Monday, September 29, 2008

The Bailout of Failure

Of all the things GW Bush has endorsed as President, this "bailout" is probably the worst.

The free-market works specifically because of non-intervention by any organization which resides outside of market forces (otherwise, there is not really a "free market"). In this way, the dynamic balance of success and failure reward those contributions which benefit society and reject those contributions which don't. This is why any corrective measures by a central government is in tremendous error. It fundamentally breaks the system.

Note that the "market" is not about equilibrium. Certainly, there are aspects of the market which exhibit local tendencies to move towards equilibrium; but it is the dynamic nature of the system that makes it work. Just as a pendulum swings towards it's lowest energy state, so does the market. And, just as energy is added to the pendulum to keep it swinging, the market is chock full of driving forces - full of desires and providers, consumers and suppliers; this is the energy which drives the pendulum. Note that static equilibrium renders the very purpose of the pendulum meaningless.

It is critical to understand that given any level of incomplete knowledge one cannot predict the market -- and importantly, such incomplete knowledge is a guarantee. Thus, one can never "predict" any market with "perfect" certainty. Therefore, it is unknown what the absolute best strategy for any known particular situation may be, let alone the changing dynamics of a society, evolving cultures, emerging technologies, and the myriad of other variables that play into the system. Because of this, the common denominator becomes meeting the changing demands of society; no group within the market can readily "manipulate" market forces outside of such demand because such is already part of the dynamic and accounted for by the system itself.

But, enter our "system." We've heard a lot recently about "lack of regulation and oversight" having "caused the financial crisis." WRONG. WRONG. WRONG. WRONG. WRONG. It really couldn't be more wrong.

Remember when I said that the free-market works specifically because of no market intervention by any organization residing outside of such free market forces? Well, let's look at what we have here.

In our country, just about everything is heavily regulated. There are tremendous barriers to entry on just about every business you can imagine. The law is so thick that you could build an elevator to the moon with it. So, the idea that somehow "markets" were deregulated is just a bunch of mumbo-jumbo double-talk bunk that has nothing to to do with the actual problem at all. The true markets are anything EXCEPT for deregulated.

The deregulation they are talking about isn't even part of the issue. The issue is that the government is far to involved in the affairs of businesses across the board, and there is far, far too much regulation. Because of regulations, "established" players help set "policy" which correspond to parts of legislation that impact those regulations. Without such regulation, there is no such "policy."

These policies do things like put safety requirements on cars, limit the kind of radio broadcasting you can do, and force businesses to get insurances like worker's comp and pay minimum wages. And, what does all this do? It absolutely destroys the free market dynamic.

What happens is that these regulations create huge barriers to entry for new businesses competing in the sector. Because there are thus less businesses in the sector, there is less competition; thus, any regulatory policy put into place is done with a few special interests in mind and with actions towards the status quo. Those regulations that get installed benefit the few established companies, and it's a self-perpetuating feedback. This drives up the price of consumer goods and services and creates a government-industrial complex that resembles an oligarchy more than a free-market system.

At the end of the day, you have a few car companies, a few phone companies, a couple of aircraft manufacturers -- in other words, all of the companies that got in before the mountain of government regulations were built. And what about the areas where there weren't such regulations? Just look at the computer and electronics industry and the boom in that sector -- and think about it; think about the advances in computers, electronics, and the internet. Now, just imagine if software (for instance) had been regulated for "safety" or "functionality" -- that there was a "regulation" it needed to meet certain "crash-proof" standards or such. Who would make those standards? How much would it cost to get testing? How many players would thus be excluded from the marketplace? I think you get the picture here -- the computer industry, as we know it, would simply not exist.

So, let's go back to the issue at hand: "the bailout." Why is it a horrible, terrible thing to do? First, it kills the free market dynamic; it's similar to government bankruptcy protection. The government (though power NOT vested in it by the constitution) is wrongfully adjusting the free-market to the advantage of the players already in business. But, that's NOT how the free-market works -- in fact, the very strength of the free market is being subverted by bankruptcy protection and bailouts.

The free market does NOT support failed entities -- those which fail disappear and make way for new products that meet the new demands. Otherwise, you are simply supporting the very same flawed systems which crashed in the first place. Worse, you bind government even closer to those entities. Why is that? Because, what does government do? They regulate more -- thus tying a stronger feedback to those companies, along with a newly vested interest in them.

We all know people who bought houses and went way beyond what they could afford thinking they could "just sell." That was irresponsible and it was their own fault. The banks took the risk as well, at that was their fault. End of story, period. How does anybody expect to get a better culture if we simply reward bad behavior over and over? Those people are being helped for gambling their money, while all the others who waited (because they were being responsible) are now being shafted by the federal government. That is wrong. You and I should not be rewarding those people and businesses who decided to take a gamble and lost their money. Do we repay people who go to a casino and lose on roulette?

The fact is, we need to let businesses fail and new ones come up. In short, we need to let the banks fail. Let the lenders fail. Let businesses fail. Get government regulation out of the way. Get rid of product liability lawsuits, get rid of business regulation, get rid off all of that which is doing nothing but killing our economy and society.

By doing this bailout, we have conceded that we are not a free-market. That we are no longer America. We are basically starting to emulate the failed Soviet Union, which ultimately fell apart because of the same types of failed socialistic policies that we are starting to put in place here. Doesn't anyone study history?

Let the market work.

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