Saturday, October 11, 2008

More On Why Government Efforts to "Help" the Markets Aren't Working as Intended

A couple of days ago I posted on the $700 billion bail-out package and in a later update noted how when the government had failed to pass it the first time, the DJIA went up by 485 points. I really do think that government inaction might be the best course, for the reasons laid out in the WSJ article I linked to. Brian Micklethwait at Samizdata seems to be thinking along similar lines and also makes a pretty good case for why government actions are exacerbating rather than helping the problems due to a "crowding out" effect. No sane investor is going to want to get back into the market until the 800 pound gorilla on crack that is our government stops trying to "help".
"My take on this is that there is a crowding out effect going on here, big time. I trust we are all familiar with this idea. It says that big government plans of any kind not only do harm because the government plans fail and all the wealth it wastes on them is wasted, but, and arguably even worse, because people with better plans in the same line of business are frightened into inactivity.........

...............Well, now, exactly the same thing seems to be happening in the banking industry. Were I one of the immensely rich and immensely sensible banking people who had (a) seen this crash coming and cashed out at roughly the right time, and who now (b) has plans to gobble up failed banks and reorganise them along more sensible lines, I would now, despite all my hopes of profitable new business, be sitting on my hands, waiting for all the government plans to do their immense damage before I went wading in and god [sic] chewed up too. Only when these government plans had become an obvious failure, and the politicians had just totally given up, would I be ready to move in a[nd] sort things out. Only when the politicians lapse into inactivity, which for a brief shining moment looked as if it might happen straight away, does economic optimism, among the people willing to back their optimism with money, reassert itself."
Read the whole thing.
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