Tuesday, October 21, 2008

At the Risk of Stating the Obvious: Too Much is ... Well ... Too Much

I'm declaring an end to my blog-strike protest, but I'm certainly not getting over it's original cause. The floodgates are open. Bad, inefficient, uncompetitive, loss-making businesses are being propped up rather than forced to release their capital and get out of the way for someone who can actually make money with it. Return on capital is so '80's. Terribly capital inefficient projects are being brought out of governmental garbage heaps by heavy Keynesian hands. People who paid too much and made too little for their McMansion and Merc are going to be "rescued" from themselves (no matter who becomes president).

Anyone who is currently faced with a "cut your losses" prospect is highly incentivised to wait a while, maybe even make their situation a little more dire, and then scream for a rescue. As Ayn Rand feared, the notion of "from each according to ability, to each according to need" is fast becoming a reality.

Governments globally are assuming the role of [incompetent] banks by assuming bad debt and making foolish loans. Counterparty, market, and credit default risks are being glibly transferred to sovereign risks.

It's always tempting to throw good money after bad. Temptation has finally won. If I were a religious man, that statement might give me cause for concern.

As an economics man, it gives me horror. Without solving the root of the current crisis, we've sewn the seeds of the next.

It will be a doozy. With each crisis, our helpful nanny-leaders grow more sure that we, the lowly citizens cannot be trusted with ourselves but must be kept on tight choke collars. More regulations. More taxes. More reallocation of the money we earn. It's for our own good, they keep telling us as they encroach ever further into our ability to progress (personally and as a society). Times are different, they say. This is unprecedented, they say.

They are not, and this is not. We've had many a crisis before, and unfortunately with mixed outcomes. The stronger the pain, the more severe the whiplash response ... and the more unpredictable.

I'll return to my mantra (and notice I am unable to channel Keynes). No one can live beyond their means for long. Temporary rescues just forestall the fall.

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