Libertarians insist that the government can never interfere with the market without just making things worse. But just like in the Great Depression, the Government first tried to do nothing, watching companies like Lehman brothers go under and the stock market tank to 6,000, then tried doing something. This is the happy result of the Government's decision to ignore the libertarians and act.
It appears that sometimes the government does know better than the market. Since the market responds to irrational panics, as any market is driven by, in the end, irrational panicking individuals who don't see things in terms of the long term, sometimes a far-sighted, non-panicking government with infinite capital can move in and save the day. Individuals must protect their investments because they need them to live by, whether now or when they retire. For the government it's different. They can take risks, they can afford to lose money, they can afford to hold stock while it is going down, because the risk is collectivized across the entire nation. Basically it's better to risk a few dollars from everyone than a few million dollars from a specific person. This gives the government an advantage in that it won't panic as easily as individuals, and thus, the market, during a recession. When GM filed for bankruptcy America decided to lend GM the money it needed to return to work. This directly saved a million high-wage jobs that would have gone under otherwise. Was it expensive? Sure. Was it risky? Sure. But government has collective wealth and collective risk, so it can take on measures like these that would crush an assortment of individuals. The government wasn't sure GM was a good company, but they did know they'd rather be giving Americans jobs that produce real goods than unemployment benefits with no cars built at all. When the choice is that stark, the choice is pretty obvious.
Now the federal government has sold most of its stock in GM back to private individuals, now that the panic is over and individuals are able to think rationally again, because the risk is lower. It sold so well that GM is well on its way to repaying the entire bailout -- something that was considered impossible a few months ago. Since the government has so many shares that it doesn't want to flood the market, it will have to sell the remainder of its GM stock a year from now or so. At that time, we will finally see whether the GM bailout cost the taxpayer money, or whether the USA made a profit on the deal. Naturally, it's stupid to think the bailout was a failure if we don't make a profit. The purpose was to keep a million people working and off welfare rolls. The purpose was to save GM. That purpose has already been achieved. The government restoring the cost of the bailout is just gravy. But how sweet it would be if we did make a profit, to stick in the eye of the libertarians! After all their whining, after all their doom and gloom, after all their 'let alone, let GM go under, they deserve to fail, those million jobs should be a part of Schumpter's 'creative destruction,' everyone at GM should retrain as zoo trainers or something useful instead of making cars, let the glories of capitalism magically overcome everything!' With this stupendous stock sale they all have egg on their face. Their theories are just that. They have never been proven in the real world. Their doom and gloom has never come true when the government interferes. Nor have their rosy predictions of infinite employment and infinite growth if the market is 'left alone.' They are all talk.
GM has made billions in profit this year. The people working at GM are once more providing real products and genuinely earning the money they made this year. There is no reason to believe GM couldn't continue to improve its financial situation in the years to come. The libertarians wanted to kill a company that still had life in it, that was still capable of making a profit, that still has an enormous portion of the worldwide car market, that employs one million Americans with high wages. They should not be forgiven for that murderous intent. Every year GM continues, remember that libertarians would have had things another way if they had been in power.
Meanwhile, October consumer prices in America actually fell, excluding energy. Even the price of food went down. Housing prices look to continue declining. Every time housing prices fall in value, 'money' vanishes from the Economy. Therefore to even keep the money supply stable, the Fed has been forced to issue trillions of dollars in new money supply. Wages have been flat or gone down, due to the constant influx of new immigrants into the workforce in the midst of 20% unemployment. This also creates deflation. Is the Fed creating inflation with its quantitative easing? You're damn right it is! But not enough to counteract the natural deflation occurring all around us. As it is we're just barely avoiding deflation, much less returning to the inflation we have been used to for the last few decades. When was the last time America had deflation? Oh, that's right, the Great Depression. And yet libertarians are trying to warn us that inflation is bad and deflation is good. Why? Deflation extends the difference between the rich and the poor, the lenders and the debtors. Inflation levels that difference. Deflation creates oligarchies, inflation creates social mobility. Deflation hurts the group that can afford to be hurt least, while helping the group that needs help least. Inflation is the opposite, helping those who could use it most and hurting those who least feel it. Inflation is inherently better than deflation.
