when they believe it to be the just order of things. Humans forego peace and prosperity for the exact same reasons. But when expectations change, when the paradigm shifts, that creates the basis of revolution. The epic fight is for hearts and minds.

Under the entire umbrella of thought housed at Mises.org (most of us see) is a universe of opportunities for a just world as opposed to the limited scope of just about everything else out there. The person not familiar with the ideological-knowledge treasures housed here doesn’t know about the Mises/Rothbard paradigm.

Justice, for these masses, is conceived of in many ways that are, to liberty minded folks, merely variants of non-liberty. Consequences be damned.

All is never lost. True, the vast majority of Americans may not like “bail outs” but they accept the order. But Mises.org types do not and Americans will only take so much- there still lives a distant echo of the Declaration. Many people, including myself, are indeed becoming more aware of liberty as well. To think that this is the greatest opportunity for change ever may be overly optimistic, but the glass is half-full.

I am ready to fill the other half with fight.

Inquisitor September 28, 2008 at 8:15 am

We basically have a consumer economy: that is to say, the government elite is the consumer, choosing who it prefers. It isn’t rational or productive – it is a class of parasites, spending others’ money on what it wants.

“Thus, the market does not respect persons or firms.”

I wouldn’t phrase it thus – I’d say it privileges no person or firm.

Theodore Boosalis September 28, 2008 at 8:49 am

I think it doesn’t matter what happens, in terms of our ability to make change. If the bailout doesn’t happen, it gives the Federal Reserve the ability to inflate anyways and that means lowering the federal funds rate while providing the backstop money. If the bailout does happen, the Federal Reserve will inflate according to the conditions of the legislation while remaining steadfast to the federal funds target.

Here’s the catch, Bernanke wants to pay interest on bank reserves held at the Fed NOW versus in 2011 as currently legislated by Congress. I am trying to get the actual bill off the senate.gov site to see if this legislation provides them the earlier target. If that’s the case, look out as Bernanke will have the authority to inflate without the average person seeing the inflation (like they see it anyways).

Either way, we know we are right. It’s the next step that counts. I know Ron Paul discusses doing things peacefully, but remember this: all wars in the past 150 years have been connected to centralization of monetary systems and economic crisi. You can make the argument our American Revolution was not only a tax and civil liberties case, but a case where the English confiscated our colonial currency and replaced with theirs to they could inflate to fight France.

We need to find ways to have forums outside this venue and discuss ALL alternatives. I am extremely concerned that we will not be able to proceed effectively through Congress as things are setup now, no matter the circumstance and solutions set forth. I believe the Central Bank has now achieved ultimate authority during this crisis through increased lending windows and congressional authority to inflate. We need to meet as a group offline in conference or otherwise.

My email is tboosalis@costasinc.com. Please email me your thoughts. I am not afraid of anything anymore. I am afraid of doing nothing.

William H. Stoddard September 28, 2008 at 9:53 am

Oh, absolutely true. I have been re-reading “Atlas Shrugged” lately, and Ayn Rand’s portrayals of corrupt and inept businessmen going to the government for political favors seems all too timely. A shame the film is stalled again; it might find an audience unusually receptive to its points.

Michael Smith September 28, 2008 at 10:35 am

William, I agree completely about Rand’s protrayal of the James Taggarts, the Orren Boyles, etc — it’s right on the money. As Francisco D’Anconia put it, “We’ve replaced the aristocracy of money — with the aristocracy of pull.”

I fear that we are now entering part III of Atlas Shrugged.

Dmitry Chernikov September 28, 2008 at 12:12 pm

Every person, company, or industry is a potential special interest, eager for government protection. The only thing that can stop them are widespread knowledge of economic theory and libertarian ideology. And that’s what we don’t have.

Inquisitor, you make a good point that the government is a consumer. I was referring to its picking winners via bailouts not via spending its money on bombs and bums and suchlike.

Michael Smith September 28, 2008 at 1:37 pm

Dmitry wrote:

“Every person, company, or industry is a potential special interest, eager for government protection.”

Indeed, as long as one man’s “need” is deemed to be a moral claim that trumps another man’s right to his own money or property, there will be no end to the “needs” that people will identify and put forth as worthy of “government protection”.

Francisco Torres September 28, 2008 at 1:38 pm

Do we all REALLY believe that The People have the discipline, desire, to live within their means???

I don’t. We’re screwed. People do not understand the relation between savings and capital investment. They do not understand money.They do not understand how markets work. Whether achieving this level of illiteracy was the purpose of the public education system or the welfare system, it makes no difference: the goal was reached, and the consequences will be felt hard for years to come. I do not think, however, that most will be able to add 2 plus 2 together and figure out who is the real culprit – I am afraid we will end up under an even worse form of fascism, the not-so-nice kind, the one that does NOT come with a smiling face.

Theodore Boosalis September 29, 2008 at 4:13 am

I knew the Fed was getting its prize in the form of interest payments to banks so it could further circumvent the traditional method of inflating the currency. This is not good. Now we have hardly any accountability in the Fed’s actions and they can hide the inflation for short periods of time. It’s basically an automatic inflation mechanism.

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