Sunday, November 16, 2008

Government Failure: Crisis Feeds on Uncertainty Created by Governments

Here's an excellent article written by Roberts on how governments exacerbate economic crises by changing the rules of the game (economic incentives) frequently and awkwardly, or, in other words, by acting as a bad referee or as if it's one of the players:

When no one knows how the rules of the game are going to change — and they seem to change from week to week — who wants to take a risk? Who wants to borrow money? Who wants to invest? Business and consumers are hunkering down, waiting for the storm of change to pass.

The problem isn't liquidity.

It's uncertainty.

[Treasury Secretary] Paulson doesn't realize that his erratic attempts at creating liquidity are creating the uncertainty that makes liquidity meaningless. ...

As the TARP spreads, the cost will keep rising. Remember the talk about how the government might even profit from its $700 billion "investment?" (Insert hollow laugh here.) ...

And who's going to pay for all of this? Those who lived within their means, who went with the smaller house, who waited a few more years to get that new car, who took a part-time job rather than borrowing even more money to pay for college. Suckers. You missed out on the thrills and now you're going to be paying the bills. The prudent will be paying for the imprudent for a long time.

No comments: