If You Bail Out Everyone, You Bail Out No One

It’s sad any of this needs to be said or written, but it cannot be stressed enough that government outlays are a consequence of growth that’s already taken place. The federal budget in the U.S. is the largest in the world, and the U.S. Treasury can borrow trillions more, precisely because Congress and Treasury are backed by some of the most productive people on earth.

Which brings us to a recent conservative editorial making a case for former Fed Governor Kevin Warsh’s call for the Federal Reserve to “create a new facility that could lend to companies hit by the economic shutdown.” Warsh walks on water in conservative circles, which may explain why what is so contradictory to economic logic is gaining so much traction on the right.

Indeed, as the same conservative editorial made plain, “state and federal leaders are shutting down the American economy.” Goodness, the editorial was titled “Financing an Economic Shutdown.”

The shutdown aspect of the lapse of reason we’re all suffering from politicians and those in their employ rates constant mention in consideration of conservative calls for a “new facility” to bolster businesses whacked by political ineptitude. Those businesses, and those in the employ of those businesses, would normally fund government outlays but for one problem: politicians are in the process of shutting down the economy for weeks, and perhaps even months.

It’s seemingly been glossed over by Warsh and other conservatives that government spending is just another word for private sector spending orchestrated by politicians. All wealth is created in the private sector only for government to politicize spending of this private sector wealth creation to the tune of $4 to $5 trillion per year. The growth once again already happened, hence the ability of Nancy Pelosi, Mitch McConnell et al to spend.

Implicit in the grand plan promoted by Warsh and fellow conservatives is that the federal government and the Fed it created have resources all their own, waiting patiently to be mobilized in times of trouble. No. That’s not serious. Those Warsh et al would like to save are the ones that, if politicians weren’t limiting their ability to work and produce, would provide the funds for Warsh et al to mis-allocate. Production first, then government waste. Warsh and modern conservatives seem to have skipped the class on Say’s Law.  

Taking this bad dream further, the conservative editorial acknowledges what’s true, that government is approaching the Coronavirus “health crisis” with “command-and-control emergency powers.” Translated, city, state and federal politicians are shutting down the economy, presumably for our own good. Or at least what they presume to be our own good.

Considering the above with various federal lending programs top of mind, do the conservatives supporting this massive federal intervention remember the track record of past “command and control” economies? That they were thoroughly downtrodden is one of those blinding glimpses of the obvious, which then raises a question of which investors, of the private sector variety, would lend or invest in size fashion into an economy that’s in the process of being taken over by hysterical politicians on all levels? The question answers itself, at which point one must ask why taxpayers must be forced to lend toward an economy that a private sector investor wouldn’t touch.

To which one assumes conservatives will reply per the editorial that this is a “liquidity panic,” and since it is, the federal government must step in. Except that tight liquidity is a market signal like any other; in this case one logically signaling horror on the part of investors that politicians on all levels are in the process of forcing a centrally planned economic reversal on the most dynamic economy in the world. Conservatives claim to revere market signals, market signals are presently telling politicians to stop the economic asphyxiation they’re forcing on the economy, but conservatives want taxpayers to blunt the signal?

One would think conservatives would have learned their lesson from 2008 when, amid their clamor for bailouts, markets spoke anyway. Logically they spoke quite a bit more harshly thanks to the interventions. Yet conservatives want the same to take place again? You can’t make this up. Capital is already scarce thanks to political ineptitude, so the conservative solution is for government to oversee the waste of even more on loans that no private investor would dare touch?

It’s been said regularly in this column before, but needs to be said again: the central planning that fails in flamboyant fashion during good times fails even more impressively during bad times. Yet the ideology most rhetorically associated with free markets and free minds is presently calling for government to plan the resource allocation for the economy that it’s in the process of shutting down. You really, really can’t make this up.

All of which brings us to the justification for this mass handover of power to government. The economic shutdown that the quoted editorial suggests could be measured in months is explained away by those editorialists as “prudent,” and as “a health measure to ‘flatten the curve’ of infections.” Oh wow. Let’s please unpack this. We’re being told that the very humans who have created awe-inspiring prosperity, who’ve lifted billions out of the most desperate of living conditions, and who’ve created all manner of cures for diseases that used to kill and maim, are now a danger to one another.

Yes, that’s what we’ve come to care of politicians, economists, alarmist scientists, and their editorialist enablers on the left and right: we the people are a lethal menace to one another, and since we are, we must give our liberty and prosperity away to politicians until such a time that they deem it ok for us to have it back. This political tragedy that’s wrecking the economy is real, and it’s heartbreaking.

This piece was originally published on RealClearMarkets

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