October 27, 2008
Laffer: 'The age of prosperity is over'
Arthur Laffer, one of the prime thinkers behind supply side economics, bemoans the current financial crisis and has a warning for the future: "Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity."
He diagnoses the problem while showing how government intervention has only made things worse:
When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.No one likes to see people lose their homes when housing prices fall and they can't afford to pay their mortgages; nor does any one of us enjoy watching banks go belly-up for making subprime loans without enough equity. But the taxpayers had nothing to do with either side of the mortgage transaction. If the house's value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers. Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.But here's the rub. Now enter the government and the prospects of a kinder and gentler economy. To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.
That our government has taken these actions means that the door is wide open for Obama to come in and "redistribute" to his heart's content. After all, if we can give $700 billion to banks, why not give even more to the poor, the middle class, and others who don't have as much as those rich bankers?
George Bush's name will ended up being cursed by lovers of the free market if Obama gets away with any of his schemes.