To Bail or Not to Bail...

[iKotomi]

So does doing nothing.

How is there a moral hazard involved when you don't do anything? When you don't have the government bailing you out, you are less likely to try something risky.

The economy suffers from the same laws of Supply and Demand... as supply goes up, demand goes down... so creating runaway inflation only prolongs the problem, and doesn't actually fix anything.

That is not how Supply and Demand works. Supply and Demand are independent of each other and are functions of price. As supply goes up, the price that the producer would sell it at increases because of the increases in marginal cost. When the price is higher people buy less. Inflation just affects how much a single dollar is worth to you.

It's never actually worked like that however. Every time the economy's been left to itself, we magically end up with an economic crisis. (Then people are shocked that banks, businesses etc acted selfishly.)

Just because a market corrects itself doesn't mean that it doesn't fail. In free market theory, uncompetitive firms leave the market in the long run, which is an important mechanism to self-correction. That is in no way in conflict with the existence of "economic crises". If you left it alone long enough, the market would have fixed itself because that's just the way markets work. It just happens that the period of time that it may take to do so is long enough to make a lot of people unhappy, and everyone knows what the real job of the government is. Quite frankly, I wouldn't mind seeing uncompetitive firms go. It means that those resources will be put into more competitive markets in the long run.

Businesses cheat because they have an incentive to do so. Government intervention is usually a major source of this incentive, especially since the government tends to do a bad job of buying at a competitive rate due to protectionism, bribes, etc. The real problem with government spending is that it messes with prices. The fact of the matter is, whenever the market settles on a price, that price is an equilibrium, meaning that it is pareto efficient. Messing with prices artificially tends to make things inefficient. Which is why when something can be done by the free market, it is usually better to do so.

I don't argue that we should have a complete lassaize-faire economy. Government spending is a cost that we pay for security and stability (sort of like insurance). It's just most government spending is insolvent, which just leads to a waste of money.

 

[D_Matt_Ma]

I hope the government intervenes and causes a bond and dollar crisis. That way, the poeple who voted for a bail out will suffer and get what they deserve. And people like me will be able to rub it into their faces when I say I told you so.

Yes, people deserve a job, home, retirement, healthcare... and everything that they don't pay for...

 

[Marginal]

Just because a market corrects itself doesn't mean that it doesn't fail. In free market theory, uncompetitive firms leave the market in the long run, which is an important mechanism to self-correction. That is in no way in conflict with the existence of "economic crises". If you left it alone long enough, the market would have fixed itself because that's just the way markets work.

The question becomes, when? Especially in a regulated environment, the notion of a "natural" market is iffy.

Businesses cheat because they have an incentive to do so. Government intervention is usually a major source of this incentive, especially since the government tends to do a bad job of buying at a competitive rate due to protectionism, bribes, etc. The real problem with government spending is that it messes with prices. The fact of the matter is, whenever the market settles on a price, that price is an equilibrium, meaning that it is pareto efficient. Messing with prices artificially tends to make things inefficient. Which is why when something can be done by the free market, it is usually better to do so.

Yes, but when they're notoriously poor at policing themselves, (the assumption seems to be they absolutely won't, but informed consumers will keep things in check which clearly does not happen) why argue that this is a good idea? (Which seems to be the basic libertarian ideal.)

 

[D_Matt_Ma]

All these arguments can be simplified to the following. Help uncompetitive people or not? If you help them, you tax higher and provide welfare. Otherwise, you do what I say, and let the uncompetitive go bye bye. Yes, I'm heartless... good stuff.

If you don't believe people are informed enough to be capable balances in a free market, then they shouldn't be allowed to vote. But since we insist on letting all people vote, including the stupid selfish idiots, then you gotta let them mess up. You don't get the benefits of the market without taking the fall when you are dumb enough to rely on credit cards and buying homes you can't afford.

 

[iKotomi]

Yes, but when they're notoriously poor at policing themselves, (the assumption seems to be they absolutely won't, but informed consumers will keep things in check which clearly does not happen) why argue that this is a good idea? (Which seems to be the basic libertarian ideal.)

There is a very big difference between government preventing companies from engaging in fraud, and government intervention in the economy. Libertarians want the government to prevent fraud. They don't want the government artificially increasing demand/supply of a product or messing with prices.