Market Needs to Self-correct Without Bailout

Imprudent decisions by business owners, whether it be the owner of “Tip Top” or the executives of Washington Mutual or Lehman Brothers, require correction. If the correction does not come about by the owners improving their firms, then it should come from other investors looking to enter into the market in the hope of realizing the profit opportunities others are mistakenly leaving on the table.

Allowing for bad ideas to be cleaned out is how markets self-correct. The self-correction principle is, perhaps, the most important principle of economic science. The fact that an overwhelming majority of Americans oppose the bailout suggests the general public understands this principle at a basic level. Unfortunately, this principle is forgotten by politicians whenever a crisis arises...

Bailing out lending agencies is a dangerous step down the road towards socialism. The bailout completely distorts market incentives and thwarts the dynamic process of creative destruction, which is so crucial to market economies. We ask readers to consider the following: Was it a crisis for water-carriers to be driven from the market by the innovation of indoor plumbing, or for the whaling industry in New England to be displaced when electric light became widespread? While there were thousands of jobs lost when these industries failed, there were more efficient and better businesses right around the corner...

In addition to the perverse economic effects created by the bailouts, there are also constitutional and ethical issues in play when such sweeping legislation is proposed. At the most fundamental level, the bailout money is not the politicians’ money to be giving away; such blatant redistribution from average individuals to elites in investment banks is wrong. In addition, despite all the talk of the government “turning a profit” on the bailout money, the government’s role has never been to be a for-profit investor. We both cringe at the thought of government trying to act as entrepreneurs.

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