BCT Editorial – 3/27/08

This page was last updated on March 27, 2008.

Mommy state; Editorial; Beaver County Times; March 27, 2008.

The editorial subtitle is “Conservatives have seen the light when it comes to free-market welfare.”

This editorial employs the tactic of accusing an opponent of taking a position he didn’t take and bashing him for it. In this case, the editorial would have us believe conservatives believe in absolutely no government involvement in markets.

As I’ve written over the last several years, “Limited government does not mean no government. Government should provide a civil and criminal legal environment, law enforcement, national security, some elements of infrastructure like roads, et cetera. Other than a reasonable legal structure, there should be no government involvement in the marketplace.”

Conservative support for the rule of law also plays a role. Quoting from my as yet unpublished conservative primer, “This belief in rule of law extends to the business place. Leftists would have you believe conservatives want neither laws nor law enforcement for business. Nothing could be further from the truth. A free market requires consumer and supplier confidence and this doesn’t happen in a lawless marketplace. We saw the effect on the marketplace of low confidence in the wake of the Adelphia, Enron, Global Crossing, et al scandals. That said, we need the minimum regulation required to achieve the desired effect. When we pass the sweet spot, we start getting some of the same results as a government-directed economy.”

Of course, the editorial fails to note uneven treatment of financial institutions by government contributed to the Bear Stearns crisis. As I wrote elsewhere, “When traditional banks experience a ‘run,’ they can borrow from the Fed using their less-liquid assets (loans, mortgages, property, et cetera) as collateral. Financial institutions like Bear Stearns didn’t have that option until this week. Therefore, even if Bear Stearns had enough total assets to cover their liabilities, their liquid assets weren’t sufficient to cover everyone who wanted to pull their investments from Bear Stearns. FYI, this is true for almost every financial institution. No matter how strong it is, if everyone ran down to their local bank and immediately wanted to clean out their checking accounts, savings accounts, et cetera, that bank (and its depositors) would be in deep ‘doo doo’ without the ability to get a short-term loan from the Fed.”

In a previous comment on the Bear Stearns issue, I wrote, “I don’t know if this action [by the Fed] was appropriate.” I still don’t. In general, I believe we should “let the chips fall where they may.”

The editorial says it was “free marketers” that sought help for Bear Stearns but provides no evidence to support that questionable assertion. All I know is Bear Stearns and J.P. Morgan Chase sought help and the idea that businesses inherently believe in free markets is bogus. As Bruce Bartlett puts it, “The last thing most businessmen want is a free market, where they must compete, slash prices, continuously innovate, suffer narrow profit margins, and live constantly on the edge of bankruptcy. They would much rather have assured profits, monopoly positions, price supports, trade protection and the other trappings of a corporate welfare state.” I could be mistaken, but I suspect most “free marketers” are/were skeptical of the intervention at a minimum.

Finally, a local lefty commenter (Carl Davidson) on the Times website actually said to bring up “Broadhead [sic] Road in Beaver County” the “Next time someone carries on about ‘free’ markets.” Mr. Davidson apparently lived outside BC for too long; the correct spelling is “Brodhead.” Anyway, the implication of Mr. Davidson’s comment is that Brodhead Road was built for the settlers. In fact, Brodhead Road was built so the military could supply Fort McIntosh from Fort Pitt.

In any case, Mr. Davidson’s intent was to discredit the belief in free markets by showing they aren’t appropriate in every situation. Who said they were? I don’t know why Mr. Davidson had to go back to 1778 for an example. We should also throw in water systems, sewer systems, natural gas infrastructure, electricity infrastructure, and telephone (land line) infrastructure. Does Mr. Davidson really not see the difference between providing a road system and selling widgets? Of course he does.