Government Bailouts

I recently read "people love capitalism until it's time to take some losses and then they clamor for socialism (i.e. government intervention)". We are seeing this today with the bailouts and nationalization of much of the banking sector.

Should the government intervene? Over the preceding weeks, the American people rose up in protest (at least as much as we can manage these days - emailing notes to their Congressmen?) against calling on the taxpayers coming to the aid of major corporations that made bad investments.

Over the past 30 years we have seen the Dow Jones Industrial Average, which we generally regard as a barometer of the American Economy, go from a relatively stagnant period of decades hovering around 1,000 begin a long and steady climb beginning in the Mid-80's after Reagan's free market reforms to it's first peak in 1999/2000 of just under 12,000 an increase of 1,000%. 3-1/2 years of significant volatility after the "Dot Com Bubble" recession over-corrected the market valuation to a low of about 7,500 a drop of almost 40%.

Only four years later the market peaked at 14,000, an increase of almost 100%!

In retrospect, can we attribute much of the the recent economic bubble to the government artificially depressing interest rates to bolster the housing sector and consumer spending (possibly to distract from an expensive and unpopular war?). It's easy to point the finger at greedy Wall Streeters, but perhaps more of the blame rests with Government interventionism exacerbating fluctuations in normal market cycles of growth and correction?

We constantly see the failures of central planning and regulation and have hundreds of thousands of pages of regulation, but the only solution our brilliant "law makers" can come up with is throwing (our) money at the problem and making more laws. I constantly ask myself why we don't have anyone in Washington who has the least understanding of economic theory and free markets? Why do we always fall back on the failed principles of Keynesian every time there is a market correction?

Regulators Cannot Avert Next Crisis http://www.cato.org/pub_display.php?pub_id=9696
by Johan Norberg
Johan Norberg is a senior fellow of the Cato Institute and the author of In Defense of Global Capitalism.
Added to cato.org on October 7, 2008
This article appeared in The Australian on October 7, 2008

"The problem with regulation is that it is always a response to the last crisis. Generals fight the last war and always try to avoid the mistakes made then. So we get new rules that target the mistakes that everybody already knows they must avoid. The next possible crisis and its causes are so far unknown, and our regulations may have no effect or even make them worse. "