Sunday, September 28, 2008

Robert Murphy on Corporate Welfare

Although they are just playing the hand that Alan Greenspan dealt them, Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson have been working overtime to discredit the capitalist economy. The $700 billion bailout of Wall Street, as well as other measures such as a ban on short-selling financial stocks, are a repudiation of the free market principles which the Bush Administration claims to champion. Besides forcing taxpayers to fund a massive dose of corporate welfare, the latest measures will make the financial crisis worse...

More generally, the government’s bailout will perpetuate the very incentives that caused the problem in the first place. A free market system is based on profit and loss. If corporate executives know that the government is always ready to step in and prevent an absolute meltdown, then those executives will take on too much risk. If the aggressive bets pay off, the private companies keep the profits. And if the aggressive bets blow up in their faces, then no worries—the taxpayers will eat the loss...

The free market is a superior economic system to central planning. This superiority demonstrates itself during normal times but especially during an economic crisis, when resources must be rearranged before regular growth can resume. By embracing massive corporate handouts and other socialist measures, the Bush Administration discredits capitalism and delays economic recovery.

read the entire essay

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