Wednesday, October 29, 2008

Rationalizing Theft

A writer for the NYT recently called for something to be done about housing:

Yes, there were lots of Americans who were not greedy or foolish during the housing bubble, and many resent the idea that their neighbors might get a bailout they don’t deserve. They need to get over themselves. If housing prices keep falling, many millions of additional homeowners will find themselves, through no fault of their own, with underwater mortgages. Besides, foreclosures damage property values for everyone, not just those losing their homes.

It's interesting that certain parties should be protected from the harm brought on "through no fault of their own", but not others. In case you had trouble understanding this rationalization for a bailout, let me translate:

Wealth needs to be taken from party A (taxpayers) and given to party B (homeowners), because even though party B was foolish the outcome of their foolishness might hurt party C (other homeowners). And while party C might also have been foolish, though clearly not as foolish as party B, both parties are somehow more deserving of party A's wealth than party A itself. Allowing harm to come to parties B or C as a result of their foolishness is somehow worse than harming party A by stealing its wealth.

Since the government has nothing and produces nothing, all it can do is use its powers of coercion to redistribute wealth from one party to another with the hope that this redistribution will bring about the greatest overall benefit for society. This is the reason given for such intrusions, that the end will somehow justify the means. But how is it that the redistribution of capital from economic activities that are succeeding to those which have failed will some how bring about a better outcome? How do failing activities produce more wealth for society than those which are not? Perhaps it is important to look at who the activity is producing wealth for and for whom it is not.

A successful market economy depends on fairness and justice. These aren't just ideas that appeal to us as individuals, they are necessary in order for a market economy to function properly and to its full potential. A market economy that lacks fairness and discipline, where winners and losers are picked by the coercive power of the government, is an economy that disincentives participation, work ethic and innovation. It is the same problem that caused the failure of classical socialism - why work hard when the product of your labor may be taken away and given to someone else?

An economic system which allows for the forceful redistribution of wealth with the thought that it is for our own good, ultimately and ironically, disincentives economic productivity and brings about the very economic harm that it claims to protect us from, subsidizing activities that the economy cannot afford and that consumers do not want, violating freedoms all along the way.

Tuesday, October 28, 2008

Why did the gold standard fail?

If the classical gold standard worked so well, why did it break down? It broke down because governments were entrusted with the task of keeping their monetary promises, of seeing to it that pounds, dollars, francs, etc., were always redeemable in gold as they and their controlled banking system had pledged. It was not gold that failed; it was the folly of trusting government to keep its promises.

- Murray Rothbard