Arnold Kling  

Tyrone on the Bailouts

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Tyler Cowen (or perhaps his evil twin) writes,


So if you're "opposed to financial bailouts," as a libertarian, you're not for the market. You're saying that one scheme for governmental disposition is better than another. Of course you are entitled to that opinion but the sheer force of libertarian doctrine is not necessarily on your side. The general pro-market and anti-government arguments are not necessarily on your side. I think it is quite plausible for a libertarian to believe that the Fed is "less bad" than the bankruptcy courts and the FDIC.

The libertarian concern should be with the rule of law and with the long-term distribution of power. The bankruptcy courts and the FDIC are institutions established by law. The bailouts were the idiosyncratic decisions of Henry Paulson and Ben Bernanke. Moreover, the Paulson Plan that became TARP was a huge transfer of power to Treasury and the Fed. It also desensitized the public to huge government expenditures and deficits, with the result that the deficits projected for years far past the expected end of the recession are higher by hundreds of billions or even trillions of dollars than what was projected before.

I could go on at length. Perhaps Tyrone and I should debate this. Eventually, such a debate would come up against the basic empirical problem that we cannot observe the alternative history. But meanwhile it would bring up a lot of interesting philosophical and economic points.


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CATEGORIES: Political Economy



COMMENTS (4 to date)
Drewfuss writes:

"So if you're "opposed to financial bailouts," as a libertarian, you're not for the market. You're saying that one scheme for governmental disposition is better than another."

Has Cowen no concept of law versus intervention?
Is he being serious, or has something rattled him?

The decision to save AIG at any cost is not going to look "less bad" than bankruptcy very soon.

Steve Horwitz writes:

Arnold,

I make a similar argument at more length here.

caveat bettor writes:

Can we draw a distinction between a pragamatic libertarian (say, the version of Thomas Jefferson who wanted the Louisiana Purchase) vs. the ideological libertarian (say, his pardons for many violators of the Alien and Sedition Acts)?

I like the idea of the government doing the Louisiana Purchase, not just defense and legal system to protect property rights. I realize expanding the power of government to do these types of trades means that bad trades will probably happen, and the bad could outweigh the good.

But some good can only be had by concentration of capital. With the advent of the affordable automobile, without oligopoly seen in railroad finance, the government would have to step up to build the roads and highways infrastructure, and afford freedoms and choice of transport to the individual.

I guess a purist would call me a hypocrite.

david writes:

Thinking of bailouts as pure intervention is clearly wrong, though; bailouts have already been in the policymaking zeitgeist for decades, as Sumner might say. Everyone expected bailouts, and bailouts happened.

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