Footfalls and Bailouts

Well, it didn't take long for the other shoe to drop. A Wall Street Journal editorial talks about real estate developers lining up at the D.C. feed trough.

With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance.

This is madness on a pogo stick.

There's no general principle I could expound on that would add anything new to what I've written a dozen times already demonstrating how this is immoral and impractical. On the other hand, given that everyone else has his hand out, why should they not? Oh, maybe a little thing like self-respect, but that's a pretty weak motivator these days compared to the lure of cheap money.

There is one point worth repeating, though. As I said the other day, one of the worst aspects of the bailout action is the precedent it sets. It creates a bailout mentality. Get in financial trouble? Run to the Feds for help.

Not everyone has this option. You have to fail in a very big way. You have to be "too big too fail." A business with annual sales of $1 million that provides a good living to some entrepreneur and the few he or she employs can go under. His or her loss doesn't threaten "the system" and hence will get no attention. (They also have no political connections.)

But there really is no such thing as "too big to fail" and it's irrational to "save the system" by giving it more of the same poison that is killing it now. If every big business in the country went belly up tomorrow, the fallout would be horrific. But, if the Feds stayed out of it, which of course they never would these days, others would eventually come in and pick up the pieces — assuming there was a potential market for what those businesses provided. If not, they would and should stay failed.

Tragically, since the Feds have been so active for so long in so many ways, everyone is now both victim and victimizer. This is exactly the kind of class warfare about which the Progressives complain and simultaneously pine for. (They just want different 'winners'.)

The real system that needs to be saved is the system of voluntary exchange, protected by the rule of law, i.e. capitalism. Every reality-grounded economist and knowledgeable political observer knows where this road ultimately leads: dictatorship. The Feds and their cheerleaders would too if they were willing to look beyond the next 72 hours. When, or if ever again, they will, there's no way to know on the present evidence. And, I admit, many of them may want just that.

Waiting for the sound of that next shoe...