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Monday, October 13, 2008
Lemieux: First, do no harm
In this week's column, Pierre Lemieux takes a look at the global financial crisis. What, if anything, should the Canadian government do about it?
His answer is that, in the short term, nothing should do anything about it. In part, this is because the Canadian government can't do anything about it. "Canada's share of the world capital market is about 3%," he says. Canada's influence is just too small to have much of an impact on global financial affairs.
Part of the current crisis is related to diminishing trust between the lenders of capital and borrowers or would-be borrowers. Isn't there something the government could do to restore that trust? one might wonder. Since markets require a significant degree of trust between individuals to function, might the state not have a legitimate role to play in restoring that confidence?
In response to the idea that one can trust the government to restore trust, Lemieux writes:
This trust in Big Brother is largely an illusion. Beware of trusting the state to do things it cannot do. Government guarantees — like everything the state does — are backed by force, if only against taxpayers, but force will go only so far. Guaranteeing deposits, for example, only works when the economy continues to work: money is only a claim on real things (real goods and services and real resources) and if people stop producing the real things, there is nothing the state can do short of enslaving everybody into production — not exactly a recipe for prosperity.
Thus, as Lemieux argues, the government can do little to restore trust, and even trying may make the situation worse. Indeed, government intervention in the economy is partially responsible for the current mess we find ourselves in. Giving the government an even larger role in the economy will likely make things worse.
In the short run, then, the government ought to do nothing about the financial crisis. In the long run, Lemieux has a recommendation:
A useful reform would be to allow more flexibility in the Canadian economy so that it rebounds more easily after future financial turmoil. This implies leaving businesses alone, it requires to stop meddling with their management.
Of course, as he also points out, none of the major political leaders in Canada is interested in this kind of reform. At best, Stephen Harper is "a bit less excited than the others."
Lemieux is right that there is little the Canadian government can do about the financial crisis. However, more generally, I'm unsure about his advice that the best thing to do is to do nothing.
Suppose that a little (U.S.) government intervention now can head-off a worsening of the crisis, perhaps even preventing a new depression. People who know a lot more than I do about economics have argued in favor of some sort of government bailout of financial institutions on such grounds.
Now, contra Naomi Klein, I don't think economic crises are engineered by evil free-marketeers to foist capitalism on unwilling people. Surely, if anyone benefits from turbulent times, it's the proponents of government intervention (in the economy and in our personal lives.) We saw this after 9/11.
What we might call a "hard-liner" libertarian opposes all government intervention in the economy in all circumstances, even in times of crisis. There is a lot to admire in the hard-liner. But we all know that sticking to a principle regardless of context can undermine the goal the principle is meant to advance. In this context, if the goal is preserving the modicum of freedom still allowed to us, then I'm not entirely sure allowing global markets to unravel is the best way to achieve that goal.
Like the original, a new depression would undoubtedly lead to a sweeping expansion of government bureaucracy. People are already clamoring for it. The editor of the local newspaper, the Toledo Blade, threw an open letter to Barack Obama on the top of the first page, demanding to know if, like FDR, the candidate agrees that every American should have a "right" to a job.
The hard-liner is not equipped to answer these demands. "No intervention, ever," sounds a little too much like, "Let the poor folks starve." If we get into a situation in which poor folks in the U.S. really are in danger of starving to death, it will be too late for the hard-liner. The government will expand in ways we can hardly imagine at this point: for example, socialized medicine in the U.S. will be a certainty, not merely one possibility.
Once these changes take place, they will be impossible to undo (it's bad enough now: libertarians are always accused of wanting poor people to starve.) The only solution is to forestall the crisis, i.e. to stop the situation from getting worse, if that is possible. If that means the government must intervene now, so be it.
In this case, doing nothing might be worse for our liberty.
Read Lemieux's column here.
Posted by Terrence Watson on October 13, 2008 | Permalink
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Comments
Terrance, interesting point of view. Ideally, the principle of individual liberty and responsibility would be widely and deeply held. In which case not intervening would be the best course of "action" since it would not encourage further government action.
Since that will probably never happen, Libertarians are safe to promote complete individual liberty and responsibility.
Posted by: TM | 2008-10-13 3:37:29 PM
I agree wite Lemiuex. The government should stick to looking after the peoples' finances. Otherwords cut back on spending and get ready for the ride. Government created this mess with easy money and is not going to fix it with such. People are still getting loans so the government is exagerating the problem. Stocks are finally cheap and trading at a good valuation. So what is the problem exactly? The government is about the create the problem - called STAGFLATION. Get ready for the ride.
Posted by: Faramir | 2008-10-14 12:17:51 AM
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