Bailouts Violate Freedom and Confuse Thought

The popular commentariat seems a little discombobulated trying to decide whether to be supportive or aghast at the government’s firing of Rick Wagoner as CEO of GM. Following on the trail of the AIG bonus controversy, and with many more similar decisions on the horizon, popular sentiment, too (assuming you can believe polls, which we generally don’t) seems inclined on at least an instinctive level to support these moves to ‘clean house’ and ‘crack down’ amid the litter of large, failing enterprises.

It’s not confusing to us, nor is it surprising that others are confused. We’ve been in and around the free market a long time, and it’s fundamentally true that he who provides the capital calls the shots. In the private sector of the free market, investors don’t invest new money in any enterprise unless they are satisfied with the budget, which means satisfied with the rate of pay from the CEO to the newest, lowest level hire. And the investors in an enterprise that is losing money will surely not invest new money absent strict controls on use of their new money. They’ll also insist on membership on the Board of Directors, probably enough to control it.

These free market principles are really not much more than common sense, possessed in some degree by most everyone. So when the average person sees the government invest the average person’s money (i.e., the taxpayers’ money) in a failing enterprise, whether banks, AIG, or auto companies, the average person doesn’t reflexively object to the government taking action to oppose excessive bonuses, or to replace existing management. Private investors in a failing enterprise in a free market would do the same thing. We aren’t surprised then, and would frankly expect, that generic polls of Americans would generally find support for these government actions. But a deeper poll among awakening Americans would expose that the average person can also sense where the parallel to the free market starts to break down, and the real danger of this government’s intervention becomes clear.

In the free market, when the new money comes in to the failing enterprise, the new investor’s motive is to earn a return on his investment, and this happens in general by improving the products and services of the enterprise so that more customers will buy those products and services. This motive is the unappreciated secret of capitalism: on the surface it appears selfish and materialistic (and therefore BAD), but in reality it is only successful if it correctly achieves the unselfish goal of meeting someone else’s need in a way that is attractive—specifically, of meeting the customer’s need for more attractive products and services.

New investors in the auto industry from the free market would normally want to see the auto companies make cars that more people like and want to buy. That would be their singular focus and objective. But that’s not what this government wants. They do not have the unselfish motive of better satisfying the customer. They want to serve the agenda of socialism and the religion of global warming, and so they want to stop GM from producing 11 out of the 20 profitable vehicle lines because they are the politically incorrect SUV’s and trucks. They don’t give a damn what free market customers want. They want to dictate what customers can have, and if they can achieve enough control over the un-bailed out competition through gas price hikes, tariffs and taxes, they believe they can force the customer to buy the product whether he or she wants it or not.

This is where the mask comes off, and the people are awakening to their instinctive repulsion to this. They may initially feel like right ideas of accountability and responsibility merit the dismissal of executives of failing enterprises and the unwinding of what may seem like excessive bonuses, but they are sensing that where this government is headed is tyrannical and involves a direct rollback of individual freedom and choice. The people are not stupid masses. They are turning against this, and they will continue turning against it.

The slow but steady awakening could and should have been unnecessary, but for the fundamentally wrong decision to bailout failing enterprises in the first place. Freedom must include the freedom to fail. Freedom to fail assures learning how not to fail. Take away the freedom to fail, and we take away the ability to learn—we eventually take away the willingness to learn.

But, you say, had we not bailed out the banks, there would have been a systemic failure, a run on the banks, and societal collapse. Well, we’ll never know how the private, free market sector would have responded to the failure of various institutions had it been given a chance to do so. What we do know after all the bailouts (besides the fact that GM may go bankrupt anyway, as it should have months ago) looks a lot like systemic failure, and a declining economy on the brink of confidence-destroying inflation or direct devaluation of the dollar will see a very high level of societal discord, if not outright collapse.

The American ideal is individual freedom and responsibility under God. Stay true to this ideal—insist that freedom includes the freedom to fail, and responsibility under God means that earned failure is not to interfered with by men—and we’ll be all right.

Bailouts violate the American ideal, and confuse some Americans, at least temporarily. But Americans love the American ideal; their attraction to it is native; and they are beginning to smell a government that is engaged in an overt and covert all-out assault on it. They are not going to put up with this. Tea parties are just the beginning.

Paul Gable

Posted April 1, 2009