Government Market Intervention

I’ve written before (here and here) about the damaging risks run by governments intervening in a free market.  I want to talk about a couple of additional examples of such intervention, and then I’ll leave the subject alone for a while.

Bank Bailouts

There are weighty discussions going in in Europe over the need to prop up/bail out the Greek economy by guaranteeing Greek sovereign debt.  The argument goes this way: Greek banks, which have a vast portion of their assets in the form of Greek sovereign debt instruments, need that debt made good, or the banks will fail.  If the banks fail, the Greek economy fails.  Further, major banks central to the economies of other nations of Europe, both private financial institutions and national central banks, are major holders of Greek sovereign debt; if that debt is defaulted, those banks will fail.  Other economies of the EU—Portugal, Italy, and Spain (the remaining PIGS)—will fail if their banks, holding all that Greek debt, fail.  The financial institutions of sounder economies are also major holders of those remaining PIGS’ debt; if those economies fail, so do these additional banks, and the cascade continues.  So it’s necessary to prop up the Greeks, to prevent bankruptcy and default there, in order to prevent the cascade from getting started.

Welfare and the General Welfare

It has been argued that providing welfare for the least fortunate among us serves the common good—our “general Welfare.”  This is certainly true when that welfare flows from individual to individual or group, or from private group or the community to the individual or the group.

However, when that welfare flows, as a first resort, from government, it cannot be for the general Welfare—both by design and by logic.  That government welfare is not in the design of our government, not in our Constitution, is made plain by Representative James Madison in the 3rd Congress, on the matter of providing welfare to Haitian revolution victims:

Taxes, or Whose Money Is It? II

This is the second of a short series of posts that explores the nature of taxes.  In the first post, I looked at the property nature of taxes: whose money it was, both before and after, the taxation process.  In this post, I’ll look at a second and subsequent set of questions: the nature and purpose of government and the purpose of government spending.  In a third post, I’ll answer a question concerning the utility of revenue neutrality for tax program changes.

Moral Hazards

Earlier this month, President Obama claimed that “We created over two million jobs in the private sector — a million jobs this year alone in the private sector, but in the public sector, we keep on seeing these layoffs having an adverse effect….”  On the floor of the United States Senate earlier this week, Senate Majority Leader Harry Reid said that “It’s very clear that private-sector jobs have been doing just fine; it’s the public-sector jobs where we’ve lost huge numbers….”  And Vice President Joe Biden has been out on the stump assuring anyone who will listen that Republicans who vote against Obama’s Jobs Bill, or any part of it, are personally responsible for every rape, robbery, and cop killing that ensues after the bill fails.  Obama was plainly lying and Allysia Finley did a fine job of exposing him.  Reid also was plainly lying, and The Wall Street Journal‘s editorial staff did a fine job of exposing him.  Biden was plainly, well, Biden.

Bailouts and Accountability

Der Spiegel Online reports that the EU is getting close to an agreement to expand the ability of the EU to continue bailing out Greece (and by extension, the rest of the PIGS of Europe).  This expansion of capacity is shaping up to be in the range of €1-€2 trillion ($1.4-$2.8 trillion).  The expansion is intended to work like insurance; it’s a 20%-30% “first loss guarantee:” European taxpayers, via the European Financial Stability Facility (EFSF), will guarantee up to a 20% or 30% loss incurred by the lenders—ensuring that those not involved in the investment at all will suffer the first 20%-30% loss before the investors lose a penny.