Government Bailouts – The Worst of All Possible Worlds?

I think the fairest definition of my opinions on economics is liberalism. I see the benefits of Capitalism but I have the gut feeling that it drives us to work too hard and to treat the world as nothing more than raw materials. I can see that Socialism lacks a mechanism for accountability and can lead industry to become so incompetent that it cannot perform it’s function.

I saw part of the documentary on the collapse of Lehman Brothers recently and it seems that all the rich and powerful bankers were hoping for a bailout by the American tax payer. There was a clip of some high falutin banker complaining that Lehmans only needed 30 or so billion to keep it afloat and billions of dollars worth of value was wiped out across the world because the money was not forthcoming.

Government Bailout

Government Bailout

I think the guy misunderstood the nature of capitalism. That value wasn’t wiped out by the collapse of Lehmans. That value didn’t exist in the first place. The list price of various financial instrument was driven up and up by irresponsible lending and the collapse of Lehmans was a market indicator that the value was illusory.

If the U.S. Government had bailed out Lehmans that illusion may have continued for longer but it could not prevail indefinitely.

To paraphrase Withnail and I, the market is like a balloon that you are hanging onto which is going higher and higher and the only question is: how long can you hold on?

The U.S. Government were right to allow Lehmans to go to the wall. Though I do not know which is better Capitalism or Socialism I do know that what is worse than both is to pretend to have capitalism while insisting that the tax payer picks up the bill for failed companies.

Nationalised companies have no dividends to pay and so should be able to operate at a lower cost than private companies but they become inefficient. Private companies, by contrast, have market pressure to drive them to be efficient but they must pay dividends to share holders and that extra cost could wipe out any efficiency gains. You pay your money and you take your pick.

Worse than either are private companies that are bailed out by the government because they have no market pressure to make them efficient and yet they must pay dividends.

The worst of all possible worlds to misquote Doctor Pangloss.

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2 thoughts on “Government Bailouts – The Worst of All Possible Worlds?

  1. Curious. I’ve seen Withnail and I at least 47 times, and I don’t recall any reference to the stock market.

    What was the film you saw? Was it Capitalism: A Love Story by Michael Moore? I heard it was released in Britain recently to great acclaim. It’s opening in the U.S. this weekend, but given the American preference for escapist entertainment, I doubt it will get A level distribution.

    Disturbing aside. There is apparently some movie about Darwin that is playing in Europe, but the producers have been unable to get a distributor in the U.S. Why? Controversy. According to a recent poll, 61% of the American public do not believe in evolution.

    I gotta get out of this country.

  2. The Withnail and I scene was when the drug dealer was talking to “I” about taking different drugs. I think I says that he is feeling ridiculously high and the dealer makes the comment that if he gives him a diazepam then he will feel low. Why trust one and not the other. Something along those lines.

    The TV program was a special on the collapse of Lehmans. It’s available on BBC iPlayer:

    http://www.bbc.co.uk/iplayer/episode/b00mq36b/The_Love_of_Money_The_Bank_That_Bust_the_World/

    There was also a drama/documentary or whatever they call it:

    http://www.bbc.co.uk/iplayer/episode/b00mq34n/The_Last_Days_of_Lehman_Brothers/

    Yeh, we have had a spate of programs about evolution. A sort of fight back against the teaching of “creationism”.

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