Friday, February 6, 2009

Government Solutions to Big Problems Usually Don't Work Part 1 of 2

While there are so many examples of why we need to proceed with caution on government solutions to Climate Change, today’s (February 6th, 2009) STAR TRIBUNE front page story “Treasury Overpaid $78B in bailout”, serves up a cogent, timely reminder to us all. According to the article, the new Inspector General of TARP, Neil Barofsky, Elizabeth Warren, Chairwoman of the Congressional Oversight Panel, and Gene Dodaro, Acting Comptroller General all have significant accountability concerns about TARP funds (this is an understatement!).

Not surprisingly, the article reminds us of what we have always known about the longstanding government overpayments to military contractors for hammers, munitions, toilet seats, to all the Medicare and Medicaid fraud cases since their inception in the 1960s, and the list goes on and on. It is no surprise to any citizen that the first segment of the TARP Program initiated by President Bush, and his Treasury Secretary Henry Paulson (whose next job will likely be selling carbon credits under a Cap and Trade Program for Goldman Sachs or Morgan Stanley, the very companies he “bailed out”), would fail. It was rushed through by them and the bi-partisan Congress with no accountability mechanisms. Something simple like: “This money that you receive from the taxpayers of the U.S. cannot be used for CEO or other compensation, bonuses, benefits or trips! You must make it available at low rates to the same citizens who have saved you from your own greed and ineptness!” But who are we to tell the experts anything, just trust them because they know what is best for us. Lastly, what was Mr. Bernanke thinking (or not) when he signed off on this first down-payment bank give-away?

For all the good that government can sometimes do, it is no match for the cleverness, intelligence, entrepreneurial energies, and sometime failings of the private market place. Private market place failings eventually become obvious (Madoff, Banks, Investment Bank greed and deceit, greedy homebuyers and equity investors, carmakers making gas guzzling higher profit SUVs rather than balancing these with higher mileage vehicles for greater customer choice). While not perfect by any means, at least people are punished or, at least held accountable in some way (businesses going broke, losing their homes if they use them as cash machines to live beyond their means, losing their investments if they invested in what was too good to be true, etc.)

Unfortunately, politicians must help voters (that is how they stay politicians), by spending trillions of the voters and future voter's money bailing out enterprises that should be left to fail. After all, how else will people learn not to be greedy, harsh, and unfair unless they are punished, held accountable for their aberrant behavior? How many of us rewarded our children for bad behavior and were shocked when it continued?

Of course, the major difference is that we all take on the risk of the private market place in order to reap its significant rewards. [For those of you depressed about your home’s value or your retirement accounts, remember that the business cycle is meant to cleanse human excesses and will, when it has completed its task, rise again.] There are few things of which I am absolutely sure but this is one of them: what goes up too fast, comes down hard, and after a time, rises again only to reverse itself once again, when driven to excess.

Next week’s posting will focus on tying the common sense mindset laid out here to why we must proceed cautiously and judiciously with any grand schemes, like Cap and Trade to lower green house gas emissions.

Your respectful reactions and comments are always welcome.

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