Why the Endless Bail-Outs are Making Things Worse

No surprise, argues Russell Roberts of George Mason University, the mindless, almost random federal bail-outs are going to leave us far worse off.  Writes Roberts:

By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s.

The next administration is unlikely to do any better. Mr. Bernanke is perhaps the greatest living authority on the Great Depression, yet he has failed to stem the damage. Messrs. Paulson and Bernanke are confronted with a sick patient. They have antibiotics. They have a scalpel. But is there any evidence from the last seven months that they understand the underlying cause of the illness, or how to cure it?

Worst of all are the political incentives that are unleashed when Washington promises to spend a trillion dollars (and counting). No one can spend such money wisely even if they want to. The information about who needs to be bailed out and who needs to fail is too complicated. Inevitably, such decisions will begin to be more about politics than economics.

The banks were first. Then the insurance companies. The car makers are getting a cut. Who’s next? The governors, probably. Homeowners are waiting. Then there will be the hedge funds. Once the line forms, companies will stop trying to save themselves and focus on being saved by Washington. The resulting spiral will be devastating.

Treasury Secretary Henry Paulson might exude confidence, but he has demonstrated that he has no idea what he’s doing.  First the government was going to buy up bad paper.  Then it decided to toss money at banks whether they wanted it or not.  Now we’re going to have yet another housing bail-out program.  Insurance companies are lining up for the federal dole.

How about a special program for writers?  I’m tanned, rested, and ready to grab my share of the loot!