Inflation encourages people to invest their money, to try to grow it faster than the rate of inflation. Deflation makes rich people lazy. All they have to do is sit on their money and its value will increase magically every day. Deflation destroys real wealth because it deters investment and spending, which in turn deters production. Inflation encourages investment and spending (your money will never be worth more than it is today so you may as well spend it), which in turn encourages production. When more goods are produced, people have higher employment, and, obviously, more goods and services to choose from. When more investments are made, science and technology progress and give us access to bright new ideas. Only hyper-inflation, when people lose faith in the value of money itself, hurts the economy. A stable, slow inflation is like spurs to a horse's rump. It's a little painful, but it keeps the economy moving forward. Currently America has the lowest inflation rate it has seen in decades. This isn't slow and stable. This is catatonic inflation. The doctors would have given up on our inflation rate and called it dead by now. Libertarians are so ridiculous to be warning about the dangers of inflation when all the evidence is pointing in the exact opposite direction. How do they get away with these things? Why does no one call them on it?
The value of the dollar compared to other currencies has not been substantially hurt. As we keep hearing, the Euro is in just as bad a fix as our currency. Meanwhile the yuan is pegged to the dollar, so the dollar can do whatever it pleases to China. For that matter, inflating the vast reserves of dollars in China's banks is quite the steal for the USA. Their vast trade imbalance is now coming back to bite them. Since they refuse to spend their dollars, we'll just progressively devalue them until we don't owe them anything. At that point, China will have just given us trillions of dollars for free, always welcome from my point of view. But suppose China panics and starts spending its dollars -- that inevitably means buying goods and services from America, which will in turn help solve our unemployment problem. It's a win-win situation. Inflation spurs China to act. Deflation spurs China to sit on its vast reserves and collect rent. Why would we want deflation and a strong dollar?
Energy prices may be going up, but they are still low compared to earlier this decade. Moreover, the economy won't 'collapse' from a run on oil as a safe, inflation-proof commodity. Oil can't price itself too high, or it makes nuclear, wind, and solar look like a solid alternative. The oil-baron nations of the world know this and can't afford to risk it. Their only resource is this black gold, if the world ever leaves it behind, it will leave them behind. They would rather lose profits than raise the price of oil versus an inflating dollar, for fear of losing their customer base. This means that yet again, inflating the dollar, the international denomination for oil, only helps us at other countries' expense (many of whom we are currently at war with, or at least severely dislike.)
Libertarians want to make everything easy. They're like religious people. It's too complicated to describe the origin of life or the universe through physics and biology, so let's just say God did it magically. He waved his hand and there it all was. In the same way, libertarians want the 'market' to be a God that solves everything with a few simple formulas. This way they never have to think about any economic issue, while still considering themselves the enlightened ones, the people of the book, the saints. The truth is, in economics every situation must be dealt with methodically, in its own right, experimentally, case-by-case. In this case, libertarian vague principles were clearly wrong -- the bailout was clearly right -- and GM was saved. The same is true of the libertarian theories on 'world-ending hyper-inflation' they said would be occurring right now, but is in fact at its lowest point in decades. There are details, reasons, why China can't just dump the dollar, why oil can't switch itself to the Euro, why GM's autoworkers shouldn't all become zoo handlers, that the broad principles of libertarianism don't see. General relativity can't explain the world of quantum mechanics, because quantum mechanics deals with a world too small for general relativity to see. The same is true of libertarian economics. It is too broad to see the real world we live in, with its small bumps and grooves, and its strange properties at the 'real-life' scale. A true study of economics has to take in all of these bumps and grooves, and then make accurate predictions about them. So far the Fed has expertly guided us through this crisis, producing neither deflation nor hyper-inflation. Libertarians, meanwhile, would have counseled a complete repeat of the Great Depression -- the government should do nothing no matter how high unemployment goes, and return to a gold standard creating massive deflation, and thus massively worse debts, for people who no longer even have jobs to pay off their debts with. Do libertarians ever study the real world casebook scenarios of their theories? No. They are too busy offering other people advice to ever learn any facts themselves. Like mormon proselityzers that spend two years trying to convince us of their third testament, while never spending two minutes first to check and see if Amerindians really are descended from Jews. ((By the way, they're not.))
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