Wednesday, October 1, 2008

It's Not What Reagan Would Do!!!!

The proposed $700 billion dollar loan package to the financial sector has ruffled feathers across the political spectrum. Both liberals and conservatives have expressed considerable anxiety about the plan that President Bush and Congress are close to assembling.

Liberals dislike a plan that seems to bail out Wall Street for making foolish choices while ignoring Main Street. To be honest, conservatives have many of the same qualms. Why are we rescuing these people? I hate to use the word greedy, but both they and many borrowers were gambling on an ever expanding bubble. The housing bubble was like a huge game of musical chairs. When the music stopped, some would be rich, and others would be in desperate shape. Economists should have known better.

Our president, congressional representatives, and economic experts have mostly agreed that allowing these firms to die would have a catastrophic impact on our economic system. In theory it may be okay to allow a boat that wanders into a hurricane to go under rather than risk the lives of rescuers. Apparently, however, we are all passengers on that boat whether we know it or not.

In 1929 Herbert Hoover acted as many conservatives would have President Bush act today. Hoover was a rock solid conservative and 90% of the time his ideas were sound. However the situation in 1929, as today, was an extraordinary combination of events from the economic and political realms. Inactivity led to disaster because we were not just talking about stupid business decisions, but a crisis of confidence in the system. The potential for that is developing today. 2008 is not a replay of 1929, nor are things as bad as they were then. Certain crises do demand leadership and action. We elected a "decider" in 2000. When has President Bush ever backed off of a crisis?

But Reagan would have let them go, or would he? The closest leader to Reagan in his time was Prime Minister Margaret Thatcher. In the early 1980s she unleashed howls of doctrinaire criticism by implementing an economic intervention plan. Thatcher explained that business and individuals need more freedom to make their own decisions about the economy. That being said, fear, instability, and lack of confidence restrained people's activities more than government action. To act freely, people need confidence in the free market system. Extraordinary situations demanded action.

People used poor judgment in the past several years, as people often will. In most cases, government "help" is often the worst medicine. In a few severe cases, it becomes necessary. No, government should not always be there with a band aid, milk, and cookies every time we get a boo-boo. But we do expect that if the catastrophic happens, they will send an ambulance.

Speaking of Thatcher, she also criticized socialist governments for relying on large prestige manufacturing projects for economic development instead of real reform. She was talking about 1980s Mexico, but the comment hits close to home.

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