New Venture Lab: Equipping Christian Entrepreneurs

I was asked recently what I thought of the economic mess we were in and whether or not I thought the bailout was a good idea.

When it comes to government intervention with free market mechanisms, I would offer the following observations:

1. We get more of whatever activity we subsidize.  Whenever government is tempted to bail someone out, we need to remind ourselves that we get more of whatever activity we subsidize because we've lowered the cost of the behavior or the risk of the behavior.  So, if we subsidize bad loans, we will simply get more bad loans.  Remember when our brilliant welfare programs paid more money to single inner city women if they had more children?  Guess what we got?  More fatherless children and a near-permanent underclass.
2. Regulation always has unintended consequences.  Whenever government is tempted to regulate something or pass new laws, we need to remember that regulation always has unintended consequences.  So, if we pass laws that say we should lend more money to certain populations of the U.S. that heretofore could not qualify for loans, unintended consequences will arise that the lawmakers could not foresee or refused to believe - we got more bad loans.  A lot more bad loans.
3. The collective wisdom of the free market is far smarter than the collective wisdom of our federal lawmakers and their staff.  Whenever government is tempted to step in and create new legislation to "help" an industry and or a segment of the population, they are meddling with the market forces that was made up of the collective wisdom of the masses.  300 million heads are better than a few hundred heads.
4. Any planned upside by lawmakers will be 2 - 3x more than the actual realized gain.  Politicians are political animals and are usually angling for reelection or a bounce in the polls, so the upside is typically exaggerated to maximize their short-term gain.  If they say the economy will turn around in one year, look for a two to three year problem.
5. Any planned downside by lawmakers will actually turn out to be 2 - 3x worse than the plan.  Same logic as #4 above.  If they say the bailout plan will cost $850 billion, the cost will more likely be $1.6 - $2.6 trillion.
6. Any redistribution of money will cost $2 for every $1 dollar redistributed.  It doesn't matter if they are taxing the rich to give to the poor, taxing the employed to give to the unemployed or taxing American taxpayers to bail out foreign investors, with the waste, largess and cost of oversight, the cost to administer the new program will almost always cost twice as much as any benefit of the program.

Be sure to read about Governmentium here.

Read Government Intervention Part 2.