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Category: The Economy
Posted by: A Waco Farmer
Lately, my time to blog has been scarce. However, I have enjoyed reacting to my friend Mark Osler's blog. From the beginning, Osler has consistently and adamantly expressed opposition to the financial sector bailout. He continues to inveigh against the practice in this post on the latest "Citigroup" episode in the unfolding melodrama.

However, I am not sure that I have fully expressed my deep anxiety over this financial meltdown on my own turf. If you are interested, you can get a feel for my abject trepidation concerning our current financial crisis.

Three comments from Osler's Razor that capture my dread:

No Auto Bailout!!!!

If Nissan and Honda can make cars profitably in the USA, we should not give GM and Ford any freebies. Let 'em sink or swim.

However, the continuing government bailout/rescue of the financial sector continues to be worth the effort.

In for a penny; in for a pound.

Here is a sad but true fact:

it is better to be a banker than an auto worker.

Why?

Because the sine qua non of any modern economy is liquidity [and banking stability and depositor security]. The banks have a gun to our head. If we lose the banks, we are fourth world.

Massive Bank failures = GREAT DEPRESSION.

Nothing else you can imagine compares to this dreadful looming possibility.

Creative destruction is a part of capitalism--yes. And I am a big proponent of capitalism--yes.

Pull GM's decaying carcass off the road and clear the way for the next innovator.

But that is not the way banking works. Remember, massive bank failures = GREAT DEPRESSION.

The Good News: President-elect Obama is bringing back a group of Wall Street sharpies who are clear-eyed realists. They understand where we are and what needs to be done.

The Car Question is politics; the Bank Question is pure survival.

Of course, none of this may matter. The banks might still fail--but, at this point, that means that they take the whole government down with them.

We cannot save every industry in the coming crisis. But, if we get real lucky, and God really does watch over drunks, fools, and the United States, we just might save the banks—and our own hides.

And this:

The difference between the banking crisis and the tragedy of American automobile manufacturing is that we can survive without American-made cars.

If the government folds its hands and watches banks like Citi go bust, or the other myriad private financial institutions that we have bolstered, or the quasi-public Freddie Mac or Fannie Mae, we will initiate a launch sequence of massive panic.

Right now the thin blue line between society as we have come to know it and complete chaos is the assurance that money and banks are backed by the United States government.

You [Osler] are correct that the liquidity is not coming back as hoped--although we have thus far avoided the Great Crash and the ensuing pandemonium.

And there is some irony that the new President-elect is charging the foxes to guard the hen house--but, the truth is, we just have no other choice.

Or do we?

What is your proposal at this point?

Osler replied:

I think if you are going to intervene, let the weak go bust and bolster two groups-- the strong and the new innovators.

Are you assuming the feds will cover all the losses on all the banks we elect not to prop up?

I don't think we have the ability to do that. That is, I fear this is financially NOT feasible. NOT POSSIBLE.

The only hope for us, in my view, is for the feds to guarantee the banks, pump in massive amounts of fake cash, create the illusion of security, and allow the banks to heal themselves.

No guarantee there--but our best bet.

If we start letting these big banks fail, I fear we put the lie to the house of cards we are counting on to protect us from the cold.
Category: The Economy
Posted by: an okie gardener
Recently Instapundit linked to this story from Popular Mechanics on the Top Ten Startup Car Makers.

These are ten new companies that are either in production, or near production of automobiles. Some of them are performance gas-guzzlers. Others are electric cars. One is a speciality police car.

Historically in the United States, and it has served us well, businesses came into being and passed out of being--a constant state of creative ferment: Darwinism in the economic realm where the fittest survive. Remember A&P? Montgomery Ward? Remember America before Wal-Mart? Before Apple? Ultimately the consumer benefits.

Preserving the Big Three with government money freezes the status quo in place. May be the best thing that can happen to American auto manufacturing is for one or more of the big guys to tank, and a new collection of car makers to grow.

New technologies also contribute to this creative ferment. The demise of demand for whale-oil hit certain New England seaports hard. But the increased demand for petroleum did wonders for parts of Pennsylvania, Texas, Oklahoma, etc. Overall, as old jobs disappeared, new ones appeared.

Transitions are tough on people. No doubt about it. But what are the alternatives?

Think of a continuum--a line where one color gradually shades into another color without sharp breaks. This contimuum represents Industrial society. At one end is laissez-faire capitalism--Capitalism with no restraints. In Capitalism the means of production are in private hands, and the decision-making is in private hands. At the other end of the continuum is pure Socialism--the means of production and decision-making are in public (read government) hands. Various combinations are in between. Pure Socialism has never been very good at benefitting the masses. While the elites do OK, the masses stand in line for toilet paper. On the other hand, at the end of the nineteenth century we learned that pure laissez-faire Capitalism led to monopolies, abuse of workers, and other bad things. So we moved to regulated Capitalism. The means of production remained in private hands, and decision-making remained in private hands within the bounds of regulations to ensure competition, humane treatment of workers, etc. This has worked out pretty well. (Distributivism, such as G.K.Chesterton espoused following Pope Leo XIII, results in a pre-industrial society, I think.)

We are now, I think, at a point in our nation's history when we may be sliding a bit farther down the continuum from Regulated-Capitalism toward the Socialist end. That direction does not promise prosperity.

And there is another worry. Liberty is a fragile condition. Most human beings in the history of the world have not had much. Moving toward the Socialist end of the spectrum, taking more out of private hands and putting it under government control, creates a stronger and stronger government. Stronger governments are threats to Liberty, even if the government thinks it has noble motives.

We may be moving in this direction because we have come to believe that life should have no risk, that there should be no suffering or hardship. Not possible. A world without risk or hardship is a world without Liberty, and without personal responsibility.

Am I being callous? No. I want reasonable Unemployment Insurance for American workers. And I want government limited so that there is money for private charity. But sometimes people must move to find work. Sometimes people must change jobs. The European model is becoming unsustainable even in Europe. We should take a lesson.