Arnold Kling  

A sort-of Blog to Follow

McCain vs. Obama... The Camden Bobos Proposal...

The Kellogg School (Northwestern University's Business School) has a sort of blog, featuring several professors there. One of them, my former grad school classmate Bob McDonald, is the author of a definitive textbook on derivatives. In one post, he writes,

There is an irony and a danger here. At this time, the government is the only agent in a position to intervene, but the government is also part of the problem. No private solution will emerge with the government hovering in the background, making decisions on the fly (will a particular institution be rescued or abandoned?) and essentially commandeering markets. This is not to criticize the Fed and the Treasury, but we must recognize that commitments of private capital will require clear ground rules. At the moment, with the situation fluid and constantly changing, only the government can act. Having acted, the government will then quickly need to stabilize the rules that enable and encourage private action.

Relative to Bob, I put more emphasis on the down side and less emphasis on the up side of government intervention. But we agree that the down side is the temporary paralysis of the private sector. The mainstream media, of course, see only up side.

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COMMENTS (2 to date)
MattYoung writes:

Intervene in the sense of managing large bankruptcies and arranging deals for large incomplete markets.

But otherwise, what? government will bubble, just like housing.

fundamentalist writes:

Fear and anticipation of government action is probably the cause of paralysis in the private sector. Had the private sector been certain that the state would not intervene to bail them out, I'm pretty certain there would have been no paralysis.

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